kingsbury ar_2012.pdf

7/27/2019 Kingsbury AR_2012.pdf

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Seizing Opportunities, Embracing Change

Annual Report 2011 - 2012

Hotel Services (Ceylon) PLCCo. Reg. No. PQ 203


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Hotel Services (Ceylon) PLC

It is remarkable to relect on our companys past yearand the complete reurbishment and transormationthat is taking place in this relatively short time span.Being a orerunner in the hotel sector we are uniquely

grounded in our purpose to open doors to a world oopportunity and conident it will propel our success.Thus, the Hoberman Sphere on the cover o thisreport relects our momentum to seize opportunityand embrace change.


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Information to

ShareholdersOrdinary Shareholders as at 31st March 2012Residents Non Residents Total

No. of No. of No. of No. of No. of No. of No. of

Shares Held Shareholders Shares % Shareholders Shares % Shareholders Shares %

1 - 1,000 2,316 1,049,633 0.5964 6 2,540 0.0014 2,322 1,052,173 0.5978

1,001 - 5,000 1,183 3,194,063 1.8148 12 40,160 0.0228 1,195 3,234,223 1.8376

5,001 - 10,000 298 2,465,739 1.4010 3 28,700 0.0163 301 2,494,439 1.4173

10,001 - 50,000 265 6,323,408 3.5928 10 299,300 0.1701 275 6,622,708 3.7629

50,001 - 100,000 57 4,352,500 2.4730 2 175,000 0.0994 59 4,527,500 2.5724

100,001 - 500,000 48 11,156,300 6.3388 2 324,800 0.1845 50 11,481,100 6.5234

500,001 - 1,000,000 10 7,690,046 4.3693 - - - 10 7,690,046 4.3693

OVER 1,000,000 16 138,897,811 78.9192 - - - 16 138,897,811 78.9192

4,193 175,129,500 99.5054 35 870,500 0.4946 4,228 176,000,000 100.0000

Category

Individuals 3,987 22,514,467 15.5569 31 520,670 0.2958 4,018 23,035,137 13.0881

Institutions 206 152,964,779 83.9485 4 349,830 0.1988 210 152,964,863 86.9119

4,193 175,129,500 99.5054 35 870,500 0.4946 4,228 176,000,000 100.0000

First Twenty Shareholders as at 31st March 2012

No. o Shares No. o Shares

Name o Shareholder as at 31.03.2012 % as at 31.03.2011 %

1 HAYLEYS PLC NO 3 SHARE INVESTMENT ACCOUNT 66,762,690 37.93 66,762,690 37.93

2 CARBOTELS (PVT) LIMITED 23,000,000 13.07 23,000,000 13.07

3 EMPLOYEES PROVIDENT FUND 18,374,122 10.44 12,917,700 7.34

4 BANK OF CEYLON - A/C NO. 2 7,833,500 4.45 7,833,500 4.45

5 NATIONAL SAVINGS BANK 2,707,100 1.54 1,748,900 0.99

6 MERCHANT BANK OF SRI LANKA LTD - A/C NO. 1 2,672,370 1.52 2,792,870 1.59

7 RENUKA HOTELS LIMITED 2,371,300 1.35 2,222,300 1.26

8 RENUKA CITY HOTELS LIMITED 2,260,300 1.28 2,166,500 1.23

9 DEUTSCHE BANK AG-NATIONAL EQUITY FUND 2,200,000 1.25 2,200,000 1.25

10 SEYLAN BANK PLC. - A/C NO. 3 2,000,229 1.14 2,350,000 1.34

11 PREMIUM BRANDS (PVT) LIMITED 1,928,700 1.10 1,928,700 1.1012 RENUKA CONSULTANTS & SERVICES LIMITED. 1,835,100 1.04 1,510,100 0.86

13 DEUTSCHE BANK AG NAMAL ACUITY VALUE FUND 1,650,000 0.94 1,650,000 0.94

14 WALDOCK MACKENZIE LIMITED/MR. L. P. HAPANGAMA 1,227,700 0.70 1,227,700 0.70

15 EAST WEST PROPERTIES PLC 1,064,600 0.60 0 0.00

16 CARGO BOAT DEVELOPMENT COMPANY LIMITED 1,010,100 0.57 1,010,100 0.57

17 MISS. A. N. DE SILVA 1,000,000 0.57 1,250,000 0.71

18 UNION BANK OF COLOMBO LTD 1,000,000 0.57 1,000,000 0.57

19 MR. V. LINTOTAWELA 977,700 0.56 1,373,100 0.78

20 ASSOCIATED ELECTRICAL CORPORATION LTD 948,400 0.54 500,000 0.28

TOTAL 142,823,911 81.15 135,444,160 76.96


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Financial

Summary5 Year Financial Summary and Key Indicators 2011/12 2010/11 2009/10 2008/09 2007/08

Rs.000 % Rs.000 Rs.000 % Rs.000 % Rs.000 %

Revenue

Rooms 251,439 46 277,689 46 111,385 33 134,799 32 172,073 35

Food & Beverages 282,471 52 310,342 51 213,013 62 277,645 65 300,087 62

Other Operating Income 13,267 2 18,517 3 17,013 5 14,753 3 15,533 3

Total Revenue 547,177 100 606,548 100 341,411 100 427,197 100 487,693 100

Direct Cost

Food & Beverage Cost 111,156 20 123,313 20 75,613 22 98,492 23 91,120 19

Total Expenses 111,156 20 123,313 20 75,613 22 98,492 23 91,120 19

Gross Operating Prot 436,021 80 483,235 80 265,798 78 328,705 77 396,573 81

Expenses

Administration & General 249,222 46 206,129 34 136,289 40 151,508 35 180,473 37

Advertising & Sales 55,500 10 54,328 9 19,282 6 28,674 7 22,335 5

Heat, Light & Power 79,956 15 77,512 13 49,218 14 53,354 12 49,108 10

Repairs & Maintenance 25,716 5 21,624 4 10,703 3 12,687 3 19,864 4

Total Deductions 410,393 75 359,593 59 215,492 63 246,223 58 271,780 56

Operating Prot 25,628 5 123,642 20 50,306 15 82,482 19 124,793 26

Other Income and Expenses (22,664) (4) 1,042 0 1,540 0 7,380 2 1,921 0De - recognition o Property,

Plant and Equipment (149,992) (27) - - - - - - - -

(147,028) 1 124,684 21 51,846 15 89,862 21 126,714 26

Interest Expenses/(Income) (1,461) (0) (4,727) (1) 1,476 0 4,382 1 (3,220) (1)

Depreciation 56,675 10 62,751 10 46,294 14 47,522 11 48,199 10

55,213 10 58,024 10 47,770 14 51,904 12 44,979 9

Net (Loss)/Prot Beore Taxation (202,241) (10) 66,660 11 4,076 1 37,958 9 81,735 17

Tax 13,152 2 (13,961) (2) 3,132 1 (9,745) (2) (15,201) (3)

Net (Loss)/Prot Ater Taxation (189,089) (35) 52,699 9 7,208 2 28,213 7 66,534 14

Operating Results

Total Revenue 547,177 606,548 341,411 427,197 487,693Sales Growth % (9.79) 77.66 (20.08) (12.40) (4.78)

Operating Prot 25,628 123,642 50,306 82,473 124,793

Net (Loss)/Prot Beore Taxation (202,241) 66,660 4,076 37,949 81,735

Interest Expenditure (1,461) (4,727) 1,476 4,382 (3,220)

Depreciation 56,675 62,751 46,294 47,522 48,199


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2011/12 2010/11 2009/10 2008/09 2007/08

Rs.000 % Rs.000 Rs.000 % Rs.000 % Rs.000 %

Capital Employed

Share Capital 176,000 176,000 176,000 176,000 176,000

Revaluation & Other Reserves 1,087,053 1,227,417 962,933 141,825 143,320

Retained Earnings 164,177 193,762 120,695 111,728 102,876

Shareholders Fund 1,427,230 1,597,179 1,259,628 429,552 422,196

Assets Employed

Non Current Assets 1,956,358 1,729,487 1,453,958 529,185 579,871

Net Current Assets 41,528 67,588 12,544 (16,980) (56,822)

1,997,886 1,797,075 1,466,502 512,205 523,049

Long-term Liabilities 410,290 9,939 10,802 22,825 38,414

Deerred Liabilities 160,366 189,957 196,072 59,828 62,439

1,427,230 1,597,179 1,259,628 429,552 422,196

Key Indicators

Current Ratio 1.63 1.48 1.15 0.79 0.68

Net Assets per Share 8.11 9.07 7.16 24.41 23.99

Market Price per Share 17.40 23.10 23.50 152.25 145.00

Earnings per Share (1.07) 0.30 0.04 1.59 3.78

FinancialSummary


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Chairmans

StatementThe year marks major

initiatives undertaken by the

Company to stand out rom the

competition to lagship Ceylon

Continental Hotel through itsmajor reurbishment program

coupled with an ambitious

program to set new standards o

quality and service to its existing

and potential clientele.

Dear Shareholders,

On behal o the board, I am pleased to present the Annual Report

o Hotel Services (Ceylon) PLC or the nancial year 2011/12.

Having aced a particularly challenging environment in 2011,

especially with the ull scale reurbishment o the Ceylon

Continental Hotel, I am pleased to report that the Company

remained operationally protable until the closure at the end

o January 2012. However, the Company registered a decline in

earnings compared to the previous nancial year. This was largely

as a consequence o the signicantly reduced perormance

o Ceylon Continental Hotel which closed its operations in the

months o February and March 2012.

The year marks major initiatives undertaken by the Company to

stand out rom the competition to agship Ceylon Continental

Hotel through its major reurbishment program coupled with an

ambitious program to set new standards o quality and service to

its existing and potential clientele. Furthermore, we are oering

a new standard o quality dened by its unique architecture and

decor in addition to highly personalised service encompassed in

our total value proposition to customers.

Perormance Review

The total revenue declined to Rs. 547 million rom Rs. 606 million

in 2011, resulting in a 10% decline year on year. Additionally,

gross prot showed a slight decline o 13% to Rs. 291 million

rom Rs. 335 million rom the previous year. These results were

in line with the Company business plan pending the major

reurbishment program that commenced in early 2012, to make

a total transormation o its quality and service standards to

customers.

Initiative and Development

With the ongoing renovation programme taking place at theCeylon Continental Hotel, Hotel Services (Ceylon) PLC is poised to

set new standards to secure in its uture growth and to maintain

competitiveness.

During the year, we have strived to develop and sustain all

our capital expenditure programs, whilst investing in new

inrastructure, marketing and human resource capabilities

simultaneous with the ongoing reurbishment.


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The Hotel Services (Ceylon) PLC is investing approximately Rs

1.8 billion or its reurbishment project which will transorm the

property into a ully reurbished 229 room hotel as compared

to the 189 units it was previously operating , making it one o

the nest hotels in Colombo. The architecture o the hotel has

been inspired by a neo-classical theme. Upon the completion

o this major reurbishment program, it is expected to provide

our customers a whole new ambience coupled with a new level

o quality and service standards to provide a new meaning and

experience to Sri Lankan hospitality.

The hotel will consist o luxury suites and deluxe rooms, in

addition to 6 restaurants, 3 banquet venues, 3 board rooms,

a business centre, the lounge bar and unique sky bar, innity

pool, state-o-the-art gym and spa. An important part o the

renovation project is the replacement o the old mechanical and

electrical systems o the hotel in its entirety with increased ocus

on reducing energy consumption and carbon emissions, whilst

also saving on operational costs.

Simultaneously, development o our human resources remains

a key ocus to the overall success o this hotel. Thus particular

attention is paid to ensure that we support the development

o all our team members by providing them not only with thenecessary working environment that will keep them motivated

but by training our employees with help rom outside expertise

rom some o the leading hotel chains. Along with this we

conduct recruitment programs to hire people that have been

exposed to international standards consequently developing

both management and leadership capabilities as well as

guaranteeing consistent delivery o high standards o service to

all our customers. We are strengthening our sales and marketing

eorts to gain higher market share by increasing promotional

activity and innovative marketing programmes in key target

markets throughout 2012. Additionally, we have redened our

marketing strategy on our regional and domestic markets with a

more distinct strategy. Our new inrastructure with leading edgetechnology in the hospitality industry, installed throughout the

hotel will help us solidiy our target industry leadership position

in the use o technology to better serve our customers.

Directorate

I would like to acknowledge the service rendered by Mr Upul

Gamage who resigned during the year under review and wish

him success in his uture endeavours.

Outlook

Parallel to the strong economic growth potential o Sri Lanka, the

tourist gures to the country indicates an exponential growth

with a hundred percent increase in the last two years. In this back

drop, the overall outlook or our leisure business remains largely

optimistic. The novel positioning strategy coupled to the major

reurbishment program and new service standards, the Ceylon

Continental Hotel is poised strategically and timely to reap

maximum benets rom the boom in the leisure sector.

Appreciation

It has been a year o signicant challenges and noteworthy

accomplishments or the Company. I am pleased to report that

the changes set in motion in 2011 will help Hotel Services (Ceylon)

PLC to be a benchmark in the leisure industry in years ahead.

The accomplishment o the challenges and the major initiatives

set in motion are attributable to the hard work and dedication o

all our employees and to the guidance and support provided by

my colleagues on the Board. I convey my appreciation to them or

giving me such support and guidance. My sincere appreciation is

urther extended to our shareholders and other key stakeholders

or the condence and support provided during the year.

Mohan Pandithage

Chairman

17th May 2012

ChairmansStatement


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Mr. A. M. Pandithage (Chairman)

Mr. Pandithage joined Hayleys Group in 1969. Appointed Chairman and Chie Executive o Hayleys since July 2009.

Honorary Consul o United Mexican States (Mexico) to Sri Lanka. Fellow o the Chartered Institute o Logistics & Transport. Member o

the Presidential Committee on Maritime Matters. Committee Member o the Ceylon Chamber o Commerce. Council Member o the

Employers Federation o Ceylon. Member o the Monetary Policy Consultative Committee o the Central Bank o Sri Lanka. Director, Sri

Lanka Port Management & Consultancy Services Limited. Former Chairman o the Ceylon Association o Ships Agents. Former Director

o both the Sri Lanka Ports Authority and Jaya Container Terminals Limited.

Mr. S. C. Ganegoda *Mr Ganegoda is a ellow member o Institute o Chartered Accountants o Sri Lanka and member o the Institute o Certied Management

Accountants o Australia. He holds an MBA rom the Postgraduate Institute o Management, University o Sri Jayawardenepura. He has

worked or Hayleys PLC and Diesel & Motor Engineering PLC between 1987 and 2002 and ultimately as an Executive Director o the

latter. Subsequently he has held several senior management positions in private sector entities in Sri Lanka and Overseas. He rejoined

Hayleys in March 2007 and unctioned as Head, Strategic Business Development until July 2009. He was appointed to the Board o

Hayleys PLC in September 2009 and to several other Boards o Hayleys Group Companies.

Mr. K. D. D. Perera *

Appointed to the Board in 2010. He is a quintessential strategist and business specialist with 24 years o business experience.

His business interests include Hydropower generation, Manuacturing, Hospitality, Entertainment, Banking and Finance. Currently he

holds the position o Secretary to the Ministry o Transport, Sri Lanka. He is the Chairman o Sampath Bank PLC, Vallibel One PLC, Vallibel

Finance PLC, Vallibel Power Erathna PLC, The Fortress Resorts PLC, Lewis Brown & Company (Pvt) Ltd and Greener Water Ltd. He is the

Deputy Chairman o Hayleys PLC, Royal Ceramics Lanka PLC & LB Finance PLC. He also serves on the Boards o Amaya Leisure PLC,

Hayleys MGT Knitting Mills PLC, Haycarb PLC, Dipped Products PLC, Orit Apparels Lanka (Pvt) Ltd, Nirmalapura Wind Power (Pvt) Ltd,

Alutec Anodising & Machine Tools (Pvt) Ltd and Sri Lanka Insurance Corporation Ltd.

He is also a member o the Board o Directors o Strategic Enterprise Management Agency (SEMA).

Mr. S. P. Dissanayake *

Joined Hayleys in July 2007. Appointed to the Group Management Committee in the same month. Graduate in Hotel Management. Was

awarded the Lie Time Gold Award in 2011 and Honorary Membership in 2004 by the Institute o Personnel Management, in recognition

o his contribution to Human Resources activities in Sri Lanka. Director o Hayleys Group Services (Pvt) Ltd and Director o Hayleys

Foundation (Guarantee) Ltd. Is the Co-Patron o the Hayleys Group Toastmasters Club and Vice Patron o Hayleys Group Recreation

Club. Prior to joining Hayleys, he held several senior management positions in large private sector entities in Sri Lanka and abroad inHuman Resources Management and previously in Hotel Management. Has held signicant honorary and advisory positions in Human

Resources and the Hotel industry. Is a ormer President o the Hotel School Graduates Association and a ormer Member o the Hotel

Classication Committee o Sri Lanka Tourism Development Authority. Is a member o the Ceylon Chamber o Commerce Steering

Committee or HR and Education and is also a Steering Committee Member o the Lanka Business Coalition (LBCH) or prevention o

AIDS. Is the Sector Head or Group Human Resources, Corporate Communications/Sustainability and Group Security at Hayleys.

Mr. S. J. Wijesinghe

Joined Hayleys in October 2008 as CEO o Civaro International and later moved on to take over his current position as Head o the

Leisure and Aviation sector in 2009. He was appointed to the Group Management Committee in 2011. Johann holds a MBA rom the

University o Leicester (UK) and is a Member o the Chartered Institute o Marketing (UK). Johann has over 20 years experience in the

Board of

Directors


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Aviation industry with the National Carrier SriLankan Airlines. Prior to joining Hayleys, he was the Head o Worldwide Cargo at SriLankan

Airlines responsible or the entire air reight business sector o the organisation. He also held several senior positions or the airline

including management positions in Europe, Middle East, Far East and at the Head Ofce in Colombo. Johann also has over 5 years

experience in the Hotel industry having served as the Director Marketing & Sales at The Lanka Oberoi.

Mr. N. J. De S. Deva-Aditya **

Mr. Deva-Aditya was the First Asian MP elected to Conservative Party in the House o Commons and Bachelor Technology (Honors)

Upper Second, Aeronautical Engineering and Design , Research Fellow, University o Louhborough, Graduate o the Royal Aeronautical

Society and Institute o Mechanical Engineers and he holds directorships in six companies.

Ms. R. N. Ponnambalam **

Mrs. Ponnambalam has held several senior management positions in large private sector entities.

She has served as a Director o McLarens Holdings Limited & GAC Shipping Limited. She currently serves as Director o Amaya Leisure

PLC, Alliance Finance Co. PLC and McBolon Polymer (Pvt) Ltd. She is presently the Managing Director / CEO o Macbertan (Pvt) Ltd. She

has also been in roles o International & Local Business Development and negotiation.

Mr. L. N. De S. Wijeyeratne **

Mr. De Silva Wijeyeratne is a ellow member o the Institute o Chartered Accountants o Sri Lanka and counts over thirty years experience

in nance and general management, both locally and overseas. He was the ormer Group Finance Director o Richard Pieris & Company

PLC and is presently a Director o several listed and unlisted companies.

Mr. W. D. N. H. Perera *

Appointed to the Board in 2011. He counts or over 30 years experience in Finance, Capital Market Operations, Manuacturing, Marketing

and Management Services. Managing Director o Royal Ceramics Lanka PLC, Executive Deputy Chairman o Vallibel One PLC, Chairman

o Pan Asia Banking Corporation PLC, Don Wilbert Capital Ltd, N Sports (Pvt) Ltd, N Capital (Pvt) Ltd, Director o Hayleys PLC, Haycarb

PLC, Amaya Leisure PLC, LB Finance PLC, Vallibel Finance PLC, Talawakele Tea Estates PLC and Vallibel Power Erathna PLC.

Mr. L. T. Samarawickrama *

Mr. Samarawickrama serves as the Managing Director o Amaya Leisure PLC. He is an internationally qualied Hotelier having gained

most o his Management experience in UK, Working or large international hotel chains over a long period o time. First Sri Lankan

Manager to be appointed by the Beauort International chain o Hotels to run the rst seaside boutique resort in the island. He is a

Member o the Institute o Hospitality UK (ormerly HCIMA) and o the Royal Society o Health, London. He counts over several years oexperience in the trade. Having specialised in Hotel design, he has been responsible or the careul planning and execution o Amaya

Resorts & Spas reurbishment and rehabilitation programs. He is also a Director o the Fortress Resorts PLC, Hunas Falls PLC, Royal

Ceramics Lanka PLC and Kelani Valley Plantations PLC.

Executive

* Non-Executive

** Non-Executive Independent

Board ofDirectors


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The Board o Directors is pleased to present their report and the

Audited Financial Statements o the Company or the year ended

31st March 2012. The details set out herein provide pertinent

inormation required by the Companies Act, No.7 o 2007 and

the Colombo Stock Exchange Listing rules and are guided by

recommended best accounting practices.

Review o the year

The Chairmans review describes the Companys aairs and

mentions important events o the year.

Principal Activity

The principal activity o the Company is Hoteliering and is the

owner o Ceylon Continental Hotel Colombo.

Financial Statements

The nancial statements o the Company are given in pages 24

to 43.

Auditors Report

The auditors report on the nancial statements is given on page23.

Accounting Policies

The accounting policies adopted in preparation o nancial

statements are given on pages 28 to 32 There were no material

changes in the accounting policies adopted.

Interest Register

The Company in compliance with the Companies Act No. 7 o

2007, maintains an interest register. Particulars o the entries in

the register are detailed below.

Directors Interests in Transactions

The Directors o the Company have made the general disclosure

provided or in section 192(2) o the Companies Act No. 7 o 2007.

Note - 25 to the nancial statements dealing with related party

disclosure includes details o their interests in transactions.

Directors Interests in Shares

Directors interests in shares are given later in this report. There

were no changes to the relevant interests in shares during the

year.

Directors Remuneration and Other Benets

Directors remuneration in respect o the Company or the

nancial year ended 31st March 2012 is given in Note - 5 to the

nancial statements.

Executive Directors remuneration is established within an

established ramework. The total remuneration o Executive

Directors or the year ended 31st March 2012 is Nil. The total

remuneration o Non-Executive Directors or the year ended 31st

March 2012 is Rs. 1,219,000 determined according to scales o

payment decided upon by the Board. The Board is satised thatthe payment o this remuneration is air to the company.

Corporate Donations

Donations made during the year was nil.

Directorate

Directors o the Company as at 31st March 2012

Mr. A. M. Pandithage

Mr. S. C. Ganegoda*

Mr. S. P. Dissanayake*Mr. S. J. Wijesinghe

Mr. N. J. De S. Deva Aditya**

Mr. L. T. Samarawickrama*

Mr. L. N. De S. Wijeyeratne**

Mr. K. D. D. Perera*

Ms. R. N. Ponnambalam**

Mr. W. D. N. H. Perera*

* Non-Executive Directors

** Independent Non-Executive Directors

Mr. U. D. Gamage resigned rom the Board on 20 th December

2011.

In terms o the Article 87 o the Articles o Association o the

Company Messrs. N. J. De S. Deva Aditya, S. J. Wijesinghe and L.

T. Samarawickrama retire by rotation and being eligible, oers

themselves or re-election.

Directors Shareholdings

None o the Directors held shares directly in the Company as at

31st March 2012.

Annual Report of the Directors on theAffairs of the Company


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Mr. K. D. D. Perera held directly and indirectly 48% o the total

issued shares o Hayleys PLC.

Corporate Governance

The Company has complied with the corporate governance rules

laid down under the listing rules o the Colombo Stock Exchange.

The corporate governance section on page 12 to 17 discuss this

urther.

EmploymentNumber o persons employed by the Company was 393.

Internal Controls

The Directors acknowledge their responsibility or the Companys

system o internal control. The system is designed to give

assurance, inter alia, regarding the saeguarding the assets, the

maintenance o proper accounting records and the reliability o

nancial inormation generated. However, any system can only

ensure reasonable and not absolute assurance that errors and

irregularities either prevented or detected within a reasonable

time period.

The Board, having reviewed the system o internal controls, is

satised with its eectiveness or the period up to the date o

signing the nancial statements.

Going Concern

The Directors, ater making necessary inquiries and reviews

including the reviews o the Companys budget or the ensuing

year, Capital expenditure requirement, uture prospects and

risks, cash ows and borrowing acilities, have a reasonable

expectation that the Company have adequate resources to

continue in operational existence or the oreseeable uture.

Thereore, the going concern basis has been adopted in the

preparation o the nancial statements.

Auditors

The Auditors, Messrs Ernst & Young, Chartered Accountants,

were paid Rs. 350,000 (2011 Messrs PricewaterhouseCoopers,

Chartered Accountants were paid Rs.306,000) as audit ees by the

Company. In addition, they were paid Rs. 100,000 (2011 Messrs

PricewaterhouseCoopers, Chartered Accountants were paid

Rs.250,000 ) by the Company or non- audit related work.

As ar as the Directors are aware, the Auditors do not have any

relationship (other than that o an Auditor) with the Company

other than those disclosed above. The auditors also do not have

any interest with the Company.

Messrs Ernst & Young, Chartered Accountants, are deemed re-

appointed, in terms o section 158 o the Companies Act No.7 o

2007, as auditors o the Company.

Dividends

The Directors do not recommend the payment o dividends or

the nancial year ended 31st March 2012.

Investments

Details o the investments held by the Company are disclosed in

Note 12 to the nancial statements.

Property, Plant and Equipment

An analysis o the property, plant and equipment o the Company

additions and disposals made during the year and depreciation

charged during the year are set out in Note 11 to the nancial

statements.

The Company closed down the hotel rom 1st February 2012 or a

major reurbishment. As part o the reurbishment, property, plant

and equipment with net book value amounting to Rs.150Mn were

de-recognised by the Company. Total de-recognised amount was

charged to the income statement.

Capital Commitments

Details o the capital commitments o the Company as at 31st

March 2012 are disclosed in Note 21 to the nancial statements.

Stated Capital

The stated capital o the Company is Rs.176,000,000/- comprising

176,000,000 shares.

Annual Report of The Directors on TheAffairs of The Company


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Reserves

Total Company reserves as at 31st March 2012 amounts to Rs.

233.68 Mn. (2011 Rs. 263.26 Mn.) Movements are shown in the

statement o changes in equity in the nancial statements.

Taxation

The tax position o the Company is given in Note 9 and 15 to the

nancial statements.

Employees and Industrial Relations

There have been no material issues pertaining to employees and

industrial relations o the Company during the nancial year.

Disclosure as per Colombo Stock Exchange RuleNo.7.6.Xi

31.03.12 31.03.11

Market price per share as at 31st

March

17.40 23.10

Highest share price during the

year

25.60 32.00

Lowest share price during the year 12.60 22.30

Net Asset per share 8.11 9.07

Ordinary shares in issue 176,000,000 176,000,000

Shareholding

The number o registered shareholders o the Company as at 31st

March 2012 was 4228.

Major Shareholders

The twenty largest shareholders o the Company as at 31st March

2012, together with an analysis are given on page 2 o the annual

report.

Public Shareholding

As at 31st March 2012, 49% o the issued capital o the Company

was held by the public.

Statutory Payments

The Directors to the best o their knowledge and belie are

satised that all statutory payments in relation to the government

and the employees have been made and provided.

Contingent Liabilities

There were no material contingent liabilities outstanding as

at 31st March 2012 other than that described in Note 20 to the

nancial statements.

Post Balance Sheet Events

Subsequent to the date o the balance sheet no circumstances

have arisen which would require adjustments to the accounts.

Signicant post balance sheet events which in the opinion o

the Directors require disclosure are described in Note 26 to the

nancial statements.

Annual General Meeting

The Annual General Meeting will be held at the Ceylon Continental

Hotel Colombo, Sapphire Ballroom at 3.00 p.m. on Tuesday, 26 th

June 2012. The Notice o the Annual General Meeting appears

on page 46.

For and on behal o the Board

HOTEL SERVICES (CEYLON) PLC

A. M. Pandithage S. J. Wijesinghe

Hayleys Group Services (Pvt) Ltd

Secretaries

17th May 2012


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Hotel Services (Ceylon) PLC is committed to achieve the highest

standards in Corporate Governance practices in conducting its

business.

We set out below the corporate governance practices adopted by

the Company in line with the Code o Best Practice on Corporate

Governance issued by the Institute o Chartered Accountants o

Sri Lanka and the Listing Rules o the Colombo Stock Exchange.

Board o Directors

The Board o Hotel Services (Ceylon) PLC comprise o 10 Directors;

an Executive Chairman, one Executive Director and eight Non-

Executive Directors o which three are independent. The names

o the Directors and their proles are available on page 7 o this

report.

The Board meets quarterly as a practice and adhoc meetings are

held whenever necessary. During the year under review the Board

met on 9 occasions. The attendance o these meetings were:

Name o Director Executive / Non-Executive Attendance

Mr. A. M. Pandithage Chairman Executive 9/9

Mr. S. C. Ganegoda Non-Executive 8/9Mr. S. P. Dissanayake Non-Executive 8/9

Mr. S. J. Wijesinghe Executive 8/9

Mr. N. J. De S. Deva-Aditya Independent Non-Executive 3/9*

Mr. L. T. Samarawickrama Non-Executive 6/9

Mr. L. N. De S. Wijeyeratne Independent Non-Executive 8/9

Mr. U. D. Gamage Executive 4/5**

Mr. K. D. D.Perera Non-Executive 1/9

Ms. R. N. Ponnambalam Independent Non-Executive 9/9

Mr. W. D. N. H. Perera Non-Executive 1/9

* Mr. N. J. De S. Deva-Aditya participated in 02 o these meetings

via conerence call.

** Mr. U. D. Gamage resigned rom the board w.e.. 20/12/2011.

Responsibilities

The directors o the Company are responsible or:

Enhancing shareholder value, ormulating, communicating,

implementing and monitoring o business policies and

strategies.

Corporate

Governance

The Board is ultimately responsible or the Companys nancial

perormance. It is in control o the Companys aairs and

conscious o its obligation to all stakeholders.

Company Secretary

The service and advice o the Company Secretary are made

available to Directors as necessary. The Company Secretary keeps

the Board inormed o new laws, regulations and requirements

coming in to eect which are relevant to them as individual

Directors and collectively to the Board.

Ensuring due compliance with applicable legal, ethical,

health, environment and saety standards and regulations.

Ensuring that due attention is given to appropriate

accounting policies and practices and setting priorities

and communicating values and ethical standards or

management.

Ensuring that appropriate systems o internal controls are in

place to saeguard the assets o the Company.

Reviewing and approving Annual Budgets and periodic

monitoring o perormance against the budgets.

Approving o major investments on business proposals and

adopting annual and interim nancial statements prior to

publication.

Evaluating and monitoring the perormance o the

Company on a regular basis and initiating remedial action

where necessary.

Adopting annual and interim accounts and recommending

dividend or approval by the shareholders.


15/5213



Board Balance

The composition o the Executive and Non-Executive Directors

(the latter are over one third o the total number o Directors)

satises the requirements laid down in the Listing Rules o the

Colombo Stock Exchange.

The balance o Executive and Non- Executive Directors on the

Board ensures that decision making is transparent and not

dominated by any individual or small group.

As at 31 March 2012, the Board consisted o 10 Directors

comprising o:

2 Executive Directors (ED)

5 NonExecutive Non-Independent Directors (NED)

3 Non-Executive Independent Directors (NED/ID)

Their proles reect their calibre and the weight their views carry

in Board deliberations.

The Board has determined that the Directors: Mr. N. J. De S. Deva-

Aditya, Ms. R. N. Ponnambalam and Mr. L. N. De S. Wijeyeratne

satisy the criteria or independence set out in the Listing Rules.

The Independent Non-Executive Directors are ree rom any

relationship that can interere with the aairs o the Company.

The Chairman o the Company is also the Chairman o Hayleys

PLC. Chie Executive Authority is vested in the General Manager

(CEO) o the Company. The distinction between the Chairman

and Ofcers wielding executive powers in the Company ensures

the balance o power and authority.

Financial Acumen

The Board includes two senior Chartered Accountants whopossess the necessary knowledge and competence to oer the

Board guidance on matters o nance.

Supply o Inormation

Directors are provided with quarterly reports on perormance and

appropriate documentation in advance o each Board meeting

or individual directors to study matters under discussion.

Appointments to the Board

The Board as a whole decides on the appointment o Directors in

accordance with the Articles o association o the Company.

Re-election o Directors

The provisions o the Companys Articles require a Director

appointed by the Board to hold ofce until the next Annual

General Meeting, and seek re-appointment by the shareholders

at that meeting.

The Articles call or one third o the Directors in ofce to retire at

each Annual General Meeting. The Directors who retire are those

who have served or the longest period ater their appointment/

re-appointment. Retiring Directors are generally eligible or re-

election.

The Chairman does not retire by rotation.

Remuneration Committee

The Remuneration Committee was ormed on 21st May 2010. Mr.

J. D. Bandaranayake, who was the Chairman o the remuneration

Committee resigned with eect rom 2nd February 2011 and Mr.

L. T. Samarawickrama, a Non-Executive Director, was appointed

the Chairman o the Committee with eect rom 9th May 2011.

Members o the Remuneration Committee

Mr. L. T. Samarawickrama - Non-Executive Director (Chairman)

Mr. L. N. De S. Wijeyeratne - Independent Non-Executive Director

Ms. R. N. Ponnambalam - Independent Non-Executive Director

Remuneration Committee o Hayleys PLC, the parent Company

o Hotel Services (Ceylon) PLC is responsible or laying down

guidelines and parameters or the compensation structures o allmanagement sta within the group.

The Remuneration Committee o Hotel Services (Ceylon) PLC

is guided to work with the above given parameters and design

compensation levels appropriate or the hotel within the group

and commensurate with each employee level o expertise and

contribution, bearing in mind the business perormance and

shareholder returns.


16/5214



The total o Directors remuneration is reported in Note 5 to the

nancial statements.

Relations with Shareholders

The Notice o Meeting is included in the Annual Report. The

Notice contains the Agenda or the AGM as well as instructions

on voting, including appointments o proxies. A Form o Proxy is

enclosed with the Annual Report. The period o notice prescribed

by the Companies Act No. 7 o 2007 has been met.

Constructive use o Annual General Meeting

The Board considers the Annual General Meeting as a means o

continuing eective dialogue with shareholders and encourages

their participation.

The Board oers clarications and responds to concerns

shareholders have over the content o the Annual Report as well

as other matters which are important to them.

The Annual General Meeting also used to adopt the nancial

statement or the year.

Communication with Shareholders

Shareholders are provided with the Annual Report and also

with Quarterly Financial Statements via Colombo Stock

Exchange website, which the company considers as its principal

communication with them and other stakeholders.

Shareholders may bring up concerns they have, either with

the Chairman or the Company Secretary as appropriate. The

Company maintains an appropriate dialogue with them.

Accountability and Audit

Financial Reporting

The Board places great emphasis on complete disclosure o

nancial and non nancial inormation within the bounds o

commercial reality, and on the adoption o sound reporting

practices. Financial inormation is disclosed in accordance

with the Sri Lanka accounting Standards. Revisions to existing

accounting standards and adoption o new standards are

careully monitored.

The Statement o Directors Responsibilities or the nancial

statement is given in page 20 o this report.

Going Concern

The Directors, ater making necessary inquiries and reviews

including reviews o the company budget or the ensuing year,

capital expenditure requirements, uture prospects and risk, cash

ows and borrowing acilities, have a reasonable expectation

that the Company has adequate resources to continue in

operational existence or the oreseeable uture. Thereore, the

going concern basis has been adopted in the preparation o the

Financial Statements.

Internal Controls

The Board is responsible or the Companys internal controls and

its eectiveness. Internal control is established with emphasis

placed on saeguarding assets, making available accurate and

timely inormation and imposing greater discipline on decision

making. It is important to state that any system can ensure

only reasonable, and not absolute, assurance that errors and

irregularities are prevented or detected within reasonable time.

Hayleys Groups Management Audit & System Review Department

plays a major role in assessing the eectiveness and successul

implementation o the existing controls and strengthening these

and establishing new controls where necessary.

The Board has reviewed the eectiveness o the System o

nancial controls or the period up to the date o signing the

accounts.

Audit Committee

The Audit Committee is chaired by Mr. L. N. De S. Wijeyeratne, a

Fellow member o the Institute o Chartered Accountants o SriLanka.

The General Manager and the Financial Controller attends the

meetings o the Audit Committee by invitation.

The Audit Committee has written terms o reerence and is

empowered to examine any matters relating to the nancial

aairs o the Company and its internal and external audits. It helps

the Company to strike the proper balance between conormance

and perormance.

CorporateGovernance


17/5215



Members o the Audit Committee

Mr. L. N. De S. Wijeyeratne (Chairman) - Independent Non-Executive Director

Mr. L. T. Samarawickrama (Resigned w.e. 12.09.2011) - Non-Executive Director

Ms. R. N. Ponnambalam - Independent Non-Executive Director

The Audit Committee report appears in page 21 o this report.

Levels o compliance with the CSEs New Listing Rules- Section 7.10, Rules on Corporate Governance as at 31st March, 2012 are given

in the ollowing table.

Rule No. Subject Applicable Requirement Compliance

Status

Details

7.10. 1(a) Non-Executive Directors At least one third o the total number

o Directors should be Non-Executive

Directors

Compliant Eight out o the ten Directors

are Non-Executive Directors

7.10.2(a) Independent Directors Two or one third o Non-Executive

Directors, whichever is higher should

be Independent

Compliant Three out o the Eight

Non-Executive Directors are

Independent Directors

7.10.2 (b) Independent Directors Each Non-Executive Director

should submit a declaration o

independence/non-independence inthe prescribed ormat

Compliant Non-Executive Directors have

submitted the declaration

7.10.3(a) Disclosure relating to

Directors

The Board shall annually make a

determination as to the independence

or other wise o the Non-Executive

Directors and names o Independent

Directors should be disclosed in the

Annual Report

Compliant Please reer Board o Directors

on pages 7 and 8

7.10.3(b) Disclosure relating to

Directors

The basis or the Board to determine

a Director is independent when the

criteria specied or independence is

not met

Compliant Please reer page 13 under the

heading o Board Balance

7.10.3(c) Disclosure relating to

Directors

A brie resume o each Director should

be included in the Annual Report

including the areas o Expertise

Compliant Please reer Board o Directors

on pages 7 and 8

7.10.3(d) Disclosure relating to

Directors

Forthwith provide a brie resume o

new Directors appointed to the Board

with details specied in 7.10.3 (a),(b)

and (c) to the Exchange

Compliant A brie resume provided to the

Exchange

7.10.5 Remuneration

Committee.

A listed company shall have a


Compliant Names o the members o the

Remuneration Committee are

stated on page 13


18/5216




Status

Details

7.10.5(a) Composition o

Remuneration

Committee

Shall comprise o Non-Executive

Directors a majority o whom will be

independent

Compliant The Committee consists o

one Non-Executive Director

and two Independent Non-

Executive Directors

7.10.5(b) Remuneration

Committee Functions

Remuneration Committee shall

recommend the remuneration o the

Chie Executive Ofcer and Executive

Directors

Compliant Please reer remuneration

procedure on page 13 o this

Report

7.10.5(c) Disclosure in the

Annual Report relating

to Remuneration

Committee

Names o Directors comprising the


Statement o remuneration policy

Aggregated remuneration paid to

Executive and Non-Executive Directors

Compliant Please reer page 13

Please reer page 13

Please reer page 9

7.10.6 Audit Committee The company shall have an Audit

Committee

Compliant Names o the members o the

Audit Committee are stated on

page 15

7.10.6(a) Composition o Audit

Committee

Shall comprise o Non-Executive

Directors a majority o whom will be

independent

Compliant Audit Committee consists

o two Independent Non-

Executive Directors

7.10.6(b) Audit Committee

Functions

A Non-Executive Director shall be

appointed as the Chairman o the

Committee

Compliant Chairman o the Audit

Committee is an Independent

Non-Executive Director

Chie Executive Ofcer and Chie

Financial Ofcer should attend Audit

Committee meetings

Compliant General Manager (CEO) and

Financial Controller (CFO) has

attended the Audit Committee

meetings

The Chairman o the Audit Committee

or one member should be a member

o a proessional accounting body

Compliant Chairman o the Audit

Committee is a Chartered

Accountant

CorporateGovernance


19/5217




Status

Details

7.10.6(b) Audit Committee

Functions

Functions shall include:

Overseeing o the preparation,

presentation and adequacy o

disclosures in the nancial statements

in accordance with Sri Lanka

Accounting Standards

Overseeing o the compliance with

nancial reporting requirements,

inormation requirements o the

Companies Act and other relevant

nancial reporting related regulations

and requirements.

Overseeing the processes to ensure

that the internal controls and risk

management are adequate to meet

the requirements o the Sri Lanka

Auditing Standards

Assessment o the independence and

perormance o the external auditors

Make recommendations to the

Board pertaining to appointment,re appointment and removal o

external auditors and approve

the remuneration and terms o

engagement o the external auditors.

Compliant The terms o reerence o the

Audit Committee have been

agreed by the Board

7.10.6(c) Disclosure in the

Annual Report relating

to Audit Committee

a) Names o Directors comprising the

Audit Committee

Compliant Please reer page 15

b) The Audit Committee shall

make a determination o the

independence o the Auditors

and disclose the basis or such

determination

Compliant Please reer Audit Committee

Report on page 21

c) The Annual Report shall contain

a Report o the Audit Committee

setting out o the manner o

compliance with their unctions

Compliant Please reer Audit Committee

Report on page 21


20/5218



Risk management is a central part o the Companys strategic

management. It assists in striking the correct balance between

achieving Companys objectives whilst saeguarding its assets

and enhancing shareholder value.

In the course o its operations, the Company, being a leading

city hotel in Sri Lanka, is exposed to various internal and external

risks. A risk management process is in place to identiy these

risks, analyse them and assess the impact o the risk to the

Company with the view o accepting the said risk, nding means

o mitigating it or eliminating the risk completely. The Board o

Directors with the support o the management takes necessary

action to mitigate or minimise the impact o these risks with

control plans implemented with the agreed time rames.

More importantly, the Company understands that risk is an

intrinsic component o its business operations. The Company

accepts the necessary risk only ater going through the above

process and careully evaluating the risk and return o its ventures

and ensuring adequate returns.

The responsibility o the risk management process o the

Company is with the Board o Directors. The matters related to

risk management are discussed and deliberated extensively atthe Board meetings.

The major risks the Company is exposed to and the ways in which

the Company deals with them are given below.

Major Risks

Risk Type: Competition

Recent improvement in the countrys outlook has attracted

various new business opportunities and positively aected the

hotel perormance and tourism industry in general. However this

could have an adverse eect on the hotel both rom the existing

competition and new competition entering the market.

The Company is undergoing an extensive reurbishment

programme especially in view o managing this risk. This will

enable the hotel to sustain its position in the market and make

use o the growth opportunities.

The risk o price competition on lodging is minimized with

the prevailing minimum room rates whereby city hotels have

to adhere to the specied minimum rates or their clients.

The Company through innovation whereby various ood and

Risk

Management event promotions, through driving or service excellence andcontinuous improvements mitigates the eect o the said risks

o competition.

Risk Rating Likelihood Rating

Moderate High

Risk Type:Government Policy Risk

While beneting rom various opportunities and growth in

the country, government policy decision is a major actor that

inuences the hotel operations and nancial perormance.

Factors such as recent rate changes to electricity taris and

uel rates have aected the perormance o the hotel where

it is difcult to transer these costs to the customers in the

short term.

I the minimum rates are urther increased, it could be

difcult to attract new clients especially during the o

season.

The Company maintains a strong relationship with the regulatory

bodies through Hayleys PLC and other lobby groups. Through

them the Company campaigns or clear and indisputable laws to

acilitate the business.


Moderate Moderate

Risk Type:Failure to Comply with Health and Saety

Regulations

Failure to comply with health and saety regulations could aect

the Company in adverse publicity and claims through legal action

against the Company.

The health and saety standards are o primary importance to

the Company and are subjected to continuous direct supervisionwhere deviations are directly reported to the senior management

and actions taken to rectiy them at the highest levels. The

Company has commenced the certication process or obtaining

HACCP standards which is the international standard on ood

saety process control systems, through the same, policies and

procedures are being implemented in line to ensure the health

and saety regulations are eectively practiced.


High Low


21/5219



Risk Type: Interest Rate Risk

Companys major reurbishment project is unded through

external borrowings. The recent adverse uctuations in interest

rates have impacted the company earnings, cash ow and

economic value. This will continue to be a critical risk actor in

the times ahead.

The Company works closely with the Treasury department o

Hayleys PLC to negotiate avourable terms and conditions or

loans. The Treasury Department continuously monitors interest

rates and nancial markets and are in a position to implementnecessary hedging techniques i required.


High High

Risk Type: IT Systems Risk

Failure o the various IT systems utilised by the hotel could

have a temporary eect on the hotel operations depending

on the extent o the damage. Current major IT systems o the

hotel include Property Management Sotware, Stock System,

Accounting Sotware, Online Booking Engines, email, internet

etc.

The Company is in the process o investing in a new operating

system which will be much efcient and eective in comparison

to the one at present.

The risk o data loss and down time is mitigated by the IT

department o the Company, which has implemented saety

measures to taking timely backups and storing them on remote

locations and reduces the down time and ensures continuity o

operations through the implementation o the Hayleys Groups

Disaster Recovery Policy.


High Moderate

Risk Type: Exchange Rate Risk

Exchange rate risk represents a major risk or the hotel where

revenue could be adversely aected through exchange rate

uctuations. However, the recent rupee devaluation will result in

a avorable impact on Companys revenue.

The Company continuously monitors the Exchange rate

movements and countrys outlook o major currencies. Currently

the pricing policy o the hotel is to provide rates in USD terms

or to give equivalent rupee rates. However, should the USD

depreciate unexpectedly the hotel with the consent o respective

authorities could provide rates in Sri Lanka rupees mitigating the

eects rom long term adverse currency uctuations.


High Moderate

Risk Type:Breakdown o Internal Controls and Procedures

Breakdown o internal process and procedures could result inrauds, errors eecting in loss o Share holder wealth and resulting

in material misstatements on its nancial statements.

The Company through its Audit Committee carries out reviews

and assessments o its internal control environment. Internal

audits are carried out quarterly by the Group Management Audit

and Systems Review Department o Hayleys PLC and its ndings

are reported to the Audit Committee meetings, which convenes

quarterly. Findings are reviewed, corrective actions are taken

and the implications o the same are monitored as a continuous

improvement process on Audit Committee meetings.


High Moderate

Risk Type:Timely Completion o Reurbishment Project and

Cost Overruns

Non-completion o the reurbishment project within the

stipulated time rame could result in an increase in closure cost.

In addition, non-managing the reurbishment cost could result in

spending over and above the budgeted amount.

The Board o Directors meets weekly and works closely with the

project team monitoring and reviewing the project completion

progress and takes necessary corrective action in a timely manner.Project expenses are closely monitored in comparison with the

budget and are reviewed at Board meetings on regular basis.


High Moderate


22/5220



The Directors are responsible, under the Sections 150 (1), 151,152 (1) & 153 o the Companies Act No. 07 o 2007, to ensurecompliance with the requirements set out therein to prepareFinancial Statements or each nancial year giving a true andair view o the state o aairs o the Company as at the end othe nancial year and o the prot & loss o the Company or thenancial year. The Directors are also responsible, under Section148 or ensuring that proper accounting records are kept todisclose, with reasonable accuracy, the nancial position andenable preparation o the Financial Statements.

The Board accepts responsibility or the integrity and objectivity

o the Financial Statements presented. The Directors conrm thatin preparing the Financial Statements, appropriate accountingpolicies have been selected and applied consistently whilereasonable and prudent judgments have been made so that theorm and substance o transactions are properly reected.

They also conrm that the Financial Statements have beenprepared and presented in accordance with the Sri LankaAccounting Standards. The Financial Statements provide theinormation required by the Companies Act and the listing ruleso the Colombo Stock Exchange.

The Directors have taken reasonable measures to saeguardthe assets o the Company and, in that context, have institutedappropriate systems o internal control in order to prevent anddetect raud and other irregularities.

The External Auditors, Messrs. Ernst & Young, CharteredAccountants, were deemed re-appointed in terms o section158 o the Companies Act no.7 o 2007 and were provided withevery opportunity to undertake the inspections they consideredappropriate to enable them to orm their opinion on the FinancialStatements. The report o the Auditors, shown on page 23 setsout their responsibilities in relation to the Financial Statements.

Compliance Report

The Directors conrm that to the best o their knowledge, allstatutory payments relating to employees and the Government

that were due in respect o the Company as at the Balance Sheetdate have been paid or where relevant, provided or.

By Order o the Board,HAYLEYS GROUP SERVICES (PVT) LTD.Secretaries

17th May 2012

Statement of Directors

Responsibilities


23/5221



Role

The primary role o the Audit Committee is to review and monitor

the nancial reporting process o the Company, so as to provide

additional assurance on the reliability o the nancial statements

through a process o independent and objective review. As such,

the Audit Committee acts as an eective orum in assisting the

Board o Directors in discharging their responsibilities o ensuring

the quality o nancial reporting and related communications to

the shareholders and the public.

The Audit Committee is empowered amongst other unctions

to examine any matters relating to the nancial aairs o the

Company and to review the adequacy o the internal control

procedures, role and perormance o the external auditors,

disclosures o accounting policies, compliance with statutory and

corporate governance requirements.

Composition

The Audit Committee comprises o two Independent Non-

Executive Directors. The Chairman o the Audit Committee is

Mr. L. N. De. S. Wijeyeratne, a ellow member o the Institute o

Chartered Accountants o Sri Lanka. The names o the members

are given below on this report and a brie prole o each member

is given on page 8. The General Manager, The Financial Controllerand the Head o Internal Audit o Group Management Audit and

Systems Review Department o Hayleys PLC attend the meeting

o the Audit Committee by invitation. The Chairman o the

Company and other Directors attend the meetings as required.

Meetings

The Committee met ormally ve times during the nancial year

ended 31st March 2011. The attendance o the members at these

meetings is as ollows:

Mr. L. N. De. S. Wijeyeratne (Chairman) - 5/5

Mr. L. T. Samarawickrama - 1/2*

Ms. R. N. Ponnambalam - 5/5

*Mr. L. T. Samarawickrama was appointed as an Executive Director

o Hayleys PLC. on 12/09/2011, hence ceased to be a member o

the Audit Committee o Hotel Services (Ceylon) PLC rom that

date onwards.

Tasks o the Audit Committee

Financial Reporting System

The Committee reviewed the nancial reporting system adopted

by the Company in the preparation o its quarterly and annual

Audit Committee

Report statements to ensure reliability o the processes and consistency othe accounting policies and methods adopted in their compliance

with the Sri Lanka Accounting Standards and other statutory and

regulatory requirements. The Committee recommended the

nancial statements to the Board or its publication.

Internal Controls and Internal Audit

The Committee reviewed the processes in place to assess the

eectiveness o the Internal Financial Controls that are in place

to provide reasonable assurance to the Directors that assets are

saeguarded and that the nancial reporting system can be reliedupon in preparation and presentation o Financial Statements.

The Hayleys PLCs Group Management Audit and Systems Review

Department act as the Internal Auditors or the Company.

Internal Audits are outsourced to audit rms in line with an

agreed annual audit plan. At Audit Committee meetings detailed

Internal Audit Reports were reviewed and audit concerns and

recommendations or improvement o nancial and operational

control systems with the management responses were tabled,

discussed and appropriate actions were initiated.

External Audit

The Committee had discussions with the external auditorsMessrs. Ernst and Young, to review the nature, approach, scope

o the audit and the Audit Management Letter o the Company.

The Committee also reviewed the non audit services provided by

the Auditors to ensure that the provision o such services does

not impair their independence.

Conclusion

The audit committee is satised that the companys accounting

policies and operational controls provide a reasonable assurance

that the aairs o the company are managed in accordance with

the companys policies and the company assets are properly

accounted or and adequately saeguarded.

L. N. De. S. WijeyeratneChairman - Audit Committee

17th May 2012.


25/5223



TO THE SHAREHOLDERS OF HOTEL SERVICES(CEYLON) PLC

Report on the Financial Statements

We have audited the accompanying nancial statements o Hotel

Services (Ceylon) PLC (Company), which comprise the balance

sheet as at 31 March 2012, and the income statement, statement

o changes in equity and cash ow statement or the year then

ended, and a summary o signicant accounting policies and other

explanatory notes. The Financial Statements o the Company as

at 31 March 2011 were audited by another auditor, whose report

dated 13 May 2011, expressed an unqualied opinion on those

Financial Statements.

Managements Responsibility or the FinancialStatements

Management is responsible or the preparation and air

presentation o these nancial statements in accordance withSri Lanka Accounting Standards. This responsibility includes:

designing, implementing and maintaining internal control

relevant to the preparation and air presentation o nancial

statements that are ree rom material misstatement, whether due

to raud or error; selecting and applying appropriate accounting

policies; and making accounting estimates that are reasonable in

the circumstances.

Scope o Audit and Basis o Opinion

Our responsibility is to express an opinion on these nancial

statements based on our audit. We conducted our audit in

accordance with Sri Lanka Auditing Standards. Those standards

require that we plan and perorm the audit to obtain reasonable

assurance whether the nancial statements are ree rom material

misstatement.

An audit includes examining, on a test basis, evidence supporting

the amounts and disclosures in the nancial statements. An

audit also includes assessing the accounting policies used and

Independent Auditors Report

signicant estimates made by management, as well as evaluating

the overall nancial statement presentation.

We have obtained all the inormation and explanations which

to the best o our knowledge and belie were necessary or

the purposes o our audit. We thereore believe that our audit

provides a reasonable basis or our opinion.

Opinion

In our opinion, so ar as appears rom our examination, the

Company maintained proper accounting records or the year

ended 31 March 2012 and the nancial statements give a true

and air view o the Companys state o aairs as at 31 March 2012

and its loss and cash ows or the year then ended in accordance

with Sri Lanka Accounting Standards.

Report on Other Legal and Regulatory

Requirements

In our opinion, these nancial statements also comply with the

requirements o Section 151(2) o the Companies Act No. 07 o

2007.

17th May 2012

Colombo


26/5224



Year ended 31 March 2012 2012 2011

Notes Rs 000 Rs 000

Turnover 3 547,177 606,548

Cost o Sales (256,499) (271,001)

Gross Prot 290,678 335,547

Other Income and Gains 4 (22,664) 1,042

Administrative Expenses (259,251) (219,898)

Marketing Expenses (62,474) (53,585)

Operating Prot /(Loss) 5 (53,711) 63,106

Loss rom De-recognition o Property, Plant and Equipment 7 (149,992) -

Net Finance Costs 8 1,462 3,554

Prot / (Loss) Beore Tax (202,241) 66,660

Income Tax Expenses / (Reversal) 9 13,152 (13,961)

Net prot / (Loss) (189,089) 52,699

Basic Earnings / (Loss) Per Share (Rs) 10 (1.07) 0.30

The notes on pages 28 to 43 orm an integral part o these nancial statements

Income Statement


27/5225



As at 31 March 2012 2012 2011Notes Rs. 000 Rs. 000

ASSETSNon-current assetsProperty, plant and equipment 11.2 1,956,358 1,729,486Investments 12 - - 1,956,358 1,729,486

Current assetsInventories 13 13,219 16,035Receivables and prepayments 14 50,303 84,825

Tax recoverable 5,676 -Cash and cash equivalents 16 38,061 106,404 107,259 207,264Total assets 2,063,617 1,936,750

EQUITY AND LIABILITIESCapital and reservesStated capital 22 176,000 176,000Revaluation reserve 23 1,017,553 1,157,917Revenue reserve 69,500 69,500Retained earnings 164,177 193,762 1,427,230 1,597,179

Non-current liabilitiesBorrowings 18 400,000 -Employee Benet Liabilities 19 10,290 9,939

Deerred tax liability 15 160,365 189,957 570,655 199,896Current liabilities

Trade and other payables 17 37,296 105,040Borrowings 18 28,436 26,024

Tax payable - 8,611 65,732 139,675Total liabilities 636,387 339,571Total equity and liabilities 2,063,617 1,936,750

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

R. K. NanayakkaraFinancial Controller

The Board o Directors is responsible or the preparation and presentation o these Financial Statements. Signed or and on behal o theBoard by:

A. M. Pandithage S. J. WijesingheChairman / Director Director

The accounting policies and notes on pages 28 through 43 orm an integral part o the Financial Statements.

17th May 2012Colombo

Balance Sheet


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Year ended 31 March 2012 Notes Stated Revaluation Revenue Retained Total

capital and other reserve earnings

reserves

Rs. 000 Rs. 000 Rs. 000 Rs. 000 Rs. 000

Balance at 1 April 2010 176,000 893,433 69,500 120,695 1,259,628

Net prot - - - 52,699 52,699

Transer rom revaluation reserve 23 - (1,759) - 1,759 -

Revaluation during the year 11 - 285,708 - - 285,708


Deerred tax on revaluation - (34,285) - - (34,285)

Eect on dierent tax rates - 30,374 - - 30,374

Deerred tax on transer 15 - 3,055 - - 3,055

Balance at 31 March 2011 176,000 1,157,917 69,500 193,762 1,597,179

Net Loss - - - (189,089) (189,089)





Deerred tax on transer 15 - 19,140 - - 19,140

Balance at 31 March 2012 176,000 1,017,553 69,500 164,177 1,427,230


Statement of Changes

in Equity


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Year ended 31 March 2012 2012 2011

Notes Rs. 000 Rs. 000

Operating activities

Cash generated rom operations 24 (2,847) 117,247

Interest received 8 2,252 5,367

Interest paid 8 (738) (1,838)

Tax paid (11,586) (13,886)

Retirement benet paid 19 (911) (1,127)

Net cash used in / generated rom operating activities (13,830) 105,763

Investing activities

Capital work in progress 11.1 (362,835) (35,850)

Purchases o property, plant and equipment 11 (110,847) (17,622)

Proceeds rom disposal o property, plant and equipment 16,755 1,250

Net cash used in investing activities (456,927) (52,222)

Financing activities

Proceeds rom long term borrowings 400,000 -

Payments on long term borrowings (4,166) (20,243)

Net cash generated / used in nancing activities 395,834 (20,243)

Net increase in cash and cash equivalents (74,923) 33,298

Movement in cash and cash equivalents

At start o year 84,547 7,628

Net increase (74,923) 33,298

At end o year 16 9,625 84,547


Cash Flow Statement


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1. Corporate Inormation

1.1 General

Hotel Services (Ceylon) PLC is engaged in the hotel business and

is the owner o Ceylon Continental Hotel Colombo, the rst Five

Star Hotel established in Colombo.

The Company is a limited liability company incorporated in Sri

Lanka and listed on the Colombo Stock Exchange. The address o

its registered ofce is No. 48, Janadhipathi Mawatha, Colombo 1.

1.2 Parent Entity and Ultimate Parent Entity

The Companys parent entity is Hayleys PLC. In the opinion o

the Directors, the Companys ultimate parent undertaking and

controlling party is Hayleys PLC, which is incorporated in Sri

Lanka.

1.3 Date o Authorisation or Issue

The Financial Statements o Hotel Services (Ceylon) PLC, or the

year ended 31 March 2012 were authorised or issue in accordance

with a resolution o the Board o Directors on 17 May 2012.

2. Summary o Signicant Accounting Policies

The principal accounting policies applied in the preparation o

the nancial statements are set out below. These policies have

been consistently applied to all the years presented, unless

otherwise stated.

2.1 Basis o Preparation

The Financial Statements have been prepared on a historical

cost basis, except or all property, plant and equipment other

than motor vehicles and linen and urnishing which were

subsequently measured at air value, based on valuations by

external independent valuers. The Financial Statements are

presented in Sri Lankan Rupees Thousands. The preparation and

presentation o these Financial Statements is in compliance with

the Companies Act. No. 07 o 2007.

The Financial Statements o Hotel Services (Ceylon) PLC have been

prepared in accordance with Sri Lanka Accounting Standards

(SLAS).

2.1.1 Comparative Inormation

The accounting policies have been consistently applied by the

Company and, are consistent with those used in the previous

year.

Notes to the FinancialStatementsYear ended 31st March 2012

2.1.2 Judgments

In the process o applying the Companys accounting policies,

management has made the ollowing judgments, apart rom

those involving estimations, which has the most signicant eect

on the amounts recognised in the Financial Statements

Deerred Tax Assets :

Deerred tax assets are recognised or all unused tax losses to

the extent that it is probable that taxable prot will be available

against which the losses can be utilised. Signicant management

judgment is required to determine the amount o deerred taxassets that can be recognised, based upon the likely timing and

level o uture taxable prots together with uture tax planning

strategies.

2.1.3 Estimates and Assumptions

The key assumptions concerning the uture and other key sources

o estimation uncertainty at the balance sheet date, that have a

signicant risk o causing a material adjustments to the carrying

amounts o assets and liabilities within the next nancial year are

discussed below. The respective carrying amounts o assets and

liabilities are given in related notes to the Financial Statements

Fair value o Property, Plant and Equipment:The property, plant and equipment o the Company except or

motor vehicles and linen and urnishing are reected at air

value. When current market prices o similar assets are available,

such evidences are considered in estimating air values o

theses assets. In the absence o such inormation the Company

determines within a reasonable air value estimates, amounts

that can be attributed as air values, taking in to consideration

discounted cash ow projections based on estimates, derived

evidence such as current market rents or similar properties and

using discount rates that reect uncertainty in the amount and

timing o cash ows.

De-recognition o Property Plant & Equipment Subject to

Reurbishments:

In order to comply with the SLAS 18 - Property Plant & Equipment,

the company determined the carrying value o de-recognised

assets with the assistance o a proessional valuer who has valued

the same assets in the last carried out revaluation (More ully

described in Note 11 (b)).

Dened Benet Plans:

The cost o dened benet plans - gratuity is determined using

actuarial valuations. The actuarial valuation involves making


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assumptions about discount rates, expected rates o return on

assets, uture salary increases, and mortality rates. Due to the

long term nature o these plans, such estimates are subject to

signicant uncertainty

2.2 Foreign Currencies

(a) Functional and Presentation Currency

Items included in the nancial statements o the entity

are measured using the currency o the primary economic

environment in which the entity operates (the unctional

currency). The nancial statements are presented in Sri LankaRupees, which is the Companys unctional and presentation

currency.

(b) Transactions and Balances

Foreign currency transactions are translated into the unctional

currency using the exchange rates prevailing at the dates o the

transactions. Foreign exchange gains and losses resulting rom

the settlement o such transactions and rom the translation

at year-end exchange rates o monetary assets and liabilities

denominated in oreign currencies are recognised in the income

statement.

2.3 Borrowing CostsBorrowing costs are recognised as an expense in the period in

which they are incurred, except to the extent where borrowing

costs that are directly attributable to the acquisition, construction,

or production o an asset that takes a substantial period o time

to get ready or its intended use or sale, are capitalised as part o

that asset.

2.4 Property, Plant and Equipment

All property, plant and equipment is initially recorded at cost.

All property, plant and equipment except motor vehicles and,

linen and urnishing are subsequently shown at air value, basedon valuations by external independent valuers, less subsequent

depreciation. Motor vehicles and, linen and urnishing are stated

at historical cost less depreciation. Historical cost includes

expenditure that is directly attributable to the acquisition o the

items.

Subsequent costs are included in the assets carrying amount

or recognised as a separate asset as appropriate, only when it

is probable that uture economic benets associated with the

item will ow to the Company and the cost o the item can be

measured reliably. All other repairs and maintenance are charged

to the income statement during the nancial period in which

they are incurred.

When an asset is revalued, any increase in the carrying amount

is credited directly to a revaluation reserve, except that it is

credited to the income statement to the extent that it reverses a

previous decit recognised as an expense. Any revaluation decit

that osets previous surplus in the same asset is directly oset

against the surplus in the revaluation reserve and any excess

recognised as an expense. Upon disposal or De-recognition, any

revaluation reserve relating to the asset sold is transerred to

retained earnings.

The dierence between depreciation based on the assets original

cost and the depreciation based on the revalued amount is

transerred rom revaluation reserve to retained earnings.

Depreciation is calculated on the straight line method to allocate

the cost o each asset or its revalued amount, to their residual

values over their estimated useul lie as ollows:

Buildings 50 years

Sports complex 50 years

Motor vehicles 5 yearsSign board 5 years

Plant, machinery and equipment 8 years

Furniture and ttings 10 years

Linen and urnishing 10 years

Linen and urnishing (ood & beverage & house

keeping)

3 years

The assets residual values are reviewed, and adjusted as

appropriate, at each balance sheet date an assets carrying

amount is written down immediately to its recoverable amount

i the assets carrying amount is greater than its estimated

recoverable amount.

Gains and losses on disposal o property, plant and equipment

are determined by reerence to their carrying amount and are

taken into account in determining prot or loss. On disposal or

de-recognition o revalued assets, amounts in revaluation reserve

relating to that asset are transerred to retained earnings.

2.5 Impairment o Assets

Assets are reviewed or impairment whenever events or changes

in circumstances indicate that the carrying amount may not be


32/5230



recoverable. An impairment loss is recognised or the amount

by which the assets carrying amount exceeds its recoverable

amount. The recoverable amount is the higher o an assets air

value less costs to sell and value in use.

2.6 Operating Leases

Leases o assets under which all the risks and benets o

ownership are eectively retained by the lessor are classied

as operating leases. Payments made under operating leases are

charged to the income statement on a straight-line basis over the

period o the lease.

2.7 Inventories

Inventories are stated at the lower o cost and net realisable

value. Cost is determined by the weighted average method.

The cost o the inventory comprises purchase price, taxes (other

than those subsequently recoverable by the Company rom the

tax authorities), and transport, handling and other costs directly

attributable to the acquisition o nished goods. It excludes the

borrowing costs. Trade discounts, rebates and other similar items

are deducted in determining the costs o purchase.

Net realisable value is the estimate o the selling price in the

ordinary course o business, less the costs o completion andselling expenses.

2.8 Trade Receivables

Trade receivables are carried at original invoice amount less an

estimate made or doubtul receivables based on a review o all

outstanding amounts at the year end.

Other receivables and dues rom Related Parties are recognised

at cost less allowances or bad and doubtul receivables.

2.9 Cash and Cash Equivalents

Cash and cash equivalents are carried in the balance sheet at

cost. For the purposes o the cash ow statement, cash and cash

equivalents comprise cash in hand, deposits held at call with

banks, other short-term highly liquid investments with original

maturities o three months or less, and bank overdrats. In the

balance sheet, bank overdrats are included in borrowings in

current liabilities.

2.10 Stated Capital

Ordinary shares are classied as stated capital.

2.11 Trade Payables

Trade payables are recognised initially at air value and

subsequently measured at amortised cost using the eective

interest method.

2.11.1 Provisions

Provisions are recognised when the Company has a present legal

or constructive obligation as a result o past events, it is probable

that an outow o resources embodying economic benets will

be required to settle the obligation, and a reliable estimate o the

amount o the obligation can be made.

2.12 Employee Benets

(a) Dened Contribution Plans

All employees o the Company are members o the Employees

Provident Fund and the Employees Trust Fund, to which

the Company contributes 12% and 3% respectively o such

employees basic or consolidated wage or salary and cost o living

and all other allowances.

The Companys contributions to the dened contribution plans

are charged to the income statement in the year to which they

relate.

(a) Dened Benet Plan

The liability recognised in the balance sheet in respect o dened

benet pension plans is the present value o the dened benet

obligation at the balance sheet date together with past service

cost. The dened benet obligation is calculated by independent

actuaries using the projected unit credit method. The present

value o the dened benet obligation is determined by

discounting the estimated uture cash outows using interest

rates o treasury bonds that are denominated in the currency in

which the benets will be paid and that have terms to maturity

approximating to the terms o the related liability.

Actuarial gains and losses arising rom experience adjustments

and changes in actuarial assumptions are charged to the income

statement.

2.13 Dividend Distribution

Dividend distribution to the Companys shareholders is recognised

as a liability in the nancial statements in the period in which the

dividends are approved by the Companys shareholders.

Notes to the Financial StatementsYear ended 31st March 2012


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2.14 Taxation

The tax charge is computed on the results or the year in

accordance with the provisions o the Inland Revenue Act No. 10

o 2006, as amended.

Current income tax assets and liabilities or the current and prior

periods are measured at the amount expected to be recovered

rom or paid to the taxation authorities. The tax rates and tax

laws used to compute the amount are those that are enacted or

substantively enacted by the balance sheet date.

The provision or income tax is based on the elements o income

and expenditure as reported in the Fina

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