2016

Kalamazoo Systems PLCAnnual Report

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Notice of Meeting

NOTICE IS HEREBY GIVEN that the Fifty Ninth Annual General Meeting of Kalamazoo Systems PLC will be held at the Auditorium of the Sri Lanka Foundation, No. 100, Independence Square, Colombo 7 on 15th September 2016 at 4.45 p.m. for the following purposes :

01. To receive and consider the Report of the Board of Directors on the affairs of the Company and the Financial Statements for the year ended 31st March 2016 and the Report of the Auditors thereon.

02. To re-elect Mr. P. S. R. Casie Chitty who retires by rotation in terms of Article 85 of the Articles of Association as a Director of the Company.

03. To re-elect Mr. D. S Abeysekera who retires in terms of Article 91 of the Articles of Association as a Director of the Company.

04. To re-elect Mr. C. M. U. Weerawardena who retires in terms of Article 91 of the Articles of Association as a Director of the Company.

05. To re-elect Mr. H. Somashantha who retires in terms of Article 91 of the Articles of Association as a Director of the Company.

06. To re-elect Mr. D. J. Silva who retires in terms of Article 91 of the Articles of Association as a Director of the Company.

07. To re-elect Mr. S. V. Rajiyah who retires in terms of Article 91 of the Articles of Association as a Director of the Company.

08. To re-elect Mr. P. Gunathilake who retires in terms of Article 91 of the Articles of Association as a Director of the Company.

09. To re-elect Mr. S. N. Alles who retires in terms of Article 91 of the Articles of Association as a Director of the Company.

10. To re-elect Mr. M. R. Ratnasabapathy who retires in terms of Article 91 of the Articles of Association as a Director of the Company.

11. To appoint Messrs. Kreston M N S & Co. as Auditors and authorize the Directors to determine their remuneration.

12. To authorize the Directors to determine and make donations to charities for the year ending 31st March 2017 and up to the date of the next Annual General Meeting.

By Order of the BoardSgd.Renuka Enterprises (Pvt.) Ltd,Company Secretaries16th August, 2016

Note:

A member entitled to attend and vote at the above mentioned meeting is entitled to appoint a proxy who need not also be a member.

The completed form of proxy should be deposited at the registered office of the Company at “RENUKA HOUSE”, No. 69, Sri Jinaratana Road, Colombo 02, not less than 48 hours before the time fixed for the Meeting.

A form of Proxy is attached to the Report.

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Corporate InformationName of the Company Kalamazoo Systems PLC

Registration Number PQ 149

Legal Form Quoted Public Company with Limited Liability

Principal ActivityIt is the Sale of Kalamazoo stationery, Kalamazoo equipments and printing

Board of Directors Mr. D. S. Abeysekera - Chairman Mr. S. B. Dodanwela - Resigned w.e.f. 16.08.2016 Mr. M. G. C. Senaviratne - Resigned w.e.f. 16.08.2016 Mr. C. M. U. Weerawardena Mr. H. Somashantha Mr. D. J. Silva Mr. P. S. R. Casie Chitty Mr. S. V. Rajiyah - Appointed w.e.f. 16.08.2016 Mr. P. Gunathilake - Appointed w.e.f. 16.08.2016 Mr. S. N. Alles - Appointed w.e.f. 16.08.2016 Mr. M. R. Ratnasabapathy - Appointed w.e.f. 16.08.2016

Company Secretaries Renuka Enterprises (Pvt.) Ltd.

Registrar PW Corporate Secretarial (Pvt.) Ltd.

Registered Office “Renuka House” No. 69, Sri Jinaratana Road Colombo 02

Stock Exchange Listing Colombo Stock Exchange

Audit Committee Mr. P. S. R. Casie Chitty Mr. H. Somashantha Mr. C. M. U. Weerawardena

Remuneration Committee Mr. D. S Abeysekera Mr. P. S.R. Casie Chitty Mr. C. M. U. Weerawardena

Related Party Transactions Review Committee Mr. P. S.R. Casie Chitty Mr. H. Somashantha Mr. S. B. Dodanwela

Auditors BAKER TILLY Edirisinghe & Co. Chartered Accountants

Lawyers Nithi Murugesu -Attorney-at-Law

Bankers Commercial Bank of Ceylon PLC National Development Bank PLC Nations Trust Bank PLC

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Directors’ ProfileMr. Dimuthu Abeyesekara (Chairman)Mr. D. Abeyesekera joined the securities industry in 1989 and is presently the MD/CEO of the stock broking firm, Asha Philips Securities Ltd a joint venture with Philip Securities of Singapore. He has made a notable contribution to the Securities Industry spearheading the expansion of equity trading to reach a wide clientele and led the organization to success. He is also a Board member of Asha Financial Services Limited, a margin trading service provider. Mr. Abeyesekera served the Colombo Stockbrokers Association as the Chairman during year 2012/2013.

Mr. Chethiya Minendra Umagiliya Weerawardena (Independent Non-Executive Director)Mr. C. M. U. Weerawardena is a leading entrepreneur in the gem industry in Sri Lanka with more than a decade of experience is sourcing, trading and exporting of gems. He is a Platinum Member of the Gem Corporation of Sri Lanka. He is also in real estate and property development. Mr. Weerawardena holds a Diploma in Commerce from the Sydney Institute of Business & Technology, Australia.

Mr. Haresh Somashantha (Non-Executive Director)Mr. Haresh Somashantha is a member of the Institute of Chartered Accountants of Sri Lanka and holds a Bachelor’s Degree in Mathematics from the University of Kelaniya. He counts over 15 years of experience in audit, financial management and reporting, including strategic and corporate planning across deferent industries. He is currently the Head of Finance & Treasury of Royal Ceramics Lanka PLC. He also serves as Director/Audit Committee Chairman of Hayleys MGT Knitting Mills PLC, Director of Valibel Power Erathna PLC, Royal Porcelain (Pvt) Ltd., Unidil Packaging Limited, Mercantile Produce Brokers (Pvt) Ltd., Ever Paint and Chemical Industries (Pvt) Ltd and also in several subsidiary companies in the Delmage Group. He is an Alternative Director on the Boards of The Fortress Resorts PLC and Amaya Leisure PLC.

Mr. Dulanjana Jeewaka Silva (Non-Executive Director)Mr. Dulanjana Jeewaka Silva is Graduate in Computer Science and Engineering. Having begun his career at the Port of Singapore Authority, he has experience in planning, developing, deploying and supporting a wide range of IT solutions. At present he is the Head of IT at Royal Ceramics Lanka PLC and is a Director of Rocell Bathware Limited and Lanka Ceramics PLC.

Mr. P. S. R. Casie Chitty (Independent Non- Executive Director)Mr. P. S. R. Casie Chitty joined the board as an independent non-executive director in 2009. He is an independent non-executive director of Ceylon Printers PLC, Paragon Ceylon PLC, Kalamazoo Systems PLC and Office Equipment PLC. Mr. Casie Chitty who holds a Master in Economics from the University of Colombo is also a Fellow of the Association of Chartered Certified Accountants (ACCA), UK, an Associate Member of the Chartered Institute of Management Accounts (CIMA), UK, and a Chartered Financial Analyst, USA.

Mr. S. V. Rajiyah (Executive Director)Mr. S. V. Rajiyah is an Executive Director/CEO of Renuka Holdings PLC, Renuka Foods PLC and an Executive Director of Renuka Agri Foods PLC, Shaw Wallace Ceylon Ltd and Richlife Dairies Ltd. He heads the Business Development, International Marketing and Investment Division of the Group. Mr. Rajiyah is a graduate in Management from the Warwick Business School, University of Warwick, United Kingdom. His direct interest includes corporate strategy, key product and brand development and portfolio management. He has over 15 years of experience in General Management. He is a member of the Economic Fiscal Policy Planning Committee of the Ceylon Chamber of Commerce.

Mr. P. Gunathilake (Executive Director)Mr. P. Gunathilake is an Executive Director, a fellow member of the Institute of CIMA (UK), and a member of Chartered Institute of Australia. He has more than 15 years of local and international experience of which 5 years with Renuka Group.

Mr. M. R. Ratnasabapathy (Independent Non- Executive Director)Mr. M. R. Ratnasabapathy is a Management Accountant who counts 25 years of post-qualification experience. He is a Fellow of the Chartered Institute of Management Accountants UK and holds a MBA from the Postgraduate Institute of Management of the University of Sri Jayewardenepura.

He is broadly experienced, with exposure to stockbroking, manufacturing/agribusiness, telecommunications, power and printing. He serves on the Board of the Autodrome PLC as a non-executive, independent director.

Mr. S. N. Alles (Independent Non- Executive Director)Mr. S. N. Alles is a graduate in Law and Business from the University of Warwick, United Kingdom and holds a Master of Laws (LLM) from the University of Melbourne. He is a Co-founder / Director of Saberion (Pvt) Ltd, Atom Technologies (Pvt) Ltd and Kashmi (Pvt) Ltd and a Director of Cargo Shelters (Pvt) Ltd.

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Chairman’s Review

On behalf of the Board of Directors, I welcome you to the fifty-ninth Annual General Meeting of Kalamazoo Systems PLC and it gives me great pleasure to present to you the Annual Report of the Company for the year ended 31st March 2016.

The Group turnover has increased by 33% to Rs. 11.4 million for the year ended 31st March 2016 from Rs. 8.6 million for the year ended 31st March 2015.

The group recorded a net loss after taxation of Rs. 7.536 million in the current year as against a loss of Rs. 6.924 million in the previous year.

The management is in the process of restructuring the operations of the group during the year 2016/17.

In conclusion, I wish to thank to all our customers, bankers, suppliers and principals for their patronage and support.

My thanks also to my colleagues on the Board, the management and staff for their commitment and, last but not least, our shareholders for their support and confidence.

SgdDimuthu AbeyesekeraChairman

16th August, 2016

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Directors Report

ANNUAL REPORT OF THE BOARD OF DIRECTORS ON THE AFFAIRS OF THE COMPANY - FOR YEAR 2015/16.

The Directors are pleased to present their report together with the audited accounts for the year ended 31st March 2016. The details set out herein provide the pertinent information in compliance with the Companies Act No. 07 of 2007.

Principal Activities and Review of BusinessThe principal activity of the Company is Sale of Kalamazoo stationery, Kalamazoo equipments and printing. Kalamazoo Systems PLC is the holding Company that owns Kalamazoo Industries (Private) Ltd. whose principal activity is hiring printing machinery to related Companies. A review of Business and its performance during the year with comments on financial results is contained in The Chairman’s Review.

There are no other classes in which the company has an interest, either as a Shareholder of another company or otherwise.

Financial StatementsThe Financial Statements of the Company and the Group for the accounting period ended 31st March 2016, completed and signed in accordance with the provisions of the Companies Act is given on pages 16 to 41.

Auditor’s ReportThe Auditor’s Report on the Financial Statements of the Company and the Group is given on page 15.

Accounting PoliciesThe Notes to the Financial Statements contained herein describe the accounting policies adopted in the preparation of financial Statements.

Stated CapitalThe Stated Capital is the total of the amounts received by the Company in respect of the issue of Shares.

The Stated Capital of the Company as at 31st March 2016 is Rs. 500,000 represented by 50,000 Ordinary Voting Shares. There was no change in the Stated Capital during the year.

DividendsThe Directors do not recommend the payment of a dividend for the year ended 31st March, 2016.

InvestmentsThe investments in shares of listed Companies and Subsidiaries are given in Note 11 to the Financial Statements.

Property Plant and EquipmentInformation relating to movements of Property, Plant and Equipment is given in Note 10 to the Financial Statements.

DirectorsThe basis on which Directors are classified as Independent Non-Executive Directors is discussed in the Corporate Governance statement.

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Directors Report Contd...

The Directors of the company as at the end of the accounting period are as follows:.

Directors as at 31st March 2016 Mr. D. S AbeysekeraP. S. R. CasiechittyMr. S. B. DodanwelaMr. M. G. C. SenaviratneMr. C. M. U. WeerawardenaMr. H. SomashanthaMr. D. J. Silva

Directors ShareholdingsThe Shareholdings of the Directors together with those of their spouses are as follows:

31st March 2016 31st March 2015 Number Number

Mr. D. S Abeysekera Nil NilMr. P. S. R. Casiechitty Nil NilMr. S. B. Dodanwela Nil NilMr. M. G. C. Senaviratne Nil NilMr. C. M. U. Weerawardena Nil NilMr. H. Somashantha Nil NilMr. D. J. Silva Nil Nil

Directors Remuneration and other benefitsThe Directors remuneration and other benefits of the Company and the Subsidiary during the financial year 2015/2016 is Rs. 277,367/- and Rs. 183,234/- respectively.

Interest RegisterThe particulars of entries in the Interest Register and the Directors Interests in the Contracts of the Company are disclosed under Note 26 to the financial statements contained herein.

The Directors are not either directly or indirectly interested in any existing or proposed contracts with the Company other than what is disclosed in the Financial Statements.

Post Balance Sheet EventsNo circumstances of significance have arisen since the Balance Sheet date, which would require adjustments to or disclosure in the financial statements.

DonationsThere are no Donations made by the company during the Financial Year.

TheDirectorsofthecompanyasattheendoftheaccountingperiodareasfollows:.Directorsasat31st March2016

Mr. P.S.R. Casie ChittyMr. D. S AbeysekeraMr. S. B. DodanwelaMr. M. G. C. SeneviratneMr. C. M. U. WeerawardenaMr. H. SomashanthaMr. D. J. Silva

DirectorsShareholdingsTheShareholdingsoftheDirectorstogetherwiththoseoftheirspousesareasfollows:

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Directors Report Contd...

AuditorsM/S BAKER TILLY Edirisinghe & Co., Chartered Accountants, carried out the audit for the Financial year ended 31st March 2016.

The amounts payable to Auditors as audit fees of the Company and the Subsidiary are Rs. 239,157/- and Rs. 207,812/- respectively. The Auditors did not provide any non-audit services for the year ended 31st March 2016 to the Company or to its subsidiaries.

Nature of Service Fees Payable

None -

The particulars of relationship (other than that of Auditors) which the Auditors have with or any interests which the Auditors have in, the company are;

Nature of Relationship Fees Payable

None -

The Board of directors has recommended the appointment of Kreston M N S & Co. Chartered Accountants as the auditors of the company subject to approval by the shareholders at the Annual General Meeting.

Employee Share OwnershipThe Company does not operate any share option scheme.

Going ConcernThe Directors have made an assessment of the Company’s ability to continue as a going concern and do not intend either to liquidate or to cease operations of the Company.

By Order of the Board.

Sgd Sgd SgdDirector Director Renuka Enterprises (Pvt.) Ltd. Secretaries.16th August, 2016

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Information to Shareholders and Investors

1. Twenty Largest Shareholdings

2016 2015 No of Shares No of Shares Held % Held % 1 Seylan Bank PLC/W D. N. H. Perera & W D. N. H. Perera 35,000 70.00% 500 1.00%2 Sir Chittampalam A Gardiner Trust 2,318 4.64% 2,318 4.64%3 Cyril Gardiner Limited 1,575 3.15% 1,618 3.24%4 Mrs. M. J. Nihara 612 1.22% 612 1.22%5 Mrs. M. I. Immanuel 500 1.00% 500 1.00%6 Dr. T. Fazleabas 412 0.82% 472 0.94%7 Ms. E. I. Amirthanayagam 300 0.60% 300 0.60%8 Mr. L. Thiagarajah 300 0.60% 300 0.60%9 Mrs. R. L. D. C. Matotaarachchi 261 0.52% 308 0.62%10 Mr. L. L. R. Morrow 224 0.45% 224 0.45%11 Mr. A Saverimuttu 215 0.43% 215 0.43%12 Mrs. W. W. S. Priyani 198 0.40% 200 0.40%13 Mr. S. M. M. Zarook 198 0.40% Nil Nil14 Mr. E. J. Gunasekera 172 0.34% 172 0.34%15 Ms. R. C. M. C. Sethukavaler 160 0.32% 160 0.32%16 Mr. R. L. Dias 160 0.32% 160 0.32%17 Mr. S. G. N. Herat, Mrs. A. N. Herath and Ms. N. E. Herath 151 0.30% 150 0.30%18 MBSL Insurance Company Ltd. 135 0.27% 135 0.27%19 The Public Trustee As Executor of the Estate of the Late Don Solomon Kahawita 131 0.26% 131 0.26%20 Mrs. H. D. H. Karunasekara 125 0.25% Nil Nil 43,147 86.29% 8,475 16.95% Balance Shareholders 6,853 13.71% 41,525 83.05% 50,000 100.00% 50,000 100.00%

2. Shareholder Analysis 2016 2015 No of shares No of shares held % held % Shares held by the public 15,000 30.00% 28,912 57.82% Shares held by the others 35,000 70.00% 21,088 42.18%

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Information to Shareholders and Investors Contd...

3. Equity

- Earnings per share Rs. (88.46)

- Dividend per share Rs. 00.00

- Net asset value per share Rs. 204.04

The Company has not raised funds on listed securities.

The market value information of Kalamazoo Systems PLC is as follows:

- Market Value of a Share as at 31st March 2016 was Rs. 2,600.10

- The highest value per share traded during the financial year was 4,440.00 and the lowest value per share traded during the financial year was 903.10

4. Distribution of Shareholdings

2016 2015 2016 2015 2016 2015 No. of Shareholders No. of Shares Held % Held 1 - 1,000 452 428 11,767 15,030 23.53 30.06 1,001 - 5,000 02 09 3,893 19,578 7.79 39.16 5,001 - 10,000 Nil 02 Nil 15,392 Nil 30.78 10,001 - 50,000 01 Nil 34,340 Nil 68.68 Nil 50,001 - 100,000 Nil Nil Nil Nil Nil Nil 100,001 - 500,000 Nil Nil Nil Nil Nil Nil 500,001 - 1,000,000 Nil Nil Nil Nil Nil Nil 1,000,001 and over Nil Nil Nil Nil Nil Nil Total 455 439 50,000 50,000 100 100

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Statement of Directors’ ResponsibilitiesThe Companies Act No. 07 of 2007 places the responsibility on the directors to prepare financial statements for each year comprising a balance sheet, statement of income, cash flow and changes in equity along with the accounting policies and notes thereto, which give a true and fair view of the state of affairs of the company at the Balance Sheet date and the results for that financial year.

The Directors are of the view that the financial statements have been prepared in accordance with all applicable laws and the Sri Lanka Accounting Standards which have been selected and applied consistently and judgments and estimates have been made which are reasonable and prudent.

The directors are responsible for ensuring that the company keeps accounting records with reasonable accuracy of the financial position of the company to enable them to ensure that the financial statements comply with the Companies Act and Sri Lanka Accounting Standards. They are also responsible for taking reasonable steps to safeguard the assets of the company and to have proper regard to the establishment of appropriate systems of internal controls, with a view to the prevention and detection of fraud and other irregularities.

The Directors are also responsible for taking reasonable steps to manage the resources of the Company and to design and implement appropriate internal control systems with a view to protect the Company from undue risks and loss. The financial reporting system has also been reviewed by the Board through the management accounts submitted at Board meetings.

The directors confirm that they have provided the Auditors of the company with the opportunity to visit all locations of the company and to undertake all inspections and verifications as they considered appropriate to conduct their audit. The directors are of the view that the financial statements have been prepared in accordance with all applicable laws and the Sri Lanka Accounting Standards which have been selected and applied consistently and judgments and estimates have been made which are reasonable and prudent.

The Directors confirm that all statutory payments due and payable to all statutory and regulatory authorities have been made by the Company up to date.

The Directors are of the view that they have discharged their obligations as set out in this statement.

By Order of the Board.

SgdRenuka Enterprises (Pvt.) Ltd.,Secretaries.

16th August, 2016

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Statement of Corporate Governance

By Corporate Governance, we mean the system by which companies are managed and controlled. This is important both to the directors of the company and its subsidiaries.

The Board of directors of Kalamazoo Systems PLC values the guiding principles of good Corporate Governance to maintain the company as a going concern as well as to comply with standards of sound business and accounting policies. The extent to which the rules and principles of good Corporate Governance are implemented within the Company during the year is set out below.

The Board of Directors

The company’s board consists of 09 directors of whom 07 are non-executive directors. The names and designations are given on page 03. The board meets on a regular basis and has a formal schedule of matters reserved to it. The board is supplied with full and timely information to enable it to discharge its responsibilities effectively. During the financial year 2015/2016 the board held 03 meeting and reserved certain decisions to itself while others were delegated to the management to carry out the operations of the company smoothly. Circular resolutions are adopted by the board from time to time on matters of routine importance.

Vacancies in the board are filled by a decision of the whole board. All members appointed to the board are individuals of high standing in society, experts in their chosen fields and individuals of the highest standards of integrity.

Independent Directors

As at the reporting date Mr. P. S. R. Casie Chitty and Mr. C. M. U. Weerawardena functioned as independent non-executive directors.

Directors’ Interests in Contracts

Directors’ interests in contracts have been disclosed and declared at the meetings of the Directors during the year and are disclosed in Note 26 to the Accounts and also entered in the Interest Register.

Audit Committee

The audit committee consists of Mr. P. S. R. Casie Chitty (Chairman), Mr. H. Somashantha and Mr. C. M. U. Weerawardena.

Remuneration Committee

The Remuneration Committee consists of Mr. D. S Abeysekera, Mr. P. S. R. Casie Chitty and Mr. C. M. U. Weerawardena. This Committee makes recommendations to the Board of Directors of the Company on the remuneration policy of the Company as well as the aggregate remuneration of the Executive Directors.

Related Party transaction Review Committee

Related Party transactions Review Committee consist of Mr. P. S. R. Casie Chitty, Mr. H. Somashantha and Mr. S. B. Dodanwela.

Disclosure of Information and Compliance

The Financial statements of the Company are prepared in accordance with the Sri Lanka Accounting Standards and in accordance with the requirements of the Colombo Stock Exchange.

PW Corporate Secretarial (Pvt) Ltd. functioned as Secretaries to the Company from 18th November 2015 to 16th August 2016 and thereafter Renuka Enterprises (Pvt) Ltd. appointed as Secretaries to the Company with effect from 16th August 2016, who advises the Board on appropriate procedures for the management of its meetings and duties, as well as the compliance of Corporate Governance in the Company.

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Remuneration Committee ReportThe Remuneration Committee appointed by the Board of Directors comprises of three (3) Directors as follows:

Mr. D. S Abeysekera (NED)Mr. P. S. R. Casie Chitty (IND/NED)Mr. C. M. U. Weerawardena (IND/NED)

(IND - Independent Director, NED - Non Executive Director)

The Remuneration Policy on remuneration packages is to attract and retain the best professionals and an experienced workforce and motivate, encourage high levels of performance in a competitive environment bearing in mind the business performance and stakeholder expectations.

The Committee met once during the year. The meetings were for the purpose of examining the remuneration package of Managing Director, Executive Directors and the Management Staff, their respective performances and deciding on appropriate remuneration packages for them; as well as determining incentives based on Company performance for all management staff.

The Committee also reviewed data concerning remuneration packages among comparable Companies. The Managing Director assists the Committee by providing all relevant information with regard to compensation package. Performance Evaluation method to compensate employees is in place and succession plans have been defined.

SgdP. S. R. Casie ChittyChairmanRemuneration CommitteeColombo

16th August, 2016

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Audit Committee Report

The Audit Committee is appointed by the Board of Directors of the company and reports directly to the Board. The Audit Committee consists of three Non-Executive Directors - Mr. P. S. R. Casie Chitty (Chairman), Mr. H. Somashantha and Mr. C. M. U. Weerawardena. The Chairman of the Audit Committee is a Fellow of the Association of Chartered Certified Accountants - UK and an Associate member of the Chartered Institute of Management Accountants - UK. The composition of the members of the Audit Committee satisfies the criteria as specified In the Standards on Corporate Governance for listed Companies. They are:

Mr. P. S. R. Casie Chitty (IND/NED)Mr. H. Somashantha (NED)Mr. C. M. U. Weerawardena (IND/NED)

(IND - Independent Director, NED - Non Executive Director)

The Audit Committee is empowered to examine all matters pertaining to the Financial Affairs of the Company and assist the Board of Directors in effectively discharging their duties. The Audit Committee examines the preparation, presentation and adequacy of disclosures in the financial statements and whether these are in accordance with Sri Lanka Accounting Standards and whether the financial reporting requirements, are in accordance with the Companies Act and other relevant financial reporting related regulations and requirements.

The Audit Committee also reviewed and approved the Annual and Interim financial statements prior to the final approval by the Board. In all instances, the Audit Committee obtained relevant declarations from the Finance Director and Head of Finance stating that the respective financial statements are in conformity with the applicable Accounting Standards, Company Law and other Statues including Corporate Governance Rules and that the presentation of such Financial Statements are consistent with those of the Previous Quarter or Year as the case may be, and further states any departures from financial reporting, statutory requirements and Group policies, (if any).

This Audit Committee also reviews the adequacy and proper continuous functioning of the Internal Control Procedures of the Company to obtain reasonable assurances that the financial statements of the Company accurately reflect the state of affairs of the Company and the results for the period to which it relates. This Audit Committee also assesses major business and control risks of the company.

The Audit Committee meeting was held once during the year. The Finance Director, Head of Finance and Assistant General Manager - Finance attended all audit committee meetings by invitation and other Senior Managers attended such meetings as and when requested to do so by the Audit Committee.

The Audit Committee assessed the independence of the external auditors Messrs. BAKER TILLY Edirisinghe & Co, Chartered Accountants. The Board of Directors has recommended to appoint Kreston M N S & Co. as the auditors subject to shareholders approval at the Annual General Meeting.

SgdP. S.R. Casie ChittyChairmanAudit CommitteeColombo,

16th August, 2016

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Related Party Transactions Review CommitteeThe Related Party Transactions Review Committee was constituted in 2016 with an objective of keeping in line with the Code of Best Practice on Corporate Governance and the requirement of the Securities and Exchange Commission with a view to ensure that the interests of shareholders as a whole are taken into account by Kalamazoo Systems PLC.

The committee comprises of three directors as follows.Mr. P. S. R. Casie Chitty (IND/NED) - ChairmanMr. H. Somashantha (NED)Mr. S. B. Dodanwela. (ED)

IND - Independent Director , NED - Non-Executive Directors, ED - Executive Director

Brief profiles of each member are given on page 3 of this annual Report. Their individual and collective financial knowledge and business acumen and the independence of the Committee are brought to bear on their deliberations and judgments on the matters that come within the Committee’s purview.

The committee has met once during the year. The meeting held for the purpose, to establish the definitions and set out the threshold values of each related party transaction as per the Code which require discussion and disclosure. Also to identify related party transactions that need pre-approval from the Board of Directors, immediate market disclosure, transactions that need shareholder approval and disclosure in the Annual Report. The committee also looks at to establish proper guide lines to identify recurrent & non-recurrent Related party transactions to follow by the company.

Sigd.P. S. R. Casie ChittyChairmanRelated Party Transactions Review CommitteeColombo,

16th August 2016

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Auditors’ Report

To The Shareholders Of Kalamazoo Systems PlcReport on the Financial StatementsWe have audited the accompanying financial statements of Kalamazoo Systems PLC, (“the Company”), and the consolidated financial statements of the Company and its subsidiaries (“Group”), which comprise the statement of financial position as at March 31, 2016, and the statement of profit or loss and other comprehensive income, statement of changes in equity and, cash flow statement for the year then ended, and summary of significant accounting policies and other explanatory information.Board’s Responsibility for the Financial StatementsThe Board of Directors (“Board”) is responsible for the preparation of these financial statements that give a true and fair view in accordance with Sri Lanka Accounting Standards, and for such internal control as Board determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.Auditor’s ResponsibilityOur responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with Sri Lanka Auditing Standards. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation of the financial statement that give a true and fair view in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by Board, as well as evaluating the overall presentation of the financial statements.We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.OpinionIn our opinion, the financial statements give a true and fair view of the financial position of the Group as at March 31, 2016 and of its financial performance and cash flows for the year then ended in accordance with Sri Lanka Accounting Standards.Report on Other Legal and Regulatory RequirementsAs required by section 163(2) of the Companies Act No.07 of 2007, we state the following:a) The basis of opinion and scope and limitations of the audit are as stated above. b) In our opinion:

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

- the financial statements of the Company give a true and fair view of its financial position as at March 31, 2016, and of its financial performance and cash flows for the year then ended in accordance with Sri Lanka Accounting Standards.

- the financial statements of the Company and the Group, comply with the requirements of section 151 and 153 of the Companies Act No. 07 of 2007.

Edirisinghe & Co.,Chartered Accountants.Colombo 02.16th August, 2016

Independent Auditors’ Report

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Group Company

For the year ended 31st March 2016 2015/2016 2014/2015 2015/2016 2014/2015 Note Rs. Rs. Rs. Rs.

Statement of Comprehensive Income

Revenue 03 11,400,000 8,590,592 - -

Cost of Sales - - - -

Gross Profit 11,400,000 8,590,592 - -

Gain/(Losses) and Other Income 04 (709,112) 30,534 376,258 1,590

Selling and Distribution Costs - - - -

Administration Expenses (20,908,797) (17,039,990) (6,196,891) (2,737,003)

Loss from Operating Activities (10,217,909) (8,418,864) (5,820,633) (2,735,413)

Finance Costs 05.1 (144,555) (56,668) (31,337) -

Finance Income 05.2 392,641 669,575 43,849 134,625

Net Finance Income 248,086 612,907 12,512 134,625

Loss before Income Taxation 06 (9,969,823) (7,805,957) (5,808,121) (2,600,788)

Income Tax Expenses 07 2,434,202 881,754 1,385,195 297,990

Loss for the Year from Continuing Operations (7,535,621) (6,924,203) (4,422,926) (2,302,798)

Discontinued Operations

Loss from Discontinued Operations ( Net of Tax) 08 (260,547) 4,389,368 (260,547) 1,295,123

Loss for the Year (7,796,168) (2,534,835) (4,683,473) (1,007,675)

Other Comprehensive Income

Net Change in Fair Value of Available-for-Sale

Financial Assets - 83,326 - 45,000

Defined benefit obligation - Deficit (788,718)

Other Comprehensive Income for the Year (788,718) 83,326 - 45,000

Total Comprehensive Income/ (Loss) for the Year (8,584,886) (2,451,509) (4,683,473) (2,257,798)

Profit / (Loss) for the year attributable to;

Minority Interest (643) 78,229 - -

Equity Holders of the Parent (7,795,525) (2,613,064) - -

(7,796,168) (2,534,835) - -

Other Comprehensive Income / (Loss) for the

Year Attributable to;

Minority Interest (256) 19,167 - -

Equity Holders of the Parent (788,461) 64,159 - -

(788,718) 83,326 - -

Loss per Share (Rs. & Cts.) 09 (156) (52) (88) (46)

Figures in brackets indicate deductions.

The accounting policies and notes to accounts form integral part of these financial statements.

A N N U A L R E P O R T 2 0 1 6 17

Statement of Financial Position Group Company

As at 31.03.2016 31.03.2015 31.03.2016 31.03.2015 Note Rs. Rs. Rs. Rs.

ASSETSNon - Current AssetsProperty, Plant & Equipment 10 2,454,079 3,555,128 97,373 155,012Non Current Financial Assets 11 - 412,360 8,000,000 8,260,000Deferred Tax Assets 12 6,016,731 3,511,069 3,272,719 1,879,543Total Non Current Assets 8,470,810 7,478,557 11,370,092 10,294,555

Current AssetsInventories 13 - 3,064,274 - 3,064,274Trade and Other Receivables 14 8,899,959 6,753,226 1,813,660 1,682,064Due from Related Companies 15 7,598,866 5,730,148 147,970 4,467,206Other Financial Assets 16 5,087,281 12,069,949 - 2,310,582Income Tax Refund 4,970,916 3,053,449 4,373,416 2,457,680Cash and Cash Equivalents 17 4,150,155 746,032 4,004,163 394,647Total Current Assets 30,707,177 31,417,078 10,339,209 14,376,453TOTAL ASSETS 39,177,987 38,895,635 21,709,301 24,671,008

EQUITY & LIABILITIESCapital & ReservesStated Capital 18 500,000 500,000 500,000 500,000Other Components of Equity - 268,525 - 174,853Retained Earnings 17,944,181 26,528,167 9,701,967 14,385,440Equity Attributable to Equity Holders of the Company 18,444,181 27,296,692 10,201,967 15,060,293

Non Controlling Interest 5,089 1,464,288 - -Total Equity 18,449,270 28,760,980 10,201,967 15,060,293

Non - Current LiabilitiesRetirement Benefit Obligation 19 4,625,845 3,351,254 - -Total Non Current Liabilities 4,625,845 3,351,254 - -

Current Liabilities Trade and Other Payable 20 13,232,338 2,678,909 11,504,334 1,228,176Due to Related Companies 21 1,060,682 3,535,199 3,000 8,379,845Loans and Borrowings 22 1,809,852 569,293 - 2,694Total Current Liabilities 16,102,872 6,783,401 11,507,334 9,610,715TOTAL EQUITY & LIABILITIES 39,177,987 38,895,635 21,709,301 24,671,008

These Financial Statements are in compliance with the requirements of the Companies Act No. 07 of 2007.

Finance Officer

The Directors are responsible for the preparation and presentation of these financial statements. Signed for on behalf of the Board of Directors.

Director Director

The accounting policies and notes to accounts form integral part of these financial statements.

16th August 2016Colombo

A N N U A L R E P O R T 2 0 1 618

For the year ended 31st March 2016

GROUP Stated Retained Available for Non Capital Earnings sale reserve Controlling Interest Total Rs. Rs. Rs. Rs. Rs.

Balance as at 1st April 2014 500,000 29,178,733 204,366 1,404,410 31,287,509

Net Profit / (Loss) for the Year - (2,613,064) - 78,229 (2,534,835)

Other Comprehensive income for the year - - 64,159 19,167 83,326

Total Comprehensive Income for the Year - (2,613,064) 64,159 97,396 (2,451,509)

Dividends - (37,502) - (37,518) (75,020)

Balance as at 1st April 2015 500,000 26,528,167 268,525 1,464,288 28,760,980

Net Loss for the Year - (7,795,525) - (643) (7,796,168)

Other Comprehensive Income for the Year - (788,461) - (256) (788,718)

Disposal of Investment in Subsidiary - - (268,525) (1,458,300) (1,726,825)

Total Comprehensive Income for the Year - (8,583,987) (268,525) (1,459,199) (10,311,710)

Dividends - - - - -

Balance as at 31st March 2016 500,000 17,944,181 - 5,089 18,449,270

COMPANY Stated Retained Available Capital Earnings for sale reserve Total Rs. Rs. Rs. Rs.

Balance as at 1st April 2014 500,000 15,393,115 129,853 16,022,968

Net Loss for the Year - (1,007,675) - (1,007,675)

Other Comprehensive Income for the Year - - 45,000 45,000

Total Comprehensive Income for the Year - (1,007,675) 45,000 (962,675)

Balance as at 1st April 2015 500,000 14,385,440 174,853 15,060,293

Net Loss for the Year - (4,683,473) - (4,683,473)

Other Comprehensive Income for the Year - - (174,853) (174,853)

Total Comprehensive Income for the Year - (4,683,473) (174,853) (4,858,326)

Balance as at 31st March 2016 500,000 9,701,967 - 10,201,967

Statements of Changes in Equity

A N N U A L R E P O R T 2 0 1 6 19

Statement of Cash Flows

Group Company

For the year 31st March 2016 2015/2016 2014/2015 2015/2016 2014/2015 Rs. Rs. Rs. Rs.

Cash Flows from Operating ActivitiesLoss Before Income Taxation Continuing Operations (9,969,823) (3,416,589) (5,808,121) (2,600,788) Discontinued Operations (260,547) - (260,547) 1,295,123Adjustment for :Depreciation 1,101,049 1,152,780 57,639 97,045Interest Expenses 144,555 117,238 31,337 60,570Interest Income (392,641) (669,575) (43,849) (134,625)Dividend Income (33,750) (20,863) (33,750) (990)Provision for Retirement Benefit Obligations 780,124 568,254 - -Loss on Disposal of Subsidiary 1,085,370 - - -Investment Disposal Profit (217,178) - (217,178) -Operating Profit Before Working Capital Changes (7,762,841) (2,268,755) (6,274,469) (1,283,665)Working Capital Changes(Increase) / Decrease in Inventories 3,064,274 6,202,334 3,064,274 6,202,334(Increase) / Decrease in Trade and Other Receivables 552,277 (3,851,567) 4,187,640 (1,058,297)Increase / (Decrease) in Trade and Other Payables 2,825,341 51,050 1,899,313 (2,833,584)Cash Generated from/(used in) Operations (1,320,949) 133,061 2,876,758 1,026,788Income Tax Paid (2,025,515) (322,205) (1,923,717) (50,466)Interest Paid (144,555) (117,238) (31,337) (60,570)Gratuity Paid (294,250) (84,000) - -Net Cash Flow from/(used in) Operating Activities (3,785,269) (390,382) 921,704 915,752

Cash Flows from Investing ActivitiesProceeds from Disposal of Investment 227,325 - 302,325 -Proceeds from Disposal of Subsidiary Net of Cash Disposed Off (131,961) - - -Purchase of Property, Plant and Equipment - - - -Investment in Financial Assets - - - -Net Cash Flow from Investing Activities 95,365 - 302,325 -Cash Flows from Financing ActivitiesInvestments in Fixed Deposits 5,427,078 (516,939) 2,310,583 (118,478)Interest Received 392,641 669,575 43,849 134,625Dividend Paid - (75,020) - -Dividend Received 33,750 20,863 33,750 990Net Cash Flow from Financing Activities 5,853,469 98,480 2,388,182 17,137

Net Increase/(Decrease) in Cash and Cash Equivalents 2,163,565 (291,903) 3,612,211 932,889Cash & Cash Equivalents at the Beginning of the Year 176,739 468,641 391,953 (540,936)Cash and Cash Equivalents at the End of the Period (NOTE A) 2,340,303 176,739 4,004,164 391,953

NOTE A - CASH AND CASH EQUIVALENTSFavourable BalancesCash in Hand and at Bank 4,150,155 746,032 4,004,163 394,647Unfavourable BalancesBank Overdrafts (1,809,852) (569,293) - (2,694) 2,340,303 176,739 4,004,163 391,953

A N N U A L R E P O R T 2 0 1 620

Accounting Policies to Financial StatementsFor the year ended 31st March 2016

01. CORPORATE INFORMATION

Reporting Entity The Kalamazoo Systems PLC is a public limited liability company incorporated and domiciled in Sri Lanka and

listed on Colombo Stock Exchange. The Company’s Registered Office and the principal place of business is located at “RENUKA HOUSE”, No. 69, Sri Jinaratana Road, Colombo 02.

Principal Activities and Nature of Operations The Company’s principal activities are sale of Kalamzoo Stationary, Kalamazoo equipments and Printing. During

the financial year 2015/16 a significant shareholder group comprising 70.78% of shares of the company sold their shares to a new investor. The management is in the process of restructuring the operations of the group.

The principle activities of the Subsidiaries were Hiring of machines to their related companies.

02. BASIS OF PREPARATION

2.1.1 Statement of Compliance The financial statements of the Company and it’s subsidiaries have been prepared in accordance with the Sri

Lanka Accounting Standards (herein referred to as SLFRSs/LKASs) effective from 1st January 2012, laid down by The Institute of Chartered Accountants of Sri Lanka (ICASL) and in compliance with the Companies Act No. 07 of 2007 and the Sri Lanka Accounting and Auditing Standards Act No. 15 of 1995.

2.1.2 Responsibilities for the financial statements The Board of directors is responsible for the preparation and presentation of the Financial Statements of the

company and its subsidiary as per the provisions of the Companies Act No 07 of 2007.

The Financial Statements include following components:

• The Statement of Comprehensive Income: Providing information on the financial performance of the company for the year.

• The Statement of Financial Position: Providing information on the financial position of the company at the year.

• The Statement of Changes in Equity: Providing information on the movements of stated capital and reserves of the during the period.

• The Statement of Cash Flows: Providing information to the users, on generating cash and cash equivalents and utilization of the cash and

cash equivalents.

• Notes to the Financial Statements: Comprising accounting policies and other explanatory notes.

Approval of Financial Statements by the Board of Directors The Financial Statements for the year ended 31st March 2016, were authorized for issue by the Board of

Directors on 16th August 2016.

2.1.3 Basis of Measurement The Financial Statements have been prepared on the historical cost basis and applied consistently with no

adjustments being made for inflationary factors affecting the Financial Statements, except for the following;

• Available for sale financial assets are measured at fair value. • Loans and Receivables are measured at amortized cost. • Liability for defined benefit obligations is recognized as the present value of the defined benefit obligation.

A N N U A L R E P O R T 2 0 1 6 21

Accounting Policies to Financial Statements Contd...For the year ended 31st March 2016

Functional and Presentation Currency Items included in the Financial Statements of the group are measured using the currency of the primary

economic environment in which the group operates. Financial Statements are presented in Sri Lankan Rupees, which is the group ‘s functional and presentation currency.

Going Concern The Directors have made an assessment of the Company’s and it’s Subsidiaries ability to continue as a going

concern, and being satisfied that it has the resources to continue in business for the foreseeable future confirm that they do not intend either to liquidate or to cease operations. Therefore the financial statements continue to be prepared on a going concern basis.

Change in Accounting Policies The accounting policies adopted by the group are consistent with those used in the previous financial year .

2.1.4 Use of Estimates and Judgments

The preparation of financial statements in conformity with SLFRS requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Although the judgments and estimates are based on management’s best knowledge of the current events and actions, actual results may ultimately differ from those estimates. It also requires management to exercise its judgment in the process of applying the company’s accounting policies.

2.2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The accounting policies set out below have been applied consistently to all periods presented in these consolidated financial statements unless otherwise is indicated.

2.2.1 Basis of Consolidation The consolidated financial statements comprise the financial statements of the Company and its subsidiaries as

at 31st March 2015. The financial statements of the subsidiaries are prepared in compliance with the Group’s accounting policies unless otherwise stated

All intra-Group balances, income and expenses, unrealized gains and losses resulting from intra-Group transactions and dividends are eliminated in full.

2.2.2 Subsidiaries Subsidiaries are those enterprises controlled by the parent. Control exists when the parent holds more than

50% of the voting rights or otherwise has a controlling interest. Subsidiaries are fully consolidated from the date of acquisition or incorporation, being the date on which the Group obtains control, and continue to be consolidated until the date that such control ceases. Losses within a subsidiary are attributed to the non-controlling interest even if that results in a deficit balance.

The financial statements of the subsidiaries are prepared for the same reporting period as the parent Company, which is 12 months ending 31 March, using consistent accounting policies.

2.2.3 Disposal of subsidiaries When the group ceases to have control any retained interest in the entity is re-measured to its fair value at the

date when control is lost, with the change in carrying amount recognised in profit or loss. The fair value is the initial carrying amount for the purposes of subsequently accounting for the retained interest as an associate, joint venture or financial asset. In addition, any amounts previously recognized in other comprehensive income in respect of that entity are accounted for as if the group had directly disposed of the related assets or liabilities. This may mean that amounts previously recognized in other comprehensive income are reclassified to profit or loss.

A N N U A L R E P O R T 2 0 1 622

Accounting Policies to Financial Statements Contd...For the year ended 31st March 2016

Subsidiaries consolidated have been listed in the Group directory. The following companies, with equity control equal to or more than or less than 50%, have been consolidated as subsidiaries based on the power to govern the financial and operating policies of those entities.

% Holding

1. Kalamazoo Industries (Pvt) Ltd 99.97

The total profits and losses for the year of the Company and of its subsidiaries included in consolidation are shown in the consolidated statement of comprehensive income and all assets and liabilities of the Company and of its subsidiaries included in consolidation are shown in the statement of financial position.

Non-controlling interest which represents the portion of profit or loss and net assets not held by the Group, are shown as a component of profit for the year in the consolidated income statement and statement of comprehensive income and as a component of equity in the consolidated statement of financial position, separately from parent’ shareholders’ equity.

The consolidated statement of cash flow includes the cash flows of the Company and its subsidiaries.

2.3 Assets and Bases of their Valuation

2.3.1 Property, Plant & Equipment The company and its subsidiaries applies the requirements of the LKAS 16 on “Property, Plant & Equipment”

in accounting for its owned assets which are held for use in the provision of services, or for administrative purposes and are expected to be used for more than one year.

a) Basis of Recognition Property, plant and equipment are recognized if it is probable that future economic benefits associated

with the asset will flow to the group and the cost of the asset can be reliably measured.

b) Basis of Measurement An item of property, plant and equipment that qualifies for recognition as an asset is initially measured

at its cost. The cost of an item of property, plant and equipment compromises its purchase price and any directly attributable costs of bringing the asset to working condition for its intended use.

c) Depreciation Depreciation is calculated by using a straight-line method on the cost or valuation of all property, plant

and equipment, other than freehold land, in order to write off such amounts over the estimated useful economic life of such assets.

Depreciation is recognized in the statement of comprehensive income on a straight line basis over the estimated useful lives of each component of an item of property, plant and equipment. Depreciation of an asset begins when it is available for use and ceases at the date that the asset is disposed. Leased assets are depreciated over the shorter of the lease term and their useful lives unless it is reasonably certain that the company will obtain ownership by the end of the lease term.

The estimated useful lives as follows

Rate of Depreciation

Plant & Machinery 8 Years Furniture & Fittings 4 Years Office & other Equipment 10 Years Motor Vehicles 10 Years Computers 1 Year

The assets residual values, useful lives and methods of depreciation are reviewed and adjusted as appropriate at each financial year.

A N N U A L R E P O R T 2 0 1 6 23

d) Derecognition An item of property, plant and equipment are derecognized upon replacement, disposal or when no

future economic benefits are expected from its use. Any gain or loss arising on derecognition of the asset is included in the statement of comprehensive income in the year the asset is derecognized.

2.3.2 Leased Assets

a) Finance Leases - where the company is the lessee Finance leases that transfer to the company substantially all the risks and benefits incidental to ownership

of the leased item, are capitalized at the commencement of the lease at the fair value of the leased property or, if lower, at the present value of minimum lease payments.

Lease payments are apportioned between finance charges and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are recognized in finance costs in the statement of comprehensive income.

Leased assets are depreciated over the remaining lease period or the useful life of the asset, whichever is shorter.

b) Operating Leases Other leases are operating leases. Assets leased within the group is not recognized in the group’s statement

of financial position. Operating lease payments are recognized as an operating expense in the statement of comprehensive income on a straight -line basis over the lease term.

2.3.3 Financial instruments

a) Financial Assets Initial recognition and measurement

Financial assets within the scope of LKAS 39 are classified as financial assets at fair value through profit or loss, loans and receivables, held-to-maturity investments, available-for-sale financial assets, or as derivatives designated as hedging instruments in an effective hedge, as appropriate. The company and it’s subsidiaries determines the classification of its financial assets at initial recognition.

All financial assets are recognized initially at fair value plus, in the case of assets not at fair value through profit or loss, directly attributable transaction costs. Purchases or sales of financial assets that require delivery of assets within a time frame established by regulation or convention in the marketplace (regular way trades) are recognized on the trade date, i.e., the date that the group commits to purchase or sell the asset.

The Group’s financial assets include cash and fixed deposits, trade and other receivables, loans and other receivables, quoted and unquoted financial instruments.

Subsequent measurement The subsequent measurement of financial assets depends on their classification as follows:

Financial assets at fair value through profit or loss Financial assets at fair value through profit or loss include financial assets held for trading and financial assets

designated upon initial recognition at fair value through profit or loss. Financial assets are classified as held for trading if they are acquired for the purpose of selling or repurchasing in the near term. Financial assets at fair value through profit or loss are carried in the statement of financial position at fair value with changes in fair value recognized in finance income or finance costs in the statement of comprehensive income.

The Group evaluates its financial assets held for trading, other than derivatives, to determine whether the intention to sell them in the near term is still appropriate. When the group is unable to trade these financial assets due to inactive markets and management’s intention to sell them in the foreseeable future significantly changes, the group may elect to reclassify these financial assets in rare circumstances. The reclassification to loans and receivables, available-for-sale or held to maturity depends on the nature of the asset. This evaluation does not affect any financial assets designated at fair value through profit or loss using the fair value option at designation.

Accounting Policies to Financial Statements Contd...For the year ended 31st March 2016

A N N U A L R E P O R T 2 0 1 624

Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not

quoted in an active market. After initial measurement, such financial assets are subsequently measured at amortized cost using the effective interest rate method (EIR), less impairment. Amortized cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the EIR. The EIR amortization is included in finance income in the income statement. The losses arising from impairment are recognized in the income statement in finance costs.

Held-to-maturity investments Non-derivative financial assets with fixed or determinable payments and fixed maturities are classified as

held-to-maturity when the group has the positive intention and ability to hold them to maturity. After initial measurement, held-to-maturity investments are measured at amortized cost using the effective interest method, less impairment. Amortized cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the EIR. The EIR amortization is included in finance income in the income statement. The losses arising from impairment are recognized in the income statement in finance costs.

Available-for-sale financial assets Available-for-sale financial assets are non-derivative financial assets that are designated as available for-sale

or are not classified in any of the above categories of financial assets. Available-for-sale financial assets are recognized initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition, they are measured at fair value and changes therein, other than impairment losses on available-for-sale debt instruments, are recognized in other comprehensive income and presented in the “available for sale financial assets reserve” in equity. When an investment is derecognized, the gain or loss accumulated in equity is transferred to profit or loss. Available-for-sale financial assets comprise equity securities.

Impairment losses on available for sale financial assets are recognized by transferring the cumulative loss that has been recognized in other comprehensive income and presented in the “available for sale financial assets reserve” in equity to profit or loss. Changes in cumulative impairment losses attributable to application of the effective interest method are reflected as a component of interest income. If, in a subsequent period, the fair value of an impaired available-for-sale debt security increases and the increase can be related objectively to an event occurring after the impairment loss was recognized, then the impairment loss is reversed, with the amount of the reversal recognized in profit or loss. However, any subsequent recovery in the fair value of an impaired available-for-sale equity security is recognized in other comprehensive income.

Derecognition A financial asset (or, where applicable a part of a financial asset or part of a group of similar financial assets)

is derecognized when:

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

• The company has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full without material delay to a third party under a ‘pass through’ arrangement; and either,

(a) The company has transferred substantially all the risks and rewards of the assets, or

(b) The company has neither transferred nor retained substantially all the risks and rewards of the assets, but has transferred control of the assets.

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

Accounting Policies to Financial Statements Contd...For the year ended 31st March 2016

A N N U A L R E P O R T 2 0 1 6 25

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

Impairment of financial assets The group assesses at each reporting date whether there is any objective evidence that a financial asset or a

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

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

b) Financial Liabilities

Initial recognition and measurement Financial liabilities within the scope of SLFRS/LKAS are recognized when and only when the company

and it’s subsidiaries becomes a party to the contractual provisions of the financial instrument. Financial liabilities are recognized initially at fair value plus in case of financial liabilities which can be classified in to two categories as financial liabilities at fair value through profit and loss and other financial liabilities. Company has classified its financial liabilities in to other financial liability category.

Subsequent measurement The group classifies non derivative financial liability into the other financial liabilities category. Such financial

liabilities are recognized initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition, these financial liabilities are measured at amortized cost using the effective interest method. Such financial liabilities measured at amortized cost includes trade and other payables, interest bearing borrowings, amounts due to related companies etc.

Derecognition A financial liability is derecognized when the obligation under the liability is extinguished. When an existing

financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability, and the difference in the respective carrying amounts is recognized in statement of comprehensive income.

2.3.4 Inventories Inventories are measured at the lower of cost and net realizable value. Net realizable value is the estimated

selling price in the ordinary course of business, less the estimated costs of completion and selling expenses. The cost of inventories is based on a weighted average cost. The cost includes expenditure incurred in acquiring the inventories and bringing them to their existing location and condition. In the case of manufactured inventories, cost includes an appropriate share of factory overheads based on normal operating capacity.

2.3.5 Trade and Other Receivable Trade and other receivables are non-derivative financial assets with fixed or determinable payments. They

are recognized initially at fair value and subsequently measured at amortized cost using the effective interest method, less provision for impairment. A provision for impairment of trade receivables is established when there is objective evidence that the group will not be able to collect all amounts due according to the original terms of the receivables.

Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganization, and default or delinquency in payments are considered indicators that the trade receivable is impaired. The carrying amount of the asset is reduced through the use of an allowance account, and the

Accounting Policies to Financial Statements Contd...For the year ended 31st March 2016

A N N U A L R E P O R T 2 0 1 626

amount of the loss is recognized in the statement of comprehensive income. When a trade receivable is uncollectible, it is written off against the allowance account for trade receivables. Subsequent recoveries of amounts previously written off are credited in the statement of comprehensive income .

2.3.6 Cash and Cash Equivalents Cash and cash equivalents in the Statement of Financial Position comprise cash at banks and in hand. Cash and

Bank balances are stated at recoverable value. Bank overdrafts and short term borrowings that are repayable on demand and forming an integral part of the company’s cash management are included as a component of cash and cash equivalents for the purpose of the Statement of Cash flows.

2.3.7 Other Current Assets Other current assets include advances, deposits and prepayments. Advances and Deposits are carried at

historical value less impairment and amortized over the period during which it is utilized.

2.3.8 Stated capital Ordinary shares with discretionary dividends are classified as equity. Other shares are classified as equity or

liability according to the economic substance of the particular instrument. Distribution to holders of a financial instrument classified as an equity instrument is charged directly to equity.

2.4 Liabilities and Provisions Liabilities classified as current liabilities on the statement of financial position are those which fall due for

payment on demand of the creditor or within one year from the Statement of Financial Position date. Non-current liabilities are those balances that fall due for payment after one year from the Statement of Financial Position date. All known liabilities have been accounted for in preparing these financial statements. Provisions and liabilities are recognized when the company and it’s subsidiaries has a legal or constructive obligation as a result of past events and it is probable that an outflow of economic benefits will be required to settle the obligation.

2.4.1 Loans-Term and Short-Term Borrowings Borrowings are initially recognized at fair value net of transactions cost. Subsequently, they are stated at

amortized cost; any difference between the proceeds (Net of transaction cost) and the repayable amount (including interest) is recognized in the Statement of Comprehensive Income over the period of the loan using effective interest method.

2.4.2 Trade and Other Payable Trade and other payables are obligations to pay for goods or services that have been acquired in the ordinary

course of business from suppliers. Accounts payable are classified as current liabilities if payment is due within one (1) year or less (During the normal operating cycle of the business if longer). If not, they are presented as non-current liabilities.

2.4.3 Provisions A provision is recognized if, as a result of a past event, the group has a present legal or constructive obligation

that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability. The unwinding of the discount is recognized as finance cost.

A provision for warranties is recognized when the underlying products or services are sold. The provision is based on historical warranty data and a weighing of possible outcomes against their associated probabilities.

2.4.4 Retirement Benefit Obligation

a) Defined Benefit Plan - Gratuity Defined benefit plan defines an amount of benefit that an employee will receive on retirement, usually

dependent on one or more factors such as years of service and compensation. The defined benefit plan comprises the gratuity provided under the Act, No 12 of 1983.

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A N N U A L R E P O R T 2 0 1 6 27

The liability is valued using the gratuity formula prescribed by the Institute of Chartered Accountants of Sri Lanka. The charge of the year and interest for the year computed based on above formula is recorded in the Income Statement. Deficit/surplus for the year is charged/credited to other comprehensive income. The liability is not externally funded.

b) Defined Contribution Plans - EPF & ETF A defined contribution plan is a post employment benefit plan under which an entity pays fixed contributions

into a separate entity and will have no legal or constructive obligations to pay further amounts. Obligations for contributions to a defined contribution plan are recognized as an employee benefit expense in the income statement in the periods during which services are rendered by employees. The company contributes 12% and 3% of gross emoluments of employees to the Employees’ Provident Fund and to the Employees’ Trust Fund respectively.

2.4.5 Other liabilities Other Liabilities include interest, fees and expenses and other provisions. These liabilities are recorded at

amounts expected to be payable at the Reporting date.

2.4.6 Contingent liabilities and contingent assets “The group do not recognize a contingent liability but disclose its existence in the financial statements. A

contingent liability is a possible obligation that arises from past events whose existence will be confirmed by uncertain future events beyond the control of the group or a present obligation that is not recognized because it is not probable that an outflow of resources will be required to settle the obligation. A contingent liability also arises in the extremely rare circumstance where there is a liability that cannot be recognized because it cannot be measured reliably.“

A contingent asset is a possible asset that arises from past events whose existence will be confirmed by uncertain future events beyond the control of the group. The group do not recognize a contingent asset but discloses its existence where inflows of economic benefits are probable, but not virtually certain.

2.4.7 Taxation Income tax expense comprises of current and deferred tax. The income tax expense is recognized in profit or

loss except to the extent that it relates to the items recognized directly in the statement of other comprehensive income or statement of changes in equity, in which case it is recognized directly in the respective statements.

a) Current Taxes The current tax is the expected tax payable on the taxable income for the year, using tax rates enacted

or substantially enacted at the reporting date, and any adjustment to tax payable in respect of previous years.

The provision for income tax is based on the elements of income and expenditure as reported in the financial statements and computed in accordance with the provisions of the Inland Revenue Act No. 10 of 2006.

b) Deferred Taxation Deferred tax is provided using liability method on temporary differences as at the reporting date between

the tax written down value and their carrying amounts in financial reporting of the company and it’s subsidiaries for financial reporting purposes and the amounts used for taxation purposes.

Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by the reporting date.

A deferred tax asset is recognized for unused tax losses and deductible temporary differences, to the extent that it is probable that future taxable profits will be available against which they can be utilized. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realized.

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A N N U A L R E P O R T 2 0 1 628

The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that is no longer probable that sufficient taxable profits will be available to allow all or part of the deferred tax assets to be utilized. Unrecognized deferred tax assets are reassessed at each reporting date and are recognized to the extent that is probable that future taxable profits will allow the deferred tax assets to be recovered.

2.5 Revenue and Expenditure

2.5.1 Revenue Recognition Revenue is recognized to the extent that it is probable that the economic benefits will flow to the group and

the revenue and associated costs incurred or to be incurred can be reliably measured. Revenue is measured at the fair value of the consideration received or receivable net of trade discounts and sales taxes. The group separately identifies different component of a single transaction. The following specific criteria are used for the purpose of recognition of revenue.

2.5.2 Sale of Goods “Revenue from the sale of goods is measured at fair value of the consideration received or receivable, net of

returns, trade discounts and volume rebates. Revenue is recognized when the significant risks and rewards of ownership have been transferred to the buyer, recovery of the consideration is probable, the associated cost and possible return of goods can be estimated reliably, there is no continuing management involvement with goods and the amount of the revenue can be measured reliably. “

2.5.3 Rendering of Services Revenue is recognized at the fair value of the consideration received or receivable net of trade discounts and

sales-related taxes collected on behalf of the government of Sri Lanka when the outcome of a transaction involving the rendering of services can be estimated reliably by reference to the stage of completion of the transaction. The outcome of a transaction is estimated when all the following conditions are satisfied,

- The amount of revenue can be measure reliably, - It is probable that the economic benefits associated with the transaction will flow to the entity, - the stage of completion of the transaction at the end of the reporting period can be measure reliably, and, - the costs incurred for the transaction and the costs to complete the transaction can be measure reliably.

2.5.4 Interest Interest income is recognized as it accrues in the statement of comprehensive income using effective interest

method.

2.5.5 Dividends Dividend is recognized when the right to receive such is established, which is generally when the dividend is

declared.

2.5.6 Gains and Losses Net gains and losses of a revenue nature arising from the disposal of property, plant and equipment and other

non current assets, including investments, are accounted for in the statement of comprehensive income, after deducting from the proceeds on disposal, the carrying amount of such assets and the related selling expenses.

2.5.7 Others Other income is recognized on an accrual basis.

2.5.8 Expenditure Recognition Expenses are recognized in the statement of comprehensive income on the basis of a direct association between

the cost incurred and the earning of specific items of income. All expenditure incurred in the running of the business and in maintaining the property, plant and equipment in a state of efficiency has been charged to the statement of comprehensive income.

For the purpose of presentation of the statement of comprehensive income, the “function of expenses” method has been adopted, on the basis that it presents fairly the elements of the group’s performance.

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A N N U A L R E P O R T 2 0 1 6 29

2.5.9 Borrowing Costs Borrowing costs directly attributable to the acquisition, construction or production of an asset that necessarily

takes a substantial period of time to get ready for its intended use or sale are capitalized as part of the cost of the respective assets.

All other borrowing costs are expensed in the period they occur. Borrowing costs consist of interest and other costs that the company incurs in connection with the borrowing of funds.

Finance Income and Costs

Finance income comprises of interest income. Interest income is recognized in the statement of comprehensive income as it accrues, using the effective interest method.

Finance expense comprises interest payable on all financial liabilities such as term loans, overdrafts and finance leases.

Foreign currency gains and losses are reported on a net basis as either finance income or finance cost depending on whether foreign currency movements are in a net gain or net loss position.

2.5.10 Warranty Costs

Costs incurred by the company and it’s subsidiaries under the terms of the warranty agreement between principal suppliers are reimbursed to the group. Any amounts that are not reimbursed under the warranty agreement are charged to the statement of comprehensive income.

2.6 Statement of Cash Flows The statements of cash flow have been prepared using the “indirect method” in accordance with LKAS 07 on

‘Statement of Cash Flows’. Cash and cash equivalents comprise cash in hand and cash at bank that are readily convertible to known amounts of cash and are subject to an insignificant risk of changes in value.

Interest paid is classified under operating cash flows. Dividend received and interest income is classified under cash flows from investing activities. Dividend paid are classified under cash flow from financing activities.

Bank overdraft and short term borrowings that are repayable on demand and forming an integral part of the group’s cash management are included as a component of cash and cash equivalents for the purpose of the Statement of Cash Flows.

2.7 Events Occurring after the Reporting Date In accordance with the LKAS 10 on ‘Events After the Reporting Period’, events after the reporting date are those

events that occur between the reporting date and the date when the financial statements are authorized to issue. All material post reporting date events have been considered and where appropriate adjustments or disclosures have been made in the respective Notes to the financial statements.

2.8 Earnings Per Share (EPS) The financial statements present earnings per share (EPS) for its ordinary shareholders. The EPS is calculated

by dividing the profit or loss attributable to ordinary shareholders of the company by the weighted average number of ordinary shares outstanding during the period.

2.9 Related party transactions Disclosure has been made in respect of the transactions in which one party has the ability to control or exercise

significant influence over the financial and operating policies/decisions of the other, irrespective of whether a price is charged.

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A N N U A L R E P O R T 2 0 1 630

2.10 NEW ACCOUNTING STANDARDS ISSUED BUT NOT EFFECTIVE AS AT THE REPORTING DATE

The following Sri Lanka Accounting Standards have been issued by the Institute of Chartered Accountants of Sri Lanka which are not yet effective as at 31 st March 2015.

• SLFRS 15 Revenue from contracts with customers

The objective of this standard is to establish the principles that an entity shall apply to report useful information to users of financial statements about the nature,amount,timing and uncertainty of revenue and cash flows arising from a contract with a customer.

SLFRS 15 will become effective on 01st January 2017.

• SLFRS 09 Financial Instruments

This standard will replace Sri Lanka accounting Standard - LKAS 39(Financial Instruments :Recognition and measurement).The improvements introduced by SLFRS 9 includes a logical model for classification and measurement, a single, forward-looking ‘expected loss’ impairment model and a substantially-reformed approach to hedge accounting.

SLFRS 9 will become effective on 01st January 2018.

• SLFRS 14 Regulatory Deferral Accounts

The objective of this standard is to specify the financial reporting requirements for regulatory deferral account balances that arise when an entity provides goods or services to customers at a price or rate that is subject to rate regulation.

2.11 FINANCIAL RISK MANAGEMENT

The group is exposed to a range of financial risks through its number of financial instruments. In particular, the key financial risk categories are:

• Credit Risk / Counterparty risk • Liquidity risk • Market risk • Operational risk

This note presents information about the group’s exposure to each of the above risks, the objectives, policies and processes for measuring and managing risk and management of capital. Further quantitative disclosures are included throughout these financial statements.

2.12 Risk Management Framework

The Board of Directors has overall responsibility for the establishment and oversight of the risk management framework. The group risk management processes are established to identify and analyse the risks faced by the group, to set appropriate risk limits and controls and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and the group’s activities.

The Board of Directors oversees how management monitors compliance with the group’s risk management policies and procedures, and reviews the adequacy of the risk management framework in relation to the risks faced by the group.

Credit Risk / Counterparty risk Credit risk arises from credit exposure to unsecured customers and cash and cash equivalents and deposits/

investments with banks and financial institutions and when banks/financial institutions fail to discharge their contractual interest and principal on their debt obligations due to declining financial strength. The credit quality of financial assets that are neither past due nor impaired can be assessed by reference to external credit ratings or to historical information about counterparty default rates.

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A N N U A L R E P O R T 2 0 1 6 31

Management of Credit Risk The group manages its credit risk with different types of instruments as follows

Fixed deposits Deposits are placed only with reputed and established commercial banks and other licensed financial

institutions.

Trade and other receivables The group is responsible for managing and analysing the credit risk for each of their new customers before

standard payment and delivery terms and conditions are offered. The management assesses the credit quality of the customer, taking into account its financial position, past experience and other factors. Sources of credit risks are identified, assessed and monitored and the group has policies to manage the risks within various subcategories. The utilization of credit limits is regularly monitored. Management does not expect any losses from non-performance by these counterparties.

The group establishes an allowance for impairment that represents its estimate of incurred losses in respect of trade and other receivables. The main components of this allowance are a specific loss component that relates to individually significant exposures, and a collective loss component established for group’s of similar assets in respect of losses that have been incurred but not yet identified. The collective loss allowance is determined based on historical data of payment statistics for similar financial assets.

The maximum exposure to credit risk for trade and other receivables at the reporting date is Rs. 16,498,825 (2015 - Rs. 12,483,374) which is recorded in Note 15 and 16.

Cash and Cash Equivalents The group held cash and cash equivalents of Rs. 2,340,303 (2015 - Rs. 176,738) which is recorded in Note 17

which represents its maximum credit exposure of these assets.

Respective credit ratings of banks in which company cash balances held are as follows,

• Commercial Bank of Ceylon PLC - AA+(lka) • Nations Trust Bank - A (lka)

2.13 Liquidity risk

Liquidity risk is the risk that the group will encounter difficulty in meeting the obligation associated with its financial liabilities that are settled by delivering cash or other financial assets.

Management of Liquidity Risk The group’s approach to managing liquidity is to ensure, that it will always have sufficient liquidity to meet

its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to its reputation. The group’s approach to managing its liquidity risk is as follows:

• Regularly monitoring of the group’s assets and liabilities in order to forecast cash flows for up to future period.

• Monitoring the facility limits i.e. overdrafts with banks.

The table below summarizes the maturity profile of the group’s financial liabilities based on contractual undiscounted payments.

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A N N U A L R E P O R T 2 0 1 632

Market risk Market risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because

of changes in market prices. Market risk comprises three types of risks;

• Foreign exchange risk • Interest rate risk • Equity price risk

Foreign exchange risk Foreign currency risk is the risk that the value of a financial instrument will fluctuate due to changes in foreign

exchange rates. The group does not use any derivative financial instruments to hedge the risk. The group is not exposed to foreign currency risk as it does not operate internationally.

Interest rate risk Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate

because of changes in market interest rates. The group’s exposure to the risk of changes in market interest rates relates primarily to the group’s long-term debt obligations with floating interest rates.

Equity price risk The Group’s listed and unlisted equity securities are susceptible to market price risk arising from uncertainties

about future values of the investment securities

Operational risk Operational risk is the risk of direct or indirect loss arising from a wide variety of causes associated with the

group’s processes, personnel, technology and infrastructure, and from external factors other than credit, market and liquidity risks such as those arising from legal and regulatory requirements and generally accepted standards of corporate behaviour. Operational risks arise from all of the group’s operations.

• Requirements for appropriate segregation of duties, including the independent authorization of transactions • Compliance with regulatory and other legal requirements • Training and professional development • Ethical and business standards

2.15 Capital Management

The group’s objectives when managing capital are to safeguard the group’s ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital. Consistent with others in the industry, capital is monitored on the basis of the gearing ratio.

Less than 3 3 to 12 1 to 5 > 5 As at 31st March 2016 On demand months months years years Total (Rs)

Loans and borrowings - 1,809,852 - - - 1,809,852 Other liabilities - - Trade and other payable - - 14,293,021 - - 14,293,021 - 569,293 5,925,380 - - 6,494,673

Less than 3 3 to 12 1 to 5 > 5 As at 31st March 2015 On demand months months years years Total (Rs)

Loans and borrowings - 569,293 - - - 932,499 Other liabilities - - - - - - Trade and other payable - - - - - 6,214,108 - 569,293 - - - 6,783,401

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A N N U A L R E P O R T 2 0 1 6 33

Notes to the Financial Statements

Group Company

03. Revenue Turnover - Machinery Hire 11,400,000 8,590,592 - - Less : NBT Expense - - - - 11,400,000 8,590,592 - -

04. Gain/(Losses) And Other Income Profits on Investment Disposal 217,178 - 217,178 - Sundry Income - 600 - 600 Creditor Write Back 125,330 9,071 125,330 - Dividend Income 33,750 20,863 33,750 990 Loss on Disposal of Subsidiary (Note 04.1) (1,085,370) - - - (709,112) 30,534 376,258 1,590

04.1 Loss on Disposal of Subsidiary The group disposed off its holding in CP Group Investment (Pvt) Ltd. on 24th August 2015. Therefore, with effect

from 24th August 2015 the group ceased its controlling interest in this subsidiary and has sold 49.99% share holding. Loss on disposal of Subsidiary is as follows:

Net Asset derecognized 2,887,195 Less Sale Proceeds (75,000) Non Controlling Interest Derecognized (1,458,300) Cumulative Gain on Available for Sale Finance Assets Reclassified from Equity on loss of control of subsidiary (268,525) 1,085,370 05. Net Finance Income05.1 Finance Cost Interest Expenses (144,555) (56,600) (31,337) - Other Finance Charges - (68) - - Total Finance Cost (144,555) (56,668) (31,337) -

05.2 Finance Income Interest Income 392,641 669,575 43,849 134,625 Total Finance Income 392,641 669,575 43,849 134,625

Net Finance Income 248,086 612,907 12,512 134,625

06. Profit Before Income Tax Expense Profit before income tax expense is stated after charging all expenses including the following :

Included in Administrative Expenses Director Emoluments 274,601 500,236 187,367 396,189 Directors Fees & Travelling 186,000 226,200 90,000 147,000 Auditors Remuneration 446,969 438,977 239,157 172,200 Depreciation 1,101,049 1,152,780 57,639 97,045 Salaries 8,861,026 8,611,353 - 1,620,415 EPF 551,959 675,697 - 151,422 ETF 137,442 168,929 - 37,857 Bonus 301,967 373,079 - 70,982 Power & Electricity 125,454 575,225 125,454 575,225 Medical Aid & Welfare 27,153 245,451 27,153 245,451 Telephone 67,362 323,811 67,362 323,811 Security Expenses - 538,556 - 538,556 Machinery Hire Charges - 3,094,245 - 3,094,245 Outsourced services - Purchases - 883,475 - 883,475

For the year ended 31st March 2016 2015/2016 2014/2015 2015/2016 2014/2015 Rs. Rs. Rs. Rs.

A N N U A L R E P O R T 2 0 1 634

07. Income Tax Expenses Current Income Tax Expense Tax Charge on Profit for the Year (07.1) 71,460 155,448 7,981 24,502 Adjustments in respect of current income tax of previous year - - - - 71,460 155,448 7,981 24,502 Deferred Income Tax Expense Relating to Origination and Reversal of Temporary Differences (Note 12) (2,505,662) (1,037,202) (1,393,176) (322,492) Income Tax expense in Statement of Comprehensive Income (2,434,202) (881,754) (1,385,195) (297,990

07.1 Reconciliation Between Current Tax Expense and the Product of Accounting Profit Accounting Profit Before Income Taxation (9,969,823) (7,805,957) (5,808,121) (2,600,788)

Income Not Subject to Income Tax - (129,371) - -Aggregate Disallowed Items 3,111,434 1,820,896 1,212,930 194,476Aggregate Allowable Expenses (1,118,250) (1,656,962) - (56,790)Aggregate Allowable Income (77,599) - (77,599) (135,615)Taxable Profits from ordinary activities (8,054,238) (8,440,969) (4,672,790) (2,598,717)Adjusted Business Profit - 81,625 - -Interest Income 392,641 - 43,849 134,625Tax loss utilised for the year (137,424) (196,027) (15,347) (47,119)Taxable Income 255,217 555,173 28,502 87,506Tax at 28% or Other 71,460 155,448 7,981 24,502Tax on profit for the year 71,460 155,448 7,981 24,502

Tax loss at the beginning of the year (1,499,621) - 6,062,209 4,805,734Tax Loss for the Year 4,672,790 (1,303,594) 4,672,790 1,303,594Tax Loss utilised for the Year (137,424) (196,027) (15,347) (47,119)Tax loss at the end of the year 3,035,745 (1,499,621) 10,719,652 6,062,209

Kalamazoo Systems PLC and it’s subsidiaries are liable for income tax at a rate of 28% on its business profits and other profits.

Deferred tax has been computed using the future effective tax rate of 28%.

08. Discontinued Operations The company has ceased its operations from 01st April 2015 and the results of the discontinued operation

included in the loss for the year set out as below.

Revenue - 35,586,482 - 35,586,482 Cost of Sales - (28,272,792) - (31,367,037) Gross Profit - 7,313,690 - 4,219,445 Selling and Distribution Costs - (166,691) - (166,691) Administration Expenses (260,547) (2,697,061) (260,547) (2,697,061) Finance Expenses - (60,570) - (60,570) Profit / (Loss) Before Income Tax (260,547) 4,389,368 (260,547) 1,295,123 Income Tax Expense - - - Profit / (Loss) for the Year (260,547) 4,389,368 (260,547) 1,295,123

Notes to the Financial Statements Contd...

Group Company

For the year ended 31st March 2016 2015/2016 2014/2015 2015/2016 2014/2015 Rs. Rs. Rs. Rs.

A N N U A L R E P O R T 2 0 1 6 35

Notes to the Financial Statements Contd...

At Cost Plant and Machinery 14,388,920 - 14,388,920 Furniture & Fittings 1,207,913 - 1,207,913 Electrical Installation 4,762,116 - 4,762,116 Office Appliances 2,729,263 - 2,729,263 Computers 2,950,820 - 2,950,820 Motor Vehicle 6,725 - 6,725 Stores 134,750 - 134,750 Tools 115,280 - 115,280 Total Cost of Freehold Assets 26,295,787 - 26,295,787

Total Cost Property, Plant & Equipment 26,295,787 - 26,295,787

Balance Additions/ Balance As at Transfers/ As at 01.04.2015 Acquisitions 31.03.2014 Rs. Rs. Rs.

Depreciation Plant and Machinery 10,989,321 1,042,893 12,032,214 Furniture & Fittings 1,162,816 48,526 1,211,343 Electrical Installation 4,715,779 17,837 4,733,616 Office Appliances 2,616,017 40,942 2,656,959 Computers 2,950,840 (20) 2,950,820 Motor Vehicle 6,756 (31) 6,726 Stores 183,839 (49,089) 134,750 Tools 115,291 (11) 115,280 Total Depreciation of Freehold Assets 22,740,659 1,101,049 23,841,708

Total Depreciation Property, Plant & Equipment 22,740,659 1,101,049 23,841,708

Total Carrying Amount of Property, Plant & Equipment 3,555,128 - 2,454,079

10.1 GROUP Balance Additions/ Balance As at Transfers/ As at COST 01.04.2015 Acquisitions 31.03.2016 Rs. Rs. Rs.

09. Loss Per Share The basic earnings per share is calculated by dividing the net profits for the year attributable to ordinary

shareholders by weighted average number of ordinary shares outstanding during the year.

Amounts used as Numerator Profit Attributable to Ordinary Shareholders (7,795,525) (2,613,064) (4,422,926) (2,302,798)

Number of Ordinary Shares used as the Denominator Number of Ordinary Shares in Issue 50,000 50,000 50,000 50,000 Loss Per Share (Rs. & Cts.) (156) (52) (88) (46)

10. Property, Plant and Equipment

Group Company

2015/2016 2014/2015 2015/2016 2014/2015 Rs. Rs. Rs. Rs.

For the year ended 31st March 2016

A N N U A L R E P O R T 2 0 1 636

At Cost Furniture and Fittings 481,103 - 481,103 Electrical Installation 3,263,287 - 3,263,287 Office Appliances 863,559 - 863,559 Computers 1,352,961 - 1,352,961 Total Cost of Freehold assets 5,960,910 - 5,960,910

Total Cost Property, Plant and Equipment 5,960,910 - 5,960,910

Balance Additions/ Balance As at Transfers/ As at 01.04.2014 Acquisitions 31.03.2015 Rs. Rs. Rs.

Depreciation Plant and Machinery 483,496 1,036 484,532 Electrical Installation 3,216,787 18,000 3,234,787 Office Appliances 752,654 38,603 791,259

Computers 1,352,961 - 1,352,961 Total Depreciation of Freehold Assets 5,805,898 57,639 5,863,537

Total Depreciation Property, Plant and Equipment 5,805,898 57,639 5,863,357

Total Carrying Amount of Property, Plant and Equipment 155,012 - 97,373

Notes to the Financial Statements Contd...

10.2 COMPANY Balance Additions/ Balance As at Transfers/ As at COST 01.04.2015 Acquisitions 31.03.2016 Rs. Rs. Rs.

10. Property, Plant and Equipment

For the year ended 31st March 2016

A N N U A L R E P O R T 2 0 1 6 37

Notes to the Financial Statements Contd...

11. Non Current Financial Assets Group Company For the year ended 31.03.2016 31.03.2015 31.03.2016 31.03.2015 Rs. Rs. Rs. Rs.

Financial Assets - Available for Sale (Note 11.1) - 412,360 8,000,000 8,260,000 - 412,360 8,000,000 8,260,000

11.1 Financial Assets - Available For Sale

Fair Value Fair Value As at As at As at As at 31.03.2016 31.03.2015 31.03.2016 31.03.2015

Investment in Equity Securities Quoted Equity Securities - 412,360 - 185,000 Private Equity - - 8,000,000 8,075,000 Total Investment in Equity Securities - 412,360 8,000,000 8,260,000

All the financial investments are carried at fair value except for unquoted equity securities whose fair value cannot reliably be measured is carried at cost.

GROUP Investment in Equity Securities - Quoted Cost Fair value Cost Fair value No of As at As at No of As at As at Shares 31.03.2016 31.03.2016 Shares 31.03.2015 31.03.2015

CT Land Development PLC - - - 6,496 39,980 227,360 Ceylon Printers PLC - - - 100 10,147 185,000 Total Investment in Quoted Equity Securities - - - - 50,127 412,360

Market value per share is based on the list published by Colombo Stock Exchange.

COMPANY Investment Equity Securities - Quoted Cost Fair value Cost Fair value No of As at As at No of As at As at Shares 31.03.2016 31.03.2016 Shares 31.03.2015 31.03.2015

Ceylon Printers PLC - - - 100 10,147 185,000 Total Investment in Quoted Equity Securities - - - - 10,147 185,000

Investments In Private Equity Percentage No of Cost as at Percentage No of Cost as at of Holding Shares 31.03.2016 of Holding Shares 31.03.2016

Investment in Unlisted Companies

Subsidiary Companies Kalamazoo Industries (Pvt) Ltd 99.97% 800,000 8,000,000 99.97% 800,000 8,000,000 CP Group Investment (Pvt) Ltd - - - 49,99% 7,500 75,000 Total Investments in Private Equity - - 8,000,000 - - 8,000,000

Total Investments in Equity Securities - - 8,000,000 - - 8,260,000

For the year ended 31st March 2016

A N N U A L R E P O R T 2 0 1 638

Notes to the Financial Statements Contd...

Group Company

12. Deferred Tax Assets As at the Beginning of the Year 3,511,069 2,473,867 1,879,543 1,557,051 Recognised in Statement of Comprehensive Income 2,505,662 1,037,202 1,393,176 322,492 As at the end of the year 6,016,731 3,511,069 3,272,719 1,879,543

Deferred Tax Assets/(Liabilities) Originated due to Temporary Differences on following assets and liability bases:

On Retirement Benefit Obligation 1,295,237 938,351 - - On Tax Loss carried forward 4,947,190 2,875,994 3,299,983 1,922,947 On Provisions for contingent assets and liabilities - - - - Total Deferred Tax Assets 6,242,427 3,814,345 3,299,983 1,922,947

Deferred Tax Assets/(Liabilities) Originated due to Temporary Differences on following assets and liability bases:

On Property Plant & Equipment (225,696) (303,276) (27,264) (43,404) Total Deferred Tax Liabilities (225,696) (303,276) (27,264) (43,404)

Net Deferred Tax Assets 6,016,731 3,511,069 3,272,719 1,879,543 13. Inventories Binders - 492,549 - 492,549 Raw Material - 1,691,400 - 1,691,400 WIP - 119,039 - 119,039 Stock forms - 761,286 - 761,286 Total Inventories - 3,064,274 - 3,064,274

14. Trade And Other Receivable

Trade Debtors 814,161 2,511,720 814,161 680,684 Advances 812,307 909,878 - - Deposits and Prepayments 1,347,299 1,346,299 996,299 996,299 VAT Receivables 1,920,295 1,920,295 - - WHT Receivable 2,697 10,085 - 1,881 Other Receivables 3,200 54,949 3,200 3,200 Loan Temporary 4,000,000 - - - Total Trade and Other Receivables 8,899,959 6,753,226 1,813,660 1,682,064

15. Due from related companies Relationship Office Equipment Ltd Related Entity 2,210,963 - 6,000 - Ceylon Printers PLC Related Entity 5,383,902 4,491,082 133,969 3,228,140 Paragon Ceylon PLC Related Entity - - - - Kalamazoo Industries (Pvt) Ltd. Subsidiary 4,000 - 4,000 -

International Computers (Ceylon) Ltd Related Entity 4,001 1,239,066 4,001 1,239,066 7,598,866 5,730,148 147,970 4,467,206

16. Other Financial Assets Financial Assets - Held to Maturity (Note 16.1) 5,087,281 12,069,949 - 2,310,582 5,087,281 12,069,949 - 2,310,582

16.1 Financial Assets - Held to MaturityBank Deposits (Non Equity Investments) 5,087,281 12,069,949 - 2,310,582 5,087,281 12,069,949 - 2,310,582

Bank deposits include fixed deposits which are measured at amortised cost using the effective interest rate. This financial assets are expected to be recovered through contractual cash flows.

As at 31.03.2016 31.03.2015 31.03.2016 31.03.2015 Rs. Rs. Rs. Rs.

A N N U A L R E P O R T 2 0 1 6 39

Notes to the Financial Statements Contd...

Group Company

17. Cash And Cash Equivalents Components of Cash and Cash Equivalents

17.1 Favourable Cash and Cash Equivalent Balances Cash at Bank 4,112,104 707,981 3,974,162 364,646 Cash in Hand 38,051 38,051 30,001 30,001

4,150,155 746,032 4,004,163 394,647

17.2 Unfavourable Cash and Cash Equivalent Balances Bank Overdraft (1,809,852) (569,293) - (2,694) (1,809,852) (569,293) - (2,694) Cash and cash Equivalent for the purpose of Cash Flow Statement 2,340,303 176,739 4,004,163 391,953

18. Stated Capital 50,000 Number of Ordinary Shares in issue 500,000 500,000 500,000 500,000 500,000 500,000 500,000 500,000

19. Retirement Benefit Obligation Movement in the defined benefit obligation recognized in the financial position

As at the beginning of the year 3,351,254 2,867,000 - - Transfers - - - - Benefits Paid (294,250) (84,000) - - Charge for the Period 1,568,841 568,254 - - As at the end of the year 4,625,845 3,351,254 - -

Change in the present value of defined benefit obligation

As at the beginning of the year 3,351,254 2,867,001 - - Interest for the year 233,477 279,104 - - Charge for the year 546,646 324,176 - - Deficit / (Surplus) charge for the year 788,718 (35,027) - - Transfers - - - - Benefits paid (294,250) (84,000) - - As at the end of the year 4,625,845 3,351,254 - -

The amounts recognized in the statement of comprehensive income

Interest for the year 233,477 279,105 - - Charge for the year 546,646 324,176 - - Deficit / (Surplus) charge for the year 788,718 (35,027) - - Total 1,568,841 568,254 - -

The employee benefit liability of the company based on the gratuity formula in Appendix E of LKAS 19 - Employee Benefits.

The principle assumptions used in determining the cost of employee benefits were

2016 2015

Discount rate 10.5% p.a. 10.4% p.a.

Salary increments will range between 10% p.a. 10% p.a.

Retirement age 55 Years 80 Years

The company will continue in business as a going concern Assumptions regarding future mortality are based on published statistics and mortality tables.

As at 31.03.2016 31.03.2015 31.03.2016 31.03.2015 Rs. Rs. Rs. Rs.

A N N U A L R E P O R T 2 0 1 640

Notes to the Financial Statements Contd...

Group Company

20. Trade And Other Payables Trade Creditors 1,006,142 701,014 642,905 554,042 Provision for Bad Debts 288,729 288,729 288,729 288,729 NBT Payable - 11,443 - 11,443 VAT Payable - 74,180 - 74,180 Expense Creditors 1,537,467 1,536,025 172,700 299,782 Advance Rd from Inter Co CP PLC 10,400,000 - 10,400,000 - Dividend Payable - 67,518 - - 13,232,338 2,678,909 11,504,334 1,228,176

21. Due To Related Companies Relationship International Computers (Ceylon) Ltd. Related Entity 74,426 74,426 - - Kalamazoo Industries (Pvt) Ltd. Subsidiary - - - 5,505,365 Office Equipment PLC Related Entity - 2,168,893 - 1,891,856 Paragon Ceylon PLC Related Entity 986,256 1,291,880 3,000 982,624 1,060,682 3,535,199 3,000 8,379,845

22. Loans And Borrowings Other current loans Bank overdraft 1,809,852 569,293 - 2,694 Total Current interest bearing loans & borrowings 1,809,852 569,293 - 2,694

23. Commitments And Contingencies There were no commitments and contingencies existing as at the reporting date.

24. Assets Pledged The following assets have been pledged to Commercial Bank of Ceylon PLC, as securities for the facilities obtained.

Facility Issued to Kalamazoo Systems PLC

Facility Amount Security Assets

Guarantee, L.C’s and Rs. 2,293,650 of Lien Over Fixed Deposits of Other and Overdraft Facility From Kalamazoo Systems PLC Commercial Bank of Financial Commercial Bank of Ceylon PLC Rs. 1,000,000 of Ceylon PLC Assets Kalamazoo Industries (Pvt.) Ltd 25. Events Occurring After The Reporting Date

No circumstances have arisen, since the reporting date, which would require adjustments to, or disclosure, in the financial statements.

As at 31.03.2016 31.03.2015 31.03.2016 31.03.2015 Rs. Rs. Rs. Rs.

A N N U A L R E P O R T 2 0 1 6 41

Notes to the Financial Statements Contd...

26. DIRECTORS INTEREST IN CONTRACTS The Directors of the company are also the Directors of following companies.

Names of Directors

Mr. D.S Mr. S.B. Mr. M.G.C. Mr. P.S.R. Mr. C.M.U Mr. H. Mr. D.J Abeysekara Dodanwela Senaviratne Casie Chitty Weerawardena Somashantha Silva

Name of Company01. Ceylon Printers PLC Nil Nil Nil Yes Nil Nil Nil02. Office Equipment PLC Nil Nil Nil Yes Nil Nil Nil04. Paragon Ceylon PLC Nil Nil Nil Yes Nil Nil Nil

Other than disclosed above none of the Directors are either directly or indirectly interested in any existing or proposed contracts with the Company.

Ceylon Printers PLC Sales of goods and services - 5,950 - 5,950 Kalamazoo Industries (Pvt) Ltd Purchase of goods & Services - - - 3,094,245 Paragon Ceylon PLC Purchase of goods & Services - 1,327,445 429,065 429,065 - 1,333,395 429,065 3,529,260

Group Company

Value (Rs.) Value (Rs.) Value (Rs.) Value (Rs.) Name of Company Nature of Transaction 2015/2016 2014/2015 2015/2016 2014/2015

27. Related Party Transactions The company has entered into transactions during the year with following companies in which a Director of

the company is also a Director of the said company.

Outstanding balances arising from sale/purchase of goods/services.

Group Company

Value (Rs.) Value (Rs.) Value (Rs.) Value (Rs.) 31.03.2016 31.03.2015 31.03.2016 31.03.2016

There have been no related party transactions other than those disclosed above to be disclosed in the financial statements.

Due From Related Companies Kalamazoo Industries (Private) Ltd - - - - International Computers (Ceylon) Ltd 4,001 1,239,066 4,001 1,239,066 Office Equipment PLC 2,210,963 - 6,000 - Ceylon Printers PLC 5,383,902 4,491,082 133,969 3,228,140 Paragon Ceylon PLC - - - Kalamazoo Industries (Pvt.) Ltd. 4,000 4,000 - - 7,598,866 5,730,148 147,970 4,467,206

Due To Related Companies Kalamazoo Industries (Private) Ltd - - - 5,505,365 Paragon Ceylon PLC 986,256 1,291,880 3,000 982,624 Office Equipment PLC - 2,168,893 - 1,891,856 International Computers (Ceylon) Ltd 74,426 74,426 - - 1,060,682 3,535,199 3,000 8,379,845

For the year ended 31st March 2016

A N N U A L R E P O R T 2 0 1 642

Notes

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A N N U A L R E P O R T 2 0 1 6 43

Form of Proxy

For Against

01. To receive and consider the Report of the Board of Directors on the affairs of the Company and the Financial Statements for the year ended 31st March 2016 and the Report of the Auditors thereon.

02. To re-elect Mr. P. S. R. Casie Chitty who retires by rotation in terms of Article 85 of the Articles of Association as a Director of the Company.

03. To re-elect Mr. D. S Abeysekera who retires in terms of Article 91 of the Articles of Association as a Director of the Company.

04. To re-elect Mr. C. M. U. Weerawardena who retires in terms of Article 91 of the Articles of Association as a Director of the Company.

05. To re-elect Mr. H. Somashantha who retires in terms of Article 91 of the Articles of Association as a Director of the Company.

06. To re-elect Mr. D. J. Silva who retires in terms of Article 91 of the Articles of Association as a Director of the Company.

07. To re-elect Mr. S. V. Rajiyah who retires in terms of Article 91 of the Articles of Association as a Director of the Company.

08. To re-elect Mr. P. Gunathilake who retires in terms of Article 91 of the Articles of Association as a Director of the Company.

09. To re-elect Mr. S. N. Alles who retires in terms of Article 91 of the Articles of Association as a Director of the Company.

10. To re-elect Mr. M. R. Ratnasabapathy who retires in terms of Article 91 of the Articles of Association as a Director of the Company.

11. To appoint Messrs. Kreston M N S & Co. as Auditors and authorize the Directors to determine their remuneration.

12. To authorize the Directors to determine and make donations to charities for the year ending 31st March 2017 and up to the date of the next Annual General Meeting.

* The proxy may vote as he/she thinks fit on any other resolution brought before the Meeting.

Dated this ………………………………. day of …………………………….. 2016

………………………….......... ....................................................... Date Signature of Member(s)

I/We………………………………………………………………………………………………………...........................

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

being a member /members of Kalamazoo Systems PLC hereby appoint,

(i) …………………………………………………………………………………….………………..................................

of …………………………………………………………………………………………………………or failing him/her.

MR. D. S ABEYSEKERA . ............................................................................... WHOM FAILINGMR. P. S. R. CASIE CHITTY ........................................................................... WHOM FAILINGMR. C. M. U. WEERAWARDENA. . ............................................................... WHOM FAILINGMR. H. SOMASHANTHA . ............................................................................ WHOM FAILINGMR. D. J. SILVA . .......................................................................................... WHOM FAILINGMR. S. V. RAJIYAH ....................................................................................... WHOM FAILINGMR. P. GUNATHILAKE ................................................................................. WHOM FAILINGMR. S. N. ALLES .......................................................................................... WHOM FAILINGMR. M. R. RATNASABAPATHY .................................................................... WHOM FAILING

(ii) the Chairman of the Meeting as my/our proxy to vote as indicated hereunder for me /us and on my/our behalf at the 59th Annual General Meeting of the Company to be held on 15th September 2016 4.45 p.m. and at any adjournment thereof .

A N N U A L R E P O R T 2 0 1 644

Form of Proxy Contd...

Instructions As To Completion Of Proxy Form

01. To be valid, this proxy form must be completed, signed, and deposited at the Registered Office of the Company, No. 69, “RENUKA HOUSE”, Sri Jinaratana Road, Colombo 2, Sri Lanka by 13th September 2016.

02. In perfecting the form of proxy, please ensure that all details are legible.

03. If you wish to appoint a person other than the Chairman as your proxy, please insert the relevant details at (i) overleaf and initial against this entry. A proxy need not be a member of the Company.

04. Please indicate with an” X” in the space provided how your proxy is to vote on each resolution. If no indication is given, the proxy at his discretion will vote as he thinks fit. Please delete (*) if you do not wish your proxy to vote as he thinks fit on any other resolution brought before the Meeting.

05. In the case of a Company/ Corporation, the proxy must be under its Common Seal, which should be affixed and attested in the manner prescribed by its Articles of Association.

06. In the case of joint holders, only one needs to sign. The votes of the senior holder who tenders a vote will alone be accounted.