the extra mile - Colombo Stock Exchange wanting to go the extra mile to deliver ... (SML) is the franchise holder for Isuzu vehicles and spare parts manufactured by M ... I am happy

the extra mile

s a t h o s a m o t o r s P L C a n n u a l r e p o r t 2 0 1 6 / 1 7

SATHOSA MOTORS PLC

No: 25, Vauxhall Street, Colombo 02, Sri Lanka.Tel : 011-2432858, 011-2431568, 011- 2331621Fax : 011-2446129Web : www.sathosamotorsplc.com

Sathosa Motors PLC

│ A

nnual Report 2016/17

SATHOSA MOTORS PLC

COrPOrate iNFOrmatiON

NAME OF THE COMPANYSathosa Motors PLC

LEGAL FORMA public Limited Liability Company incorporated in Sri Lanka on 11th March 1982 under the Companies Ordinance No: 51 of 1938 and re-registered under the Companies Act No.7 of 2007. Listed on the Colombo Stock Exchange on 07th November 1993.

REGISTRATION NUMBERPQ 105

BOARD OF DIRECTORSMr. Sumal Joseph Sanjeewa Perera - ChairmanDeshamanya Tilak Dias Gunasekera - Managing DirectorMr. Eshan Sudesh Coorey DirectorMr. J C Joshua - Director(Alternate Director Mr. S H S Mendis)Mr. D A R Fernando - DirectorMr. S H S Mendis - DirectorMr. S D Munasinghe - DirectorMr. R J S Gomez - Director(Alternate Director Mr. S D Munasinghe)Mr. M M N De Silva - DirectorMr. Chiran Wijesinghe - Director

The Board of Directors who held office at 31 March 2017, are stated under “ Annual Report of the Board of Directors’ on the Affairs of the Company”

SENIOR MANAGEMENT TEAMNeomal Fernando Assistant General Manager – New VehicleDilshan Nugera Sales Manager – New VehicleDeepal Dissanayake Service Manager – WorkshopHarsha Withana Sales Manager – ServicesUpul Ranasinghe Assistant Manager – ServicesNishantha Pieris Manager – Spare PartsEranga Dias Assistant Manager – Spare PartsNilanga Silva Manager HR & AdministrationThejani Kodithuwakku Finance ControllerMs. Inoka Jayawickrama Finance ManagerMr. Duminda Munasinghe Manager – IT

BANKERSHatton National BankNDB BankCommercial Bank of Ceylon PLCBank of CeylonSampath Bank PLCDFCC Bank

AUDITORSKPMGChartered Accountant,32 A, Sir Mohomad Macan Marker MawathaColombo 03

SECRETARIES & REGISTRARSP W Corporate Secretarial (Pvt) LtdNo: 3/17, Kynsey RoadColombo 08

LAWYERSNithi Murugesu & AssociateAttorneys – At – Law – Notaries Public28 (level 2) W A D Ramanayake MawathaColombo 02

ACTUARIAL CONSULTANTSActuarial & Management Consultants (Pvt) Ltd. 1st FloorNo: 434, R A de Mel MawathaColombo 03

REGISTERED OFFICENo: 25, Vauxhall StreetColombo 02

GENERAL OFFICE/BUISNESS ADDRESSNo: 25, Vauxhall StreetColombo 02Tel : 011-2432858, 011-2431568, 011- 2331621Fax : 011-2446129Web : www.sathosamotorsplc.com

Design & Concept by: Optima Designs (Pvt) Ltd.

CONteNts

About The Company 2Message From The Chairman 8Managing Director’s Review of Performance 10Market Review by Director Marketing 13Board of Directors 15Management Discussion and Analysis 18Corporate Governance 22Risk Management Review 23Annual Report of The Board of Directors on The Affairs of The Company 28Independent Auditors’ Report 31Statement of Profit or Loss and other Comprehensive Income 32Statement of Financial Position 33Statement of Changes In Equity 34Statement of Cash Flows 36Notes to The Financial Statements 37Report of The Related Party Transactions Review Committee 74Report of The Audit Committee 75Information to Investor 77Statement of Value Added 79Notice of Annual General Meeting 80Notes 81Form of Proxy 83Corporate Information Inner Back Cover

The exTra mileAs we celebrate a successful year, we look back on what helped us expand not only our profits, but also our horizons. Our team strove hard to help build upon what we have envisioned, with their commitment, their professionalism and most importantly, their enthusiasm in wanting to go the extra mile to deliver on our standards of quality. Our loyal and growing customer base is testament to our relentless need to expand through products and through our reach and we look forward to going ever further...

sathosa motors PLC A n n u A l r e p o r t 2 0 1 6 / 1 7

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Sathosa Motors PLC (SML) is the franchise holder for Isuzu vehicles and spare parts manufactured by M/s Isuzu Motors Ltd. In addition the company maintains 2 workshops in Peliyagoda and at Vauxhall Street.

MeMberships in AssociAtions � Ceylon Motor Trader’s Association

business scope

abouT The company

sML’s business scope

isuzu Vehicles

Double Cab Pickup Trucks Island wide dealer network Peliyagoda

Light, Medium & Heavy Duty Commercial Vehicles

2 mobile spare parts units Vauxhall Street

Luxury Passenger Coaches Outlets in Panchikawatte

MU-X SUVsSpare parts counter at

Vauxhall Street

Special Purpose Vehicles Fire Trucks

Logging Trucks,Dump Trucks

Water & Fuel Bowsers

isuzu spare parts Workshops


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historicAL MiLestones

1962The Isuzu Agency was secured by the Co-operative Wholesale Establishment (CWE), under their New Vehicles and Machinery Department. The first agreement was between M/s Isuzu Motors Limited, Tokyo, Japan (Manufacturer); M/s C Itoch & Co. Ltd., (Distributor); and the CWE. (Franchise holder).

1985 The New Vehicles and Machinery Department was converted into a fully owned subsidiary of the CWE, under the auspices of the Ministry of Trade and Commerce as “Sathosa Motors Limited” to enable the Company to operate more independently and efficiently, catering to growing demand.

1992Partial privatisation of Sathosa Motors Limited, in line with the government policy. 60% of the issued capital was acquired by M/s Itoch & Co limited (ITOUCH Corporation, Tokyo Japan, a leading trading organisation in Japan, 10% of the balance shares were gifted to employees, and 30% was issued to the general public.

2007The Company was re-registered under the Company’s Act No 7 of 2007, as Sathosa Motors PLC (SML).

2012The controlling stake of SML was acquired by Access Engineering Company Limited.

2013A strategic decision was made to acquire a 50% stake in Frontier Automotive Pvt Ltd, the exclusive distributor for Land Rover in Sri Lanka, a luxury European Brand, best known as the ‘Sri Lankan Military’s Vehicle of Choice’

2015The company sets up a state of the art workshop at Vauxhall street, Colombo 2, to cater mainly to Isuzu SUV customers.

2016The Isuzu NMR dump truck was unveiled to the local market. The truck has been specially designed to suit Sri Lankan terrain, through collaboration between Isuzu Japan and SML.


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visionTo be the trusted leader in the Sri Lankan Automobile Industry by ensuring that we deliver only the best quality to our valued customers.

missionTo achieve excellence in customer satisfaction by cultivating a dynamic and productive organisational culture with highly motivated staff to provide the best quality vehicles at competitive and affordable prices, thereby generating the maximum benefit to all our stakeholders.

values � We value and believe in

maintaining the highest standards of integrity, honesty, transparency, responsibility and ethical behaviour in all our dealings and transactions.

� We respect the dignity of people � We are passionate about delivering

the highest levels of service quality to all our internal and external stakeholders.

� We encourage and respect diversity among our team in order to create an inclusive organisational culture.

� We believe in leading by example. � We firmly believe in taking all

prudent and responsible measures to strengthen our Company’s financial foundation.

� We believe in the importance of ensuring excellence in all our processes and systems as a means of maintaining a strong niche position in the Sri Lankan market: from expanding our dealership network, to introducing innovative product ranges to the market, to market development, to leveraging training as an opportunity to enhance expertise and productivity.

� We are committed at all times to strengthening the corporate image of Sathosa Motors by communicating and delivering on our core values.


5Financial highlighTs

company Group

10/11 11/12 12/13 13/14 14/15 15/16 16/17 13/14 14/15 15/16 16/17

Gross Turnover (Rs.000) 1,449,396 1,902,741 2,334,937 2,459,490 2,752,022 3,010,586 4,062,907 3,075,580 3,527,240 4,067,822 5,248,511

Profit before Taxation (Rs.000) 175,775 242,311 286,342 322,327 349,652 431,827 386,424 415,067 382,172 462,188 310,883

Profit after Taxation (Rs.000) 110,512 173,026 205,752 231,771 252,968 315,705 291,466 288,233 269,805 327,111 234,338

Property Plant & Equipment (Rs.000)

& pre paid Lease Payment 41,349 39,012 44,897 74,465 118,079 133,504 214,380 178,779 337,928 593,144 608,987

Investment Property ( Rs.000) - - 21,683 24,192 24,192 45,360 - 24,192 24,192 45,360 -

Gross Dividends Paid Final (Rs.000) 30,168 30,168 30,168 30,168 42,235 42,235 90,504 30,168 30,168 42,235 90,504

Interim ( Rs.000) - - - - - 30,168 90,504 - - 30,168 90,504

Gross Dividends Proposed (Rs.000) - - - 30,168 42,235 90,504 30,169 30,168 42,235 90,504 30,169

Dividend Per Share (Rs.) 5.00 5.00 5.00 5.00 7.00 20.00 20.00 5.00 7.00 20.00 20.00

Dividend Cover (Times) 3.66 5.74 6.82 7.68 5.99 3.49 2.42 8.62 6.18 2.65 2.18

Earnings Per Share (Rs.) 18.32 28.68 34.10 38.41 41.93 52.33 48.31 43.09 43.32 53.22 43.51

Net Asset Per Share (Rs.) 74.51 98.64 127.76 161.08 197.96 224.88 243.29 165.76 204.02 231.82 245.46

Net Profit to Revenue (%) (Before tax) 12.28 13.02 12.39 13.24 12.77 14.37 9.53 13.65 10.91 11.42 5.93

Current Ratio (Times) 1.77 1.73 2.14 2.36 2.50 1.50 1.35 1.99 1.96 1.28 1.29

Quick Assets Ratio (Times) 0.85 0.83 0.74 1.30 1.14 0.47 0.36 1.15 0.97 0.47 0.37

Return on investment (%) 24.58 29.07 26.69 23.85 21.18 23.27 19.86 28.82 21.92 23.39 15.77

New Vehicles 87.55%

Spare parts 5.97%

Workshop 6.24%

Others 0.24%

reVenue AnALYsis oF YeAr 2016/17 (Gross)

reVenue

012/13 13/14 14/15 15/16 16/17

1,500

1,000

500

4,500

Rs. Mn.

4,000

3,500

3,000

2,500

2,000

return on cApitAL eMpLoYeD (AFter tAx)

012/13 13/14 14/15 15/16 16/17

5

30

%

25

20

15

10

Profit Before Tax

Profit After Tax

proFitAbiLitY

012/13 13/14 14/15 15/16 16/17

100

500

Rs. Mn

400

300

200

eArninG & DiViDenD per shAre

012/13 13/14 14/15 15/16 16/17

20

10

60

Rs.

50

40

30

Dividend Per Share

Earning Per Share


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sumal pereraChairman

message From The chairman

We are noW poised To caTer To This groWing demand Through our regional expansion sTraTegy. i believe This ouTreach Will open up neW opporTuniTies and creaTe neW demand ThaT Will conTribuTe To greaTer beneFiTs For all sTakeholders.


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The sml brand has a Tried and TesTed Track record oF TrusT, and is backed by The long sTanding parTnership WiTh one oF The World’s besT auTomobile manuFacTurers. ThereFore, We are Well posiTioned To supply The counTry WiTh qualiTy commercial vehicles.

chairman’s message

It gives me great pleasure to present the Annual report and audited accounts of Sathosa Motors PLC (SML) for the financial year 2016-17. I am pleased to announce that SML has achieved strong growth despite a particularly difficult year for the country’s automobile sector. While retaining leadership position in the mid-range new truck segment, which is our core niche market, the Company has grown its revenues across all of its business sub-sectors.

shArehoLDer returnsI am happy to report that SML has achieved a remarkable growth in new vehicle sales and has also maintained growth in spare parts and workshop services. However, the company suffered a marginal reduction in profitability against the previous year’s record gains due to the combined impact of rupee depreciation and higher cost structures. This has caused our shareholder returns to reduce slightly, with the earnings per share falling from Rs.52.33 to Rs.48.31.

A total dividend of Rs.20, per ordinary share, was declared by the Directors for the year, comprising an interim dividend of Rs.15 per ordinary share, paid in March 2017, and a final dividend of Rs.5

per ordinary share. I would like to point out that despite the lower profitability SML has increased the dividend payout ratio to 41%, from 38% in the previous financial year, to ensure fair returns for our shareholders.

For details on our performance during the year, please refer the ‘Managing Director’s Review of Performance,’ the Director Marketing Review by the and the ‘Financial Review,’ of this Annual Report.

contributions to the countrYThe total economic value created by SML was distributed as 19.63% among its local business partners contributing towards their growth and financial stability. Another 22.25% was distributed among the Company’s employees. The Company has also complied with all indirect and direct tax payments as a law abiding revenue contributor to the government.

Annually, SML supports many charitable events and also supports select causes through sponsorships with funds from a Board approved budget for such activities. During the current financial year we distributed in excess of Rs.1.25 Mn for various charitable activities and sponsorships. More information about these projects can be found in the section titled ‘Community Engagements.’

In addition to the above, SML invested in a number of capital projects during the financial year 2016-17, as part of the Company’s growth strategy. These investments, that are primarily outside the Western Province, will generate greater economic returns to the country in the near future through employment generation opportunities and by contributing towards regional business activities.

GoVernAnce AnD coMpLiAnceSML has been fully compliant with all applicable regulations and did not face any penalties or fines for regulatory non compliance during the year.

I would like to record that our expansion activities have been conducted in full compliance with all applicable regulations

and under constant supervision of the top management and the Board. Our expansions have been funded by a combination of debt and retained earnings. However, SML’s debt component remains negligible to date, adding to the Company’s financial stability.

Internal controls at SML will be further improved when the new ERP system is fully implemented in the new financial year by enabling closer monitoring of all core business operations and service delivery points.

Future pLAnsThe SML brand has a tried and tested track record of trust, and is backed by the long standing partnership with one of the world’s best automobile manufacturers. Therefore, we are well positioned to supply the country with quality commercial vehicles. We are now poised to cater to this growing demand through our regional expansion strategy. I believe this outreach will open up new opportunities and create new demand that will contribute to greater benefits for all stakeholders.

AppreciAtionsI conclude by thanking my colleagues on the Board for their expert advice in guiding the Company to successfully navigate business expansion in a difficult climate. In this context, I appreciate the commitment of our Managing Director, Deshamanya Tilak Dias Gunasekera, the Marketing Director, Mr Eshan Cooray, the management team and staff, as our success is a result of their collective efforts. I would also like to express my gratitude to our valued shareholders for placing their confidence in the Company and I can assure them of better returns in the near future.

sumal pereraChairman

22 June 2017Colombo


10 managing direcTor’s revieW oF perFormance

Deshamanya tilak Dias GunasekeraManaging Director

Where sml is concerned We are ready and able To caTer To The counTry’s need For reliable, loW mainTenance TransporTaTion soluTions, parTicularly For The enTrepreneurial communiTy.


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SML has always stood for trust, stability and uncompromising quality. This has been our guiding philosophy as we navigated the turbulent 12-months of the financial year 2016-17. I am pleased to report a strong operational performance across all three business lines of new vehicles, spare parts and workshop services. In addition, we have also laid the groundwork to kick start our next phase of growth.

sALes oF neW VehicLesThe market for new vehicles began contracting during the year, as government measures to curb vehicle imports started taking effect, causing consumer and institutional demand to drastically reduce. As in the case of other retailers of new vehicles, SML was also faced with the double threat of price competition from importers of used reconditioned vehicles. Benefiting from lower tax payments and overall lower operational overheads, these vehicles enter the market at a significantly lower cost threshold, making new vehicles that are more road safe and more environmentally friendly, less price competitive.

It is in this environment that SML was able to achieve a revenue growth of 36% year-on-year, exceeding our target for the year. I am pleased to report that we sold 721 vehicles as opposed to 576 in the previous financial year, including 26 units that were exported. Revenues also benefited from the addition of the custom designed, Isuzu NMR dump truck to the portfolio.

spAre pArts businessRevenues from spare parts increased by 32%, which is a strong performance given the ubiquitous grey market for vehicle spare parts in Sri Lanka. Despite the rising competition for Isuzu spare parts, both genuine and reproductions, from unauthorised dealers, SML was able to expand market share.

During the year we extended our market reach by expanding the dealer network and by maintaining an adequate inventory of stocks to service demand projections.

Workshop serVicesIn line with the premium brand image of Isuzu, SML made a strategic decision to strengthen our workshop services. Therefore, the Company plans to set up a state-of-the-art Isuzu workshop at Peliyagoda specially designed to service Isuzu range of vehicles, from Light Commercial trucks to Heavy Duty trucks and buses. The workshop in Vauxhall Street continued to service Isuzu SUVs and double cabs. The reallocation of service stations have enhanced overall operations by facilitating specialisation and better space management. This move has also benefited Isuzu customers by ensuring easier access to the correct technical care for maintenance and repairs of Isuzu vehicles.

Income from workshop services grew by 26%. We have continued to invest in up-skilling our technicians, including training in Japan, to ensure the best after sales care for our customers.

inVestMent incoMesSML’s investment portfolio comprises a mix of debentures and equities. All investments are regularly reviewed by the Board against the company’s risk appetite. The Company has invested Rs.620 Mn in debentures which generated Rs.64 Mn in net tax-free gain during the year under review.

strAteGic proGressFollowing careful and detailed market risk assessments, this year, we commenced the groundwork to set up our own branch network. The proposed SML branches will be located in some of the fastest growing regions of the country that display strong demand potential for commercial vehicles, and are strategically placed to service a wide geographic area.

In addition, we have acquired a land in Colombo to construct a new head office complex.

Expansion of the product portfolio is also on the cards in the new financial year, including the addition of a new, small truck of less than 1 MT.

perForMAnce oF subsiDiArYThe SML Frontier Automotive (Pvt) Ltd (SMLF) recorded a loss of Rs.57 Mn for the financial year under review. Total revenue increased from Rs.1.04 Bn, to Rs.1.17 Bn, although there was a drop in sales volume from 160 units, to 103 units in the current year.

However, I am pleased to report that SMLF made progress in its business expansion plans that will contribute towards recovery in the near future. Having complied with stringent conformance criteria, SML Frontier Automotive was appointed sole authorized distributor of Jaguar and Land Rover in Sri Lanka and will also be the local agent for authorised Jaguar and Land Rover parts and after sales services. Previously the company did not have

i am pleased To reporT ThaT We sold 721 vehicles as opposed To 576 in The previous Financial year, including 26 uniTs ThaT Were exporTed. revenues also beneFiTed From The addiTion oF The cusTom designed, isuzu nmr dump Truck To The porTFolio.


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direct access to the principal and had to transact through the Authorised Regional Distributor. The current direct link to the principal will facilitate greater cost advantages and better support services for the company to promote and retail Jaguar and Land Rover in Sri Lanka. SMLF’s new showroom in Flower Road, Colombo 07 showcases the entire range of Jaguar and Land Rover vehicles.

During the year, SML invested Rs.99.9 Mn in SMLF, as part of a Rs.200 Mn growth drive to build capacity and gain market share. I am confident these growth initiatives will generate positive results, starting from the new financial year.

Future potentiALAs we close the financial year 2016-17, the total taxes on the economically essential, commercial vehicle category stands at around 57%, compared to tax rates in the range of 5%- 7% in other Asian countries. This is a particular concern given the ageing commercial vehicle population in Sri Lanka and the need for vehicles with higher productivity to support economic growth. These older generation vehicles, approaching 30 years, pose a threat to public safety due to deteriorated roadworthiness and are also environmentally harmful. However, Sri Lanka does not have a national motor policy and as such, policy decisions regarding vehicle taxes are not driven by economic imperatives. I believe this weakness should be addressed together with ongoing national road infrastructure development programmes, as the country cannot achieve regional connectivity and better economic growth rates without the support of a strong fleet of commercial vehicles.

On a more positive note, demand for high quality commercial vehicles is growing in almost all regional provinces, indicating greater economic activity. The ongoing road and highway projects, when completed will further fuel the demand for vehicles and in particular

commercial vehicles. Rising income levels outside the Western Province and growing aspirations of communities for better, more convenient, life styles, is also driving demand for public, commercial and personal vehicles. However, this market potential is tightly reigned-in, by the excessively high taxation on vehicles, which effectively puts even a small business vehicle out of an aspiring entrepreneur’s financial reach.

Where SML is concerned we are ready and able to cater to the country’s need for reliable, low maintenance transportation solutions, particularly for the entrepreneurial community. Given the extensive investments towards enhancing our product portfolios and our market reach, I am confident SML can continue to sustain our market position in short term, while creating satisfactory value for our shareholders.

AppreciAtionsI would like to thank the Chairman and the Board of Directors for their wholehearted support in executing my work during the year and the Board sub committees for their guidance. I thank the senior managers and staff for their dedication and hard work for the results we have achieved. Our banks have been extremely supportive during this difficult year and I am grateful to them for standing by the Company. Our business partners share our success and I acknowledge their contributions made during the year. I thank our customers for their trust in us and all other stakeholders for their contributions.

Deshamanya tilak Dias GunasekeraManaging Director

22 June 2017Colombo

managing direcTor’s revieW oF perFormance

as We close The Financial year 2016-17, The ToTal Taxes on The economically essenTial, commercial vehicle caTegory sTands aT around 57%,compared To Tax raTes in The range oF 5%- 7% in oTher asian counTries. This is a parTicular concern given The ageing commercial vehicle populaTion in sri lanka and The need For vehicles WiTh higher producTiviTy To supporT economic groWTh.


13markeT revieW by direcTor markeTing

sml remained The undispuTed markeT leader in The brand neW Japanese Truck segmenT. ouT oF The 25,000 uniT markeT For Trucks in sri lanka (excluding The 1 mT caTegory) The lorry segmenT accounTs For 5,500 uniTs, ouT oF Which The neW Japanese vehicle caTegory is represenTed by 1,250 uniTs.

During the 2016-17 financial years the total market for new motor vehicles exceeded 47,000 units. Market growth was restrained by the loan to value (LTV) cap imposed by the national budget, with the intention of containing the outflow of foreign exchange from the surge in Indian vehicle imports and containing the growth of the three-wheeler population. The LTV cap successfully reduced 3-wheeler sales by over 50% and also cut down the demand for mini trucks (< 1T), by a substantial drop of over 50% in the 1st quarter of ’17.(Jan – Mar ’16 / Jan – Mar ‘17).

In another significant change to the existing motor vehicle policy, in January 2017 the age of used trucks and buses was raised to 10-years from a previous 5-years. SML, as a member of the Ceylon Motor Traders Association, has been advocating the reduction of the age of all used vehicle imports in the best interest of not only the industry but the entire economy. However, with this latest change, reconditioned vehicles will become far more price competitive and demand will further soar. The impacts of this situation will be felt across the board as older vehicles have a greater harmful environmental impact due to higher emission levels, and also require more frequent repairs and spares. The inflow of such older vehicles into the country will commence in the first quarter of 2017-18

as importers of reconditioned vehicles are rapidly seizing the opportunity.

SML remained the undisputed market leader in the new Japanese truck segment. Out of the 25,000 unit market for trucks in Sri Lanka (excluding the 1 MT category) the lorry segment accounts for 5,500 units, out of which the new Japanese vehicle category is represented by 1,250 units. SML accounted for 56% of this market in the financial year 2016-17. The segment is dominated by the three large players, Isuzu, Fuso and Hino namely. On a positive note, this segment grew during the year buoyed by investor confidence at the start of the year and also back orders from the previous year. Further, the LTV value for the segment remained unchanged at 90%, which allowed demand patterns to continue on trajectory. Consequently, SML was able to overshoot the sales target for the year by 20%.

A significant event during the year was the launch of the Isuzu NMR dump truck. It was identified that a product gap existed in the existing line up with customers longing for better quality entry level dump/ tipper trucks. The NMR dump is equipped with a world renowned Shin Maywa manufactured tipper bucket and mechanism. Launched in Nov ‘16 The NMR dump was an instant hit with 30 units delivered at

the launching event, graced by senior delegates of Isuzu Japan, Shin Maywa Japan, members of the Board and loyal Isuzu customers.

Where 3rd the SUV market saw a drastic decline during the year due to the curtailment of issuance in import permits. As a result SML’s share of this market contracted dramatically during the year. However, the Company will continue to monitor the market for future opportunities, in this segment. The Isuzu MU-X has been highly acclaimed as a tough and reliable mid-size SUV.

The country’s double cab market was exceeding 1,000 units in the financial year 2016-17 and SML’s market position in this segment further weakened. However, SML is developing a repositioning strategy to recover market share within the double cab segment in the new financial year. A medium and long term plan has already been developed for the purpose.

Demand for luxury buses (over-30-seats) remained flat during the year as a consequence of the on-going


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uncertainty and legal dispute on issuance of long-distance-bus route permits for bus operators. SML’s sales of the Isuzu 42-seater luxury buses experienced a reduction in volumes as a result of the stagnant market demand.

MArket expAnsionDuring the current financial year SML initiated far reaching changes to the traditional marketing model in line with modern automobile marketing practices, to elevate brand visibility across the country and to expand market share.

Currently SML is heavily dependent on an external dealer network when it comes to the sale of original Isuzu spare parts. This dependence has exposed the Company to additional market risks, including the threat of a rapidly expanding grey market for Isuzu vehicle components. The continuous market infiltration by unauthorised players not only hinders the growth of SML’s genuine spare parts business but also exposes Isuzu vehicle owners to unreliable products.

Traditionally the Company’s operations have also been Colombo centric, which has limited both business size and access to opportunities in secondary markets. As at the end of the current financial year SML operates only one showroom, which is located in Colombo and marketing activities were also concentrated in Colombo, to a greater extent.

Making a paradigm shift in this narrow operational scope, in the new financial year, SML is set to embark on a new journey to extend its footprint beyond its traditional market into new regional horizons, outside the Western Province.

enterinG neW reGionAL MArketsIn the new financial year, SML is poised to enter the key growth markets of Kandy, Ratnapura, Kurunegala and Matara. The new SML branches in Matara and Ratnapura are scheduled for commercial operations in July 2018. The Company has acquired suitable land in Kurunegala and will commence

infrastructure developments in the new financial year. All four SML branches are targeted at being operational by October-November of 2017.

These tier-1 markets outside the Western Province have been selected for SML’s first expansion drive due to the rapidly growing demand for high quality commercial vehicles and genuine Isuzu spare parts. The marketing strategy will be rolled out initially as either 1S or 2S, SML outlets that will be gradually expanded to 3S level, based on market dynamics and demand trends. Over the long term, the Company will expand the branch network into identified 2nd tier locations. The Company is also considering a franchising model and joint ventures to increase the rate of expansion. Joint ventures will be considered to expand the network of SML workshops, where SML will operate spare parts units, while external partners will be contracted to provide workshop services.

By setting up SML’s own-branches, it will be possible to gain first mover advantages in fast growing regional markets, thereby expanding overall market share. The expansion strategy will enable a greater degree of market control by mitigating the risks from external spare parts dealers and unauthorized spare parts businesses, while also granting direct access to market trends and changing demand patterns. 2017-18 seems an imposingly challenging year with mixed sentiments clouding the automotive industry, we at SML are ready to take on the challenge to deliver better products and services to our discerning customers, enhance employee satisfaction whilst optimizing shareholder returns.

eshan sudesh coorey Director Marketing

22 June 2017Colombo

in The neW Financial year, sml is poised To enTer The key groWTh markeTs oF kandy, raTnapura, kurunegala and maTara. The neW sml branches in maTara and raTnapura are scheduled For commercial operaTions in July 2018.

markeT revieW by direcTor markeTing


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Mr. chiran Wijesinghe-Independent Non-Executive Director, Mr. shevantha Mendis-Non-Executive Director, Mr. eshan sudesh coorey-Director Marketing, Mr. rohana Fernando-Non Executive Director, Mr. Dharshana Munasinghe-Non-Executive Director, Mr. ranjan John suriyakumar Gomez-Non- Executive Director (Not Pictured)

Mr. M M nelson De silva-Independent Non-Executive Director, Mr. Deshamanya tilak Dias Gunasekera-Managing Director, Mr. sumal perera-Chairman, Mr. Joseph christopher Joshua-Non-Executive Director

board oF direcTors

stAnDinG - LeFt to riGht

seAteD - LeFt to riGht


16 board oF direcTors

Mr. suMAL pererAChairman

Mr. Sumal Perera was appointed to the Board of Sathosa Motors PLC on 12th June 1998. He is the Founder Chairman of the Access Group of Companies founded in 1989. He is a Fellow Member of the Chartered Institute of Management Accountants – UK (FCMA).

Mr. DeshAMAnYA tiLAk DiAs GunAsekerAManaging Director

Mr. Gunasekera joined Sathosa Motors PLC as Senior Deputy General Manager (Marketing) in 2003. He was promoted to the Deputy CEO position in 2005. In the year 2007 he was further promoted to the Board of Sathosa Motors PLC as the Executive Director.

He counts over 30 years of experience in the fields of Marketing Management and Administrative Management in well established Companies. He is a fellow of the Institute of Administrative Management, United Kingdom. He also holds qualifications in Marketing. He has been the Chairman of Ceylon Motor Trading Association (CMTA), which is an umbrella organization of Ceylon Chamber of Commerce (CCC) since 2010.

He is also a Director at SML Frontier Automotive (Pvt) Limited.

Mr. sheVAnthA MenDisNon-Executive Director

Mr. Shevantha Mendis was appointed to the Board of Sathosa Motors PLC in April 2012. Mr. Mendis has been attached to the Access Group since 1994 holding several positions over the years. He currently holds the position of Director Business Development at Access Engineering PLC and is a Director of Access International (Pvt) Ltd and SML Frontier Automotive (Pvt) Limited.

Mr. DhArshAnA MunAsinGheNon-Executive Director

Mr. Dharshana Munasinghe was appointed to the Board of Sathosa Motors PLC in April 2012. He has been attached to the Access Group since 1996. Having held several positions in the Group, he now functions as Director – Business Development at Access Engineering PLC and as a Director of Access International (Pvt) Ltd and SML Frontier Automotive (Pvt) Limited.

Mr. Joseph christopher JoshuANon-Executive Director

Mr. Christopher Joshua was appointed to the Board of Sathosa Motors PLC in April 2012. He is one of the Founder Directors and Shareholders of Access Group of Companies and currently serves as the Managing Director of Access Engineering PLC. He is also the Joint Managing Director of the Access Group of Companies. He was instrumental in heading some of the most successful business units within the Access Group.

Mr. rohAnA FernAnDoNon Executive Director

Mr. Rohana Fernando joined the Board of Sathosa Motors PLC in September 2012. He is an Engineer by profession and has been attached to the Access Group since 1998. He currently holds the position of Director / COO of Access Engineering PLC and serves as a Director of Access International (Pvt) Ltd and SML Frontier Automotive (Pvt) Limited.He is a Corporate Member of the Institution of Engineers, Sri Lanka (IESL) and has a BSc Degree in Civil Engineering from the University of Peradeniya.

Mr. rAnJAn John suriYAkuMAr GoMezNon- Executive Director

Mr. Ranjan Gomez was appointed to the Board of Sathosa Motors PLC in April 2012. He is also one of the Founder Directors and Shareholders of the Access Group of Companies and has functioned as the Joint Managing Director of the Access Group and CEO of many businesses units within the Access Group.

Mr. M M neLson De siLVAIndependent Non-Executive Director

Mr. Nelson De Silva who joined the Board of Sathosa Motors PLC on 11th February 2009, is an Associate Member of the Institute of Chartered Accountants of Sri Lanka. Graduated with a B.Sc in Public Administration from Sri Jayewardenepura University.

He serves as the Managing Director of Ned Management Consultants (Pvt) Ltd and he is the sole Proprietor of M M N De Silva & Company.

He has been the Group Accountant of Tisara Group, Senior Accountant of John Keells Group, Finance Manager of Finlay Chemicals & Dyes (Pvt) Ltd, Director of PE Management Consultants (Pvt) Ltd and Partner of HLB Edirisinghe & Company.


17

Mr. chirAn WiJesinGheIndependent Non-Executive Director

Mr. Wijesinghe has approximately 07 years of experience in Senior Management positions in different organisations in Sri Lanka. Manager in Risk Advisory Services of KPMG Sri Lanka, Group Internal Auditor of Oman Hotels & Tourism Co. SAGO (OHTC) managed by Aitken Spence Hotels (Pvt) Ltd.

Work Experience Current: Chief Risk Officer of Hirdaramani Group of Companies

Professional and Academic QualificationsMaster of Business Administration (MBA) from the University of Southern Queensland (USQ)

Associate Member of Institute of Chartered Accountants of Sri Lanka (ICASL)

BSc. Business Administration (Special) – University of Sri Jayewardenepura

Member of Institute of Internal Auditors (IIA) USA

Mr. eshAn suDesh cooreYDirector Marketing

A Marketer and Business Administrator by profession, counts over 15 years in the Automobile Industry.

His prior appointment of over 12 years was with Toyota Lanka (Private) Limited, as the General Manager in charge of Toyota, Hino and Toyota Industrial Equipment Departments.

He began his career at the Motor Directorate of Brown & Co, and thereafter at United Motors Lanka PLC. He is a Member of the Chartered Institute of Marketing-UK, holds an MBA and BSc in Business Administration (Aldersgate, Manila).

He was also appointed as an Executive Director at SML Frontier Automotive (Pvt) Ltd.


18

FinAnciAL reVieWrevenuesOur main source of funding is revenues derived from the 3 business lines, namely; sales of new vehicles, sales of spare parts and workshop services. Other revenue sources are interest incomes from investments in debt instruments and equities.

In the financial year 2016-17 the total turnover of SML increased by Rs.1 Bn to lift the top line to Rs.4 Bn, despite losing some market segments like SUVs. Demand for SUVs for instance, fell from 34 units in the previous financial year. However, this deficit in certain market segments was offset by higher revenue generation in other segments. Retail sales of new vehicles accounted for 88% of this income, while spares and workshop incomes accounted for 6% of revenue each, respectively. Other incomes recorded Rs.87.3 Mn during the year.

expenditureTotal costs increased by 24.99% year-on-year to Rs.323 Mn from 258 Mn, reflecting cost increases, including finance charges, associated with achieving the revenue growth of Rs.1 Bn.

Administration expenses increasing by 20.18% due to increased personnel costs from salary increments and the increase in the number of employees due to new recruitments (other than replacements), and welfare commitments.

Selling and distribution expenses increased by 25.54% reflecting the enhanced marketing and promotional activities carried out during the year.

Significantly, the total finance cost increased by 122.71% year-on-year, stemming from the sharp increase in interest rates due to rupee depreciation against the US dollar and fluctuations of the Japanese Yen and Thai Baht, along with debt financing.

capital investmentsA number of capital and investment projects were initiated during the year, in line with SML’s expansion strategy, to represent the Company regionally. SML has also invested in a new head office building, in favour of the current rented premises in Vauxhall Street. These investments have entailed a significant expansion of the capital budget.1. Towards the end of the financial

year 2016-17 Company took a strategic decision to invest, Rs.576 Mn during the next financial year on acquiring a land in Vauxhall Street to construct a state-of-the-art building to house the SML head office, the main vehicle showroom and a spare parts facility.

2. The Company has also committed funds to set up showrooms and spare parts facilities in Matara, Ratnapura, Kandy and Kurunegala, under its regional expansion strategy.

In addition to the above, in February 2017, SML injected Rs.99.9 Mn in its subsidiary SML Frontier Automotives (SMLF), by subscribing to a rights issue. SML has a 50% stake in SMLF following an equity investment of Rs.65 Mn, made in 2013. Therefore, as at end March 2017, SML’s total investment in SMLF recorded Rs.164.9 Mn.

profitabilityThe gross profit margin declined to 15.34% from 20.79%year-on-year, primarily due to the increase in vehicle import duties. Nevertheless, the strong sales performance safeguarded the gross profit, which saw only a marginal decline from Rs624.85 Mn last year, to Rs.622.21 Mn this year.

The after tax profit reduced by 7.68% ,from 315.70 Mn to 291.47 Mn. High profits last year was backed by fair value earnings in investment property and lower costs, when compared to the

current financial year. During the year under review the investment property was re classified under Property, Plant & Equipment and the company incurring higher interest costs as explained above.

As a consequence of lower profitability, the earning per share declined by 7.66%, from Rs.52.32 last year to 48.31.

balance sheetThe balance sheets of the company expanded by Rs.920 Mn, to Rs.1.012 Bn, mainly due to the investment of Rs.99Mn in the subsidiary.

� Assets Total assets increased by 24.27% to

Rs.2.897 Bn, reflecting the growth in inventory, property, plant and equipment and also the investment in the subsidiary.

� shareholders’ funds Retained earnings of increased by

8.95% to Rs.1.35 Bn as at end March 2017, increasing total equity by 8.95% to Rs.1.47 Bn.

� Liabilities and debt Total liabilities as at March 31

2017 recorded Rs.1.429 Bn, which is a growth 46.67% year-on-year. The main contributory factor was trade and interest bearing borrowings due to growth in inventory and bank borrowings. Interest bearing borrowing, which was zero in the last financial year,increased to Rs.174 Mn this year. Trade and other payables recorded Rs.1.19 Bn as at end of the current financial year.

cash flow managementDespite high interest costs and challenging market conditions, the Company has managed to maintain a minimum net negative cash situation of Rs.1.72 Mn for the year, demonstrating prudent cash flow management.

managemenT discussion and analysis


19

LeVerAGinG technoLoGYDuring the financial year 2015-16 SML initiated a technology modernisation drive to upgrade and integrate the ICT systems of the head office with the two branches in Panchikawatte & Peliyagoda. The Company commissioned the design and development of a custom ERP system to an external ICT company to achieve these objectives.

The new ERP system will migrate all core areas of the business, including financial management, vehicle sales, operations of spare parts and workshop services, and human resource functions, to an integrated, online, real time system. When fully operational, the new system will enhance overall internal controls by enabling direct and real time monitoring of all inventories, spare parts outlets and workshops, by the head office. The system will provide real time demand and market information for more efficient inventory management and for management decision making. The system will also be more environmentally friendly by reducing paper consumption and will enhance overall productivity and cost efficiencies.

In the current financial year the ERP system was developed in line with Company requirements and test operations were initiated as a parallel process. The Company will migrate to the new system in the financial year 2017-18. The system has the capacity to accommodate the Company’s expansion plans and will network the proposed new SML branches outside the Western Province.


20

our teAMThe SML team grew from 129 to 138 during the current year. The majority of our staff is in the permanent cadre and casual staff only accounts for 4% of the total employees. The age group of 30-50 years represent 60% of our staff, whilst 29% are below 30 years. Employees above 50 years account for 11% of staff.

Out of the total staff strength, 75% are males and 25% are female employees, whilst nearly 17% are Executives and 83% are Non-Executives.

training and DevelopmentAt SML, we encourage our employees to pursue professional development via various training and career guidance programmes. During the year, SML invested in excess of Rs.2.4 Mn on training and development programmes held locally and at foreign locations, including annual training programmes conducted by Isuzu in Japan and Thailand.

employee events New Year CelebrationThe SML team welcomed the dawn of 2017 with a formal celebration coupled with a traditional breakfast, on 02 January 2017, at the vehicle showroom and at the Peliyagoda workshop premises.

SML Annual Family Get-togetherThe much anticipated annual family get-together was held on 16th July 2016 at Club Palm Bay Marawila. It was a full day of fun for all employees and their family members.

Eye CampSML conducted an eye camp for all employees in collaboration with D S Jayasinghe Opticians on 13th May 2016, to promote vision care and better eye health.

managemenT discussion and analysis

All Night Pirith CeremonyIn order to invoke blessings upon the Company, employees and their families, an all night pirith chanting ceremony was held at the vehicle showroom on 13 January 2017. All employees and their family members took part in the event.

Distribution of Dry RationsWholesome dry ration packs to be enjoyed by employees and their families, were distributed to all employees on 07th April 2017 by the Managing Director.

Emergency response training in case of fire Sathosa employees were exposed to an emergency response training in case of fire, as part of the company’s overall workplace health and safety programme.


21

coMMunitY enGAGeMentsSML supports a many philanthropic events annually and also provides community assistance through sponsorships. Some of these events are described below.

rugby sponsorshipAs a Company representing the resilient and rugged Isuzu vehicles, SML promotes the sport of rugby as it mirrors the qualities of Isuzu vehicles. During the current year, SML stepped up for the second year running, to sponsor the rugby team of St.Anthony’s College, Kandy.

isuzu truck seminar A seminar was organised for SML workshop customers on February 8th and 9th, at the Pannala race track, to improve their driving skills, whilst optimising the vehicle life.

training on Defensive DrivingThis programme was organised for fleet owners to improve their defensive driving skills

Donations The Company continued its tradition of donating to the Gangaramaya Temple’s ‘Nawam Perahera’ and ‘Vesak Kalapaya’ during the year and contributions were made to other worthy causes as well, including the School for the Deaf and Blind and medical treatment for a thalassaemia patient. SML also extended support to welfare activities of government entities.

AWArDs AnD certiFicAtionsSathosa Motors represented Sri Lanka at the 11th Isuzu World Technical Competition held in December 2016, and were the proud winners of the ‘Jump-up Award’ at the competition.

Sathosa Motors PLC was awarded Motor Companies Silver Award by The Institute of Charted Accounts of Sri Lanka at the 52nd Annual Report Awards Ceremony.

SATHOSA MOTORS PLC

Kuniharu Nakagawa

Director of the Board, and Managing Executive OfficerDivision Executive After Sales Division

ISUZU MOTORS LIMITEDIssued on the 1st of December 2016

This is to certify that you participated

in the 11th Isuzu World Technical Competition

as the team representing Sri Lanka

which won the Jump-up Award in the competition.

Presented this 1st day of December 2016.

CERTIFICATE

THE 11thISUZUWORLDTECHNICALCOMPETITION

JUMP-UPAWARD

I-1 GRAND-PRIX 2016／賞状会社向けジャンプアップ賞　サイズ W210×H297mm


22 corporaTe governance

introDuctionCorporate Governance deals with the role of the Board of Directors, the framework of internal controls and the manner in which Companies are led and managed. The Board is committed to review and update the Company’s corporate governance structure taking into consideration current market practice and the best practice guidelines issued by the Institute of Chartered Accountants of Sri Lanka. The following sections explain how the Company has applied these principles.

boArD oF DirectorsThe Board of Directors is responsible for the corporate governance of the Company. The main function of the Board is to oversee the business and the affairs of the Company. It is also responsible for the formulation of strategic objectives, policy framework, the approval of annual budgets (including major capital expenditure), regular reviews of financial performance compared to budgets, the appointment and evaluation of the performance of the Executive Director, and the periodic and timely reporting to shareholders.

It also has the task of ensuring that the Senior Management team has the necessary skills and experience to perform the functions effectively in the best interest of the company and that there are sufficient parameters in place for monitoring the performance of the management.

The Board comprises of Ten Directors including the Chairman. All the Directors are non-executive Directors except the Managing Director and the Executive Director. Where decisions have to be taken on urgent matter, Board decisions are taken by circulation.

The Board has determined that Mr. M M N de Silva and Mr. W A C O Wijesinghe are ‘independent’ as per the criteria set out in the Listing Rules of the Colombo Stock Exchange.

boArD MeetinGsThe Board has met on 04 occasions during the last financial year. All directors receive a comprehensive package of information prior to each Board Meeting thus ensuring that they are well informed in advance.

P W Corporate Secretarial (Pvt) Ltd who act as Secretaries to the Company are qualified to act as Secretaries as per the provisions of the Companies Act No.7 of 2007. Directors have access to the advice and services of the Company Secretaries, who are responsible to the Board for ensuring that Company Secretarial procedures are followed and that applicable rules and regulations are complied with.

AuDit coMMitteeThe Audit Committee consists of three non-executive Directors, two of whom are independent. The Audit Committee is chaired by Mr. M M N de Silva who is a Chartered Accountant. There were 04 Audit Committee meetings during the year.

The Managing Director and the Head of Finance attend meetings of the Audit Committee by invitation.

reMunerAtion coMMitteeThe Remuneration Committee consists of three non-executive Directors, two of whom are independent. Mr. S J S Perera serves as the Chairman of the Remuneration Committee.

reLAteD pArtY trAnsAction reVieW coMMitteeThe Related Party Transaction Review Committee consists of three non-executive Directors, two of whom are independent and the Managing Director. The Related Party Transaction Review Committee is chaired by Mr. M M N de Silva who is a Chartered Accountant. There were 04 meetings during the year.

The Head of Finance attends meetings of the Related Party Transaction Review Committee by invitation.

FinAnciAL DiscLosures AnD trAnspArencYThe Company’s financial statements are prepared in accordance with the Sri Lanka Accounting Standards and Companies Act, No. 07 of 2007. The financial statements are published quarterly and annually on time in compliance with the disclosure requirements of the Colombo Stock Exchange.

The Statement of Directors Responsibilities for the Financial Statements is given on page 28 of this Report.

internAL controLsThe Board acknowledges overall responsibility and ensures that a sound internal control system is maintained to safeguard shareholders’ investments and company assets.

GoinG concernThe Board is satisfied that the Company has adequate resources to continue in business for the foreseeable future. For this reason it continues to adopt the going concern basis when preparing and presenting financial statements.

By Order of the Boardsathosa Motors pLc

Deshamanya tilak Dias GunasekeraExecutive Director

22 June 2017


23risk managemenT revieW

The Risk Management Review aims to provide an inclusive view of the Risk Management Systems, procedures and protocols that operate throughout the group. The Risk Management Review also seeks to provide assurance that activities undertaken by the business contributes towards an organisation which constantly works towards the better understanding and efficient mitigation of various risk factors that may affect the group.

SML group defines the pivotal area of Risk Management as the organized application of management Policies, procedures and practices for the establishment of relevant context, identification, analysis, mitigation, monitoring and thereby and communication of all risks. While the Group’s Risk Management framework is efficiently incorporated into the planning process, itself focuses on the effective achievement of objectives through mitigation, monitoring and thereby and communication of all risks. While the group’s risk Management framework is efficiently incorporated into the planning process, the planning process itself focuses on the effective achievement of objectives through mitigation of relevant and related risks. Through a dynamic process, risks are identified and evaluated at appropriate levels throughout the parent company and the subsidiary . This process is regularly reviewed by the Management Committee as a part of the group’s organisational and operational approach to Risk Management.

The group’s Risk Management Process ensures comprehensive identification and understanding of the risks, and enables the design and implementation of an effective plan to prevent losses or minimize the impact of any loss in the event that it occurs. The timely recognition and appropriate handling of these operational threats is incorporated into the group’s Risk Management process.

Substantial strategic controls of operational risks which require efficient management is enabled through policies and procedures which are covered by the group’s internal audit process. This includes the strict financial controls, and processes and systems which focus on monitoring and reporting matters related to the continued effectiveness of the system of internal controls. Having an accurate understanding of all possible risks enables the group to mitigate risks by implementation of timely decisions.

In addition to the above the group’s Risk Management process would cover curbing the loss of valuable resources including time, assets, income, property and people, protecting the reputation and public image of the organisation, preventing or reducing legal liabilities and enhancing the Company’s smooth operations.

SML considers Risk Management process within the Company as an integral part of good management practice which makes it an intimate part of its business planning and continuity.

The principal risks associated with the Group’s activities and their mitigation strategies are as follows.

risk Factor risk Mitigating strategies

creDit riskThis refers to risk of financial losses arising due to the unwillingness or inability of counter- parties to meet their financial or contractual obligations in time and in full.

The group has introduced different discount slabs for it’s dealers who settle dues at different Intervals.

The group has introduced different targets for different customers. If the set targets are exceeded then based on same the dealers are rewarded.

The group’s Finance and Sales divisions closely monitor credit sales to ensure repayment on due dates and tie future sales based on outstanding value and customer performance.

Bank guarantees are obtained from dealers who purchase on credit terms.

The group conduct Credit Risk Management meetings every month in order to review the credit policies and adherence to them.

Credit ceilings are introduced to dealers who purchase on credit terms.

Discounts are offered to dealers having carefully evaluated the performance during a particular period.


24 risk managemenT revieW


huMAn cApitAL AnD LAbour riskThis is associated with losing experienced employees and experiencing an environment of unpleasant labour relations.

The group use a series of strategies in motivating, developing and retaining it’s human capital.

The group has a continuous provision for a comprehensive career development programme for its staff, which focuses on helping employees to achieve their optimum potential and thereby improve job performance and satisfaction. Whereby technical staff is sent to Isuzu Japan on training and to face the technical competitions organized by Isuzu Japan.

Group strives to maintain healthy relationships with all employees through regular dialogues and discussions. The Company also ensures compliance with all regulatory requirements with regard to benefits applicable to employees.

SML provides attractive financial and performance based incentives.

The Group carefully monitors that all decisions taken with respect to employees are within the purview of the “Shop and Office Employees Act”.

inForMAtion technoLoGY riskIT Risk is the risk associated with computer Security, hardware, software and other information technology systems failing and causing disruption to business operations.

A well designed and secured Information Technology security infrastructure has been implemented throughout the organisation. The security infrastructure includes: recovery strategies, data back –ups stored at off- site locations, virus scanners, proxy servers. Compliance of security infrastructure is regularly monitored.

The company carries out regular meetings with the IT service provider to identify the requirement to upgrade the present system.

reGuLAtorY AnD coMpLiAnce riskThis risk is associated with changes in Government policies, laws, regulations and statutes. Compliance Risk relates to a company being able to comply with all the laws, regulations and statutes applicable to a country.

Both Regulatory and Compliance Risk factors can affect the business activities of the Company.

The Company constantly keeps abreast of changes to the Regulatory framework to mitigate the risk associated therein.


25


coMpetitiVe riskThis relates to customers will buy competitor products due to variances in the product offering. The management maintains a good relationship with it’s customers.

Availability of non genuine spare parts in the market where prices are very low.

The group offers free service clinics in different locations with the presence of Japanese engineers and offering a warranty period , free of charge services during the warranty period.

Our dedicated sales team explains to the customers the advantage of using genuine spare parts.

We have a 24 hour on call mobile clinic attending to break downs at a request of a customer.

risk oF enVironMentAL issuesRefers to environmental issues which can take place due to disposal of solid waste.

The group releases waste water after purifying in 3 under ground treatment plants. Purified water is released to the Municipal Council Storage System.

DepreciAtion oF the rupee The adverse impact through depreciation of the Rupee against the other currencies is mitigated by pre agreeing upon the rate with the Bank. The main currencies through which the company transacts are THB, USD and JPY.

The subsidiary transacts through GBP. Sales takes place on indenting basis and through TT’s.

interest rAte FLuctuAtions The adverse impact is mitigated by pre agreed rates entered into through with the Banks. All such transactions are backed by offer letters. Such transactions are processed after obtaining the approval of the Managing Director. The transactions are under direct purview of the Managing Director. All negotiations are channelled through the Managing Director who directly supervises the financing of the company’s requirements.

Financial inFormaTion

conTenTsAnnual Report of The Board of Directors on The Affairs of The Company 28Independent Auditors’ Report 31Statement of Profit or Loss and other Comprehensive Income 32Statement of Financial Position 33Statement of Changes In Equity 34Statement of Cash Flows 36Notes to The Financial Statements 37Report of The Related Party Transactions Review Committee 74Report of The Audit Committee 75Information to Investor 77Statement of Value Added 79Notice of Annual General Meeting 80Notes 81Form of Proxy 83


28 annual reporT oF The board oF direcTors on The aFFairs oF The company

The Directors of Sathosa Motors PLC have pleasure in presenting their Annual Report together with the Audited Financial Statements of the Company for the year ended 31st March 2017.

This Report contains the information required in terms of the Companies Act, No. 7 of 2007, the Listing Rules of the Colombo Stock Exchange and guided by the recommended best practices.

GenerALSathosa Motors PLC is a public limited liability Company which was incorporated under the Companies Ordinance (Cap.145) as a public limited liability company on 11th March 1982 and re-registered as per the Companies Act, No.7 of 2007 on 13th December 2007 with PQ 105 as the new number assigned to the Company.

principAL ActiVities oF the coMpAnY AnD reVieW oF perForMAnce DurinG the YeArThe Company’s principal activity is the import and sale of Motor Vehicles and spare parts together with the repair and maintenance of such Motor Vehicles.

A review of the business of the Company, its performance during the year and its future prospects are contained in the Chairman’s Review, which forms an integral part of this Report.

This Report and the Financial Statements, therefore reflect the state of affairs of the Company.

Financial statementsThe complete Financial Statements of the Company, prepared in line with applicable accounting standards and regulatory requirements, inclusive of specific disclosures, duly signed by two Directors on behalf of the Board of Directors and the Auditors are given on pages 32 to 73.

property, plant & equipmentThe Company expenditure on the acquisition of property, plant & equipment during the year amounted to Rs.62.18 Mn and information relating to movements in fixed assets is given in Note 16 of the accounts.

InvestmentsDetails of the Company’s quoted, unquoted investments and other financial assets as at 31st March 2017 are given in Note 37 to the Financial Statements on pages 67 to 69.

ReservesThe reserves of the Company with the movements during the year are explained under the “Statement of Changes In Equity.”

Accounting PoliciesThe Financial Statements of the Company have been prepared in accordance with the revised Sri Lanka Financial Reporting Standards (SLFRS / LKAS) and the policies adopted thereof are given on pages 37 to 46. Figures pertaining to the previous periods have been re-stated where necessary to conform to the presentation for the year under review.

interests registerThe Company maintains an Interests Register in terms of the Companies Act No.7 of 2007, which is deemed to form part and parcel of this Annual Report and available for inspection upon request.

All related party transactions, which encompasses the transactions of Directors who were directly or indirectly interested in a contract or a related party transaction with the Company during the accounting period, are recorded in the Interests Register, in due compliance with the applicable rules and regulations of the relevant Regulatory Authorities.

The relevant interests of Directors in the shares of the Company as at 31st March 2017 as recorded in the Interests Register are given in this report under the caption of “Directors’ Shareholding”.

DirectorsThe names of the Directors who held office as at the end of the accounting period are given below, with their brief profiles appearing on pages 16 to 17.

executive DirectorsDeshamanya T D Gunasekera Managing DirectorMr. E S Coorey Executive Director

non-executive DirectorsMr. S J S Perera Chairman*Mr. M M N de Silva Director**Mr. J C Joshua Director**Mr. R J S Gomez DirectorMr. S H S Mendis DirectorMr. S D Munasinghe DirectorMr. D A R Fernando Director*Mr. W A C O Wijesinghe Director (Appointed w.e.f.15/07/2015)

* Independent Non-Executive Directors** Mr. S H S Mendis also acts as Alternate Director to Mr. J C Joshua ** Mr. S D Munasinghe also acts as Alternate Director to Mr. R J S Gomez

In accordance with Article 88(i) of the Articles of Association of the Company, Mr. W A C O Wijesinghe retires by rotation and being eligible, offers himself for re-election.

Mr. E S Coorey who was appointed a Director on 3rd August 2016, is due to retire at the forthcoming Annual General Meeting in terms of Article 95 of the Articles of Association of the Company and being eligible is recommended for re-election.


29

Directors’ RemunerationThe total remuneration of the Directors during the year under review amounted to Rs.24.23 Mn.

Directors’ responsibiLitY For FinAnciAL reportinGThe Directors are responsible for the preparation of the Financial Statements of the Company to reflect a true and fair view of the state of its affairs. A further statement in this regard is included on pages 33 and 46.

AuditorsMessrs KPMG, Chartered Accountants served as the Auditors during the year under review and also provided tax related services. Based on the written representation made by the Auditors, they do not have any interest in the Company other than those referred to herein.

The Auditors were paid a sum of Rs.887,000/- as Audit fees by the Company for the financial year under review. As far as they are aware, the Auditors do not have any relationship with the Company other than carrying out External Audits.

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

tax related servicesAll tax related services are provided by Ms. Ernst & Young, Chartered Accountants.

stated capitalThe Stated Capital of the Company is Rs.115,924,290/-.

The number of shares issued by the Company stood at 6,033,622 ordinary shares as at 31st March 2017.

Directors’ shareholdingThe relevant interests of the Directors in the shares of the Company as at 31March 2017 are as follows.

shareholdingas at

31/03/2017

shareholdingas at

31/03/2016

Mr. S J S Perera Nil Nil

Deshamanya T D Gunasekera 5,875 5,875

Mr. M M N De Silva 1,100 1,100

Mr. J C Joshua Nil Nil

Mr. R J S Gomez Nil Nil

Mr. S D Munasinghe Nil Nil

Mr. S H S Mendis Nil Nil

Mr. D A R Fernando Nil Nil

Mr. W A C O Wijesinghe Nil Nil

Mr. E S Coorey Nil Nil

shArehoLDersThere were 1,173 shareholders registered as at 31st March 2017 (1,193 shareholders as at 31st March 2016). The details of distribution are given on page 77 of this report.

Major shareholders, Distribution schedule and other informationInformation on the distribution of shareholding, analysis of shareholders, market values per share, earnings, dividends, net assets per share, the twenty largest shareholders of the Company, percentage of shares held by the public as per the Listing Rules of the Colombo Stock Exchange are given on page 77 under the caption “Information to Investors”.

DonationsThe Company donated Rs.50,000/- to Ceylon School of Deaf and Blind during the year under review (During 2015/2016 - Nil).

DividendThe Company paid an Interim Dividend of Rs.15/- per share on 8th March 2017 and a Final Dividend of Rs.5/- per share on 13th July 2017.

statutory paymentsThe Directors confirm that, to the best of their knowledge, all taxes, duties and levies payable by the Company, all contributions, levies and taxes payable on behalf of and in respect of the employees of the Company and all other known statutory dues as were due and payable by the Company as at the Balance Sheet date have been paid or, where relevant provided for.


30

contingent LiabilitiesThere were no material Contingent Liabilities as at the Balance Sheet date, except as disclosed in Note to the Financial Statement on page 60.

Declaration in terms of rule 9.3.2(d) of the Listing rulesThe Board confirms that the Company is in compliance with Rule 9 of the Listing Rules of the Colombo Stock Exchange pertaining to Related Party Transactions during the financial year.

events occurring after the balance sheet dateNo events have occurred since the balance sheet date which would require adjustment to, or disclosure in the Financial Statements or disclosure in the Financial Statements, except what is disclosed in Note 33.

corporate GovernanceThe Board of Directors are responsible for the governance of the Company. The Board has placed considerable emphasis on developing rules, structures and processes to ensure integrity and transparency in all the dealings of the Company and its best effort in achieving performance and quality profits, adopting good governance in managing the affairs of the Company. The Directors confirm that the Company is in compliance with the Rules on Corporate Governance contained in the Listing Rules of the Colombo Stock Exchange.

An Audit Committee and a Remuneration Committee function as Sub-Committees of the Board and the members of these Committees posses the requisite qualifications and experience. The composition of the said Committees are as follows;

Audit committeeMr. M M N de Silva - ChairmanMr. J C Joshua Mr. W A C O Wijesinghe

remuneration committeeMr. S J S Perera - ChairmanMr. M M N de Silva Mr. W A C O Wijesinghe

related party transaction review committeeMr. M M N de Silva - ChairmanMr. J C Joshua Mr. W A C O WijesingheDeshamanya T D Gunasekera

Going concernThe Board of Directors is satisfied that the company has adequate resources to continue its operations in the foreseeable future. Accordingly, the Financial Statements are prepared based on the going concerns concept.

Annual General MeetingThe Notice of the Thirty Third (33rd) Annual General Meeting appears on page 80.

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

s J s perera Chairman

t D GunasekeraManaging Director

p W corporate secretarial (pvt) LtdSecretaries

22 June 2017

annual reporT oF The board oF direcTors on The aFFairs oF The company


31independenT audiTors’ reporT

to the shArehoLDers oF sAthosA Motors pLcreport on the Financial statementsWe have audited the accompanying financial statements of Sathosa Motors PLC, (“the Company”), and the consolidated financial statements of the Company and its Subsidiary (“the Group”), which comprise the statement of financial position as at March 31, 2017, and the statements of profit or loss and other comprehensive income, changes in equity and, cash flows for the year then ended, and a summary of significant accounting policies and other explanatory information set out on pages 32 to 73 of the annual report.

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

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

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

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

opinionIn our opinion, the consolidated financial statements give a true and fair view of the financial position of the Group as at March 31, 2017, and of its financial performance and cash flows for the year then ended in accordance with Sri Lanka Accounting Standards.

report on other Legal and regulatory requirementsAs required by section 163 (2) of the Companies Act No. 07 of 2007, we state the following:a) The basis of opinion and scope and

limitations of the audit are as stated above.

b) In our opinion: � we have obtained all the

information and explanations that were required for the audit and, as far as appears from our examination, proper accounting records have been kept by the Company,

� The financial statements of the Company, give a true and fair view of its financial position as at March 31, 2017, and of its financial performance and cash flows for the year then ended in accordance with Sri Lanka Accounting Standards.

� The financial statements of the Company, and the Group comply with the requirements of sections 151 and 153 of the Companies Act No. 7 of 2007.

chArtereD AccountAntsColombo

22 June 2017


32 sTaTemenT oF proFiT or loss and oTher comprehensive income

Group companyFor the year ended 31 March, 2017 2016 2017 2016 note rs. rs. rs. rs.

revenue 9 5,230,376,606 4,048,462,953 4,056,607,613 3,005,535,577Cost of Sales (4,323,505,322) (3,081,667,413) (3,434,394,853) (2,380,682,586)Gross profit 906,871,284 966,795,540 622,212,760 624,852,991Other Income 10 146,537,131 44,405,535 87,301,408 44,289,081Administrative Expenses (564,419,747) (404,381,525) (251,080,175) (208,925,118)Distribution Expenses (111,889,245) (137,093,141) (49,561,991) (39,478,746)Other Operating Expenses 11 (610,955) (227,790) - -results from operating Activities 376,488,468 469,498,619 408,872,002 420,738,208Finance Cost 12 (66,376,176) (28,479,401) (22,447,781) (10,079,436)results from operating Activities net of Finance cost 310,112,292 441,019,218 386,424,221 410,658,772Fair Value Changes in Investment Property 19 - 21,168,487 - 21,168,487profit before tax 13 310,112,292 462,187,705 386,424,221 431,827,259Income Tax Expense 14 (76,545,042) (135,076,509) (94,957,846) (116,122,394)profit for the Year 233,567,250 327,111,196 291,466,375 315,704,865

other comprehensive incomeActuarial gain/(losses) on Employee Benefit Plans 28.3 1,263,595 (1,246,156) 839,108 (1,036,907)Tax on other comprehensive income 14 (234,950) 348,923 (234,950) 290,333other comprehensive income for the year, net of tax 1,028,645 (897,233) 604,158 (746,574)total comprehensive income for the Year 234,595,895 326,213,963 292,070,533 314,958,291

profit attributable to:Owners of the Company 262,516,812 321,083,030 291,466,375 315,704,865Non-Controlling Interest (28,949,562) 6,028,166 - -profit for the Year 233,567,250 327,111,196 291,466,375 315,704,865 total comprehensive income attributable to;Owners of the Company 263,333,213 320,261,127 292,070,533 314,958,291Non-Controlling Interest (28,737,318) 5,952,836 - -total comprehensive income for the Year 234,595,895 326,213,963 292,070,533 314,958,291Earnings per Share 15.1 43.51 53.22 48.31 52.33

Figures in brackets indicate deductions.The accounting policies and notes from pages 37 to 73 form an integral part of these financial statements.


33sTaTemenT oF Financial posiTion

Group companyAs at 31 March, 2017 2016 2017 2016 note rs. rs. rs. rs.

Assetsnon- current AssetsProperty, Plant and Equipment 16 548,833,873 512,781,418 209,094,117 128,142,386Intangible Assets 17 2,013,318 3,254,526 - -Prepaid Lease Payments 18 65,286,276 80,362,542 5,286,276 5,362,542Investment Property 19 - 45,360,000 - 45,360,000Investment in subsidiary company 20 - - 164,970,051 65,000,020Investments in Debentures 633,377,464 676,508,941 633,377,464 676,508,941total non current Assets 1,249,510,931 1,318,267,427 1,012,727,908 920,373,889

current AssetsInventories 21 1,885,017,601 1,191,754,184 1,385,581,708 969,510,540Trade and Other Receivables 22 710,551,212 669,298,189 485,882,372 436,313,260Amounts due from Related Parties 23 4,459,685 10,632,532 293,173 -Cash and Cash Equivalents 24.1 50,602,601 7,338,130 12,829,884 5,207,678total current Assets 2,650,631,099 1,879,023,035 1,884,587,137 1,411,031,478total Assets 3,900,142,030 3,197,290,462 2,897,315,045 2,331,405,367

eQuitYStated Capital 25 115,924,290 115,924,290 115,924,290 115,924,290Retained Earnings 1,365,109,746 1,282,785,193 1,351,966,408 1,240,904,535total equity attributable to owners of the company 1,481,034,036 1,398,709,483 1,467,890,698 1,356,828,825Non-Controlling Interest 178,113,389 106,880,677 - -total equity 1,659,147,425 1,505,590,160 1,467,890,698 1,356,828,825

non- current LiabilitiesInterest - Bearing Borrowings 26 135,775,134 164,335,134 - -Assets Related Grants 27 6,142,874 6,362,263 6,142,874 6,362,263Employee Benefits 28 29,818,337 26,272,341 20,587,910 20,080,492Deferred Tax Liabilities 29 11,522,384 27,924,343 11,522,384 9,511,539total non current Liabilities 183,258,729 224,894,081 38,253,168 35,954,294

current LiabilitiesTrade and Other Payables 30 1,469,869,707 937,721,488 1,190,220,324 721,705,286Amounts due to Related Parties 31 11,420,303 19,530,885 140,001 -Interest Bearing Borrowings 26 494,866,000 203,536,618 174,000,000 -Dividend Payable 2,805,162 1,906,595 2,805,162 1,906,595Current Tax Liabilities 9,592,644 67,424,671 9,454,269 33,411,906Bank Overdraft 24.2 69,182,060 236,685,964 14,551,423 181,598,461total current Liabilities 2,057,735,876 1,466,806,221 1,391,171,179 938,622,248total Liabilities 2,240,994,605 1,691,700,302 1,429,424,347 974,576,542total equity and Liabilities 3,900,142,030 3,197,290,462 2,897,315,045 2,331,405,367

The accounting policies and notes from pages 37 to 73 form an integral part of these financial statements.It is certified that the Financial statements have been prepared in compliance with the requirements of the Companies Act, No 07 of 2007.

thejani kodithuwakku Finance Controller

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

Deshamanya tilak Dias Gunasekara sumal perera Managing Director Chairman 22 June 2017Colombo


34

Attributable to equity shareholders of parent non controlling Group stated retained total interest total capital earnings rs. rs. rs. rs. rs.

Balance as at 1April 2015 115,924,290 1,115,041,617 1,230,965,907 101,577,841 1,332,543,748Super Gain Tax * - (80,114,087) (80,114,087) - (80,114,087)Adjusted balance as at 1 April 2015 115,924,290 1,034,927,530 1,150,851,820 101,577,841 1,252,429,661

comprehensive income for the Year Profit for the year - 321,083,030 321,083,030 6,028,166 327,111,196Other Comprehensive Income (net of tax) - (821,903) (821,903) (75,330) (897,233)Total Comprehensive income - 320,261,127 320,261,127 5,952,836 326,213,963

transactions with owners of the company recognized directly in equity Dividend Paid - (72,403,464) (72,403,464) (650,000) (73,053,464)Balance as at 31 March 2016 115,924,290 1,282,785,193 1,398,709,483 106,880,677 1,505,590,160Balance as at 1 April 2016 115,924,290 1,282,785,193 1,398,709,483 106,880,677 1,505,590,160

comprehensive income for the Year Profit for the year - 262,516,812 262,516,812 (28,949,562) 233,567,250Other Comprehensive Income (net of tax) - 816,401 816,401 212,244 1,028,645total comprehensive income - 263,333,213 263,333,213 (28,737,318) 234,595,895

transactions with owners of the company recognized directly in equity Right Issue - - - 99,970,030 99,970,030Dividend Paid Final Dividend Paid - (2015/2016) - (90,504,330) (90,504,330) - (90,504,330)Interim Dividend (2016/2017) - (90,504,330) (90,504,330) - (90,504,330)balance as at 31 March 2017 115,924,290 1,365,109,746 1,481,034,036 178,113,389 1,659,147,425

sTaTemenT oF changes in equiTy


35

coMpAnY stated retained total capital earnings rs. rs. rs.

Balance as at 1 April 2015 115,924,290 1,078,463,795 1,194,388,085Super Gain Tax * - (80,114,087) (80,114,087)Adjusted balance as at 1 April 2015 115,924,290 998,349,708 1,114,273,998 comprehensive income for the Year Profit for the year - 315,704,865 315,704,865Other Comprehensive Income (net of tax) - (746,574) (746,574)total comprehensive income - 314,958,291 314,958,291

transactions with owners of the company recognized directly in equity Dividend paid Final Dividend - (2014/2015) - (42,235,354) (42,235,354) Interim Dividend (2015/2016) - (30,168,110) (30,168,110)Balance as at 31 March 2016 115,924,290 1,240,904,535 1,356,828,825

Balance as at 1 April 2016 115,924,290 1,240,904,535 1,356,828,825

comprehensive income for the Year Profit for the year - 291,466,375 291,466,375Other Comprehensive Income (net of tax) - 604,158 604,158Total Comprehensive income - 292,070,533 292,070,533

transactions with owners of the company recognized directly in equity Dividend paid Final Dividend Paid - (2015/2016) - (90,504,330) (90,504,330) Interim Dividend Paid (2016/2017) - (90,504,330) (90,504,330)Balance as at 31 March 2017 115,924,290 1,351,966,408 1,467,890,698

* As per the provisions of Part III of the Finance Act, No. 10 of 2015, which was certified on 30 October 2015, the Group is liable for Super Gain Tax of Rs.80.1Mn. According to the Act, the Super Gain Tax was deemed to be expenditure in the Financial Statements relating to the year of assessment which commenced on 1 April 2013. The Act supersedes the requirements of the Sri Lanka Accounting Standards; hence the expense of Super Gain Tax is accounted in accordance with the requirements of the said Act as recommended by the Statement of Alternative Treatment (SoAT) on Accounting for Super Gain Tax issued by the Institute of Chartered Accountants of Sri Lanka, dated 24th November 2015.



36

Group companyFor the year ended 31 March, 2017 2016 2017 2016 note rs. rs. rs. rs.

cash Flows from operating ActivitiesProfit before Tax 310,112,292 462,187,705 386,424,221 431,827,259

Adjustments for:Depreciation & Amotisation 106,879,545 65,839,802 26,657,109 23,974,026Provision for Gratuity 7,310,939 6,297,958 3,847,874 3,702,601Amotization of Grants Received (219,389) (219,389) (219,389) (219,389)(Provision)/Revesal of Inventories 1,410,794 3,323,627 (2,727,677) 3,323,627Impairment Provisions for trade receivable (Net of reversals) (514,111) - (514,111) -Interest Expense 66,376,176 28,479,401 22,447,781 10,079,436Profit on Sale of Property, Plant and Equipment (38,000) (3,117,500) (38,000) (3,117,500)Loss on sale of Debentures 2,340,159 - 2,340,159 -Interest Income (67,390,579) (31,246,387) (67,390,579) (31,246,387)Revaluation Gain - (21,168,487) - (21,168,487)Write back of unclaimed dividend (588,526) - (588,526) -Write back of Over provisions for expenses (4,797,336) - (4,797,336) -Assets charged to P&L 7,833 - 7,833 -Write back of warranty Claim and other (34,540,911) (5,438,405) (11,717,922) (5,438,405)operating profit before working capital changes 386,348,885 504,938,325 353,731,437 411,716,781

changes in working capitalInventories (694,674,211) (167,665,662) (413,343,491) (124,211,066)Trade and Other Receivables (39,897,435) 178,097,298 (48,213,524) 191,336,120Amount Due to Related Parties (8,110,582) 18,496,542 140,001 -Amount Due From Related Parties 6,172,847 (27,706,573) (293,173) -Trade and Other Payables 572,973,557 150,889,411 486,517,389 133,376,098cash generated from/(used) in operation 222,813,062 657,049,341 378,538,639 612,217,933

Income Tax Paid (151,013,978) (190,007,982) (117,139,588) (185,449,756)Gratuity Paid (2,501,348) (7,297,992) (2,501,348) (7,297,992)net cash flows from/(used in) operating Activities 69,297,736 459,743,367 258,897,703 419,470,185

cash Flows From investment ActivitiesAcquisition of Property, Plant & Equipment (81,262,358) (230,283,441) (62,180,407) (39,399,915)Proceeds from Sale of Property, Plant & Equipment 38,000 3,586,464 38,000 3,117,500Investment in Subsidiary company - - (99,970,031) -Investment in Debentures - (592,395,434) - (592,395,434)Proceed from issued shares 99,970,030 - - -Proceeds from sale of debentures 39,949,841 - 39,949,841 -Interest Received 67,390,579 31,246,387 67,390,579 31,246,387net cash Flows from/(used) in investing Activities 126,086,093 (787,846,024) (54,772,018) (597,431,462)

cash Flows From Financing ActivitiesInterest Paid (66,376,176) (28,479,401) (22,447,781) (10,079,436)Proceed from Borrowings 262,769,382 192,850,729 174,000,000 -Repayment Loan - (38,300,916) - -Dividends Paid (181,008,660) (72,374,771) (181,008,660) (71,724,771)net cash Flows used in Financing Activities 15,384,546 53,695,641 (29,456,441) (81,804,207)

net increase/(Decrease) in cash and cash equivalents 210,768,375 (274,407,016) 174,669,244 (259,765,484)Cash and Cash Equivalents as at 1 April (229,347,834) 45,059,182 (176,390,783) 83,374,701cash and cash equivalents as at 31 March 24 (18,579,459) (229,347,834) (1,721,539) (176,390,783)

Cash and Cash Equivalents 50,602,601 7,338,130 12,829,884 5,207,678Bank Overdraft (69,182,060) (236,685,964) (14,551,423) (181,598,461)Cash and Cash Equivalents as at 31 March (18,579,459) (229,347,834) (1,721,539) (176,390,783)


sTaTemenT oF cash FloWs


37noTes To The Financial sTaTemenTs

1 corporAte inForMAtion1.1 reporting entitySathosa Motors PLC is a public limited liability company incorporated and domiciled in Sri Lanka , registered under the Companies Act No.7 of 2007 and is listed on the Colombo Stock Exchange. The registered office and principal place of business of the Company is situated at No. 25, Vauxhall Street, Colombo 02.

The consolidated Financial Statements of Sathosa Motors PLC as at and for the year ended 31 March 2017 comprise the Company and its Subsidiary, SML Frontier Automotive (Pvt) Ltd. (together referred to as the ‘Group’). Sathosa Motors PLC holds 50% of SML Frontier Automotive (Pvt) Ltd.

The Financial Statements of the Company and its subsidiary have a common financial year which ends on 31 March.

1.1.2 Total number of employeesCompany - 141 (2016: 128)Group - 243 (2016: 239)

1.2 principal Activities and nature of operationsThe principal activity of the Company is importing and distribution of Isuzu new vehicles and spare parts and operating workshops for vehicle repairs.

SML Frontier Automotive (Pvt) Ltd (SMLF) is the subsidiary of Sathosa Motors PLC. SMLF is in the business of importation and sale of Land Rover vehicles and Jaguar vehicles, the Subsidiary Company operates workshops and sale of Land Rover spare parts too.

1.3 parent companyThe Parent Company of Sathosa Motors PLC is Access Engineering PLC (AEL). AEL is primarily involved in the business of construction activities and supply of construction related services and materials.

2 bAsis oF prepArAtion2.1 statement of complianceThe Financial Statements of the Company and those consolidated comprise the

Statement of Financial Position, the Statements of Profit or Loss and other Comprehensive Income, Changes in Equity, and Cash Flows together with the Accounting Policies and Notes to the Financial Statements.

These Financial Statements have been prepared and presented in accordance with Sri Lanka Accounting Standards (SLFRSs / LKASs) as issued by the Institute of Chartered Accountants of Sri Lanka (CA Sri Lanka) and with the requirements of the Companies Act No. 7 of 2007 and the Listing Rules of the Colombo Stock Exchange.

The consolidated and separate Financial Statements were authorized for issue by the Board of Directors in accordance with the resolution passed by the Board of Directors on 22 June 2017.

2.2 basis of MeasurementThe consolidated Financial Statements have been prepared on the historical cost basis except for the following material items in the Statement of Financial Position.- Financial Assets and Financial

Liabilities that have been measured at fair value

- Employee benefit liability recognized based on the actuarial valuation (LKAS 19)

- Land and building stated at revalued amounts - (revaluation has not been carried out during the current financial year)

- Investment property review measured at fair value. ( During the year under review reclassified to Property, Plant & Equipment)

The Directors have made an assessment of Group’s ability to continue as a going concern in the foreseeable future and they do not foresee a need for liquidation or cessation of business.

2.3 Functional and presentation currencyThe financial statements are presented in Sri Lankan Rupees (Rs.), which is the Group’s functional currency.

2.4 use of estimates & JudgmentsThe preparation of the Financial Statements in conformity with Sri Lanka Accounting Standards (SLFRSs / LKASs) requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.

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

Information about assumptions and estimate uncertainties that have a significant risk of resulting in a material adjustment in the financial statements are stated below.

Note 28 - Employee BenefitsNote 29 - Deferred TaxationNote 32 - Contingent Liabilities

3 siGniFicAnt AccountinG poLiciesThe accounting policies set out below have been applied consistently to all periods presented in these financial statements, unless otherwise stated.

The accounting policies have been applied consistently by its Group entities.

3.1 basis of consolidation3.1.1 Business CombinationThe Group accounts for business combinations using the acquisition method when control is transferred to the Group. The consideration transferred in the acquisition is generally measured at fair value, as are the identifiable net assets acquired. Any goodwill that arises is tested annually for impairment. Any gain on a bargain purchase is recognised in profit or loss immediately. Transaction costs are expensed as incurred, except if related to the issue of debt or equity securities.


38

The Group measures goodwill at the acquisition date as;

� The fair value of the consideration transferred plus

� The recognised amount of any non-controlling interests in the acquiree plus

� If the business combination is achieved in stages, the fair value of the pre-existing equity interest in the acquiree less

� The net recognized amount (generally fair value) of the identifiable assets acquired and liabilities assumed.

The consideration transferred does not include amounts related to the settlement of pre-existing relationships. Such amounts are generally recognised in profit or loss.

3.1.2 Non-Controlling InterestsThe total profit or loss for the year of the Company and its subsidiary included in consolidation are shown in the consolidated Statement of Profit or Loss and other Comprehensive income with the proportion of profit or loss after taxation pertaining to minority shareholders of subsidiary being deducted as “Non controlling interest”. All assets and liabilities of the Company and of its subsidiary included in consolidation are shown in the consolidated Statement of Financial Position. The interest of minority shareholders of subsidiary in the fair value of net assets of the Group is indicated separately in the consolidated Statement of Financial Position under the heading “Non-controlling interest”. Changes in the Group’s interest in a subsidiary that do not result in a loss of control are accounted for as, equity transactions. Adjustments to non-controlling interests are based on a proportionate amount of the net assets of the subsidiary. No adjustments are made to goodwill and no gain or loss is recognized in profit or loss.

3.1.3 SubsidiarySubsidiary entity is controlled by the Parent. The financial statements of subsidiary is included in the consolidated financial statements from the date that control commences, until the date that control ceases. In separate financial statements, investment in subsidiary is stated at cost.

3.1.4 Transactions Eliminated on ConsolidationIntra-group balances and transactions, and any unrealized income and expenses arising from intra group transactions, are eliminated in preparing the consolidated financial statements. Unrealized losses are eliminated in the same way as unrealized gains, but only to the extent that there is no evidence of impairment.

3.2 Foreign currency3.2.1 Foreign Currency TransactionsAll foreign exchange transactions are converted to functional currency, at the rates of exchange prevailing at the time the transactions are effected.

Monetary assets and liabilities denominated in foreign currency are re-translated to functional currency equivalents at the spot exchange rate prevailing at the reporting date.

Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates as at the dates of the initial transactions. Non-monetary assets and liabilities are translated using exchange rates that existed when the values were determined. The gain or loss arising on translation of non-monetary items are recognized in line with the gain or loss of the item that gave rise to the translation difference.

3.3 Assets and bases of their ValuationAssets classified as current assets in the Statement of Financial Position are cash and bank balances and those, which are

expected to be realised in cash during the normal operating cycle, or within one year from the Statement of Financial Position, whichever is shorter. Assets other than current assets are those, which the Company intends to hold beyond a one year period calculated from the reporting date.

3.3.1 Property, Plant & Equipment3.3.1.1 Recognition and MeasurementThe Group applies the Cost Model to all Property, Plant & Equipment except building on leasehold land. These are recorded at cost of purchase together with any incidental expenses thereon, less accumulated depreciation and any accumulated impairment losses.

3.3.1.2 Owned AssetsThe cost of an item of property, plant and equipment comprise its purchase price and any directly attributable costs of bringing the asset to working condition for its intended use. The cost of self-constructed assets includes the cost of materials, direct labour, and any other costs directly attributable to bringing the asset to the working condition for its intended use. This also includes cost of dismantling and removing the items and restoring in the site on which they are located and borrowing costs on qualifying assets.

Purchased software that is integrated to the functionality of the related equipment is capitalised as part of equipment.

When parts of an item of Property, Plant and Equipment have different useful lives, they are accounted for as separate items (major component) of Property, Plant and Equipment.

3.3.1.3 Leased AssetsLeases in terms of which the Group assumes substantially all the risk and rewards of ownership are classified as finance leases. Upon initial recognition the leased asset is measured and capitalized at an amount equal to the lower of its fair value and the present

noTes To The Financial sTaTemenTs


39

value of minimum lease payments. Subsequent to initial recognition, the asset is accounted for in accordance with the accounting policy applicable to that asset.

Other leases are operating leases and, except for investment property, the leased assets are not recognised in the Group’s Statement of Financial Position.

3.3.1.4 Subsequent CostsThe cost of replacing part of an item of Property, Plant and Equipment is recognised in the carrying amount of the item if it is probable that the future economic benefits embodied within the part will flow to the Group and its cost can be measured reliably. The carrying amount of the replaced part is de-recognised.

The costs of the day to day servicing of Property, Plant and Equipment are recognized in profit or loss as incurred.

3.3.1.5 De-RecognitionThe carrying amount of an item of Property, Plant and Equipment is de-recognised on disposal or when no future economic benefits are expected from its use or disposal. Gains or losses on de-recognition are recognized within other income in profit or loss. Any revaluation surplus included in equity in respect of an item of property, plant & equipment will be transferred directly to retained earnings when the asset is de recognised.

3.3.1.6 RevaluationRevaluation Model is applied for building on leasehold land by professionally qualified valuers at least once in every three to five years. The valuation surplus is recognised on the net carrying value of the asset and is transferred to a revaluation reserve after restating the asset at the revalued amount. The revaluation reserve is transferred to retained earnings at the point of de-recognition.

3.3.1.7 DepreciationDepreciation is recognised in Statement of Profit or Loss and other Comprehensive Income on the straight-line basis over the estimated useful lives of each part of item of Property, Plant and Equipment. Leased assets are depreciated over the shorter of the lease term and their useful lives unless it is reasonably certain that the Group will obtain ownership by the end of the lease term. Depreciation of an asset begins when it is available for use whereas depreciation of an asset ceases at the earlier of the date that the asset is classified as held for sale (or included in a disposal group that is classified as held for sale) and the date that the asset is de-recognised. Depreciation is not charged on Freehold Land and Capital Work in Progress.

The estimated useful lives are as follows:

Asset category useful Lives (Years) Lives

Years

Building–Peliyagoda -SML

50

Plant & Machinery 8

Motor Vehicles 5

Office Equipment 5

Furniture & Fittings 5

Tools- Workshop 5-8

Computers 5

Improvements to leasehold property

8-9

99 years Lease Agreement of SML Peliyagoda land would continue until 2086.

SMLF recognised prepaid lease payments in respect of Welisara workshop premises which has been sub leased by Frontier Automotive (Pvt) Ltd. Remaining lease period as at 31 March 2017 is 4 years until 2021.

This sub-lease agreement is between SMLF and Frontier Automotive (Pvt) Ltd.

Depreciation methods, useful lives, and residual values are reviewed at each reporting date and adjusted appropriately.

Workshop Tools – Currently the Company does not capitalise tools where the purchase price is less than Rs.15,000/-. Accordingly such purchases are considered as Revenue expenditure.

3.3.1.7.1 Leasehold Right – LandLeasehold property comprise of land use rights and is amortised on a straight line basis over the period of the lease in accordance with the pattern of benefits expected to be derived from the lease. Leasehold property is tested for impairment annually and is written down where applicable. The impairment loss if any is recognised in the Profit or Loss.

The estimated useful life for the current period is as follows:

item useful Life

Leasehold rights 69 Years (Remaining Lease Period)

3.3.1.8 Capital Work in ProgressThe cost of self constructed assets includes the cost of materials, direct labour, and any other costs directly attributable to bringing the asset to the working condition for its intended use. This also includes cost of dismantling and removing the items and restoring in the site on which they are located and borrowing costs on qualifying assets.

3.3.2 Intangible AssetsIntangible Assets are recognised if it is probable that economic benefits are attributable to the assets will flow to the entity and cost of the assets can be measured reliably. Intangible assets that are acquired by the Group/Company are measured at cost less accumulated amortisation and accumulated impairment losses.


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3.3.2.1. SoftwareAll computer software cost incurred, which are not internally related to associate hardware, which can be clearly identified, reliably measured and its probable that they will lead to future economic benefits, are included in the Statement of Financial Position under the category of intangible assets.

3.3.2.2. Subsequent ExpenditureSubsequent expenditure is capitalized only when it increases the future economic benefits embodied in the specific asset to which it relates. All other expenditure is recognized in profit or loss as incurred.

3.3.2.3. AmortisationAmortisation is calculated over the cost of the asset, or other amount substituted for cost, less its residual value.

Amortisation is recognized in the profit or loss on a straight line basis over the estimated useful lives of intangible assets, other than goodwill, from the date that they are available for use, since this most closely reflects the expected pattern of consumption of the future economic benefits embodied in the asset. The estimated useful lives and amortization rates are as follows:

Asset category

useful live

(Years)

Depreciation rate (%)

Computer Software

05 20%

Amortisation methods, useful lives and residual values are reviewed at each financial year end and adjusted prospectively, if appropriate.

3.3.3 Investment PropertiesInvestment property is held either to earn rental income or for capital appreciation or for both purposes, but not for sale in the ordinary course of business, use in the production or supply of goods or services or for administrative purposes.

3.3.3.1 Recognition and MeasurementInvestment properties are measured initially at cost. The carrying amount includes the cost of replacing part of an existing investment property at the time that cost is incurred if the recognition criteria are met and exclude the costs of day-to-day servicing of an investment property. Subsequently, investment properties are stated at fair value, which reflects market conditions at the reporting date. Gains or losses arising from changes in the fair values of investment properties are included in the Statement of Profit or Loss and other Comprehensive Income in the year in which they arise. Fair values are evaluated at least every three years by an accredited external, independent valuer.

Where Group companies occupy a significant portion of the investment property of a subsidiary, such investment properties are treated as property, plant and equipment in the consolidated financial statements, and accounted using Group accounting policy for property, plant and equipment.

3.3.3.2 De-recognitionInvestment properties are de-recognized either when they have been disposed of or when the investment property is permanently withdrawn from use and no future economic benefits are expected from its disposal. Any gains or losses on the retirement or disposal of an investment property are recognized in the Profit or Loss in the event of retirement or disposal.

3.3.3.3 Subsequent Transfers from Investment PropertyTransfers are made from investment property only when there is a change in use. For a transfer from investment property to owner occupied property, the deemed cost for subsequent accounting is the fair value at the date of change in use.

3.3.4 Investment in SubsidiaryInvestment in Subsidiary is treated as long - term investment and valued at cost in individual financial statements of the Company.

3.3.5 InventoriesInventories are stated at the lower of cost and net realizable value, after making due allowance for obsolete and slow moving items.

The cost of inventories is comprised of all costs of purchase, costs of conversion and other costs incurred in bringing the inventories to their present location and condition.

Net realizable value is the estimated selling price in the normal course of business less estimated cost of realization and/or cost of conversion from their existing state to saleable condition.

Inventory movement, mainly with respect to spare parts is reviewed at the end of reporting period by an experienced staff member ( head of the division) who has a fair knowledge / expertise to assess the recoverability of inventory and the items that are identified as irrecoverable are written off during the year. For this purpose the Company gets the support of the workshop manager who possesses a fair amount of technical expertise, which helps to identify the technical obsolescence of the inventory items.

The cost of each category of Inventory of the Group / Company is determined on the following basis:Spare Parts - At actual cost on a weighted average basisNew Vehicles - At actual costGoods in transit - At Actual costWork-in-Progress - Includes only the cost of material and labour

3.3.6 Cash and Cash EquivalentsCash and cash equivalents are defined as cash in hand, demand deposits and short term highly liquid investments, readily convertible to known amounts of cash and subject to insignificant risk of changes in value.



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For the purpose of cash flow statement, cash and cash equivalents consist of cash in hand and deposits in banks net of outstanding bank overdrafts. Investments with short maturities i.e. three months or less from the date of acquisition are also treated as cash equivalents.

3.3.7 Impairment of Non-Financial AssetsThe Group assesses at each reporting date, whether there is an indication that an asset may be impaired. If any indication exists, the Company estimates the asset’s recoverable amount. An asset’s recoverable amount is the higher of an asset’s or cash-generating unit’s (CGU) fair value less costs to sell and its value in use and is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets. Where the carrying amount of an asset or CGU exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. In determining fair value less costs to sell, recent market transactions are taken into account, if available. If no such transactions can be identified, an appropriate valuation model is used. These calculations are corroborated by valuation multiples, quoted share prices for publicly traded Companies or other available fair value indicators.

Impairment losses of continuing operations are recognized in the Profit or Loss in those expense categories consistent with the function of the impaired asset, except for a property previously revalued where the revaluation was taken to other comprehensive income. In this case, the impairment is also recognized in other comprehensive income up to the amount of any previous revaluation.

For assets excluding goodwill, an assessment is made at each reporting date as to whether there is any indication that previously recognized impairment losses may no longer exist or may have decreased. If such indication exists, the Group estimates the asset’s or cash-generating unit’s recoverable amount. A previously recognized impairment loss is reversed only if there has been a change in the assumptions used to determine the asset’s recoverable amount since the last impairment loss was recognized. The reversal is limited so that the carrying amount of the asset does not exceed its recoverable amount, nor exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognized for the asset in prior years. Such reversal is recognized in the Profit or Loss unless the asset is carried at a revalued amount, in which case the reversal is treated as a revaluation increase.

3.3.8 Financial Assets3.3.8.1 Initial Recognition and MeasurementFinancial assets within the scope of LKAS 39 are classified as financial assets at fair value through profit or loss, loans and receivables, held-to-maturity investments, available-for-sale financial assets, or as derivatives designated as hedging instruments in an effective hedge, as appropriate. The Group determines the classification of its financial assets at initial recognition.

All financial assets are recognized initially at fair value plus, in the case of assets not at fair value through profit or loss, directly attributable transaction costs.

Purchase or sale of financial assets that require delivery of assets within a time frame established by regulation or convention in the marketplace (regular way trades) are recognized on the trade date, i.e., the date that the Group commits to purchase or sell the asset.

The Group’s financial assets include cash and cash equivalents, short term deposits, trade and other receivables, loans, and related party receivables.

The subsidiary company has obtained long term loans for capital expenditure (showroom and a workshop) and short term loans during the current financial year.

3.3.8.2 Subsequent MeasurementThe subsequent measurement of financial assets depends on their classification as described below:

3.3.8.3 Loans and ReceivablesLoans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. After initial measurement, such financial assets are subsequently measured at amortized cost using the effective interest rate method (EIR), less impairment. Amortized cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the EIR. The EIR amortization is included in finance income in the Statement of Profit or Loss and other Comprehensive Income. The losses arising from impairment are recognized in the profit or loss in finance cost.

3.3.8.4 Held-to-Maturity InvestmentsNon-derivative financial assets with fixed or determinable payments and fixed maturities are classified as held-to-maturity when the Group has the positive intention and ability to hold them to maturity. After initial measurement, held-to-maturity investments are measured at amortized cost using the effective interest method, less impairment. Amortized cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the EIR. The EIR amortization is included in finance income in the Profit or Loss. The losses arising from impairment are recognized in profit or loss in finance costs.


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3.3.8.5 Available-for-Sale Financial InvestmentsAvailable-for-sale financial investments include equity and debt securities. Equity investments classified as available-for-sale are those, which are neither classified as held for trading nor designated at fair value through profit or loss. Debt securities in this category are those which are intended to be held for an indefinite period of time and which may be sold in response to needs for liquidity or in response to changes in the market conditions.

After initial measurement, available-for-sale financial investments are subsequently measured at fair value with unrealized gains or losses recognized as other comprehensive income in the available-for-sale reserve until the investment is de-recognized, at which time the cumulative gain or loss is recognized in other operating income, or determined to be impaired, at which time the cumulative loss is reclassified to the finance costs in statement of Profit or Loss and removed from the available-for-sale reserve. Interest income on available-for-sale debt securities is calculated using the effective interest method and is recognized in profit or loss.

The Group evaluates its available-for-sale financial assets to determine whether the ability and intention to sell them in the near term is still appropriate. When the Group is unable to trade these financial assets due to inactive markets and management’s intention to do so significantly changes in the foreseeable future, the Group may elect to reclassify these financial assets in rare circumstances. Reclassification to loans and receivables is permitted when the financial assets meet the definition of loans and receivables and the Group has the intention and ability to hold these assets for the foreseeable future or until maturity. Reclassification to the held-to-maturity category is permitted only when the entity has the ability and intention to hold the financial asset accordingly.

For a financial asset reclassified out of the available-for-sale category, any previous gain or loss on that asset that has been recognized in equity is amortized to profit or loss over the remaining life of the investment using the EIR. Any difference between the new amortized cost and the expected cash flows is also amortized over the remaining life of the asset using the EIR. If the asset is subsequently determined to be impaired, then the amount recorded in equity is reclassified to the profit or loss.

3.3.8.6 De recognitionA financial asset (or, where applicable a part of a financial asset or part of a group of similar financial assets) is de recognized when:

The rights to receive cash flows from the asset have expired,

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

When the Group has transferred its rights to receive cash flows from an asset or has entered into a pass-through arrangement, and has neither transferred nor retained substantially all of the risks and rewards of the asset nor transferred control of it, the asset is recognized to the extent of the Group’s continuing involvement in it.

In that case, the Group also recognizes an associated liability. The transferred asset and the associated liability are measured on a basis that reflects the rights and obligations that the Group has retained.

Continuing involvement that takes the form of a guarantee over the transferred

asset is measured at the lower of the original carrying amount of the asset and the maximum amount of consideration that the Group could be required to repay.

3.3.8.7 Impairment of Financial AssetsThe Group assesses at each reporting date whether there is any objective evidence that a financial asset or a group of financial assets is impaired. A financial asset or a group of financial assets is deemed to be impaired if, and only if, there is objective evidence of impairment as a result of one or more events that has occurred after the initial recognition of the asset (an incurred ‘loss event’) and that loss event has an impact on the estimated future cash flows of the financial asset or the group of financial assets that can be reliably estimated.

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

3.3.8.8 Financial Assets Carried at Amortized CostFor financial assets carried at amortized cost, the Group first assesses whether objective evidence of impairment exists individually for financial assets that are individually significant, or collectively for financial assets that are not individually significant. If the Group determines that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, it includes the asset in a group of financial assets with similar credit risk characteristics and collectively assesses them for impairment. Assets that are individually assessed for impairment and for which an impairment loss is,



43

or continues to be, recognized are not included in a collective assessment of impairment.

If there is objective evidence that an impairment loss has been incurred, the amount of the loss is measured as the difference between the assets carrying amount and the present value of estimated future cash flows (excluding future expected credit losses that have not yet been incurred). The present value of the estimated future cash flows is discounted at the financial asset’s original effective interest rate. If a loan has a variable interest rate, the discount rate for measuring any impairment loss is the current effective interest rate.

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

3.3.9 Financial Liabilities3.3.9.1 Initial Recognition and MeasurementFinancial liabilities within the scope of LKAS 39 are classified as financial liabilities at fair value through profit or loss, loans and borrowings, or as derivatives designated as hedging instruments in an effective hedge, as appropriate. The Group determines the classification of its financial liabilities at initial recognition.

All financial liabilities are recognized initially at fair value and, in the case of loans and borrowings, carried at amortized cost. This includes directly attributable transaction costs.

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

3.3.9.2 Subsequent MeasurementThe measurement of financial liabilities depends on their classification as follows:

3.3.9.3 Loans and BorrowingsAfter initial recognition, interest bearing loans and borrowings are subsequently measured at amortized cost using the effective interest rate method. Gains and losses are recognized in the Profit or Loss when the liabilities are de-recognized as well as through the effective interest rate method (EIR) amortization process.

Amortized cost is calculated by taking into account any discount or premium on acquisition and fees or costs that is an integral part of the EIR. The EIR amortization is included in finance costs in the income statement.

3.3.9.4 De-recognitionA financial liability is de-recognized when the obligation under the liability is discharged or cancelled or expires. When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a de-recognition of the original liability and the recognition of a new liability, and the difference in the respective carrying amounts is recognized in profit or loss.

3.3.10 Off setting of Financial InstrumentsFinancial assets and financial liabilities are offset with the net amount reported in the Statement of Financial Position only if there is a current enforceable legal right to offset the recognized amounts and intent to settle on a net basis, or to

realize the assets and settle the liabilities simultaneously.

Income and expense will not be offset in the statement of profit or loss and other comprehensive income unless required or permitted by any accounting standard or interpretation, as specifically disclosed in the accounting policies of the Group.

3.3.11 Fair Value of Financial InstrumentsThe fair value of financial instruments that are traded in active markets at each reporting date is determined by reference to quoted market prices or dealer price quotations (bid price for long positions and ask price for short positions), without any deduction for transaction costs.

For financial instruments not traded in an active market, the fair value is determined using appropriate valuation techniques. Such techniques may include:

� Using recent arm’s length market transactions;

� Reference to the current fair value of another instrument that is substantially the same;

� A discounted cash flow analysis or other valuation models.

An analysis of fair values of financial instruments and further details as to how they are measured are provided in Note 37.

3.4 provisions, contingent Liabilities, contingent AssetsProvisions are recognized when the Group has a present obligation (legal or constructive) as a result of a past event, where it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation.

All contingent liabilities are disclosed as a note to the financial statements unless the outflow of resources is remote.

Contingent assets are disclosed, where inflow of economic benefit is probable.


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3.5 employment benefits3.5.1 Defined Benefit PlansThe liability recognized in the Statement of Financial Position in respect of defined benefit plan is the present value of defined benefit obligation at the reporting date. The defined benefit obligation is calculated using Project Unit Credit (PUC) method as recommended by LKAS 19 - ‘Employee Benefits. Actuarial gains and losses for the defined benefit plans are recognized in full in the period in which they occur in Other Comprehensive Income.

However, according to the Payment of Gratuity Act No. 12 of 1983, the liability for gratuity payment to an employee arises only after the completion of 5 years of continued service.

3.5.2 Defined Contribution Plans- Employees’ Provident Fund and Employees’ Trust FundA defined contribution plan is a post-employment benefit plan under which an entity pays a fixed contribution into a separate entity and will have no legal or constructive obligation to pay further amounts.

All employees who are eligible for Employees’ Provident Fund Contributions and Employees’ Trust Fund Contributions are covered by relevant contributions funds in line with the relevant statutes. Employer’s contributions to the defined contribution plans are recognized as an expense in profit or loss when incurred.

4 stAteMent oF proFit or Loss AnD other coMprehensiVe incoMe4.1 revenueRevenue represents the amounts derived from importing and distribution of vehicles, spare parts and provision of workshops repair services, which fall within the Group’s ordinary activities net of trade discounts and turnover related taxes.

4.2 revenue recognitionRevenue is recognized to the extent that it is probable that the economic benefits will flow to the Group and the revenue and the 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, and after eliminating sales within the Group. The following specific criteria are used for the purpose of recognition of revenue.

4.2.1 Rental IncomeRental income from investment property is recognized in profit or loss on a straight-line basis over the term of the lease.

4.2.2 Goods SoldRevenue from the sale of goods in the course of ordinary activities is measured at the fair value of the consideration received or receivable, net of returns, trade discounts and volume rebates. Revenue is recognized when persuasive evidence exists, usually in the form of an executed sales agreement, that the significant risks and rewards of ownership have been transferred to the buyer, recovery of the consideration is probable, the associated costs and possible return of goods can be estimated reliably, there is no continuing management involvement with the goods, and the amount of revenue can be measured reliably.

4.2.3 Services RenderedRevenue for services rendered is recognized in the Statement of Profit or Loss and Other Comprehensive Income once all significant performance obligations have been provided.

4.2.4 Agency Commission Agency Commission is recognized in the Statement of Profit or Loss and other Comprehensive Income on an accrual basis.

4.2.5 Interest IncomeFor all financial instruments measured at amortized cost and interest bearing financial assets classified as available for sale, interest income or expense is recorded using the effective interest rate (EIR), which is the rate that exactly discounts the estimated future cash payments or receipts through the expected life of the financial instrument or a shorter period, where appropriate, to the net carrying amount of the financial asset or liability. Interest income is included in finance income in the profit or loss.

4.2.6 Dividend IncomeDividend income is accounted when the shareholders right to receive payment is established.

4.2.7 Rental IncomeRental income from investment property is recognised in profit or loss on a straight-line basis over the term of the lease.

4.2.8 Other IncomeProfits or losses from disposal of property, plant and equipments recognized having deducted from proceeds on disposal, the carrying value of the assets and the related expenses.

4.3 expenditure recognitionother expensesAll expenditure incurred in the running of the business and in maintaining the Property, Plant and Equipment in a state of efficiency has been charged to revenue in arriving at the profit for the year.

For the purpose of presentation of Statement of Profit or Loss and other Comprehensive Income the directors are of the opinion that function of expenses method presents fairly the elements of the enterprises performance, hence such presentation method is adopted.



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borrowing costsBorrowing costs are recognized as an expense in the period in which they are incurred except those that are directly attributable to the construction or development of Property, Plant & Equipments which are capitalized as part of the cost of those assets during the period of construction or development.

4.4 income tax expense4.4.1 Current TaxesCurrent Income tax liabilities for the current and prior periods are measured at the amount 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 reporting date.

The provision for income tax is based on the elements of income and expenditures reported in the Financial Statements and computed in accordance with the provisions of the Inland Revenue Act.

The relevant details are disclosed in the respective notes to the Financial Statements.

4.4.2 Deferred TaxationDeferred tax is provided, using liability method, providing for tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes.

Deferred tax is measured at the tax rates that are expected to apply in 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 reporting date.

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

sales taxRevenues, expenses and assets are recognized net of the amount of sales tax, except, where the sales tax incurred on a purchase of assets or service is not recoverable from the taxation authorities, in which case, the sales tax is recognized as a part of the cost of the asset or part of the expense items, as applicable and receivable and payable that are stated with the amount of sales tax included. The net amount of sales tax recoverable from or payable to the taxation authorities is included as a part of receivables or payables in the Statement of Financial Position.

4.4.3 Other Tax ExposuresIn determining the amount of current and deferred tax, the Group takes into account the impact of uncertain tax positions and whether additional taxes and interest may be due. This assessment relies on estimates and assumptions and may involve a series of judgments about future events. New information may become available that causes the Company to change its judgment regarding the adequacy of existing tax liabilities; such changes to tax liabilities will impact tax expense in the period that such a determination is made.

4.4.3.1 Withholding Tax on Dividends Distributed by SubsidiaryDividend distributed out of profit of the Subsidiary attracts 10% deduction at source and is not available for set off against the tax liability of the Sathosa Motors PLC. Thus the withholding tax deducted at source is added to the expense of the Subsidiary Company in the Group Financial Statements as a consolidation adjustment.

4.4.3.2 Economic Service Charge (ESC)As per the provisions of Economic Service Charge Act No. 13 of 2006 and subsequent amendments thereto, ESC is payable on the liable turnover at 0.50% .ESC is deductible from the income tax liability. Any unclaimed amount can be carried forward.

4.4.3.3 Value Added Tax (VAT)Value Added Tax is calculated in accordance with Value Added Tax Act No. 14 of 2002 and subsequent amendments thereto. VAT is payable at 11% up to October 2016 , thereafter at 15% .

4.4.3.4 Nation Building Tax (NBT)As per the provisions of the Nation Building Tax Act, No. 9 of 2009 and the subsequent amendments thereto, Nation Building Tax should be payable at the rate of 2% with effect from 1 January 2011 on the liable turnover as per the relevant provisions of the Act.

5 seGMentAL reportinGThe Segment is a distinguishable component of the Group that is engaged either in providing related products or services (business segment), or in providing Products or Services within a particular Economic Environment (Geographical Segment), which is subject to risks and returns that are different from those of the Segments.

Spare partsNew VehiclesRepairs & Services

6 recoGnition oF Assets reLAteD GrAntsGrants are recognized initially as deferred income at fair value when there is a reasonable assurance that they will be received and the Group will comply with the conditions associated with the Grant, and are then recognized in the Statement of Comprehensive income as other income on a systematic basis over the useful life of the asset. Grants that compensate the Group for expenses incurred are recognized in the Statement of Comprehensive income as other income on a systematic basis in the periods in which the expenses are recognized.


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7 other GenerAL AccountinG poLicies7.1 related party transactionsDisclosure has been made in respect of the transactions in which one party has the ability to control or exercise significant influence over the financial and operating policies/decisions of the other, irrespective of whether a price is being charged.

The relevant details are disclosed in the Note 34 to the Financial Statements.

7.2 earnings per shareBasic EPS is calculated by dividing the profit or loss attributable to ordinary share holders of the Company by the weighted average number of ordinary shares outstanding during the period.

7.3 events occurring after the reporting periodEvents after the reporting period are those events favourable and unfavourable that occur between the end of the reporting period and the date when the Financial Statements are authorized for issue.

The materiality of the events occurring after the reporting period is considered and appropriate adjustments to or disclosures are made in the Financial Statements, where necessary. (Note 33)

7.4 comparative informationThe comparative information is re-classified wherever necessary to conform with the current year’s presentation in order to provide a better presentation.

7.5 statement of Directors’ responsibilityThe Board of Directors of the Company is responsible for the preparation and presentation of these financial statements.

7.6 statement of cash FlowsThe statement of cash flows has been prepared using the ‘indirect method’ in accordance with Sri Lanka Accounting Standard - LKAS7 on ‘Statement of Cash Flows’. Cash and cash equivalent comprise of cash in hand, cash at bank and short term investments that are

readily convertible to known amount of cash and subject to an insignificant risk of change in value.

Interest received and dividends received are classified as investing cash flows, while dividend paid is classified as financing cash flow and interest paid is classified under the operating cash flows for the purpose of presentation of Statement of Cash Flows.

Bank overdrafts and short term borrowings that are re payable on demand and forming an integral part of the Group’s cash management are included as a component of cash and cash equivalent for the purpose of the Statement of Cash Flow.

8. sri LAnkA AccountinG stAnDArDs issueD but not Yet eFFectiVeThe institute of Chartered Accountants of Sri Lanka has issued the following standards which become effective for annual periods beginning on or after 1 January 2018. Accordingly these standards have not been applied in preparing these financial statements.

The extent of the impact of the above standards to the consolidated financial statements has not been determined as at 31 March 2017.

sLFrs 9 - Financial instruments:SLFRS 9, issued in 2014, replaces the existing guidance on LKAS 39 – Financial Instruments: Recognition and Measurement. SLFRS 9 includes revised guidance on the classification and measurement of financial instruments, including a new expected credit loss model for calculating impairment on financial assets, and the new general hedge accounting requirements. It also carries forward the guidance on recognition and de-recognition of financial instruments from LKAS 39.

SLFRS 9 is effective for annual reporting periods beginning on or after 1 January 2018. The impact on the implementation of the above standard has not been quantified yet.

sLFrs 15 - revenue from contracts with customersSLFRS 15 - Revenue from contracts with customers SLFRS 15 establishes a comprehensive framework for determining whether, how much and when revenue is recognised. It replaces existing revenue recognition guidance, including LKAS 18 on ‘Revenue’ and LKAS 11 on ‘Construction Contracts’.

SLFRS 15 is effective for annual reporting periods beginning on or after 1 January 2018. The impact on the implementation of the above standard has not been quantified yet.

sLFrs 16 – LeasesSLFRS 16 eliminates the current dual accounting model for lessees which distinguishes between On-Balance Sheet finance leases and Off-Balance sheet operating leases. Instead there will be a single On-Balance sheet accounting model that is similar to current finance lease accounting

SLFRS 16 is effective for annual Reporting periods beginning on or after January 01, 2019.

The impact on the implementation of the above standard has not been quantified yet.



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Group companyFor the year ended 31 March, 2017 2016 2017 2016 rs. rs. rs. rs.

9 reVenueSpare Parts 590,207,157 491,401,889 242,452,445 183,793,978New Vehicles 4,133,137,532 2,982,380,234 3,557,122,557 2,623,665,394Work Shop Repairs 342,392,040 272,420,148 253,554,662 201,257,863Vehicles Local Charges 172,997,297 319,750,992 - -Agency Commission 9,777,778 1,868,272 9,777,778 1,868,272 5,248,511,804 4,067,821,535 4,062,907,442 3,010,585,507NBT (18,135,198) (19,358,582) (6,299,829) (5,049,930)Net Revenue 5,230,376,606 4,048,462,953 4,056,607,613 3,005,535,577

10 other incoMeInterest Income on Reverse Repurchase Agreements and FDs 67,157,766 31,047,072 67,157,766 31,047,072Interest on Loans to Employees 232,813 199,315 232,813 199,315Valuation and Fitness Certificates 523,500 179,189 523,500 179,189Profit on Disposal of Property, Plant and Equipment 38,000 3,117,500 38,000 3,117,500Fines and Surcharges 10,172 12,577 10,172 12,577Sundry Income 38,403,718 1,740,588 1,990,984 1,039,134Rent Income - 2,450,000 - 2,450,000Amortization of Asset Related Grants 219,389 219,389 219,389 219,389Non Refundable Tender Deposits 25,000 1,500 25,000 1,500Dividend Received - - - 585,000Write back of unclaimed dividend 588,526 - 588,526 -Write back of over provisions of expenses 4,797,336 - 4,797,336 -Reversal of provision, warranty and other 4,540,911 5,438,405 11,717,922 5,438,405 - - - - 146,537,131 44,405,535 87,301,408 44,289,081

Exchange gain/ (losses) pertaining to importation of vehicles and Spare parts are accounted under cost of sales of the respective operational department.

The total Exchange gains accounted during the year under review amounts to Rs.48.01 Mn. (2016 - Rs.183.61 Mn.).


11 other operAtinG expensesResearch Expenses 334,455 64,208 - -Miscellaneous Expenses 19,000 79,402 - -Stamp Duty 257,500 84,180 - - 610,955 227,790 - -

12 FinAnce costImport loan Interest 15,342,245 9,653,931 - -Interest Expenses 48,342,193 18,825,470 22,447,781 10,079,436Lease Interest 2,691,738 - - - 66,376,176 28,479,401 22,447,781 10,079,436


48


13 proFit beFore tAxIs stated after (crediting)/charging all (income)/expenses including the following, Directors’ Emoluments and Fees 29,834,000 16,218,560 24,234,000 10,218,560Auditors’ remunneration- Statutory Audit 1,844,600 1,741,000 887,000 829,000 - Non Audit services 530,781 734,500 330,781 117,000Legal Expenses 5,152,046 279,952 1,000,348 279,952Depreciation on Property, Plant & Equipment 90,562,070 49,522,327 26,580,843 23,897,759Amortisation 16,317,474 16,317,475 76,266 76,267Personnel Cost (Note 13.1) 210,315,905 188,977,694 104,627,414 92,847,973Professional fees & Secretarial Fees 7,978,185 16,606,234 3,826,487 8,705,695Bad debt written off - 5,242,497 - 3,578

Impairment / (Reversal) of provision on Inventories 1,410,794 3,323,627 (2,727,677) 3,323,627

13.1 personnel costSalaries, Wages and Other related costs 181,553,446 164,257,190 90,319,193 80,669,783Defined Benefit Plan Cost - Retirement Gratuity 7,310,939 6,297,958 3,847,874 3,702,601Defined Contribution Plan - EPF & ETF 21,451,520 18,422,546 10,460,347 8,475,589 210,315,905 188,977,694 104,627,414 92,847,973

14 incoMe tAx expense14.1 current taxIn accordance with the provisions of the Inland Revenue Act No. 10 of 2006 and amendments thereto, the Company and its subsidiary is liable for Income Tax at 28% on its taxable profit.


14.2 current income taxTaxation on current year profits (Note 14.4) 91,354,735 110,155,789 91,354,735 106,948,391Under/(Over) provision of previous year 1,827,216 2,667,058 1,827,216 2,667,058Origination of deferred tax assets / liabilities (14.7) (16,636,909) 22,253,662 1,775,895 6,506,945Income Tax Expenses charged to Profit or Loss 76,545,042 135,076,509 94,957,846 116,122,394Tax on Other Comprehensive Income 234,950 (348,923) 234,950 (290,333)Net Tax Expense charged to Statement of Comprehensive Income 76,779,992 134,727,586 95,192,796 115,832,061

14.2.1 Net Tax Expense Charged to Statement of Comprehensive IncomeIncome Tax Expense 76,545,042 135,076,509 94,957,846 116,122,394Tax on Other Comprehensive Income 234,950 (348,923) 234,950 (290,333) 76,779,992 134,727,586 95,192,796 115,832,061



49


14.3 Deferred tax charged/ (reversal) to;Profit and Loss (16,636,909) 22,253,662 1,775,895 6,506,945Other Comprehensive Income 234,950 (348,923) 234,950 (290,333) (16,401,959) 21,904,739 2,010,845 6,216,612

14.4 reconciliation between Accounting profit and taxable profitAccounting Profit before Income Tax Expense 310,112,292 462,187,705 386,424,221 431,827,259Aggregated Disallowable Items 63,247,052 94,296,589 63,247,052 49,381,419Aggregated Allowable Items (58,749,623) (114,501,483) (58,749,623) (49,863,718)Aggregated Disallowable Income (66,022,658) (50,283,147) (66,022,658) (50,868,147)Tax losses arising from operations of subsidiary 76,311,928 - - -Income from Other Sources 1,367,920 1,481,727 1,367,920 1,481,727Total statutory Income 326,266,911 393,181,391 326,266,912 381,958,540Statutory Tax Rate 28% 28% 28% 28% 91,354,735 110,090,789 91,354,735 106,948,391Dividend Tax - 65,000 - -Current Tax Expense 91,354,735 110,155,789 91,354,735 106,948,391

14.5 reconciliation of effective tax rateProfit for the year 233,567,250 327,111,196 291,466,375 315,704,865Total tax expenses 76,545,042 135,076,509 94,957,846 116,122,394Profit excluding tax 310,112,292 462,187,705 386,424,221 431,827,259

Tax using Company’s domestic tax rate 86,831,442 129,412,558 108,198,781 120,911,633Non deductible expenses 17,709,175 26,403,045 17,709,174 13,826,797Deductible expenses (16,449,895) (32,060,415) (16,449,894) (13,961,841)Tax exempt income (18,486,345) (14,079,282) (18,486,344) (14,243,082)Income from other sources 383,018 414,884 383,018 414,884Tax losses arising from operations of subsidiary 21,367,340 - - -Change in recognized deductible temporary differences (16,636,909) 22,253,661 1,775,895 6,506,945Over provision in respect of previous year 1,827,216 2,667,058 1,827,216 2,667,058Dividend Tax - 65,000 - - 76,545,042 135,076,509 94,957,846 116,122,394

14.6 Deferred tax (Assets ) / LiabilitiesBalance at the beginning of the year 27,924,343 6,019,604 9,511,539 3,294,927Charge / (Reversal)for the year (16,401,959) 21,904,739 2,010,845 6,216,612Balance at the end of the year 11,522,384 27,924,343 11,522,384 9,511,539

Deferred tax (asset)/liability as at the year end is made up of the followingProperty,Plant and Equipment 17,286,998 35,280,598 17,286,998 15,134,076Retirement Benefit Obligations (5,764,614) (7,356,255) (5,764,614) (5,622,537)Provision for Bad Debtors - - - - 11,522,384 27,924,343 11,522,384 9,511,539


50

balance as at recognized in recognized in balance as at recognized in recognized in balance as at

31.03.2015 profit or Loss other 31.03.2016 profit or Loss other 31.03.2017

comprehensive comprehensive

income income

rs. rs. rs. rs. rs. rs. rs.

14 INCOME TAX EXPENSE (contd.)14.7 Movement on Deferred tax (Asset)/ LiabilitiesGroup

Property Plant and equipment/

Investment property 13,306,945 21,973,653 - 35,280,598 3,293,100 - 38,573,698

Retirement Benefit Obligations (7,287,341) 280,009 (348,923) (7,356,255) (1,346,685) 353,806 (8,349,134)

Tax Losses set off - - - - (18,583,324) (118,856) (18,702,180)

6,019,604 22,253,662 (348,923) 27,924,343 (16,636,909) 234,950 11,522,384

coMpAnY

Property Plant and equipment/

Investment property 9,633,840 5,500,236 - 15,134,076 2,152,922 - 17,286,998

Retirement Benefit Obligations (6,338,913) 1,006,709 (290,333) (5,622,537) (377,027) 234,950 (5,764,614)

3,294,927 6,506,945 (290,333) 9,511,539 1,775,895 234,950 11,522,384

15 eArninGs per shAre AnD DiViDenD per shArebasic earnings per shareBasic Earnings per Share has been calculated by dividing profit attributable to equity holders of Sathosa Motors PLC, by weighted average number of ordinary shares outstanding during the year.

Diluted earnings per share Diluted Earnings per Share is determined by adjusting the profit or loss attributable to ordinary share holders and the weighted average number of ordinary shares outstanding for the effects of all dilutive potential ordinary shares.

As there were no potential Dilutive Ordinary Shares outstanding as at the year end, Diluted Earnings per Share is equal to Basic Earnings per Share.



51

Group company 2017 2016 2017 2016 rs. rs. rs. rs.

15.1 earnings per share Amounts used as the numeratorProfits Attributable to Ordinary Shareholders (Rs.) 262,516,812 321,083,030 291,466,375 315,704,865

Amounts used as the DenominatorWeighted Average Number of Ordinary Shares as at the end 6,033,622 6,033,622 6,033,622 6,033,622Basic Earnings per Share (Rs.) 43.51 53.22 48.31 52.33


15.2 Dividend per share Dividend paid during the yearDividend on ordinary shares Final Dividend 2015/2016 ( Rs.15/= per share) 90,504,330 42,235,354 90,504,330 42,235,354Interim Dividend 2016/2017 ( Rs.15/= per share ) 90,504,330 30,168,110 90,504,330 30,168,110 181,008,660 72,403,464 181,008,660 72,403,464

Weighted Average number of Ordinary Shares as at the year end 6,033,622 6,033,622 6,033,622 6,033,622Dividend per share (Rs.) 30 12 30 12

Previous year’s (2015/2016) final Dividend paid during the current year (2016/2017) is Rs.15/= Per share.Interim Dividend paid during the current year (2016/2017) is Rs.15/= Per share.

15.2.1 Dividend per Share - Proposed / Declared Group / company Final Dividend proposed for the year ended 31 March 2017 (Rs.) 30,168,110 Weighted Average number of Ordinary Shares as at the year end 6,033,622 Dividend Per Share - Proposed for 31 March 2017 (Rs.) 5 A final dividend of Rs.5.00 per share is proposed for the year ended 31 March 2017. The final dividend proposed on 22 June 2017, has not been recognized as a distribution to owners during the period and has been disclosed under Note 33 in compliance with LKAS 10 - ‘Events after Reporting Period’


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54

Group company 2017 2016 2017 2016 As at 31 March, rs. rs. rs. rs.

17 intAnGibLe AssetscostAs at 1 April 6,206,040 6,206,040 - -Additions during the year - - - -As at 31 March 6,206,040 6,206,040 - -

Accumulated AmortizationAs at 1 April 2,951,514 1,710,306 - -Amortization during the year 1,241,208 1,241,208 - -As at 31 March 4,192,722 2,951,514 - -

Carrying value as at 31 March 2,013,318 3,254,526 - -

Intangible Assets include Software licenses of ERP System.

18 prepAiD LeAse pAYMentscostAs at 1 April 97,550,366 7,550,366 7,550,366 7,550,366Addition during the year - 90,000,000 - -Closing Balance as at 31 March 97,550,366 97,550,366 7,550,366 7,550,366

Accumulated AmortizationAs at 1 April 17,187,824 2,111,557 2,187,824 2,111,557Charge for the year 15,076,266 15,076,267 76,266 76,267As at 31 March 32,264,090 17,187,824 2,264,090 2,187,824

Carrying Value 65,286,276 80,362,542 5,286,276 5,362,542

Prepaid Lease Payments disclosed above relate to the land at Peliyagoda acquired on a 99 years operating lease commencing from 1987. Remaining lease period as at 31 March 2017 is 69 years.

Further, SML Frontier (Pvt) Ltd. Recognized prepaid lease payments amounting to Rs.90 Mn. In respect of Welisara workshop premises which has been subleased by Frontier Automotive (Pvt) Ltd. Remaining lease period as at 31 March 2017 is 4 years.


19 inVesMent propertY Balance at 1 April 45,360,000 24,191,513 45,360,000 24,191,513Addition - - - -Changes in fair value - 21,168,487 - 21,168,487Investment property reclassified to PPE (45,360,000) - (45,360,000) -Balance at 31 March - 45,360,000 - 45,360,000

The company no longer leases this investment property to Avonsmart Engineering (Pvt) Ltd and company is using this premises for its own use. Therefore during the current financial year the investment property has been re-classified to Property, Plant & Equipment & depreciated accordingly.



55

2017 2016 % holding no.of shares cost rs. no.of shares cost rs.

20 inVestMent in subsiDiArYSML Frontier automotive (Pvt) Ltd 50% 13,000,004 164,970,051 6,500,002 65,000,020 13,000,004 164,970,051 6,500,002 65,000,020

In February 2017 SML Frontier Automotive (Pvt) Limited issued 6,500,002 shares to Sathosa Motors PLC for a cash consideration of 99,970,030.76/-

The financial statements of the said company is consolidated as a 50% subsidiary of the company.

Group companyAs at 31 March, 2017 2016 2017 2016 rs. rs. rs. rs.

21 inVentoriesNew Vehicles 1,250,997,547 717,307,441 906,674,147 670,892,522Spare Parts 239,695,499 217,907,728 113,477,705 80,823,398Work in Progress 34,078,502 21,150,243 2,325,436 4,291,409Goods in Transit 361,844,322 237,238,795 360,564,218 215,353,234General Stores 6,208,000 4,545,452 6,208,000 4,545,452 1,892,823,870 1,198,149,659 1,389,249,506 975,906,015Provision for Inventories (7,806,269) (6,395,475) (3,667,798) (6,395,475) 1,885,017,601 1,191,754,184 1,385,581,708 969,510,540

22 trADe AnD other receiVAbLesTrade Receivables -New Vehicles 388,419,660 429,407,917 388,419,660 359,129,621 -Spare Parts 34,958,522 35,857,052 34,958,522 35,857,052 -Work Shop 100,063,143 17,569,555 25,215,784 17,569,555 523,441,325 482,834,524 448,593,966 412,556,228 provision for impairmentProvision for Bad and Doubtful Debts (1,949,771) (2,463,882) (326,802) (840,913) 521,491,554 480,370,642 448,267,164 411,715,315Loans to Employees ( Note 22.1) 1,691,645 1,816,021 1,637,145 1,767,521Other Debtors 70,199,403 50,043,459 29,998,022 17,227,149Deposits and Prepayments 22,322,737 19,721,665 5,866,825 1,877,477Withholding Tax Recoverable 113,217 511,404 113,216 511,404VAT Receivable - 3,214,394 - 3,214,394Advances 57,435,181 102,157,666 - -Advances to suppliers 31,367,426 11,462,938 - -ESC Receivable 5,930,049 - - - 710,551,212 669,298,189 485,882,372 436,313,260


56


22.1 Loans to employeesBalance at the beginning of the year 1,816,021 1,575,534 1,767,521 1,406,034Loans Granted during the year 594,500 1,945,400 540,000 1,060,400 2,362,021 3,520,934 2,307,521 2,466,434Repayments during the year (670,376) (1,704,913) (670,376) (698,913)Balance at the end of the year 1,691,645 1,816,021 1,637,145 1,767,521

Loans to Employees include loans and advances granted to officers, equal to or exceeding Rs.20,000/-. The total amount of such loans granted by the company is Rs.540,000/-. The movements of these loans during the year is as follows:


23 AMounts Due FroM reLAteD pArtiesFrontier Automotive (Pvt) Ltd - 5,021,681 - -Access Lifestyle (Pvt) Ltd 26,411 - 26,411 -Access International (Pvt) Ltd 90,285 - 90,285 -Access Engineering PLC 444,113 - 89,961 -Access International Projects (Pvt) Ltd 86,516 - 86,516 -Access Real Estate (Pvt) Ltd 7,608 - - -Foresight Engineering (Pvt) Ltd - 5,200,000 - -Mr. Darshana Munasinghe - 30,805 - -Mr. Sheran Fernando 3,804,752 380,046 - - 4,459,685 10,632,532 293,173 -

24 cAsh AnD cAsh eQuiVALents24.1 Favorable balance Overnight Repos and Short Term Call Deposits 7,068,226 65,286 7,068,226 65,286Cash in hand 2,555,932 2,031,202 - -Cash at Bank 40,978,443 5,241,642 5,761,658 5,142,392 50,602,601 7,338,130 12,829,884 5,207,678 24.2 unfavorable balance Bank Overdraft (69,182,060) (236,685,964) (14,551,423) (181,598,461)Cash and Cash Equivalents for the purpose of Cash Flow Statement (18,579,459) (229,347,834) (1,721,539) (176,390,783)

25 stAteD cApitAL6,033,622 Ordinary Shares 115,924,290 115,924,290 115,924,290 115,924,290

The holders of Ordinary Shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share at meetings of the Company. All shares rank equally with regard to the Company’s residual assets.



57


26 interest beArinG borroWinGspayable within one Year Term Loan 14,280,000 14,280,000 - -Import Loan - 15,975,000 - -Import Demand Loan - 143,281,618 - -Short-Term Loan from HNB 306,586,000 30,000,000 - -Revolving short term loan Commercial Bank 174,000,000 - 174,000,000 494,866,000 203,536,618 174,000,000 -

payable after one YearTerm Loan 135,775,134 164,335,134 - -

Details of all loans and facilities together with the related securities offered as at the reporting date are set out below,

company name Lending nature of repayment principal security institution the Facility terms & Amount (rs.) offered interest rate

SML Frontier Automotive National Bank Overdraft 13.50% 25,000,000 Corporate Private Limited Development Guarantee Bank Import Loan 13.00% 150,000,000 from Sathosa Motors PLC For Guarantee 1.50% 50,000,000 Rs.200,000,000SML Frontier Automotive Hatton Bank Loan AWPLR+2% 200,000,000 Corporate Private Limited National (Renew monthly) Guarantee Bank SBLC* AWPLR+2% 300,000,000 from Sathosa LC & TOD AWPLR+2% 450,000,000 Motors PLC For Facilities Rs.950,000,000Sathosa Motors PLC Commercial Revolving AWPLR+1.5% 225,000,000 Unsecured Bank short term loans (Renew monthly) *SBLC - Stand by LCs


27 Assets reLAteD GrAntsBalance at the beginning of the year 6,362,263 6,581,652 6,362,263 6,581,652Amortization for the year (219,389) (219,389) (219,389) (219,389)Balance at the end of the year 6,142,874 6,362,263 6,142,874 6,362,263

The above represents the grants received for the construction of work shop at Peliyagoda and are amortized over a period of fifty (50) years.


58

28 eMpLoYee beneFits28.1 net (Asset)/Liability recognized in the statement of Financial position


Balance at the beginning of the year 26,272,341 26,026,219 20,080,492 22,638,976Charge / (Reversal ) for the year 6,047,344 7,544,114 3,008,766 4,739,508Payments during the year (2,501,348) (7,297,992) (2,501,348) (7,297,992)Balance at the end of the year 29,818,337 26,272,341 20,587,910 20,080,492

28.2 The amount Recognized in the Income StatementService Cost 1,449,190 3,691,891 1,639,020 1,438,703Net interest on the net defined benefit liability / (asset) 2,133,253 2,606,067 2,208,854 2,263,898 3,582,443 6,297,958 3,847,874 3,702,601

28.3 The amount Recognized in Other Comprehensive IncomeActuarial (gain) / loss (1,263,595) 1,246,156 (839,108) 1,036,907

28.4 Employee benefits obligation ReconciliationBalance at the beginning of the year 26,272,341 26,026,219 20,080,492 22,638,976Current service cost 4,959,101 3,691,891 2,208,854 1,438,703Interest cost 2,351,838 2,606,067 1,639,020 2,263,898Actuarial losses/(gain) (1,263,595) 1,246,156 (839,108) 1,036,907Benefits paid during the year (2,501,348) (7,297,992) (2,501,348) (7,297,992)Balance at the end of the year 29,818,337 26,272,341 20,587,910 20,080,492

CompanyAn actuarial valuation of the provision for employee benefits was carried out as at 31 March 2017 by Mr. Munisamy Poopalanathan, Messrs Actuarial & Management Consultants (Pvt) Limited, a firm of professional actuaries. The valuation method used by the actuaries to value the employee benefits obligation is the ‘’Projected Unit Credit (PUC) method’’, the method recommended by the Sri Lanka Accounting Standard (LKAS 19) ‘’ Employee Benefits’’.

SubsidiaryThe gratuity liability of the subsidiary has been calculated using the Projected Unit Credit (PUC) method in compliance with LKAS 19 “Employee Benefits”.

Group company 2017 2016 2017 2016

28.5 principal assumptions used;a) Discount Rate 11%-12% 11% 12% 11%b) Salary Increase 10% 9%-11% 10% 11%c) Retirement Age 55 Years 55 Years 55 Years 55 Years

sensitivity AnalysisSensitivity to a reasonably possible change in the key assumptions employed with all other variables held constant in the Employment Benefit Liability measurement.



59

company subsidiaryAs at 31 March, 2017 2016 2017 2016 rs. rs. rs. rs. present Value of Defined present Value of Defined benefit obligation benefit obligation

Discount rate1% less 21,476,263 20,908,522 9,698,713 6,638,4951% More 19,767,301 19,315,236 8,793,372 5,784,888

salary escalation rate1% less 19,673,854 19,243,586 8,782,761 5,777,7001% More 21,563,028 20,973,354 9,702,011 6,638,495


29 DeFerreD tAx LiAbiLitY Balance at the beginning of the year 27,924,343 6,019,604 9,511,539 3,294,927Charge/(Reversal) for the year (16,401,959) 21,904,739 2,010,845 6,216,612Balance at the end of the year 11,522,384 27,924,343 11,522,384 9,511,539

29.1 (reversal) / origination during the year(Reversal) / origination to income tax expenses (Note 14.7) (16,636,909) 22,253,662 1,775,895 6,506,945(Reversal) / origination to other comprehensive income (Note 14.7) 234,950 (348,923) 234,950 (290,333) (16,401,959) 21,904,739 2,010,845 6,216,612

30 trADe AnD other pAYAbLesTrade Payable - ITOCHU Corporation 821,608,667 650,045,122 747,555,442 627,161,530Accrued Expenses 69,701,654 36,461,051 37,195,451 25,783,004 Sundry Creditors 11,003,859 6,028,725 11,003,859 6,028,725Advances and Retentions 392,266,872 62,240,806 392,266,872 62,240,806VAT Payable 14,198,343 13,373,027 1,606,932 -Advance Received for Vehicles 107,742,420 80,324,873 - -Advance Received for Parts 8,398,645 15,292,969 - -NBT Payable 5,464,567 8,134,563 591,768 491,221ESC Payable 5,930,049 - - -Provision for warranty - 20,722,989 - -Payable to Guvava - 45,097,363 - -Other Payable - - - -Advance received for extended Warranty 13,024,077 - - -Lease Payable 20,530,554 - - - 1,469,869,707 937,721,488 1,190,220,324 721,705,286


60


31 AMount Due to reLAteD pArtiesAccess Projects (Pvt) Ltd 11,335,050 18,680,378 - -Access Engineering PLC - 750,896 - -Access Natural Water (Pvt) Ltd 55,618 99,611 34,504 -Access International (Pvt) Ltd 13,750 - - -Repographics (Pvt) Ltd 10,120 - - -Mr. Darshana Munasinghe 5,765 - - -SML Frontier Automotive (Pvt) Ltd - - 105,497 - 11,420,303 19,530,885 140,001 -

32 continGent LiAbiLities Outcome of the current/pending tax assessments are as follows,

32.1 nbt Assessments 2009/2010 and 2010/2011Revenue authorities are of the view 2/3rd disallowance is applicable for NBT paid on imports too. However the company is claiming the position that 2/3rd disallowance is applicable for NBT paid quarterly only.

Liability assessed by the Revenue – 2009/2010 – Rs.7,350,762 and the penalty calculated Rs.3,675,381Liability assessed by the Revenue – 2010/2011 – Rs.7,790,377 and the penalty calculated Rs.3,895,189

2009/2010 - The Company appeal to the Court of Appeal on 16 April 20172010/2011- The case is being evaluated by the Tax Appeal Commission.

Having sought professional advise, the Management is confident that the said 2/3rd disallowance is applicable for NBT paid quarterly only and as such no liabilities would arise. Accordingly, no provision has been made in the financial statements.

32.2 corporate Guarantee Sathosa Motors PLC has issued corporate Guarantees on behalf of its subsidiary amounting Rs.1,000,000,000/- as at reporting date.*

name of the company relationship performance rs. refund rs. Miscellaneous rs. total rs.

SML Frontier Automotive Subsidiary - - 1,000,000,000 1,000,000,000 (Private) Limited - - 1,000,000,000 1,000,000,000

33 eVents occurrinG AFter the reportinG DAtePursuant to a resolution adopted on 22 June 2017, the Board of Directors of the Company approved the payment of a final dividend of Rs.5/- per share for the year ended 31 March 2017 (2016 Rs.15/- per share)

Towards the end of the financial year 2016-17 Company took a strategic decision to invest, Rs.576 Mn during the next financial year on acquiring a land in Vauxhall Street to construct a state-of-the-art building to house the SML head office, the main vehicle showroom and a spare parts facility.

As required by Section 56(2) of the Companies Act. No.07 of 2007, the Board of Directors has confirmed that the Company satisfies the solvency test in accordance with Section 57 of the Companies Act. No. 07 of 2007, and has obtained concurrence from auditors, prior to declaration of dividends.

In accordance with LKAS 10 “Events Occurring after the Reporting Date’’, this proposed dividend has not been recognized as a liability as at the date of Statement of Financial Position.



61

Except for the above there were no material events occurring after the Reporting date that require adjustments to or disclosure in the Financial Statements.

34 reLAteD pArtY trAnsActions The Company and its Subsidiary carries out transactions in the ordinary course of its business with parties who are defined as related parties in LKAS 24 “Related Party Disclosures”. The details of related party transactions are reported below.

34.1 transactions between related companiescompany

name of the company nature of the interest

nature of transactions Amount 2016/2017 rs.

Amount 2015/2016 rs.

Access Natural Water (Pvt) Ltd

Common Directors Purchase of mineral water 314,834 227,623

Sale of new vehicles 9,750,000 -

Purchase of electronic dispenser - 12,000

Access International (Pvt) Ltd Common Directors Vehicle repair & maintenance 78,509 831,582

Reprographics (Pvt) Ltd Common Directors Purchase of Toner 74,250 21,914

Purchase of a photo copy machine 350,000 -

Repairing photo copy machine 19,500 -

Access International Projects ( Pvt) Ltd

Common Directors Vehicle repair & maintenance 96,966 15,919

ZPMC Lanka Company( Pvt) Ltd

Common Directors Vehicle repair & maintenance 245,015 181,384

SML Frontier Automotive (Pvt) Ltd

Subsidiary & Common Directors

Vehicle repair & services 105,497 39,605

Subscription to Right Issue 99,970,031 -

Extension of service warranty package

300,000 -

Dividend received - 650,000

Access Engineering PLC Parent Company & Common Directors

Dividend Payment- Final 2015/16 68,765,558 61,124,940

Dividend Payment- Interim 2016/17 68,765,558 -

Sale of new vehicles 5,860,000 -

Vehicle repair & maintenance 24,502 -

Sale of spare parts 166,458 -

Debenture interest received 17,917,780 -

Investment in debentures - 174,330,000

Access Life Style (Pvt) Ltd Common Directors Sale of new vehicles 5,600,000 -

Vehicle repair & maintenance 22,966 -

*Other than transaction disclosed above, Sathosa Motors PLC has issued corporate guarantee’s on behalf of SML Frontier (Pvt) Ltd amounting to Rs.1 billion as disclosed in note 32.2.


62

34.1 transactions between related companies (contd.)subsidiary

name of the company nature of the interest

nature of transactions Amount 2016/2017 rs.

Amount 2015/2016 rs.

Sathosa Motors PLC Parent Company Vehicle Repair 105,497 39,605

Receipts - (39,605)

Rights issue 99,970,031 -

Extension of service warranty package

300,000 -

Dividend Payment - 650,000

Frontier Automotive (Pvt) Ltd.

Affiliate Company Warranty Claimable - 18,473,295

Prepaid Lease payment - (90,000,000)

Asset Transfer - 550,000

Impairment of receivable (5,021,681) -

Receipts - 3,138,330

Access Natural Water (Pvt) Ltd.

Affiliate Company Purchases 21,114 662,160

Settlement (99,611) (601,512)

Mrs. R S Fernando Director Directors Salaries 2,000,000 2,400,000

Payment (2,000,000) (2,400,000)

Mr. Sheran Fernando Managing Director Directors Salaries 3,600,000 3,600,000

Service Income 3,424,706 380,046

Payment (3,600,000) (3,600,000)

Mr. Darshan Munasinghe Director Service Income 313,106 187,449

Settlement (318,871) (156,644)

Foresight Engineering (Pvt) Ltd.

Affiliate Company Vehicle Sale - 52,000,000

Settlement (5,200,000) (46,800,000)

Access Projects (Pvt) Ltd. Affiliate Company Payable to Project Payment - 51,881,013

Settlement (13,250,000) (33,200,635)

Access Engineering PLC Ultimate Parent Company

Rent payable to 10,838,520 10,488,100

Boralesgamuwa land

Service Income Receivable 417,699 41,644

Settlement (11,589,416) (10,303,020)

Reprographics (Pvt) Ltd. Affiliate Company Purchase of Assets 10,120 -

Settlement - (17,760)

Access International ( Pvt) Ltd

Affiliate Company Purchase of Assets 13,750 -

Settlement - -

Access Real Estate Pvt Ltd Affiliate Company Purchase of Assets 7,608 -

Settlement - -



63

terms & conditions of the related party transactions“All above transactions are carried out at arm’s length basis. The sales to and purchases from related parties are carried out at terms equivalent to those that prevail in any other arm’s length transaction with a party outside the group. There is no mortgage/ guarantee provided for outstanding balances as at any given time /date, accordingly all transactions are unsecured and no interest is charged at the time of settlement (interest free settlement).“The above explanation is applicable to all related party receivables and payables.

Rationale for entering into Related Party Transactions

All Transactions refer to are either purchase of items or obtaining / provision of services. Accordingly above refer to transactions completed within the Group, at an arm’s length price.

34.2 transactions with key Management personnel and their close Family Members (cFMs)According to LKAS 24 “Related Party Disclosures”, Key Management Personnel are those having authority and responsibility for planning, directing and controlling the activities of the entity. Accordingly Board of Directors (including executive and non -executive Directors ) have been classified as key Management Personnel of the Group.

Close Family Members (CFM) of the KMPs are those family members who may be expected to influence or be influenced by that KMPs in their dealing with the entity. They may include KMPs domestic partner and children of the KMPs domestic partner and dependents of the KMPs domestic partner.

During the year no transactions were entered in to with CFMs.

Fees, emoluments and other benefits paid to Key Management Personnel amounted to Rs.24.2 Mn (2015/2016 Rs.10.2Mn) for Company and Rs.29.8 Mn (2015/2016 Rs.16.2Mn) for Group. All this payments are relating to Short term benefits.

There were no material related party transactions other than those disclosed above and in Note 23 and 31 to the Financial Statements.


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66

ownership interest held by nci principal place of operating 2016/2017 2015/2016 business segment 36 non-controLLinG interest (nci)SML Frontier Automotive (Pvt) Ltd Sri Lanka Trading agent 50% 50%

The following are summarized financial information of SML Frontier Automotive (Private) Limited. The information is before inter-company eliminations.

As at 31 March, 2017 2016 rs. rs.

statement of profit or Loss and other comprehensive incomeRevenue 1,174,174,490 1,042,966,982Profit / Loss for the year (57,899,124) 12,056,331Profit / Loss attributable to NCI (28,949,562) 6,028,165Other Comprehensive Income 424,487 (150,659)Total Comprehensive Income (57,474,637) 11,905,672Total Comprehensive Income attributable to NCI (28,737,318) 5,952,836

statement of Financial positionCurrent assets 766,149,460 467,991,558Non-current assets 401,753,074 462,893,559Current liability 666,670,194 528,183,976Non-current liability 145,005,561 188,939,787Net assets 356,226,779 213,761,354Net assets attributable to NCI 178,113,389 106,880,677

statement of cash FlowsCash flow used in operating activities (233,528,363) 22,523,217Cash flow used in investing activities (19,081,950) (190,414,562)Cash flow used in financing activities 288,709,444 153,249,813Net decrease in cash and cash equivalents 36,099,131 (14,641,532)Dividend paid to NCI during the year - 650,000



67

37 FinAnciAL instruMents37.1 Financial Assets and Liabilities by categoriesFinancial Assets and Liabilities in the tables below are split into categories in accordance with LKAS 39,

GroupFinancial assets Loans & held to Available for by categories receivables ( L&r) Maturity(htM) sale financial assets (AFs)As at 31 March, 2017 2016 2017 2016 2017 2016 rs. rs. rs. rs. rs. rs.

Financial instruments in non current assetsInvestment in Debentures - - 633,377,464 676,508,941 - -

Financial instruments in current assetsTrade and other receivables 704,507,946 665,572,391 - - - -Amounts due from Related Parties 4,459,685 10,632,532 Cash and cash equivalents 43,534,375 7,272,844 - - 7,068,226 65,286total 752,502,006 683,477,767 633,377,464 676,508,941 7,068,226 65,286

Financial Liabilities by categories Financial liabilities measured at amortized cost 2017 2016 As at 31 March, rs. rs.

Financial instruments in non- current liabilitiesInterest Bearing Borrowings 135,775,134 164,335,134

Financial instruments in current liabilitiesTrade and other payables 1,444,276,747 916,213,898Interest Bearing Borrowings 494,866,000 203,536,618Amounts due to Related Parties 11,420,303 19,530,885Bank Overdraft 69,182,060 236,685,964total 2,155,520,245 1,540,302,499


68

37 FinAnciAL instruMents (contD.)37.1 Financial Assets and Liabilities by categories (contd.)companyFinancial assets Loans & held to Available for by categories receivables (L&r) Maturity(htM) sale financial assets (AFs)As at 31 March, 2017 2016 2017 2016 2017 2016 rs. rs. rs. rs. rs. rs.

Financial instruments in non current assetsInvestment in Debentures - - 633,377,464 676,508,941 - -

Financial instruments in current assetsTrade and other receivables 481,209,155 431,867,461 - - - -Amounts due from Related Parties 293,173 - Cash and cash equivalents 5,761,658 5,142,392 - - 7,068,226 65,286total 487,263,986 437,009,853 633,377,464 676,508,941 7,068,226 65,286

Financial Liabilities by categories Financial liabilities measured at amortized cost 2017 2016 As at 31 March, rs. rs

Financial instruments in non- current liabilitiesInterest Bearing Borrowings - -

Financial instruments in current liabilitiesInterest Bearing Borrowings 174,000,000 -Trade and other payables 806,984,276 664,831,275Amounts due to Related Parties 140,001 -Bank Overdraft 14,551,423 181,598,461total 995,675,700 846,429,736

The Group has not disclosed the fair value for Financial Instruments such as short-term trade receivables and payables, because their carrying amounts are a reasonable approximation of the fair values.

The Company has invested Rs. 620.64 Mn in quoted debentures at fixed interest rate, for which the details are stated below.

investee interest tenor rate pA number of Value Maturity in Years % stocks rs.

National Development Bank 5 13 372,900 37,290,000 2018People’s Leasing Co. 4 9.63 25,600 2,560,000 2018National Development Bank 5 9.4 2,064,600 206,460,000 2020Access Engineering PLC 5 10.25 1,743,300 174,330,000 2020Hatton National Bank 5 11.25 2,000,000 200,000,000 2021 620,640,000

Currently the Company has no reason to dispose them in the foreseeable future and the Company’s intention is to hold them until maturity.



69

37.2 Fair Value hierarchyThe table below analyses financial instruments carried at fair value, by valuation method.The different levels have been defined as follows:

Level 1 : quoted prices (unadjusted) in active markets for identical assets or liabilitiesLevel 2 : inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices)Level 3 : inputs for the asset or liability that are not based on observable market data (unobservable inputs).

Group Level 1 Level 2 Level 3 total rs. rs. rs. rs.

As at 31/3/2017Financial investments available for sale Government of Sri Lanka Treasury Bills - 7,068,226 - 7,068,226

As at 31/3/2016Financial investments available for sale Government of Sri Lanka Treasury Bills - 65,286 - 65,286

company Level 1 Level 2 Level 3 total rs. rs. rs. rs.

As at 31/3/2017Financial investments available for sale Government of Sri Lanka Treasury Bills - 7,068,226 - 7,068,226

As at 31/3/2016Financial investments available for sale Government of Sri Lanka Treasury Bills - 65,286 - 65,286

38 FinAnciAL risk MAnAGeMentOverviewThe Group has exposure to the following risks arising from financial instruments:

� Credit risk � Liquidity risk � Market risk

This note represents information about the Group’s exposure to each of the above risks, the Group’s objectives policies and processes for measuring and managing risk.

38.1 credit riskCredit risk is the risk of financial loss to the Group if a customer or counter party to a financial instrument fails to meet its obligations, and arises principally from the Group’s receivables from customers and investment securities.


70

exposure to credit riskThe carrying amounts of financial assets represents the maximum credit exposure. The maximum exposure to credit risk at the reporting date was as follows.


Investments in Debentures 633,377,464 676,508,941 633,377,464 676,508,941Trade receivables 523,441,325 482,834,525 448,593,966 412,556,228Other receivables 183,016,392 185,201,748 37,501,992 20,872,147Amounts due from Related Parties 4,459,685 10,632,532 293,173 -Cash and cash equivalents 50,602,601 7,338,130 12,829,884 5,207,678 1,394,897,467 1,362,515,876 1,132,596,479 1,115,144,994Age analysis of trade debts as at 31/3/2017 is as follows;

Group Less than 61 - 90 91- 180 181- 365 over 365 total 60 days days days days days rs. rs. rs. rs. rs. rs.

New Vehicle Department 332,068,160 6,450,000 89,776,500 1,225,000 - 429,519,660Spare parts & Workshop 54,011,784 3,408,227 5,435,733 2,421,702 28,644,219 93,921,665total 386,079,944 9,858,227 95,212,233 3,646,702 28,644,219 523,441,325

company Less than 61 - 90 91- 180 181- 365 over 365 total 60 days days days days days rs. rs. rs. rs. rs. rs.

New Vehicle Department 298,643,160 - 89,776,500 - - 388,419,660Spare parts & Workshop 51,856,774 2,505,595 4,016,641 1,773,406 21,890 60,174,306total 350,499,934 2,505,595 93,793,141 1,773,406 21,890 448,593,966

The Group believes that the unimpaired amounts that are past due by more than 30 days are still collectible, based on historic payment pattern and extensive analysis and follow up procedures implemented on the customer credit risk.

38.2 Liquidity riskThe risk that the Group will encounter difficulty in meeting the obligations associated with its financial liabilities that are settled by delivering cash or another financial asset. The Group’s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet it’s liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Group’s reputation. The maximum exposure to liquidity risk as at reporting date was as follows;

Group Within Within More than total 1 year 1-2 years 2 years rs. rs. rs. rs.

non- Derivative Financial Liabilities Interest bearing borrowings 494,866,000 135,775,134 - 630,641,134Trade and other payables 1,469,869,707 - - 1,469,869,707Bank Overdraft 69,182,060 - - 69,182,060Amounts due to related parties 11,420,303 - - 11,420,303 2,045,338,070 135,775,134 - 2,181,113,204



71

company Within Within More than total 1 year 1-2 years 2 years rs. rs. rs. rs.

non- Derivative Financial Liabilities Interest bearing borrowings 174,000,000 - - 174,000,000Trade and other payables 1,190,220,324 - - 1,190,220,324Bank Overdraft 14,551,423 - - 14,551,423Amounts due to related parties 140,001 - - 140,001 1,378,911,748 - - 1,378,911,748

Trade and other payables are settled during the availability of the credit terms.Dividend payable is settled at the time of they are claimed as the company deposits the funds required for the purpose of the dividend distribution in advance in a separate account.

38.3 Market riskThis has an impact on the market prices, such as forex rates, interest rates and equity prices will affect the Group’s income or the value of its holdings of financial instruments.

The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimising the Return.

(a.) interest rate riskInterest rate risk is the risk that the fair value of future cash flows of a financial instrument fluctuate because of changes in the market interest rates. The Group’s exposure to the risk of changes in market interest rates relates primarily to the Group’s long term debt obligation. The Group utilizes various financial instruments to manage exposures to interest rate risks.

At the reporting date, the Group’s interest - bearing financial instruments were as follows:

Group company carrying Amount carrying AmountAs at 31 March, 2017 2016 2017 2016 rs. rs. rs. rs.

Fixed rate instrumentsFinancial AssetsDebentures 633,377,464 676,508,941 633,377,464 676,508,942Overnight Repos and short term call deposits 7,068,226 65,286 7,068,226 65,286 640,445,690 676,574,227 640,445,690 676,574,228

Variable rate instrumentsFinancial LiabilitiesTerm Loan (150,055,134) (178,615,134) - -Import demand loans (306,586,000) (189,256,618) -Revolving short term loan (174,000,000) - (174,000,000) -Bank Overdraft (69,182,060) (236,685,964) (14,551,423) (181,598,461) (699,823,194) (604,557,716) (188,551,423) (181,598,461)


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38 FinAnciAL risk MAnAGeMent (contD.)(b) currency risk

exposure to currency risk companyAs at 31 March, 2017 2017 2017 2017 2016 2016 2016 2016 Gbp usD thb JpY Gbp usD thb JpY

Trade Payables - Foreign Creditors - - - 534,768,955 - - 1,018,422 484,264,563Gross Statement of Financial Position Exposure - - - 534,768,955 - - 1,018,422 484,264,563

Group 2017 2017 2017 2017 2016 2016 2016 2016 Gbp usD thb JpY Gbp usD thb JpY

Trade Payables - Foreign Creditors 154,293 488 - 534,768,955 213,065 - - -Gross Statement of Financial Position Exposure 154,293 488 - 534,768,955 - - - -

The following significant exchange rates were applicable during the year : Group Average rate reporting Date spot rateAs at 31 March, 2017 2016 2017 2016 rs. rs. rs. rs.

GBP 202.42 206.27 193.18 211.66 USD 150.35 146.78 153.91 146.78 THB 4.24 4.08 4.40 4.08 JPY 1.35 1.22 1.38 1.32

company Average rate reporting Date spot rateAs at 31 March, 2017 2016 2017 2016 rs. rs. rs. rs.

GBP 202.42 206.27 193.18 211.66 USD 150.35 140.76 153.91 146.78 THB 4.24 4.08 4.40 4.08 JPY 1.35 1.22 1.38 1.32

sensitivity Analysis A strengthening of the Rupee as indicated below, against the USD,THB, JPY at 31 March 2017 would have increased/ (decreased) the equity and profit or loss by the amounts shown below. This analysis is based on foreign currency exchange rate variances that the Group considered to be reasonably possible at the end of the reporting period. The analysis assumes that all other variables, in particular interest rates, remain constant.



73

strengthening Weakening strengthening Weakening profit or Loss profit or Loss profit or Loss profit or Loss rs. rs. rs. rs. Group Group company company

31 March 2017USD (10% movement) (7,514) 7,514 - -THB (10% movement) - - - -JPY (10% movement) (74,001,328) 74,001,328 (74,001,328) 74,001,328GBP (10% movement) (2,980,624) 2,980,624 - -

31 March 2016USD (10% movement) - - - -THB (10% movement) (416,000) 416,000 (416,000) 416,000JPY (10% movement) (63,738,902) 63,738,902 (63,738,902) 63,738,902GBP (10% movement) (4,509,734) 4,509,734 - -

38.4 capital management The Board’s policy is to maintain a strong capital base so as to maintain share holder, creditor and market confidence and to sustain future development of the business. The Board of Directors monitors the return on capital and level of dividends to ordinary shareholders.

The Group’s Net Debt to adjusted Equity ratio at the end of the reporting period was as follows:

carrying amount Group companyAs at 31 March, 2017 2016 2017 2016 rs. rs. rs. rs.

Total Liabilities 2,240,994,605 1,691,700,302 1,429,424,347 974,576,541Less: Cash and Cash Equivalents (50,602,601) (7,338,130) (12,829,884) (5,207,678)Net Debt 2,190,392,004 1,684,362,172 1,416,594,463 969,368,863

Total Equity 1,481,034,036 1,398,709,483 1,467,890,698 1,356,828,825

Net Debt to Equity Ratio 148% 120% 97% 71%

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

39 operAtinG LeAsesNon cancellable operating lease rentals are payable as follows:


within one year 264,000 528,000 264,000 528,0001-5 years - 264,000 - 264,000Total 264,000 792,000 264,000 792,000

The above rentals are payable with respect to Panchikawatte operating lease.Lease rental per month amounts to Rs.44,000/- net of taxes. This payment is considered as an expense in the Statement of Profit or Loss and Other Comprehensive income. This is a five year lease. Commencement October 2012.( Rent per month - 40,000 recoverable from the advance whilst Rs.44,000 is paid in cash terms)


74

The activities and views of the Committee have been communicated to the Board of Directors by tabling the Minutes of the Committee Meetings at the Board of Directors Meeting.

The Committee has reviewed several Related Party Transactions and directed to make appropriate disclosure to Colombo Stock Exchange accordingly and detail analysis of Related Party Transactions entered into during the financial year 2016/17 are given in Note 34.1 to the Financial Statements.

The Committee has put in place the necessary process to identify, review, disclose and monitor Related Party Transactions according to the provisions in the Section 9 of the Listing Rules of the Colombo Stock Exchange.

Mr. M M nelson De silva Bsc, FCAChairman – Related Party Transactions Committee of Sathosa Motors PLC.

22 June 2017

DecLArAtionA declaration by the Board of Directors as an affirmative statement of the compliance with the Listing Rules pertaining to Related Party Transactions is given on pages 61 to 63 of the Annual Report.

The Related Party Transactions Review Committee was formed in terms of the Code of Best practice on Related Party Transactions issued by the Securities & Exchange Commission of Sri Lanka and under the Section 9 of the Listing Rules of the Colombo Stock Exchange.

coMposition oF the coMMitteeThe Related Party Transactions Review Committee is appointed by and is responsible to the Board of Directors of the Company. The Related Party Transactions Review Committee consists of two independent non executive directors, one non executive director and the Managing Director of the Company. The Committee comprises with the following directors:

Director independent / non independent Membership status

Mr. M M Nelson De Silva Independent &Non Executive Chairman

Mr. J. Christopher Joshua Non Independent & Non Executive Member

Mr. Chiran Wijesinghe Independent Non Executive Member

Mr. Tilak Gunasekara Non Independent & Executive Member

By invitation, the Financial Controller and Divisional Heads were called to appear in the Related Party Transactions Review Committee as and when required.

keY responsibiLitiesTo assist the Board in meeting its oversight responsibilities to ensure that the interest of shareholders as a whole are taken into account when entering into Related Party Transactions.

ActiVities in 2016/17Continuous initiatives were taken by the Committee in making awareness for strict compliance with the Listing Rules of the Colombo Stock Exchange among the key decision makers in the Company.

The Committee held four meetings during the financial year 2016/17.

Furthermore, actions were taken on a regular basis in obtaining disclosures from relevant key member persons and their spouse / dependent children in respect of matters relevant to the related party transactions. The Committee also instructed the relevant personal in the software development and implementation of the Company to facilitate to capture transactions of related parties and review them in complying with the Listing Rules.

reporT oF The relaTed parTy TransacTions revieW commiTTee


75

coMpositionThe Audit Committee of the Company is appointed by and is responsible to the Board of Directors. The Audit Committee consists of two independent non executive directors and one non executive director of the Board. The Audit Committee comprises with the following non executive directors:

� Mr. M M Nelson De Silva - Chairman of the Audit Committee (Independent Non Executive Director)

� Mr. J.Christopher Joshua- (Non Executive Director)

� Mr. Chiran Wijesinghe- (Independent Non Executive Director)

stAteMent oF purposeThe purpose of the Committee is to carry out the following important activities:

� To review and ensure the integrity of the Company’s Financial Statements,

� To monitor the Company’s compliance with legal and regulatory requirements,

� To review in depth, periodic reports issued by the Internal Auditors & the Management Letter issued by the External Auditors and to ensure that all necessary follow up action have been initiated,

� To monitor the performance of the Company’s Internal Audit Function and its Independence,

� To review the design, evaluation and implementation of internal control systems and take steps to strengthen them when required.

� To evaluate and monitor risk management function of the Company and adherence to accounting policies and

� To ensure that sound Corporate Governance practices are upheld within the Company.

reporT oF The audiT commiTTee

MAnDAte oF operAtionThe Board of Directors appoints the members of the Committee. The Mandate of the Audit Committee is approved by the Board. This mandate shall be reviewed and reassessed by this Committee periodically and any proposed changes shall be submitted to the Board of Directors for approval.

MeetinGs AnD AttenDAnceThe Committee meets at least once a quarter and conducts its meeting according to a formal agenda. It had four sittings during the year. The Executive Director / Managing Director, Head of Finance and Internal Auditors attend audit committee meetings by invitation. As and when required other senior officers of the Company are invited to attend the meetings.

FinAnciAL reportinG AnD reLAteD DiscLosureManagement has the primary responsibility for the preparation of Financial Statements and the reporting process. The Audit Committee reviews the Monthly Management Accounts, Interim Financial Statements,Annual Report and formal announcements made to the Colombo Stock Exchange.The Audit Committee reviews and discusses the analysis prepared by Management and the Independent Auditors setting forth significant financial reporting issues and judgments made in connection with the preparation of the Financial Statements.

coMpAnY’s internAL AuDit FunctionsThe Audit Committee monitors the internal auditors’ functions by approving annual internal audit programme and reviewing quarterly Internal Auditor Reports and recommendations made for system and procedural improvements in the Company. The implementations of such recommendations were made after obtaining responses from the divisional heads.

A procedure is laid down for reporting on quarterly basis by Internal Auditors with regard to statutory and regulatory compliance and internal control procedures. Instances of non compliances if any, are reported through Internal Audit Report on quarterly basis and review of such report is taken up at the Audit Committee meetings together with appropriate corrective actions.

GooD GoVernAnceThe Committee also reviews the level of compliance with Corporate Governance rules as per Sec. 7.10 of the Listing Rules of the Colombo Stock Exchange.The Committee is satisfied that the Company has complied with all mandatory requirements of this code.

The Company’s whistle blowing policy is intended to serve as a channel of managing corporate fraud risk and staff is encouraged to raise their concerns on existing or potential wrong doings by other employees.


76

externAL AuDit FunctionsWith regard to the external audit functions of the Company the role played by the Committee is as follows:

� Assisting the Board of Directors to implement the process of engaging External Auditors for audit services in compliance with the provisions and the directions and agree on their remuneration.

� Monitor and assess the independence of the External Auditors.

� Reviewing non-audit services provided by the Auditors with a view to safeguard and to support the independence and objectivity of the external auditors.

� Discuss with the Auditors their audit plan, scope and the methodology proposed to be adopted in conducting the audit prior to commencement of the Annual Audit.

� Approve the financial statements. � Reviewing the External Auditors

Management Letter and the management responses thereto.

The audit Committee has recommended to the Board that KPMG be re-appointed as statutory auditors for the financial year ending 31st March 2018 subject to the approval by the Shareholders at the forthcoming Annual General Meeting.

concLusionThe Committee is satisfied that the internal controls and procedures in operation are adequate and operating effectively to provide reasonable assurance that the Company’s assets are adequately safeguarded and steps are being taken continuously to improve the systems and controls as per the reports made available by the External and Internal Auditors and the review process adopted by the Committee. The Company has adopted appropriate accounting policies in preparation and presentation of Financial Statements.

Mr. M M nelson De silvaChairman – Audit Committee

22 June 2017

reporT oF The audiT commiTTee


77inFormaTion To invesTor

20 MAJor shArehoLDers oF the coMpAnY

nAMe oF shArehoLDer no. oF shAres

as at 31-03-2017

% no. oF shAres

as at 31-03-2016

%

1 ACCESS ENGINEERING PLC 5,093,745 84.423 5,093,745 84.423

2 LAKSHMANS HOUSING AND CONSTRUCTION CO (PVT) LTD 616,228 10.213 612,712 10.155

3 MR M MAHIBALAN 26,148 0.433 21,666 0.359

4 BANK OF CEYLON NO. 1 ACCOUNT 16,000 0.265 16,000 0.265

5 MR. TILAK DIAS GUNASEKERA 0 0.000 5,875 0.097

HATTON NATIONAL BANK PLC/ THILAK DIAS GUNASEKERA 5,875 0.097 0 0.000

6 MR R D LEELARATNA 5,596 0.093 5,083 0.084

7 MR. S G N HERATH ,MRS.A N HERATH AND MS. N E HERATH

5,242 0.087 5,442 0.090

8 MR. U I SURIYABANDARA 5,095 0.084 4,962 0.082

9 MR. N A N D D GUNASEKARA 4,455 0.074 4,794 0.079

10 MR. G C GOONETILLEKE 4,050 0.067 4,050 0.067

11 MR.R D U A RANAMUKA 4,000 0.066 4,000 0.066

12 MR K C VIGNARAJAH 3,749 0.062 3,749 0.062

13 MR. A H MUNASINGHE 3,598 0.060 3,598 0.060

14 MR. S GOWRISANGAR 3,300 0.055 3,300 0.055

15 TEA CEYLON INVESTMENTS (PVT) LTD 2,850 0.047 2,850 0.047

16 MRS. S A KALEEL 2,400 0.040 2,400 0.040

17 MR. N L DIAS (DECEASED) 2,400 0.040 2,400 0.040

18 MR. P K SAMBASIVAM 2,260 0.037 2,260 0.037

19 DR. N I WIKRAMANAYAKE 2,206 0.037 2,206 0.037

20 MRS R R RUMY 2,059 0.034 2,059 0.034

SUB TOTAL 5,811,256 96.315 5,803,151 96.180

OTHERS 222,366 3.685 230,471 3.820

TOTAL 6,033,622 100.00 6,033,622 100.00

Distribution oF shAre hoLDinG As At 31st MArch 2017

From to no of holders no of shares %

1 1,000 1,119 172,410 2.86

1,001 10,000 50 109,091 1.81

10,001 100,000 2 42,148 0.70

100,001 1,000,000 1 616,228 10.21

Over 1,000,000 1 5,093,745 84.42

1,173 6,033,622 100.00


78

cAteGories oF shArehoLDers

Local Individuals 979 252,254 4.18

Local Institutions 43 5,747,706 95.26

Foreign Individuals 147 32,098 0.53

Foreign Institutions 4 1,564 0.03

1,173 6,033,622 100.00

Directors shArehoLDinG As At 31st MArch 2017

name of Director no of shares %

Sumal Joseph Sanjiva Perera Nil Nil

Tilak Dias Gunasekera 5,875 0.097%

Muthu Muni Nelson De Silva 1,100 0.018%

Joseph Christopher Joshua(Alternate Director Mr S H S Mendis)

Nil Nil

Ranjan John Suriyakumar Gomez(Alternate Director Mr S D Munasinghe)

Nil Nil

Shevantha Harindra Sudharaka Mendis Nil Nil

Saumaya Dharshana Munasinghe Nil Nil

Dalpadoruge Anton Rohana Fernando Nil Nil

Wijesinghe Appuhamilage Chiran Okullo Wijesinghe Nil Nil

Eshan Sudesh Coorey Nil Nil

� Mr Eshan Sudesh Coorey appointed w.e.f 03rd August 2016

shAre prices

As at 31/03/2017 As at 31/03/2016

Highest Price during the year rs.349.70 (16-06-2016) Rs.345.00 (06-08-2015)

Lowest Price during the year rs.280.00 (27-02-2017) Rs.243.50 (30-04-2015)

Closing Price rs.300.00 Rs.300.00

FinAnciAL cALenDAr 2016/20171ST Quarter ended 30-06-2016 Accounts Dispatched on 03-08-20152nd Quarter ended 30-09-2016 Accounts Dispatched on 05-11-20153rd Quarter ended 31-12-2016 Accounts Dispatched on 02-02-20164th Quarter ended 31-03-2017 Accounts Dispatched on 31-05-201731st Annual General Meeting 25 August 201532nd Annual General Meeting 28 July 201633rd Annual General Meeting 25 August 2017

pubLic hoLDinGThe Percentage of shares held by the Public is 15.462% comprising of 1,170 shareholders.

inFormaTion To invesTor


79

Group companyFor the year ended 31 March 2017 2016 2017 2016 rs.000 % rs.000 % rs.000 % rs.000 %

Value addedRevenue 5,230,781 4,048,463 4,056,607 3,005,536 Other Income 146,537 44,406 87,301 44,289 5,377,318 4,092,869 4,143,908 3,049,826

Cost of material & Services (4,540,852) (3,332,962) (3,575,552) (2,480,586) 836,466 759,907 568,356 569,240

Distribution of value addedTo employees as salaries, Incentive & Other benefits 235,745 28.18 197,232 25.95 125,218 22.03 103,359 18.16To government Revenue as taxes 76,545 9.15 135,077 17.78 97,130 17.09 116,122 20.40To providers of Capital as dividend 90,504 10.82 90,504 11.91 90,504 15.92 90,504 15.90To maintain operations Depreciation 89,717 10.73 65,839 8.66 26,507 4.66 23,974 4.21Financing expenses 79,926 9.56 34,647 4.56 22,448 3.95 10,079 -To Expansion & Growth Reserves 264,028 31.56 236,607 31.14 206,549 36.34 225,201 39.56 836,466 100.00 759,906 100.00 568,356 100.00 569,240 98.23

sTaTemenT oF value added

To Employees 26%

To Government Revenue 18%

To Providers of Capital 12%

To Maintain Operations 13%

To Expansion & Growth 31%

2016 Group

To Employees 17%





2016 coMpAnY

To Employees 28%





2017 Group

To Employees 22%





2017 coMpAnY


80

NOTICE IS HEREBY GIVEN that the Thirty Third (33rd) Annual General Meeting of the Shareholders of Sathosa Motors PLC will be held at the Institute of Charted Accountants of Sri Lanka, 30A, Malasekera Mawatha, Colombo 07, 25th August 2017, at 10.30 a.m for the following purposes.

1. To receive and consider the Annual Report of the Board of Directors on the affairs of the Company and the Statement of Accounts for the year ended 31st March 2017 with the Report of the Auditors thereon.

2. To re-elect Mr. W A C O Wijesinghe who retires by rotation in terms of Article 88(i) of the Articles of Association of the Company.

3. To elect Mr. E S Coorey as a Director in terms of Article 95 of the Articles of Association of the Company.

4. To re-appoint M/s KPMG, Chartered Accountants as Auditors for the year ending 31st March 2018, and to authorise the Board of Directors to determine their remuneration.

5. To authorize the Directors to determine contributions to charities and other donations for the year 2017/2018.

By order of the Board

sAthosA Motors pLc

p W corporAte secretAriAL (pVt) LtDDirector / Secretaries

22 June 2017Colombo

notes1. Any member of the Company unable to attend the meeting may appoint another person (whether a member or not) as a proxy

to attend and vote for him/her2. A proxy need not be a member of the Company. A proxy form is attached for your use. The completed form of proxy should

be lodged with the Secretaries of the Company P W Corporate Secretarial (Pvt) Ltd, No. 3/17, Kynsey Road, Colombo 08 not less than 36 hours before the holding of the Annual General Meeting.

3. Shareholders appointing proxies (other than Directors of the Company) to attend the meeting are requested to indicate the number of the National Identity Card of the Proxy holder on the form or proxy.

4. Only registered Proxy holders will be permitted to attend the Annual General Meeting. Shareholders/Proxy holders attending the Annual General Meeting are kindly requested to bring with them their National Identity Card or any other form of valid identification.

noTice oF annual general meeTing


81noTes


82 noTes


83

I/We..……………………………………………………….....................…………...............…… (NIC No...............……………………)

of .…………………………………………..................................................………………………………………………………………...

being a member/members of SATHOSA MOTORS PLC hereby appoint;

……………………………………………………………………………………................................................……………………….…of

………………………………………………………………………….................................................……………………(or failing him).

Mr. Sumal Joseph Sanjiva Perera of Colombo or failing him*Mr. Tilak Dias Gunasekera of Colombo or failing him*Mr. Muthu Muni Nelson de Silva of Colombo or failing him*Mr. Joseph Christopher Joshua of Colombo or failing him*Mr. Ranjan John Suriyakumar Gomez of Colombo or failing him*Mr. Saumaya Darshana Munasinghe of Colombo or failing him*Mr. Shevantha Harindra Sudharaka Mendis of Colombo or failing him*Mr. Dalpadoruge Anton Rohana Fernando of Colombo or failing him*Mr. Wijesinghe Appuhamilage Chiran Okullo Wijesinghe of Colombo or failing him*Mr. Eshan Sudesh Coorey of Colombo or failing him*

………………………………………………………………..........................................…………………..………………………………..of

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

as my/our* proxy represent me/us and vote for me/us* and on my/our* behalf at the Thirty Third (33rd) Annual General Meeting of the Company to be held on 25th August 2017 at 10.30 a.m. and at any adjournment thereof and every poll which may be taken in consequence thereof.

Please indicate your preference by placing a ag against the following

For Against1. To re-elect Mr. W A C O Wijesinghe who retires in terms of Article 88(i) of the Articles of Association of the Company.2. To elect Mr. E S Coorey in terms of Article 95 of the Articles of Association of the Company.3. To re-appoint M/s KPMG Chartered Accountants as Auditors for the year ending 31st March 2018 and to authorise the Board of Directors to determine their Remuneration.4. To authorise the Directors to determine contributions to charities and other donations for the year 2017/2018.

As witness my/our* hands this ……………. day of ……………. Two Thousand and Seventeen.

*Please delete as appropriate

………………………… ..........................Signature of Member/s NIC/REG.No.

notes:1. A proxy need not be a member of the Company.2. Instructions as to completion appear overleaf.

Form oF proxy


84

instructions For the coMpLetion oF proxY

1. Please perfect the Form of Proxy overleaf by filling in legibly your full name address and the National Identity Card number and signing in the space provided and filling in the date of signature.

2. Please return the completed Form of Proxy after deleting one or other of the alternative words indicated by asterisk in the body of the form.

3. To be valid the completed Form of Proxy should be deposited with the Com[any Secretaries, P W Corporate Secretarial (Pvt) Ltd., No. 3/17, Kynsey Road, Colombo 08 not less than 36 hours before the time appointed for the holding of the meeting

4. If the Form of proxy has been signed by an attorney, 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.

5. 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.

6. A shareholder appointing a proxy (other than a Director of the Company) to attend the meeting should indicate the proxy holder’s National Identity Card (NIC) number on the Form of Proxy and request the proxy holder to bring his/her National Identity Card with him/her.

Form oF proxy

SATHOSA MOTORS PLC

COrPOrate iNFOrmatiON

NAME OF THE COMPANYSathosa Motors PLC

LEGAL FORMA public Limited Liability Company incorporated in Sri Lanka on 11th March 1982 under the Companies Ordinance No: 51 of 1938 and re-registered under the Companies Act No.7 of 2007. Listed on the Colombo Stock Exchange on 07th November 1993.

REGISTRATION NUMBERPQ 105

BOARD OF DIRECTORSMr. Sumal Joseph Sanjeewa Perera - ChairmanDeshamanya Tilak Dias Gunasekera - Managing DirectorMr. Eshan Sudesh Coorey DirectorMr. J C Joshua - Director(Alternate Director Mr. S H S Mendis)Mr. D A R Fernando - DirectorMr. S H S Mendis - DirectorMr. S D Munasinghe - DirectorMr. R J S Gomez - Director(Alternate Director Mr. S D Munasinghe)Mr. M M N De Silva - DirectorMr. Chiran Wijesinghe - Director

The Board of Directors who held office at 31 March 2017, are stated under “ Annual Report of the Board of Directors’ on the Affairs of the Company”

SENIOR MANAGEMENT TEAMNeomal Fernando Assistant General Manager – New VehicleDilshan Nugera Sales Manager – New VehicleDeepal Dissanayake Service Manager – WorkshopHarsha Withana Sales Manager – ServicesUpul Ranasinghe Assistant Manager – ServicesNishantha Pieris Manager – Spare PartsEranga Dias Assistant Manager – Spare PartsNilanga Silva Manager HR & AdministrationThejani Kodithuwakku Finance ControllerMs. Inoka Jayawickrama Finance ManagerMr. Duminda Munasinghe Manager – IT

BANKERSHatton National BankNDB BankCommercial Bank of Ceylon PLCBank of CeylonSampath Bank PLCDFCC Bank

AUDITORSKPMGChartered Accountant,32 A, Sir Mohomad Macan Marker MawathaColombo 03

SECRETARIES & REGISTRARSP W Corporate Secretarial (Pvt) LtdNo: 3/17, Kynsey RoadColombo 08

LAWYERSNithi Murugesu & AssociateAttorneys – At – Law – Notaries Public28 (level 2) W A D Ramanayake MawathaColombo 02

ACTUARIAL CONSULTANTSActuarial & Management Consultants (Pvt) Ltd. 1st FloorNo: 434, R A de Mel MawathaColombo 03

REGISTERED OFFICENo: 25, Vauxhall StreetColombo 02

GENERAL OFFICE/BUISNESS ADDRESSNo: 25, Vauxhall StreetColombo 02Tel : 011-2432858, 011-2431568, 011- 2331621Fax : 011-2446129Web : www.sathosamotorsplc.com

Design & Concept by: Optima Designs (Pvt) Ltd.

CONteNts

About The Company 2Message From The Chairman 8Managing Director’s Review of Performance 10Market Review by Director Marketing 13Board of Directors 15Management Discussion and Analysis 18Corporate Governance 22Risk Management Review 23Annual Report of The Board of Directors on The Affairs of The Company 28Independent Auditors’ Report 31Statement of Profit or Loss and other Comprehensive Income 32Statement of Financial Position 33Statement of Changes In Equity 34Statement of Cash Flows 36Notes to The Financial Statements 37Report of The Related Party Transactions Review Committee 74Report of The Audit Committee 75Information to Investor 77Statement of Value Added 79Notice of Annual General Meeting 80Notes 81Form of Proxy 83Corporate Information Inner Back Cover

the extra mile

s a t h o s a m o t o r s P L C a n n u a l r e p o r t 2 0 1 6 / 1 7

SATHOSA MOTORS PLC

No: 25, Vauxhall Street, Colombo 02, Sri Lanka.Tel : 011-2432858, 011-2431568, 011- 2331621Fax : 011-2446129Web : www.sathosamotorsplc.com

Sathosa Motors PLC

│ A

nnual Report 2016/17

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the extra mile - Colombo Stock Exchange wanting to go the extra mile to deliver ... (SML) is the franchise holder for Isuzu vehicles and spare parts manufactured by M ... I am happy