hva foods plc -prospectus
TRANSCRIPT
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I N S P I R E D B Y I N N O V A T I O N
PROSPECTUSHVA FOODS LIMITED
INITIAL PUBLICOFFERING
HELADIV TEAS.
GIVING THE WORLD
A TASTE OF SRI LANKA.
To be listed on the Diri Savi Board of the Colombo Stock Exchange
For further inquiries
please contact the Managers to the Oering
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Oer for Subscription of
Nineteen Million Nine Hundred and TwentyEight Thousand Five Hundred and Ninety Eight
(19,928,598) Ordinary Voting Shares
at LKR 16 per share
The delivery o this Prospectus shall not under any circumstance
constitute a representation or create any implication or suggestion
that there has been no material change in the afairs o the Company
since the date o this Prospectus.
I you are in doubt regarding the contents o this document or i you
require any advice in this regard, you should consult your Stock Broker,
Bank Manager, Lawyer or any other Proessional Advisor.
This Prospectus is dated 03rd January 2011
Please note that upon the allotment o shares under this Ofer,
THE ALLOTTED SHARES WOULD BE CREDITED TO THE APPLICANT’S
CDS ACCOUNT. I you wish to open a CDS account, you may do so
through any one o the Members and Trading Members o the
CSE as set out in Annexure C or through any one o the Custodian
Banks as set out in Annexure E.
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2 | HVA Foods Limited – Initial Public Oering
This Prospectus has been prepared by Acuity Partners (Private)
Limited (“Acuity”) on behal o HVA Foods Limited (“the Company”)
rom the inormation supplied by the Company and its Directors and/
or which is publicly available. The Company and its Directors having
made all reasonable inquiries, conrm that to the best o their
knowledge and belie the inormation contained herein is true and
correct in all material respects and that there are no other material
acts, the omission o which would make any statement herein
misleading. While Acuity has taken reasonable care to ensure ull and
air disclosure, Acuity does not assume responsibility or any
investment decision made by the investors based on the inormation
contained herein. In making an investment decision, prospective
investors must rely on their own examination and assessments o the
Company, including the risks involved.
No person is authorized to give any inormation or make representation
not contained in this Prospectus and i given or made, any such
inormation or representation must not be relied upon as having
been authorized by Acuity.
The Colombo Stock Exchange (“CSE”) has taken reasonable care to ensure
full and fair disclosure of information in this Prospectus. However, the
CSE assumes no responsibility for the accuracy of the statements made,
opinions expressed or reports included in the Prospectus. Moreover, the
CSE does not regulate the pricing of the shares, which is decided solely by
the Company/Issuer.
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HVA Foods Limited – Initial Public Oering | 3
REGISTRATION OF THE PROSPECTUS
A copy of this Prospectus has been delivered to the Registrar of Companies of Sri Lanka for registration. The following
documents were attached to the copy of the Prospectus delivered to the Registrar of Companies.
à The written consent o the Managers to the Issue
The Managers to the Issue have given and have not before the delivery of a copy of the Prospectus for registration
withdrawn their written consent for the inclusion of their name as Managers to the Issue and for the inclusion of their statements/declarations in the form in which it is included in the Prospectus.
à The written consent o the Registrars to the Issue
The Registrars to the Issue have given and have not before the delivery of a copy of the Prospectus for registration
withdrawn their written consent for the inclusion of their name as Registrars to the Issue in the Prospectus.
à The written consent o the Auditors & Reporting Accountants to the Company
The Auditors & Reporting Accountants to the Company have given and have not before the delivery of a copy of
the Prospectus for registration withdrawn their written consent for the inclusion of their name as Auditors &
Reporting Accountants to the Company and for the inclusion of their report/statements in the form and context
in which it is included in the Prospectus.
à The written consent o the Lawyers to the Company
The Lawyers to the Company have given and have not before the delivery of a copy of the Prospectus for
registration withdrawn their written consent for the inclusion of their name as Lawyers to the Company in the
Prospectus.
à The written consent o the Bankers to the Issue
The Bankers to the Issue have given and have not before the delivery of a copy of the Prospectus for registration
withdrawn their written consent for the inclusion of their names as Bankers to the Company and the Bankers to
the Issue in the Prospectus.
A declaration has been made by each of the Directors of the Company conrming that each of them have read the provisions
of the Companies Act relating to the Issue of the Prospectus and that those provisions have been complied with.
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4 | HVA Foods Limited – Initial Public Oering
REPRESENTATION
No person is authorized to give any information or make any representation not contained in this Prospectus and if
given or made, any such information or representation must not be relied upon as having been authorized by the
Company.
REGISTRATION OF THE PROSPECTUS IN JURISDICTIONS OUTSIDE SRI LANKA
This Prospectus has not been registered with any authority outside of Sri Lanka. This Prospectus does not constitute an
oer to sell or a solicitation of an oer to buy, nor there be any sale of any shares oered herein, to any person in any
circumstance or in any jurisdiction in which it is unlawful to make such an oer, solicitation or sale.
FORWARD LOOKING STATEMENTS
Any statements included in this Prospectus that are not statements of historical fact constitute “Forward Looking
Statements”. These can be identied by the use of forward looking terms such as “expect”, “anticipate”, “may”, “plan to”,
“believe”, “could” and similar terms or variations of such terms. However, these words are not the exclusive means of
identifying Forward Looking Statements. As such, all statements pertaining to expected nancial position, business
strategy, plans and prospects of the Company are classied as Forward Looking Statements.
Such Forward Looking Statements involve known and unknown risks, uncertainties and other factors including but not
limited to regulatory changes in the sectors in which the Company operates and its ability to respond to them, the
Company’s ability to successfully adapt to technological changes, exposure to market risks, general economic and scal
policies of Sri Lanka, inationary pressures, the performance of nancial markets both globally and locally, changes in
domestic and foreign laws, regulation of taxes and changes in competition in the industry and further uncertainties that
may or may not be in the control of the Company.
Such factors may cause actual results, performance and achievements to materially dier from any future results,
performance or achievements expressed or implied by Forward Looking Statements herein. Forward Looking
Statements are also based on numerous assumptions regarding the Company’s present and future business strategiesand the environment in which the Company will operate in the future.
Given the risks and uncertainties that may cause the Company’s actual future results, performance or achievements to
materially dier from that expected, expressed or implied by Forward Looking Statements in this Prospectus, investors
are advised not to place sole reliance on such statements.
INVESTMENT CONSIDERATIONS
It is important that this Prospectus is read carefully prior to making an investment decision. For information concerning
certain risk factors, which should be considered by prospective investors, see “Investment Considerations and Associated
Risk Factors” in Section 8.0 of this Prospectus.
PRESENTATON OF CURRENCY INFORMATION AND OTHER NUMERICAL DATA
The nancial statements of the Company and currency values of economic data or industry data in a local context will
be expressed in Sri Lankan Rupees. References in the Prospectus to “LKR” are to the lawful currency of Sri Lanka.
References to USD are to United States Dollars, the ocial currency of the United States of America.
Certain numerical gures in the Prospectus have been subject to rounding adjustments; accordingly numerical gures
shown as totals in certain tables may not be an arithmetic aggregation of the gures that precede them.
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HVA Foods Limited – Initial Public Oering | 5
Contents
SALIENT FEATURES AT A GLANCE .................................................................................................................................................................................8
DEFINITIONS / INTERPRETATIONS .......................................................................................................... .......................................................................9
1.0 CORPORATE INFORMATION.............................................................................................................................................. ................................ 10
2.0 RELEVANT PARTIES TO THE OFFERING ........................................................................................................ .................................................. 11
3.0 DETAILS OF THE OFFERING ........................................................................................................... .................................................................... 12
3.1 The Oering ..................................................................................................................................................................................................................................12
3.2 Nature of the Oered Shares ..............................................................................................................................................................................................12
3.3 Size of the Issue ...........................................................................................................................................................................................................................12
3.4 Oer Price .......................................................................................................................................................................................................................................12
3.5 Objectives of the Oering ....................................................................................................................................................................................................12
3.6 Cost of the Oering ..................................................................................................................................................................................................................13
3.7 Listing ................................................................................................................................................................................................................................................13
3.8 Subscription List and Closure Date.................................................................................................................................................................................133.9 Eligible Applicants .....................................................................................................................................................................................................................14
3.10 Procedure for Applications ..................................................................................................................................................................................................14
3.10.1 The Prospectus and Application Form.................................................................................................................................................14
3.10.2 Number of Shares Applied ..........................................................................................................................................................................15
3.10.3 Identication Information ............................................................................................................................................................................15
3.10.4 Responsibility of a Non-Resident Investor .........................................................................................................................................16
3.10.5 Margin Trading ....................................................................................................................................................................................................16
3.10.6 Applications made under Power of Attorney ................................................................................................................................16
3.10.7 Joint Applications..............................................................................................................................................................................................16
3.10.8 Multiple Applications ......................................................................................................................................................................................16
3.10.9 Rejection of Applications .............................................................................................................................................................................17
3.10.10 Submission of Applications ........................................................................................................................................................................17
3.11 Payment of Application Monies .......................................................................................................................................................................................17
3.11.1 Mode of Remittance ........................................................................................................................................................................................17
3.11.2 Cheques or Bank Drafts – Resident Sri Lankan Investors ..........................................................................................................18
3.11.3 Bank Guarantees – Resident Sri Lankan Investors.........................................................................................................................18
3.11.4 Foreign Currency Remittance ....................................................................................................................................................................18
3.11.5 Restrictions Applicable to Foreign Citizens Resident in Sri Lanka ......................................................................................20
3.12 Banking of Payments ...............................................................................................................................................................................................................20
3.13 Returning of Monies of Rejected Applications .......................................................................................................................................................20
3.14 The Basis of Allotment ............................................................................................................................................................................................................20
3.15 Refunds on Applications .......................................................................................................................................................................................................213.16 Successful Applicants and CDS Lodgement ...........................................................................................................................................................22
3.17 Transferability of Oered Shares .......................................................................................................................................................................................22
3.18 Declaration to the Colombo Stock Exchange and Secondary Market Trading ..................................................................................22
4.0 BUSINESS OPERATIONS OF HVA FOODS LIMITED .................................................................................................... ................................ 23
4.1 Group Structure ..........................................................................................................................................................................................................................23
4.2 Products Oered .......................................................................................................................................................................................................................23
4.2.1 Value Added Tea Based Products ............................................................................................................................................................24
4.2.2 Tea Extract Based Products..........................................................................................................................................................................28
4.2.3 Tea Concentrate Based Products .............................................................................................................................................................29
4.2.4 Franchise Operation ........................................................................................................................................................................................30
4.2.5 Revenue Breakup of the Products Oered ........................................................................................................................................30
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4.3 Markets .............................................................................................................................................................................................................................................31
4.4 Competition .................................................................................................................................................................................................................................. 39
4.5 Degree of Dependence on Key Customers and Suppliers ..............................................................................................................................40
4.6 Details of Material Indebtedness .....................................................................................................................................................................................40
4.7 Working Capital ...........................................................................................................................................................................................................................41
4.8 Dividend Policy............................................................................................................................................................................................................................ 41
4.9 Litigation, disputes and contingent liabilities ..........................................................................................................................................................414.10 Patents, Trade marks and Brands Owned by the Company ...........................................................................................................................42
4.11 Share Transfer of HVA Holdings (Private) Limited to HVA Foods Limited ................................................................................................42
5.0 TEA INDUSTRY ..................................................................................................... ................................................................................................. 43
5.1 History ...............................................................................................................................................................................................................................................43
5.2 Overview – Contribution to the Economy ................................................................................................................................................................43
5.3 Overview – Sri Lanka Tea Production ............................................................................................................................................................................44
5.4 Tea Export Market ......................................................................................................................................................................................................................45
5.5 Regulatory Environment .......................................................................................................................................................................................................46
5.6 Value Added Tea Exports .......................................................................................................................................................................................................47
6.0 SRI LANKAN FAST MOVING CONSUMER GOODS INDUSTRY (FMCG) .......................................................................................... ...... 49
6.1 Drivers of Growth of the Sri Lankan FMCG Industry ...........................................................................................................................................49
6.2 Global Soft Drinks Industry ..................................................................................................................................................................................................51
6.3 Ready to Drink Tea (RTD Tea) .............................................................................................................................................................................................. 52
6.4 Global Personal Care Industry ............................................................................................................................................................................................52
7.0 FUTURE DIRECTION AND PROSPECTS ............................................................................................. ............................................................. 53
7.1 Future Direction and Prospects......................................................................................................................................................................................... 53
8.0 INVESTMENT CONSIDERATIONS AND ASSOCIATED RISK FACTORS ............................................................................................. ...... 54
8.1 Risk Factors .....................................................................................................................................................................................................................................54
8.2 Industry Specic Risks .............................................................................................................................................................................................................548.3 Company Specic Risks..........................................................................................................................................................................................................54
9.0 CORPORATE STRUCTURE .................................................................................................... ............................................................................... 56
9.1 The Board of Directors ............................................................................................................................................................................................................56
9.2 The Board of Directors of HVA Lanka Exports (Private) Limited ....................................................................................................................56
9.3 Proles of the Board of Directors ......................................................................................................................................................................................57
9.4 Directors’ Interest in Shares ..................................................................................................................................................................................................58
9.4.1 Directors’ Direct and Indirect Shareholdings in the Company..............................................................................................58
9.4.2 Sale or Purchase of Shares by directors ...............................................................................................................................................58
9.4.3 Directors’ Emoluments ...................................................................................................................................................................................58
9.4.4 Other Directorships Held by the Board ...............................................................................................................................................589.4.5 Directors’ Interest in Assets .........................................................................................................................................................................60
9.4.6 Directors’ Interest in any Material Contracts .....................................................................................................................................60
9.4.7 Statement – Board of Directors ...............................................................................................................................................................60
9.5 Corporate Governance Practices .....................................................................................................................................................................................60
9.6 Remuneration Committee ...................................................................................................................................................................................................61
9.7 Audit Committee .......................................................................................................................................................................................................................61
9.8 Senior Management ................................................................................................................................................................................................................ 61
9.8.1 Senior Managements’ Emoluments .....................................................................................................................................................62
9.9 Statement – Chairman ...........................................................................................................................................................................................................62
9.10 Details of the Management Agreements ...................................................................................................................................................................63
9.11 Human Resources ......................................................................................................................................................................................................................63
9.12 Information Technology ........................................................................................................................................................................................................63
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10.0 CAPITAL STRUCTURE .................................................................................................... ...................................................................................... 64
10.1 An Overview of the Capital Structure ...........................................................................................................................................................................64
10.2 Free Transferability of Shares ...............................................................................................................................................................................................64
10.3 Other Securities...........................................................................................................................................................................................................................64
10.4 Takeover Oers ............................................................................................................................................................................................................................64
10.5 Share Re-Purchases or Redemptions.............................................................................................................................................................................64
10.6 Ten Largest Shareholders as at 03rd January 2011 ...............................................................................................................................................6410.7 Major Shareholders of HVA Lanka Exports (Private) Limited from 1990 to date ................................................................................65
10.8 Post IPO Shareholding Structure ......................................................................................................................................................................................65
10.9 Ratios .................................................................................................................................................................................................................................................66
11.0 MANAGEMENT DISCUSSION AND ANALYSIS ........................................................................................... .................................................. 67
11.1 Operating Results ......................................................................................................................................................................................................................67
11.2 Performance of Operations for the Five Years Ended 31st March 2010 ...................................................................................................68
12.0 STATUTORY AND OTHER GENERAL INFORMATION ................................................................................................... ............................... 71
12.1 Hosting of Prospectus, Application Form and the Articles of Association on the Web .................................................................71
12.2 Inspection of Documents .....................................................................................................................................................................................................7112.3 Brokerage ........................................................................................................................................................................................................................................71
12.4 Underwriting ................................................................................................................................................................................................................................71
13.0 TAXATION ....................................................................................................... ........................................................................................................ 72
13.1 Corporate Taxation ....................................................................................................................................................................................................................72
13.2 Withholding Tax (WHT ) for Dividends ..........................................................................................................................................................................72
13.3 Economic Service Charge (ESC)........................................................................................................................................................................................72
13.4 Taxation of Share Transactions...........................................................................................................................................................................................72
13.5 Stamp Duty ....................................................................................................................................................................................................................................72
14.0 STATUTORY DECLARATIONS............................................................................................................................................. ................................ 73
ACCOUNTANT’S REPORT AND FIVE YEAR SUMMARY ................................. ....................................................................................................... 75
ACCOUNTANT’S REPORT FIVE YEAR SUMMARY AND LIMITED
REVIEW AS AT 30th SEPTEMBER 2010 .................................................................................................. .................................................................... 76
INTERIM FINANCIAL STATEMENTS FOR THE YEAR ENDED 30TH SEPTEMBER 2010 ..............................................................................107
ANNEXURE A – INDEX ON TABLES ILLUSTRATED IN THE PROSPECTUS .....................................................................................................128
ANNEXURE B – INDEX ON CHARTS AND FIGURES ILLUSTRATED IN THE PROSPECTUS .......................................................................129
ANNEXURE C – COLLECTION POINTS ................................................................................................... ..................................................................130
ANNEXURE D – ‘HELADIV’ BRAND EQUITY .......................................................................................... .................................................................133
ANNEXURE E – CUSTODIAN BANKS ...................................................................................................... ..................................................................134
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SALIENT FEATURES AT A GLANCE
Issuer HVA Foods Limited
Number and Type of Securities to be Issued 19,928,598 Ordinary Voting Shares of the Company
Issue Price LKR 16 per share
Minimum Subscription per Application Minimum subscription per application is 100 shares
(LKR 1,600). Applications exceeding the minimum
subscription should be in multiples of 100 shares
Issue Opening date 12th January 2011
Issue Closing date 01st February 2011 or on the date on which the Issue is
oversubscribed
Amount to be Raised LKR 318,857,568
Please note that upon the allotment o shares under this Ofer,
THE ALLOTTED SHARES WOULD BE CREDITED TO THE APPLICANT’S
CDS ACCOUNT. I you wish to open a CDS account, you may do so
through any one o the Members and Trading Members o theCSE as set out in Annexure C or through any one o the Custodian
Banks as set out in Annexure E.
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DEFINITIONS / INTERPRETATIONS
The following denitions/interpretations apply throughout this Prospectus, unless the context otherwise requires:
“Application Form ” The ocial Application Form and/or photocopies of the ocial Application
Form
“Bn” Billion
“BOI” Board of Investment of Sri Lanka
“CDS” Central Depository Systems (Pvt) Limited
“CIS countries” A regional organization whose participating countries are former Soviet
Republics, formed during the breakup of the Soviet Union
“Closure Date” The date of closure of the subscription list
“Companies Act” Companies Act No. 07 of 2007
“The Company” or “HVA Food” HVA Foods Limited“CSE” Colombo Stock Exchange
“Directors” The Directors for the time being of the Company, unless otherwise stated
“GOSL” Government of the Democratic Socialist Republic of Sri Lanka
“IPO” Initial Public Oering
“Issue” Issue of shares of the Company to the Public as envisaged by this Prospectus
“Issuer” HVA Foods Limited
“LKR” Sri Lankan Rupees
“Market Day” Any day on which the CSE is open for trading
“Mn” Million
“MT” Metric Ton
“Managers to the Ofering” Acuity Partners (Private) Limited
“NIC” National Identity Card
“Ofered Shares” Nineteen Million Nine Hundred and Twenty Eight Thousand Five Hundred
and Ninety Eight (19,928,598) new Ordinary Shares each issued by the
Company, to the general public at the Share Oer Price
“Ofer or Subscription” or “Ofering” An invitation to the public by the Company to subscribe for Nineteen Million
Nine Hundred and Twenty Eight Thousand Five Hundred and Ninety Eight
(19,928,598) new Ordinary Shares of the Company
“Ofering Period” 12th January 2011 to 01st February 2011
“Ofer Price” LKR 16/- per Oered Share
“Ordinary Share(s)” or “shares” Ordinary Voting Share(s) of the Company
“POA” Power of Attorney
“SEC” Securities & Exchange Commission of Sri Lanka
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1.0 CORPORATE INFORMATION
Issuer HVA Foods Limited
Registered Oce
(HVA Foods Limited)
No. 39/A, Linton Road, Kandana, Sri Lanka
Registered Oce(HVA Lanka Exports (Pvt.) Limited)
No. 39/A, Linton Road, Kandana, Sri Lanka
Telephone Number o the Company 011 223 8714
Company Registration Number
(under the Companies Act No. 07 o 2007)
PV 1765
Re- Registration Number
(as a Public Company)
PV/PB 1765
Date, Place and Authority o Incorporation Incorporated as a Private Limited Liability Company on 22nd
August 1997 in Colombo at Registrar Of Companies and
converted to a Public Company on 03rd November 2010 inColombo at Registrar of Companies
Company Secretary P.R. Secretarial Services (Pvt.) Limited
No. 59, Gregory’s Road, Colombo 07, Sri Lanka.
T: 2697893, 2697894, 2686639
Reporting Accountants /
Auditors o the Company
KPMG, Ford, Rhodes, Thornton & Co.
32 A, Sir Mohamed Macan Marker Mw.,
P.O. Box 186, Colombo 07, Sri Lanka
Lawyers o the Company Paul Ratnayeke Associates,No. 59, Gregory’s Road, Colombo 07, Sri Lanka
Bankers o the Company Bank o Ceylon
Head Oce, No. 4,
Bank of Ceylon Mawatha, Colombo 01, Sri Lanka
Seylan Bank PLC
No. 90, Galle Road, Colombo 03, Sri Lanka
Hongkong and Shanghai Banking Corp.
No. 24, Sir Baron Jayathilake MawathaColombo 01, Sri Lanka
Board o Directors
Name Designation
Mr. A. R. H. Fernando Chairman
Mr. H. J. Fernando Executive Director
Mr. J. Raddalgoda Executive Director
Mrs. V. S. Amunugama Fernando Non-Executive Director
Mr. N. C. Vitarana Non-Executive (Independent Director)
Mr. J. H. P. Ratnayeke Non-Executive (Independent Director)
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2.0 RELEVANT PARTIES TO THE OFFERING
Financial Advisors and Managers to the Ofering Acuity Partners (Private) Limited
53, Dharmapala Mawatha,
Colombo 03
T: 2206206
Registrars to the Ofering P W Corporate Secretarial (Pvt) Ltd
3/17, Kynsey Road,
Colombo 08, Sri Lanka
T: 4610476, 4640360-3
Bankers to the Ofering DFCC Vardhana Bank
73, W.A.D.Ramanayake Mawatha,
Colombo 02, Sri Lanka
Lawyers to the Ofering Paul Ratnayeke Associates,
No. 59, Gregory’s Road, Colombo 07,
Sri Lanka
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3.0 DETAILS OF THE OFFERING
3.1 The Ofering
The Oering contemplated herein shall constitute an invitation made to the general public to purchase
Nineteen Million Nine Hundred and Twenty Eight Thousand Five Hundred and Ninety Eight (19,928,598) new
Ordinary Shares of the Company at the Oer Price.
3.2 Nature o the Ofered Shares
The Oered Shares shall rank equal and pari passu in all respects with the existing Ordinary Shares of the
Company with the right to vote, the right to an equal share in any dividend that may be paid by the Company
after the allotment of the Oered Shares and the right to an equal share in the distribution of the surplus
assets of the Company in a liquidation.
3.3 Size o the Issue
If fully subscribed, the Oering would raise Sri Lankan Rupees Three Hundred and Eighteen Million Eight
Hundred and Fifty Seven Thousand Five Hundred and Sixty Eight (LKR 318,857,568).
3.4 Ofer Price
The Oer Price will be LKR 16/-. The Board of Directors of HVA Foods Limited is of the opinion that the Oer
Price is fair and reasonable to the Company and to all existing shareholders of the Company.
3.5 Objectives o the Ofering
The Company intends to raise funds through this Oering to nance the following, in the order of priority.
i. Allocation of LKR 45 million for payment for the acquisition of HVA Holdings (Private) Limited for the
assignment of international brand rights of “HELADIV” to HVA Foods Limited. The transfer of 18,367 sharesof HVA Holdings (Private) Limited to HVA Foods Limited was carried out on the 29th of September 2010
and prior to the transfer, HVA Holdings (Private) Limited was a 100% owned subsidiary of Lake Drive
Holdings (Private) Limited. Lake Drive Holdings (Private) Limited is a company owned by Mr. A.R.H.
Fernando, Mrs. V.S. Amunugama Fernando and Mr. H.J. Fernando. The international brand rights are
registered under HVA Holdings (Private) Limited while the local brand registration of “HELADIV” is registered
under HVA Foods Limited. The aforesaid amount of LKR 45 million will be the deferred payment for the
transfer of 100% ownership of HVA Holdings (Private) Limited to HVA Foods Limited. Hence, the acquisition
will now give total jurisdiction over the brand in Sri Lanka and worldwide covering the manufacture and
export of “HELADIV” branded products without hindrance. Moreover, infringement of the brand rights in
any foreign country where the brand is registered will also now come under the control of HVA Foods
Limited. Price Water House Coopers has conducted a value assessment of the brand on 01st October2010 and has valued it to be in the range of USD 1.08 million to USD 1.24 million. Please refer Annexure D
of this Prospectus.
ii. Approximately LKR 95 million will be utilized to reduce gearing of the Company.
Term Loan Settlement
Seylan Bank (USD 650,000 @ LKR 115/-) LKR 74,750,000.00
Bank of Ceylon LKR 20,000,000.00
Total LKR 94,750,000.00
For further details on the above term loans please refer Section 4.6 of this Prospectus.
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HVA Foods Limited – Initial Public Oering | 13
iii. Approximately LKR 102 million will be utilized for Ice Tea plant to be upgraded from a pilot plant to a
commercial plant and for expansion of facilities in the existing factory. Current capacity of the pilot plant
is 100,000 litres of ice tea per month. Subject to the current trial shipments and initial marketing eorts
bringing in improved orders, the capacity in the medium term needs to be increased to 300,000 litres per
month. This will require approximately LKR 26 million which will cover the securing and expansion of land
and building and installation of machinery.
As for the expansion of the existing factory, most of the current machines need backups and increased
capacity. The current tea bagging capacity of the Company is well below the required demand. Hence,
approximately LKR 76 million will be utilized for expansion of the current operations.
iv. The remaining balance to nance the incremental working capital requirements of HVA Foods Limited
such as retiring expensive short term borrowings and to ensure smooth and ecient operations at the
factory by maintaining adequate buer stocks.
The Company expects to utilize the IPO proceeds immediately following the Oering. The Company
believes that implementation of activities mentioned herein is imperative for the growth of the business
of the Company.
The Company is condent that it can meet any shortfall in the event of an under subscription through
internally generated funds and borrowings.
3.6 Cost o the Ofering
The Directors estimate that the total cost of the Issue including the Managers’ fees, Registrars’ fees, fees payable
in respect of services rendered by any lawyers, accountants, postage, printing and marketing costs, brokerage,
stamp duty payable on the Issue of shares, etc. will be approximately LKR 10.924 million. Such costs will be
borne by the Company from internally generated funds.
3.7 Listing
The Oering herein contemplated comprises of Nineteen Million Nine Hundred and Twenty Eight Thousand
Five Hundred and Ninety Eight (19,928,598) Ordinary Voting Shares. If fully subscribed, the Oered Shares will
amount to 30% of the issued and paid up Ordinary Voting Shares of the Company subsequent to the Oering.
An Application has been made to the CSE for permission to deal in and for a listing of Sixty Six Million Four
Hundred and Twenty Eight Thousand Six Hundred and Sixty (66,428,660) Ordinary Voting Shares being the
entirety of the issued and paid up Ordinary Voting Shares of the Company subsequent to the Oering.
Upon the successful completion of the Oering, the Company will be listed on the Diri Savi Board of the CSE,
subject to compliance with Rule 2.1.3 of the CSE Listing Rules.
3.8 Subscription List and Closure Date
The subscription list for the Oered Shares will open at 9.00 a.m. on 12th January 2011 and shall remain open
for fourteen (14) Market Days until closure at 4.30 p.m. on 01st February 2011. The Board reserves the discretion
to close the subscription list on any Market Day within the period of fourteen (14) Market Days irrespective of
the number of shares subscribed by providing one (01) Market Day’s prior notice to the CSE.
In the event of an over subscription of the Oered Shares prior to the date scheduled as the closing date of
the period for subscription, the Company shall inform the CSE in writing immediately of such fact and the
subscription list will be closed at 4.30 p.m. on the same day on which it is fully subscribed with the notication
to the CSE.
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3.9 Eligible Applicants
Applications are invited from the following categories of Applicants:
• Citizens of Sri Lanka who are resident in or outside Sri Lanka and above 18 years of age;
• Companies, corporations or institutions incorporated or established within Sri Lanka;
• Corporate bodies incorporated or established outside Sri Lanka;• Approved provident funds and contributory pension schemes registered/incorporated/established in Sri
Lanka (in this case applications should be in the name of the Trustee/Board of Management in order to
facilitate the opening of the CDS account);
• Foreign citizens above 18 years of age (irrespective of whether they are resident in Sri Lanka or overseas);
• Global, regional and country funds approved by the SEC.
Please note that Applications made by individuals under 18 years of age or those in the names of sole
proprietorships, partnerships, unincorporated trusts and non-corporate bodies will be rejected at the outset.
3.10 Procedure or ApplicationsApplications must be made in the manner set out below. Applications duly completed should be submitted
in the manner set out in Section 3.10.10 hereunder.
3.10.1 The Prospectus and Application Form
The Prospectus and Application Form will be available free of charge from the collection points listed in
Annexure C. Investors must apply for shares on the Application Form, which constitutes part of this Prospectus.
The Application Form should be legibly completed and be received by the Registrars to the Oering. The
Application Form and the Prospectus can also be downloaded from www.cse.lk, and www.heladiv.com. Exact
size photocopies of the original Application Form will also be permissible.
Care must be taken to follow the instructions on the reverse of the Application Form. Applications that do not
strictly conform to such instructions and additional conditions set out hereunder or which are illegible may be
rejected.
Please note that upon the allotment of shares under this Oer, THE ALLOTTED SHARES WOULD BE CREDITED
TO THE APPLICANT’S CDS ACCOUNT. If you wish to open a CDS account, you may do so through any one of the
Members and Trading Members of the CSE as set out in Annexure C or through any one of the Custodian Banks
as set out in Annexure E.
Applicants have the option of having their shares ‘locked’* in the CDS. Shares that are locked* would not be
available for trading purposes and would not be visible to the participant. Such applicants would have to ll ina separate section in the IPO Application Form for this purpose. If the applicant has not specied that his/her
shares need to be deposited to his/her ‘locked’ *balance, please note that the said shares would be deposited to
applicant’s ‘trading’ balance.
* Denition and operation of a ‘locked’ balance in the CDS
In order to preserve the condentiality of shareholder information and to ensure that securities are not made
available for trading for those shareholders who do not want to trade the securities the CDS would provide a
mechanism where securities can be “locked” in the CDS account.
The CDS would maintain two balances for each CDS account, namely a trading balance and a locked balance. The trading balance would be visible to the CDS participant and all dealings and trading would be permitted
on the said trading balance, as done presently.
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As opposed to the trading balance, the locked balance will not be visible to the CDS participant and all
dealings on such locked balance would be suspended thereby maintaining the condentiality of the
information and also safeguarding the account holder from an unauthorized sale by a broker.
At the option and request of an account holder the CDS would transfer a named quantity of shares from the
locked balance to the trading balance of a CDS account and /or from the trading balance to the locked
balance.
3.10.2 Number of Shares Applied
Application should be made for a minimum of one hundred (100) shares or in multiples of hundred (100) shares
thereof.
Applications made for less than one hundred (100) shares or for a number which is not in multiples of hundred
(100) shares will be rejected and accompanying cheques or bank drafts or bank guarantees will not be sent for
clearing and be returned via ordinary post at the risk of the Applicant, or in the case of Joint Applicants, the
rst named Applicant. The cheque or bank draft or bank guarantee should be issued to the exact value of thenumber of shares applied for multiplied by the Oer Price. Cheques or bank drafts or bank guarantees not
conforming to the above requirement will be rejected at the outset. Please refer Section 3.11.1 for details with
respect to the mode of remittance.
3.10.3 Identication Information
All Applicants should disclose their identication/registration information by lling in the space provided in
the Application Form for this purpose.
Applicants are requested to state their residency and nationality in the appropriate cages provided in the
Application Form.
The NIC, passport or company registration number as the case may be, must be stated in the Application Form
and any Application Form which does not provide the appropriate identication information will be strictly
rejected.
Tabulated below is the relevant identication information that a prospective investor should provide
depending on the legal status:
Citizenship/Legal Form
NIC Number Passport
Number
Company
RegistrationNumber
Common Seal
or RubberStamp
Sri Lankan Citizens ✓
Sri Lankan Citizens with no NIC – Note I ✓
Foreign Citizens – Note II ✓
Corporate Entities – Note III & Note IV ✓ ✓
Note I: Please note that upon the allotment of shares under this Oer, THE ALLOTTED SHARES WOULD BE
CREDITED TO THE APPLICANT’S CDS ACCOUNT. If you wish to open a CDS account, you may do so
through any one of the Members and Trading Members of the CSE as set out in Annexure C or through
any one of the Custodian Banks as set out in Annexure E.
Note II: In the case of Sri Lankan citizens the passport number will be accepted only when the NIC number is
not available. The CDS account must be for the same passport number.
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Note III: Foreign citizens must state the passport number in the space provided.
Note IV: The company registration number must be provided. The common seal or rubber stamp should be
axed and the Application Form duly signed as stipulated in the constitutional documents of such
Applicants.
3.10.4 Responsibility of a Non-Resident Investor Non-resident investors may be aected by the laws of the jurisdiction of their residence. If the non-resident
investors wish to apply for the shares at the IPO, it is their responsibility to comply with the laws relevant to the
jurisdiction of their residence and of Sri Lanka.
3.10.5 Margin Trading
Applicants who wish to apply through their margin trading account, should submit the Application in the
name of the “margin provider/Applicant ’s name” signed by the margin provider. The Applicants should state
the relevant CDS account number relating to the margin trading account in the space provided for the CDS
account number in the Application Form.
The NIC, passport or company registration number of the Applicant as the case may be, must be stated in the
Application Form.
A photocopy of the margin trading agreement must be submitted along with the Application.
Please note that the margin provider can apply under its own name and such Applications will not be
construed as multiple Applications (details of multiple Applications are available under Section 3.10.8).
3.10.6 Applications made under Power of Attorney
In the case of Applications made under Power of Attorney, a copy of the said POA, certied by a Notary Public
to be a true copy of the original, should be lodged with the Registrars to the Oering along with the ApplicationForm. The original POA should not be attached.
3.10.7 Joint Applications
Joint Application Forms should not exceed three Applicants (except in the case of executors, administrators or
heirs of a deceased member). Joint Applicants should note that all parties should either be residents of Sri
Lanka or non-residents. An Applicant of a Joint Application shall not apply through a separate Application
Form either individually or jointly. Only one Application will be accepted on behalf of a natural person.
3.10.8 Multiple Applications
An Applicant can apply under only one Application Form. If an Applicant has applied under more than one
Application Form it will be construed as multiple Applications. An Applicant of a Joint Application, applying
through another Application Form is also deemed to have made multiple Applications.
An Applicant who has made an Application under a margin trading account should not apply individually or
jointly on a separate Application Form. Such Applications will also be construed as multiple Applications.
The Company/Managers/Registrars to the Oering reserve the right to reject all multiple Applications and
suspected multiple Applications or to accept only one Application Form at their discretion.
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3.10.9 Rejection of Applications
• Application Forms which are incomplete in any way and/or are not in accordance with the terms and
conditions set out in this Prospectus will be rejected at the absolute discretion of the Company/Managers/
Registrars to the Oering.
• Any Application Form which does not provide the NIC, passport or company registration number as the
case may be, will be strictly rejected.
• Applications delivered by hand after 4.30 p.m. local time on the Closure Date of the Oering will be rejected.
Applications received by courier/post after 4.30 p.m. local time on the succeeding Market Day immediately
following the Closure Date of the Oering, will also be rejected even if they carry a courier acceptance date/
postmark date earlier than the Closure Date.
• Applications made for less than one hundred (100) shares or for a number which is not in multiple of
hundred (100) shares will be rejected.
• In the case of multiple Applications and suspected multiple Applications, the Company/Manager/Registrars
to the Oering reserve the right to reject all or to accept one Application Form at their discretion.
• An Application Form accompanied by two or more cheques or bank drafts or bank guarantees will be
rejected at the outset.
• Applications made by individuals below 18 years of age or those in the names of sole proprietorships,
partnerships, unincorporated trusts and non-corporate bodies will be rejected.
Notwithstanding any provision contained herein, the Board of Directors shall reserve the right to refuse any
Application or to accept any Application in full or part.
3.10.10 Submission of Applications
Application Form properly lled in accordance with the instructions thereof, along with the applicable
remittance for full amount payable on application should be enclosed in a sealed envelope marked “HVA
Foods Limited – Initial Public Oering” on the top left-hand corner and be addressed and dispatched by post
or courier or delivered by hand to the Registrars to the Oering at the following address.
P W Corporate Secretarial (Pvt) Ltd
3/17, Kynsey Road,
Colombo 08
Applications may also be handed over to the Managers to the Oering, the Bankers to the Oering and its
designated branches, members and trading members of the CSE as set out in Annexure C prior to 4.30 p.m.
local time on the Closure Date.
In the case of Applications dispatched by courier or post, such Applications should reach the Registrars to the
Oering prior to 4.30 p.m. local time on the Market Day immediately following the Closure Date. AnyApplications received after the above deadline shall be rejected even though the courier or post mark is dated
prior to the Closure Date.
3.11 Payment o Application Monies
3.11.1 Mode of Remittance
Payment should be made separately in respect of each Application by way of a cheque or bank draft or bank
guarantee. Remittances on Applications will be deposited in a separate bank account in the name of “HVA
Foods Limited – Initial Public Oering”.
Payment for Applications for values up to Rupees One Hundred Million (LKR 100,000,000/-) could be supportedby a cheque or bank draft or bank guarantee. Payment for Applications above and inclusive of Rupees One
Hundred Million (LKR 100,000,000/-) should only be accompanied by a bank guarantee.
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• The intermediary may open a SIA, on the investor’s behalf. In conjunction with the SIA, an account
with the CDS must be opened.
• In respect of global, regional or country funds investing for the rst time in Sri Lanka, the intermediary
will facilitate the approval process regulated by the SEC.
• Payment for shares should be made through a cheque or bank draft or bank guarantee against the
funds in the SIA and made payable to “HVA Foods Limited – Initial Public Oering”.
• A foreign investor may invest through inward remittances of foreign currency held in a Foreign Currency
Banking Unit (FCBU) account of the Applicant maintained with any commercial bank in Sri Lanka. The
Applicant should forward the Application Form supported by a bank guarantee drawn on the Applicant’s
FCBU account pending allotment of shares.
• Upon allotment of shares, foreign currency to the extent of the Sri Lankan Rupee equivalent value
shares allotted would be called on the bank guarantee drawn on the Applicant’s FCBU account. The
requisite funds would then be credited to a SIA opened in favour of the Applicant via the aforementioned
FCBU account.
• This procedure would protect a prospective investor from any losses accruing due to uctuating
exchange rates.
• In addition to the payments made through SIA and FCBU mentioned above, a foreign citizen resident in
Sri Lanka under the Resident Guest Scheme may invest through the Resident Guest Foreign Currency
Account (RGFCA) maintained with any commercial bank in Sri Lanka. An investor who wishes to avail
him/herself of this facility should make the payment for shares through a bank draft or a bank guarantee
against the funds in the RGFCA and made payable to “HVA Foods Limited – Initial Public Oering”.
• Non-resident Sri Lankans can remit money for investment purposes in Sri Lankan
companies through Rupee Accounts for Non-Resident Sri Lankan Investment (RANSI)
maintained with authorized dealers.
• Sri Lankan citizens who have left the country to take up employment, business or a profession andcontinue to reside abroad and those citizens of Sri Lanka who have made their permanent place of
abode outside Sri Lanka are eligible to operate a RANSI with authorized dealers.
• Remittances by non-resident Sri Lankans in connection with this share Application Form must be
made via bank drafts purchased out of funds in the RANSI. There are no exchange control restrictions
on remittance of funds that may be available in a RANSI.
• Where a RANSI holder is also the holder of a Non-Resident Foreign Currency (NRFC) account, movement
of funds between a RANSI and a NRFC account of the account holder is freely permitted, so long as the
account holder continues to reside abroad and does not cease to be a citizen of Sri Lanka. Therefore,
funds in the NRFC account could be transferred to a RANSI through which investment in shares could
be made.
Cheques or bank drafts or bank guarantees should be endorsed by the issuing custodian bank, to the eect
that, such payment has been made against funds available in the individual’s SIA/FCBU/RGFCA account. The
endorsement must be clearly indicated on the cheque or bank draft or the bank guarantee. Alternatively, a
document detailing the endorsement could be submitted along with the payment and Application.
Bank drafts drawn on a RANSI account should also be endorsed in line with the above.
Applications supported by foreign currency remittances should be made in conformity with requisite
declarations accompanied by the documentation stipulated by the Controller of Exchange.
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3.11.5 Restrictions Applicable to Foreign Citizens Resident in Sri Lanka
Foreign citizens resident in Sri Lanka may make payments through Sri Lankan Rupee accounts only if they
possess dual citizenship where one such citizenship is Sri Lankan. Foreign citizens having Sri Lankan citizenship
should attach a certied copy of the citizenship certicate with the Application Form.
Foreign citizens residing in Sri Lanka having valid residency visas should note that they cannot make
remittances via cheques or bank drafts or bank guarantees drawn on Sri Lanka Rupee accounts held in SriLanka but may do so via SIA/FCBU/RGFCA account as detailed in Section 3.11.4 above. Applications made by
foreign citizens not in accordance to the foregoing shall be rejected.
3.12 Banking o Payments
All cheques or bank drafts or bank guarantees received in respect of Applications will not be banked or called
on until the Market Day after the Closure Date of the subscription list, in terms of the CSE Listing Rules.
3.13 Returning o Monies o Rejected Applications
Where an Application Form is rejected, the cheque or bank draft or bank guarantee received in respect of the
Application will be returned via ordinary post at the risk of the Applicant. In the case of Joint Applicants,Application monies will be returned to the rst named Applicant.
Where the Application Form is accepted and the cheque or bank draft or bank guarantee is not honoured at
the rst presentation, the Application will also be rejected and the cheque or bank draft or bank guarantee will
be returned via ordinary post at the risk of the Applicant. In the case of Joint Applicants, Application monies
will be returned to the rst named Applicant.
3.14 The Basis o Allotment
The Oered Shares would be distributed among three broad investor categories, namely:
Employees * 5% of the Oered Shares
Retail 30% of the Oered Shares
Non-Retail 65% of the Oered Shares
* Permanent employees of HVA Foods Limited
Investors who apply for up to a maximum of 5,000 shares will be deemed as Retail investors for share allotment
purposes.
Investors who apply for shares in excess of 5,000 shares will be deemed as Non-Retail investors for share
allotment purposes.
The investor categories have been selected to ensure the broadest possible spread of shareholders whiletreating all Applicants in a fair manner.
In the case of an under subscription of any one or more categories relative to the allocation mix specied
above, the quantum of shares undersubscribed may be redistributed and allocated to the other categories
that may be oversubscribed. Decisions relating to the amount of any share redistribution and as to which
category would receive rst priority in selection for allocation of the under subscribed shares will be made at
the discretion of the Board of Directors of the Company. Such distribution would be made in a fair manner.
Redistribution shall not apply in the event of oversubscription of all three categories mentioned above.
In the event of an over subscription of any one or all categories mentioned above the basis of allotment willbe decided by the Board of Directors of the Company before the expiry of seven (07) market days from the
date of closure of the subscription list and immediately notied to the CSE.
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3.15 Reunds on Applications
Where an Application is accepted only in part, the balance of the monies received on Application will be
refunded. Refunds on shares that have not been allotted will be refunded on or before the expiry of ten (10)
Market Days from the Closure Date (excluding Closure Date) as required by the CSE Listing Rules. Applicants
would be entitled to receive interest at the last quoted AWPLR published by the Central Bank of Sri Lanka plus
5%, on any refunds not made before the expiry of the above mentioned period.
Refunds via Sri Lanka Inter-bank Payment Systems:
• The refund payment will be made to the bank account specied by the Applicant through the Sri Lanka
Inter-bank Payment System (SLIPS) which is subject to a maximum limit of LKR 5 million, on or before the
expiry of ten (10) Market Days from the Closure Date (excluding Closure Date) as required by the CSE
Listing Rules and a payment advice shall be issued to the Applicant provided that the Applicant has
submitted accurate and complete details of his bank account in the Application Form. In the event the
refund payment is eected via SLIPS based on the bank account details provided by the Applicant in the
Application Form, but is rejected by the Applicant’s bank due to inaccurate or incomplete information,
such refund payments would be made via a crossed cheque in favour of the Applicant and sent by
ordinary post at the risk of the Applicant. In such instances, the Company together with the Registrars to
the Oering will send the refund cheques to such Applicants at the earliest possible and the Applicant
should not hold the Company or the Registrars to the Oering accountable for such delays.
Refunds via crossed cheque:
• If the Applicant has not provided details of the bank account in the Application Form or has provided
inaccurate or incomplete details of the bank account, the refund payment will be made by a crossed
cheque in favour of the Applicant and sent by ordinary post at the risk of the Applicant. In the case of a
Joint Application, a crossed cheque will be drawn in favour of the Applicant whose name appears rst in
the Application Form. Further, even if the Applicant has requested for SLIPS transfer for refund amounts
and submitted accurate and complete details of the bank account in the Application Form, refund amounts
exceeding LKR 5 million will also be made by a crossed cheque in favour of the Applicant and sent byordinary post at the risk of the Applicant.
A request cancellation of crossing on the refund cheque, in instances where the Applicant does not maintain
a current account, should be addressed to the Registrars to the Oering in writing, stating the cheque number
and the fact that the Applicant does not maintain a current account. The refund cheque and a clear photocopy
of the Applicant’s NIC should accompany the letter.
In the event of a cheque being delivered by hand by a third party to the Registrars to the Oering for
cancellation of crossing, a letter of authorization signed by the Applicant stating the NIC number of such third
party should also be presented with the cheque.
Cheques on which the crossing has been cancelled by the Registrars to the Oering should preferably be
collected in person or by a third party authorized by the Applicant. Where an Applicant has requested the
delivery of a cheque on which the crossing has been cancelled via post, the cheque will be sent at the risk of
the Applicant.
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3.16 Successul Applicants and CDS Lodgement
The Securities & Exchange Commission of Sri Lanka has directed to mandate the lodging of share certicates
pertaining to all listed securities at the Central Depository Systems. Please note that upon the allotment of
shares under this Oer, THE ALLOTTED SHARES WOULD BE CREDITED TO THE APPLICANT’S CDS ACCOUNT. If
you wish to open a CDS account, you may do so through any one of the Members and Trading Members of the
CSE as set out in Annexure C or through any one of the Custodian Banks as set out in Annexure E.
Applicants have the option of having their shares ‘locked’* in the CDS. Shares that are locked*would not be
available for trading purposes and would not be visible to the participant. Such applicants would have to ll
in a separate section in the IPO Application Form for this purpose. If the applicant has not specied that his/her
shares need to be deposited to his/her ‘locked’* balance, please note that the said shares would be deposited to
applicant’s ‘trading’ balance.
The Oered Shares allotted will be directly uploaded to the respective CDS account given in the Application
Form before the expiry of eighteen (18) Market Days from the Closure Date of the Oering as required by the
CSE Listing Rules.
A written conrmation informing successful applicants on their allotment of shares will be dispatched notlater than ten (10) Market Days from the closure of the Issue.
Application Forms stating third party CDS accounts instead of their own CDS account numbers, except in the
case of margin trading accounts, will be rejected.
3.17 Transerability o Ofered Shares
Oered Shares shall not be transferable by the shareholders during the period between the date of allotment
of the Oered Shares and up to the date of listing (excluding the date of listing) of the Ordinary Shares of the
Company on the CSE.
3.18 Declaration to the Colombo Stock Exchange and Secondary Market Trading
The Company will submit to the CSE a declaration on the Market Day immediately following the day on which
investors’ CDS accounts are credited with securities. Trading of Ordinary Shares of the Company on the
secondary market will commence on or before the third (3rd) Market Day from the receipt of the declaration
by the CSE.
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4.0 BUSINESS OPERATIONS OF HVA FOODS LIMITED
HVA Foods Limited was established in 1997 as a Board of Investment approved company under Section 17 (2)
of BOI Law No. 4 of 1978 dated September 04, 1997. It was specially set up to engage in export of value added
branded tea, tea extract based products, tea concentrate based products and a franchise operation. It is a fully
owned subsidiary of HVA Lanka Exports (Private) Limited which was established in 1990 as an exporting arm
of HVA International BV of Netherlands. Subsequently HVA Lanka Exports (Private) Limited became a completeSri Lankan business entity and started exporting tea in bulk form to establish its trade network and to develop
a client base.
Since its inception, HVA Group has won six Gold Awards as the Exporter of the Year in both traditional and
non-traditional exports from Sri Lanka. Identifying the need to create a tea brand with the uniqueness of its
origins, HVA Foods Limited created its own brand, “HELADIV” in 1996. “HELADIV” is derived from the word
“Heladiva” which symbolizes a home grown product range and a name that could easily be identied with
Ceylon tea. The “HELADIV” brand is registered in 42 countries around the world and has also been the pioneers
in developing Ready-To-Drink iced tea in the Sri Lankan market.
4.1 Group StructureHVA Foods Limited is a subsidiary of HVA Lanka Exports (Pvt.) Limited. The structure of the Company as at 30th
September 2010 is depicted below.
Figure 4-1: Group Structure
HVA Lanka Exports (Private) Limited is the parent company of HVA Foods Limited and is principally involved in
exporting of bulk tea.HVA Foods Limited – The Company is involved in manufacturing and exporting of value added tea and tea
extract based products.
HVA Holdings (Private) Limited – Owns the international brand rights of “HELADIV”.
4.2 Products Ofered
HVA Foods Limited is a leader in the manufacturing, marketing and distribution of four major product
categories; value added tea based products, tea extract based products, tea concentrate based products and
its franchise operations. There are about 80 products presently being marketed under the “HELADIV” brand
which includes a range of avours and presentations including black tea, green tea, herbal tea, specialty teas,
tea concentrate with pure tea extract, fruit base, and various other value added tea products.
HVA Lanka Exports (Pvt.) Limited
HVA Foods Limited
HVA Holdings (Private) Limited
100%
99.9999%
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4.2.1 Value Added Tea Based Products
Some of the popular products oered under this category are given below.
HELADIV TEA SPECIAL (presented in eco-riendly packaging)
HELADIV Blue Fire
Select best Ceylon Black Tea blendedwith cornowers and rosehips giving aery blue tinge to the appearance.
The blend is enriched with naturalavours of kiwi, guava, passion fruit,spearmint and ginseng.
HELADIV Strawberry Delight
Ceylon black tea & freeze driedstrawberry avoured with cherry androse for an invigorating tea drink whenbrewed light.
HELADIV Tropical Magic
A wiry whole leaf tea blended withdried pineapple cubes and avouredwith the essence of the delicioussoursop fruit.
HELADIV Sunset Soother
Ceylon black tea mixed withindigenous Ranawara owers andavoured with nature identical vanilla,cinnamon, orange and almondavour.
HELADIV ZeusA truly magical blend of long leaf black tea, generously blended withsun-dried sunower strands andimpregnated with natural mangoavour
HELADIV PRIDE OF CEYLON
HELADIV Pride o Ceylon
Reaearch shows that Black Tea has health benetsequal to its green cousinand is currently the mostpopular tea around theworld.
HELADIV English Breakast
Ideal as a breakfast tea.
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FLAVOURED TEA
HELADIV Strawberry
Combining the full andsucculent avour of sweetstrawberries with Ceylonblack tea
HELADIV Orange
Combining the fresh citrusavour of oranges andpremium Ceylon black tea
HELADIV Cherry
The premium Ceylon teaavoured with the deeprichness of summercherries, is a soothing drink for all seasons
HELADIV Peach
Black tea avoured withsweet peaches
HELADIV Rose
A beautiful blend of Ceylonblack tea scented with rosebuds for a fragrantlymemorable tea break anytime of the day
HELADIV Earl Grey
Premium black tea fromSri Lanka, avoured withoil of bergamot, a citrusfruit.
GOOD LIFE TEA INFUSION
HELADIV Slimming Tea
Slimming Tea contains ablend of dried Garcinia,Black tea and Earl Greyavour, producing adelicious brew.
HELADIV Long Lie Tea
Long Life Tea contains ablend of Gotukola andnature identical Mandarinavouring ingredients.Gotukola puries bloodand reduces nervousness.
HELADIV Winter Tea
An exquisite combinationof tea with corainder,ginger and peppercontaining essential oils tohelp ght coughs andcolds
HELADIV Anti-Stress Tea
A blend of dried gotukolaleaves (Centella Asiatica),Ceylon green tea andnatural lemon avour
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HERBAL INFUSION
HELADIV Ginger
Heladiv introduces naturalherbal remedies in a rangeof popular herbs. Availablein easy to brew tea bags,the herbal infusions areinvigorating and soothesthe body.
HELADIV Rosehip
A blend of the rosehipower and hibiscus petalsproviding a fragrant anddelicious cup of tea. It is avibrant drink with lots of healing power due to itsanti-aging properties.
HELADIV Peppermint
Refreshing,invigoratingherbal drink, ideal calmingthe digestive system andrelieving symptoms of heart burn, stomach ache
and nausea.
GREEN TEA
HELADIV Pure Ceylon
Green Tea
Green tea is widely enjoyednot only for medicinal
eects, but also for themany dimensions of avour that can beexperienced through thedierent varieties.
HELADIV Pure Ceylon
Green Tea with
Lemon avour
Ceylon Green Tea with the
delicate avours of lemonand lime, makes a light andrefreshing drink that ispopular both hot and iced.
HELADIV Pure Ceylon
Green Tea with
Graperuit avour
An exotic blend of CeylonGreen Tea and grapefruit
avour is a refreshingbeverage with the delicatetang of grapefruit.
HELADIV Pure Ceylon
Green Tea with
Mandarin avour
Green tea from Ceylon withthe delicate avour of
mandarin is a deliciousunion of great taste andproven health benets,which makes a light andrefreshing drink that ispopular both hot and iced.
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SUMMER FLOWERS
HELADIV Ruhunu OP
Tightly rolled whole leaf tea which gives a delicatetaste when brewed.Orange Pekoe is easy tobrew and produces abright and brisk beveragewhich tastes best whenconsumed with a dash of sugar and lemon oat. Thisis also ideal for home madeiced tea.
HELADIV Sparkling FBOP
Tightly rolled cut leaf of theOrange Pekoe type with aliberal mix of sparkling tips.Unopened ends of the teabuds are converted to tipsduring manufacture.
HELADIV Classic GP
Heladiv Premium Gun
Powder is the Green Teaversion of Super Pekoe.Ceylon Gun Powder ismuch sought after becauseit is ecologically purecompared to many similarproducts from otherorigins.
PAPER TUBES
HELADIVGreen Tea Peach
Pure Ceylon Green TeaPekoe is blended withdelicious peach fruit.
HELADIVStrawberry and Tea
The European special, thered strawberry gives avourto the black and green tea
HELADIV
Mango Flavoured
The luscious tropicalmango is the dominantcharacter of this specialblend.
HELADIV
Blue Fire Tea
The ingredients containedin this blend will invigorateyou and re the dormantpowers within your soul.
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4.2.2 Tea Extract Based Products
As a result of the Company’s continuous eort for diversication, it has now identied “Ready-To-Drink” iced tea as part
of its product portfolio. This product has already been introduced to the local and international markets like Maldives,
Australia, USA and New Zealand under the “HELADIV” brand name.
As a result, the Company has built a special plant called the “HELADIV Innovative Centre”, for the manufacturing of its
iced tea. At this plant, tea is extracted from tea bers or BM (Broken Mix) Fannings through a hygienic process by usingmodern technology. The extracted tea essence is further processed into a range of Ready-To-Drink Ice Teas. The non-
soluble tea from this process is being tested for development of applications in the Pharmaceutical, Beauty Care and
Hospitality industries. The residue or “Spent leaf” rich in plant nutrients, is being tested as a rooting medium for plant
nurseries.
“HELADIV” Ready-To-Drink Ice Tea has been in the local and selected international markets for several years. This
product is fortied with real fruit extract and is a preferred drink amongst the younger generation. With the pilot plant
being upgraded to a commercial platform, post IPO, extensive worldwide marketing of the product will be undertaken.
Moreover, negotiations have been successful with one of the leading local airlines to serve “HELADIV” Ice Tea on board.
Several local supermarkets also carry the product. A strategically designed on-ground marketing and sampling eort
of the product has conrmed the acceptability amongst potential consumers. It is the intention of the Company tolaunch an integrated campaign aimed at securing a share of the local and global non-carbonated soft drink market.
Once the pilot extraction plant is upgraded to a commercial level of operation, a capacity of approximately 5,000-7,000
litres of tea concentrate a month can be produced. The raw materials used for production is the abundantly available
BM Fannings. Currently, a production volume of approximately 40 million kilos of BM Fannings is generated per
annum. The monthly input of BM Fannings in the new plant will be approximately 20 metric tons. Products generated
from this process will relate to tea concentrates sucient to manufacture 100,000 litres of Ice Tea, 20 metric tons of
nursery material and approximately 1,000 litres of concentrated tea compounds for other industrial applications.
It is expected at the rst nancial year of commercial operation beginning 1st April 2011 the Company will have a
marketable value for extract based products amounting to approximately LKR 100 million per annum.
ICE TEA
Strawberry Ice Tea
Pure Ceylon Tea, Strawberry and Apple Concentrate, CitricAcid, Caramel, Ascorbic Acid, Sugar, Water, Natural andNature Identical Flavours, Sodium Benzoate (E211) andPotassium Sorbate (E202) to Preserve Freshness
Apple Ice Tea
Pure Ceylon Tea, Apple Concentrate, Citric Acid, AscorbicAcid, Sugar, Water, Natural and Nature Identical Flavours,Sodium Benzoate (E211) and Potassium Sorbate (E202) toPreserve Freshness
Lemon Ice Tea
Pure Ceylon Tea, Lemon and Apple Concentrate, CitricAcid, Caramel, Ascorbic Acid, Sugar, Water, Natural andNature Identical Flavours, Sodium Benzoate (E211) andPotassium Sorbate (E202) to Preserve Freshness
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4.2.3 Tea Concentrate Based Products
HVA Foods Limited has also ventured into tea cosmetics and pharmaceutical products which include skin care,
oral care, body care, facial care, food grade dye and tea tablets. These innovative products are expected to be
marketed in Japan, Singapore, Russia and in Central America.
SKIN CARE - The Company produces tea bath products in individually sealed envelopes
each containing a nylon bag with green tea and natural herbs.
Ingredients: Ceylon Green Tea, Sandalwood, Iramasu, Weniwal, Jasmine Flowers
Health benets: Designed to treat the skin or deliver the herbs through skin absorption. The heat of the water releases the fragrance and activates the properties of the herbs,while opening the pores of your skin. The inhaled scent passes through the nervoussystem to the brain, while the properties absorbed through the skin passes in to theblood stream.
ORAL CARE – Made from green tea extract and is safe for daily use even by children dueto the absence of alcohol.
Ingredients: Ceylon green tea extract, Sorbitol, Glycerin Sodium benzoate, Flavours,Water
Health benets: Designed to help prevent tooth decay. “HELADIV” mouth wash isanti-bacterial, anti-cavity, anti-gingivits, anti plaque and contains antioxidants whilstacting as a breath freshener.
BODY CARE – “HELADIV” green tea body gel is a unique and extraordinary formula inwhich a blend of pure Ceylon green tea extract and natural ingredients are combined.
Ingredients: Ceylon green tea extract, SLES 70%m Glycerin, Sodium amphora acitate,Parabance, Frangrances, De-ionized water
Health benets: Powerful antioxidant, thereby reducing free radical damage of the skin.It is also a potent anti-inammatory agent, thereby reducing inammation in the skin. Italso has an inhibitory action on collagens and enzymetic action in the skin where thecollagen is broken down resulting in more rm and elastic skin.
FACIAL CARE – A concentrated facial mask that could be used weekly to enhance andmaintain the skin.
Ingredients: Diatomaceous Earth, Alginate, Calcium Sulfate, Tetra sodium pyrophosphatewith extracts of Green tea, Weniwal, Gotukola
Health benets: The combination of tea and herbal extracts with nely ground mineralsboost the complexion of the skin and reduce signs of aging and improve blood circulation.
FOOD GRADE DYE – This is used in the confectionery industry as a colouring agent.Alternatively, tea waste is a valuable product used in several industrial extract includinghenna dye. It is a safe and cost-eective option in handling food products.
Ingredients: Tea waste
TEA TABLET – The tea extract oers a convenient way to get the benets of tea in highlyconcentrated tablet form. It is considered to be a potent antioxidant. This is intended toprepare a cup of tea within seconds. Tablets can be chewed as-is or added to a cup of hot or cold water. Especially the combat troops will nd the new product easy to carryand prepare.
Ingredients: Tea waste
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4.2.4 Franchise Operation
Apart from the “HELADIV” brand, the Company has also ventured into the Chinese market through a sub brand
called “INFINI-T”. INFINI-T is a sub brand owned by Lake Drive Holdings (Pvt.) Limited and its registration, locally
as well as internationally, is currently being processed. The prospects of developing an exclusive chain of tea
cafes was rst developed with a proposal put forward by a Chinese company, involved in diversied business
interests including tea plantations. On a fact nding mission in 2009, it was revealed that the Chinese
consumed around 900 million kg of tea per annum mainly comprising of green tea varieties. One particularchain of shops in China has over 1,000 outlets spread throughout the country, and known to be generating
over a billion dollars of revenue per annum. Hence, it was decided to use China as the test market for the
franchise operation by giving the Chinese consumer a unique product in tea under the “Pure Ceylon tea”
concept.
In July 2009, the rst three franchise shops were opened in Quanzhou, Jinjiang in the province of Fujian and in
Beijing.
During the past one year the number of shops in China has increased to 10. All the shops in China carry pure
Ceylon tea packed in Sri Lanka or in China under the franchise rights of HVA Foods Limited. This operation in
China under the style and name Beijing Pure Ceylon Tea Company Ltd as per the MoU signed on 24th February2009, has undertaken investment in expanding the number of shops to 100 within 3 years. There are no other
parties to the MoU and it authorizes Beijing Ceylon Tea Company Ltd. to use the INFINI-T logo and the HVA
Group logo for products manufactured by the company within the Chinese geographical territory and brand
promotional activities carried out within the said territory. The operation at present centers around selling
exquisite gift teas and top of the range specialty teas to auent Chinese consumers who look for high quality
branded products which are palatable in terms of traditional tastes.
In addition, regular participation at exhibitions and food shows is undertaken by the Beijing Pure Ceylon Tea
Company Ltd to promote the goodness and uniqueness of pure Ceylon tea. The value of investment by the
Chinese party is estimated to be around USD 5 million within the last one year.
Stemming from the experience of the Chinese franchise shops, a new strategy will be put in place to introduce
tea franchise shops under the sub brand INFINI-T in selected markets around the globe. This process will be
initiated in 2011 and the company hopes to enjoy a moderate nancial benet in the rst year of operation by
targeting to establish a minimum of 10 shops other than for those already established in China and earmarked
to be set in Sri Lanka and elsewhere.
4.2.5 Revenue Breakup of the Products Oered
Given below is a breakup of total revenue based on the four main product categories and based on the
dierent geographical markets.
Chart 4-1: Break up o Total Revenue based on Product Category
Value added tea products...................99.63%
Tea extract based products......................... 0%
Tea concentrate based products........0.35%
Franchise Operations ................................0.01%
99.63%
0.01%0.35%
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Even though almost all revenue is from value added tea products, the Company expects a change in the
future as its new product categories will be marketed in new markets. So far mostly black tea has been
exported under the franchise operations and the Company plans to export more of value added tea beginning
2011.
Chart 4-2: Break up o Total Revenue based on Geographical Market
4.3 Markets
For more than 15 years, “HELADIV”’s reputation and distinctive image have consistently developed across an
expanding number of products, brands and international markets. The “HELADIV” brand is registered in 42
countries with over 250 retail chains in the CIS, Far Eastern and the European markets and is in the process of
expanding into other markets as well. In its latest foray into exclusive foreign markets, the Company has also
set up a chain of exclusive tea shops in China with expansion potential to increase the branches to 100 within
three years.
Figure 4-2: Market Concentration
ASIA/FAR EAST USA/CANADA CIS EUROPEChina Canada Russia GermanyJapan USA Ukraine United KingdomMalaysia Barbados Latvia BelarusSingapore Jamaica Lithuania Taiwan St. Lucia Thailand St. VincentHong Kong TrinidadSouth Korea BelizePhilippinesMaldivesKazakhstan
Australia
New Zealand
Far East..................................................................18%
Middle East............................................................0%
USA, Canada.........................................................4%
CIS Countries..................................................... 68%
Europe.................................................................. 10%
4.00%
18.00%10.00%
68.00%
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Chart 4-3: Export Market Concentration based on Export Quantity
As shown above, the Company’s bulk of the exports are to the Russian Federation and other CIS countries.
CIS Region
“HELADIV” branded products are distributed within this region in Russia, Ukraine, Latvia, and Lithuania.
Currently, exports to Russia make up the major portion of “HELADIV” export revenue which stands close to
USD 300,000 per month. The tea market in Russia is dominated by Russian tea brands that come under ORIMI
Group, May Tea Group, SAPSAN Tea Company, Ahmed brand and Unilever brands of Lipton and Beseda which
together control close to 65%-70% of the Russian tea market. The remainder is spread among approximately
70 other brands, which also include “HELADIV”.
According to Euromonitor, the total Russian market for tea is expected to grow by a CAGR of 3% over the next
three years.
Table 4-1: Forecast of Total Sales Volumes for the Russian Market
2010 2011 2012
Tea sales (million kg) 199.3 205.3 211.3
Growth (%) 3% 3% 3%
Source: Euromonitor International Reports
They also expect the consumption of Tea Bags and Specialty Tea to grow as well. Therefore, all the leading
companies are focusing on either production of tea bags or specialty tea categories. Moreover, Russian
consumers prefer to purchase well-known brands due to their perceived high quality. HVA Foods Limited has
maintained long standing relationships within the Russian market which span over two decades. Hence, this
has helped the Company in gaining recognition for its “HELADIV” brand among Russia’s quality conscious
consumers.
Historically, the Russian Federation and other CIS countries have accounted for over 80% of “HELADIV”s
revenues.
Table 4-2: CIS and Russian Federation: Historical Movement of Values and Volumes Exported
CIS and Russian Federation 2005 2006 2007 2008 2009
Value (USD) 731,350 1,278,170 1,740,060 1,366,819 2,040,424
Volume (kg) 168,578 266,499 262,929 196,895 275,792
Source: HVA Foods Limited
Far East ............................................................16.00%Canada / U.S.A...............................................3.00%
CIS......................................................................64.00%
Europe............................................................17.00%
3.00%
Source : HVA Foods Limited
16.00%17.00%
64.00%
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In 2009, the CIS and Russian Federation accounted for 81% of total “HELADIV” tea sales and 86% of total
“HELADIV” volumes exported. Signicant growth had been experienced within this region with export
revenue recording a CAGR of 29.2% over the 5 year period from 2005-2009.
Chart 4-4: Historical Volume Movement - CIS and Russia
A detailed country wise break up of export volumes is provided in the above chart. As can be observed, Russia
takes the forefront, with other countries within the region remaining comparatively insignicant. For example,
in 2009, a signicant 83% of total exports to this region comprised of exports to Russia.
The forecasted revenue and exported volumes from 2010 to 2014 for the CIS and Russian Federation are
presented below.
Table 4-3: CIS and Russian Federation: Forecasted Movement of Values and Volumes Exported
CIS and Russian Federation 2010 2011 2012 2013 2014
Value (USD) 2,085,000 2,256,000 2,368,000 2,547,000 2,728,000
Average Rate (USD) 6.45 6.45 6.45 6.45 6.45
Volume (kg) 323,007 349,538 366,965 395,063 423,189
Source: HVA Foods Limited
As per the forecast, the gross projected revenue from this region is expected to witness a moderate CAGR of
7.03% over the next ve years. It should be noted that a price rate increase has not been incorporated within
the individual markets of the region over the forecasted period. Thus with the export mix remaining fairly
constant over the projection period; the growth in revenue from 2010-2014 denotes that represented by an
increase in export volumes.
According to the management, the CIS and Russian Federation region is presently saturated with many brands
leading to increased competition. Many leading brands within these markets use multi origin teas to average
their tea prices on nal blends used for value added products. Furthermore, in Russia presently, duty on bulk
tea imports stand at 0%, whilst the duty on value added tea stands at 20%. Thus with such a disparity in duty
rates, more and more companies are shifting from importing value added tea to importing bulk tea and also
setting up plants in Russia itself to cut down on their packaging costs. However, with Russia entering the
World Trade Organization (WTO), the tari rates could ease in the future.
Russia
Ukraine
Latvia
Lithuania
Source : HVA Foods Limited
2007
V o l u m e ( k g )
2008 20090
5,0000
10,0000
15,0000
20,0000
25,0000
30,0000
35,0000
40,0000
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Far Eastern Region
“HELADIV” brand is currently distributed in Japan, Singapore, Thailand, Malaysia, Philippines, China and Taiwan.
Japan is presently the largest market for “HELADIV” products within this region. The Japanese tea industry
remains fragmented, with many players, of which brands such as Itno En and Nittoh remain market leaders
holding close to 20% market share. The remainder is split across a large number of players including Lipton,
Fukuju En, Harada, Twinnings and House of Foods. Thus “HELADIV” market share in Japan remains modest.
According to the Euromonitor International Report on Hot Drinks Market, tea in Japan is a mature and saturatedsector, with consumer demand mainly stemming from the fruit/herbal tea category, which is gaining further
recognition among tea drinkers. Especially the younger generation is increasingly shifting away from hot tea
towards RTD tea, creating markets for innovative brands such as “HELADIV”. The report projects a total volume
growth of 1% for the Japanese market.
The Far Eastern region is a growing market for “HELADIV” products, and according to the management,
consumers within this region are generally less price conscious and appreciate a wider product range and
innovative tea products.
Table 4-4: Far Eastern Region: Historical Movement of Values and Volumes Exported
Far Eastern Region 2005 2006 2007 2008 2009
Value (USD) 184,600 248,224 301,652 392,832 446,875
Volume (kg) 17,497 26,762 31,243 38,420 40,372
Source: HVA Foods Limited
Both volumes and value of exports to this region have witnessed a continuous growth over the past several
years. In terms of revenue from this region, a CAGR of 24.7% had been achieved from 2005-2009.
Chart 4-5: Historical Volume Movement - Far Eastern Region
As shown in the above graph, Japan is the largest export market for “HELADIV” products in the Far Eastern
region and on average has accounted for 75% of the total volumes exported to the region over the past
several years. With regard to Japan, the Company directly sells to a supermarket chain which provides for the
comparatively high volumes exported. The signicance of Japan has however declined from 2005, where it
accounted for 83% of total Far Eastern export volumes to 45% in 2009 as other markets like China have shown
promise. The Chinese market has experienced a signicant 49% growth in volumes from 2005 to 2009.
According to the management, Japan and Singapore are considered as premium markets, with consumers
willing to pay a premium price for the “HELADIV” product range. With China’s economy growing and disposable
income levels rising, China too is expected to become a premium market, with discerning consumers willing
to pay higher for quality.
The forecasted revenue and export volumes for the Far Eastern region from 2010 to 2014 are presented below.
China
Japan
Malaysia
Singapore
Taiwan
Thailand
Australia
Philippine
Source : HVA Foods Limited
2007
V o l u m e ( k g )
2008 20090
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
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Table 4-5: Far Eastern Region: Forecasted Movement of Values and Volumes Exported
Far Eastern region 2010 2011 2012 2013 2014
Value (USD) 515,000 577,500 628,500 702,000 810,000
Average Rate (USD) 6.98 6.84 6.70 6.44 6.31
Volume (kg) 73,824 84,485 93,794 109,059 128,382
Source: HVA Foods Limited
With increased interest in the Chinese market, HVA Foods Limited is expected to adjust their export mix in this
region accordingly. Given below is a forecast provided by the Company.
Table 4-6: Far Eastern Region: Forecasted Export Mix
2010 2011 2012 2013 2014
China 34.0% 37.0% 40.0% 45.8% 48.7%
Japan 54.0% 50.1% 45.8% 40.5% 36.7%
Philippines 1.0% 1.0% 1.3% 1.3% 1.4%
Singapore 2.0% 2.5% 2.5% 2.7% 2.7% Taiwan 1.0% 1.0% 1.1% 1.1% 1.4%
Thailand 8.0% 8.4% 9.4% 8.6% 9.2%
100.0% 100.0% 100.0% 100.0% 100.0%
Source: HVA Foods Limited
As seen above, the signicance of Japan in terms of volumes sold within the region is expected to decline with
the Chinese market increasing in signicance over the projected period. Japan’s share of export volumes to
the Far Eastern region is expected to fall to 37% in 2014. The decline in signicance comes amid a modest
growth being projected for the Japanese market.
Revenue from the overall Far Eastern region is expected to grow by a CAGR of 12% over the forecast period,
on the back of export volumes increasing by a CAGR of 14.8%.
Table 4 -7: Cumulative Export Values, Volumes, and Average Price Comparison 2009 vs. Forecasted for 2010
Far Eastern region 2009 2010
Value
(USD)
Volume
(kg)
Avg. Price
(USD)
Value
(USD)
Volume
(kg)
Avg. Price
(USD)
China 67,331 4,750 14.18 100,000 25,000 4.00
Japan 338,183 30,609 11.05 340,000 40,000 8.50
Philippines - - - 5,000 588 8.50Singapore 13,929 1,179 11.81 15,000 1,765 8.50
Taiwan 3,599 405 8.89 5,000 588 8.50
Thailand 23,832 3,429 6.95 50,000 5,882 8.50
Total 446,874 40,372 11.07 515,000 73,823 6.98
Source: HVA Foods Limited
A comparison of forecasted price rates for 2010 for the Far Eastern region, with those achieved in 2009, indicate
that the rates projected for 2010 are signicantly lower, especially with regard to China. Overall average prices
within the Far Eastern region are expected to fall by 37% in 2010, with average price rates in China alone
expected to decline by a notable 72%.
With China being a tea producing country, presently there are many established brands within the country
which leads to heavy competition being faced by companies like HVA Foods Limited in increasing market
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share. Even though “HELADIV” branded products have been in the Chinese market for some time, it has been
recognized that the Company had not been able to identify the right partners to enter the Chinese market on
a larger scale. According to the management, since 2008 they have identied two parties with strong nancial
and marketing backgrounds to drive the brand in China. One party is concentrating in Retail & Horeca markets
(a sector of the food service industry, which includes establishments which prepare and serve food and
beverages) in Shanghai, Beijing, Nanjing. The other party is investing in its own specialty tea shops as well as
promoting “HELADIV” on large scale to retail markets in the southern part of China. Their projects are expectedto boost sales during the coming years, primarily focusing on the “HELADIV” tea bag range. With the
management anticipating to grow the retail Chinese market and capitalize on product availability and brand
awareness, the comparatively lower rates projected are primarily due to a penetration strategy adopted to
actively capture the market. Export volumes to China are forecasted to record a CAGR of 26% over the period
from 2010-2014.
The Company has introduced “HELADIV” products to the Philippines market in 2007. By 2008, the presence of
“HELADIV” products had increased with the Company shipping approximately USD 50,000 worth of “HELADIV”
products per quarter to the Philippines. However in 2009, with increased competition from international
brands, in particular Twinings of London, the Company had lost signicant market share. Twining presently is
the most popular brand in Philippines dominating almost 40% of the retail shelves in terms of importedbrands. In 2010 and going forward, the Company intends to re-energize marketing eorts to recapture the
Philippines market. The Company has planned to participate in trade fairs which should provide opportunities
for the Company to identify new distributors and modes to expand its market share.
Middle Eastern Region
HVA Group is mainly involved in exporting tea in bulk to this region. The main markets are Syria, Iran, Lebanon,
UAE, and Iraq. However, “HELADIV” products are presently not exported to this region, where the market
appetite still appears to be for bulk and not value added tea products.
Europe and U.S.A.
This region consists of untapped markets for “HELADIV” products except for a minimal quantity that is shipped
under the “HELADIV” brand to Belize and United States via consolidators. In terms of competition, 70% of the
market consists of major brands such as Lipton, Twining, Tetly, Ahmad Tea, Harrods, Bigelow, Celestial Seasoning
and the rest with a range of small brands owned by leading tea producing nations. The Company has
approached SUPERVALU and COSCO which are the largest distribution channels in the U.S. According to the
management the requirement of warehousing and setting up a liaisons oce is presently being explored.
As can be observed from the table below, the presence of “HELADIV” products within this region has been
comparatively negligible though growing in signicance over 2008 and 2009.
Table 4-8: Europe, Americas and African Region: Historical Movement of Values and Volumes Exported
Europe, Americas and Arican Region 2005 2006 2007 2008 2009
Average Rate (USD) 1,680 - 1,386 31,590 29,112
Volume (kg) 65 - 50 2,477 3,327
Source: HVA Foods Limited
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Chart 4-6: Historical Volume Movement - Europe & Americas
As shown above, the European region has outperformed the American market and has achieved signicant
growth in 2009.
The forecasted revenue and volumes for the Europe and Americas region from 2010 to 2014 is presentedbelow.
Table 4-9: Europe, Americas and African Region: Forecasted Movement of Values and Volumes Exported
Europe, America, and Arica 2010 2011 2012 2013 2014
Export Value (USD) 28,850 37,500 45,250 53,500 70,500
Average Rate (USD) 5.01 4.92 4.84 4.79 4.74
Volume (kg) 5,754 7,625 9,354 11,167 14,875
Source: HVA Foods Limited
Given below is a forecast of the export mix from 2010 – 2014.
Table 4-10: Europe, Americas and African Region: Forecasted Export Mix
2010 2011 2012 2013 2014
Europe 92% 94% 95% 95% 95%
U.S.A. 8% 6% 5% 5% 5%
100% 100% 100% 100% 100%
Source: HVA Foods Limited
Revenue from this region is expected to witness a CAGR of 25% over 2010-2014. With average rates expected
to fall over the forecast period, the growth in revenue is mainly driven by an increase in export volumes from5,754kg in 2010 to 14,875 kg in 2014 (CAGR of 21%).
Table 4-11: Cumulative Export Values, Volumes, and Average Price Comparison 2009 vs. Forecasted for 2010
2009 2010
Value (USD) Volume
(kg)
Avg. Price
(USD)
Value (USD) Volume
(kg)
Avg. Price
(USD)
Europe 28,405 3,304 9.15 27,500 5,416 5.50
U.S.A. 708 22.5 31.47 1,350 338 4.00
Total 3,326.5 10,933
Source: HVA Foods Limited
Europe
Americas
Source : HVA Foods Limited
2007
V o l u m
e ( k g )
2008 20090
20,000
40,000
60,000
80,000
100,000
120,000
140,000
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With regards to Maldives, the management is expecting to target the strong Horeca market. Thus with high
potential for the “HELADIV” Ice Tea range which will be channeled to mainly hotels, the Company has presently
initiated distribution with an identied distributor.
According to the management, at present Malaysia mostly consumes low grade tea dust with avours which
are imported as bulk tea and packed within the country. It is believed that considerable potential lies in
Malaysia for aordable quality avoured teas especially in the form of tea bags. Thus, the management initiallyanticipates to enter the Malaysian market primarily with a product assortment of avoured tea bags.
4.4 Competition
Given below is a table which shows the top ten value added tea exporters by volume.
Table 4-14: Top Ten Sri Lankan Exporters of Value Added Tea
Exporter Quantity % o Tea
Packets
% o Tea
Bags
% o
Blended Tea
% o Instant
Tea & Other
Akbar Brothers Group 24,687,305 83.3% 14.5% 2.0% 0.2%
Jaerjee Brothers Group 10,074,637 80.4% 11.3% 0.09% 5.1%CTM Group 7,792,804 89.4% 2.5% 8.0% 0.02%
Expolanka Teas 6,796,480 94.4% 4.5% 0.05% 1.0%
Union Commodities 6,492,146 27.9% 2.6% 69.4% 0.09%
MJF Group 5,483,989 27.0% 61.9% 0.07% 11.0%
Stassen Group 4,769,048 85.1% 10.6% 1.5% 2.7%
James Finlay Group 4,258,959 92.9% 7.1% - -
Imperial Tea Exports 4,253,045 90.8% 4.9% 2.8% 1.5%
Sunshine Tea 2,761,337 35.1% 11.9% 52.9% 0.10%
Source: Tea Data Book – 2009
Compared to its competitors HVA Foods Limited has exported only 604,472 kg of value added tea. Given
below is the breakup of sales based on the product line.
Chart 4:7- Break up o Sales based on Product Line
Tea Packets...................................................58.00%
Tea Bags.........................................................20.00%
Other...............................................................22.00%
58.00%
20.00%
22.00%
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However, it should be noted that most of these companies mentioned above have been operating in the
trade for a long time. Moreover, most competitors in value added tea segment are packing for third party
brands while HVA Foods Limited packs its entire production quantity under their own brand. What should be
highlighted is that while the export volume of value added tea in the industry declined by 9.4% the Company’s
volume has increased by a signicant 18%. It is expected that the outlook for the Company will be better in
the future with the introduction of new products and markets.
4.5 Degree o Dependence on Key Customers and Suppliers
“Aroomat”, a distribution company based in Moscow, Russia accounts for approximately 35% of the total sales
of “HELADIV” products. The balance sales revenue is being distributed among a diversied client base.
4.6 Details o Material Indebtedness
The details of Term Loans of HVA Foods Limited as at 03rd January 2011 are as follows.
Table 4-15: Loan Facilities – HVA Foods Limited
Name o Bank Facility Value o
Facility
Outstanding
as at
03/01/2011
Amount
repayable
within 01 Year
Amount
Repayable
Ater 01 Year
Seylan Bank (1) Term Loan
– USD
1,170,000 1,000,000 770,000 300,000
Bank of Ceylon Term Loan
– LKR
10,000,000 10,000,000 10,000,000 Settle
through IPO
proceeds
Seylan Bank Overdraft 5,000,000
Bank of Ceylon Overdraft 4,000,000
Lease Facility
Mercantile Investments
Limited
Working
Capital
5,000,000 - 625,000 4,375,000
Related Party Loans (2)
Mrs. V.S. Amunugama
Fernando
6,935,878 3,467,939 3,467,939
Mr. A.R.H. Fernando 2,000,000 2,000,000 -
Lake Drive Holdings (Pvt.)
Limited
4,640,406 2,320,203 2,320,203
Short Term Borrowings (2)Packing Credit Loan
Bank of Ceylon USD 170,176 170,176
Seylan Bank USD 208,089 208,089
HSBC USD 210,460 210,460
Bills Negotiation
Bank of Ceylon USD 301,061 301,061
Seylan Bank USD 811,355 811,355
HSBC USD 39,525 39,525
* Note: The Company has applied for a loan facility of LKR 10 Mn from Bank of Ceylon which was pending at the time of printing of this
Prospectus. However, provided the loan being granted, the Company expects to settle it through the IPO proceeds
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(1) The Company expects to settle only a portion of the Seylan Bank loan. Please refer Section 3.5 (ii) for
settlement amount.
(2) All related party loans and remaining short term borrowings after settlement through IPO, will be settled
through internally generated funds.
Please refer Note 28 of the audited nancial statements for the year ended 31st March 2010 for information
regarding loan facilities that have been rescheduled by banks.
Also note that the borrowing costs are recognized as an expense in the period in which they are incurred,
except to the extent where borrowing costs that are directly attributable to the acquisition, construction, or
production of an asset that takes a substantial period of time to get ready for its intended use or sale, are
capitalized as part of that asset.
As at 03rd January 2011 there were no mortgages or charges on the assets of the Company other than the
mortgages and charges disclosed under Note 21 to the audited nancial statements of HVA Foods Limited set
out in this Prospectus.
4.7 Working Capital
The Board is of the opinion that the working capital is sucient for the purpose of carrying out day to day
operations of the Company. However, for future business expansions, the Company intends to utilize a part of
the proceeds of the Oering contemplated herein as set out in Section 3.5
4.8 Dividend Policy
The Company has not paid any dividends on its Ordinary Shares in the past as the Company has incurred
losses during its initial years of operation. However, in view of a turnaround in protability the Company
intends to pay dividend going forward.
4.9 Litigation, disputes and contingent liabilities
There are no material legal, arbitration or mediation proceedings pending against the Company as at 30th
September 2010 that would materially aect the current nancial position or future operations or prots of
the Company.
The Company was not involved in any legal, arbitration or mediation proceedings in the recent past which
had any signicant eects on the Company’s nancial position or protability.
As at 30th September 2010, there are no penalties imposed by any regulatory or state authority against the
Company.
The following contingent liabilities exist on behalf of the following company as at 31st March 2010.
Company Name Bank Guarantee Amount (LKR)
*HVA Lanka Exports (Private) Limited Lankaputhra
Development Bank
Primary mortgage 130.0 Mn
HVA Lanka Exports (Private) Limited HSBC Corporate guarantee 26.9 Mn
HVA Lanka Exports (Private) Limited HSBC Issuance of guarantee 0.5 Mn
* The land and factory building that have been pledged against the Lankaputhra Development Bank are shown as an asset on the books
of HVA Foods Limited while the loan component is shown as a liability on the books of HVA Lanka Exports (Private) Limited. However,
it should be noted that the land and the building are being used on a shared basis by both HVA Foods Limited as well as HVA
LankaExports (Private) Limited and the funds from the loan proceeds have been applied for improvement of such shared facilities.
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4.10 Patents, Trade marks and Brands Owned by the Company
HVA Foods Limited has the local brand rights for its brand “HELADIV” while HVA Holdings (Private) Limited; now
a 100% owned subsidiary of HVA Foods Limited has the international brand rights. Internationally, the brand
name has been registered in 42 countries. Furthermore, the Company is also expecting approval for its sub-
brand “INFINI-T” in the near future.
4.11 Share Transer o HVA Holdings (Private) Limited to HVA Foods Limited
The international brand rights of the “HELADIV” brand is owned by HVA Holdings (Private) Limited which was
a fully owned subsidiary of Lake Drive Holdings (Private) Limited. A Board resolution was passed on 29th
September 2010 by HVA Foods Limited to transfer Eighteen Thousand Three Hundred and Sixty Seven (18,367)
ordinary shares held by Lake Drive Holdings (Private) Limited to HVA Foods Limited. A Share Sale and Purchase
Agreement was entered into by the two parties on the 29th September 2010 and as per the agreement a sum
of Sri Lankan Rupees Forty Five Million (LKR 45,000,000) in consideration of the transfer will be paid on or
before 31st January 2011. Hence, HVA Holdings (Private) Limited is now a fully owned subsidiary of HVA Foods
Limited.
HVA Holdings (Private) Limited has the international ownership rights of the “HELADIV” brand. It has no otherbusiness operations, assets or liabilities.
Given below is the ownership structure of HVA Holdings (Private) Limited from incorporation to date.
Table 4-16: Ownership Structure of HVA Holdings (Private) Limited
No. o Shares
Mr. A.R.H. Fernando 01 -
Mrs. V.S. Amunugama Fernando 01 Transferred
Dothodana Jayantha Gunawardena 1,000 Transferred
Vallibel Holdings (Pvt.) Ltd. 9,368 TransferredHVA Lanka Exports (Pvt.) Ltd. 18,367 Transferred
Lake Drive Holdings (Pvt.) Ltd. 18,367 Transferred
HVA Foods Limited 18,367 -
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5.0 TEA INDUSTRY
5.1 History
The origin of Sri Lanka’s tea industry dates back to the year 1824 with the rst tea plant brought to Ceylon by
the British from China. However, tea planting for commercial purposes began in 1867 when James Taylor
started the rst tea plantation in Kandy. Since then tea production has been increasing even further with the
then existing coee estates also being converted to tea plantations. By 1927, tea production in the countryexceeded 100,000 metric tons, which was almost entirely exported. By 1965, Sri Lanka became the world’s
largest tea exporter for the rst time.
During 1971–1972, the government of Sri Lanka nationalized the tea estates owned by the British companies
and the Sri Lanka Tea Board was founded to supervise these acquired estates. In 1976, Sri Lanka’s tea industry
marked a milestone with the commencement of exports of tea bags. Since then the Sri Lankan tea industry
has grown in strength to become a vital component of the economy.
5.2 Overview – Contribution to the Economy
The tea industry in Sri Lanka plays an important role in the Sri Lankan economy. It is one of the major sourcesof foreign exchange earnings and a top contributor to export earnings.
For the past several years, tea has been the third largest foreign exchange revenue earner behind garments &
textiles, and workers’ remittances.
Chart 5-1: Major Sources o Foreign Exchange Earnings
The industry has also been a key contributor to total export earnings. Tea exports accounted for 16.7% of
earnings in 2009 which was a 6.8% drop compared to 2008 mainly due to supply shortages.
Table 5-1: Contribution of the Tea Industry to Export Earnings
Share (%)
2005 12.8
2006 12.8
2007 13.2
2008 15.7
2009 16.7
Source: Central Bank of Sri Lanka Annual Report – 2009
Garments & Textiles
Workers' Remittances
Tea
Tourism
Source : Central Bank Annual Report - 2009
2005 2006 2007 2008 2009
U S D m i l l i o n
0
1,000
2,000
3,000
4,000
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5.3 Overview – Sri Lanka Tea Production
Sri Lanka produces tea throughout the year and approximately 4% of the country’s land mass accounts for tea
plantations. The tea growing areas are mainly concentrated in the central highlands and southern inland
areas of the island. They are broadly grouped according to the elevations as high grown (above 1,200 meters),
medium grown (between 600 to 1,200 meters), and low grown (up to 600 meters). High grown teas from Sri
Lanka are reputed for their taste and aroma and are much sought after by blenders of tea importing countries.
The medium grown teas provide a thick colour variety which is popular in Australia, Europe, Japan and NorthAmerica. The teas produced in low grown areas are mainly popular in Western Asia, Middle Eastern and CIS
countries.
Tea planting is mainly done through private tea small holders and the Regional Plantation Companies. The
small holders account for approximately 37.33% of the total extent of land under tea cultivation while the
remainder is cultivated by the Plantation Companies.
Sri Lanka mainly produces orthodox teas (95%) while a small portion is produced through other methods. In
the orthodox process of production, semi dried green shoots are ruptured by rolling achieved from a rotary
movement. The rolling process ruptures and twists the leaves. When tea leaves are crushed an oxidation
process begins, which is followed by ring and commonly known black tea is produced. Unorthodoxproduction process mainly includes the production of CTC (cut, tear, curl) tea. The production process begins
by cutting the withered leaf into a uniform size by machines. Then the leaves are fed into metal rollers to be
crushed, torn and curled. The extracted cell cap is collected and added to the leaves again. The crushed
leaves are then oxidized, dried and sorted.
Sri Lanka was the fourth largest tea producer in the world producing 289.7 Mn kg in 2009.
Table 5-2: World’s Top Five Tea Producing Countries
Country 2006 (Mn kg) 2007 (Mn kg) 2008 (Mn kg) 2009 (Mn kg)
China 1,047.3 1,183.0 1,257.4 1,358.6India 928.0 949.2 805.2 978.9
Kenya 310.6 369.6 345.8 314.2
Sri Lanka 310.8 305.2 318.5 289.7
Vietnam 151.0 164.0 174.9 154.0
Source: International Tea Committee – Annual Bulletin of Statistics 2010
Last year recorded a 9% drop in Sri Lanka’s total tea production due to unfavourable weather conditions and
the work stoppages by estate workers.
Chart 5-2: Tea Production in Sri Lanka or the Past Decade
Source :Central Bank Annual Report - 2009
20 00 20 01 200 2 200 3 20 04 20 05 2006 200 7 2 008 2009
K g m i l l i o n
270
280
290
300
310
320
330
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The decline in tea production in 2009 was felt not only by Sri Lanka but by many other tea producing countries
as well, which resulted in a drop of total world tea production by 2.2%. However, 2010 looks positive with
cumulative gures for July standing at 195.1 Mn kg compared to 158.1 Mn kg in 2009 recording a 23% increase.
This positive trend is expected to continue in the coming months as well, given good weather conditions and
stronger world tea prices. Moreover, according to International Tea Committee reports, the gap between
production of tea and consumption was 3.4% in favour of consumption for 2009. This is encouraging news
showing that demand for tea remained robust despite the global economic recession depicting thatconsumption of tea is habit forming and is relatively price inelastic.
Given below is a gure depicting the production process of black tea.
Figure 5-1: Production Process – Black Tea
The green leaf supplied by the plantation companies and the tea small holders are brought to the factories forprocessing and manufacturing of black tea. The nished product is then sold through the Colombo tea
auction to local and foreign buyers. Part of the tea is consumed locally while bulk of the production is shipped
to foreign countries by local and foreign owned export companies.
5.4 Tea Export Market
Sri Lanka is considered to be the world’s second largest exporter with almost 90% of its total production being
exported. Its export market is currently valued at approximately USD 1.5 Bn and has been able to maintain a
global export share of 20% - 21%.
Table 5-3: World’s Top Five Tea Exporting CountriesCountry 2006 (MT) 2007 (MT) 2008 (MT) 2009 (MT)
Kenya * 312,156 343,703 383,444 342,482
Sri Lanka 314,915 294,254 298,821 279,839
China 286,594 289,431 296,935 302,949
India * 215,672 175,454 200,070 189,000
Vietnam 105,116 110,929 104,000 95,000
* Includes teas imported and re-exported; includes Green Tea but excludes Instant Tea
Source: International Tea Committee – Annual Bulletin of Statistics 2010
Until recently Sri Lanka used to be the largest exporter in the world. However, in recent times Sri Lanka hasencountered competition in retaining its position as the main source of Orthodox Black Tea in the world.
Despite this, year 2010 looks positive with total export cumulative gure up to May showing a 7% increase
PRODUCTION MARKETING CONSUMPTION
Green leaf
suppliers(Plantation
Companies and
Small Holders)
State owned &
private tea
factories
Local & foreign
buyers
Local & foreign
consumers
Auction
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Furthermore, SLTB grants the franchise rights of the Ceylon tea Lion logo which denotes not only the country
of origin but also the quality of Ceylon tea. The logo can only be used by tea packs which contain 100% pure
Ceylon tea. Sri Lanka Tea Board is the legitimate owner of the Ceylon tea Lion logo which has been registered
in many countries around the world.
5.6 Value Added Tea Exports
A few decades ago, Sri Lanka’s tea exports mainly consisted of black tea in the form of bulk tea. However, in1982, with the government incentive package granted to exporters, a shift from supplying of bulk tea to value
added packaged tea under exporters own brand names and/or buyer brand names was observed. These
incentives helped establish an infrastructure that assisted brand building and manufacture of value added tea.
Hence, today, Sri Lanka’s export prole is more diversied with the addition of value added tea segment which
includes tea packets, bags, instant tea and other blended teas.
Table 5-5: Volume of Sri Lankan Tea Exports
2006 2007 2008 2009
Volume
(Mn kg)
% Volume
(Mn kg)
% Volume
(Mn kg)
% Volume
(Mn kg)
%
Bulk Tea (Black & Green) 200.7 61.3 182.9 58.7 179.9 56.3 167.5 57.8
Value Added Tea 125.4 38.7 127.5 41.3 137.7 43.7 119.6 42.2
Total 326.1 310.4 317.6 287.1
Source: Central Bank of Sri Lanka Annual Report – 2009
More than 50% of Sri Lanka’s tea exports still consist of bulk tea which fetched an average price of USD 3.67
per kg in 2009, while the prices of tea exports in value added forms ranged higher, between USD 5.36-7.53 per
kg. However, Sri Lanka has recently beneted from well developed infrastructure facilities for value addition
which has placed Sri Lanka far ahead of all other producer countries. Hence, the Sri Lanka Tea Board is
expecting to increase the share of value added tea exports to 65% from current 40% - 42% levels within thenext ve years by assisting rms to market their brands overseas.
Given below is a chart showing the production process of value added tea.
Figure 5-2: Production Process – Value Added Tea
Upon purchase of teas from the auction and receiving the teas at the exporter’s warehouse, teas are blended
in an automated blending machine as per the blending instructions given by the tea department. During the
blending process, metal, bre particles and other foreign matter are extracted and the tea is sifted to maintain
uniformity in size of the product. If the teas are to be avoured, it is done in specially designed stainless steel
avouring drums. This process takes place within a conned area on the factory to avoid cross contamination
with other un-avoured teas. This nal blend of tea is then packed into various types of packaging to the liking
of the consumers. The nal packaging will be placed in master cartons to enable easy transport by sea or air.
Receiving of teas at thewarehouse
Blending Flavouring Packaging Shipping
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Given below is a list of the top 10 tea importing countries.
Table 5-6: World’s Top Ten Tea Importing Countries
Country 2007 (MT) 2008 (MT) 2009 (MT)
Russian Federation & CIS Countries 246,372 257,260 259,630
United Kingdom 131,152 129,759 120,136
USA 109,396 116,749 110,861
Pakistan 106,366 99,116 85,655
Egypt 69,000 107,000 77,600
UAE 58,540 60,540 54,550
Morocco 52,500 48,200 53,700
Iran 56,100 61,600 50,500
Afghanistan 44,000 40,300 46,900
Iraq 32,000 39,500 43,800
Japan 47,303 43,107 40,222
Source: International Tea Committee – Annual Bulletin of Statistics 2010
As shown below, signicant increases in demand for value added tea on a global context is also expected. An
average YoY increase of 15% was observed in the segment of tea packets.
Chart 5-4: January-July 2009 Vs 2010 Tea Packet Imports
Furthermore, according to the United Kingdom Tea Council, 96% of all cups of tea consumed daily in the UK
is brewed from tea bags. The U.S. has also seen substantial growth in the consumption of value added tea.
Growth was strongest in RTD bottled teas, large sized tea bags for food service vendors and avoured andunavoured specialty blends. According to the U.S. Department of Commerce, 80% of tea consumption in the
U.S. consists of iced tea. The bulk of iced tea is brewed from tea bags which account for the largest share (65%)
of tea sales at the retail level while RTD tea, instant tea and iced tea mix consisted of 19%, 11% and 5%
respectively.
Further growth is seen in Sri Lanka’s largest export market for tea, Russia. The average annual per capita tea
consumption in Russia is 1 kg. Moreover, around 95% of the Russians drink tea and according to the Russian
Association of Tea & Coee, the consumption rate peaks during the winter season. During those times, half of
the population consumes two cups of tea on a daily basis. With regard to the consumption of value added
tea, Russia repeats the pattern of the European tea market. The share of tea bags in the Russian market
currently accounts for approximately 20% and it is expected to increase further with the increasing per capita
income and more discerning taste.
Source : Data One – Jan - July Data
S y r i a
R u s s i a
L i b y a
I r a q
J o r d a n
T u r k e y
I r a n
K u w a i t
U k r a i n
L e b a n o n
S a u d i
A r a b i a
M T
(1,000)
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
2009
2010
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6.0 SRI LANKAN FAST MOVING CONSUMER GOODS INDUSTRY (FMCG)
An overview of the Fast Moving Consumer Goods (FMCG) industry is discussed in the sections below as the
Company is currently selling their tea extract based products to the local and export market. This product
category includes iced tea, body gel, mouth wash, tea bath, food grade dye and concentrated cordial.
The FMCG sector mainly focuses on manufacturing and marketing branded goods in the personal care, health
care, and food & beverages categories. The overall FMCG industry grew by 9% during 2009 to LKR 114 Bn
(Source: AC Nielsen, LMRB) while total private consumption grew by 0.6%. However, Private Consumption
Expenditure (PCE) as a percentage of GDP decreased to 64.3% from 70% in 2008 while PCE on food, beverages
and tobacco grew by 1.7%. Despite the slight decrease last year, the food, beverages and tobacco sector has
always been the highest contributor to total Private Consumption Expenditure.
Table 6-1: Composition of Private Consumption Expenditure at Current Market Prices
Share o Total PCE (%)
Item 2007 2008 2009
Food, Beverages, and Tobacco 41.0 37.8 38.2Clothing and Footwear 6.4 5.7 5.6
Housing, Water, Electricity, Gas 11.1 12.7 12.0
Furnishings, Household Equipment 6.2 5.8 5.9
Health 1.7 1.8 2.2
Transport 19.2 21.8 21.1
Leisure, Entertainment and Culture 3.6 3.6 2.9
Education 0.1 0.1 0.1
Hotels, Cafes, and Restaurants 1.6 1.5 1.5
Miscellaneous Goods and Services 4.2 4.9 5.5
Expenditure Abroad of Residents 8.9 7.7 8.1
Source: Central Bank of Sri Lanka Annual Report – 2009
As shown below, Sri Lanka has comparatively recorded higher consumption expenditure as a percentage of GDP.
Table 6-2: Comparative PCE Performance
2009 Sri Lanka India Singapore Malaysia
PCE as a percentage of GDP (%) 67.2 55.5 39.6 45.6
Source: Central Bank Annual Report - 2009
6.1 Drivers o Growth o the Sri Lankan FMCG Industry(1) Growth in consumption expenditure & increase in disposable income – Growth in GDP is the main driver
behind the increase in consumption expenditure and disposable income. Sri Lanka’s GDP per capita, at
market prices, has increased from USD 981 in 2003 to USD 2,053 in 2009.
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Chart 6-1: Per Capita GDP at market prices (USD)
For 2010, the Central Bank is projecting a 7% GDP growth due to positive eects on the economy after the end
of the 30 year insurgency. This would assist in having an even more positive impact on consumer expenditure.
Chart 6-2: GDP (percent change)
(2) The trend towards increased urbanization has also helped drive the growth in the FMCG industry through
the change of form of shopping. According to a survey done by A C Nielsen in 2006, an increased number
of customers were switching to modern trade and spending more money on super markets compared to
traditional convenience stores.
Chart 6-3: Share o Trade
Source : Central Bank Annual Report - 2009
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
L K R m
i l l i o n
500
1,000
1,500
2,000
2,500
3,000
Source : Central Bank Annual Report - 2009
2002 2003 2004 2005 2006 2007 2008 2009 2010(E)0%
2%
4%
6%
8%
10%
Modern Trade
Traditional Trade
P e r c e n t a g e
Source : A C Nielsen - Survey of Retail & Shopper Trade
2004 2005 2006
0%
20%
40%
60%
80%
100%
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Moreover, recent surveys done by Unilever and other companies reveal that modern trade has grown by
about 20% - 30% over the last three years and is expected to continue the same trend. This trend is evident
through the increase in supermarkets which indicates a clear change in consumer preference.
Table 6-3 Growth in Number of Sri Lankan Super Markets/Organized Retail Channels
Supermarket 2005 2009
Cargills 94 136
Keells 21 41
Arpico 6 26
Laughs 9 10
6.2 Global Sot Drinks Industry
The soft drinks industry could be broadly categorized into two groups; namely carbonated and non-
carbonated drinks. Carbonated drinks are drinks that have added carbon dioxide like soft drinks which include
colas, sodas, and fruit avoured carbonates.
According to a recent study done by Euromonitor, the global soft drinks market was valued at USD 479 Bn in2009 and is projected to grow at a CAGR of 3.1% to reach USD 556 Bn in 2014. They have also predicted the
carbonated soft drinks market would have a value of USD 189.8 Bn by 2014 while the global non-carbonated
market to reach a value of USD 366.2 Bn depicting a clear shift in consumer tastes. Given below is a table
showing the global soft drinks market segmentation by value.
Table 6-4: Market Share of Global Carbonated Soft Drinks
Category 2004
Market Share (%)
2009
Market Share (%)
Carbonates 46.80 40.00
Bottled water 18.40 20.88
Juices 14.90 14.46
RTD tea & coee 8.50 11.98
Functional drinks 7.60 8.20
Concentrates 3.90 4.48
Total 100.00 100.00
Source: Datamonitor
Consumers are seeking increased variety in their beverages and there is a growing awareness among the
public with regards to the ingredients of the products and health and wellness issues in general. Hence, as
shown above, this interest has resulted in a decline in consumer demand for carbonated soft drinks and anincreased demand for non-carbonated drinks.
Even among the non-carbonated soft drinks, Ready To Drink (RTD) tea continues to perform well in terms of
market penetration. The table below shows the growth rates for 2009 and the expected gures for 2014.
Table 6-5: Forecast Growth Rates for Non-Carbonated Drinks
Category 2009 2014 (Forecast)
Bottled water 6.9% 3.9%
Juices 4.0% 5.2%
RTD tea & coee 9.0% 12.0% – 15.0%Source: Datamonitor
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6.3 Ready to Drink Tea (RTD Tea)
Ready To Drink tea includes any type of tea that could be consumed without any further processing. RTD tea
has recently become very attractive due to the combination of many of the attributes that consumers look for
in beverages; natural healthiness, fruit avours and anti oxidants, etc. Its convenience is another predominant
factor driving its popularity. RTD tea in bottles, cans, aseptic packaging, plastic containers, or any other
packaging conguration brings the ultimate in convenience to consumers. Since ease of preparation has not
been a strong selling point for tea, marketing of tea in the U.S. and other European countries has been achallenge. However, with the introduction of RTD tea, this diculty has dissipated and thereby increasing
market share of consumption of tea.
Shown below are the global growth rates for RTD tea for the past several years.
Table 6-6: Growth Rates for RTD Tea
2004 2005 2006 2007 2008 2009
2.6% 15.4% 26.2% 15.1% 1.7% 5.0%
Source: Datamonitor
A 5% growth rate in 2009 is commendable when compared to only a 1.5% growth rate in the overall carbonatedsoft drinks industry due to the recessionary conditions in the global markets.
Moreover, the top three markets which constitute 70% of the global demand for RTD tea are China, Japan, and
the U.S. Hence, companies exporting to these countries are strategically well positioned to make use of these
growing markets.
6.4 Global Personal Care Industry
A concern for healthy skin is seen to be a global trend. With an ageing population and increased concerns of
the long-term eects of the sun, there has been much growth in skin care products. With the increase in
disposable income, consumers seek products that are healthy and benecial to them. The global growth of personal care categories was measured at 5%.
According to a study conducted by A C Nielsen, given below are some of the growing trends in the personal
care industry.
• Bath and shower gels are growing faster than standard toilet soap globally and within every region.
• Hair care and skin care regimes were seen as an important component to beauty and grooming.
• Mouthwash/oral rinses/antiseptics has seen a growth of 12%.
Personal care industry remains an attractive sector with global retail sales of USD 300 Bn realizing a growth rate of 4.5%
over the past ve years. However, with increased concerns over health risks, many companies are shifting their focus to
natural and organic products. In most of the countries the demand for organic products has been rising steadily due tothe growing consumer awareness and changing lifestyles. This has increased demand for products made from tea and
it’s by products. It is now safely presumed that tea contains benecial properties to improve the skin. As a result, a few
reputed manufacturers of beauty care products have incorporated tea extracts in their anti ageing creams, head and
body shampoos, facial masks for cleansing and tea baths for immersing. Although details of marketing and sales are not
readily available the proliferation of spas and beauty salons in addition to the up market hotels form the clientele for
these products. These also have an extension to catalog marketing and duty free sales on air lines. It can be safely
assumed that the tea extracts in the beauty care segment is a multibillion dollar industry worldwide. Further, despite
many sectors showing signs of maturation in developed markets, innovation remains high and with further economic
prosperity, this sector is expected to show more positive growth trends.
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7.0 FUTURE DIRECTION AND PROSPECTS
7.1 Future Direction and Prospects
The Company’s long-term objective is to become one of the most recognized and respected tea brands in the world. In
order to achieve this, the Company plans to consolidate the brand in countries where there is already a presence whilst
endeavoring to increase the market share. In this regard an aggressive marketing campaign will be launched from the
beginning of 2011 to attract new buyers/agents particularly in countries where representation is not signicant.
It has been predicted by international nancial monitors that Russia and CIS region will be one of the key growth sectors
for tea during the next few years. “HELADIV” brand, having been established in Russia and Ukraine will expand its reach
in other CIS countries such as Kazakhstan, Belarus, Azerbaijan, Uzbekistan, Georgia etc. Russia at present consumes
approximately 240 million kg of tea per annum out of which Ceylon tea share is approximately 50-60 million kg. It is the
aim of the company to increase its market share by as much as 25% year on year in this region.
Neighbouring India is also a major tea consuming country. However, tea imports into India for consumption are
restricted with non-tari barriers favouring protectionism for agriculture. The FTA between India and Sri Lanka will be
useful for establishing a joint venture particularly for a chain of tea cafes and boutiques. The company believes that
focusing on this mass market in India will have positive results for “HELADIV” brand in the near future.
In the Western hemisphere, the American market has potential for tea variations, other than normal tea bag business.
The American market is fully saturated in mass market tea segment and does not have much room for protability unless
applied through multi origin tea blends. However, the ready-to-drink Ice Tea has the best potential, with American tea
consumption in all categories representing 80% in RTD tea. Tea variations with the inclusion of herbs and tea applications
in the life style product category similar to the Body Shop will be pursued through showcasing the Company’s products
at strategic exhibitions in the US.
It is also the vision of the Company to have oces in strategic markets. In order to fulll tea requirements from other
origins, the Company has already initiated a programme for joint ventures in India, Indonesia and Vietnam. In the next
few years these strategic partnerships will be enhanced to undertake marketing in multi origin teas. Strategy will be
focused primarily to project the goodness of tea from other origins in the specialty range such as the Darjeeling’s from
India, Keemun’s from China, Japanese Sencha etc.
With the expansion of scope in Research & Development, the Company has attracted much interest from local and
international enterprises for synergized operations. Some of the international interest revolves around the development
of pharmaceutical products based on the lab trials done by the Company’s Research & Development department. Initial
discussions with Asian Development Bank has given a clear indication to private sector funding for future development
of tea related projects which will have benets to the industry. The Government of Sri Lanka has recognized Research &
Development as an integral part in developing the national economy. It is expected that special grants or incentives for
Research & Development will be announced during the forthcoming budget.
Furthermore, with eect from November 2010 a special Development Fund for promoting and marketing of tea will be
initiated by the Sri Lanka Tea Promotion Bureau. This initiative will generate a minimum of LKR 1 billion per year over a
period of 5 years and will be managed primarily by the private sector tea exporters. As a brand developer, HVA Foods
Limited will be fully qualied to draw on this fund for any future requirement of nancial assistance in the development
of its brand name.
Within the next 5 years of operation the company hopes to be a well recognized and well established tea brand in the
world catering to beverage and non-beverage sectors harnessing the maximum potential in tea.
However, it is of importance to note that the above mentioned future plans will hold provided that tea continues to be
the most widely consumed beverage globally and Sri Lanka’s current dominant presence in the export market remains
constant or improves. The risks associated with the Company and its business activities are mentioned in Section 8.0.
However, the Company is positive in mitigating the risk factors due to the wide range of products available.
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8.0 INVESTMENT CONSIDERATIONS AND ASSOCIATED RISK FACTORS
8.1 Risk Factors
Prior to investing in the Oered Shares, prospective investors should pay particular attention to the fact that
the Company and its business activities are subject to a number of r isk factors which may be within or outside
the control of the Company.
The risk factors that follow may be considered material to investors in making an informed judgment on the
Company. Since the Company’s presence is in the tea sector, the industry related risks are focused on the tea
industry. If any of the considerations and uncertainties given below develop into actual events, the Company’s
business, nancial conditions or results of operations and prospects could be adversely aected and this may
impact the market price of the Oered Shares. However, given the importance of the tea industry for the
national economy, the Company’s business is expected to be sustainable in the foreseeable future.
8.2 Industry Specic Risks
Unavourable weather conditions and wage hikes – Being a rain fed plantation crop in Sri Lanka, tea depends
greatly on weather for optimal growth. Therefore, changes in weather conditions would undoubtedly aecttea production. For example, in 2009, tea production decreased by 9.1% to 290 Mn kg compared to 2008. This
was mainly due to the dry weather conditions in all tea planting districts.
Moreover, it is assumed that the trade unions will agitate for wage increases at least every two years. The
unions represent 50% of the organized workers on estates while the wage component accounts for 60% of
the cost of production per kilo. This is considered to be the highest among all the tea producing countries. In
2009, there was a signicant hike in the wages which resulted in a further increase in cost of production.
Hence, the tea industry in Sri Lanka will always be vulnerable to wage hikes. However, the negative impact of
wage hikes could be dissipated to some level, through linking of wages to productivity. Moreover, the wage
cost is also expected to aect all other tea production countries as well.
Import taxes and non-tarif barriers – Import taxes and non-tari barriers by large tea consuming countries
could have negative impacts on the industry by hampering protability of the industry.
Threat o oreign competitors - Even though there is ample demand existing currently and further increases
expected, Sri Lankan exporters are threatened by foreign competitors. Foreign exporters have created their
own brand names by partly exploiting the incentives granted by the government in 1982. They have been
able to build their own brand names without much investment in plant and machinery on their part aided by
local exporters. These very same foreign traders have become the biggest competitors to the exporters who
have their own Sri Lankan brand names.
8.3 Company Specic Risks
Availability and price increase o raw material – The main raw material for iced tea is BM Fannings. BM
Fanning’s is a byproduct, treated as waste in the manufacturing process of converting green leaf in to made
tea. Currently the availability of BM Fannings is approximately 40 million kilos per annum. Hence the availability
of raw materials is abundant.
The entry of new players to the market may increase the demand for BM Fanning’s and thereby move the
current price up from approximately Rs. 30 per kg. However, HVA Foods Limited has taken this factor into
consideration in their marketing and pricing strategies.
Price increases of black tea and green tea which are the main raw materials for value added teas could createa dent in the company’s prot margins. Importing of orthodox teas from other origins for blending purposes
is still not fully permitted in Sri Lanka. Hence price shifts at the Colombo Tea Auction should be carefully
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9.0 CORPORATE STRUCTURE
9.1 The Board o Directors
The Board of Directors guides and supervises the business and operations of HVA Foods Limited. The Board
consists of two (02) Non-Executive Independent Directors, one Non-Executive Director (01) and three (03)
Executive Directors including the Chairman. The Board has the power to appoint the Executive Directors
including the Chairman. As at the date of this Prospectus, the Board comprises of the following six (06)Directors.
Table 9-1: Details of HVA Foods Limited Board of Directors
Name Age Address Designation
Mr. A.R.H. Fernando 55 No. 220, Lake Drive,
Colombo 08
Chairman
Mr. J. Raddalgoda 39 No. 8/4, Sri Jinarathana
Mawatha, Ratmalana
Executive Director
Mr. H.J. Fernando 27 No. 220, Lake Drive,Colombo 08 Executive Director
Mrs. V.S. Amunugama Fernando 41 No. 220, Lake Drive,
Colombo 08
Non-Executive Director
Mr. N.C. Vitarana 79 No. 14, Alwis Terrace,
Colombo 03
Non-Executive
(Independent) Director
Mr. J.H.P. Ratnayeke 61 995/7, Park Lane, Rajagiriya Non-Executive
(Independent) Director
9.2 The Board o Directors o HVA Lanka Exports (Private) Limited The Board of Directors of the holding company of HVA Foods Limited is as follows:
Table 9-2: Details of HVA Lanka Exports (Private) Limited Board of Directors
Name Age Address Designation
Mr. A.R.H. Fernando 55 No. 220, Lake Drive,
Colombo 08
Director
Mrs. V.S. Amunugama Fernando 41 No. 220, Lake Drive,
Colombo 08
Director
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9.3 Proles o the Board o Directors
Mr. A.R.H. Fernando – Chairman
The CEO is also in the capacity of an Executive Director. Mr. Fernando has over 35 years of experience in the
tea industry and has been successful in developing, promoting and marketing the traditional beverage of tea
in many innovative variants over the last several years. Prior to nding his own Company, he began his career
as a trainee Tea Taster at Carson, Cumberbatch & Co., Ltd. He was promoted to a Tea Executive in 1979. He joined Brooke Bond Ceylon Limited as a tea buyer where he was promoted to Tea Manager in 1985. In 1982
he spent one year with Brooke Bond Commodities Ltd. United Kingdom learning international tea blending
and trading. He served on the Colombo Tea Traders Association as a member and also as a Director on the Sri
Lanka Tea Board. He functioned as the President of the National Chamber of Exporters in 2008 and 2009. He
is currently the Vice Chairman of the Tea Exporters Association of Sri Lanka.
Mr. J. Raddalgoda - Executive Director
Mr. Raddalgoda accounts for nearly eight years of experience in the plantation management in the private
sector and nal four years of same holding managerial level posts. His knowledge on the plantation sector
includes of tea, rubber, coconut and cardamom. He has been with the Company since February 1998 andhandled tasks under managerial positions in the areas of, Production and Commercial operations, Human
Resource and Administration. Before joining the Company Mr. Raddalgoda has served as a Plantation Executive
at Kelani Valley Plantations Limited.
Mr. H.J. Fernando – Executive Director
Mr. Fernando has over 10 years of experience in the tea industry. He joined HVA Lanka Exports (Private)
Limited as a Management Trainee and currently acts as the Director Operations being responsible for
manufacturing and procurement and is also involved in international brand marketing of the Company.
Mrs. V.S. Amunugama Fernando – Non-Executive Director Mrs. Fernando is a graduate of the Faculty of Law, University of Colombo and an Attorney-at-Law by profession.
She counts for over 17 years of experience in the eld of advertising and is the founder and joint Managing
Director of TRIAD Advertising (Pvt.) Ltd.
Mr. N.C. Vitarana – Non- Executive (Independent) Director
Mr. Vitarana is a graduate of the University of Ceylon and a Chartered Accountant. He brings with him a wealth
of knowledge and experience acquired over a career spanning over 57 years in areas such as taxation, auditing,
banking and nancial services, mergers and acquisitions and corporate restructuring both in Sri Lanka and
abroad. Mr. Vitarana is a qualied Chartered Accountant has also served as a director of John Keels Holdings
PLC.
Mr. J.H.P. Ratnayeke – Non-Executive (Independent) Director
Mr. Ratnayeke is a leading commercial lawyer and the senior partner and founder of Paul Ratnayeke Associates.
He graduated with honors from the University of Ceylon (Colombo) and has been awarded a LLM Degree by
the University of London. He is an Attorney-at-Law of the supreme court of Sri Lanka and a Solicitor of the
Supreme Court of England & Wales.
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9.4 Directors’ Interest in Shares
9.4.1 Directors’ Direct and Indirect Shareholdings in the Company
The Directors’ direct shareholdings in the Company as at 03rd January 2011 are tabulated below.
Table 9-3: Directors’ Shareholdings in HVA Foods Limited as at 30th September 2010
Name o Director Number o Shares Held
Mr. A.R.H. Fernando 62
9.4.2 Sale or Purchase of Shares by directors
There were no sales, transfers or purchases of shares made by the Directors during the two year period
immediately preceding the date of this Prospectus.
9.4.3 Directors’ Emoluments
Emoluments paid in the form of salaries or bonuses to the Directors during FY 2009/10 amounted to LKR
7,306,800. The Directors are expected to be remunerated in the form of salaries, bonuses during FY 2010/11to an approximate extent of LKR 12 Million.
9.4.4 Other Directorships Held by the Board
Table 9-4: Other Directorships
Name o Director Other Directorships Held
Mr. A.R.H. Fernando HVA Lanka Exports (Private) Limited
HVA Holdings (Private) Limited
HVA Farms (Private) Limited
HVA Beverages (Private) LimitedHVA Fineteas (Private) Limited
Lake Drive Holdings (Private) Limited
Mr. J. Raddalgoda HVA Farms (Private) Limited
HVA Beverages (Private) Limited
Mr. H.J. Fernando Lake Drive Holdings (Private) Limited
Mrs. V.S. Amunugama Fernando HVA Lanka Exports (Private) Limited
HVA Holdings (Private) Limited
HVA Farms (Private) Limited
HVA Beverages (Private) Limited
HVA Fineteas (Private) Limited
Lake Drive Holdings (Private) Limited
TRIAD Advertising (Private) Limited
Powerhouse Limited
Sarva Integrated (Private) Limited
Imageline (Private) Limited
Asia Commerce (Private) Limited
Printage (Private) Limited
Thirty Five KM (Private) Limited
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Name o Director Other Directorships Held
Emagewise (Private) Limited
Traidhot.com (Private) Limited
Traid Mantram (Private) Limited
Spaacs (Private) Limited
Adpack Productions (Private) LimitedHardtalk (Private) Limited
Hammer BTL (Private) Limited
Hotel Reef Comber PLC
Mr. N.C. Vitarana None
Mr. J.H.P. Ratnayeke Chairman – Arpico Furniture Limited
Asia Fort Sri Lanka Direct Investment Fund Limited
Asia Growth Fund (Private) Limited
Asia Securities (Private) LimitedAsian Alliance Insurance PLC
Kalyani Mahal (Private) Limited
P.R. Intellectual Property Services (Private) Limited
P.R. Secretarial Services (Private) Limited
Nature Holdings Limited
Deputy Chairman – Asia Capital PLC
Kegalle Plantations Limited
Maskeliya Plantations Limited
RPC Construction (Private) LimitedRPC Management Services (Private) Limited
Raajje Foundation
Director – AEN Palm Oil Processing (Private) Limited
Arp-Eco (Private) Limited
Arpico Exotica Asian (Private) Limited
Arpico Flexifoam (Private) Limited
Arpico Homes Limited
Arpico Interiors (Private) Limited
Arpico Plastics Limited
Arpidag International (Private) Limited
Arpimalls Development Co. (Private) Limited
Arpitec (Private) Limited
Capital Reach Holding Limited
Exotic Horticulture (Private) Limited
Hamefa Kegalle (Private) Limited
Maskeliya Tea Gardens Ceylon Limited
MPL Dendro Thermal Power (Private) Limited
Namunukula Plantations Limited
Nuwara Eliya Hotels Limited
Plastishells Limited
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Name o Director Other Directorships Held
Richard Peiris & Company Limited
Richard Peiris Distributors Limited
Richard Peiris Group Services (Private) Limited
Richard Peiris Natural Foams Limited
Richard Peiris Plantations (Private) LimitedRichard Peiris Rubber Compounds Limited
Richard Peiris Rubber Products Limited
Richard Peiris Tyre Co., Limited
RPC Airlines (Private) Limited
RPC Global Travels (Private) Limited
RPC Logistics (Private) Limited
PC Plantation Management Services (Private) Limited
Sierra Cables PLC
Sierra Construction (Private) LimitedWeligama Bay Properties (Private) Limited
Arpitalian Compact Soles (Private) Limited
RPC Polymers (Private) Limited
RPC Southern Industrial Park (Private) Limited
Alternate Director – Allied Export and Import Agencies (Private) Limited
Colombo Agencies Limited
Jims Farm (Private) Limited
9.4.5 Directors’ Interest in Assets
The Directors hold no interest in assets acquired, disposed or leased by the Company during the two years
preceding the Oering other than the acquisition of HVA Holdings (Private) Limited. Furthermore, it is not
proposed that the Directors will hold any interest in assets to be acquired, disposed or leased by the Company
in the two years subsequent to the Oering.
9.4.6 Directors’ Interest in any Material Contracts
The Directors hold no interest in contracts with the Company.
9.4.7 Statement – Board of DirectorsNo Director or a person nominated to become a Director of the Company is or was involved in any of the
following events:-
• A petition under any bankruptcy laws led against such person or any partnership in which he was a
partner or any corporation of which he was an executive ocer;
• Convicted for fraud, misappropriation or breach of trust or any other similar oence which the CSE
considers a disqualication.
9.5 Corporate Governance Practices
The Directors place a high degree of importance on sound corporate governance practices and are committed
to the highest standards of corporate governance within the organization.
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The Company understands, supports and has applied the core concepts that underlie enterprise governance
and ensures that its standards remain in compliance with the regulatory requirement of the CSE Listing Rules.
In line with this, the Company has appointed two Independent Directors to the Board of HVA Foods Limited
facilitating independent judgment in Board discussions and decisions. The Board also consists of two Non-
Executive Independent Directors, one Non-Executive Director and three Executive Directors including the
Chairman.
In line with this, Directors and functions of the above committees are detailed below.
9.6 Remuneration Committee
The Remuneration Committee consists of two Non-Executive Independent Directors. They are namely Mr.
N.C. Vitarana and Mr. J.H.P. Ratnayeke. The committee is responsible for making recommendations to the
Board on;
• Remuneration framework and levels of the Senior Management
• Senior Management performance and equity based remuneration plans including performance
incentives and hurdles• Remuneration of Executive Directors
Aggregate remuneration paid to Executive and Non-Executive Directors during last year and amount expected
to be paid in the current year is given under Section 9.4.3 of this Prospectus.
9.7 Audit Committee
The Audit Committee consists of two Non-Executive Independent Directors. They are namely
Mr. N.C. Vitarana and Mr. J.H.P. Ratnayeke. The Committee is responsible for the following;
• Evaluating and monitoring the Company’s control environment and risk management function
• Overseeing and reviewing the quality, cost and scope of internal and external audits• Reviewing the reports presented to the Committee by both auditors and management
• Recommending to the Board the appointment of internal and external auditors
• Reviewing the Company’s management and statutory reporting
• Reviewing and approving of nance and accounting policies and the ongoing monitoring of their
implementation and eectiveness
• Ongoing nancial monitoring of the Company’s various disclosure obligations
• The review and pre-approval of any non audit services provided by the internal or external auditors to
ensure their independence is maintained at all times
9.8 Senior Management
Table 9-5: Senior Management of HVA Foods Limited
Name Designation
Mr. A.R.H. Fernando Chairman
Mr. H.J. Fernando Executive Director
Mr. V.I. Gunaratne Manager – Marketing
Mr. S.D. Hewathudella Manager – Finance
Mr. J. Raddalgoda Executive Director
Mr. J. Kannangara Manager – Quality Assurance and Research & DevelopmentMr. F.V.L. Samarasinghe Specialist Process – Manufacturing & Industrial Engineering
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Mr. A.R.H. Fernando – Chairman
Refer prole in Section 9.3
Mr. H.J. Fernando – Executive Director
Refer prole in Section 9.3
Mr. J. Raddalgoda – Executive Director
Refer prole in Section 9.3
Mr. V.I. Gunaratne – Manager, Marketing
Mr. Gunaratne began his career as a Marketing Executive at John Keels Group in 1997 & spent 05 years serving
the group in subsidiaries in Tea, Leisure & Transport sectors. Subsequently he joined Navigation Maritime Ltd,
agents for Hanjin Shipping where he gathered substantial knowledge on ocean freight & its overall operation
during the period of 2001 – 2003. Mr. Gunarathne joined HVA Group in 2003 as an Assistant Manager Tea &
progressed in his career managing the prestigious Eastern Market where he excelled with remarkable
performance. At preset he holds the portfolio of the Marketing Manager of the Group.
Mr. S.D. Hewathudella – Manager, Finance
Mr. Hewathudella started his career as a clerk and reached senior management level within a remarkable time
frame. He has gained experience in various industries including the hotel sector, hyper & super markets
industry (local & overseas) and tea industry. He counts over 25 years of experience in the Finance Management
& Accountancy eld. For the last 17 years Mr. Hewathudella has been holding senior Managerial positions in
several reputed organizations.
Mr. Kannangara – Manager, Quality Assurance and Research & Development
Mr. Kannagara holds more than 14 years of experience in Quality Assurance Systems & Research & Developmentof the FMCG industry. He holds a BSc. Degree in Natural Science and is currently reading for his MBA at the
University of Kelaniya.
Mr. F.V.L. Samarasinghe – Specialist Process, Manufacturing & Industrial Engineering
Mr. Samarasinghe started his career as a Factory Manager at Unilever, Sri Lanka and at Instant Tea Plant,
Agarapathana. He counts for more than 30 years of experience in manufacturing, engineering and industrial
engineering. He is also a DNV accredited auditor in HAZARD and Operatability, Health & Safety in industrial
processes. Additionally he is a JIPM accredited trainer & auditor in TPM & 5s. He holds an Msc (Eng), B Tech
(Eng) Hons., Post Graduate Diploma in Industrial Engineering.
9.8.1 Senior Managements’ Emoluments
Emoluments paid to the Chairman and the Senior Management in the form of salaries and bonuses during FY
2009/10 amounted to LKR 10,646,424. The Senior Management is expected to be remunerated in the form of
salaries and bonuses during the FY 2010/11 to an approximate extent of LKR 10 Million.
9.9 Statement – Chairman
Chairman of the Company has not been involved in any of the following:
• A petition under any bankruptcy laws led against such person or any partnership in which he was a
partner or any corporation of which he was an executive ocer;• Convicted for fraud, misappropriation or breach of trust or any other similar oence which the CSE
considers a disqualication.
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9.10 Details o the Management Agreements
There are no management agreements presently in force or currently being considered by HVA Foods Limited.
9.11 Human Resources
The number of employees of the Company as at 02nd December 2010 was 86, as detailed below.
Table 9-6: Human Resources
CATEGORY NUMBER OF STAFF
Directors, Executives Directors & Executives 25
Clerical, Supervisory, and Minor Staf Clerical 17
Supervisory 11
Manual Grades 33
Total 86
As at 30th September 2010, there were no Trade Unions, Collective Agreements or actions pending against
the Company in the Labour Tribunals.
9.12 Inormation Technology
HVA takes every eort to ensure that its information technology systems are current and up to date in line with
the Company goals and strategies. The Company’s e-mail servers are based in the US and have 99.9%
guaranteed uptime. The Company apart from its servers in Kandana, has an osite backup storage which
demonstrates management’s commitment towards disaster recovery.
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10.0 CAPITAL STRUCTURE
As at the date of this Prospectus, the Stated Capital of the Company is Sri Lankan Rupees Fifteen Million and
Twenty (LKR 15,000,020) divided into Forty Six Million Five Hundred Thousand and Sixty Two (46,500,062) fully
paid Ordinary shares.
10.1 An Overview o the Capital Structure The detailed breakdown of the Stated Capital of HVA Foods Limited is given below.
Table 10-1 : Stated Capital of HVA Foods Limited
2010 2009 2008
Stated Capital (LKR) 15,000,020 15,000,020 15,000,020
Number o Ordinary Shares in Issue 46,500,062* 1,500,002 1,500,002
* The Company sub-divided each Ordinary Share into thirty one (31) Ordinary shares on 29th September 2010
• The Company has not issued any new Ordinary Shares during the preceding three nancial years.
• The Company has no other classes of shares other than the above mentioned Ordinary Shares.
• There are no restrictions on the purchase of shares by non-residents in the Company.
10.2 Free Transerability o Shares
Upon the Ordinary Shares of the Company being listed on the CSE, such shares shall be freely transferable and
the registration of the transfer of such listed shares shall not be subject to any restriction, save and except to
the extent required for compliance with statutory requirements.
10.3 Other Securities
The Company has not issued any convertible debt securities or any other class of shares other than the sharesstated above. Further there are no securities of the same or other class subscribed or sold privately in
conjunction with this Oering.
10.4 Takeover Ofers
There have been no takeover oers by third parties in respect of the Company’s shares during the past two
years and no takeover oers have been made by the Company in respect of shares of third parties.
10.5 Share Re-Purchases or Redemptions
The Company has not engaged in any share re-purchase, redemption or stated capital reduction exercises in
the two years preceding the date of this Prospectus.
10.6 Ten Largest Shareholders as at 03rd January 2011
Table 10-2: Ten Largest Shareholders – Pre IPO after the Split
Name No. o Ordinary Shares Total % 2008
HVA Lanka Exports (Pvt.) Limited 46,500,000 46,500,000 99.9999 15,000,020
Mr. A.R.H. Fernando 62 62 0.0001
Total 46,500,062 46,500,062 100.00 1,500,002
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10.7 Major Shareholders o HVA Lanka Exports (Private) Limited rom 1990 to date
Table 10-3: Major Shareholders of HVA Lanka Exports (Private) Limited
Name No. o Shares
Mountain Hawk (Private) Limited 149,998 Transferred
HVA Holdings B.V. 99,900 Transferred
Mr. A.R.H. Fernando 7,602,029
Mahamadaachchi Lushantha De Silva 49,988 Transferred
Merchant Bank of Sri Lanka 166,667 Transferred
Paxion Investment Company Ltd. 83,333 Transferred
HVA Holdings (Private) Limited 366,572 Transferred
Dohothodona Jayantha Gunawardena 330,011 Transferred
Mrs. V.S. Amunugama Fernando 01
Vallible Holdings (Pvt.) Ltd. 775,407 Transferred
Arrow International (Pvt.) Ltd. 3,801,015 Transferred
10.8 Post IPO Shareholding Structure
Table 10-4: Post IPO Shareholding Structure
Name No. o Ordinary Shares Total %
HVA Lanka Exports (Pvt.) Limited 46,500,000 46,500,000 69.9999
A.R.H. Fernando 62 62 0.0001
Public 19,928,598 19,928,598 30.00
Total 66,428,660 66,428,660 100.00
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10.9 Ratios
Year Ended 31st March Six Months Ended 30th
September
Ratio Analysis 2009 2010 2009 2010
Protability
Revenue Growth 4% 21% (2%) 13%COS/Revenue 79% 81% 84% 83%
GP margin 21% 19% 16% 17%
Administration exp. growth rate (52%) 8% 9% 36%
Operating prot Margin 19% 18% 12% 11%
Net prot Margin 4% 11% 7% 10%
ROA 4% 13% 3% 6%
ROE 4079% 145.69% 101% 36%
Liquidity
Current Ratio 1.03 1.04 1.00 0.95
Quick Asset ratio 0.76 0.88 0.85 0.82
Investor ratios
EPS * 0.32 1.17 0.36 0.62
NAV per share 0.17 1.44 0.52 2.77
Gearing
LT debt/ Equity 3387% 425% 1151% 217%
Interest Coverage 1.31 2.86 2.08 3.02
Total liability/equity 41.84 6.08 14.92 3.62
* Restated to reect the new number of shares post-split
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Table 11-4: HVA Foods Limited – Summarized Interim Balance Sheet
As at March 31 Sept. 30, 2010
(gures in rupees)
Sept. 30, 2009
(gures in rupees)
Total Non Current Assets 290,756,832 153,591,941
Total Current Assets 313,994,275 233,847,081
TOTAL ASSETS 604,751,107 387,439,022
Total Capital & Reserves 126,978,742 24,339,790
Total Non Current Liabilities 146,970,330 129,722,324
Total Current Liabilities 330,802,035 233,376,908
TOTAL EQUITY & LIABILITIES 604,751,107 387,439,022
11.2 Perormance o Operations or the Five Years Ended 31st March 2010
REVENUE
The movement in revenue of HVA Foods Limited during the last ve nancial years is depicted below.
Chart 11-1: Revenue Movement
As shown above, the Company has recorded a CAGR of 10% over the last ve years. It is of importance to note
that even in 2009, when the overall tea industry was aected, the Company has been able to maintain a
positive growth trend. The increase in revenue is mainly due to the encouraging escalation in prices over the
past several years. For example, export prices of HVA Foods Limited has recorded a CAGR of 9% from 2007-
2009. Despite being a predominantly export oriented company and been faced with unexpected natural and
nancial conditions of overseas countries, the Company has achieved commendable results in terms of turnover numbers.
Gross and Operating Prot
The following gures illustrate the gross and operating prots of HVA Foods Limited along with the gross and
operating prot margins.
2006 2007 2008 2009 2010
L K R ‘ 0 0 0
-
100,000
200,000
300,000
400,000
500,000
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Chart 11-2: Gross Prot Movement
Chart 11-3: Operating Prot Movement
Even though the Company’s gross prot and operating prot have increased in terms of absolute values, the
margins have decreased due to the slight increase in cost of sales to revenue. The gross margins are
comparatively lower when compared to some of its competitors who have achieved about 40% gross marginsover the past three years. However, the operating prot margins are closely in line with the industry norms of
approximately 13% in recent years compared to a 16% industry margin.
Net Prot
The movement in net prot of HVA Foods Limited during the last ve nancial years is depicted below.
Chart 11-4: Net Prot Movement
The net prot of the Company has been severely aected due to the high nancing costs. As mentioned
above, the Company has continuously been able to maintain healthy operating prots which indicate healthyand stable operations. Moreover, the building of the brand “HELADIV” required substantial amounts of capital
in terms of Research & Development, brand registration and surveillance, advertising, etc. that were met by
Gross Prot
Gross Prot Margin
2006 2007 2008 2009 2010-
20,000
40,000
60,000
80,000
100,000
0%
5%
10%
15%
20%
25%
Operating Prot
Operating Prot Margin
2006 2007 2008 2009 20100
20,000
40,000
60,000
80,000
100,000
0%
5%
10%
15%
20%
Net Prot
Net Prot Margin
2006 2007 2008 2009 2010
L K R
m i l l i o n
(40,000)
(20,000)
0
20,000
40,000
60,000
80,000
(10%)
(5%)
0%
5%
10%
15%
20%
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commercial borrowings which increased nance costs considerably. However, in 2010 there has been a
decrease of 49% of nance costs which helped boost the Company’s net prot considerably. Hence, it is
expected that post IPO, with the retirement of a substantial amount of debt, the Company will be able to
perform at much better margins. Moreover, the turnaround in the bottom line of the Company seen starting
from FYE 2009, has a direct correlation to the marketing expenses borne in the earlier years to portray “HELADIV”
as a world renowned brand. This further claries the importance of the assignment of the brand name via the
vesting of HVA Holdings (Private) Limited to HVA Foods Limited.
Recent Performance of HVA Foods Limited
The performance of the Company from April - July compared to the same period in the previous year is
depicted below. As seen below, the Company has performed substantially better during this year compared
to the same period last year. The dip in revenue and prot in July is due to the decrease in sales to the CIS
region during the hot summer season.
Chart 11-5: Monthly Revenue
Chart 11-6: Prot Beore Taxation
L K R
2009
2010
April May June July Aug. Sep.40,000,000
50,000,000
60,000,000
L K R
2009
2010
April May June July Aug. Sep.0
1,000,000
2,000,000
3,000,000
4,000,000
5,000,000
6,000,000
7,000,000
8,000,000
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12.0 STATUTORY AND OTHER GENERAL INFORMATION
12.1 Hosting o Prospectus, Application Form and the Articles o Association on the Web
This Prospectus, Application Form and the Articles of Association of the Company will be available on the
website of the CSE (www.cse.lk) and on the Company website (www.heladiv.com), from the date of opening
of the Issue, until the subscription list closes or up to fourteen (14) Market Days, whichever is earlier.
12.2 Inspection o Documents
The Articles of Association, the Auditor’s Report, Audited Financial Statements for the ve nancial years
immediately preceding the date of this prospectus (i.e. FY 2005/06 to FY 2009/10, both periods inclusive),
Audited Interim Financial Statements for the period ended up to 30th September 2010 and all other documents
to which references are made in this Prospectus could be inspected by the public during normal working
hours at the Registered Oce of the Company from the date hereof until the subscription list closes or up to
fourteen (14) Market Days, whichever is earlier.
12.3 Brokerage
Brokerage at the rate of zero decimal ve per centum (0.5%) of the Share Oer Price will be paid in respect of
the number of shares allotted/allocated on Applications bearing the seal of any bank operating in Sri Lanka or
a member/trading member of the CSE.
12.4 Underwriting
The Oer is not underwritten and is not conditional upon any minimum subscription being met.
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13.0 TAXATION
The following information is an overview of selected taxation and other regulations that may be relevant to
the Company and potential investors with regard to share transactions in the Democratic Socialist Republic of
Sri Lanka. The discussion does not claim to be a comprehensive explanation of regulations and considerations
that pertain to the purchase, ownership and disposition of the Oered Shares. The explanations are based on
provisions eective in Sri Lanka at the time of printing of this Prospectus. Investors are advised to consult theirown advisors prior to engaging in transactions related to the Oering.
13.1 Corporate Taxation
As per the agreement signed with the Board of Investment of Sri Lanka (BOI), HVA Foods Limited would be
entitled for the following benets.
• The Company enjoys a concessionary tax rate of 15% for 20 years from 1997. However, according to the
2011 budget proposal, export prots which consist of more than 65% domestic value addition sold with a
Sri Lanka brand name registered in Sri Lanka will be reduced to 10%.
According to the Inland Revenue Act, the tax rates given below apply for a company incorporated prior to 01st
April 2002 with a minimum investment of LKR 50 million or incorporated after 01st April 2002 with a minimuminvestment of LKR 10 million.
• Export of tea packets or packages containing less than one kilo of tea is exempt from income tax from April
01, 2009 till 31st March 2011 in terms of Section 17 of the Inland Revenue Act.
• Export of tea bags containing made tea not exceeding four grams is also exempt from income tax under
Section 16 of the Inland Revenue Act.
13.2 Withholding Tax (WHT) or Dividends
In general, dividends distributed by resident companies out of taxable income to resident or non-resident
shareholders are subject to WHT at the rate of 10% under Section 153 of the Inland Revenue Act No. 10 of
2006. The Company is required to deduct dividend tax at source and remit the same to the Department of
Inland Revenue.
Other than the WHT referred to above, dividends paid on shares to shareholders of the Company will not be
subject to any other Sri Lankan tax. Dividend income received by a company resident in Sri Lanka from
another company resident in Sri Lanka does not form part of statutory income and is therefore not taxable in
the hands of the recipient company.
13.3 Economic Service Charge (ESC)
The Company can claim ESC against income tax liability. Unclaimed ESC can be carried forward only for ve
(05) years.
The Company is liable to pay ESC at the rate of 0.25% on its turnover, under the Schedule to the Economic
Service Charge Act No. 13 of 2006, as amended.
13.4 Taxation o Share Transactions
A transaction tax at the rate of 0.2% on the sales and purchase of all share transactions is being charged from
both the buyer and the seller since January 1, 2005. This tax is part of the transaction cost charged when
trading shares on the CSE.
13.5 Stamp Duty The Company is liable to pay stamp duty at the rate of 0.5% for the Oering and on any new shares that may
be issued in the future in line with current stamp duty regulations.
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14.0 STATUTORY DECLARATIONS
Statutory Declaration by the Directors
03rd January 2011
We, the undersigned being the Directors of HVA Foods Limited hereby declare and conrm that we have read the
provisions of the Companies Act No.7 of 2007 relating to the issue of the Prospectus and that those provisions have
been complied with.
This Prospectus has been seen and approved by us and we collectively and individually accept full responsibility for
the accuracy of the information given and conrm that the provisions of the CSE Listing Rules of the Colombo Stock
Exchange and the Companies Act. No. 7 of 2007 and any amendments to it from time to time have been complied
with and after making all reasonable enquiries and to the best of our knowledge and belief, there are no other facts
the omission of which would make any statement herein misleading or inaccurate. Where representations regarding
the future performance of the Company have been given in the Prospectus, such representations have been made
after due and careful enquiry of the information available to the Company and making assumptions that are
considered to be reasonable at the present point in time and according to our best judgement.
Name Designation Signature
Mr. A.R.H. Fernando Chairman Sgd.
Mr. H.J. Fernando Executive Director Sgd.
Mr. J. Raddalgoda Executive Director Sgd.
Mrs. V.S. Amunugama Fernando Non-Executive Director Sgd.
Mr. N.C. Vitarana Non-Executive (Independent) Director Sgd.
Mr. J.H.P. Ratnayeke Non-Executive (Independent) Director Sgd.
Statutory Declaration by the Managers to the Issue
03rd January 2011
We, Acuity Partners (Private) Limited, of 53, Dharmapala Mawatha, Colombo 3 being the Managers to this
Public Share Issue of HVA Foods Limited hereby declare that to the best of our knowledge and belief the
Prospectus constitutes full and true disclosure of all material facts about the Issue and HVA Foods Limited
whose Ordinary Voting Shares are being issued.
Sgd. Sgd.
Director Director
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Statutory Declaration by the Company
03rd January 2011
An application has been made to the Colombo Stock Exchange for permission to deal in and for a listing for
all of the Ordinary Voting Shares issued by the Company and those Ordinary Voting Shares which are the
subject of this issue. Such permission will be granted when the ordinary shares are listed on the Colombo
Stock Exchange. The Colombo Stock Exchange assumes no responsibility for the correctness of any of the
statements made or opinions expressed or reports included in this Prospectus. Listing on the Colombo Stock
Exchange is not to be taken as an indication of the merits of the Company or of the securities issued.
Sgd. Sgd.
Director Director
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ACCOUNTANT’S REPORT
AND
FIVE YEAR SUMMARY
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2.2 Audited Financial Statements or the year ended 31st March 2010 The Balance Sheet as at 31st March 2010 and related Statement of Income, for the year then ended are set out on pages 85 to 106
of the Prospectus. We have audited these nancial statements and our report dated 30th September 2010 is attached to the
Financial Statements.
2.3 Interim review o the Financial Statements or the six months ended 30th September 2010 The consolidated balance sheet as at 30th September 2010 and related statement of Income for the nancial period then ended
are set out on pages 108 to 127 of the prospectus. We have done a review according to the Sri Lanka Standard on ReviewEngagements-2400 on these nancial statements and our report dated 19th November, 2010 is attached to the Prospectus.
Following are the major events that took place during the period of 01th April 2010 to 30th September 2010.
- The company acquired HVA Holding (Pvt) Ltd on 29th September 2010 for a consideration of Rs.45Mn. The consideration was
accounted as payable to HVA Lake Drive (Pvt) Ltd since it was the parent company of HVA Holding (Pvt) Ltd. As set out in the
objectives of the prospectus, consideration will be settled by using the proceeds received from the initial public oering.
- The group has recognized the brand “HELADIV” as an intangible asset in the interim nancial statements as derived from the
business combination. Refer note 12 to the interim review nancial statements for the details of the brand.
- The company has sub divided an ordinary share into 31 ordinary shares, thereby increasing the number of the ordinary shares
to 46,500,062 shares. The special resolution was passed on 29th September 2010.- The company acquired a land for Rs. 6,000,000 from Lake Drive Holding (Pvt) Limited, a related company. Details are disclosed
in Note 10.5 of the Interim Financial Statements.
2.4 Audit ReportsWe have audited the nancial statements of the Company for the periods ended 31st March 2006 to 31st March 2010. Qualied
opinions have been issued for the nancial years 2005/06 and 2006/07 and reports with emphasis of matter have been issued for
the nancial years 2007/08 and 2008/09 as described below. An unqualied audit opinion has been issued for the nancial year
ended 31st March 2010.
Year Qualications made in the Audit Report
2005/06 Qualications reported were;
a) The corresponding gures for the year ended 31st March 2005 were subject to a disclaimer of opinion dueto a limitation of scope in obtaining sucient appropriate audit evidence for the audit.
b) The Company has accumulated losses amounting to Rs.96,445,654/- and its current liabilities exceeded
current assets by Rs.57,678,237/- and total liabilities exceeded total assets by Rs.75,223,184/- as at 31st March
2006. However, as disclosed in the nancial statements the holding company has planned to infuse Rs.80m
equity.
2006/07 Qualication reported was;
The Company has accumulated losses amounting to Rs.101,719,137/- and its current liabilities exceeded current
assets by Rs.36,149,426/- and has a negative cash ow of Rs.52,398,245/- during the year. Further there is a
receivable of Rs.62,539,888/- from holding company which has a negative Balance Sheet. These factors raise
substantial doubt that the company will be able to continue as a going concern. However, capital infusion for
operations of the Holding Company after the year end may enable the company to overcome short term cash
ow requirements
Year Emphasis o Matter highlighted in the Audit Report
2007/08 The Company incurred a loss of Rs.16,463,446 during the year ended March 31st 2008 and, as of that date, the
accumulated losses were Rs.118,182,584/- current liabilities exceeded current assets by Rs.112,381,486 /-and
total liabilities exceeded total assets by Rs.7,045,710/-. These factors raise substantial doubt that the company will
be able to continue as a going concern.
2008/09 The accumulated losses of the Company were Rs.103,364,619/- and the current liabilities exceeded current
assets by Rs.14,041,481/-. These factors raise substantial doubt that the company will be able to continue as a
going concern.
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HVA Holding (Pvt) Ltd was audited by another auditor who has expressed a qualied opinion due to the substantial doubt in the
company’s ability to continue as a going concern. Further, the audit report did not comply with the requirements of SLAuS 700: The
Auditor’s Report on Financial Statements.
2.5 Accounting Policies The Financial Statements of the Company for the periods ended 31st March 2006 to 31st March 2010 comply with Sri Lanka
Accounting Standards.
The accounting policies of the Company are stated in detail in the audited nancial statements of HVA Foods (Pvt) Limited for the
year ended 31st March 2010.Changes in the accounting policies of the Company since 31st March 2006 to 31st March 2010 are
given below.
Year Changes in Accounting Polices
2005/06 There were no material changes.
2006/07 Except for the following there were no material accounting policy changes to the nancial statements.
• The Company has adopted the following revised Sri Lanka Accounting Standards during the year.
a) SLAS – 03 (revised) Presentation of Financial Statements
b) SLAS – 12 (revised) Events after the Balance Sheet Date
c) SLAS – 14 (revised) Income Tax
d) SLAS – 18 (revised) Property, Plant & Equipments
e) SLAS – 19 (revised) Leases
f ) SLAS – 21 (revised) The Eect of Changes in Foreign Exchange Rates
g) SLAS – 30 (revised) Related Party Disclosures
• The cost of the inventories based on weighted average cost principle instead of FIFO principle, used in year 2005/06.
2007/08 There were no material changes.
2008/09 Except for the following there were no material accounting policy changes to the nancial statements.
• The Company has made changes to be in compliance with Sri Lanka Accounting Standard No.16 – Employee
Benets (Revised 2006). As a result, the gratuity liability was valued using the Gratuity Formula method.
2009/10 There were no material changes.
2.6 Dividends The Company has not declared dividends for the periods ended 31st March 2006 to 31st March 2010.
2.7 Events ater the Balance Sheet Date There were no signicant events that occurred after the last Balance Sheet date of 31/03/2010 except for the IPO of the shares and
a share split approved by the Board of Directors on 29th September 2010.
Yours faithfully,
Chartered Accountants
Colombo
SR/CP
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HVA Foods (Pvt) Ltd
Five Years Summary - Income Statement
2009/10 2008/09 2007/08 2006/07 2005/06
Rs. Rs. Rs. Rs. Rs.
Revenue 488,206,319 402,379,235 386,865,694 253,852,267 299,121,853Gross Prot 93,483,325 84,892,616 54,593,941 51,662,730 44,957,269
Net Prot before nance cost 78,274,664 70,493,436 14,828,634 17,963,603 9,557,904
Prot/(loss) before tax 55,588,197 18,036,363 (16,458,410) (5,262,858) 11,318,983
Taxation (1,313,429) (3,218,398) (5,036) (10,623) (1,359,589)
Prots attributable to Shareholders 54,274,768 14,817,965 (16,463,446) (5,273,481) 9,959,394
HVA Foods (Pvt) Ltd
Five Years Summary - Balance Sheet
2009/10 2008/09 2007/08 2006/07 2005/06
Rs. Rs. Rs. Rs. Rs.
Non-current assets 236,285,570 158,110,838 160,852,603 161,438,801 64,868,023
Current assets 281,371,485 174,815,198 177,445,251 230,920,219 113,974,378
Total Assets 517,657,055 332,926,036 338,297,854 392,359,020 178,842,401
Capital & reserve
Stated Capital 15,000,020 15,000,020 15,000,020 15,000,020 15,000,020
Revaluation Reserve 134,000,948 96,136,854 96,136,854 96,136,854 6,212,450
Retained Earnings/(losses) (49,089,851) (103,364,619) (118,182,584) (101,719,137) (96,445,654)
99,911,117 7,772,255 (7,045,710) 9,417,737 (75,233,184)
Non-current liabilities 145,945,728 136,297,102 55,516,826 115,871,638 82,422,970
Current liabilities 271,800,210 188,856,679 289,826,738 267,069,645 171,652,615
Total Equity & Liabilities 517,657,055 332,926,036 338,297,854 392,359,020 178,842,401
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HVA Foods (Pvt) Ltd
Five Year Summary - Cash Flow Statement
2009/10 2008/09 2007/08 2006/07 2005/06
Rs. Rs. Rs. Rs. Rs.
Prot before taxation 55,588,197 18,036,363 (16,458,410) (5,262,858) 11,318,983Operating prot before
working capital changes 95,888,094 54,147,710 23,488,867 22,072,783 22,688,217
Net cash from/ (used in)
operating activities (8,123,833) 11,472,892 78,065,640 (187,679,128) 7,604,765
Net cash used in
investing activities (51,451,541) (7,510,380) (8,248,593) (11,940,528) (7,958,710)
Net cash ows from
nancing activities 49,927,284 44,605,559 33,453,217 148,093,448 (243,214)
Net change in cash and
cash equivalents (9,648,090) 48,568,071 36,363,830 (51,526,208) (597,159)
Cash and cash equivalents
at 01st April 32,533,653 (16,034,418) (52,398,248) (872,040) (274,881)
Cash and cash equivalents
at 31st March 22,885,563 32,533,653 (16,034,418) (52,398,248) (872,040)
HVA Holdings (Pvt) Ltd
Summary o Balance Sheet as at 31st March 2010
2009/10
Rs.
Cash & cash equivalent 71,705
Total assets 71,705
Capital & reserves
Stated capital 183,700
Retained earnings (117,695)
66,005
Other payables 5,000
Current liabilities 5,000
Total equity & liabilities 71,005
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HVA Foods (Pvt) Ltd
Five Year Summary - Financial Ratios & Statement o Changes in Equity
2009/10 2008/09 2007/08 2006/07 2005/06
Financial Ratio
Earnings/(Loss) Per Share 1.17 0.32 (0.35) (0.11) 0.21
(Adjusted) (Adjusted) (Adjusted) (Adjusted) (Adjusted)
Net Assets Per Share 2.15 0.17 (4.70) 6.28 (50.16)
Current Ratio (Times) 1.04 0.92 0.061 0.86 0.67
Statement o Changes in Equity
Stated Revaluation Retained Total
Capital Reserves Earnings
Balance as at 1st April 2005 15,000,020 6,212,450 (106,405,049) (85,192,579)
Prot/(Loss) for the year - - 9,959,393 9,959,393
Balance as at 1st April 2006 15,000,020 6,212,450 (96,445,656) (75,233,186)
Surplus/(reversals) on revaluation of property - 89,924,404 - 89,924,404
Prot/(Loss) for the year - - (5,273,481) (5,273,481)
Balance as at 31st March 2007 15,000,020 96,136,854 (101,719,137) 9,417,737
Prot/(Loss) for the year - - (16,463,446) (16,463,446)
Balance as at 31st March 2008 15,000,020 96,136,854 (118,182,583) (7,045,709)
Prot/(Loss) for the year - - 14,817,965 14,817,965
Balance as at 31st March 2009 15,000,020 96,136,854 (103,364,618) 7,772,256Surplus/(reversals) on revaluation of property - 37,864,094 - 37,864,094
Prot/(Loss) for the year - - 54,274,768 54,274,768
Balance as at 31st March 2010 15,000,020 134,000,948 (49,089,850) 99,911,118
The shares of the Company has sub divided into 31 Ordinary shares on 27th September 2010. Therefore, after the sub division
of shares, the total no. of shares at 46,500,062. The ratios were adjusted accordingly. However, these adjustments were not
incorporated in Audited Financial Statements - 31.03.2010. These amendments were incorporated in Interim Financial
Statements - 30.09.2010 and we will be incorporated these disclosures in the Future Financial Statements.
Finance Manager
The above summarised nancial information and its extraction from audited nancial statements, is the
responsibility of the Board of Directors.
Director Director
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FINANCIAL STATEMENTS FOR THE YEAR ENDED 31st MARCH 2010
Please note that under Notes to the Financial Statements of 31st March 2010, to be amended in the Future Financial
Statements.
Free hold land was revalued during the nancial year ended 31st March 1998 by Mr. S.D.P. Senadhira, Chartered Valuer.
The surplus on valuation amounted to Rs. 6,212,450/-. Further, free hold land has been valued during the year ended
31st March 2007, by Mr. P.B. Kalugalagedara, Chartered Valuer. The Resulting surpluses was Rs. 69,874,033/- . The free
hold land have been again revalued by Mr. P.B. Kalugalagedara, Chartered Valuer in March 2010. The resulting revaluation
surplus reported amounted to Rs. 22,800,000/-.
Buildings were revalued during the nancial year ended 31st March 2007, by Mr. P.B. Kalugalagedara, Chartered Valuer.
The resulting surpluses was Rs. 20,050,371/- . The building has been again revalued by Mr. P.B. Kalugalagedara, Chartered
Valuer in March 2010. The resulting revaluation surplus reported amounted to Rs. 6,675,857/-.
The carrying amount of revalued assets that would have been included in the nancial statements had the assets been
carried at cost less depreciation is as follows;
Cost 31.03.2010 Cumulative
Depreciation I
assets were carried
at cost 31.03.2010
Net Carrying
Amount 31.03.2010
Net Carrying
Amount 31.03.2009
Freehold Land 15,213,487 - 15,213,487 15,213,487
Buildings 36,314,222 18,424,315 17,889,907 17,845,509
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AUDITORS’ REPORT AND
FINANCIAL STATEMENTS
FOR THE YEAR ENDED
31ST MARCH 2010
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INCOME STATEMENT
All amounts in Sri Lanka Rupees
For the year ended 31st March 2010 2009Note
Revenue 4 488,206,319 402,379,235Cost of sales (394,722,994) (317,486,619)
Gross prot 93,483,325 84,892,616
Other operating income 5 28,832,656 24,957,801
Distribution expenses (8,367,587) (8,989,701)
Administration expenses (35,673,730) (30,367,280)
Results rom operating activities 6 78,274,664 70,493,436
Finance income 7,238,561 5,928,618
Finance costs (29,925,028) (58,385,691)
Net nance costs 7 (22,686,467) (52,457,073)
Prot beore income tax 55,588,197 18,036,363
Income tax expense 8 (1,313,429) (3,218,398)
Prot or the year 54,274,768 14,817,965
Basic earnings per share 9 36.18 9.88
The Accounting Policies and Notes form an integral part of these Financial Statements.
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BALANCE SHEET
All amounts in Sri Lanka Rupees
As at 31st March 2010 2009Note
ASSETS Property, plant & equipment 10 236,285,570 158,110,838
Total non-current assets 236,285,570 158,110,8
Inventories 11 47,240,322 46,057,609 Trade receivable 12 108,200,440 75,718,573Amount due from related parties 13.a 77,516,294 2,999,663Pre-payments & other receivables 14 11,001,174 11,895,503Income tax receivable 3,702,935 2,194,478Deposits & advances 15 2,174,077 1,106,921Cash & cash equivalents 16.a & b 31,536,243 37,036,929
Total current assets 281,371,485 177,009
Total assets 517,657,055
Equity Stated capital 17 15,000,020 15,000,020Revaluation reserve 18 134,000,948 96,136,854Retained earnings 19 (49,089,851) (103,364,619)
Total equity 99,911,117
LiabilitiesEmployee benets 20 7,164,612 5,910,529Interest-bearing loans and borrowings 21.a 108,316,882 128,678,149Ice tea project - grant 26 29,402,272 -
Deferred tax liabilities 25 1,061,962 1,708,424 Total non-current liabilities 145,945,728 136,297,1
Trade payable 22 33,205,072 21,035,495Amount due to related parties 13.b 16,190,719 1,043,267Interest-bearing loans and borrowings 21.b 175,421,120 134,534,841Deposits & advances payable 23 21,684,380 17,974,979Accrued expenses & other creditors 24 16,648,239 11,959,299Bank overdraft 16.c 8,650,680 4,503,276
Total current liabilities 271,800,210 191,051,
Total liabilities 417,745,938 3
Total equity & liabilities 517,657,055 335,120,514 The Accounting Policies and Notes form an integral part of these Financial Statements.. These nancial statements are prepared in compliance with the requirements of the Companies Act No. 07 of 2007.
Chie Financial Ocer
The board of directors is responsible for the preparation and presentation of these nancial statements.For and behalf of the board.
Director Director30th September 2010Colombo
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STATEMENT OF CHANGES IN EQUITY
All amounts in Sri Lanka Rupees
For the year ended 31st March Stated Revaluation Retained Total
capital Reserves Earnings
Balance as at 1st April 2008 15,000,020 96,136,854 (118,182,584) (7,045,710)
Prot for the year - - 14,817,965 14,817,965
Balance as at 31st March 2009 15,000,020 96,136,854 (103,364,619) 7,772,255
Surplus/(reversals) on revaluation of property - 37,864,094 - 37,864,094
Prot for the year - - 54,274,768 54,274,768
Balance as at 31st March 2010 15,000,020 134,000,948 (49,089,851) 99,911,117
The Accounting Policies and Notes form an integral part of these Financial Statements..
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NOTES TO THE FINANCIAL STATEMENTS
1. Reporting entity
HVA Foods (Private) Limited ( the “Company”) is acompany domiciled in Sri Lanka. HVA Foods (Pvt)Ltd is a wholly owned subsidiary of HVA Lanka
Exports (Pvt) Ltd., the Company was incorporatedon 22nd August 1997. The Registered Oce of thecompany is located at No. 39 A, Linton Road,Kandana. The principal activity of the company ismanufacturing and exporting of value added tea.
2. Basis of preparation
(a) Statement o compliance
The nancial statements of HVA Foods (Pvt) Ltd
have been prepared in accordance with Sri LankaAccounting Standards (SLAS) laid down by theInstitute of Chartered Accountants of Sri Lanka andthe requirements of the Companies Act No. 07 of 2007.
The nancial statements were authorized for issueby the Board of Directors on 30th September 2010.
(b) Basis o measurement
The nancial statements have been prepared onthe historical cost basis. No adjustments have beenmade for inationary factors in the nancialstatements.
(c) Functional and presentation currency
These nancial statements are presented in the SriLanka rupees, which is the company’s functionalcurrency. All nancial information presented in SriLanka rupees has been rounded to the nearestrupee.
(d) Use o estimates and judgments The preparation of nancial statements inconformity with SLASs requires management tomake judgments, estimates and assumptions thataect the application of policies and reportedamounts of assets and liabilities, income andexpenses. The estimates and associatedassumptions are based on historical experience andvarious other factors that are believed to bereasonable under the circumstances, the results of which form the basis of making the making the
judgments about carrying values of assets andliabilities that are not readily apparent from othersources. Actual results may dier from these
estimates.
The estimates and underlying assumptions arereviewed on an ongoing basis. Revisions toaccounting estimates are recognised in the period
in which the estimate is revised if the revisionaects only that period or in the period of therevision and future periods if the revision aectsboth current and future periods.
3. Signicant accounting policies
The accounting policies set out below have beenapplied consistently to all periods presented inthese nancial statements, and have been appliedconsistently by the company.
(a) Foreign currency
(i) Foreign currency transactions
Transactions in foreign currencies are translated tothe respective functional currency at exchangerates at the dates of the transactions. Monetaryassets and liabilities denominated in foreigncurrencies at the reporting date are retranslated tothe functional currency at the foreign exchangerate at that date. Foreign exchange dierencesarising on translation are recognized in prot or
loss.
(b) Change in accounting policies
The accounting policies adopted are consistentwith those used in the previous nancial year.
(c) Property, plant and equipment
(i) Recognition & measurement
Items of property, plant and equipment aremeasured at cost less accumulated depreciation
and accumulated impairment losses. Cost includesexpenditure that is directly attributable to theacquisition of the asset. The cost of self-constructedassets includes the cost of materials and directlabour, any other costs directly attributable tobringing the assets to a working condition for itsintended use, and the costs of dismantling andremoving the items and restoring the site on whichthey are located.
When parts of an item of property, plant andequipment have dierent useful lives, they are
accounted for as separate items (majorcomponents) of property, plant and equipment.
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Gains and losses on disposal of an item of property, plant and equipment are determinedby comparing the proceeds from disposal withthe carrying amount of property, plant and arerecognized net within “other income” in prot orloss. When re-valued assets are sold, the amountsincluded in the revaluation surplus reserve are
transferred to retained earnings.
(ii) Subsequent costs
The Company recognizes in the carrying amountof an item of property, plant and equipment thecost of replacing part of such an item when thatcost is incurred if it is probable that the futureeconomic benets embodied with the item willow to the company and the cost of the itemcan be measured reliably. All other costs arerecognized in the income statement as anexpenses as incurred.
(iii) Deprecation
Depreciation of property, plant & equipment of the company is provided for on a consistentbasis, over the period appropriate to theestimated useful lives of the assets. Generallyassets are written o on a straight-line methodover the following periods.
Building 20 yearsMotor Vehicles 04 yearsStores Equipments 04 years
Furniture & Fittings 10 yearsPlant & Machinery 04 yearsComputers 04 yearsSoftware Packages 04 years
Tea room equipments 04 years
Depreciation for all property, plant andequipment are provided proportionately in themonth of purchase and in the month of disposalof the assets.
Revaluation
Revaluation has been performed on freeholdland and buildings by professionally qualiedvaluer using the market value method in the yearended 31/03/2010. The surplus is recognized onthe net carrying value of the asset and istransferred to a revaluation reserve after restatingthe asset at the revalued amount. The companyrevalues land and buildings at least once in veyears which is stated at its fair value at the date of revaluation less any subsequent impairment loss.
(iv) Leased assets
Leases in terms of which the company assumessubstantially all the risks and rewards of ownership are classied as nance leases. Upon
initial recognition the leased asset is measured atan amount equal to the lower of its fair value andthe present value of the minimum leasepayments. Subsequent to initial recognition, theasset is accounted for in accordance with theaccounting policy applicable to that asset.
Other leases are operating leases and, are notrecognized on the company’s Balance sheet.
(d) Inventories
Inventories are stated at the lower of cost and netrealizable value. Net realizable value is theestimated selling price in the ordinary course of business, less the estimated costs of completionand the estimated cost necessary to make thesale. The cost of inventories is based on theWeighted – Average Cost principle and includes
expenditure incurred in acquiring the inventoriesand bringing them to their existing location andcondition. In the case of manufacturedinventories and work in progress, cost includesan appropriate share of overheads based onnormal operating capacity.
(e) Trade and other receivable
Trade receivables are stated at the amounts theyare estimated to be realized net of provisions forbad and doubtful receivables.
Other receivables and dues from related partiesare recognized at cost less provision for bad anddoubtful receivables.
() Impairment
The carrying amounts of the company’s non-nancial assets, other than inventories anddeferred tax asset are reviewed at each reportingdate to determine whether there is anyindication of impairment. If any such indication
exists, then the asset’s recoverable amount isestimated.
The recoverable amount of an asset or cash-generating until is the greater of its value in useand its fair value less costs to sell. In assessingvalue in use, the estimated future cash ows arediscounted to their present value using a pre-taxdiscount rate that reects current marketassessments of the time value of money and therisks specic to the asset. For the purpose of impairment testing, assets are grouped together
into the smallest group of assets that generatescash inows from counting use that are largelyindependent of the cash inows of other assets
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or groups of assets (the “cash-generating unit”)
An impairment loss is recognized if the carryingamount of an asset or its cash-generating unitexceeds its estimated recoverable amount.
Impairment losses are recognized in prot or loss.Impairment losses recognized in respect of cash-generating units are allocated rst to reducethe carrying amount of any goodwill allocated tothe units and then to reduce the carryingamount of the other in the unit (group of units)on a pro rate basis.
(g) Employee benets
(i) Dened contribution plans
The Company contributes 12% and 3% of salary
to the Employees Provident Fund and Employees Trust Fund respectively, in terms of EPF Act No15of 1958 as amended and to Employers Trust Fundin terms of the ETF Act No.46 of 1980 asamended.
(ii) Dened benet plans
Provision has been made for retirement gratuitiesfrom the rst year of service for all employees inconformity with the SLAS 16. However under thePayment of Gratuity Act No. 12 of 1983, theliability to an employee arises only oncompletion of 5 years of continued services.
The liability is not externally funded, nor actuallyvalued. The Gratuity Liability is valued usingGratuity Formula method as required by therevised Sri Lanka Accounting Standard No.16 -Employee Benets.
(h) Provisions
A provision is recognized when the company hasa present obligation (legal or constructive) as a
result of a past event, where it is probable that anoutow of recourses embodying economicbenets will be required to settle the obligationand a reliable estimate can be made of thequantum of the outow.
(i) Government grants
A Government grant is recognized in the balancesheet initially as deferred income when there is areasonable assurance that it will be received andthe conditions attached to it are complied with.
Grants that compensate the company forexpenses incurred are recognized as revenue inthe income statement on a systematic basis in
the periods in which the expense is incurred.Grants that compensate the company for thecost of an asset are recognized in the incomestatement as revenue on a systematic basis overthe useful life of the asset.
(i) Revenue
(i) Goods sold
Revenue from the sale of goods is recognized inthe income statement when the signicant risksand rewards of ownership have been transferredto the buyer. No revenue is recognized if thereare signicant uncertainties regarding recovery of the consideration due, associated costs or thepossible return of goods also continuing
management involvement with the goods.(ii) Interest Income
Interest income recognized as it accrues in protor loss.
(iii) Dividend income
Dividend income is recognized in the incomestatement on the date that the entity`s right toreceive payments is established.
(j) Cash and cash equivalents
Cash and cash equivalents are dened as cash inhand, demand deposits and short-term highlyliquid investments, readily convertible to knowamounts of cash and subject to insignicant risk of changes in valve. For the purpose of cash owstatement, cash and cash equivalents consist of cash in hand and deposits in banks net of outstanding bank overdrafts. Investments withshort maturities i.e. three months or less from thedate of acquiescing are also treated as cashequivalents.
(k) Taxation
(i) Income Tax
The provision for income tax is based on theelements of income & expenditure as reported inthe nancial statements and computed inaccordance with the provisions of the InlandRevenue Act No.10 of 2006 and amendmentsthere to.
The company enjoys a concessionary tax rate for
20 years from 1997 due to a BOI agreement.(ii) Deferred tax
Deferred tax is recognized using the balance
NOTES TO THE FINANCIAL STATEMENTS
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sheet liability method, providing for temporarydierences between the carrying amounts of assets and liabilities for nancial reportingpurposes and the amounts used for taxationpurposes. Deferred tax is not recognized for thefollowing temporary dierences: the initialrecognition of assets or liabilities in a transaction
that is not a business combination and thataects neither accounting nor taxable prot, anddierences measured at the rates that areexpected to be applied to the temporarydierences when they reverse, based on the lawsthat have been enacted or substantively enactedby the balance sheet date.
A deferred tax asset is recognized to the extentthat it is probable that future taxable prots willbe available against which the temporarydierences can be utilized. Deferred tax assets arereviewed at each balance sheet date and arereduced to the extent that it is no longerprobable that the related tax benet will berealized.
(iii) Economic service charge
As per the provisions of the Economic ServiceCharge Act No 13 of 2006, Economic Service(ESC) is payable on the liable turnover at specicrates. ESC is deductible from the income taxliability. Any unclaimed liability can be carriedforward and set o against the income taxpayable as per the relevant provisions in the Act.
(iv) Social responsibility Levy
As per the provisions of the Finance Act No 5 of 2005, as amended by the Finance Act No 11 of 2006, Social Responsibility Levy (SRL) wasintroduced with eect from 01st January 2005.SRL is payable at the rate of 1.5% on all taxes andlevies chargeable.
(l) Trade and other payables
Trade and other payables are stated at their cost.
(m) Expenses
(i) Expenses recognition
Expenses are recognized in the incomestatement on the basis of a direct associationbetween the cost incurred and earning of specic item of income. All expenditure incurredin the running of the business and in maintainingthe property, plant & equipment in state of
eciency has been charged to revenue inarriving at the prot for the year.
(ii) Finance lease payments
Minimum lease payments are apportionedbetween the nance charge and the reduction of the outstanding liability. The nance charge isallocated to each period during the lease term soas to produce a constant periodic rate of interest
on the remaining balance of the liability.(iii) Finance income & expenses
Finance income comprises interest income onfunds invested. Interest income is recognized as itaccrues in prot or loss.
Finance expenses comprise interest expenses onborrowings, bank charges and debit tax.
All borrowing costs are recognized in prot orloss.
Foreign currency gains and losses are reported
on a net basis.
(n) Earnings/(loss) per share
The group presents basic earnings per share (EPS)data for its ordinary shares. Basic EPS is calculatedby dividing the prot or loss attributable toordinary shareholders of the company by theweighted average number of ordinary sharesoutstanding during the period.
(o) Comparative inormationWherever necessary comparative gures arereclassied to conrm to the changes inpresentation in the current year and disclosed asnotes to the nancial statements.
(p) Cash ow statement
The cash ow of the company has beenpresented in using “indirect method” inaccordance with SLAS-09 (cash ow statement)
(q) Events occurring ater the balance sheet date
All material post balance sheet events have beenconsidered and where appropriate adjustmentsor disclosures have been made in respectivenotes to the nancial statements.
(r) Contingent liabilities
Contingencies are possible assets or obligationsthat arise from a past event and would be
conrmed only on the occurrence or non-occurrence of uncertain future events, which arebeyond the company’s control.
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NOTES TO THE FINANCIAL STATEMENTS (Contd.)
All amounts in Sri Lanka Rupees
2010 2009
4 RevenueExport sales 461,489,725 380,307,385
Local sales 26,716,594 22,071,850488,206,319 402,379,235
5 Other operating incomeSale of bin tea & dust 802,283 1,294,505Brand promotion incentive 297,937 -Packing income 27,428,218 21,754,558Gain on sale of property plant & equip. - (27,878)Other income 304,218 805,444Insurance claim - (4,821)Receivable/(payable) written o/(back) - 1,135,993
28,832,656 24,957,801
6 Result rom operating activities The result from operating activities is after charging all expenses including following,Auditors’ remuneration 300,000 290,000Receivable/(payable) written o/(back) 3,759,784 -Provision for slow moving inventories 1,474,473 421,787Legal expenses 382,558 211,714Provision for gratuity 1,438,631 1,309,287Salaries & wages 11,943,503 15,970,155EPF 1,392,706 1,114,036
ETF 348,227 284,629Bonus & incentive 620,486 394,500
7 Finance income and expenseFinance incomeInterest income 2,373,047 4,080,066Interest from debtors 2,931,126 1,848,552Foreign exchange gain 1,934,388 -
7,238,561 5,928,618
Finance costsLoan interest - packing credit (4,344,913) (3,219,842)
Loan interest - term loan (8,979,346) (6,395,414)Interest - Lake drive holdings (Pvt) Ltd. (194,255) (109,655)Interest on lease rentals (875,736) (1,626,001)Interest on bill discounts (8,703,599) (5,884,475)Over due interest (1,057,032) (1,907,548)Bank overdraft interest (1,802,810) (2,829,233)Bill discount charges (1,361,892) (1,192,094)Factoring charges (260,251) (85,239)Bank charges (2,345,194) (2,601,340)Foreign Exchange loss - (32,534,850)
(29,925,028) (58,385,691)
Net nance costs (22,686,467) (52,457,073)
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NOTES TO THE FINANCIAL STATEMENTS (Contd.)
All amounts in Sri Lanka Rupees
2010 2009
8 Income tax expense8.a Current income tax
Current tax charges 2,090,391 1,602,511(Over) / under provision of previous year (130,500) (92,537)
1,959,891 1,509,974Deferred taxDeferred tax charge / (reversal) (Note-25) (646,462) 1,708,424
Income tax for the year 1,313,429 3,218,398
8.b Reconciliation o accounting prot to tax expensesBusiness prot / (loss) before tax 55,588,197 18,036,363Exempt Income (56,521,908) (5,965,500)Aggregate disallowable expenses 24,590,992 13,726,629
Aggregate allowable expenses (9,517,640) (9,604,370)Taxable prot / (loss) for the year 14,139,641 16,193,122
Tax losses brought forward (87,650,906) (93,317,724)Utilization of tax losses 4,948,874 5,667,593
Tax losses carried forward (82,702,032) (87,650,131)
Total statutory income 14,139,641 16,193,122Deductions; utilization of tax losses (4,948,874) (5,667,593)
Taxable income - other source of income 9,190,767 10,525,529
Concessionary rate @ 15% 867,952 1,524,159
Standard rate 1,191,547 54,670SRL @ 1.5% 30,892 23,682
Total current tax for the year 2,090,391 1,602,511
HVA Foods (Pvt) Ltd in the terms of the principal agreement entered in to with the Board of Investment(BOI) of Sri Lanka BOI Law No.04 of 1978 is liable to income tax at 15% of its taxable prot for a period of 20years commencing from 1997.
Social responsibility levy has been charged at the rate of 1.5% on the income tax liability in terms of theSocial Responsibility Levy Act No.05 of 2005.
The company has tax losses amounting to Rs.82,702,032/- (2009-Rs. 87,650,131/-) as at 31/03/2010.
Deferred tax has been computed using the current eective tax rates applicable to company.
9 Basic earnings / (loss) per share The calculation of basic loss per share was based on the loss attributable to ordinary shareholders andweighted average number of ordinary shares outstanding during the year.
2010 2009
Prot for the year 54,274,768 14,817,965Weighted average number of ordinary shares 1,500,002 1,500,002
Basic earning per share 36.18 9.88
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NOTES TO THE FINANCIAL STATEMENTS (Contd.)
All amounts in Sri Lanka Rupees
10 Property, plant & equipment
Cost/valuation (Rs.) As at Additions Revaluation As at01-04-2009 / Transer during the year 31-03-2010
Free hold assetsLand 91,300,000 - 22,800,000 114,100,000Buildings 56,317,658 46,735 6,675,857 63,040,250Motor vehicle 182,868 40 - 182,908Machinery 29,032,154 802,399 - 29,834,553Stores equipment 2,637,460 14,585 - 2,652,045Oce equipment 2,604,431 251,453 - 2,855,884Furniture and ttings 577,561 31,576 - 609,137Name board - 119,234 - 119,234Software equipments 644,855 - - 644,855Capital-work-in-progress - 50,185,559 - 50,185,559
183,296,987 51,451,580 29,475,857 264,224,424
Lease hold assets Motor vehicle 6,319,154 - - 6,319,114Machinery 11,435,748 - - 11,435,748
17,754,902 - - 17,754,862
Total cost / valuation 201,051,889 51,451,580 29,475,857 281,979,286
Accumulated depreciation (Rs.) As at Depreciation Revaluation As at01-04-2009 or the year during the year 31.03.2010
Free hold depreciationBuildings 5,572,354 2,815,883 (8,388,237) -
Motor vehicles 98,772 45,726 - 144,498Machinery 21,443,502 3,178,531 - 24,622,033Stores equipment 1,670,631 661,381 - 2,332,012Oce equipments 1,603,277 605,331 - 2,208,608Furniture and ttings 150,434 58,950 - 209,384Name board - 170 - 170Software equipments 452,652 161,214 - 613,866
30,991,622 7,527,187 (8,388,237) 30,130,572
Lease hold depreciation Motor vehicles 3,225,597 1,579,778 - 4,805,375Machinery 8,723,832 2,033,937 - 10,757,769
11,949,429 3,613,715 - 15,563,144Total accumulated depreciation 42,941,051 11,140,902 (8,388,237) 45,693,716
Carrying amount 158,110,838 236,285,570
Assets pledged as security against borrowings are disclosed in note no.31.The details of freehold land and buildings which are stated at revalued amounts are as follows.
Company property Method o Date o Amount Valuervaluation valuation Rs.
1. Land situated at Market value 31-03-2010 Rs.114,100,000/- Mr. P.B. KalugalagedaraLinton Road, Kandana
2. Building situated at Market value 31-03-2010 Rs.63,040,250/- Mr. P.B. KalugalagedaraLinton Road, Kandana
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NOTES TO THE FINANCIAL STATEMENTS (Contd.)
All amounts in Sri Lanka Rupees
2010 2009
11 InventoriesRaw material - Tea 16,872,187 16,931,376
Raw material-ice tea concentrate & fruit base 1,450,544 1,810,336Flavours 3,203,106 4,911,704Packing materials 22,986,545 21,197,957Work in progress 3,045,880 36,089Finished goods 1,358,108 3,091,934Others 506,233 -
49,422,603 47,979,396
Provision for slow moving inventories (2,182,281) (1,921,787)
47,240,322 46,057,609
12 Trade receivables
Trade debtors 109,005,164 76,443,906Provision for doubtful debts (Note-12.a) (804,724) (725,333)
108,200,440 75,718,573
12.a Provision or doubtul debtsBalance as at 01st April 725,333 1,719,578Reversals of provisions during the year - (1,013,999)Provisions made during the year 79,391 19,754
Balance as at 31st March 804,724 725,333
13 Amount due rom / due to related party
13.a Amount due rom related parties RelationshipHVA Farm (Pvt) Ltd Common Directors - 583,630HVA Beverage (Pvt) Ltd Common Directors - 151,576HVA Lanka Exports (Pvt) Ltd Parent Company 77,516,294 2,264,457
77,516,294 2,999,663
13.b Amount due to related partiesRelationship
Lake Drive Holdings (Pvt) Ltd Common Directors 9,609,746 1,043,267Mrs. V.S.A. Fernando Director 6,580,973 -
16,190,719 1,043,267
14 Prepayments & other receivablesVAT receivables 8,940,944 8,974,857ESC - 434,338W.H.T. - 93,052NBT receivables 489,213 -Insurance pre-payments 228,598 230,518Lease pre-payments 351,005 351,005Others deposits & pre-payments 991,414 1,811,733
11,001,174 11,895,503
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NOTES TO THE FINANCIAL STATEMENTS (Contd.)
All amounts in Sri Lanka Rupees
2010 2009
15 Deposits & advancesAdvance 1,590,336 523,180
Refundable deposits 83,741 83,741Deposits 500,000 500,000
2,174,077 1,106,921
16 Cash and cash equivalents16.a Short term deposits
HSBC FD 500,000 764,192Seylan bank FD 19,132,946 18,555,199Bank of Ceylon - Fixed Deposits 4,894,604 9,913,295Seylan bank exports bills S/A-044 800,932 1,342,620BOC exports bills 902,506 -
Seylan bank exports bills margin A/C 3,510,981 2,765,92629,741,969 33,341,232
16.b Favourable balancesHSBC 001-544097-025 USD FEC 274,590 1,216HSBC 001-022787-101 USD FCBU 835,745 6,034HSBC 001-544097-026 EUR EFC 3,684 109,554HNB LKR A/C-0807010006412 16,472 186,905BOC -USD - DFC - 9519983 627,591 -Seylan bank-086401310140041USD EFC 9,509 1,643,361Seylan bank-086401310140043EUR EFC 485 476
Seylan bank FCBU A/C-001 - 2,379Seylan bank LKR A/C -001 - 1,713,454Sampath bank LKR A/C-100 5,527 5,527Cash in hand & cheques in hand 20,671 26,791
Total favourable balances 1,794,273 3,695,697
Total short term deposits & favourable balances 31,536,243 37,036,929
16.c Unavourable balances/overdratsHSBC-001544097001-LKR 445,354 505,529Nations Trust Bank 5281 900 -BOC-7630603-LKR 3,878,433 3,997,748
Seylan bank-086401310140001-LKR 4,279,949 -Seylan bank991300090773001-USD-FCBU 46,043 -
Total unfavourable balances 8,650,680 4,503,277
Cash and cash equivalents in the cash ow statement 22,885,563 32,533,652
17 Stated capital1,500,002 ordinary shares 15,000,020 15,000,020
15,000,020 15,000,020
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100 | HVA Foods Limited – Initial Public Oering
NOTES TO THE FINANCIAL STATEMENTS (Contd.)
All amounts in Sri Lanka Rupees
2010 2009
21.b Amount payable with in one yearBill discounting 86,704,972 71,152,698
Packing credit Loans 61,449,574 44,891,332Payable within one year 27,266,574 18,490,811
175,421,120 134,534,841
22 Trade payable Tea creditors 249,170 Packing material creditors 30,791,512 19,871,407Flavor creditors 1,896,806 653,261Other creditors 267,584 270,634
33,205,072 21,035,495
23 Deposits & advances payableDebtors advance 4,517,989 598,094Deposits from debtors 17,106,930 17,301,923Other deposits & advances 59,461 74,961
21,684,380 17,974,978
24 Accrued expenses & other creditorsSalary and related expenses payables 1,772,481 1,025,265ESC payable 2,522,903 78,017NBT - 23,265Custom duty payables 56,273 47,466Freight creditors 1,785,212 1,728,566
Interest payables 203,836 188,613Other payables 10,307,534 8,868,107
16,648,239 11,959,299
25 Deerred tax assetsDeferred tax assetsRetiring gratuity (215,795) (516,824)
Deferred tax liabilityAccelerated depreciation for tax purposes 1,277,757 2,225,248
Net deferred tax liability 1,061,962 1,708,424
The gross movement on the deerred income taxBalance as at 1st April 1,708,424 -Provision/(reversal) made during the year (646,462) 1,708,424
Balance as at 31st March 1,061,962 1,708,424
Deferred tax asset of Rs. 12,405,305/- (2009-Rs. 13,147,520/-) on carried forward losses of Rs.82,708,043/-(2009-Rs. 87,650,131/-) has not been recognized due to uncertainty.
26 Government grantsReceipts during the year 29,402,272 -
Balance carried forward 29,402,272 -
The Asian Development Bank oered a grant of Rs. 40,793,651/- on 30/09/2009 to construct an ice tea plant.
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NOTES TO THE FINANCIAL STATEMENTS (Contd.)
All amounts in Sri Lanka Rupees
27 Related parties
27.1 Transactions with key management personnel.Key management personnel include all the members of the Board of directors of the company havingauthority and responsibilities for planning , directing and controlling the activities of the company.
2010 2009
27.2 Key management personnel compensationKey management personnel compensation comprised,Short- term employee benets including salaries 7,306,800 7,582,673
27.3 Key management personnel and director transactionsDirectors of the company control 100% of the voting shares of the company. Following directors are alsodirectors of HVA Lanka Exports (Pvt) Ltd,
Name o the director,Mr.A.R.H.FernandoMs.V.A Fernando
The aggregated value of transactions and outstanding balances relating to key management personnelwere as follows;
Director Transaction Transaction value Outstanding value2010 2009 2010 2009
Ms. V.S.A.Fernando Loan obtained fromthe Director
(Interest rate is 8% p.a) 5,000,000 - 5,000,000 -
Interest Accrued 1,580,793 - 1,580,793 -
27.4 Transactions with group companies and director transactions
Company Relationship Nature o transaction Transaction Value (Rs.)2010 2009
HVA Lanka Exports (Pvt) Ltd. Common Directors Sale o goods From subsidiary to parent 18,088,049 10,179,594From parent to subsidiary 16,006,323 11,158,106
Expenses & other transactions From subsidiary to parent 239,144,875 318,850,728From parent to subsidiary 165,975,009 257,878,096
HVA Farms (Pvt) Ltd Common Directors Reimbursement of expenses 262,570 64,535Receivable written o 846,201 -
Lake Drive Holdings(Pvt) Ltd Common Directors Transport charges 1,208,318 785,445Interest expenses 194,255 109,655
HVA Beverage (Pvt) Ltd. Common Directors Receivable written o 156,576 -
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NOTES TO THE FINANCIAL STATEMENTS (Contd.)
All amounts in Sri Lanka Rupees
28 Financial arrangements or continuous operationsSeylan Bank has made the following arrangements in HVA Foods (Pvt) Ltd with eect from 01st June 2008which will enable the company to continue in business.
a. Converted all Seylan Bank Rupee and Foreign Currency Term Loans to one restructured Foreign CurrencyLoan at an interest rate of 04% per annum with a one year grace period on capital re-payment.
b. Transferred Hard Core of Packing Credit Loans and Bills Discounted balances to the same restructuredForeign Currency Term Loan.
c. This Restructured Foreign Currency Term Loan is amounting Rs 126 Mn.(USD 1,170,000 /-) at 07% per annumrepayable in four years with one year grace period.
29 Events ater the balance sheet dateNo events identied since the balance sheet date, which may require a disclosure or an adjustment in thenancial statements.
30 Commitment & contingencies The company has contingent liabilities on behalf of the following companies.
Company name Bank Guarantee Amount (Rs.)
HVA Lanka Exports (Pvt) Ltd Lankaputhra Primary mortgage 130 Mn
Development Bank -Land,building and machinery
HVA Lanka Exports (Pvt) Ltd HSBC Corporate guarantee 26.9 Mn
HVA Lanka Exports (Pvt) Ltd HSBC Issuance of guarantee 0.5 Mn
31 Assets pledged as securitiesThe following assets of the company have been pledged as securities for liabilities as at the balance sheet date.
Bank Nature o the assets Nature o the liability Amount o.Securities Rs.
Seylan Bank Land and Factory Building Term Loan, Packing 34 Mn
Credit Loans, Export Bill,O/D
Seylan Bank Stocks and packing materials Term Loan, Packing 64.6 Mn
Credit Loans, Export Bill,O/DHSBC Stocks and packing materials Term Loan, Export Bill 26.9 Mn
32 Comparative inormationNo comparative information has been reclassied during the year.
33 Directors responsibilityThe board of directors takes the responsibility for the preparation and presentation of these nancial statementsin accordance with Companies Act No. 07 of 2007 and Sri Lanka Accounting Standards.
34 No o employeesThe total number of employees of the company as at 31st March 2010 - 87 (as at 31st March 2009 - 92).
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DETAIL INCOME STATEMENT
All amounts in Sri Lanka Rupees
For the year ended 31st March 2010 2009
Revenue 488,206,319 402,379,235Raw material consumed Raw material as at 01st April 44,851,373 33,913,668Add: Raw Material purchases 353,094,219 283,398,126Less: Stock written o (1,827,517) (1,493,917)
396,118,075 315,817,877Less: Raw material as at 31st March (44,512,381) (44,851,373)
Raw Material consumed during the year 351,605,694 270,966,504Add: Work in progress as at 01st April 36,089 1,837,224Less: Work in progress as at 31st March (3,045,880) (36,089)
348,595,903 272,767,639
Direct expensesCustom duty 2,306,880 2,042,703Freight charges 8,726,504 8,300,539Inspection charges 734,476 362,375 Transport charges 873,991 Export expenses 880,723 497,657Insurance on export 322,880 280,199Salary - factory 2,562,274 2,213,531Executive sta Salary - factory 293,494 290,030Over time - factory sta 1,881,219 1,462,645Casual wages 1,138 142,778
Over time - casual workers - 140,739Allowance - factory 59,586 223,738Executive sta allowance - factory 28,350 23,940E.P.F. -factory 311,906 251,676E.P.F. -executive factory 35,021 34,804E.T.F. -factory 77,976 62,979E.T.F. -executive factory 8,805 8,702E.P.F. -casual - 14,610E.T.F. -casual - 3,653E.P.F arrears expenses - 192,000Incentive / bonus 620,486 98,625Gratuity 67,496 188,349
Sta welfare 263,225 70,632Insurance - Factory 139,975 71,890Electricity 1,224,981 948,440Factory equipment maintenance 4,162 -Import expenses 171,115 1,082,102Maintenance of factory 295,875 305,939Maintenance of machinery 625,099 361,086Depreciation 5,873,850 2,479,950Machinery hiring charges 250,919 123,500Meals for factory workers 293,933 207,123Uniform for factory sta 57,165 -
Customs license(C.H.A) renewal charges - 15,275
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DETAIL INCOME STATEMENT (Contd.)
All amounts in Sri Lanka Rupees
For the year ended 31st March 2010 2009
Direct Expenses (contin…)
Storage charges 303,383 347,795Packing charges 13,211,312 9,042,672PAL on imports 35,543 184,539Ice tea production expenses 253,635 779,712SLECIC - premium charges 677,394 276,479Other consumption (257,240) - Tea collection & tea room charges 686,509 810,792Medical consultation 11,250 11,780Vehicle hiring charges 141,750 114,000Fuel charges 70,200 59,280Security charges 266,025 197,581
Total direct expenditure 44,393,265 35,064,27
392,989,169 307,831,913
Add: Finished Goods as at 01st April 3,091,934 12,746,640Less: Finished Goods as at 31st March (1,358,108) (3,091,934)
Cost o sales 394,722,994 317,486,619
Gross prot 93,483,325 84,892,616Other income 28,832,656 24,957,801
122,315,982 109,850,417Less: Expenditure Distribution expenses Advertising 98,559 175,272
Commission on sales 1,104,125 1,409,943Business promotion expenses 3,491,922 3,139,548 Traveling expenses 21,051
Courier charges 386,966 463,133Bad debts 71,150 91,817Provision for bad debts 288,199 19,754Local sales incentives 20,711 171,451Foreign travels 1,543,580 1,626,496Sales promotion expenses 135,658 73,159 Trade Mark Registration 592,129 264,2Damage stock written o 613,538 1,493,917
Total distribution expenses 8,367,587 8,989,70
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DETAIL INCOME STATEMENT (Contd.)
All amounts in Sri Lanka Rupees
For the year ended 31st March 2010 2009
Finance Income
Interest income 2,373,047 4,080,066Interest from debtors 2,931,126 1,848,552Gain on exchange rate uctuation 1,934,388 -
7,238,561 5,928,618Finance Expenses Loan interest - packing credit 4,344,913 3,219,842Loan interest - term loan 8,979,346 6,395,414Interest - Lake drive holdings (Pvt) Ltd. 194,255 109,655Interest on lease rentals 875,736 1,626,001Interest on bill discounts 8,703,599 5,884,475Over due interest 1,057,032 1,907,548Bank overdraft interest 1,802,810 2,829,232Bill discount charges 1,361,892 1,192,094Factoring charges 260,251 85,239Bank charges 2,345,194 2,601,340Loss on exchange rate uctuation - 32,534,850
29,925,028 58,385,691
Net nance expense 22,686,467 52,457,072
Total expenditure (66,727,784) (91,814,052)
Prot beore taxation 55,588,197 18,036,363
Income tax expenses (1,313,429) (3,218,398)
Prot or the year 54,274,768 14,817,965
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INTERIM
FINANCIAL STATEMENTS
FOR THE PERIOD ENDED
30TH SEPTEMBER 2010
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HVA FOODS (PVT) LIMITED
INCOME STATEMENT
All amounts in Sri Lanka Rupees
Group Company
Year ended
For the six months period ended 30.09.2010 30.09.2010 30.09.2009 31.03.2010Note (Reviewed) (Reviewed) (Unaudited) (Audited)
Revenue 4 285,220,778 285,220,778 252,133,381 488,206,319
Cost of sales (236,559,871) (236,559,871) (211,561,406) (394,722,994)
Gross prot 48,660,907 48,660,907 40,571,975 93,483,325
Other income 5 26,211,981 26,211,981 18,899,123 28,832,656
Distribution expenses (7,486,146) (7,486,146) (5,266,180) (8,367,587)
Administration expenses (34,492,265) (34,492,265) (24,904,326) (35,673,730)
Results rom operating activities 6 32,894,477 32,894,477 29,300,592 78,274,664Finance income 11,060,022 11,060,022 2,598,233 7,238,561
Finance costs (14,310,351) (14,310,351) (15,331,290) (29,925,028)
Net nance costs 7 (3,250,329) (3,250,329) (12,733,057) (22,686,467)
Prot beore income tax 29,644,148 29,644,148 16,567,535 55,588,197
Income tax expense 8 (2,576,526) (2,576,526) - (1,313,429)
Prot or the year 27,067,622 27,067,622 16,567,535 54,274,768
Basic earnings per share 9 0.58 0.58 0.36 1.17
The Accounting Policies and Notes form an integral part of these Financial Statements.
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HVA FOODS (PVT) LIMITED
STATEMENT OF CHANGES IN EQUITY
All amounts in Sri Lanka Rupees
For the six months period ended
Consolidated
Attributable to equity holders o the company
Stated Revaluation Retained Total Non-controlling Total
capital reserves earnings interest equity
Balance as at 01st April 2010 15,000,020 134,000,948 (49,089,851) 99,911,117 - 99,911,117
Eect of acquistions 3 3
Prot for the period - - 27,067,622 27,067,622 - 27,067,622
Balance as at 30th September 2010 15,000,020 134,000,948 (22,022,229) 126,978,739 3 126,978,742
Company
Stated Revaluation Retained Total
capital reserves earnings
Balance as at 01st April 2009 15,000,020 96,136,854 (103,364,619) 7,772,255
Prot for the period - - 16,567,535 16,567,535
Unaudited balance as at 30th September 2009 15,000,020 96,136,854 (86,797,084) 24,339,790
Surplus/(reversals) on
revaluation of property - 37,864,094 - 37,864,094
Prot for the period - - 37,707,233 37,707,233
Balance as at 31st March 2010 15,000,020 134,000,948 (49,089,851) 99,911,117
Prot for the period - - 27,067,622 27,067,622
Balance as at 30 th September 2010 15,000,020 134,000,948 (22,022,229) 126,978,739
The Accounting Policies and Notes form an integral part of these Financial Statements.
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HVA FOODS (PVT) LIMITED
CASH FLOW STATEMENT
All amounts in Sri Lanka Rupees
Group Company
Year ended
For the six months period ended 30.09.2010 30.09.2010 30.09.2009 31.03.2010(Reviewed) (Reviewed) (Unaudited) (Audited)
Cash ow rom operating activities Prot before taxation 29,644,148 29,644,148 16,567,535 55,588,197Adjustments for:Depreciation 4,353,609 4,353,609 5,759,517 11,140,902Provision for gratuity 1,010,250 1,010,250 1,014,138 1,438,631Provision for slow moving inventories 504,898 504,898 - 1,474,473Provision for bad debts - - - 288,199Interest expenses 12,546,720 12,546,720 13,100,838 25,957,692Prot on disposal of property, plant and equipment (1,731,402) (1,731,402) - -
46,328,223 46,328,223 36,442,028 95,888,094
Change in: - Inventories 3,998,710 3,998,710 9,451,244 (2,657,186)- Trade receivables (981,683) (981,683) (47,493,634) (32,770,067)- Prepayments & other receivables 1,353,542 1,353,542 (5,681,310) 892,510- Amount due from related party (30,461,482) (30,461,482) (12,488,627) (74,516,631)- Deposits & advances receivables (1,486,410) (1,486,410) (2,166,911) (1,289,223)- Trade payables (6,253,922) (6,253,922) 5,888,583 12,169,577- Amount due to related party (3,096,716) (3,096,716) (431,296) 15,147,452- Deposits & advances payables (131,539) (131,539) 821,192 3,709,401- Accrued expenses & other creditors 7,743,305 7,733,305 4,974,393 4,688,940
Cash generated/(used in) from operating activities 17,012,026 17,002,027 (10,684,337) 21,262,868
Interest paid (12,111,561) (12,111,561) (13,100,838) (25,735,624)Gratuity paid (167,741) (167,741) (60,700) (184,548)Income tax paid (1,590,187) (1,590,187) 503,509 (3,466,529)Net cash rom/ (used in) operating activities 3,142,537 3,132,538 (23,342,366) (8,123,833)
Cash ows rom investing activities Acquisition of property, plant and equipment (8,853,082) (8,853,082) (1,240,621) (51,451,541)Acquisition of subsidiary, net of cash acquired 61,006 - - -Proceeds from sale of property, plant and equipment 7,698,611 7,698,611 - -
Net cash used in investing activities (1,093,465) (1,154,471) (1,240,621) (51,451,541)
Cash ows rom nancing activities Ice tea project-grant - - 2,120,187 29,402,272Change in nance lease liabilities 1,450,044 1,450,044 (1,669,030) (3,655,021)
Change in bank borrowings (6,014,376) (6,014,376) 18,715,218 24,180,033Net cash ows rom nancing activities (4,564,332) (4,564,332) 19,166,375 49,927,284
Net decrease in cash and cash equivalents (2,515,259) (2,586,264) (5,416,612) (9,648,090)Cash and cash equivalents at 01st April 22,885,563 22,885,563 32,533,653 32,533,653
Cash and cash equivalents as at the end o the period (Note A) 20,370,303 20,299,298 27,117,041 22,885,563
Note A -Cash and cash equivalents
Cash in hand and cash at banks 38,011,931 37,940,926 37,689,573 31,536,243
Bank overdrafts (17,641,628) (17,641,628) (10,572,532) (8,650,680)
Cash and cash equivalents at end o the period 20,370,303 20,299,298 27,117,041 22,885,563
The Accounting Policies and Notes form an integral part of these Financial Statements.
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NOTES TO THE FINANCIAL STATEMENTS
1. Reporting entity
HVA Foods (Pvt) Limited (the “Company”) is acompany domiciled in Sri Lanka. HVA Foods (Pvt) Ltdis a wholly owned subsidiary of HVA Lanka Exports
(Pvt) Ltd. The Company was incorporated on 22ndAugust 1997. The Registered Oce of the company islocated at No. 39 A, Linton Road, Kandana. Theprincipal activity of the company is manufacturingand exporting of value added tea.
2. Basis of preparation
(a) Statement o compliance
The interim nancial statements of HVA Foods (Pvt)
Limited have been prepared in accordance with SriLanka Accounting Standards (SLASs) laid down by theInstitute of Chartered Accountants of Sri Lanka andthe requirements of the Companies Act No. 07 of 2007.
The interim nancial statements were authorized forissue by the Board of Directors on 19th November2010.
(b) Basis o measurement
The nancial statements have been prepared on thehistorical cost basis.
No adjustments have been made for inationaryfactors in the nancial statements.
(c) Functional and presentation currency
These nancial statements are presented in the SriLanka rupees, which is the company’s functionalcurrency. All nancial information presented in SriLanka rupees has been rounded to the nearest rupee.
(d) Use o estimates and judgments
The preparation of nancial statements in conformitywith SLASs requires management to make judgments, estimates and assumptions that aect theapplication of policies and reported amounts of assetsand liabilities, income and expenses. The estimatesand associated assumptions are based on historicalexperience and various other factors that are believedto be reasonable under the circumstances, the resultsof which form the basis of making the judgmentsabout carrying values of assets and liabilities that arenot readily apparent from other sources. Actual resultsmay dier from these estimates.
The estimates and underlying assumptions are
reviewed on an ongoing basis. Revisions toaccounting estimates are recognised in the period inwhich the estimate is revised if the revision aectsonly that period or in the period of the revision and
future periods if the revision aects both current andfuture periods.
3. Signicant accounting policies
The accounting policies set out below have beenapplied consistently to all periods presented in these
nancial statements, and have been appliedconsistently by the company.
(a) Change in accounting policies
The accounting policies adopted are consistent withthose used in the previous nancial year.
(b) Basis o consolidation
The nancial statements of the Group represent theconsolidation of the Financial Statements of theCompany and its subsidiary.
(i) Subsidiaries
Subsidiaries are those entities controlled by thecompany. Control exists when the company has the
power, directly or indirectly, to govern the nancialand operating policies of an enterprise so as to obtainthe benets from its activities which is evident whenthe company controls the composition of the boardof directors of the entity or hold more than 50% of theissued shares of the entity, or 50% of the voting rightsof the entity, or is entitled to receive more than half of every dividend from shares carrying unlimited right toparticipate in distribution of prots or capital.
Entities that are subsidiaries of another entity which isa subsidiary of the company are also treated as
subsidiaries of the company.
The nancial statements of subsidiaries are includedin the consolidated nancial statements when controleectively commences and until control eectivelyceases.
The following companies have been consolidated.- HVA Foods (Pvt) Limited - Parent- HVA Holdings (Pvt) Limited - Subsidiary
(ii) Minority interest
The proportion of the prot or loss after taxation
applicable to outside shareholders of subsidiarycompanies is reected under “Non-controllingInterests” in the consolidated nancial statement.
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the asset is classied as held for sale and the date thatthe asset is derecognized.
(iv) Revaluation
Revaluation has been performed on freehold landand buildings by professionally qualied valuer usingthe market value method in the year ended
31/03/2010. The surplus is recognized on the netcarrying value of the asset and is transferred to arevaluation reserve after restating the asset at therevalued amount. The company revalues land andbuildings at least once in ve years which is stated atits fair value at the date of revaluation less anysubsequent impairment loss.
(v) Leased assets
Leases in terms of which the company assumessubstantially all the risks and rewards of ownership areclassied as nance leases. Upon initial recognition
the leased asset is measured at an amount equal tothe lower of its fair value and the present value of theminimum lease payments. Subsequent to initialrecognition, the asset is accounted for in accordancewith the accounting policy applicable to that asset.
Other leases are operating leases and, are notrecognized on the company’s balance sheet.
(g) Intangible assets
(i) Basis of recognition
An intangible asset is recognized if it is probable thatfuture economic benets that are attributable to theenterprise and the cost of the assets can be measuredreliably in accordance with SLAS 37: Intangible Assets.Accordingly, these assets are stated in the balancesheet at cost less accumulated amortization andaccumulated impairment losses (accounting policy j).
(ii) Subsequent expenditure
Subsequent expenditure is capitalized only when itincrease the future economic benets embodied inthe specic asset to which it relates. All otherexpenditure, including expenditure on internallygenerated goodwill and brands, is recognized in theprot or loss as incurred.
(h) Inventories
Inventories are stated at the lower of cost and netrealizable value. Net realizable value is the estimatedselling price in the ordinary course of business, lessthe estimated costs of completion and the estimatedcost necessary to make the sale. The cost of
inventories is based on the Weighted – Average Costprinciple and includes expenditure incurred inacquiring the inventories and bringing them to their
existing location and condition. In the case of manufactured inventories and work in progress, costincludes an appropriate share of overheads based onnormal operating capacity.
(i) Trade and other receivable
Trade receivables are stated at the amounts they areestimated to be realized net of provisions for bad anddoubtful receivables. Other receivables and duesfrom related parties are recognized at cost lessprovision for bad and doubtful receivables.
(j) Impairment
The carrying amounts of the company’s non-nancialassets, other than inventories and deferred tax asset arereviewed at each reporting date to determine whetherthere is any indication of impairment. If any suchindication exists, then the asset’s recoverable amount isestimated.
The recoverable amount of an asset or cash-generatinguntil is the greater of its value in use and its fair value lesscosts to sell. In assessing value in use, the estimatedfuture cash ows are discounted to their present valueusing a pre-tax discount rate that reects current marketassessments of the time value of money and the risksspecic to the asset. For the purpose of impairmenttesting, assets are grouped together into the smallestgroup of assets that generates cash inows fromcontinuing use that are largely independent of the cashinows of other assets or groups of assets (the “cash-generating unit”)
An impairment loss is recognized if the carrying amountof an asset or its cash-generating unit exceeds itsestimated recoverable amount. Impairment losses arerecognized in prot or loss. Impairment lossesrecognized in respect of cash-generating units areallocated rst to reduce the carrying amount of anygoodwill allocated to the units and then to reduce thecarrying amount of the other assets in the unit (group of units) on a pro rata basis.
(k) Employee benets
(i) Dened contribution plans
The Company contributes 12% and 3% of gross salaryto the Employees Provident Fund and Employees Trust Fund respectively, in terms of EPF Act No15 of 1958 as amended and to Employers Trust Fund interms of the ETF Act No.46 of 1980 as amended.
(ii) Dened benet plans
Provision has been made for retirement gratuitiesfrom the rst year of service for all employees in
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conformity with the SLAS 16. However under thePayment of Gratuity Act No. 12 of 1983, the liability toan employee arises only on completion of 5 years of continued services.
The liability is not externally funded, nor actuariallyvalued. The Gratuity Liability is valued using GratuityFormula method as required by the revised Sri LankaAccounting Standard No.16 - Employee Benets.
(l) Provisions
A provision is recognized when the company has apresent obligation (legal or constructive) as a result of a past event, where it is probable that an outow of resources embodying economic benets will berequired to settle the obligation and a reliableestimate can be made of the quantum of the outow.
(m) Government grants
A government grant is recognized in the balancesheet initially as deferred income when there is areasonable assurance that it will be received and theconditions attached to it are complied with.
Grants that compensate the group for expensesincurred are recognized as revenue in the incomestatement on a systematic basis in the periods in
which the expense is incurred. Grants thatcompensate the group for the cost of an asset arerecognized in the income statement as revenue on asystematic basis over the useful life.
(n) Revenue
(i) Goods sold
Revenue from the sale of goods is recognized in theincome statement when the signicant risks andrewards of ownership have been transferred to the
buyer. No revenue is recognized if there aresignicant uncertainties regarding recovery of theconsideration due, associated costs or the possiblereturn of goods also continuing managementinvolvement with the goods.
(ii) Interest Income
Interest income recognized as it accrues in prot orloss.
(iii) Dividend income
Dividend income is recognized in the income
statement on the date that the entity`s right toreceive payments is established.
(o) Cash and cash equivalents
Cash and cash equivalents are dened as cash inhand, demand deposits and short-term highly liquidinvestments, readily convertible to know amounts of
cash and subject to insignicant risk of changes invalue. For the purpose of cash ow statement, cashand cash equivalents consist of cash in hand anddeposits in banks net of outstanding bank overdrafts.Investments with short maturities i.e. three months orless from the date of acquisition are also treated ascash equivalents.
(p) Taxation
(i) Income tax
The provision for income tax is based on the elementsof income & expenditure as reported in the nancialstatements and computed in accordance with theprovisions of the Inland Revenue Act No.10 of 2006and amendments there to. The company enjoys aconcessionary tax rate for 20 years from 1997 due to aBOI agreement.
(ii) Deferred tax
Deferred tax is recognized using the balance sheetliability method, providing for temporary dierencesbetween the carrying amounts of assets and liabilities for
nancial reporting purposes and the amounts used fortaxation purposes. Deferred tax is not recognized for thefollowing temporary dierences: the initial recognition of assets or liabilities in a transaction that is not a businesscombination and that aects neither accounting nortaxable prot, and dierences measured at the rates thatare expected to be applied to the temporary dierenceswhen they reverse, based on the laws that have beenenacted or substantively enacted by the balance sheetdate.
A deferred tax asset is recognized to the extent that it is
probable that future taxable prots will be availableagainst which the temporary dierences can be utilized.Deferred tax assets are reviewed at each balance sheetdate and are reduced to the extent that it is no longerprobable that the related tax benet will be realized.
(iii) Economic service charges
As per provisions of the Economic Service ChargesAct No. 13 of 2006, economic service charges ispayable on the liable turnover at specic rates. ESC isdeductible from the income tax liability. Anyunclaimed liability can be carried forward and set o
against the income tax payable as per the relevantprovision in the Act.
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(iv) Social responsible levy (SRL)
As per the provisions of the Finance Act No 5 of 2005, asamended by the Finance Act No.11 of 2006, SRL wasintroduced with eect from 01st January 2005. SRL ispayable at the rate of 1.5% on all taxes and levieschargeable.
(q) Trade and other payables
Trade and other payables are stated cost.
(r) Expenses
(i) Expenses recognition
Expenses are recognized in the income statement onthe basis of a direct association between the costincurred and earning of specic item of income. Allexpenditure incurred in the running of the business
and in maintaining the property, plant & equipmentin state of eciency has been charged to revenue inarriving at the prot for the year.
(ii) Borrowing Cost
Borrowing costs are recognized as an expense in theperiod in which they are incurred, except to theextent where borrowing costs that are directlyattributable to the acquisition, construction, orproduction of an asset that takes a substantial periodof time to get ready for its intended use or sale, arecapitalized as part of that asset.
(iii) Finance lease payments
Minimum lease payments
Minimum lease payments are apportioned betweenthe nance charge and the reduction of theoutstanding liability. The nance charge is allocatedto each period during the lease term so as to producea constant periodic rate of interest on the remainingbalance of the liability.
(iv) Finance income & expenses
Finance income comprises interest income on fundsinvested. Interest income is recognized as it accrues inprot or loss.
Finance expenses comprise interest expenses onborrowings, bank charges and debit tax.
Foreign currency gains and losses are reported on a net basis.
(s) Earnings per share
The group presents basic earnings per share (EPS) datafor its ordinary shares. Basic EPS is calculated by dividing
the prot or loss attributable to ordinary shareholders of the company by the weighted average number of ordinary shares outstanding during the period.
(t) Segmental inormation
A segment is a distinguishable component of thecompany that is engaged either in providing products orservices (business segments), or in providing products orservices with in a particular economic environment(geographical segment), which is subject to risk and
rewards that are dierent from those of other segments.Management believes that it is not practical to providesegmental disclosures relating to segment costs andexpenses and subsequently segment prots and losses,since a realistic allocation cannot be made. The xedassets used in the company’s business are notidentiable to any particular reportable segment andcan be used interchangeably among segments.Consequently management believes that it is notpractical to provide segmental disclosures relating tototal assets since a realistic analysis among the various
operating segments is not possible.
(u) Comparative gures
Whenever necessary comparative gures are reclassiedto conform to the changes in presentation in the currentyear and disclosed as notes to the nancial statements.
(v) Cash ow statement
The cash ow of the company has been presented inusing “indirect method” in accordance with SLAS- 09:
Cash ow statement
(w) Events occurring ater the balance sheet date
All material post balance sheet events have beenconsidered and where appropriate adjustments ordisclosures have been made in respective notes to thenancial statements.
(x) Contingent liabilities
Contingencies are possible assets or obligations that
arise from a past event and would be conrmed only onthe occurrence or non-occurrence of uncertain futureevents, which are beyond the company’s control.
(y) Directors responsibility
The board of directors takes responsibility for thepreparation and presentation of these nancialstatements in accordance with the Companies Act No.07 of 2007 and the Sri Lanka Accounting Standards.
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NOTES TO THE FINANCIAL STATEMENTS (Contd.) All amounts in Sri Lanka Rupees
Group Company
Year endedFor the six months period ended 30.09.2010 30.09.2010 30.09.2009 31.03.2010
(Reviewed) (Reviewed) (Unaudited) (Audited)
4 RevenueExport sales 280,849,350 280,849,350 231,858,570 461,489,725Local sales 4,371,428 4,371,428 20,274,811 26,716,594
285,220,778 285,220,778 252,133,381 488,206,319
5 Other incomeSale of bin tea & dust 112,064 112,064 348,970 802,283Brand promotion incentive - - - 297,937Packing income 21,191,148 21,191,148 18,392,586 27,428,218Gain on sale of property plant & equip. 1,731,402 1,731,402 - -Other income 136,007 136,007 157,567 304,218Flavor Sales 33,010 33,010 - -Receipts from Doubtful Debts 8,350 8,350 - -Management Fee 3,000,000 3,000,000 - -
26,211,981 26,211,981 18,899,123 28,832,656
6 Result rom operating activities The result from operating activities is after charging all expenses including following,Auditors’ remuneration 252,000 252,000 161,346 300,000Receivable/(payable) written o/(back) - - - 3,759,784Provision for slow moving inventories 504,898 504,898 - 1,474,473Legal expenses 474,177 474,177 627,376 382,558Provision for gratuity 1,010,250 1,010,250 1,014,138 1,438,631
Salaries & wages 13,786,021 13,786,021 11,112,322 11,943,503EPF 1,648,586 1,648,586 1,325,314 1,392,706ETF 412,146 412,146 319,382 348,227Bonus & incentive - - 2,439,600 620,486Raw Material purchased 197,204,636 197,204,636 172,548,138 353,094,219Direct expenses 36,187,479 36,187,479 29,140,237 44,393,265
7 Finance income and expenseFinance incomeInterest income 562,168 562,168 2,137,550 2,373,047Interest from debtors 187,858 187,858 460,683 2,931,126Foreign exchange gain 10,309,996 10,309,996 - 1,934,388
11,060,022 11,060,022 2,598,233 7,238,561
Finance costsLoan interest - packing credit (1,966,600) (1,966,600) (2,451,574) (4,344,913)Loan interest - term loan (4,241,082) (4,241,082) (4,423,258) (8,979,346)Interest - Lake Drive Holdings (Pvt) Ltd. (168,000) (168,000) (43,719) (194,255)Interest - Mrs.V.S.A.Fernando (267,159) (267,159) - -Interest on lease rentals (671,513) (671,513) (448,152) (875,736)Interest on bill discounts (3,874,537) (3,874,537) (4,708,475) (8,703,599)Over due interest (519,428) (519,428) (169,143) (1,057,032)Bank overdraft interest (838,401) (838,401) (856,517) (1,802,810)Bill discount charges (611,601) (611,601) (754,618) (1,361,892)Factoring charges (89,362) (89,362) (45,450) (260,251)Bank charges (1,062,669) (1,062,669) (1,429,705) (2,345,194)
Foreign Exchange loss - - (679) -(14,310,351) (14,310,351) (15,331,290) (29,925,028)
Net nance costs (3,250,329) (3,250,329) (12,733,057) (22,686,467)
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All amounts in Sri Lanka Rupees
Group Company
Year endedFor the six months period ended 30.09.2010 30.09.2010 30.09.2009 31.03.2010
(Reviewed) (Reviewed) (Unaudited) (Audited)
8 Income tax expense8.a Income tax recognized in prot or loss
Current income taxCurrent tax charges 3,004,806 3,004,806 - 2,090,391(Over) / under provision of previous period (489,292) (489,292) - (130,500)
2,515,514 2,515,514 - 1,959,891Deerred tax expenseDeferred tax charge / (reversal) (Note-25) 61,012 61,012 - (646,462)
Income tax for the period 2,576,526 2,576,526 - 1,313,429
8.b Reconciliation o accounting prot to tax expenses
Prot before tax 29,644,148 29,644,148 - 55,588,197Exempt Income & other source of income (10,793,344) (10,793,344) - (56,521,908)Aggregate disallowable expenses 15,649,410 15,649,410 - 24,590,992Aggregate allowable expenses (4,137,131) (4,137,131) - (9,517,640)Taxable income for the period 30,363,083 30,363,083 - 14,139,641
Tax losses brought forward (82,702,032) (82,702,032) - (87,650,906)Utilization of tax losses 10,627,079 10,627,079 - 4,948,874
Tax losses carried forward (72,074,953) (72,074,953) - (82,702,032)
Total statutory income 30,363,083 30,363,083 - 14,139,641Utilization of tax losses (10,627,079) (10,627,079) - (4,948,874)
Taxable income for the period-othersources of income 19,736,004 19,736,004 - 9,190,767
Concessionary rate @ 15% 2,960,400 2,960,400 - 867,952
Standard rate - - - 1,191,547SRL @ 1.5% 44,406 44,406 - 30,892
Total current tax for the period 3,004,806 3,004,806 - 2,090,391
HVA Foods (Pvt) Ltd in the terms of the principal agreement entered in to with the Board of Investment (BOI) of Sri Lanka BOI Law No.04 of 1978 is liable to income tax at 15% of its taxable prot for a period of 20 yearscommencing from 1997.
Social responsibility levy has been charged at the rate of 1.5% on the income tax liability in terms of the SocialResponsibility Levy Act No.05 of 2005.
The company has tax losses amounting to Rs.72,074,953/- (31/03/2009-Rs. 82,708,268/-) as at 30/09/2010.
Deferred tax has been computed using the current eective tax rates applicable to the company.
9 Basic earnings per share (EPS)The calculation of basic earnings per share was based on the earnings attributable to ordinary shareholders andweighted average number of ordinary shares outstanding during the year.
Restated Restated30.09.2010 30.09.2010 30.09.2009 31.03.2010(Reviewed) (Reviewed) (Unaudited) (Audited)
Prot for the period 27,067,622 27,067,622 16,567,535 54,274,768Weighted average number of ordinary shares 46,500,062 46,500,062 46,500,062 46,500,062
Basic earning per share 0.58 0.58 0.36 1.17
Annualized basic earning per share 1.16 1.16 0.71 1.17
EPS for 2009/10 has been restated to give eect to the share split during the year (Note-19). The number of sharesas previously reported was 1,500,002 and subsequent to the share split 46,500,062 shares was used to computethe EPS for 2009/10.
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NOTES TO THE FINANCIAL STATEMENTS (Contd.) All amounts in Sri Lanka Rupees10 Property, plant & equipment10.1 Property, plant & equipment - Consolidated
As at Additions / Disposals / As atCost / Valuation 01-04-2010 Transer Transer 30-09-2010
Free hold assetsLand 114,100,000 6,000,000 - 120,100,000Buildings 63,040,250 104,210 - 63,144,460Motor vehicle 182,908 1,069,565 - 1,252,473Machinery 29,834,553 1,054,333 - 30,888,886Stores equipment 2,652,045 - - 2,652,045Oce equipment 2,855,884 212,900 - 3,068,784Furniture and ttings 609,137 26,075 - 635,212Name board 119,234 - - 119,234Software equipments 644,855 - - 644,855
214,038,866 8,467,082 - 222,505,948
Lease hold assetsMotor vehicle 6,319,114 - (6,319,114) -Machinery 11,435,748 5,000,000 (8,135,748) 8,300,000
17,754,862 5,000,000 (14,454,862) 8,300,000
Total cost / valuation 231,793,728 13,467,082 (14,454,862) 230,805,948
As at Depreciation Disposals / As atAccumulated depreciation 01-04-2010 or the year Transer 30-09-2010
Free hold depreciationBuildings - 1,577,595 - 1,577,595
Motor vehicles 144,498 8,227 1,069,566 1,222,291Machinery 24,622,033 1,204,151 - 25,826,184Stores equipment 2,332,012 120,770 - 2,452,782Oce equipments 2,208,608 165,918 - 2,374,526Furniture and ttings 209,384 30,984 - 240,368Name board 170 5,962 - 6,132Software equipments 613,866 15,495 - 629,361
30,130,572 3,129,102 1,069,566 34,329,239
Lease hold depreciationMotor vehicles 4,805,375 546,529 (5,351,904) -Machinery 10,757,769 677,978 (8,135,748) 3,299,999
15,563,144 1,224,507 (13,487,652) 3,299,999
Total accumulated depreciation 45,693,716 4,353,609 (12,418,086) 37,629,238Capital-work-in-progress 50,185,559 2,455,565 - 52,641,124
Carrying amount 236,285,570 245,817,834
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All amounts in Sri Lanka Rupees10 Property, plant & equipment (Contd.)10.2 Property, plant & equipment - Company
As at Additions / Disposals / As atCost / Valuation 01-04-2010 Transer Transer 30-09-2010
Free hold assets
Land 114,100,000 6,000,000 - 120,100,000Buildings 63,040,250 104,210 - 63,144,460Motor vehicle 182,908 1,069,565 - 1,252,473Machinery 29,834,553 1,054,333 - 30,888,886Stores equipment 2,652,045 - - 2,652,045Oce equipment 2,855,884 212,900 - 3,068,784Furniture and ttings 609,137 26,075 - 635,212Name board 119,234 - - 119,234Software equipments 644,855 - - 644,855
214,038,866 8,467,082 - 222,505,948
Lease hold assetsMotor vehicle 6,319,114 - (6,319,114) -Machinery 11,435,748 5,000,000 (8,135,748) 8,300,000
17,754,862 5,000,000 (14,454,862) 8,300,000
Total cost / valuation 231,793,728 13,467,082 (14,454,862) 230,805,948
As at Depreciation Disposals / As atAccumulated depreciation 01-04-2010 or the year Transer 30-09-2010
Free hold depreciationBuildings - 1,577,595 - 1,577,595Motor vehicles 144,498 8,227 1,069,566 1,222,291Machinery 24,622,033 1,204,151 - 25,826,184Stores equipment 2,332,012 120,770 - 2,452,782
Oce equipments 2,208,608 165,918 - 2,374,526Furniture and ttings 209,384 30,984 - 240,368Name board 170 5,962 - 6,132Software equipments 613,866 15,495 - 629,361
30,130,572 3,129,102 1,069,566 34,329,239
Lease hold depreciationMotor vehicles 4,805,375 546,529 (5,351,904) -Machinery 10,757,769 677,978 (8,135,748) 3,299,999
15,563,144 1,224,507 (13,487,652) 3,299,999
Total accumulated depreciation 45,693,716 4,353,609 (12,418,086) 37,629,238
Capital-work-in-progress 50,185,559 2,455,565 - 52,641,124
Carrying amount 236,285,570 245,817,834
10.3 Assets pledged as security against borrowings are disclosed in note no.33.10.4 The details of freehold land and buildings which are stated at revalued amounts are as follows.
Company property Method o Date o Extent Valuation Valuervaluation valuation o Land Rs.
1. Land situated at Linton Road,Kandana Market value 31-03.2010 200 Perchaes Rs.114,100,000/- Mr.P.B.Kalugalagedara
2 Building situated at Linton Road,Kandana Market value 31-03.2010 - Rs.63,040,250/- Mr.P.B.Kalugalagedara
10.5 Land purchsed during the period
Land situated at Extent o Cost o Valuation as atland purchased Rs. 31/03/2010Rs.
Linton Road, Kandana 20 Perchaes Rs.6,000,000 Rs.6,000,000
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NOTES TO THE FINANCIAL STATEMENTS (Contd.) All amounts in Sri Lanka Rupees
11 Investment
Group Company
30.09.2010 30.09.2010 30.09.2009 31.03.2010(Reviewed) (Reviewed) (Unaudited) (Audited)
Nature o %business holding
Non-quoted InvestmentOrdinary shares of HVA InvestingHoldings (Pvt) Ltd. company 99.99% - 45,000,000 - -
(The company - 45,000,000 - -
has not stillcommenced itsoperations.)
12 Intangible AssetsBrandBalance as at 1st April - - - -Additions 44,938,998 - - -Impairment during the year - - - -
Balance as at the end of the period 44,938,998 - - -
Intangible assets represents the excess of the cost of the business combination over the fair value of identiablenet assets, liabilities and contingent liabilities of the subsidiary i,e HVA Holdings Pvt Limited as at the date of acquisition.
The company acquired HVA Holding (Pvt) Ltd on 29th September 2010 in order to use the international brand,”HELADIV” owned by HVA Holding (Pvt) Ltd, as per the Valuation report given by Price Waterhouse Coopers on 1st
October 2010.The “HELADIV” brand has been valued by royalty methord, based on the ve-year forecast sales projects providedby the management and the bellow-mentioned royalty rates, and have assessed the indicative value of the brandas at 31st December 2009 to be in the order of USD 1.08mn to USD 1.24mn (with a mid-point value of USD1.16mn)
Adopted the following royalty rates for the respective market segments served by the Company.- Russia & the CIS states - 6% royalty rate on net sales generated from the region.- Far East Asia - 6% royalty rate on net sales generated from the region.- Europe, Americas, & Africa - 4% royalty rate on net sales generated from the region.- New Markets & products - 3% royalty rate on net sales generated from the region.
The exchange rate applied to the cash ow projection = 11.2%
13 Inventories Raw material - Tea 11,373,182 11,373,182 8,241,913 16,872,187
Raw material-ice tea concentrate & fruit base 1,063,170 1,063,170 1,734,372 1,450,544Flavours 5,210,167 5,210,167 3,379,169 3,203,106Packing materials 25,523,321 25,523,321 22,388,663 22,986,545Work in progress 23,664 23,664 31,644 3,045,880Finished goods 1,310,241 1,310,241 2,330,604 1,358,108Others 920,147 920,147 - 506,233
45,423,893 45,423,893 38,106,365 49,422,603Provision for slow moving inventories (2,687,179) (2,687,179) (1,500,000) (2,182,281)
42,736,713 42,736,713 36,606,365 47,240,322
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All amounts in Sri Lanka Rupees
Group Company
30.09.2010 30.09.2010 30.09.2009 31.03.2010(Reviewed) (Reviewed) (Unaudited) (Audited)
14 Trade receivables Trade debtors 109,485,635 109,485,635 123,937,540 109,005,164
Provision for doubtful debts (Note-14.a) (303,512) (303,512) (725,333) (804,724)109,182,123 109,182,123 123,212,207 108,200,440
14.a Provision or doubtul debts
Balance as at 1st April 804,724 804,724 725,333 725,333Reversals of provisions during the period (501,212) (501,212) - -Provisions made during the period - - - 79,391
Balance as at the end of the period 303,512 303,512 725,333 804,724
15 Amount due rom / due to related party15.a Amount due rom related parties
Relationship
HVA Farms (Pvt) Ltd Common Directors 518,081 518,081 582,331 -HVA Beverages (Pvt) Ltd Common Directors - - 151,576 -HVA Lanka Exports (Pvt) Ltd Parent Company 107,459,695 107,459,695 14,754,383 77,516,294
107,977,776 107,977,776 15,488,290 77,516,294
15.b Amount due to related parties
RelationshipLake Drive Holdings (Pvt) Ltd Common Directors 55,681,030 55,681,030 611,971 9,609,746Mr. A.R.H. Fernando Director 2,000,000 2,000,000 - -Mrs. V.S.A. Fernando Director 6,848,132 6,848,132 - 6,580,973
64,529,162 64,529,162 611,971 16,190,719
16 Prepayments & other receivablesVAT receivables 7,685,494 7,685,494 10,645,160 8,940,944W.H.T. - - 203,405 -NBT receivables 693,556 693,556 144,074 489,213Economic Service Charge - - 4,506,696 -Insurance pre-payments 443,760 443,760 627,099 228,598Lease pre-payments - - 351,005 351,005Others deposits & pre-payments 824,822 824,822 1,099,375 991,414
9,647,632 9,647,632 17,576,814 11,001,174
17 Deposits & advancesAdvance 2,676,746 2,676,746 2,690,091 1,590,336
Refundable deposits 83,741 83,741 83,741 83,741Deposits 900,000 900,000 500,000 500,000
3,660,487 3,660,487 3,273,832 2,174,077
18 Cash and cash equivalentsShort term deposits 35,637,092 35,637,092 29,136,130 29,741,969Cash at bank 2,374,839 2,303,834 8,553,442 1,794,273
38,011,931 37,940,926 37,689,573 31,536,243
19 Stated capital
46,500,062 ordinary shares(31.03.2010 - 1,500,002 ordinary shares) 15,000,020 15,000,020 15,000,020 15,000,020
15,000,020 15,000,020 15,000,020 15,000,020
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HVA FOODS (PVT) LIMITED
NOTES TO THE FINANCIAL STATEMENTS (Contd.) All amounts in Sri Lanka Rupees
The company has sub divided one ordinary shares into 31 ordinary shares thereby increasing the number of theordinary shares to 46,500,062 shares. The special resolution passed on 29th September 2010 for this purpose.
The holders of ordinary shares are entitled to receive dividend from time to time and entitled to one vote perindividual present at the meeting of shareholders or one vote per share in case of a poll.
Group Company
Year endedFor the six months period ended 30.09.2010 30.09.2010 30.09.2009 31.03.2010
(Reviewed) (Reviewed) (Unaudited) (Audited)
20 Revaluation reserveBalance as at 1st April 134,000,948 134,000,948 96,136,854 96,136,854During the period revaluation surplus - - - 37,864,094
Balance as at the end of the period 134,000,948 134,000,948 96,136,854 134,000,948
The revaluation was performed on freehold land and buildings as at 31st March 2010 by Mr.P.B. KalugalagedaraChartered Valuation Surveyor using the market value method.
21 Retained earningsBalance as at 1st April (49,089,851) (49,089,851) (103,364,619) (103,364,619)Net prot for the period 26,884,716 26,884,716 16,567,535 54,274,768
Balance as at the end of the period (22,205,135) (22,205,135) (86,797,084) (49,089,851)
Revenue reserve consists only of retained earnings.
22 Employee benet
Balance as at 1st April 7,164,612 7,164,612 5,910,529 5,910,529Provision for the period 1,010,250 1,010,250 1,014,138 1,438,631Payments during the period (167,741) (167,741) (60,700) (184,548)
Balance as at the end of the period 8,007,121 8,007,121 6,863,967 7,164,612
The employee benet plan entitles a retired employee to receive payment equal to 1/2 of nal salary multipliedby the number of completed years of service. However under the Payment of Gratuity Act No. 12 of 1983, theliability of the employee arises only on the completion of ve year of continued service.
The employee benet plan valuation is carried out based on gratuity formula method in accordance with SLAS 16.
Principal assumptions as at balance sheet date(Expressed as weighted average) as ollows:
Discount rate as at 30th September 2010 8% 8% - 8%Future salary increase 11% 11% - 11%
23 Interest bearing loans and borrowings23.a Amount payable more than one year
Future minimum lease payments 7,081,392 7,081,392 6,577,909 4,210,871Interest (2,081,392) (2,081,392) (1,041,962) (660,915)
Present value of minimum lease payments 5,000,000 5,000,000 5,535,947 3,549,956Term loans 124,138,000 124,138,000 132,719,737 132,033,500Less:Payable within one year (25,700,037) (25,700,037) (17,517,514) (27,266,574)
103,437,963 103,437,963 120,738,170 108,316,882
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All amounts in Sri Lanka Rupees
Group Company
Year endedFor the six months period ended 30.09.2010 30.09.2010 30.09.2009 31.03.2010
(Reviewed) (Reviewed) (Unaudited) (Audited)
23.b Amount payable with in one year
Bill discounting 87,823,523 87,823,523 108,229,642 86,704,972Packing credit Loans 62,212,148 62,212,148 33,773,853 61,449,574Payable within one year 25,700,037 25,700,037 17,517,514 27,266,574
175,735,708 175,735,708 159,521,009 175,421,120
24 Government grants
Balance brought forward 29,402,272 29,402,272 - -Receipts during the period - - 2,120,187 29,402,272
Balance carried forward 29,402,272 29,402,272 2,120,187 29,402,272
The Asian Development Bank oered a grant of Rs. 40,793,651/- on 30/09/2009 to construct an ice tea plant.
25 Deerred tax assetsDeerred tax assets Tax eect of retiring gratuity (151,538) (151,538) - (215,795)Deferred tax liability
Tax eect of property, plant & equipment 1,274,512 1,274,512 - 1,277,757
Net deferred tax liability 1,122,974 1,122,974 - 1,061,962
The gross movement on the deerred income taxBalance as at 1st April 1,061,962 1,061,962 - 1,708,424Provision/(reversal) made during the period 61,012 61,012 - (646,462)
Balance as at the end of the period 1,122,974 1,122,974 - 1,061,962
Deferred tax asset of Rs. 10,811,243/- (31/03/2009-Rs. 12,406,206/-) on carried forward losses of Rs. 72,074,953/-(31/03/2009-Rs. 82,708,043/-) has not been recognized due to uncertainty.
26 Trade payable Tea creditors 360,456 360,456 442,767 249,170Packing material creditors 23,339,712 23,339,712 24,750,862 30,791,512Flavor creditors 2,988,442 2,988,442 1,461,105 1,896,806Other creditors 262,540 262,540 269,344 267,584
26,951,150 26,951,150 26,924,078 33,205,072
27 Deposits & advances payable
Debtors advance 4,708,939 4,708,939 1,517,284 4,517,989Deposits from debtors 16,784,441 16,784,441 17,219,426 17,106,930Other deposits & advances 59,461 59,461 59,461 59,461
21,552,841 21,552,841 18,796,171 21,684,380
28 Accrued expenses & other creditorsSalary and related expenses payables 1,634,008 1,634,008 3,007,983 1,772,481ESC payable 3,098,051 3,098,051 - 2,522,903Custom duty payables 93,668 93,668 135,655 56,273Freight creditors 2,613,017 2,613,017 1,777,675 1,785,212Interest payables 709,238 709,238 1,492,400 203,836Other payables 16,243,564 16,233,564 10,519,979 10,307,534
24,391,546 24,381,546 16,933,692 16,648,239
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HVA FOODS (PVT) LIMITED
NOTES TO THE FINANCIAL STATEMENTS (Contd.) All amounts in Sri Lanka Rupees
Group Company
Year endedFor the six months period ended 30.09.2010 30.09.2010 30.09.2009 31.03.2010
(Reviewed) (Reviewed) (Unaudited) (Audited)
29 Related parties disclosures29.1 Transactions with key management personnel.
Key management personnel include all the members of the Board of directors of the company having authorityand responsibilities for planning , directing and controlling the activities of the company.
29.2 Key management personnel compensationKey management personnel compensation comprised,Short- term employee benets including salaries
3,995,280 3,995,280 3,653,400 7,306,800
29.3 Key management personnel and director transactions
Directors of the company control 100% of the voting shares of the company. Following directors are also directorsof HVA Lanka Exports (Pvt) Ltd,
Name o the director,Mr.A.R.H.FernandoMrs.V.A Fernando
The aggregated value of transactions and outstanding balances relating to key management personnel were as follows;
DirectorMr. A.R.H.FernandoLoan obtained from the Director (Interest free loan)
- Transaction value 2,500,000 2,500,000 - -- Outstanding value 2,000,000 2,000,000 - -
Mrs. V.S.A.FernandoLoan obtained from the Director (Interest rate is 8% p.a)
- Transaction value - Loan - - - 5,000,000- Interest 267,159 267,159 - 1,580,793
- Outstanding value - Loan 5,000,000 5,000,000 - 5,000,000- Interest 1,848,132 1,848,132 - 1,580,973
29.4 Transactions with group companies and director transactionsCompany RelationshipHVA Lanka Exports (Pvt) Ltd. Common Directors
Nature o transactionContract packing incomeFrom subsidiary to parent 250,264 250,264 - -
Management ees receivedFrom subsidiary to parent 3,000,000 3,000,000 - -
Sale o goodsFrom subsidiary to parent 1,609,671 1,609,671 14,077,747 18,088,049From parent to subsidiary 3,831,535 3,831,535 7,131,056 16,006,323
Expenses & other transactionsFrom subsidiary to parent 115,120,043 115,120,043 72,525,534 239,144,875From parent to subsidiary 72,690,531 72,690,531 9,783,527 165,975,009
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HVA Farms (Pvt) Ltd Common DirectorsNature o transactionReimbursement of expenses 518,081 518,081 - 262,570
Receivable written o - - - 846,201
Lake Drive Holdings(Pvt) Ltd Common Directors
Nature o transaction Transport charges 106,174 106,174 - 1,208,318
Interest expenses 402,788 402,788 - 194,255Purchase consideration on
acquisition of HVA Holding (Pvt) Ltd - 45,000,000 - -Purchased of a land 6,000,000 6,000,000 - -
HVA Beverage (Pvt) Ltd Common Directors
Nature o transactionReceivable written o - - - 156,576
For the year end outstanding balances refer note 15 to the Financial Statements.
30 Financial arrangements or continuous operationsSeylan Bank has made the following arrangements in HVA Foods (Pvt) Ltd with eect from 01st June 2008 whichwill enable the company to continue in business.
a. Converted all Seylan Bank Rupee and Foreign Currency Term Loans to one restructured Foreign CurrencyLoan at a lower interest rate of 04% per annum with a one year grace period on capital re-payment.
b. Transferred Hard Core of Packing Credit Loans and Bills Discounted balances to the same restructuredForeign Currency Term Loan.
c. This Restructured Foreign Currency Term Loan is amounting Rs 126 Man.(USD 1,170,000 /-) at 07%per annum repayable in four years with one year grace period.
31 Events ater the balance sheet date
No events identied since the balance sheet date, which may require a disclosure or an adjustment in thenancial statements except for the following.- The company has become a public limited company since 03rd November 2010.
32 Commitment & contingencies The company has contingent liabilities on behalf of the following companies.Company name Bank Guarantee Amount (Rs.)HVA Lanka Exports (Pvt) Ltd Lankaputhra Primary, 130 Mn
Development Bank mortgage-LandHVA Lanka Exports (Pvt) Ltd HSBC Corporate guarantee 26.9 MnHVA Lanka Exports (Pvt) Ltd HSBC Issuance of guarantee 0.5 Mn
33 Assets pledged as securities The following assets of the company have been pledged as securities for liabilities as at the balance sheet date.
Bank Nature o Nature o Amount o Rs.the assets the liability Securities
Seylan Bank Land and Factory Building Term Loan, Packing 34 MnCredit Loans, Export Bill,O/D
Seylan Bank Stocks and packing materials Term Loan, Packing 64.6 MnCredit Loans, Export Bill,O/D
HSBC Stocks and packing materials Term Loan, Export Bill 26.9 Mn
34 Comparative inormationNo comparative information has been reclassied during the year.
35 Directors responsibilityThe board of directors takes the responsibility for the preparation and presentation of these nancial statementsin accordance with Companies Act No. 07 of 2007 and Sri Lanka Accounting Standards.
36 No o employeesThe total number of employees of the company as at 30th September 2010 - 89 (as at 31st March 2010 - 87).
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ANNEXURE B – INDEX ON CHARTS AND FIGURES ILLUSTRATED IN THE PROSPECTUS
List of ChartsChart 4-1: Break up of Total Revenue based on Product Category ..........................................................................................................................................30
Chart 4-2: Break up of Total Revenue based on Geographical Market ....................................................................................................................................31
Chart 4-3: Export Market Concentration based on Export Quantity ........................................................................................................................................32
Chart 4-4: Historical Volume Movement - CIS and Russia ...............................................................................................................................................................33
Chart 4-5: Historical Volume Movement - Far Eastern Region .....................................................................................................................................................34
Chart 4-6: Historical Volume Movement - Europe & Americas ....................................................................................................................................................37
Chart 4:7- Break up of Sales based on Product Line ...........................................................................................................................................................................39
Chart 5-1: Major Sources of Foreign Exchange Earnings .................................................................................................................................................................43
Chart 5-2: Tea Production in Sri Lanka for the Past Decade ...........................................................................................................................................................44
Chart 5-3: Auction Price per kg ........................................................................................................................................................................................................................46
Chart 5-4: January-July 2009 Vs 2010 Tea Packet Imports ...............................................................................................................................................................48
Chart 6-1: Per Capita GDP at market prices (USD) ...............................................................................................................................................................................50
Chart 6-2: GDP (percent change) ...................................................................................................................................................................................................................50
Chart 6-3: Share of Trade.....................................................................................................................................................................................................................................50Chart 11-1: Revenue Movement .....................................................................................................................................................................................................................68
Chart 11-2: Gross Prot Movement ...............................................................................................................................................................................................................69
Chart 11-3: Operating Prot Movement ....................................................................................................................................................................................................69
Chart 11-4: Net Prot Movement ...................................................................................................................................................................................................................69
Chart 11-5: Monthly Revenue..........................................................................................................................................................................................................................70
Chart 11-6: Prot Before Taxation ...................................................................................................................................................................................................................70
List of FiguresFigure 4-1: Group Structure ................................................................................................................................................................................................................................23
Figure 4-2: Market Concentration ..................................................................................................................................................................................................................31
Figure 5-1: Production Process – Black Tea ...............................................................................................................................................................................................45
Figure 5-2: Production Process – Value Added Tea ..............................................................................................................................................................................47
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Bankers to the Oering
DFCC Vardhana Bank Branches
Ambalangoda 26B, Galle Road, Ambalangoda 091 2255965
Ampara Branch 3, D S Senanayake Road, Ampara 063 2223442
Anuradhapura 249, Maithreepala Senanayake Mw, A’pura 025 2223417/8Avissawella 27/29 Yatiyanthota Rd, Avissawella 036 2233900-1
Badulla 14, Udayaraja Mw, Badulla 055 2230160/2
Bandarawela 126, Main Street, Bandarawela 057 2224849
Batticaloa 105, Trinco Road, Batticaloa 065 2228222
Borella 14, Cotta Road, Colombo 08 011 2690069
Chillaw 44, Kurunegala Rd, Chillaw 032 2220236/7
City Oce 73/5, Galle Road, Colombo 3 011 2442244
Colombo Oce 73, W A D Ramanayake Mawath, Colombo 2 011 2371371
Dambulla 632, Anuradapura Rd, Dambulla 066 2283553/4
Deniyaya 04, Pallegama Rd, Deniyaya 041 2273073/4
Galle 93, Wakwella Rd, Galle 091 222737/76
Gampaha 123, Baudhaloka Mw, Gampaha 033 2226104
Gampola 73, Nuwaraeliya Rd, Gampola 081 2350876
Gangodawila 601/1, High Level Rd, Gangodawila 011 2442711
Horana 49 Panadura Rd, Horana 034 2265331/2
Jana Branch 141, K K S Road, Jana 021 2221444
Kadawatha 341, Kandy Road, Kadawatha 011 2922340/1
Kaduruwela 626, Main Street, Kaduruwela 027 2225859
Kalawana 70, Mathugama Road, Kalawana 045 2255411/2
Kaluthara 270, Main Street, Kaluthara 034 2225560
Kandy 5, Dewa Veediya, Kandy 081 2234411Katugasthota 202/3, Kandy road, Katugasthota 081-2213465/6
Kiribathgoda 60, Kandy Road, Kiribathgoda 011 2910965
Kotahena 214, Bandaranayake Mw. Colombo 13 011 2438500/1
Kottawa 29, High Level Road, Kotta 011 2783886/7
Kuliyapitiya 139, Madampe Rd, Kuliyapitiya 037 2284564/5
Kurunegala 25, Rajapihilla Rd, Kurunegala 037 2224142
Maharagama 135, High Level Road, Maharagama 011 2838668
Malabe 9, Athurugiriya Rd, Malabe 011 2442713/4
Matale 129, Main Street, Matale 066 2234332/4
Matara 5, Hakmana Road, Matara 041 2225500/2Moratuwa 129 A, Galle Road, Moratuwa 011 2642336
Nawala 540, Nawala Road, Rajagiriya 011 2880880
Negambo 389/A, Main Street, Negombo 031 2227555/6
Nugegoda 24, Nawala Road, Nugegoda 011 2814038/9
Nuwara Eliya 58A,60 Park Road, Nuwara-eliya 052 2223568/9
Panadura 114/A, Janapriya Mw, Panadura 038 2241630/1
Peradeniya 901/A, Peradeniya Rd, Kandy 081 2387673
Pillyandala 1, Old Road, Piliyandala 011 2609700/2
Rathnapura 46, Bandaranayake Mw, Rathnapura 045 2223667/8
Trincomalee 246, Ehamparam Road, Trincomalee 026 2225550Wattala 424, Negombo Road, Wattala 011 2949148/9
Wellawatta 02, 33rd Lane, Wellawatta 011 2362741
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ANNEXURE D – ‘HELADIV’ BRAND EQUITY
The ‘HELADIV’ trademark is owned and registered under HVA Foods (Private) Limited and for commercial purposes is
employed by the HVA Group. This trademark has enabled consumers with a means of identifying and distinguishing the
‘HELADIV’ brand of products produced by HVA Group against the goods supplied by any other entity.
Based on the assessment carried out by PwC Sri Lanka, the value of the ‘HELADIV’ brand as at 31st December 2009 has
been estimated at USD 1.08 million to USD 1.24 million (with a mid-point value of USD 1.16 million). At a US dollar to Sri
Lankan rupee exchange rate of USD 1 : LKR 114 this implies a value range in the order of LKR 124.0 million to LKR 141.6
million (with a mid-point of SLR 132.8 million). This brand value has been assessed employing the relief from royalty
approach, a generally accepted valuation approach where value attributed to an intangible asset is estimated based on
the notional royalty expense savings from ownership of the brand vis-à-vis royalties or franchise fees payable on an
arm’s length basis to a third party in return for the right of use of such brand.
‘HELADIV’ brand value has been estimated based on the ve-year forecast sales amounts provided by management,
estimated royalty rate applicable to the associated brand sales generated and computation of notional post-tax royalty
streams, net of any associated marketing expenses generated thereafter. These post-tax royalty streams have been
discounted at the company’s post-tax weighted average cost of capital in order to arrive at the assessed brand value.Further, dierent market segments catered to by the ‘HELADIV’ brand have been reviewed in order to assess the brand
proposition within the respective market segments. Both publicly available and PwC Sri Lanka proprietary information
on royalty rates and franchise agreements have been reviewed to carry out an overall assessment of the economic
benets generated by HVA Foods (Private) Limited.
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ANNEXURE E – CUSTODIAN BANKS
Bank o Ceylon Banque Indosuez
Head Oce, C/O Hatton National Bank Limited,11th Floor, Cinnamon Garden Branch,04, Bank of Ceylon Mawatha, 251, Dharmapala Mawatha,Colombo 01 Colombo 07
T: 2448348, 2338742/55, 2544333 T: 2686537, 2689176
Citi Bank Commercial Bank o Ceylon Limited
65 C, Dharmapala Mawatha, Commercial House,P.O. Box 888, 21, Bristol Street,Colombo 07 P.O. Box 853,
T: 2447316/8, 2447318, 2449061, 2328526, 4794700 Colombo 01T: 2445010-15, 238193-5, 430420, 336700
Deutsche Bank Hatton National Bank Limited
P.O. Box 314, HNB Towers,
No. 86, Galle Road, 479, T.B. Jayah Mawatha,Colombo 03 T: 2664664 T: 2447062, 2438057
The Hong Kong and Shanghai Banking Corporation Limited
24, Sir Baron Jayathilake Mawatha,Colombo 01
T: 2325435, 2446591, 2446303, 2346422
People’s Bank Standard Chartered Bank
Head Oce, 5th Floor, 37, York Street,Sir Chittampalam A Gardiner Mawatha, P. O. Box 112,Colombo 02 Colombo 01
T: 2781481, 237841-9, 2446316-15, 2430561 T: 4794400, 2480000
Sampath Bank Limited State Bank o India
110, Sir James Peiris Mawatha, 16, Sir Baron Jayathilake Mawatha,Colombo 02 Colombo 01
T: 5331441 T: 2326133-5, 2439405-6, 2447166, 2472097
Seylan Bank Limited Union Bank o Colombo Limited Level 8, Ceylinco Seylan Towers, 15A, Alfred Place,90, Galle Road, Colombo 03
Colombo 03 T: 2370870 T: 2456789, 4-701812, 4-701819, 4-701829
Nations Trust Bank Limited National Savings Bank
256, Sri Ramanathan Mawatha, 255, Galle Road,Colombo 15 Colombo 03
T: 4313131 T: 2573008-15
Pan Asia Banking Corporation PLC Public Bank Berhad
Head Ocer, No: 340, R A De Mel Mawatha,450, Galle Road, Colombo 03Colombo 03 T: 2576289, 7290200-07
T: 2565565
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