Kelani Valley Plantations PlC | AnnuAl RepoRt 2015/16

atestof strength

Kelani Valley Plantations PlC | AnnuAl RepoRt 2015/16

KelA

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A test of our strength And endurAnce, the yeAr under review wAs A chAllenge, not only for KelAni vAlley, but for the industry As A whole. however, we pulled

through And Are resolute in our mission to not only be more productive but Also to diversify into new ventures thAt will enhAnce our portfolio while

creAting sustAinAble growth in the long run.

strengthatestof

2 Kelani valley plantations plc | Annual Report 2015/16

StewARdShipboard of directors 84Corporate Management Profiles 86corporate governance 88risk management 114Annual report of the board of directors on the Affairs of the company 128

FinAnciAl RepoRtSfinancial calender 133statement of directors’ responsibilities 134Audit committee report 135related party transactions review committee report 137managing directors’ and chief financial Officers’ Responsibility Statement 138independent Auditors’ report 139Statement of Profit or Loss 140statement of comprehensive income 141statement of changes in equity 142statement of financial position 144statement of cash flows 146notes to the financial statements 148

Contents

intRoductionmateriality Assesment 5milestones 8highlights 10Non financial highlights 2015/16 11revenue distribution local & global 12our land 14our spread 15

MAnAgeMent RepoRtSchairman’s message 17md’s review 20

MAnAgeMent diScuSSion And AnAlySiSvalue creation 25Awards & Accolades 32operating environment 34financial review 42statement of value Addition and distribution 53stakeholder engagement 54human capital 57social capital 64natural capital 69

AnnexuReten year summary 218investor information 220materiality Assessment study 223environmental calculations 234gri index table 235glossary 241notice of meeting 246form of proxy 247corporate information 252


OUR PROFILE g4-4

incorporated in 1992, Kelani Valley plantations plc (KVpl) was listed on the main board of the colombo Stock exchange in 1996. Since then the company has grown to become a diversified agribusiness entity with interests in production, processing, marketing, plantation crops and hydro power generation.

KVpl core business interests continue to be in tea and Rubber, with a portfolio of 26 estates covering over 13,000 hectares of both tea and rubber plantations, cultivated on lands leased from the government of Sri lanka on a 53 year lease agreement. the company provides direct employment to nearly 11,000 people and indirectly impacts the livelihoods of a further 54,000 men,

women and children who belong to the plantation resident population at our estates.

over the years, our teas have captured the hearts and minds of tea drinkers around the world. the translucent teas from our high grown estates in nuwara elliya are revered for their delicately unique flavor and rich quality, while the strong, full-bodied liquored teas from our dickoya estates. Meanwhile, our low grown estates in yatiyantota and Bulathkohupitiya produce orthodox low-grown leafy teas that are immensely popular in the Middle eastern market.

drawn from these three distinctive agro climatic regions in Sri lanka,

KVpl produces traditional ceylon tea at 11 tea processing centres, where all manufacturing processes are aligned to globally accepted standards, including the global gAp framework, RA/utZ standards and etp guidelines, in addition to the ungc mandate for sustainable development. green tea is produced on our highland estates of oliphant and glassaugh and our instant tea processing centres are located in the nuwara eliya and hatton regions.

in latex Rubber business, we manufacture sole crepe, centrifuge latex and crepe rubber used mainly as raw material in the manufacture of Rubber gloves, pharmaceutical and Shoe industry. KVpl is one of the largest producers of sole crepe in Sri

lanka, with manufacturing operations being carried out at FSctM(c006694) certified rubber factories situated in yatiyantota and dehiowita.

As a business diversification policy, in association with eco-power (pvt) ltd., we ventured into generating hydro power by incorporating the Kalupahana power company (pvt) ltd., in 2003. the tea product portfolio was further strengthened with the establishment of Kelani Valley instant tea (pvt) ltd., and hayleys global Beverages (pvt) ltd., in 2007 and 2013 respectively . in order to pursue direct marketing initiatives more aggressively , Mabroc teas (pvt) ltd., was acquired in the year 2010.


VIsIOn

“KelAni vAlley plAntAtions-products of excellence”

MIssIOn

to optimize plAntAtion productivity And ensure highest quAlity by hArnessing And developing employees whilst improving the quAlity of life of the community And securing An AcceptAble return on investment.

VaLUEs

we strive to do our best for our stakeholders in the following ways:

our customers: we provide consistently good quality products and excellent service at competitive prices, whilst ensuring continuity of supplies. we are conscious of customer requirements and ever changing market trends and orient our production to suit specific needs.

our employees: we care for our employees and create a favourable environment for their participation in managing our affairs, thereby increasing productivity. we develop and create individuals who feel contended and secure in their jobs. we recognize merit.

our Suppliers: We establish mutually beneficial relationships with our suppliers based on trust, quality and reliability. We treat them as we wish to be treated ourselves.

our owners: we enhance the reputation of the company true conformity to high levels of conduct. we generate adequate return and ensure security on / their investments enough by maintaining high viability long term stability.

our competitors: we view our competitors as a source of inspiration to our own advancement. we are conscious of their strength and weaknesses and compete for market superiority without resorting to unethical practices but maintain close cooperation on common issues.

our country and the world: we conduct our business in a socially responsible manner. we are aware of the changing environment and contribute enhancing the quality of life for a better sri lanka and a better world.

5 Kelani valley plantations plc | Annual Report 2015/16 Materiality Assesment

SuStAinABility FRAMewoRKKvpl’s sustainability framework articulates our strategic commitment to sustainable development and forms an integral part of our approach to risk management as well.

our sustainability framework promotes sound environmental and social practices, encourages transparency and accountability, and contributes to positive development impacts. Kvpl's performance standards, which are also part of the sustainability framework, have become globally recognised as a benchmark for environmental and social risk management in the plantation sector.

business integrity

governance system

supply chain

community engagement

financial performance

people

global operations

health & safety

land

energy use

water human rights

biodiversity stakeholder engagement

Sustainability context

economic prosperity

social wellbeing

envi

ronm

enta

l st

ewar

dshi

p

gov

erna

nce

sys

tem

StAKeholdeR identiFicAtion g4-18/25the process of identifying internal and external stakeholders is done by combining both the supply chain and value chain of the organisation.

Agriculture plantation

Kvpl processing

Supplier/small holder

Auction/private sale

Buyer/consumer

pro

bab

ilit

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f b

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volv

ed in

KV

pl

acti

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es (

inte

rest

) hig

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yy Academia and Scientific community

yy Certification agencies

yy non governmental organisations

yy investors

yy shareholders yy employees and

trade unions yy buyers yy brokers yy plantation

community yy environment

med

ium

yy suppliers yy competitors yy media

yy regulator and government

low

low medium high

Ability to be influenced by KVPL’s performance (Power)stakeholder assessment by power interest matrix

6 Kelani valley plantations plc | Annual Report 2015/16 Materiality Assessment Contd.

MAteRiAlity ASSeSSMentA formal materiality assessment is carried out every year, to identify the environmental, ecological, social and governance issues that have an impact on our business and our stakeholders. The findings are then used to determine associated risks and opportunities for Kvpl’s reputation, sustainable operations and finances and these issues are prioritized on a materiality matrix that displays their position relative to the degree of stakeholder concern and potential business impact. together, the results represent the material issues faced by our business. In 2015/16, we continued our materiality analysis as part of our gri g4 reporting standards. we use the materiality assessment to refine commitments and identify areas for improvement. it is used by our executive board, as well as by our markets and the corporate risk management team. the contents help us select the information contained in this report, providing data that responds to stakeholder needs.

As part of the ongoing effort to improve our reporting parameters and enhance transparency of the reporting process, in the current year, we broadened our sample of stakeholders and included a value chain analysis,

to allow for greater precision in the scoring and ranking of our material issues. it also included a robust assessment of business impact, with special emphasis on conducting socially responsible operations and a review of its commercial relevance. Accordingly, the information contained in this report has been presented in order to provide a clear a concise feedback on how we have responded to the needs of our stakeholders.

low

Med

ium

hig

h

low Medium high

pRoduct And SeRVice lABeling

cuStoMeR pRiVAcy

child lABouR

pRocuReMent pRActiceS

lABouR/MAnAgeMent RelAtionS

FReedoM oF ASSociAtion And collectiVe BARgAining

enViRonMentAl gRieVAnce MechAniSMS

SupplieR ASSeSSMent FoR iMpActS on Society

indiRect econoMic iMpActS

BiodiVeRSity

non-diScRiMinAtion

pRoduct & SeRViceS

SupplieR enViRonMentAl ASSeSSMent

SupplieR ASSeSSMent FoR lABoR pRActiceS

MAteRiAlS

lABoR pRActiceS gRieVAnce

MechAniSMS

SecuRity pRActiceS

locAl coMMunitieS

indigenouS

RightS

SupplieR huMAn RightS ASSeSSMent

Emissions

invEstmEntsTraining and EducaTion

Equal rEmunEraTion for womEn and mEn

occupational HEaltH and safEty

forcEd or compulsory labor

anticompEtitivE bEHavior

Economic pErformancE

cuStoMeR heAlth And SAFety

MARKet pReSence

puBlic policy

tRAnSpoRt

Anti-coRRuption

coMpliAnce

employment

mArKeting communicAtions

diversity and equal opportunity

Human rights grievance mechanisms

gRieVAnce MechAniSMS FoR iMpActS on Society

eFFluent & wASte

ovErallwAteR

eneRgy

ASSeSSMent

Significance to KVPL

Sign

ifica

nce

to

sta

keh

old

ers

identify aspects and indicators relevant to Kvpl in terms of

sustainability

list all relevant topics for Kvpl

determine and prioritise material

aspects for reporting

materiality matrix

g4-19/20/21


yy 2000 - Hydro power battalgalla.

yy 2001 -centrifuged latex project Kiriporuwa.

yy 2003 - Green tea factory at oliphant estate.

yy 2006 - UN global compact signatory.

yy 2007 - Instant tea factory nuwara eliya.

yy 2008 - Global GAP ISO - 22000.

yy 2009 - Sole crepe fsctm-coc certified

yy 2010 - Acquried mabroc tea

yy 2011 - Rain forest Alliance certification to all tea estates

hAccpISO 22000


1992

incorporated as a regional plantation company

1995

dpl plantations (pvt) ltd acquired the controlling interest.

1996

in January, Kvpl was listed at CSE & were issued 20m ordinary shares each at rs. 10/- each.

fsctm certification for Rubber

1998

debentures were converted to 14m additional shares

2000

implementation of mini hydropower scheme at battalgalla estate

2007commenced manufacture of instant tea at nuwara-eliya estate.

ISO 22000:2005, HACCP & TASL-SGS Certification for 13 black tea processing centres

2008Global G.A. P Certification

black tea factory at glassaugh converted to green tea

2009dewalakanda and panawatta Sole Crepe - Certified for FSCtm

2010Acquired balance 60% of mabroc teas (pvt) ltd.

2011rainforest Alliance certification

Milestones


2015‘sAthdiyAwArA’ - csr proJect

conversion of oliphAnt bunglow to boutique hotel

2013Acquired balance 5% of Kelani valley instant tea (pvt) ltd.

2014hayleys global beverages (pvt) ltd, a joint venture between Kvpl and hayleys plc.

2001

expanded the centrifuged latex project at Kiriporuwa estate

2003

conversion of black tea processing to green tea at oliphant factory – nuwara-eliya

incorporation of Kalupahana power company (pvt) ltd as a boi project

strategic alliance with mabroc teas (pvt) ltd.

2004

Acquired 40% of issued share capital of mabroc teas (pvt) ltd.

2005

operations commenced at Kalupahana power company (pvt) ltd.

2006

un global compact signatory with mabroc and Kvpl

10 Kelani valley plantations plc | Annual Report 2015/16 Highlights

FinAnciAl highlightSConsolidated 2015/16 2014/15 2015/16 -2014/15 12 Months 2013 12 Months 12 Months 15 Months % of change 12 Months earning highlights and Ratios Revenue Rs.'000 6,068,747 6,716,103 8,647,349 (10) 6,790,012Result from operating activities Rs.'000 33,792 146,485 225,206 (77) 510,858Profit before tax Rs.'000 (31,499) 46,501 102,407 (168) 465,485Profit after tax Rs.'000 (43,170) 10,908 52,495 (496) 391,693Operating profit margin % 0.6 2.2 2.6 (74) 7.5Net profit margin % (0.7) 0.2 0.6 (450) 5.8Return on assets (ROA) % (0.9) 0.17 0.751 (6) 6.2Return on capital employed (ROCE) % 0.98 4.1 6.2 (76) 15.2interest cover times 0.3 1.4 1.8 (78) 13.2

Financial position highlights and Ratios Gross dividend Rs.'000 - 34,000 34,000 (100) 119,000Shareholders' funds (Equity Holders of the Company) Rs.'000 2,628,313 2,695,056 2,695,056 (3) 2,775,888Gearing (Debt/(Equity+Debt) % 24.67 25 25.37 (3) 19Working capital Rs.'000 247,065 470,411 470,411 (47) 768,531current ratio times 1.2 1.36 1.4 (9) 1.7

Market capitalisation Rs.'000 2,210,000 2,444,600 2,444,600 (10) 2,662,200Capital expenditure Rs.'000 413,929 960,036 1,067,285 (57) 553,318

per share (year end): earnings rs. (1.9) 0.3 1.8 (692) 11.3market value rs. 65.0 71.9 71.9 (10) 78.3net assets rs. 76.3 79.3 79.3 (4) 81.6dividend rs. - 1.0 1.0 (100) 3.5

11 Kelani valley plantations plc | Annual Report 2015/16 Non financial highlights 2015/16

Zero Anemia

5,200 people checked 47% of total workforce

Mother & child Friendly estate concept at pedro estate

yy 287 new toilets

yy 144 toilets renovated

yy upgraded mahagastota divisional hospital

738 Executives1,023 Non-Executives2,742 Manual

Rs. 23 m

training head count

11 12 13 14/15 15/160

4,000

2,000

6,000

8,000

10,000Rs. m

TURnOVER

Year11 12 13 14/15 15/16

(300)

(100)

300

100

500

700Rs. m

PROFIT aFTER Tax

Year

11 12 13 14/15 15/160

40.00

20.00

60.00

80.00

100.00Rs.

nET assETs PER shaRE

Year10 11 12 13 14/15 15/16

(5.00)

0

10.00

5.00

15.00

20.00Rs.

EaRnIngs PER shaRE

Year

11 12 13 14/15 15/160

400

200

600

800

1,000Rs. m

EBITDa

Year

MaRkET PRIcE PER shaRE

11 12 13 14/15 15/160

20.00

60.00

40.00

80.00

100.00Rs.

Year

g4-16

12 Kelani valley plantations plc | Annual Report 2015/16 Revenue Distribution Local & Global

North America0.14%

South America0.18%

Europe2.88%

Middle East21.52%

Africa0.10%

Asia17.28%

Sri Lanka56.54%

Australia1.36%

g4-8


Africa 0.10%Morocco 0.06%egypt 0.04%

Asia 17.28%taiwan 7.53%Japan 3.78%china 3.66%Russia 2.00%Vietnam 0.21%Kazakhstan 0.06%hong Kong 0.04%others 0.004%

Australia 1.36%Australia 1.36%

North America 0.14%canada 0.07%uSA 0.07%

Europe 2.88%georgia 0.73%germany 0.59%united Kingdom 0.42%France 0.39%latvia 0.24%netherland 0.21%ukraine 0.14%czech Republic 0.13%Belgium 0.01%poland 0.01%others 0.01%

Middle East 21.52%Azerbaijan 9.79%uAe 5.99%Saudi Arabia 4.52%Syria 0.89%others 0.33%

South America 0.18%chile 0.18%

Sri Lanka 56.54%Sri lanka 56.54%

Rs.2.6 billion Global Revenue from Mabroc Teas (Pvt) Ltd.

14 Kelani valley plantations plc | Annual Report 2015/16 Our Land

2015/16estate extent (ha) no. of elevation crop factories (ft) tea rubber tea rubber other Total Kgs’000 Kgs’000 1) Pedro 544 - 124 668 1 6,237 626 - 2) Nuwara Eliya 186 - 61 247 1 5,999 368 - 3) Edinburgh 157 - 22 179 1 5,075 170 - 4) Glassaugh 184 - 45 228 1 5,074 237 - 5) Uda Radella 167 - 58 225 1 5,328 232 - 6) Oliphant 232 - 132 364 1 6,440 144 - 7) Fordyce 231 - 172 403 1 4,599 302 - 8) Ingestre 482 - 167 649 1 4,723 589 - 9) Annfield 223 - 152 375 1 4,297 346 - 10) Battalgalla 146 - 115 261 1 4,300 207 - 11) Robgill 182 - 118 300 1 4,500 226 - 12) Tillyrie 191 - 143 334 1 4,264 247 - 13) Invery 134 - 172 306 1 4,310 214 - 14) Blinkbonnie 138 - 43 181 1 4,500 163 - 15) Kelani 27 232 90 349 1 300 33 129 16) Halgolle 251 - 945 1,196 1 3,478 343 - 17) We Oya 25 747 215 987 - 1,000 23 561 18) Panawatte 14 721 295 1,030 1 1,000 17 429 19) Kiriporuwa 28 396 162 587 2 805 24 244 20) Lavant - 458 111 569 1 800 - 253 21) Ganapalla - 390 100 490 - 1,000 - 172 22) Dewalakande - 546 171 717 2 502 - 357 23) Urumiwella 6 534 182 722 1 800 10 314 24) Kitulgala 45 - 537 582 - 1,003 50 - 25) Ederapolla 19 435 213 667 1 338 23 275 26) Kalupahana 70 149 293 512 - 1,500 71 84total 3,682 4,608 4,838 13,128 24 - 4,665 2,818

15 Kelani valley plantations plc | Annual Report 2015/16 Our Spread

19

22

21

26

18152320161725

24

1112781491013 5 4 3

162

ManagED

tea 3,682 Ha

rubber 4,608 Ha

other 4,838 Ha

13,128 Ha

tea 205 Ha

rubber 1,798 Ha

other 272 HaIMMaTURE

2,275 Ha

tea 3,474 Ha

rubber 2,810 Ha

other 380 HaMaTURE

6,664 Ha

19

22

21

26

18152320161725

24

1112781491013 5 4 3

162


KvPl comprises 26 estates covering approximately 13,000 hectares in equal extents of tea and rubber, spanning three distinctive agro climatic regions, employing over 11,000 workers.

17 Kelani valley plantations plc | Annual Report 2015/16 Chairman’s Message

the decision to pursue forwArd integrAtion through direct exports,venturing into new territory within the niche mArKet spAce in the globAl trend for speciAlty teA

A M pandithagechairman

g4-1/13/28

Dear stakeholderin retrospect i see that the year 2015/16 was one of the toughest years on record, not only for us at Kvpl, but for all in sri lanka’s tea and rubber sector, struggling to cope with the global downturn.

it was indeed a test of our strength, as we endured a go-slow campaign staged by regional plantation companies workforce, faced the consequences of the ban on glyphosate and came to terms with the removal of the fertilizer subsidy. despite these odds however, we at KVPL remained firm in our goal to build a resilient operation capable of withstanding internal and external challenges surrounding our business in the past year and so, we began to look at the bigger picture and realigned our strategic thrust for the next five years; working to bolster our financials and sharpen non-financial aspects to help improve the sustainability of our business. being an integrated report, the pages that follow provides a detailed account of the activities carried out by Kvpl for the year ending 31st March 2016, including steps taken to improve shareholder returns, efforts to protect and develop the company’s land base, improve environmental performance

and develop human capital. it also highlights how we are working to create broader social change for the betterment of the estate worker communities whose livelihoods depend on the company.

SuMMing up the yeARthe rapid decline in global crude oil prices meant the cost of manufacturing synthetic rubber became significantly cheaper, challenging demand for natural rubber in key export markets, the situation was further exacerbated by an oversupply in the global market, causing fresh worries for sri lanka’s natural rubber exports, which continued to struggle. the lack of export prospects saw prices at the colombo auction slide to its lowest level since 2009. The average price of RSS1 in 2015 was Rs. 251.54 compared to Rs. 288.14 by the end of 2014.

sri lanka’s raw rubber exports for 2015 dropped by 6m Kg compared to the previous year, reflecting a drop of 36% for the twelve months ending 31st December 2015.

it was once again external forces that were responsible for the poor performance in sri lanka’s tea industry, which decelerated by 2.7% in

18 Kelani valley plantations plc | Annual Report 2015/16 Chairman’s Message Contd.

2015. Swept by economic uncertainty resulting from the ongoing slide in world crude oil prices, major tea buying nations in the middle east began to seriously curtail their tea imports throughout 2015. Meanwhile, the imposition of eu-us sanctions in late 2015 was another severe blow that restricted exports to russia, one of the largest buyers of ceylon tea. weakened by poor buying power, colombo tea auction prices fell steadily and the total auction average for the January – December 2015, stood at only Rs. 402.14 compared to the Rs. 461.86 recorded in the previous year. export volumes experienced a YoY drop of 6.22%, as did export earnings attributable to tea, which fell to USD 1,355m in 2015, down by 17.94% from USD 1,627m recorded in 2014. Meanwhile, crop statistics for 2015 reveal a decline of 9.26m Kg compared to the previous year, which means total crop for the year was only 328m Kg, the lowest in three years.

the troubles in both tea and rubber sectors had a serious negative impact on the performance of the Kvpl group resulting in a loss of Rs. 43m for the 2015/16 year. It is important to note though, that this includes the start up loss incurred by hayleys

global beverages (pvt) ltd, where commercial operations are scheduled to commence by mid-May 2016. however, i am indeed pleased to note that our subsidiary, mabroc teas (pvt) ltd., was able to register a turnaround from the previous year, recording a healthy profit for the financial year. Kalupahana power company (pvt) ltd., too performed exceedingly well in the year under review. bolstered by favourable weather patterns, the company was able to register strong earnings growth, which led to highest-ever profit being recorded in 2015/16.

Building A VeRSAtile BuSineSS ModelAs i mentioned earlier in my report, building versatility of the business was our main focus for the year. to strengthen our core business we continued with our replanting programme for tea and rubber. during the year under review we invested rs. 349m in replanting Tea, Rubber, and recently introduced cinnamon. i am pleased to report that the accelerated rubber replanting initiative, which commenced eight years ago, has now begun to deliver results with about 200 hectares of replanted Rubber coming into productive category each year.

however, we felt that with the returns from traditional tea and rubber exports becoming increasingly skewed in recent years, it was imperative that we consider alternative business strategies in order to create a stable framework for growth. underpinned by this goal, we pursued a range of diversification strategies to broad base revenue streams and manage earnings volatility.

in the rubber segment, the decision to pursue forward integration through direct exports was undoubtedly a bold move. Although this was viewed as a calculated risk, i am extremely pleased to note that we have been very successful in this endeavor, as evidenced by the results seen within the year itself.

meanwhile, to reduce the over dependence on bulk tea exports, we ventured into new territory, investing in hayleys global beverages (pvt) ltd, a joint venture to develop value added teas, which would be marketed internationally. the project, which got underway during the year 2013 is currently nearing completion.

to lay the groundwork for future sales, we rolled out a series of strategic

branding initiatives to tap into the global trend for specialty teas. this is also part of the long-term strategy to reposition our synonymous garden marks as a globally competitive brand within this niche market space.

Crop diversification was yet another strategy that we embarked on in the year under review. in this regard, we focused on expanding Kvpl’s cinnamon cultivation programme, which began a few years ago. having previously cultivated cinnamon on a limited scale alongside existing Tea / rubber plantations, we invested rs. 43m to convert 58 hectares in KVPL of which 33 hectares are in Kitulgala estate.

moving completely away from the conventional agriculture-based business concept, we took the first step towards entering the leisure sector, and commenced developing the oliphant estate bungalow in nuwara eliya into a plantation boutique hotel.

ReinFoRcing SuStAinABility notwithstanding the challenges encountered during the year, we remained fully focused on accomplishing our core sustainability goals. A big part of this agenda was


colombo rubber Auction prices for RSS1 FELL TO ITS LOWEST LEVEL SCIENCE 2009, IN THE BACK DROP OF THE RAPID decline in globAl crude oil prices And the slAcKening of the globAl economies.

the compliance with best practices laid out under the ungc principles, the rAtm, utztm and fsctm certification and the global gAp standards. to improve our alignment with the guidelines, we expanded our bio-diversity enrichment plan and under the ceo water mandate, upgraded wastewater management systems at selected factories. meanwhile, accelerating efforts under Kvpl’s “A home for every plantation worker” csr initiative, we earmarked community capacity building and specific activities designed to improve health and nutrition levels of estate communities as the main focus for the year. in recognition of the progress made under “A home for every plantation worker” initiative, we were awarded the csr gold Award at the JAstecA Awards 2015.

further, in partnership with “save the Children Fund” Sri Lanka, Rs. 23m was invested on a mother and child friendly tea concept to uplift the maternal and child health standards at Kvpl’s pedro estate and upgrade the mahagastota divisional hospital.

FutuRe outlooKWhile it is difficult to foresee how the next year will pan out, i do believe

the rough patch we are experiencing is only a temporary setback and a turnaround is imminent in the coming years. in moving forward, i feel it is important that we continue to strengthen our core fundamentals and broaden our strategic outlook to create a scalable platform for growth in the years ahead.

AppReciAtionSi take this opportunity to express my gratitude to the board of directors for their enthusiastic participation in all board matters and the unstinted support extended to me at all times. i also wish to thank the management team and all group employees for their commitment during this difficult time. my thanks also go to our valued customers and suppliers for their continued support. in conclusion i wish to thank all our shareholders for the trust and confidence placed in the company. i look forward to your continued patronage in the years ahead.


11 May 2016


The twelve months ending 31 March 2016, was undoubtedly one of the most challenging periods in Kvpl’s recent history. it was indeed a trying time for us, as we struggled to contain the impacts of depressed global markets in 2015, alongside the numerous challenges associated with the local operating environment for both tea and rubber sectors.

in reporting of these matters, we have adopted an integrated approach to highlight above all, the sustainability of our business. in this our third integrated report, we have therefore, strived to provide a transparent account of our sustainability strategy and illustrate how we manage the associated risks. the report goes on to show how our strategies are cascaded down and how sustainability performance is measured and monitored on a day today basis.

peRFoRMAnce ReViewwith the tea industry facing its worst crisis in years, we were forced to contend with a sizable loss in export volumes. As auction prices continued to slip, our gross sales Average as at 31 March 2016, fell to Rs. 423.83 from Rs. 458.88 a year ago, with the sharpest drop seen in the prices of our high grown, nuwara eliya teas during

MD’s Review

the first nine months. A culmination of these factors resulted in a yoy drop of 29% in KVPL’s Tea revenues for the year.

Meanwhile, as oversupplies flooded global rubber markets for the second consecutive year, the prospects of the rubber industry yet again appeared bleak. the situation was made worse by the ongoing slide in crude oil prices, which made it cheaper for buyers to purchase synthetic rubber, sending natural rubber prices tumbling to the lowest levels in 05 years.

being mainly a rubber-centric business, the industry woes affected Kvpl’s rubber revenues. denoted by a YoY 12.6 % drop in the average price for RSS1, revenue attributable to Rubber fell by 12.5 % compared to the previous year.

conSolidAting coRe coMpetencieSwith no control over external market forces, there was little we could do to stem the drop in revenue. however, we made a deliberate attempt to relieve the stress on the bottom line, wherever possible and expedited efforts to improve both land and labour productivity in order to improve the yield in our rubber plantations. Our goal was to break the 1,000 Kg

Kvpl is rAnKed Amongst the best high yielding rubber plAntAtions in the rpc sector, if not the best.

w g R RajaduraiManaging Director

g4-4


per-hectare yield-barrier, which we successfully achieved. in fact i can safely say that Kvpl is now ranked among the top high yielding rubber plantations in the country if not the best .

to improve our tea yields, we expanded the area covered by mechanized harvesting using automated shear equipment. further, we looked into ways of improving the leaf quality and took steps to reorganize the pruning cycle. our goal was to reduce the pruning cycle from the current five-year frequency, to a four-year time frame in order to boost the quality of the yield.

As always, managing our land base was another key priority. Accordingly, we accelerated our replanting programmes, replanting 34 hectares of Tea and 210 hectares of Rubber in the current financial year. In both cases, we used high-yielding clones, which we hope will augur well for us in the years to come. i am pleased to say that the extent replanted in rubber immature comprises of 39 % of KVPL’s total rubber. we also pursued our crop diversification goals, by expanding our cinnamon cultivation in Kitullgala estate .

oVeRcoMing chAllengeSour main worry was the proposed wage hike for plantation workers, a problem common to all regional plantation companies (rpc’s). given the unrealistic expectations of the proposed hike, negotiations between worker unions and rpc’s reached an impasse following the lapse of the collective wage agreement on 31st March 2015. The mass go-slow campaign initiated by the unions in July 2015, was also the result of this simmering discontent. impacted by the go-slow campaign, Kvpl was hit by lower volumes amidst a severe drop in productivity levels at all tea factories.

to avoid similar derailments in the future, i am pleased to say that the industry took a unified stance in resolving the wage crisis. proposals were made to ease away from the archaic attendance-based pay structure in favour of a productivity-based payout model to reward pluckers for their performance, over and above a stipulated minimum basic wage. it was felt that such a mechanism would be more relevant in the modern context. regretfully however, no clear outcome has materialized to date, and the issue remains open for debate even now.

meanwhile, we continued with negotiations to resolve the problems surrounding the harvesting of fuel wood, a sensitive issue that has been fraught by bureaucratic roadblocks for some time now.

the complete ban on glyphosate in May 2015, was yet another jolt that affected our tea plantations quite severely. being the only weedicide currently available in the market, we were left with no alternative but to deploy manual weeding, an extremely costly exercise that is often an inefficient process that fails to achieve the same result as the application of weedicide.

meanwhile the government’s decision to remove the fertilizer subsidy did not affect us in the year under review as we had sufficient stocks to tide us over till end March 2016. However, costs are likely to escalate in the coming years, as we would have to procure fertilizer from the market at significantly higher price.

StRengthening BeSt pRActiceSdespite the year being fraught with challenges, i am happy to say that we did not loose sight of our sustainability goals. we continued to

invest in refining our compliance levels in cognizance with the requirements of the ungc principles, the rAtm , utztm and ETP Certification, the Global G.A.P, and the fsctm certification bodies.

we also did a lot of work to develop our people. we completed the roll out of the electronic weighing mechanism to monitor plucker output at all Kvpl high grown tea factories. the process has helped us to identify and reward high-performers, while supporting weak performers to improve their yield aggregate. more importantly however, what i have observed is a slow but sure change in the mindset of our workforce, who now seem inspired to improve their productivity index. Aside from this, we stepped up our training and development programmes, with a strong emphasis on workplace safety and employee wellbeing. i am pleased to report that we were recognized for our efforts by JAstecA where we claimed the GOLD award for CSR 2015 and the gold award for plantation sector “social dialogue and workplace cooperation “ among others.

spearheaded by our holistic approach towards our plantation worker communities, we extended our social support infrastructure by setting


up a dedicated hr team to engage with estate worker communities and identify grass root level issues faced by them. this is in addition to our ongoing projects aimed at uplifting the lives of these communities, the full details of which are captured under the “social capital” section of this report. What I find most rewarding about these efforts is the obvious improvement in the physical wellbeing and general outlook of these estate communities.

MoVing FoRwARdi believe, what the tea and rubber industry is going through right now is probably the lowest point in the cyclical pattern that has become a trademark of these industries, in recent years. having said that, i hope both industries will rebound sooner rather than later. until such time, what is important for us would be to fuse our strategies towards making ongoing improvements in our operational framework in order to bring down costs and migrate towards a leaner business model. moreover, innovation is seen as a key pivot in improving productivity and sustaining a competitive edge, which will also help us consolidate our strengths and manage our risks.

finally, i believe we should use the current crisis as a learning platform to improve our resilience and launch our strategic vision for the future.

AppReciAtionSi wish to thank the board of directors for the guidance and support extended to me at all times and i take this opportunity to express my sincere gratitude to the senior management, staff and estate workforce for their commitment in helping Kvpl to ride out the present crisis. to conclude, i wish to extend my sincere thanks to all our shareholders for the trust and confidence placed in the company, even as i seek your continued patronage in the long term.


11 May 2016

our plAntAtion compAny wAs rewArded for its commitment on “home for every plAntAtion worKer” by winning the nAtions csr gold AwArd Afforded by JASTECA FOR 2015 .

MD’s Review Contd.


company’s 13 Black Tea factories were accredited with iso 22000 and Haccp. all 19 tea estates obtained Global G.a.p certification.


y KAlupAhAnA mini hydro power mAKes highest profit yyventured into crop diversificAtion yymAbroc mAKes highest ever profit After AcquisitionyysheAr plucKing Adopted to mitigAte plucKer shortAge

Management Discussion and Analysis

1,798 Hectares of immature Rubber value Rs. 1.2 b

25 Kelani valley plantations plc | Annual Report 2015/16 Value Creation

yy commitment to ungc principlesyy dynamic hr frameworkyy succession planningyy improving sustainability of the estate workforce

yy Over 11,000 Employees yy 4503 Head Count were trainedyy developed hr team under human development in each estates yy tea plucking guinness records Attempt

yy product research yy market research

yy Invested Rs. 2.9 b on new product development of instant Tea yy found new market combined with mabroc tea and directly exporting our

garden marks to china. yy Studies were carried out to find possible diversified crop for each estates.

yy environmental stewardshipyy Resource Efficiencyyy environmental csr

yy rainforest Alliance, forest stewardship counciltm, ethical tea partnership (etp), utztm & Global GAP Certified

yy Rs. 49 m Spend on Environmental Conservation yy 51,291.68 m3 Water used for production & 423,653 GJ Non renewable

energy usedyy won gold for excellence in environmental sustainability

yy production, packaging & transportyy replantingyy Crop Diversification

yy strategic planningyy financial management yy risk managementyy corporate governanceyy Field development Expenses Rs. 349 m

yy Net cash flow from operating activities 955 myy EBITDA as % sales 4.6%yy Return on capital Employed 1%

yy Rs. 16 m for Tea pruning, Rs. 66 m for tea replanting in 34 Ha and Rs. 269m for rubber replanting in 210 Ha, Rs. 14 m for Product diversification (Cinnamon) invested.

yy ISO 22000 Certified 12 Black Tea factories & 01 Green tea factory Produced Rs. 5.6 m Kg Black Tea Rs. 0.2 m Kg Green Tea.

yy community developmentyy capacity building

yy Over SL Rs.60 m Grants & Rs. 4.5 m by company invested on Estate community development.

yy Won Gold at JASTECA CSR Award 2015 & Won Gold for Social Dialogue & work place cooperation

yy ‘mother & child friendly estate’ a partnership project with save the children initiated with Rs. 23 m investment

process capital Value

human

intellectual

Financial

Manufacturing

natural

Social


cUMULaTIVE REPLanTIng ExTEnT

0

1,000

500

1,500

3,500

2,000

2,500

3,000

hectares

Tea Rubber

1992

1996

2000

2004

2012

2015

Year

cRop diVeRSiFicAtionAs part of this strategy, Rs. 14 m was incurred in 2015/16 to replant cinnamon. other expert agricultural crops, including Avocado, cardamom & coffee in the up-country regions and pepper, cloves in the low-country estates are planning to establish. this is part of an ongoing programme to develop new crops that have are in high demand locally and internationally.

The first phase of the Cinnamon-planting programme began in 2010, with 4.3 Ha of Cinnamon being planted at the Kitulgala estate. since then a total of Rs. 9.5 m including Rs. 7.9m as capital expenditure has been incurred towards the programme, which as at end March 2016 covered an of 28.88 ha.

Value Creation Contd.

StRAtegic iMpeRAtiVeSreinvestment in our own assetsKvpl remains committed towards replanting tea and rubber, both core revenue-generating crops for the company. As a responsible rpc, in 2015, the company invested Rs. 66 m to replant 34 Ha of Tea and Rs. 269 m to replant 210 Ha of Rubber.

cUMULaTIVE REPLanTIng ExPEnDITURE aFTER PRIVaTIsaTIOn

0

1,000

500

1,500

2,500

2,000

Rs. Mn

Tea Rubber

1992

1996

2000

2004

2012

2015

Year

BuSineSS diVeRSiFicAtion g4-17

hydro powerIncorporated in 2003, Kalupahana power company (pvt) ltd (Kpc) is a hydro power plant with the capacity to produce 1 MW of electricity for the national grid. the stated capital of KPC is Rs. 30 m, with KVPL having 60% share ownership and the balance 40% belonging to the joint venture partner, eco power (pvt) ltd.

Research and developmentKelani valley instant tea (pvt) ltd (Kvit) is a fully owned subsidiary of KVPL incorporated in 2007, with a stated capital of Rs.30 m. KVIT is engaged in the production of instant tea from bm fannings, sold locally and overseas.

leverage to MarketingMabroc Teas (Pvt) Ltd is a 100% owned subsidiary of Kvpl and is the marketing arm responsible for the export of Kvpl’s bulk tea, tea bags and value added tea to several countries including major buyers in Japan, russia and middle east and the eu.

Value AdditionKVPL owns 40% of Hayleys Global beverages (pvt) ltd (hgbl), which produces value added tea and other related products for the export market.

Investment in replantingRs.335 m


new pRoduct deVelopMenthgBl yy instant tea powderyy tea concentrateyy Tea flavour

Mabroc yy single garden gift tea Assortmentyy mabroc tea with honeyyy tea bag Assortmentyy herbal teayy tea bag cofferyy fruit tea extravaganza

Legend Tin Range

herbal Tea Range

MARKet deVelopMentKvpl have started direct exports in it’s own garden marks inverness and lovers leap through mabroc teas to china.

As global buying trends evolve, it has been found that large buyers are showing a preference to deal directly with the supplier as part of the global ethical sourcing framework. we have thus begun direct sales through the mabroc label, bypassing the traditional auction mechanism for certain premium products. in this manner, we have established a partnership with mc foods, a large-scale retail chain in Japan, to promote mabroc brand directly to the Japanese consumer. we have also started direct marketing of the mabroc label by tying up with leading international airports to set up sales counters within their duty free shopping area and our tea shops.

rubber direct exports too are being pursued and we have been able to contract fsctm - COC certified latexcrepe rubber to pakistan and fsctm - COC certified centrifuged latex to dipped products plc for a range of certified gloves

Mabroc products are displayed at the Taipei duty free shop

pRoduct ReSponSiBility g4-pR3implementing and maintaining food safety management system (iso 22000:2005 & HACCP) for all black tea manufacturing facilities reinforces our commitment towards product responsibility and ensures food safety and quality standards are maintained from end-to-end, covering planting, harvesting, production, processing and dispatch. the globAl gAp, utz and rA standards further strengthen our alignment with international food safety and quality management systems. in addition, a designated in-house team has been established at each estate, to monitor compliance with quality parameters, with regular internal audits and an external audit conducted annually, to ensure continuous improvements are made.

cuStoMeR heAlth & SAFetyg4-pR1/pR2yy All products and processes are

fully compliant with food safety management system certification by sri lanka Accreditation board.

yy tea quality is tested annually for heavy metals, microbiological criteria and agro-chemical residues.

yy Kvpl adheres to maximum residue levels (mrls) set by eu and Japan.


KVpl Food SAFety policy g4-pR1

Visionto be the world’s purest & safest tea produced by a socially responsible company from sri lanka

in order to progress towards the afore stated vision

food safety policyyy Maintaining ISO 22000:2005/ HACCP standard for Food Safety

management systems (fsms) to ensure the safety & quality of productyy periodically reviewing the fsms to ensure continual improvement of

the effectiveness of the fsms.yy communicating the policy to all levels within the organization &

ensuring that it is adequately understoodyy motivating employees to achieve required competencies through

adequate training and a well-managed system of recognition & rewardsyy ensures that the company complies with all relevant applicable

statutory and regulatory requirements.


“Preserve Quality & Safety from Bud to Brew”


ceRtiFicAtionS oF eStAteS

Food Safety Commitments Social Commitments

ISO 22000:2005

Certified estatespedro, n’eliya, uda radella, edinburgh, Ingestre, Annfield, Tillyrie, Robgill, fordyce, ederapola, Kelani, halgolla

hAccp

Certified estatespedro, n’eliya, uda radella, edinburgh, Ingestre, Annfield, Tillyrie, Robgill, fordyce, ederapola, Kelani, halgolla

etp

Certified estatespedro, n’eliya, uda radella, edinburgh, Ingestre, Robgill, Battalgalla, Annfield, tillyrie, fordyce, Kelani, halgolla, ederapola

utztm

Certified estatespedro, n’eliya, uda radella, edinburgh, glassaugh, oliphant


pRoduct And SeRVice lABellingfor tea, Kvpl adheres to the labeling requirements specified by the Ceylon tea traders Association (cttA) and sri lanka tea board, which is stenciled onto each package and include the following;

yy garden markyy invoice no.yy net weightyy gross weightyy serial number of the packageyy gradeyy company name

in rubber packaging is done in accordance with the regulations stipulated by colombo rubber traders’ Association. for sole crepe, following information is printed on the corrugated cartons.

yy invoice no.yy gross weightyy net weightyy no of sheetsyy case no. yy thickness


Environmental Commitments

rAtm

Certified estatesAnnfield, Battalgalla, Fordyce, ingestre, robgill, tillyrie, blinkbonnie, invery, pedro, oliphant, edinburgh, glassaugh, n’eliya, uda radella, Kelani, halgolla, weoya

fsctm

Certified estatespanawatte, dewalakande, urumiwela, Kelani, ederapola, Kalupahana, weoya, Kiriporuwa, ganepalla, lavant

globAl gAp

Certified estatesAnnfield, Battalgalla, Fordyce, ingestre, robgill, tillyrie, blinkbonnie, invery, pedro, oliphant, edinburgh, glassaugh, n’eliya, uda radella, Kelani, halgolla, weoya


Supply chAin g4-12/ec9/en23/en32/en33/So9

black tea green tea centrifuged latex

crepe & sole crepe

internal transportation

packing material suppliers

fuel & electricity suppliers

machines & spare parts suppliers

manufacturing facilities

external transportation

Certification bodies

cultivated lands

Auction

customers

private sale

workers

KVplHead Office

raw materials (green leaf & field

latex)

Agro-chemicals/fertilizer suppliers

Bought Leaf/ Bought latex suppliers

coMpliAnce g4-pR4/pR7/pR8/pR9

given the strict

compliance framework

in place, there were no

reported incidents of non-

compliance of laws and

regulations with regard

to labeling of products.

Further there were no

complaints received

on breach of customer

privacy.

32 Kelani valley plantations plc | Annual Report 2015/16 Awards & Accolades

nAtionAl BuSineSS excellence AwARdS 2015Excellence in Environmental sustainability - goldagriculture & Plantation sector - silver

nAtionAl SociAl diAlogue & woRKplAce coopeRAtion AwARdS 2015 - gold

agriculture & Plantation sector - silver award

Excellence in Environmental sustainability - gold award

Our environmental and sustainability efforts rewarded


nAtionAl BuSineSS excellence AwARdS 2015national chamber of commerce of sri lankaAgriculture & plantation sectorrunner-up SilVeR

SlitAd people deVelopMent AwARdS 2014sri lanka institute of training & developmentSilVeR

iAn diAS ABeySinghe MeMoRiAl JAStecA cSR AwARd 2015Japan sri lanka technical & cultural Association (JAstecA) “A home for every plantation worker”gold

nAtionAl SociAl diAlogue & woRKplAce coopeRAtion – MiniStRy oF lABouR gold

oVeRAll cAtegoRieS winneRexcellence in environmental sustainabilitygold

excellence in integRAted AnnuAl RepoRt AwARdS 2015Institute Of Certified Management Accountants of sri lanka (cmA)MeRit

AnnuAl RepoRt AwARdS 2015the inStitute oF chARteRed AccountAntS oF SRi lAnKA plantation companies categoryBRonZe

JasTEca csR gold award specialty Tea awards


Key performance Area unit 2015/16(12M)

2014/15 % of change (12M 2015/16

- 12M 2014/15)(15M) (12M)

revenue Rs. 000' 845,609 1,352,401 991,345 (15%)

Gross Profit Rs. 000' 121,001 228,922 157,583 (23%)

hectarage cultivated ha 4,608 4,647 4,525 2%

yield per hectare (yph) kg/ Ha 1,008 1,257 972 4%

production (combined) Kg 3,051,673 4,025,720 3,153,534 (3%)

bearer bilogical assets (nbv of mature rubber)

Rs. 000' 906,121 806,559 626,342 47%

The turmoil in the global rubber market worsened during 2015, as the demand for natural rubber continued to fall on the back of visible economic slowdown in major consuming countries. At the same time, non traditional rubber producing countries increased their year-on-year rubber production, giving rise to an oversupply situation in the market. meanwhile, despite many governments of producer countries stepping in to offer input subsidies, guaranteed minimum prices and even encouraging farmers to fell old rubber trees, these measures did not deliver the anticipated results and the international rubber prices continued to slide. to add to these woes, synthetic rubber producers across the world were capitalizing on the declining crude oil prices to manufacture ever cheaper synthetic polymers using petroleum by - product which can just as easily be used as a substitute for natural rubber in a vast number of industries.

naTURaL RUBBER anD sYnThETIc RUBBER cOnsUMPTIOn

2000

2001

2002

2008

2005

2011

2003

2009

2006

2012

2004

2010

2007

2013

2014

2015

0

2,000

12,000

10,000

8,000

6,000

4,000

14,000

16,000kg. m

natural Rubber synthetic Rubber

Year

Operating Environment

reAligned product mix to benefit from price fluctuAtions

high yielding Rubber planted at cost of

Rs. 88 m

210 Harubberg4-9


from a country perspective, sri lanka’s rubber industry continued to struggle amidst the chaos in the global rubber markets. this was a particularly trying time for the smallholders that account for approximately 70% of country’s rubber production. with many smallholders forced to suspend their operations in an effort to cut losses, sri lanka’s year-on-year rubber production dropped by 9.9 m Kg in 2015, to 88.8 m Kg, the lowest since 2009. In 2015 the average price of RSS1 was Rs.251/54 per Kg, compared to Rs.288/12 the previous year. The price of Latex Crepe 1X in 2015 was Rs.304/98, compared to Rs.309/37 in 2014. the prices of all grades of rubber tumbled once again in the January – march 2016 quarter.

Rubber production of Sri lanka

sRI Lankan RUBBER PRODUcTIOn, ExPORTs anD cOnsUMPTIOn 2002-2015

2002

2008

2005

2011

2003

2009

2006

2012

2004

2010

2007

2013

2014

2015

0

4020

140120100

8060

160180

kg. m

Production Domestic consumption Exports

operational Sum-up

with the crepe rubber prices moving up and the gap between latex crepe and rss prices widening, the main strategic thrust for Kvpl was to realign the production mix. In order to benefit from possible nuances in the market, the company looked at shifting its product mix between sole crepe, latex crepe, rss and centrifuged latex. first came the strategic decision to maximize the

crepe rubber production. following this decision the crepe rubber factories in dewalakanda, panawatte and Kiriporuwa began to work at full capacity from August 2015.

Jan-

14

Jan-

15

Jan-

16

Jul-

14

Jul-

15

apr

-14

apr

-15

Oct

-14

Oct

-15

Feb-

14

Feb-

15

Feb-

16

aug

-14

aug

-15

May

-14

May

-15

nov

-14

nov

-15

Mar

-14

Mar

-15

sep-

14

sep-

15

Jun-

14

Jun-

15

Dec

-14

Dec

-15

Mar

-16

0

50

300

250

200

150

100

350

400Rs

cRTa aVERagE PRIcE

LcR1x Rss1Period

the company also decided to explore the possibility of exporting its premium product “natural rubber sole crepe” directly, deviating from the existing system of local sales. the strategy proved successful, with the company securing orders from reputed overseas shoe manufacturers who use sole crepe in the manufacture of winter boots and fashion shoes. this helped the company to boost its net sale average.

Kvpl continued to maintain a strong yield-per-hectare that is well above the industry average as the replanting initiatives taken in the past began to deliver clear results, with a dramatic improvement in land productivity. the outcome had a cascading effect, resulting in a 11% increase in tapper intake during the year, leading to higher labour productivity and higher yield-per-hectare, which in turn helped lower the high cost of harvesting.


Year10 1211 13 14/15 15/160

400

200

800

600

1,000

1,200YPh: kg.

RUBBER YIELD PER hEcTaRE

meanwhile, notwithstanding the negative market sentiments prevalent in the current financial year, the company continued with its rubber-replanting programme and over 200 hectares were uprooted and replanted with higher-yield potential RRIC 2000 Series cultivar, at a cost of Rs.268m. What is unique about the RRIC 2000 is that it is expected to greatly improve land productivity in the years to come.

building a sustainable business framework continues to be a major priority for Kvpl and despite the disappointing performance, the company invested Rs.67 m during the year, to upgrade the existing effluent treatment plants at the dewalakande and dunedin rubber processing centres situated in dehiowita and yatiyanthota respectively.

Resultsthe performance of Kvpl rubber was affected due to lower volumes and the decline in overall rubber prices. Accordingly, revenue attributable to KVPL rubber fell to Rs. 845 m for the financial year 2015/16, down 37% from the Rs. 1,352m recorded in the 2014/15.

Meanwhile, crop volumes reduced by 3% from 2.9 m Kg in 2014/15 to 2.8 m Kg as at the end of the current financial year, mainly due to unfavourable weather conditions. on a more positive note however, the year on year yield increased from 981 Kg per ha to 1008 Kg per ha.

Operating Environment Contd.

outlook for 2016

given the current scenario, it is unlikely

that there would be any significant

improvement in market conditions in the

first half of 2016, although a rebound

in rubber prices is expected towards the

latter part of 2016.

hence, the focus for the immediate

future would be to improve the yield-

per-hectare to help mitigate the high

cost of production and relieve the stress

on the bottom line. in the longer term

however, the priority would be to improve

the overall sustainability of the business

in order to create a scalable platform for

future growth. Rubber nursery and Immature Rubber Field


Key performance Area unit 2015/16(12M)

2014/15 % of change (12M 2015/16

- 12M 2014/15)(15M) (12M)

revenue Rs. 000' 2,530,211 3,587,379 2,791,345 (9%)

Gross Profit Rs. 000' 19,710 191,818 147,024 (87%)

hectarage cultivated ha 3,682 3,655 3,627 2%

yield per hectare (yph) kg/ Ha 1,381 1,802 1,467 (6%)

production (combined) Kg 5,582,866 7,369,010 6,049,835 (8%)

bearer bilogical assets (nbv of mature tea)

Rs. 000' 708,785 663,556 622,471 14%

it was another troubling year for global tea markets, as major tea buying nations in the middle east and russia, once again found their purchasing power curtailed by the steady decline in world crude oil prices and the depreciation of the currencies in most countries.

Meanwhile, global Tea production reached 5.2b Kg in 2015, marginally up by 0.5% from the 5.1b Kg recorded in 2014. This was mainly due to the higher volumes coming out of china and bangladesh.

Kenya, Sri Lanka and India together accounted for almost 77% of the global production in 2015, while China accounted for 22%. Over the past 10 years, China’s Tea production volumes have grown by 138%, while Kenya’s production has registered a 23% growth during this time. Notable increases were recorded by Indonesia and Vietnam as well, but statistics indicate that sri lanka’s production volumes have only grown marginally in the past decade.

world tea production

country 2014m kg

2015m kg

% change over 2014

india 1,207.3 1,191.1 (1.3)sri lanka 338.0 328.9 (2.7)Kenya 445.1 399.2 (10.3)bangladesh 64.5 66.3 2.8malawi 45.8 39.4 (14.0)indonesia 135.7 129.3 (4.7)

the compAny continued to mAintAin it’s position As one of the premier producers of CEYLON TEA IN 2015

Tea replanted at a cost of

Rs. 27 m

34 Hateag4-9


country 2014m kg

2015m kg

% change over 2014

tanzania 36.1 31.6 (12.5)uganda 65.4 51.6 (21.1)rwanda 24.7 25.0 1.2china 2,095.7 2,230.0 6.4vietnam 175.0 165.0 (5.7)

total 4,633.3 4,657.4 0.5

source: Forbes & Walkers, (2015)

WORLD aUcTIOn aVERagEs-2005/2015

2005

2008

2011

2009

2006

2012

2010

2007

2013

2014

2015

0

0.50

3.00

2.50

2.00

1.50

1.00

3.50

4.00UsD

sri Lanakakolkata

cochinguwahatti

chittagingMombasa

JakartaLimbe

kenyaYear


overview of the Sri lankan tea industryit was one of the most challenging years for the tea industry in sri lanka, amidst a further escalation of the socio-economic unrest in the middle east and the devaluation of the currencies in turkey, russia and other cis countries, lead to a weakening of the demand for ceylon tea, a fact that was directly responsible for the poor results of Sri Lanka’s Tea industry in 2015.

colombo Auction pricesThe average prices at the Colombo auction declined sharply throughout 2015, and stood at Rs. 402.14, compared to the Rs. 461.86 registered at the end of 2014, a drop of Rs. 59.72. All categories experienced a drop in prices, with low growns recording the steepest decline of Rs. 72.67, from the Rs. 488.99 achieved in 2014 to Rs. 416.32 in 2015. The mediums averaged Rs. 362.57, a decrease of Rs. 47.49 from the Rs. 410.06 recorded in 2014. The high growns were affected the least, dropping only Rs. 31.98 over 2014, NSA of Rs. 420.36.

elevation2015

to-date2014

to-date2013

to-date

lKR uSd lKR uSd lKR uSd

high grown 388.38 2.86 420.36 3.22 402.98 3.13

mid grown 362.57 2.67 410.13 3.15 398.61 3.09

low grown 416.32 3.06 488.06 3.74 469.91 3.65

total 402.14 2.96 461.86 3.54 444.42 3.45


exchange RateFollowing the CBSL’s decision in September 2015, to allow greater flexibility in the determination of the exchange rate, the rupee strengthened against some currencies in major tea buying nations, but depreciated heavily against the


on a more positive note however, the unique properties and premium quality of ceylon tea with its track record of being the purest tea, helped sri lanka maintain its niche status in the market. in fact, despite the troubles in the global market, sri lanka tabled the highest net-sale-average for 2015, among all major Tea producing countries.


sterling pound, the usd and the saudi riyal, resulting in lower sale averages in dollar terms, compared to 2014 & 2013.

currency 1 January 2015 31 december 2015

% Appreciation / (depreciation)

usd 131.11 141.22 (7.71%)

euro 159.19 154.29 3.07%

sterling pound 204.17 209.34 (2.53%)

russian rouble 2.21 1.93 12.66%

iranian riyal 0.0048 0.0047 2.08%

turkish lira 56.24 48.46 13.83%

ukraine hryvnia 8.16 5.81 28.80%

saudi riyal 34.91 37.62 (7.76%)source: Forbes & Walkers, (2015)

Year

cOLOMBO aUcTIOn aVERagEs Vs UsD - 2005 TO 2015

2005

2009

2008

2007

2006

2010

2011

2012

2013

2014

2015

0 0

200

1001

1.5

0.5

4003

3.5

3002

2.5

500 4

Rs.

Tea auction Price avg. UsD

UsD Exchange Rate Tea auction Price avg. Rs. Tea auction Price avg. UsDYear

tea exportsSri Lanka’s tea export volumes for 2015 stood at 306.9m Kg, showing a decrease of 20.4 m Kg against the 327.3m Kg recorded in 2014. Except for Bulk exports, which registered a growth of 5.6m Kg over 2014, all other categories recorded

lower export volumes for 2015. notably, tea-in-packets dropped significantly, recording a deficit of 18.7m Kg over 2014, with tea-in-bags too showing a decline of 6.5m Kg over the previous year.

total revenue attributable to tea was Rs. 182 b in 2015, Rs. 30.5 b lower than the Rs. 212.5b recorded in 2014. Although a notable increase in the quantity of bulk tea exports was recorded in 2015, Bulk Tea export revenues declined by Rs. 5.1 b compared to 2014.

russia emerged as the largest importer of sri lanka tea with turkey and iran, coming in second and third place respectively, while a notable increase in imports to china, india and Pakistan was observed in 2015.

productionSri Lanka’s Tea production for 2015 dropped from 338m Kg in 2014, to 328.9m Kg, a drop of 9m Kg, of which 7.5m Kg was on account of the drop in the production of low-growns. high-grown production dropped by 1.9m Kg, while production volumes of Mid-grown Tea increased by 0.7m Kg in 2015.

Resultsthe company continued to maintain its position as one of the premier producers of Ceylon tea in 2015. however, amidst the ongoing crisis in global tea markets, the prices of Kvpl tea sold at the colombo tea auctions declined by Rs. 38 over the previous year. Kvpl’s strong alignment with global quality standards, including the Rain Forest Alliance certification and utztm helped somewhat to cushion off the adverse impacts and to secure a higher premium at the colombo tea auction, moreover, Kvpl’s traditional quality seasonal teas experienced an upward movement in prices in the January – March 2016 quarter. A culmination of these factors meant, the drop in revenue in the last quarter, was marginal compared to the drop seen in the first nine months.

Kvpl also began direct exports to a number of regional tea buying destinations, to further strengthen its single origin image. mainly consisting of specialty teas, these exports were done through mabroc teas (pvt) ltd., a fully owned subsidiary of Kvpl.

Kvpl’s production volumes registered a drop compared to the previous year, reaching only 5.6m Kg for the year under review, compared to the 6m Kg


recorded in the previous financial year. the nine-day work stoppage initiated by the estate workers on account of the breakdown of wage negotiations and the adverse weather, were some of the factors that contributed to the losses. A further comparative analysis reveals lower production volumes for the first nine months ending 31 December 2015, with some encouraging signs that point to a steady increase in the fourth and final quarter of the year.

meanwhile, the complete ban on the import and use of glyphosate, the low-cost weedicide widely used in sri lanka’s tea plantations, had a negative impact on the weed management process. moreover, the ban, which came into effect from may 2015 meant, sourcing other high-cost imported substitutes or alternatively hand weeding, which proved to be prohibitively costly under the current market conditions. the drop in yields was therefore only to be expected.

operational Sum-upgiven the unsteady market environment, Kvpl embarked on a strategy to consolidate the current cost structure and migrate towards a leaner operational model during the year under review. following

this decision, processing operations at three smaller factories were discontinued with effect from october 2015, leading to some idle capacity.

All other factory operations were centralized, with only the larger processing plants functioning with effect from October 2015. This move helped Kvpl to strengthen the quality of the output as evidenced by the higher prices received at the auctions in November 2015 to March 2016.

further, the ews (electronic weighing system) aimed at streamlining plucker output, was fully rolled out across all factories during the year. it is an electronic card based application that digitally weighs and sorts each pluckers’ output and then integrates the results to activate multiple incentive-based platforms structured to benefit the plucker. the goal here is to work towards establishing a fully-fledged process management system that will minimize inconsistencies across the production floor and eliminate discrepancies regarding worker productivity.

the highly worker intensive harvesting process meant, worker-related issues being a key operational challenge for Kvpl. As always, the cost of workers was high, accounting for a large chunk

of the total operational costs. the protracted wage negotiation process continued to be deadlocked with no apparent resolution in sight, causing serious worries regarding loss of workforce resulting due to the possibility of large scale worker migration.

in an effort to reduce the over dependency on workers for the plucking process, the company invested in shear plucking technology for the 4th and 5th year fields. While helping to cut costs, shear plucking will also reduce the need for manual plucking of older fields, thereby allowing the plantations to focus on deploying its workers to the younger and more productive fields that will deliver better yields and higher quality outputs.


outlook for 2016yy At this point, projecting an outlook for the year ahead is no

doubt a difficult task, more so due to the continuing turmoil in sri lanka’s traditional tea export markets and the ongoing currency depreciation in many of these nations. The fluctuation in crude oil prices will also likely continue for some time, resulting in considerable uncertainty for the near future. the change in fertilizer policy, the chemical ban and the stalled wage negotiation process adds further doubts regarding a full recovery in the next few years.

yy As these market uncertainties look likely to continue, the focus would be to improve the quality of the output in order to command a premium price at the colombo auction. further, the company would also seek to improve efficiencies vis-à-vis investments in technology and enhancing quality standards across the production floor. It is hoped such measures would underpin cost leadership and help maintain the bottom line in the forthcoming year and beyond.


yy light weight plucking basket

yy shear harvesteryy sathdiyawara -

csr project

yy cinnamon nursery

yy hay-planyy tea tasting

yy electronic weighing

yy tea harvestersyy machine

plucking

42 Kelani valley plantations plc | Annual Report 2015/16 Financial Review

FinAnciAl RepoRting And AchieVeMentS g4-4/15To provide stakeholders with a clear and comprehensive understanding of the financial statements, the KVPL Group continues to adopt best practices for financial reporting and as such, the timely filing of quarterly and annual financial statements remains a high priority on the reporting agenda. Furthermore, new developments in the financial reporting environment are closely monitored to assess possible changes that may be needed and the reporting framework realigned accordingly. The financial reports on pages 133 to 217 have been prepared in compliance with the Sri Lanka Financial Reporting Framework and Statements of Alternate treatment soAt promulgated by the institute of chartered Accountants of sri lanka (cAsl).

the emphasis on quality and transparency of the reporting process has enabled the company to secure several awards at both local and international reporting competitions. The Annual Report for 2014/15 won the bronze award in the plantation sector at the Annual Report Awards 2015, conducted by CASL. The report was also adjudged the runner-up in the “Best Presented Annual Report” at the SAARC Anniversary Awards 2015 conducted by the South Asian Federation of Accountants, winning in the Agri sector and the corporate governance disclosures categories.

FinAnciAl peRFoRMAnceGroup financial performance at a glance

item

2015/16 2014/15 2014/15 change (12 M 2015/16 - 12 M 2014/15)

12M 15 M 12MRs.m % Key Factor

Rs.m Rs.m Rs.m

revenue6,069 8,647 6,716 (647) (10%)

decrease in sales quantities of tea and rubber, drop in price of tea and rubber and decrease in contribution from mtpl

cost of sales5,604 7,908 6,154 (550) (9%)

decrease in cost of sales in Kvpl and mtpl in relation to decrease quantity produced and sold.

other income 88 104 90 (2) (2%) decrease in fair value of biological assets

Administrative expenses

466 520 418 48 11% increase in Administrative expenses of Kvpl and newly formed hgbl

distribution expenses

53 98 88 (35) (40%) decrease of mtpl, corresponding to decrease in revenue

finance income 2 10 9 (7) (78%) decrease in interest income of Kvpl

finance expenses 113 133 109 4 4% increase in od interest and interest on government lease by Kvpl

tax expense 12 50 36 (24) (67%) decrease in income tax & deferred tax


sEgMEnTaL TURnOVER 2014/15

Tea Rubber Other

84%

15.5%

0.5%

sEgMEnTaL TURnOVER 2015/16

Tea Rubber Other

85%

14%

1%

The rubber segment recorded a turnover of Rs. 846m compared to Rs. 1,352m recorded in 2014/15, for the 15 month period and Rs 1089m for the 12 months, recording declines of 37% and 22% respectively. The Rubber segment reflected the movements in the industry with drop in prices of all rubber grades. crop volumes also reduced by 3% in the year under review.

2015/162014/15

12M 15M

Tea (Kg 000’)Rubber(Kg 000’)Hydro (Units 000’)

5,7162,9852,441

5,9553,1682,713

7,6534,2222,735

Financial performance per employeeThe turnover per employee provides an indication of the efficiency of our workforce. the turnover per employee, which was on the rise until the end of the previous year, declined to Rs. 551,704 in 2015/16, being the impact of decrease in turnover and workforce.

gRoup tuRnoVeRmainly due to lower contributions from Kvpl and mtpl, the group recorded a turnover of Rs. 6,069m for the 12 months ending 31 March 2016, 30% lower to Rs. 8,647m recorded for the 15 month period ending 31 March 2015 and 10% lower than the Rs. 6,716m for the 12 months ending 31 March 2015.

Year

gROUP TURnOVER

10 1211 13 14/15 15/160

6,000

4,000

2,000

8,000

10,000Rs. m

12M 3M

the contribution to the group revenue from the plantation sector (Kvpl) and the tea marketing sector (mtpl) was 55% and 44% respectively, whilst hydro power sector (Kpc) and instant tea sector (Kvit) accounted for the remaining 1% . There is no contribution from hgbl.

Segmental turnoverthe group’s tea segment contribution of Rs. 5,185m was made up of 51.1% from MTPL, 48.8% from KVPL and 0.1% from KVIT. KVIT’s contribution remains insignifcant as it is an experimental project.

the tea turnover for the year under review decreased by 29% compared to the turnover recorded in the preceding 15 month period. This was mainly due to drop in tea prices and quantities sold which led to a decrease in export revenue of mtpl. Kvpl’s tea turnover consists of 78% from high growns and 22% from low growns . The decline in high grown prices at the auction had a major impact on Kvpl’s tea turnover . The average price/kg (GSA) as at end December 2015 Rs. 417 and March 2016 Rs. 418 a decline of 10% and 8% respectively compared to the figures recorded for the previous year.

the high grown gsA droped from rs. 448 to Rs. 416 recording a decrease of 7% for the year.


1110 12 13 14/15 15/160 0

700

10

8

6

500

400

2

200

600

4

300

800 16

12

14

Rs. ‘000 Rs. ‘000

TURnOVER PER EMPLOYEE

Turnover per employee

no ofemployee

100

Turnover per Employeeno. of Emplyoees

Year

Gross ProfitGross profit for the period under review was Rs. 465m, a decline of 37% compared to Rs. 739m in 2014/15 (15 Months) and 17% (against the 12 months ending) ending 31 March 2015.

gROss PROFIT

10 1211 13 14/15 15/160

1,000

800

200

400

600

1,200

1,400Rs. m

12M 3MYear

Segmental Gross Profittea was the main contributor to gross profit, representing 68% amounting to Rs. 314 m, while rubber contributed 26%, which represent Rs.121 m. contributions from other sources was 6%.

sEgMEnTaL gROss PROFIT2015/16

Tea Rubber Other

68%

26%

6%

sEgMEnTaL gROss PROFIT2014/15

Tea Rubber Other

65%

31%

4%

The gross profit margin for tea decreased from 7% in 2014/15 to 6% in 2015/16, while the gross profit margin of rubber decreased from 17% in the previous year to 14% in 2015/16. The decline in gross profit from tea and rubber amounted to Rs.166m and Rs.108m respectively from the previous year.

Profit Before TaxThe Group made a loss of Rs. 31m for the 12 months ending 31 March 2016 compared to the profit before tax of Rs. 47m recorded, for the corresponding 12 month period in 2014/15. The figures represent a massive decline of 166% caused by a severe drop in quantities sold and significantly lower prices of both tea and rubber.

PROFIT BEFORE Tax

10 1211 13 14/15 15/16(100)

400

1000

200300

500

700600

800Rs. m

12M 3MYear

earnings Before interest, tax, depreciation and Amortisation (eBitdA)the group’s ebitdA decreased by 46%, to Rs. 279m in 2015/16, compared to the Rs. 516m tabled in the 15 month period in 2014/15, and a 32% drop compared to 12 month period in 2014/15. This also resulted in a decline in the operational cash flow position of the Group.

EBITDa

10 1211 13 14/15 15/160

600

400

200

800

1,000Rs. m

12M 3MYear

Administrative, trade and distribution costAdministrative expenses decreased by 10% to Rs. 466m in 2015/16 compared to 15 month period of 2014/15, and by 11% compared to 12 month period of 2014/15. Distribution expenses, mainly attributable to MTPL, decreased by 46% from Rs. 98m, to Rs. 53m.

Financial Review Contd.


aDMInIsTRaTIVE cOsT

10 1211 13 14/15 15/160

400

300

100

200

500

600Rs. m

12M 3MYear

net Finance costThe key element in the net finance cost was the interest paid on the government lease which increases annually based on the GDP deflator. The respective cost for 2015/16 was Rs. 67m, an increase of 3% compared to corresponding 12 month period in 2014/15.

The finance cost reflects the interest cost on long-term loans, short-term loans, and overdraft interest and exchange losses. interest on long-term loans increased due to new loans taken, total cost fell from Rs. 54m in the previous year to Rs. 46m in 2015/16.

finance income comprising interest income from short term deposits decreased from Rs. 10m in 2014/15,

to Rs. 2m in 2015/16, mainly due to withdrawal of short term investments.

FInancE cOsT & LEasE REnTaL PaID TO gOVERnMEnT Vs. FInancE IncOME

1110 12 13 14/15 15/160

2010

30

50

7060

40

8090

Rs. m

Fin. IncomeFin. costgovt. Lease Rental

Year

the group’s average cost of funds increased from 7.05% to 8.45% during the year, due to the increase in interest rates in the debt market.

income and deferred taxationthe group’s total tax credit for the year was Rs. 12m, a decrease of 77% compared to the 12 months period in 2014/15.

income tax expenses increased from Rs. 13m, to Rs. 16m, in 2015/16. The deferred tax charge of Rs. 34m was converted to a deferred tax reversal in the year under review, due to the

increased tax losses. the tax on dividend income from KPC , was Rs.2m.

tax concessions and rates applicable to companies within the group are available in page 170.

earnings per share (epS) and dividend per Share (dpS)the eps of the group declined from rs. 1.77, to negative Rs. 0.84, in 2015/16. The 147% decrease in EPS mirrors the losses of the group.

EPs & DPs

1110 12 13 14/15 15/16(2)

20

4

8

1210

6

14

1816

Rs.

EPs DPsYear

the company paid attractive dividends during the past years. however, in the year under review, dividend has not been proposed due to the prevailing loss.

Return on capital employed (Roce) and Return on equity (Roe)ROCE declined from 6% to 1% due to

the cumulative effects of decreasing profits and higher borrowings. ROE too declined from 8% to 1%.

ROcE & ROE

1110 12 13 14/15 15/160

10

20

15

5

25

35

30

Rs.

ROcE ROEYear

Return on Assets (RoA)ROA reflects the profitability and efficiency of the company, relative to its total assets. the company’s roA declined to a negative 1% in 2015/16 due to the decline of profits compared to 1% in 2014/15.

RETURn On assETs

Net Profit ROa

1110 12 13 14/15 15/16(100) (2)

500 8

6300

2002

0 0

400

4

100

600 10Rs. M %

Net Profit ROa

Year


FinAnciAl poSition At A glAnce

Rs.M 2015/16 2014/15 change% of

changeKey reason

Non-Current Assets

freehold property, plant & equipment

1,330 1,839 (509) (28%) lower addition to pp&e and decrease in controlling interest and removal of assets of hgbl from consolidated statement of financial position.

improvements to leasehold property

3,067 2,796 271 10% increase in replanting of tea and rubber

biological Assets (consumables) 125 105 20 19% increase in fair value

Current Assetsinventories 695 866 (171) (20%) decrease in bulk tea stocks of mtpl

trade and other receivables 541 737 (196) (27%) decrease in produce debtors of Kvpl

st investment, st deposits, cash in hand and bank

55 94 (39) (41%) decrease in short term deposits of hbgl and Kvpl

Equity and liabilitiesnon-current liabilities

deferred income 523 478 45 9% grants received by Kvpl

deferred tax liability 391 393 (2) (1%) increase in tax loss of Kvpl

Retirement benefit obligations 1,153 1,123 30 3% increase in past service cost

liability to make lease payment 445 446 (1) (0.2%) repayment of liability

Current Liabilities

trade and other payables 415 430 (15) (3%) decrease in staff payables of Kvpl

Amounts due to other related companies

25 17 8 47% increase in related party payables of Kvpl

income tax payable 16 8 8 100% Increase in income tax on profit of MTPL

short-term interest bearing borrowings

373 723 (350) (48%) decrease in short-term borrowings of mtpl

FinAnciAl poSitioncapital Structure

caPITaL sTRUcTURE

shareholders Fund Borrowings

10 1211 13 14/15 15/160

1,000

1,500

500

2,000

2,500

3,000Rs. m

Year

funds attributable to equity shareholders of the company decreased by 2% from Rs. 2,695m to Rs.2,628m. Long-term borrowings decreased by 7% against the previous year. meanwhile, the effect of the Rs. 249m long-term loan obtained by Kvpl during the year, was largely negated by the transfer-out of rs. 243m from the loan category due to changes in the control interest of hgbl.



Long term short term

10 1211 13 14/15 15/160

1,0001,200

600800

400200

1,4001,6001,800

Rs. m

BORROWIngs

Year

The group obtained Rs. 1,915m (KVPL Rs. 100m and MTPL Rs. 1815m) short-term borrowings and repaid rs. 2,265m of the total Rs. 2,689m during the year. the group’s short term borrowings consist of foreign currency borrowings amounting to Rs.373m on account of MTPL, and a Rs.95m overdraft for Kvpl. the short term borrowings have decreased by 48% during the year.

the gearing ratio has been decreased from 25% to 24% as a result of the drop of borrowings. however, the management has successfully maintained the gearing at an optimum level to minimise the cost of capital.

interest cover has declined due to the deterioration of financial performance.

gEaRIng anD InTEREsT cOVERagE

gearingInterest coverage Ratio

1110 12 13 14/15 15/160 0

35

5

7

6

25

3

20

2

15

5 1

30

4

10

40 8%

gearing

Inte

rest

cov

erag

e Ra

tio

Year

Shareholders’ Funds Ratiosharehoders’ fund ratio increased from 39% to 40% during the year.

shaRE hOLDER’s FUnDs

10 1211 13 14/15 15/160 34

4,000

38

5,000

40

2,000

3,000

361,000

6,00042

7,000 44

8,000 46Rs. m %

Total assets s/h Funds RatioYear

price earnings Ratio

EPs anD PRIcE EaRnIng RaTIO

EPs PER

1110 12 13 14/15 15/16(2) (100)

16 40

2012

86

10

(40)

(20)

0 (80)

(60)

14

0

42

18 60Rs. Times

EPs

PER

Year

market price per share decreased by 10% to Rs. 65 and EPS decreased by 147% to Rs. negative 0.84 as a result of lower performance, impacting the price earnings ratio to a lower level of negative 77 times, compared to 41 times in the previous year.

Biological assets - consumablesthe group’s commercial timber is classified as consumable biological assets, the value of which increased by Rs. 20m, due to increase in fair value.

working capitalworking capital decreased from Rs.470m in 2014/15 to Rs.247m in 2015/16, mainly due lower production volume and trade receivables.

WORkIng caPITaL

10 1211 13 14/15 15/160

400

200

600

800

1,000Rs. m

Year

current RatioThe current ratio reflects a downward movement for the year, showing a decrease of 1.2 times in the period under review, relative to 1.4 times in previous year. this was mainly due to decreases in prouduce stock and trade and other receivables.

cash Flowcash generated from operating activities before working capital changes has decreased to Rs. 375m from Rs. 666m in the year under review due to lower performance.

capital expenditure for the period was Rs. 1,870m, compared to Rs. 1,047m in year 2014/15, an increase of 79%, was mainly due to increase in work in progress of hgbl.


Year

cash gEnERaTED FROM OPERaTIOns & caPITaL ExPEnDITURE

cash generated from Operationscapex

1110 12 13 14/15 15/160

800

1,600

1,200

400

2,000Rs. M

capital expenditure by segmentThe total capital expenditure on field development-tea reduced marginally from Rs. 104m to Rs. 66m, while the expenditure on field development-rubber decreased from Rs. 354m to Rs. 269m.

caPITaL ExPEnDITURE BY sEgMEnT

10 1211 13 14/15 15/160

800

400

1,200

1,600

2,000Rs. M

Tea Rubber OtherYear

Of the above expenditure Rs. 66m was spent on uprooting and replanting of 46 hectares of tea, while Rs. 266m was spent on replanting of423 hectares of rubber.

other capital expenditure includes investment in property plant and equipment including work in progress which has increased by Rs. 433m to Rs. 1762 m. Work in progress of Rs. 1329 m, was the highest component incurred by hgbl on constructing the plant.

Financing cash flowsFinancing cash flows increased by 49%, to Rs. 852 m from Rs. 573 m in the previous year. it increased mainly due to the long term loans obtained by hgbl during the year.

peRFoRMAnce MeASuReMentQuarterly performancetabulated below is the quarterly performance of the Group. The first and second quarters recorded the highest revenue in 2015/16. The highest gross profit for the quarter was recorded in the fourth quarter, while the lowest was in the second quarter.


(Rs. Million) Q1 Q2 Q3 Q4 total

revenue 1,698 1,520 1,387 1,464 6,069

gp 92 40 111 221 465

Administration expense 107 120 129 110 466

pbt (34) (101) (49) 153 (31)

pAt (32) (95) (49) 132 (43)

Profit/(loss) attributable to equity holders

(29) (88) (43) 132 (29)

total Assets 7,344 7,392 7,648 6,470 6,522

total equity 2,788 2,687 2,614 2,609 2,661

total debt 1,213 1,578 1,727 849 849

net Assets per ShareNet assets per share decreased to Rs.77 from Rs. 79 due to the poor performance.

Year

nET assETs PER shaRE

10 1211 13 14/15 15/160

40

2010

30

50

7060

8090Rs.

performance and market capitalisation of sharesThe market price of KVPL shares declined in 2015/16 to Rs. 65.00 per share. The highest and lowest prices for the year were Rs. 73 and Rs.53 respectively.

g4-9


consequent to the declined share price, the market capitalization also decreased to Rs. 2,210m. As the number of shares traded declined during the year, the value of shares traded also declined. As per the ownership structure, the parent company, dpl plantations (pvt) ltd (DPLP) retained 72% of ownership and public holdings remained at 28%.

Future outlook g4-14

since the inception, Kvpl has sustained steady growth and continuing to make a robust contribution to the plantation sector. with the agriculture sector being one of the three main areas earmarked for future development by the government, Kvpl is expected to play a key role towards the national development agenda in the coming years, vis-à-vis:

yy strategies to increase direct exports of value-added tea through mtpl.

yy improve productivity of assets, including land and labour, to mitigate impacts of higher production costs.

Motorized Tea Plucking machine in nuwara Eliya estate.

50 Kelani valley plantations plc | Annual Report 2015/16 Financial Review Contd.

MABRoc teAS (pVt) ltdmabroc teas (pvt) ltd is a fully owned subsidiary of Kelani valley Plantations PLC since year 2010. The company serves as marketing arm of hayleys plantation sector. over the years, mabroc has mastered the art of providing a diverse range of skillfully blended teas to satisfy the global consumer. today the company presents a refined assortment of exclusive teas that come in many shapes and forms to suit unique requirements of its dynamic clientele of over 50 countries.

Together with KVPL, it is the first tea company to be recognized by the united nations global compact for ethical business practices leading to the launch of single garden premium teas under the “the ethical tea brand of the world” at ungc head quarters in New York and the first tea company to be awarded the GMP certificate from the sri lanka tea board.

Revenue

Year

gROUP TURnOVER

12/13 13/14 14/1511/12 15/160

2,000

1,000

1,500

500

2,500

3,000

3,500Rs. M

Mabroc revenue decreased by 8% to Rs 2,702 m in 2015/16, compared to Rs. 2,937 m in the previous year mainly due to crisis in most of the tea drinking nations .

Gross Profit

sEgMEnTaL TURnOVER2015/16

17%

2%

81%

Bulk Value added Other

The gross profit increased by 14% to Rs. 296m compared to the last financial year. Gross profit margin has

also been increased to 11% from 9% during financial year 2015/16.

capital structure & gearing

gROss PROFIT

12/13 13/14 14/1511/12 15/160

200

100

150

50

250

300

350Rs. m

Year

the company’s capital employed at the year-end was Rs. 699 m. The contribution from equity and debt capital was Rs.326 m and Rs. 373 m respectively. gearing ratio also has decreased from 73% to 53%.

caPITaL sTRUcTURE & gEaRIng

12/13 13/14 14/1511/12 15/160 0

600 50

300200

30

500400

40

100

20

10

700 60

800 70

900 80Rs. m %

Equity Debt gearingYear


KAlupAhAnA poweR coMpAny (pVt) ltd.the year under review was a good year as Kpc results, the rainfall pattern was favourable during most parts of the year. the positive results shown was a incentive towards the groups’ bottom line.

performanceThe Kalupahana power company contributed 2,441,366 kWh to the national grid. The figure was 10% lower than the 2,713,000 kWh for the twelve months ending 31 March 2015 and 11% less than the 2,735,410 kWh recorded for the 15-month period ending 31 March 2015.

Year

12M 3M

POWER gEnERaTIOn

2005

2011

2008

2013

2006

2007

2009

2012

2010

2014

/15

2015

/16

0

1,000

500

2,500

2,000

1,500

3,000

3,500kWh’000

Revenue decreased by Rs. 3m, to Rs. 38m, mainly due to drop of the volume of electricity generated. Electricity tariffs increased slightly from Rs. 14.87 to Rs. 15.24 in wet season and from Rs.15.90 to Rs.16.74 in dry season, which led to Profit Before Tax of Rs. 24m. However Profit generated by KPC had a positive impact on the consolidated Group results, helping to reduce group losses by 26% for 2015/16.

REVEnUE/PBT PER UnIT

2005

2009

2007

2011

2013

2006

2010

2008

2012

2014

/15

2015

/16

(10)

0

(5)

15

10

5

20Rs.

Revenue Per Unit PBT Per UnitYear

kalupahana Power house

52 Kelani valley plantations plc | Annual Report 2015/16 Financial Review Contd.

KelAni VAlley inStAnt teA (pVt) ltd.Kvit is the value added, instant tea manufacturing venture established as an initial step towards research and development, for value added tea based products. in addition to being a pilot project on value addition, Kvit is also a component of the overall sustainability model of the Kvpl group. As a small experimental venture, Kvit’s outputs are not aggressively marketed and currently sold only to a limited number of local buyers. however, in the new financial year, KVIT’s experience and learning will be upgraded and commercial operations are likely to be carried out through hayley’s global beverages (pvt) ltd.

KVIT recorded a turnover of Rs. 3.4 m during the period 2015/16, Rs. 5.3m lower than the figure reported for the previous year. This drop in revenue was mainly due to weak demand in the local market. Kvit’s production also declined by 66%, to 1,508 Kg from 4,432 Kg recorded in the previous year. This resulted in a 50% drop in gross profit, leading to a loss before tax of Rs. 2.2 m, compared to the loss of Rs.1.5 m in 2014/15.

Year

PRODUcTIOn, REVEnUE & PBT

2010

2012

2011

2013

2014

/15

2015

/16

(4.0) 0

2.0 3.00

(2.0) 1.02.0

10.0 7.012.0 8.0

6.0 5.08.0 6.0

4.0 4.0

14.0 9.0

Rs. m kg’000

Revenue PBT Production

Reve

nue/

PBT

Production

Instant Tea Factory at nuwara Eliya Estate


group companyFor the year/period ended 31 March 2015/16 2014/15 2015/16 2014/15 rs.m rs.m rs.m rs.m

Revenue 6,069 8,647 3,376 4,940other income 90 114 101 130 6,159 8,761 3,477 5,070cost of material and services obtained 3,463 (5,070) (1,055) (1,623)Value addition 2,696 3,691 2,422 3,447 Value created shared with % % % %employees 2,350 87.2% 3,104 84% 2,234 92.4% 2,952 85%government of sri lanka 37 1.4% 84 2% 4 0.1% 14 1%share holders - 0.0% 34 1% - 0.0% 34 1%lenders of capital 113 4.2% 126 3% 100 4.0% 100 3%deferred tax impact (6) (0.2%) 34 1% (13) (0.5%) 27 1%Value Retained for expansion & growthdepreciation 245 9.1% 291 8% 199 8.2% 237 7%Profit (43) (1.6%) 18 1% (102) (4.2%) 83 2% 2,696 100% 3,691 100% 2,422 100% 3,447 100%

87.2% of Value Addition distributed amongst 11,000 employees

Year

YEaRLY VaLUE aDDITIOn

1110 12 13 14/15 15/162,400

2,800

3,000

3,400

3,600

3,200

2,600

3,800Rs. m

Rs. m

(500) 0 500 1,500 1,000 2,000 2,500 3,000 3,500

Employees

government of sri Lanka

Deferred Tax Impact

Lenders of capital

share holder

Depriciation

Profit category

DIsTRIBUTIOn OF VaLUE aDDITIOn

2014/15 2015/16

Statement of Value Addition and Distribution

g4-ec1

54 Kelani valley plantations plc | Annual Report 2015/16 Stakeholder Engagement

StAKeholdeR engAgeMent g4-24/26/27we place a high priority on open, direct and proactive engagement with our stakeholders. our goal is to gain insights into the evolving expectations, priorities and concerns, of our stakeholders, in order to ensure that we respond appropriately.

Approach to engagement Frequency Key topics and concerns our Response

Shareholders

yy Interim financial reports.yy Annual general meetings. yy golden shareholder

meetings.yy Annual reports.

yy quarterly.yy Annually.yy when required.

yy Annually.

yy no concerns were raised by shareholders during financial years.

yy continuous dialogue with shareholders as required.

employees and trade unions

yy collective bargaining.yy labour day.yy whistle blowing policy.yy management meetings.yy Ad-hoc meetings.

yy once in two years.yy once a week.yy when required.yy monthly.yy when required.

yy unresolved wage negotiations.

yy continuation of negotiations.

Suppliers

yy tea and rubber smallholders through field visits.

yy packing material,chemical and fertilizer suppliers are assessed by 2nd party audits.

yy Once in 6 months.

yy when required.

yy issues regarding quality,price and delivery.

yy Amicably resolved through dialogue.

Buyers

yy visits to our estates and factories.

yy customer complain handling.

yy regular.yy immediately on

receipt of complain

yy to gain knowledge on quality of product.

yy we have responded and corrective action taken to customer complains promptly.



Certification bodies

yy coordinating to conduct certification and surveillance audits.

yy Annually. yy All non-conformities and observations raised by certification bodies regarding compliance.

yy we respond promptly to all non-conformities and observations made during the compliance audits by certification agencies.

government

yy compliance with the regulatory requirements.

yy coordination with government agencies such as pmmd, ministry of plantation industries, local authorities, environmental Authority, tea board, tri, rri, rubber development Authority and divisional secretariat.

yy when required. yy lease rental yy ban of weedicides yy felling of trees yy fertilizer subsidy

yy All regulatory requirements of compliance were successfully achieved.

yy continuous dialogue to resolve issues.

Brokers

yy visits and regular dialogue.

yy interactive workshops.yy tea testing sessions.

yy weekly.yy when required

yy product quality.yy tea tasting.yy market information

yy we responded to all inquiries and maintain better relationship.

plantation community

yy regular discussions with union leaders.

yy when required. yy No significant issues. yy continuous dialogue to maintain better relationship.

56 Kelani valley plantations plc | Annual Report 2015/16 Stakeholder Engagement Contd.


ngo

yy through dialogue and implementation of projects.

yy continuously. yy welfare activities and taking forward “home for every plantation worker” programme.

yy we extend our support for their initiatives.

Academic and scientific community

yy regular communications are being carried out with following academic organizations such as national institute of plantation management (nipm), sri lanka tea board, rubber control board, tri, rri, institute of charted Account of sri lanka

yy when required. yy No significant concerns were raised.

yy Accommodated 3 interns from institute of charted Accountants of sri lanka

yy Kvpl executives sent to tri, rri and nipm for training

yy workers sent for tapper’s training conducted by rri

yy workers sent for health & safety programs.

Financial institutions /Banks

yy published accounts and Annual report.

yy regular meetings, dialogues and interactions.

yy quarterly and Annually.

yy when required.

yy long term loans.yy short term loans &

facilities.yy maintaining savings &

current accounts.yy Efficiency of services.

yy new facilities have been negotiated during the period.

57 Kelani valley plantations plc | Annual Report 2015/16 Human Capital

MAnAgeMent AppRoAchAs the process of managing the workforce becomes more multifaceted, we at Kvpl embraced these encounters with a greater degree of depth and sophistication. we realize that this calls for an integrated strategy that imbues human capital development as an essential component of the business, paving the way for shared values and meaningful employee goal congruence. we believe this approach will keep employees motivated and increase overall productivity, which in turn would enable us to sustain a competitive edge in the long term.

our human capital development agenda is designed to enable employees to better adapt to their assigned roles and encourage them to grow with the organization. we have put in place policies and procedures to create a work environment that is based on lifelong learning and continuous personal development. These actions have a dual intent; to deliver measurable results for Kvpl and increase employee sustainability by enhancing their marketability.

improving sustainability of the estate

workforce

dynamic hr framework

commitment to ungc principles

succession planning

coMMitMent to the ungc pRincipleS g4-15Kvpl’s working conditions are aligned to the ungc principles of human rights and labour standards, which signify the company’s commitment towards human capital empowerment.As a signatory to the ungc principles, we affirm our commitment to upholding the following fundamental principles, which are now a part of our manuscript.

eQuAlity And diVeRSity g4-hR3since inception, Kvpl has embraced an equal opportunity policy. As an equal opportunity employer, Kvpl will, at all times ensure free and fair employment terms by providing both the opportunity and the environment for all employees to enjoy a long and rewarding career within the company, irrespective of gender equality. moreover, the company will not discriminate against race, colour, religion, expression, sexual orientation, marital status, disability or any other status protected by law.

further, in line with the hayleys group policy to promote greater diversity among the workforce, Kvpl will not tolerate an atmosphere of

intimidation, humiliation or any form of harassment and expects all employees to strictly comply with this policy.

huMAn RightS g4-hR1/2Kvpl is fully committed to comply with all human rights practices spelt out in the ungc principles, including the following key aspects with regard to labour standards;

Freedom of Association g4-hR4we believe freedom of association is the right of each and every Kvpl employee and our collective bargaining framework seeks to lay the groundwork for a more sustainable relationship with our employees.

child labour and Forced or compulsory labour g4-hR5/6/11the use of child labour and forced or compulsory labour is strictly prohibited and this policy is applied across all our plantations, head office, subsidiary companies and/or suppliers. we require all employees to produce their birth certificate at the point of recruitment, so that their legal age can be verified. We do not coerce anyone to work for us and believe all employees who work for us, do so of their own volition.


Anti- coRRuption g4-So4/5being part of the hayley’s group, Kvpl is governed by the group’s Anti- corruption policy, where employees are sensitized to the Anti-corruption policy as part of their work environment and orientation.

dynamic human Resources FrameworkAs a member of the hayley’s group, our policies and practices mirror the group commitment to create a vibrant environment for all our 11,000-strong work force including; Executives, Non-Executives and manual estate workers. To further demonstrate our commitment towards our people, in 2014, we rolled out a four year strategic plan entitled; “Empowered Human Capital, equipped for the future”. The plan points to KVPL’s key HR theme and spells out the company’s specific goals and objectives for the 2014-2018 time frame. In the current year, we continued to refine certain aspects of our core HR model in order to achieve these desired goals.

totAl heAd count- gRoup

total employees 11,000

yy permanent employees 8,110

yy Contract/short term 2,890

executive and above 145

non-executive * 648

manual grades 10,207

totAl 11,000* (clerical, supervisory, Production, supportive and human Development)

RecRuitMent:The recruitment mechanism was fine-tuned and a new multi-structure interview process was introduced in keeping with the strategic goal to “recruit and retain top talent and let go the ‘passengers’”. highlighting the importance of recruiting only top talent, all new recruits are now filtered through an extensive screening committee, which includes MD, Director/ CEO, relevant GM/ DGM and representation of the hr team.

hir

ed e

mpl

oyee

s

2015

/16

(LA

– 1

)

category Age executivesnon-

executivesManual total

Age group

< 30 years 8 13 132 153

30 - 50 years

5 29 233 267

> 50 years 5 6 158 169

totAl 18 48 523 589

gender Male 17 40 211 268

Female 1 8 312 321

totAl 18 48 523 589

Region hired-local 1 36 523 560

hirednon-local

17 12 0 29

total 18 48 523 589

empl

oyee

tur

nove

r

2015

/16

(LA

-1)

Age group

< 30 years 9 8 171 188

30 - 50 years

6 13 622 641

> 50 years 1 6 496 503

totAl 16 27 1289 1332

gender Male 15 25 411 451

Female 1 2 878 881

totAl 16 27 1289 1332

Region hired local 0 24 1289 1313

hired non-local

16 3 0 19

total 16 27 1289 1332

Human Capital Contd.

g4-9/10

g4-9/10/11/lA1/12


BeneFit StRuctuRe: g4-hR12/So11Changes brought in to the benefit structure were aimed at aligning employees towards a strictly performance-based culture. meanwhile, in order to facilitate a more robust evaluation system, all corporate employees were encouraged to make use of the on-line hris (human resource information system) to keep tabs on their performance, as per the Kpi’s assigned to them at the beginning of the financial year. Marks and ranks obtained through this transparent evaluation system are used to generate the relevant reports for management decision-making process and then cascaded down to employee benefit schemes, people development plan and succession plan.

MAteRnity BeneFitS

Employee benefits not available to temporary/part time employees

maternity Benefits

total number of employees entitled to maternity leave (2015/ 2016)

250

total number of employees that took maternity leave (2015/ 2016)

250

eMployee RelAtionS: g4-lA-13/16Kvpl has a well-established employee relations mechanism covering all estate and corporate level employees. All of our estate workers are covered by the plantation workers collective agreement that helps us manage our rapport with these employees through negotiation and broader discussion. At corporate level, we maintain an open door policy as part of our strategy to build a strong communicative culture across the business.

At the beginning of year 2015, the group launched “Hay Plan”, a quarterly newsletter, specifically for the Plantation sector. Whilst keeping employees abreast on new developments in the sector, “hay plan” also features a special section where employees are able to highlight their achievements in sports and special projects. this initiative also proved to be an excellent tool for inter-departmental communication and cooperation as well as external communication.

lABouR MAnAgeMent RelAtionS (ungc)

minimum notice periods regarding operational changes, including whether these are specified in collective agreements

1 Month

Notice period and provision for consultation is specified in the agreement

yes

heAlth And SAFety:we make every effort to ensure safe working conditions as the health and safety of our employees is of paramount importance. Accordingly, all relevant safety equipment is provided and regular training and awareness programmes are carried out to reinforce the “safety first” philosophy.

occupAtionAl heAlth And SAFety RecoRd 2015/16

(LA – 5) percentage of total workforce represented in formal joint management worker health and safety committees that help monitor and advise on occupational health and safety programmes

15 %

(LA – 6) type of injury minor accidents in the factory and

field

injury rate (ir) 0.36 %

occupational disease rate (odr) 1.02 %

lost day rate (ldr) 2.98 %

Absenteeism rate (Ar) 16.93 %

work-related fatalities 0

(LA – 7) workers in high-risk situations 0 %

g4-lA-3

g4-lA-4

g4-lA-5/6/7


Training for Management and supervisory category.

During the financial year, we made it mandatory that our Estate Assistant Managers participate in NIPM (National Institute of Plantation Management) professional programme on tea manufacturing and get through the language proficiency exam in tamil. further, we appointed a dedicated training and development manager to conduct direct ground level training for the estate workforce.

We also sought the assistance of a Volunteer Japanese trainer who is a well-qualified engineer with over 40 years experience from nisvA (nippon silver volunteer Association) of Japan to introduce Japanese management techniques at selected KVPL estates, a pilot project that led to the successful implementation of 5S, Kaizen, Ho-Ren-So and other advanced techniques at selected estates in all three regions. Also, we are engaging his expert knowledge in mechanical engineering aspects in order to enhance the present productivity levels of our factories.

Average training hours per person

Average training hours per Employee – KVPL 2015/16

grade Male Female overall

executive 4.5 5.2 4.5

non - executive 6.0 5.6 5.8

manual 5.3 6.6 6.3

overall 5.1 6.3 5.9

Average training hours per Employee – Group: Including Mabroc 2015/16

executive 6.2 18.2 7.3

non - executive 5.7 5.5 5.6

manual 5.3 8.4 6.3

overall 5.7 6.6 6.3

tRAining And deVelopMenttraining and development plays a vital role in our human capital development agenda. before the commencement of each year, the training needs of each department, including the plantations are identified. The annual training calendar incorporates individual training plans for each employee in concurrence with respective superiors. our goal is to create a vibrant learning environment that will inspire employees to enhance their skills and widen their knowledge, allowing them to live up to their full potential as dynamic value creators for the company. to improve the effectiveness of our training and development programmes, we divide our focus based on the three main employee categories; executive, non-executive and the estate manual workforce.

executive and non-executive corporate employees participate in in-house training sessions, group training initiatives as well as selected external / online training programmes, while training for estate workers are carried out in-house at any of Kvpl’s fully fledged training centres in Dickoya sub office, Pedro and Panawatte estates, connecting estates in three climatic regions.


g4-lA-9


tRAining detAil RepoRt F/y 2015/ 2016- gRoup

cAtegoRy heAd count p/ houRS p/ h per peRSon

MAle FeMAle totAl MAle FeMAle totAl MAle FeMAle totAl

ex 674 64 738 4189 1165 5354 6.2 18.2 7.3

non-ex 420 603 1023 2401 3308 5709 5.7 5.5 5.6

mAnuAl 700 2042 2742 3706 13451 17157 5.3 8.4 6.3

totAl 1794 2709 4503 10296 17924 28220 5.7 6.6 6.3

over the past three years, we have made a concerted effort to uplift the knowledge and skills of our employees, and accordingly, our training hours per-employee, per annum has increased by three-fold, since 2013.

tRAining houRS coMpARiSon (yeAR Vs peRSon houRS oF tRAining )

yeAR tRAining heAd count p/ houRS % oVeR pReViouS yeAR

2013 914 8500 nA

2014 2429 13351 57.07

2015 4432 26022 93.86

YEaRLY PERsOn hOURs OF TRaInIng (2013-2015)

Year0

20,000

10,000

15,000

5,000

25,000

30,000

P/ h

ours

2013 2014 2015

peRFoRMAnce MonitoRing unitWe firmly believe that every employee contributes to the company’s profitability and our emphasis is therefore to enhance productivity through improved employee performance.

Accordingly, Kvpl has set up a separate unit to monitor employee activities and field performance of employees in real time. this is a coordinated effort to establish a consistent performance-monitoring platform. the feedback received through the process helps to identify performance gaps, enabling more effective management decisions and swift-response solutions that minimize the negative impact.

In 2015/16, 100 % of the employees in executive and non- executive categories received both mid-year and annual performance and career development reviews (LA – 11)

SucceSSion plAnningwe believe succession planning is crucial for the sustenance of our organization. in line with this rationale, our main priority is to align a team of people with the right skills, professionalism and temperament to drive the business along the chosen strategic path. therefore we remain

TRaInIng hEaD cOUnT

40%

60%

MaLE FEMaLE

g4-lA-10


of Kvpl’s estate employees over and above the traditional boundaries of sri lanka’s plantation culture.

Key leAdeRShip deVelopMent initiAtiVeS - coRpoRAte leVelAll corporate executives are encouraged to participate in the hayleys executive development programme conducted annually. Aimed at developing key competencies of our executive staff including those who have been recently promoted to executive category, the programme seeks to strengthen leadership qualities through regular discussions and knowledge sharing forums.

meanwhile, the executive guide and handbook ensures that all executives are kept abreast of the company’s goals and objectives, etc.

pRogRAMMeS FoR SKillS MAnAgeMent And liFelong leARning cARRied out in 2015/16 (lA – 10)yy tea plucking and skill development

training for 1068 tea pluckersyy rubber tapping and skill

development programme for 512 rubber tappers

yy health and safety training programmes that benefited 252 workers

closely involved with each stage of the employee’s evolutionary process, from recruitment to retirement. we continue to support and encourage them to develop our core values of integrity, care, passion, teamwork, professional acumen and service commitment and reward them with fair remuneration, training and career advancement that will ensure a better quality of life for the employee.

We believe that the success of our employees is a true reflection of our own success as an organization. we have therefore put in place a clear succession plan to groom our employees to take over critical positions and become key drivers of Kvpl’s future goals.

general managerDirector/Cheif Executive Officer deputy general

manager

planter trainee Assistant manager deputy manager manager

Assistant managerexecutive management

trainee manager

estate level

corporate level

Key leAdeRShip deVelopMent initiAtiVeS - eStAte leVelA designated human development manager (hdm) is tasked with overseeing all hr aspects of estate workers. while ensuring that continuous on-the-job training is carried out to improve productivity, the hdm is also responsible for creating a framework where estate workers can freely discuss any issues relevant to them with the top management. more recently the hdm has been assigned to focus on a series of “Key vAlue drivers” aimed at uplifting the quality of life


yy management development programmes on the areas of leadership development, motivation and communication. These programmes benefited 286 management personnel

yy programme on professional qualification on tea manufacture.

yy Advanced programme on production management and productivity improvement.

yy leadership management programme.

iMpRoVing SuStAinABility oF the eStAte woRKFoRce g4-So-6our strategies strive to enhance the quality of life of our employees by improving the quality of work-life enjoyed by our employees. we believe, this will in turn motivate them to be more productive, leading to an ultimate improvement in the company’s bottom line. At Kvpl, we call this “Responsible Profitability”, a visionary new concept implemented by Kvpl’s managing director not only to broaden the economic prospects of the estate level workforce, but also to improve their living conditions, health, nutrition and social well-being. the managing director’s statement entitled “be committed to excellence” seeks to impress upon employees, the importance of


commitment, dedication and leadership qualities and the key features needed for personal growth.

huMAn deVelopMent pRogReSS (hdp) pRogRAMMethe hdp programme is a strategic initiative to extend support to our estate worker base and their families, with a view to uplift the living standards of these estate worker communities. under the programme, we have set up a dedicated resource unit, comprising of estate medical Assistants, Welfare Officers and Child Development Officers (CDO) who offer guidance regarding maternal and child health. in this regard, we conduct regular awareness programmes and family counseling services to discourage child abuse, teenage marriages and domestic violence. our services comprise a range of childcare facilities, including a free crèche for, children who’s mothers

work on our estates. in addition, we also provide educational support through scholarships, for children to continue their education, instead of being forced to work to support their families. our goal is to discourage estate families from sending their children to work in the labour cadre outside of our estates.

the outcome of these programmes are monitored regularly through hdp reports, which shed light on key aspects such as childcare, harvester analysis, maternal care, health and medical care and worker analysis, all aspects that are closely monitored by the managing director. cdo’s use these reports to build a closer rapport with estate workers and their families, which allows them to address key concerns and review the health and well being of these worker communities.

HDP reports also reflect details of worker performance with regard to plucking, tapping, worker output etc. All these details enable the management to rectify productivity issues and address other human related problems leading to improved output and better performance of the estate workforce.

64 Kelani valley plantations plc | Annual Report 2015/16 Social Capital

MAnAgeMent AppRoAch g4-So-1As a leading plantation company in the country, Kvpl provides direct employment to nearly 11,000 people across 26 estates. Our work also impacts a further 54,000 people that comprise of men, women and children of the plantation resident population of these estates. we take pride in caring for these communities and have incorporated this plantation culture as part of the Kvpl business model. our hr framework is therefore designed not only for the benefit of our own employees, but also to assist their families and the estate communities whose livelihood depends on us. As a result, our community engagement too is far more extensive than that of traditional business organisations.

ouR pRoJectS

A home for every plantation worker - kVPL’s structured, unique and internationally recognized csR initiative.

the commitment to a sustainable business approach has led Kvpl to embrace a multi-dimensional business philosophy, with “society” being a headline feature. it was this rationale that prompted the company to embark on a unique csr effort titled: “A Home for Every Plantation Worker”. The programme, which was launched a decade ago, in 2006, as part of the company’s core CSR efforts, aimed at uplifting the quality of life of our estate workers by addressing their broader socio-economic needs. the programme is based on a holistic community development model, underpinned by four key pillars;

living environment:Assists worker families in building new houses or renovating existing houses, upgrading of water sanitation facilities, electrification, access roads, community centres, infrastructure improvement, etc.

health and nutritioneach family is provided with child support, pre-school facilities and medical facilities, including; monitoring of child development, preventive and curative health care, maternal care (pre and post natal clinics) health camps, child immunization programmes etc. as part of the programme, a medical centre is maintained at each estate where estate workers and their families can access free of charge. each facility comprises a team of estate medical practitioners, midwives and support staff and only government approved medicines are provided. Moreover, a 24-hour on-call ambulance service is also made available at each estate for emergency medical needs of workers or their families.

coMMunity cApAcity Buildingto enhance employees to become productive members of society and enhance the individual’s value to the community through highly focused community empowerment initiatives including; the provision of recreational facilities, empowerment of workers through estate worker housing cooperatives, carrying out skill and social development programmes (eg. special projects such as computer classes and gender equality programmes).


empowerment of youth g4-15special emphasis here is on providing training and guidance to youth and empowering them through skills improvement. This includes; monitoring of child development according to ilo standards, assistance to continue education, vocational training and awareness programmes

the “home for every plantation worker” concept is a ground breaking initiative that has been featured in the ungc best practice booklet-‘globally positioning Sri Lanka’s Best’ in the year 2008. More recently CSR Asia has selected this model, as a case study for the development of training material for the ungc’s learning programmes.

Global Compact Network Asia - Pacific webpage, illustrated the KVPL’s case study http://globalcompactasiapacific.org/gcasia/Resources/CaseStudies.aspx

In yet another landmark achievement, “A Home For Every Plantation Worker” concept bagged the CSR Gold Award at the JASTECA Awards 2015.


Summary of progress g4-ec-8

ActiVitieS undeR liVing enViRonMent up to 2014 2015/ 2016 gRAnd totAl

new housing units built 1,371 - 1,371

land extent granted as perches 9,745 - 9,745

Reroofing 7,501 - 7,501

Electrification (No. of housing units) 6,967 161 7,128

general rehabilitation 547 - 547

Access roads (km) 280 1 281

water schemes 1,160 1 1,161

new toilets (units) 7,545 183 7,730

playgrounds 20 - 20

upgraded staff quarters 179 - 179

community centres 19 - 19

factory rest rooms 18 - 18

field rest rooms 179 - 179

child development centres 14 - 14

hot water bathing spots 15 - 15

ActiVitieS undeR heAlth & nutRition up to 2014 2015/ 2016 gRAnd totAl

dental clinics 467 4 471

dengue awareness programmes 165 23 188

eye clinics 944 15 959

Aids awareness programmes 1,796 6 1,802

tb awareness programmes 104 - 104

oral cancer programmes 110 1 111

cataract removal surgeries 1,100 7 1,107

logistic support for the patients 9861 222 10,083

no. of spectacles provided to community 4,152 - 4,152

Social Capital Contd

1,371

7,501

281

1,161

7,730

14

471

959


ActiVitieS undeR coMMunity cApAcity Building

up to 2014 2015/ 2016 gRAnd totAl

street dramas 18 1 19

Alcohol prevention programmes

135 5 140

no. of individuals who have taken loan

33,241 1,225 34,466

Loan Amount (Rs)’000 345,376 28,116 373,492

Deposits accepted (Rs)’000 140,129 16,919 157,049

household cash management programmes

123 4 127

ActiVitieS undeR youth eMpoweRMent

up to 2014 2015/ 2016 gRAnd totAl

training for small business management

1 1 2

bridal & beauty care programmes

14 0 14

home gardening programmes

457 4 461

english classes 914 0 914

computer classes 44 0 44

vocational training for self-employment

2 4 6

MotheR-And-child-FRiendly teA eStAteS g4-ec-8Kvpl in collaboration with, “save the children”, sri lanka embarked on an ambitious project to introduce the concept of a mother-and-child-friendly tea estate. Fully resourced by the Save the Children Fund at a cost of 23 million, the

main aim of the project was to uplift maternal and child health, thereby ensuring that the productivity of female workers is not compromised due to ill health or hygiene issues pertaining to themselves or their families. Kvpl’s pedro estate in Nuwara Eliya was selected for the first phase of this massive undertaking, where sanitation facilities at the estate were completely revamped and upgraded to improve “quality of life” and “quality of work life” for estate workers. the ambition of this project is to uplift the health and sanitation levels of the mother and child, in the estate, and ensure that productive time of the mother is not wasted due to hygiene related sickness. moreover, as an extension of the project, the mahagastota hospital was also renovated.

Opening ceremony at Mahagastota hospital, Pedro Estate, nuwara Eliya


rainforest alliance obtained for 19 of its tea plantations, mandating conformity to good agricultural, biodiversity and ethical business practices.

69 Kelani valley plantations plc | Annual Report 2015/16 Natural Capital

MAnAgeMent AppRoAchconclusions of the environmental impact of our business activities, we have prioritized “environment” as one of the four main pillars of our business model. over the years, we have made a concerted effort to identify the key environmental aspects that are relevant to our business. Having identified the areas we need to focus on, we then formulated clear strategies that will help us improve our environmental performance, while enhancing productivity and maximizing value of land assets.

cultivation and harvesting

manufacturing and processing

core business Activities soil deterioration

carbon footprint contamination of

water bodies

damage to eco-systems

environmental stewardship

Resource efficiency

environmental csr

potential environmental impact strategic priorities

enViRonMentAl StewARdShipIn addressing our core environmental concerns KVPL first and foremost remains committed to comply with all mandatory environmental stipulations, including the guidelines laid out by the central environmental Authority. we are also aligned with the code of ethics of the rainforest Alliancetm, forest stewardship counciltm, ethical tea partnership (etp), utztm and global gAp.

ReSouRce eFFiciencyenergy g4-en-3reducing energy costs is a major priority for Kvpl and of late, we have invested heavily in renewable energy, in order to curtail our demand for costly non-renewable energy sources and control our carbon footprint at the same time.Having set ourselves the goal of reducing our direct energy bill by 2% each year, in 2006 we began to rehabilitate and abandoned mini-hydro power plants that

many of our factories already had. this has led to a considerable reduction in our energy bill over the past 10 years.

we are also currently in the process of commissioning biomass boilers to meet part of the energy requirements of the drying and withering process at our Tea factories. These boilers use fine wood from our Rubber plantations to generate heat energy, which is then transferred to the withering process via a high-density insulated ducting mechanism. we believe this process will help to reduce our carbon footprint as it eliminates the need for non-renewable energy. Furthermore, we are constantly looking at ways to improve energy efficiency, which has led to ongoing investments in energy efficient machinery, including; capacitor banks, lighting and vsds at all factories. g4-en-5

energy source

Amount (gJ)

2013 2014/2015 2015/2016

total diesel usage 16,984 18,490 13,209

total petrol usage 2,680 1,907 999

firewood 569,455 526,033 407,880

lp gas not recorded 321 1,566

total nonrenewable fuel usage

591,132 546,751 423,653

Mini hydro power plant in Battalgalla Estate

Mini hydro power plant in kalupahana Estate

70 Kelani valley plantations plc | Annual Report 2015/16 Natural Capital Contd.

Year

UsED EnERgY sOURcE (gJ)

14/1513 15/160

200

400

300

100

500

700

600

gJ.’000

Total non-renewable fuel usage

UsED EnERgY sOURcE (gJ)

1%3%

0%

96%

Total diesel Usage (Litres)Total Petrol Usage (Litres)FirewoodLP gas

electRicity conSuMption - KwhIndirect energy consumption by primary source (During the year 2015/16)

location Amount of energy

consumed in 2014 /15 gJ

Amount of energy

consumed in 2015/16 gJ

% change in energy use

1. Factory 32224 15077 -53.21

2. Office 834 295 -64.60

3. Workshop/s 95 50 -47.79

4. Bungalow/s 2536 1451 -42.80

5. Quarters 4974 1895 -61.90

6. Others 906 354 -60.93

total energy consumption from indirect energy sources (gJ)

41569 19121 -54.00

wAteRour total water consumption comprises of quantities used for business purposes as well as the volume consumed for domestic purposes by the estate community. we have found that traditionally the business requirement is less

than the domestic consumption. Kvpl’s water usage is monitored and recorded at RA certified Tea processing centers, an initiative aimed at calculating and ultimately reducing, the water foot-print of our estates.

reducing the use of water has therefore become one of Kvpl’s key environmental goals. Our target is to cut down our water usage by at least 2% each year.

Accordingly, we have continued to increase awareness at all levels of the business especially among estate workforce at the factories to ensure that water drawn from all main sources are utilized efficiently and effectively.

furthermore, in a bid to minimize waste wherever possible, we have established a comprehensive framework to identify and protect natural water sources in-and-around our factory locations. to emphasize our commitment to this cause, we ensure that;1. All water sources within the estate boundary are identified and their eco

systems mapped in line with the rainforest Alliancetm.2. All natural water bodies and catchment areas are preserved, by protecting

ecological reserves and setting natural vegetative barriers and buffer zones to curtail agrochemical drift which results in water contamination.

Water map displayed at halgolla Estate, Yatiyantota.

Protected water bodies in Uda Radella and halgolla Estate.


g4-15

meanwhile, in an attempt to enact broader change at a national level, Kvpl embraced the ceo water mandate in 2006. Launched at the Leaders’ Summit in July 2007, the CEO Water mandate is sponsored by the united nations global compact and the government of sweden. it has been designed as a private-public initiative, which seeks to engage a critical mass of companies from around the world, willing to commit time and money to seek solutions to the emerging global water crisis and address potential challenges including decreased water supplies for business activities, higher water costs, operational disruptions and associated financial losses and impacts on future growth.

As a signatory to the ceo water mandate, Kvpl remains committed to address sri lanka’s socio-economic challenges associated with water scarcity and sanitation.

g4-en-8

Annual water usage in Kvpl processing centers = 51,291.68m3

MAteRiAlS g4-en-1/2we continue to monitor the use of all core materials used in our business. this gives us better control over the use of production inputs such as fertilizer, agrochemicals, packaging material etc. At the same time we promote reuse and recycling wherever possible and practical. our main undertaking in this regard, is the reprocessing of highly fibrous Teas to extract Black Tea. This is carried out at blinkbonnie estate reprocessing plant, a specialized reprocessing unit set up purely for this purpose.

g4-en-6

non Renewable Material use

type of material units 2013 2014/2015 2015/2016

fertilizer Kg 3,518,691 2,991,811 2,159,253

dolomite Kg 1,382,873 1,193,186 1,566,775

Agro chemicals (liquid form)

lit 22,558 17,893 15,959

Agro chemicals (solid form)

Kg 5,030 3,626 6,510

fuel diesel lit 356,911 388,540 277,574

petrol lit 56,320 53,259 27,889

firewood m3 49,754 12,934 35,637

Renewable Material use

type of material units 2013 2014/2015 2015/2016

bought leaf Kg 4,131,245 3,871,344 4,040,791

bought latex Kg 527,311 280,211 241,387

packing materials nos 144,704 127,293 83,286

Year

chEMIcaLs UsED On sOIL

14/1513 15/160

500

1,500

2,500

2,000

1,000

3,000

4,000

3,500

’000

Fertilizer Dolomite

chEMIcaLs UsED On cROP

14/1513 15/160

10,000

5,000

15,000

25,000

20,000

agro chemicals (Liquid form)agro chemicals (solid Form)

Year


Year

FUEL UsagE

14/1513 15/160

100

200

300250

150

50

350

450400

’000

Diesel Petrol Firewood

REnEWaBLE MaTERIaL UsE

14/1513 15/160

1,000

2,000

3,0002,500

1,500

500

3,500

4,4504,400

’000

Bought leafBought latexPacking Materials

Year

wASte g4-en-23As per the guidelines set out under the rAtm certification, we have put in place a comprehensive waste segregation programme, for the management of solid waste. under the scheme, solid waste is sub divided in to hazardous and non-hazardous waste.

Waste collection points at Invery, Blinkbonnie & Ingestre Estates

hazardous waste consists of empty agro-chemical cans, while non-hazardous waste is further segregated into glass, polythene and biodegradable items. we have set up two collection centers at the invery estate in dickoya and weoya-polatagama estate in yatiyantota, to collect all hazardous waste that result from our operations. hazardous waste accumulated at these centers are then sold to ceA approved vendors when required.

in estates located in close proximity to urbanized areas, bio-degradable waste is collected by local authorities. however for estates in more remote areas all biodegradable waste is treated at composting sites located in worker home gardens itself.

chemical can collection & disposal for recycling process at Polatagama central collection stores.

eFFluentS g4-en-22We have installed fully-fledged wastewater filtration systems at all our tea factories. wastewater discharged during the tea manufacturing process passes through


this specifically designed wastewater filtration system prior to its release to natural water bodies in the environment. this process is fully compliant with all legal requirements under the environmental protection license (epl) issued by the Central Environmental Authority as well as Principle 4 of the RA certification.

Meanwhile, effluents resulting from Rubber processing are treated at the effluent plants installed at each factory. Being CEA approved treatment plants annual analysis are conducted by the ceA to verify the quality of water discharged in line with ceA guidelines, prior to the renewal of the environmental protection license for each factory.

During the year, we decided to improve the efficiency of the existing effluent treatment mechanism by upgrading the existing effluent treatment plant at the dunedin rubber factory and dewalakande rubber factory in yatiyantota. this forms part of our strategy to migrate to a more cost effective centralized effluent management mechanism that will reduce duplication and allow better overall control of solid waste.

Effluent treatment plant in Dunedin Skim Rubber Processing Factory, Yatiyantota

pRoductS And SeRViceS g4-en-28Being affiliated to The Rainforest Alliancetm certification, UTZtm certification and fsctm certification, we use these credentials to promote product sales and as such, we are mindful that the guidelines laid out under these certifications apply to product packaging as well. At present, there is no process where we

can reclaim packaging material of products, once sold. we do however strive to make all packaging material as eco-friendly as possible, so that the end user can recycle them as much as possible. our bulk tea is packed in recyclable multi-walled craft paper bags and corrugated boxes are used for packing of rubber products.

tRAnSpoRt g4-en-30we have made sure that transporting of products, other goods and materials or members of the workforce will not cause any unsatisfactory eco impacts. Accordingly, ghg emissions from fuel used for transportation remains the only environmental impact what we have at present.

SupplieR ASSeSSMent FoR enViRonMentAl iMpActS g4-en-32

having to deal with a wide range of suppliers and contractors has prompted Kvpl to set out comprehensive guidelines for the assessment of each supplier category.

All existing suppliers are evaluated regularly to assess their level of compliance with ceA rules and regulations. in dealing with new suppliers for fertilizer, agro-chemicals and other equipment required for the

operations, we make sure to procure only from suppliers who comply with national environmental regulations and adhere to international environmental standards. even then regular qualitative assessment are carried out to establish their alignment with our quality parameters and conformity with globally accepted food safety management criteria. meanwhile, uprooting contractors are assigned the job only once they sign the contract agreement to prevent damage to the environment during uprooting process.


Our supplier’s certificates of their Environmental & Quality systems

bought leaf suppliers are continuously evaluated against environmental criteria. during the year we initiated a pilot project to introduce backward integration at selected tea estates through an out grower model, which will help to standardize the quality of bought leaf and to overcome the problem of labour shortage.

A pilot project was initiated at ulswater division of halgolla estate, the estate workers were given the responsibility of harvesting, with the costs of field upkeep and managing being borne by the company. under the scheme, workers were given a plucking target of 23 kg per day, which is considered as normal working requirement to be carried out during their work hours. those who exceed the minimum will be entitled to rs. 30/- per Kg for the additional quantity. the entire mechanism provides a dual benefit, in that it allows pluckers to earn more especially during seasonal periods, while the company benefits from higher plucking rounds and yield throughout the year.

following the success of this project, the model was extended to the lower division at n’eliya estate as well, in 2015/16 financial year, where 23 Ha was distributed among workers. in

n’eliya people work in the estate in their normal working time and they pluck the given plot during their leisure time. it’s an additional income to our workers families.

Land distribution & the distributed land plot in n’Eliya Estate

enViRonMentAl gRieVAnceS MechAniSMS g4-en-34A health and safety committee has been set up at every estate, comprising of representatives from the estate management, welfare


officer, EMA, production staff and key operational workers. The committee is empowered to monitor, record and investigate environmental impacts and take necessary remedial action as required on a case-by-case basis.

assessment check list to ensure the protection & safety from chemical storage.

coMpliAnce g4-en-29No monetary fines and non-monetary sanctions recorded during financial year.

overall View of environment commitmentthe following monetary values are associated costs for the environmental conservation implements in Kvpl.

no Activity expenditure (Rs.)

1 ravines & boundaries 8,886,739

2 soil conservation 13,513,461

3 cover crops 5,002,045

4 Construction/repair of waste collection points 16,522,966

5 waste disposal 624,600

6 expenditure on maintenance of waste water treatment plants (rubber factories)

3,614,370

7 Expenditure on maintenance of Waste filtration systems (tea factories)

255,040

8 Licensing cost (Certification cost from Central environmental Authority)

245,461

9 expenditure on obtaining waste water analyzing reports (from accredited laboratory)

151,275

10 expenditure on obtaining drinking water analysis reports

179,305

11 expenditure vehicle emission testing 159,728

12 other environmental protection costs 221,898

We oya flowing through our estates in Yatiyantota


Environmental Protection License of Ingestre Tea processing Factory

AwAReneSS

we continue to build awareness not only among our own employees but also among estate communities. our campaigns are focused on educating employees and community regarding good agricultural practices, environmental conservation practices such as soil conservation, waste management and preservation of biodiversity.

Training session for pluckers in Pedro Estate

awareness display board in Weighing shed glassaugh Estate

Display board of an animal corridor in Oliphant Estate

awareness to school children & Public at Pedro Estate


BiodiVeRSity ASSeSSMent g4-en-11

no. estate geographical location

position in relation to protected area

type of operation Size of the site (km2)

Biodiversity value

1 pedro Kandapola in n’eliya district

natural forest extent is located within the estate

tea cultivation and processing

6.68 estate is bordering bomurella lake and hakgala-Kirigalpotta mountain range.protected under flora & fauna protection ordinance and national environmental Act32 floral species, 63 faunal species and 10 endemic species have been recorded. Above natural forest reserve was also protected under plant protection ordinance and forest ordinance.

2 n’eliya labukele area of n’eliya district

natural forest reserves are located within and bordering the estate


2.47 bordering piduruthalagala mountain range and above reserve provides watershed for puna oya and mahaweli river.Above natural forest reserve was also protected under plant protection ordinance and forest ordinance.protected under flora & fauna protection ordinance and national environmental ActEstate is habitat for 38 floral species including 14 endemic species and 91 faunal species and 26 endemic species.

3 edinburgh nanuoya in n’eliya district

natural forest reserves are located within and bordering the crown forest


1.79 bordering crown forest.Above natural forest reserve was also protected under plant protection ordinance and forest ordinance.protected under flora & fauna protection ordinance and national environmental ActEstate is habitat for 32 floral species and 59 faunal species and 8 endemic species.

4 udaradella nanuoya in n’eliya district

protected areas are located within and bordering the estate


2.25 estate is bordering Kikiliyamana mountain rangeprotected under flora & fauna protection ordinance and national environmental Act and it was also protected under plant protection ordinance and forest ordinance.32 floral species and 60 faunal species including 8 endemic species were recorded

5 glassaugh nanuoya in n’eliya district

natural forest extent located within and bordering the estate


2.28 estate is bordering Kikiliyamana mountain range.protected under flora & fauna protection ordinance, national environmental Act and it was also protected under plant Protection Ordinance and Forest Ordinance. 34 floral species, 60 faunal species including 8 endemic species were found.





Biodiversity value

6 oliphant n’eliya protected areas are located within and bordering the estate

tea cultivation 3.64 estate is bordering Kikiliyamana mountain rangeprotected under flora & fauna protection ordinance and national environmental Act and it was also protected under Plant Protection Ordinance and Forest Ordinance. 31 floral species, 58 faunal species and 8 endemic species

7 fordyce dickoya in n’eliya district

located within estate tea cultivation and processing

4.03 Act as watershed for Kehelgamuwa oya and sub watershed for Kelani riverprotected under flora & fauna protection ordinance and national environmental Act and it was also protected under Plant Protection Ordinance and Forest Ordinance. 25 floral species, 107 faunal species were recorded.

8 Annfield dickoya in n’eliya district

located within estate tea cultivation and processing

3.75 Act as watershed for Kehelgamuwa oya and sub watershed for Kelani riverprotected under flora & fauna protection ordinance and national environmental Act and it was also protected under Plant Protection Ordinance and Forest Ordinance. 26 floral species including 2 endemic species and 101 faunal species with 24 endemic species were recorded.

9 invery dickoya in n’eliya district

protected areas located within and bordering the estate


3.06 In biodiversity survey, it has found that 28 floral species and 111 faunal species were recorded.

10 tillyrie dickoya in n’eliya district

protected areas are located within the estate


3.34 located in bogawanthalawa valley and provide watersheds for both Kehelgamuwa oya and sub watershed for Kelani river. protected under flora & fauna protection ordinance, national environmental Act and it was also protected under plant protection ordinance and forest ordinance.32 floral species with 6 endemic species and 107 faunal species were found during the Kvpl biodiversity survey

11 robgill bogawanthalawa in n’eliya district

protected areas are located inside the estate


3.00 robgill provides highly sensitive and important watershed for Kehelgamuwa oya and sub watershed for Kelani river.According to the biodiversity survey done by KVPL, 33 floral species and 104 faunal species were found





Biodiversity value

12 ingestre dickoya in n’eliya district

Protected/ conservation area is located within and bordering the estate


6.49 bordering world’s end in horton place, Adams peak mountain and the hill called “duke nose” forest reserves.ingestre estate acts as a watershed for Kehelgamuwa oya and sub watershed for Kelani river. 36 floral species and 110 faunal species were recorded.

13 battalgalla dickoya in n’eliya district

Protected/ conservation area is located within the estate


2.61 battalgalla estate acts as a watershed for Kehelgamuwa oya and sub watershed for Kelani river. 27 floral species and 104 faunal species were recorded.

14 blinkbonnie dickoya in n’eliya district



1.81 blinkbonnie is providing watershed for Kehelgamuwa oya and sub watershed for Kelani river. 48 floral species belong to 24 families and 105 faunal species belong to 53 families were recorded.

15 halgolla yatiyantota in Kegalle district

natural virgin forest is located within estate.


11.96 estate acts as a watershed for olu ella (waterfall). wewelthalawa (one of the divisions of halgolla estate) is the watershed for weoya and sub watershed for Kelani river. this is a highly sensitive and important watershed.

16 Kelani yatiyantota in Kegalle district

natural forest extent is located in the estate

tea, rubber cultivation and tea processing

3.49 There were 48 floral species belonging to 19 families and 52 faunal species belong to 35 families.

17 ederapola bulathkohupitiya in Kegalle district


tea, rubber cultivation and tea processing

6.67 Patna, grasslands and small forest patches (protected/ conservation areas) are present in the estate.There were 55 floral species belong to 24 families and 57 faunal species belong to 37 families

19 ganepalla yatiyantota in Kegalle district


rubber cultivation 4.90 estate is act as the watershed for Kelani river.47 plant species belong to 31 families and 70 animal species belong to 30 families were recorded.

20 urumiwela bulathkohupitiya in Kegalle district

Protected/ conservation areas are located within the estate

tea, rubber cultivation and rubber processing

7.22 urumiwela is the watershed for Kelani river.18 floral species belong to 13 families and 86 faunal species belong to 51 families were recorded.





Biodiversity value

21 Kiriporuwa yatiyantota in Kegalle district

small forest patches are located within the estate

tea, rubber cultivation and rubber and latex processing

5.87 Kiriporuwa estate is the watershed for ritigaha oya and sub watershed for Kelani river.14 floral species belong to 10 families and 58 faunal species belong to 38 families were found during the biodiversity assessment.

22 panawatte yatiyantota in Kegalle district


tea, rubber cultivation and rubber processing

10.30 panawatte estate is providing watershed for Kelani river due to two small streams which are tributaries of Kelani river. this watershed is a highly sensitive and important watershed.60 plant species belong to 34 families and 91 faunal species belong to 39 families were recorded during the survey.

23 dewalakande dehiowita in Kegalle district

small conservation patches are located inside the estate

rubber cultivation and rubber processing

7.17 estate is a watershed for three streams namely sithawaka oya, deraniyagala oya, Kanangama oya which are tributaries of Kelani river.39 floral species belong to 26 families and 103 faunal species belong to 54 families were found.

24 lavant yatiyantota in Kegalle district


rubber cultivation and rubber processing

5.69 32 plant species belong to 20 families and 62 animal species belong to 41 families were recorded.lavant estate is the watershed for Kelani river.

25 We oya/ polatagama

yatiyantota in Kegalle district

protected area is located inside the estate and bordering the areas which rich in biodiversity value

tea and rubber cultivation

9.87 51 plant species belong to 21 families and 55 faunal species belong to 38 families were recorded during the biodiversity assessment.close proximity to halgolla estate which is very rich in biodiversity value.

26 Kitulgala Kitulgala in Kegalle district

Protected/ conservation areas are located inside the estate

tea and cinnamon cultivation

5.82 147.04 Ha block is managed as watershed conservation area. two streams namely liyan oya and Kotigaha oya which are tributaries of Kelani river are flowing through Kitulgala estate.74 plant species belong to 38 families and 70 animal species belong to 43 families were recorded during biodiversity survey.


enViRonMentAl cSRconservation of habitats

g4-en-13

As per our commitment towards environmental stewardship, we have taken several measures to conserve the habitats of flora and faunal species in the designated conservation zones in all our fsctm certified Low Country estates. the protected areas include abandoned marshlands, aquatic systems and natural forest reserves including associated eco systems, flora and fauna. Moreover, following a comprehensive biodiversity analysis carried out every 05 years under the supervision of government universities and nature conservation organizations including iucn, the growth dynamics of floral species and availability of fauna species and their population density is assessed, and then forms the basis for all habitat enrichment activities to be done in each of the conservation zones.

the most recent survey conducted by nature foundation covering four of our low country estates namely, dewalakande, ganepalla, Kelani and urumiwela revealed the following species, which were on the iucn national conservation lists.

Animal group Recorded in estate conservation status of Species

total endemic native cR en Vu nt

Dragonflies 55 12 43 1 4 19 9

Butterflies 102 4 78 0 0 4 4

Amphibians 24 13 11 0 4 4 5

reptiles 26 9 17 0 1 0 0

birds 201 23 177 0 0 2 6

mammals 15 9 6 0 4 2 1source: Biodiversity assessment Report-Dewalakande, ganepalla, Urumiwela and kelani

(CR- Critically Endangered, EN- Endangered and VU- Vulnerable according to the 2012 National Red List)

faunal species composition of the halgolla estate at yatiyantota

Animal group Recorded in halgolla estate conservation status of species

total endemic Migrant domestic cR en Vu nt dd

Dragonflies 10 3 0 0 0 1 0 0 0

Butterflies 40 1 0 0 2 2 2 7 0

fishes 7 5 0 0 0 0 2 3 0

Amphibians 10 8 0 0 1 1 2 1 0

reptiles 15 6 0 0 0 2 1 1 1

birds 89 16+3* 10 0 0 4 6 15 1

mammals 29 6 0 3 0 3 6 3 0

total 200 45+3* 10 3 3 13 19 30 2source: Final Report on Management strategy for the Local nature Reserve* Proposed Endemic

(CR- Critically Endangered, EN- Endangered and VU- Vulnerable according to the 2012 National Red List)

g4-en-14


FAunAl SpecieS oBSeRVed FRoM hAlgollA BiodiVeRSity SuRVey

Near threatened butterfly species, Club beak (Libythea myrrba)

nationally Endangered Endemic, sharped snouted shrub frog (Philautus cuspis)

nationally Vulnerable Endemic, Templeton’s kukri snake (Oligodon calamarius)

nationally Endangered Endemic Rhinohorn Lizzard (ceratophora stoddartii)

FloRA SpecieS oBSeRVed FRoM hAlgollA BiodiVeRSity SuRVey

Barleria sp. In bloom Eugenia sp. In flower Blooming whitish Okeyya ( Freycinetia pycnopbylla)

The ground Orchid in bloom, Iru Raja (Zeuxine regia)

source: Management strategy for the Local nature Reserve, halgolla Estate, Final Report Nationally Near Threatened Endemic freshwater fish, Banded mountain loach (Schistura notostigma)


We are an integral part of our nature and, as a plantation company in particular, our destiny is inseparable from the well-being of the biodiversity within our boundaries. Its loss is our collective loss and no longer be seen as a separate issue. We are answerable to society and to future generations for their conservation.


s c ganEgODanon-executive director

director of Kelani valley plantations PLC since September 2009. Joined Hayleys in March 2007 and was appointed to the hayleys group management committee in July 2007. Appointed to the Hayleys Board in September 2009. Fellow of the institute of chartered Accountants of sri lanka and a member of the institute of management Accountants of Australia. holds a mbA from the postgraduate institute of management, university of sri Jayawardanapura. worked for the Hayleys Group between 1987 and 2002. Subsequently he held several senior management positions in large private sector entities in sri lanka and overseas. has responsibility for the strategic business development unit of the hayleys group and the fentons group.

W g R RaJaDURaImAnAging directorexecutive director

managing director of Kelani valley plantations plc and talawakelle Tea Estates PLC from January 2013 and a member of the hayleys group management committee. prior to rejoining, served as Director/CEO of Kahawatta plantations plc and held senior plantation management positions in Kelani valley plantations PLC from 1993 to 2001. Holds a BSc. in plantation management and holds an mbA from post graduate institute of Agriculture, peradeniya. fellow member of national institute of plantation management, institute of management of sri lanka. currently serves as the chairman of the planters’ Association of ceylon. member of the sri lanka tea board, rubber research board, tea council of sri lanka and director tea small holdings development Authority. he was appointed to the tea Advisory board and also the manufacturing and cultivation & production committees of the sri lanka quality charter for tea.

Board of Directors

a M PanDIThagEchAirmAnexecutive director

chairman and chief executive of hayleys plc. Appointed to the board of Kelani valley plantations plc in July 2009. Fellow of the Chartered institute of logistics and transport (uK). honorary consul of united mexican states (mexico) to sri lanka. committee member of the ceylon chamber of commerce. council member of the employers’ federation of ceylon. member of the maritime Advisory council of the ministry of ports & shipping. member of the Advisory council of the ceylon Association of ships’ Agents. member of the national steering committee on skills sector development of the department of national planning.

corporate excellence leadership recognition by the institute of chartered Accountants of sri lanka in 2015.

s sIRIWaRDanachief executive officerexecutive director

Joined Kelani valley plantations plc in 1995. Appointed to the Board in June 2009. Appointed as Chief Executive Officer in April 2016. Fellow, Institute of chartered Accountants of sri Lanka and the Institute of Certified management Accountants of sri lanka and a member of the institute of Certified Public Accountants of sri lanka. held senior management positions in many private sector organisations.

F MOhIDEEnindependent non-executive director

director of Kelani valley plantations PLC since October 2008. Holds a b.sc. in mathematics, university of london and a m.sc. in econometrics, london school of economics. former deputy secretary to the treasury and director general, external resources department, ministry of finance and planning.


L T saMaRaWIckRaManon-executive director

director of Kelani valley plantations PLC since November 2009.Managing director of Amaya resorts and spa's and the Kingsbury colombo. An internationally qualified hotelier having gained most of his management experience in the uK, working for large international hotel chains over a long period of time. first sri lankan manager to be appointed by the beaufort international chain of Hotels to run the first seaside boutique resort in the island. member of the institute of hospitality, uK (formerly hcimA) and of the royal society of health, london. he counts over considerable experience in the trade. having specialised in hotel designs and developments, has been responsible for the planning and execution of Amaya resorts & spa’s refurbishment and rehabilitation programmes. director of hayleys plc, fortress resorts plc, the Kingsbury plc, hunas falls plc and royal ceramics lanka plc.

DR k I M RanasOManon-executive director

director of Kelani valley plantations PLC since October 2011. Joined DPL in August 2010 as an Executive director and took over as managing Director from April 2011. Appointed to the hayleys group management Committee in January 2011 and to the Board of Hayleys in April 2011. Former Country Chairman/Managing director of shell gas lanka ltd.and shell terminal lanka ltd. holds first class honours degree in engineering from the university of peradeniya, sri lanka, a doctorate from cambridge university, uK and an mbA with distinction from wales university,uK.

c V caBRaaLindependent non-executive director

Appointed to the board in January 2013. A Graduate (with Honors) in mechanical engineering from the university of missouri science and Technology in 2010. Served as an engineer working with the energy and environment division of brandix lanka ltd. main functions include analysis of new equipment for the factories, renewable energy projects, solid waste management and sustainability reporting. upon his return to sri lanka in 2010 worked as a management trainee with Keells hotel management Services till 2011 in the Projects and engineering department.

L n DE s WIJEYERaTnEindependent non-executive director

Appointed to the board of Kelani Valley Plantations PLC in July 2013.fellow of the institute of chartered Accountants in sri lanka and counts over thirty-five years of experience in finance and general management both in sri lanka and overseas. former group finance director of richard pieris plc and also held senior management positions at Aitken spence & company, brooke bonds ceylon and zambia consolidated copper mines limited. serves as a member of the quality Assurance board of the institute of chartered Accountants and a former member of the sri lanka Accounting standards monitoring board. An independent director of several listed and unlisted companies.


MABRoc teAS (pVt) ltd.Exports Bulk & Retail Packed TeaIncorporated in 1988 in sri LankaStated capital – Rs.90 m, Group interest – 100%

directors:A m pandithage - chairmanJ A g Anandarajahn r ranatunga - managing directorr m hanwellaw g r rajaduraid s wijesekeradr. K i m ranasoma

KAlupAhAnA poweR coMpAny (pVt) ltd.generates hydro PowerIncorporated in 2003 in Sri LankaStated capital – Rs.30m Group interest – 60%

directors:s siriwardanadr. K i m ranasomaw g r rajadurair A b ranatungam f m ismail

Corporate Management Profiles

dpl plAntAtionS (pVt) ltd.Plantation Management, Managing agentIncorporated in 1992 in Sri LankaStated capital – Rs.350m

directors:A m pandithage - chairmanw g r rajadurai - managing director, Kvpls siriwardana s c ganegodadr. K i m ranasoma

yy Board of directors

KelAni VAlley plAntAtionS plcTea & Rubber PlantationsIncorporated in 1992 in sri LankaStated capital – Rs.340m

directors:A m pandithage - chairmanw g r rajadurai - managing directorS Siriwardana - Chief Executive Officerf mohideens c ganegodal t samarawickramadr. K i m ranasomac v cabraall n de s wijeyeratne

KelAni VAlley inStAnt teA (pVt) ltd.Manufactures Instant TeaIncorporated in 2007 in Sri LankaStated Capital - Rs. 30m Group Interest 100%

directors:A m pandithagen r ranatungadr. K i m ranasomaw g r rajadurai


yy MAnAgeMent teAM

KelAni VAlley plAntAtionS plcdirectors:A m pandithage - chairmanw g r rajadurai - managing directorS Siriwardana - Chief Executive Officer

general Managers:y u s premathilake - rubberA weerakoon - teaJ A rodrigo - marketing & corporate Affairs

Regional general Managers:b c gunasekera - rubber group is f fernando - rubber group ii

deputy general Managers:d i gallearachchi - blinkbonnieA p senanayake - nuwara eliya group iK de J seneviratne - regional Administrationr d g fernando - rubber marketing & Administrationn A A K nissanka - finance

group Managers:d e p K welikala - tea group – low country iu K tennakoon - nuwara eliya groupc b dharmakirthy - tea group – low country ii

Managers:A t gamage - human resources & corporate sustainabilityn d Amaratunga - marketingw A c s walimuni - financew l p s wijesinghe - information technologyr m s u Jayathileke - regional Administrationc d ikiriwatte - marketingK A r Alles - corporate Affairs

estate Managers:Up country (nuwara Eliya & hatton group)y A hettiarachchi - robgillA m c b Attanayake - inveryK r subendran - ingestrew w wijekoon - uda radellal g Keragala - tillyrieM K D Priyantha * - Annfield

low country (tea & Rubber group)d w m m r b madawala - urumiwelar l obeysekara - we-oyas s b bulumulla - ganepallaw p s b Abeywardena - ederapolav c hewage - Kiriporuwa

Assistant Manager in charger c gnanasekeram - fordyced m K c dhanapala - nuwara eliyap K A h thilakaratne - lavantg u premarathne - Kitulgala

* acting Estate Managers

MABRoc teAS (pVt) ltddirectors:n r ranatunga - managing directorr m hanwella - operationsd s wijesekera - marketing

general Managers:n weeraratne - financet m l J peris - marketingr s samarasinghe - marketing

Managers:K l d c niroshini - financei heenpella - marketinge f w samaraweera - factory

88 Kelani valley plantations plc | Annual Report 2015/16 Corporate Governance

StAteMent FRoM the chAiRMAn on coRpoRAte goVeRnAnce g4-13good corporate governance is a vital element that contributes to the long-term growth and sustainability of Kvpl. we strive to emulate good governance practices in all our day-to-day activities vis-à-vis strategies and procedures to facilitate good ethical behavior and a sound ethical culture. our corporate governance framework consists of strong business principles, sound policies and procedures, underpinned by an efficient monitoring mechanism, where the board of directors stands as the apex governing body.

the board consists of a diverse mix of individuals drawn from various disciplines. their collective experience and varied perspectives have enabled the company to implement strategic initiatives to enhance performance of Kvpl, to overcome numerous sector-specific business challenges that we had to face in the period under review.

our governance framework is geared to strengthen the roles and responsibilities of the board of directors of the group, ensure transparency and accountability and reinforce our commitment to provide

sustainable returns for the benefit of all internal and external stakeholders, despite all odds.

our code of conduct and business governance offers direction for all the employees across the organisation, where we continually stress on the values of good governance, honesty, integrity and fairness.

this section of the Annual report seeks to demonstrate Kvpl’s governance framework in action and its correlation to the regulatory framework applicable to our business. Accordingly, our business principles reflect the standards set out to ensure that we operate lawfully and comply with all mandatory requirements including the Companies Act, No. 07 of 2007 and the updated Code of Best practice of corporate governance, issued jointly by the securities and exchange commission of sri lanka and the institute of chartered Accountants of sri lanka and the code of best practices on related party transactions issued by the securities and exchange commission of sri lanka.

we hope that this brief message will be of value to you in assessing how

the regulatory requirements and best practices are being put into action across Kvpl.

i assure you that we make every effort to continuously improve our corporate governance practices by complying with the relevant regulatory and governance framework to achieve ethical and stewardship obligations, while supporting the creation of long term sustainable stakeholder value.

As required in the above code, i together with the board of directors hereby confirm that, we are not aware of any material violations of any of the provisions of the code of business conduct and ethics as the case maybe by any director or any member of the corporate management of Kvpl.


11 May 2016


owneRShipKelani valley plantations plc (Kvpl) is a member of the hayley’s group and a subsidiary of dpl plantations (pvt) ltd (dplp), which is a fully owned subsidiary of dipped products plc (dpl), a leading manufacturer of hand-protection wear in the world. mabroc teas (pvt) ltd (mtpl) and Kelani valley instant tea (pvt) ltd (Kvit) are fully owned subsidiaries of Kvpl. mabroc teas (pvt) ltd is one of sri lanka`s leading tea exporters supplying a wide range of teas to the global markets.

in association with eco-power (pvt) ltd., Kvpl established Kalupahana power Company Ltd., in 2003, contributing 01 MW of electricity through its mini-hydro plant. 60% of Kalupahana Power Company (Pvt) Ltd (KPC) is owned by KVPL. hayleys global beverages (pvt) ltd (hgbl) is an equity Accounted investee of KVPL and has a 40% ownership.

Kalupahana power company

(pvt) ltd.60% owned subsidiary

hayleys global beverags (pvt) ltd

40% owned equity Accounted

investee

mabroc teas (pvt) ltd

fully owned subsidiary

Kelani valley instant tea (pvt)

ltdfully owned subsidiary

Kelani valley plantations plc72% owned subsidiary

dpl plantations (pvt) ltd

coRpoRAte goVeRnAnce FRAMewoRKKvpl’s governance guidelines provide directors and the management with a blueprint of their respective responsibilities. these guidelines, which are updated periodically, outline matters that require board and committee approval, advice or review. the Company adopts the Code of Best Practice on Corporate Governance 2013, jointly issued by the securities and exchange commission of sri lanka and the institute of chartered Accountants of sri lanka (code), applicable for listed companies via the Colombo Stock Exchange Listing Rules (Amended 2013). In addition to the

listing rules, the code is used as a guideline to determine operational structures and processes that exemplify good governance practices across the business. the names of the board of directors and their attendance at meetings

name of director

dir

ecto

r ca

toga

ry

08/0

5/20

15

28/0

7/20

15

05/1

1/20

15

25/0

1/20

16

Att

end

ance

A m pandithage - chairman

ex √ √ √ √ 4/4

w g r rajadurai(managing director)

ex √ √ √ √ 4/4

faiz mohideen inex √ √ √ √ 4/4

s siriwardana ex √ √ √ √ 4/4

s c ganegoda nex x √ √ √ 3/4

l t samarawickrama nex √ √ x √ 3/4

dr. K.i.m ranasoma nex √ √ √ √ 4/4

c v cabraal inex √ √ √ x 3/4

l n de s wijeyeratne inex √ √ √ √ 4/4

Ex: Executive, INEx: Independent Non-Executive , NEx: Non-Executive KVpl coRpoRAte goVeRnAnce StRuctuRe

internal governance

structure

external governance

structure

Kvpl corporate governance structure


inteRnAl goVeRnAnce StRuctuRe g4-34the polices and procedures established under the guidance of Kvpl’s board of Directors support an effective and efficient decision making process that helps the company to meet corporate governance standards. it includes the roles various stakeholders play in achieving organisation’s goals.

shareholder external committee

board of directors

Audit committee

managing director CEO / CFO

internal Audit

Appoint

Appoint

Appoint

Appoint report to

report to

report to

report to

report to

report to

report to

report to

coRpoRAte MAnAgeMent teAMComprising of the Managing Director and Director/CEO and the Senior management team, the corporate management team is responsible for formulating, obtaining board approval and implementing strategic imperatives within the policy framework established by the Kvpl board. the management committee is tasked with reviewing the annual budget, operational targets, review of monthly performance against budget and capital expenditure proposals prior to making recommendations to the board.

the Audit committee and the corporate management team are jointly responsible for reviewing managing risks and designing internal control systems to safeguard company assets, a ensure accurate and reliable system of record keeping and the timely dissemination of critical management information.

coRpoRAte MAnAgeMentthe board has authorized the managing director (md) as the primary authority responsible for the implementation of policies and achieving of strategic objectives of the company. the md is expected to exercise this authority within the policy framework established by the board and the ethical framework and business practices inherent to the company, which stipulates that the md should comply with best practices when dealing with employees, customers, suppliers and the community at large.

the md is also entrusted with optimising the use of company’s resources and implementing financial strategies outlined in the annual corporate plan and budget. in doing so, the md should employ a continuous planning process with the active involvement of all executives. A system of regular review of operations is also in place to ensure close monitoring of performance and prompt corrective action is deployed where necessary.

Monthly ReView coMMitteeSmeeting of finance, corporate communications and hr clusters of

the hayleys group bring together representatives from different sectors of the group to communicate relevant matters, areas of special interests and concerns, and share best practices. Kvpl’s managing director is a member of theis hayleys group management committee and expected to participate in all monthly review meetings.

The Chief Financial Officer of the company reports to the hayleys group cfo on a quarterly basis on any significant risks or concerns affecting the business activities of Kvpl and the financials pertaining to the same. this reporting process may be more frequent if warranted. further, the cfo’s forum of the hayleys group enables relevant matters to be debated among the cfos of the hayleys group in order to safeguard the interests of the group.

executive management meetings are carried every month with the participation of The MD, CEO / CFO, and all other Head Office executives above the managerial level, to discuss the performance, new initiatives, problems and strategies etc. this works as a brainstorming session where matters pertaining to Kvpl’s performance,

Corporate Governance Contd.


growth, governance, administration etc. are reviewed.

both the general managers up country and low country conduct monthly review meetings at a regional level, to assess estate-level performance and discuss issues, strategies and initiatives needed at this level. this process also functions as an effective communication channel between estate level management and the corporate management. the decisions taken at these meetings are tabled and reported to Head Office.

exteRnAl goVeRnAnce StRuctuRewe adhere to the regulations, codes and best practices adopted by different governing bodies.yy Companies Act No. 7 of 2007yy listing rules of the colombo stock

exchangeyy code of best practice on corporate

governanceyy code of best practices on related

party transactions issued by the securities and exchange commission of sri lanka

yy Inland Revenue Act No 10 of 2006 and subsequent amendments

yy customs ordinanceyy exchange control actyy tea board of sri lanka

yy chamber of commerceyy ministry of plantations

inteRnAl Audit And contRolthe board is responsible for the group’s internal control and its effectiveness. internal controls are established with emphasis on safeguarding assets, making available accurate and timely information and enforcing greater discipline on decision making. the internal Audit and control function is a comprehensive mechanism that covers all financial, operational and compliance controls, and risk management systems. however it is important to note that any system can expected to provide only reasonable, but not absolute assurance that errors and irregularities are detected and prevented within a reasonable time.

inFoRMAtion technology (it) goVeRnAnceKvpl’s investment in it covers resources operated and managed centrally and those resources deployed on the various estates where accounts are prepared using a computerised accounting package. the company’s it resources therefore comprises of these computerised Accounting packages, utility software and networking

facilities used at Head Office, including internet and relevant devices are used to interconnect Head Office with estates.

it VAlue And AlignMentin recent years, Kvpl has come to leverage on more and more on it to improve processes across the business. however, investment in it projects and systems are made after considering their suitability for the related projects. furthermore, aspects such as cost savings, the provision of timely information and the balance between cost and benefits are also considered when decisions are taken.

with productivity improvement being identified as a key growth driver for Kvpl, the company set up a performance monitoring unit at the head office, to monitor the performance of the estates through an online system that delivers critical information in real time.

it RiSK MAnAgeMentrisks associated with it are assessed in the process of Kvpl’s risk management mechanism. the use of licensed software, close monitoring of internet usage (to comply with the it use policy), mail server operations, the

use of antivirus and firewall software, are some of the safeguards currently in place to minimise it related risks.

exteRnAl Auditfor the fourth consecutive year, messrs. ernst & young (ey) were appointed as the external auditors of Kvpl. the company is guided by the knowledge and experience of the Audit committee to ensure effective usage of external auditor’s expertise, while maintaining independence in order to deliver a transparent set of financial Statements, which are certified annually by them.

whiStleBloweR policythe whistleblower policy provides a mechanism for employees to raise concerns regarding any person within the organisation who they see as engaging in unlawful behaviour or violating the company code of conduct by engaging in financial fraud, incorrect financial reporting, improper conduct, breach of values and policies of the organisation. under the guidelines of the whistleblower policy, any Kvpl employee who raises such concerns will be provided a guarantee that they will be protected from reprisals and victimisation.


the extent of compliance to the code describes as follows.

Reference to cASl & Sec code

Requirement Status of compliance

details of compliance

Section 1: The CompanyA. Directors

principle: A.1 the Board During the year under review, the Board consisted of nine Directors- six Non-Executive Directors and three Executive Directors including the Chairman. The Board considered that the present composition and expertise is sufficient to meet the needs of the Group. The Non-Executive Directors contribute with their knowledge and experience collectively gained from experience in serving a variety of public and private organisations. The profiles of the Directors are found on pages of 84 and 85 of this report. Details of Directors shareholdings in KVPL and the directorates they hold in other companies are given on pages 129 and 86 respectively.

A.1.1 board meetings

complied the board meets quarterly. Ad-hoc meetings are held as and when required. during the year under review the board met on four occasions. the attendance at these meetings has been depicted in the table given in this section.

A.1.2 responsibilities of the board

complied the board of directors is responsible for setting up the governance framework within the company.the board has engaged dpl plantations (pvt) ltd as managing Agent to manage the business and assets of the company. The Board is responsible to:a. enhance shareholder value.b. ensure all stakeholder interests are considered in corporate decisions.c. formulate and communicate business policy and strategy to ensure sustained growth, and monitor its

implementation.d. Approve any change in the group’s business portfolio and sanction major investments and dis

investments in accordance with parameters set.e. ensure executive directors have the skill and knowledge to implement strategy effectively, with proper

succession arrangements in place.f. ensure effective remuneration, reward and recognition policies are in place to ensure employee

commitment and motivation.g. Set and communicate values/standards, with adequate attention being paid to accounting policies/

practices and fostering compliance with financial regulations.h. ensure effective information, control, risk management and audit systems are in placei. ensure compliance with laws and regulations.j. ensure that ethical standards are in place.k. Approve annual budgets and monitor performance against provisions made.






l. Approve annual and interim results before they are published.m. consult and consider inputs from ‘experts’ in relevant areas.n. Approve key appointments within the company and ensure all senior management staff receives

appropriate training ensuring the adoption of an effective ceo and Key management personnel succession strategy.

o. recognise sustainable business development in corporate strategy, decisions and activities.p. Adequacy and the integrity of the Plantation’s Internal control systems over financial reporting and

management information systems are reviewed by the board Audit committee.q. exercising due diligence in the hiring and overlook of external Auditors.

A.1.3 compliance with the laws of the country and agreed to obtain independent professional advice

complied the board collectively, and directors individually act in accordance with the laws and regulations of the country, and group policies. All the members of the board obtained professional advice within and outside the company about corporate planning, financial reporting, tax and legal advice, at the Company's expense.

A.1.4 Access to the advice and services of the company secretary

complied the services and advice of the company secretary are available to all the directors.

the company secretary ensures that board procedures and all applicable rules and regulation are followed.

the removal of the secretary is a matter for the board as a whole.

A.1.5 independent judgment of the directors

complied non-executive directors are independent from the management and free from any business and other relations. none of the other directors are related to each other. this enables all the members of the board to bring independent judgment to bear on issues of strategy, performance, resources and standards of business conduct.





A.1.6 dedication of adequate time and effort of the directors

complied the board of directors dedicates adequate time and effort to ensure their duties and responsibilities towards company and board are discharged.

Sufficient time is dedicated before a meeting to review Board papers and call for additional information and clarification, and to follow up on issues consequent to the meeting. Hence, they are able to familiarise with the business changes, operations, risks and controls which ultimately help to satisfactorily discharge the duties and responsibilities owed to the company.

A.1.7 training for new and existing directors

complied the board is of the view that continuous training and development of skills and knowledge are vital for effective performance of duties and these requirements are reviewed regularly.

generally the training programmes conduct for the top-management and it covers the training requirement for the directors as well.

Principle: A.2 Chairman and Chief Executive Officer (CEO) Chairman and the Chief Executive Officer are two different positions which clearly distinguished the power and authority when conducting the business of the Board and facilitating executive responsibility for the management

A.2.1 division of responsibilities of chairman and ceo

complied The Chairman and the Chief Executive Officer of the Company are two different personnel where clearly distinguish the power and authority. the chairman of the company is also the chairman of dpl plantations Limited, DPL PLC and Hayleys PLC. The separation between the position of the Chairman and officers with executive powers in the company ensure a balance of power and authority.

Principle: A.3 Chairman's role The Chairman is the most responsible person for guiding the Board in formulating the appropriate business strategies and gives direction to the Company. He preserves the good corporate governance in the Company.

A.3.1 chairman's role complied The Chairman is responsible for the efficient conduct of Board meetings and ensures, inter alia, that: a. The effective participation of both Executive and Non – Executive Directors are secured;b. All directors are encouraged to make an effective contribution, within their respective capabilities for

the benefit of the Company;c. A balance of power between executive and non – executive directors is maintainedd. The view of Directors on issues under consideration are ascertained; and






e. the board is in complete control of the company’s affairs and alert to its obligations to all shareholders and other stakeholders.

f. the chairman maintains close contact with all directors and, where necessary, holds meetings with non - executive directors without executive directors being present.

g. Approving the Agenda for each meeting prepared by the board secretary. h. ensuring that the board members receive accurate, timely and clear information about the plantation’s

performance in order to make sound decisions, monitor efficiently and provide advice to promote success.

i. ensure regular meetings, the minutes of which are accurately recorded and is available inspection thereof by the directors.

Principle: A.4 Financial Acumen

A.4.1 financial acumen complied the board includes three senior chartered Accountants, who possess the necessary knowledge and competence to offer the Board guidance on matters of finance. Two of them serve as Finance Directors of hayleys plc and Kvpl and the other as chairman of the Audit committee. other members of the board are having enough experience in handling the matters of finance by serving in different organisations. Hence the Board is with sufficient financial acumen and knowledge to offer guidance on matters of finance.

Principle: A.5 Board Balance

A.5.1 non-executive directors

complied six out of nine directors on the board are non-executive directors. the composition of the executive and non-executive directors (the latter are over one third of the total number of directors) satisfy the requirements laid down in the listing rules of the colombo stock exchange.

A.5.2 independence of non-executive directors

complied three of six non-executive directors are independent. the board has determined that three non-executive directors satisfy the criteria for “independence” set out in the listing rules.

A.5.3 independence of non-executive directors

complied Non-Executive Directors’ profiles reflect their calibre and the weight their views carry in Board deliberations. each is independent of management and free from any relationship that can interfere with independent judgment. the balance of executive, non-executive and independent non-executive directors on the board ensures that no individual director or small group of directors dominates board discussion and decision making.





A.5.4. Annual declaration of independence –of non-executive directors

complied each non-executive director submits annual declarations on his independence or non-independence in a prescribed format.

A.5.5 board determination of independence of non-executive directors and disclosure in Annual report

complied the board considered the declaration of independence submitted by each non-executive director with the basis for determination given in code of best practices as a fair representation and will continue to evaluate their independence on this basis annually. brief resume of all the directors is available in pages 84 and 85.

A.5.6, Appointment of alternate director

not applicable

there were no appointments of alternative directors this year.

A.5.7A.5.8

requirement to appoint senior independent director

not Applicable

this is not applicable as the chairman and the managing director is not the same person.

A.5.9 chairman’s meetings with non-executive directors

complied the chairman holds meeting with the non-executive directors, without executive directors, at least once in each year and at any other time when and where necessary.

A.5.10 record in the board minutes of concerns not unanimously resolved

complied All the matters of the company which cannot be unanimously resolved are accordingly recorded in the board minutes.






Principle: A.6 Supply of informationThe Board is provided with timely information in a form and of a quality appropriate to enable them to discharge their duties.

A.6.1 timely and appropriate information to the board

complied management provides the board with appropriate and timely information. when information volunteered by management is not enough directors make further inquiries. chairman ensures all directors are properly briefed on issues arising at meetings.

A.6.2 information provided in advance to the board meetings

complied the board meetings are arranged in advance and all directors are informed. the directors are provided with minutes, the agenda and the board papers in advance to prepare and clearly comprehend with the matters discussed or consent.

Principle: A.7 Appointments to the BoardThere should be a formal and transparent procedure for the appointment of new Directors to the Board

A.7.1, A.7.2 Appointment to the board

complied the board as a whole decides on the appointment of directors. the board annually assesses the board composition to ascertain whether the combined knowledge and experience of the board matches the strategic demands facing the company.

A.7.3 disclosure of new appointments

complied There were no new appointments of new Directors during the financial year.

in the event of new appointments, a brief resume of the director, nature of his experience, names of the companies in which the directors hold the directorship and the independency is informed to the colombo Stock Exchange and disclosed in the Annual Report Pages 84 and 85.

Principle: A.8 Re-electionAll Directors submit themselves for re-election at regular intervals and at least once in every three years.

A.8.1, A.8.2

re-election of directors

complied The provisions of the Company’s Articles require a Director appointed by the Board to hold office until the next Annual general meeting, and seek re-appointment by the shareholders at that meeting.

The Articles call for one third of the Directors in office to retire at each Annual General Meeting. The Directors who retire are those who have served for the longest period after their appointment /re-appointment. retiring directors are generally eligible for re-election.

the managing director does not retire by rotation.





Principle: A.10 Disclosure of Information in respect of Directors

A.10.1 disclosures about directors

complied Name, qualifications, brief profile, and nature of expertise are given in the pages 84 and 85 of this annual report. Director’s interests in contracts are given in the pages 205 to 209 of this report.The numbers of Board meetings attended by the Directors are available in the page 89 of this report.

Principle: A.11 Appraisal of Chief Executive Officer

A.11.1, A.11.2 evaluation the performance of the ceo

complied The short, medium and long-term objectives including financial and non-financial targets that should be met by the CEO are set and evaluated at the commencement of each fiscal year. The performances were evaluated annualy and ascertained whether the targets were achieved or whether achievement is reasonable in the circumstances.

B. Directors Remuneration

Principle: B.1 Remuneration procedure

B.1.1, remuneration committee.

complied the remuneration committee is responsible to assist the board in recommending the remuneration payable for the Executive Directors and Corporate management. The Board makes the final determination after considering such recommendations.

B.1.2, B1.3. composition of the remuneration committee

the remuneration committee of hayleys plc, which is the ultimate parent of the company, acts as the remuneration committee of Kvpl. the remuneration committee comprises of following independent non-executive directors.

mr. h. cabral, pc (chairman) Mr. M.D.S. Gunatilleke (Resigned w.e.f. 12/05/2016)

mr. K.d.d. perera mr. m.h. Jamaldeen

mr. w.d.n.h. perera

B1.4. remuneration of the non- executive directors

the board as a whole decides the remuneration of the non-executive directors in line with the market rates and within the limit set in the Articles of Association of the company.

B1.5 consultation of the chairman and access to professional advice.

remuneration committee consults the chairman about its proposal regarding the remuneration of other executive directors. both internal and external professional advice has been taken during the year under review.






Principle: B.2 The level and make up of remuneration

B.2.1, B.2.2 levels of remuneration for executive directors

complied remuneration package is designed to attract, retain and motivate the directors needed to run the company successfully but avoid paying more than necessary for this purpose.

The Remuneration Committee takes into account market practices. Their remuneration comprises a fixed salary component, which include perquisites and allowances.

B.2.3 positioning company remuneration levels relative to other companies

complied the remuneration committee structures and reviews the company’s remuneration levels in relation to the other companies and other parts of the group.

B.2.4 performance related elements of remuneration for executive directors

complied the performance based incentives has been determined by the remuneration committee to ensure that the earnings of the executives are aligned with the achievement of objectives and budgets of the group companies.

B.2.5 share option schemes

not applicable

presently the group does not have an executive share option scheme.

B.2.6 designing performance related remuneration

complied performance-related remuneration is designed by the remuneration committee based on the provisions set out





B.2.7, B.2.8 compensation, commitments in the event of early termination and dealing with early termination

complied there are no provisions for compensation for early termination in the letter of contract. however, the directors would determine this on a case by case basis.

B.2.9 levels of remuneration for non-executive directors

complied the remuneration committee determines the levels of remuneration for non-executive directors taking into account the time commitment and responsibilities of their role and market practices. remuneration for non-executive directors does not include share options.

Principle: B.3 Disclosure of the remuneration

B.3.1 disclosure of the remuneration

complied The total of Directors’ Remuneration is reported in note 09 to the Financial Statements.

C. Relations with Share Holders

Principle: C.1 Constructive use of the AGM and conduct of General Meetings

C.1.1 use of proxy complied the company ensures that all proxy votes are counted and the level of proxies lodged on each resolution is conveyed to the chairman

C.1.2 separate resolution for substantially separate issue

complied A separate resolution proposed at an Annual general meeting on each substantially separate issue.

Adoption of the Annual report of the board of directors on the affairs of the company, statement of compliance and the financial statements with the independent Auditor’s report is considered as a separate resolution.






C.1.3 Answer questions at the Agm

complied the board arranges the chairman of the Audit committee to be available to answer the queries at the Agm when necessary.

the active participation of shareholders at the Annual general meeting is encouraged. the board believes the Agm is a means of continuing effective dialogue with shareholders.

The Board offers clarifications and responds to concerns shareholders have over the content of the Annual Report as well as other matters which are important to them. The AGM is also used to adopt the financial statements for the year.

C.1.4, C.1.5

notice of Annual general meeting and general meetings

complied the notice of meeting is included in the Annual report. the notice contains the Agenda for the Agm as well as instructions on voting for shareholders, including the appointment of proxies. A form of proxy is enclosed with the Annual Report. The period of notice prescribed by the Companies Act No 7 of 2007 has been met.

the notice and the agenda of the Annual general meeting together with the Annual report with all other relevant documents are sent to the shareholders within 15 working days prior to the meeting.

Principle: C.2 Communication with shareholders

C.2.1 channel to reach all shareholders of the company

complied the modes of communication between the company and the shareholders are the Annual reports, quarterly financial statements, interim reports, other press releases and Annual general meetings. shareholders may bring up concerns they have, with the chairman, the managing director or the secretaries, as appropriate. the soft version of the Annual report is posted on its website as soon as they have been released to the stock exchange and post news and latest updates.

C.2.2. disclosure of the communication policy

complied the communication policy and methodology for communication with the shareholders are given in the stakeholder engagement.





C.2.3 implementation of the policy and methodology for communication with shareholders

complied in terms of the cse listing rules, Annual reports are issued in cd form. however a share holder could be provided with a printed copy of the Annual report if requested in writing to do so.

C.2.4 disclosure of contact person

complied shareholders can forward their inquiries via electronic media (e-mail, telephone call or in writing) to the relevant person to raise queries. the contact person for such communication is the company secretary.

C.2.5 major issues and concerns of shareholders

complied All the major issues relating to shareholders are brought to the attention of the board.

C.2.6 person to be contacted with regard to shareholders’ matters.

complied the company secretary holds the responsibility to be contacted in relation to shareholders’ matters.

C.2.7 process for responding to shareholder matters

complied the board formulated the process of responding to shareholder matters.

Principle: C.3 Major and material Transactions

C.3.1 disclosure of major transactions to shareholders

complied There have been no transactions during the year under review which fall within the definition of “Major Transactions” as set out in the Companies Act No 7 of 2007.






D. Accountability and Audit

Principle: D.1 The Board should present a balanced and understandable assessment of the Company’s financial position and performance and prospect

D.1.1 balance and understandable information to shareholders

price sensitive information

shareholder value & return

complied The Board places great emphasis on complete disclosure of financial and non-financial information within the bounds of commercial reality, and on the adoption of sound reporting practices. financial information is disclosed in accordance with the sri lanka Accounting standards. revisions to existing accounting standards and adoption of new standards are carefully monitored.

The Annual Report includes descriptive, non-financial content through which an attempt is made to provide stakeholders with information to assist them make more informed decisions.

due care is exercised with respect to share price sensitive information.

the board strives to enhance shareholder value and provide a total return in excess of the market. it has been the policy of the board to distribute a reasonable dividend to the shareholders whilst retaining sufficient resources for capital needs.

D.1.2 statement of directors responsibility

complied The Statement of Directors’ Responsibilities for the financial statements is given in page 134 of this report.

D.1.3 responsibilities of board for preparation of financial statements together with Auditors report

complied Chief Financial Officer and two other Directors have signed the Financial Statements on behalf of the Board.

Responsibilities of Board of Directors are disclosed in page 134

The Auditors’ Report for the year ended 31 March 2016 is available on page 139 of this report.

A statement on Internal Control is included on page 131

D.1.4 management discussion & Analysis

complied A comprehensive coverage of key initiatives undertaken during the year, external impacts, sector performances, achievements and future outlook, awards won and certifications received is available in the Management Discussion (page 24 to page 83) of this Report.





D.1.5 declaration of going concern

complied the directors have reasonable expectations that the company has resources to continue in operational existence for the foreseeable future. Arriving that, the directors make necessary inquiries and reviews for all the aspects that effect on financial performance and position i.e. budgets for the ensuing year, capital expenditure requirements, future prospects and risks, cash flows and borrowing facilities. Therefore the going concern basis has been adopted in the preparation of the financial statements. This has been disclosed under the Summary Of Significant Accounting Policies in the Financial Statements.

D.1.6. summon an egm to notify serious loss of capital

complied In the event the net assets of the Company fall below 50% of its Stated Capital, the Directors will forthwith summon an extra ordinary general meeting to notify shareholders the remedial action being taken. However such event has not taken place since the adoption of New Companies Act No 07 of 2007.

D.1.7 related party transactions

complied the company is adhering to the code of best practices on related party transactions which is issued by the securities and exchange commission of sri lanka.

Principle: D.2 Internal Control

D.2.1, requirement of sound system of internal control

complied the directors hold responsibility to conduct reviews of the risks facing the company and the effectiveness of the internal controls to be reported to shareholders.The Audit Committee executes this function; evaluate the effectiveness on behalf of the Board.

D.2.2 review need for internal Audit function

complied Company is having an internal audit function at head office and sub office. Audits were conducted in accordance with the program prepared at the beginning of the year.

the group management Audit and system review department (mA&srd) carried internal audits according to the annual plan. The internal audit function also outsourced to leading audit firms according to the annual audit plan.

D.2.3 review of the process and effectiveness of risk management

complied the board holds responsibility of getting the Audit committee to carry out reviews of the process and effectiveness of risk management and internal controls, and to document it to the board.

The disclosure of internal controls are on page 131






D.2.4 sound system of internal controls

complied the responsibilities of the directors in maintaining a sound system of internal control and the contents of the Statement of Internal control are reported in page 131

Principle: D.3 Audit Committee

D.3.1 composition of Audit committee

complied The Audit Committee was established in 2008. The Committee consists entirely of Non-Executive Directors and is chaired by mr. l.n.de.s.wijeyeratne. he is a fellow member of the institute of chartered Accountants of sri lanka. All three directors are independent non-executive directors.

D.3.2 committees' purpose, duties and responsibilities

complied the committee is empowered to examine any matters relating to the financial reporting systems of Kvpl, and its external and internal audits. its duties include the detailed review of financial statements, internal control procedures and risk management framework, accounting policies and compliance with applicable accounting standards and other rules & regulations.

it reviews the adequacy of systems in place for compliance with relevant legal, regulatory and ethical requirements and company policies.

the Audit committee makes recommendations to the board pertaining to appointment, re –appointment of external Auditors after assessing the independence and performance, and approves the remuneration and terms of engagement of the external auditors.

The Chairman, the Managing Director and Chief Financial Officer of the Company are invited to attend meetings. other directors and senior managers attend meetings as required. the input of the external Auditors is obtained where necessary.

the Audit committee helps the group to achieve a balance between conformance and performance.

D.3.3 written terms of reference

complied terms of references (tor) provides proper guideline duty and authority to deliver the responsibilities.

D.3.4 disclosures complied mr. l.n.de.s.wijeyeratne is the chairman of the Audit committee. mr. f. mohideen and mr. c .v. cabraal are the two other members.

Annual report contains a compliance report of Audit Committee in page 135





Principle: D.4 Code of Business Conduct & Ethics

D.4.1 disclosure on presence of code of business conduct & ethics

complied the directors and members of the senior management team are bound with a code of business conduct & Ethics which is developed by the Hayleys Group. The Code consists of important topics such as conflict of interest, corporate opportunities, confidentiality, fair dealing, protection and proper use of Company assets, compliance of laws, rules and regulations etc. the board ensures the compliance with the code and noncompliance may cause to disciplinary actions.

D.4.2 Affirmation of code in the Annual report by the chairman

complied The Chairman affirms that he is not aware of any violation of any of the provisions of the Code of Business Conduct & Ethics in the Annual Report. Please refer the Chairman's Statement in the page 88 of this report.

Principle: D.5 Corporate Governance disclosures

D.5.1 disclosure of adherence to corporate governance

complied the extent to which the company adheres to established principles and practices of good corporate Governance are disclosed from page 88 to 113 of this report.

Section 2: ShareholdersE. Institutional Investors

Principle: E.1 Shareholder voting, E.2. Evaluation of governance disclosures

E.1.1. use of the vote of institutional investors

complied All investors are invited to attend the Annual General Meeting and they are free to make comments/suggestions . the company encourages dialogues with institutional investors. the company appreciates the way of using the votes in Agm on the weight they had regarding all relevant factors noted.

E.2 evaluation of governance disclosure

complied institutional investors are encouraged to give due weight to all relevant factors drawn to their attention when evaluating companies’ governance arrangement particularly in relation to board structure and composition.






F. Other investors

Principle: F.1 Investing/Divesting decisions F.2 Shareholder voting

F.1 individual shareholders are encouraged to do their own analysis or seek independent advice.

complied Annual Report provides sufficient information to carry out their own analysis in investing or divesting decisions. in addition Kvpl encourages individual shareholders to seek independent advice for their investing and divesting decisions

F.2 encourage shareholders to participate and vote at Agm

complied All shareholders are encouraged to actively participate in the Agm and they have the independence of using their votes as they wish.

Principle: G. Sustainability reporting

G.1 principles of sustainability reporting

complied recognition, measurement, disclosure and accountability to internal and external stakeholders for organisational performance towards the goals of sustainable development in the context of the overall business activities of the organization are being reported in the sustainability report.

G.1.1 economic sustainability

complied the company takes responsibility for impact of the strategies, decisions and activities on economic performance and how this is integrated throughout the organisation.

G.1.2 the environment complied the organisation adopts an integrated approach that takes into account the direct and indirect economic, social, health and environmental implications of their decisions and activities, including pollution prevention, sustainable resource use, climate change, protection of environment, bio-diversity and restoration of natural resources.

G.1.3 labour practice complied the company encompasses all policies and practices in relation to work performed by or on behalf of the company.

G.1.4 society complied company engages in supporting and building relationships with the community and striving for sustainable development. this includes responsible public policy participation, fair competition and responsible community involvement.





G.1.5 product responsibility

complied company manufactures quality tea and distributes them ensuring that the products are safe for the consumers so that they can make an informed choice. company complied with the international food safety standards.

i.e. HACCP and ISO 22000 Certification, Rainforest Alliance (RAtm) Certification, GLOBAL G.A.P, Forest stewardship council (fsctm)

G.1.6. stakeholder identification, engagement and effective communication

complied Internal and external stakeholder groups are identified in relation to company’s sphere of influence, impact and implication. communication with them is proactive and transparent. communications with stakeholders include reporting on economic, social, and environmental issues which are relevant, material, comparable with past performance and focuses on substance over form.

G.1.7. sustainable reporting and disclosure

complied sustainable reporting and disclosure is formalised as part of the company’s reporting process on a regular basis. company’s sustainability reporting is done based on the g4 version in gri standards. this is board’s responsibility which is built on several guidelines.



Levels of compliance with the CSE’s Listing Rules- Section 7.10, Rules on Corporate Governance are given in the following table.

Rule no. Subject Applicable requirement compliance Status Applicable section in the Annual Report

7.10.1(a) non-executive directors

At least one third of the total number of directors should be non-executive directors

compliant Corporate Governance A.5.1six out of nine directors on the board are non-executive directors

7.10.2(a) independent directors

two or one third of non-executive directors, whichever is higher, should be independent

compliant Corporate Governance A.5.2three of six non-executive directors are independent

7.10.2(b) independent directors

each non-executive director should submit a declaration of independence/non-independence in the prescribed format

compliant Corporate Governance A.5.4each non-executive director has been submitted declarations stating the independence/non-independence in a prescribed format

7.10.3(a) disclosure relating to directors

names of independent directors should be disclosed in the Annual report

compliant Corporate Governance A.5.5brief resume of all the directors is available

7.10.3(b) disclosure relating to directors

the basis for the board to determine a Director is Independent, if criteria specified for independence is not met

compliant Corporate Governance A.5.5

7.10.3(c) disclosure relating to directors

A brief resume of each director should be included in the Annual report and should include the director’s areas of expertise

compliant Corporate Governance A.5.5

7.10.3(d) disclosure relating to directors

forthwith provide a brief resume of new directors appointed to the board with details specified in 7.10.3 (a),(b) and (c) to the Exchange

compliant Corporate Governance A.7.3there were no new appointments of new directors during the financial year.

7.10.5 remuneration committee

A listed company shall have a remuneration committee

compliant Corporate Governance B.1.1, B.1.2, B.1.3, B.1.4, B.1.5

remuneration committee of hayleys plc. Acts as the remuneration committee of Kvpl



7.10.5(a) composition of remuneration committee

shall comprise non-executive directors a majority of whom will be independent

compliant Corporate Governance B.1.1, B.1.2, B.1.3, B.1.4, B.1.5comprise of two independent non-executive directors

7.10.5(b) functions of remuneration committee

the remuneration committee shall recommend the remuneration of Chief Executive Officer and executive directors


7.10.5(c) disclosure in the Annual report relating to remuneration committee

The Annual Report should set out;yy names of directors comprising the

remuneration committeeyy statement of remuneration policyyy Aggregated remuneration paid to executive &

non-executive directors


7.10.6 Audit committee the company shall have an Audit committee compliant Corporate Governance D.3.1, D.3.2The Audit Committee was established in 2008.

7.10.6(a) composition of Audit committee

yy shall comprise of non-executive directors a majority of whom will be independent

yy non-executive directors shall be appointed as the chairman of the committee

yy Chief Executive Officer and Chief Financial Officer should attend Audit Committee meetings

yy the chairman of the Audit committee or one member should be a member of a professional accounting body

compliant Corporate Governance D.3.1, D.3.2Audit Committee Report is available in pages 135 and 136.




7.10.6(b) Audit committee functions

Functions shall include:yy overseeing of the preparation, presentation

and adequacy of disclosures in the financial statements in accordance with sri lanka Accounting standards

yy Overseeing of the compliance with financial reporting requirements, information requirements of the companies Act and other relevant financial reporting related regulations and requirements.

yy overseeing the processes to ensure that the internal controls and risk management are adequate to meet the requirements of the sri lanka Auditing standards

yy Assessment of the independence and performance of the external auditors

yy make recommendations to the board pertaining to appointment, re –appointment and removal of external auditors, and approve the remuneration and terms of engagement of the external auditors.

compliant Corporate Governance D.3.3

7.10.6 (c) disclosure in the Annual report relating to Audit committee

a) names of directors comprising the Audit committee

b) the Audit committee shall make a determination of the independence of the Auditors and disclose the basis for such determination

c) the Annual report shall contain a report of the Audit committee setting out of the manner of compliance with their functions

compliant Corporate Governance D.3.4Please refer Audit Committee Report on pages 135 and 136.



9.2.3 rpt re-view committee

As per the listing rules of the cse this is mandatory from 1 January 2016.if the parent company and the subsidiary company both are listed entities, the related party transactions re-view committee of the parent company may be permitted to function as such committee of the subsidiary.

compliant the rpt committee of hayles plc the parent Company, which was formed on 10 February 2015 functions as the committee of the company.

9.2.2 composition 02 Independent Non-Executive Directors and 01 executive director

complaint rpt review committee report Annual report of the board of directors

9.2 rpt re-view committee functions

yy to review in advance all proposed related party transactions of the group either prior to the transaction being entered into or, if the transaction is expressed to be conditional on such review, prior to the completion of the transaction.

yy seek any information the committee requires from management, employees or external parties to with regard to any transaction entered into with a related party.

yy obtain knowledge or expertise to assess all aspects of proposed related party transactions where necessary including obtaining appropriate professional and expert advice from suitably qualified persons.

yy to recommend, where necessary, to the board and obtain their approval prior to the execution of any related party transaction.

yy to monitor that all related party transactions of the entity are transacted on normal commercial terms and are not prejudicial to the interests of the entity and its minority shareholders.


Compliance with the CSE Listing Rules - Section 9 Rules on Related Party Transaction (RPT)



yy meet with the management, internal Auditors/External Auditors as necessary to carry out the assigned duties.

yy to review the transfer of resources, services or obligations between related parties regardless of whether a price is charged.

yy to review the economic and commercial substance of both recurrent/non recurrent related party transactions

yy to monitor and recommend the acquisition or disposal of substantial assets between related parties, including obtaining ‘competent independent advice’ from independent professional experts with regard to the value of the substantial asset of the related party transaction.

complaint rpt review committee report.

9.2.4 rpt re-view committee-meetings

shall meet once a calendar quarter complaint rpt review committee report.Annual report of the board of directors.

9.3.2 rpt re-view committee-disclosure in the Annual report

a) non-recurrent related party transactions- if aggregate value exceeds 10% of the equity or 5% Total assets whichever is lower.

b) recurrent related party transactions – if aggregate value exceeds 10% Gross revenue/income as per the latest audited accounts

c) report by the related party transactions re-view committee

d) A declaration by the board of directors

compliant RPT Review Committee Report. (Page No. 137)Annual report of the board of directors. (Page No. 129)

114 Kelani valley plantations plc | Annual Report 2015/16 Risk Management

KVPL’S RiSK mAnAGEmEnT SySTEm g4-ec-2Kvpl’s risk management system is a dynamic process that integrates strategic level risk management with ground level developments. it is a highly responsive model that incorporates estate communities and employees into the overall risk management framework, vis-à-vis an Estate Level Risk Management Process. The overall risk management system is supported by the daily operational updates generated through Kvpl’s management information system that links-up all estates through a common platform.

RiSK MAnAgeMent Modelthe Kvpl group uses the coso model as the conceptual framework of erm, which combines key industry parameters for designing, implementing, and conducting internal controls, and assessing the effectiveness of internal controls. the framework consists of identifying and profiling significant risks, modelling and measuring these risks, determining Group risk appetites, accepting/transferring/eliminating/sharing risk profiles and measuring of performance including the benefits of risk diversification, and monitoring the execution of the process.

our business is exposed to a wide range of risks as illustrated below.

Ris

k

corp

ora

te g

over

nan

ce

Ris

k M

anag

emen

t Fr

amew

ork

(co

So)

strategic risk climate changes

production risk political risk commodity

risk Acquisitionssocial and

environmental risk

operational risk value chain

management personnel & worker migration

business disruption it risk technological

riskreputation

risk

financial risk foreign exchange risk

interest rate risk credit risk investment

risk liquidity risk Accounting and reporting

compliance and other

risklegal tax market

practices

general business principles

data privacy product security

our Approach to Risk Management:yy Bottom-up approach : regular

meetings are conducted to discuss the company’s results, potential, opportunities and ground level operational risks. remedial action and goal setting is also done at this forum

yy Hayleys Groups’ risk management functions : the internal Audit division of hayleys plc, the ultimate parent, co-ordinates the identification and documentation of control risk areas, enhancing the risk management system and monitoring its effectiveness at regular intervals.

yy internal Systems Review : our internal systems-review team carries out regular system evaluations in order to monitor the effectiveness and compliance of existing systems and controls

yy External auditor’s management letter : the management letter issued by the external auditors highlights the possible risks associated with the year-end audit findings. The outcomes of these findings are then used for continuous enhancement of Kvpl’s overall risk management system.


RiSK ARchitectuRe

Board of directorsoverall responsibility for risk management, ensure risk management is embedded into all processes

and review group risk profile

yy receive reports from management team and external/internal auditors

yy set Annual Audit programme and prioritiesyy monitor progress with audit recommendationsyy provide risk assurance to the board and

oversee risk management structures and processes

yy receive reports from business units and external /internal auditors

yy formulate strategy and policy based on risk appetite, risk attitudes and risk exposures

yy review risk management activities and comply with the group risk register

yy make reports and recommendations to the board

yy track risk management activity and keep the risk management context under review

yy Identification of business unit riskyy set risk priorities for business unitsyy monitoring and prepare reports for

management teamyy Manage and Control risk and self-certification

activities

direct and monitor

level 2: Management team

level 1: KVpl group business units/estate level

plantations hydropowerprocessing of tea powder

export value added tea

export instant tea and tea

extract

direct and monitor

direct and monitor

level 3: Audit committee

yy Business units/estates : Divisional business units/estates are responsible for identifying, evaluating and managing the risks that originate within their approved risk appetites and policies. they are required to establish and maintain appropriate risk management controls, resources and self-assurance processes to enable them to manage these risks.

yy Management team / executive committee : the management team is responsible for developing division-specific risk appetite statements, policies, controls and procedures, in addition to monitoring and reporting in line with the board’s statement of risk appetite and the risk management frameworks approved by the board of directors.

yy Audit committee : group Audit committee leads the optimisation of the risk-reward concept by overseeing the development of risk appetite statements, risk management frameworks, policies and risk concentration controls and monitoring diverse risk profiles to sharpen the alignment with approved risk appetites and strategies.

RiSK MAnAgeMent pRoceSSthe group has established and adheres to a comprehensive risk management framework illustrated below:

Assess Risk

RiskManagement

control Risk

Review controls

Risk

identify Risk

develop strategies

implement strategies

communicate And monitor


yy identify Risk : the responsibility for setting up the overall framework for risk management lies with the board of directors. line managers are responsible for the identification, measurement and management of risks in their respective areas. Monthly/quarterly review meetings and internal systems reviews are key instruments used to identify possible risks arising from one-off events as well as more gradual trends that could result in changes in risk.

yy Assess the Scale of Risk : risks mentioned in the report are ranked as high, medium and low risk events, based on the impact and likelihood. A higher risk event requires a more urgent and concerted management response.

3

1

2

6

2

4

9

3

6

High (3)

Med (2)

like

lihoo

d

impactlikelihood x impact = risk

Low (1)

Low (1) Med (2) High (3)

High (3)

Med (2)

like

lihoo

d

impact

Low (1)

Low (1) Med (2) High (3)

risks withinrisk appetite

risks exceedingrisk appetite

yy develop Risk Response Strategies : depending on the tolerance of risk, decisions are taken to manage risk by accepting, reducing, sharing or avoiding it. Such decisions are influenced by the company’s risk appetite. The managing director, and the management team responsible, is tasked with initiating risk mitigation measures. A sound system of internal controls is in place, within the group to ensure proper action is taken in response to risk. Kvpl has obtained insurance coverage, where available, on economically viable terms to minimise the financial losses arising from uncertainty and risk. these insurance covers are frequently re-examined and adjusted accordingly with the advice of experts.

yy communication : quarterly review reports presented to the board contain Key performance indicators and possible risk events along with recommendations on risk mitigation strategies. A report on compliance levels with regard to risk mitigating actions, are tabled at the Audit committee and are then reviewed and acted upon. risk areas that are relevant to staff are communicated to them on a regular basis at staff meetings.

yy Monitoring : the ultimate responsibility for monitoring risk management process lies with the Senior Management Team/ executive committee and the Audit committee. this includes regular and annual review of risk management and monitoring the efficiency and effectiveness of the internal control system.

yy Review : KVPL’s Risk profile is reviewed annually. through this process it was revealed that that there is no substantial diversion KVPL’s Risk profile for the year.

estate level Risk Management processKvpl’s estate risk management Process has identified that that workers and estate communities are exposed to a number field risks, including; environmental risks and housing and workplace risks. environmental risks include earth slips, cyclones, floods, lightning strikes and bee attacks and others. housing and workplace risks include factory fires and factory accidents, fires at worker houses, field accidents and sudden illness, violence and strikes etc. for each risk, the estate risk Management process identifies:

yy how the risk could occuryy who might be harmed yy what is being done alreadyyy is anything else required to control

this risk yy Action by whoyy Action by when

Risk Management Contd.


process of Managing estate Risks

estate risks

field level risks

lower division upper division lower division upper division

Worker housing/environment

working hours

non working hours

working hours

non working hours

Cluster 1 Cluster 2gang A gang b Cluster 1 Cluster 2gang A gang b

Based on the possible location of the hazard, Estate Risk Management is classified into field level risk management and worker housing/environment risk management. Field level risk management applies to workers, while housing/environment risk management covers the estate community. Response actions to hazards are assigned at divisional, field and work gang levels, to be able to reach the grass root level in each estate. Responsibilities are assigned between working hours and non-working hours and the risk communication processes follow a bottom-up approach.

118 Kelani valley plantations plc | Annual Report 2015/16 Risk Management Contd.

KVpl gRoup RiSK MAnAgeMent in 2015/16 g4-14/ ec-2No significant changes in the risk status was observed during the current period, compared to the previous year other than the changes in the risk status for value chain from low to high. As in the previous year, climate change and possible changes to the wage structure were the other high-risk areas

RiSK FActoRRiSK RAting

ReSponSe2015/16 2014/15

strategic risk

climate changesboth tea and rubber crops fluctuate due to adverse weather conditions, changes due to ambient temperature and natural disasters. this affects the yield, quality, market share, earnings and profitability of the product.

h h climate change remained a high risk area. we have responded by monitoring tea and rubber crop variance and using sustainable agricultural practices to minimise effects of climatic changes.

yy rest rubber plants during heavy rainy days to get maximum output during dry periods. yy reserve forests and water sheds to retain the moisture contains yy foliar spraying to prevent excessive transpiration during dry seasons.yy planting of shade treesyy diversify crop (cinnamon, timber and fuel wood.)yy deep draining and sloping agriculture land technology to avoid soil erosion.yy maintain a laboratory for soil analysisyy Diversified into hydro power to maximise on heavy rains and compensate adverse impacts on the tea and

rubber sectors.

Estate

an

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L

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gh

B’g

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0

2,000

1,000

5,000

4,000

3,000

6,000

7,000mm

RaInFaLL - UP cOUnTRY EsTaTEs

april 2015-March 2016





ReSponSe2015/16 2014/15

production Riskinconsistencies in product quality leads to reduced demand, resulting in a drop in market price, market share and reputation, and increases the number of quality claims

m m Production risk remained a mid-level risk controlled through:yy close supervision of plucking rounds and manufacturing process,yy Done a better grade mix by converting our plantation latex crop in to RSS/latex crape, centrifuge and sole

crape in order to obtain the best market trends.yy obtaining regular advice from industry experts, tri and rri, brokers and customers,yy Diversification of marginal land and optimising outputs in productive areasyy making arrangements with other factories to transfer excess leaf to get optimum output and price

(centralising tea factories according to high nsA. this will optimise capacity and reduce cop).yy Kvpl teas are distributed in different agro-climatic regions giving the opportunity to produce seasonal quality

teas to cater different markets competitively.yy maintain quality assurance systems.yy we do garden fresh tea marks, value addition and marketing promotions through marketing subsidiary

mabroc teas yy Innovations through our Instant Tea/RTD tea manufacturing plant in NuwaraEliya.

EsTaTE PRODUcTIOn (12 MOnThs Jan-DEc)

2005

2009

2007

2011

2013

2006

2010

2008

2012

2014

2015

0

2,000

1,000

5,000

4,000

3,000

6,000

7,000kg.000

Tea Rubber 2 per.mov.avg.(Tea) 2 per.mov.avg.(Rubber)Year



ReSponSe2015/16 2014/15

political Risk political intervention in wage negotiations and major industrial relations inhibit the resolution of issues on the basis of economic viability alone.

m m political risks remained a mid-level risk during the year. management initiatives to improve labour productivity were not supported as expected and unplanned acquisitions of land aggravated the situation. however, we continue to make representations to key members of government and the bureaucracy to negotiate collective Agreements with major plantation trade unions, in which wages and parameters of the operation are agreed.

commodity cyclesfluctuations in global supply and demand, consumer preferences, close substitutes and competition from other major low cost producers (india, china, Kenya, vietnam and indonesia) affects the demand and determines the price(s) of Kvpl products. further, increases in prices of chemicals and energy contribute to higher production costs.

m m External price fluctuations of commodities and energy remained a mid-level risk during the year. We responded by maintaining our on-going strategy.yy our marketing company mabroc teas, rtd tea and green tea plants are adding value to our product mix to

match customer preferences. yy obtaining accreditations for black tea factories on international food hygienic standards and accreditations of

tea estates for good agricultural practices.yy membership in the ungc which positions Kvpl as a socially responsible plantation companyyy differentiating Kvpl to bulk buyers as an “ethical tea producer” and marketing “the ethical tea brand of the

world" to retailers through mabroc teas.yy Promotion of single origin products by leveraging unique locations/points of differentiationyy converting to cheaper energy and implementing energy saving strategies in the production process




ReSponSe2015/16 2014/15

Social environmental Riskyy the younger

generation is searching advance employment brands unfavourable campaigns organised by trade unions

yy differences such as religion and race

m m

11 12 13 14/15 15/160

2,000

6,000

4,000

8,000

10,000no. of Workers

kVPL WORk FORcE - agE anaLYsIs

18 - 30 30-50above 50

year

yy we maintain a good rapport with workers and trade unions and arrange regular social and cultural events, youth events, to develop relationships with the new generation.

yy Providing uniforms, change of designations, providing all the awareness highlighting the benefits of working in the plantation industry such as medical, housing and other income sources.

yy this will enhance the relationship with the younger generation and workers to attract them to work in the plantation sector.

Financial Risk

Foreign exchange Risk our subsidiary mabroc and equity Accounted investee hayleys global beverages are mainly focused on foreign markets and adverse fluctuations of foreign exchange rates affects pricing policy and results of these companies.

m m the exchange rate risk and the associated risk exposure is managed as follows.yy Arranging forward exchange contracts to minimise the exposure of currency volatilityyy monitor exchange rate movements and outlook for high exposure currenciesyy forex exposures are monitored, and appropriate action is recommended to reduce inherent risk and minimise

adverse impact of currency rate movements on assets and liabilitiesyy measures are established to determine effectiveness of actions taken

annUaL Us DOLLaR RaTE agaInsT sRI Lankan RUPEE

2007

2011

2009

2013

2008

2012

2010

2014

/15

2015

/16

0

40

20

100

80

60

140

120

160Rs.

Year

UsD Rate



ReSponSe2015/16 2014/15

interest Rate Riskchanges in national fiscal and monitory policies affect the company’s pricing policy and profitability. similarly, low returns on investment, high opportunity cost of investment and difficulty in generating funds for capital development and growth are the other major risks inherent in the industry.

m m yy The KVPL Group’s credibility, reputation, strength and financial dependability help ensure ready access to funds at attractive rates.

yy fluctuation of local currency interest rates are minimised by having foreign currency borrowings linked to libor.

credit Riskcredit risk is in the form of financial losses when customers default and the prospect of protracted legal proceeding without assurance of a favourable outcome.

l l Although this is a low risk area for mitigatory measures are followed. yy credit risks are assessed, limits are set and credit granted is closely monitored. yy suppliers are settled and dues collected from customers leaving no room for default on payment.yy Tea and Rubber stocks are sold through auction and settlements are assured in seven (07) days.yy customers of mabroc teas (pvt) ltd are given credit through a proper evaluation and all open account

customers are subjected to credit insurance by slecic.yy further, production and delivery of rtd is done only on settlement of outstanding balances.yy Government leases and other finances are closely monitored and settled without delay.




ReSponSe2015/16 2014/15

investment Riskthis entails failure in investments/ inability to achieve expected objectives. this affects future profitability and sustainability of the group.

m m yy Any “proposed investments” are subjected to a rigorous evaluation and feasibility process by seeking expert advice to ensure a maximum return on investment and seek board approval prior to embarking on a proposed investment.

yy further we closely monitor the progress to ensure project deliverables are achieved within the given budgets and timelines.

yy prudent investments are made in capital development i.e. replanting, machinery and plant upgrading and rationalising the production capacities in major factories.

liquidity Riskliquidity problems are bound to arise due to uncontrollable factors such as erratic weather patterns, wage hike, drop in demand and prices and increase in prices of input materials etc.

l l yy Efficient cash management such as close monitoring of expenditure, maintaining effective budgetary control system and building up of reserves are key to minimise liquidity risks.

yy We monitor cash flows of each estates on weekly basis (expenses are prioritize and expenditure curtailed to the earnings of the estates especially in less crop and lower nsA seasons) and expenses are controlled through the Annual budget.

Accounting and Reporting possibility of misstatement of financial position or profitability and noncompliance with accounting standards and other regulatory requirements.

l l yy The KVPL Board consists of senior qualified accountantsyy The KVPL Group consists of four chartered accountants and skilled staff with relevant qualifications. yy We consult experts in the field when required and regular training on areas such as changes in standards, laws

and compliance are given to the staff.



ReSponSe2015/16 2014/15

Operational Risk

Value chain risk due to loss of confidence and relationship with suppliers of fertilizer, chemicals, packing materials, bought leaf and latex etc. and brokers, buyers and end customers and risk of noncompliance with utz and rain forest Alliance Certifications and or inability to renew the certification

banning chemicals, high fertilizer cost cause operational disruption.

low cost substituted and low buying power of end customers.

h l yy we follow a transparent procedure to evaluate quotations of suppliers and ensure prompt payments and settlements for bought leaf, latex suppliers and other suppliers.

yy unbiased evaluations of products and services of suppliers. yy We educate and provide necessary tools/ equipment to bought leaf and latex suppliers to deliver a good

quality produce. yy frequent meetings and discussions with brokers together with frequent dialogs with buyers and end

users locally and internationally will enable identification of end user requirements, trends, preferences, opportunities and further improvements of the quality of the produce.




ReSponSe2015/16 2014/15

Management personnel the risk of losing management personnel due to dissatisfaction with remuneration, lack of adequate educational and other infrastructural facilities in plantation areas, migration to other industries and availability of more attractive colombo-based job opportunities.

l l We address through:yy transparent communication culture.yy easy accessibility to senior management and developing a company culture, which fosters team work and

close interaction amongst all management staff. yy development programmes such as out-bound training and career paths, ensuring promotions yy succession plans for all departments.yy leadership development programmes

wage Structurehigh increase in wage rates has a substantial impact on cost of production, profitability and gratuity liability as the industry is highly labour intensive.

h h This remained a high risk area as labour cost accounts for over 60% of total costs of the Company.

We are managing this risk by:yy increasing land and worker productivity through monitoring, motivation and mechanisation, yy outsourcing non value adding activities, yy motivating and empowering employees yy negotiating with trade unions and stake holders for a wage structure that is in line with productivity (wage

negotiation are done collectively with the employers’ federation of ceylon and the plantation industry).

cOsT sTRUcTURE-2015/16

62%

30%

8%

LabourMaterial & servicesOther



ReSponSe2015/16 2014/15

worker Migrationmigration of workers could result in plantations not having adequate resident manpower.

high performing executives may move to competing companies.

high turnover rate compared to other industries

l l

We are trying to retain workers through:yy our core csr initiative ‘A home for every plantation worker,’ programme yy Improved welfare schemes, medical benefits and other community development programmes.yy initiatives such as providing transport facilities at low cost through concessionary funding schemesyy rewarding high performers.yy empowering employees by educating them on other income sources such as home gardening and animal

husbandry etc.

Reputation RiskKvpl’s reputation may be tarnished due to non-compliance, unethical practices, and inconsistency in product quality

l l yy Kvpl had adopted stringent quality assurance policies with regard to raw and packaging materials bought from third parties

yy Compliance with international standards (ISO 22000:2005 and HACCP) and Rain Forest Alliance Certification. yy implementation of group policies on health, safety and environment will ensure best practices (in the sector).

Business disruption natural disasters, human involved activities (human errors, accidents etc.) may cause business/ operational disruptions.

l l yy Regular safety training and monitoring at factories (such as boiler safety, fire etc.) and compliance audits and awareness programmes on disaster management, are conducted and safety standards are followed.

yy skill development programmes for workers and staff are also conducted on regular basis.yy Adequate insurance cover is in place to recover any financial losses and re instate the losses within a

reasonable period.


10 1211 13 14/15 15/160

10,000

5,000

15,000no. employees

kVPL gROUP - TOTaL WORk FORcE

Manual Workers

staff Executives

Period



ReSponSe2015/16 2014/15

it Riskinclude risk of system failure and loss of data

m m yy Have implemented a sound IT policy, including IT security, privacy and confidentiality, supported by adequate systems and controls

yy have a disaster recovery plan in place to mitigate the risk of it failures. An effective backup procedure has been implemented both at estates and head office level with the support of Hayleys Group IT unit

yy monitor system hardware capacities yy have a maintenance contract for hardware with a reputed company yy Have immediate IT related support for estates in the capacity of skilled personnel in the regional officeyy have provided new technologies (tabs, smart phones etc.) for online transmission of daily information to the

estate managersyy closely monitor the internet and email usage

technological Risk not keeping pace with technological developments could lead to obsolescence

l l yy mechanisation of estate functions up to the highest possible extentyy investing in research and development activities whenever necessaryyy investing in hardware resourcesyy maintain cost relationship with research institutes and universities for new technology.

Compliance and Other Risks

Regulatory Risk (legal, tax, etc)compliance with laws and other statutory obligations and risk arising from litigation and law suits against the company may lead to loss of reputation and penalties being imposed.

l l yy statutory obligations are regularly reviewed by the head of finance and reported to the Audit committee. yy group has its own legal and tax consultants

128 Kelani valley plantations plc | Annual Report 2015/16 Annual Report of the Board of Directors on the Affairs of the Company

the board of directors of Kelani valley plantations plc has pleasure in presenting their report on the Affairs of the company together with the Audited consolidated financial statements for the twelve month period ended 31 March, 2016.

the details set out herein provide the pertinent information required by the Companies Act No. 07 of 2007, the colombo stock exchange listing rules and are guided by recommended best practices on reporting and corporate governance.

pRincipAl ActiVitieS, BuSineSS ReView And FutuRe deVelopMentSthe principal activities of the company are the production and processing of tea and rubber. details of activities of other companies in the group are given on page 86 of this Report. The chairman’s review, management discussion and Analysis, sustainability report and financial review describe the performance of the company during the year, with comments on the financial results, future strategic developments and the progress of its subsidiaries, Kalupahana power company (pvt) ltd., Kelani valley instant tea (pvt) ltd. and mabroc teas (pvt) ltd and equity accounted investee, hayleys global beverages (pvt) ltd.

the previous financial period (2014/15) comprised a period of fifteen months from 1 January 2014 to 31 March 2015 due to change in the reporting period of Kelani valley plantations plc, Kalupahana power company (pvt) ltd (Kpc) and Kelani valley instant tea (pvt) ltd (Kvit). Therefore, All the comparative figures indicate the results of fifteen months. company’s ownership of hayleys global beverages (pvt) ltd (hgbl) reduced to 40% from 51% with effect from 31 March 2016 due to new allotment of shares. hence, hgbl became an equity accounted investee of Kelani valley plantations plc with effect from 31 March 2016.

there were no material changes in the nature of business of the company and the group other than mentioned above.

the directors, to the best of their knowledge and belief, confirm that the group has not engaged in any activities that contravene laws and regulations.

FinAnciAl StAteMentSthe financial statements of the company and the group are given on pages 140 to 217

AuDiTOR’S REPORTthe Auditor’s report on the financial statements of the company and the Group is given on page 139

Accounting policieSthe accounting policies adopted in the preparation of the financial Statements are given on pages 148 to 166

gRoup ReVenuethe revenue of the group during the year was Rs. 6,068,746,556 /- (2014/15 - Rs. 8,647,349,071/-) and an analysis is given in Note 6.1 to the Financial Statements.

the group revenue from tea decreased by Rs. 2,068,809,818/- (2014/15 – increased by Rs. 1,876,853,336/-) and rubber decreased by Rs. 506,792,174/- (2014/15 – Rs. 27,368,558/-) during the period, respectively.

ReSultS And diVidendSthe group loss before taxation amounted to Rs. 31,498,541/- (2014/15- profit before taxation of 102,406,674/-).

After adjusting Rs. 15,308,451/- for taxation (2014/15 - Rs. 45,866,841/-) and loss of Rs. 15,327,336/- (2014/15 – loss of Rs. 7,701,181/-) for non-controlling interest, the profit

available for appropriation, inclusive of Rs. 596,424,065/- (2014/15 - Rs. 616,887,677/-) of brought forward retained profit which was adjusted for Super Gain Tax of Rs. 24,631,956/- amounted to Rs. 588,313,358/- (2014/15 - Rs. 655,056,030/-).

no dividend has been proposed for the year 2015/16. (2014/15 – Rs. 34,000,001/-)

pRopeRty, plAnt & eQuipMentthe capital expenditure of the group during the period amounted to Rs. 413,929,487/- (2014/15 - Rs. 1,062,961,647/-) whilst that of the Company was Rs. 407,109,042/- (2014/15 – Rs. 580,651,690/-) which includes replanting expenditure of Rs. 334,671,604/- (2014/15 - Rs. 458,045,650/-) on tea and rubber.

information relating to movement of property, plant & equipment is given in Notes 12, 13 and 14 to the Financial statements.

StAted cApitAl And ReSeRVeSin compliance with the companies Act No. 07 of 2007, the Financial Statements reflect the stated capital of the company. the stated capital is the total of all amounts received by the company in respect of the issue of shares.


the stated capital of the company, consisting of 34,000,000 ordinary shares and one golden share amounts to Rs. 340,000,010/-.There was no change in the stated capital during the year. The Golden share of Rs. 10/- held by the secretary to the treasury, enjoys the following special rights:

yy the concurrence of the golden shareholder should be obtained to sub-lease estate lands and amend the Articles of Association of the company in which the golden shareholders’ rights are given.

yy the golden shareholder, or his nominee, has the right to examine the books and accounts of the company.

yy the company is required to submit a detailed quarterly report to the golden shareholder.

yy the golden shareholder can request the board of directors of the company to meet with him.

ReSeRVeSthe total reserves of the group as at 31 March, 2016 amounted to Rs. 2,288,313,358/- (2014/15 - Rs. 2,355,056,030/-) comprising the general reserve of Rs. 1,700,000,000/- (2014/15 - Rs. 1,700,000,000/-) and the carried forward profit of Rs. 588,313,358/- (2014/15 - Rs. 655,056,030/-).

the movement is shown in the statements of changes in equity in the financial statements.

tAxAtionit is the company’s policy to provide for deferred taxation on all known temporary differences on the liability method. the company is liable to income tax at the rate of 10% on its agricultural profits and 28% on manufacturing profits and other income for the year of assessment 2015/16.

information relating to income tax rates of subsidiary companies is shown in Note 10 to the Financial Statements.

inteReSt RegiSteRthe company, in compliance with the Companies Act No. 07 of 2007, maintains an interest register. particulars of entries in the interest register are detailed below. the subsidiary companies have unanimously agreed to dispense with the keeping of interest registers.

DiRECTORS’ inTERESTS in tRAnSActionSthe directors of the company have made the general disclosures provided for in Section 192 (2) of the Companies Act No. 07 of 2007. Note 31 to the

financial statements dealing with related party disclosures includes details of their interests in transactions.

RelAted pARty tRAnSActionSthe board of directors has given the following statement in respect of the related party transactions.

The related party transactions of the Company during the financial year have been viewed by the related party transactions re-view committee which is formed under the parent Company and are in compliance with Section 09 of the CSE Listing Rules.

The Committee met two (02) times in the financial year 2015/16.

Attendance Meetings held on 22 January 2016 and 23 March 2016Dr H Cabral, PC** 2/2Mr M D S Goonetilleke** 2/2Mr S C Ganegoda* 2/2 ** independent non-executive *executive

DiRECTORS’ inTERESTS in SHARESdirectors of the company and its subsidiaries who have relevant interests in the shares of the respective companies have disclosed their shareholdings and any acquisitions/ disposals to their Boards, in compliance with Section 200 of the companies Act.

As at 31.03.16no. of shares

As at 31.03.15no. of shares

mr. w.g.r.rajadurai,managing director

91 91

mr. s. siriwardana,Chief Executive Officer/Director

193 193

dr.K.i.m.ranasoma,director

300 300


none of the other directors held shares of the company as at 31 March 2016.

there were no share transactions by the Directors, in terms of Section 200 of the companies Act in respect of the subsidiaries.

inSuRAnce & indeMnitythe ultimate parent of the company, hayleys plc has obtained a corporate guard insurance policy from orient insurance ltd., providing worldwide cover to indemnify all past, present and future Directors & Officers (D & O) of its subsidiaries. the limit on liability of the cover is USD 5 m.

pAyMent oF ReMuneRAtion to diRectoRSexecutive directors’ remuneration is determined within an established framework. the total remuneration of the executive directors of the group and the Company for the year ended 31 March, 2016, is Rs. 47,003,000/- and Rs. 9,728,000/- respectively, including the value of perquisites granted to them as part of their terms of service.

the total remuneration of independent non-executive directors of both group and the company for

the year ended 31 March, 2016, is Rs. 1,475,000/-, determined according to scales of payment decided upon by the board previously. the board is satisfied that the payment of this remuneration is fair to the company.

coRpoRAte donAtionSno donations were made during the year (2014/15 - Nil) by the company and its subsidiaries.

no donations were made for political purposes.

diRectoRAtethe names of the directors who held office during the financial year are given below and their brief profiles appear on pages 84 and 85

executiVe diRectoRSA m pandithage, w g r rajadurai, s siriwardana.

non-executiVe diRectoRSs c ganegoda , l t samarawickrama , dr. K i m ranasoma.

independent non-executiVe diRectoRSf mohideen, c v cabraal, l n de s wijeyeratne.

mr. s. c. ganegoda and mr. c.v. cabraal retire by rotation, and being eligible offer themselves for re-election.

directors of the subsidiaries and the Parent Company are given on page 86

coRpoRAte goVeRnAncethe company has complied with the corporate governance rules laid down under the listing rules of the colombo stock exchange.

Adoption of good governance practices has become an essential requirement in today’s corporate culture. the practices carried out by the group are explained in the corporate governance statement on pages 88 to 113

AuditoRSthe Auditors, messrs ernst & young, were paid Rs. 4,658,800/- (2014/15 - Rs. 3,785,000/-) and Rs. 3,614,200/- (2014/15 - Rs. 2,956,000/-) by the group and the company respectively as Audit fees for the financial year ended 31 March 2016.

in addition, the group paid rs. 928,380/- (2014/15 - Rs. 740,930/-) to messrs ernst & young for the year whilst the company incurred rs.

685,260/- (2014/15 – Rs. 375,335/-) on non – audit related work which is mainly consists of tax consultancy services.

the Auditors of the company and its subsidiaries have confirmed that they do not have any relationships (other than that of Auditor) with, or interests in the company or anyof its subsidiaries other than those disclosed above.

messrs ernst & young, chartered Accountants are deemed re-appointed, in term of Section 158 of the Companies Act No. 7 of 2007, as Auditors of the company.

A resolution proposing the directors be authorised to determine their remuneration will be submitted at the Annual general meeting.

ShARe inFoRMAtion And MAJoR ShAReholdingSinformation relating to earnings, dividend, net Assets per share, market value per share and share trading is shown on pages 10 and 221 respectively.

Annual Report of the Board of Directors on the Affairs of the Company Contd.


ShAReholdeRSIt is the Company/Group policy to endeavour to ensure equitable treatment to its shareholders. the comparative twenty major shareholders’ names, number of shares held and the percentage held as at 31 March, 2016 are given on pages 221 and 222 of this report. public shareholding percentage and total number of public shareholders is shown on page 222

eVentS occuRRing AFteR the dAte oF StAteMent oF FinAnciAl poSitionno circumstances have arisen since the date of statement of financial position, which would require adjustments to, or disclosure of other than those disclosed in Note 34 to the financial statements.

eMployMentthe number of persons employed by the Group at financial year-end was 11,000 (2014/15 - 11,767) of which 10,964 (2014/15 - 11,706) are engaged in employment outside the district of colombo.

StAtutoRy pAyMentSthe declaration relating to statutory payments is made in the statement of

Directors’ Responsibilities on page 134

directors, to the best of their knowledge and belief, are satisfied that all statutory payments in relation to employees and the government have been made promptly.

enViRonMentAl pRotectionthe group’s efforts to conserve scarce and non-renewable resources, as well as its environmental objectives and key initiatives, are described in the environment section of the Sustainability Report on pages 69 to 83

the group’s business activities can have direct and indirect effect on the environment. it is the group’s policy to minimise any adverse effects of its activities may have on the environment and to promote co-operation and compliance with the relevant authorities and regulations.

inteRnAl contRolthe directors acknowledge their responsibility for the group’s system of internal control. the system is designed to give assurance, inter alia, regarding the safeguarding of assets, the maintenance of proper accounting records and the

reliability of financial information generated. however, any system can only ensure reasonable and not absolute assurance that errors and irregularities are either prevented or detected within a reasonable time period.

the board, having reviewed the system of internal controls, is satisfied with its effectiveness for the period up to the date of signing the financial statements.

going conceRnthe directors, after making necessary inquiries and reviews including reviews of the group’s budget for the ensuing year, capital expenditure requirements, future prospects and risks, cash flows and borrowing facilities, have a reasonable expectation that the company and the group have adequate resources to continue in operational existence for the foreseeable future. therefore, the going concern basis has been adopted in the preparation of the financial statements.

AnnuAl geneRAl Meetingthe Annual general meeting will be held at the registered office of the Company at No. 400, Deans Road, Colombo 10, Sri Lanka on Thursday,

16 June 2016 at 3.00 p.m. The Notice of the Annual general meeting appears on page 246

for and on behalf of the board,



hayleys group Services (pvt) ltd.secretaries

11 May, 2016

Financial Reportsstatement of directors’ responsibilities 134Audit committee report 135related party transactions review committee report 137Managing Directors’ and Chief Financial Officers’ Responsibility Statement 138independent Auditors’ report 139Statement of Profit or Loss 140statement of comprehensive income 141statement of changes in equity 142statement of financial position 144statement of cash flows 146notes to the financial statements 148ten year summary 218investor information 220environmental calculations 234gri index table 235glossary 241notice of meeting 246form of proxy 247corporate information 252

Date of Authorisation for Issue

Financial Year Annual General Meetings

13 February, 2014 2013 28 March, 2014

20 February, 2013 2012 28 March, 2013

14 February, 2012 2011 29 March, 2012

9 February, 2011 2010 31 March, 2011

9 February, 2010 2009 31 March, 2010

19 February, 2009 2008 31 March, 2009

22 February, 2008 2007 28 March, 2008

07 February, 2007 2006 30 March, 2007

28 February, 2006 2005 10 April, 2006

28 March, 2005 2004 27 April, 2005

Annual General Meeting

Annual Report

3rd Quarter

2nd Quarter

1st Quarter

First and Final Dividend Proposed

First and Final Dividend Payable

2014/15

2014

Aug05

2015

Jul09

2014

Oct29

2015

Jun29

2015

Feb13

2015

May08

2015

June29

2015

-

2015

-

2015/16

2015

July28

2015

Nov05

2016

Jan25

2016

May10

2016

June16

Financial Calender

134 Kelani Valley Plantations PLC | Annual Report 2015/16

The Directors are responsible under sections 150 (1), 151, 152 (1),) & 153 of the Companies Act No. 7 of 2007, to ensure compliance with the requirements set out therein to prepare financial statements for each financial year giving a true and fair view of the state of affairs of the Company and the Group as at the end of the financial year and of the profit & loss of the Company and the Group for the financial year.

The Directors are also responsible, under section 148, for ensuring that proper accounting records are kept to enable, determination of financial position with reasonable accuracy, preparation of financial statements and audit of such statements to be carried out readily and properly.

The Board accepts responsibility for the integrity and objectivity of the financial statements presented. The Directors confirm that in preparing the financial statements, appropriate accounting policies have been selected and applied consistently while reasonable and prudent judgments have been made so that the form and substance of transactions are properly reflected.

They also confirm that the financial statements have been prepared and presented in accordance with the Sri Lanka Accounting standards, Companies Act No 07 of 2007 and the listing rules of the Colombo Stock Exchange. Further, the financial statements provide the information required by the Companies Act and the listing rules of the Colombo Stock Exchange.

The Directors are of the opinion, based on their knowledge of the company, key operations and specific inquiries that adequate resources exist to support the Company on a going concern basis over the next year. These financial statements have been prepared on that basis.

The Directors have taken reasonable measures to safeguard the assets of the Group and, in that context, have instituted appropriate systems of internal control with a view to preventing and detecting fraud and other irregularities.

The external Auditors, Messrs Ernst & Young deemed re- appointed in terms of Section 158 of the Companies Act

were provided with every opportunity to undertake the inspections they considered appropriate to enable them to form their opinion on the Financial Statements. The report of the Auditors, shown on page 139 sets out their responsibilities in relation to the Financial Statements.

COMPlIANCe RePORtThe Directors confirm that to the best of their knowledge, all statutory payments relating to employees and the Government that were due in respect of the Company and its Subsidiaries as at the Balance Sheet date have been paid or where relevant, provided for.

By order of the Board

HAYleYS GROUP SeRVICeS (PVt) ltDSecretaries

11 May 2016

Statement of Directors’ Responsibilities


The Audit Committee is responsible for the financial reporting process, selection of the independent auditor and receipt of audit results both internal and external.

teRMS OF ReFeReNCe (tOR)The role, duties and responsibilities of the Audit Committee are set out in a written TOR, which is reviewed annually by the Committee taking into account relevant legislation and recommended good practice. The Committee assists the Board in its oversight responsibility to the existing and prospective shareholders and other stake holders, relating to:

yy Review of the financial information of the Company in order to monitor the integrity of the Financial Statements, Annual Report, accounts and quarterly reports of the Company.

yy The quality and acceptability of the Company’s accounting policies and practices.

yy Assessing the independence and monitoring performance and functions of internal audit.

yy Overseeing the appointment, compensation, resignation, dismissal of the External Auditors.

Audit Committee Report

yy Independence and performance of the External Auditors

yy Compliance with the reporting and information requirements specified in the Companies Act or any other reporting standards or regulations.

yy Review strength and adequacy of internal control and risk management.

ReGUlAtORY COMPlIANCeThe TOR is reviewed regularly and revised where necessary with the approval of the Board in order to keep pace with the changing risk profile of the Group and in line with the best practices adopted by listed companies. The relevant provisions of the Companies Act No 7 of 2007, Listing Rules of the Colombo Stock Exchange, Code of Best Practice on Corporate Governance issued jointly by the Securities and Exchange Commission of Sri Lanka and The Institute of Chartered Accountants of Sri Lanka (CASL) are considered in reviewing and revising the Audit Committee TOR.

COMPOSItIONThe Audit Committee, appointed by and responsible to the Board of Directors, comprises two Independent Non-Executive Directors. The

Chairman, Chief Financial Officer of Hayleys PLC, Managing Director and the Director/CFO of Kelani Valley Plantations PLC attended meetings of the Committee by invitation. Other members of the Board and the External Auditors were requested to be present at discussions where appropriate. The Chairman of the Audit Committee is a senior Chartered Accountant.

The names of the members are:

Mr. L.N.de S. Wijeyeratne – ChairmanMr. F.MohideenMr. C. Cabrel

Their individual and collective financial knowledge and business acumen and the independence of the Audit Committee are brought to bear on their deliberations and judgments on matters that falls within the purview of the Committee.

The Audit Committee has also reviewed the activities of the four unquoted subsidiary companies during the financial year under review.

MeetINGSThe Audit Committee met four times during the year. The attendance of the members at these meetings is as follows:

Independent Non-executive Director

08/0

5/20

15

28/0

7/20

15

05/1

1/20

15

25/0

1/20

16

tota

l

L N de S Wijeyeratne(chairman) √ √ √ √ 4/4

Mr F Mohideen √ √ √ √ 4/4

Mr C V Cabraal √ √ √ - 3/4


KeY PRINCIPle ACtIVItIeS CARRIeD DURING tHe YeAROversight of Financial Reporting and AccountingThe Committee reviewed the financial reporting system adopted by the Company and it’s subsidiaries in the preparation of its quarterly and annual Financial Statements to ensure the reliability of the process and consistency of the accounting policies and methods adopted and their compliance with the Sri Lanka Accounting Standards. In addition, members will often discuss complex accounting estimates and judgments made by management and the implementation of new accounting principles or regulations. The methodology included obtaining statements of compliance from the Managing Director and the Chief Financial Officer. The Committee recommended the Financial Statements to the Board for its deliberations and issuance. The Committee, in its evaluation of the financial reporting system, also recognised the adequacy of the content and quality of the management information reports forwarded to its members.

Review the effectiveness of Internal Controls, Internal Audit and Risk Management.The Audit Committee regularly reviewed the process to assess the effectiveness of the internal financial controls that have been designed to provide reasonable assurance to the Directors that assets are safeguarded and that the financial reporting system can be relied upon in preparation and presentation of the Financial Statements and that fraud is prevented. Procedures relating to the continuous monitoring and reporting of key control elements in Group Companies were reviewed and action plans for the ensuing year were formulated.

The Committee reviews the adequacy of internal audit coverage for the reporting period. The Group Management Audit and System Review Department (MA&SRD) carried internal audits according to the annual plan. The internal audit function also outsourced to leading audit firms according to the annual audit plan. The Committee appraises the annual audit plan, independence of them and the follow-up action taken against the audits carried out during the period.

The Committee reviews the risk management process. A formal confirmation and assurance have been received from the management on a quarterly basis regarding the strategies and efficacy of risk management. The Committee reviewed the risk management procedure of the Company in terms of adverse price changes in the market, long term debtor balances, low customer profitability in exports of the Company and its Subsidiaries.

exteRNAl AUDItThe Audit Committee held meetings with the External Auditors to review and monitor the scope of the audit, the objectivity and effectiveness of the audit process and the Management Letters issued by them in respect of the Group of companies. Action taken by the management in response to the issues raised, as well as the effectiveness of the internal controls in place, were discussed with the heads of business units. Remedial action was recommended wherever necessary.

The Committee reviewed the nature, extent and value of non-audit work the External Auditors had undertaken,

to ensure that it did not compromise their independence.

APPOINtMeNt OF AUDItORSThe Audit Committee recommended to the Board of Directors that Messrs. Ernst & Young, Chartered Accountants be re-appointed for the financial year ending 31 March 2017, subject to the approvalat the Annual General Meeting.

CONClUSIONThe Audit Committee wishes to acknowledge with thanks the services rendered by Auditors, Ernst & Young and their efforts to meet the requirements and expectations of the Company.

The contribution made by the members of the Committee is acknowledged with grateful appreciation. Their competence in financial matters and relevant experience was invaluable for the company’s continuous success.

l N De S WijeyeratneChairmanAudit Committee

11 May 2016

Audit Committee Report Contd.

137 Kelani Valley Plantations PLC | Annual Report 2015/16 Related Party Transactions Review Committee Report

Hayleys PLC, the ultimate parent Company established the Related Party Transaction Review Committee with effect from 10 February 2015 in terms of the Code of Best practice on Related Party Transactions issued by the Securities & Exchange Commission of Sri Lanka and the Section 9 of the Listing Rules of the Colombo Stock Exchange which also acts as the Committee to the Company.

COMPOSItION OF tHe COMMItteeThe Related Party Transactions Review Committee comprises two Independent Non-Executive Directors and one Executive Director of Hayleys PLC. The Committee comprised of the Following members;

Dr. H Cabral, PC - Chairman - Independent Non-Executive Director of Hayleys PLCMr. M D S Goonatilleke - Independent Non-Executive Director of (Resigned w.e.f. 12/05/2016) Hayleys PLCMr. S C Ganegoda - Executive Director of Hayleys PLC and Non- Executive Director of the Company

tHe DUtIeS OF tHe COMMItteeyy To review in advance all proposed related party transactions of the group

either prior to the transaction being entered into or, if the transaction is expressed to be conditional on such review, prior to the completion of the transaction.

yy Seek any information the Committee requires from management, employees or external parties with regard to any transaction entered into, with a related party.

yy Obtain knowledge or expertise to assess all aspects of proposed related party transactions where necessary including, obtaining appropriate professional and expert advice from suitably qualified persons.

yy To recommend, where necessary, to the Board and obtain their approval prior to the execution of any related party transaction.

yy To monitor that all related party transactions of the entity are transacted on normal commercial terms and are not prejudicial to the interests of the entity and its minority shareholders.

yy Meet with the management, Internal Auditors/External Auditors as necessary to carry out the assigned duties.

yy To review the transfer of resources, services or obligations between related parties regardless of whether a price is charged.

yy To review the economic and commercial substance of both recurrent/non-recurrent related party transactions

yy To monitor and recommend the acquisition or disposal of substantial assets between related parties, including obtaining 'competent independent advice' from independent professional experts with regard to the value of the substantial asset of the related party transaction.

tASK OF tHe COMMItteeThe Committee reviewed the related party transactions and their compliances of Kelani Valley Plantations PLC and its subsidiaries and communicated the same to the Board.

The Committee in its re-view process recognised the adequacy of the content and quality of the information

forwarded to its members by the management.

MeetINGSThe Committee met 2 times during the year under review. The Attendance at the meetings is given on page 129 of the Annual Report.

Dr. Harsha Cabral, PC.Chairman

Related Party transactions Review Committee of Hayleys PlC

18 May 2016

138 Kelani Valley Plantations PLC | Annual Report 2015/16 Managing Directors’ and Chief Financial Officers’ Responsibility Statement

The Financial Statements of Kelani Valley Plantations PLC and the Consolidated Financial Statements of the Group as at 31 March, 2016 are prepared and presented in compliance with the requirements of the following;yy Sri Lanka Accounting Standards

issued by The Institute of Charted Accounts of Sri Lanka;

yy Companies Act No. 07 of 2007;yy Sri Lanka Accounting and Auditing

Standards Act No. 15 of 1995;yy Listing Rules of the Colombo Stock

Exchange; yy Code of Best Practice on Corporate

Governance issued jointly by the Institute of Chartered Accountants of Sri Lanka and the Securities and Exchange Commission of Sri Lanka.

yy Code of Best Practices on Related Party Transactions issued by the Securities and Exchange Commission of Sri Lanka.

We confirm that the significant accounting policies used in the preparation of the Financial Statements are appropriate and are constantly applied, as described in the notes to the Financial Statements. The significant accounting policies and estimates that involved a high degree of judgment and complexity were discussed with the Audit Committee and our External Auditors.

We have taken measures in installing systems of internal control and accounting records, to safeguard assets, and to prevent and detect fraud as well as other irregularities. These have been reviewed, evaluated and updated on an ongoing basis. Reasonable assurance that the established policies and procedures have been consistently followed was provided through periodic audits conducted by the Hayleys Group Internal Auditors (MA & SRD) and our own internal auditors. However, there are inherent limitations that should be recognised in weighing the assurances provided by any system of internal controls and accounting.

The Audit Committee of the Company meets quarterly and additionally if required with the Internal Auditors and the Independent Auditors to review the effectiveness of the audits, and to discuss auditing, internal control and financial reporting issues. The Independent Auditors and the Internal Auditors have full and free access to the Audit Committee to discuss any matter of substance.

The Financial Statements were audited by Messrs Ernst & Young, Charted Accountants, the Independent External Auditors. Their

report is given on page 139 of the Annual Report.

The Audit Committee approvesthe audit and non-audit services provided by the External Auditor, in order to ensure that the provision of such services does not impair their independence.

We confirm that:yy The Company and its subsidiaries

have complied with all applicable laws, regulations and prudential requirements:

yy There are no non-compliances andyy There is no material litigation that

is pending against the Group.

W G R RajaduraiManaging Director

Sarath SiriwardanaChief Financial Officer

11 May 2016


BW/CSW/SJJC

INDePeNDeNt AUDItORS’ RePORttO tHe SHAReHOlDeRS OF KelANI VAlleY PlANtAtIONS PlCReport on the Financial StatementsWe have audited the accompanying Financial Statements of Kelani Valley Plantations PLC (“the Company”) and the Consolidated Financial Statements of the Company and its subsidiaries (“Group”) which comprise the Statement of Financial Position as at March 31, 2016 and the Statement of Profit or Loss, Statement of Comprehensive Income, Statement of Changes in Equity and Statements of Cash Flow for the year then ended, and a summary of significant Accounting Policies and other explanatory information.

Board’s Responsibility for the Financial StatementsThe Board of Directors (“Board) is responsible for the preparation of these Financial Statements that give a true and fair view in accordance with Sri Lanka Accounting Standards and for such internal control as board determines is necessary to

Independent Auditors’ Report

enable the preparation of Financial Statements that are free from material misstatement, whether due to fraud or error.

Auditor’s 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 whether the financial statements are free from material misstatements.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the Financial Statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the Financial Statements, whether due to fraud or error. In making those risk assessment, 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, 2016 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:yy 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,

yy the Financial Statements of the Company give a true and fair view of its financial position as at March 31, 2016, and of its financial performance and cash flows for the year then ended in accordance with Sri Lanka Accounting Standards, and

yy the Financial Statements of the Company and the Group comply with the requirements of sections 151 and 153 of the Companies Act No.07 of 2007.

11 May 2016Colombo

140 Kelani Valley Plantations PLC | Annual Report 2015/16 Statement of Profit or Loss

Consolidated CompanyFor the 12 months/15 months ended 31 March, 2015/16 2014/15 2015/16 2014/15 Note Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000

Revenue 6.1 6,068,746 8,647,349 3,375,820 4,939,780Cost of sales (5,604,044) (7,908,047) (3,235,109) (4,519,040)Gross profit 6.2 464,702 739,302 140,711 420,740Gain on change in fair value of biological assets 14.2 20,259 24,851 20,259 24,851Other income 7 68,198 78,822 78,968 95,434Administrative expenses (466,180) (520,036) (263,721) (303,452)Distribution expenses (53,188) (97,733) - -Results from operating activities 33,791 225,206 (23,783) 237,573Finance income 8.1 1,626 10,013 1,991 9,826Finance expenses 8.2 (45,645) (53,783) (27,051) (14,984)Interest paid to Government on finance lease 8.3 (66,935) (79,029) (66,935) (79,029)Net finance cost 8 (110,954) (122,799) (91,995) (84,187)Deemed disposal gain due to change in controlling interest 45,664 - - -Profit/(loss) before tax 9 (31,499) 102,407 (115,778) 153,386Tax expense 10.1 (11,671) (49,912) 13,510 (36,795)Profit/(loss) for the period (43,170) 52,495 (102,268) 116,591

Attributable to: Equity holders of the Parent (28,725) 60,241 (102,268) 116,591Non-controlling interest (14,445) (7,746) - -Profit/(loss) for the period (43,170) 52,495 (102,268) 116,591

earnings per Share Basic earnings per share (Rs.) 11.1 (A) (0.84) 1.77 (3.01) 3.43Diluted earnings per share (Rs.) 11.1 (B) (0.84) 1.77 (3.01) 3.43Dividend per Share (Rs.) 11.2 - - 1.00

The current year results comprises as at and for the year ended 31 March 2016. The comparative amounts comprises of a period of fifteen months from 1 January 2014 to 31 March 2015. Therefore, amounts presented in the Financial Statements are not entirely comparable.

Figures in brackets indicate deductions.

Notes to the Financial Statements from pages 148 to 217 form an integral part of these Financial Statements.

141 Kelani Valley Plantations PLC | Annual Report 2015/16 Statement of Comprehensive Income

Consolidated CompanyFor the 12 months/15 months ended 31 March, 2015/16 2014/15 2015/16 2014/15 Notes Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000

Profit/(loss) for the period (43,170) 52,495 (102,268) 116,591Other Comprehensive IncomeOther comprehensive income not to be reclassified to profit or loss in subsequent periods:Actuarial gains/(loss) on defined benefit plans 25 23,369 (26,073) 28,722 (26,100)Income tax effect 10.2 (3,638) 4,045 (4,527) 4,113Other comprehensive income for the period, net of tax 19,731 (22,028) 24,195 (21,987)Total comprehensive income for the period, net of tax (23,439) 30,467 (78,073) 94,604

Attributable to: Equity holders of the Parent (8,112) 38,168 (78,073) 94,604Non-controlling interest (15,327) (7,701) - -Profit/(loss) for the period (23,439) 30,467 (78,073) 94,604

The current year results comprises as at and for the year ended 31 March 2016. The comparative amounts comprises of a period of fifteen months from 1 January 2014 to 31 March 2015. Therefore, amounts presented in the Financial Statements are not entirely comparable.



142 Kelani Valley Plantations PLC | Annual Report 2015/16 Statement of Changes in Equity

Consolidated Attributable to equity holders of the parent Revenue reserves Non- Stated General Timber Retained Total controlling Total capital reserve reserve earnings interest equity Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000

Balance as at 01 January, 2014 340,000 1,700,000 22,588 713,300 2,775,888 22,322 2,798,210Profit/(loss) for the period - - 24,851 35,390 60,241 (7,746) 52,495Other comprehensive income - - - (22,073) (22,073) 45 (22,028)Dividends - - - (119,000) (119,000) - (119,000)Increase in non-controlling interest - - - - - 144,118 144,118Balance as at 31 March, 2015 340,000 1,700,000 47,439 607,617 2,695,056 158,739 2,853,795Super gain tax - - - (24,632) (24,632) - (24,632)Adjusted balance as at 1 April, 2015 340,000 1,700,000 47,439 582,985 2,670,424 158,739 2,829,163

Profit/(loss) for the year - - 20,259 (48,984) (28,725) (14,445) (43,170)Other comprehensive income - - - 20,614 20,614 (883) 19,731Dividends - - - (34,000) (34,000) (10,080) (44,080)Decrease in non-controlling interest - - - - - (100,244) (100,244)Balance as at 31 March, 2016 340,000 1,700,000 67,698 520,615 2,628,313 33,087 2,661,400


Company Revenue reserves

Stated General Timber Retained Total capital reserve reserve earnings equity Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000

Balance as at 01 January, 2014 340,000 1,700,000 22,588 585,372 2,647,960Profit/(loss) for the period - - 24,851 91,740 116,591Other comprehensive income - - - (21,987) (21,987)Dividends - - - (119,000) (119,000)Balance as at 31 March, 2015 340,000 1,700,000 47,439 536,125 2,623,564Super gain tax - - - (12,330) (12,330)Adjusted balance as at 1 April, 2015 340,000 1,700,000 47,439 523,795 2,611,234

Profit/(loss) for the year - - 20,259 (122,527) (102,268)Other comprehensive income - - - 24,195 24,195Dividends - - - (34,000) (34,000)Balance as at 31 March, 2016 340,000 1,700,000 67,698 391,463 2,499,161

Retained Earnings Consolidated Company 2015/16 2014/15 2015/16 2014/15 Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000

Holding company 459,161 583,564 459,161 583,564Subsidiaries 129,152 71,492 - - 588,313 655,056 459,161 583,564

General reserves set aside for future distribution and investment.The timber reserve relates to change in fair value of managed trees which includes commercial timber plantations cultivated on estates.

As per provisions of Part III of the Finance Act, No. 10 of 2015 which was certified on the 30 October 2015, Kelani Valley Plantations PLC and the Group are liable for Super Gain tax of Rs.12.3m and Rs. 24.6m respectively. According to the Act, the Super Gain Tax shall be deemed to be an 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 Standard, 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 24 November 2015.



144 Kelani Valley Plantations PLC | Annual Report 2015/16 Statement of Financial Position

Consolidated Company As at As at As at As at Notes 31.03.2016 31.03.2015 31.03.2016 31.03.2015 Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000

ASSetS Non-current assets Lease hold property, plant & equipment 12 404,561 429,757 404,561 429,757Freehold property, plant & equipment 13 1,329,709 1,839,404 998,440 1,035,997Improvements to leasehold property 14.1 3,066,672 2,795,516 3,066,672 2,795,516Biological assets - consumable 14.2 125,264 105,005 125,264 105,005Investments in subsidiaries 15 - - 309,881 459,881Investments in equity accounted investee 15.1 260,000 - 260,000 -Intangible assets 16 33,692 34,188 - -total non-current assets 5,219,898 5,203,870 5,164,818 4,826,156

Current assets Inventories 17 694,816 866,133 402,284 455,025Amounts due from subsidiaries 29 - - 375 5,487Amounts due from other related companies 29 11,445 91,350 6,708 89,835Amounts due from equity accounted investee 29.2 18 - - -Trade and other receivables 18 541,030 737,204 201,235 220,290Income tax recoverable 28.1 138 1,015 - -Short-term deposits 20.1 177 40,021 - -Cash and cash equivalents 20.2 54,853 54,202 33,360 2,559total current assets 1,302,477 1,789,925 643,962 773,196total assets 6,522,375 6,993,795 5,808,780 5,599,352

eQUItY AND lIABIlItIeS equity Stated capital 21 340,000 340,000 340,000 340,000Revenue reserves 2,288,313 2,355,056 2,159,161 2,283,564Total equity attributable to equity holders of the company 2,628,313 2,695,056 2,499,161 2,623,564Non-controlling interest 33,087 158,739 - -total equity 2,661,400 2,853,795 2,499,161 2,623,564

Non-current liabilities Interest-bearing borrowings 22.1 323,916 432,145 323,916 156,562Amounts due to other related companies 29.1 22,500 - 22,500 -Deferred income 23 522,763 478,357 521,985 477,553Deferred tax liability 24 390,615 393,243 334,240 342,903


Consolidated Company As at As at As at As at Notes 31.03.2016 31.03.2015 31.03.2016 31.03.2015 Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000

Retirement benefit obligations 25 1,153,244 1,122,870 1,128,871 1,101,270Liability to make lease payment 26 392,528 393,871 392,528 393,871total non-current liabilities 2,805,566 2,820,486 2,724,040 2,472,159

Current liabilities Trade and other payables 27 415,052 430,376 322,782 351,587Liability to make lease payment within one year 26 52,547 52,547 52,547 52,547Amounts due to subsidiaries 29 - - 13,241 12,310Amounts due to other related companies 29 19,768 17,280 17,192 13,416Amounts due to equity accounted investee 29.2 4,905 - 4,905 -Income tax payable 28.2 15,503 7,780 - 6,086Interest-bearing borrowings payable within one year 22.1 79,831 37,680 79,831 16,493Short-term interest bearing borrowings 22.2 372,722 722,661 - -Bank overdraft 20.3 95,081 51,190 95,081 51,190total current liabilities 1,055,409 1,319,514 585,579 503,629total liabilities 3,860,975 4,140,000 3,309,619 2,975,788total equity and liabilities 6,522,375 6,993,795 5,808,780 5,599,352Net assets per share (Rs.) 77.30 79.27 73.50 77.16

It is certified that the Financial Statements have been prepared in compliance with the requirements of the Companies Act No. 7 of 2007.

Sarath SiriwardanaDirector / Chief Financial Officer

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

A M Pandithage W G R RajaduraiChairman Managing Director

11 May, 2016Notes to the Financial Statements from pages 148 to 217 form an integral part of these Financial Statements.

146 Kelani Valley Plantations PLC | Annual Report 2015/16 Statement of Cash Flows

Consolidated CompanyFor the 12 months/15 months ended 31 March. 2015/16 2014/15 2015/16 2014/15 Notes Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000

Cash flows from operating activities Profit/(loss) before tax (31,499) 102,407 (115,778) 153,386

Adjustments for; Interest on Government finance lease 8.3 66,935 79,029 66,935 79,029Finance expenses 8.2 45,645 53,783 27,051 14,984Finance income 8.1 (1,626) (10,013) (1,991) (9,826)Profit on disposal of property, plant & equipment 7 (3,770) (11,344) (3,619) (7,823)Gains on fair value of biological assets 14.2 (20,259) (24,851) (20,259) (24,851)Dividend income 7 - - (13,608) (20,106)Depreciation 13/14 219,630 256,841 173,338 203,543Lease amortisation 12 25,196 33,933 25,196 33,933Amortisation of intangible assets 16 338 373 - -Write off property, plant & equipment 158 - - -Provision for retirement benefit obligations 25 158,860 187,299 155,834 183,604Amortisation of capital grants 23 (15,382) (19,591) (15,356) (19,559)Deemed disposal gain due to change in controlling interest (45,664) - - -Provision/(reversal) for obsolete stocks 17 667 (3,763) (1,884) (1,737)Provision/(reversal) for doubtful debts 18 (24,489) 22,293 (706) (378)Operating profit before working capital changes 374,740 666,396 275,153 584,199

(Increase)/decrease in inventories 151,096 1,975 54,626 213,689(Increase)/decrease in trade and other receivables 216,600 (67,095) 25,269 (58,122)(Increase)/decrease in amounts due from related companies 75,001 37,722 88,238 50,184Increase/(decrease) in trade and other payables (9,691) (103,732) (34,556) (122,760)Increase/(decrease) in amount due to related companies 384,112 11,347 2,208 7,296Increase/(decrease) in equity accounted investee 4,887 - 4,905 -Cash generated from operating activities 1,196,745 546,613 415,843 674,486

Interest paid on Government finance lease 8.3 (66,935) (79,029) (66,935) (79,029)Interest paid 8 (41,979) (46,882) (27,051) (14,984)Taxes paid 28.2 (6,807) (9,167) (3,419) (2,907)Super gain tax paid (24,632) - (12,330) - Retirement benefit obligations paid 25 (101,703) (136,905) (99,511) (135,971)Net cash flow from operating activities 954,689 274,630 206,597 441,595


Consolidated CompanyFor the 12 months/15 months ended 31 March. 2015/16 2014/15 2015/16 2014/15 Notes Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000

Cash flows from investing activities Field development expenditure 14.1/14.2 (348,832) (473,458) (348,832) (473,458)Interest received 1,626 10,013 1,991 9,826Dividends received - - 8,100 20,106Acquisition of property, plant & equipment 13 (1,425,243) (589,503) (58,277) (107,193)Proceeds from disposal of property, plant & equipment 4,236 13,184 3,791 9,662Investment in subsidiaries - - - (150,000)Investments in equity accounted investee (110,000) - (110,000) -Acquisition of intangible assets - (240) - -Net cash used in investing activities (1,878,213) (1,040,004) (503,227) (691,057)Net cash inflow/(outflow) before financing activities 923,524 (765,374) (296,630) (249,462)

Cash flows from financing activities Increase in non-controlling interest - 144,118 - -Dividend paid (39,388) (115,196) (30,599) (115,196)Capital settlement of net liability to lessor (1,343) (1,189) (1,343) (1,189)Exchange loss 8.2 (3,667) (6,901) - -Short-term loans obtained during the period 1,914,973 4,022,862 100,000 -Short-term loans repaid during the period (2,264,912) (3,814,097) (100,000) -Long-term loans obtained during the period 22 1,233,718 420,041 249,282 150,000Long-term loans repaid during the period 22 (72,614) (98,363) (18,590) (68,809)Long-term loans obtained from group company 29.1 25,000 - 25,000 -Grants received 23 59,788 21,744 59,788 21,744Net cash used in financing activities 851,555 573,019 283,538 (13,450)

Net increase/(decrease) in cash and cash equivalents (71,969) (192,355) (13,092) (262,912)Chang in cash reserve due to deemed disposal (11,115) - - -Cash and cash equivalents at the beginning of the period 20 43,033 235,388 (48,629) 214,283Cash and cash equivalents at the end of the period (Note A) (40,051) 43,033 (61,721) (48,629)

Note A : Analysis of cash and cash equivalents Cash and bank balances 20.2 54,853 54,202 33,360 2,559Short-term deposits 20.1 177 40,021 - - 55,030 94,223 33,360 2,559Bank overdraft 20.3 (95,081) (51,190) (95,081) (51,190)Cash and cash equivalents (40,051) 43,033 (61,721) (48,629)

Figures in brackets indicate deductions.Notes to the Financial Statements from pages 148 to 217 form an integral part of these Financial Statements.

148 Kelani Valley Plantations PLC | Annual Report 2015/16 Notes to the Financial Statements

1. RePORtING eNtItYKelani Valley Plantations PLC was incorporated on 18 June, 1992 under the Companies Act No. 17 of 1982 (The Company was re-registered under the Companies Act No. 07 of 2007) in terms of the provisions of the Conversion of Public Corporation and Government-Owned Business Undertakings into Public Companies under Public Companies Act No. 23 of 1987.

The registered office of the Company is located at No 400, Deans Road, Colombo 10, and Plantations are situated in the planting districts of Nuwara Eliya, Hatton and Yatiyantota.

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

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

The reporting period of Kelani Valley Plantations PLC, Kalupahana Power Company (Pvt) Ltd (“KPC”) and Kelani Valley Instant Tea (Pvt) Ltd (“KVIT”) has been changed from 31 December to 31 March with effect from Financial Year 2014/15 in order to align with the

parents reporting period. Therefore, the comparative year information comprises a period of fifteen months from 1 January 2014 to 31 March 2015. The current year amounts comprise as at and for the period of twelve months ended 31 March 2016. Therefore, amounts presented in the Financial Statements are not entirely comparable. The disclosures pertaining to change of the financial reporting period has been made in accordance with LKAS 1: Presentation of Financial Statements.

The Consolidated Financial Statements of Kelani Valley Plantations PLC., as at and for the year ended 31 March, 2016 comprise the Company and its Subsidiaries namely, Kalupahana Power Company (Pvt.) Ltd., Kelani Valley Instant Tea (Pvt.) Ltd ,Mabroc Teas (Pvt.) Ltd (“MTPL”) and the Group’s interest in Equity Account Investees, Hayleys Global Beverages (Pvt.) Limited (“HGBL”) (together referred to as the (‘Group’).

Hayleys Global Beverages (Pvt) Ltd has made a new share issue on 31 March 2016. As a result, ownership percentage belongs to Kelani Valley Plantations PLC has reduced to 40% from 51%. Accordingly it has become

an Equity Accounted Investee of Kelani Valley Plantations PLC with effect from 31 March 2016.

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

1.1 Principle Activities and Nature of the Operations

During the year, the principal activities of the Company were the producing and processing of Tea and Rubber.

Principal activities of other companies in the Group are as follows.

Company Nature of the business

Kalupahana Power Company (Pvt) Ltd

Generating Hydropower

Kelani Valley Instant Tea (Pvt) Ltd

Manufacture of Ready-To-Drink Tea Powder

Mabroc Teas (Pvt) Ltd

Export of bulk and retail packed Tea

Hayleys Global Beverages (Pvt) Ltd

Manufacturing Instant Tea and Tea Extracts

1.2 Holding CompanyThe Company is a subsidiary of DPL Plantations (Pvt) Ltd., which is a wholly-owned subsidiary of Dipped Products PLC whose ultimate parent enterprise is Hayleys PLC.

1.3 Date of Authorisation for issue.The Financial Statements of Kelani Valley Plantations PLC for the period ended 31 March 2016, were authorized for issue in accordance with a resolution of the Board of Directors on 11 May 2016.

1.4 Responsibility for Financial Statements.

The responsibility of the Directors in relation to the Financial Statements is set out in the Statement of Directors’ Responsibility Report in the Annual Report. 2. BASIS OF PRePARAtION2.1 Statement of ComplianceThe Financial Statements of the Company and the Group which comprise the Statement of Profit or Loss, Statement of Comprehensive Income, Statement of Financial Position, Statement of Changes in Equity, Statement of Cash Flows together with Accounting Policies and Notes to the Financial Statements


(“the Consolidated Financial Statements”) have been prepared in accordance with Sri Lanka Accounting and Auditing Standards Act No. 15 of 1995, which requires compliance with Sri Lanka Accounting Standards promulgated by The Institute of Chartered Accountants of Sri Lanka (CASL), and with the requirements of the Companies Act No. 07 of 2007.

2.2 Basis of MeasurementThese Consolidated Financial Statements have been prepared in accordance with the historical cost convention other than following items in the Financial Statements.yy Right to use of land and leased

assets of JEDB/SLSPC have been revalued as described in Note 12 to the Financial Statements

yy Managed Consumable biological assets are measured at fair value

Where appropriate, the specific policies are explained in the succeeding Notes.

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

2.3 Functional and Presentation Currency

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

2.4 Materiality and AggregationEach material class of similar items is presented separately in the Consolidated Financial Statements. Items of a dissimilar nature or function are presented separately unless they are immaterial. 3 SUMMARY OF SIGNIFICANt

ACCOUNtING POlICIeSThe accounting policies set out below are consistent with those used in the previous year. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group.

3.1 Comparative InformationThe amounts presented in the Financial Statements are not entirely comparable due to changes of the reporting period. Please refer Note 01 for further clarifications.

3.2 Going ConcernThe Consolidated Financial Statements have been prepared on the assumption that The Company is a going concern. The Directors have made an assessment of the Group’s ability to continue as a going concern in the foreseeable future. Furthermore, board is not aware of any material uncertainties that may cast significant doubt upon the Group’s ability to continue as going concern and they do not intend either to liquidate or to cease operations of Group. Therefore, the Consolidated Financial Statements continue to be prepared on the going concern basis.

3.3 Basis of ConsolidationThe Consolidated Financial Statements comprise the Financial Statements of the Group and its subsidiaries as at 31 March 2016. Subsidiaries are those entities controlled by the group. Control is achieved when the Group is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Specifically, the Group controls an investee if, and only if, the Group has:yy Power over the investee (i.e.,

existing rights that give it the

current ability to direct the relevant activities of the investee)

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

yy The ability to use its power over the investee to affect its returns

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

with the other vote holders of the investee

yy Rights arising from other contractual arrangements

yy The Group’s voting rights and potential voting rights

The Group re-assesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control. Consolidation of a subsidiary begins when the Group obtains control over the subsidiary and ceases when the Group loses control of the subsidiary. Assets, liabilities,


income and expenses of a subsidiary acquired or disposed of during the year are included in the Consolidated Financial Statements from the date the Group gains control until the date the Group ceases to control the subsidiary.

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

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

If the Group loses control over a subsidiary, it derecognises the related assets (including goodwill), liabilities, non-controlling interest and other

components of equity while any resultant gain or loss is recognised in profit or loss. Any investment retained is recognised at fair value.

3.3.1 Business Combinations and Goodwill

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

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

If the business combination is achieved in stages, any previously held equity interest is remeasured at

its acquisition date fair value and any resulting gain or loss is recognised in profit or loss.

Any contingent consideration to be transferred by the acquirer will be recognised at fair value at the acquisition date. Contingent consideration classified as an asset or liability that is a financial instrument and within the scope of LKAS 39 Financial Instruments. Recognition and Measurement, is measured at fair value with changes in fair value recognised in statement of profit or loss.

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

assets acquired over the aggregate consideration transferred, then the gain is recognised in statement of profit or loss.

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

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

3.3.2 Equity Accounted InvesteeEquity accounted investees are those entities in which the Group has significant influence, but not control, over the financial and operating

Notes to the Financial Statements Contd.


policies. Significant influence is presumed to exist when the Group holds between 20 and 50 percent of the voting power of another entity. Equity accounted investees are accounted for using the equity method.

Under the equity method, the investment in the equity accounted investee is carried on the Statement of Financial Position at cost plus post acquisition changes in the Group‘s share of net assets of the equity accounted investee. Goodwill relating to the equity accounted investee is included in the carrying amount of the investment and is neither amortized nor individually tested for impairment.

The Income Statement reflects the Group’s share of the results of operations of the equity accounted investee. When there has been a change recognized directly in the equity of the equity accounted investee, the Group recognizes its share of any changes and discloses this, when applicable, in the Statement of Changes in Equity. Unrealized gains and losses resulting from transactions between the Group and the equity accounted investee are eliminated to the extent of the interest in the equity accounted investee.

The consolidated financial Statements include the Group’s share of profit net of tax and equity movements of equity accounted investees from the date that significant influence commences until the date significant influence ceases. When the Group’s share of losses exceeds its investment in an equity accounted investee, the carrying amount of that interest is reduced to nil and the recognition of further losses is discontinued except to the extent that the Group has incurred obligations or has made payments on behalf of the investee.

The financial Statements of the equity accounted investees are prepared for the same reporting period as the Group.

After application of the equity method, the Group determines whether it is necessary to recognize an additional impairment loss on its investment in its equity accounted investee. The Group determines at each reporting date whether there is any objective evidence that the investment in the equity accounted investee is impaired. If this is the case, the Group calculates the amount of impairment as the difference between the recoverable amount of the equity accounted investee and its carrying

value and recognizes the amount in the ‘share of profit of an equity accounted investee, in the income Statement.Upon loss of significant influence over the equity accounted investee, the Group measures and recognizes any retaining investment at its fair value. Any difference between the carrying amount of the equity accounted investee upon loss of significant influence and the fair value of the retained investment and proceeds from disposal is recognized in profit or loss.

3.4 Current Versus Non-Current Classification

The Group presents assets and liabilities in statement of financial position based on current/non-current classification. An asset as current when it is:yy Expected to be realised or intended

to sold or consumed in normal operating cycle

yy Held primarily for the purpose of trading

yy Expected to be realised within twelve months after the reporting period

Oryy Cash or cash equivalent unless

restricted from being exchanged or used to settle a liability for at least

twelve months after the reporting period

All other assets are classified as non-current.

A liability is Current When:yy It is expected to be settled in

normal operating cycleyy It is held primarily for the purpose

of tradingyy It is due to be settled within twelve

months after the reporting period Oryy There is no unconditional right to

defer the settlement of the liability for at least twelve months after the reporting period

The Group classifies all other liabilities as non-current.

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

3.5 Fair Value MeasurementThe Group measures financial instruments and non-financial assets at fair value at each Statement of Financial Position date. Fair value related disclosures for financial instruments and non-financial assets that are measured at fair value or where fair values are disclosed, are


summarised in the following notes:yy Managed Consumable biological

assets Note 14.2

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

asset or liability Oryy In the absence of a principal

market, in the most advantageous market for the asset or liability

The principal or the most advantageous market must be accessible by the Group.

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

A fair value measurement of a non-financial asset takes into account a market participant's ability to

generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use.

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

All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorised within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole:yy Level 1 — Quoted (unadjusted)

market prices in active markets for identical assets or liabilities

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

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

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

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

For the purpose of fair value disclosures, the Group has determined classes of assets and liabilities on the basis of the nature, characteristics and risks of the asset or liability and

the level of the fair value hierarchy as explained above.

3.6 Foreign CurrenciesThe Group’s consolidated financial statements are presented in Sri Lankan Rupees, which is also the parent company’s functional currency. For each entity the Group determines the functional currency and items included in the financial statements of each entity are measured using that functional currency.

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

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

Differences arising on settlement or translation of monetary items are recognised in statement of profit or loss with the exception of monetary items that are designated as part of the hedge of the Group’s net investment of a foreign operation. These are recognised



in OCI until the net investment is disposed of, at which time, the cumulative amount is reclassified to statement of profit or loss. Tax charges and credits attributable to exchange differences on those monetary items are also recorded in OCI.

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

3.7 Cash Dividend and Non-Cash Distribution to equity Holders of the Parent

The Company recognises a liability to make cash or non-cash distributions to equity holders of the parent

when the distribution is authorised and the distribution is no longer at the discretion of the Company. A distribution is authorised when it is approved by the shareholders. A corresponding amount is recognised directly in equity.

Non-cash distributions are measured at the fair value of the assets to be distributed with fair value remeasurement recognised directly in equity.

Upon distribution of non-cash assets, any difference between the carrying amount of the liability and the carrying amount of the assets distributed is recognised in the statement of profit or loss.

3.8 Property, Plant & equipmentThe group applies the requirements of LKAS 16 on ‘Property Plant and Equipment’ in accounting for its owned assets which are held for and use in the provision of the services, for rental to other or for administration purpose and are expected to be used for more than one year.

3.8.1 Basis of Recognition.Property Plant and Equipment is recognised if it is probable that future

economic benefit associated with the assets will flow to the Group and cost of the asset can be reliably measured.

3.8.2 MeasurementItems of Property, Plant & Equipment are measured at cost (or at fair value in the case of land) less accumulated depreciation and accumulated impairment losses, if any.

3.8.3 Owned AssetsThe cost of Property, Plant & Equipment includes expenditures that are directly attributable to the acquisition of the asset. Such costs includes the cost of replacing part of the property, plant and equipment and borrowing costs for long terms construction projects if the recognition criteria are met. The cost of self-constructed assets includes the cost of materials and direct labour, any other cost directly attributable to bringing the asset to a working condition for its intended use, and the costs of dismantling and removing the items and restoring the site on which they are located.

Purchased software that is integral to the functionality of the related equipment is capitalized as a part of that equipment.

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

Capital work-in-progress is transferred to the respective asset accounts at the time of first utilisation or at the time the asset is commissioned.

3.8.4 Leased AssetsThe determination of whether an arrangement is (or contains) a lease is based on the substance of the arrangement at the inception of the lease. The arrangement is, or contains, a lease if fulfillment of the arrangement is dependent on the use


of a specific asset or assets and the arrangement conveys a right to use the asset or assets, even if that right is not explicitly specified in an arrangement.

Group as a lesseeA lease is classified at the inception date as a finance lease or an operating lease. A lease that transfers substantially all the risks and rewards incidental to ownership to the Group is classified as a finance lease.

Finance leases are capitalised at the commencement of the lease at the inception date fair value of the leased property or, if lower, at the present value of the minimum lease payments. Lease payments are apportioned between finance charges and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are recognised in finance costs in the statement of profit or loss.

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

Operating lease payments are recognised as an operating expense in the statement of profit or loss on a straight-line basis over the lease term.

3.8.5 De-recognitionAn item of property, plant and equipment and any significant part initially recognised is derecognised upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the Statement of Profit or Loss when the asset is derecognised and gains are not classified as revenue.

3.8.6 Land Development CostPermanent land development costs are those costs incurred in making major infrastructure development and building new access roads on leasehold lands.

These costs have been capitalised and amortised over the remaining lease period

Permanent impairments to land development costs are charged to the Statement of Profit or Loss in full or reduced to the net carrying

amounts of such assets in the year of occurrence after ascertaining the loss.

3.8.7 Biological AssetsBiological assets are classified in to mature biological assets and immature biological assets. Mature biological assets are those that have attained harvestable specifications or are able to sustain regular harvests. Immature biological assets are those that have not yet attained to harvestable specifications. Tea, rubber, other plantations and nurseries are classified as biological assets.

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

The entity recognize the biological assets when, and only when, the entity controls the assets as a result of past event, it is probable that future economic benefits associated with the

assets will flow to the entity and the fair value or cost of the assets can be measured reliably.

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

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

3.8.7.2 Infilling Cost on Bearer Biological Assets

The land development costs incurred in the form of infilling have been capitalised to the relevant mature field, only where the number of plants per hectare exceeded 3,000 plants and, also if it increases the expected future



benefits from that field, beyond its pre-infilling performance assessment. Infilling costs so capitalised are depreciated over the newly assessed remaining useful economic life of the relevant mature plantation, or the unexpired lease period, whichever is lower.

Infilling costs that are not capitalised have been charged to the Statement of Profit or Loss in the year in which they are incurred.

3.8.7.3 Borrowing CostBorrowing costs that are directly attributable to acquisition, construction or production of a qualifying asset, which takes a substantial period of time to get ready for its intended use or sale are capitalised as a part of the asset.

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

The amounts of the borrowing costs which are eligible for capitalisation are determined in accordance with the in LKAS 23 - Borrowing Costs.

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

The amount so capitalised and the capitalisation rates are disclosed in Notes to the Financial Statements.

3.8.7.4 Consumable Biological AssetConsumable biological assets includes managed timber trees those that are to be harvested as agricultural produce or sold as biological assets. Expenditure incurred on consumable biological assets (managed timber trees) is measured on initial recognition and at the end of each reporting period at its fair value less cost to sell in terms of LKAS 41. The cost is treated as approximation to fair value of young plants as the impact on biological transformation of such plants to price during this period is immaterial. The fair value of timber trees are measured using DCF method taking in to consideration the current market prices of timber, applied to expected timber content of a tree at the maturity by an independent professional valuer. All other assumptions and sensitivity analysis are given in Note 14.

The main variables in DCF model concerns

Variable Comment

Timber content Estimate based on physical verification of girth, height and considering the growth of the each species in different geographical regions. Factor all the prevailing statutory regulations enforced against harvesting of timber coupled with forestry plan of the Company.

Economic useful life

Estimated based on the normal life span of each species by factoring the forestry plan of the Company

Selling price Estimated based on prevailing Sri Lankan market price. Factor all the conditions to be fulfill in bringing the trees in to saleable condition.

Planting cost Estimated costs for the further development of immature areas are deducted.

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

Permanent impairments to biological asset are charged to the Statement of Profit or Loss in full and reduced to the net carrying amounts of such asset in the year of occurrence after ascertaining the loss.

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

3.8.8 Depreciation and Amortisation(a) DepreciationDepreciation is recognised in Income Statement on a straight-line basis over the estimated useful economic lives of each part of an item of Property, Plant & Equipment since this most closely reflects the expected pattern of consumption of the future economic benefits embodied in the asset. Assets held under finance leases are depreciated over the shorter of the lease term and the useful lives


of equivalent owned assets unless it is reasonably certain that the Group will have ownership by the end of the lease term. Lease period of land acquired from JEDB/SLSPC will expire in 2045. The estimated useful lives for the current and comparative periods are as follows:

No. of Years

Rate (%)

Buildings & Roads 40 2.50

Plant & Machinery 20 5.00

Plant & Machinery-Effluent Treatment Plant 10 10.00

Electronic Machinery 10 10.00

Hydro Power Plant 30 3.33

Motor Vehicles-Utility 10 10.00

Motor Vehicles-Supervisory 5 20.00

Equipment 4 25.00

Furniture & Fittings 10 10.00

Sanitation, Water & Electricity Supply 20 5.00

Computer Accessories 4 25.00

Tea Bagging Machines 15 6.67

Mature Plantations (Replanting and New Planting)

No. of Years

Rate (%)

Mature Plantations - Tea 33 1/3 3.00

- Rubber 20 5.00

Depreciation of an asset begins when it is available for use and ceases at the earlier of the date on which the asset is classified as held for sale or is derecognised. Depreciation methods, useful lives and residual values are reassessed at the reporting date and adjusted prospectively, if appropriate. Mature plantations are depreciated over their useful lives or unexpired lease period, whichever is less.

No depreciation is provided for immature plantations.

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

No. of Years

Rate (%)

Right to Use of Land 53 1.89

Improvements to land 30 3.33

Mature Plantations (Tea & Rubber) 30 3.33

Buildings 25 4.00

Machinery 20 5.00

3.8.9 Intangible AssetsIntangible assets acquired separately are measured on initial recognition at cost. The cost of intangible assets acquired in a business combination is their fair value at the date of acquisition. Following initial recognition, intangible assets are carried at cost less any accumulated amortisation and accumulated impairment losses. Internally generated intangibles, excluding capitalised development costs, are not capitalised and the related expenditure is reflected in statement of profit or loss in the period in which the expenditure is incurred.

The useful lives of intangible assets are assessed as either finite or indefinite.

Intangible assets with finite lives are amortised over the useful economic life and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortisation period and the amortisation method for an intangible asset with a finite useful life are reviewed at least at the end of each reporting period. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset are considered to modify the amortisation period or method, as appropriate, and are treated as changes in accounting estimates. The amortisation expense on intangible assets



with finite lives is recognised in the statement of profit or loss in the expense category that is consistent with the function of the intangible assets.

Intangible assets with indefinite useful lives are not amortised, but are tested for impairment annually, either individually or at the cash-generating unit level. The assessment of indefinite life is reviewed annually to determine whether the indefinite life continues to be supportable. If not, the change in useful life from indefinite to finite is made on a prospective basis.

Gains or losses arising from derecognition of an intangible asset are measured as the difference between the net disposal proceeds and the carrying amount of the asset and are recognised in the statement of profit or loss when the asset is derecognised.

3.8.9.1 Research and DevelopmentResearch costs are expensed as incurred. Development expenditures on an individual project are recognised as an intangible asset when the Group can demonstrate:

yy The technical feasibility of completing the intangible asset so that the asset will be available for use or sale

yy Its intention to complete and its ability and intention to use or sell the asset

yy How the asset will generate future economic benefits

yy The availability of resources to complete the asset

yy The ability to measure reliably the expenditure during development

Following initial recognition of the development expenditure as an asset, the asset is carried at cost less any accumulated amortisation and accumulated impairment losses. Amortisation of the asset begins when development is complete and the asset is available for use. It is amortised over the period of expected future benefit. Amortisation is recorded in cost of sales. During the period of development, the asset is tested for impairment annually.

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

3.9.1 Financial Assets3.9.1.1 Initial Recognition and

MeasurementFinancial assets are classified, at initial recognition, as financial assets at fair

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

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

The Group’s financial assets include cash and short-term deposits, short term investments, trade and other receivables, loans and other receivables, quoted and unquoted financial instruments.

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

(a) Financial Assets at Fair Value Through Profit or Loss

Financial assets at fair value through

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

Financial assets at fair value through profit and loss are carried in the Statement of Financial Position at fair value with net changes in fair value recognised in finance income or finance costs in the Statement of Profit or Loss.

The Group has not designated any financial assets as at fair value through profit or loss.

(b) 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. The losses arising from impairment are recognised in the Statement of Profit or Loss in finance costs for loans and in cost of sales or other operating expenses for receivables.

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

(c) 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 amortised cost using the effective interest method, less impairment.

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

(d) Available for Sale Financial Investments

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

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

The Group evaluates whether the ability and intention to sell its AFS financial assets in the near term is still appropriate. When, in rare

circumstances, the Group is unable to trade these financial assets due to inactive markets, the Group may elect to reclassify these financial assets if the management has the ability and intention to hold the assets for foreseeable future or until maturity.

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

3.9.1.3 DerecognitionA financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is derecognised when:

yy The rights to receive cash flows from the asset have expired; or

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

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



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

3.9.1.4 Impairment of Financial Assets

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

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

3.9.1.4.1 Financial Assets Carried at Amortised Cost

For financial assets carried at amortised cost, the Group first assesses whether impairment exists individually for financial assets that are individually significant, or collectively for financial assets that are not individually significant. If the Group determines that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, it includes the asset in a group of financial assets with similar credit risk characteristics and collectively assesses them for impairment. Assets that are individually assessed for impairment and for which an impairment loss is, or continues to be, recognised are not included in a collective assessment of impairment.

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

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

3.9.1.4.2 Available for Sale Financial Assets

For AFS financial assets, the Group assesses at each reporting date whether there is objective evidence

that an investment or a group of investments is impaired.

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

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


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

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

3.9.2 Financial Liabilities3.9.2.1 Initial Recognition and

MeasurementFinancial liabilities 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.

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

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

3.9.2.2 Subsequent MeasurementThe subsequent measurement of financial liabilities depends on their classification as described below:

(a) Financial liabilities at Fair Value Through Profit or Loss

Financial liabilities at fair value through profit or loss include financial liabilities held for trading and financial liabilities designated upon initial recognition as at fair value through profit or loss.

Financial liabilities are classified as held for trading if they are incurred for the purpose of repurchasing in the near term. This category also includes derivative financial instruments entered into by the Group that are not designated as hedging

instruments in hedge relationships as defined by LKAS 39. Separated embedded derivatives are also classified as held for trading unless they are designated as effective hedging instruments.

Gains or losses on liabilities held for trading are recognised in the statement of profit or loss.

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

(b) loans and BorrowingsAfter initial recognition, interest bearing loans and borrowings are subsequently measured at amortized cost using the Effective Interest Rate (EIR) method. Gains and losses are recognised in profit or loss when, the liabilities are derecognised as well as through the (EIR) amortization process.

Amortised cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the EIR. The EIR amortisation is included as finance costs in the statement of profit or loss.

(c) Financial Guarantee ContractsFinancial guarantee contracts are recognised initially as a liability at fair value, adjusted for transaction costs that are directly attributable to the issuance of the guarantee. Subsequently, the liability is measured at the higher of the best estimate of the expenditure required to settle the present obligation at the reporting date and the amount recognised less cumulative amortization.

3.9.2.3 DerecognitionA financial liability is derecognised when the obligation under the liability is discharged or canceled or expires.

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

3.9.3 Offsetting of Financial Instruments

Financial assets and financial liabilities are offset and the net amount reported in the Consolidated



Statement of Financial Position if, and only if, there is a currently enforceable legal right to offset the recognised amounts and there is an intention to settle on a net basis, or to realize the assets and settle the liabilities simultaneously

3.9 InventoriesFinished Goods manufactured from agricultural produce of Biological Assets

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

Input Material, Spares and ConsumablesAt actual cost on weighted average basis.

Agricultural Produce Harvested from Biological AssetsAgricultural produce harvested from its biological assets are measured at their fair value less cost to sell at the point of harvest. The finished and semi-finished inventories from agriculture produce are valued by

adding the cost of conversion to the fair value of the agricultural produce.

3.10 trade and Other ReceivablesTrade and other receivables are stated at their estimated realisable amounts inclusive of provisions for bad and doubtful debts.

3.11 Cash and Cash equivalentsCash and cash equivalents comprise cash balances and call deposits. Bank overdrafts that are repayable on demand form an integral part of the Group’s cash management and are included as a component of cash and cash equivalents for the purpose of the Statement of Cash Flows.

3.12 Impairment of Non-Financial Assets

The Group assesses, at each reporting date, whether there is an indication that an asset may be impaired. If any indication exists, or when annual impairment testing for an asset is required, the Group estimates the asset’s recoverable amount. An asset’s recoverable amount is the higher of an asset’s or cash-generating unit’s (CGU) fair value less costs of disposal and its value in use. The recoverable amount is determined for an individual asset, unless the asset does not generate cash inflows that

are largely independent of those from other assets or groups of assets. When the carrying amount of an asset or CGU exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount.

In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. In determining fair value less costs of disposal, recent market transactions are taken into account. If no such transactions can be identified, an appropriate valuation model is used. These calculations are corroborated by valuation multiples, quoted share prices for publicly traded companies or other available fair value indicators.

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

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

For assets excluding goodwill, an assessment is made at each reporting date to determine whether there is an indication that previously recognised impairment losses no longer exist or have decreased. If such indication exists, the Group estimates the asset’s or CGU’s recoverable amount. A previously recognised impairment loss is reversed only if there has been a change in the assumptions used to determine the asset’s recoverable amount since the last impairment loss was recognised. The reversal is limited so that the carrying amount of the asset does not exceed its recoverable amount, nor exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognised for the asset in prior years. Such reversal is recognised in the statement of profit or loss unless the asset is


carried at a revalued amount, in which case, the reversal is treated as a revaluation increase.

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

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

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

3.13 ProvisionsProvisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount

of the obligation. When the Group expects some or all of a provision to be reimbursed, the reimbursement is recognised as a separate asset, but only when the reimbursement is virtually certain. The expense relating to any provision is presented in the Statement of Profit or Loss net of any reimbursement.

3.14 Employees Benefits(a) Defined Contribution Plans -

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

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

All the employees of the Company are members of the Employees’ Trust Fund, to which the Company

contributes 3% on the consolidated salary of such employees.

(b) Defined Benefit PlanA defined benefit plan is a post-employment benefit plan other than a defined contribution plan. The liability recognised in the Financial Statements in respect of defined benefit plan is the present value of the defined benefit obligation at the Reporting date. The defined benefit obligation is calculated annually using the projected unit credit method. The present value of the defined benefit obligation is determined by discounting the estimated future cash flows using the interest rates that are denominated in the currency in which the benefits will be paid, and that have terms to maturity approximating to the terms of the related liability. Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions are recognised as in retained earnings through comprehensive income. Past service costs are recognised immediately in Statement of Profit or Loss

The provision has been made for retirement gratuities from the first year of service for all employees, in conformity with LKAS 19, Employee Benefits. However, under the Payment

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

The Liability is not externally funded.

The key assumptions used in determining the retirement benefit obligations are given in Note 25.

3.15 trade and Other PayablesTrade and other payables are stated at their costs.

3.16 Capital Commitments and Contingencies

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

3.17 events Occurring after the Reporting Date

All material events after the Statement of Financial Position date have been considered where appropriate; either adjustments have been made or adequately disclosed in the Financial Statements.

3.18 earnings per ShareThe Group presents basic and diluted earnings per share (EPS) for its ordinary shares. Basic EPS is



calculated by dividing the profit or loss attributable to ordinary shareholders of the Company by the weighted average number of ordinary shares outstanding during the period. Diluted EPS is determined by adjusting the profit or loss attributable to ordinary shareholders and the weighted average number of ordinary shares outstanding for the effects of all dilutive potential ordinary shares.

3.19 Deferred Income3.20.1 Grants and SubsidiesGovernment grants are recognised where there is reasonable assurance that the grant will be received and all attached conditions will be complied with. When the grant relates to an expense item, it is recognised as income over the period necessary to match the grant on a systematic basis to the costs that it is intended to compensate. Where the grant relates to an asset, it is recognised as deferred income and released to income in equal amounts over the expected useful life of the related asset.

Where the Group receives non-monetary grants, the asset and the grant are recorded gross at nominal amounts and released to the Statement of Profit or Loss over the expected useful life and pattern

of consumption of the benefit of the underlying asset by equal annual installments. Where loans or similar assistance are provided by governments or related institutions with an interest rate below the current applicable market rate, the effect of this favourable interest is regarded as additional government grant.

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

Buildings 40 yearsSanitation & water supply 20 yearsPlant & equipment - (Prior to 2012) 13 1/3 years- (After 2012) 20 years

Grants received for forestry are initially deferred and credited to income once when the related blocks of trees are harvested.

3.21 Statement of Profit or LossFor the purpose of presentation of Statement of Profit or Loss, the

function of expenses method is adopted, as it represents fairly the elements of the group’s performance.

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

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

(b) Gains and losses on disposal of an item of Property, Plant & Equipment are determined by comparing the net sales proceeds with the carrying amounts of Property, Plant & Equipment and are recognised within ‘other operating income’ in the Statement of Profit or Loss.

(c) For all financial instruments measured at amortised cost and interest-bearing financial assets classified as AFS, interest income is recorded using the effective interest rate (EIR). EIR is the rate that exactly discounts the estimated future cash payments or receipts over 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 statement of profit or loss.

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

(e) Rental income arising from operating leases on investment properties is accounted for on a straight-line basis over the lease terms.

3.21.2 ExpensesAll expenditure incurred in the running of the business and in maintaining the Property, Plant & Equipment in a state of efficiency is charged to revenue in arriving at the profit/(loss) for the year.


3.21.2.1 Financing Income and Finance Cost

Finance income comprises interest income on funds invested. Interest income is recognised as it accrues in profit or loss.

Finance costs comprise interest expense on borrowings, unwinding of the discount on provisions, changes in the fair value of financial assets at fair value through profit or loss, and losses on hedging instruments that are recognised in profit or loss. Borrowing costs that are not directly attributable to the acquisition, construction or production of a qualifying asset are recognised in profit or loss using the effective interest method.

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

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

3.21.2.2 Taxes3.21.2.2.1 Current Income TaxCurrent income tax assets and liabilities are measured at the amount expected to be recovered from or paid

to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted, at the reporting date in the countries where the Group operates and generates taxable income.

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

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

Deferred tax liabilities are recognised for all taxable temporary differences, except:yy When the deferred tax liability

arises from the initial recognition of goodwill or an asset or liability in a transaction that is not a business combination and, at the

time of the transaction, affects neither the accounting profit nor taxable profit or loss.

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

Deferred tax assets are recognised for all deductible temporary differences, the carry forward of unused tax credits and any unused tax losses. Deferred tax assets are recognised to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carry forward of unused tax credits and unused tax losses can be utilised, except:yy When the deferred tax asset

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

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

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

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



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

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

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

3.22 Statement of Cash FlowThe Statement of Cash Flow has been prepared using the ‘indirect method’. Interest paid is classified as operating cash flows, interest and dividends received are classified as investing

cash flows while dividends paid and Government grants received are classified as financing cash flows, for the purpose of presenting the Cash Flow Statement.

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

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

The activities of the segments are described in note 36 in the Notes to the Financial Statements. The group transfers products from one industry segment for use in another. Inter-segment transfers are based on fair market prices.

Revenue and expenses directly attributable to each segment are allocated to the respective segments.

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

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

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

All operating segments’ operating results are reviewed regularly to make decisions about resources to be allocated to the segment and assess its performance, and for which discrete financial information is available. 4 USe OF eStIMAteS AND

JUDGMeNtSThe preparation of Financial Statements in conformity with SLFRS requires management to make judgments, estimates and assumptions that influence the

application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Judgments and estimates are based on historical experience and other factors, including expectations that are believed to be reasonable under the circumstances. Hence, actual experience and results may differ from these judgments and estimates.

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

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

4.1 taxationDeferred tax assets are recognised for unused tax losses to the extent that it is probable that taxable profit will be available against which the losses can be utilised. Significant management judgement is required to determine the amount of deferred tax assets that can


be recognised, based upon the likely timing and the level of future taxable profits together with future tax planning strategies. Unused tax losses as of 31 March 2016 are given in Note 10B

4.2 Measurement of Retirement Benefit Obligation

The present value of the retirement benefit obligations depends on a number of factors that are determined on an actuarial basis using a number of assumptions. Key assumptions used in determining the retirement benefit obligations are given in Note 25. Any changes in these assumptions will impact the carrying amount of retirement benefit obligations.

4.3 Fair Valuation of Biological Assets

The fair value of managed timber depends on number of factors that are determined on a discounted method using various financial and non financial assumptions. The growth of the trees is determined by various biological factors that are highly unpredictable. Any change to the assumptions will impact to the fair value of biological assets. Key assumptions and sensitivity analysis of the biological assets are given in the Note 14.

4.4 Impairment of Non-financial Assets

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

5 StANDARDS ISSUeD BUt NOt Yet eFFeCtIVe

Standards issued but not yet effective up to the date of issuance of the Group’s financial statements are listed

below. This listing of standards and interpretations issued are those that the Group reasonably expects to have an impact on disclosures, financial position or performance when applied at a future date. The Group intends to adopt these standards when they become effective.

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

SLFRS 9 is effective for annual reporting periods beginning on or after 1 January 2018, with early adoption permitted.

SlFRS 15 -Revenue from Contracts with CustomersSLFRS 15 establishes a comprehensive framework for determining whether, how much and when revenue is recognised. It replaces existing revenue recognition guidance, including LKAS 18 Revenue, LKAS 11 Construction

Contracts and IFRIC 13 Customer Loyalty Programmes. This standard is effective for the annual periods beginning on or after 01 January 2018.

Amendment to lKAS 41 - Agriculture & lKAS 16 - Property, Plant & equipmentThis amendment define a bearer plant and accordingly, require bearer plants to be accounted for as Property, Plant and Equipment and include within the scope of LKAS 16, instead of LKAS 41. Entities are required to apply the amendments for annual periods beginning on or after 1 January 2016. However, this amendment has no impact on group’s current accounting treatment on recognition and measurement. Since, currently the group continued to recognise and measure bearer plant in accordance with LKAS 16. Further, the above amendment requires entity to recognise agricultural produce at fair value separately from its bearer plants prior to harvest. Determining the point at which to recognise agricultural produce separately, will require judgment.

Pending the detailed review of such standards and interpretations, the extent of the impact has not been determined by the management.



6 ReVeNUe6.1 Industry Segment Revenue Consolidated CompanyFor the 12 months/15 months ended 31 March. 2015/16 2014/15 2015/16 2014/15 Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000

Tea 5,235,629 7,322,101 2,530,211 3,587,379Rubber 845,609 1,352,401 845,609 1,352,401Others 37,811 40,812 - -Less: Intra-group sales (50,303) (67,965) - - 6,068,746 8,647,349 3,375,820 4,939,780

6.2 Industry Segment Results {Gross Profit}Tea 314,295 480,623 19,710 191,818Rubber 121,001 228,922 121,001 228,922Others 29,406 29,757 - - 464,702 739,302 140,711 420,740

7 OtHeR INCOMeProfit on disposal of property, plant & equipment 3,770 11,344 3,619 7,823Dividend income - - 13,608 20,106Hydro power income 5,195 10,349 7,138 12,402Amortisation of Government grants 15,382 19,591 15,356 19,558Revenue grants 420 - 420 -Sundry income 43,431 37,538 38,827 35,545 68,198 78,822 78,968 95,434

There are no unfulfilled conditions or contingencies attached to the grants.


8 Net FINANCe COSt8.1 Finance Income Consolidated CompanyFor the 12 months/15 months ended 31 March. 2015/16 2014/15 2015/16 2014/15 Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000

Interest income 1,626 10,013 825 9,076Interest income on corporate guarantee - - 1,166 750 1,626 10,013 1,991 9,826

8.2 Finance expensesInterest on term loans (14,087) (12,656) (12,551) (9,114)Interest on overdraft and short term loans (27,891) (34,226) (14,500) (5,870)Foreign exchange loss (3,667) (6,901) - - (45,645) (53,783) (27,051) (14,984)

8.3 Interest paid to Government on finance lease (66,935) (79,029) (66,935) (79,029) (66,935) (79,029) (66,935) (79,029)

Net finance cost (110,954) (122,799) (91,995) (84,187)

9 PROFIt BeFORe tAxAtION9.1 Profit before tax is stated after charging all expenses including the following Consolidated CompanyFor the 12 months/15 months ended 31 March. 2015/16 2014/15 2015/16 2014/15 Note Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000

Directors’ emoluments 48,478 34,527 11,203 12,524Auditor’s remuneration- Audit services 4,659 3,785 3,614 2,956- Non-audit services 928 741 685 375



Consolidated CompanyFor the 12 months/15 months ended 31 March. 2015/16 2014/15 2015/16 2014/15 Note Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000

Depreciation and lease amortisation - Leasehold right to bare land 12.1 8,641 13,238 8,641 13,238- Immovable leased assets 12.2 16,555 20,695 16,555 20,695- Amortisation of intangible assets 16 338 373 - -- Tangible property, plant & equipment 13 141,954 165,809 95,662 112,511- Bearer biological assets 14 77,676 91,032 77,676 91,032

Staff costs- Defined contribution plan costs (EPF, CPPS, ESPS & ETF) 370,998 351,173 359,710 332,761- Defined benefit plan cost (Retirement benefit obligations) 25 158,860 187,300 155,834 183,604- Salaries and wages and other staff costs 1,818,602 2,562,915 1,718,194 2,434,866- Staff training & development cost 1,111 1,892 749 1,385Legal fees 10,434 12,520 10,122 11,720

Provision/(reversal) for bad & doubtful debts (24,489) 22,293 (706) (378)Provision/(reversal) for obsolete inventories 667 (3,763) (1,884) (1,737)

10 tAx exPeNSe10.1 Statement of Profit or Loss Consolidated CompanyFor the 12 months/15 months ended 31 March. 2015/16 2014/15 2015/16 2014/15 Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000

(I) Current tax expenseIncome tax on current year/period profit Company 10. A (558) (1,920) (558) (1,920) Subsidiaries 10. A (18,357) (5,140) - - (18,915) (7,060) (558) (1,920)


Consolidated CompanyFor the 12 months/15 months ended 31 March. 2015/16 2014/15 2015/16 2014/15 Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000

(Under)/over provision in respect of previous years 2,966 (6,271) 879 (8,090) (15,949) (13,331) 321 (10,010)

(II) Deferred tax expenseOrigination and reversal of temporary difference of Company 24 13,189 (26,785) 13,189 (26,785) Subsidiaries 24 (6,924) (7,372) - - 6,265 (34,157) 13,189 (26,785)

Tax on dividend income (1,987) (2,424) - -Tax charge reported in Statement of Profit or Loss (11,671) (49,912) 13,510 (36,795)

10.2 Statement of Other Comprehensive IncomeNet (gain)/loss on actuarial gains/(loss) on defined Benefit Plans Company 24 (4,527) 4,113 (4,527) 4,113 Subsidiary 24 889 (68) - -tax charge directly to other comprehensive income (3,638) 4,045 (4,527) 4,113

G4-eC4The Company is liable to income tax at the rate of 10% on its agriculture profits whereas the income tax rate applicable to the manufacturing profits and other income during the year of assessment 2015/16 is 28%.

The five (05) year tax holiday granted to Kalupahana Power Company (Pvt) Ltd. (KPC) in terms of the BOI agreement has expired during year of assessment 2012/13. Accordingly, KPC is liable to income tax, during the year of assessment 2015/16 at the rate of 12% in terms of section 59E of the Inland Revenue (Amendment) Act, No. 18 of 2013.

The three (03) year tax holiday granted to Kelani Valley Instant Tea (Pvt) Ltd. (KVIT) in terms of section 17 of the Inland Revenue Act No. 10 of 2006 has expired during the year of assessment 2012/13. The rate applicable to KVIT during the year of assessment 2015/16 is 15% as per the section 48 of the said Act.

The qualified export profit earned by Mabroc Teas (Pvt) Ltd.has been taxed at the rate of 12% in terms of section 52 of the Inland Revenue Act No. 10 of 2006. Other income earned by the company has been taxed at 28%.

Hayleys Global Beverages (Pvt) Ltd. is a BOI approved entity entitled for a tax exemption period of 10 years as stipulated in the Inland Revenue (Amendment) Act No. 08 of 2012 (Section 17A).



(A) Reconciliation of Accounting Profit to Income Tax Expense Consolidated CompanyFor the 12 months/15 months ended 31 March. 2015/16 2014/15 2015/16 2014/15 Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000

Profit before tax (31,499) 102,407 (115,778) 153,386Effective tax rate 21% 16% 28% 28%

Tax effect on profit before tax (6,590) 16,676 (32,418) 42,948Tax effect on deductible expenses for tax purposes (137,212) (129,973) (163,502) (213,621)Tax effect on non deductible expenses for tax purposes 90,980 82,057 105,253 120,216Tax effect on total statutory income (52,823) (31,240) (90,667) (50,457)Tax effect on amortisation of Government grant exempt from tax (3,218) (3,190) (4,300) (5,476)Tax effect on interest income 496 - 558 1,920Tax effect on tax exempt income (83) - (3,810) (5,630)Tax effect on tax exempt loss 74,581 42,091 98,777 62,597Tax effect on utilisation of tax losses (39) (601) - (1,034)Income tax on current period profits 18,915 7,060 558 1,920(Over)/under provision in respect of previous years (2,966) 6,271 (879) 8,090Income tax charge for the12 months/15 months 15,949 13,331 (321) 10,010

(B) tax lossesTax loss b/f (275,473) (22,652) (235,838) (17,924)Adjustment for tax loss b/f 52,925 1,955 21,613 1,955 (222,548) (20,697) (214,225) (15,969)

Tax loss for the year/period (356,469) (258,468) (352,773) (223,561)Loss set off during the year/period 189 3,692 - 3,692 (356,280) (254,776) (352,773) (219,869)

Tax loss c/f (578,828) (275,473) (566,998) (235,838)


11 eARNING PeR SHARe AND DIVIDeND PeR SHARe11.1 earning per Share(A) Basic earnings per ShareThe computation of the basic earnings per share is based on profit attributable to ordinary shareholders for the period divided by weighted average number of ordinary shares outstanding during the period and calculated as follows.

Consolidated CompanyFor the 12 months/15 months ended 31 March, 2015/16 2014/15 2015/16 2014/15

Amount used as the Numerator Profit attributable to ordinary shareholders (Rs. ’000) (28,725) 60,241 (102,268) 116,591

Amount used as the Denominator Weighted average number of ordinary shares (’000) 34,000 34,000 34,000 34,000Basic earnings per share (Rs. ) (0.84) 1.77 (3.01) 3.43

(B) Diluted earnings per ShareThe calculation of diluted earnings per share is based on profit attributable to ordinary shareholders and weighted average number of ordinary shares outstanding after adjustment for the effect of all dilutive potential ordinary shares.

There were no potentially dilutive shares outstanding at any time during the financial year.

11.2 Dividend per Share CompanyFor the 12 months/15 months ended 31 March, 2015/16 2014/15

Proposed dividend for 2015/16 Rs. Nil/- per share (2014/15 - Rs.1.00 per share) (Rs. ’000) - 34,000Number of ordinary shares (’000) 34,000 34,000Dividend per share (Rs.) - 1.00



12 leASeHOlD PROPeRtY, PlANt & eQUIPMeNt Consolidated CompanyAs at 31 March, 2015/16 2014/15 2015/16 2014/15 Notes Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000

Right-to-use of land 12.1 284,427 293,068 284,427 293,068Immovable leased bearer biological assets 12.2.1 115,323 128,379 115,323 128,379Immovable leased assets (other than right-to-use of land and bearer biological assets) 12.2.2 4,811 8,310 4,811 8,310 404,561 429,757 404,561 429,757

12.1 Right-to-use of land“Right-To-Use of Land on Lease” as above was previously titled “Leasehold Right to Bare Land”. The change is in order to comply with Statement of Alternative Treatment (SoAT) issued by the Institute of Chartered Accountants of Sri Lanka dated 21 August 2013. Such leases have been executed for all estates for a period of 53 years.

This right-to-use of land is amortised over the remaining lease term or useful life of the right whichever is shorter and is disclosed under non-current assets. The Statement of Alternative Treatment (SoAT) for right-to-use of land does not permit further revaluation of right-to-use of land. However, an adjustment to the “Right-To-Use of Land” could be made to the extent that the change relate to the future period on the reassessment of liability to make the lease payment. The values taken into the Statement of Financial Position as at 18 June 1992 and amortisation of the right to use of land up to 31 March 2016 are as follows.

Consolidated CompanyAs at 31 March 2015/16 2014/15 2015/16 2014/15 Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000

Capitalised value (re-assessed in 2010) 333,603 333,603 333,603 333,603 333,603 333,603 333,603 333,603

Amortisation As at 1 April/January 40,535 27,297 40,535 27,297Amortisation for the 12 months/15 months 8,641 13,238 8,641 13,238As at 31 March 49,176 40,535 49,176 40,535Carrying amount 284,427 293,068 284,427 293,068


The Company has sub leased an extent of 1.0127 hectares in Ingestre Estate and 2.2247 hectares in Blinkbonnie Estate to Hayleys Global Beverages (Pvt) Ltd. It was treated as an Operating Lease in the Financial Statements in terms of LKAS 17-Leases.

12.2 Immovable leased Assets“In terms of the ruling of the UITF of the Institute of Chartered Accountants of Sri Lanka prevailed at the time of privatisation of plantation estates, all immovable assets in these estates under finance leases have been taken into the books of the Company retroactive to 18 June 1992. For this purpose, the Board decided at its meeting on 8 March, 1995, that these assets be restated at their book values as they appear in the books of the JEDB/SLSPC, on the day immediately preceding the date of formation of the Company. These assets are taken into the Statement of Financial Position as at 18 June, 1992 and amortisation of immovable leased assets to 31 March 2016 are as follows.“

12.2.1.Immovable Leased Bearer Biological Assets

Mature Plantations Consolidated Company Tea Rubber As at 31 March, 2015/16 2014/15 2015/16 2014/15 Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000

Capitalised Value (18 June, 1992) 213,541 178,145 391,686 391,686 391,686 391,686

Amortisation As at 1 April/January 140,331 122,976 263,307 246,986 263,307 246,986Amortisation for the 12 months/15 months 6,835 6,221 13,056 16,321 13,056 16,321As at 31 March 147,166 129,197 276,363 263,307 276,363 263,307Carrying amount 66,375 48,948 115,323 128,379 115,323 128,379

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

However, since then all such investments in immature plantations attributable to JEDB/SLSPC period have been transferred to Mature Plantations. These mature tea and rubber were classified as bearer biological assets in terms of LKAS 41 - Agriculture. The carrying value of the bearer biological assets leased from JEDB/SLSPC is recognised at cost less amortisation.Further, investments in such plantations to bring them to maturity are shown under Note 14.



12.2.2. Immovable Leased assets (other than right-to-use land and bearer biological assets) Land Development Buildings Machinery Consolidated CompanyAs at 31 March, 2015/16 2014/15 2015/16 2014/15 Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000

Capitalised Value (18 June, 1992) 3,455 84,600 23,094 111,149 111,149 111,149 111,149

Amortisation As at 1 April/January 2,625 77,120 23,094 102,839 98,465 102,839 98,465Amortisation for the 12 months/15 months 115 3,384 - 3,499 4,374 3,499 4,374As at 31 March 2,740 80,504 23,094 106,338 102,839 106,338 102,839Carrying amount 715 4,096 - 4,811 8,310 4,811 8,310

13 FReeHOlD PROPeRtY, PlANt & eQUIPMeNt(A) ConsolidatedAs at 31 March, 2015/16 2014/15

Tea

Buildings Plant & Hydro Motor Furniture & Bagging

Machinery Power Plant Vehicles Fittings Equipment Computers Machines Others Total Total

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

Cost

As at 1 April/January 775,977 586,556 133,017 329,652 20,477 187,899 31,730 207,904 45,954 2,319,166 2,116,689

Additions during the 12 months/15 months 25,230 3,465 - 18,769 3,590 28,893 2,215 - 203 82,365 222,115

Disposals/transfers - (455) - (3,416) (1,011) (3,567) - - - (8,449) (19,638)

Disposals/transfers due to change in controlling interest (2,425) - - (28,180) (5,563) (24,081) (3,257) - - (63,506) -

As at 31 March 798,782 589,566 133,017 316,825 17,493 189,144 30,688 207,904 46,157 2,329,576 2,319,166

Depreciation

As at 1 April/January 159,721 289,174 40,801 192,006 16,739 87,729 25,718 64,498 36,019 912,405 764,276

Charge for the 12 months/15 months 20,075 40,348 4,434 41,486 1,361 8,586 2,646 13,860 9,159 141,954 165,809

Disposals/transfers - (335) - (3,243) (859) (3,546) - - - (7,983) (17,680)


13 FReeHOlD PROPeRtY, PlANt & eQUIPMeNt CONtD.(A) ConsolidatedAs at 31 March, 2015/16 2014/15

Tea

Buildings Plant & Hydro Motor Furniture & Bagging

Machinery Power Plant Vehicles Fittings Equipment Computers Machines Others Total Total


Disposals/transfers due to change in controlling interest (7) - - (5,851) (596) (890) (922) - - (8,266) -

As at 31 March 179,789 329,187 45,235 224,397 16,645 91,879 27,442 78,358 45,178 1,038,111 912,405

Net book value 618,993 260,379 87,782 92,428 848 97,265 3,246 129,546 979 1,291,465 1,406,761

Work-in-Progress (a) 38,244 432,643

Carrying amount 1,329,709 1,839,404

( a ) Work-in-Progress Consolidated Company

Transfer due

Balance Additions to change in Balance Balance Additions

As at during the Transfer/ controlling As at As at during the Transfer/ As at

01.04.2015 year disposals interest 31.03.2016 01.04.2015 year disposals 31.03.2016

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

432,643 1,343,063 (185) (1,737,277) 38,244 9,224 26,739 (185) 35,778

(B) Company As at 31 March, 2015/16 2014/15

Buildings Plant & Motor Furniture &

Machinery Vehicles Fittings Equipment Computers Others Total Total


Cost

As at 1 April/January 747,716 543,501 300,157 11,466 98,123 29,868 39,169 1,770,000 1,686,375

Additions during the 12 months/15 months 22,805 2,109 1,003 412 4,882 512 - 31,723 98,573

Disposals/transfers - - (2,928) - - - - (2,928) (14,948)

As at 31 March 770,521 545,610 298,232 11,878 103,005 30,380 39,169 1,798,795 1,770,000



As at 31 March, 2015/16 2014/15

Buildings Plant & Motor Furniture &

Machinery Vehicles Fittings Equipment Computers Others Total Total


Depreciation

As at 1 April/January 155,690 256,923 183,842 9,734 88,387 25,366 23,285 743,227 643,397

Charge for the 12 months/15 months 19,697 31,159 35,729 382 4,790 2,075 1,830 95,662 112,511

Disposals/transfers - - (2,756) - - - - (2,756) (12,681)

As at 31 March 175,387 288,082 216,815 10,116 93,177 27,441 25,115 836,133 743,227

Net book value 595,134 257,528 81,417 1,762 9,828 2,939 14,054 962,662 1,026,773

Work-in-Progress 35,778 9,224

Carrying amount 998,440 1,035,997

(a) The assets shown above are those movable assets vested in the Company by gazette notification on the date of formation of the Company (18 June 1992) and all investment in tangible assets by the Company since its formation. The assets taken over by way of estate leases are set out in Note 12.

(b) The cost of fully depreciated Property, Plant and Equipment which are still in use as at date of Statement of Financial Position is as follows,

Consolidated CompanyAs at 31 March, 2015/16 2014/15 2015/16 2014/15 Rs,000 Rs,000 Rs,000 Rs,000

Computers 23,659 20,587 23,659 20,587Equipment 105,317 84,948 87,313 74,497Furniture & fittings 25,660 9,596 8,742 7,538Motor vehicles 107,544 82,909 106,065 80,942Mature plantations 19,216 7,407 19,216 7,407Plant & machinery 48,256 38,438 48,256 38,438Intangible assets 2,293 3,274 - -Others 15,585 2,048 4,193 2,048 347,530 249,207 297,444 231,457


(c) Unexpired lease periods of land:Kelani Valley Plantations PLC 31 yearsKalupahana Power Company (Pvt) Ltd. 31 years

14 BIOlOGICAl ASSetS14.1 IMPROVeMeNtS tO leASeHOlD PROPeRtY (BeAReR BIOlOGICAl ASSetS) Immature Plantations Mature Plantations Consolidated Company

Tea Rubber Other Total Tea Rubber Total 2015/16 2014/15 2015/16 2014/15


Cost

As at 1 April/January 334,176 1,086,022 33,542 1,453,740 788,415 1,088,855 1,877,270 3,331,010 2,854,280 3,331,010 2,854,280

Additions during the 12 months/15 months 66,042 268,629 14,161 348,832 - - - 348,832 476,730 348,832 476,730

Transfers (from)/to (75,815) (159,668) - (235,483) 75,815 159,668 235,483 - - - -

As at 31 March 324,403 1,194,983 47,703 1,567,089 864,230 1,248,523 2,112,753 3,679,842 3,331,010 3,679,842 3,331,010

Depreciation

As at 1 April/January 198,069 337,425 535,494 535,494 444,462 535,494 444,462

Charge for the 12 months/15 months 23,751 53,925 77,676 77,676 91,032 77,676 91,032

As at 31 March 221,820 391,350 613,170 613,170 535,494 613,170 535,494

Carrying amount 642,410 857,173 1,499,583 3,066,672 2,795,516 3,066,672 2,795,516

These are investments in Mature/Immature Plantations since the formation of the Company. The assets (including plantation assets) taken over by way of estate leases are set out in Note 12 to the Financial Statements. Further, investments in Immature Plantations taken over by way of leases are shown in this note. When such plantations become mature, the additional investments since taken over to bring them to maturity are transferred from immature to mature.

The requirement of recognition of bearer biological assets at its fair value less cost to sell under LKAS 41 was superseded by the ruling issued on 02 March 2012, by The Institute of Chartered Accountants of Sri Lanka. Accordingly, the Company has elected to measure the bearer biological assets at cost using LKAS 16 – Property Plant & Equipment.

Specific borrowings have not been obtained to finance the planting expenditure. Hence, borrowing costs were not capitalised during the year under Immature Plantations (2014/15 - Nil).



The addition of Rs.349 m (2014/15 - Rs. 477 m) shown above includes the following costs among other costs incurred during the year in respect of Uprooting and Planting of Tea and Rubber.

Consolidated CompanyAs at 31 March, 2015/16 2014/15 2015/16 2014/15 Extent - ha Rs. ’000 Extent - ha Rs. ’000 Extent - ha Rs. ’000 Extent - ha Rs. ’000

Uprooting Tea 12 4,024 51 25,728 12 4,024 51 25,728 Rubber 213 15,073 248 20,917 213 15,073 248 20,917Planting Tea 34 26,707 25 30,133 34 26,707 25 30,133 Rubber 210 87,806 296 139,515 210 87,806 296 139,515 469 133,610 620 216,293 469 133,610 620 216,293

14.2 BIOlOGICAl ASSetS (CONSUMABle ) Consolidated Company

Immature Mature 2015/16 2014/15 Immature Mature 2015/16 2014/15 Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000

As at 1 April/January 6,669 98,336 105,005 83,426 6,669 98,336 105,005 83,426Gain of change in fair value less cost to sell - 20,259 20,259 24,851 - 20,259 20,259 24,851Transfers - - - (3,272) - - - (3,272)As at 31 March 6,669 118,595 125,264 105,005 6,669 118,595 125,264 105,005

Managed trees include commercial timber plantations cultivated on estates. The cost of immature trees is treated as approximate fair value particularly on the ground of little biological transformation has taken place and impact of the biological transformation on price is not material. When such plantations become mature, the additional investments since taken over to bring them to maturity are transferred from Immature to Mature.

The fair value of managed trees was ascertained since the LKAS 41 is only applicable for managed agricultural activity in terms of the ruling issued by The Institute of Chartered Accountants of Sri Lanka. The valuation was carried by Messer’s Sunil Fernando Associates, chartered valuers, using Discounted Cash Flow methods. In ascertaining the fair value of timber, a physical verification was carried out covering all the estates.


14.2.1 INFORMATION ABOUT FAIR VALUE MEASUREMENTS USING SIGNIFICANT UNOBSERVABLE INPUTS (LEVEL 3)

Non Financial Asset Valuation Unobservable Range of unobservable Relationship of technique inputs inputs (Probability unobservable inputs weighted average.) to fair value

Consumable Managed Biological Assets DCF Discounting Rate 17.5% The higher the discount rate, the lesser the fair value Optimum rotation Lower the rotation (Maturity) 25-35 Years period, the higher the fair value Volume at rotation 25-85 cu.ft The higher the volume, the higher the fair value Price per cu.ft. Rs.450/- to Rs.1,800/- The higher the price per cu. ft., the higher the fair value

Other key assumptions used in valuation1. The harvesting is approved by the PMMD and Forest Department based on the forestry development plan.2. The price adopted are net of expenditure.3. Though the replanting is a condition precedent for harvesting, yet the cost are not taken in to consideration.

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

14.2.1 Sensitivity AnalysisSensitivity variation sales priceValues as appearing in the Statement of Financial Position are very sensitive to price changes with regard to the average sales prices applied. Simulations made for timber show that a rise or decrease by 10% of the estimated future selling price has the following effect on the net present value of biological assets:



Company Rs. ‘000 Rs. ‘000 Managed Timber -10% +10%

As at 31 March, 2016 (11,098) 9,821As at 31 March, 2015 (9,086) 4,949

Sensitivity variation discount rateValues as appearing in the Statement of Financial Position are very sensitive to changes of the discount rate applied. Simulations made for timber show that a rise or decrease by 1.5% of the estimated future discount rate has the following effect on the net present value of biological assets:

Company Rs. ‘000 Rs. ‘000 -1.5% +1.5%

As at 31 March, 2016 5,397 (3,967)As at 31 March, 2015 4,030 (574)

No biological assets have been pledged as securities for the year ended 31 March 2016 (2014/15 - Nil).There are no capital expenditure commitments for biological assets as at the reporting date.

15 INVeStMeNtS IN SUBSIDIARIeS CompanyUnquoted Investments % Holding No of Shares Value Rs ‘000As at 31 March, 2015/16 2014/15 2015/16 2014/15 2015/16 2014/15

Kalupahana Power Company (Pvt) Ltd. 60 60 1,800,000 1,800,000 18,000 18,000Kelani Valley Instant Tea (Pvt) Ltd. 100 100 3,000,000 3,000,000 31,881 31,881Mabroc Teas (Pvt) Ltd. 100 100 9,000,000 9,000,000 260,000 260,000Hayleys Global Beverages (Pvt) Ltd. - 51 - 14,999,999 - 150,000Carrying amount 309,881 459,881

Subsidiaries Principal Activity % Equity InterestKalupahana Power Company (Pvt) Ltd. Generates hydro power 60Kelani Valley Instant Tea (Pvt) Ltd. Manufactures instant tea 100Mabroc Teas (Pvt) Ltd. Exports of bulk & retail packed tea 100


15.1 Investments in equity accounted investeeHayleys Global Beverages (Pvt) ltd.Hayleys Global Beverages (Pvt) Ltd has made a new share issue on 31 March 2016. As a result, ownership percentage belongs to Kelani Valley Plantations PLC has reduced to 40% from 51%. Accordingly, it has become an Equity accounted investee of Kelani Valley Plantations PLC with effect from 31 March 2016. Therefore, gain from deemed disposal has been reflected in financial statements amounting to Rs. 45.66 m due to loss of controlling in subsidiary.

Consolidated Company 2015/16 2015/16 2014/15 2015/16 2014/15 % Holding No of Shares Value Rs ‘000 Value Rs ‘000 Value Rs ‘000 Value Rs ‘000

Investment 40 26,000,000 260,000 - 260,000 -Carrying amount 260,000 - 260,000 -

Hayleys Global Beverages (Pvt.) Ltd, is involved in the manufacture of ready to drink tea. The Group’s interest in Hayleys Global Beverages (Pvt.) Ltd is accounted for using the equity method in the consolidated financial statements. The following table illustrates the summarised financial information of the Group’s investment in Hayleys Global Beverages (Pvt.) Ltd.

Statement of Financial Position 2015/16 Rs. ’000

Current assets 40,430Non-current assets 1,792,516Current liabilities (103,248)Non-current liabilities (1,169,236)equity 560,462



Statement of comprehensive income 2015/16 Rs. ’000

Revenue -Cost of sales -Administrative expenses (53,354)Finance income 23Profit/(loss) before tax (53,331)Income tax expense -Profit/(loss) for the year (53,331)Other comprehensive income (1,702)Total comprehensive income (55,033)

16 INtANGIBle ASSetS Consolidated Cost Goodwill Software 2015/16 2014/15 Rs’000 Rs’000 Rs’000 Rs’000

As at 1 April/January 33,310 4,760 38,070 37,830Addition during the period - - - 240Disposal / Transfers - (1,826) (1,826) -As at 31 March 33,310 2,934 36,244 38,070

Ammortisation and impairment As at 1 April/January - 3,882 3,882 3,509Amortisation for the period - 338 338 373Disposal / transfers - (1,668) (1,668) -As at 31 March - 2,552 2,552 3,882

Carrying Amount 33,310 382 33,692 34,188


Key assumptions used in the Value In Use calculationsGross MarginsThe basis used to determine the value assigned to the budgeted gross margins is the gross margins achieved in the year preceding the budgeted year adjusted for projected market conditions.

Discount RatesThe discount rate used is the risk free rate, adjusted by the addition of an appropriate risk premium.

InflationThe basis used to determine the value assigned to the budgeted cost inflation, is the inflation rate based on projected economic conditions.

Volume GrowthVolume growth has been budgeted on a reasonable and realistic basis by taking in to account the growth rates of one of four years immediately subsequent to the budgeted year based on industry growth rates. For longer periods, a long-term growth rate is calculated and applied to project future cash flows after the fifth year.

The carrying value of goodwill represents the goodwill on acquisition of Mabroc Teas (Pvt) Ltd. There has been no permanent impairment of intangible assets that requires a provision.

17 INVeNtORIeS Consolidated CompanyAs at 31 March 2015/16 2014/15 2015/16 2014/15 Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000

Input materials 99,177 63,233 98,593 62,722Nurseries 20,005 34,195 20,005 34,195Harvested crop 274,576 353,070 274,518 352,536Bulk tea & raw materials 246,237 353,396 - -Finished goods 3,611 2,871 220 103Spares and consumables 59,791 67,282 13,505 11,910 703,397 874,047 406,841 461,466Provision for obsolete inventories (8,581) (7,914) (4,557) (6,441) 694,816 866,133 402,284 455,025

The carrying amount of inventories pledged as securities for bank facilities obtained amounted to Rs. 275 m (2014/15 - Rs. 353 m) and Rs. 566 m (2014/15 - Rs. 603 m) by the Company & the Group respectively .



18 tRADe AND OtHeR ReCeIVABleS Consolidated CompanyAs at 31 March, 2015/16 2014/15 2015/16 2014/15 Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000

Trade receivables 404,499 663,664 74,068 133,565Lease rent paid in advance 17,356 16,514 17,356 16,514Employee advances and receivables 66,593 50,026 66,023 49,575Advance company tax recoverable 2,813 5,159 2,813 5,159ESC recoverable 8,666 2,555 6,308 -WHT recoverable 7,615 5,543 1,970 1,923Other current assets 34,219 18,963 33,428 14,991 541,761 762,424 201,966 221,727Provision for impairment in trade and other receivables (731) (25,220) (731) (1,437) 541,030 737,204 201,235 220,290

18.1 Movement in the provision for impairment

At beginning of the Period (25,220) (2,926) (1,437) (1,815)Reversal/(charge) for the period 24,489 (22,294) 706 378At end of the period (731) (25,220) (731) (1,437)

18.2 the aging analysis of trade receivables is as follows: Past due but not impaired Total 0-60 days 61-120 days 121-180 days 181-365 days > 365 days Balance as at 31 March 2016 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000

Company 74,068 74,068 - - - -Consolidated 404,499 400,073 188 423 3,815 -

Trade receivables are non-interest bearing and are generally on seven-day terms for the company.No loans over Rs. 20,000/- have been given to Directors or officers of the Company.The carrying amount of debtors pledged as securities for bank facilities obtained amounted to Rs.74 m (2014/15 - Rs. 134 m)and Rs. 395 m (2014/15 - Rs. 627.5 m) by the Company & the Group respectively .


19 OtHeR FINANCIAl ASSetS AND lIABIlItIeS19.1 Other financial assets Consolidated CompanyAs at 31 March, 2015/16 2014/15 2015/16 2014/15 Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000

Available for sale financial instruments Investment in unquoted companies Mabroc International (Pvt) Ltd 732 732 - -Mabroc Japan 4,567 4,567 - -total Available for sale instruments 5,299 5,299 - -Total Other financial assets 5,299 5,299 - -Provision for falling value of investment (5,299) (5,299) -total current - - - -total non current - - - -

20 CASH AND CASH eQUIVAleNtS20.1 Short term deposits Consolidated CompanyAs at 31 March, 2015/16 2014/15 2015/16 2014/15 Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000

Short term fixed deposits 177 40,021 - - 177 40,021 - -

20.2 Favourable balancesCash in hand 95 182 60 122Cash at bank 54,758 54,020 33,300 2,437 54,853 54,202 33,360 2,559



20.3 Unfavourable balances Consolidated CompanyAs at 31 March, 2015/16 2014/15 2015/16 2014/15 Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000

Bank overdraft (95,081) (51,190) (95,081) (51,190) (95,081) (51,190) (95,081) (51,190)

Short-term deposits are made for varying periods of between one day and three months depending on the immediate cash requirements of the Group and earned interest at the respective short-term deposit rates.

The securities pledged have been disclosed in Note 30 to the financial statements.

21 StAteD CAPItAl Consolidated CompanyAs at 31 March, 2015/16 2014/15 2015/16 2014/15 Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000

Issued & fully paid-ordinary shares 34,000,000 (34,000,000 - 2014/15) ordinary shares and 01 golden share 340,000 340,000 340,000 340,000 340,000 340,000 340,000 340,000

The holders of ordinary shares and golden share are entitled to receive dividends as declared from time to time and are entitled to one vote per share at meetings of the Company. Special rights of the golden share are given in the Annual Report of the Board of Directors on the Affairs of the Company.


22 INteReSt-BeARING BORROWINGS22.1 long term interest bearing borrowingsAs at 31 March, 2015/16 2014/15 Pan Asia Bank HNB Union Bank DFCC NDB Amana Bank Total Total Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000

Group As at 1 April 14,611 242,746 39,413 23,055 - 150,000 469,825 148,147Obtained during the 12 months/ 15 months - 984,436 - 137,402 61,880 50,000 1,233,718 420,041Transfered due to change in controlling interest - (1,227,182) - - - - (1,227,182) -Repayments during the 12 months/ 15 months (14,611) - (39,413) (13,723) (2,063) (2,804) (72,614) (98,363)As at 31 March - - - 146,734 59,817 197,196 403,747 469,825

Payable within one year (Transferred to current liabilities) - - - (36,814) (12,376) (30,641) (79,831) (37,680)Payable after one year - - - 109,920 47,441 166,555 323,916 432,145

Analysis of long term borrowings by year of repayment Repayable within one year from year-end - - - 36,814 12,376 30,641 79,831 37,680Repayable between 2 and 5 years from year-end - - - 109,920 47,441 157,779 315,140 364,726Repayable later than 5 years from year-end - - - - - 8,776 8,776 67,419 - - - 146,734 59,817 197,196 403,747 469,825

As at 31 March, 2015/16 2014/15 DFCC NDB Amana Bank Total Total Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000

Company As at 1 April 23,055 - 150,000 173,055 91,864Obtained during the 12 months/ 15 months 137,402 61,880 50,000 249,282 150,000Repayments during the 12 months/ 15 months (13,723) (2,063) (2,804) (18,590) (68,809)As at 31 March 146,734 59,817 197,196 403,747 173,055

Payable within one year (Transferred to current liabilities) (36,814) (12,376) (30,641) (79,831) (16,493)Payable after one year 109,920 47,441 166,555 323,916 156,562



2015/16 2014/15 DFCC NDB Amana Bank Total Total Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000

Analysis of long term borrowings by year of repayment Repayable within one year from year-end 36,814 12,376 30,641 79,831 16,493Repayable between 2 and 5 years from year-end 109,920 47,441 157,779 315,140 125,555Repayable later than 5 years from year-end - - 8,776 8,776 31,007 146,734 59,817 197,196 403,747 173,055

Lender Loan outstanding Rate of interest MonthlyAs at 31 March, 2015/16 2014/15 per annum instalment Terms of repayments Rs. ’000 Rs. ’000 % Rs.

22.1.1 DFCC Bank(Under ADB line of credit)Term loan 1 9,333 20,533 7.5 933,330 90 monthly instalments commenced on 31.08.2009Term loan 2 137,401 - First two years - AWPLR - 0.5% 2,290,033 60 monthly instalments (Under e-Friends loan scheme) After two years - AWPLR + 1.5% commenced on 14.03.2016 e-Friends Loan 2 - 1,272 6.5 424,048 84 monthly instalments commenced on 31.07.2008e-Friends Loan 3 - 1,250 6.5 138,961 84 monthly instalments commenced on 31.01.2009DFCC total 146,734 23,055


22.1.2 Amana BankLender Loan outstanding Rate of interestAs at 31 March, 2015/16 2014/15 per annum Rs. ’000 Rs. ’000 % Instalments and terms of repayments

term loan Disbursement 1 47,196 50,000 SLIBOR with a cap of 14% and 72 monthly instalments commenced on floor of of 7.25% 14.12.2015 as per agreed scheduleDisbursement 2 100,000 100,000 SLIBOR with a cap of 14% and 72 monthly instalments commencing on floor of of 7.25% 19.03.2017 as per agreed scheduleDisbursement 3 50,000 - SLIBOR with a cap of 14% and 72 monthly instalments commencing on floor of of 7.25% 21.01.2017 as per agreed scheduleAmana Bank - total 197,196 150,000

22.1.3 National Development BankLender Loan outstanding Rate of interestAs at 31 March, 2015/16 2014/15 per annum Rs. ’000 Rs. ’000 % Instalments and terms of repayments

Term loan 1 59,817 - First two years - AWPLR - 0.5% 60 monthly instalments commenced on 11.02.2016 After two years - AWPLR + 1.5% NDB - Total 59,817

Company - total 403,747 173,055



22.1.4 Subsidiary - Mabroc Teas (Pvt) Ltd.Lender Loan outstanding Rate of interestAs at 31 March, 2015/16 2014/15 per annum Currency Rs. ’000 Rs. ’000 % Instalments and terms of repayments

Union Bank Term loan USD - 39,413 LIBOR+3.5% with a floor rate A monthly installment of USD 8,958.33 of 4.5% commenced on 31.01.2014Pan Asia Bank Term loan USD - 14,611 One month LIBOR + 4% 36 monthly instalments commenced on 11.05.2014 as per agreed schedule

Mabroc teas (Pvt) ltd - total - 54,024

22.1.4 Subsidiary - Hayleys Global Beverages (Pvt) LtdLender Loan outstanding Rate of interestAs at 31 March, 2015/16 2014/15 per annum Rs. ’000 Rs. ’000 % Instalments and terms of repayments

Hatton National Bank PlC Term loan 1 - 240,000 AWPLR 20 quarterly installment of Rs.12,000,000/- commencing on 23.01.2017Term loan 2 - 2,746 AWPLR 20 quarterly instalments of Rs.137,282/- commencing on 23.01.2017HGBl - total - 242,746

Group-total 403,747 469,825


22.2 Short term interest bearing borrowingsSubsidiary - Mabroc teas (Pvt) ltdAs at 31 March, 2015/16 2014/15 Total Total Lender Currency Rs. ‘000 Rs. ‘000

Hongkong & Shanghai Banking Corporation Ltd USD 202,132 320,101Hatton National Bank PLC USD 100,560 215,672CITI Bank N. A. USD 70,030 186,888total 372,722 722,661

The securities pledged for these facilities have been disclosed in Note 30 to the Financial Statements.

23 DeFeRReD INCOMeGrants and Subsidies Consolidated CompanyAs at 31 March, 2015/16 2014/15 2015/16 2014/15 Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000

Capital Grants As at 1 April/ 1 January 634,054 612,310 633,087 611,343Grants received during the 12 months/15 months 59,788 21,744 59,788 21,744As at 31 March 693,842 634,054 692,875 633,087

Amortisation As at 1 April/ 1 January 155,697 136,106 155,534 135,975Amortisation for the 12 months/ 15 months 15,382 19,591 15,356 19,559As at 31 March 171,079 155,697 170,890 155,534Net carrying amount at 31 March 522,763 478,357 521,985 477,553

Grants were received from the Plantation Reform Project (PRP), Plantation Human Development Trust, Ministry of Community Development, Asian Development Bank, Social Welfare Project, Estate Infrastructures Development Project, Plantation Development Support Project, Ceylon Electricity Board, Tea Board and Rubber Development Division of Ministry of Plantations Industry.



The amount spent is capitalised under relevant classification of improvement to leasedhold Property, Plant & Equipment. Corresponding grant component is reflected under deferred grants and subsidies and amortised over the useful life span of the asset.

24 DeFeRReD tAx lIABIlItY / (ASSetS) ConsolidatedAs at 31 March, 2015/16 2014/15 Temporary Temporary difference Tax effect difference Tax effect Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000

As at 1 April/ 1 January 2,436,393 393,243 2,262,749 363,132Amount originating/ (reversal) during the period 2,922 (2,628) 173,644 30,111As at 31 March 2,439,315 390,615 2,436,393 393,243

Deferred tax liability Temporary difference of Property, Plant and Equipment (including mature and immature plantation) 4,050,148 654,233 3,754,370 614,603Temporary difference of biological asset 125,264 12,526 105,005 10,500As at 31 March 4,175,412 666,759 3,859,375 625,103

Deferred tax Assets Temporary difference of retirement benefit obligations (1,153,245) (183,944) (1,122,820) (178,810)Provision for bad debts - - (23,783) (5,796)Provision for stocks (4,025) (1,002) (906) (221)Carried forward tax losses (578,827) (91,198) (275,473) (47,033)As at 31 March (1,736,097) (276,144) (1,422,982) (231,860)

Net deferred tax liability as at 31 March 2,439,315 390,615 2,436,393 393,243


24 DeFeRReD tAx lIABIlItY / (ASSetS) CONtD. CompanyAs at 31 March, 2015/16 2014/15 Temporary Temporary difference Tax effect difference Tax effect Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000

As at 1 April/ 1 January 2,214,160 342,903 2,062,422 320,232Amount originating during the year/period (47,562) (8,663) 151,738 22,671As at 31 March 2,166,598 334,240 2,214,160 342,903

Deferred tax liability Temporary difference of Property, Plant and Equipment (including mature and immature plantation) 3,737,203 588,983 3,446,262 543,131Temporary difference of biological asset 125,264 12,526 105,005 10,500As at 31 March 3,862,467 601,509 3,551,267 553,631

Deferred tax Assets Temporary difference of retirement benefit obligations (1,128,871) (177,910) (1,101,269) (173,560)Carried forward tax losses (566,998) (89,359) (235,838) (37,168)As at 31 March (1,695,869) (267,269) (1,337,107) (210,728)

As at 31 March 2,166,598 334,240 2,214,160 342,903

The effective tax rate used to calculate deferred tax liability for all the temporary differences other than Biological Asset as at 31 March, 2016 is 15.76% (2014/15-15.76%) for the company.

The effective tax rate used to calculate deferred tax liability for Biological Asset as at 31 March, 2016 is 10% (2014/15-10%) for the company.



25 RetIReMeNt BeNeFIt OBlIGAtIONS Consolidated CompanyAs at 31 March, 2015/16 2014/15 2015/16 2014/15 Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000

Movement in the Retirement Benefit Obligations As at 1 April/ 1 January 1,122,870 1,046,403 1,101,270 1,027,537Transfer due to change in controlling interest (3,414) - - -Current service cost 49,775 89,128 48,791 87,649Interest cost 109,085 98,171 107,043 95,955Actuarial (gain) / loss due to changes in financial assumptions (117,916) 26,073 (119,767) 26,100Actuarial (gain) / loss due to changes in experience 94,547 - 91,045 - 135,491 213,372 127,112 209,704 1,254,947 1,259,775 1,228,382 1,237,241Benefit paid by the plan (101,703) (136,905) (99,511) (135,971)As at 31 March 1,153,244 1,122,870 1,128,871 1,101,270

LKAS 19 requires the use of actuarial techniques to make a reliable estimate of the amount of retirement benefit that employees have earned in return for their service in the current and prior periods using the Projected Unit Credit Method and discount that benefit in order to determine the present value of the retirement benefit obligations and the current service cost. This require an entity to determine how much benefit is attributable to the current and prior periods and to make estimates about demographic variables and financial variables that will influence the cost of the benefit. The following key assumptions were made in arriving at the above figure.

According to the actuarial valuation report issued by the actuarial valuer as at 31 March 2016 the actuarial present value of promised retirement benefits amounted to Rs. 1,128,870,125/-. If the company had provided for gratuity on the basis of 14 days wages & half months salary for each completed year of service, the liability would have been Rs. 949,248,730/-. Hence, there is a contingent asset of Rs. 179,621,395/- , which would crystallise only if the company ceases to be a going concern.


The following payments are the expected contributions to the defined benefit plan obligations in future years.

Consolidated Company 2015/16 2014/15 2015/16 2014/15 Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000

Within the next 12 months 111,867 80,784 109,510 78,343Between 2 and 5 years 263,570 145,197 254,821 140,098Beyond 5 years 777,807 896,889 764,540 882,829 1,153,244 1,122,870 1,128,871 1,101,270

The weigted average duration of the defind benefit plan obligations as at the end of the reporting period for staff is 10.5 years and workers is 10.8 yearsThe Present Value of Retirement Benefit Obligation is carried on annual basis.The key assumptions used by actuary include the following. 2015/16 2014/15

(i) Rate of interest 11% 10%(ii) Rate of salary increase- Workers 22% (every two years) 22% (every two years)- Staff 10% (per annum) 10% (per annum)(iii) Retirement age- Workers 60 years 60 years- Staff 60 years 60 years

Sensitivity AnalysisValues appearing in the Financial Statements are very sensitive to the changes in financial and non-financial assumptions used. A sensitivity was carried out as follows:

Company

A one percentage point change in the discount rate. +1% -1%As at 31 March 2016 (53,428) 49,165As at 31 March 2015 (104,401) 123,481

A one percentage point change in the salary / wage increment rate. +1% -1%As at 31 March 2016 98,830 (94,942)As at 31 March 2015 65,300 (59,889)



26 lIABIlItY tO MAKe leASe PAYMeNt Consolidated CompanyAs at 31 March, 2015/16 2014/15 2015/16 2014/15 Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000

Gross liability As at 1 April/ 1 January 1,840,709 1,900,087 1,840,709 1,900,087Repayment during the 12months/15 months (59,378) (59,378) (59,378) (59,378)As at 31 March, 1,781,331 1,840,709 1,781,331 1,840,709

Finance cost allocated to future periods (1,336,256) (1,394,291) (1,336,256) (1,394,291)Net liability 445,075 446,418 445,075 446,418

Payable within one year Gross liability 59,378 59,378 59,378 59,378Finance cost allocated to future periods (6,831) (6,831) (6,831) (6,831)Net liability transferred to current liabilities 52,547 52,547 52,547 52,547

Payable within two to five years Gross liability 237,511 237,511 237,511 237,511Finance cost allocated to future periods (81,212) (81,212) (81,212) (81,212)Net liability 156,299 156,299 156,299 156,299

Payable after five years Gross liability 1,484,442 1,543,819 1,484,442 1,543,819Finance cost allocated to future periods (1,248,213) (1,306,247) (1,248,213) (1,306,247)Net liability 236,229 237,572 236,229 237,572

Net liability payable after one year 392,528 393,871 392,528 393,871

Liability to make lease payment as above was previously titled as “Net Liability to Lessor”. The Change was in terms of the Statement of Alternative Treatment (SoAT) issued by The Institute of Chartered Accountants of Sri Lanka on 21 August 2013.

According to the re-asessment, the base rental payable per year has increased from Rs.19,598,000/- to Rs.59,377,972/- .

The Statement of Recommended Practice (SoRP) for Right-to-use Land on Lease was approved by the Council of the Institute of Chartered Accountants of Sri Lanka on 19 December 2012. Subsequently, the amendments to the SoRP along with the modification to the title as Statement of Alternative Treatment (SoAT) were approved by the Council on 21 August 2013. The Company has reassessed the liability up to financial year 2013 and not reassessed after that as this was not


mandatory requirement. However, if the liability is reassessed according to the alternative treatment (SoAT) on the assumption that the lease rent is increased constantly by GDP deflator of 4% and discounted at a rate of 13%, liability would be as follows.

Rs.’000

Gross liability 4,049,390Finance charge 3,313,676Net liability 735,714

27 tRADe AND OtHeR PAYABleS Consolidated CompanyAs at 31 March, 2015/16 2014/15 2015/16 2014/15 Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000

Trade payables 55,095 64,479 3,777 5,176Other payables and accruals 182,592 155,077 146,970 136,294Staff payables 160,851 199,464 160,213 198,761Unclaimed dividends 11,822 11,356 11,822 11,356Dividend Payable 4,692 - - -As at 31 March, 415,052 430,376 322,782 351,587

28 INCOMe tAx28.1 Income tax Recoverable Consolidated CompanyAs at 31 March, 2015/16 2014/15 2015/16 2014/15 Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000

As at 1 April/ 1 January 1,015 812 - 674Transferred from income tax payable - 877 - -Transfer to income tax payable (877) (674) - (674)As at 31 March, 138 1,015 - -



28.2 Income tax Payable Consolidated CompanyAs at 31 March, 2015/16 2014/15 2015/16 2014/15 Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000 As at 1 April/ 1 January 7,780 7,352 6,086 -Transferred from income tax receivable (877) (674) - (674)Subsidiaries/parent taxation on current year’s profit 18,915 7,060 558 1,920Over provision in respect of previous years (134) 6,271 (879) 8,090Cash paid during the year (6,807) (9,167) (3,419) (2,907)ESC,WHT,ACT set-off against income tax (3,374) (3,939) (2,346) (343)Transferred to income tax receivable - 877 - -As at 31 March, 15,503 7,780 - 6,086


29 RelAteD COMPANY BAlANCeS ConsolidatedAs at 31 March, 2015/16 2014/15 Receivable Payable Receivable Payable Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000

Other related companies DPL Plantations (Pvt) Ltd. - 1,104 - 1,161Dipped Products PLC. 1,334 - 26,891 -Dipped Products PLC - loan - 2,500 - -DPL Premier Gloves (Pvt) Ltd. 4,507 - 42,000 -Grossart (Pvt) Ltd. - - 5 -Hanwella Rubber Products Ltd. - - 20,939 -Hayleys PLC. 84 3,563 74 2,489Hayleys Agriculture holdings Ltd. - 4,432 20 3,346Hayleys Agro Fertilizers (Pvt) Ltd. - - - 7,250Hayleys Agro Farms (Pvt) Ltd. - 459 - 162Talawakelle Tea Estates PLC. 867 - - 1,269Hayleys Business Solutions (Pvt) Ltd. - - - 12Hayleys Leisure Holding (Pvt) Ltd. - - - 782Hayleys Consumer Products Ltd. 3,673 - 552 -Amaya Leisure PLC. - - 1 -CMA CGM Lanka Ltd. - - 2 -Culture Club Resorts (Pvt) Ltd. - - 80 -Diesel & Motor Engineering PLC. 103 - 48 -Haycarb Ltd. 17 - 8 -Hunas Falls Hotels PLC. - - 49 -The Kingsbury PLC. 46 - 681 -Hayleys Industrial Solutions (Pvt) Ltd. - - - 691Logiventure (Pvt) Ltd. - 79 - 79MIT Cargo (Pvt) Ltd. - - - 39Hayleys Advantis Ltd. 273 - - -Kandy Resorts (Pvt) Ltd. 439 - - -Rileys (Pvt) Ltd. 36 - - -Sun Tan Beach Resorts Ltd. 66 - - -Puritas (Pvt) Ltd. - 7,631 - -total 11,445 19,768 91,350 17,280



CompanyAs at 31 March, 2015/16 2014/15 Receivable Payable Receivable Payable Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000

Subsidiaries Kalupahana Power Co. (Pvt) Ltd. 375 - 143 -Kelani Valley Instant Tea (Pvt) Ltd. - 11,049 - 12,310Mabroc Teas (Pvt) Ltd. - 2,192 - -Hayleys Global Beverages (Pvt) Ltd. - - 5,344 - 375 13,241 5,487 12,310

Other related companies DPL Plantations (Pvt) Ltd. - 1,104 - 1,161Dipped Products PLC. 1,334 - 26,891 -Dipped Products PLC - loan. - 2,500 - -DPL Premier Gloves (Pvt) Ltd. 4,507 - 42,000 -Grossart (Pvt) Ltd. - - 5 -Hanwella Rubber Products Ltd. - - 20,939 -Hayleys PLC. - 1,066 - 1,586Hayleys Agriculture Holdings Ltd. - 4,432 - 3,257Hayleys Agro Fertilizers (Pvt) Ltd. - - - 7,250Hayleys Agro Farms (Pvt) Ltd. - 459 - 162Talawakelle Tea Estates PLC. 867 - - -Puritas (Pvt) Ltd. - 7,631 - -total 6,708 17,192 89,835 13,416

The carrying amount of receivables pledged as securities for bank facilities obtained amounts to Rs.7 m (2014/15 - Rs. 90 m).


29.1 Other related companies - loanDipped Products PLC. Consolidated Company 2015/16 2015/16 Rs. ’000 Rs. ’000 Payable Payable

As at 1 April - -Obtained during the year 25,000 25,000Repayments during the year - -As at 31 March 25,000 25,000

Payable within one year (2,500) (2,500)(Transferred to current liabilities) Payable after one year 22,500 22,500

Dipped Products PLC granted a loan at the rate of five percent (5%) per annum which shall be repayable in five (5) years.

29.2 Amount due to equity accounted investee Consolidated Company 2015/16 2015/16As at 31 March, Receivable Payable Receivable Payable Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000

Hayleys Global Bevarage (Pvt) Ltd. 18 4,905 - 4,905total 18 4,905 - 4,905



30 ASSetS PleDGeD AS SeCURItYFollowing assets have been pledged as security for liabilities:Company 2015/16Nature of liability Facility Outstanding (Rs. m) (Rs. m) Security

Overdraft Bank of Ceylon. 75.0 Nil Concurrent mortgage over stock in trade and debtors.Hatton National Bank PLC. 50.0 Nil Promissory Note.Sampath Bank PLC. 30.0 Nil Concurrent mortgage over stock in trade and debtors.

term loan DFCC Bank PLC. 224.4 147 Primary mortgage over the leasehold rights of Halgolla, We Oya, Polatagama and Ederapola estates and a letter of undertaking from DPL Plantations (Pvt) Ltd., was given to subordinate management fee and dividends in a default situation of term loans.

National Development Bank PLC. 61.88 59.8 Primary mortgage over the leasehold rights, Buildings, Plant & Mechinery of Pedro, Mahagastota & Panawatte Estates.


30 ASSetS PleDGeD AS SeCURItY (CONtD.)SubsidiaryMabroc teas (Pvt) ltd 2015/16Nature of liability Facility Outstanding (Rs. m) (Rs. m) Security

Overdraft CITI Bank N.A. 50.00 Nil Corporate guarantee from Kelani Valley Plantations PLC for Rs. 200 m.National Development Bank PLC. 10.00 Nil Primary mortgage of 50m over stock in trade.Hatton National Bank PLC. 75.00 Nil Promissory Note.Sampath Bank PLC. 10.00 Nil Hypothecation bond over stock and book debts.

Short-term borrowings Facility Outstanding Security Foreign currency loans USD (Rs. m)

CITI N.A. 1.04 70.03 Corporate guarantee from Kelani Valley Plantations PLC for Rs. 200 m.Hatton National Bank PLC. 2.42 100.56 Promissory Note.Sampath Bank PLC. 2.00 Nil Hypothecation bond totaling Rs.200m over stock and book debts.National Development Bank PLC. 1.04 Nil Primary mortgage of 50m over stock in trade.Union Bank of Colombo PLC 0.50 Nil Letter of hypothecation of USD 500,000/-.



31 RelAteD PARtY DISClOSUReSTransactions with related parties were carried out at arm’s length and at market price. Details of significant related party disclosures are as fellows; Recurrent transactionsCompany Relationship Nature of transaction Amount (paid)/receivedFor the 12 months / 15 months ended 31 March 2015/16 2014/15 Rs. ’000 Rs. ’000

(A) Parent and Ultimate Parent CompanyThe Company has controlling related party relationship with its parent company DPL Plantations (Pvt) Ltd.

(i) Hayleys PLC. Ultimate parent Office space together with other related facilities, finance and secretarial services. (42,608) (50,761)

(ii) DPL Plantations (Pvt) Ltd. Parent Cost of facilities and related services rendered. - (1,109)

The managing agent DPL Plantations (Pvt) Ltd. has waived the management fees in its entirety effective from 2007.

(B) transactions with Key Management PersonnelKey management personnel includes, members of the Board of Directors of the Company and key employees holding directorships in the subsidiaries and other related Companies.

(i) loans to DirectorsNo loans have been given to the Directors of the Company.

(ii) Key Management Personnel CompensationFor the 12 months / 15 months ended 31 March 2015/16 2014/15 Rs. ’000 Rs. ’000

Directors’ emoluments 11,203 12,524


(C) transactions with SubsidiariesCompany Relationship Nature of transaction Amount (paid)/receivedFor the 12 months / 15 months ended 31 March 2015/16 2014/15 Rs. ’000 Rs. ’000

(i) Kalupahana Power Co. (Pvt) Ltd. Subsidiary Share of revenue 1,943 2,053

(ii) Kelani Valley Instant Tea (Pvt) Ltd. Subsidiary Sale of black tea 586 1,275 Manufacturing charges 2,139 5,626

(iii) Mabroc Teas (Pvt) Ltd. Subsidiary Sales of tea 49,716 66,690 Purchase of tea (10,907) (9,297)

The Company has sub leased an extent of 8 acres, 2 roods and 6.1 perches in Kalupahana estate to Kalupahana Power Co. (Pvt) Ltd.

(D) transactions with other related CompaniesCompany Relationship Nature of transaction Amount (paid)/receivedFor the 12 months / 15 months ended 31 March 2015/16 2014/15 Rs. ’000 Rs. ’000

(i) Dipped Products PLC. Intermediary ultimate parent Sale of latex 70,094 190,733 Purchase of skim crepe (2,665) (11,570) Cost of facilities and related services rendered (31) (72) Loan interest (34) -

(ii) Hanwella Rubber Products Ltd. Common Directors Purchase of skim crepe (1,894) (14,323) Sale of latex - 196,975



Relationship Nature of transaction Amount (paid)/receivedFor the 12 months / 15 months ended 31 March 2015/16 2014/15 Rs. ’000 Rs. ’000

(iii) Grossart (Pvt) Ltd. Common Directors Sale of latex 34,611 18,363

(iv) DPL Premier Gloves (Pvt) Ltd. Common Directors Sale of latex 135,489 203,773

(v) Hayleys Industrial Solutions (Pvt) Ltd. Common Directors Purchase of engineering items and repair charges - (1,296)

(vi) Hayleys Agro Fertilizers (Pvt) Ltd. Common Directors Purchase of fertilizers (25,247) (62,955)

(vii) Hayleys Agriculture Holdings Ltd. Common Directors Purchase of chemicals (21,686) (20,610)

(viii) Hayleys Power Ltd. Common Directors Service charges - (537)

(ix) Hayleys Travels & Tours (Pvt) Ltd. Common Directors Cost of air tickets and related charges (1,944) (3,271)

(x) MIT Cargo (Pvt) Ltd. Common Directors Handling, clearing and courier charges (235) (495)

(xi) Puritas (Pvt) Ltd. Common Directors Maintenance & construction of effluent treatment plant (25,305) (17,617)

(xii) Logiventures (Pvt) Ltd. Common Directors Purchase of security seals (90) (100)

(xiii) Hayleys Consumer Products Ltd. Common Directors Purchase of consumer products - (18) Purchase of cameras (180) -


Company Relationship Nature of transaction Amount (paid)/receivedFor the 12 months / 15 months ended 31 March 2015/16 2014/15 Rs. ’000 Rs. ’000

(xiv) Talawakelle Tea Estates PLC. Common Directors Share of regional office and office maintenance cost Receipt 2,198 10,783 Payment (1,629) (794) Green leaf supplies Receipt 53,462 4,728 (xv) Hayleys Business Solutions International (Pvt) Ltd. Common Directors Payment of executive payroll processing (599) (679)

(xvi) The kingsbury PLC. Common Directors Services rendered for AGM (80) (55)

(xvii) Logiwiz Ltd. Common Directors Storage & handling charges (334) (162)

(xviii) Hayleys Agro Farms (Pvt) Ltd. Common Directors Purchase of chemicals (468) (2,657)

(xix) Kandyan Resorts (Pvt) Ltd. Common Directors Purchase of furniture - (978)

(xx) Hayleys Electronics Lighting (Pvt) Ltd. Common Directors Purchase of light fittings (17) -

(xxi) Haycolour (pvt) Ltd. Common Directors Purchase of dye for latex (5) -



Non- Recurrent transactions(e) transactions with equity accounted investeeCompany Relationship Nature of transaction Amount (paid)/receivedFor the 12 months / 15 months ended 31 March 2015/16 2014/15 Rs. ’000 Rs. ’000

(i) Hayleys Global Beverages (Pvt) Ltd. Equity accounted investee Investment in shares (110,000) (150,000)

The Company has sub leased an extent of 1.0127 hectares in Ingestre estate and 2.2247 hectares in Blinkbonnie estate to Hayleys Global Beverages (Pvt) Ltd.

There are no Non-recurrent related party transactions where aggregate value exceeds 10% of the equity or 5% of the total assets and recurrent related party transactions where aggregate value exceeds 10% of gross revenue/income.

There are no retarded party transactions and balances other than those disclosed above and in Notes 29 to the Financial Statements.

32 CONtINGeNt lIABIlItIeSa.) As per the collective agreement with plantation workers unions, wages has to be reviewed by 1 April 2015. However, negotiations are still under consideration

and therefore, no agreement has been reached as at the date of statement of financial position.

b.) Contingent liabilities that may result, depending on the timing of the taxability of certain fair value adjustments is amounts to approximately Rs.2,030,000/- (2014/15 - Rs. 2,500,000/-)

33 CAPItAl exPeNDItURe COMMItMeNtSThere were no material capital commitments as at the reporting date. However, the budgeted capital expenditure approved but, not committed by the Company for the financial year 2016/17 amounts to Rs.412,502,810/-(2015/16 Rs.437,452,000/-).

34 eVeNtS OCCURRING AFteR tHe DAte OF StAteMeNt OF FINANCIAl POSItIONNo circumstances have arisen since the reporting date which require adjustments to or disclosure in the financial statements.


35 ADDItIONAl DISClOSUReS FOR PReSeNtING 3 MONtHS AND 12 MONtHS FINANCIAl PeRFORMANCe FOR tHe FINANCIAl YeAR 2014/15. Consolidated CompanySummarised income statement for the period: 01.01.2014 01.01.2014 01.01.2014 01.04.2014 31.03.2014 31.03.2015 31.03.2014 31.03.2015 (3 Months) (12 Months) (3 Months) (12 Months) Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000

Revenue 1,931,246 6,716,103 1,157,090 3,782,690Cost of sales (1,754,301) (6,153,746) (1,040,957) (3,478,083)Gross profit 176,945 562,357 116,133 304,607Gain on change in fair value of biological assets - 24,851 - 24,851Other income 13,682 65,140 11,756 83,678Administrative expenses (101,708) (418,328) (65,651) (237,801)Distribution expenses (10,198) (87,535) - -Results from operating activities 78,721 146,485 62,238 175,335Finance income 1,432 8,581 2,073 7,753Finance expenses (10,123) (43,660) (3,337) (11,647)Interest paid to Government on finance lease (14,124) (64,905) (14,124) (64,905)Net finance cost (22,815) (99,984) (15,388) (68,799)Profit before tax 55,906 46,501 46,850 106,536Tax expense (14,319) (35,593) (11,027) (25,768)Profit for the period 41,587 10,908 35,823 80,768

36 SeGMeNtAl ANAlYSISConsolidated Tea Rubber Others Unallocated Total 2015/16 2014/15 2015/16 2014/15 2015/16 2014/15 2015/16 2014/15 2015/16 2014/15 Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000

Segmental assets Non-current assets 2,621,181 2,798,273 2,311,723 2,143,760 142,735 133,833 144,259 128,004 5,219,898 5,203,870Current assets 1,012,909 1,422,063 100,170 93,633 14,437 9,974 174,961 264,255 1,302,477 1,789,925total assets 3,634,090 4,220,336 2,411,893 2,237,393 157,172 143,807 319,220 392,259 6,522,375 6,993,795

Segmental liabilities Non-current liabilities 1,297,080 1,514,609 403,134 372,669 11,056 18,741 1,094,296 914,466 2,805,566 2,820,485Current liabilities 672,550 1,056,980 76,147 76,534 7,858 3,489 298,854 182,512 1,055,409 1,319,515total liabilities 1,969,630 2,571,589 479,281 449,203 18,914 22,231 1,393,150 1,096,978 3,860,975 4,140,000



Consolidated Tea Rubber Others Unallocated Total 2015/16 2014/15 2015/16 2014/15 2015/16 2014/15 2015/16 2014/15 2015/16 2014/15 Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000

Non-interest bearing liabilities Deferred taxation - - - - - - 390,615 393,243 390,615 393,243Retirement benefit obligations 929,280 909,698 201,010 190,378 246 86 22,708 22,708 1,153,244 1,122,870Trade & other payables 278,495 309,047 76,148 76,533 6,208 2,016 54,201 42,780 415,052 430,376

Total depreciation 142,817 152,328 71,563 98,322 5,250 6,564 - - 219,630 257,214Lease amortisation 12,923 17,473 12,273 16,460 - - - - 25,196 33,933Capital expenditure 103,056 652,041 269,499 383,356 14,820 8,881 26,554 18,683 413,929 1,062,961

Company Segmental assets Non-current assets 2,344,563 2,053,526 2,311,723 2,143,760 54,392 40,985 454,140 587,885 5,164,818 4,826,156Current assets 362,253 413,336 100,170 93,633 1,069 1,972 180,470 264,255 643,962 773,196Total assets 2,706,816 2,466,862 2,411,893 2,237,393 55,461 42,957 634,610 852,140 5,808,780 5,599,352

Segmental liabilities Non-current liabilities 1,226,341 1,184,754 403,134 372,669 269 269 1,094,296 914,467 2,724,040 2,472,159Current liabilities 210,512 232,187 76,147 76,534 66 87 298,854 194,821 585,579 503,629Total liabilities 1,436,853 1,416,941 479,281 449,203 335 356 1,393,150 1,109,288 3,309,619 2,975,788

Non-interest bearing liabilities Deferred taxation - - - - - - 334,240 342,903 334,240 342,903Retirement benefit obligations 905,153 888,184 201,010 190,378 - - 22,708 22,708 1,128,871 1,101,270Trade & other payables 192,367 232,187 76,148 76,533 66 87 54,201 42,780 322,782 351,587

Total depreciation 101,031 104,289 71,563 98,322 745 932 - - 173,339 203,543Lease amortisation 12,923 17,473 12,273 16,460 - - - - 25,196 33,933Capital expenditure 96,236 169,731 269,499 383,356 14,820 8,881 26,554 18,683 407,109 580,651

Information in respect of geographical segments was considered not significant enough to be disclosed as explained under segment reporting in accounting policies.


37 FINANCIAl RISK MANAGeMeNt OBJeCtIVeS AND POlICIeSThe Group’s principal financial liabilities, other than derivatives, comprise loans and borrowings, trade and other payables, and financial guarantee contracts. The main purpose of these financial liabilities is to finance the Group’s operations and to provide guarantees to support its operations. The Group has loan and other receivables, trade and other receivables, and cash and short-term deposits that arise directly from its operations. The Group also holds available-for-sale investments and enters into derivative transactions (Mainly Forward Foreign Exchange Contracts). Accordingly the Group has exposure to namely Credit Risk, Liquidity Risk, Currency Risk and Market Risks from its use of financial instruments.

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

37.1 Financial Risk Management FrameworkThe Board of Directors has the overall responsibility for the establishment and oversight of the Group’s financial risk management framework which includes developing and monitoring the Group’s financial risk management policies.

The Group financial risk management policies are established to identify, quantify and analyse the financial risks faced by the Group, to set appropriate risk limits and controls and to monitor financial risks and adherence to limits. Financial risk management policies and systems are reviewed regularly to reflect changes in market conditions and the Group’s activities.

The KVPL Audit Committee oversees how management monitors compliance with the Group’s financial risk management policies and procedures and reviews the adequacy of the financial risk management framework in relation to the risks faced by the Group.

37.2 Credit RiskCredit Risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arise principally from the Group’s receivable from customers and from its financing activities including deposits with banks and financial institutions, foreign exchange transactions and other financial instruments.

37.2.1 Trade and Other ReceivablesThe Group’s exposure to credit risk is influenced by the individual characteristics of each customer. The Group’s credit policy is monitored at the Board level. The new customers are analysed individually for credit worthiness before Group’s standard payment and delivery terms and conditions are offered. Group review includes external ratings when available and in some cases, bank references, purchases limit etc. which also subject to under review on quarterly basis. The past experience of the management is considered when revisions are made to terms and conditions.

The Group establishes an allowance for impairment that represents its estimate of incurred losses in respect of trade and other receivables.



The maximum exposure to credit risk for trade and other receivables at the reporting date is Rs. 541m (2014/15 – Rs. 737 m).

KVPL has a minimal credit risk of its trade receivables as the repayment is guaranteed within seven days by the Tea and Rubber auction systems.

MTPL has the largest exposure to credit risk as a major portion of the trade receivables are from foreign currencies. All open account debtors are covered with export credit insurance. Settlement of other debtors are carried through banks.

37.2.2 InvestmentsCredit risks from invested balance with the financial institutions are managed by the Board of Directors. Investments of surplus funds are made only with approved counterparties and within credit limits assigned to them. The limits are set to minimise the concentration of risks and therefore mitigate financial loss through potential counterparty’s failure.

The Group held short term investments of Rs. 0.177m as at 31 March 2016 (2014/15 – Rs. 40m) which represents the maximum credit exposure on these assets.

37.2.3 Cash and Cash EquivalentsThe Group held cash at bank and in hand of Rs. 55m as at 31 March 2016 (2014/15 – Rs. 54m) which represents its maximum credit exposure on these assets.

yy Sampath Bank PLC – A+ (lka)yy Hatton National Bank PLC –AA – (lka)yy Bank of Ceylon – AA+ (lka)yy Citi Bank N.A. – AAA (lka)yy Hong Kong and Shanghai Banking Corporation Ltd – AAA(lka)yy Pan Asia Banking Corporation PLC – BBB (lka)yy Union Bank of Colombo PLC – BB+ (lka)yy DFCC Bank PLC – AA- (lka)

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

The Group does not concentrate on a single financial institution, thereby minimising the exposure to liquidity risk through diversification of funding sources. The Group aims to fund investment activities of the individual and Group level by funding the long-term investment with long term financial sources and short term investment with short term financing. Where necessary the Group consults the Treasury Department and Strategic Business Development Unit in Parent Company for scrutinising the funding decisions.


The Table below summarises the maturity profile of the Groups financial liabilities based on contractual undiscounted payments.

As at 31 March 2016 On Less than 3 to 2 to Demand 3 Months 12 Months 5 years >5 years Total Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000

Group Interest bearing loans & borrowings 95,081 391,751 60,801 315,141 8,776 871,550Trade & other payables 15,348 361,452 22,052 11,521 - 410,373 110,429 753,203 82,853 326,662 8,776 1,281,923

Company Interest bearing loans & borrowings 95,081 19,030 60,801 315,140 8,776 498,828Trade & other payables 15,348 274,545 22,052 10,837 - 322,782 110,429 293,575 82,853 325,977 8,776 821,610

As at 31 March 2015 On Less than 3 to 2 to Demand 3 Months 12 Months 5 years >5 years Total Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000

Group Interest bearing loans & borrowings 51,190 516,748 243,593 364,726 67,419 1,243,676Trade & other payables 61,528 367,149 1,699 - - 430,376 112,718 883,897 245,292 364,726 67,419 1,674,052

Company Interest bearing loans & borrowings 51,190 4,489 12,004 125,555 31,007 224,245Trade & other payables - 351,570 17 - - 351,587 51,190 356,059 12,021 125,555 31,007 575,832

37.4 Market RiskMarket risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices. Market prices comprise four types of risk: interest rate risk, currency risk & other price risk such as equity price risk. Financial instrument affected by market risk include loans & borrowings, deposits, available for sale investment & derivative financial instruments.



37.4.1 Interest Rate RiskInterest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Group’s exposure to the risk of changes in market interest rates relates primarily to the Group’s long-term debt obligations with floating interest rates. The Group manages its interest rate risk by having a balanced portfolio of fixed and variable rate loans and borrowings. The Group has not engaged in any interest rate swap agreements.

The Group held long term borrowings with floating interest rates of Rs. 394m (2014/15 – Rs. 447m) which represents its maximum credit exposure on these liabilities.

Interest rate sensitivityThe following table demonstrates the sensitivity to a reasonably possible change in interest rates on that portion of loans and borrowings affected. With all other variables held constant, the Group’s Profit Before Tax is affected through the impact on floating rate borrowings as follows:

Increase/ Effect on decrease in profit before tax interest rate Rs.’000

Group 2015/16 +1% 5,612 -1% (5,612)2014/15 +1% 5,385 -1% (5,385)

Company 2015/16 +1% 5,612 -1% (5,612)2014/15 +1% 5,385 -1% (5,385)

37.4.2 Foreign Currency RiskThe Group is exposed to currency risk on sales and purchases that are denominated in a currency other than the respective functional currency of the Group. The Group is exposed to currency risk on sales, purchases and borrowings. These currencies primarily are USD and AUD.

The Group hedges its exposure to fluctuation on the transaction of its foreign operations mainly by forward contracts.


Foreign currency SensitivityThe following tables demonstrate the sensitivity to a reasonably possible change in the USD and AUD exchange rates, with all other variables held constant. The impact on the Group’s Profit Before Tax is due to changes in fair value of monetary assets and liabilities.

Increase/ Effect on decrease in profit before tax interest rate Rs.’000

Group 2015/16 USD +5% (2,873) AUD +5% (0.24) USD -5% 2,873 AUD -5% 0.24

2014/15 USD +5% (12,686) AUD +5% 136 USD -5% 12,686 AUD -5% -136

37.4.3 Equity Price RiskThe Group’s listed & unlisted equity securities are susceptible to market price risk arising from uncertainties about future values of the investment securities. The Group manages the equity price risk through diversification and by placing limits on individual and total equity instruments. Management of the Group monitors the mix of debt & equity securities in its investment portfolio based on market indices. Material investment within the portfolio are managed on an individual basis and all buy and sell decision are approved by the Board. Equity price risk is not material to the Financial Statements. However, company does not hold any quoted shares as at reporting date.



37.4.4 Capital ManagementThe Group’s policy is to retain a strong capital base so as to maintain investor, creditor & market confidence and to sustain future development of the business. Capital consists of share capital, reserves, retain earnings & non-controlling interest of the Group. The Board of Directors monitors the return on capital, interest covering ratio, dividend to ordinary shareholders.

The gearing ratio at the reporting date is as follows. Consolidated Company 2015/16 2014/15 2015/16 2014/15 Rs.’000 Rs.’000 Rs.’000 Rs.’000

Interest bearing borrowings Current portion of long-term interest bearing borrowings 79,831 37,680 79,831 16,493Payable within 2 and 5 years 315,140 364,726 315,141 125,555Payable later than 5 years from year-end 8,776 67,419 8,776 31,007Short-term interest bearing borrowings 372,722 722,661 - - 776,469 1,192,486 403,748 173,055

Equity 2,661,400 2,853,795 2,499,161 2,623,564Equity & debts 3,437,869 4,046,281 2,902,909 2,796,619Gearing ratio 23% 29% 14% 6%

218 Kelani Valley Plantations PLC | Annual Report 2015/16 Ten Year Summary

Period Ended 2015/16 2014/15 2013 2012 2011 2010 2009 2008 2007 2006 31-Mar 31-Mar 31-Dec 31-Dec 31-Dec 31-Dec 31-Dec 31-Dec 31-Dec 31-Dec (12 Months) (15 Months) (12 Months) (12 Months) (12 Months) (12 Months) (12 Months) (12 Months) (12 Months) (12 Months) Rs.'000 Rs.'000 Rs.'000 Rs.'000 Rs.'000 Rs.'000 Rs.'000 Rs.'000 Rs.'000 Rs.'000

trading Results Revenue 6,068,746 8,647,349 6,790,012 6,518,253 6,033,498 3,883,637 2,860,004 3,108,571 2,827,974 2,330,297Gross profit 464,702 739,302 885,720 1,156,106 905,883 595,955 134,964 455,435 560,263 435,401Profit/(loss) before tax (31,499) 102,407 465,485 680,956 545,947 355,690 (27,783) 300,276 435,267 291,403Profit/(loss) after tax (43,170) 52,495 391,693 560,732 461,363 326,152 (40,565) 278,765 410,010 255,849Balance Sheet Funds employed Stated capital 340,000 340,000 340,000 340,000 340,000 340,000 340,000 340,000 340,000 340,000Revenue reserves 2,288,313 2,355,056 2,435,888 2,228,473 1,813,716 1,492,786 1,216,593 1,378,208 1,289,356 993,445Total equity attributable to equity holders of the company 2,628,313 2,695,056 2,775,888 2,568,473 2,153,716 1,832,786 1,556,593 1,718,208 1,629,356 1,333,445Non-controlling interest 33,087 158,739 22,322 16,667 17,162 14,642 22,324 20,274 8,792 10,753Liability to make lease payment 392,528 393,871 395,060 427,914 428,976 429,869 362,854 367,813 372,602 377,159Amounts due to other related companies 22,500 - - - - - - - - -Interest bearing borrowings 323,916 432,145 98,327 97,588 136,825 226,414 379,978 449,423 370,685 285,932Bank overdraft 95,081 51,190 16,297 1,865 4,772 13,158 473 116,766 2,582 1,348 3,495,425 3,731,001 3,307,894 3,112,507 2,741,451 2,516,869 2,322,222 2,672,484 2,384,017 2,008,637Assets employed Non current assets 5,219,898 5,203,870 4,408,806 4,019,663 3,738,736 3,463,306 3,132,622 2,978,262 2,519,202 2,221,273Current assets 1,302,477 1,789,925 1,938,316 2,054,898 1,758,879 1,411,867 954,630 1,101,238 1,115,810 754,288Current liabilities (960,328) (1,268,324) (1,153,489) (1,146,763) (1,088,079) (847,986) (468,207) (353,441) (357,364) (245,471)Retirement benefit obligations (1,153,244) (1,122,870) (1,046,403) (1,025,142) (980,001) (871,408) (732,912) (578,457) (527,716) (424,478)Deferred tax liability (390,615) (393,243) (363,132) (301,387) (211,247) (158,032) (120,836) (128,927) (119,638) (91,806)Deferred income (522,763) (478,357) (476,204) (488,762) (476,837) (480,878) (443,075) (346,191) (246,277) (205,169)Capital employed 3,495,425 3,731,001 3,307,894 3,112,507 2,741,451 2,516,869 2,322,222 2,672,484 2,384,017 2,008,637


Period Ended 2015/16 2014/15 2013 2012 2011 2010 2009 2008 2007 2006 31-Mar 31-Mar 31-Dec 31-Dec 31-Dec 31-Dec 31-Dec 31-Dec 31-Dec 31-Dec (12 Months) (15 Months) (12 Months) (12 Months) (12 Months) (12 Months) (12 Months) (12 Months) (12 Months) (12 Months) Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000

Key Indicators Gross profit margin % 7.70 8.50 13.00 17.70 15.00 15.30 4.70 14.70 19.80 18.70Current ratio (times) 1.23 1.36 1.66 1.79 1.61 1.64 2.04 2.34 3.10 3.06Turnover to capital employed (times) 1.70 2.30 2.10 2.10 2.20 1.50 1.20 1.20 1.20 1.20Return on shareholders' fund % (1.10) 2.20 13.80 21.80 21.30 17.50 (2.70) 16.10 25.50 19.20Earning per share (Rs.) (0.84) 1.77 11.30 16.51 13.49 9.43 (1.25) 8.11 12.20 7.55Net assets per share (Rs.) 77.30 79.27 81.64 76.03 63.85 54.34 46.44 50.43 47.92 39.22Dividend per share (Rs.) - 1.00 3.50 6.00 5.00 4.00 1.00 3.50 5.50 3.50Dividend payout ratio % - 56 31 36 37 42 - 43 45 46Price earnings (Times) - 40.62 6.93 4.85 6.70 17.00 - 5.90 4.60 7.00Market value (Rs.) 65.00 71.90 78.30 80.00 90.00 159.90 53.00 47.50 56.25 53.00

220 Kelani Valley Plantations PLC | Annual Report 2015/16 Investor Information

1. StOCK exCHANGe lIStINGThe ordinary shares of Kelani Valley Plantations PLC are listed with the Colombo Exchange. The audited Company and Consolidated Statement ofProfit or Loss for the year ended 31 March 2016 and the audited Statement of Financial Position of the Company and of the Group as at the date have been submitted to the Colombo Stock Exchange within three months of the Statement of Financial Position date.

2. ORDINARY SHAReHOlDeRS AS At 31 MARCH 2016Number of shareholders 14,044. Residents Non-Residents TotalNo. of Shares held No. of No. of No. of No. of No. of No. of Shareholders Shares % Shareholders Shares % Shareholders Shares % 1 - 1000 13,894 1,747,060 5.138 5 2,800 0.008 13,899 1,749,860 5.147 1001 - 10,000 110 342,690 1.008 1 2,500 0.007 111 345,190 1.015 10,001 - 100,000 23 748,324 2.201 3 111,219 0.327 26 859,543 2.528 100,001 -1,000,000 3 993,852 2.923 2 493,122 1.450 5 1,486,974 4.373 Over 1,000,000 3 29,558,433 86.937 - - - 3 29,558,433 86.937 14,033 33,390,359 98.207 11 609,641 1.793 14,044 34,000,000 100.000

Residents Non-Residents TotalCategory No. of No. of No. of No. of No. of No. of Shareholders Shares % Shareholders Shares % Shareholders Shares %

Individuals 13,975 2,573,309 7.569 9 518,422 1.525 13,984 3,091,731 9.093Institutions 59 30,797,822 90.638 2 91,219 0.268 60 30,908,269 90.907 14,033 33,390,359 98.207 11 609,641 1.793 14,044 34,000,000 100.000

3. MARKet VAlUeThe market value of Kelani Valley Plantations PLC ordinary shares : 2015/16 2014/15Highest - Rs 73.00 (30 April 2015) 87.00 (17 January 2014)Lowest - Rs 53.00 (08 March 2016) 66.00 (17 March 2015)Period end - Rs 65.00 71.90


4. DIVIDeND PAYMeNtProposed dividend of Rs.Nil/- per share. (2014/15-Rs.1/-)

5. SHARe tRADING 2015/16 2014/15

Number of transactions 322 979Number of shares traded 103,469 678,666Value of shares traded (Rs.) 6,777,464.00 51,245,858.30

6. FIRSt tWeNtY SHAReHOlDeRS AS At 31 MARCH, 2016

No. of Shares No. of Shares

Name of Shareholder as at 31.03.2016 % as at 31.03.2015 %

1 DPL Plantations (Private) Limited 24,626,900 72.43 24,626,900 72.43

2 People’s Leasing & Finance Plc /Mr.L.P.Hapangama 2,821,756 8.30 2,821,756 8.30

Mr.L.P.Hapangama 400 0.00 400 0.00

3 Bank of Ceylon A/c Ceybank Unit Trust 2,109,777 6.21 2,078,015 6.11

4 Bank of Ceylon A/c Ceybank Century Growth Fund 467,529 1.38 464,529 1.37

5 M H L Holdings (Private) Limited 413,323 1.22 471,005 1.39

6 Mr.T.T.T.Al-Nakib 343,122 1.01 343,122 1.01

7 Mr.H.A.A.H.Algharabally 150,000 0.44 150,000 0.44

8 Dr.D.Jayanntha 113,000 0.33 76,500 0.23

9 Z.G.Carimjee 73,867 0.22 - -

10 Mr.M.I.Abdul Hameed 70,600 0.21 70,600 0.21

11 Gampaha District Co-Operative Rural Bank Union Ltd 66,300 0.20 66,300 0.20

12 Cargo Boat Development Company PLC 58,800 0.17 58,800 0.17

13 Mr.M.M.Udeshi & H.M.Udeshi 51,032 0.15 51,032 0.15

14 Mrs.R.S.L.De Mel 50,000 0.15 50,000 0.15

15 Mr.K.C.Viganarajah 46,500 0.14 46,500 0.14


No. of Shares No. of Shares

Name of Shareholder as at 31.03.2016 % as at 31.03.2015 %

16 Harnam Holdings SDN BHD 46,219 0.14 41,219 0.12

17 HSBC International Nominees Ltd-SSBT-Deutsche Bank 45,000 0.13 45,000 0.13

18 Z.M.Adamally 36,933 0.11 - -

19 Seylan Bank PLC/ Thirugnanasambandar Senthilverl 25,300 0.07 25,202 0.07

20 Miss.F.A.Adamaly 20,000 0.06 20,000 0.06

20 Miss .Z.A.Adamaly 20,000 0.06 20,000 0.06

20 Dr. M.E.R. Harrison 20,000 0.06 20,000 0.06

20 Mr. H.Wickremesinghe(DECEASED) 20,000 0.06 20,000 0.06

tOtAl 31,696,358 93.22 31,566,880 92.84

7. The percentage of ordinary shares held by the public was 27.57% (2015 - 27.57%) of the issued share capital as at 31 March 2016.

Investor Information Contd.


Category GRI G4 Aspect 5 Part Materiality test

Direct Financial Impacts Policy Related Performance

Organizational Peer based norms

Stakeholder Behaviour and norms

Societal norms

Economic Econ Performance

There is a direct financial impact of not meeting economic performance and Return on Investment.

No external policy exists.

Important in peer comparison with additional importance due to impact on Group earnings

Shareholder requirements, Employee expectations, Government expectations of tax

None

Market Presence

Plantation worker wages or any increases to such wages have a direct impact on bottom line

Regulations exist on minimum wages especially with regard to plantation workers and also covered by collective agreements.

Peers adhere to regulations and are governed by Plantation Wages

Employees are unionised and by law require at least minimum wages

Social expectation of fair and justifiable pay to enable a comfortable livelihood for workers

Indirect Econ Impacts

There is a direct negative financial impact to the Group, and a positive financial impact to the stakeholder. Plantation community expectations of infrastructure, education for children, creches etc

No external policies exist. Internal CSR policy exists with focus on employee welfare - Home for every plantation worker concept

Peers engage in significantly large CSR activities

Community and employee Welfare expectations are found in the Plantations Industry

Societal expectation of companies to look after a class of people who are highly dependent on plantation management

Procurement Practices

Not significant as most of the produce is obtained from own plantations. However, a few small holders do provide produce.

No external policies exist on procuring locally. Only internal policies are available.

Peers have similar purchasing mechanisms

Small holder expectation of continued purchase of their crop

None

Materiality Assessment Study



Environmental Materials Plantations are owned by company. The primary material is produce Tea or rubber. Cost of obtaining material is mainly relating to labour.

Strict policies and regulations with regard to preserving quality and freshness of produce

Peers adhere to same industry standards

Both investors and customers would expect higher volume of produce being processed

None

Energy Significant energy spend with a direct negative financial impact. However, a significant component of energy is obtained from biomass

No external policies exist of energy conservation

Peers have energy efficient and green practices undertaken as part of their Group wise efforts

Investor requirements to reduce overhead costs, Customer (bulk) requirements to implement green practices for certification and sustainability reporting purposes

None

Water No significant usage of water other than for general cleaning and sanitation

No external policies with regard to conservation of water. However company is a signatory to the CEO Water mandate

Peers have water efficient and green practices undertaken as part of their Group wise efforts

Investor requirements to reduce overhead costs, Customer (bulk) requirements to implement green practices for certification and sustainability reporting purposes

None

Biodiversity Negative impacts to biodiversity may result in loss of productive land, resources resulting in loss of crop as well as existing certifications, leading to drop in sales

Regulations exist on conserving flora and fauna. However company has obtained certifications which it needs to adhere to

Peers engage in habitat restoration, and biodiversity conservation projects

Customers (bulk) may require supply chain to adhere to standards for certification and sustainability reporting purposes

Media may flag up potential threats to biodiversity

Materiality Assessment Study Contd.



Environmental Emissions Significant energy spend with a direct negative financial impact. However, a significant component of energy is obtained from biomass.

EPL Requirements on emissions exist

Peers have energy efficient and green practices undertaken as part of their Group wise efforts

Investor requirements to cost cut and reduce overhead costs. Customer (bulk) requirements on carbon footprint reductions and related certification requirements

None

Effluents & Waste

No significant effluent discharge, though same is regulated by EPL. Ash Waste used in landfill Disposal of Hazardous waste such as e-waste and chemicals etc. may require costs to be incurred

EPL Requirements, Scheduled Waste Management laws

Peers have green practices undertaken as part of their Group wise efforts

Customers (bulk) may require supply chain to adhere to standards for certification and sustainability reporting purposes

Aware of possible environmental pollution

Products & Services

No environmental impact of end product

No environmental protection laws pertaining to end product

Not relevant given the nature of end product

Not relevant given the nature of end product

None

Environmental Compliance

Environmental non-compliance will lead to loss of brand reputation, possible loss of certifications leading to drop in sales and financial impact

EPL Requirements; Country laws on environment protection applies

Not relevant. Must comply with country laws

Customer requirements to comply with environmental regulations at country level or international level (according to certification required)

None



Environmental Transport Movement of goods or personnel result in a direct financial impact. This is covered under Scope 3 GHG, and no significant community impacts as established road networks are used

No external policies with regard to transportation

Not relevant No significant expectations by Staff. Customers may look into scope 3 emissions and other environmental impacts

No significant expectations

Overall N/A as operations do not have any significant environmental conservation related impacts

No policies exist. Water, Energy and Biodiversity Conservation policies (Plantations) exist

Peers have green practices undertaken as part of their Group wise efforts

Customer expectations on maintaining certifications

Aware of possible environmental pollution

Supplier Assessment - Environment

Yes. Suppliers may have negative environmental impacts, leading to loss of brand reputation and financial impact. However, as the tea comes primarily from internal company, this is only significant for small holders and other materials

No external policy with regard to monitoring and controlling Supplier environmental impacts. Significant suppliers are screened internally for environmental impacts as required for certifications

Practices by peers on supplier assessment driven by customer expectations

Customer expectations on screening entire value chain for certifications and sustainability reporting purposes

None

Environmental Grievance Mechanism

Important to investors to reduce risk of Environmental Grievances being ignored / overlooked. However, given the operations, the likelihood of env grievances are low

No policy for a company to have a process for env grievances reporting exists

Peers may have single points of contact for env grievances by community

Some expectation by community to hear their grievances if any arise. However, given the nature of operations, the likelihood of env polluted activity is minimal. Also good relations exist between company and community

Some expectation by community to hear their grievances if any arise. However, given the nature of operations, the likelihood of env polluted activity is minimal




Worker Employment Yes. Direct financial impact due to cost to company, retraining new staff due to attrition

Country regulations exist. Higher scrutiny possible due to sensitivities surrounding plantation workers

Peers adhere to country regulations, and minimum wage rates exist by Industry

Expectation of good working conditions by current and potential employees


Labour Relations

Positive impact on workforce relating to avoidance of disruption to operations

Country regulations and laws pertaining to Plantation Workers

Peers adhere to country labour norms

Expectations of workforce - highly unionised

None

Occupational Health & Safety

Yes. Loss of productivity for company and occupational injuries resulting in loss of productivity and staff morale, compensation and potential negative impact to brand reputation

Country regulations and Group policy on OHS

Peers adhere to country regulations, have certifications and other mandatory customer requirements.

Customers require H&S certifications especially requirements to assess food handlers

None

Training Yes. Cost implication and productivity improvements

No external policies exist.

Comparison of standards with peers resulting in training requirements being identified

Employee expectations on skill upgrade. Customer expectation of quality products/services

None



Worker Diversity & Equal Opp

Industry norms apply due to social / traditional reasons - tea pluckers mainly female while factory workers mainly male

No country laws exist with regard to diversity; however there are laws on discrimination

Not publicly available Employee / Potential employee expectations

None

Equal remuneration for men / women

Indistry norms and minimum wages by role apply

Country laws on equality exist, but no specifics on remuneration - only minimum wage requirements.

Not publicly available Employee expectation that pay levels are based Collective Bargaining Agreements

None

Supplier Assessment - Labour

Yes. Suppliers may have negative labour practices leading to loss of brand reputation, certification etc and therefore financial impact. However, as the tea comes primarily from internal company, this is only significant for small holders and other materials

No external policy with regard to monitoring and controlling Supplier labour practices. Significant suppliers are screened internally for labour practices as required for certifications

Practices by peers on supplier assessment driven by customer expectations

Customer expectations on screening entire value chain for certifications and sustainability reporting purposes

None

Labour Practices Grievance Mechanisms

Loss of productivity for company; possible loss of brand reputation

No external policy exists with regard to need for grievance handling mechanisms.

Peers have in place worker grievance mechanisms

Employees expect grievance mechanisms to be in place and take corrective action, Customer expectations may also apply

No - but potential issues to be flagged by media


G4-lA-13



Human Rights

Investment N/A - no acquisitions took place during year under review.

No external policies exist. No specific internal policy exists but training includes human rights

Not publicly available None Not significant

Non-discrimination

Negative impact to brand reputation. Covered under Labour Aspects

Anti-discrimination laws exist in the country.

Peers adhere to country regulations

Employee and Principal expectations on non-discrimination

No but growing awareness on discrimination related issues (especially related to potential workforce)

Freedom of Association & Collective Bargaining

Possible financial costs related to negotiations

External - Trade Union Ordinance, Industrial Disputes Act, Collective Bargaining Act

Peers adhere to country regulations

Highly unionised workforce due to nature of industry. Suppliers are generally small holders who do not employ hired labour

None

Child Labour Possible loss of revenue if brand image were to be tarnished. However country regulations and recruitment policies ensure minimal chances of such incidences occurring

Country regulations specify that no children can be enjoyed. A signatory to UNGC Principles

Peers adhere at minimum to country laws

Principal and Investor expectations on ethical work practices. Customer requirements may exist for supply chain. Certification bodies and regulatory authorities continuously assess incidences of child labour

While society does not condone child labour, family workers (where the child helps out in family cultivations after school hours) is expected by society to sustain the family

Forced, Compulsory Labour

Possible loss of revenue if brand image were to be tarnished

Country regulations with regard to working hours exist. Internal policies exist, reflecting ILO and UNGC norms

Peers may have at minimum applied country laws

Employee expectation for overtime. For certain staff and skilled workers, changing and sleeping areas are expected. Customers and certification bodies requirements.

None



Human Rights Security practices

Possible loss of revenue if charged with human rights violations; brand reputation. Low chance of occurrence as very limited number of security personnel

No external or internal policies exist

No information Not significant Not significant

Indigenous rights

Not relevant given the type of operations and operations nt in proximity to areas where indigenous people live

No external policies exist


Human Rights Assessment

Possible loss of revenue if charged with human rights violations; brand reputation. Covered under labour aspects



Supplier Assessment - HumanRights

Covered significantly under Supplier labour practices

No external policy with regard to monitoring and controlling Supplier labour impacts.

Peers affilated with large conglomerates carry out supplier assessments of outsourced lorries as part of their sustainability drives

Potential expectations from Principal on screening supply chain - linked to their sustainability reporting

None

Human Rights Grievance Mechanims

Negative impact if brand image is tarnished

No external policy exists, but Group policy on same exists

No information Employees expect grievance mechanisms to be in place and take corrective action

No - but potential issues could be flagged by media




Society Local Communities

Yes - there is a cost related to CSR but it is to obtain social licence to operate, manage potential risks and enhance the brand image through upliftment of community living standards

No external policy exists to govern CSR expenditure. Internal CSR policy exists.

Peers engage in large scale, strategic CSR activities

Community expectations based on peer activities. Customer expectations on CSR activities aligned to customer policies


Anti-Corruption

Yes. Can lead to financial losses, reputational losses, loss of account

Country laws and regulations exist. Corp Governance, whistle blowing arrangements in place. A signatory to UNGC Principles

Peers abide at minimum with country laws and regulations

Expectations by Investors/ lenders. Expectations of Govt. may exist during election periods

No higher standards than country laws are expected by society

Public Policy None - do not engage in political contributions. But members of industry bodies


No information As a subsidiary company no significant expectation for political contributions. However investor requirements for company to engage with Govt on decision/policies with regard to Plantation sector

Society and media on alert about possible political contributions

Anti Competitive Behaviour

Not a monopoly or olygopoly so no significant impact


Not significant None None

Regulatory Compliance

Yes. Through fines and sanctions and loss of brand reputation

Laws and regulations of the country

Adherence to country laws is mandatory and peers adhere to this at a minimum

Expectations by Principals, Customers and Community to adhere to regulations and Social Licence to operate

Expectation by Society for company to adhere to all regulations



Society Supplier Assesment - Social Impact

Not relevant as the supplier's products has no social implication

No external policy with regard to monitoring and controlling Supplier social impacts

Not relevant as the supplier's products has no social implication

Customer expectations on screening entire value chain for certifications and sustainability reporting purposes. However these are mainly for env and labour practices as supplier's products have no negative impacts on society

None

Grievance Mechanisms for impacts on society

Potential damage to brand image if soietal grievances are not handled effectively. However, the community also are part of the employee base of the Plantation and thus, any grievances are covered through the HR processes

No external policies or regulations exist.

Peers have in place grievance mechanisms for impacts on society

Customer and Principal Expectations; Media coverage on significant issues; Expectations of communities in the vicinity

Expectation of society to provide means to communicate their grievances related to social issues and take relevant corrective action

Product Responsibility

Customer Health & Safety

Direct negative financial impact possible if there are customer H&S incidents / contamination. However traceability mechanisms in place if batach recalls were to be required

Food safety policies exist locally and internationally. Minimum quality standards as per Internal Quality Policy as well as certification requirements exist

Peers have quality certifications and adhere to customer/brand requirements

Customer expects H&S to be taken into consideration. Customers also require quality related certifications and traceability

None

Prod & Services Labelling

Direct negative financial impacts are possible if labels are inaccurate due to loss of business. However, majority is bulk exports barring few labelled products

Country regulations as well as policies in international markets exist.

Peers meet country regulations and customer requirements

Customers expect accurate information and labelling and traceability which is covered by organization

None




Product Responsibility

Marketing

CommunicationsNot applicable as majority is bulk exports B2B

No external policies peers to contact direct buyers

Not significant as majority is bulk exports

Not significant

Customer Privacy

Not applicable No policies exist. Not applicable Not applicable None

Product Compliance

Direct negative financial impacts are possible if labels are inaccurate due to loss of business. However, majority is bulk exports barring few labelled products

Country regulations exist. Agreements with customers / certifications may apply

Peer adhere to country regulations and customer requirements

Customer requirements on product compliance - food industry

None

234 Kelani Valley Plantations PLC | Annual Report 2015/16 Environmental Calculations

energy Convers ion factors

Fuel Factor Measure Conversion factor Per unit energy (GJ)

Electricity 1 kWh 277.78

Petrol Energy per Litre [ 0.785 Kg/Litre * 10,900 kcal/Kg *(4.18400 × 10-6 GJ/Kcal) ]

Density - Petrol 0.785 Kg/Litre

Energy 1 Litres = 10,900 kcal/Kg

Energy 1 kcal/kg = 4.1868 kJ/kg

Energy 1 Kcal = 4.18400 × 10-6

Diesel Energy per Litre [ 1.0832 Kg/Litre * 10,500 kcal/Kg *(4.18400 × 10-6 GJ/Kcal) ]

Density - Petrol 1.0832 Kg/Litre

Energy 1 Litres = 10,500 kcal/Kg

Energy 1 kcal/kg = 4.1868 kJ/kg

Fuel wood Energy per m3 [ 720 Kg/m3 * 3,800 kcal/Kg *(4.18400 × 10-6 GJ/Kcal) ]

Density - Firewood 720 Kg/m3

Energy 3,800 kcal/Kg

Energy 1 Kcal = 4.18400 × 10-6


General Standard Disclosures Section Page Number Reason(s) for Omission(s)

STRATEGY AND ANALYSIS

G4-1 Chairman’s Review 17

ORGANIZATIONAL PROFILE

G4-3 Corporate Information 252

G4-4 Our Profile, MD’s, Financial Review 3, 20, 42


G4-6


G4-8 Revenue Distribution Local, Global 12

G4-9 Operating EnvironmentFinancial reviewHuman Capital

34, 374858

G4-10 Human Capital 58

G4-11 Human Capital 58

G4-12 Value Creation 31

G4-13 Chairman’s Review 17

G4-14 Financial Review, Risk Management 49, 118

G4-15 Chairman’s Review, Human Capital, Social Capital, Financial Highlight

18,42,57,65

G4-16 Non-Financial Highlight 11

IDENTIFIED MATERIAL ASPECTS AND BOUNDARIES

G4-17 Value Creation 26

G4-18 Materiality Assessment 5

G4-19 Materiality Study 223



G4-22 Material aspects and boundaries - Aspect is not material

G4-23 - - Aspect is not material

GRI Index Table



STAKEHOLDER ENGAGEMENT

G4-24 Stakeholder engagement 54-60

G4-25 Materiality assessment 5



REPORT PROFILE

G4-28 Chairman’s review operating environment 17, 34

G4-29 Chairman’s review 17

G4-30 Chairman’s review 17

G4-31 Corporate information 252

G4-32 About this report 20

G4-33 Independent auditors report 139

GOVERNANCE

G4-34 Corporate governance 90

ETHICS AND INTEGRITY

G4-56 Introduction 4

SPECIFIC STANDARD DISCLOSURES

ASPECT: ECONOMIC PERFORMANCE

G4-EC1 Statement of value addition 53

ASPECT: MARKET PRESENCE

G4-EC2 Risk management 114,118,170

G4-EC4 Risk management 117

ASPECT: INDIRECT ECONOMIC IMPACTS

G4-EC7 Chairman’s review 17

G4-EC8 Social capital 66,67

GRI Index Table Contd.



ASPECT: PROCUREMENT PRACTICES

G4-EC9 Economic Value Statement 31

ASPECT: MATERIALS

G4-EN1 Natural capital 71


ASPECT: ENERGY




ASPECT: WATER


ASPECT: BIODIVERSITY

G4-EN 11 Natural capital 77-80



ASPECT: EFFLUENTS AND WASTE



ASPECT: PRODUCTS AND SERVICES


ASPECT: COMPLIANCE


ASPECT: TRANSPORT


ASPECT: OVERALL

G4-EN31 Natural capital 69-83



ASPECT: SUPPLIER ENVIRONMENT ASSESSMENT


ASPECT: ENVIRONMENT GRIEVANCE MECHANISMS


ASPECT: EMPLOYMENT

G4-LA1 Human capital 58

G4-LA2 Human capital -


ASPECT: LABOUR MANAGEMENT AND RELATIONS


ASPECT: OCCUPATIONAL SAFETY




ASPECT: TRAINING AND EDUCATION



ASPECT: DIVERSITY AND EQUAL OPPORTUNITY

G4-LA12 Human capital 58,59

ASPECT: EQUAL REMUNERATION FOR MEN AND WOMEN

G4-LA13 Materiality assessment 228

ASPECT: SUPPLIER ASSESSMENT OF LABOUR PRACTICES

G4-LA14 Not relevant

ASPECT: LABOUR PRACTICES GREIVENCE MECHANISMS





ASPECT: INVESTMENT

G4-HR1 Human capital 57


ASPECT: NON DISCRIMINATION


ASPECT: FREEDOM OF ASSOCIATION


ASPECT: CHILD LABOUR

G4- HR5 Human capital 57

ASPECT: FORCED OR COMPULSORY LABOUR


ASPECT: ASSESSMENT


ASPECT: HUMAN RIGHTS GRIEVANCE MECHANISM


ASPECT : LOCAL COMMUNITIES

G4-SO1 Social capital 64

G4-SO2 - Not applicable

ASPECT: ANTI CORRUPTION

G4-SO4 Human capital 58


ASPECT: PUBLIC POLICY


ASPECT: ANTI COMPETITIVE BEHAVIOUR

G4-SO7 Not applicable



ASPECT: ASSESSMENT FOR IMPACTS ON SOCIETY

G4-SO8 Social capital 66

ASPECT: SUPPLIER ASSESSMENT FOR IMPACTS ON SOCIETY


ASPECT: GRIEVANCE MECHANISM FOR IMPACTS ON SOCIETY


ASPECT: CUSTOMER HEALTH

G4-PR1 Value creation 28


ASPECT: PRODCUT AND SERVICE LABELLING









FINANCIAl teRMSAccounting PoliciesThe Specific principles, bases, conventions, rules and practices adopted by an enterprise in preparing and presenting Financial Statements.

Accrual BasisRecording revenues & expenses in the period in which they are earned or incurred regardless of whether cash is received or disbursed in that period.

Actuarial Gains and lossesIs the effects of difference between the previous actuarial assumptions and what has actually occurred and the effects of changes in actuarial assumptions.

Agricultural ActivityIs the management by an entity of the biological transformation and harvest of biological assets for sale or for conversion in to agricultural produce or in to additional biological assets.

Agricultural ProduceIs the harvested product of the entity’s biological assets.

AmortizationThe systematic allocation of the depreciable amount of an intangible asset over its useful life.

Available for SaleNon derivative financial asset that are designated as available for sale or are not classified as loans and receivable, held to maturity investment or financial assets at fair value through profit and loss.

AWDRAverage Weighted Deposit Rate.

AWPlRAverage Weighted Prime Lending Rate.

Basic earnings Per ShareProfit attributable to ordinary shareholders divided by the weighted average number of ordinary shares in issue during the period.

Bearer Biological AssetsBiological assets those are not to be harvested as agricultural produce or sold as biological assets. The biological assets other than the consumable biological assets.

Biological AssetsA living animal or plant.

Biological transformationIt comprises the process of growth, degeneration, production, and procreation that cause qualitative or quantitative change in a biological assets.

BorrowingsAll interest-bearing liabilities.

Capital employedTotal equity, non-controlling interest and interest bearing borrowings.

Capital ReservesReserves identified for specific purposes and considered not of the entity, directly or indirectly,including any director (whether executive or otherwise) of that entity available for distribution.

Cash equivalentsLiquid investments with original maturity periods of three months or less.

CASlThe Institute of Chartered Accountants of Sri Lanka.

CBSlCentral Bank of Sri Lanka.

CeACentral Environment Authority.

Contingent liabilityA possible obligation that arises from past events whose existence will be confirmed only by the occurrence or non-occurrence of one or more

uncertain future events not wholly within the control of the enterprise.

Consumable Biological AssetsThe biological assets those that are to be harvested as agricultural produce or sold as biological assets.

CSRCorporate Social Responsibility.

Current RatioCurrent assets divided by current liabilities. A measure of liquidity.

Current Service CostIs the increase in the present value of the defined benefit obligation resulting from employee service in the current period.

Dcf MethodDiscounted Cash Flow method.

Debt to equity RatioBorrowing divided by Equity.

Deferred taxationThe tax effect of timing differences deferred to /from other periods, which would only qualify for inclusion on a tax return at a future date.

Glossary


DerivativeIs a financial instrument or other contract whose prices is dependent upon or derived from one or another underline asset.

DividendsDistribution of profits to holders of equity investments.

Dividend CoverProfit attributable to ordinary shareholders divided by dividend. Measures the number of times dividend is covered by distributable profit.

Dividend PayoutDividend per share as a percentage of the earnings per share.

Dividend YieldDividend per share as a percentage of the market price. A measure of return on investment.

eBItAbbreviation for Earnings Before Interest and Tax.

eBItDAAbbreviation for earnings before Interest, Tax, Depreciation and Amortization.

equity Accounted InvesteesAn entity, including an unincorporated entity such as a partnership, over which the investor has significant influence and that is neither a subsidiary nor an interest in a joint venture.

effective tax RateIncome tax expenses divided by profit from ordinary activities before tax.

enterprise Value-eVMarket capitalization plus MV of Debt, Minority Interest & Preference shares minus total cash & cash equivalent.

enterprise Multiple-eMEnterprise value divided by earnings before Interest Tax Depreciation & Amortization (EBITDA).

ePSProfit attributable to ordinary shareholders divided by the number of ordinary shares in ranking for dividend.

equityShareholders’ fund.

equity Accounted InvesteesEquity accounted investees are those entities in which the Group has significant influence, but not control,

over the financial and operating policies. Significant influence is presumed to exist when the Group holds between 20 and 50 percent of the voting power of another entity.

equity InstrumentsIs any contract that evidences a residual interest in the assets of a entity after deducting all of its liabilities.

equity MethodThe equity method is a method of accounting whereby the investment is initially recognized at cost and adjusted thereafter for the post-acquisition changes in the investor’s share of net assets of the investee. The profit or loss of the investor includes the investor’s share of the profit or loss of the investee.

eRPEnterprise Resources Planning.

etP-ethical tea PartnershipAn initiative in ethical sourcing approved by UK based tea packing companies to work in partnership with producers to demonstrate that ethical conditions exist within the tea industry.

eVAEconomic Value AdditionThe return earned beyond the cost of capital.(Weihted Average Cost of Capita into Capital Invested minus Net Operating Profit).

eUEuropean Union

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

Fair ValueFair Value is the amount for which an asset could be exchanged between a knowledgeable or liability settled between knowledgeable willing parties in an arm’s length transaction.

Fair Value Through Profit and LossA financial asset/liability acquired/incurred principally for the purpose of selling or repurchasing it in the near term, part of a portfolio of identified financial instruments that are managed together and for which there is evidence of a recent actual pattern of short – term profit taking, or a derivative (except for a derivative that is a financial guarantee contract).

Glossary Contd.


Financial AssetAny asset that is cash, an equity instrument of another entity or a contractual right to receive cash or another financial asset from another entity.

Financial InstrumentAny contract that gives rise to a financial asset of one entity and a financial liability or equity to another entity.

Financial liabilityAny liability that is a contractual obligation to deliver cash or another financial asset to another entity.

Forward Currency ContractA forward contract in the forex market that locks in the price at which an entity can buy or sell a currency on a future date. Also known as "outright forward currency transaction", "forward outright" or "FX forward".

FSCForest Stewardship Council.

GearingProportion of total interest-bearing borrowings to capital employed.

Gearing RatioInterest bearing capital divided by

total capital invested (interest bearing and non-interest bearing).

Interest CoverProfit before tax plus net finance cost divided by net finance cost. Measure of an entity’s debt service ability.

IUCNInternational Union for Conservation of Nature

HACCPHazard Analysis Critical Control Point System. Internationally accepted food safety standard.

IASInternational Accounting Standards.

IFRICInternational Financial Reporting Interpretations Committee.

IFRSInternational Financial Reporting Standards.

JeDBJanatha Estate Development Board.

Key Management PersonnelKey Management Personnel are those persons having authority and responsibility for planning, directing

and controlling the activities of the entity, directly or indirectly, including any director (whether executive ot otherwise) of that entity.

lIBORLondon Inter- Bank Offered Rate.

Market CapitalizationNumber of shares in issue multiplied by the market value of a share at the period date.

Market Value Added-MVAThe difference of market capitalization and book value of share capital.

Net Assets Per ShareShareholders’ funds divided by the weighted average number of ordinary shares in issue. A basis of share valuation.

Non-Controlling InterestThe interest of individual shareholders,in a company more than 50% of which is owned by a holding company .

Other Comprehensive IncomeItems of income and expenses that are not recognized in profit or loss as required or permitted by other SLFRS’s.

Price earnings RatioMarket price of a share divided by earnings per share as reported at that date.

Related PartiesParties who could control or significantly influence the financial and operating policies of the business.

Retirement Benefits-Present value of a defined benefit obligationIs the present value of expected future payments required to settle the obligation resulting from employee service in the current and prior periods.

-Current service costIs the increase in the present value of the defined benefit obligation resulting from employee service in the current period.

-Interest CostIs the increase during a period in the present value of a defined benefit obligation which arises because the benefits are one period closer to settlement.


-Actuarial gains and lossesIs the effect of difference between the previous actuarial assumptions and what has actually occurred and effects of changes in actuarial assumption.

Return on equityAttributable profits to the shareholders divided by shareholders funds.

Return on Capital employedProfit before tax plus net interest cost divided by capital employed.

Return on AssetsProfit before tax plus net interest cost divided by total assets.

Revenue ReservesReserves considered as being available for distributions and investments.

SegmentsConstituent business units grouped in terms of similarity of operations and location.

SICStanding Interpretations Committee.

SlFRS / lKASSri Lanka Accounting Standards corresponding to International Financial Reporting Standards.

SoRPStatement of Recommended practice.

Subsidiary6+A subsidiary is an entity, including an unincorporated entity such as a partnership, that is controlled by another entity (known as the parent).

SlASSri Lanka Accounting Standards. Also known as LKAS and SLFRS

total BorrowingTotal borrowing consist of interest-bearing liabilities, fair-value derivatives, accrued interest expenses and prepaid interest income, and trade receivables with resources.

UItFUrgent Issue Task Force of the Institute of Chartered Accountants of Sri Lanka.

Value additionThe quantum of wealth generated by the activities of the group measured as the difference between turnover and the cost of materials and services bought in.

Working capitalCapital required to finance day-to-day operations computed as the excess of current assets over current liabilities.

NON-FINACIAl teRMSAGMAnnual General Meeting.

COPThe cost of productions. This generally refers to the cost of producing per kilo of produce (Tea /Rubber /Palm oil).

CropThe total produce harvested over a given period of time (usually during a financial year).

CQC-QMS-Ceylon tea Quality Certification-Quality Management System.

A legal declaration by the tea commissioner to a registered tea manufacture in modern quality management systems that the building, equipment and manner of operation of the tea factory are of excellent standard to manufacture made tea of good quality.

extent in BearingThe extent of landform which crop is being harvested.

FieldA unit extent of land. Estates are divided into fields in order to facilitate management.

FlO- Fair trade labeling Organization internationalA leading standard setting and certification organization for labeling fair trade established in 1997 in Germany

GSAThe gross sales average. This is the average sales price obtained (over a period of time, for a kilo of produce) before any deductions such as brokerage, etc.

GRIGlobal Reporting Initiatives.

Immature PlantationThe extent of plantation that is under-development and is not being harvested.

In FillingA method of filed development whereby planting of individual plants is done in order to increase the yield of a given field, whilst allowing the field to be harvested.

ISOInternational Standards Organization.

ISO 22000International standard for food safety management system (FSMS) released by ISO in September 2005.

Glossary Contd.


Mature PlantationThe extent of plantation from which crop is being harvested.

NSAThe Net Sales Average. This is the average sale price obtained (over a period of time) after deducting brokerage fees, etc.

ReplantingA method of field development where an entire unit of land is taken out of “bearing” and developed by way of uprooting the existing trees/bushes and replanting with new trees/bushes.

Seeding teaTea grown from a seed.

SlSPCSri Lanka Plantations Corporation.

tASlTea Association of Sri Lanka.

turnover Per employeeConsolidated turnover of the company for the year divided by the number of employees.

VP teaVegetatively propagated tea.ie. Tea grown from a cutting of a branch of tea plant

Yield (YPH)The average crop per unit extent of land over a given period of time (usually kgs. Per hectare per year)

5SA Japanese management technique on the organization of the work place.5S stands for Seiri (Sorting), Seiton(organizing),Seiketsu (standardization), Shitsuke (Sustenance).

KVAl.N0000CSE stock code for the company.

246 Kelani Valley Plantations PLC | Annual Report 2015/16 Notice of Meeting

KelANI VAlleY PlANtAtIONS PlCCOMPANY NO. PQ 58Notice is hereby given that the Twenty Fourth Annual General Meeting of Kelani Valley Plantations PLC, will be held at the Registered Office of the Company, No.400, Deans Road, Colombo 10, Sri Lanka, on Thursday 16 June 2016 at 3.00 p.m. and the business to be brought before the meeting will be:

1) To consider and adopt the Annual Report of the Board of Directors and the Statements of Accounts for the year ended 31 March 2016, with the Report of the Auditors thereon.

2) To re-elect Mr.C.V.Cabraal who retires by rotation at the Annual General Meeting a Director.

3) To re-elect Mr.S.C. Ganegoda who retires by rotation at the Annual General Meeting a Director.

4) To authorise the Directors to determine contributions to Charities for the finical year 16/17.

5) To authorise the Directors to determine the remuneration of the Auditors, Messrs Ernst & Young, Chartered Accountants, who are deemed to have been re-appointed as Auditors in terms of Section 158 of the Companies Act No.7 of 2007 for the financial year 2016/2017.

6) To consider any other business of which due notice has been given.

Note :(1) A Shareholder is entitled to appoint a proxy to attend and vote instead of

himself and a proxy need not be a shareholder of the Company. A Form of Proxy is enclosed for this purpose. The instrument appointing a proxy must be deposited at the Registered Office No. 400, Deans Road, Colombo 10, Sri Lanka by 3.00pm on 14 June 2016.

By Order of the Board

KelANI VAlleY PlANtAtIONS PlC.Hayleys Group Services (Private) LimitedSecretaries

Colombo18 May 2016

247 Kelani Valley Plantations PLC | Annual Report 2015/16 Form of Proxy

I/We* .....………………………………………………………………………………………………………………....

of ...........……………………………………………………………………………………………………................being a shareholder/ shareholders* of KELANI VALLEY PLANTATIONS PLC hereby appoint,

1. …………………………………………………………………………………………………………………...........

Of .....…………………………………………………………………………………………………………………….…………………or failing him/them,*

2. ABEYAKUMAR MOHAN PANDITHAGE (Chairman of the Company) of Colombo, or failing him, one of the Directors of the Company as my/our* proxy to attend and vote as indicated hereunder for me/us* and on my/our* behalf at the Twenty Fourth Annual General Meeting of the Company to be held on Thursday 16 June 2016 and at every poll which may be taken in consequence of the aforesaid meeting and at any adjournment thereof:

For Agaist1) To consider and adopt the Annual Report of the Board

and the Statements of Accounts for the Year ended 31 March 2016 with the Report of the Auditors thereon.

2) To re-elect Mr. C V Cabraal who retires by rotation at the Annual General Meeting a Director

3) To re-elect Mr. S C Ganegoda, who retires by rotation at the Annual General Meeting a Director

4) To authorise the Directors to determine contributions to Charities for the Financial Year 2016/17.

5) To authorise the Directors to determine the remuneration of the Auditors,Messrs Ernst & Young, Chartered Accountants, who are deemed to have been re-appointed as Auditors in terms of Section 158 of the Companies Act No.7 of 2007 for the financial year 2016/17.

(**) The proxy may vote as he thinks fit on any other resolution brought before the Meeting.As witness my/our* hands this …………………….. day of ………..……………………..2016

Witnesses : ................................................ .............................................. ................................................ Signature of Shareholder ................................................

NOTE : * Please delete the inappropriate words.

1. A proxy need not be a member of the Company.2. Instructions as to completion appear on the reverse


INStRUCtIONS AS tO COMPletION1. To be valid, this Form of Proxy must be deposited at the Registered Office of the Company, No.400, Deans Road, Colombo 10, Sri Lanka by 3.00 p.m. Tuesday 14

June, 2016.

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

3. If you wish to appoint a person other than the Chairman of the Company (or failing him, one of the Directors) as your proxy, please insert the relevant details at 1 overleaf and initial against this entry.

4. Please indicate with an X in the space provided how your proxy is to vote on each resolution. If no indication is given, the proxy in his discretion will vote as he thinks fit. Please also delete (**) if you do not wish your proxy to vote as he thinks fit on any other resolution brought before the Meeting.

5. In the case of a Company / Corporation, the proxy must be under its Common Seal which should be affixed and attested in the manner prescribed by its Articles of Association.

6. Where the Form of Proxy is signed under a Power of Attorney (POA) which has not been registered with the Company, the original POA together with a photocopy of same or a copy certified by a Notary Public must be lodged with the Company along with the Form of Proxy.

Form of Proxy Contd.

249 Kelani Valley Plantations PLC | Annual Report 2015/16 Notes

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252 Kelani Valley Plantations PLC | Annual Report 2015/16 Corporate Information

NAMe OF COMPANY G4-3Kelani Valley Plantations PLC

leGAl FORM G4-7A Public Limited Company, incorporated in Sri Lanka on 18 June 1992.

ReGIStRAtION NUMBeRPQ 58

ACCOUNtING YeAR eND31 March

StOCK exCHANGe lIStINGThe ordinary shares of the Company are listed with the Colombo Stock Exchange of Sri Lanka

PRINCIPAl lINe OF BUSINeSSProducing and processing of Tea and Rubber

DIReCtORSA M Pandithage - ChairmanW G R Rajadurai – Managing DirectorS Siriwardana – Chief Executive OfficerF MohideenS C GanegodaL T SamarawickramaDr. K I M RanasomaC V CabraalL N De S Wijeyeratne

SUBSIDIARIeSKalupahana Power Company (Pvt) LtdKelani valley Instant Tea (Pvt) LtdMabroc Teas (Pvt) Ltd

eQUItY ACCOUNteD INVeSteeSHayleys Global Beverages (Pvt) Ltd

AUDIt COMMItteeL N De S Wijeyeratne - ChairmanF MohideenC V Cabraal

MANAGING AGeNtDPL Plantations (Pvt) Ltd400, Deans Road, Colombo 10,Sri Lanka

SeCRetARIeSHayleys Group Services (Pvt) Ltd400, Deans Road, Colombo 10,Sri Lanka.Telephone: (94-11)2627650E-mail: [email protected]

Please direct any queries about the administration of shareholding to the Company Secretaries.

ReGISteReD OFFICe / HeAD OFFICeG4-5/31

400, Deans Road, Colombo 10, Sri Lanka.Telephone: (94-11) 2627700, 2686274-5 (2Lines)Fax : (94-11) 2694216E-mail: [email protected] : www.kvpl.com

BANKeRSBank of CeylonNDB BankSampath BankHatton National BankDFCC BankCiti BankPeople’s BankAmana Bank

AUDItORSErnst & YoungChartered AccountantsNo. 201 De Saram Place, Colombo 10Sri Lanka

Design & Concept by: Optima Designs (Pvt) Ltd.Printed by: Softwave Printing and Packaging (Pvt) Ltd.

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Kelani Valley Plantations PlC | AnnuAl RepoRt 2015/16