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AITKEN SPENCE PLANTATION MANAGEMENTS PLCANNUAL REPORT 2017-2018

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CONTENTS

Financial Highlights 2

Chairman's Report 3

Managing Director's Report 4

Board of Directors 5

Annual Report of the Board of Directors 8

Audit Committee Report 11

Remuneration Committee Report 12

Related Party Transactions Review Committee Report 13

Corporate Governance 14

Sustainability Report 31

Risk Management 42

Statement of Directors’ Responsibilities 45

Independent Auditors’ Report 46

Income Statements 51

Statements of Profit or Loss and Other Comprehensive Income 52

Statements of Financial Position 53

Statements of Changes in Equity 54

Statements of Cash Flows 55

Notes to the Financial Statements 56

Ten Year Summary 112

Shareholder and Investor Information 113

Definitions 114

Financial Calender 115

Corporate Information 116

Notice of Meeting 117

Form of Proxy and Instructions as to Completion 119

AITKEN SPENCE PLANTATION MANAGEMENTS PLC ANNUAL REPORT 2017-2018

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FINANCIAL HIGHLIGHTS

Increase / 2018 2017 (Decrease)Year ended 31 March Rs.000 Rs.000 %

Turnover 3,631,650 3,009,791 21%

Gross profit 841,643 607,401 39%

Profit before tax 668,765 530,697 26%

Income tax expense 282,252 53,541 427%

Profit after tax 386,512 477,155 -19%

Non-current assets 5,513,431 5,277,039 4%

Current assets 813,951 669,683 22%

Share holder's equity 2,779,833 2,558,897 9%

Capital expenditures 440,576 342,959 28%

Earning per share 12.10 14.95 -19%

Net assets per share 130.51 120.14 9%

Stated capital 421,666 421,666 0%

Net assets 2,779,833 2,558,897 9%

Return on equity 9% 12% -24%


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CHAIRMAN'S REPORTI take great pleasure in submitting this report as the Chairman of the Board of Directors of Aitken Spence Plantation Managements PLC (ASPM) for the year ended 31st March 2018. We had a remarkable year due to the impressive performance of Elpitiya Plantations PLC (EPP) which recorded the highest ever profit of Rs.685 million before management fees and adjustments, despite many challenges and obstacles that the plantation sector had to face in the financial year under review. EPP has turned into a commendable performance for the year, positioning it as one of the top three Regional Plantation Companies (RPCs) in terms of profitability.

The significant growth in profit in the tea and Oil Palm segments and the contributions made by the diversified projects such as Commercial Forestry and AEN Palm Oil mills have paid rich dividends to the impressive profits earned by EPP in the FY 2017/2018.

Since ASPM took over the management of EPP in 1997, ASPM has embarked on a series of innovative and successful strategies covering several aspects of the estates and we see that ASPM through its share-holding and efficient management inputs has significantly added value to EPP making it one of the foremost plantation companies in Sri Lanka. This is the value that ASPM has infused into EPP throughout the 21 years period.

EPP’s plan to become the leading green energy generation company through its investment into solar power is progressing steadily and generation of solar power has already been successfully undertaken at New Peacock and Nayapane estates.

Whilst continuing to focus on the core business, EPP has embarked on a transformation strategy developed by the Design 2020 project, in association with Quantum Consumer Solutions (Pvt) Ltd. The main objectives of this project is to develop new business strategy frame work for continuous growth and to develop the team with entrepreneural and innovation skills, of the management identify and create a philosophy with a shared vision across the community.

In addition to our existing diversification portfolios, we have looked into several other potential business areas such as eco & adventure tourism, horticulture and tea value addition which are in our pipe line. We are confident that these investments too will provide better returns to the group. We are committed to the long term sustainable development of EPP and we have invested considerable financial resources and management time. We continue to strive to obtain an extension of the 53 years lease to reap the benefits of our investments into the core business as well as various other projects undertaken with local and international partners.

In conclusion, I thank the team of EPP for their dedication and good performance throughout the years and also thank my fellow Directors for their advices and support without whose assistance and guidance I would not have been able to discharge my duties effectively.

J. M. S. Brito

Chairman

August 24, 2018


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MANAGING DIRECTOR'S REPORTIt is my great pleasure to present you the Managing Director’s report for the year ended 31st March 2018. Aitken Spence Plantation Managements PLC (ASPM) acquired the majority ownership of Elpitiya Plantations PLC (EPP) in 1997 when a controlling interest was sold in the Colombo Stock Exchange. After this take over, EPP has been delivering consistent growth in earnings and assets despite industry wide challenges. The main reason for delivery of continuous growth could be attributed to the good business diversification projects such as timely investments into Palm Oil cultivation, Oil Palm milling, Renewable energy, Timber plantations etc. of which have enabled EPP to deliver a resilient performance. The year under review turned out to be one of the best for Elpitiya Plantations PLC recording a profit of Rs.685 Mn. before managements fees and adjustments, positioning it among the top three Regional Plantation Companies in Sri Lanka in terms of profitability.

We are continuously looking at opportunities for expansion and several other potentials business opportunities such as eco & adventure tourism, horticulture, tea value addition etc., which are in our pipe line. This year, we have initiated a strategic transformation programme “Design 2020” in collaboration with Quantum Consumer Solutions (Pvt) Ltd. The main objective of the project is to develop a new business strategy framework for EPP through economic value creation, leadership value creation and social value creation.

We are committed to develop all the resources in EPP with a long term vision of profitable sustainable and diversified group and will be happy if the Government is able to give our shareholders assurance of the continuity of the 53 years lease that ASPM holds in EPP.

I thank our Chairman, the Shareholders and the Board of Directors for their continuous guidance and for supporting me and our management team.

Rohan M. FernandoManaging Director August 24, 2018


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BOARD OF DIRECTORS

Mr. J. M. S. BritoMr. J M S Brito was appointed to the Board of Aitken Spence Plantation Managements PLC on December 1, 2002, appointed as the Chairman with effect from April 28, 2003 and resigned with effect from December 30 ,2011. He was re- appointed to the Board as the Chairman with effect from October 01,2014. with a multidiscipline academic background and a wealth of experience from a career span over 40 years that includes experience working with several international organizations. Mr. Brito serves as the Deputy Chairman and Managing Director of Aitken Spence PLC since January 2002.

Mr. Brito is an acclaimed senior professional in both the private and the public-sector industries in Sri Lanka. He is a former chairman of DFCC Bank, Employer’s Federation of Ceylon, Sri Lankan Airlines and has also served on the board of the Sri Lanka Insurance Corporation. He holds a LLB degree from University of London, MBA degree from London City Business School and is a Fellow of the Institute of Chartered Accountants of both Sri Lanka and England and Wales.

Development of the Aitken Spence Group covering sustainability and branding.

Dr. Fernando has extensive experience in the plantation industry both in the public and private sectors, corporate management, corporate strategy and played a key role in the plantations privatization programme. He is the Chairman of United Nations Global Compact Network. Sri Lanka, a former President of the Chartered Institute of Marketing Sri Lanka Chapter and is also a Member of the Advisory Board of the Faculty of Business of Sri Lanka Institute of Information Technology (SLIIT).

He holds a PhD and a MBA from the University of Colombo and is also a Chartered Marketer and a Fellow of the Chartered Institute of Marketing (CIM), UK.

Dr. R. M. FernandoDr. Rohan Fernando was appointed to the Board of Aitken Spence Plantation Managements PLC on July 18, 1997 . He is the Managing Director of Elpitiy plantations PLC and an Executive Director of Aitken Spence PLC. Dr. Fernando, is currently responsible for the Plantations segment and Business

Mr. Bhathiya BulumullaMr. Bhathiya Bulumulla, the Director/Chief Executive Officer of Elpitiya Plantations PLC was appointed to the Board of Aitken Spence Plantation Managements PLC in July 05, 2016. He possesses over 32 years of experience in the Plantation Sector, out of which for the past 19 years, he is serving at Elpitiya Plantations PLC.

Mr. Bulumulla holds a Diploma in Plantation Management from the National Institute of Plantation Management (NIPM) and holds a B.Sc (Hons) Degree in Plantation Management, awarded by the Wayamba University of Sri Lanka. He also hold a M.Sc degree in Environment Science from the Open University of Colombo.

Mr. Bulumulla is a fellow member of the National Institute of Plantation Management (NIPM) and Visiting Lecturer at Wayamba University & National Institute of Plantation Management (NIPM).

He is also a honorary member of the Board Directors of the Estates’ Staffs Provident Society and the Plantation Human

Development Trust.


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BOARD OF DIRECTORS (Contd)

Mr. Merrill J. Fernando Mr. Merrill J. Fernando was appointed to the Board of Aitken Spence Plantation Managements PLC on July 18, 1997.He is the Chairman of MJF Holdings Limited and one of Sri Lanka’s first tea tasters in the then British-dominated trade. He is the Founder of “DILMAH TEA” brand name which re-launched, redefined and re-established the quality of Ceylon tea. DILMAH is a much respected global name, renowned for its quality, and its philosophy of caring and sharing with the community.

He was the pioneer in adding value to tea at origin, branding and marketing Ceylon tea quite successfully. Value addition at origin created significant services industries in printing, packaging, graphics and introducing packaging technology to Sri Lanka.

Mr. Fernando incorporated the MJF Charitable Foundation, to fulfill his pledge to make his business a matter of human service. His Foundation and Dilmah Conservation use a significant share of the earning from the sale of Dilmah tea and other companies in the Dilmah Group, towards creating better conditions for the underprivileged and the wider community, whilst implementing positive and sustainable environmental interventions.

Mr. Malik Fernando Mr. Malik Fernando was appointed to the Board of Aitken Spence Plantation Managements PLC in July 18, 1997 as a Director.

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.

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

Mr. D. A. De S. WickremanayakeMr. D A De S Wickremanayake was appointed as a Director to the Board of Aitken Spence Plantation Managements PLC on July 18, 1997. In addition, he serves as a Director of Elpitiya Plantations PLC since October 02, 2017 and is a Director of Pelwatte Sugar Colombo PLC as well.

Mr. Wickremanayake has wide experience in the corporate sector, having pioneered many companies and served on the board of many others. He is the founder Chairman / Managing Director of Master Divers (Pvt) Ltd, which created a landmark area of activity in the shipping industry. He is the Chairman of Pelwatte Dairy Industries Ltd which produces wide range of dairy products including milk powder and butter using locally produced milk. He also the Chairman of Mawbima Lanka Foundation, an organization dedicated to promoting Sri Lankan goods. He is also a Director of Bogawantalawa Tea Estates PLC.

In the state sector, his experience was sought by the Government to help to run the National Livestock Development Board and the State Engineering Corporation where he served as Chairman of these two institutions, at difference times.

He is a Member of the University Grant Commission Standing Committee on Agriculture, Veterinary, Medicine and Animal Science.


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BOARD OF DIRECTORS (Contd)

Mr. L. N. De S. WijeyeratneMr. L N De S Wijeyeratne was appointed as a Director to the Board of Aitken Spence Plantation Managements PLC on October 01, 2014.

Mr. L N De S Wijeyeratne is a fellow of The Institute of Chartered Accountants in Sri Lanka and counts over thirty-five years of experience in Finance and General Management both in Sri Lanka and overseas. He was the former Group Finance Director of Richard Pieris PLC and also held senior management positions at Aitken Spence PLC, Brooke Bonds Ceylon Ltd and Zambia Consolidated Copper Mines Limited. Mr. Wijeyeratne serves as a member of the Quality Assurance Board of the Institute of Chartered Accountants and was a former member of the Sri Lanka Accounting Standards Monitoring Board. He is presently an Independent Director and Audit Committee Chairman of several Financial and Non Financial Companies.

Dr. R. A. FernandoDr. R A Fernando was appointed as a Director to the Board of Aitken Spence Plantation Managements PLC on August 11, 2016.

He is a Blue Ocean Strategist with a sustainability mind set.

He is an Alumni of the University of Cambridge having Completed a Post-Graduate Certificate in Sustainable Business in 2008 and a Master of Studies in Sustainability Leadership in 2014. He holds a Doctor of Business Administration Degree from the European University in Geneva 2016. He also holds a MBA from the University of Colombo and is a FCIM (Fellow of the Chartered Institute of Marketing, UK), He holds a Diploma in International Management and completed the Advanced Management Program at the INSEAD Business school in France.

He was the United Nations Global Compact Focal point for Sri Lanka 2003-2010 and was the founder of the UN Global Compact Sri Lanka network in 2010 and is a Director of UNGC Sri Lanka Board. He is Chairman/ CEO of Global Strategic Corporate Sustainability Pvt. Ltd which currently operates in Vietnam & Sri Lanka. He also serves on the Boards of LOLC, Habitat for Humanity and Ceylon Asset Management in Sri Lanka.

His career with Multi-nationals spanned 1981-2003, Unilever, Sterling Health International, Smithkline Beecham International covering Africa, Middle East and Asia in CEO/Managing Director, Business Development and Marketing Management positions between 1981- 2007. He was the first CEO SLINTEC (Sri Lanka Institute of Nanotechnology) 2008-2010.

In Academia, He was a visiting faculty member of the INSEAD Advanced Management Program from 2005-2010 teaching the subject ‘Strategic Corporate Sustainability’. He is an Executive in Residence at the INSEAD Social Innovation centre since September 2010 to date and was involved in 8 Case studies at the INSEAD business school between 2006-2013.

In September 2007, he won a “Global Strategy Leadership award” at the World Strategy Summit receiving the award from Prof Renee Mauborgne of INSEAD business school. In November 2015, he published ‘Strategic Corporate Sustainability – 7 Imperatives for Sustainable business’ (Partridge: Penguin Random House), based on his work at Cambridge University.


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ANNUAL REPORT OF THE BOARD OF DIRECTORSThe Directors are pleased to submit their Report together with the Audited Financial Statements for the year ended 31st March 2018.

Principal Activity of the Company The Company’s main business activity is providing management services to its subsidiary company namely Elpitiya Plantations PLC. During the year there were no significant changes in the principal activities of the Company and the Group.

Review of PerformanceThe Chairman’s reviews contain a detailed account of the year’s operations and developments of the Group.

Accounting policies and changes during the yearThe Company and the Group perpared the financial statements in accordance with the Sri Lanka Accounting Standards (SLFRS/LKAS). The significant accounting policies adoped in the preparation of the financial statements of the Company and the Group are given on pages 56 to 81.

ProfitThe profit after tax of the Company for the year was Rs.151,897,967/- The Consolidated profit after tax for the year ended 31st March 2018 was Rs.386,512,297/- and the Consolidated profits attributable to equity holders of the parent for the year was Rs.257,819,123/-.

Financial Statements of the Company and the Group are given on pages 51 to 55.

Taxation A detailed statement of the income tax rates applicable is set out on page 83 to 84.

DividendsThe Company paid an inerim dividend of Rs. 3.00/- per share on 20th June 2018 for the year under review. Directors did not recomend a final dividend.

Capital & ReservesCapital and the Reserves of the Group and the Company as at March 31st 2018.

Group Company Rs. Rs.Stated Capital 421,666,250 421,666,250Timber Reserve 481,682,026 -Retained Earnings 1,876,484,362 459,386,837Equity Attributable 2,779,832,638 881,053,087 To Equity Holders of the Parent Non-Controlling Interest 1,551,125,712 -Total Equity 4,330,958,350 881,053,087

Shareholder InformationInformation relating to earnings, net assets, market price per share is given in the financial highlights and the shareholder and the investor information on pages 113 of the Annual Report.

Corporate Governance The Company’s corporate governance practices are set out on page 14 to 30.

Major ShareholdersThe 20 largest shareholders of the Company as at 31st March 2018 are given in the share information pages 113 together with an analysis of the shareholding.

Directors The names of the Directors of the Company are on Page 116.

The Board recommended that Mr. J M S Brito and Mr. Merrill J Fernando who are over 70 years of age and who vacate office in terms of Section 210(2)(b) of the Companies Act, No. 07 of 2007, be re-appointed as Directors in terms of Section 211 of the Companies Act, specially declaring that the age limit stipulated in Section 210 of the Companies Act shall not apply to the said Directors.

Mr. L N De S Wijeyeratne who retires by rotation in terms of Article 82 of the Articles of Association of the Company, and offers himself for re-election at the forthcoming Annual General Meeting.

Mr. D A de S Wickremanayake who retires by rotation retires in terms of Article 82 of the Articles of Association of the Company, and offers himself for re-election at the forthcoming Annual General Meeting.

Directors’ Interests in TransactionsThe Directors have disclosed their interests in transactions of the Company at meetings of the Directors. The details of which are set out in the notes to the financial statements (Page 113) .

Interest Register The Interest Register is maintained as per the requirements of the Companies Act No. 07 of 2007 and is available for inspection.

Directors’ Remunerations and feesThe Directors’ remunerations and fees in respect of the Company and the Group for the financial year ended 31st March 2018 are disclosed on page 83 of the Annual Report.


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ANNUAL REPORT OF THE BOARD OF DIRECTORS (Contd)

specified in the said Rule. The Company being an entity listed in the Diri Savi Board does not at present satisfy the minimum public holding requirement and has been making the necessary announcement to the CSE on a monthly basis as required by Rule 7.13.2. (a) of the Listing Rules of the Colombo Stock Exchange. Due to non-compliance by the Company the shares of the Company were transferred to the Watch List with effect from August 08, 2018.

The Company is required to carry out a remedial action within a period not exceeding twenty (20) months from the date of transferring the Securities of the Company to the Watch List. In the event the Company fails to complete the remedial action within the specified time period, the Securities of the Company is liable to be suspended from trading. In the event such trading suspension continues for a period of excess of six (06) months, such matter will be referred to the Board of Directors of the CSE for a determination in terms of Rule 10.3 (a) of the Listing Rules of the Colombo Stock Exchange.

AuditorsThe audit fee payable by the Company to the Auditors' Messrs. KPMG, Chartered Accountants was Rs. 310,000/-.

In addition to the above Rs. 410,000/- was payable by the Company for permitted audit related and non audit related services. Messrs KPMG, the auditors of the Company are not the auditors of any of subsidiaries and joint venture companies of the Group.

The amount payable by the Group to Messrs KPMG Chartered Accountants as audit fees was Rs. 310,000/- while a further Rs. 410,000 was payable for permitted audit and non audit related services. In addition to the above, Rs. 3,280,433 was payable to other auditors for carrying out audits in the subsidiaries, joint ventures and associates where the audits were conducted by them. Further the amount payable auditors for permitted audit and non audit related services including tax advisor services was Rs. 1,063,868/-.

As far as the Directors are aware, the auditors neither have any other relationship with the Company nor any of its subsidiaries, joint ventures and equity accounted investees that would have an impact on their independence.

The independent auditors' report on the financial statements is given on page 46 to 50 of the Annual Report. The retiring auditors Messrs. KPMG, Chartered

Directors’ shareholdings and their Interests The Directors’ shareholdings and their interests are provided in the shareholder and investor information on page 113 of the Annual Report.

Related party transactionsRelated party transactions of the Group are disclosed in note 36 to the Financial Statements.

There were no non-recurrent related party transactions which in aggregate value exceeding lower of 10% of the equity or 5% of the total assets of the Company as per the Audited Financial Statements as at 31st March 2017, which required additional disclosures in the annual report under Listing Rule 9.3.2(a) Further, all recurrent related party transactions are within the ordinary course of business and the aggregate values were below 10% of the gross revenue as per the Audited Financial Statements as at 31 st March 2017.

The Key Management Personnel of the Company disclose the proposed Related Party Transactions (if any) falling under the ambit of Rule 9 of the Listing Rules of the Colombo Stock Exchange. The disclosures so made are tabled at the Related Party Transactions Review Committee meetings, in compliance with the requirements of the abovementioned rule.

The Director declare that the Company is in compliance with Rule 9 of the Listing Rules of the Colombo Stock Exchange pertaining to Related Party Transactions during the financial year ended 31st March 2018.

Post Balance Sheet EventsThe post Balance Sheet events have been disclosed in Note 41 to the Accounts.

DonationsDuring the year under review no donations were made by the Company, while donations amounting to Rs. 1,365,500/- were made by the Group.

Annual General MeetingThe Twenty Sixth Annual General Meeting of your Company will be held on Friday, September 21, 2018 at 2.45 p.m.

Public HoldingThe percentage of shares held by the public as at 31st March 2018 was 11.78% and the number of shareholders representing the public holding was 102.

As per Rule 7.13.1 (b) of the Listing Rules of the Colombo Stock Exchange, a Listed Entity on the Diri Savi Board is required to maintain a minimum public holding as


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Accountants have indicated their villingness to contiune in office and a resolution to re-appoint them as auditors and grant authority to the Board to determine their remuneration will be proposed at the Annual General Meeting.

Going ConcernThe Directors have made an assessment of the Group's ability to continue as a going concern in the foreseeable future, and they do not interd either to liquidite or to cease operation.

By Order of the Board

Mr. J M S BRITOChairman

DR. R M FERNANDOManaging Director

AITKEN SPENCE CORPORATE FINANCE (PRIVATE) LIMITEDSecretariesCOLOMBO August 24, 2018

ANNUAL REPORT OF THE BOARD OF DIRECTORS (Contd)


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Composition of the Audit Committee

Chairman Mr. L N De S Wijeyeratne Independent Non-Executive

Members Mr. Malik J Fernando Non-Executive

Ms. M D A Perera (Alternate Director to Mr. Malik J Fernando)

Dr. R A Fernando Independent Non-Executive

Secretary to Mr. H K A Rathnaweera Chief Internal Auditor of Aitken Spence PLC the Committee

Attendance by invitation Dr. R M Fernando Managing Director of Aitken Spence Plantation Managements PLC

Mr. B Bulumulla Director/Chief Executive Officer of Elpitiya Plantations PLC

Mr. J A R Nissanka Chief Financial Officer

The Audit Committee (AC) comprises of two Independent Non-Executive Directors – Mr. L N De S Wijeyeratne and Dr. R A Fernando and a Non-Executive Director, Mr. Malik J Fernando. Their profiles are given on pages 5 to 7 of this report.

Attendance by invitationThe Managing Director (MD), the Director/ Chief Executive Officer (CEO) and the Chief Financial Officer are present at meetings, by invitation.

Activities of the Audit CommitteeThe Committee assess the effectiveness of the internal control system to provide reasonable assurance that assets are safeguarded and financial reporting system can be relied upon.

Internal ControlsThe Committee, wherever necessary, recommended controls, risk mitigation strategies and internal monitoring mechanisms to mitigate frauds, discrepancies and other financial risks and issues that could occur on the estates and in the Company.

Financial StatementsThe Committee reviewed the Quarterly and Annual Financial Statements of the Company to ensure reliability and consistency of the accounting policies and methods adopted and compliance with the Sri Lanka Financial Reporting Standards (SLFRS) and Sri Lanka Accounting Standards (LKAS). The Committee also ensures the adoption of effective internal controls, and compliance with the prevailing laws of the country based on guidelines provided by the respective regulatory authorities in all aspects and in the preparation of financial statements. The Committee recommended the Financial Statements to the Board for signature and issuance.

External AuditorsThe Committee has assessed the performance of the external auditors Messrs. KPMG, Chartered Accountants and is of the opinion that the external auditors do not have any relationship with the Company that would have an impact on their independence.

The Audit Committee having evaluated the performance of the external auditors, recommended to the Board the re-appointment of Messrs. KPMG, Chartered Accountants as the Auditors of the Company for the current year, subject to approval of the shareholders at the forthcoming Annual General Meeting.

Mr. L N De S Wijeyeratne Chairman Audit Committee

August 24, 2018

AUDIT COMMITTEE REPORT


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Composition of the Remuneration Committee

Chairman Mr. D A de S Wickramanayake Non-Executive DirectorMembers Mr. L N De S Wijeyeratne Independent Non-Executive Director Dr. R A Fernando Independent Non-Executive Director Attendance by Invitation Dr. R M Fernando Managing Director

The Remuneration Committee (RC) is composed of three Non-Executive Directors namely Mr. D A de S Wickramanayake who serves as the Chairman of the Committee and two Independent Non-Executive Directors namely, Mr. L N De S Wijeyeratne and Dr. R A Fernando.

Independence of the Committee membersThe Non-Executive Independent Directors are independent of management and are able to exercise independent judgment in the decisions of the Committee, as they do not have any business or other relationships with the Company or its employees.

Remuneration policyThe Group remuneration policy which was reviewed by the Committee remained unchanged during the year under review.

The policy for determination of remuneration is based on competitive remuneration structures of other companies and also with the objective of retaining professional and managerial talent and encouraging and motivating good performers to perform at a higher level.

The Committee also takes into consideration, the cost of living and inflation in determining the remuneration policy. The performance of the Company and affordability together with economic conditions that prevail are also considered in recommending increases in remuneration.

No Director was involved in deciding his/ her own remuneration package.

Mr. D A de S Wickramanayake ChairmanRemuneration Committee

ColomboAugust 24, 2018

REMUNERATION COMMITTEE REPORT


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Composition of the Related Party Transactions Review Committee

Chairman Mr. L N De S Wijeyeratne Independent Non-Executive

Members Mr. Malik J Fernando / Ms. M D A Perera (Alternate Director to Mr. Malik Fernando) Non-Executive Dr. R A Fernando Independent Non-Executive Attendance by invitation Dr. R M Fernando Managing Director Mr. B Bulumulla Director/Chief Executive Officer of Elpitiya Plantations PLC Mr. J A R Nissanka Chief Financial Officer

The Related Party Transactions Review Committee is composed of 03 Non-Executive Directors, of whom, 02 are Independent Non-Executive Directors. The Committee is chaired by Mr. L N De S Wijeyeratne who is an Independent Non-Executive Director.

Attendance by Invitation

Managing Director, Director/Chief Executive Officer and the Chief Financial Officer attended the Committee meetings by invitation.

Committee Meetings

The Committee held four formal meetings during the year under review.

Summary of responsibilities of the Committee

The Committee’s key focus is to review all Related Party Transactions according to the procedures laid down by the Section 9 of the Listing Rules of the Colombo Stock Exchange and its responsibilities are as follows;

• Evaluate any proposed related party transactions on a quarterly basis, where necessary. • Review any post quarter confirmations on related party transactions, • Determine whether the related party transactions require approval of the Board, • Review the threshold for related party transactions which require either shareholders’ approval or immediate market

disclosures, • Review the criteria of Key Management Personnel, • Regularly report to the Board on the Committee’s activities.

Key Management Personnel

Aitken Spence Plantation Managements PLC consider its Board of Directors as the Key Management Personnel (KMPs) of the Company. Declarations were obtained from each KMP of the Company and the subsidiaries for the purpose of identifying related parties and for the purpose of annual disclosure.

Key functions performed during the year under review

The Committee reviewed all proposed Related Party Transactions and the activities of the Committee have been communicated to the Board through tabling the minutes of the meeting of the Committee at Board Meetings.

Mr. L N De S Wijeyeratne

ChairmanRelated Party Transactions Review CommitteeAugust 24, 2018

RELATED PARTY TRANSACTIONS REVIEW COMMITTEE REPORT


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CORPORATE GOVERNANCEGovernance is key to driving performance and to delivering sustainable value to our stakeholders over the long term. The Board of Directors, as the highest decision-making body of the Company, is responsible for setting in place an effective corporate governance framework which maintains an appropriate balance between empowerment and accountability together with explicit statements of values and standards of conduct expected of its officers and employees.

The Group corporate governance framework has been developed to comply with the following legal requirements and voluntarily adopted frameworks of best practice.

Companies Act No.7 of 2007, The Listing Rules of the Colombo Stock Exchange and the Code of Best Practice on Corporate Governance issued jointly by the Securities and Exchange Commission and the Institute of Chartered Accountants of Sri Lanka in 2017 and other codes issued by Chamber of Commerce, Professional Institutions and Industry Associations. These initiatives have been adopted voluntarily to provide guidance in ensuring that due emphasis is given to environmental and social concerns.

The Corporate Governance report is structured in line with the Code of Best Practice on Corporate Governance to provide a comprehensive review of relevant matters in a concise and logical manner.

1.1. Mandatory Compliances

1.1.1. Compliance requirements of the Companies Act No. 7 of 2007 Section

SECTION/RULE REQUIREMENT COMPLIANCE STATUS DETAILS OF COMPLIANCE

168 (1) (a) Any change during the accounting period in the nature of business of the company or any of its subsidiaries and the classes of business in which the company has an interest

Compliant There has been no change in the nature of business of the Company and its subsidiaries during the year under review.

168 (1) (b) Financial statements of the Company and the Group for the accounting period completed and signed

Compliant Refer Financial Statements of this Annual Report.

168 (1) (c) Auditors report on the financial statements of the company and the Group

Compliant Refer Independent Auditor’s Report of this Annual Report.

168 (1) (d) Change of accounting policiesduring the accounting period

Compliant Refer Note 3 to the Financial Statements of this Annual Report.

168 (1) (e) Particulars of entries in the interest register made during the accounting period

Compliant Refer Section 3 on the Annual Report of the Directors of this Annual Report.

168 (1) (f) Remuneration and other benefits paid to the directors during the accounting period


168 (1) (g) Total amount of donations made by the company during the accounting period



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CORPORATE GOVERNANCE (Contd)

168 (1) (h) Names of the persons holding office as directors of the Company and the names of any persons who ceased to hold office as Directors of the Company as at the end of the accounting period

Compliant Refer Corporate Information of this Annual Report.

168 (1) (i) Amounts payable to the auditors as audit fees and fees payable for other related services provided by them

Compliant Refer Note 10 of the Financial Statements on this Annual Report.

168 (1) (j) Relationship or interest of the Auditor has with the company or any of its subsidiaries

Compliant Refer Section 16 on the Annual Report of the Directors of this Annual Report.

168 (1) (k) The annual report of the board be signed on behalf of the board

Compliant Refer the Annual Report of the Directors of this Annual Report.

1.1.2. Compliance requirements of the Listing Rules of the Colombo Stock Exchange – Corporate Governance


7.10.1 Non-Executive Director

a./b./c. The Board of Directors shall include at least two Non Executive Directors (NED) or equivalent to one third of the total number of Directors whichever is higher

Compliant Five out of the eight Board Members are NEDs.

7.10.2 Independent Directors

a. Where the Board constitutes only two NEDs both shall be independent. In other instances, two or one third of NEDs shall be independent, whichever is higher

Compliant Two out of the five NEDs are Independent.

b. Annual submission of a signed and dated declaration of independence/non independence by all NEDs

Compliant Annually each NED declares his independence/ non-independence in compliance with the relevant statutory regulations.

7.10.3 Disclosures relating to Directors

a./b. The Board shall make an annual determination of the independence/non -independence of the NEDs

Compliant Independence of the NEDs has been determined by the Board based on the annual declaration and taking account all the other information and circumstances.

The criteria determining the independence of NEDs could be found in this Annual Report.

c. Publication of a brief resume of each director which includes information of nature of his/her expertise

Compliant Refer the Profiles of the Directors listing out the names and a brief resume of each Director set out in this Annual Report.


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d. Submission of a brief resume to CSE upon appointment of a new director

Compliant On an appointment of a Director a suitable disclosure is made to CSE.

7.10.4 Criteria for defining Independence

a. to h. Requirements for determining independence of a director

Compliant Our Independent Non-Executive Directors neither participate in day-to-day operations of the Company nor take part in any business dealings with the Company. This enables them to be free from any conflict of interest with the Company.

The Board having considered the declarations made by the Non Executive Directors and the criteria for independence determined that Mr. L N De S Wijeyeratne and Dr. R A Fernando are Independent Directors as they conform to the relevant criterion for independence.

7.10.5 Remuneration Committee

a. Composition

a. 1 The committee shall comprise of two independent directors or non-executive directors a majority of whom shall be independent, whichever is higher

Compliant Two members out of three NEDs are Independent

a. 2 One non-executive director shallbe appointed as chairman of theCommittee by the board

Compliant Mr. D A de S Wickramanayake who is a Non-Executive Director is the Chairman of the Remuneration Committee.

b. Recommendation of remuneration payable to Executive Directors/ CEO to the board

Compliant The Remuneration Committee is responsible of reviewing policy of remuneration packages of Executive Directors and the CEO, recommend same to the Board.

c. Disclosure in the Annual Report

c.1 The annual report should set out the names of the committee members and statement of the remuneration policy

Compliant The Remuneration Committee of this Annual Report contains the names of the members and a statement of the remuneration policy.

c.2 CEO and CFO shall attend the committee meetings

Compliant Mr. B Bulumulla who is the CEO of Aitken Spence Plantation Managements PLC and Mr. J. A. R. Nissanka, CFO attend the meetings by invitation.

a. 3 Chairman or one member of the committee should be a member of a recognized professional accounting body

Compliant Mr. L N De S Wijeyeratne who is a member of the Audit Committee is a fellow member of the Institute of Chartered Accountants of Sri Lanka.


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b Functions

b. (i) Overseeing the preparation, presentation and adequacy of disclosures in the financial statements in accordance with Sri Lanka Accounting Standards (SLAS)

Compliant Refer Audit Committee Report of this Annual Report.

b. (ii) Overseeing the compliance with financial reporting requirements, information requirements of the Companies Act and other relevant financial reporting related regulations and requirements


b. (iii) Overseeing the processes to ensure the internal controls and risk management are adequate to meet the requirements of the SLAS

Compliant Refer Audit Committee Report and the Board of Director’s Statement on Internal Control of this Annual Report.

b. (iv) Assessing the independence and performance of the external auditors


b. (v) Recommend to the board pertaining to the appointment, re-appointment and removal of external auditors and to approve the remuneration and terms of engagement of the external auditors.


c. Disclosure in the Annual Report

c.1 The annual report should set out the names of the committee members

Compliant The Committee Reports and the Annual Report of the Directors set out in the Annual Report contains the names of the members.

c.2 Determination of independence of the auditors and the basis for such determination


c.3 A report of the audit committeecontaining the manner ofcompliance


1.1.2. Listing Rules of the Colombo Stock Exchange – Contents of the Annual Report


7.6 Contents of the Annual Report

i) Names of directors of the entity Compliant Refer Corporate Information of this Annual Report.

ii) Principal activities of the entityand its subsidiaries during the year under review

Compliant Refer Group Directorate of this Annual Report.

iii) 20 largest holders of votingand non-voting shares and thepercentage of shares

Compliant Refer Investor Information of this Annual Report.


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iv) The Public Holding percentage Compliant Refer Investor Information of this Annual Report.

v) Directors and CEO’s holding in shares of the entity at the beginning and end of each year


vi) Information pertaining to material foreseeable risk factors

Compliant Refer Risk Management of this Annual Report.

vii) Details of material issues pertaining to employees and industrial relations

Compliant Refer Human Capital and of this Annual Report.

viii) Extents, locations, valuations and the number of buildings of the entity’s land holdings and investment properties

Compliant Refer Note 14 & 15 to the Financial Statements of this Annual Report.

ix) Number of shares representing the stated capital


x) Distribution schedule of the number of shareholders and the percentage of their total holding


xi) Ratios and market price information


xii) Significant changes in the entity’s or its subsidiaries fixed assets and the market value of land

Compliant Refer Note 14 & 15 to the Financial Statements of this Annual Report

xiii) If during the year the entity hasraised funds either through a public issue, rights issue and private placement

Compliant The Company had no public issue, rights issue or private placement during the year under review.

xiv) Employee share option/purchase schemes

Compliant As at date, the Company has no share option/ purchase schemes made available to its Directors or employees.

xv) Corporate Governance Disclosures

Compliant Refer Corporate Governance of this Annual Report.

xvi) Related Party Transactions Compliant Refer Note 36 to the Financial Statement

1.2. Voluntary Compliances

1.2.1. Compliance requirements of the Code of Best Practices on Corporate Governance jointly issued by the Institute of Chartered Accountants of Sri Lanka and the Securities and Exchange Commission of Sri Lanka.

PRINCIPLE/RULE REQUIREMENT COMPLIANCE NATURE OF COMPLIANCE

The Company

A. Directors

A.1 The Board

The Board consists of Chairman, Managing Director, one Executive Director and five Non-Executive Directors who represent a balanced mix of professionals with diverse knowledge and experience enabling them to discharge their duties effectively and efficiently.

As evident from the profiles of the Board Members’, our Directors represent an optimal mix of professionalism, knowledge and experience which enable them to impart substantial value, knowledge and independent judgment towards decision making and providing effective leadership to the Company. The names and profiles of each Director are on pages 5 to 7 of this Annual Report.


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Directors Dates of the Board Meetings

07-04-2017 16-08-2017 24-11-2017 22-02-2018 23-05-2018

ChairmanMr. J M S Brito

Excused

Managing DirectorDr. R M Fernando

Executive DirectorsMr. A L W GoonewardenaMr. B Bulumulla

Excused

Non Independent Non Executive DirectorsMr. Malik J FernandoMr. Merrill J FernandoMr. D A de S WickremanayakeMs. M D A Perera (Alternate to Mr. Malik J Fernando)Mr. A T S Sosa (Alternate to Mr. Merrill J Fernando)

--

ExcusedExcused

--

Excused-

-

--

Excused-

-

Independent Non Executive DirectorsMr. L N de S WijeyaratneDr. R A Fernando

Excused

A.1.1 Board Meetings and Provision of regular and structured information to the Board

Compliant The Board meetings are held quarterly to review the business performance of the Company. In addition to attending meetings, the Directors make decisions via circular resolutions. The meetings were convened four times during the year under review and the attendance of the Directors at the meetings were as follows:

A.1.2 Role of the Board Compliant The Board’s role is to provide entrepreneurial leadership to the Company while working within the Company’s framework of prudent and effective controls that enables the Company to effectively mitigate risks. In performing its duties, the Board is responsible for:

- Maximizing shareholder value,

- Formulating, communicating, implementing and monitoring the business goals, objectives, strategies and policies of the Company,

- Ensuring adherence to appropriate accounting policies and practices,

- Setting priorities and communicating values and ethical standards for Management,


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- Ensuring proper risk management and audit systems covering all aspects of the business are in place and implemented,

- Ensuring due compliance with applicable laws of the country and institute best practices on ethical, legal, health, environmental and safety standards for the Company,

- Reviewing and approving the Operational and Financial Budgets and monitoring performance against the Budgets,

- Reviewing and approving major investments and business proposals recommended by the Management Committee,

- Approving the annual and interim Financial Statements and recommending dividends for approval by the shareholders,

- The Board is responsible ultimately, for the Company’s financial performance,

- The Directors obtain independent professional advice, whenever required at the Company’s expense in discharging their duties.

A.1.3/A.1.8

Compliance with laws and access to independent professional advice and services and training of directors

Compliant All Directors are encouraged to attend appropriate seminars and training programmes to enhance their business insight and professionalism in efficiently and effectively discharging their duties. The Directors are further encouraged to participate in workshops and/or seminars in the capacities as speakers, moderators or panelists in their respective areas of proficiency.

The Directors are briefed on changes in laws and regulations as applicable from time to time.

The Board, in discharging its duties, seek independent professional advice from external parties as and when required at the Company’s expense which enables the Directors to ensure that the Company complies with the laws and regulations of the country, as applicable, regulations of authorities, professional institutes and trade associations.


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A.1.4 Access to advice from the Company Secretary and duties of the Company Secretary and indemnifying the board, directors and key management personnel

Compliant All Directors have access to obtain advice and the services of the Company Secretaries who are responsible for assuring that the Board follows the best practices in respect of Corporate Governance by strictly complying with the necessary statutory and regulatory rules and regulations. The key responsibilities of the Company Secretaries are as folows.

• Assist the Chairman in ensuring that the Board Members have full and timely access to all relevant information/ documentation whilst making sure that appropriate facilities are available for the proper conduct of meetings and effective decision-making,

• Ensure correct Board procedures are followed, and that the applicable rules and regulations are reviewed regularly and complied with,

• Advise the Board on corporate governance matters and acts as the interface between the management and regulatory authorities as and when necessary,

• Manage the procedure whereby the Directors and the Board can, as needed, obtain independent professional advice at the Company’s expense in discharging their duties

• Directors of Aitken Spence Plantation Managements PLC and the Group are indemnified by the Company

A.1.5 Independent Judgement Compliant All Directors exercise independent judgement in all matters relating to issues of strategy, performance, resources and standards of business conduct, considered by the Board and acts free from any bias and from any undue influence from other parties.

A.1.6 Dedication of sufficient time and effort

Compliant The Board collectively and the Directors individually allocate adequate time to fulfil their duties as Directors of the Company. The Board has delegated its day to day operations of the Company to the Managing Director together with the Management Committee.


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A.1.7 Call for Resolutions Compliant One third of the directors could request for a resolution to be presented to the Board for the best interest of the Company.

A.2 Chairman and Chief Executive Officer (CEO)

A.2.1/A.5.7

Decision to combine the posts of Chairman and CEO

Not Applicable The functions of the Chairman and the Managing Director are distinct and separate which ensures the balance of power and authority within the Company so that no individual has unfettered powers of decision making.

A.4 Financial Acumen

A.3.1 Ensuring the availability ofsufficient financial acumen withinthe Board

Compliant The Chairman is a fellow member of the Institute of Chartered Accountants of London and Wales and has a Degree in Law and a Masters Degree in Business Administration. The Board also includes another fellow member of The Institute of Chartered Accountants of Sri Lanka. Hence, the Board possesses the necessary knowledge and competence to provide guidance on matters of finance.

A.5 Board Balance

A.5.1 Board Composition Compliant The Board consists of a Chairman, Managing Director, one Executive Director and five Non- Executive Directors of whom two are Independent Directors.

The profiles of the Non-Executive Directors are provided on page 5 to 7 of this Annual Report.

A.5.2 Constitution of the Board of Directors only with three Non- Executive Directors (NEDs)

Compliant The Board consist of five Non- Executive Directors, of whom two are Independent.

A.5.3/A.5.4

Determination of independence, Annual Declaration of independence by the NEDs

Compliant The Board is composed of two Independent Non-Executive Directors namely, Mr. L N De S Wijeyeratne and Dr. R A Fernando.

Independent Non-Executive Directors of the Company neither participate in day-to-day operations of the Company nor take part in any business dealings with the Company. This enables them to be free from any conflict of interest with the Company.

Each Non-Executive Director submits a signed declaration of his independence/nonindependence annually in accordance with the requirements of the relevant statutory regulations.


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A.5.5 Board’s determination on independence of NEDs

Compliant The Board having considered the declarations made by the Non-Executive Directors and the criteria for independence determined that Mr. L N De S Wijeyeratne and Dr. R A Fernando are Independent Directors as they conform to the relevant criterion for independence.

A.5.6 Independence of AlternateDirectors

Compliant The Alternate Directors of the Non- Executive Directors are not executives of the Company.

A.5.8 Senior Independent Director Not Applicable This principle is not applicable to Aitken Spence Plantation Managements PLC as the roles of the Chairman and the CEO are distinct.

A.5.9 Chairman’s meetings with the NEDs

Compliant The Chairman meets with the Non-Executive Directors as and when necessary.

A.5.10 Recording concerns Compliant Any concerns raised by the Directors which cannot be resolved unanimously are recorded in the Board minutes.

A.6 Supply of Information

A.7 Appointments to the Board

A. 7.1 Presence of the NominationCommittee

Not Applicable -

A.7.2 Annual Assessment of Directors Compliant Assessment of the performance of the Board, its sub-committees and individual Directors is an integral part and takes place annually on a self-appraisal basis.

A.7.3 Disclosure of Appointment of a New Director

Compliant The Articles of Association of the Company empowers the Board of Directors to either fill a casual vacancy to the directorate or appoint additional Directors. A formal and transparent procedure is adopted for the appointment of Directors to the Board.

Upon the appointment of a Director, the Company discloses same to the Colombo Stock Exchange together with a brief resume of such a Director containing the nature of his expertise, other directorships held, memberships in Board Committees and the nature of the appointment.

A.8 Re Election

A.8.1/A.8.2

Re-election of NEDs and re-election and re-appointment of Directors

Compliant All newly appointed Directors hold office until the next Annual General Meeting at which they are eligible for election. Further, the Articles require one-third of the Directors in office to retire at each Annual General Meeting. The Directors to retire each year are those who have been longest in office since their last re-appointment.


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Retiring Directors are eligible for re-election by the shareholders with the exception of the Chairman, Chief Executive and Managing Director who do not retire by rotation.

A.8.3 Resignation Compliant In the event that a Director recommended for re-election or re-appointment wishes to resign from his/her position as a Director, he/she is expected to provide a written communication to the Board formally tabling his/her resignation along with reasons for such resignation.

A.9 Appraisal of Board Performance

A.9.1/A.9.2

Review of Performance of the Board and its Committees and self-evaluation of Directors and of its Committees

Compliant Assessment of the performance of the Board, its sub-committees and individual Directors is an integral part and takes place annually on a self-appraisal basis.

A.9.3/A.9.4

Presence of a process to review participation, contribution and engagement of Directors and Disclosure of performance evaluation

Compliant The self-appraisal provides an avenue to highlight area for improvement and remedial action as well as evaluation of the progress of such areas identified. It also ensures that any gaps pertaining to investor relations and Board administration and processes are rectified.

A.10 Disclosure of information in respect of Directors

A.10.1 Profiles of the Board of Directors and other related information

Compliant Refer Board Profiles of this Annual Report

A.11 Appraisal of the Chief Executive Officer

A.11.1/A.11.2

Setting financial and non-financial targets

Compliant The performance evaluation of the Managing Director and the CEO is carried out by the Chairman, in line with the financial and nonfinancial objectives set out in consultation with the Board at the commencement of every financial year.

B. Directors’ Remuneration

B.1 Remuneration Procedure

B.1.1 Remuneration Committee Compliant The Remuneration Committee which is a subcommittee of the Board is entrusted with the responsibility of formulating and reviewing the remuneration packages of Executive Directors and Executive employees. The evaluation of performance is conducted annually and bi annually.

The names of the members of the Remuneration Committee are listed on page 116 of this Annual Report.

B.1.2 Composition of the Remuneration Committee

Compliant Refer the Report of the Remuneration Committee of this Annual Report



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B.1.3 Disclosure of the names of the members of the Remuneration Committee


B.1.4/B.1.5/B.2.10

Remuneration of NEDs and Executive-Directors


B.2 The Level and Make up of Remuneration

B.2.1 -B.2.5

Standard of making the remuneration packages of Executive Directors


B.2.6 Executive share option Compliant As at date, the Company has no share option available to its Directors.

B.2.7 Performance based remuneration

Compliant Refer the Report of the Remuneration Committee of this Annual Report.

B.2.8B.2.9

Early termination in Directorate Compliant The Remuneration Committee determines the remuneration of Directors in the event of early termination.

B.3 Disclosure of Remuneration

B.3.1 Disclosure of names of the members of the Remuneration Committee, statement of the remuneration policy and set outthe aggregate remuneration paidto Directors

Compliant Refer the Report of the Remuneration Committee and Note 10 to the Financial Statements of this Annual Report.

C. Relations with Shareholders

C.1 Constructive use of the Annual General Meeting (AGM) and conduct of General Meetings

C.1.1 Dispatch of Notice of AGM and related papers to shareholders

Compliant Notices of meetings are circulated to the shareholders within the stipulated time in accordance with the Articles of Association.

C.1.2 Separate resolution for each issue

Compliant A separate resolution on each issue is proposed at the Annual General Meeting of the Company.

C.1.3 Accurate recording and counting valid proxy appointments received for general meetings

Compliant All proxy appointments received are duly recorded and counted in respect of each resolution, where a vote has been taken on a show of hands.

C.1.4 Availability of Chairmen of Board Committees at the Annual General Meeting

Compliant The Chairmen of the Audit, Remuneration and Related Party Transactions Review Committees are present at the AGMs.

C.1.5 Summary of Notice of General Meetings and procedures governing voting at General Meetings

Compliant In the event the appropriate numbers of shareholders give their intimation in writing and request for a poll, the procedures involved in voting would be circulated. In the absence of such intimation all issues at the General Meeting will be passed by show of hands.



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C.2 Communication with Shareholders

C.2.1 -C.2.3

Effective communication with shareholders and disclosure of the method of communication with the shareholders

Compliant The Company encourages effective communication with the shareholders and answers queries and concerns of shareholders through the Company Secretaries and the Registrars. Any matters relating to the shareholders are effectively and efficiently dealt by Company Secretaries and the Registrars of the Company.

C.2.4. /C.2.6

Contact person in relation to shareholder matters

Compliant Company Secretaries and/or the Registrars could be contacted in relation to shareholders.

C.2.5 /C.2.7

Process to make Directors aware of the issues and concerns of Shareholders and disclosing same and the process responding to shareholder matters

Compliant The Company Secretaries maintain a record of all correspondence received and would deliver such correspondence to the Board or individual Director as applicable.

The Board or individual Director, as applicable will generate an appropriate response to all validly received shareholder correspondence and will direct the Company Secretaries to send the response to the particular shareholder.

C.3 Major and Material Transactions

C.3.1 Disclosure of Major related party transactions with a related party

Compliant The Company ensures that in the event of a major related party transaction takes place, all required approvals are obtained and that the disclosure requirements of the Listing Rules of the Colombo Stock Exchange are strictly adhered to.

D.1 Financial and Business Reporting

D.1.1/D.1.2

Board responsibility in Financial Reporting

Compliant The Board of Directors confirm that the financial statements of the Company and its subsidiaries have been prepared in accordance with the provisions of the Companies Act No. 7 of 2007, the Sri Lanka Financial Reporting Standards/ Sri Lanka Accounting Standards and the Listing Rules of the Colombo Stock Exchange. The Company has duly complied with all the relevant laws and reporting requirements of the regulatory authorities. Further, the consolidated financial statements and the financial statements of the Company were audited by Messrs. KPMG, Chartered Accountants.

D.1.3 Declaration made by the Chief Executive Officer and Chief Financial Officer in maintaining accurate financial records and in compliant with the appropriate accountant standards

Compliant The Statement of Financial Position of this Annual Report contain a declaration by the Chairman and Managing Director and the Chief Financial Officer.



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D.1.4/D.1.5

Responsibility statement by the Directors and Auditors for the preparation and presentation of Financial Statements

Compliant Refer the Statement of the Directors and Auditors and the Board of Director’s Statement on Internal Controls of this Annual Report.

D.1.6 Contents of the Management Discussion & Analysis

Compliant The Management Discussion and Analysis is given on Chairman’s and Managing Directors Report in this Annual Report.

D.1.7 Serious loss of capital Compliant In the unlikely event that the net assets of the Company fall below half of shareholders’ funds, the shareholders of the Company would be notified and an Extraordinary General Meeting would be called to propose the way forward.

D.1.8 Disclosure of related party transactions

Compliant Refer the Related Party Transactions Review Committee Report

D.2 Risk Management and Internal Control

D.2.1 Board’s responsibility to monitor the company's risk management and internal control systems

Compliant Refer the Board of Directors’ Statement on Internal Control of this Annual Report.

D.2.2 Confirmation by the Directors on carrying out a robust assessment of the principal risks faced by the company

Compliant Refer the Board of Directors’ Statement on Internal Control of this Annual Report.

D.2.3 Presence of an internal audit function

Compliant Aitken Spence Group’s internal audit division carries out the Company’s internal audit function.

The internal audit division carries out regular audits in the estates as well as the head office and submits quarterly reports to the Audit Committee on the findings.

D.2.4 Review the process and effectiveness of risk management and internal control by the Audit Committee

Compliant The internal audit division carries out regular reviews on the internal control system including internal control over financial reporting. The Audit Committee monitors, reviews and evaluates the effectiveness of the internal control system as well as the internal controls over financial reporting.

D.2.5 The Statement of Internal Control

Compliant The Statement on Internal Control is set out in this Annual Report.

D.3 Audit Committee

D.3.1 Composition of the Committee Compliant Refer the report of the Audit Committee is set out in this Annual Report.

D.3.2 Duties of the Committee Compliant Refer the report of the Audit Committee is set out in this Annual Report.

D.3.3 Disclosures Compliant Refer the report of the Audit Committee is set out in this Annual Report.



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D.4 Related Party Transactions Review Committee

D.4.1/D.4.2

Composition of the Committee Compliant Refer the report of the Related Party Transactions Review Committee of this Annual Report.

D.4.3 Duties of the Committee Compliant Refer the report of the Related Party Transactions Review Committee of this Annual Report.

D.5 Code of Business Conduct & Ethics

D.5.1 Disclosure of the presence of code of business conduct and ethics for Directors and Key Management Personnel and declaration of compliance

Compliant The Company has adopted the Aitken Spence Group Code of Ethics which provide employees with guidance on recognizing and handling areas of ethical ambiguity with guidance on how to report unethical conduct and to nurture a culture of openness and accountability.

D.5.2 Presence of a process to identify and report material and price sensitive information

Compliant The Company ensures that material and price sensitive information is promptly identified and reported in accordance with the requirements of the Listing Rules of the Colombo Stock Exchange.

D.5.3 Policy, process for monitoring and disclosure of share transactions made by related parties

Compliant Refer the report of the Related Party Transactions Review Committee of this Annual Report.

D.5.4 Chairman’s affirmation that he is not aware of any violation of the provision of the code of business conduct and ethics

Compliant The Chairman affirms that there has not been any violation of any of the provisions of the Code of Ethics. Please refer the Board of Directors’ Statement on Internal controls of this report.

D.6 Corporate Governance Disclosures

D.6.1 Disclosure of a Corporate Governance Report in the Company’s Annual Report

Compliant The Company aims to achieve greater growth and value creation, improve stakeholder satisfaction and relationships in all business activities while adhering to the highest standards of corporate governance as evident in this report.

SECTION 2: SHAREHOLDERS

E. Institutional Investors

E.1 Shareholder Voting

E.1.1 Regular and structured dialogue with shareholders

Compliant The Company conducts regular discussions with Institutional Investors. Existing and prospective investors are given a balanced report that enable them to make well-informed decisions in their dealings with the Company.



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E.2 Evaluation of Governance Disclosures

E.2 Institutional investors should be encouraged to give due weight to all relevant factors when evaluating the Company’s governance arrangements

Compliant The Institutional Shareholders are provided with the opportunity of holding discussions with the Company. The existing and prospective investors are provided with a balanced, comprehensive report that enable them to make well-informed decisions in their dealings with the Company. The shareholders are provided with and encouraged to discuss, raise questions, seek clarifications on relevant matters with the Chairman and the Board of Directors at the Annual General Meeting and they are free to informally meet the Directors at the conclusion of the general meetings.

F.1 Investing/Divesting Decision

F.1 Encouraging shareholders to carry out adequate analysis and seek independent advice

Compliant The Annual Report as well as the Interim Financial Statements which are readily available on the Colombo Stock Exchange website and the Company’s website provide sufficient information so that the investors could make well informed

decisions and the Company encourages the investors to give due weight to all relevant factors drawn to them in evaluating Company’s governance arrangements in respect of the Board structure and its composition.

F.2 Shareholder Voting

F.2 Encouraging shareholders to participate in general meetings

Compliant Aitken Spence Plantation Managements PLC engages with shareholders through open, meaningful dialogue that helps us to understand their expectations. All shareholders are encouraged to attend and actively participate and vote at the Annual General Meeting. As the Company doesn’t have any non-voting ordinary shares, all shareholders are entitled to one vote per individual present or one vote per share in case of a poll.

G. Internet of Things and Cybersecurity

G.1 Process to identify how the external IT devices could connect to the organization’s network


G.2 Appointment of a ChiefInformation Security Officer (CISO)

Compliant The functions of the CISO is carried out by Group IT Division of Aitken Spence PLC who is also overlooking the IT function of Aitken Spence Plantation Managements Group.



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G.3 Allocation of adequate time on the board meeting agenda for discussions on cyber risk management


G.4 Independent periodic review of the effectiveness on the cybersecurity risk management and the scope and the frequency of the review

Compliant Refer Risk Management of this Annual Report

G.5 Cybersecurity process Compliant Refer Risk Management of this Annual Report

H. Environment, Society and Governance (ESG)

H.1 ESG Reporting

H.1.1 Provision of information in relation to ESG factors, effects of ESG issues to the business and how risks and opportunities pertaining to ESG are recognized, managed, measured and reported

Compliant Please refer the Social, Environmental & Economical Sustainability Initiatives of 2017/18 FY of this Annual Report.

H.1.2. Environmental Factors Compliant Please refer Social, Environmental & Economical Sustainability Initiatives 2017/18 FY section of this Annual Report

H.1.3 Social Factors Compliant Please refer Social, Environmental & Economical Sustainability Initiatives 2017/18 FY factors of this Annual Report

H.1.4 Governance Compliant Please refer the Corporate Governance Report of this Annual Report

H.1.5 Board’s role on ESG Factors Compliant ESG concerns of the Group is spearheaded by Dr. Rohan Fernando with the support and leadership of the Chairman.

The Group conducted a formal stakeholder engagement study through a third party under the guidance of Dr. R.M. Fernando, and results of this study were shared with the Board of Management with exclusive sessions conducted for specific SBUs as well. Similar briefings are routinely carried out on key sustainability priorities for the Group where all Managing Directors and the Executive Directors of the Main Board are informed about the Group’s progress in social and environmental governance and impact control.



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SUSTAINABILITY REPORT


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Aitken Spence Plantation Managements PLC (ASPM) –Social, Environmental & Economical Sustainability Initiatives 2017/18 FY

Aitken Spence Plantation Managements PLC (ASPM ) is commited towards socio economic development of those societies where our business presence is. In the year under review, we furthered our collaborative efforts with local communities and partner organizations, directly engaging in sustainable and participatory development initiatives from the grassroots level.

We adopt a holistic and multi-stakeholder approach to sustainability and development. Our Sustainability Policy is based on our commitment to integrate environmental, social, ethical principles and values into our business. We aim to improve the quality of life of the communities, thereby enhancing long-term value for our stakeholders.

We believe that the youth that is the key driving force behind the development of a nation, therefore our efforts are geared towards developing capabilities and enhancing access to education, particularly for youth of marginalized communities in our areas of business operation. Keeping with our ethics, we invest in those programs that provide benefit to a greater number of people, whilst also creating lasting impact on the individual lives of the beneficiaries we empower.

Our sustainability programmes are largely based on six pillars which are defined in line with Global SDGs; [SDG06] Clean Water and Sanitation - to irrigate 25% of the Tea and Oil Palm land area, [SDG07] Renewable Energy - to be self-sufficient in energy, [SDG08] Good Jobs and Economic Growth – reach 100% employment from locally, [SDG09] Innovation and Infrastructure - towards intelligent agriculture, [SDG15) Life on Land - use of GIS applications to ensure productive use of the entire land extent and [SDG17] Partnerships – gain the competitive advantage through Sustainable Strategic Partnerships. This is an apex policy that incorporates all relevant elements of strategic management, sustainability, good governance, corporate social responsibility and diversification

SUSTAINABILITY REPORT (Contd)Over the past few years, we managed to partner with several government institutes, Non Governmental Organisation and with International Institutes. Ministry of Plantation Industries, Ministry of Power & Renewable Energy Sri Lanka, Plantation Human Development Trust (PHDT), Save the Children Organization, Asian Development Bank (ADB), United Nation Development Programme (UNDP), United Nations Global Compact (UNGC), International Institute of Development Training (IIDT) to name a few. The objective is to advance the sustainability initiatives and also to maintain good living standards among the plantation community.

Dunsinane Estate

Dunsinane Estate was the recipient of a grant totaling Rs. 1.41 Mn from the National Aquatic Development Authority of Sri Lanka, for the construction of five Cluster Based Food Fish Ponds Culture.


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The Main objectives of this project are,

• To increase rain water harvesting and to improve water tables of the estate.

• To supplement additional nutrition to the estate population by including sea food into their daily diet.

• To increase the income of the workers.

• To convert areas with health hazards effectively, such as mosquito breeding sites, into inland fisheries tanks.

Funds totaling Rs 292 million have been allocated from the Ministry of City Planning and Water Supply through Plantation Human Development Trust (PHDT) Nuwara Eliya, for a project to provide purified water and sanitation to the residents of Dunsinane estate. This will be completed in three stages covering middle, factory, lower, upper, and north divisions of the Estate


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Sheen Estate

The Sheen Estate received a grant of Rs. 35 million from the Ministry of Hill Cantry New Villages, infrastruchure & Community Development for the upgrading of housing units in the Upper Sheen and Lower Sheen Divisions. This allocation was for a total of 35 housing units at a cost of Rs. 1 million each. The project which was started at the beginning of 2018, is expected to be completed by the end of the this year.

Fernlands Estate

The Kaipoogala Division of the Fernlands Estate also received a sum of Rs. 25 million from the PHDT for the construction and upgrading of the houses of 119 families in this community.


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While the estate office too was given an overhaul through funds allocated by the Ministry of Plantation and the company itself. The office now hosts modern amenities which will help the staff in carrying out their duties. The total cost of this project was Rs. 2.7 million.

In order to provide workers with the safe and healthy sanitary facilities EPP obtained a grant totaling Rs. 1.1 million from the Ministry of Plantations and PHDT for the construction of 20 latrines. These latrines will help upgrade their sanitation facilities of over 100 members of the community. The project is reaching the final phase and expected to be completed soon.

Meddecombra Estate

The management of the Meddecombra Estate have undertaken to upgrade the Rural Hospital domiciled at the estate at a cost of Rs. 10 million. The funds for this project has been received by the Ministry of Plantation. Over 5000 community members are expected to be benefited through this project which has reached completion. Yet another housing project costing a total of Rs 14.9 million and providing secure housing for over 110 estate members, was completed at the Meddecombra Lower Division.


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Road construction and infrastructure development were yet two areas which were critically looked into and upgraded at the Meddecombra estate during the financial year under review; with the help of the Ministry of Plantations and PHDT.

With the intention of developing inland fisheries, Meddecombra estate has undertaken a project to build a mini lake. The project which is already completed through a grant of Rs. 10 million which was received from the Ministry of Plantations has benefited over 3500 estate community members.


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The PHDT has funded a further Rs. 1.3 million for the development of a water scheme for the Meddecombra community. This project has already been completed, benefiting many families on the estate with clean water.

Emphasizing on the importance of a good childhood EPP, with the aid of the Ministry of Plantations has

obtained a grant of Rs. 7 million through the PHDT for the construction of play grounds in the north, top and new middle divisions in Meddecombra. These playgrounds are estimated to gather around 400 children who reside in these divisions.


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ever Solar PV roof system in the plantation sector in Sri Lanka at New Peacock Tea Factory in Pussellawa region. The total project cost was Rs. 14.4 million, and 30% of this amount was funded by the Asian Development Bank as a grant under ‘Cleaner Energy

& Networking Efficiency Improvement Project’, to generate renewable solar energy and contribute to the national grid in the form of ‘NetPlus’ scheme, introduced by the Ministry

of Power & Renewable Energy Sri Lanka. EPP has engaged in power generation and has grown its alternative energy generation activities significantly over the last decade. This solar PV roof system of 88kW was successfully commissioned on the 28th of April 2017, and it is expected to

generate 123,000kWh units per annum of Green Energy to the National Grid of Sri Lanka.

Nayapane Estate

With the view of improving productivity, a Monorail System was installed at the Nayapane Factory at total cost of Rs. 7 million. This project was implemented by Ms. Holtzman Systems Ltd, Kolkata through Messrs. Lalan Engineering. With the intention of boosting production a Color Sorter ( 3 Stage) Mayer was installed at a total cost of Rs. 15 million in 2016, which has drastically improved the sorting operations of the factory. The installation of a Screw Type Air Compressor at a total cost of Rs, 2 Million, along with a CCTV Camera system has urther enhanced the factory while the tiling o the drier room and sifting room at a cost of Rs. 757,698/- in 2017 along with the Installation of Roof Top Walkways, a Water Distribution System, Safty Hooks and Climbing Ladders for Roof Solar Power unit were also constructed at a total cost of Rs. 1 Million.

The Nayapane Estate was the recipient of two awards at the Tea Board award ceremony which was held on 8th December 2017, at Nelum Pokuna Theatre. They were placed first in the Medium Scale Category and were ranked as the Best Regional Tea Factory.

During last few years, ICT has been given one of the key concerned areas of EPP in its business operations. Especially introducing an Enterprise Resource Planning

The Korean Government funded a total of Rs. 14 Million for the development of a Multi-Purpose Community center at the top division of this estate.

New Peacock Estate

Yet another dental clinic was sponsored by Unilever PLC, which witnessed the screening of 245 children from the New Peacock Estate. Further improvements were also carried out at the New Peacock Division Child Development Center (CDC) along with the gift of a 32’ Television.

Creating awareness of childhood and the importance of children, a Children’s Day celebrations were held at New Peacock Estate. The event which comprised of a fun filled agenda also included the gifting of school bags and stationery to 100 children from the estate.

In furthering the commitment towards sustainability initiatives in its operations, EPP commissioned the first


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(ERP) solution, cloud based e-Archiving, e-Marketing, effective use of BI Tools, CCTV operated critical business operation areas. Geographic Information System (GIS) based Land use mapping tools etc. This continuous development in using technology helps significantly to improve its business operations in a competitive environment.

Elpitiya Estate

An eye camp was held in August 2017 for the residents of the Elpitiya estate community. This clinic availed the residents to receive a free eye checkup and spectacles at a nominal cost.

The month of September 2017 was a memorable month for five elders of the Elpitiya estate who had their sight restored through cataract operations which were carried out free of charge

Several programs were held at estate level to mark World Children’s Day and Elders Day during the month of October 2017. These events were followed by the distribution of free uniforms to several children from the Child Development Centers of the estates. While the elders were provided with a meal following the ceremony.

Bentota Estate

Bentota Estate commemorated World Children’s Day with a fun filled event which also witnessed the donation of stationary and school books among 225 children at a cost of Rs. 224,863/-. Further, an eye clinic and a medical camp was conducted with the assistance of Ministry of Health through which over 100 community members were benefited.

We care for them…

Caring for a person with special needs is not easy, for families with low income, this task is even more difficult and challenging. Elpitiya Plantations PLC has initiated another successful CSR programme to provide a pack of dry ration and nutrients for those families with special need children in our estates. The programme


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was commenced in the month of November 2017 and will continue monthly. We have identified over 30 children and adults who needs special attention across our estate communities and we will continue to support them, care for them and nurture them.

AEN Palm Oil Processing (Pvt) Ltd CSR initiatives

With the understanding of importance of encouraging students for higher education A E N Palm Oil Processing (Pvt) Lts, has been donating school books to over 1,500 students at a cost of Rs. 800,000 during every year since 2012. This worthy cause has helped the surrounding community immensely to improve the better educational performances among the children.

EMPLOYEE TRAINING & DEVELOPMENT

M/s CRISSALLIS (Pvt) Ltd funded a program titled ‘Youth and Women Empowerment’ at a cost of Rs. 318,000.00 which was held at the Fernlands Estate. This program which included a series of awareness programs were attended by over 200 community members. A similar series of programs were conducted at Nayapane Estate, which had a participation of around 80 members. Further a series of awareness and training programs targeting women have being conducted on ‘Problem Solving and Decision Making’ by M/s CRISSALLIS (Pvt) Ltd, at the New Peacock Estate. Over 300 women of the community participated to these workshops.

The New Clearing, Middle and North Division’s community Centers were upgraded at a total cost of Rs. 4 million with the assistance of Ministry of Plantations and PHDT. Over 750 community members were the benefactors of this upgrade.

Energy Management Efforts

In keeping with the company’s drive of energy conservation, the head office building of EPP which is located at level 09, Aitken Spence Tower 1 was refitted with energy efficient LED fittings as opposed to the conventional light fittings which were available. The estimated annual energy saving is 3135 kWh.

Installation of VSDs at Tea Factories

67 numbers of electronic variable speed drives were installed for withering troughs in 8 tea factories as a sustainable consumption initiative. 35% if this project was funded by UNDP (NAMA) project.

Solar Power Generation

EPP has long since understood the importance of being self-reliant while reducing its impact on the natural resources of the country. Having this in mind they have embarked on a Solar Power Generation drive with the following factories. While these factories will be able to sustain themselves in the long terms, the excess power will also be able to be sold back to the national grid, creating an additional form of revenue or the company,.

Waste Management Efforts

Challenging tasks have been considered and mitigative action has been implemented to manage the waste generation in plantations. As a result the preparation of compost in all 13 estates / provision of waste segregation bins/conduct of awareness and educational programs for the estate community/ introduction of waste water tanks for estate employee’s housings/ display of sign boards in public places with the view of creating more awareness/

FactoryProposed

Capacity (kW)Installed

Capacity (kW)

Estimated Annual Yield

(kWh)

Investment (Rs.)

Estimated Annual Rev.

(Rs.) - 1 ~7 Yrs

New Peacock TF 88 122,808 12,400,000 2,701,776

Nayapane TF 96 115,200 12,900,000 2,534,400

Talgaswella T F 113 159,400 16,198,600 3,506,800

Devithurai T F 178 247,128 21,884,160 5,436,816


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construction of factory waste water treatment units with solid waste traps/ introduction of polythene free zones inside the estate/ provision of bio degradable shopping bags for the estate community daily use/ introduction of empty chemical cans policy (the empty chemical cans will not be issued for any reuse purpose among the estate community, it will be sold to Government authorized waste collectors to dissolve/construction of E-waste points and hazardous waste points were initiated across the plantations.

Design Strategy 2020 – Build the Future

Elpitiya Plantations PLC has collaborated with Quantum Consultants (Pvt) Ltd in developing a new sustainable business strategy. The project could be identified as one of the latest and most significant ongoing initiatives at Elpitiya Plantations. The project duration which is estimated to span over a period of nine months, bears the main objective of transforming Elpitiya Plantations, from a commodity-based company into an innovative entrepreneurial company which creates the maximum in business and social values. The transformation process is expected to be channeled through three main areas which are Leadership & Culture, Philosophy & Purpose and Economic Value Creation.

Recognition for University Students and G C E Ordinary Level Students

MJF Scholarships

Elpitiya Plantations PLC in association with MJF Charitable Foundation provides educational scholarship to the

children of estate workers. The total cost of this project is borne by MJF Charitable Foundation. This includes scholarships to students who have been accepted to University and students who have performed well at their GCE Ordinary Level examination i.e. students who have obtained minimum 5As for their O/L examination.

The total contribution through this fund is Rs.3.4 Million, out of which Rs. 0.5 Million is allocated for A/L students and Rs.2.9 Million or university students.

Medical Checkup

Elpitiya Plantations PLC being a human oriented establishment has a great regard for the employees and the service they render. In keeping with this ethics they place tremendous emphasis on the mental and the physical wellbeing of the employees and their families which is of paramount important for the progress of the company and individuals themselves. In keeping with this gesture a medical checkup was held for the Head Office Staff. Members were screened by a recognized medical institute in order to identify their existing health conditions. This program was extended to the plantations as well, with it has been extended into the following fiscal year.


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RISK MANAGEMENTRisk can be defined as the probable occurrence of an undesirable event that could hinder the achievement of the company’s objectives. Unforeseen consequences can arise from any form of business or operational activity. Therefore risk management should be a central part of any organization’s strategic management process.

Risk Management is the process of analyzing exposure to risks by identifying vulnerabilities and their probability of outcome in order to determine how to best handle such exposure. It also looks at implementing various policies, procedures and practices that work to identify, analyze, evaluate and monitor risks, followed by applications and solutions to minimize the probability of occurrence and / or the impact of the identified risks. The Elpitiya Plantations PLC is of the view that a disciplined approach to risk management is important in ensuring that the company only accepts risks that are adequately compensated for when pursuing its strategic objectives. Our goal is to optimize the trade off between risk and reward.

Risk Management Framework

Risk identification

Risk Assessment Risk Management

1. Strategic risk

1.1 Business Risk

Risks that derive from the decisions that the board takes about the products or services that the organization supplies. They include risks associated with developing and marketing those products or services, economic risks affecting product sales and costs, and risks arising from changes.

Risk of formulating and implementing fundamental corporate strategies which is defective or inappropriate to the company's business.

Board of directors continuously obtain and evaluate all the information on how the business is performing and relevant aspects of the economical, technological environments.


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RISK MANAGEMENT (Contd)

1.2 Non-business risk

Risks that do not derive from the products or services supplied. For example, risks associated with the long-term sources of finance used.

In appropriate capital investments financing decisions would dilute the earnings available to share holders.

All corporate planning strategies, such as acquisitions, business diversifications, going into markets, capital investments, are strongly evaluate by the board of directors with reference to the financial viability and long term objectives set by the company.

2. Operational Risk

2.4 Risk of assets misappropriation

Risk of being stealing or misuse of companies assets.

Company's assets can be used for purposes other than the purposes for which those are intended to be used.

Establishment and maintenance of strong and effective internal control system to safeguard company's assets and share holder's funds.

2.5 Compliance risk

Risk of non-compliance with the laws and other regulations established in respective industries.

Non-compliance with laws and regulations would lead to cause of operations, loss of reputations and Brand names, huge fines and penalties.

Close relationship with regulatory authorities and in-house legal consultants and strong evaluation of dealing with elements of external environment.

3. Financial Risk

3.1 Liquidity risk

Liquidity risk arises where the company is unable meet its debts when they fall due.

Insufficient liquidity levels would cause interruptions to company's day to day operations and would affect the reputation maintains with company's short term fund providers.

Finance division of the Company strives to ensure sufficient funds are available to meet the debt commitments and working capital requirements. Adequate short term financing options have been arranged with the banks.


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The Companies Act No. 07 of 2007 requires the Directors of the Company to be responsible for the preparation and presentation of the Financial Statements and other statutory reports. The responsibilities of the Directors, in relation to the Financial Statements of Aitken Spence Plantation Managements PLC and the Consolidated Financial Statements of the Group are set out in this report.

The Directors confirm that the Financial Statements and other statutory reports of the Company for the year ended 31st March 2018 incorporated in this report have been prepared in accordance with the Companies Act No. 07 of 2007, the Sri Lanka Accounting and Auditing Standards Act No. 15 of 1995 and the Listing Rules of the Colombo Stock Exchange.

The Directors have taken appropriate steps to ensure that the companies within the Group maintain adequate and accurate records which reflect the true financial position of each such company and hence the Group. The Directors have taken appropriate and reasonable steps to safeguard the assets of the Company. The Directors have instituted appropriate systems of internal control in order to minimize and detect fraud, errors and other irregularities.

In the preparation of the Financial Statements, the Directors have selected the appropriate accounting policies and have applied them consistently. Any material departures from accounting policies have been disclosed and explained in the financial statements.

The Directors have adopted the going concern basis in preparing the Financial Statements. The Directors having considered the Company’s business plans, and a review of its current and future operations, are of the view that the Company has adequate resources to continue in operation.

The Financial Statements presented in this Annual Report for the year ended 31st March 2018, have been prepared based on the Sri Lanka Accounting Standards (SLFRS/LKASs) laid down by The Institute of Chartered Accountants of Sri Lanka. The Directors have selected the appropriate accounting policies and such policies adopted by the Company are disclosed and explained in the Financial Statements.

The Directors accept the responsibility to ensure that the Company maintains adequate accurate records which reflect the true and fair view of the Comprehensive Income Statement and Financial Position of the Company as at 31st March 2018.

The Directors have provided the Auditors with every opportunity to carry out any reviews and tests that they consider appropriate and necessary for the performance of their duties.

The Directors confirm to the best of their knowledge that all taxes, levies and financial obligations of the Company have been either duly paid or adequately provided for in the Financial Statements. The directors also ensure that the relevant national laws, international laws and codes of regulatory authorities, professional institutes and trade associations have been complied with by the Group.

By order of the Board,

AITKEN SPENCE CORPORATE FINANCE (PRIVATE) LIMITED

Company Secretaries Colombo August 24, 2018

STATEMENT OF DIRECTORS’ RESPONSIBILITIES


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INDEPENDENT AUDITORS’ REPORT

To the Shareholders of Aitken Spence Plantation Managements PLC

Report on the Audit of the Financial Statements

Opinion

We have audited the financial statements of Aitken Spence Plantation Managements PLC (“the Company”) and the consolidated financial statements of the Company and its subsidiaries (“the Group”), which comprise the statement of financial position as at 31 March 2018, and the income statement, statement of profit or loss and other comprehensive income, statement of changes in equity and statement of cash flows for the year then ended, and notes to the financial statements, including a summary of significant accounting policies and other explanatory information as set out on pages 51 to 111.

In our opinion, the accompanying financial statements of the Company and the Group give a true and fair view of the financial position of the Company and the Group as at 31 March 2018, and of their financial performance and cash flows for the year then ended in accordance with Sri Lanka Accounting Standards.

Basis for Opinion

We conducted our audit in accordance with Sri Lanka Auditing Standards (SLAuSs). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report. We are independent of the Group in accordance with the Code of Ethics issued by CA Sri Lanka (Code of Ethics), and we have fulfilled our other ethical responsibilities in accordance with the Code of Ethics. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Key Audit Matters

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the company financial statements and the consolidated financial statements of the current period. These matters were addressed in the context of our audit of the company financial statements and the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.


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Valuation of Consumable Biological Assets

Refer note 17 to the consolidated financial statements

Nature and area of focus Our response

The group has Consumable Biological assets carried at fair value amounting to Rs. 1,001 Mn as at the reporting date.

The valuation of consumable biological assets requires significant levels of judgment and technical expertise, including the use of discounted cash flow models and selecting appropriate assumptions. Changes in the key assumptions used such as discount rate and available timber quantity to value the group’s consumable biological asset could have a material impact on the income statement and the value of consumable biological asset.

We identified assessing the valuation of consumable biological assets as a key audit matter because of the complexity of the valuations and the significant judgment and estimation.

Our audit procedures included,

• We involved the component auditors of the plantation sector to perform following audit procedures on behalf of us;

- Evaluating the appropriateness of the related assumptions and in evaluated the competency, capability and objectivity of the valuer.

- Engaging internal specialised resources to assist in evaluating the appropriateness of the valuation method and discount rate used by the external valuer.

• Assessing the adequacy of the Group disclosures in the financial statements.

Valuation of Retirement Benefit Obligations

Refer note 32 to the consolidated financial statements


The retirement benefit obligations of the group is significant (Rs. 538 Mn) in the context of the total liabilities of the Group. The valuation of the Group's retirement benefit obligation requires significant judgment and estimation to be applied across numerous assumptions, including salary increases and discount rate. Small changes in those assumptions could have a significant effect on the financial performance and financial position of the group.

We identified assessing the valuation of retirement benefit obligation as a key audit matter because of the complexity of the valuations and the significant judgment and estimation.


• We involved the component auditors to evaluate the assumptions made in relation to the actuarial valuation of the retirement benefit obligations. In particular:

- The assumption for salary increases against the group’s historic trend and expected future outlook.

- The discount rate used, to our internally developed benchmarks.

- Validated the key data used by the actuary to the underlying data held by the Group.

• Assessing the adequacy of the financial statements disclosures.


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Impairment of investments in subsidiaries and Carrying amount of Goodwill

Refer note 19.1, and 20 to the consolidated financial statements


The company hold investments in subsidiaries amounting to Rs. 684 Mn and the group has goodwill amounting to Rs. 113 Mn as at 31 March 2018.

The carrying amount of goodwill and investments in subsidiaries have been tested for impairment as individual Cash Generating Units. The carrying amount of goodwill and these investments could be materially misstated if inappropriate judgments and estimates were used by the Directors in calculating the recoverable amount for each cash generating unit (‘CGU’) as part of their impairment assessment.

Investments which does not generate adequate returns may be an indication of impairment. Due to the investments being material it will have a significant impact on financial performance of the company/ group.

The recoverable amount of the goodwill is determined based on value in use calculation. These calculations used cash flows projected using judgments and estimates based on the financial budgets approved by the management.

We have identified the carrying amount of the goodwill and impairment of investments in subsidiaries as a key audit matter since that is based on forecasted and discounted cash flows, which are inherently judgmental.


• Assessing the impairment indications of investments made in subsidiaries and assessing the reasonableness of the discounted cash flow models, principles and accuracy of the forecasts.

• Evaluating the reasonableness of the group’s key assumptions for its cash flow projection such as discount rates, cost inflation and business growth with reference to the internally and externally derived sources including group budgetary process and reasonableness of historical forecasts.

• Reviewing of Value in Use computations for investments with impairment indications and discussion with management of group/ component.

• Considering the adequacy of the group disclosures in the financial statements in respect of impairment testing.

• Assessing the adequacy of disclosures in the financial statements.

Other Information

Management is responsible for the other information. The other information comprises the information included in the annual report, but does not include the financial statements and our auditor’s report thereon.

Our opinion on the financial statements does not cover the other information and we do not express any form of assurance conclusion thereon.


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In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact.

Responsibilities of Management and Those Charged with Governance for the Financial Statements

Management is responsible for the preparation of financial statements that give a true and fair view in accordance with Sri Lanka Accounting Standards, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, management is responsible for assessing the Group’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Group or to cease operations, or has no realistic alternative but to do so.

Those charged with governance are responsible for overseeing the Company’s and the Group’s financial reporting process.

Auditor’s Responsibilities for the Audit of the Financial Statements

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with SLAuSs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.

As part of an audit in accordance with SLAuSs, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:

• Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

• Obtain an understanding of internal control relevant to the audit 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 Company and the Group’s internal control.

• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.

• Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material


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uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group to cease to continue as a going concern.

• Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

• Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion.

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

We also provide those charged with governance with a statement that we have complied with ethical requirements in accordance with the Code of Ethics regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.

From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

Report on Other Legal and Regulatory Requirements

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

CA Sri Lanka membership number of the engagement partner responsible for signing this independent auditor’s report is 2599.

CHARTERED ACCOUNTANTSColombo, Sri Lanka28 May 2018


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INCOME STATEMENTS

Group Company

FOR THE YEAR ENDED 31 MARCH 2018 2017 2018 2017 Note Rs. Rs. Rs. Rs.

Revenue 6 3,631,650,003 3,009,791,239 73,500,000 70,383,929 Cost of sales (2,790,007,466) (2,402,390,668) - - Gross profit 841,642,537 607,400,571 73,500,000 70,383,929

Gains on fair value of biological assets 25,602,463 35,909,966 - - Other operating income 7 180,930,866 158,525,878 91,703,703 22,458,677 Administrative expenses (296,914,857) (225,968,190) (5,759,985) (4,099,173Management fees and workers profit share (29,068,019) (27,952,869) - - Profit from operations 722,192,990 547,915,356 159,443,718 88,743,433 Finance expense 8.2 (61,958,097) (80,762,975) - -Finance income 8.1 5,540,118 2,702,490 2,543,498 1,122,262 Net finance income/(expense) (56,417,979) (78,060,485) 2,543,498 1,122,262 Share of profit from equity accounted investees (net of tax) 9 2,989,744 60,841,686 - - Profit before taxation 10 668,764,755 530,696,557 161,987,216 89,865,695 Current tax 11 (91,690,127) (53,541,159) (10,089,249) (10,089,363)Deferred tax expenses relating to origination (5,308,912) - - -of temporary differences in the current year tax Profit before adjustment to bought forward 571,765,716 477,155,398 151,897,967 79,776,332 temporary differences due to tax rate change

Increase in opening deferred taxes 11.3 (185,253,419) - - -resulting from increase in tax rateProfit for the year 386,512,297 477,155,398 151,897,967 79,776,332 Attributable to: Equity holders of the parent 257,819,123 318,367,832 151,897,967 79,776,332 Non-controlling interest 128,693,174 158,787,566 - - 386,512,297 477,155,398 151,897,967 79,776,332

Earnings per share 12 12.10 14.95 7.13 3.75

The notes on pages 56 through 111 form an intergral part of these financial statements. Figures in brackets indicate deduction.


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STATEMENTS OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME

Group Company

FOR THE YEAR ENDED 31 MARCH 2018 2017 2018 2017 Rs. Rs. Rs. Rs.

Profit for the year 386,512,297 477,155,398 151,897,967 79,776,332 Other comprehensive income Items that will never be reclassified to profit or loss Actuarial gains/(losses) on defined benefits plans (69,574,208) 160,633,739 - - Income tax effect 9,740,389 (25,315,877) - - Other comprehensive income for the year, net of tax (59,833,819) 135,317,862 - -

Total comprehensive income, net of tax 326,678,478 612,473,260 151,897,967 79,776,332 Attributable to: Equity holders of the parent 220,935,515 401,777,763 151,897,967 79,776,332 Non-controlling interest 105,742,963 210,695,497 - - 326,678,478 612,473,260 151,897,967 79,776,332 The notes on pages 56 through 111 form an intergral part of these financial statements. Figures in brackets indicate deduction.


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STATEMENTS OF FINANCIAL POSITION

Group Company

AS AT 31 MARCH 2018 2017 2018 2017 Note Rs. Rs. Rs. Rs.

ASSETS Non Current AssetsLeasehold property, plant and equipment 14 235,624,225 253,759,083 - - Freehold property, plant and equipment 15 811,800,554 767,780,821 - - Intangible assets 24,746,329 - - - Bearer biological assets 16 3,128,868,138 2,968,013,371 - - Consumable biological assets 17 1,001,128,616 981,450,125 - - Other non current assets 18 39,916,170 38,689,228 - - Investments in subsidiaries 19.1 - - 683,875,123 683,875,123 Investments in joint ventures 19.2 156,161,300 153,171,556 - - Goodwill 20 113,289,780 113,289,780 - - Deferred tax assets 21 1,895,942 885,191 1,895,942 885,191 5,513,431,054 5,277,039,155 685,771,065 684,760,314 Current Assets Produce on bearer biological assets 22 12,898,502 12,785,661 - - Inventories 23 342,803,779 317,831,674 - - Trade and other receivables 24 190,193,103 210,193,350 - - Amount due from related companies 25 71,613,172 50,740,582 113,169,449 105,667,239 Cash and cash equivalents 26 196,442,217 78,131,721 104,144,143 25,780,943 813,950,773 669,682,988 217,313,592 131,448,182 TOTAL ASSETS 6,327,381,827 5,946,722,143 903,084,657 816,208,496

EQUITY AND LIABILITIES Equity Stated capital 27 421,666,250 421,666,250 421,666,250 421,666,250 Timber reserve 481,682,026 480,028,614 - - Retained earnings 1,876,484,362 1,657,202,259 459,386,837 307,488,870 Equity attributable to equity holders of the parent 2,779,832,638 2,558,897,123 881,053,087 729,155,120 Non-controlling interest 28 1,551,125,712 1,508,273,765 - - Total Equity 4,330,958,350 4,067,170,888 881,053,087 729,155,120

Non Current Liabilities Interest bearing borrowings 29 184,192,790 233,948,925 - - Liability to make lease payments 30 165,676,270 168,718,047 - - Deferred income 31 231,325,067 248,591,650 - - Retirement benefit obligations 32 537,746,523 457,643,520 6,771,222 5,823,618 Deferred tax liabilities 33 409,987,032 183,631,244 - - 1,528,927,682 1,292,533,386 6,771,222 5,823,618 Current Liabilities Interest bearing borrowings 29 113,337,520 129,092,739 - - Liability to make lease payments 30 3,541,297 3,405,094 - - Trade and other payables 34 332,016,604 436,160,581 8,599,455 74,056,881 Amount due to related companies 35 8,591,327 636,778 3,728,278 10 Income tax liabilities 10,009,047 17,722,677 2,932,615 7,172,867 467,495,795 587,017,869 15,260,348 81,229,758 TOTAL EQUITY AND LIABILITIES 6,327,381,827 5,946,722,143 903,084,657 816,208,496

The above statement of financial position is to be read in conjunction with the note on pages 56 through 111 form an integral part of these financial statements.These financial statements are prepared in compliance with the requirements of the Companies Act No. 07 of 2007. Chief Financial Officer The Board of Directors is responsible for the preparation and presentation of these Financial Statements. For and on behalf of the board.

Director Director Colombo 28 May 2018


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Group Attributable to equity holders of the parent Timber Retained Non-controlling Stated capital reserve earnings Total interest Total equity Rs. Rs. Rs. Rs. Rs. Rs. Balance as at 1 April 2016 421,666,250 466,536,882 1,332,816,228 2,221,019,360 1,311,552,806 3,532,572,166

Profit for the year - - 318,367,832 318,367,832 158,787,566 477,155,398 Other comprehensive income for the year - - 83,409,931 83,409,931 51,907,931 135,317,862 Total comprehensive income for the year - - 401,777,763 401,777,763 210,695,497 612,473,260 Fair value increase of timber reserve - 19,085,900 (19,085,900) - - - Realised gain on harvested timber trees - (5,594,168) 5,594,168 - - - Dividend - Final dividend 2016-17 - - (63,900,000) (63,900,000) - (63,900,000)Dividend paid to non controlling interest - - - - (13,974,538) (13,974,538)Balance as at 31 March 2017 421,666,250 480,028,614 1,657,202,259 2,558,897,123 1,508,273,765 4,067,170,888 Profit for the year - - 257,819,123 257,819,123 128,693,174 386,512,297 Other comprehensive income for the year - - (36,883,608) (36,883,608) (22,950,211) (59,833,819) Total comprehensive income for the year - - 220,935,515 220,935,515 105,742,963 326,678,478 Fair value increase of timber reserve - 25,489,622 (25,489,622) - - - Realised gain on harvested timber trees - (23,836,210) 23,836,210 - - - Dividend paid to non controlling interest - - - - (62,891,016) (62,891,016)Balance as at 31 March 2018 421,666,250 481,682,026 1,876,484,362 2,779,832,638 1,551,125,712 4,330,958,350

Company Retained Stated capital earnings Total Equity Rs. Rs. Rs.

Balance as at 1 April 2016 421,666,250 291,612,538 713,278,788 Profit for the year - 79,776,332 79,776,332 Dividend - Final dividend 2016-17 - (63,900,000) (63,900,000) Balance as at 31 March 2017 421,666,250 307,488,870 729,155,120

Profit for the year - 151,897,967 151,897,967 Balance as at 31 March 2018 421,666,250 459,386,837 881,053,087

The notes on pages 56 through 111 form an intergral part of these financial statements. Figures in brackets indicate deduction.

STATEMENTS OF CHANGES IN EQUITY


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STATEMENTS OF CASH FLOWS

Group Company

FOR THE YEAR ENDED 31 MARCH 2018 2017 2018 2017 Note Rs. Rs. Rs. Rs.

Profit before taxation 668,764,755 530,696,557 161,987,216 89,865,695 Adjustments forDepreciation and amortisation 211,064,948 190,565,548 - 19,913 Finance expenses 61,958,097 80,762,975 - - Finance income (4,313,176) (2,702,490) (2,543,498) (1,122,262)Dividend income - - (91,703,703) (22,458,677)Provision for retirement benefit obligations 79,488,501 96,929,823 947,604 902,532 Amortization of capital grants (13,224,278) (12,477,532) - - Amortization of sub lease income (3,973,108) (5,327,975) - - Amortisation of Lease hold right to use of land (5,479,310) (5,479,310) - - Gains from fair value increase in biological assets (25,602,463) (35,909,966) - - Profit from sale of other trees (32,111,976) (45,226,208) - - Profit on sale of commercial timber trees (32,378,533) (3,056,614) - - Share of profit of equity accounted investees (2,989,744) (60,841,686) - - Items written back (173,455) (1,266,151) - - Items written off - 7,963,774 - - Gain on PPE disposal (6,820,700) - - - Operating profit before working capital changes 894,209,558 734,630,745 68,687,619 67,207,201

Increase in inventories (24,972,105) (100,263,132) - - Decrease in trade and other receivables 20,000,247 (13,389,841) - - Increase in amounts due from related companies (4,416,580) (32,593,292) (7,502,210) (65,177,557) Increase/(decrease) in trade and other payables (104,143,977) 101,308,331 (1,669,131) 2,702,707 Increase/(decrease) in amounts due to related parties 7,954,549 (5,580,476) 3,728,268 (2,453,991) Cash generated from operations 788,631,692 684,112,335 63,244,546 2,278,360

Finance cost paid (26,731,813) (46,666,434) - - Retiring gratuity paid (68,959,706) (67,263,519) - - Proceeds from sale of trees 88,326,719 57,357,868 - - Finance income received 1,769,678 - - - Grants received 4,870,113 6,955,549 - - Proceeds from sublease of land 540,000 1,120,400 - - Income tax paid (54,880,662) (4,613,895) (15,246,502) (2,252,904)Net cash from operating activities 733,566,021 631,002,304 47,998,044 25,456

Cash flows from investing activities Dividend received from joint venture - 62,099,225 - - Cash received from share repurchases - 64,577,808 - - Dividend received from subsidiaries - - 91,703,703 22,458,677 Finance income received 2,388,703 1,513,262 2,543,498 1,122,262 Improvements to bearer biological assets (296,142,254) (285,855,479) - - Proceeds from sale of property, plant and equipments 6,820,700 - - - Purchase of property, plant and equipment (144,433,724) (57,113,290) - - Net cash from/ (used in) investing activities (431,366,575) (214,778,474) 94,247,201 23,580,939 Cash flows from financing activities Loans obtained during the year 70,946,143 32,021,200 - - Loans repaid during the year (148,090,330) (161,752,789) - - Payment of government lease rentals (38,631,580) (37,289,168) - - Lease instalments paid (5,222,167) (1,021,871) - - Dividend paid by subsidiaries to non-controlling interest (62,891,016) (13,974,538) - - Dividend paid during the year - - (63,882,045) - Net cash used in financing activities (183,888,950) (182,017,166) (63,882,045) -

Net increase in cash and cash equivalents 118,310,496 234,206,664 78,363,200 23,606,395 Cash and cash equivalents at the beginning of the year 78,131,721 (156,074,943) 25,780,943 2,174,548 Cash and cash equivalents at the end of the year 26 196,442,217 78,131,721 104,144,143 25,780,943 The notes on pages 56 through 111 form an intergral part of these financial statements. Figures in brackets indicate deduction.


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NOTES TO THE FINANCIAL STATEMENTS

Company Nature of the Business Principle Place of Business

Elpitiya Plantations PLCCultivation, manufacture and sale of Black tea, Rubber, Oil palm and other crops

Planting districts of Nuwara Eliya and Galle

EPP Hydro Power Company (Pvt) Ltd

Generating hydro power Dunsinane Estate

Tea Country Homes (Pvt) Ltd Intended hotel operator Talgaswella Estate

Water Villas (Pvt) Ltd Intended hotel operator Talgaswella Estate

Elpitiya Lifestyle Solutions (Pvt) LtdManufacture of all types of wooden materials

Devitura Estate

AEN Palm Oil Processing (Pvt) Ltd Processing crude palm oil Baduraliya

Elpitiya Dianhong Jin Ya Tea Company (Pvt) Ltd

Manufacturing and exporting of specialty tea

Fernlands Estate - Harrow Factory

Venture Valley (Pvt) LtdDesigning, developing & operating an adventure park & its associated activities.

Devitura Estate

1. REPORTING ENTITY

Aitken Spence Plantation Managements PLC (the ‘Company’) is a company incorporated and domiciled in Sri Lanka under the Companies Act no 07 of 2007.

The registered office of the Company is located at No 315, Vauxhall Street, Colombo 02.

The Consolidated Financial Statements of Aitken Spence Plantation Managements PLC, as at and for the year ended 31 March 2018 encompass the Company and its Subsidiaries (together referred to as the “Group”) and the Group’s interest in Equity Accounted Investees ( Investments in joint ventures)

The Financial Statements of the Company and the Group comprise the Income Statement, Statement of Comprehensive Income, Statement of Financial Position, Statement of Changes in Equity, Statement of Cash Flows together with Accounting Policies and Notes to the Financial Statements.

The Financial Statements of all companies in the Group are prepared for a common financial year, which ends on 31 March.

All companies in the Group are limited liability companies incorporated and domiciled in Sri Lanka.

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

1.1 Principal activities and nature of operations

During the year, the principle activity of the Company was providing management services to its subsidiaries.Principal activities of the other companies in the Group are as follows;

1.2 Date of authorisation for issue

The Financial Statements of Aitken Spence Plantation Managements PLC for the year ended 31 March 2018 was authorised for issue in accordance with a resolution of the Board of Directors on 28 May 2018.

1.3 Responsibility for Financial Statements

The responsibility of the directors in relation to the Financial Statements is set out in the Statement of Directors’ responsibility report in the Annual Report.


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2. BASIS OF PREPARATION

2.1 Statement of compliance

The Consolidated Financial Statements of the Group and the Separate Financial Statements of the Company have been prepared in accordance with Sri Lanka Accounting and Auditing Standards Act No. 15 of 1995 which requires compliance with Sri Lanka Accounting Standards (herein referred to as SLFRSs and LKASs) effective from 1 January 2012, promulgated by The Institute of Chartered Accountants of Sri Lanka (ICASL), and with the requirements of the Companies Act No. 07 of 2007.

2.2 Basis of measurement

These Financial Statements have been prepared in accordance with the historical cost convention other than consumable biological assets and produce on bearer biological assets that have been measured at fair value. Where appropriate, the specific policies are explained in the succeeding Notes.

Retirement benefit obligations have been measured at the present value of the defined benefit obligation.

No adjustments have been made for inflationary factors in the Consolidated Financial Statements.

2.3 Functional and presentation currency

The Financial Statements are presented in Sri Lankan Rupees (Rs.) which is the Group’s functional and presentation currency. All financial information presented in Sri Lankan Rupees has been given to the nearest rupee, unless stated otherwise.

2.4 Going concern

The Directors have made an assessment of the Group’s ability to continue as a going concern in the foreseeable future, and they do not intend either to liquidate or to cease operations.

2.5 Materiality and aggregation

Each material class of similar items is presented separately in the Consolidated Financial Statements. Items of a dissimilar nature or function are presented separately unless they are immaterial.

2.6 Comparative information

The presentation and classification of the Financial Statements of the previous years have been amended, where relevant for better presentation and to be comparable with those of the current year.

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

3.1.1 Basis of consolidation

The Consolidated Financial Statements comprise the Financial Statements of the Group and its subsidiaries as at 31 March 2018. Control is achieved when the Group is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Specifically, the Group controls an investee if, and only if, the Group has:

• Power over the investee. (i.e., existing rights that give it the current ability to direct the relevant activities of the investee)

• Exposure, or rights, to variable returns from its involvement with the investee.

• The ability to use its power over the investee to affect its returns.


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Generally, there is a presumption that a majority of voting rights result in control. To support this presumption and when the Group has less than a majority of the voting or similar rights of an investee, the Group considers all relevant facts and circumstances in assessing whether it has power over an investee, including:

• The contractual arrangement with the other vote holders of the investee.

• Rights arising from other contractual arrangements.

• The Group’s voting rights and potential voting rights.

The Group re-assesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control. Consolidation of a subsidiary begins when the Group obtains control over the subsidiary and ceases when the Group loses control of the subsidiary. Assets, liabilities, income and expenses of a subsidiary acquired or disposed of during the year are included in the consolidated Financial Statements from the date the Group gains control until the date the Group ceases to control the subsidiary.

Income Statement and each component of Other Comprehensive Income (OCI) are attributed to the equity holders of the parent of the Group and to the non-controlling interests, even if this results in the non-controlling interests having a deficit balance. When necessary, adjustments are made to the Financial Statements of subsidiaries to bring their accounting policies into line with the Group’s accounting policies. All intra-group assets and liabilities, equity, income, expenses and cash flows relating to transactions between members of the Group are eliminated in full on consolidation.

A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as an equity

transaction. If the Group loses control over a subsidiary, it derecognises the related assets (including goodwill), liabilities,

non-controlling interest and other components of equity while any resultant gain or loss is recognised in Income Statement. Any investment retained is recognised at fair value.

3.1.2 Business combinations and goodwill

Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the aggregate of the consideration transferred, measured at acquisition date fair value and the amount of any Non-Controlling Interest in the acquiree. For each business combination, the Group elects whether it measures the Non-Controlling Interest in the acquiree either at fair value or at the proportionate share of the acquiree’s identifiable net assets. Acquisition-related costs are expensed as incurred and included in administrative expenses.

When the Group acquires a business, it assesses the financial assets and liabilities assumed for appropriate classification and designation in accordance with the contractual terms, economic circumstances and pertinent conditions as at the acquisition date.

If the business combination is achieved in stages, any previously held equity interest is remeasured at its acquisition date fair value and any resulting gain or loss is recognised in Income Statement.

Any contingent consideration to be transferred by the acquirer will be recognised at fair value at the acquisition date. Contingent consideration classified as an asset or liability that is a financial instrument


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and within the scope of LKAS 39 Financial Instruments: Recognition and Measurement, is measured at fair value with changes in fair value recognised either in Income Statement or as a change to OCI. If the contingent consideration is not within the scope of LKAS 39, it is measured in accordance with the appropriate SLFRS. Contingent consideration that is classified as equity is not remeasured and subsequent settlement is accounted for within equity.

Goodwill is initially measured at cost, being the excess of the aggregate of the consideration transferred and the amount recognised for non-controlling interests, and any previous interest held, over the net identifiable assets acquired and liabilities assumed. If the fair value of the net assets acquired is in excess of the aggregate consideration transferred, the Group re-assesses whether it has correctly identified all of the assets acquired and all of the liabilities assumed and reviews the procedures used to measure the amounts to be recognised at the acquisition date. If the reassessment still results in an excess of the fair value of net assets acquired over the aggregate consideration transferred, then the gain is recognised in Income Statement.

After initial recognition, goodwill is measured at cost less any accumulated impairment losses. For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Group’s cash-generating units that are expected to benefit from the combination, irrespective of whether other assets or liabilities of the acquiree are assigned to those units.

Where goodwill has been allocated to a cash-generating unit and part of the operation within that unit is disposed of, the goodwill associated with the disposed operation is included in the carrying amount of the operation when determining the gain or loss on disposal. Goodwill disposed in these circumstances is measured based on the relative values of the disposed operation and the portion of the cash-generating unit retained.

3.1.3 Investment in joint ventures

A joint venture is a type of joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the joint venture. Joint control is the contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require unanimous consent of the parties sharing control.

The considerations made in determining joint control are similar to those necessary to determine control over subsidiaries.

The Group’s investments in its joint venture are accounted for using the equity method.

Under the equity method, the investment in a joint venture is initially recognised at cost. The carrying amount of the investment is adjusted to recognise changes in the Group’s share of net assets of the joint venture since the acquisition date. Goodwill relating to the joint venture is included in the carrying amount of the investment and is not tested for impairment individually.

The statement of Income Statement reflects the Group’s share of the results of operations of the joint venture. Any change in OCI of those investees is presented as part of the Group’s OCI. In addition, when there has been a change recognised directly in the equity of the joint venture, the Group recognises its share of any changes, when applicable, in the statement of changes in equity. Unrealised gains and losses resulting from transactions between the Group and the joint venture are eliminated to the extent of the interest in the joint venture.

The aggregate of the Group’s share of Income Statement of a joint venture is shown on the face of the statement of Income Statement outside operating profit and represents Income Statement after tax and non-controlling interests in the subsidiaries of the joint venture.


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The Financial Statements of the joint venture are prepared for the same reporting period as the Group. When necessary, adjustments are made to bring the accounting policies in line with those of the Group.

After application of the equity method, the Group determines whether it is necessary to recognise an impairment loss on its investment in its joint venture. At each reporting date, the Group determines whether there is objective evidence that the investment in the joint venture is impaired. If there is such evidence, the Group calculates the amount of impairment as the difference between the recoverable amount of the joint venture and its carrying value, and then recognises the loss as ‘Share of profit of a joint venture’ in the Income Statement.

Upon loss of significant influence over the joint control over the joint venture, the Group measures and recognises any retained investment at its fair value. Any difference between the carrying amount of the joint venture upon loss of significant influence or joint control and the fair value of the retained investment and proceeds from disposal is recognised in Income Statement.

Based on the contractual terms (Joint Venture agreements), the Group assessed that Elpitiya Dianhong Jin Ya Tea Company (Pvt) Ltd and AEN Palm Oil Processing (Pvt) Ltd are joint ventures.

3.1.4 Transactions with non - controlling interests

The Income Statement and net assets of a subsidiary attributable to equity interests that are not owned by the parent, directly or indirectly through subsidiaries, is disclosed separately under the heading “Non- controlling Interest”.

The Group applies a policy of treating transactions with non-controlling - interests as transactions with parties external to the Group.

Losses within a subsidiary are attributed to the non-controlling interest even if that results in a deficit balance.

3.1.5 Transactions eliminated on consolidation

Intra-group balances, transactions and any unrealised income and expenses arising from intra-group transactions, are eliminated in preparing the Consolidated Financial Statements. Unrealised gains arising from transactions with equity accounted investees are eliminated against the investment to the extent of the Group’s interest in the investee. Unrealised losses are eliminated in the same way as unrealised gains, but only to the extent that there is no evidence of impairment.

3.2 Fair value measurement

The Group measures financial instruments and non-financial assets at fair value at each statement of financial position date. Fair value related disclosures for financial instruments and non-financial assets that are measured at fair value are summarised in the following notes:

• Consumable biological assets Note 17

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either:

• In the principal market for the asset or liability Or • In the absence of a principal market, in the most advantageous market for the asset or liability The principal or the most advantageous market must be accessible by the Group.


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The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest.

A fair value measurement of a non-financial asset takes into account a market participant’s ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use.

The Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximising the use of relevant observable inputs and minimising the use of unobservable inputs.

All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorised within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole:

• Level 1 — Quoted (unadjusted) market prices in active markets for identical assets or liabilities

• Level 2 — Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable

• Level 3 — Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable

For assets and liabilities that are recognised in the financial statements on a recurring basis, the Group determines whether transfers have occurred between levels in the hierarchy by re-assessing categorisation (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period.

External valuers are involved for valuation of significant assets, such as Consumable biological assets, and significant liabilities, such as retirement benefit obligation. Involvement of external valuers is decided upon annually by the Management Committee after discussion with and approval by the Company’s Audit Committee. Selection criteria include market knowledge, reputation, independence and whether professional standards are maintained. The Management Committee decides, after discussions with the Group’s external valuers, which valuation techniques and inputs to use for each case.

For the purpose of fair value disclosures, the Group has determined classes of assets and liabilities on the basis of the nature, characteristics and risks of the asset or liability and the level of the fair value hierarchy as explained above.

3.3 Foreign currency transactions

Transactions in foreign currencies are initially recorded by the Group’s entities at their respective functional currency spot rates at the date the transaction first qualifies for recognition.

Monetary assets and liabilities denominated in foreign currencies are translated at the functional currency spot rates of exchange at the reporting date.

Differences arising on settlement or translation of monetary items are recognised in Income Statement with the exception of monetary items that are designated as part of the hedge of the Group’s net investment of a foreign operation. These are recognised in other comprehensive income until the net investment is disposed of, at which time, the cumulative amount is reclassified to Income Statement. Tax charges


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and credits attributable to exchange differences on those monetary items are also recorded in other comprehensive income.

Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates at the dates of the initial transactions. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value is determined. The gain or loss arising on translation of non-monetary items measured at fair value is treated in line with the recognition of the gain or loss on the change in fair value of the item (i.e., translation differences on items whose fair value gain or loss is recognised in OCI or Income Statement are also recognised in OCI or Income Statement, respectively)

3.4 Property, plant and equipment

3.4.1 Recognition and measurement

Property, Plant and Equipment is recognised if it is probable that future economic benefit associated with the assets will flow to the Group and cost of the asset can be reliably measured.

Items of property, plant and equipment are measured at cost (or at fair value in the case of consumable biological asset), less accumulated depreciation and accumulated impairment losses, if any.

3.4.2 Owned assets

The cost of property, plant and equipment includes expenditures that are directly attributable to the acquisition of the asset. Such costs include the cost of replacing part of the property, plant and equipment and borrowing costs for long-term construction projects if the recognition criteria are met. The cost of self-constructed assets includes the cost of materials and direct labor, any other cost directly attributable to bringing the asset to a working condition for its intended use, and the costs of dismantling and removing the items and restoring the site on which they are located. Purchased software that is integral to the functionality of the related equipment is capitalised as a part of that equipment.

When significant parts of property, plant and equipment are required to be replaced at intervals, the entity recognises such parts as individual assets with specific useful lives and depreciation, respectively. Likewise, when a major inspection is preformed, its cost is recognised in the carrying amount of the plant and equipment as a replacement if the recognition criteria are satisfied. All other repair and maintenance costs are recognised as an expense when incurred. The present value of the expected cost for the decommissioning of the asset after its use is included in the cost of the respective asset if the recognition criteria for a provision are met.

Capital work in progress is transferred to the respective asset accounts at the time, the asset is ready for utilisation or at the time the asset is commissioned.

3.4.3 Leased assets The determination of whether an arrangement is (or contains) a lease is based on the substance of the

arrangement at the inception of the lease. The arrangement is, or contains, a lease if fulfillment of the arrangement is dependent on the use of a specific asset or assets and the arrangement conveys a right to use the asset or assets, even if that right is not explicitly specified in an arrangement.

3.4.3.1 Group as a lessee A lease is classified at the inception date as a finance lease or an operating lease. A lease that transfers

substantially all the risks and rewards incidental to ownership to the Group is classified as a finance lease.


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Finance leases are capitalised at the commencement of the lease at the inception date fair value of the leased property or, if lower, at the present value of the minimum lease payments. Lease payments are apportioned between 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 recognised in finance costs in the Income Statement.

A leased asset is depreciated over the useful life of the asset. However, if there is no reasonable certainty that the Group will obtain ownership by the end of the lease term, the asset is depreciated over the shorter of the estimated useful life of the asset and the lease term.

Operating lease payments are recognised as an operating expense in the Income Statement on a straight-line basis over the lease term.

3.4.3.2 Group as a lessor Leases in which the Group does not transfer substantially all risks and rewards of ownership of an asset are

classified as operating leases. Initial direct costs incurred in negotiating and arranging an operating lease are added back to the carrying amount of the leased asset and recognised over the lease term on the same basis as rental income. Contingent rents are recognised as revenue in the period in which they are earned.

3.4.4 Subsequent costs

The cost of replacing part of an item of property, plant and equipment is recognised in the carrying amount of the item, if it is probable that the future economic benefits embodied within the part will flow to the Group and its cost can be measured reliably. The carrying amount of those parts that are replaced is derecognised in accordance with the de-recognition policy given below. The costs of the day-to-day servicing of property, plant and equipment are recognised in income statement as incurred.

3.4.5 De-recognition

An item of property, plant and equipment and any significant part initially recognised is de-recognised upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on de-recognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the income statement in the year the asset is de-recognised and gains are not classified as revenue.

3.4.6 Land improvement cost

Permanent land improvement costs are those costs incurred in making major infrastructure development and building new access roads on leasehold lands.

These costs have 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 assets in the year of occurrence after ascertaining the loss.

3.4.7 Biological assets

Biological assets are classified as mature biological assets 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 classified as biological assets.

Biological assets are further classified as bearer biological assets and consumable biological assets. Bearer biological asset 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


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includes managed timber trees those that are to be harvested as agricultural produce or sold as biological assets.

The entity recognise 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 assets can be measured reliably.

3.4.7.1 Bearer biological asset

The bearer biological assets are measured at cost less accumulated depreciation and accumulated impairment losses, if any, in terms of LKAS 16 – Property, Plant & Equipment.

The cost of land preparation, rehabilitation, new planting, replanting, crop diversification, inter planting and fertilising, etc., incurred between the time of planting and harvesting (when the planted area attains maturity), are classified as immature plantations. These immature plantations are shown at direct costs plus attributable overheads. The expenditure incurred on bearer biological assets (Tea, Rubber and Oil Palm) which comes into bearing during the year, is transferred to mature plantations.

3.4.7.2 Infilling cost on bearer biological assets

The land development costs incurred in the form of infilling have been capitalised where infilling results in an increase in the economic life of the relevant field beyond its previously assessed standard of performance. Infilling costs so capitalised are depreciated over the newly assessed remaining economic useful life of the relevant nature plantation or the unexpired lease period, whichever is lower.

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

3.4.7.3 Borrowing costs

Borrowing costs that are directly attributable to 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 a part of the asset.

Borrowing costs that are not capitalised are recognised as expenses in the period in which they are incurred and charged to the Income Statement.

The amounts of the borrowing costs which are eligible for capitalisation are determined in accordance with the in 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 amount so capitalised is disclosed in Notes to the Financial Statements.

3.4.7.4 Consumable biological asset

Consumable biological assets includes managed timber trees those that are to be harvested as agricultural produce or sold as biological assets. Expenditure incurred on consumable biological assets (managed timber trees) is 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 approximation to fair value of young plants as the


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impact on biological transformation of such plants to price during this 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 by an independent professional valuer. All other assumptions and sensitivity analysis are given in Note 17.2.

The gain or loss arising on initial recognition of consumable biological assets at fair value less cost to sell and from a change in fair value less cost to sell of consumable biological assets are included in profit or loss for the period in which it arises.

Permanent impairments to Biological Asset are charged to the Income Statement in full and reduced to the net carrying amounts of such asset in the year of occurrence after ascertaining the loss.

Consumable biological assets initially recognised is de-recognised upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on de-recognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the Income Statement when the asset is derecognised and gains are not classified as revenue.

3.4.7.5 Nursery plants

Nursery cost includes the cost of direct materials, direct labour and an appropriate proportion of directly attributable overheads, less provision for overgrown plants.

3.4.8 Depreciation and amortisation

(a) Depreciation

Depreciation is recognised in Income Statement on a straight-line basis over the estimated useful economic lives of each part of an item of property, plant and equipment. Assets held under finance leases are depreciated over the shorter of the lease term and the useful lives of equivalent owned assets unless it is reasonably certain that the Group will have ownership by the end of the lease term. Lease period of land acquired from JEDB/SLSPC will be expired in year 2045. The estimated useful lives for the current and comparative periods are as follows.

Property, plant and equipment (Other than mature plantations) No. of years Rate (%)

Building 40 2.50 Electronic machinery 10 10.00 Plant and other machinery 20 5.00 Motor vehicles – Supervisory and motorbikes 8 12.50 Motor vehicles – Others 10 10.00 Equipment – Tools 4 25.00 Equipment – Computer and others 5 20.00 Furniture and fittings 10 10.00 Water sanitation 20 5.00 Civil construction and others 40 2.50 Mature plantations (Replanting and new planting) No. of years Rate (%)

Tea 33 1/3 3.00 Rubber 20 5.00 Oil Palm 20 5.00 Coconut 50 2.00 Cinnamon 20 5.00

Depreciation of an asset begins when it is available for use and ceases at the earlier of the date on which the asset classified as held for sale or is derecognised.


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Depreciation methods, useful lives and residual values are reassessed at the reporting date and adjusted prospectively, if appropriate. Mature plantations are depreciated over their useful lives or unexpired lease period, whichever is lower.

No depreciation is provided for immature plantations.

(b) Amortisation

The leasehold rights of assets taken over from JEDB/SLSPC are amortised in equal amounts over the shorter of the remaining lease periods and the useful lives as follows:

No. of Years Rate (%) Bare land 53 1.89 Mature plantations 30 3.33 Buildings 25 4.00 Machinery 20 5.00 Improvements to land /Other vested assets /Unimproved lands 53 1.89

3.5 Intangible assets

3.5.1 Initial recognition and measurement

The Group recognises intangible assets if it is probable that the expected future economic benefits that are attributable to the asset will flow to the entity and the cost of the asset can be measured reliably.

Separately acquired intangible assets are measured on initial recognition at cost. The cost of such separately acquired intangible assets include the purchase price, import duties, non-refundable purchase taxes and any directly attributable cost of preparing the asset for its intended use. The cost of intangible assets acquired in a business combination is the fair value of the asset at the date of acquisition. The cost of an internally generated intangible asset arising from the development phase of an internal project which is capitalised includes all directly attributable costs necessary to create, produce, and prepare the asset to be capable of operating in the manner intended by the Management. Other development expenditure and expenditure on research activities, undertaken with the prospect of gaining new technical knowledge and understanding is expensed in the income statement as and when incurred.

3.5.2 Subsequent costs

Subsequent expenditure on intangible assets is capitalised only when it increases the future economic benefits embodied in the specific asset to which it relates.

3.5.3 Subsequent measurement

After initial recognition an intangible asset is stated at its costs less any accumulated amortisation and any accumulated impairment losses. The useful economic life of an intangible asset is assessed to be either finite or indefinite. Intangible assets with finite lives are amortised over the useful economic life of the asset. The amortisation period and the amortisation method for an intangible asset with a finite useful life is reviewed at least at the end of each reporting date. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset is accounted for by changing the amortisation period or method, as appropriate, and are treated as changes in accounting estimates. The amortisation expense on intangible assets with finite lives is recognised in the income statement Intangible assets with indefinite useful lives are not amortised, but are tested for impairment annually, either individually or at the cash-generating unit level. The assessment of indefinite life is reviewed annually


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to determine whether the indefinite life continues to be supportable. If not, the change in useful life from indefinite to finite is made on a prospective basis.

3.5.4 Research and development

Expenditure on research activities, undertaken with the prospect of gaining new scientific or technical knowledge and understanding is recognised in income statement when incurred.

Development activities involve a plan or design for the production of new or substantially improved products and processes. Development expenditure is capitalised only if development costs can be measured reliably, the product or process is technically and commercially feasible, future economic benefits are probable and the Group intends to and has sufficient resources to complete development and to use or sell the asset. The expenditure capitalised includes the cost of materials, direct labor and overhead costs that are directly attributable to preparing the asset for its intended use. Other development expenditure is recognised in income statement when incurred.

Capitalised development expenditure is measured as cost, less accumulated amortisation and accumulated impairment losses.

3.6 Financial instruments

A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity.

3.6.1 Financial assets

3.6.1.1 Initial recognition and measurement

Financial assets are classified, at initial recognition, as financial assets at fair value through Income Statement, loans and receivables, held-to-maturity investments, AFS financial assets, or as derivatives designated as hedging instruments in an effective hedge, as appropriate. All financial assets are recognised initially at fair value plus, in the case of financial assets not recorded at fair value through Income Statement, transaction costs that are attributable to the acquisition of the financial asset.

Purchases or sales of financial assets that require delivery of assets within a time frame established by regulation or convention in the market place (regular way trades) are recognised i.e., the date that the Group commits to purchase or sell the asset.

The Group’s financial assets include cash, trade and other receivables, loans and other receivables.

3.6.1.2 Subsequent measurement

The subsequent measurement of financial assets depends on their classification as described below:

(a) Financial assets at fair value through Income Statement

Financial assets at fair value through Income Statement include financial assets held for trading and financial assets designated upon initial recognition at fair value through Income Statement. Financial assets are classified as held for trading if they are acquired for the purpose of selling or repurchasing in the near term.

Financial assets at fair value through Income Statement are carried in the statement of financial position at fair value with net changes in fair value recognised in finance income or finance costs in the Income Statement.


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The Group has not designated any financial assets as at fair value through Income Statement.

(b) Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. After initial measurement, such financial assets are subsequently measured at amortised cost using the effective interest rate method (EIR), less impairment. Amortised cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the EIR. The EIR amortisation is included in finance income in the Income Statement. The losses arising from impairment are recognised in the Income Statement in finance costs for loans and in cost of sales or other operating expenses for receivables.

Loans and receivables comprise of trade receivables, amounts due from related parties, deposits, advances and other receivables and cash and cash equivalents.

(c) Held-to-maturity investments

Non-derivative financial assets with fixed or determinable payments and fixed maturities are classified as held-to-maturity when the Group has the positive intention and ability to hold them to maturity. After initial measurement, held-to-maturity investments are measured at amortised cost using the effective interest method, less impairment.

Amortised cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the EIR. The EIR amortisation is included in finance income in the Income Statement. The losses arising from impairment are recognised in the Income Statement in finance costs.

The group does not have held to maturity investments in year 2018 (2017 - Nil)

(d) Available for sale financial investments

AFS financial assets include equity investments and debt securities. Equity investments classified as AFS are those that are neither classified as held for trading nor designated at fair value through Income Statement. Debt securities in this category are those that are intended to be held for an indefinite period of time and that may be sold in response to needs for liquidity or in response to changes in the market conditions.

After initial measurement, AFS financial assets are subsequently measured at fair value with unrealised gains or losses recognised in OCI and credited in the AFS reserve until the investment is de-recognised, at which time the cumulative gain or loss is recognised in other operating income, or the investment is determined to be impaired, when the cumulative loss is reclassified from the AFS reserve to the statement of Income Statement in finance costs. Interest earned whilst holding AFS financial assets is reported as interest income using the EIR method.

The Group evaluates whether the ability and intention to sell its AFS financial assets in the near term is still appropriate. When, in rare circumstances, the Group is unable to trade these financial assets due to inactive markets, the Group may elect to reclassify these financial assets if the management has the ability and intention to hold the assets for foreseeable future or until maturity.

For a financial asset reclassified from the AFS category, the fair value carrying amount at the date of reclassification becomes its new amortised cost and any previous gain or loss on the asset that has been recognised in equity is amortised to Income Statement over the remaining life of the investment using the EIR. Any difference between the new amortised cost and the maturity amount is also amortised over the


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remaining life of the asset using the EIR. If the asset is subsequently determined to be impaired, then the amount recorded in equity is reclassified to the Income Statement.

The group does not have Available for Sale investments in year 2018 (2017 - Nil)

3.6.1.3 De-recognition

A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is de-recognised when:

• The rights to receive cash flows from the asset have expired. • The Group has transferred its rights to receive cash flows from the asset or has assumed an obligation

to pay the received cash flows in full without material delay to a third party under a ‘pass-through’ arrangement; and either (a) the Group has transferred substantially all the risks and rewards of the asset, or (b) the Group has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.

When the Group has transferred its rights to receive cash flows from an asset or has entered into a pass-through arrangement, it evaluates if and to what extent it has retained the risks and rewards of ownership. When it has neither transferred nor retained substantially all of the risks and rewards of the asset, nor transferred control of the asset, the asset is recognised to the extent of the Group’s continuing involvement in the asset. In that case, the Group also recognises an associated liability. The transferred asset and the associated liability are measured on a basis that reflects the rights and obligations that the Group has retained.

Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of consideration that the Group could be required to repay.

3.6.1.4 Impairment of financial assets

The Group assesses at each reporting date whether there is any objective evidence that a financial asset or a group of financial assets is impaired and if such has been incurred, the amount of the loss is measured as the difference between the assets carrying amount and the present value of estimated future cash flows.

Evidence of impairment may include indications that the debtors or a group of debtors is experiencing significant financial difficulty, default or delinquency in interest or principal payments, the probability that they will enter bankruptcy or other financial reorganisation and when observable data indicate that there is a measurable decrease in the estimated future cash flows, such as changes in arrears or economic conditions that correlate with defaults.

3.6.1.4.1 Financial assets carried at amortised cost

For financial assets carried at amortised cost, the Group first assesses whether impairment exists individually for financial assets that are individually significant, or collectively for financial assets that are not individually significant. If the Group determines that no objective evidence of impairment exists for an


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individually assessed financial asset, whether significant or not, it includes the asset in a group of financial assets with similar credit risk characteristics and collectively assesses them for impairment. Assets that are individually assessed for impairment and for which an impairment loss is, or continues to be, recognised are not included in a collective assessment of impairment.

The amount of any impairment loss identified is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future expected credit losses that have not yet been incurred). The present value of the estimated future cash flows is discounted at the financial asset’s original effective interest rate.

The carrying amount of the asset is reduced through the use of an allowance account and the loss is recognised in the Income Statement. Interest income (recorded as finance income in the Income Statement) continues to be accrued on the reduced carrying amount and is accrued using the rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss. Loans together with the associated allowance are written off when there is no realistic prospect of future recovery and all collateral has been realised or has been transferred to the Group. If, in a subsequent year, the amount of the estimated impairment loss increases or decreases because of an event occurring after the impairment was recognised, the previously recognised impairment loss is increased or reduced by adjusting the allowance account. If a write-off is later recovered, the recovery is credited to finance costs in the Income Statement.

3.6.1.4.2 Available for sale financial assets

For AFS financial assets, the Group assesses at each reporting date whether there is objective evidence that an investment or a group of investments is impaired.

In the case of equity investments classified as AFS, objective evidence would include a significant or prolonged decline in the fair value of the investment below its cost. ‘Significant’ is evaluated against the original cost of the investment and ‘prolonged’ against the period in which the fair value has been below its original cost. When there is evidence of impairment, the cumulative loss – measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that investment previously recognised in the Income Statement – is removed from OCI and recognised in the Income Statement. Impairment losses on equity investments are not reversed through Income Statement; increases in their fair value after impairment are recognised in OCI.

The determination of what is ‘significant’ or ‘prolonged’ requires judgment. In making this judgment, the Group evaluates, among other factors, the duration or extent to which the fair value of an investment is less than its cost.

In the case of debt instruments classified as AFS, the impairment is assessed based on the same criteria as financial assets carried at amortised cost. However, the amount recorded for impairment is the cumulative loss measured as the difference between the amortised cost and the current fair value, less any impairment loss on that investment previously recognised in the Income Statement.

Future interest income continues to be accrued based on the reduced carrying amount of the asset, using the rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss. The interest income is recorded as part of finance income. If, in a subsequent year, the fair value of a debt instrument increases and the increase can be objectively related to an event occurring after the impairment loss was recognised in the Income Statement, the impairment loss is reversed through the Income Statement.


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3.6.2 Financial liabilities

3.6.2.1 Initial recognition and measurement

Financial liabilities are classified as financial liabilities at fair value through Income Statement, loans and borrowings, or as derivatives designated as hedging instruments in an effective hedge, as appropriate.

All financial liabilities are recognised initially at fair value and, in the case of loans and borrowings, and payables, net of directly attributable transaction costs.

The Group’s financial liabilities include trade and other payables, bank overdrafts, loans and borrowings.

3.6.2.2 Subsequent measurement

The subsequent measurement of financial liabilities depends on their classification as described below:

(a) Financial liabilities at fair value through Income Statement

Financial liabilities at fair value through Income Statement include financial liabilities held for trading and financial liabilities designated upon initial recognition as at fair value through Income Statement.

Financial liabilities are classified as held for trading if they are incurred for the purpose of repurchasing in the near term. This category also includes derivative financial instruments entered into by the Group that are not designated as hedging instruments in hedge relationships as defined by LKAS 39. Separated embedded derivatives are also classified as held for trading unless they are designated as effective hedging instruments.

Gains or losses on liabilities held for trading are recognised in the Income Statement.

Financial liabilities designated upon initial recognition at fair value through Income Statement are designated at the initial date of recognition, and only if the criteria in LKAS 39 are satisfied. The Group has not designated any financial liability as at fair value through Income Statement.

(b) Loans and borrowings

After initial recognition, interest bearing loans and borrowings are subsequently measured at amortised cost using the effective interest rate method. Gains and losses are recognised in the Income Statement when the liabilities are de-recognised as well as through the effective interest rate method (EIR) amortisation process.

Amortised cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the EIR.

3.6.2.3 De-recognition

A financial liability is de-recognised when the obligation under the liability is discharged or cancelled or expires.

When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as the de-recognition of the original liability and the recognition of a new liability. The difference in the respective carrying amounts is recognised in the Income Statement.


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3.6.3 Offsetting of financial instruments

Financial assets and financial liabilities are offset and the net amount reported in the Consolidated Statement of Financial Position if, and only if, there is a currently enforceable legal right to offset the recognised amounts and there is an intention to settle on a net basis, or to realise the assets and settle the liabilities simultaneously.

Financial risk management objectives and policies have been disclosed under Note 42.

3.7 Inventories

3.7.1 Finish goods manufactured from agricultural produce of biological assets

These are valued at the lower of cost and estimated net realisable value. Net realisable value is the estimated selling price at which stocks can be sold in the ordinary course of business after allowing for cost of realisation and/or cost of conversion from their existing state to saleable condition.

3.7.2 Input materials, spares and consumables

At actual cost on weighted average basis.

3.7.3 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. The finished and semi-finished inventories from agriculture produce are valued by adding the cost of conversion to the fair value of the agricultural produce.

3.8 Cash and cash equivalents

Cash and cash equivalents comprise cash balances and call deposits. Bank overdrafts that are repayable on demand form and integral part of the Group’s cash management and

are included as a component of cash and cash equivalents for the purpose of the Statement of Cash Flows.

3.9 Impairment of non-financial assets

The Group assesses, at each reporting date, whether there is an indication that an asset may be impaired. If any indication exists, or when annual impairment testing for an asset is required, the Group estimates the asset’s recoverable amount. An asset’s recoverable amount is the higher of an asset’s or cash-generating unit’s (CGU) fair value less costs of disposal and its value in use. The recoverable amount is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets. When the carrying amount of an asset or CGU 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. In determining fair value less costs of disposal, recent market transactions are taken into account. If no such transactions can be identified, an appropriate valuation model is used. These calculations are corroborated by valuation multiples, quoted share prices for publicly traded companies or other available fair value indicators.

The Group bases its impairment calculation on detailed budgets and forecast calculations, which are prepared separately for each of the Group’s CGUs to which the individual assets are allocated. These budgets and forecast calculations generally cover a period of five years. For longer periods, a long-term growth rate is calculated and applied to project future cash flows after the fifth year.


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Impairment losses of continuing operations, including impairment on inventories, are recognised in the Income Statement in expense categories consistent with the function of the impaired asset, except for properties previously revalued with the revaluation taken to OCI. For such properties, the impairment is recognised in OCI up to the amount of any previous revaluation.

For assets excluding goodwill, an assessment is made at each reporting date to determine whether there is an indication that previously recognised impairment losses no longer exist or have decreased. If such indication exists, the Group estimates the asset’s or CGU’s recoverable amount. A previously recognised impairment loss is reversed only if there has been a change in the assumptions used to determine the asset’s recoverable amount since the last impairment loss was recognised. The reversal is limited so that the carrying amount of the asset does not exceed its recoverable amount, nor 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 a revalued amount, in which case, the reversal is treated as a revaluation increase.

Goodwill is tested for impairment annually as at 31 March and when circumstances indicate that the carrying value may be impaired.

Impairment is determined for goodwill by assessing the recoverable amount of each CGU (or group of CGUs) to which the goodwill relates. When the recoverable amount of the CGU is less than its carrying amount, an impairment loss is recognised. Impairment losses relating to goodwill cannot be reversed in future periods.

Intangible assets with indefinite useful lives are tested for impairment annually as at 31 March at the CGU level, as appropriate, and when circumstances indicate that the carrying value may be impaired.

3.10 Provisions

Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, 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 Group expects some or all of a provision to be reimbursed, the reimbursement is recognised as a separate asset, but only when the reimbursement is virtually certain. The expense relating to any provision is presented in the Income Statement, net of any reimbursement.

3.11 Employees’ benefits

(a) Defined contribution plans – Employees’ Provident Fund and Employees’ Trust Fund

A defined contribution plan is a post-employment benefit plan under which an entity pays fixed contributions into a separate entity and will have no legal or constructive obligation to pay further amounts. Obligations for contributions to Provident and Trust Funds covering all employees are recognised as an expense in income statement in the periods during which services are rendered by employees.

The Company contributes 12% on consolidated salary of the employees to Ceylon Planters’ Provident Society (CPPS) / Estate Staff Provident Society (ESPS) / Employees’ Provident Fund (EPF)

All the employees of the Company are members of the Employees Trust Fund to which the Company contributes 3% on the consolidated salary of such employees.


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(b) Defined benefit plan

A defined benefit plan is a post-employment benefit plan other than a defined contribution plan. The liability recognised in the Financial Statement in respect of defined benefit plan is the present value of the defined benefit obligation at the reporting date. The defined benefit obligation is calculated annually using the Projected Unit Credit Actuarial Cost method. The present value of the defined benefit obligation is determined by discounting the estimated future cash flows using the interest rates that are denominated in the currency in which the benefits will be paid, and that have terms to maturity approximating to the terms of the related liability. Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions are recognised in Other Comprehensive Income in the period they arise. Actuarial gains and losses recognised in the comprehensive income are recognised immediately in retained earnings and not reclassified to profit or loss. Past service costs are recognised immediately in the Income Statement.

The provision has been made for retirement gratuities from the first year of service for all employees, in conformity with LKAS 19 – ‘Employees Benefits’. However, under the Payment of Gratuity Act. No. 12 of 1983, the liability to an employee arises only on completion of 5 years of continued service.

The liability is not externally funded.

The key assumptions used in determining the retirement benefit obligations are given in Note 32.

3.12 Deferred income - Grants and subsidies

Government grants are recognised where there is reasonable assurance that the grant will be received and all attached 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 recognised as deferred income and released to income in equal amounts over the expected useful life of the related asset.

Where the Group receives non-monetary grants, the asset and the grant are recorded gross at nominal amounts and released to the Income Statement over the expected useful life and pattern of consumption of the benefit of the underlying asset by equal annual installments. Where loans or similar assistance are provided by governments or related institutions with an interest rate below the current applicable market rate, the effect of this favorable interest is regarded as additional Government grant.

Grants related to Property, Plant & Equipment other than grants received for forestry are initially deferred and allocated to income on a systematic basis over the useful life of the related Property, Plant & Equipment as follows: Assets are amortised over their useful lives or unexpired lease period, whichever is less.

Sanitation and water supply - 20 years Grants received for forestry are initially deferred and credited to income once when the related blocks of

trees are harvested.

3.13 Current versus non-current classification

The Group presents assets and liabilities in statement of financial position based on current/non -current classification. An asset as current when it is:


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• Expected to be realised or intended to sold or consumed in normal operating cycle • Held primarily for the purpose of trading • Expected to be realised within twelve months after the reporting period

Or

• Cash or cash equivalent unless restricted from being exchanged or used to settle a liability for at least twelve months after the reporting period

All other assets are classified as non-current.

A liability is current when:

• It is expected to be settled in normal operating cycle.

• It is held primarily for the purpose of trading.

• It is due to be settled within twelve months after the reporting period.

Or

• There is no unconditional right to defer the settlement of the liability for at least twelve months after the reporting period.

The Group classifies all other liabilities as non-current.

Deferred tax assets and liabilities are classified as non-current assets and liabilities.

3.14 Income statement

For the purpose of presentation of Income Statement, the function of expenses method is adopted as it represents fairly the elements of the Group’s performance.

3.14.1 Revenue

Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured, regardless of when the payment is being made. Revenue is measured the fair value of the consideration received or receivable, taking into account contractually defined terms of payment and excluding taxes or duty.

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

• Gains and losses on disposal of an item of property, plant and equipment are determined by comparing the net sales proceeds with the carrying amounts of property, plant and equipment and are recognised within other operating income in the Income Statement.


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• Interest income is recognised on accrual basis.

• Dividend is recognised when the Group’s right to receive the payment is established, which is generally when shareholders approve the dividend.

• Rental income arising from operating leases on properties is accounted for on a straight line basis over the lease terms.

3.14.2 Expenses

All expenditure incurred in the running of the business and in maintaining the property, plant and equipment in a state of efficiency is charged to revenue in arriving at the profit for the year.

3.14.3 Finance income and finance expenses

Finance income comprises interest income on funds invested. Interest income is recognised in the Income Statement as it accrues.

Finance expenses comprise interest payable on borrowing. Borrowing cost that are not directly attributable to the acquisition, construction or production of a qualifying asset are recognised in income statement using the effective interest method.

The interest expense component of finance lease payments is allocated to each period during the lease term so as to produce a constant periodic rate of interest on the remaining balance of the liability.

Foreign currency gains and losses are reported on a net basis.

3.14.4 Taxes

3.14.4.1 Current income tax

Current income tax assets and liabilities are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted, at the reporting date in the countries where the Group operates and generates taxable income.

Current income tax relating to items recognised directly in equity is recognised in equity and not in the Income Statement. Management periodically evaluates positions taken in the tax returns with respect to situations in which applicable tax regulations are subject to interpretation and establishes provisions where appropriate.

The Company is liable to pay income tax at 12% on its agricultural profits, and 28% on the manufacturing profits. Elpitiya Plantations PLC is liable to pay income tax at 10% on its agricultural profits, 28% on the manufacturing profits and 12% on hydro power project income.

EPP Hydro Power Company (Pvt) Ltd.

As per the section 17 of the BOI Law No.4 of 1978 and regulations there to, EPP Hydro Power Company (Pvt) Ltd. is exempted from income tax for 5 years from the year of assessment in which the Company commences to make the profit or any year of assessment not later than 2 years reckoned from the date of commencement of commercial operations whichever is earlier as may be specified in a certificate issued by the Board. Accordingly this exemption is commenced from the year of Assessment 2014/2015


77


3.14.4.2 Deferred tax

Deferred tax is provided using the liability method on temporary differences between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes at the reporting date.

Deferred tax liabilities are recognised for all taxable temporary differences, except:

• When the deferred tax liability arises from the initial recognition of goodwill or an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable Income Statement.

• In respect of taxable temporary differences associated with investments in subsidiaries, associates and interests in joint ventures, when the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future.

Deferred tax assets are recognised for all deductible temporary differences, the carry forward of unused tax credits and any unused tax losses. Deferred tax assets are recognised 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 utilised, except:

• When the deferred tax asset relating to the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable Income Statement.

• In respect of deductible temporary differences associated with investments in subsidiaries, associates and interests in joint ventures, deferred tax assets are recognised only to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilised.

The carrying amount of deferred tax assets is reviewed at each reporting 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 re-assessed at each reporting date and are recognised to the extent that it has become probable that future taxable profits will allow the deferred tax asset to be recovered.

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

Deferred tax relating to items recognised outside Income Statement is recognised outside Income Statement. Deferred tax items are recognised in correlation to the underlying transaction either in OCI or directly in equity.

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

Tax benefits acquired as part of a business combination, but not satisfying the criteria for separate recognition at that date, are recognised subsequently if new information about facts and circumstances change. The adjustment is either treated as a reduction in goodwill (as long as it does not exceed goodwill) if it was incurred during the measurement period or recognised in Income Statement.


78


3.15 Segment reporting

Segmental information is provided for the different business segments of the Group. An operating segment is a component of the Group that engages in business activities from which it may earn revenues and incur expenses, including revenues and expenses that relate to transactions with any of the Group’s other components.

Since the individual segments are located close to each other and operate in the same industrial environment, the need for geographical segmentation has no material impact.

The activities of the segments are described on Note 13 in the Notes to the Financial Statements. The group transfers products from one industry segment for use in another. Inter-segment transfers are based on fair market prices.

Revenue and expenses directly attributable to each segment are allocated 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 to the respective segments. Assets and liabilities, which are not directly attributable to a segment, are allocated on a reasonable basis wherever possible. Unallocated items comprise mainly interest bearing loans, borrowings, and expenses.

Segment capital expenditure is the total cost incurred during the period to acquire segment assets that are expected to be used for more than one accounting period.

All operating segments’ operating results are reviewed regularly to make decisions about resources to be allocated to the segment and assess its performance, and for which discrete financial information is available.

3.16 Other general accounting policies

3.16.1 Statement of cash flow

The statement of cash flow has been prepared using the “Indirect Method”. Interest paid is classified as operating cash flows, interest and dividends received are classified as investing cash flows while dividends paid and government grants received are classified as financing cash flows, for the purpose of presenting the cash flow statement.

3.16.2 Earnings per share

The Group presents basic earnings per share (EPS) for its ordinary shares. Basic EPS is calculated by dividing the Income Statement attributable to ordinary shareholders of the Parent by the weighted average number or ordinary shares outstanding during the period.

3.16.3 Capital commitments and contingencies

Capital commitments and contingent liabilities of the Group have been disclosed in the respective notes to the Financial Statements.

3.16.4 Events occurring after the reporting date

All material post reporting date events have been considered and where appropriate adjustment to or disclosures have been made in the Financial Statements.


79


4. USE OF ESTIMATES AND JUDGMENTS

The preparation of Financial Statements in conformity with SLFRS requires management to make judgments, estimates and assumptions that influence the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Judgments and estimates are based on historical experience and other factors, including expectations that are believed to be reasonable under the circumstance. Hence, actual experience and results may differ from these judgments and estimates.

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

Information about significant areas of estimation uncertainty and critical judgments in applying accounting policies that have the most significant effect on the amounts recognised in the Financial Statements is included in the following notes.

4.1 Taxation

Deferred tax assets are recognised for unused tax losses to the extent that it is probable that taxable profit will be available against which the losses can be utilised. Significant management judgment is required to determine the amount of deferred tax assets that can be recognised, based upon the likely timing and the level of future taxable profits together with future tax planning strategies.

4.2 Retirement benefit obligations

The present value of the retirement benefit obligations depends on a number of factors that are determined on an actuarial basis using a number of assumptions. Key assumptions used in determining the retirement benefit obligations are given in Note 32. Any changes in these assumptions will impact the carrying amount of retirement benefit obligations.

4.3 Fair valuation of consumable biological assets The fair value of managed timber depends on number of factors that are determined on a discounted cash

flow method using various different financial and non-financial assumptions. The growth of the trees is determined by various biological factors that are highly unpredictable. Any change to the assumptions will impact the fair value of biological assets. Key assumptions and sensitivity analysis of the biological assets are given in Note 17.2.

4.4 Impairment of non-financial assets. Impairment exists when the carrying value of an asset or cash generating unit exceeds its recoverable

amount, which is the higher of its fair value less costs of disposal and its value in use. The fair value less costs of disposal calculation is based on available data from binding sales transactions, conducted at arm’s length, for similar assets or observable market prices less incremental costs for disposing of the asset. The value in use calculation is based on a DCF model. The cash flows are derived from the budget for the next five years and do not include restructuring activities that the Group is not yet committed to or significant future investments that will enhance the asset’s performance of the CGU being tested. The recoverable amount is sensitive to the discount rate used for the DCF model as well as the expected future cash-inflows and the growth rate used for extrapolation purposes. These estimates are most relevant to goodwill and other intangibles with indefinite useful lives recognised by the Group.


80


5. NEW AND AMENDED STANDARDS ISSUED BUT NOT EFFECTIVE AS AT THE REPORTING DATE

The Institute of Chartered Accountants of Sri Lanka has issued the following standards which become effective for annual periods beginning after the current financial year. Accordingly these standards have not been applied in preparing these financial statements and the Group plans to apply these standards as and when they become effective. The Group is currently in the process of evaluating the potential effects of adoption of these standards and amendments on its financial statements. Such impact has not been quantified as at the balance sheet date.

SLFRS 9 – Financial Instruments – effective for annual periods beginning on or after 1 January 2018.

The final version of SLFRS 9 - Financial Instruments that replaces LKAS 39 - Financial Instruments: Recognition and Measurement and all previous versions of SLFRS 9. SLFRS 9 brings together all three aspects of the accounting for the financial instruments i.e. classification and measurement, impairment and hedge accounting. SLFRS 9 is effective for annual periods beginning on or after 1st January 2018, with early application is permitted. Except for hedge accounting, retrospective application is required, but providing comparative information is not compulsory. For hedge accounting the requirements are generally applied prospectively with some limited exceptions.

The Group has made arrangements to adopt the new standard on the required effective date. Having performed a high-level impact assessment of all three aspects of SLFRS 9 on the Group companies, the Group expects no significant impact to its income statement or statement of financial position due to this standard.

SLFRS 15 – Revenue from Contracts with Customers– effective for annual periods beginning on or after 1 January 2018.

SLFRS 15 establishes a five-step model to account for revenue arising from contracts with customers. Under IFRS 15, revenue is recognised at an amount that reflects the consideration to which an entity expects to be entitled in exchange for transferring goods or services to a customer.

The new revenue standard will supersede all current revenue recognition requirements under SLFRS. Either a full retrospective application or a modified retrospective application is required for annual periods beginning on or after 1 January 2018. Early adoption is permitted. The Group has made necessary arrangements to adopt the new standard on the required effective date using the full retrospective method. The Group performed a preliminary assessment of SLFRS 15 and determined that its impact on the financial statements would be insignificant.

SLFRS 16 – Leases – effective for annual periods beginning on or after 1 January 2019.

SLFRS 16 replaces LKAS 17 Leases and related interpretations (IFRIC 4 Determining whether an Arrangement contains a Lease, SIC-15 Operating Leases- Incentives and SIC-27 Evaluating the Substance

of Transactions Involving the Legal Form of a Lease). SLFRS 16 sets out the principles for the recognition, measurement, presentation and disclosure of leases and requires lessees to account for all leases under a single on-balance sheet model similar to the accounting for finance leases under LKAS 17. The standard includes two recognition exemptions for lessees – leases of ’low-value’ assets (e.g., personal computers) and short-term leases (i.e., leases with a lease term of 12 months or less). At the commencement date of a lease, a lessee will recognise a liability to make lease payments (i.e., the lease liability) and an asset


81

representing the right to use the underlying asset during the lease term (i.e., the right-of-use asset). Lessees will be required to separately recognise the interest expense on the lease liability and the depreciation expense on the right-of-use asset.

Lessees will be also required to remeasure the lease liability upon the occurrence of certain events (e.g., a change in the lease term, a change in future lease payments resulting from a change in an index or rate used to determine those payments). The lessee will generally recognise the amount of the re-measurement of the lease liability as an adjustment to the right-of-use asset.

Lessor accounting under SLFRS 16 is substantially unchanged from the current requirements under LKAS 17. Lessors will continue to classify all leases using the same classification principle as in LKAS 17 and distinguish between two types of leases: operating and finance leases.

SLFRS 16 also requires lessees and lessors to make more extensive disclosures than under LKAS 17.

SLFRS 16 is effective for annual periods beginning on or after 1 January 2019. Early application is permitted, but not before an entity applies SLFRS 15. A lessee can choose to apply the standard using either a full retrospective or a modified retrospective approach. The standard’s transition provisions permit certain reliefs.

The Group is currently in the process of assessing the potential effect of SLFRS 16 on its consolidated financial statements.



82

6. Revenue Group Company

2018 2017 2018 2017 Rs. Rs. Rs. Rs. Sale of produce

Tea 2,713,703,492 2,142,894,884 - - Rubber 206,764,598 224,671,218 - - Oil palm 683,876,383 619,633,860 - - Other crops 7,881,117 9,199,570 - -

Services provided Management fees - - 73,500,000 70,383,929 Hydro power generation income 19,424,413 13,391,707 - - 3,631,650,003 3,009,791,239 73,500,000 70,383,929

7. Other income and gains Group Company

2018 2017 2018 2017 Rs. Rs. Rs. Rs. Profit on sale of timber trees 32,378,533 3,056,614 - - Profit from sale of other trees 32,111,976 45,226,208 - - Profit from refuse tea project 46,935,744 46,992,811 - - Revenue on Sheen mini hydro power project 13,446,670 19,681,576 - - Revenue on Dunsinane mini hydro power project 5,897,058 5,045,258 - - Amortisation of capital grants 13,224,278 12,477,532 - - Income from sub lease 8,634,816 3,804,779 - - Amortisation of defferred income from sublease 3,975,846 5,327,975 - - Gain on disposal of property, plant and equipment 6,820,700 2,486,009 - - Items written back 173,455 1,266,151 - - Amortization of lease hold right to use of land 5,479,310 5,479,310 - - Other income 8,645,430 7,681,655 - - Dividend from group companies - - 91,703,703 22,458,677 Solar Power Income 3,207,050 - - - 180,930,866 158,525,878 91,703,703 22,458,677

8. Net finance income/( expense) Group Company

2018 2017 2018 2017 Rs. Rs. Rs. Rs.8.1 Finance income Interest income 4,313,176 1,513,262 2,543,498 1,122,262 Interest income on finance lease 1,226,942 1,189,228 - - 5,540,118 2,702,490 2,543,498 1,122,262 8.2 Finance expense Overdraft interest 2,003,045 17,370,605 - - Term loan interest 44,903,088 55,969,155 - - Interest on government lease 6,904,702 6,904,907 - - Variable lease rentals 28,321,580 26,979,168 - - Other lease interest - 223,300 - - Exchange loss 251,427 228,387 - - 82,383,842 107,675,522 - - Capitalization of borrowing cost on immature

plantations (Note 16) (20,425,745) (26,912,547) - - 61,958,097 80,762,975 - - Net finance income/(expense) (56,417,979) (78,060,485) 2,543,498 1,122,262

9. Share of profit/(loss) from equity accounted investees Group Company

2018 2017 2018 2017 Rs. Rs. Rs. Rs.

AEN Palm Oil Processing (Pvt) Ltd 2,989,744 70,000,370 - - Elpitiya Dianhong Jin Ya Tea Company (Pvt) Ltd - (8,922,879) - - Venture Valley (Pvt) Ltd - (235,805) - - 2,989,744 60,841,686 - -



83

10. Profit before tax is stated after deducting Group Company Profit before income tax is stated after charging 2018 2017 2018 2017 all expenses including the followings : Rs. Rs. Rs. Rs.

Directors' fees and other emoluments 30,264,038 33,049,301 2,740,000 1,050,000 Auditors' remuneration - Statutory audit 3,590,433 3,477,000 310,000 295,000 - Audit related 410,000 700,339 410,000 305,000 Depreciation and amortization 211,064,949 190,565,548 - - Staff costs 1,276,214,159 1,209,509,057 - -

Define contribution plan costs - EPF and ETF 163,691,181 149,173,510 - - Define benefit plan costs 79,488,501 96,929,823 947,604 902,532 Donations 1,365,500 52,020 - -

11. Income tax Group Company 11.1 Income tax expense 2018 2017 2018 2017 Rs. Rs. Rs. Rs.

Income statement Tax on current year profits 38,377,689 24,938,343 11,100,000 10,400,000 Over provision in respect of previous years (318,961) (4,734,035) - (170,424) Tax on dividends paid by group companies 9,108,304 1,049,913 - - Unrecoverable Economic Service Charge - 30,129 - - Origination/(reversal) of temporary differences 44,523,095 32,256,809 (1,010,751) (140,213) 91,690,127 53,541,159 10,089,249 10,089,363 Statement of other comprehensive income Origination of temporary differences (9,740,389) 25,315,877 - - 9,740,389 25,315,877 - - 11.2 Reconciliation of the accounting profit and tax on current year

Group Company

2018 2017 2018 2017 Rs. Rs. Rs. Rs.

Profit before taxation 668,764,755 530,696,557 161,987,216 89,865,695 Income not liable for income tax 5,588,013 13,299,349 (91,703,703) (22,458,677) Profit from equity accounted investees (2,989,744) (60,841,686) - - Profit after adjustments 671,363,024 483,154,220 70,283,513 67,407,018

Aggregate disallowed expenses 353,525,728 346,244,750 76,630 19,913 Aggregate allowable deductions (539,742,541) (534,915,551) - - Business profit 485,146,211 294,483,419 70,360,143 67,426,931 Utilization of tax losses (145,802,737) (77,381,608) - - Current year tax losses not utilized- Subsidiaries 182,893 665,581 - - Taxable income 339,526,367 217,767,392 70,360,143 67,426,931 Income tax charged at

Income Tax @ 10% 26,076,390 14,500,000 - - Income Tax @ 12% 7,262,639 6,369,816 6,556,850 6,369,816 Income Tax @ 28% 5,038,660 4,068,527 4,543,150 4,030,184 38,377,689 24,938,343 11,100,000 10,400,000

Aitken Spence Plantation Managements PLC being the management company of Elpitiya Plantations PLC is liable to pay income tax at 10% on its agricultural profits, and 28% on the manufacturing profits as per the Inland Revenue Act No 10. of 2006 and amendments thereto.

Elpitiya Plantations PLC is liable to pay income tax at 10% on its agricultural profits, 28% on the manufacturing profits and 12% on hydro power project income.

The carried forward tax losses of the Elpitiya Plantation PLC as at 31 March 2018 amounts to Rs. 984,962,925/- (Provisional). (2016/2017 - 1,129,743,479/-)



84

11.3 Deferred tax (expense) / reversal Group Company

2018 2017 2018 2017 Rs. Rs. Rs. Rs. Income Statement Accelerated depreciation for tax purposes

- Property, plant and equipment (3,602,227) (7,761,856) - 2,987 - Biological assets (183,780,424) (21,668,851) - -

Tax effect of provision for obsolete inventories (315,200) - - - Tax effect of provisions for doubtful debts (1,631,531) - - - Tax effect of retirement benefit obligations (6,614,034) 4,666,056 1,010,751 137,226 Tax losses available for offsetting future taxable income (40,152,761) (7,492,158) - - (236,096,177) (32,256,809) 1,010,751 140,213 Statement of Other Comprehensive Income

Tax effect of retirement benefit obligations 9,740,389 (25,315,877) - - 9,740,389 (25,315,877) - -

Deferred tax expense (226,355,788) (57,572,686) 1,010,751 140,213 As per the new Inland Revenue Act No. 24 of 2017 which is effective from 1 April 2018, agricultural business will

attract increased income tax at 14% (previously 10%). Consequently, the deferred tax liability arising from accelerated capital allowances mainly relating to biological assets has increased from Rs. 183,631,244/- to Rs.409,987,029/-, resulting in an amount of Rs. 236,096,177/- being required to be recognized in the current years income statement, in accordance with LKAS 12.

The details are as follows for the Elpitiya Plantations PLC; Rs. Rs. i) Current years Deferred Tax relating to the origination and revesal of

temporary differences in the current year 45,533,846 ii) Impact of the changes in tax rates on the current years temporary differences 5,308,912 iii) Impact of the changes in tax rates on the brought forward temporary differences 185,253,419 190,562,331 236,096,177

To enhance the users understanding on resulting deferred tax impact due to income tax rate changes, additional line items have been presented on the Statement of Profit or Loss. Further, Earnings per share before and after such deferred tax impact also presented in the Note 12 to the Financial Statements.

12 Earnings per share

12.1 Earnings per share before adjustments for deferred tax due to tax rate changes Group Company

2018 2017 2018 2017 Profit attributable to ordinary

shareholders of the parent (Rs.) 571,765,716 477,155,398 151,897,967 79,776,332 Weighted average number of ordinary shares 21,300,000 21,300,000 21,300,000 21,300,000 Earnings per share (Rs.) 26.84 22.40 7.13 3.75

The computation of the basic earnings per share is based on profit attributable to ordinary shareholders for the year before deferred tax adjustments due to tax rate changes, divided by weighted average number of ordinary shares outstanding during the year.

12.2 Earnings per share after adjustments for deferred tax due to tax rate changes Group Company

2018 2017 2018 2017 Profit attributable to ordinary shareholders

of the parent (Rs.) 257,819,123 318,367,832 151,897,967 79,776,332 Weighted average number of ordinary shares 21,300,000 21,300,000 21,300,000 21,300,000 Earnings per share (Rs.) 12.10 14.95 7.13 3.75

The computation of the basic earnings per share is based on profit attributable to ordinary shareholders for the year after deferred tax adjustments due to tax rate changes, divided by weighted average number of ordinary shares outstanding during the year .



85

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87


14. Lease hold property plant and equipment Group Company

As at As at As at As at 31 March 2018 31 March 2017 31 March 2018 31 March 2017 Note Rs. Rs. Rs. Rs.

Right-of-use-land 14.1 143,321,556 148,587,980 - - Immovable bearer biological assets 14.2 87,519,612 100,097,652 - - Other leased propery plant and equipments 14.3 4,783,057 5,073,451 - - 235,624,225 253,759,083 - -

14.1 Right-to-use-of land

“Right-to-use of land on lease” as above was previously titled "Leasehold right to bare land". The change is in order to comply with Statement of Recommended Practice (SoRP) issued by the Institute of Chartered Accountants of Sri Lanka dated 21 August 2013. Such leases have been executed for all estates for a period of 53 years.

This right-to-use land is amortised over the remaining lease term or useful life of the right whichever is shorter and is disclosed under non-current assets. The Statement of Recommended Practice (SoRP) for right-to-use of land does not permit further revaluation of right-to-use land. The values taken into the Statement of Financial Position as at 18 June 1992 and amortization of the right to use land up to 31 March 2018 are as follows,

Group Company

As at As at As at As at 31 March 2018 31 March 2017 31 March 2018 31 March 2017 Rs. Rs. Rs. Rs.

Revalued amount capitalised 279,120,479 279,120,479 - - 279,120,479 279,120,479 - - Amortisation

At the beginning of the year 130,532,499 125,266,075 - - Amortization charge for the period 5,266,424 5,266,424 - - At the end of the year 135,798,923 130,532,499 - - Carrying amount 143,321,556 148,587,980 - -

14.2 Immovable estate assets on finance lease other than right to use of land In terms of the ruling of the UITF of the Institute of Chartered Accountants of Sri Lanka prevailed at the time of

privatisation of plantation estates, all immovable assets in these estates under finance leases have been taken into the books of the Company retroactive to 22 June 1992. For this purpose, the Board decided at its meeting on 8 March 1995, that these assets be restated at their book values as they appear in the books of the JEDB/SLSPC, on the day immediately preceding the date of formation of the Company. These assets are taken into the Statement of Financial Position as at 22 June 1992 and amortisation of immovable leased assets to 31 March 2018 are as follows.


88

14.2.1 Immovable leased bearer biological assets on finance lease

Group Company Mature Immature Mature Immature plantations plantations Total plantations plantations Total Rs. Rs. Rs. Rs. Rs. Rs. Revaluation

Revaluation as at 22 June 1992 95,362,391 283,368,199 378,730,590 - - - Transferred to mature plantations 283,368,199 (283,368,199) - - - - Acquired by the government 2002/2003 (1,389,400) - (1,389,400) - - - Assets transferred to Joint Venture companies (19,773,222) - (19,773,222) - - - Revaluation as at 31 March 2018 357,567,968 - 357,567,968 - - -

Amortisation As at 1 April 2017 257,470,316 - 257,470,316 - - -

Amortisation charge for the year 12,578,040 - 12,578,040 - - - As at 31 March 2018 270,048,356 - 270,048,356 - - - Written down value As at 31 March 2018 87,519,612 - 87,519,612 - - - As at 31 March 2017 100,097,652 - 100,097,652 - - -

14.3 Other leased property, plant and equipment

Group Improvements Unimproved Plant and Other Vested to land lands Buildings Machinery Assets Total Rs. Rs. Rs. Rs. Rs. Rs.

Revaluation Revaluation as at 22 June1992 4,214,618 1,564,267 73,002,143 47,785,047 4,028,217 130,594,292 Acquired by the government 2002/2003 - - (3,390,250) - - (3,390,250) Assets transferred to Joint Venture companies - - (5,536,000) - - (5,536,000) Revaluation as at 31 March 2018 4,214,618 1,564,267 64,075,893 47,785,047 4,028,217 121,668,042

Amortisation As at 1 April 2017 2,355,666 597,668 63,970,538 47,785,047 1,885,672 116,594,591

Amortisation charge for the year 79,521 29,514 105,355 - 76,004 290,394 As at 31 March 2018 2,435,187 627,182 64,075,893 47,785,047 1,961,676 116,884,985 Written down value As at 31 March 2018 1,779,431 937,085 - - 2,066,541 4,783,057 As at 31 March 2017 1,858,952 966,599 105,355 - 2,142,545 5,073,451



89

15. Freehold property, plant and equipment - (Other than bearer biological assets)15.1 Group As at Additions/ Disposals/ As at 1 April 2017 Transfers Transfers 31 March 2018 Rs. Rs. Rs. Rs. At cost Buildings 44,773,399 4,952,618 - 49,726,017 Motor vehicles 172,339,138 30,460,000 (3,769,350) 199,029,788 Plant and machinery 269,948,581 13,452,811 - 283,401,392 Furniture and fittings 11,997,323 252,553 - 12,249,876 Equipment and tools 107,348,159 15,029,844 (1,650,000) 120,728,003 Water sanitation 249,152,182 1,448,872 - 250,601,054 Solar Power Assets - 27,543,000 - 27,543,000 855,558,782 93,139,698 (5,419,350) 943,279,130

Assets on finance leases

Motor vehicles 40,398,204 16,855,000 - 57,253,204 Plant and machinery 73,280,594 - - 73,280,594 113,678,798 16,855,000 - 130,533,798

Assets on mini hydro power projects

Plant and machinery 150,811,101 - - 150,811,101 Equipment and tools 12,319,207 - - 12,319,207 Motor vehicles 263,089 - - 263,089 Furniture and fittings 24,500 - - 24,500 Civil construction and others 215,502,891 - - 215,502,891 378,920,788 - - 378,920,788

Total cost 1,348,158,368 109,994,698 (5,419,350) 1,452,733,716

Depreciation As at Charge for Disposals/ As at 1 April 2017 the year Transfers 31 March 2018 Rs. Rs. Rs. Rs. At cost Buildings 8,234,960 1,130,487 - 9,365,447 Motor vehicles 88,514,317 14,964,069 (3,769,350) 99,709,036 Plant and machinery 116,759,580 4,314,810 - 121,074,390 Furniture and fittings 10,291,785 679,812 - 10,971,597 Equipment and tools 80,726,993 12,461,246 (1,650,000) 91,538,239 Water sanitation 126,997,217 11,995,609 - 138,992,826 431,524,852 45,546,033 (5,419,350) 471,651,535

Assets on finance leases Motor vehicles 27,726,461 8,175,054 - 35,901,515

Plant and machinery 48,581,639 5,825,000 - 54,406,639 76,308,100 14,000,054 - 90,308,154

Assets on mini hydro power projects Plant and machinery 39,718,617 7,540,555 - 47,259,172

Equipment and tools 10,932,094 2,045,389 - 12,977,483 Motor vehicles 147,705 30,389 - 178,094 Civil construction and others 34,466,456 6,505,260 - 40,971,716 85,264,872 16,121,593 - 101,386,465

Total depreciation 593,097,824 75,667,680 (5,419,350) 663,346,154

Carrying value 755,060,544 789,387,562

As at As at 1 April 2017 Additions Transfers 31 March 2018

Capital work-in progress Rs. Rs. Rs. Rs. Capital work-in progress 12,720,277 12,003,417 (2,310,702) 22,412,992 12,720,277 12,003,417 (2,310,702) 22,412,992 Total carrying amount 767,780,821 811,800,554



90

15.2 Property, plant and equipment (Continued) Company As at Additions/ Disposals/ As at

1 April 2017 Transfers Transfers 31 March 2018 Rs. Rs. Rs. Rs. At cost Computer equipment 119,500 - - 119,500

119,500 - - 119,500

As at Charge for Disposals/ As at 1 April 2017 the year Transfers 31 March 2018

Rs. Rs. Rs. Rs. Depreciation

Computer equipment 119,500 - - 119,500 119,500 - - 119,500 Total carrying amount - -

16. Bearer biological assets - Improvements to bearer biological assets Group Company

As at As at As at As at 31 March 2018 31March 2017 31 March 2018 31March 2017 Rs. Rs. Rs. Rs. At cost As at 1 April 2017 3,632,605,959 3,357,300,794 - - Additions 278,117,175 275,305,165 - - As at 31 March 2018 3,910,723,134 3,632,605,959 - -

Depreciation As at 1 April 2017 664,592,588 560,753,234 - - Charge for the year 117,262,408 103,839,354 - - As at 31 March 2018 781,854,996 664,592,588 - -

Written down value 3,128,868,138 2,968,013,371 - -

Immature plantations Tea Rubber Oil Palm Other Total

At cost Rs. Rs. Rs. Rs. Rs. At the beginning of the year 213,868,485 395,827,036 338,999,106 10,167,236 958,861,863 Additions during the year 49,073,256 44,801,414 173,952,492 10,290,013 278,117,175 Transfers to mature plantations (46,718,532) (93,338,907) (89,024,103) (1,193,624) (230,275,166) At the end of the year 216,223,209 347,289,543 423,927,495 19,263,625 1,006,703,872

Mature plantations Tea Rubber Oil Palm Other Total

At cost Rs. Rs. Rs. Rs. Rs. At the beginning of the year 844,455,404 986,097,668 790,948,080 52,242,944 2,673,744,096 Transfers from mature plantations 46,718,532 93,338,907 89,024,103 1,193,624 230,275,166 At the end of the year 891,173,936 1,079,436,575 879,972,183 53,436,568 2,904,019,262

Depreciation At the beginning of the year 221,611,706 243,601,558 188,155,903 11,223,421 664,592,588 Charge for the year 25,333,662 49,304,883 39,547,404 3,076,459 117,262,408 At the end of the year 246,945,368 292,906,441 227,703,307 14,299,880 781,854,996

Carrying amount of mature plantations 644,228,568 786,530,134 652,268,876 39,136,688 2,122,164,266

These are investments in mature/immature plantations since the formation of Elpitiya Plantation PLC. The assets (including plantation assets) taken over by way of estate leases are set out in Note 14 to the financial statements. Further investments in Immature Plantations taken over by way of leases are shown in this note. When such



91

plantations become mature, the additional investments since taken over to bring them to maturity are transferred from immature to mature.

The requirement of recognition of bearer biological assets at its fair value less cost to sell under LKAS 41 was superceded by the ruling issued on 02 March 2012, by The Institute of Chartered Accountants of Sri Lanka. Accordingly, the Company has elected to measure the bearer biological assets at cost using LKAS 16 – Property Plant and Equipment.

During the year Company has capitalised Borrowing Cost amounting to Rs. 20,245,745/- (2017 - Rs 26,912,547/-) as part of the immature plantations.

17. Consumable biological assets Group Company - Managed timber plantation As at As at As at As at 31 March 2018 31 March 2017 31 March 2018 31 March 2017 Rs. Rs. Rs. Rs.

At the beginning of the year 981,450,125 949,013,074 - - Increase due to development 18,025,079 10,550,314 - - Cost of harvested timber trees (23,836,210) (9,075,046) - - Gain arises from changes in fair value less cost to sell 25,489,622 30,961,783 - - At the end of the year 1,001,128,616 981,450,125 - - Managed trees include commercial timber plantations cultivated on estates. The cost of immature trees is treated as

approximate fair value particularly on the ground of little biological transformation has taken place and impact of the biological transformation on price is not material.

The fair value of managed trees was ascertained since the LKAS 41 is only applicable for managed agricultural activities in terms of the ruling issued by The Institute of Chartered Accountants of Sri Lanka. The valuation was carried by Mr K.T.D.Tissera, Chartered Valuer, using Discounted Cash Flow (DCF) method. In ascertaining the fair value of timber, physical verification was carried covering all the estates. The fair value measurement of biological assets have been categorized as level 3 fair value based on the inputs to the valuation techniques used.

17.1 Information about fair value measurements using significant unobservable inputs

Non Financial Asset

Valuation Technique Unobservable InputsRange of Unobservable Inputs (Probability weighted average.)

Relationship of Unobservable Inputs to Fair Value

Consumable biological assets

Discounted cash flow method (DCF)

Discount rate 14%The higher the discount rate, the lesser the fair value

Optimum rotation (Maturity) 20-25 Years

Lower the rotation period, the higher the fair value

Volume at rotation 17-239 cu.ftThe higher the volume, the higher the fair value

Price per cubic feetRs.150/= to Rs.750/=

The higher the price per cu. ft., the higher the fair value

Other key assumptions used for valuation are as follows.

1 The harvesting is approved by the PMMD and Forest Department based on the forestry development plan.

2 When considering the market price of the estimated output of standing timber, average value of the market price was

taken after deducting costs of harvesting , transportation and administrative costs.

17.2 Sensitivity analysis Values as appearing in the Statement of Financial Position are sensitive to changes of the discount rate applied.

Simulations made for timber trees show that a rise or decrease by 1% of the estimated future discount rate has the following effect on the net present value of biological assets.



92

Impact on Consumable Biological Assets (Rs.)

Percentage increase/decrease in discount rate + 1% - 1% Managed timber plantations As at 31 March 2018 (13.92) 18.93 As at 31 March 2017 (14.98) 17.06

The carrying amount of biological assets pledged as securities for liabilities are nil for year 2018 (2017 - nil). There are no commitments for the development or acquisition of biological assets.

18. OTHER NON CURRENT ASSETS Finance Lease Receivable Group Company


Gross lease liability 71,400,000 71,400,000 - - Less: Finance income allocated to future periods (31,483,830) (32,710,772) - - Net lease receivable 39,916,170 38,689,228 - -

This represents, the finance lease receivable from Elpitiya Dianhong Jin Ya Tea Company (Pvt) Ltd on finance leased assets. 19. Investments Group Company


Investments in subsidiaries (Note 19.1) - - 683,875,123 683,875,123 Investments in Joint Ventures (Note 19.2) 156,161,300 153,171,556 - - 156,161,300 153,171,556 683,875,123 683,875,123 19.1 Investments in subsidiaries Group Company

As at As at As at As at

Group holding percentage 31 March 2018 31 March 2017 31 March 2018 31 March 2017

2018 2017 Rs. Rs. Rs. Rs.

Quoted

Elpitiya Plantations PLC (Note 19.1.1) 61.64% 61.64% - - 683,875,113 683,875,113

Unquoted (Note 19.1.2)

Tea Country Homes (Pvt) Ltd * 80.82% 80.82% - - - -

Water Villas (Pvt) Ltd * 80.82% 80.82% - - 10 10

EPP Hydro Power Company (Pvt) Ltd ** 61.64% 61.64% - - - -

- - 683,875,123 683,875,133 19.1.1 Quoted investment Elpitiya Plantations PLC has issued share capital of 72,866,430 shares for a consideration of Rs. 694,236,120/-. At

the end of 31 March 2018 total market capitalization was Rs. 1,996,540,182/- (2017 - Rs. 1,384,462,170/-) .The Company hold 44,917,354 shares of the issued share capital of Elpitiya Plantations PLC, which represent 61.64% of the total issued capital of Elpitiya Plantations PLC.

19.1.2 Unquoted investments * Water Villas (Pvt) Ltd has issued share capital of 2 shares at Rs. 10 each, where one share is held by the Company and the other is held by Elpitiya Plantations PLC.

Tea Country Homes (Pvt) Ltd has issued share capital of 2 shares at Rs. 20 each, where one share is held by the Company and the other is held by Elpitiya Plantations PLC.



93

19.1.2 Unquoted investments ** EPP Hydro Power Company (Pvt) Ltd is a fully owned subsidiary of Elpitiya Plantations PLC which has issued share

capital of 5,000,000 shares at Rs. 10/- each.

19.1.3 Material partly - owned subsidiaries Ownership interest held by NCI

Name Nature of the business Principle place of business 31 March 2018 31 March 2017

Elpitiya Plantations PLC Cultivation, manufacture and Planting districts of 38.36% 38.36%

sale of Black tea, Rubber, Nuwara Eliya

Oil palm and other crops and Galle

31 March 2018 31 March 2017

Rs. Rs.

Non-current assets 5,178,812,146 4,935,741,992

Current assets 851,921,850 766,535,141

Non-current liabilities (1,502,183,354) (1,246,845,921)

Current liabilities (544,696,438) (585,999,029)

Net assets 3,983,854,204 3,869,432,183

Carrying amount of non-controlling interests 1,528,206,473 1,484,314,185

Revenue 3,612,225,591 2,996,399,532

Profit for the year 338,205,308 488,028,324

Other comprehensive income, net of tax (59,833,819) 135,317,862

Total comprehensive income, net of tax 278,371,489 623,346,186

Total comprehensive income attributable to NCI 106,783,303 239,115,597

Net cash flow from operating activities 722,590,162 614,208,361

Net cash used in investing activities (433,247,779) (211,392,493)

Net cash used in financing activities (255,920,813) (184,557,559)

Net increase/(decrease) in cash and cash equivalents 33,421,570 218,258,309

Dividend paid to non controlling interest (62,891,016) (13,975,781)

19.1.4 Information about subsidiaries % of Equity Interest

Name Principle Activity Country of Incorporation 31 March 2018 31 March 2017

Elpitiya Plantations PLC Cultivation, manufacture and Sri Lanka 61.64% 61.64%

sale of Black tea, Rubber,

Oil palm and other crops.

Tea Country Homes (Pvt) Ltd Intended hotel operator. Sri Lanka 80.82% 80.82%

Water Villas (Pvt) Ltd Intended hotel operator. Sri Lanka 80.82% 80.82%

EPP Hydro Power Company (Pvt) Ltd Generating hydro power. Sri Lanka 61.64% 61.64%

19.2 Investments in joint venturesUnquoted Group Company

As at As at As at As at

Percentage of holding 31 March 2018 31 March 2017 31 March 2018 31 March 2017 2018 2017 Rs. Rs. Rs. Rs.

AEN Palm Oil Processing (Pvt) Ltd (Note 19.2.1) 20.54% 20.54% 110,640,591 102,355,435 - - Elpitiya Dianhong Jin Ya Tea Company (Pvt) Ltd (Note 19.2.2) 30.82% 30.82% 45,824,581 51,064,081 - - Venture Valley (Pvt) Ltd (Note 19.2.2) 30.82% 30.82% (303,872) (247,960) - - 156,161,300 153,171,556 - -



94

19.2.1 Summarised information of joint venture investment

19.2.1.1 AEN Palm Oil Processing (Pvt) Ltd

The Group has a 20.54% interest in AEN Oil Palm Processing (Pvt) Ltd, a Joint Venture involved in the business of processing crude Palm Oil. The Group's interest in AEN Palm Oil Processing (Pvt) Ltd is accounted for using the equity method in the consolidated financial statements. Summarised financial information of this Joint Venture are set out below.

Summarised statement of financial position of the AEN Palm Oil Processing (Pvt) Ltd As at As at 31 March 2018 31 March 2017 Rs. Rs.

Current assets, including cash and cash equivalents Rs. 20,701,051/- (2017 - Rs. 79,884,603/-) 154,585,598 133,084,108

Non current assets 295,590,780 297,852,586

Current liabilities, including tax payable (2017 Rs. 29,275,178/) (77,725,351) (84,542,918)

Non current liabilities, including deferred tax liabilities (2017 Rs. 29,275,178/) (40,529,255) (39,327,470) Total Equity 331,921,772 307,066,306 Equity holders of the parent 68,176,732 63,071,419 Non-controlling interest 42,463,859 39,284,016 Group's carrying amount of the investment 110,640,591 102,355,435

Summarised statement of profit or loss of the AEN Palm Oil Processing (Pvt) Ltd 31 March 2018 31 March 2017 Rs. Rs.

Revenue 2,450,726,548 2,476,614,584

Cost of sales (2,321,132,053) (2,166,743,404)

Other income 3,258,111 4,210,106

Administration expenses including depreciation Rs. 4,018,040/- (2017 - Rs. 3,788,081/-) (102,266,143) (64,017,156)

Finance cost (112,659) (955,131) Profit before taxation 30,473,804 249,108,999

Income tax expense (5,618,337) (39,107,889) Profit for the year 24,855,467 210,001,110 Total comprehensive income for the year 24,855,467 210,001,110

Equity holders of the parent 5,105,313 43,134,228 Non-controlling interest 3,179,843 26,866,142 Group's share of profit for the year 8,285,156 70,000,370

Group's share of profit before tax 10,157,935 83,036,333

Group's share of profit after tax 8,285,156 70,000,370

Number of shares invested 699,027 699,027

Dividend received (Rs.) – 9,449,218

Proceeds from disposal of shares – 64,577,808



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19.2.1.2 Elpitiya Dianhong Jin Ya Tea Company (Pvt) Ltd The Group has a 30.82% interest in Elpitiya Dianhong Jin Ya Tea Company (Pvt) Ltd, a Joint Venture involved in the

business of manufacturing & exporting speciality tea. The Group's interest in Elpitiya Dianhong Jin Ya Tea Company (Pvt) Ltd is accounted for using the equity method in the consolidated financial statements. Summarised financial information of this Joint Venture are set out below.

Summarised statement of financial position of the Elpitiya Dianhong Jin Ya Tea Company (Pvt) Ltd 31 March 2018 31 March 2017 Rs. Rs.

Current assets, including cash and cash equivalents Rs. 2,590,082/- (2017 - Rs. 1,053,550/-) 59,285,477 57,667,035

Non current assets 182,580,025 195,035,621

Current liabilities, including tax payable Rs.520,397 (2017 - 332,251) (29,410,632) (30,933,103)

Non current liabilities (39,981,794) (38,817,478)

Total Equity 172,473,076 182,952,075

Equity holders of the parent 53,156,202 56,385,830

Non-controlling interest 33,080,336 35,090,208

Group's carrying amount of the investment 86,236,538 91,476,038

Unrealized gain on assets transferred to Joint Venture (40,411,957) (40,411,957)

Group's net carrying amount of the investment 45,824,581 51,064,081

Summarised statement of profit or loss of the Elpitiya Dianhong Jin Ya Tea Company (Pvt) Ltd 31 March 2018 31 March 2017 Rs. Rs.

Revenue 5,241,804 20,068,339

Cost of sales including depreciation Rs. 3,753,362/- (2017 - Rs. 3,402,016/-) (38,503,879) (50,215,682)

Other income 27,807,509 20,945,248

Administration expenses (3,572,363) (6,979,976)

Finance cost (1,263,922) (1,217,245)

Profit before taxation (10,290,852) (17,399,316)

Income tax expense (188,146) (446,441)

Profit for the year (10,478,998) (17,845,757)

Total comprehensive income for the year (10,478,998) (17,845,757)

Equity holders of the parent (3,229,627) (5,500,062)

Non-controlling interest (2,009,872) (3,422,817)

Group's share of profit for the year (5,239,499) (8,922,879)

Group's share of profit before tax (5,145,426) (8,699,658)

Group's share of profit after tax (5,239,499) (8,922,879)

Number of shares invested 8,100,001 8,100,001

Dividend received (Rs.) - 52,650,007

19.2.1.3 Venture Valley (Private) Limited

The Group has another 30.82% Joint Venture interest in Venture Valley (Pvt) Ltd which was established by Elpitiya

Plantations PLC and Academy of Adventure (Pvt) Ltd on 01 March 2017 by initially issuing two shares at Rs.10/- each.

19.2.1.4 Elpitiya Lifestyle Solutions (Private) Limited The Group has another 30.82% joint venture interest in Elpitiya Life Style Solutions (Pvt) Ltd established by Elpitiya

Plantations PLC and Life Style Lanka (Pvt) Ltd at a cost of Rs. 5,000,000/- which was fully impaired as at 31 March 2017.



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20. Intangible assets Goodwill Group Company


At cost 414,581,062 414,581,062 - - 414,581,062 414,581,062 - - Accumulated amortisation and impairment 301,291,282 301,291,282 - - 301,291,282 301,291,282 - -

Carrying amount 113,289,780 113,289,780 - -

The recoverability amount of goodwill is determined with reference to the fair value-in-use calculations. These calculations use cash flow projections based on financial budgets approved by management covering five year periods. The key assumptions used are given below,

Business growth - Based on the long term average growth rate used in consistent with the forecast included in industry reports.

Inflation rate - Based on current inflation rate. Discount rate - Risk free rate adjusted for the specific risk relating to the industry. Margin - Based on past performance and budgeted expectations.

21. Deferred tax assets Group Company


At the beginning of the year 885,191 744,978 885,191 744,978 Reversal of temporary difference transferred from Income Statement 1,010,751 140,213 1,010,751 140,213 At the end of the year 1,895,942 885,191 1,895,942 885,191 21.1 Composition of deferred tax assets

Deferred tax assets Temporary difference of retirement benefit obligation 1,895,942 885,191 1,895,942 885,191

1,895,942 885,191 1,895,942 885,191 Deferred tax liabilities Temporary difference of property, plant and equipment - - - - - - - - Net deferred tax assets 1,895,942 885,191 1,895,942 885,191 22 Produce on bearer biological assets

Group Company

2018 2017 2018 2017 Rs. Rs. Rs. Rs.

As at 1 April 12,785,661 7,837,478 - - Change in fair value less cost to sell 112,841 4,948,183 - - As at 31 March 12,898,502 12,785,661 - -



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Fair value hierarchy for non-financial assets as at 31 March 2018 - Group Level 1 Level 2 Level 3 (Quoted prices in (Significant (Significant active markets) observable unobservable Date of Valuation inputs) inputs) Rs. Rs. Rs.

Non financial asset typeProduce on Bearer Biological Assets 31 March 2018 - 12,898,502 -Produce on Bearer Biological Assets 31 March 2017 - 12,785,661 -

Gain/(loss) on fair value of biological assets Group Company

2018 2017 2018 2017 Rs. Rs. Rs. Rs.

Consumable biological assets - Gainarising from changes in fair valueless cost to sell - Note No 17 25,489,622 30,961,783 - - Produce on bearer biological assets -Gain arising from changes in fairvalue less cost to sell - Note No 22 112,841 4,948,183 - - Total change in fair value of biological assets 25,602,463 35,909,966 - -

23. Inventories Group Company


Inventories - Nurseries 32,120,353 32,147,128 - - Biological assets - Harvested crop 260,357,962 226,280,201 - - Spares and consumables 50,325,464 59,404,345 - - 342,803,779 317,831,674 - - 24. Trade and other receivables Group Company As at As at As at As at 31 March 2018 31 March 2017 31 March 2018 31 March 2017 Rs. Rs. Rs. Rs.

Produce debtors 59,412,683 97,828,612 - - Advances and prepayments 69,262,125 44,498,144 - - Employee related debts 20,470,943 24,132,769 - - Other receivables 45,147,910 47,834,383 - - 194,293,661 214,293,908 - - Allowance for impairment

of trade and other receivables (4,100,558) (4,100,558) - - 190,193,103 210,193,350 - -

24.1 Movement in the provision for impairment Group Company 31 March 2018 31 March 2017 31 March 2018 31 March 2017 Rs. Rs. Rs. Rs.

At the beginning of the year 4,100,558 4,100,558 - - Charge for the year - - - - At the end of the year 4,100,558 4,100,558 - -



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24.2 Ageing analysis of trade and other receivables is, as follows:

Neither Past Past due but not impaired due nor < 30 30-60 61-90 91-120 >120

Total impaired days days days days days As at 31 March Rs. Rs. Rs. Rs. Rs. Rs. Rs. 2018 (Gross) 194,293,661 25,214,558 99,361,046 32,210,421 1,196,996 13,492,383 22,818,257 2017 (Gross) 214,293,908 95,251,225 72,160,726 1,470,254 1,575,210 16,723,165 27,113,328

25. Amounts due from related companies Group Company As at As at As at As at 31 March 2018 31 March 2017 31 March 2018 31 March 2017 Relationship Rs. Rs. Rs. Rs.

Elpitiya Plantations PLC Subsidiary company - - 113,169,449 101,219,143 Aitken Spence PLC Related company - 4,448,096 - 4,448,096 Water Villas (Pvt) Ltd Subsidiary company 10 - - - AEN Palm Oil Processing (Pvt) Ltd Joint venture company 13,779,295 6,868,878 - - Elpitiya Lifestyle Solutions ( Pvt) Ltd (Note 25.1) Joint venture company 111,055,819 107,159,012 - - Elpitiya Dianhong Jin Ya Tea Company (Pvt) Ltd Joint venture company 25,571,957 26,345,846 - - Venture Valley (Pvt) Ltd Joint venture company 13,226,812 3,010,354 - - Aitken Spence Agriculture (Pvt) Ltd Related company 5,061,733 16,335 - - Dunsinane Power Company Ltd Related company - 181,287 - - Aitken Spence C & T Investments (Pvt) Ltd Related company 206,772 - - - 168,902,398 148,029,808 113,169,449 105,667,239 Provision for impairment of amounts due from related companies (97,289,226) (97,289,226) - - 71,613,172 50,740,582 113,169,449 105,667,239

The Company carried out transactions in the ordinary course of business (at an arms length transactions) with parties who are defined as related parties in Sri Lanka Financial Reporting Standard 24 - Related Party Disclosures.

25.1 Elpitiya Lifestyle Solutions (Pvt) Ltd Group As at As at 31 March 2018 31 March 2017 Rs. Rs.

Interest free long terms loans 57,289,226 57,289,226 Current account balances 53,766,593 49,869,786 111,055,819 107,159,012 Impairment of long term loans (97,289,226) (97,289,226) 13,766,593 9,869,786



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26. Cash and cash equivalents Group Company


Cash and cash equivalents 196,442,217 78,131,721 104,144,143 25,780,943 Cash and cash equivalents for the

purpose of cash flow statement 196,442,217 78,131,721 104,144,143 25,780,943 27. Stated capital and reserves Company

As at As at As at As at 31 March 2018 31 March 2017 31 March 2018 31 March 2017 Number Number Rs. Rs.

27.1 Stated capitalOrdinary shares 21,300,000 21,300,000 421,666,250 421,666,250

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

27.2 Reserves Timber Reserve

Timber reserve represent the fair value changes in the carrying value of managed timber plantations attributable to the parent company. Managed trees include commercial timber plantations cultivated on estates.The fair value of managed trees was ascertained since the LKAS 41 is only applicable for managed agricultural activities in terms of the ruling issued by The Institute of Chartered Accountants of Sri Lanka.

28. Non-controlling interest

The balance due to the non-controlling interest relates to the net assets of subsidiaries and equity accounted investees, which is not represented by the parent company's investment.

29. Interest bearing loans and borrowings

Group Company


Interest bearing loans and borrowings - Non-current (Note 29.1) 184,192,790 233,948,925 - -

Interest bearing loans and borrowings - Current (Note 29.1) 113,337,520 129,092,739 - -

297,530,310 363,041,664 - -

29.1 Group 2018 2017

Payable Payable Payable Payable within one after one Total within one after one Total year year payable year year payable

Rs. Rs. Rs. Rs. Rs. Rs. Term loan facilities (Note 29.2.1) 107,047,933 178,849,543 285,897,476 129,092,739 233,948,925 363,041,664

Finance lease facilities 6,289,587 5,343,247 11,632,834 - - - 113,337,520 184,192,790 297,530,310 129,092,739 233,948,925 363,041,664



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29.2.1 Term loan facilities

Repayable Repayable Total Total within 1 after 1 year Repayable As At As At Group year less than 5 years after 5 years 31.03.2018 31.03.2017 Facility

Rs. Rs. Rs. Rs. Rs. details Tea securitising loans National Development Bank - Facility 4 - - - - 44,900,000 I Central Finance Company Limited 8,480,129 1,065,185 - 9,545,314 19,877,849 II Sri Lanka Tea Board 10,000,000 13,333,333 - 23,333,333 30,000,000 III Sri Lanka Tea Board 12,894,904 14,715,010 - 27,609,914 - IV 31,375,033 29,113,528 - 60,488,561 94,777,849

Other long term facilities Sampath Bank PLC 1,809,600 3,470,000 - 5,279,600 2,021,200 V Nations Trust Bank PLC 25,008,000 43,724,000 - 68,732,000 93,740,000 VI Bank of Ceylon 28,187,016 56,373,991 - 84,561,007 112,748,023 VII National Development Bank - New 750,000 26,250,000 - 27,000,000 - VIII DFCC Vardhana Bank 19,918,284 19,918,024 - 39,836,308 59,754,592 IX 75,672,900 149,736,015 - 225,408,915 268,263,815 Total term loan facilities 107,047,933 178,849,543 - 285,897,476 363,041,664

Details of the interest bearing loans and borrowing facilities Group

Facility details Rate of interest Terms of repayment

I Lower of AWPLR + 1.9% or 13.75% per annum. 42 monthly installments

II AWPLR + 2.0% per annum, fixed at the time of disbursement.

60 monthly installments

III Six month AWPLR+ 1% First 12 month period shall be liable only for payment of interest. And shall thereafter repay the capital in 36 equal monthly installments of 833,333.33/- commencing from the August-17 with the relevant interest of each month.

IV 5% (Annual) Shall repay the loan together with the interest of 5% per annum with the equal monthly installments of 1,165,212.82 on or before the 28th of each respective month, and the first installment being payable on or before 28 may 2017.

V 6.0% p.a. payable monthly together with statutory taxes at prevailing rates, if any ( AWPLR +3% (floor 13.0% p.a.) will be charged until refinance is received). (AWPLR and floor rate to be reviewed monthly).

47 equal monthly installments of Rs. 150,800/- and final installment of Rs. 152,400/- together with the interest.

VI AWPLR-0.5% per annum. 59 equal monthly capital installments of Rs. 2,084,000/- and a final capital installment of Rs. 2,044,000/-

VII First two years: AWPLR (monthly) + 1.5% per annum. Out of which 2% will be subsidized by Central Bank of Sri Lanka only for this period. Third to fifth years: AWPLR (Monthly) +1.5% per annum. (No interest subsidy)

60 monthly installments of Rs. 2,348,918/- commencing from April 11.04.2016



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VIII AWPLR - 6.73% (Annual) Installments shall be repayables to bank monthly on or before last banking day of each and every month over the 6 years commencing from twelve months after the date of the first disbursements of the loan is made in 72 equal monthly installements of Rs.375,000/- .

IX Higher of AWPLR or 91 days Treasury Bill rate (rounded upwards to nearest 0.5% + 4.5 % margin and 4% reduction on timely payments.

30. Liability to make lease payments Group Company As at As at As at As at 31 March 2018 31 March 2017 31 March 2018 31 March 2017 Rs. Rs. Rs. Rs.

Gross liability 280,947,500 291,872,594 - - Finance charges allocated for future periods (111,729,933) (119,749,453) - -

Net liability 169,217,567 172,123,141 - - The lease of the estates have been amended, with effect from 22 June 1996 to an amount substantially higher than

the previous lease rental of Rs. 500/= per estate per annum. The first rental payable under the revised basis is Rs. 10.3 million from 22 June 1996. This amount is to be inflated annually by the Gross Domestic Product (GDP) deflator, and is in the form of a contingent rental.

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

As at 31 March 2018 Rs.

Gross liability 1,930,326,679 Finance charges allocated for future periods (1,276,310,942)

Net liability 654,015,737 The above reassessed liability is not reflected in these Financial Statements.

30.1 Maturity analysis Group Repayable Repyable after Repayable Repayable within one one year but less after five after one year year than five years years (Non-current) Total Rs. Rs. Rs. Rs. Rs.

As at 31 March 2018 Gross liability 10,310,000 41,240,000 229,397,500 270,637,500 280,947,500

Less: Finance cost allocated to future periods (6,768,703) (25,600,489) (79,360,741) (104,961,230) (111,729,933) Net liability 3,541,297 15,639,511 150,036,759 165,676,270 169,217,567

As at 31 March 2017 Gross liability 10,310,000 41,240,000 240,322,594 281,562,594 291,872,594

Less: Finance cost allocated to future periods (6,904,906) (26,202,009) (86,642,538) (112,844,547) (119,749,453) Net liability 3,405,094 15,037,991 153,680,056 168,718,047 172,123,141



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31. Deferred income Group Company As at As at As at As at 31 March 2018 31 March 2017 31 March 2018 31 March 2017 Rs. Rs. Rs. Rs.

Deferred grants and subsidies (Note 31.1) 115,156,704 123,510,869 - -

Sublease income (Note 31.2) 39,626,983 43,060,091 - -

Deferred income - Operating Lease (Note 31.3) 76,541,380 82,020,690 - - 231,325,067 248,591,650 - -

31.1 Deferred grants and subsidies Group Company As at As at As at As at 31 March 2018 31 March 2017 31 March 2018 31 March 2017 Rs. Rs. Rs. Rs.

At the beginning of the year 123,510,869 129,032,852 - - Grants received for the year 4,870,113 6,955,549 - - Amortisation for the year (13,224,278) (12,477,532) - -

At the end of the year 115,156,704 123,510,869 - -

Elpitiya Plantations PLC received funding from Plantation Housing and Social Welfare Trust and Asian Development Bank for the development of workers facilities such as re-roofing of line rooms, latrines, water supply and sanitation etc. The amounts spent are included under the relevant classification of Property, Plant and Equipment and the grant component is reflected under the deferred grant and subsidies. Further this includes the C.T.C. Machinery subsidy which represents the funds received from Sri Lanka Tea Board in relation to C.T.C. project

31.2 Sublease income Group Company As at As at As at As at 31 March 2018 31 March 2017 31 March 2018 31 March 2017 Rs. Rs. Rs. Rs.

At the beginning of the year 43,060,091 47,267,666 - - Cash received for the year 540,000 1,120,400 - - Amortisation during the year (3,973,108) (5,327,975) - -


31.3 Deferred income - Operating Lease Group Company As at As at As at As at 31 March 2018 31 March 2017 31 March 2018 31 March 2017 Rs. Rs. Rs. Rs.

At the beginning of the year 82,020,690 87,500,000 - - Less: Amortisation for the year (5,479,310) (5,479,310) - -


This represents the prepayment on leasehold right to use of land which was subleased to Elpitiya Dianhong Jin Ya Tea Company (Pvt) Ltd. This prepayment on land lease would be amortized over a period of 12 years commencing from 1 April 2016.



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32. Retirement benefit obligations Group Company As at As at As at As at 31 March 2018 31 March 2017 31 March 2018 31 March 2017 Rs. Rs. Rs. Rs.

Balance at the beginning of the year 457,643,520 588,610,955 5,823,618 4,921,086 Expenses recognised in profit or loss Current service cost 29,394,143 36,442,498 947,604 902,532 Interest cost 50,094,358 60,487,325 - - 79,488,501 96,929,823 947,604 902,532 Expenses recognised in other comprehensive income Liability experience loss/(gain) arising during the year 8,845,496 (125,675,590) - - Liability loss/(gain) due to changes in assumptions during the year 60,728,712 (34,958,149) - - 69,574,208 (160,633,739) - - Retirement benefits paid (68,959,706) (67,263,519) - -

Balance at the end of the year 537,746,523 457,643,520 6,771,222 5,823,618

LKAS 19 requires the use of actuarial techniques to make a reliable estimate of the amount of retirement benefit that employees have earned in return for their service in the current and prior periods using the Projected Unit Credit Method and discount that benefit in order to determine the present value of the retirement benefit obligation and the current service cost. This require an entity to determine how much benefit is attributable to the current and prior periods and to make estimates about demographic variables and financial variables that will influence the cost of the benefit.

Actuarial gain on defined benefit plan has been recognized in Statement of Other Comprehensive Income in terms

of provisions in LKAS 19. According to the actuarial valuation report issued by the actuarial valuer to Elpitiya Plantations PLC as at 31 March

2018, the actuarial present value of promised retirement benefits obligation amounted to Rs. 530,920,222/-. If the Elpitiya Plantations PLC had provided for gratuity on the basis of 14 days wages and half months salary for each completed year of service, the liability would have been Rs. 580,944,272/-. Hence, there is a contingent asset of Rs. 50,024,050/-, which would crystallise only if the company ceases to be a going concern.

32.1 Maturity analysis of Elpitiya Plantation PLC Repayable Repayable Total

within after 1 year less Repayable As At 1 year than 5 years after 5 years 31.03.2018 Rs. Rs. Rs. Rs. Retirement benefit obligations 51,513,934 286,680,276 192,726,012 530,920,222

51,513,934 286,680,276 192,726,012 530,920,222

The weighted average duration of the Defined Benefit plan obligation at the end of the reporting period is 9.6 years for staff and workers.

The key assumptions used by Messer's Piyal S Gunethilake and Associate include the following.

Salary Daily increment rate wage rate Discount rate Retirement age

2017/2018 Workers 18% (every two years) Rs. 500/- 10.5% 60 years Staff 10% (per annum) - 10.5% 60 years 2016/2017 Workers 18% (every two years) Rs. 500/- 12.00% 55 years Staff 10% (per annum) - 12.00% 55 years



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32.2 Sensitivity analysis Values appearing in the financial statements are very sensitive to the changes of financial and non-financial assumptions used. The sensitivity was carried for both the rate of wage increment and discount rate as key contributors to the entire obligation. Simulations made for retirement benefit obligation show that a rise or decrease by 1% of the rate of wage and discount rate has the following effect on the retirement benefit obligation:

Impact on Retirement benefit

obligations Group (Rs. Mn)

Percentage increase/decrease in discount rate + 1% - 1%

Retirement benefit obligations As at 31 March 2018 (41.91) 48.55 As at 31 March 2017 (30.40) 34.96 Percentage increase/decrease in salary / wage increment rate. + 1% - 1%

Retirement benefit obligations As at 31 March 2018 53.00 (46.46) As at 31 March 2017 33.03 (29.25) 33. Deferred tax liabilities Group Company As at As at As at As at 31 March 2018 31 March 2017 31 March 2018 31 March 2017 Rs. Rs. Rs. Rs.

At the beginning of the year 183,631,244 125,918,344 - - Origination of temporary differences transferred to Income Statement 236,096,177 32,397,023 - - Origination of temporary differences transferred to Other Comprehensive Income (9,740,389) 25,315,877 - - At the end of the year 409,987,032 183,631,244 - - 33.1 Composition of deferred tax liabilities Group Company As at As at As at As at 31 March 2018 31 March 2017 31 March 2018 31 March 2017 Rs. Rs. Rs. Rs.

Deferred tax liabilities Temporary difference of property, plant and equipment 56,680,773 53,078,543 - -

Temporary difference of biological assets 580,005,335 396,224,914 - - 636,686,108 449,303,457 - - Deferred tax assets

Temporary difference of provision for obsolete items - (315,200) - - Temporary difference of provisions for doubtful debts (14,475,434) (16,106,965) - - Temporary difference of retirement benefit obligation (74,328,831) (71,202,476) - - Tax losses available for offsetting future taxable income (137,894,811) (178,047,572) - - (226,699,076) (265,672,213) - - Net deferred tax liabilities 409,987,032 183,631,244 - -

The effective tax rate used to calculate deferred tax liability for all the Temporary Differences other than Biological Assets and Hydro Power Project assets as at 31 March, 2018 is 14% (2017 - 15.76%) for the Group.

The effective tax rate used to calculate deferred tax liability for Biological Asset and Hydro Power Project assets as at 31 March 2018 are 10% and 12% respectively for the Group.



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34. Trade and other payables Group Company As at As at As at As at 31 March 2018 31 March 2017 31 March 2018 31 March 2017 Rs. Rs. Rs. Rs.

Trade payables 80,631,940 116,112,884 - - Employee related creditors 120,093,392 128,871,105 - - Other payables 123,656,085 181,807,719 964,268 64,688,008 Value Added Tax payable 7,574,074 9,368,873 7,574,074 9,368,873 Dividend payable 61,113 - 61,113 -

332,016,604 436,160,581 8,599,455 74,056,881 35. Amounts due to related companies Group Company

As at As at As at As at 31 March 2018 31 March 2017 31 March 2018 31 March 2017 Relationship Rs. Rs. Rs. Rs.

Aitken Spence PLC Related company 8,591,317 636,778 3,728,268 -

Water Villas (Private) Limited Subsidiary company 10 - 10 10

Tea Country Homes (Private) Limited Subsidiary company - - - -

8,591,327 636,778 3,728,278 10

36. Related party disclosures36.1 Transactions with the parent and related entities. Transactions with group companies

For the year ended

31 March 2018 31 March 2017

Group Relationship Nature of the transaction Rs. Rs. Elpitiya Plantations PLC Subsidiary Management fees 86,250,000 81,548,503

company Executive staff salaries and expenses 46,050,209 39,037,532 Net settlements (120,347,572) (59,856,573)

EPP Hydro Power Company (Pvt) Ltd Subsidiary company Expenditure incurred 21,510,579 18,175,103

Water Villas (Pvt) Ltd Subsidiary company Professional and secretarial charges 176,893 1,256,619

AEN Palm Oil Processing (Pvt) Ltd Joint venture company Expenditure incurred 506,000 552,000

Palm oil sales and transport charges 712,002,188 644,303,391

Net settlments (704,178,182) (647,261,532) Elpitiya Dianhong Jin Ya Tea Joint venture company Tea leaves transactions 2,089,619 16,933,494

Company (Pvt) Ltd Factory and HO expenses 32,713,971 31,356,674

Net settlements (35,577,478) (26,731,759)

Elpitiya Lifestyle Solutions (Pvt) Ltd Joint venture company Expenditure incurred 3,896,807 6,063,101

Aitken Spence PLC Group company Services and sundries 202,226,271 78,510,841 Net settlements (198,000,000) (81,637,336)

Aitken Spence Agriculture (Pvt) Ltd Related company Expenditure incurred / Settlements 5,045,397 (44,525)

Forbes and Walkers (Pvt) Ltd Common Directors Sales 1,167,790,495 930,978,039 Net settlements (1,189,352,019) (905,389,531)

Venture Valley (Pvt) Ltd Joint venture company Expenditure incurred 10,216,458 -

36.2 Transactions with the key management personnel of the Company and Parent There are no transactions with the key management personnel of the company and its parent other than those disclosed

in Note 10.

36.3 Related Party Transactions All related party transactions are carried out in the normal course of business and transacted at normal business terms.

The sales to and purchases from related parties are made on terms equivalent to those that prevail in arm’s length



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transactions and comparable with those that would have been charged from un-related companies. All related party outstanding balances at the year-end are unsecured and are to be settled in cash. The Group does not have any material commitments to related parties.

There are no related party transactions other than those disclosed in Note 36.1 to the Financial Statements.

37. Contingent liabilities

Aitken Spence Plantation Managements PLC has given guarantees to secure repayment of the following loans given by lenders to Elpitiya Plantations PLC. Guaranteed Overdraft amount facility utilised

as at 31.03.2018 Rs. Rs.

Lender Bank of Ceylon - Overdraft facility 175,000,000 - Hatton National Bank - Permanent overdraft facility 50,000,000 - The company was issued a Value Added Tax (VAT) assessment under the Value Added Tax Act No. 14 of 2002 and

its amendments thereto in relation to the taxable period from 1 April 2008 to 31 March 2011. The Tax Appeals Commission hearing the appeal, has determined the VAT assessment in favour of the Department of Inland Revenue. Pursuant to the determination of the Tax Appeals Commission, the company has appealed against the determination to the Court of Appeal. The contingent liability to the company is estimated to be Rs. 14.3 Mn. inclusive of any penalties for the said period. Based on expert advice, the Directors are confident that the ultimate resolution of the case will not have an adverse impact on financial statements of the company.

Contingent liabilities that may result, depending on the timing of the taxability of certain fair value adjustments is amounts to approximately Rs. 2.5 Mn (2017 - Rs. 3 Mn).

Other than above, there were no contingent liabilities as at the reporting date.



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38. ASSETS PLEDGE

Group Outstanding

Balance as at

31 March 2018

Rs.

Carrying amount pledged

Facility obtained from Security

Facility

amount

Rs.

2018

Rs.

2017

Rs.

Bank of Ceylon Bank overdraft

Primary mortgage over estate produce consisting of Tea, Rubber, Oil Palm, Coffee, Coconuts, Clove and Paddy on estate.

Primary floating mortgage bond for Rs. 25 Mn. over stock of estate produce consisting of Tea, Rubber, Oil Palm and Coconut stored at Dunsinane, Sheen, Fernlands and Medecombra estates at Pundaluoya.

175,000,000 - 42,792,816 44,364,855

Hatton National Bank PLCBank overdraft

Primary floating mortgage bond for Rs. 10 Mn. over leasehold property at "Talgaswella Estate" in Galle.

Corporate guarantee of Aitken Spence Plantation Managements PLC.

50,000,000 - 12,217,513 12,666,337

Money market loan Primary floating mortgage bond for Rs. 75 Mn. over leasehold property at "Fernlands Estate" and "Harrow Estate" Pundaluoya, Nuwara Eliya.

75,000,000 - 9,507,212 9,856,470

National Development Bank PLCTea securitizing loan 4

Securitization of future tea sales 300,000,000 Securitization of future tea sales

Central Finance PLC - Term loan

Primary mortgage over machines, Drier and Heater, Colour Separator machine (with IR technology), 3 units 8" Rotorvane machines - 36"x13" 4 cuts Jumbo Spectra CTC Nachine with a spare set of rollers, Milling and chasing machine & 300 kva Open type Generator 600 Amp.

66,022,098 9,545,314 9,545,314 19,117,338

DFCC Bank PLC- Term loan

Primary mortgage over Share of EPP Hydro Power Company (Pvt) Ltd held by Elpitiya Plantations PLC. Primary mortgage over all project documents granted in favour of the company. Primary mortgage over leasehold rights of the project land and immovable project assets inclusive of a hydro power plant.

117,000,000 39,836,308 50,000,000 50,000,000



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39. Capital commitments Group Company As at As at As at As at 31 March 2018 31 March 2017 31 March 2018 31 March 2017 Rs. Rs. Rs. Rs.

Approximate amount approved but not contracted for 53,200,000 34,317,157 - - Approximate amount contracted for but not incurred 609,400,000 427,040,000 - -

40. Litigation and claims There were no litigation and claims against the Group as at the reporting date.

41. Events after reporting period There have been no material events occurring after the reporting date that require adjustments or disclosure in the

Financial Statements.

42. Financial risk management objectives and policies The Group’s principal financial liabilities comprise loans and borrowings, trade and other payables, and financial

guarantee contracts. The main purpose of these financial liabilities is to finance the Group’s operations and to provide guarantees to support its operations. The Group has loan and other receivables, trade and other receivables, and cash and short-term deposits that arrive directly from its operations. Accordingly the Group has exposure to namely Credit Risk, Liquidity Risk, Currency Risk and Interest Rate Risk from its use of financial instruments.

This note presents information about the Group’s exposure to each of the above risks, the Group’s objectives, policies and processes for measuring and managing risk.

Credit risk This is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its

contractual obligations, and arise principally from the Group’s receivable from customers.

Liquidity risk Liquidity risk arises when the Group is unable to meets its financial obligations due to insufficient cash flow situations.

The Group’s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Group’s reputation.

Currency risk The Group is exposed to currency risk on sales and purchases that are denominated in a currency other than the

respective functional currency of the Group. The currency in which these transactions primarily denominated is in USD.

Interest rate risk Interest Rate Risk is the potential for losses that may arise due to adverse movement of interest rates, mainly on floating

interest rates. The Group manages its interest rate risk by having a balanced portfolio of fixed and variable rate loans and borrowings. The Group has not engaged in any interest rate swap agreements.

42.1 FINANCIAL RISK MANAGEMENT FRAMEWORK

The Board of Directors has the overall responsibility for the establishment and oversight of the group’s financial risk management framework which includes developing and monitoring the Group’s financial risk management policies.

The Group financial risk management policies are established to identify, quantify and analyze the financial risks faced by the Group, to set appropriate risk limits and controls and to monitor financial risks and adherence to limits.



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Financial risk management policies and systems are reviewed regularly to reflect changes in market conditions and the Group’s activities.

The Audit Committee of the Company oversees how management monitors compliance with the Group’s financial risk management policies and procedures and reviews the adequacy of the financial risk management framework in relation to the risks faced by the Group.

42.2 CREDIT RISK

Credit Risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arise principally from the Group’s receivable from customers and from its financing activities including deposits with banks and financial institutions foreign exchange transactions and other financial instruments.

42.2.1 Trade and Other Receivables

The Group’s exposure to credit risk is influenced by the individual characteristics of each customer. The Group’s credit policy is monitored at the Board level. The new customers are analysed individually for credit worthiness before Group’s standard payment and delivery terms and conditions are offered. Group review includes external ratings, when available and in some cases, bank references, purchases limit etc. which also subject to under review on quarterly basis. The past experience of the Management is considered when revisions are made to terms and conditions.

The Group establishes an allowance for impairment that represents its estimate of incurred losses in respect of trade and other receivables.

The maximum exposure to credit risk for trade receivables of the Group at the reporting date is Rs. 59 Mn (2017 - Rs. 98 Mn).

The Company has a minimal credit risk of its trade receivables as the repayment is guaranteed within seven days by the Tea and Rubber auction systems.

42.2.2 Investments

Credit risks from invested balance with the financial institutions are managed by the Board of Directors. Investments of surplus funds are made only with approved counterparties and within credit limits assigned to them. The limits are set to minimize the concentration of risks and therefore mitigate financial loss through potential counterparty’s failure.

The Group does not held short term investments which represents the maximum credit exposure on these assets.

42.2.3 Cash and Cash Equivalents

The Group held cash and Cash Equivalents of Rs. 196 Mn as at 31 March 2018 (2017 - Rs. 78 Mn) which represents its maximum credit exposure on these assets.

• Hatton National Bank PLC –AA – (lka) • Bank of Ceylon – AA+ (lka) • National Development Bank –AA – (lka) • Deutsche Bank –A+ • DFCC Vardhana Bank PLC–AA – (lka) • Seylan Bank PLC –A – (lka) • Nations Trust Bank PLC –A (lka)

42.3 LIQUIDITY RISK

Liquidity risk is the risk that the Group will encounter difficulty in meeting the obligations associated with its financial liabilities that are settled by delivering cash or another financial asset. The Group’s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Group’s reputation.

The Group does not concentrate on a single financial institution, thereby minimizing the exposure to liquidity risk through diversification of funding sources. The Group aims to fund investment activities of the individual and Group level by funding the long-term investment with long term financial sources and short term investment with short term financing. Where



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necessary the Group consults the Treasury Department and Strategic Business Development Unit in Parent Company for scrutinizing the funding decisions.

The table below summarizes the maturity profile of the Groups financial liabilities based on contractual undiscounted payments.

On Less than 3 3 to 12 2 to 5 > 5 years Demand Months Months years TotalAs at 31 March 2018 Rs. Rs. Rs. Rs. Rs. Rs.Group Interest bearing loans and borrowing - 26,761,983 86,575,537 184,192,790 - 297,530,310 Trade and other payables - 292,223,869 39,977,111 - - 332,200,980 - 318,985,852 126,552,648 184,192,790 - 629,731,290 CompanyTrade and other payables - 8,599,455 - - - 8,599,455 - 8,599,455 - - - 8,599,455

On Less than 3 3 to 12 2 to 5 > 5 years Demand Months Months years TotalAs at 31 March 2017 Rs. Rs. Rs. Rs. Rs. Rs.Group Interest bearing loans and borrowing - 40,793,841 89,281,531 232,966,292 - 363,041,664 Trade and other payables 1,065,547 361,202,009 73,893,025 - - 436,160,581 1,065,547 401,995,850 163,174,556 232,966,292 - 799,202,245 CompanyTrade and other payables - 74,056,881 - - - 74,056,881 - 74,056,881 - - - 74,056,881 42.4 MARKET RISK

Market risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices. Market prices comprise four types of risk: interest rate risk, currency risk and other price risk such as equity price risk. Financial instrument affected by market risk include loans & borrowings, deposits and derivative financial instruments.

42.4.1 Interest Rate Risk

Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Group’s exposure to the risk of changes in market interest rates relates primarily to the Group’s long-term debt obligations with floating interest rates. The Group manages its interest rate risk by having a balanced portfolio of fixed and variable rate loans and borrowings. The Group has not engaged in any interest rate swap agreements.

The Group held long term borrowings with floating interest rates of Rs. 298 Mn (2017 – Rs. 363 Mn) which represents its maximum credit exposure on these liabilities.

Interest rate sensitivity

The following table demonstrates the sensitivity to a reasonably possible change in interest rates on that portion of loans and borrowings affected. With all other variables held constant, the group’s Profit Before Tax is affected through the impact on floating rate borrowings as follows:

Increase/ decrease Effect on profit in Interest rate before tax

Group Rs. 2018 +1% (449,030) -1% 449,030

2017 +1% (1,930,810) -1% 1,930,810



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42.4.2 Foreign Currency Risk

The Group is exposed to currency risk on sales and purchases that are denominated in a currency other than the respective functional currency of the Group. The Group is exposed to currency risk on sales, purchases and borrowings. These currency primarily is USD.

The Group hedges its exposure to fluctuation on the transaction of its foreign operations mainly by forward contracts.

Foreign currency Sensitivity

The following tables demonstrate the sensitivity to a reasonably possible change in the USD exchange rates, with all other variables held constant. The impact on the Group’s Profit Before Tax is due to changes in fair value of monetary assets and liabilities.

Increase/ decrease Effect on profit in Interest rate before tax Group Rs. 2018 USD 5% 2,150,782 USD -5% (2,150,782)

2017 USD 5% 1,995,370 USD -5% (1,995,370)

42.4.3 Equity Price Risk

The Group’s listed and unlisted equity securities are susceptible to market price risk arising from uncertainties about future values of the investment securities. The Group manages the equity price risk through diversification and by placing limits on individual and total equity instruments. Management of the Group monitors the mix of debt and equity securities in its investment portfolio based on market indices. Material investment within the portfolio are Managed on an individual basis and all buy and sell decision are approved by the Board. Equity price risk is not material to the financial statements.

42.4.4 Capital Management

The Group’s policy is to retain a strong capital base so as to maintain investor, creditor & market confidence and to sustain future development of the business. Capital consists of share capital, reserves, retain earning and non-controlling interest of the Group. The Board of Directors monitors the return on capital, interest covering ratio, dividend to ordinary shareholders.

The gearing ratio at the reporting date is as follows.

Group Company As at As at As at As at 31 March 2018 31 March 2017 31 March 2018 31 March 2017 Rs. Rs. Rs. Rs. Interest bearing borrowingCurrent portion of long term interest bearing borrowings 113,337,520 129,092,730 - - Non current portion of long term interest bearing borrowings 184,192,790 233,948,925 - - 297,530,310 363,041,655 - -

Equity 4,330,958,350 4,067,170,888 881,053,087 729,155,120 Equity and debts 4,628,488,660 4,430,212,543 881,053,088 729,155,120 Gearing ratio 7% 9% 0% 0%


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TEN YEAR SUMMARYYear ended 31 March * 2018 2017 2016 2015 2014 2013 2012 2011 2010 2009

Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs.

SUMMERY OF OPERATIONS

Revenue 3,631,650,003 3,009,791,239 2,444,426,423 2,606,132,381 2,786,042,797 2,833,456,187 2,512,971,592 2,601,501,029 2,215,126,092 1,556,182,199

Gross profit 841,642,537 607,400,571 175,312,155 406,671,850 506,481,992 619,790,672 323,184,912 594,431,830 200,821,986 53,096,710

Other income 180,930,866 158,525,878 309,428,266 147,647,023 152,684,382 102,811,016 70,638,792 139,639,850 81,097,740 53,794,876

Finance cost 61,958,097 80,762,975 76,935,196 84,078,165 134,751,913 139,602,716 138,550,497 163,856,567 149,729,435 117,457,349

Profit / (loss) before tax 668,764,754 530,696,557 246,756,143 435,139,551 462,798,238 517,087,650 177,109,820 369,459,480 4,484,935 (89,177,043)

Current tax 91,690,127 53,541,159 28,441,341 36,672,293 49,530,941 58,416,969 3,212,680 21,710,442 300,000 1,250,733

Deffered tax expenses relating to

origination of temporary differences in

the current year tax 5,308,912 – – – – – – – – –

Increase in opening differed taxes

resulting from increase in tax rate 185,253,419 – – – – – – – – –

Profit / (loss) after tax 386,512,297 477,155,398 218,314,802 398,467,258 413,267,297 458,670,681 173,897,140 369,144,232 30,993,357 (81,920,534)

Profit / (loss) attributable to equity

holders of the parent 257,819,123 318,367,832 136,372,321 260,430,133 268,012,308 298,080,315 104,742,510 233,204,666 23,303,269 (52,157,819)

SHARE CAPITAL AND RESERVES

Stated capital ** 421,666,250 421,666,250 421,666,250 421,666,250 421,666,250 421,666,250 421,666,250 421,666,250 421,666,250 421,666,250

Timber reserve 481,682,026 480,028,614 466,536,882 447,364,985 422,813,590 441,568,103 440,275,256 424,678,104 - -

Retained earnings 1,876,484,362 1,657,202,259 1,332,816,228 1,272,941,320 1,062,210,693 786,919,846 552,025,407 464,264,072 359,557,723 343,598,398

Share holders equity 2,779,832,638 2,558,897,123 2,221,019,360 2,141,972,555 1,906,690,533 1,650,154,199 1,413,966,913 1,310,608,426 781,223,973 765,264,648

Non-controlling interest 1,551,125,712 1,508,273,765 1,311,552,806 1,219,969,761 1,118,544,747 967,897,889 801,419,968 738,178,868 297,032,087 233,823,060

Total equity 4,330,958,350 4,067,170,888 3,532,572,166 3,361,942,316 3,025,235,280 2,618,052,088 2,215,386,881 2,048,787,294 1,078,256,060 999,087,708

ASSETS AND LIABILITIES

Current assets 813,950,773 669,682,988 483,846,789 574,565,557 489,797,973 548,626,226 495,824,111 568,006,924 762,073,241 259,532,452

Current liabilities 467,495,797 587,018,113 637,941,205 761,493,122 660,845,023 849,101,461 850,624,873 668,183,121 965,159,869 944,618,891

Net current liabilities 346,454,976 82,664,875 (154,094,416) (186,927,565) (171,047,050) (300,475,235) (354,800,762) (100,176,197) (203,086,628) (685,086,439)

Non current assets 5,513,431,054 5,277,039,399 5,168,305,276 4,866,262,824 4,644,144,602 4,377,708,745 4,125,977,933 3,886,840,729 3,062,158,972 2,878,370,184

Non current liabilities 1,528,927,682 1,292,533,386 1,481,638,694 1,317,392,945 1,447,862,274 1,459,181,422 1,555,790,290 1,737,877,238 1,780,816,283 1,194,196,038

KEY PERFORMANCE INDICATORS

Earning per share (Basic) 12.10 14.95 6.40 12.23 12.58 13.99 4.92 10.95 1.09 (2.45)

Net profit margin 11% 16% 9% 15% 15% 16% 7% 14% 1% -5%

Net assets per share 130.51 120.14 104.27 100.56 89.52 77.47 66.38 61.53 36.68 35.93

Dividend per share - 3.00 5.00 - 2.00 2.10 1.25 4.50 0.10 0.35

Dividend payout ratio - 20% 78% - 16% 15% 25% 41% 9% -14%

Interest cover 11.79 7.57 4.21 6.18 4.43 4.70 2.28 3.25 1.03 0.24

Current ratio 1.74 1.14 0.76 0.75 0.74 0.65 0.58 0.85 0.79 0.27

Long term gearing ratio 6% 8% 16% 16% 21% 28% 36% 38% 57% 43%

Return on equity 9% 12% 6% 12% 14% 18% 8% 18% 3% -8%


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SHAREHOLDER AND INVESTOR INFORMATION

Substantial Shareholders as at 31 March 2018Name Shareholding %

Aitken Spence PLC 8,295,860 38.95 M J F Holdings Limited 6,996,509 32.85Mr. D A de S Wickramanayake 3,498,254 16.42Dr. R D Bandaranaike 1,249,377 5.87Mr. David Panter 625,000 2.93Laxey Partners Limited 625,000 2.93Other Shareholders* 10,000 0.05

Total 21,300,000 100.00

* Other shareholders comprise 100 shareholders where one shareholder holds 100 shares each.* Public Shareholding percentage as at 31 March 2018 was 11.78%.

Shareholding by Directors as at 31 March 2018Name Shareholding %

Mr. D.A.de.S. Wickramanayake 3,498,254 16.42

Total 3,498,354 16.42

There were no other material interests of directors other than disclosed above.

Analysis of Shareholder base as at 31 March 2018Distribution of sharesRange of Shareholding No of Shareholders No of Shares %

1 – 1,000 100 10,000 0.05

1,001 – 10,000 - - -

10,001 – 100,000 - - -

101,000 – 1,000,000 2 1,250,000 5.87

Above 1,000,001 4 20,040,000 94.08

Total 106 21,300,000 100.00

Individuals and Institutions No of Shares %

Individuals 5,382,631 25.27

Intuitions 15,917,369 74.73

Total 21,300,000 100.00

Nationals and Non-nationals No of Shares %

Nationals 20,050,000 94.13

Non-nationals 1,250,000 5.87

Total 21,300,000 100.00

Market priceThe Market Value of the ordinary share as at 31 March 2018 was Rs. 45.50/-.


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DEFINITIONS

FINANCIAL TERMSAccounting Policies

Specific principles, bases, conventions, rules and practices adopted by an enterprise in preparing and presenting financial statements.

Borrowings

All interest bearing liabilities.

Capital Employed

Total assets less interest free liabilities and provisions.

Cash Equivalents

Liquid investments with original maturities of three months or less.

Contingent Liabilities

Conditions or situations at the date of Statement of Financial Position, the financial effect of which are to be determined by future events which may or may not occur.

Current Ratio

Current assets divided by current liabilities.

Earnings per Share

Profits attributable to the ordinary shareholders of the parent divided by the number of ordinary shares in issue.

Effective Tax Rate

Income tax expenses divided by profit from ordinary activities before tax.

Equity

Shareholders’ funds, i.e. share capital and reserves.

Net Assets per Share

Shareholders’ funds attributable to the equity holders of the parent divided by the number of ordinary shares.

Related Parties

Parties who could control or significantly influence the financial and operating policies of the business.

Segment

Constituent business units grouped in terms of nature and similarity of operations.

SLAS

Sri Lanka Accounting Standards.

LKAS/ SLFRS

Sri Lanka Accounting Standards (New).SLFRS refers to Sri Lanka Accounting Standards corresponding to IFRS (International Financial Reporting Standards) and LKAS refers to Sri Lanka Accounting Standards corresponding to IAS (International Accounting Standards)

UITF

Urgent Issues Tasks Force of the Institute of Chartered Accountants of Sri Lanka.

Working capital

Capital required to financing the day - to -day operations (Current assets minus current liabilities).

NON - FINANCIAL TERMSImmature plantation.

The extent of plantation that is under development and is not being harvested.

Infilling

A method of field development whereby planting of individual plants is done in order to increase the yield of a given field, whilst allowing the field to be harvested.

Mature plantation

The extent of plantation from which crop is being harvested. Also see “Extent in Bearing”.


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FINANCIAL CALENDER

2017/2018

Interim Financial Statements

Interim Financial Statements for the six months ended on 30th September 2017 Released on 8th November 2017 Interim Financial Statements for the nine months ended on 31st December 2017 Released on 14th February 2018 Interim Financial Statements for the year ended on 31st March 2018 Released on 30th May 2018 Interim Financial Statements for the three months ended on 30th June 2018 Released on 14th August 2018

Audited Financial Statements

Audited Financial Statements for the year ended on 31st March 2018 Approved on 28th May 2018

Dividends

Interim Dividend of Rs. 3/- per share for the year ended on 31st March 2017 Paid on 24th April 2017Interim Dividend of Rs. 3/- per share for the year ended on 31st March 2018 Paid on 20th June 2018

Annual General Meeting

26th Annual General Meeting 21st September 2018


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CORPORATE INFORMATION

NameAITKEN SPENCE PLANTATION MANAGEMENTS PLC

Legal FormA Public Quoted Company with limited liability, incorporated in Sri Lanka on 27th May 1992.

Company Registration NumberPQ 1196 PB

Registered Office315, Vauxhall Street, Colombo 02, Sri Lanka.

Business Address No. 305, Vauxhall Street, Colombo 02, Sri Lanka.

DirectorsMr. J M S Brito (Chairman) Dr. R M FernandoMr. Malik J Fernando Mr. Merrill J FernandoMr. D A de S WickremanayakeMr. A L W Goonewardene - Resigned w.e.f. 30-06-2018Mr. L N De S Wijeyeratne Mr. B Bulumulla Dr. R A Fernando Ms. Minette D A Perera - Alternate Director to Mr. Malik J FernandoMr. A T S Sosa - Alternate Director to Mr. Merrill J Fernando

Audit CommitteeMr. L N De S Wijeyeratne (Chairman)Mr. Malik J FernandoDr. R A FernandoMs. Minette Perera - Alternate Director to Mr. Malik Fernando

Remuneration CommitteeMr. D A de S Wickramanayake (Chairman)Mr. L N De S Wijeyeratne Dr. R A Fernando Related Party Transactions Review CommitteeMr. L N De S Wijeyeratne (Chairman)Mr. Malik J FernandoDr. R A Fernando Ms. Minette Perera - Alternate Director to Mr. Malik J Fernando

SecretariesAitken Spence Corporate Finance (Private) Limited

RegistrarsS S P Corporate Services (Private) Limited

AuditorsMessrs. KPMG (Chartered Accountants)32A, Sir Mohamed Macan Marker Mawatha, P.O. Box 186, Colombo 03.

LawyersJulius & CreasyAttorneys – at – Law

BankersHongkong and Shanghai Banking Corporation LimitedNations Trust Bank PLC


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NOTICE OF MEETING

Notice is hereby given that the Twenty Sixth Annual General Meeting of Aitken Spence Plantation Managements PLC will be held at the Institute of Chartered Accountants of Sri Lanka, 30A, Malalasekera Mawatha, Colombo 07, at 2.45 p.m. on Friday, September 21, 2018, for the following purposes: -

• To receive and consider the Annual Report of the Board of Directors together with the Financial Statements of the Company for the year ended 31st March 2018 and the Report of the Auditors’ thereon.

• To re-appoint Mr. Merrill J Fernando who is over 70 years, as a Director by passing the following resolution as an Ordinary Resolution:

“IT IS HEREBY RESOLVED that the age limit stipulated in Section 210 of the Companies Act No. 7 of 2007 shall not apply to Mr. Merrill J Fernando who is 88 years of age and that he be re-appointed as a Director of the Company.”

• To re-appoint Mr. J M S Brito who is over 70 years, as a Director by passing the following resolution as an Ordinary Resolution:

“IT IS HEREBY RESOLVED that the age limit stipulated in Section 210 of the Companies Act No. 7 of 2007 shall not apply to Mr. J M S Brito who is 72 years of age and that he be re-appointed as a Director of the Company.”

• To re-elect Mr. L N De S Wijeyeratne who retires in terms of Article 82 of the Articles of Association, as a Director.

• To re-elect Mr. D A de S Wickremanayake who retires in terms of Article 82 of the Articles of Association, as a Director.

• To re-appoint the retiring Auditors, Messrs. KPMG, Chartered Accountants and authorise the Directors to determine their remuneration.

• To authorise the Directors to determine contributions to charities.

• To consider any other business of which due notice has been given.

BY ORDER OF THE BOARD

AITKEN SPENCE CORPORATE FINANCE (PVT) LTD Secretaries Colombo

August 24, 2018

Note :1. Shareholder entitled to attend and vote at the meeting is entitled to appoint a Proxy to attend, speak and vote

in his/her stead and a Form of Proxy is enclosed for this purpose. A Proxy need not be a Shareholder of the Company.

2. The completed Form of Proxy must be deposited at the Office of the Registred, Company No. 315, Vauxhall Street, Colombo 02, not less than forty-eight hours before the time fixed for the meeting.

3. Any Shareholder or proxy holder attending the meeting is kindly requested to bring this report.


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NOTES


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FORM OF PROXY

I/We …........................................................................................................................................................................ of …..

.................................................................................................................................................................................... being a

shareholder/shareholders of Aitken Spence Plantation Managements PLC hereby appoint ……………………………

………………………………………….…………………………….............................................………… of .………………

…………………………...............................……………………………………………..………..…… (whom failing)

Joseph Michael Suresh Brito (whom failing)

Rohan Marshall Fernando (whom failing)

Merrill Joseph Fernando (whom failing)

Don Ariyaseela de Silva Wickramanayake (whom failing)

Malik Joseph Fernando (whom failing)

Lalit Nihal De Silva Wijeyeratne (whom failing)

Bhathiya Bulumulla (whom failing)

Ravindra Ajith Fernando

as my/our Proxy to represent me/us, to speak and to vote for me/us and on my/our behalf at the Annual General Meeting of the Company to be held on the 21st day of September 2018, and at any adjournment thereof and at every poll which may be taken in consequence thereof.

Signed this….…............day of ................................................. Two Thousand Eighteen.

…………………………………………….…………….. Signature

Note : Instructions as to completion are noted on the reverse hereof.


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INSTRUCTIONS AS TO COMPLETION

Kindly perfect the form of proxy by filling in legibly your full name and address, signing in the space provided and filling in the date of signature.

If the proxy form is signed by an Attorney, the relative power of attorney should also accompany the proxy form for registration, if such power of attorney has not already been registered with the Company.

In the case of a Company/Corporation, the proxy must be under its Common Seal (if required), which should be affixed and attested in the manner prescribed by its Articles of Association.

The completed form of proxy should be deposited at the Registered Office of the Company No. 315, Vauxhall Street, Colombo 02 before 2.45 p.m. on 19th September 2018, being 48 hours before the time appointed for the holding of the meeting.

Documents

contents - CSE