Printed by Ceylon Printers PLC · Company Secretaries & Registrars Ninecap Corporate Solutions (Pvt) Ltd No.55, Vinayalankara Mawatha, Colombo 10 Bankers Commercial Bank of Ceylon

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1INDUSTRIAL ASPHALTS (CEYLON) PLC ANNUAL REPORT 2017/2018

2 INDUSTRIAL ASPHALTS (CEYLON) PLC ANNUAL REPORT 2017/2018




Corporate Information 06

Notice of Annual General Meeting 07

Managing Director/ CEO's Report 08

Annual Report of the Board of Directors 10

Statement of Directors' Responsibility 13

Board of Directors 14

Report of the Audit Committee 15

Report of the Remuneration Committee 16

Report of the Related Party Transactions Review Committee 17

Corporate Governance 18

Sustainability Reporting 21

Risk Management 25

Independent Auditors' Statement 30

Statement of Comprehensive Income 34

Statement of Financial Position 35

Statement of Changes in Equity 36

Cash Flow Statement 37

Notes to the Financial Statements 38

Shareholders Information 53

Form of Proxy 55

TABLE OF CONTENTS


CORPORATE INFORMATIONLegal Form Quoted Public Company with limited liability listed on the Colombo Stock Exchange

Date of Incorporation 30 June 1964

Date of Re-registration 1 August 2008

Accounting year end 31 March

New Registration Number PQ 185

Registered Office No.28/1, New Nuge Road, Peliyagoda

Website www.iac.lk

Auditors A.I. Macan Markar & Co. Chartered Accountants 46- 2/1, 2nd Floor, Lauries Road, Colombo 04

Directors G. Ramanan (Managing Director/ CEO) M. Perera (Non-Executive Independent Director) S.P. Muthusammy (Non-Executive Independent Director)

Company Secretaries & Registrars Ninecap Corporate Solutions (Pvt) Ltd No.55, Vinayalankara Mawatha, Colombo 10

Bankers Commercial Bank of Ceylon PLC Bank of Ceylon Hatton National Bank PLC


NOTICE OF ANNUAL GENERAL MEETINGNotice is hereby given that the 54th Annual General Meeting of Industrial Asphalts (Ceylon) PLC will be held on 18th September 2018 at the Association of Accounting Technicians of Sri Lanka, No. 540, Ven. Muruththettuwe Ananda Nahimi Mawatha (Formally Thimbirigasyaya Road), Narahenpita, Colombo 05 at 10.00 a.m. to transact the following businesses;

1. To receive the Report of the Board of Directors and the Audited Financial Statements of the Company for the year ended 31st March 2018 together with the Report of the Auditors' thereon.

2. To declare a final dividend of Rs. 1.50 per share for the year ended 31st March 2018 as recommended by the Board of Directors.

3. To re-elect Mr. M. Perera who retires in terms of Article 90 of the Articles of Association of the Company and offers himself for re-election as a Director.

4. To re-appoint Messrs A.I. Macan Markar & Co., Chartered Accountants, as Auditors of the Company for the ensuing year and authorize the Directors to determine their remuneration.

5. To authorize the Directors to determine and make donations.

By order of the Board

(Sgd.)

Ninecap Corporate Solutions (Pvt) Ltd.

Secretaries

At Colombo,

27th August 2018

NOTES

A member entitled to attend and vote at the above Meeting is entitled to appoint a Proxy to attend and vote on behalf of him/ her.

A Proxy need not be a member of the Company.

A Form of Proxy is enclosed for this purpose.

ThecompletedFormofProxymust bedepositedat theOfficeof Industrial Asphalts (Ceylon)PLC,No.28/1,NewNugeRoad,Peliyagodanotlessthan48hoursbeforethetimefixedfortheMeeting.


MANAGING DIRECTOR/CEO REVIEWMy warmest welcome to the Shareholders of Industrial Asphalts (Ceylon) PLC for its 54th Annual General Meeting.

Review of Operations & Economic Environment for the year 2017/2018

The review period was indeed a year of culmination of various initiatives both within the strategic purview of the Board and the Management, and also the economic, political and social forces at play in the country.

On the strategic front, IAC was able to unlock its primary value driver in the form of monetizing our land at New Nuge Road, Peliyagoda. We have entered into a sub-lease agreement with Insee Cement, comparatively a short-term lease when compared to the tenor of our underlying lease. We will retainallprimary leasebenefitsup to theyear2086 and which is renewable for another 99 years.

As of the date of this report, the operating assets in the form of plant and machinery were shifted out of the premises and relocated to our new manufacturing location.

All brands that were not registered have been successfully being registered with the IP office inColombo. These include NOLEAK, SEALKOTE, BRITEX, CLING-FIX, FELT-FIX and the IAC Corporate Logo. We are in the process of getting the required IP protection for our unique formulations for our main product range. As we are not looking at overseas markets at this juncture the registration has been limited to the jurisdiction of Sri Lanka.

A critical review of our product portfolio was taken, and a decision was made to focus on products and brand lines where IAC has an intrinsic competitive advantage. As such there was a scaling down of paints & coatings business line and shift the attention to bitumen and bitumen-based products. We are also reviewing traded products which are essentially chemicals used for the paints & coatings industry. The review was extended to our customer base. IAC achieved significant breakthrough butin a booming economy during the 2014-2015 period. Subsequent slowdown of the economy especially in the construction industry has resulted in requiring us to take more conservative view of the business involving large scale operations in the form fragmented customer base serviced by an army of sales and logistics personnel.

The shift of our traditional business lines into the fully owned subsidiary has taken longer than expected but would be completed during the financial year2018-2019. With this, we would have achieved all the strategic goals set out in our 2017 Annual Report.

Looking to the Future

As Industrial Asphalts (Ceylon) PLC moves onto becoming an investment holding company we are keen to activate some of the more suitable activities including being an active player in the capital markets. The theme for the annual report for the year is a bull emerging from the shadows. We are eternal Bulls. The achievements for the country from 2009 are phenomenal. It is easy to get lost in the day to day reporting of varying views in the popular media and miss out on the fundamentals. Fundamentals are strong. Economic policy for a developing welfare economy has been consistently above par and our democratic institutions are as strong as they can get. With these and the enterprising spirit we possess, it is our strong belief that we are in the middle of an economic and social re-emergence. The last time this happened was more than 2000 years ago with the advent of the Anuradhapura civilization. IAC is gearing itself to achieve success through the capture of the country's tectonic shift from an under-developed country to a developed country.

IAC would be looking to further strengthen its equity base by raising capital in the market at a favourable time during 2018-2019. We are seeking potential strategic investors who possess deep knowledge in private equity and international capital markets.

IAC would be looking at the possibility of raising debt also in both local and overseas markets as far as rules and regulations allow us to do so.

Industrial Asphalts (Ceylon) PLC

The Company's current name denotes the routes and traditional business line of IAC. In order to reflectthemoredynamicbusinessventurewehavebecome and the fact that we are an investment holding company the name has to follow suit. We are hopeful that by December 2018 a new name with an appropriate logo would be launched.


Financial Review

During 2017-2018 we were able to bring into the booksthevalueofthelandwhichwasre-classifiedas investmentproperty.This resulted inafinancialgain of Rs.534 million which was captured through theIncomeStatement.Thefinancialstatementsalsoreflectprovisionsmade forbaddebtsandstocks.Appropriate action has been initiated to recover the provisions made for bad debts through the legal methods available to us. The increase in turnover for the year tallies with the re-alignment of the business activities of the traditional business lines. Wehopetoaccruefurtherbenefitsinthefutureasour strategic realign starts to take hold.

Dividends

We have declared and paid an interim dividend of Rs.3.00pershareanddeclaredafinaldividendofRs.1.50 per share. This is after a break of 2 years. With steady stream of rental income received by the company,weareconfident that thedividend trackrecord can be maintained in the coming years.

Historical reason for land at New Nuge Road, Peliyagoda.

IAC in the early 1980s had two manufacturing facilities; one at Rajagiriya and the other at a 20 acre freehold land at Sapugaskanda adjoining the Ceylon Petroleum Refinery. The rationale being toreceive feedstock in the form of hot bitumen directly fromthesoleRefineryinSriLanka.Unfortunately,thefacility at Sapugaskanda was completely destroyed during civil unrest in the early 1980s. Further tragedy was in the form of the land being immediately acquired by the government for strategic reasons. After significant deliberation with the government,the land at Nuge Road was given as compensation albeit in the form of a 99 year lease which would be renewed for a further 99 years.

Listing on the Main Board of the Colombo Stock Exchange

Under new continuing listing regulations of theCSE, we are required amongst other requirements to maintain a minimum shareholder base of 500, currently we have 368 shareholders. As you would concurwithme,itisdifficulttoincreasethenumberof shareholders without an active stock market. In this light we have been transferred to the watchlist which gives us up to 20 months to resolve the shareholder matter.

MANAGING DIRECTOR/CEO REVIEW [Contd.]Appreciation

I would like to place on record the appreciation of the continued support given by the team at IAC and the Board of Directors. Our appreciation extends to the Banks, Colombo Stock Exchange and the wider investment community. Last but not least, my gratitude to the shareholders of IAC who have patiently gone through the painful restructuring in the last few years.

(Sgd)

G.Ramanan

Managing Director/ CEO


ANNUAL REPORT OF THE BOARD OF DIRECTORSFor the financial year ended 31 March 2018

The Directors of Industrial Asphalts (Ceylon) PLC have pleasure in presenting their Annual Report on the affairs of the Company together with the Audited Financial Statements for the year ended 31 March 2018 which were approved by the Board on 25th of August 2018.

Review of Operations

The Company reported a net profit after tax ofRs.473.6Mn and a net loss after tax of Rs.10.8Mn was reported in the previous year. A more comprehensive review of the operations of the Companyduring thefinancial yearand the resultsof those operations are contained in the Managing Director's Review on pages 8 to 9 of the Annual Report. This report forms an integral part of the Directors' Report.

Principal Activities

The Company's principal activities are the manufacture and distribution of bituminous products; distribution of a specialist range of surface coatings and industrial chemicals.

Therewerenosignificantchanges to theprincipalactivities of the Company during the year under review.

Legal Status

Industrial Asphalts (Ceylon) PLC was incorporated on 30 June 1964 under the provisions of the Companies Ordinance (Cap 145) and re-registered under the Companies Act, No.7 of 2007. The Company is listed on the Main Board of the Colombo Stock Exchange and due to non-compliance with theMinimumPublicHoldingrequirementspecifiedin Rule 7.13.1(a) of the Listing Rules the Company has been transferred to the Watch List with effect from 2nd July 2018. The Board of Directors of the Company is currently in the process of taking measures to comply with the aforesaid Rules on Minimum Public Holding.

Shares

Stated Capital

The Stated Capital of the Company as at 31 March 2018 was Rs.6.6Mn consisting of 666,562 ordinary shares.

Share Information and Substantial Shareholders

As at 31 March 2018, there were 368 registered Shareholders. Share information and the twenty largest Shareholders as at 31 March 2018 are indicated in pages 53 and 54 of the Annual Report.

Reserves

The movement of the reserves is given on page 36 under Statement of Changes in Equity.

Corporate Donations

During the year under review, the Company made no charitable donations.

Taxation

The Company has adopted accounting policy of making provision for deferred taxation. The Company's liability to income tax has been computed in accordance with the provisions of the Inland Revenue Act No. 10 of 2006 and subsequent amendments thereto. Details are given in Note 9 to the Financial Statements.

Investment Property

The land and buildings of the Company are classifiedandaccountedforasInvestmentProperty.

Information relating to market value of a share and information on share trading is stated under Shareholder and Investors' information on page 54 of the Annual Report.

Finance

Accounting Policies

The Company prepared its Financial Statements according to the Sri Lanka Accounting Standards (SLFRS/ LKAS). All relevant applicable standards have been followed in presenting the Financial Statements for the year ended 31 March 2018. The significant accountingpolicies adopted in thepreparation of the Financial Statements are given in pages 38 to 43 of the Annual Report.

Financial Results

Summarized results for the financial year underreview is set out below.

Year ended 31 March 2018Rs.'000

2017Rs.'000

Revenue 44,067 27,678

Results from operating activities

485,445 (3,451)

Profit/(Loss)beforeTax 473,440 (14,205)

Income Tax expense 214 3,340

Profit/(Loss)afterTax 473,655 (10,865)


The Directors have adopted the fair value model for accounting for Investment Property. Details are given in note 13 to the Financial Statements.

Capital Expenditure

Details of property, plant and equipment and their movement during the year are given in Note 11 to the Financial Statements.

Events after the Reporting Date

There were no material events occurring after the financial reporting date which requires anadjustment to or a disclosure in the Financial Statements, other than as disclosed in Note 31 to the Financial Statements.

Directors' Responsibility for Financial Reporting

The Directors' responsibility in relation to the Financial Statements is detailed under the Statement of Directors' responsibility on page 13 of the Annual Report.

Board of Directors

The following were the Directors of the Company as at 31 March 2018.

1. Mr. G. Ramanan2. Mr. M. Perera3. Mr. S.P. Muthusammy

Dr. Shabbir A. Gulamhusein, Independent Non-Executive Director who was on Board as at 31st March 2017 passed away on 9th June 2017.

Directors and their shareholding as at 31 March 2018 were as follows:

ANNUAL REPORT OF THE BOARD OF DIRECTORS [Contd.]

Year ended 31 March No. of shares

31.03.2018

No. of shares

31.03.2017

Mr. G. Ramanan 445,837 445,017

Mr. M. Perera Nil Nil

Mr.S.P. Muthusammy Nil Nil

Late Dr. Shabbir A. Gulamhusein (decease on 09.06.2017)

- 24,038

Retirement by Rotation and Re-election

Mr. M. Perera the Independent Non-Executive Director will retire in terms of Article 90 of the Articles of Association of the Company and offers himself for re-election as a Director at the forthcoming AGM.

Related Party Transactions

The Company's transactions with Related parties, as detailed in Note 32 to the Financial Statements, have complied with Colombo Stock Exchange Listing Rule 9.3.2 and Code of Best Practices on Related Party Transactions under the Securities Exchange Commission Directive issued under Section 13 ( c ) of the Securities Exchange Commission Act as declared by the Board of Directors.

Directors' Interest

As required by the Companies Act, No.7 of 2007, an Interests Register was maintained by the Company during the period under review. Directors have made declarations as provided for in Section 192 (2) of the Companies Act. The Interests Register is available for inspection as required under the Companies Act.

Remuneration and Fees

Details of Directors' remuneration and fees are set out in Note 8 to the Financial Statements.

Risk and Internal Control

TheBoardofDirectorsissatisfiedthatthereexistsan effective and comprehensive system of internal controls to monitor, control and manage the risks to which the Company is exposed, to carry out its business in an orderly manner, to safeguard its assets and to secure as far as possible the reliability and accuracy of records.

Corporate Governance

The Directors acknowledge their responsibility for the Company's corporate governance and the system of internal controls. The Directors are responsible to the Shareholders for providing strategic direction to the Company and safeguarding the assets of the Company. The Board is satisfied with theeffectiveness of the system of internal control for the period up to the date of signing the Financial Statements.


The main corporate governance practices of the Company are set out on pages 18 to 20 of the Annual Report.

The performance of the Company is evaluated at regular review meetings. These meetings provide an opportunity to ensure that progress is in line with agreed targets. Regular Board Meetings are held to further strengthen the review process and ensure compliance with all statutory and regulatory obligations.

Statutory Payments and Compliance with Laws and Regulations

The Directors confirm that, to the best of theirknowledge, all taxes and duties due to the Government and all contributions, levies and taxes payable in respect of the employees and all other known statutory dues as at the reporting date have been paid and/ or provided.

Going Concern

The Board of Directors has reviewed the Company's business plans and is satisfied that theCompanyhas adequate resources to continue its operations in the foreseeable future. Accordingly, the Financial Statements are prepared on the going concern concept.

Equal Opportunities

The Company is committed to provide equal opportunities to all employees irrespective of their gender, marital status, age, religion, race or disability. It is the Company's policy to give full and fair consideration to persons, with respect to applications for employment, continued employment, training, career development and promotion, having regard for each individual's particular aptitudes and abilities.

Independent Auditors

The Company's Auditors during the period under review were Messrs A.I. Macan Markar & Co., Chartered Accountants. The fees paid to auditors are disclosed in Note 8 to the Financial Statements.Based on the declaration from Messrs A.I. Macan Markar & Co., Chartered Accountants, and as far as the Directors are aware, the Auditors do not have any relationship or interest in the Company other than as disclosed in the above paragraph.

ANNUAL REPORT OF THE BOARD OF DIRECTORS [Contd.]

Messrs A.I. Macan Markar & Co., Chartered Accountants, have expressed their willingness to continue in office asAuditors of theCompany forthe ensuing year.

In accordance with the Companies Act No. 7 of 2007, a resolution proposing the re-appointment of Messrs A.I. Macan Markar & Co., Chartered Accountants, as Auditors to the Company for the ensuing year will be submitted at the forthcoming Annual General Meeting.

Independent Auditor's Report

The Independent Auditor's report on the Financial Statements is given on pages 30 to 33 of the Annual Report.

Annual General Meeting

The 54th Annual General Meeting of the Company will be held on 18th September 2018. The notice convening the meeting and the agenda are given on page 7.

This Annual Report is signed for and on behalf of the Board.

(Sgd.)G. RamananManaging Director/ CEO

(Sgd.)S.P. MuthusammyDirectorColombo27th August 2018

(Sgd.)Ninecap Corporate Solutions (Pvt) Ltd.SecretariesColombo27th August 2018


STATEMENT OF DIRECTORS’ RESPONSIBILITYSet out below are the responsibilities of the Directors of the Company.

The Board of Directors are responsible for preparation of Financial Statements for each financial yearandpresentFinancialStatements tothe Shareholders in accordance with the relevant provisions of the Companies Act No.7 of 2007 and other statutes which are applicable in preparation of Financial Statements. The Financial Statements comprise of the Statement of Financial Position as at 31 march 2018, the Statement of Comprehensive Income, Statement of Changes in Equity, Cash Flow Statement for the year ended and Notes thereto.

The Financial Statements of the Company for the year ended 31 March 2018 incorporated in this Annual Report have been prepared in accordance with the Companies Act No.7 of 2007, Sri Lanka Accounting Standards (SLFRSs and LKASs) and Listing Rules of the Colombo Stock Exchange.

The Directors are responsible to select suitable accounting policies which are applied in a consistent manner and appropriate estimates and judgementsmadetoreflectthetruesubstanceandform of transactions.

As per section 148 of the Companies Act No.7 of 2007, the Directors are required to maintain sufficient accounting records to disclose, withreasonable accuracy, the financial position of theCompany. The Directors have therefore caused the Company to maintain proper books of accounts and regular review financial reports at their meetings.The Board also reviews and approves all interim Financial Statements prior to their release.

The Directors have taken reasonable measures to safeguard the assets of the Company and to prevent and detect frauds and other irregularities. In this regard, the Directors have laid down effective and comprehensive internal control systems.

The Auditors of the Company, Messrs A.I. Macan Markar & Co., Chartered Accountants, who were appointed in accordance with a resolution passed at the last Annual General Meeting were provided with all necessary information required by them in order to carry out their audit and to express an opinion which is contained on pages 30 to 33 of this Annual Report.

Directorsconfirmthatafterconsideringthefinancialposition, operating conditions and regulatory and other factors, the Directors have a reasonable expectation that the Company possesses adequate resources to continue in operation for the foreseeable future and that the Going Concern basis is the most appropriate in the preparation of these Financial Statements.

The Board of Directors is of the opinion that Board has discharged its responsibilities as set out above.

.

By order of the Board

(Sgd.)

Ninecap Corporate Solutions (Pvt) Ltd.

Secretaries

Colombo

27th August 2018


BOARD OF DIRECTORSG. Ramanan

ACMA (UK), CFA (USA), MBA (University ofChicago, Booth School of Business)

Managing Director/ CEO

(Appointed to the Board on 30th May 2014)

Mr Ramanan is an investment banker and has over 20 years of experience in the investment banking space in Sri Lanka. He was widely involved and continues to be active in business advisory, fund management, commercial banking and investment banking. Mr Ramanan was the Head of Investment Banking at Hatton National Bank and CEO of HNB Securities, where he was directly involved in handling the full array of investment banking services and executed several landmark transactions. In 2009 he established his owned investment banking practice along with Capital Trust Holdings. Mr Ramanan is a CFA Charter Holder and a Management Accountant, andobtainedhisMBA fromUniversity ofChicagoBooth School of Business.

Mahinda Perera

FCMA(UK),MBA,LLB

Non-Executive Independent Director

(Appointed to the Board on 3rd November 2014)

Mr Mahinda Perera counts over 30 years professional experience in the commercial sector in finance, management and legal disciplines.He commenced his professional career as a Management Accountant and is currently a Fellow of the Chartered Institute of Management Accountants, U.K. (FCMA-UK) and a CGMA. Thereafter, heobtained a Master's Degree in Management (MBA) and a Bachelor of Laws (LLB) in keeping with his career development. He was admitted to the Bar as an Attorney-at-Law in 2008.

He has wide experience in manufacturing and export industries having held senior positions in entities in divers sectors such as food and beverage, packaging and ceramic industries. He has gained extensive experience in management and financeasaChiefExecutiveOfficerofalistedcompanyas

well as a Managing Director and Finance Director in unlisted entities.

He also served as an Executive Director of Varners International (Pvt) Ltd., which provides legal advice and professional services on corporate and regulatory matters to clients.

At present, he is engaged in providing legal advice on commercial and corporate law as well as professional consultancy services.

S.P. Muthusammy

Non-Executive Independent Director

(Appointed to the Board on 3rd November 2014)

Mr. Muthusammy has being in the business of tea plantation since 1961 and counts over 15 years of experience as a tea planter.

In 1990 Mr. Muthusammy moved into the business of growing, processing and exporting of Organic food products. Currently he is the Chairman of GreenfieldHoldings(Pvt)LimitedandtheSubsidiaryCompanies and the Associate Companies of the GreenfieldGroup.


REPORT OF THE AUDIT COMMITTEEComposition of the Audit Committee and meetings

The Audit Committee of Industrial Asphalts (Ceylon) PLC comprises of the two (2) Independent Non-Executive Directors, Mr. Mahinda Perera (Chairman of the committee) and Mr.S.P.Muthusammy. The Directors have the required financial knowledgeand professional skills to carry out their functions effectively and efficiently. The Chief ExecutiveOfficerandtheFinancialControllerattendmeetingson invitation. The External Auditors, Messrs A.I. Macan Markar & Co., Chartered Accountants attend meetings on invitation. The Company Secretary functions as the Secretary to the Audit Committee. The Audit Committee had three (3) meetings during the financial year ended 31 March 2018. Theattendance of the Committee members at these meetings was as follows:

Name of Director Attendance

Mr. M. Perera (Chairman - Audit Committee) 3

Mr. S.P. Muthusammy 3

Responsibilities of the Audit Committee

The Audit Committee is responsible to review the adequacy and effectiveness of the internal controls and the risk management system to safeguard the assets of the Company and the compliance with legal and regulatory requirements. It is also responsible for supervision of all matters associated with the appointment, terms, remuneration and performance of the External Auditors and for reviewing the scope and results of the audit.

During the financial year ended 31 March 2018the Audit Committee reviewed and discussed the Quarterly Accounts and Annual Financial Statements with the Management in order to ensure its compliance with statutory requirements of Sri Lanka Accounting Standards, Companies Act No.7 of 2007 and the listing rules of the Colombo Stock Exchange; and recommended to the Board of their approval prior to releasing the same to the Colombo Stock Exchange.

During the year the Audit Committee reviewed the adequacy and the effectiveness of the Company's

internal control system and the procedures relating to governance and risk management system. Accordingly, the Audit Committee is satisfiedthat the Company's internal controls and the risk management framework in place provide a reasonable assurance that the financial positionof the Company is adequately monitored and the Company's assets are safeguarded.

External Audit

The External Auditor's letter of engagement, including the scope of the audit was reviewed and discussed by the Audit Committee with the Management and the External Auditors prior to the commencement of the annual audit.

Before the conclusion of the audit the Committee met with the External Auditors to discuss all audit issues and agree on their treatment.

The Audit Committee is satisfied that theindependence of the External Auditors has not been impaired by any event or service that gives rise to a conflictofinterest.

After evaluating and discussing the performance of the External Auditors with the Management of the Company, the Audit Committee has recommended to the Board of Directors that Messrs A.I. Macan Markar & Co., Chartered Accountants, be re-appointed as External Auditors for the financialyear ending 31 March 2019 at a remuneration to be determined by the Board, subject to the approval of the Shareholders at the Annual General Meeting.

(Sgd)Mahinda PereraChairmanAudit Committee27th August 2018


REPORT OF THE REMUNERATION COMMITTEEThe Remuneration Committee of Industrial Asphalts (Ceylon) PLC comprises of the two (2) Independent Non-Executive Director, Mr. S.P. Muthusammy (Chairman of the committee) and Mr. Mahinda Perera. The Company Secretary functions as the Secretary to the Remuneration Committee. The Remuneration Committee had one (1) meeting duringthefinancialyearended31March2018.Theattendance of the Committee members at these meetings was as follows:


Mr. S.P. Muthusammy (Chairman - Remuneration Committee)

1

Mr. M. Perera 1

The Remuneration Committee is responsible for reviewing and recommending the framework and policy for remuneration of Senior Management. It is ensured that the remuneration at each level of management is competitive and based on performance they are rewarded in a fair manner.

The policy on remuneration is geared to attract and retain the best professional talent to the Company and to motivate and encourage them to perform at the highest possible level.

Evaluation of performance ensures equality and fairness without discrimination of gender, age, ethnicity, religion or any other consideration.

The aggregated remuneration of the Board of Directors and the Senior Management team are disclosed in the notes to the Financial Statements.

(Sgd.)S.P. MuthusammyChairmanRemuneration Committee27th August 2018


REPORT OF THE RELATED PARTY TRANSACTIONS REVIEW COMMITTEEComposition of the Related Party Transactions Review Committee and meetings

The Board has established the Related Party Transactions Review Committee (RPTRC) as a Board Sub-Committee. As at 31st March 2018 RPTRC comprised of two (2) Independent Non-Executive Directors, Mr.S.P. Muthusammy (Chairman of the committee) and Mr. Mahinda Perera. The Company Secretary functions as the Secretary to the RPTR Committee. The Committee had four (4) meetings duringthefinancialyearended31March2018.


Mr. S.P. Muthusammy (Chairman - RPTRC) 4

Mr. M. Perera 4

Objective of the Committee

Related Party Transactions Review Committee was formed to ensure that the Company complies with the requirements of the Code of Best Practices on Related Party Transactions issued by the Securities and Exchange Commission of Sri Lanka and the Section 9 of the Listing Rules of Colombo Stock Exchange.

The objective of these rules pertaining to Related Party Transactions is to ensure that the interests of shareholders as a whole are taken into account by the Company when entering into Related Party Transactions.

Role of the Committee

Except for transactions mentioned in Rule 9.5 of CSE Listing Rules pertaining to Related Party Transactions, all other Related Party Transactions are reviewed in advance by the RPTRC. If the transaction is expressed to be conditional on such review, prior to the completion of the transaction the approval of the Committee will be obtained.

The Committee shall update the Board of Directors on the Related Party Transactions of the Company on a quarterly basis.

Make recommendations to obtain shareholder approval for applicable related party transaction as per the provisions in the Code of Best Practice and Section 9 of CSE Listing Rules. Such approval shall be obtained either prior to the transaction being entered into or, if the transaction is expressed to be conditional on such approval, prior to the completion of the transaction.

The Committee shall make immediate market disclosures on applicable related party transactions as required by the CSE Listing Rules.

Further shall make appropriate disclosures on related party transactions in Annual Report as required by the CSE Listing Rules.

Performance Review during the Year

Details of Related Party Transactions entered into by the Company during the year are disclosed in Note 32 of Notes to the Financial Statements.

Declaration

Non-recurrent Related Party Transactions

There were no any non-recurrent Related Party Transactionsduringthefinancialyearwhichrequireadditional disclosures in the 2017/18 Annual Report asspecifiedbytheSection9.3.2oftheListingRulesof Colombo Stock Exchange.

Recurrent Related Party Transactions

There were no any recurrent Related Party Transactionsduringthefinancialyearwhichrequireadditional disclosures in the 2017/18 Annual Report asspecifiedbytheSection9.3.2oftheListingRulesof Colombo Stock Exchange.

The Committee confirms that all applicable rulesin the Code of Best Practice on Related Party Transactions and Section 9 of CSE Listing Rules have been complied with by the Company during thefinancialyearended31stMarch2018.

A Declaration by the Board of Directors on compliance with the Rules pertaining to the Related Party Transactions is included in the Annual Report of the Board of Directors on page 11 of this report.

(Sgd.)S.P. MuthusammyChairmanRelated Party Transactions Review Committee27th August 2018


CORPORATE GOVERNANCEThe Board of Directors is committed to maintain the highest standards of corporate governance practiced in the interest of stakeholders while maintaining business integrity, appropriate ethical standards and professionalism in all its operations and activities. The Board ensures that the Company is in compliance with relevant statutory and regulatory requirements including requirements of the Companies Act No.7 of 2007, listing rules of Colombo Stock Exchange, requirements of Securities and Exchange Commission of Sri Lanka and other applicable laws and regulations. The Directors are responsible to establish sound internal control systems including comprehensive risk management framework, to safeguard the Company's assets, ensure accuracy and reliability of records and accountable for overall management of the Company.

In terms of section 7.10 of the listing rules of the Colombo Stock Exchange, Industrial Asphalts (Ceylon) PLC complied with the relevant provisions under Corporate Governance.

The Board of Directors

Composition of the Board of Directors and Meetings

The Board of Directors is responsible for the governance practices established within the Company. As at 31 March 2018 the Board comprised of Managing Director/ Chief Executive Officer and two Independent Non-ExecutiveDirectors. Dr. Shabbir A. Gulamhusein, Independent Non-Executive Director who was on Board as at 31st March 2017 passed away on 9th June 2017.

TheprofilesofalltheDirectorsdetailingtheirareasof expertise are given on page 14 of the Annual Report.

The independence of the Non-Executive Directors were determined according to the CSE listing rules. Each Non-Executive Director has submitted a declaration of independence/ non-independence for the year. The Board makes a determination annually as to the independence/ non-independence of each Non-Executive Director.

The Non-Executive Directors bring independent objective judgement to bear on Board decisions by constructively challenging management and helping to develop the Company's strategic objectives.

The Board met on four (4) occasions during the year under review. The Directors' attendance at the Board meetings held is given below.

The Board is also encouraged to seek independent professional advice when necessary, at the Company's expense and also have access to the Company Secretary to obtain advice and services as required.

Delegation of Authority

The Board has delegated the authority to the Chief Executive Officer (CEO)/ Managing Director tofacilitate the effective function of daily business affairs of the Company as per the set strategies, goals and objectives of the Board and to ensure high standards of governance. A team of Senior Management assists CEO in carrying out the day to day functions of the Company.

The Board has discussions with the CEO on the short term, medium term and long term objectives of the Company. Additionally the Board meets with Senior Management regularly to review operational matters and disseminate the Board's plan for the future.

Appointments to the Board

The appointment of Directors to the Board is decided by the Board in accordance with the Articles of Association of the Company and in compliance with rules of governance.

Information relating to change in Directorate is communicated to the Shareholders by way of appropriate announcements to the Colombo Stock Exchange.

Re-election of Directors

In accordance with the Articles of Association of the Company, members comprising one third of the Board of Directors except the Managing Director/ CEO, are required to stand for retirement by rotation at least once in every three years. A retiring Director is eligible for re-election at the Annual General Meeting.

Company Secretary

The Company Secretary is appointed by the Board of Directors of the Company. The Company Secretary liaises with the Colombo Stock Exchange on the Company's communications. It is the

Name of Director Board Meetings attended

Mr. G. Ramanan 4

Mr. M. Perera 4

Mr. S.P. Muthusammy 4


responsibility of the Company Secretary for making announcements with regard to AGMs and EGM to the shareholders and for accurate recording of proxy voting.

Remuneration Committee

The composition of the Remuneration Committee and the Report of the Remuneration Committee is given on page 16 of this Annual Report.

Related Party Transactions Review Committee

The composition of the Related Party Transactions Review Committee and the Report of the RPTR Committee is given on page 17 of this Annual Report.

Audit Committee

The composition of the Audit Committee and the Report of the Audit Committee is given on page 15 of this Annual Report.

Accountability

Financial Reporting

The Board of Directors is responsible for timely publication of Financial Statements annually and quarterly basis. These Financial Statements are prepared based on Sri Lanka Accounting Standards (SLFRS/ LKAS) and in compliance with the listing rules of Colombo Stock Exchange. Board ensures

Rule No.

Requirement Compli-ance Status

Details

i. 7.10.1(a) The correct number of Executive/ Non-Executive Directors

Compliant Two (2) Directors were Non-Executive and one (1) Director - MD/ CEO is Executive

ii. 7.10.2(a) The correct number of Independent Non-Executive Directors

Compliant Two Non-Executive Directors were Independent Directors

7.10.2(b) Non-Executive Directors should submit a signed and dated declaration of their independence/ non-independence

Compliant The Board obtained declaration from the Non-Executive Directors

iii. 7.10.3(a) Annual determination of criteria of independence and declaration of same by Board

Compliant The Board of Directors annually determine and disclose the names of Directors deemed to be 'independent'.

7.10.3(c) Published a brief resume in the Annual Report, of each Director of the Board, including each Director's area of expertise

Complaint Refer 'Board of Directors'

Following table provides the summary of compliance with the Corporate Governance requirements under the listing rules of the Colombo Stock Exchange during the year under review.

CORPORATE GOVERNANCE [Contd.]thatthesepublicationsincludeallrelevantfinancialand non-financial information that needs to becommunicated to the shareholders.

Internal Controls

The Board of Directors is responsible for maintaining a sound internal control system within the organization to safeguard the Company's assets. The Board has delegated this responsibility to the Audit Committee and the responsibility of the Audit Committee with this regard is given in the page 15 of this Annual Report.

Investor Relations and Communication to shareholders

The Board of Directors policy is to disclose all relevant information to stakeholders, within the bounds of prudent commercial judgement.

The Company ensures that the notice of the AGM along with the Annual Report containing the performanceoftheCompanyforthefinancialyearunder review are delivered to the shareholders at least 15 working days prior to the scheduled meeting.

Annual Report of the Board of Directors

The Annual Report of the Board of Directors on the Affairs of the Company for 31 March 2018 is given on pages 10 to 12 of this Annual Report.


Rule No.

Requirement Compli-ance Status

Details

iv. 7.10.5(a) Appointment of Remuneration Committee Compliant Remuneration Committee was formed

7.10.5(a) The number of Independent Non-Executive Directors in the Remuneration Committee

Compliant Refer 'Report of the Remuneration Committee'

7.10.5(a) Whether the Chairman of the Remuneration Committee is a Non-Executive Director

Compliant Chairman is a Non-Executive Director

7.10.5(b) Disclosure on the functions of the Remuneration Committee

Compliant Refer 'Report of the Remuneration Committee'

7.10.5(c) Disclosure in the Annual Report on the aggregate remuneration paid to Executive and Non-Executive Directors

Compliant Refer page 44, note No. 08

v. 7.10.6(a) The number of Independent Non-Executive Directors in the Audit Committee

Compliant Refer 'Report of the Audit Committee'

7.10.6(a) Whether the Chairman of the Audit Committee is a Non-Executive Director

Compliant Chairman is a Non-Executive Director

7.10.6(a) Whether the Chairman or one member of the Audit Committee is a member of a recognized professional accounting body

Complaint Chairman is a member of a professional accounting body

7.10.6(b) Disclosure on the functions of the Audit Committee


7.10.6(c) Appointment of Audit Committee Compliant Audit Committee was formed

7.10.6(c) The basis for determining external auditors as being independent


vi. 9 Appointment of Related Party Transactions Review Committee (RPTRC)

Compliant Related Party Transactions Review Committee was formed

9.2.1 Except for transactions mentioned in Rule 9.5 all related party transactions should be reviewed by Related Party Transactions Review Committee.

Compliant Refer 'Report of the Related Party Transactions Review Committee'

9.2.2 Related Party Transactions Review Committee should comprise a combination of Non-Executive Directors and Independent Non-Executive Directors.


9.2.2 One Independent Non-Executive Director shall be appointed as Chairman of the Related Party Transactions Review Committee.


CORPORATE GOVERNANCE [Contd.]


SUSTAINABILITY REPORTWe understand that, globally, stakeholders at large are demanding that companies they associate with demonstrate non-financial metrics to definesustainability and sustainable operations. Financial profitability as the sole criteria of a company'ssuccess is an outdated concept and out rightly rejected by most right-thinking stakeholders and the organizations they support. More importantly, being an environmentally, economic and socially sustainable organization is helping companies earn corporate respect and drive customer loyalty, not to mention earning respect from peers and industry. In an era of growing global competition, climate change and diminishing resources, companies that put sustainability as their foremost goal are winning the race.

As one of the oldest, bitumen manufactures in existence in Sri Lanka, we are living proof of continuous improvement and sustainable business practices. While we celebrate over-a-century of existence in the year 2014, we consider this an opportunity to strengthen our conceptions of business practices that are environmentally and socially sustainable, while also being financiallysustainable, the key requirement of any commercial entity. In our journey over the decades within the corporate arena of Sri Lanka, an overarching tenet has always been to ensure that our decisions, actions and impacts are sustainable and positive at all times. We are extremely cognizant that as a corporate steward involved in numerous business and industry areas, we must set an example to others, while making our stakeholders a part of our journey of progress. In this Sustainability Report, we set out the measures we take to ensure that sustainability is infused along the length and breadth of our value chain. Simultaneously, we continue to invest time and resources in understanding how we can enhance our proud track record as one of the most sustainable organizations in the country.

We believe that we have a responsibility towards our stakeholders to ensure that they are given a clear insight into how we have managed their business and how we intend to work in the future. This, therefore, is our honest effort in sustainability reporting. The report presents a balanced analysis of our sustainability performance strategy in relation to issues that are relevant and material to the Company and to our stakeholders, while complementing our ongoing engagement with stakeholders. This report focuses on key developments and includes only the most pertinent indicators in order to provide stakeholders with an integrated and succinct view

of our sustainability performance. Sustainability in our business is built on natural capital, social capital and economic capital, all of which must be taken together rather than in isolation for a true picture of sustainability. It is these capital segments that run through as themes of this report.

Collectively,theIACBoardhassignificantcorporateacumen, skill, knowledge and experience aided by astute and knowledgeable support and information from senior management and external specialists whentheneedarisestobesufficientlyinformedandbe independent. Board governance ensures that the Company discloses related party transactions periodically and if any director has a direct or leading interest in any matter being discussed, they will abstain from opining, discussing and voting, all ofwhichcould influence theoutcome.ThisavoidsconflictofinterestandensuresindependenceoftheBoard. IAC has established a governance structure that remains aligned to the laws of the land and ensures compliance to various regulatory mandates. The governance structure therefore includes committees responsible for specific tasks andsetting strategy and future direction for the Group. The Board sub committees are a vital conduit in identifying and managing economic, environmental and social performance, including relevant risks and opportunities, as well as compliance.

Our Sustainability Policy is based upon the following principles:

• We will continue to comply with and exceedwherever practicable, all applicable and related legislation, regulations and codes of practice

• We will integrate the principles and tenets ofsustainability into all our business decisions

•Wewill strive tominimize any negative impactsthat may ensue while engaging in our day to day activities

• We will integrate a sustainability mind-setamong our team, making them fully aware of our sustainability policy and empower them with a sense of ownership and commitment to implement, practice and improve it

•WewillcascadeourSustainabilityPolicyamongour valued business partners, encouraging them and assisting them to adopt sound sustainable management practices


SUSTAINABILITY REPORT [Contd.]• We intend to review and annually report and

to continually strive towards improving our sustainable performance At IAC, we are committed to promoting sustainability. We remain extremely concerned for the environment and for Promoting a broader sustainability agenda, both of which are integral to our professional activities and the management of the organization. We aim to follow and to promote good sustainability practice to reduce the negative environmental impacts of all our activities and to help our stakeholders to join in this journey that will surely benefitourfuturegenerations.

The IAC Sustainability Framework, which incorporates our Sustainability Philosophy, Policy and Principles, articulates our strategic commitment to sustainable development and remains integral to risk management. This framework assists our stakeholders in imbuing a similar sustainability approach, promotes sound environmental and social practices, encourages transparency and accountability, and contributes to positive development impacts. We ensure that this framework reflects good practice for sustainabilityand risk mitigation, keeping abreast with trends that bring up challenging issues, which remain at the core to managing a sustainable business. These include supply chain management, resource efficiency,climatechangeandhumanrights.

Risks and challenges go hand in hand in the business of running an organization, whether the risk may be from environmental problems, social discontent, political and social unrest and even natural disasters. These can be termed costly, have negative publicity, threaten operating frameworks and also prompt unforeseen expenditure. Reputational damage too can far exceed the immediate cost impacts. While we seek to proactively reduce and manage these risks, challenges have never been a deterrent for us at IAC; rather, they have been a means of directing us towards opportunity and improving business performance over time. These opportunities have driven us to enhance business growth, while ensuring that we remain within compliance benchmarks, while ensuring that our stakeholders are empowered and remain inclusive to our end goal.Overtheyear,weidentifiedsomechallengesand risks that eventually saw an opportunity emerge, and which, through the inherent pragmatic and astute business acumen possessed within IAC, was transformed and included into the strategic way forward of the Group.

Stakeholder Involvement

We are extremely committed to engaging all of our stakeholders, both internally and externally, to become the most sustainable, responsible company we can possibly be. By listening to, partnering with and considering the perspectives of our associates, customers, shareholders, academic leaders, government, value business partners and sometimes, even our competitors, we can truly ensure that quantifiable and qualitativereturns are assured. Stakeholder engagement is a crucial element to sustainable development as it is this engagement process that prompts the two-way dialogue and communication process which eventually aligns the strong relationships among our stakeholders and forms the foundation to our sustainability journey. Having identified ourstakeholder groups, as given below, we engage with them at various forums related to their interests and expectations, in an effort to adapt to changing needs and issues, which continue to evolve. As we pursue our corporate sustainability goals, we intend to further strengthen these relationships. Together, we are establishing transparency and enhancing our relevancy with the customers and communities we serve. We have created more formal channels for interacting with stakeholders both to learn from their expertise and to provide a forum for them to provide us with feedback. The purpose of our sustainability reporting is to create greater transparency and accountability and to allow for better informed and more robust decision-making as it is becoming more important than ever to manage both positive and negative impacts of our business activities. Our consumers are increasingly developing an ethical conscience, using sustainability information to identify their chosen brands. Customers want transparency, clarity and accessibility to information and disclosures on social, environmental and economic performance. Needless to say, this information needs to be consistent and presented in a standardized approach, therefore, it is imperative that disclosures are succinct, clear, and truthful and hold fast to the underlying ethos of a principled ethical well governed business entity, which is what IAC espouses to be.

We have never knowingly harmed the environment through any process that we have engaged in. We ensure that in all our processes and systems, we implement as many environmentally friendly initiatives as possible as is seen in the waste water treatment, energy management, recycling initiatives, decrease in emissions and increase in forest cover


that we have strategically embarked upon. We also constantly engage our valued business partners, suppliers and wherever possible our customers, to permeate environmental best practices among them.

IAC is a strong believer of equal opportunities in the workplace and prides itself on respecting its workforce equally, regardless of gender, age, race, religion, sexual orientation, political beliefs, or any other factor. We unwaveringly uphold and support the tenets mandated by the International Labour Organisation and other prevalent regulatory bodies pertaining to human rights and child labour. We adhere to a strict policy of 'zero tolerance to child labour', a mandate that is permeated to our valued business partners including retailers and the supply chain.

Our philosophy is to partner the community in its sustainable development journey, which in turn gains us considerable advantage. We are inextricably entwined with our communities and we intend to ensure that our presence within these communities will benefit them and us. Ourlongevity and culture of achievement is rooted in the motivation and mind-set of our people, who are committed and dedicated towards achieving greater heights of performance and raising the benchmark. Given that the IAC has grown into a Company encompassing a number of diverse industries and yet is unequivocally positioned with a leadership status, evidences that our team is a winning one. The dynamism, motivation and 'overzealous' attitude they always espouse has enabled this Group to take on challenges, some deemed insurmountable and win against the odds.

HR Practice

• To provide and promote an encouraging andprofessional working environment for our team.

• Believe that the prosperity of our businessdepends on successfully developing an integrated group of motivated and innovative employees. Hence we facilitate positive employee relations and inspire employees by offering opportunities for challenging work, personal development and growth.

• Committedtohire,developandretainthemosttalented people in order to achieve a committed pool of talent.

A range of processes have been instilled within the Company to ensure that recruitment is non-discriminatory, unbiased and driven by meritocracy. In addition, in a bid to streamline our recruitment processes, a recruitment requisition form was introduced, which is the base upon which recruitment is effected and a comprehensive interview evaluation form was brought in, to streamline the interview process from initial screening to finalinterview stage.

The company follows HR best practices ensuring consistency in HR Policy approach and fair playing field for Potential employees. As an organizationis nothing more than the collective capacity of its people to create value, organizational culture is an important element in any organization's make up and success. Therefore, at IAC new recruitment is based on alignment with the Company's internal culture, in addition to knowledge, skills and attitudes required for the role.

Training & Development

Training and development forms the axis to the sustainability of our business and into this we have instilled a knowledge gaining culture, which enables individuals to attain their personal goals while working towards the company's aspirations.

Recognition & Staff Well-Being

The IAC HR policy is based on the belief that a satisfied employee is a motivated employeewho will contribute towards achieving company goals voluntarily, while being more productive. We have continuously infused numerous rewards and remuneration schemes, while adding welfare initiatives that would add value to our employees to better their lifestyles.

• Continuousremunerationreviewsandincreasesaccording to predetermined scales, which could also be tied to performance incentives and bonus scheme.

• A range of insurance policies are in effectincluding Workmen's Compensation and Personal Accident

• IAC holds annual staff get-together, sportsdays to build team spirit and facilitate fun and friendships

SUSTAINABILITY REPORT [Contd.]


Supplier Engagement

Forging strong supplier relationships offers a comprehensive way for IAC to assess and streamline the processes between our organization and our suppliers for an effective partnership. In reality, suppliers are people as well and we believe in emotionally engaging with our suppliers so that they work harder for us and help us cover potential risk areas. Whatever the size or category of supplier, the IAC's Supplier Policy ensures a level playing field and equal opportunities for all our suppliers.We have procedures in place to ensure responsible behavior towards all our suppliers, while committing our suppliers towards reciprocity in responsible behaviour towards the Company. This ensures our stringent quality and standards are understood and met by all our suppliers.

We believe strongly in positioning our supplier philosophy on good corporate conduct, sourcing and producing responsible quality products and influencing a win-win relationship worked on aplatform of mutual benefit. We strongly believethat we must permeate the best practices we have within our business, the standards and integrity and compliance initiatives to our entire supply chain. This in effect cascades to quality, productivity and standards overall being improved.

We believe that nurturing our customers is an ongoing dialogue and not a one-off event. Nurturing an ongoing and genuine relationship with customers will have a major impact on the way they perceive our brand but also serve to strengthen our operations through focused customer feedback. We engage our customers in numerous ways, nurturing and strengthening relationships to ensure strong loyalty to brand and product. From face to face ad hoc conversations, to conducting customer surveys, to formal gatherings and informal events, we are constantly engaged with our consumer. It is this feedback and varied dialogue and communication channels we have created that have assuredly enabled us to charter our future plans.

Goals towards long term sustainability

1. Be known as the preferred employer having the ability to attract and retain talented people, inducting them in a knowledge-based corporate culture, while assuring them of career enhancement in a responsible company they will be proud to be a part of.

2. Retain market leadership by ensuring that we work on high quality sustainable competitive advantages to infuse trust and loyalty among our customer base by evolving the business to be ahead of customer expectations, which in turn will deliver qualitative and quantitative sustainable returns.

3. Never lose sight of the tenets of corporate stewardship; instill governance and regulatory best practices, while demonstrating our commitment to being an ethical, transparent, accountable Group of companies.

4. Be a Green Ideologue; an advocate who will address environmental issues and 'change' the direction of climate change, walking the talk to spread the need to reduce our carbon footprint and ensure a better planet for future generations.

SUSTAINABILITY REPORT [Contd.]


RISK MANAGEMENT Risk can be defined as the combination of theprobability of an event and its consequences. Risk is a part of life. Avoiding all risk would result in no achievement, no progress and no reward. Undoubtedly, there is risk in today's volatile anduncertain business environment, which demands increased transparency within an organizations risk profile. There are vulnerabilities, probabilities,threats and weaknesses that must be addressed to ensure that risk in any enterprise is mitigated. This greater emphasis on risk and risk management also prompts greater penalties on entities that do not or fail to manage key risks, which naturally permeates to organisations being more cognizant of identifying and assessing risks.

In this backdrop, it is also increasingly important thatonce these risksare identifiedandassessed,theyaremanagedwithpre-definedtolerances.Anyentity faces myriad risks, from well-known risks that are inherent and characteristic of the business to unknown risks that may emerge or are just emerging. Risk resilient organizations must objectively assess their existing risk management capabilities, evaluate their organizational culture with regard to risk, performance and reward and implement sustainable risk management practices. In the current market context,riskisdefinedastheprobabilityorthreatofa liability, loss or other negative occurrence, caused by external or internal vulnerabilities which would affect the desired objectives of the organization. This also means that stakeholder expectations must be worked into the organization's risk management strategy. Vulnerabilities could mean exposure that could trigger an adverse outcome and therefore, prevent the achievement of company objectives.

The process of risk management at IAC involves analyzing exposure to risks, by identifying vulnerabilities and their probability of occurrence, which determines the way we handle such exposure. This would therefore involve the implementation of numerous policies, procedures and practices that work in conjunction to identifying, analyzing, evaluating, monitoring and prioritizing risks, which will follow the application of coordinated and economical solutions that minimize the probability and impact of identified vulnerabilities. Onceidentified, elimination, reduction, transfer andretention are the broad risk management strategies employed across IAC.

At IAC we have objectives at strategic, tactical and operational levels - anything that makes achieving these objectives uncertain is a risk. Therefore Risk Management is a central part of IAC's strategic Plan. At IAC, the focus of the risk management process is the identification andmitigation of risks impactingthe Company. Moreover, the objective of our risk management is to add maximum sustainable value to all the activities of the organization. It marshals the understanding of the potential benefits andthreats of all those factors which can affect the organisation. Further it increases the probability of success, and reduces both the probability of failure and uncertainty of achieving the organization's overall objectives. As the Company is exposed to a wider range of risks arising from a dynamic business environment which it operates, it has to address the risksbasedonitsriskappetiteandsignificance

Corporate Culture & Internal Control

Framework

RiskIdentification

RiskAssessment

Monitoring

RiskResponse

ObjectiveSetting

Information and Communication


RISK MANAGEMENT [Contd.]

The following are an overview of the main type of risks faced by IAC.

1. Financial risks

(i). Interest Rate Risk

Interest rate risk is the exposure of a company's financial condition to adversemovements in interest rates. Accepting this risk is a normal part of operation of a company and can be an important link to profitability, cash flow and shareholdervalue. However, excessive levels can pose asignificantthreattoacompany'searnings.The impact on net interest cost of a change in interest rates depends on the interest terms of assets or liabilities.

The Company's Interest rate risk arises in two ways:

• TheCompanyhaveinvestedin interest-bearing assets, the value of which changes when the interest rate changes.

• The cost of the company's borrowingfluctuateswhenthegeneralinterestratesituation changes. IAC's majority of its capital employed is financed throughdebt. Further increased exposure to short term and floating rate borrowingshas increased the exposure to the interest rate risk.

Accordingly, an effective risk management that maintains this risk at prudent levels is essential to the safety and soundness of the Company. Interest rate exposure is managed through the optimal structure decisions, striking a balance between short termsvs.longtermandfixedvs.floatingrateborrowings. Maintaining a deposit with higher return than interest paid on borrowings. Furthermore, negotiations with Banks/financiers are actively supported. Interestrates and socioeconomic circumstances are monitored by the finance officers toallow accurate and prudent forecasts to be built. Sensitivity analyses are carried out to regularly to assess the impact of the movementsofinterestratesonthefinancialstatements.

(ii). Foreign Exchange Risk

Foreign Exchange Risk is the risk of an investment/receivable/payable's value changing due to changes in currency exchange rates. Being a raw material & traded good importer, fluctuations in theexchange rate can significantly impactthe financial results and the pricing policywhich could in turn impact the competitive position of IAC Company. Potential impact on the business by an adverse movement in exchange rates is captured through sensitivity analysis. Also the pricing is linked to the exchange rates.

Further Company wide Foreign exchange exposures are monitored and appropriate actions such as forward exchange contracts and leading and lagging of payments/receipts are recommended to reduce inherent risks and minimize adverse impacts of currency rate movement of assets and liabilities.

(iii). Liquidity Risk

Liquidityriskistheriskofnothavingsufficientfunds tomeet its financial commitments ina timely manner. The two key elements of liquidity risk are: short-term cash flow riskand long-term funding risk. The long-term funding risk includes the risk that loans may not be available when the business requires them or that such funds will not be available for the required term or at acceptable cost. Unforeseenshortfallincashcansometimeslead to liquidity risk due to factors such as: seasonalfluctuations,unplannedreductioninrevenue, business disruption and sustained reduction in profitability, unplanned capitalexpenditure and increase in operational costs, future debt repayments, delays in subsidy settlements and inadequate or non-existent financing facilities. Businessmodels and working capital management arereviewedperiodicallytoensurecashflowalignment as far as possible and minimize dependence on unexpected external borrowings. Trade cycles are analysed with a view to generating liquidity from operations. Also the bank relationships are managed to ensure access to essential credit and cash management services.


(iv). Debtor Default Risk

This is the risk of losses arising from a debtor being unable to pay its loan obligations in full or the debtor is more than 90 days or overdue. IAC is rooted island-wide. Adverse economic conditions may result in diminishing the customer credit worthiness and thereby increasing the default risk to the Company. IAC extends credit facilities to customers based on the credit policy which entails evaluating customers periodically. Further, controls include structured approval levels, supervision and recovery procedures on overdue amounts and legal procedure for long outstanding receivables. Bank guarantees and cash deposits are made a requirement when selecting appropriate distributors where practical and other limit exposure on unsecured credit is after a careful scrutiny. Presently, an evaluation is being carried out on all debtors of IAC to further limit and strengthen the exposure.

(v). Fraud Risk

Fraud essentially involves using deception to dishonestly make a personal gain for oneself and/or create a loss for another. The term 'fraud' commonly includes activities such as theft, corruption, conspiracy, embezzlement, money laundering, bribery and extortion. Fraud may be attempted as the organization has valuable property such as cash, inventory and information and also due to human interfaces in the processors. In order to counter this, we are striving to strengthen an ethical culture and also to improve the effectiveness of the internal controls. Effective internal controls reduce exposure to fraud risks and contribute to the safeguarding of assets; however, a sound system of internal control cannot provide complete protection against all fraudulent behaviour. As a further measure, new areas have been added and the existing areas have been strengthened in the internal audit plan for the current year.

2. Information Technology Risk

Information technology (IT) plays a critical role in business of the Company. As the Company manages their businesses using IT, it is important to identify risks to the IT

systems and data and to reduce or manage those risks by developing a response plan in the event of an IT crisis. The Company has legal obligations in relation to privacy, electronic transactions, and staff training that influence IT riskmanagementstrategies. ITrisks include hardware and software failure, human error, spam, viruses and malicious attacks, as well as natural disasters such as fires,cyclonesorfloods.

In order to mitigate software failures system backups are taken and software's are regularly updated to the latest versions while root causes are found and problems are fixed in respect of application failures.Backups are restored in the event of a data base corruption and system logs are daily monitored to identify hardware failures while life cycle performance of hardware is checked and hardware's are replaced if there is necessity. Latest anti-virus and anti-spyware protection are installed in order to protectcomputersfromviruswhilefirewall&other security controls are in place to prevent hacking, unauthorized intrusions to the computers, servers and wireless networks of the company. If communications, connectivity failures occurs service providers are informed and it's being followed up so as to keep the outage to minimum. In order to protect the vital information, the company uses data backups that include off site or remote storage. Further the management trains the staff regularly in IT policies and procedures which covers areas such as safe handling of infected emails, protecting the privacy of customer details, and priority actions in the event of an online security breach. Moreover the management conducts workshops to identify potential IT risks, costs and impacts of those risks, and possible actions to minimize exposure.

3. Business risks

(i). Natural events risk

Adverse weather conditions may result in reduced demand for IAC Products. The tacit knowledge gathered from running the business during adverse weather conditions in the country has been of paramount importance in managing this risk. Performance, position and cash flow andwhere necessary realignment of investments



are made with a view to making the business model flexible enough to absorb thepressure from unexpected conditions.

(ii). the scarcity of raw materials.

Scarcity may occur due to usage of seasonal outputs, natural disaster, import bans and other events beyond the control of the Company. In order to mitigate the risk the company has increased the storage capacity and has upgraded the storage conditions for storing.

(iii). Quality failure risk

Quality failure is a major risk to the company. Therefore all employees are responsible for the quality of the product. Proper training and awareness are given to the all levels of the employees relating to the production and quality processes. Moreover process/product improvements are implemented and the current processes are revised periodically. Further internal/external audits conducted regularly. Research and development /quality assurance department periodically revises quality control methods and testing methods according to the local standards.

(iv). Handling of chemicals

Due to the risk of handling chemicals, all the operations of factories are managed through management system to minimize the environmental impacts. All contaminated waste is disposed according to the government regulations. Further the factories have effluent treatment plantsinside the premises and maintains fully equipped laboratory to check the required standards. Industry is tightly regulated by the Government Regulatory bodies such as Register of Pesticides, Central Environmental Authority, Local governing councils etc. Industry related policies may change time to time according to the political situation of the country.

The Company strictly follows the current regulations relevant to the respective industry and maintains a close relationship with the regulatory bodies to implement sudden changes of the regulations.

(v). Loss of volumes/Market Share

Company faces the risk of losing volumes due to low market growth rates, intense competition from the existing players in the industry as well as new entrants. As a result competitors may continue to pursue price-centric strategies to gain market share within segments of the market.

On the other hand there are unlicensed operators in the market who resort to selling adulterated products. There is no effective regulatory mechanism to curb such illegal activities which affect the industry. Political unrest and instability which tend to constrain operations and distribution activities. Company manages these risks to an extent through customer and channel partner education, marketing communication on product value propositions, creating awareness among the relevant stakeholders and leveraging on the brand equity. We also offer constructive suggestions to the authorities to maintain the high product standards.

4. Human resources risks

In relation to human resources the risks which have been identified are alignment of payand performance, meeting organizational objectives through efficient/effective use ofhumanresourcesandfindingrighttalentforthe job whilst keeping labor costs at moderate limits. The Company has Introduced a performance driven culture where objectives get measured and individuals rated as per performance with due recognition on pay and succession planning. Introduction of a Position Requisition Procedure, where all replacements/new positions are to be justified with the financial benefit to theorganization has ensured that right talent is obtained while keeping the cost at a reasonable level.

5. Compliance, regulatory & legal risks

The risk of possible legal actions against the company by an individual or a corporate entity in the process of business conduct hasbeenidentifiedastheprimarylegalrisksof the company. Company has identifiedsuch risks and, gaged the impact and taken necessary actions to educate the respective staff members. Best practices and



processes of better business conduct are included. IAC has implemented numerous steps to foresee the possible risks and taken preventive actions beforehand. To mitigate the risks of breaching contractual obligations and prevent IAC entering in to unfavourable contracts, company constantly involves internal and external legal experts.

6. Strategic risk

Strategic risk of a company refers to the risk to its earnings and profitability that couldarise from strategic decisions, changes in the business conditions and improper implementation of decisions. Thus, strategic risk could materialize due to internal or external factors. IAC considers strategic risk asoneofthekeyelementsinitsriskprofile.

The Company has identified the followingstrategic risks that would arise through internal factors:

• Risksinconnectionwithdecisionsaboutoutsourcing or maintaining processes and competencies in-house

• Risks concerning new productdevelopments, such as new innovations, R&D, new product lines

• Risks concerning acquisitions ordisposals including the likelihood of achieving organizational objectives or destroying Shareholder value The Board critically reviews the strategic goals of the Company through its well definedcorporate planning and its budgeting process. This robust process ensures that the above strategic risks are well managed in all activities of the Company.

The following strategic risks have been identifiedasmostRelevanttobusinessofIACwhich could arise through external factors:

• Risk concerning changes in customerdemand

• Riskintechnologydevelopments

• Risk inchanges in the industryand theeconomic environment

• Riskinregulatoryrequirements.

7. Reputational Risk

Being a Company which has customers at every level of the community, IAC has recognized the importance of aligning the corporate objectives and shareholder Requirements. Further, the Company has identified that maintaining and developingthe credibility of the Company and its brands, and most importantly, its standing in the eyes of its stakeholders is a crucial exercise in ensuring sustainable success. Accordingly, like all of the intangible assets of the Company (such as goodwill, talent, knowledge, know-how, and intellectual capital and brand equity)whose value has escalated in recent years, value of its reputation has been identified as a directeffect on its share price, market share and brand value.

In addition, IAC always supports the idea of maintaining the Company's integrity and reputation at any cost. IAC is sensitive to the attitude of local communities in which the Company operates the satisfaction and fidelityofcustomers.IACuses'transparency'as one of its best tools in managing its image. In addition, the Company is also focused on establishing strategic relationships with reputed third parties (i.e., supply agreements, joint ventures, etc.). When it comes to product liability, IAC ensures stringent quality assurance processes. Further, whilst being sensitive to the policy making decisions of regulators and legislators, IAC adhere to all local laws and regulations pertaining to advertising and marketing.



INDEPENDENT AUDITORS' REPORT

TO THE SHAREHOLDERS OF INDUSTRIAL ASPHALTS (CEYLON) PLC

Opinion

We have audited the financial statements of Industrial Asphalts (Ceylon) PLC ("the Company"), whichcomprise thestatementof financialpositionasatMarch31,2018,and thestatementofcomprehensiveincome,statementofchangesinequityandstatementofcashflowsfortheyearthenended,andnotestothefinancialstatements,includingasummaryofsignificantaccountingpoliciesassetoutonpages34-to52 of this Annual Report.

Inouropinion,theaccompanyingfinancialstatementsgiveatrueandfairviewofthefinancialpositionoftheCompanyasatMarch31,2018,andofitsfinancialperformanceanditscashflowsfortheyearthenendedin 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 Company in accordance with the Code of Ethics issuedbyCASriLanka(CodeofEthics)andwehavefulfilledourotherethicalresponsibilitiesinaccordancewiththeCodeofEthics.Webelievethattheauditevidencewehaveobtainedissufficientandappropriatetoprovide a basis for our opinion.

Key Audit Matters

Keyauditmattersarethosemattersthat,inourprofessionaljudgment,wereofmostsignificanceinourauditofthefinancialstatementsofthecurrentperiod.Thesematterswereaddressedinthecontextofourauditofthefinancialstatementsasawhole,andinformingouropinionthereon,andwedonotprovideaseparateopinion on these matters.

INDEPENDENT AUDITORS' REPORT

The procedures we performed in relation to management's fair valuation of investment properties included the following:-

² We evaluated the independent external valuers' competence, capabilities and objectivity. We assessed the methodologies and the appropriateness of the key assumptions used by the professional valuer by applying our knowledge of the property industry. We used independent and publicly available information on real estate of similar property and locations; and

Valuation of Investment Properties

Risk Description Our Responses

RefertoNote13inthefinancialstatements.

Management has estimated the fair value of company's investment properties to be Rs. 587.6 Million as at 31st March 2018, with a fair value gain for the year ended 31st March 2018 of Rs. 534,105,459/- recorded in the statement of profit or loss. An Independent externalvaluer's service had been obtained in order to support management's estimates and judgements.


INDEPENDENT AUDITOR'S REPORT [Contd.]

Carrying Value of Inventories


Recoverable amount of Trade & Other Receivables


The fair valuation of investment property was dependent on certain key assumptions that require significant management judgement,including capitalisation rate and fair market rent. Wehavefocusedinthisareaduetothesignificantmanagement judgement and the magnitude of the valueofinvestmentpropertyreportedinthefinancialstatements.

² We checked on a sample basis, the accuracy and relevance of the input data used. We checked the completeness and accuracy of the investment properties by agreeing those assets and their book values to the general ledger and asset register.

We found the key assumptions were supported by the available evidence. The fair market rents were supported by recent renewals and capitalization rates were in line with our expectations.


The Company has recognized a total impairment provision of Rs. 11,387,404/- (2016/17 - Nil) in the total inventories valued at Rs. 29,901,557/- (2016/17 - Rs. 37,770,483/-).

Assessing carrying value is an area of significantjudgement, particularly with regard to the estimation of provisions for slow moving and non-moving inventories in order to ensure that inventory is carried at lower of cost and NRV.

Our audit procedures included:

² Inquiring of the management with regard to the calculation methodology, the basis for provision and the processes with respect to impairment provision.

² Assessing the adequacy of, and movements in, inventory provisions held, by recalculating the total provision including Raw Materials, Packing Materials and Finished Goods within the provision to ensure appropriate basis of valuation.

² Assessing the realization of inventories during the period and after the period end, and compare these to the Company's expected recoveries for inventory categorized as obsolete and/or slow moving at the period end date, to assess whether the provision for obsolete and slow moving stock is appropriate.


The Company has recognized a total impairment provision for bad debts amounting to Rs. 27,619,800/- (2016/17 - Rs. 7,100,597/-) in the total trade and other receivable balances valued at Rs. 42,748,974/- (2016/17 - Rs. 38,855,075/-).

Recoverability of the trade and other receivable balance is an area of significant judgement,particularlywithregardtotheestimationofspecificimpairment provision for bad debts.

Our audit procedures included:

² Inquiring with regard to the calculation methodology, the basis for provision and the processes with respect to the provision for bad debts.

² Verifying the accuracy of the trade receivable aging and re-computing the provision for receivables.


INDEPENDENT AUDITOR'S REPORT [Contd.]Other Information

Management is responsible for the other information. The other information comprises the information includedintheannualreport,butdoesnotincludethefinancialstatementsandourauditor'sreportthereon.

Ouropiniononthefinancialstatementsdoesnotcovertheotherinformationandwewillnotexpressanyformof assurance conclusion thereon.

Inconnectionwithourauditof thefinancialstatements,ourresponsibility istoreadtheother informationidentifiedaboveand,indoingso,considerwhethertheotherinformationismateriallyinconsistentwiththefinancialstatementsorourknowledgeobtainedintheaudit,orotherwiseappearstobemateriallymisstated.

When we read the annual report, if we conclude that there is a material misstatement therein, we are required to communicate the matter to those charged with governance.

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 inaccordance 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 frommaterialmisstatement,whether due to fraud or error.

Inpreparing thefinancialstatements,management is responsible forassessing theCompany'sability tocontinue 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 Company or to cease operations, or has no realistic alternative but to do so.

ThosechargedwithgovernanceareresponsibleforoverseeingtheCompany'sfinancialreportingprocess.

Auditor's Responsibilities for the Audit of the Financial Statements

Ourobjectivesaretoobtainreasonableassuranceaboutwhetherthefinancialstatementsasawholearefreefrom 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 beexpectedtoinfluencetheeconomicdecisionsofuserstakenonthebasisofthesefinancialstatements.

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

² Identifyandassesstherisksofmaterialmisstatementofthefinancialstatements,whetherduetofraudor error, design and perform audit procedures responsive to these risks, and obtain audit evidence thatissufficientandappropriatetoprovideabasisforouropinion.Theriskofnotdetectingamaterialmisstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or override of internal control.

² Obtain and 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's internal control.

² Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.

² 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 conditionsthatmaycastsignificantdoubtontheCompany'sabilitytocontinueasagoingconcern.If


INDEPENDENT AUDITOR'S REPORT [Contd.]we conclude that a material uncertainty exists, we are required to draw attention in our auditor's report to therelateddisclosuresinthefinancialstatementsor,ifsuchdisclosuresareinadequate,tomodifyouropinion. 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 Company to cease to continue as a going concern.

² Evaluate the overall presentation, structure and content of the financial statements, including thedisclosures,andwhetherthefinancialstatementsrepresenttheunderlyingtransactionsandeventsinamanner that achieves fair presentation.

We communicate with those charged with governance regarding, among other matters, the planned scope andtimingoftheauditandsignificantauditfindings,includinganysignificantdeficienciesininternalcontrolthat 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 ofmostsignificanceintheauditofthefinancialstatementsofthecurrentperiodandarethereforethekeyaudit 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 expectedtooutweighthepublicinterestbenefitsofsuchcommunication.

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 FCA 1850.

CHARTERED ACCOUNTANTS

Colombo.25th August 2018


For the year ended 31 March 2018 2017 Note Rs. Rs.

Revenue 4 44,067,284 27,678,436Cost of Sales (31,948,047) (14,249,124)Gross profit 12,119,237 13,429,312Other operating income 5 396,258 27,376Administrative expenses (13,461,020) (12,575,102)Distribution expenses (6,781,201) (4,333,013)Impairments/ Provisions 6 (40,932,886) -Surplus on revaluation of Investment Property 13 534,105,459 -Results from operating activities 485,445,847 (3,451,427)Finance income 90,899 31,686Finance costs (12,096,143) (10,785,742)Netfinancingcosts 7 (12,005,244) (10,754,056)Profit/ (loss) before taxation 8 473,440,603 (14,205,483)Income tax expense 9 214,463 3,340,581Profit/ (loss) for the year 473,655,066 (10,864,902)

Other comprehensive income/ (expense) net of income tax - -Actuarialgain/(loss)ondefinedbenefitplans 24 37,038 120,087Other comprehensive income/ (expense) for the year, net of tax 37,038 120,087Total comprehensive income for the year 473,692,104 (10,744,815)

Profit attributable to:Equity holders 473,692,104 (10,744,815)Non-controlling interests - -Total comprehensive income for the year 473,692,104 (10,744,815)

Basic earnings/ (loss) per share (Rupees) 10 710.59 (16.30)

Figures in brackets indicate deductions.

The Accounting Policies and Notes on pages 38 to 52 form an integral part of the Financial Statements.

STATEMENT OF COMPREHENSIVE INCOME


As at 31 March 2018 2017 Note Rs. Rs.

AssetsNon-current assetsProperty, plant and equipment 11 19,821,743 74,790,996Lease Hold Land 12 - 2,573,189Investment Property 13 587,600,000 -Intangible assets 14 - -Total Non-current assets 607,421,743 77,364,185Current assetsInventories 15 18,514,153 37,770,483Short Term Investment in REPO 16 10,029,408 -Trade and other receivables 17 15,129,174 31,754,478Financialinvestments-Fairvaluethroughprofitorloss 18 3,507,456 1,386,431Held to maturity investments 19 375,683 375,683Cash and cash equivalents 20 1,088,273 335,191Total current assets 48,644,148 71,622,265Total assets 656,065,891 148,986,450Equity and liabilitiesEquityStated capital 21 6,665,620 6,665,620Revaluation reserve 46,112,663 46,112,663General reserve 22 15,141,299 15,141,299Retained earnings 466,579,767 (7,112,337)Total equity 534,499,349 60,807,245LiabilitiesNon-current liabilitiesDeferred tax liability 23 1,440,511 1,665,882Retirementbenefitobligation 24 804,317 1,085,049Interest bearing loans and borrowings 25 4,624,184 6,873,597Total Non-current liabilities 6,869,012 9,624,528Current liabilitiesInterest bearing loans and borrowings 25 12,534,023 5,105,581Trade and other payables 26 2,793,219 3,173,268Rent Received in Advance 27 23,600,000 -Income tax payable 28 105 (6,823)Dividend payable 971,486 971,486Bank overdrafts 20 74,798,696 69,311,165Total current liabilities 114,697,530 78,554,677Total liabilities 121,566,542 88,179,205Total equity and liabilities 656,065,891 148,986,450Net asset value per share (Rupees) 801.87 91.23


I certify that the Financial Statements have been prepared in compliance with the requirements of the Companies Act No.7 of 2007.

(Sgd)S.FernandoFinancial Controller

The Board of Directors are responsible for preparation and presentation of these Financial Statements.The Financial Statements on pages 34 to 52 were approved by the Board of Directors and were signed in Colombo on 25th August 2018 on its behalf by:

(Sgd) (Sgd)G.Ramanan M.PereraDirector Director

STATEMENT OF FINANCIAL POSITION


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STATEMENT OF CHANGES IN EQUITY


CASH FLOW STATEMENTAs at 31 March 2018 2017 Rs. Rs.

Cash Flows from operating activitiesProfit/(loss)beforetaxation 473,440,603 (14,205,483)Adjustments for:Depreciation of property, plant and equipment 11 5,586,000 6,210,408Amortization of intangible assets 12 & 14 19,290 134,545Impairments/ Provisions for Plant & Machinery 6 9,903,804 -Surplus on revaluation of Investment Property 13 (534,105,459) -Finance Income 7 (51,095) (417)Finance Cost 7 12,005,244 10,754,056Provisionforretirementbenefitobligation 24 198,181 205,647Operating profit before working capital changes (33,003,433) 3,098,755

Changes in working capitalChange in inventories 15 19,256,330 (2,350,537)Change in Short Term Investments in REPO 16 (10,029,408) -Change in trade and other receivables 17 16,625,304 25,302,261Change in trade and other payables 26 23,219,952 (1,233,254)Cash generated from operating activities 16,068,745 24,817,225

Finance Income 7 51,095 417Interest paid 7 (12,005,244) (10,754,056)Gratuity paid 24 (441,875) -Income tax paid 27 (3,980) (26,154)Net cash flows generated from operating activities 3,668,741 14,037,432

Cash Flows from investing activitiesPurchase of property, plant and equipment 11 (511,192) (13,565,704)Investment Property Development Cost 13 (10,000,000) -Capital work in progress 11 (950,000) (963,000)During the year Investments 18 (2,121,025) (1,372,870)Net cash flows generated from investing activities (13,582,218) (15,901,574)

Cash Flows from financing activitiesInterest bearing borrowings obtained/ (repayments) 25 5,179,029 (5,424,854)Dividend paid - (7,436)Net cash flows generated from financing activities 5,179,029 (5,432,290)

Net changes in cash and cash equivalents (4,734,448) (7,296,431)Cash and cash equivalents at the beginning of the year (68,975,974) (61,679,543)Cash and cash equivalents at the end of the year (73,710,422) (68,975,974)

Cash and cash equivalents at the end of the yearCash at bank and cash in hand 1,088,273 335,191Bank overdrafts (74,798,696) (69,311,165) 20 (73,710,422) (68,975,974)

Figures in brackets indicate deductions.



NOTES TO THE FINANCIAL STATEMENTSFor the year ended 31 March 2018

1. Reporting Entity

1.1 Corporate Information

Industrial Asphalts (Ceylon) PLC is a Public Limited liability Company incorporated and domiciledinSriLanka.Theregisteredofficeandthe principal place of the business is located at No. 28/1, New Nuge Road, Peliyagoda,

1.2 Principal activities & Nature of Operations

The principal activities of the Company continued to be manufacture and distribution of bituminous products, distribution of specialist range of surface coating and industrial chemicals.

1.3 Number of Employees

The staff strength of the company as at 31st March 2018 was 13 (2017 - 18)

2 Basis of Preparation

2.1 Statement of Compliance

The Financial Statements comprising the Statement of Financial Position, Statement of Comprehensive Income, Statement of Changes in Equity and Statement of Cash Flows together with Notes to the Financial Statements are prepared and presented in accordance with Sri Lanka Financial Reporting Standards (SLFRSs) and Sri Lanka Accounting Standards (LKASs), (hereafter "SLFRS") laid down by the Instituteof Chartered Accountants of Sri Lanka (ICASL). The presentation of the Financial Statements is in compliance with the requirements of the Companies Act No. 07 of 2007.

The Financial Statements were authorised for issue by the Board of Directors on 25th August 2018.

2.2 Basis of Measurement

Thefinancialstatementshavebeenpreparedona historical cost basis except where appropriate disclosures are made with regard to fair value under relevant notes.

2.3 Functional Currency & Presentation Currency

The financial statements are presented in SriLankan Rupees, unless otherwise indicated.

2.4 Presentation of Financial Statements

The assets and liabilities of the Company presented in the Financial Statements are grouped by nature and listed in an order that reflectstheirrelativeliquidityandmaturitypattern.Noadjustmentshavebeenmadeforinflationaryfactors affecting the Financial Statements.

2.5 Materiality and Aggregation

Each material class of similar items is presented separately in the Financial Statements. Items of dissimilar nature or function are presented separately unless they are immaterial as permitted by Sri Lanka Accounting Standards LKAS 1 Presentation of Financial Statements.

2.6 Off Setting

Financialassetsandfinancialliabilitiesareoffsetand the net amount reported in the Statement of Financial Position only when there is a legally enforceable right to offset the recognized amount and there is an intention to settle on a net basis, or to realize the assets and settle the liability simultaneously. Income and expenses are not offset in the Statement of Comprehensive Income unless required to be permitted by the Accounting Standards or interpretation, and specificallydisclosedintheAccountingPoliciesof the company.

2.7 Significant Accounting Judgment, Estimate and Assumption

The preparation of the financial statements inconformity with Sri Lanka Accounting Standards require management to make judgements, estimates and assumptions that affect the application of accounting policies, and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.

Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimates are revised and in any future periods affected.

Information about critical judgements in applying accounting policies that have the most significant effect on the amounts recognizedin the Financial Statements is included in the respective notes.


NOTES TO THE FINANCIAL STATEMENTS [Contd.]For the year ended 31 March 2018

2.7.1 Going Concern

The company's management has made an assessment of its ability to continue as a going concernandissatisfiedthatithastheresourcesto continue in business for the foreseeable future. Furthermore, management is not aware of any material uncertainties that may cast significant doubt upon the company's abilityto continue as a going concern. Therefore, the financialstatementscontinuetobepreparedonthe going concern basis.

3. Significant Accounting Policies

3.1 Financial instruments - Initial recognition, Classification and subsequent measurement

3.1.1 Non-derivative financial assets

3.1.1.1 Loans and Receivables

Loans and receivables include trade and other receivables.Loansandreceivablesarefinancialassets with fixed or determinable paymentsthat are not quoted in an active market. Such assets are recognised initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition loans and receivables are measured at amortised cost using the effective interest method, less any impairment losses.

3.1.1.2 Available-for-sale financial assets

The Company's investments in equity securities are classified as available-for-sale financialassets. Subsequent to initial recognition, they are measured at fair value and changes therein are recognised in other comprehensive income.

3.1.1.3 Cash and cash equivalents

Company considers highly liquid investment instruments with an original maturity of three months or less to be cash and cash equivalents.

Cash and cash equivalents include cash in hand and bank balances. Bank overdrafts that are repayable on demand which form an integral part of the Company's cash management are included as a component of cash and cash equivalents for the purpose of the Statement of Cash Flow.

3.1.1.4 Held to maturity investments

Held to maturity investments are non-derivative financial assets with fixed or determinablepayments and fixed maturity that an entityhas the positive intention and ability to hold to maturity.

Held-to-maturityfinancialassetsarerecognisedinitially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition,held-tomaturityfinancialassetsaremeasured at amortised cost using the effective interest method, less any impairment losses.

3.1.1.5 Financial Assets at fair value through profit/(loss)

Financial assets at fair value through profit orloss include financial assets held for tradingand financial assets designated upon initialrecognitionatfairvaluethroughprofitorloss.

Fair value has been measured at active market price at each reporting date.

Financial assets at fair value through profit orloss are measured at fair value and changes therein, which takes into account any dividend income,arerecognisedinprofitorloss.

3.1.2 Non-derivative financial liabilities

The non-derivative financial liabilities of theCompany include loans and borrowings, bank overdrafts and trade and other payables.

Suchfinancialliabilitiesarerecognizedinitiallyatfair value plus any directly attributable transaction costs. Subsequent to initial recognition these financial liabilities are measured at amortisedcost using the effective interest method.

3.2 Taxation

3.2.1 Income Tax

Provision for the income tax liability is made on thebasis of theprofit for the year as adjustedfor taxation purposes in accordance with the provisions of the Inland Revenue Act No. 10 of 2006 and the amendments thereto.

Current income tax assets and liabilities for the current and prior periods consist of amounts expected to be recovered from or paid to the



Commissioner General of Inland Revenue. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted by the balance sheet date.

3.2.2 Deferred Taxation

Deferred tax is provided, using the liability method, on all temporary differences at the balance sheet date between the tax bases of assets and liabilities and their carrying amounts forfinancialreportingpurposes.

Deferred tax liabilities are recognised for all taxable temporary differences: except where the deferred tax liability 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 accountingprofitnortaxableprofitorlossand

Deferred tax assets is recognized for all deductible temporary differences, carry-forward of unused tax assets and unused tax losses, to the extent that it is probable that taxableprofitwill be available against which the deductible temporary differences, and the carry-forward of unused tax assets and unused tax losses can be utilized.

Industrial Asphalts (Ceylon) PLC reviews the carrying amount of deferred tax assets at each balance sheet date and reduced to the extent thatitisnolongerprobablethatsufficienttaxableprofitwillbeavailable toallowallorpartof thedeferred tax asset to be utilized.

Company measures Deferred tax assets and liabilities at the tax rates that are expected to be applied to the year when the asset is realized or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the balance sheet date.

Company recognizes in equity the deferred tax relating to items recognized directly in equity, and not in the income statement.

3.3 Post Balance Sheet Events

Industrial Asphalts (Ceylon) PLC considers all material events occurring after the balance sheet date and, where necessary we make adjustments or disclosures to these financialstatements.

3.4 Property, Plant, & Equipment

Company states property, plant & equipment at cost/valuation, excluding the costs of day to day servicing, less accumulated depreciation and accumulated impairment in value. Such cost includes expenditure that is directly attributable to the acquisition of the asset and cost of replacing part of the asset when that cost is incurred, if the recognition criteria are met.

We measure machinery, motor vehicles, land and buildings at fair value less depreciation and impairment charged subsequent to the date of the revaluation.

We perform valuations on every 3-5 years to ensure that the fair value of a revalued asset does not differ materially from its carrying amount.

We credit any revaluation surplus to the revaluation reserve included in the equity section of thestatementoffinancialposition,except tothe extent that it reverses a revaluation decrease ofthesameassetpreviouslyrecognizedinprofitor loss, in which case the increase is recognized inprofitorloss.Werecognizearevaluationdeficitin profit or loss, except that a deficit directlyoffsetting a previous surplus on the same asset is directly offset against the surplus in the asset revaluation reserve.

Subsequent Cost These are costs that are recognized in the

carrying amount of an item if it is probable that the future economic benefits embodied withinthatpartwillflowtothecompanyanditcanbemeasured.

Restoration Cost Expenditure incurred on replacement repairs or

maintenance of Property, Plants Equipment in order to restore or maintain the future economic benefits expected from the originally assessedstandard of performance is recognized as an expense when incurred.

Reclassification to Investment Property When the use of a property changes based

on commencement of an operating lease to another party, for a transfer from inventories to investment property; the property is measured at fair value and reclassified accordingly. Anydifference between the fair value of the property at that date and its previous carrying amount shallberecognizedinprofitorloss.



De-recognition Company derecognizes an item of property,

plant and equipment upon disposal or when no futureeconomicbenefitsareexpected fromits 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 derecognized.

Depreciation Company calculates the provision for

depreciation using written down value basis to write down cost of property, plant & equipment to their residual values over following useful lives. We do not depreciate land.

Class of Asset % per Annum

Plant & Machinery 10% Office,ComputerEquipment 25% Motor Vehicles 25% Building 2% Other Equipment 25%

Company now determines the depreciation charge separately for each significant part ofan item of property, plant and equipment and begins to depreciate when it is available for use, rather than adopting a method whereby property, plant and equipment are depreciated fully in the year of disposal with no such charge being accounted for in the year of purchase.

3.5 Intangible Assets

Basis of Recognition

An Intangible Asset is recognized if it is probablethat futureeconomicbenefitsthatareattributable to the asset will flow to the entityand the cost of the asset can be measured reliably in accordance with LKAS 38 'Intangible Assets'. Accordingly, these assets are stated in the Balance Sheet at cost, less accumulated amortization and accumulated impairment losses, if any.

Subsequent Expenditure

Subsequent expenditure on Intangible Assets is capitalized only when it increases the future economic benefits embodied in these assets.All other expenditure is charged to the Income Statement when incurred.

Useful Economic Lives, Amortization and Impairment

The useful lives of Intangible Assets are assessed to be either finite or indefinite. Thecompany does not possess intangible assets with indefinite useful lives. Useful economiclives,amortizationand impairmentof finiteandindefiniteintangibleassetsaredescribedbelow:

Intangible Assets with Finite Lives and Amortization

IntangibleAssetswith finite livesareamortizedover the useful economic lives. The amortization period and the amortization method for an intangibleassetwithfiniteusefullifearereviewedat least at each Balance Sheet date. Changes in the expected useful life or the expected pattern of consumption of future economic benefitembodied in the asset are accounted for by changing the amortization period or method, as appropriate, and are treated as changes in accounting estimates. The amortization expense onintangibleassetswithfinitelivesisrecognizedin the Income Statement as an expense.

Computer Software

All computer software costs incurred, licensed for use by the Company, which are not integrally related to associated hardware, which can be clearly identified, reliably measured and it isprobable that they will lead to future economic benefits, are included in the Statement ofFinancial Position under the category of intangible assets and carried at cost, less accumulated amortization and accumulated impairment losses, if any.

Amortization of Intangible Assets

Intangible assets are amortized using the straight line method to write down the cost over its estimated useful economic lives. Effective rates are as follows:-

Class of Asset % per Annum

Software 50%

The unamortized balances of intangible assets with finite lives are reviewed for impairmentwhenever there is an indication for impairment and recognized as expenses in the Income Statement to the extent that they are no longer probable of being recovered from the expected futurebenefits.



De-recognition of Intangible Assets

Intangible assets are derecognized on disposal or when no future economic benefits areexpected from its use. Gains or losses arising from de-recognition of an intangible asset are measured as the difference between the net disposal proceeds and the carrying amount of the asset and are recognized in the Income Statement.

3.6 Leased Assets

Leases in terms of which the Company assumes substantially all the risks and rewards of ownership are classified as "finance leases".Upon initial recognition the leased asset ismeasured at an amount equal to the lower of its fair value and the present value of the minimum lease payments. Subsequent to initial recognition, the asset is accounted for in accordance with the accounting policy applicable to that asset.

3.7 Inventories

Inventories are valued at the lower of cost or net realizable value after making due allowances for obsolete and slow moving items. Net realizable value is the price at which inventories can be sold in the ordinary course of business less estimated cost of completion and estimated cost necessary to make the sale.

The cost incurred in bringing inventories to its present location and conditions are accounted using the following cost formula:-

Raw Material - At actual cost on weighted average cost basis.

Finished Goods Work in Progress - At the cost of direct materials,fixedlabour and an appropriate proportion of manufactory overheads based on normal capacity.

Goods in Transits - At actual cost.

3.8 Impairment

3.8.1 Financial Assets

Afinancialassetnotcarriedatfairvaluethroughprofitorlossisassessedateachreportingdateto determine whether there is objective evidence that it is impaired if objective evidence indicates that a loss event has occurred after the initial recognition of the asset, and that the loss event had a negative effect on the estimated future cashflowsof thatasset thatcanbeestimatedreliably.

Animpairmentlossinrespectofafinancialassetmeasured at amortized cost is calculated as the difference between its carrying amount and the present value of the estimated future cash flowsdiscountedattheasset’soriginaleffectiveinterest rate. Losses are recognized in profitor loss and reflected in an allowance accountagainst receivables. Interest on the impaired asset continues to be recognised through the unwinding of the discount. When a subsequent event causes the amount of impairment loss to decrease, the decrease in impairment loss is reversedthroughprofitorloss.

3.8.2 Non-financial Assets

The carrying amount of the Company non-financial assets, other than inventories, arereviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, the asset’srecoverable amount is estimated.

An impairment loss is recognized if the carrying amount of an asset or cash generating unit exceeds its recoverable amount.

3.9 Liabilities and Provisions

3.9.1 Provisions

When company has a present obligation (legal or constructive) as a result of a past event, whenitisprobablethatanoutflowofresourcesembodying economic benefits will be requiredto settle the obligation and the company can reliably estimate the amount of the obligation, we recognize it as a provision in accordance with LKAS 37 – Provisions, Contingent Liabilities and Contingent Asset.


3.9.2 Retirement Benefit Obligations

3.9.2.1 Defined Benefit Plan - Gratuity

A defined benefit plan is a post-employmentbenefit plan other than a defined contributionplan. The Company is liable to pay retirement benefits under the Payment of Gratuity ActNo. 12 of 1983. Provision has been made for retirement gratuities using "Project Unit Credit"(PUC) method as recommended by LKAS 19"Employee Benefits". The present value of thedefined benefit obligation is determined bydiscounting the estimated future cash flowsbased on the actuarial valuation carried out by an independent qualified actuary. Theassumptions based on which the results of actuarial valuation was determined are included in Notes to the Financial Statements. The liability is not externally funded.

However, under the payment of Gratuity Act No. 12 of 1983, the liability to an employee arises only on completion of 5 years of continues service.

3.9.2.2 Defined Contribution Plans - Employees' Provident Fund & Employees' Trust Fund

EmployeesareeligibleforEmployees’ProvidentFundContributionsandEmployees’TrustFundContributions in line with the respective statues and regulations. The Company contributes 12% and 3% of gross emoluments of employees to Employees’ Provident Fund and Employees’Trust Fund respectively.

3.10 Income Statement

Revenue Recognition

Revenue is recognized to the extent that it is probablethattheeconomicbenefitswillflowtothe Company and the revenue and associated costs incurred or to be incurred can be reliably measured. Revenue is measured at the fair value of the consideration received or receivable net of trade discounts and sales taxes. The following specific criteria are used for the purpose ofrecognition of revenue.

a) Sale of Goods

Revenue from the sale of goods is recognised when the significant risks and rewards or

ownership of the goods, have passed to the buyer, usually on dispatch of the goods.

b) Interest

Revenue is recognised on a time proportion basis that takes in to accounts the effective interest rate on asset.

c) Dividends

Dividend Income is recognized when the shareholders’ right to receive the payment isestablished.

d) Rental income

Rental Income arising on investment properties is accounted for on a straight-line basis over the lease terms.

h) Others

Other income is recognized on an accrual basis.

Borrowing Costs

Finance costs comprise interest expense on borrowingsrecognizedinprofitorlossusingtheeffective interest method.

Foreign Currency translation

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

3.11 New Accounting Standards Issued but not yet Effective

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 appliedinpreparingthesefinancialstatements.The Company will be adopting these standards when they become effective.

• SLFRS9 -FinancialInstruments

• SLFRS15-Revenuefromcontracts with customers

• SLFRS16-Leases



4 Revenue 2018 2017 Rs. Rs.

5 Other operating income 2018 2017 Rs. Rs.

6 Impairments/ Provisions 2018 2017 Rs. Rs.

Paints 18,046,345 19,754,740 Bitumen related 24,511,668 5,240,625 Sundries 1,509,270 2,683,071 44,067,284 27,678,436

Sundry income 244,950 27,050 Dividend income 46,298 326 Rent income 105,010 - 396,258 27,376

Impairment of Plant & Machinery 9,903,804 - Impairment for slow-moving Stock 11,387,404 - Impairment for Doubtful Debtors 19,641,678 - 40,932,886 -

7 Net financing costs 2018 2017 Rs. Rs.

8 Profit/ (loss) before tax 2018 2017 Rs. Rs.

Finance costs Bank Loan interest (781,014) (955,622) Lease Interest Expense (992,210) (986,165) Overdraft interest (9,905,088) (8,040,596) Margin Trading Interest Expense (137,279) (61,010) Gain /loss in share value (42,994) (566,942) Bank Charges (237,557) (175,407) (12,096,143) (10,785,742)

Finance income Interestonfixeddeposits 39,803 31,269 Repo Interest Income 51,095 417 90,899 31,686 (12,005,244) (10,754,056)

Profit/ (loss) before tax is stated after charging: Depreciation of property, plant and equipment 5,586,000 6,210,407 Amortization of intangible assets 19,290 134,544 Directors emoluments - - Personnel expenses (Note 8.1) 9,347,207 10,496,613 Auditors remuneration 220,000 200,000

8.1 Personnel expenses Salaries & wages 8,271,752 9,207,085 Contributiontodefinedcontributionplans(EPF&ETF) 877,274 1,083,882 Contributiontodefinedbenefitplanforgratuity 198,181 205,647 9,347,207 10,496,613

NOTES TO THE FINANCIAL STATEMENTS [Contd.]For the year ended 31 March


2018 2017 Rs. Rs.

9 Income tax expense 2018 2017 Rs. Rs.

2018 2017 Rs. Rs.

9.2 Reconciliation of accounting profit to income tax: Profit/(loss)beforeincometax 473,440,603 (14,205,483) Tax effect on disallowable expenses (516,927,646) 8,402,145 Tax effect on allowable expenses (5,095,021) (4,775,647) Income from separate sources (88,504) (31,686) Total statutory income (48,670,568) (10,610,671) Tax losses set-off - - Assessable income (48,670,568) (10,610,671) Less: Qualifying payments - - Taxable income/ (loss) (48,670,568) (10,610,671) Income tax @ 12% 10,908 3,802

Current tax expense Income tax for the current year (Note 9.2) 10,908 3,802 10,908 3,802 Deferred tax expense Deferred taxation (Note 23) (225,371) (3,344,383) (225,371) (3,344,383) (214,463) (3,340,581)

9.1 In terms of provisions of Inland Revenue Act No.10 of 2006 and amendments thereto, the Company is liable for income tax at the rate of 12%.

Netprofit/(loss)attributabletoordinaryshareholders 473,655,066 (10,864,902) Weighted average number of ordinary shares (Note 10.1) 666,562 666,562 Basic earnings/ (loss) per share (Rupees) 710.59 (16.30)

10 Basic earnings per share

Basicearningspershareiscalculatedbydividingthenetprofitfortheyearattributabletoordinaryshareholdersby the weighted average number of ordinary shares outstanding during the year, as required by the Sri Lanka Accounting Standard (LKAS 33) on 'Earnings per Share'.

10.1 Weighted average number of ordinary shares

Issued ordinary shares at the beginning of the year 666,562 666,562 Issued ordinary shares at the end of the year 666,562 666,562


8.2 Flood DamageTheCompanypremisesatNo.28/1,NewNugeRoad,Peliyagodawasaffectedwithfloodwaterson15thMay2016whichaffectedallofitscommercialactivities.Thedamagecausedbythefloodandtheinsuranceclaimreceivedduringthefinancialyearended31March2017areasfollows, 2018 2017

Rs. Rs.

CostofInventoryaffectedbyfloods - 10,258,876 Total insurance claim received - (7,432,988) Net Loss after receiving insurance claim - 2,825,888



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12 Lease Hold Land 2018 2017 Rs. Rs.

15 Inventories 2018 2017 Rs. Rs.

14 Intangible assets 2018 2017 Rs. Rs.

13 Investment Property 2018 2017 Rs. Rs.

Cost Balance at the beginning of the year 3,858,030 3,858,030 Transfers to Investment Property (Note 13) (3,858,030) - Balance at the end of the year - 3,858,030 Accumulated amortization Balance at the beginning of the year 1,284,841 1,246,261 Amortization charge for the year 19,290 38,580 Transfers to Investment Property (Note 13) (1,304,131) - Balance at the end of the year - 1,284,841 Written down value as at 31 March - 2,573,189

Raw materials 18,145,296 19,745,130 Packing Materials 4,428,924 5,617,699 Finished goods 5,644,279 9,598,734 Work in progress 1,683,058 2,808,920 29,901,557 37,770,483 Less: Inventory Impairment (11,387,404) - 18,514,153 37,770,483

Cost Balance at the beginning of the year 266,899 266,899 Additions during the year - - Balance at the end of the year 266,899 266,899

Accumulated amortization Balance at the beginning of the year 266,899 170,935 Amortization charge for the year - 95,964 Balance at the end of the year 266,899 266,899 Written down value as at 31 March - -

Transfers from Property, plant & equipment and Lease Hold Land 43,494,540 - Add: Land Development 10,000,000 - Change in value during the year 534,105,459 - Fair Value at the end of the year 587,600,000 - Note 13.1 AsperLKAS40,"InvestmentProperty",theDirectorshaveadoptedthefairvaluemodelforaccountingfor

Investment Property as at 30th September 2017. The present value of Investment Property was increased to Rs. 577,600,000/- based on a valuation carried

out by Mr. N.A.A.D.S. Nissanka, Registered and Incorporated Valuer and the resultant fair value gain was recorded in the Statement of Comprehensive Income.

15.1 Inventories amounting to Rs.18,514,153 (2017 - Rs.37,770,483) have been pledged as security for short term loans and overdraft facilities obtained from banks (Note 33).



16 Short Term Investment in REPO 2018 2017 Rs. Rs.

Hatton National Bank - Ref. No: 5787921 10,029,408 - 10,029,408 -


17 Trade and other receivables 2018 2017 Rs. Rs.

Trade receivables (Note 17.1) 9,612,613 31,049,400 Staff loans and Festival Advances 514,823 400,723 Deposits, advances and prepayments (Note 17.2) 4,994,374 304,354 Other Receivables (Note 17.3) 7,364 - 15,129,174 31,754,478

17.1 Trade receivables Trade receivables (Note 17.4) 33,631,816 34,852,205 Debtors clearing account - (302,805) Less: Impairment of Trade receivables (24,019,203) (3,500,000) 9,612,613 31,049,400

17.2 Deposits, advances and prepayments Deposit LECO 2,500 2,500 Prepayments 4,991,874 301,854 VAT receivable 3,600,597 3,600,597 8,594,971 3,904,951 Less: Impairment for VAT receivable (3,600,597) (3,600,597) 4,994,374 304,354

17.3 Other receivables Repo Interest Receivable 7,364 - 7,364 -

17.4 As at 31 March, the age analysis of Trade receivables is as follows:

Quoted investments - at market valueUnionBankPLC 200 5,000 2,560 200 5,000 2,840Laughf Gas PLC 5 115 178 5 115 141ACL Cabels PLC 100 10,314 4,100 100 10,314 5,450Ceylon Grain Elevators PLC - - - 20,000 1,939,812 1,378,000Dialog Axiata PLC 253,668 3,521,770 3,500,618 - - - 3,537,199 3,507,456 1,955,241 1,386,431

No. of Cost Market No. of Cost Market shares value shares value Rs. Rs. Rs. Rs.

2018 2017 Rs. Rs.

18 Financial Investments - fair value through profit or loss

Trade Receivables 33,631,816 3,591,311 1,079,594 865,969 28,094,942

As at 31 March 2018 Total 01-30 31-60 61-90 > 90 Days Days Days Days Rs. Rs. Rs. Rs. Rs.



19 Held to maturity investments 2018 2017 Rs. Rs.

20 Cash and cash equivalents 2018 2017 Rs. Rs.

21 Stated capital 2018 2017 Rs. Rs.

22 General Reserves 2018 2017 Rs. Rs.

Investment in Fixed Deposits 375,683 375,683 375,683 375,683

20.1 Cash at Bank 1,074,671 321,589 Cash in hand 13,602 13,602 1,088,273 335,191 20.2 Bank overdrafts (74,798,696) (69,311,165) Cash and cash equivalents in the Cash Flow Statement (73,710,422) (68,975,974)

Ordinary shares (No. of shares 666,562) 6,665,620 6,665,620 6,665,620 6,665,620

General Reserves 15,141,299 15,141,299 15,141,299 15,141,299

General reserves refers to transfers made from retained earnings in the previous years. No particular purposewasidentified.

23 Deferred tax liability 2018 2017 Rs. Rs.

Balance at the beginning of the year 1,665,882 5,010,265 Charge/(reversal) for the year (225,371) (3,344,383) Balance at the end of the year 1,440,511 1,665,882

23.1 Deferred tax asset 4,646,015 6,934,597 Deferred tax liability (3,205,504) (5,268,716) Net deferred tax liability 1,440,511 1,665,882

23.2 Deferred tax on gratuity (112,604) (130,206) Deferred tax on carried forward tax loss (477,760) (3,977,264) Deferred tax on property, plant and equipment 2,030,875 5,773,352 1,440,511 1,665,882


24 Retirement benefit obligation 2018 2017 Rs. Rs.

25 Interest bearing loans and borrowings 2018 2017 Rs. Rs.

Balance at the beginning of the year 1,085,049 999,489 Current service cost 78,826 95,703 Interest cost 119,355 109,944 Payments made during the year (441,875) - Actuarial gain/(loss) (37,038) (120,087) Balance at the end of the year 804,317 1,085,049

Payable after one year Finance Lease 4,624,184 6,873,597 4,624,184 6,873,597

Payable within one year Finance Lease 2,249,413 1,995,682 Short term loans 10,284,610 3,109,899 12,534,023 5,105,581 25.1 Sources of finance Commercial Bank of Ceylon PLC 17,158,207 11,979,178 17,158,207 11,979,178

The Company carried out an actuarial valuation of the gratuity as at 31 March 2018 by Mr. M. Poopalanathan, AIA, Messrs Actuarial and Management Consultant (Pvt) Ltd, a firm of professionalactuaries.Thevaluationmethodusedbytheactuariestovaluetheliabilityisthe"ProjectedUnitCreditMethod",themethodrecommendedbytheLKAS19.

Discount rate 11.00% Future salary increase 7.50%


26 Trade and other payables 2018 2017 Rs. Rs.

27 Rent Received in Advance 2018 2017 Rs. Rs.

Trade Payables 865,318 851,766 Accrued Expenses 1,477,704 1,567,451 VAT Payable 450,197 754,051 2,793,219 3,173,268

Rent Received in Advance 23,600,000 - 23,600,000 -

On 28th February 2018, the Company entered into an Agreement with Siam City Cement (Lanka) Ltd to lease out its property situated at No. 28/1 New Nuge Road, Peliyagoda. According to the terms of the Lease Agreement, the lease rental received in advance as at 31st March 2018 amounts to Rs. 23.6 million and the lease rental applicable from 1st May 2018 amounts to Rs. 2,950,000/- per month.


29 Dividends paid 2018 2017 Rs. Rs.

30 Capital commitment and contingencies

There were no material capital commitments and contingencies as at 31st March 2018 except for the following.

- Guarantees given by Commercial Bank of Ceylon PLC on behalf of the Company amounts to Rs. 1,587,340/-.

31 Events occurring after the Statement of Financial Position date

No circumstances have arisen since the Statement of Financial Position date which would require adjustments to or disclosure in the Financial Statements, except for the following;

- The Directors have recommended the payment of an interim dividend of Rs. 3/- per share for the year ended 31 March 2018.

32 Related party transactions

Disclosure as per the requirement of Colombo Stock Exchange Listing Rule Section 9.3.2 and Code of Best Practices on Related Party Transactions, under the Security Exchange Commission Directive issued under Section 13 ( c ) of the Security Exchange Commission Act is on page 17 Related Party Transactions Review Committee Report.

The following table provide the amount receivable from/ to and summary of the transactions entered into bytheCompanywithrelatedpartiesduringtherelevantfinancialyear.

Dividend paid - - Dividend payout ratio - - Dividend per share - -


28 Income tax (receivable)/ payable 2018 2017 Rs. Rs.

Balance at the beginning of the year (overpayment) (6,823) 15,529 Income tax provision for the year (Note 9) 10,908 3,802 4,085 19,331 Tax Credits WHT Receivables (3,980) (3,127) Income tax payments made during the year - (23,027) Balance at the end of the year 105 (6,823)


34 Comparative Figures

Certaincomparativefigureshavebeenrestatedtoconformtotheclassificationandpresentationasat31st March 2018.


Name of the Company Name of the Director Nature of transactions 2018 2017 Rs. Rs.

32 Related party transactions (contd...)

Sigma Holdings (Pvt) Ltd Mr. G. Ramanan Loan received - -

Loan settled - -

Quelle Electrik (Pvt) Ltd Mr. G. Ramanan Loan received - -

Loan settled - 840,000

Exchemie (Pvt) Ltd Mr. G. Ramanan Loan granted - 385,000

Loan recovered - 586,201

Director Mr. G. Ramanan Expenses incurred on behalf of the Company - -

Reimbursement for expenses incurred - -

Loan settled - 634,435

Name of Bank Loan Facility Security Carrying amount of Assets pledged 2018 2017

33 Assets pledged as securities against short term borrowings:

Commercial Bank Overdraft - Rs.22.5Mn Investment property at No.28/1, Investment Lease holdof Ceylon PLC Overdraft - Rs.75Mn New Nuge Road, Peliyagoda Property - Property - Short term loan Rs.10,284,610 Rs.587,600,000 Rs.2,573,189 over stock held at No.28/1, New Nuge Road, Peliyagoda Inventory- Inventory- Rs.18,514,153 Rs.37,770,483 over Trade Debtors Trade Debtors - Trade Debtors - Rs.10,993,594 Rs.31,049,400


SHAREHOLDERS INFORMATION

1 - 1,000 339 28,355 4.25% 346 38,272 4.85%1,001 - 10,000 23 71,313 10.70% 22 71,566 10.73%10,001 -100,000 5 121,057 18.16% 5 117,770 17.66%100,001 and over 1 445,837 66.89% 1 445,017 66.76% 368 666,562 100.00% 374 666,562 100.00%

Public Holding 365 220,255 33.04% 367 197,037 29.56%Total Holding 368 666,562 100.00% 374 666,562 100.00%

Float Adjusted Market Capitalisation 75,921,899

Holdings (Shares) 31 March 2018 31 March 2017 No. of Total Holdings No. of Total Holdings Holders Shares % Holders Shares %

Holdings (Shares) 31 March 2018 31 March 2017 No. of Total Holdings No. of Total Holdings Holders Shares % Holders Shares %

1 GOVINDASAMY RAMANAN 445,837 66.89 445,017 66.762 DR. T. SENTHILVERL 43,688 6.55 43,688 6.553 K. S. SOMAPALA 29,745 4.46 29,746 4.464 SAMPATH BANK PLC/ SHABBIRABBASGULAMHUSEIN 19,054 2.86 19,004 2.855 M. MAHIBALAN 16,569 2.49 13,332 2.006 D. B. WETHASINGHE 12,00 1.80 12,000 1.807 D.P.KUMARA 7,436 1.12 7,436 1.128 D.S.S.KUMARA 7,436 1.12 7,436 1.129 H. W. M. WOODWARD 6,932 1.04 6,932 1.0410 M.M.ABDULLATIFF 6,253 0.94 6,253 0.9411 WALDOCK MACKENZIE LTD/ SHABBIRABBASGULAMHUSEIN 4,508 0.68 4,508 0.6812 R.UDALAGAMA 4,000 0.60 4,000 0.6013 M.A.JUNAID 3,746 0.56 3,721 0.5614 S. G. N. HERATH 3,330 0.50 3,330 0.5015 MBSL/G.S.P.GUNASENA 3,248 0.49 3,239 0.4916 R.G.G.WIJESURIYA 2,810 0.42 2,810 0.4217 J. MYLVAGANAM 2,466 0.37 2,466 0.3718 A.L.HULANGAMUWA 2,306 0.35 2,306 0.3519 EXECUTOROFTHELASTWILLAND TESTAMENT OF THE LATE MR. A.Y.S. GNANAM 2,254 0.34 2,254 0.3420 N. K. PARANAGAMA DIVITOTAWELA 2,036 0.31 2,036 0.31

Twenty Largest Shareholders

Distribution Schedule of Shareholders

Public Holding

No Name of Shareholder 31 March 2018 31 March 2017 No. of Shares % No. of Shares %


SHAREHOLDERS INFORMATION [Contd.]

Market Value of Shares

For the Year ended 31 March 2018 31 March 2017

Highest price per share (Rs.) 398.00 359.90Lowest price per share (Rs.) 248.00 290.00Last traded price per share (Rs.) 344.70 305.40


I/We,.................................................................................................................................................................of

...................................................................................................................................................................being

a member/ members of the Company, hereby appoint

Mr/ Mrs/ Miss........................................................................................................................................................

(holder of N.I.C.No................................................................) of........................................................................

.......................................................................................................................................................whom failing

Mr. G. Ramanan whom failing Mr. M. Perera whom failing Mr. S.P. Muthusammy whom failing

As my/ our proxy to represent me/ us and vote on my/ our behalf at the 54th Annual General Meeting of the Company to be held on 18th September 2018 at the Association of Accounting Technicians of Sri Lanka, No. 540, Ven. Muruththettuwe Ananda Nahimi Mawatha (Formally Thimbirigasyaya Road), Narahenpita, Colombo 05 at 10.00 a.m. and at any adjournment thereof and at every poll which may be taken in consequence thereof.

Please indicate your preference by placing a 'X' in the box of your choice against the Resolution No.

For Against

1. Receiving of the Annual Report of the Board of Directors and the Audited Financial Statements of the Company for the year ended 31st March 2018 together with the Report of the Auditors thereon.

2. Declaration of a Final Dividend of Rs.1.50 per share as recommended by the Board.

3. Re-election of Mr. M. Perera Director who retires in terms of Article 90 of the Articles of Association of the Company and offers himself for re-election as a Director.

4. Re-appointment of Messrs A.I. Macan Markar & Co., Chartered Accountants, as Auditors of the Company for the ensuing year and authorize the Directors to determine their remuneration.

5. Authorize the Directors to determine and make donations.

FORM OF PROXY

Signed this...................... Day of............................... 2018

............................................................................... Signature

...............................................................................

Shareholder's N.I.C/ P.P./Co. Reg. No


INSTRUCTIONS FOR COMPLETION OF PROXY

1. PleaseperfecttheFormofProxyoverleaf,afterfillinginlegiblyyourfullnameandaddress,bysigninginthespaceprovidedandfillingthedateofsignatureandyourNationalIdentityCardnumber.

2. ThecompletedFormofProxyshouldbedepositedattheOfficeofIndustrial Asphalts (Ceylon) PLC, 28/1, New Nuge Road, Peliyagoda, 48 hours before the time appointed for the holding of the meeting.

3. If an Attorney has signed the Form of Proxy, the relative Power of Attorney should also accompany the completed Form of Proxy for registration, if such Power of Attorney has not already been registered with the Company.

4. If the Shareholder is a Company or a Corporate Body, the Proxy should be executed under its Common Seal in accordance with its Articles of Association or Constitution.

5. If there is any doubt as to how the vote is to be exercised, by reason of the manner in which the Form of Proxy has been completed, no vote will be recorded by the Form of Proxy.

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