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Lanka Walltiles PLCAnnual Report 2014/15

Multiplying Value

Lanka Walltiles PLC215, Nawala Road, Narahenpita, Colombo 05 Sri Lanka

www.lankatiles.com

Lanka Walltiles PLC Annual Report 2014/15

ContentsPerformance Highlights 2Corporate Philosophy 3Chairman’s Statement 6Managing Director’s Review 10The Board of Directors 14Senior Management 17Management Discussion & Analysis 18Corporate Governance 26Risk Management 33Sustainability Report 37Remuneration Committee Report 44Audit Committee Report 45

Annual Report of The Board of Directors on The Affairs of The Company 48Chief Executive Officer’s and Chief Financial Officer’s Responsibility Statement 52Statement of Directors Responsibilities 53Independent Auditor’s Report 54Statement of Financial Position 55Statement of Comprehensive Income 56Statement of Changes in Equity 57Cash Flow Statement 58Notes to the Financial Statements 59

NAME OF THE COMPANY Lanka Walltiles PLC

LEGAL FORM Lanka Walltiles PLC is a public limited liability company which was incorporated under the Companies Ordinance No.51 of 1938 as a public company on 24th day of September 1975. Pursuant to the requirements of the new Companies Act No. 7 of 2007, the Company was re-registered on 24th July 2007 and bears registration number PQ 55.

DIRECTORS Mr. W D N H Perera (Chairman)

Mr. J A P M Jayasekera (Managing Director)

Mr. T de Zoysa

Dr. S Selliah

Mr. T G Thoradeniya

Mr. K D G Gunaratne

Ms. A M L Page

Mr. M W R N Somaratne

REGISTERED OFFICE 215, Nawala Road, Narahenpita, Colombo 05 Telephone : + 94 -11 - 4526700

Facsimile : + 94 -11 - 2805463

E-mail : [email protected]

Website : www.lankatiles.com

FACTORY Meepe, Padukka

Telephone : + 94 - 11 - 4309809

Facsimile : + 94 - 11 - 2859168


PARENT COMPANY Lanka Ceramic PLC

No. 20, R A De Mel Mawatha

Colombo 03

Telephone : + 94 - 11 - 4336644

Facsimile : + 94 - 11 - 4412518

SECRETARIES P W Corporate Secretarial (Pvt) Ltd

No. 3/17, Kynsey Road

Colombo 08

Telephone : + 94 - 11 - 4640360-3

Facsimile : + 94 - 11 - 4740588


BANKERS Commercial Bank of Ceylon PLC

Hatton National Bank PLC

Bank of Ceylon

HSBC Bank

People’s Bank

DFCC Bank PLC

AUDITORS Ernst & Young Chartered Accountants

201, De Saram Place

Colombo 10

Corporate Information

Designed & produced by

Digital Plates & Printing by Softwave Printing and Publishing (Pvt) Ltd

Multiplying Value

Lanka Walltiles PLCMultiplying Value

We believe that our business targets must keep growing and evolving to exceed stake-holder expectations each year. Living up to the challenge of constantly adding to and multiplying our corporate value and there-by our long-term sustainability is how we ensure that our base is steady, our progress strong.

Today as we continue in our mission to manufacture cost effective products of exceptional quality, we are proud to record that the year under review has been a very successful one, bringing quantifiable growth and multiplying value to the many stake-holders who place their trust in us.

2 Lanka Walltiles PLC . Annual Report 2015

Introduction . Operational . Governance . Financial

Performance Highlights

91%Total Comprehensive Income

Group total comprehensive income attributable to equity holders increased to Rs. 1.1Bn. , up 91% from the Rs. 0.58 Bn. recorded in the preceding year.

Key performance Indicators

19.12Earnings per share

Group Earning Per Share up by 72% compared to preceding year.

9%Revenue growth

Group revenue for the year under review increased to Rs.14.6 Bn., up 9% from the Rs.13.4 Bn. recorded in the preceding year.

2015 2014

Revenue Rs. Mn 14,596 13,419

Profit for the year Rs. Mn 1,451 920

Profit attributable to equity holders Rs. Mn 1,044 605

Total comprehensive income Rs. Mn 1,604 861

Total comprehensive income attributable to equity holders Rs. Mn 1,108 581

Net assets Rs. Mn 6,497 5,742

Net assets per share Rs. 119.00 105.17

Earnings per share Rs. 19.12 11.09

Interest cover Times 6.50 2.96

Closing share price Rs. 95.80 61.50

Price earning ratio Times 5.0 5.5

Group turnover grew by 9% to reach Rs. 14.6 Bn for the year under review, up from Rs. 13.4 Bn in the previous year... post-tax profits grew from Rs. 0.92 Bn in the previous year to Rs. 1.45 Bn in the current year, registering a healthy YoY increase of 58%.

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Multiplying Value

Mission

The production and marketing of exceptional quality products and optimum affordability

Who we are

Lanka Walltiles PLC has been producing and exporting high quality ceramic tiles for over thirty five years. The market leader and premier ceramic wall tile manufacturer in Sri Lanka, LANKA WALLTILES PLC is a major contender in the highly competitive international arena, supplying quality tiles to discerning markets. Our product quality and designs are second to none. We have the capacity to produce approximately 2.7 million square meters of tiles annually. Sri Lanka is a beautiful and diverse country that has an abundance of raw materials for the production of our tiles.

We are strongly committed to investment in Research & Development in order that our tiles continue to meet the exacting manufacturing standards of the international marketplace. We are equally committed to the well being of the environment and have many policies in place to help the company be on the cutting edge of green tile production. Our tiles conform to ISO 13006.

A wide range of tiles in a variety of colors, textures and sizes including special trim tiles and decorated tiles are manufactured by the company today.

Vision

To be a leading producer of wall and floor coverings and related products for local and international markets

Corporate philosophy

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Multiplying Value

OPERATIONALMultiplying Value

Performance Highlights 2

Chairman's Statement 6

Managing Director's Review 10

Management Discussion & Analysis 18



Dear Shareholder, As I present to you the annual report and financial statements of your company for the year ended 31st March 2015, I take great pride in noting how well we have aligned our strategic priorities to achieve our goals. Underpinned by our sound strategies, we have created a stable business platform to able to support consistent value creation for all stakeholders of the company.

Macro-economic OverviewIn 2014, a significant turnaround was observed following improved economic data from advanced economies, setting the pace for a firm recovery of global economic conditions. Key emerging economies however responded with a lower-than-expected economic activity for the second consecutive year, once again contributing less to global growth in 2014.

Outperforming many regional peers, the performance of Sri Lanka’s economy however continued at a moderate pace as seen in the past three years, tabling a 7.4% GDP growth for 2014.

How we are multiplying our corporate value...Chairman’s statement


With all sectors demonstrating sizable improvements, group turnover grew by 9% to reach Rs. 14.59 Bn for the year under review, up from Rs. 13.42 Bn in the previous year.

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Multiplying Value

Group PerformanceThe current economic growth model admittedly proved to be a strong foundation that bolstered market sentiments and helped boost the overall performance of the Lanka Walltiles PLC group. With all sectors demonstrating sizable improvements, group turnover grew by 9% to reach Rs. 14.6 Bn for the year under review, up from Rs. 13.4 Bn in the previous year. Moreover with all group companies making a strong contribution to the bottom line, post-tax profits grew from Rs. 0.92 Bn in the previous year to Rs. 1.45 Bn in the current year, registering a healthy YoY increase of 58%,. In particular, I wish to recognise the commendable performance tabled by Swisstek Group of companies, which demonstrates the potent prospects for the group in the coming years.

The core business, Lanka Walltiles PLC (LWPLC) also grew steadily during the year to record a commendable 19% YoY growth in the topline from Rs. 2.6 Bn in the previous year to Rs. 3.1 Bn for the current financial year. The company’s PAT increased to Rs. 517 Mn from Rs. 194 Mn in the last year, a substantial YoY increase of 166%.

Fixed AssetsAlways conscious of the importance of reinvesting for the future, LWPLC invested Rs. 106 Mn towards upgrading existing technology and streamlining procedures that will help convey greater efficiencies at all levels of the business. I believe these investments would deliver considerable benefits to augment the existing portfolio of offerings and enrich the company’s value proposition in the coming years.

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14.6 BnGROuP TuRNOVERa growth of 9% over last year

2.1BnGROuP OPERATING INCOME a growth of 21% over last year


AppropriationsAn interim dividend of Rs. 2.00 per share was made to shareholders of the company in November 2014, followed by a further interim dividend of Rs. 2.00 was paid out in April 2015. Therefore the total dividend paid for the year is Rs. 4.00 per share. Compared to the previous year payout of Rs. 2.50 per share demonstrating the strong profitability and cash flow of the Company.

Corporate SustainabilityAt LWPLC corporate sustainability is not merely a buzz word, but a very real concept that is a big part of our core principles and applies to all aspects of the business model. We measure sustainability through the eyes of our stakeholders and make sure that our products and the processes we use to derive these products are financially, socially and environmentally sustainable so as to create a positive impact on the triple bottom line. It is this commitment that resonates in our actions and determines how we manage our day-to-day operations in an ethical and socially responsible manner.

Responsible StewardshipThe Board of Directors of your company remains the apex body responsible for proper governance mechanisms and an appropriate code of conduct that outlines the day-to-day functions of the company. To secure the interest of all stakeholders, the company engages in transparent reporting practices and conforms to the guidelines laid out under the Code of Best Practice on Corporate Governance jointly issued by The Institute of Chartered Accountants of Sri Lanka, The Securities and Exchange Commission of Sri Lanka and The Colombo Stock Exchange.

Chairman’s statement


14.6 BnGROuP TuRNOVERa growth of 9% over last year

2.1BnGROuP OPERATING INCOME a growth of 21% over last year

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Future OutlookI believe that Sri Lanka’s transition towards greater economic stability would certainly herald an era of nascent growth for all key sectors of the economy. While the prospects in the domestic construction sector remain strongly appended to this growth trajectory, the possibilities for your company in the coming years appear to be robust. On the downside however, as the range of opportunities expand, competition is also likely to intensify as more players enter the market in the years ahead. In counteracting these challenges, I am confident that our best strategy would be to leverage on group synergies that strengthen our core competencies. The ensuing benefits would undoubtedly improve the versatility of our operations and offer us a definite competitive advantage, allowing us to fully exploit the diversity of the market in the future.

AcknowledgementsI would like to extend my sincere thanks to the Board of Directors for their keen interest and eager participation in all board matters. I also wish to take this opportunity to thank the Managing Director, the senior management and the entire staff of Lanka Walltiles PLC for the dedication and commitment with they have worked to deliver consistent results for all stakeholders of the company. A special thank you also to our valued customers, bankers, distributors, dealers and other business partners for their continued support. Finally, I wish to thank all our Shareholders for the trust and confidence placed in the company. I look forward to your continued support in the years ahead.

W D N H PereraChairman

29th May 2015


Macro-economic ReviewGlobal growth for the year 2014 registered a slight improvement, indicating a possible end to the economic slump of the past three years. There appeared to be renewed interest in economic activity across many advanced economies amidst positive market sentiments led by growing financial stability in the US. However, the Russian Rouble crisis, the deteriorating crude oil prices and the escalating political tensions in the middle-east, have all contributed to increase the downside risks renewing fears of the global economy sliding back into recession any time in 2015.

Most emerging economies had to contend with a tough year as real growth eluded many leading nations including India and China. Sri Lanka’s economy was seen easing into a more temperate growth model resulting in a modest GDP growth of 7.4% for the year, with no significant contributions from any key sectors of the economy.


I am happy to note that they have also been able to deliver tangible results for the company, leading to a 20% YoY increase in volumes for the period under review. The growth in volumes also translated well for the company’s top line, with the turnover growing by 19% YoY from Rs. 2.6 Bn in the previous year to reach Rs. 3.1 Bn for the year ended 31st March 2015.

How we are multiplying our corporate value...Managing Director’s Review


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Multiplying Value

Group PerformanceAmidst this backdrop, the Lanka Walltiles PLC (LWPLC) group tabled a very healthy performance for the year ended 31st March 2015. Group turnover stood at Rs. 14.6 Bn, a YoY increase of 9%, compared to Rs. 13.4 Bn in 2014, while the post-tax profits also grew by 58% from Rs. 920 Mn in the previous year to Rs. 1.4 Bn for the current financial year.

The group results comprise of LWPLC and its subsidiary holdings in the Tile and associated products manufacturing, Aluminium, Plantation and Packaging sectors. The Tile and associated products manufacturing sector consists of LWPLC its subsidiaries, Lanka Tiles PLC and Swisstek (Ceylon) PLC (SCPLC). The Aluminium sector represented by Swisstek Aluminium Ltd (SAL), a subsidiary of SCPLC. The Plantation sector is represented by Vallibel Plantation Management Ltd (VPL) along with its subsidiary holdings in Horana Plantations PLC (HPPLC) and Unidil Packaging Ltd (UPL). UPL on its own denotes the group interests in the packaging sector.

During the year under review, all sectors performed commendably well as indicated by the results as for the financial year ended 31st March 2015.

Business ReportHaving summarised the group performance, I now refer to the performance of the company, in this case LWPLC’s core business: the manufacture and sale of wall tiles, where business prospects are aligned with the country’s domestic housing and construction sector. Following a slow start to the year, the construction sector was able to record approximately 13% growth for the year. From an industry perspective, the highly competitive operating environment remained a key challenge for LWPLC. In particular, the competition from imported tiles continued to be a major worry that threatens to undermine the company’s market share, which is about 56% at present.

F/Y Tile and Associated Products Manufacturing Sector Aluminium Sector

Plantation Sector

Packaging Sector

Consolidated

LWPLC LTPLC SCPLC CONSOLIDATED

Turnover (Rs. Mn)

2015 3,078 5,349 339 8,522 1,527 2,164 2,382 14,596

2014 2,599 5,109 320 7,765 1,181 2,258 2,216 13,420

Post-tax Profits (Rs. Mn)

2015 517 730 92 1,307 157 55 173 1,451

2014 194 652 50 804 70 124 88 920

To offset the competition we continued to produce a range of new design concepts and widen the range of sizes on offer so as to cater to a broader spectrum of customer needs.


To offset the competition we continued to produce a range of new design concepts and widen the range of sizes on offer so as to cater to a broader spectrum of customer needs. Once again, we invested heavily to enhance our digital printing capabilities. Addressing the strong demand for the larger tile format, particularly in urban areas, we also took steps to gear ourselves to respond accordingly.

Moreover to overcome currently held misconceptions regarding the use of wall tiles, we also initiated a highly focused marketing campaign to stimulate the mainstream demand for wall tiles in other regions of the country. Our aim was to promote ‘LANKATILES’ as a brand synonymous with high quality, locally manufactured wall tiles. As part of the efforts, we launched an aggressive media campaign to boost the brand image.

In addition to developing our existing delivery channels, we introduced a range of alternative distribution channels to help penetrate new markets across the country. Among them was the launch of the ‘Lankatiles Tilers Club’, a ground-breaking move that partners with the island-wide Tiler communities to promote our offerings to the mass market. In yet another innovative step, we introduced the ‘Lankatile Plus’ sales outlet concept, a partnership that offers small businesses the opportunity to become registered sales agents for our brand. These initiatives were well received and appear to have had a positive impact on customer sentiments.

I am happy to note that they have also been able to deliver tangible results for the company, leading to a 20% YoY increase in volumes for the period under review. The growth in volumes also translated well for the company’s top line, with the turnover growing by 19% YoY from Rs. 2.6 Bn in the previous year to reach Rs. 3.1 Bn for the year ended 31st March 2015.

On the supply side, it appears that the lobbying efforts of the Ceramics Council have led to the imposition of stricter controls, signalling an end to illegal mining of ball clay and feldspar deposits across the country. This means we now have access to a sustainable supply of raw material at fair market price, which provides a level playing field for all in the tile cluster.

From a cost perspective, energy accounts for over 40% of our cost of production and the high cost involved continues to be a grave concern, given the dependence on LP gas and Kerosene oil as the primary source of power for the energy intensive manufacturing operation. Encouragingly however, the sharp decline in world oil prices in the latter half of the year, offered some relief that lowered the cost of production and edged up the gross profit margin to 30% compared to the 25% recorded in the year before.

A culmination of these factors provided the impetus for strong bottom line growth from Rs. 194 Mn in the previous year to Rs. 517 Mn for the current year, a YoY increase of 166%

While business indicators confirm the strength of the company’s presence in the local market, the year saw a great deal of emphasis on developing export markets as well. Having already entered regional markets in India and the Maldives, the focus for the year was to tap into the North American and European markets vis-à-vis specific marketing forums held in the USA and Germany.

Managing Director’s Review


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Multiplying Value

Developing Support ServicesAside from our pursuit of financial success, as a dynamic organisation at the forefront of Sri Lanka’s corporate sector, we are fully aware that the key to maintaining our competitive edge lies in continuously strengthening all our core competencies.

I believe, remaining competitive depends largely on the skills and competencies of the workforce and their ability to face the challenges in the modern commercial landscape. Human resource development is thus a key priority for the company. As part of our efforts, we have created a safe, progressive work environment that will ensure our employees thrive and grow both personally and professionally. Training and development is another key aspect that we continue to invest in, to nurture a future ready-workforce who would drive corporate aspirations in the years ahead.

Alongside the focus on human capital development, we also pro-actively engaged in fine tuning our information technology systems so as to improve efficiencies at multiple levels of the business.

Share PerformanceCharacterized by healthy trading volumes, the company’s shares performed progressively well during the year. While the lowest traded price per share of Rs. 57/- was in April 2014, the share reached Rs. 105/-, the highest traded price in November 2014. As at 31st March 2015, the trading price stood at Rs. 95/- per share.

Future OutlookThe company’s product range remains in the most vulnerable segment of the tile industry, given the perceived notion that wall tiles are a luxury item, which has prompted customers to habitually opt for floor tiles as a replacement for wall tiles. Altering this practise has proved to be a considerable challenge that demands a complete change in the customer mind-set vis-a-vis a new value proposition for the mainstream wall tile market.

This opens up opportunities for the company to present new designs, textures and format sizes to highlight the functionality of wall tiles in deference to floor tiles. The key to harnessing this potential will depend on the versatility of our product range and how well it is articulated to the potential customers. We would thus need to develop a marketing strategy that would go hand in hand with our brand building efforts to promote our brand to the mass market in the coming years.

I am confident, the synergies derived from the group would ideally support the level of diversity we seek and give us an edge over our competitors to truly position ourselves as the market leader in Sri Lanka’s wall tile space.

AcknowledgementsI wish to extend my sincere thanks to all employees of LWPLC for their loyalty towards the company and the dedication with which they have delivered corporate success. I would also like to thank the Chairman and my colleagues on the Board for the unstinted support extended to me during the year.

I take this opportunity to thank all our customers, dealers, distributors, bankers, suppliers and other stakeholders for their loyal and continued support.

In conclusion I wish to thank the shareholders of the company for the confidence placed in the company. I seek your valued patronage in the years ahead as well.

J A P M JayasekeraManaging Director

29th May 2015


1. Mr. Nimal Perera - ChairmanOn the Board of Lanka Walltiles PLC since 2013, Mr. Nimal Perera also serves on boards of Pan Asia Banking Corporation PLC, Lanka Ceramic PLC, Lanka Tiles PLC, Horana Plantations PLC, Swisstek (Ceylon) PLC, N P Capital Limited and N Capital (Pvt) Ltd as the Chairman, Vallibel One PLC as the Deputy Chairman, Royal Ceramic Lanka PLC as the Managing Director, LB Finance PLC as an Executive Director, Vallibel Power Erathna PLC and The Fortress Resorts PLC as an Alternate Director.

He also holds directorships in Hayleys PLC, Kingsbury PLC, Haycarb PLC, Talawakelle Tea Estates PLC and Amaya Leisure PLC.

He is a renowned business magnate, stock trader and shareholder of many companies in the country.

The Board of Directors

2. Mr. J A P M Jayasekera - Managing DirectorMr. Mahendra Jayasekera joined Lanka Walltiles PLC in June 1998 as a Director. He was appointed as the Managing Director in April 2008 and continues to hold the same position at present.

He is the Managing Director of Lanka Tiles PLC, Swisstek (Ceylon) PLC. He is also a Director of Industrial Technology Institute (ITI), HNB Assurance PLC and is the Chairman of Centre for Technical Excellence in Ceramics (CENTEC).

Mr. Jayasekera holds a BSc Special (Hons) degree in Business Administration from University of Sri Jayawardenapura and is a Fellow Member of the Institute of Chartered Accountants of Sri Lanka.

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3. Mr. T de Zoysa - Director A well-known figure in the Sri Lankan business community, Mr. Tilak de Zoysa, FCMI (UK) FPRI (SL), Honorary Consul for Croatia and Global Ambassador for HelpAge International was conferred the title of “Deshabandu” by His Excellency the President of Sri Lanka in recognition of his services to the country and was the recipient of “The Order of the Rising Sun. Gold Rays with Neck Ribbon” conferred by His Majesty the Emperor of Japan.

In addition to being the Chairman of the Supervisory Board and Advisor to the Al-Futtaim Group of Companies in Sri Lanka, he chairs Carsons Cumberbatch PLC, Associated CEAT (Pvt) Ltd., Amaya Hotels and Resorts USA (Radisson), AMW Capital Leasing and Finance PLC, Jetwing Zinc Journey Lanka (Pvt) Ltd and HelpAge Sri Lanka.

He is also the Vice Chairman of Ceat Kelani Holdings (Pvt) Ltd., Orient Insurance Ltd. and serves on the boards of several listed and private companies which include John Keells PLC, Taj Lanka Hotels PLC, TAL Hotels and Resorts Ltd, Lanka Walltiles PLC, Nawaloka Hospitals PLC, Dutch Lanka Trailer Manufacturers (Tata Group), Associated Electrical Corporation Ltd., Inoac Polymer Lanka (Pvt) Ltd., Cinnovation INC., GVR Lanka (Pvt) Ltd and Varun Beverages Lanka (Pvt) Ltd (Pepsi).

Mr. Tilak de Zoysa is a past Chairman of the Ceylon Chamber of Commerce, the National Chamber of Commerce of Sri Lanka, HelpAge International (UK) and served as Member of the Monetary Board of Sri Lanka (2003-2009).

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The Board of Directors

4. Dr. S Selliah - DirectorDr. Sivakumar Selliah joined the Board of Lanka Walltiles PLC in 2003. Dr. Selliah holds an MBBS degree and a Master’s Degree (M.Phil). He has over 23 years of experience in diverse fields.

He is currently the Deputy Chairman of Asiri Hospitals Holdings PLC, Deputy Chairman of Asiri Surgical Hospital PLC and Central Hospital Private Ltd. Dr. Selliah is also the Chairman of Cleanco Lanka Pvt Ltd and JAT Holdings Pvt Ltd.

He is a Director of Lanka Tiles PLC, Horana Plantation PLC, Softlogic Holdings PLC, Lanka Ceramic PLC, HNB Assurance PLC and ODEL PLC. Dr. Selliah serves on the Remuneration Committee and Audit Committee of some of the companies listed above.

5. Mr. T G Thoradeniya - DirectorMr. Tharana Thoradeniya has over two decades of senior management experience in multi- industry scenarios. He sits on the Boards of several public quoted and privately held companies in Sri Lanka, including Pan Asia Banking Corporation PLC, Lanka Walltiles PLC, Lanka Tiles PLC, Lanka Ceramic PLC, Hayleys Fibre PLC, Delmege Ltd., Unidil Packaging Ltd., Vallibel Plantation Management Ltd., Dipped Products (Thailand) Ltd., and several others. He is a Group Director of Royal Ceramics Lanka PLC and CEO/Director of Rocell Bathware Ltd. Tharana has been credited as a proven business innovator across industries. A marketer by profession, Tharana was in the pioneering batch of Chartered Marketers of the Chartered Institute Marketing (UK).

6. Mr. K D G Gunaratne - DirectorMr. Gamini Gunaratne studied at St. Thomas’ College Mt. Lavinia and was a member of the Western Province Council during the period 1989 to 2009.

He currently holds the position of Chairman Lanka Hotels & Residences (Pvt) Ltd.

7. Ms. A M L Page - DirectorMs. Anjalie Page holds a BSc (Hons) Psychology (First Class) from the University of Nottingham, United Kingdom and a MSc in Economics, Finance and Management (Distinction) from the University of Bristol, United Kingdom.

Ms. Page has been employed at several institutions and lastly served at Ernst & Young LLP, UK – (Advisory, Financial Services).

Ms. Page is currently working at Habitat for Humanity Sri Lanka.

8. Mr. M W R N Somaratne - DirectorMr. Nandajith Somaratne currently serves as a Director of Hayleys MGT Knitting Mills PLC, a subsidiary of Hayleys PLC; Royal Porcelain (Pvt) Ltd and Ever Paint & Chemical Industries (Pvt) Ltd, fully owned subsidiaries of Royal Ceramics Lanka PLC. He is currently working as the General Manager (Manufacturing) for Royal Ceramics Group which includes Lanka Walltiles PLC and Lanka Tiles PLC.

He has served in Ansell Lanka (Pvt) Ltd and in Central Engineering Consultancy Bureau (CECB) before joining Royal Ceramics Lanka PLC in 1993. Mr. Nandajith Somaratne counts more than 22 years experience in the Ceramic industry and manufacturing field.

He holds a MBA from the University of Colombo, Post Graduate Diploma in Industrial Engineering from NIBM and BSc. degree (Physical Science) from the University of Peradeniya.


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Senior Management

Mr. Mahendra Jayasekera Managing Director

Mr. Nandajith SomaratneGroup General Manager Manufacturing

Mr. Shirley MahendraHead of Marketing

Mr. Nihal KumarasingheFactory Manager

Ms. Nathalie KehrliHead of Design

Mr. upul WeerasingheGroup Engineering Manager

Mr. Tyrell RocheHead of Finance

Mr. Prasad KeerthiratnaGroup IT Manager



Overview of the local Tile industryThe Sri Lankan tile manufacturing industry is dominated by a few key players focusing primarily on servicing the domestic market for tiles. As the demand for tiles remain strongly linked to the prospects of the domestic construction and housing sector, the recent upsurge in the demand for tiles is deemed to be a direct result of the construction boom taking place within the country. This has also led to a rapid increase in size of the market, allowing incumbent firms to double their sales volumes within the last 15 years. Moreover, the country’s recent growth spurt has also bolstered the tourism industry, where the robust tourist arrivals continue to drive more and more refurbishments and expansions in the hotel industry, signalling encouraging prospects for the tile cluster in the coming years.

Meanwhile, the demand for tiles is further segmented into wall tiles and floor tiles, each occupying 20% and 80% of the total market respectively. While local customers appear to have readily accepted floor tiles as a suitable alternative for floor surfaces, the market has remained stubbornly resistant towards embracing the wall tile proposition. This is mainly due to the lack of perceived value for the wall tile offering based on the commonly held misconception that it is a luxury item. While these sentiments have been largely responsible for market trends in the past, a notable shift has been observed in the recent years, signifying a maturity in customer behaviour patterns that are likely to favour the wall tile segment in the future.

How we are multiplying our corporate value...Management Discussion & Analysis

The country’s recent growth spurt has bol-stered the tourism industry, where the robust tourist arrivals continue to drive more and more refurbishments and expansions in the hotel industry, signalling encouraging years.

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From a supply side, the clay mining process too has come a long way from its early days. At present, all mining activities are conducted as per a strict regulatory framework. While this has assured the quality and integrity of the source material, it has nevertheless resulted in driving up the cost of mining, ultimately increasing the cost of production in the tile industry. Meanwhile, given the dependence on LP gas, the high cost of energy also remains a grave concern for the local tile cluster, where energy costs account for more than 40% of the industry-wide average cost of production.

While the high cost of production continues to be a drawback, locally manufactured tiles do still command a premium price and have been able to retain market share, due mainly to high quality and durability of the offerings. However, in the recent past, the local tile industry has been plagued by a fresh threat, in the form of cheap imports from China, India and Indonesia which appear to have found a demand among the lower end of the market space.

Financial ReviewRevenueDespite the slow growth landscape, the company performed well to secure an 19% growth in revenue, which exceeded the Rs. 3.0 Bn mark as at 31st March 2015, with local sales leading the effort, also with a 15% year on year increase from the previous year. Of the local sales, the franchise network contributed well, accounting for 18% of the volume, while the dealer network contributed to the annual top line.

The performance in export markets was as expected, with the LWPLC wall tile range recording a YoY in-crease of 32%, with the regional showrooms in India and the Maldives showing promising results for the year.

Despite the slow growth land-scape, the company performed well to secure an 18% growth in revenue, which exceeded the Rs. 3.0 Mn mark as at 31st March 2015, with local sales leading the effort, also with a 12% year on year increase from the previous year.

Kobe

Ottawa

Toronto

Karachi

Dubai

Bangalore Chennai

Male

COLOMBO Singapore

Osaka

Littleton

Brisbane

Sydney

Melbourne

Freemantle

Auckland

California

Vancouver


ProfitabilityDriven mainly by decreasing energy costs, production overheads for the year saw a marked drop, leading to an increase in gross profit margin to 31%. Moreover, while both administrative costs and distribution expenses saw no material change from the previous year, a sizable 27% year on year decrease in finance expenses was observed during the year. Thus PBT increased from Rs. 194 Mn. in the previous year to Rs. 554 Mn. in the current year, a significant YoY increase of 186%. Further, due to better performance during the current year, LWPLC’s PAT posted a healthy Rs. 517 Mn which significantly better than 2013/14 PAT of Rs. 194 Mn.

As a result Earnings per Share (EPS) also increased from Rs. 3.55 per share, in the previous year to Rs. 9.47 per share for the current year.

BorrowingsTotal borrowings dropped 11% YoY due to better cash flow status and better financial control. Total borrowings for the year, both short and long term, amounted to Rs. 1.9 Mn. as against the Rs. 2.1 Bn recorded in the previous year.

Share performance With the total number of issued shares being the same, the LWPLC share performed well in the stock market, with the highest recorded trading price of Rs. 105/- per share coming on 13th November 2014, while, the lowest recorded trading price was Rs. 57.60 per share recorded on 07th April 2014 and ending the year with a price of Rs. 95.80 per share as at 31st March 2015.

InvestmentsWith increased focus on consolidation, investments were curtailed during the year. Only Rs. 106 Mn. was spent in total, of which Rs. 32 Mn. was incurred for the building of new Finished Goods warehouse at Meepe factory. Meanwhile, ongoing efforts to upgrade existing facilities, improve technology and ensure environmental compliance also continued, accounting for the remainder of the investments increase design capability.

Sales and Marketing While the influx of imported tiles did manage to erode LWPLC’s market share, the company was still able to maintain a strong 51% share of the local wall tile market as at 31st March 2015. Meanwhile, overcoming their long-held views, growing customer acceptance of the wall tile concept is reflected by the 15% YoY volume growth registered by LWPLC for the year. Notably, the larger format tiles introduced in the previous year also appear to have caught on in the market, demonstrating promising results as at 31st March 2015.

Further efforts to map a vibrant wall tile offering, led to the launch of three new collections during the year, namely Concrete, Essential and Xilosophy, each of which are meant to capture a dynamic sense of well-being and comfort for modern living spaces. Meanwhile, exiting products were also regrouped and launched together with the new collections in mid-2014. All products were well received by the market and have shown good results within the year itself.

Management Discussion & Analysis

The Fine Art Of Living..... Celebrating World Water Day!LANKA WALLTILES PLCLANKA WALLTILES PLC


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Multiplying Value

Encouraged by the positive customer sentiments, the company launched an aggressive promotion to reinforce the versatility of the LWPLC brand both as a mass market offering as well as a niche placement. Appropriately themed “Wall Styles”, the series of highly focused media adverts was aimed at enhancing customer brand association in line with trending lifestyle concepts around the world. Coinciding with the promotional effort, the visual ambience of the franchise network was also altered to capture international display standards, where all racking, display and merchandising material was changed as per the designated theme for the year. Moreover, a more interactive, customer friendly service model was introduced, with all showrooms now equipped to provide customers with a value added, end-to-end solution for all their tiling needs.

To further augment the feedback lines open to customers, LWPLC stepped into the social media space, vis-à-vis YouTube, Facebook and Twitter. Given the encouraging response received from customers via these mediums, it is likely that the social media platform could be leveraged as an effective marketing tool in the coming years.

Meanwhile, emphasizing the importance of effective customer communication led to the introduction of additional warning labels on the packaging material to ensure customers are made aware of the safety and handling requirements for the company’s products.

The performance in export markets was also as expected, with the LWPLC wall tile range recording a YoY increase of 32%, with the regional showrooms in India and the Maldives showing promising results for the year. Aside from the regional markets, North America and Europe were the other key export markets, having received a considerable boost following the company’s presence at the COVERINGS 2014, held in Las Vegas and the Cersaie 2014 exhibition in Bologna, Italy respectively.

Distribution ChannelsWhile group synergies did help growth the company’s presence across Sri Lanka, as LWPLC’s the strategic expansion plan, the company continued to grow the number of customer touch points across the country, where the three new franchise showrooms were commissioned during the year in Mahiyanganya, Kottawa and Ampara, bringing the total number of island-wide showrooms to 40.

Meanwhile, efforts to migrate towards a more cost effective distribution structure, resulted in the introduction of two new distribution channels during the year, namely the Tiler Club launched in followed by the Tiler Plus scheme introduced in. Under the Tiler Club programme, Tile workers from across the island were encouraged to sign up with LWPLC to promote the company’s products to Tilers’ own clients. The scheme is a commission based exercise that would entitle all Tiler Club members to a percentage of any sales that they bring in, while their customers too are entitled to a discount for their purchases. Meanwhile, the Tiler Plus concept is a cost efficient channel that will help broad base the company’s reach across the island, by encouraging small area-based businesses to act agents for the company’s products.

Strict cost control measures were also implemented to curb excessive distribution costs, which resulted in rationalization of the dealer network so as to help the registered dealer base to streamline their operations and maximize their geographical coverage.

56%Company market share in the local Walltile market


A number of measures were taken to enhance the presentation and overall visual profile of the tile surface, including substantial investments to enhance the digital printing capabilities of the larger size tile formats.

Operational AspectsImproving efficiencies at each stage of the manufacturing process was considered a key priority for LWPLC, particularly with the factory operating at an average 90% capacity throughout the year. A number of measures were taken to enhance the presentation and overall visual profile of the tile surface, including substantial investments to enhance the digital printing capabilities of the larger size tile formats. The company’s design function was also strengthened during the year, with 3 new additions to the design team, while training was intensified to update the knowledge and skills of the entire design unit.

From a cost perspective, the high cost of energy (LP Gas) continued to be a worry and much effort was put into finding energy efficient mechanisms that could be integrated into the existing production floor. While these efforts did result in some reductions during the year, LWPLC experienced a notable drop in energy costs following the decline in crude oil prices in November 2014.

A number of investments were also made during the year to upgrade the environmental systems at LWPLC’s Meepe plant, in line with the ISO 14001, Environmental Management Systems.

Meanwhile, working in tandem with the ISO 9001 guidelines for Quality Management Systems, a series of investments were made to improve the quality of the post manufacturing processes, including packaging and storage mechanisms.

Management Discussion & Analysis

168%Growth in post Tax Profits of the Company

Sri Lanka’s domestic construction and housing industry is set to grow steadily in the years ahead and the future prospects for the Tile sector remain upbeat.


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Multiplying Value

Procurement SystemsAlthough LWPLC does own a limited quantity of clay deposits, to accommodate the growing raw material requirements, the company has become increasingly dependent on procuring ball clay from third parties. To ensure the quality and overcome the incumbent risks associated with third parties, LWPLC is governed by the group-wide supply chain management framework, consisting of an extensive data base of approved ball clay suppliers. All suppliers in the data base are evaluated as per the CEA guidelines for ethical mining practices, including the sustainability of the post-mining process. Moreover, an independent assessment is carried out to verify labour and human rights practices of these suppliers.

Leveraging on this group-wide procurement process, has helped LWPLC benefit from considerable synergies both in terms of cost advantages as well as a guarantee of better quality raw material. Meanwhile, the company continues to engage with suppliers in an ongoing effort to further enhance the supply chain processes.

OutsourcingWhile the company retains control over all core operations, certain non-core areas, including calcite crushing are outsourced to third parties. Here too, strict guidelines are followed when establishing working relationships with outsource partners, while continuous engagement ensures that the company’s quality benchmarks are enforced at every stage of the outsourcing process.

Human Capital DevelopmentGiven that over 80% of LWPLC’s workforce comprises of workers at the production plant, the company deploys a concerted effort to ensure effective development of human capital resources. Maintaining strong employee relations has been at the crux of this goal, setting the stage for meaningful dialogue with both employees and their union representatives. The strong communicative culture that cascades to all

levels of employee network has facilitated uninterrupted operations throughout the year, with no industrial disputes or union-induced work stoppages during the year.

Further efforts to ensure employee well-being has prompted LWPLC to initiate the process of obtaining OHSAS 18001, Occupational Health and Safety Standards, so as to align the manufacturing process at the plant, on par with internationally accredited safety management practices.

Future OutlookAmidst widespread urbanization taking place across the country, Sri Lanka’s domestic construction and housing industry is set to grow steadily in the years ahead and the future prospects for the Tile sector remain upbeat. Meanwhile however, the inherent issues surrounding the Tile sector are deemed to, once again overshadow progress for all the local tile manufacturers in the years ahead.

From a marketing perspective, the best way for LWPLC to combat these challenges would be to leverage on group synergies to expand the market share. To do so, the company would need to push the benefits of the “Buy local” concept to a wider island-wide market. To illustrate versatility of the LANKA TILES offering, LWPLC would be called upon to strengthen brand identity and to reposition the brand as the premier choice in the local wall tile market. Further, the company would also need to consider capacity expansions to help strengthen the LANKA TILES brand identity in targeted overseas markets as well.

From an operational perspective too change would be imperative. In this context, the company would be called upon to work collaboratively with all industry stakeholders to refine and improve the long term sustainability of the business model.

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Multiplying Value

GOVERNANCEMultiplying Value

The Board of Directors 14

Senior Management 17

Corporate Governance 26

Risk Management 33

Sustainability Report 37

Remuneration Committee Report 44

Audit Committee Report 45



Corporate Governance

The Board of Directors of Lanka Walltiles PLC is committed to upholding the highest standards of integrity and transparency in its governance of the Company and its subsidiaries. The Board is guided by the Code of Best Practice issued by the Institute of Chartered Accountants of Sri Lanka and the Securities and Exchange Commission of Sri Lanka and the listing rules of the Colombo Stock Exchange. The Board is responsible for protecting the rights and interests of shareholders and are accountable to them for the overall management of the Company.

Corporate Governance FrameworkThe Corporate Governance framework to accomplish the corporate governance objective of Lanka Walltiles PLC is given below.

The Board

Shareholders

Nominations Policy

Audit Committee

Risk Management Remuneration Committee

The Chief Executive and management team

External RegulationsFramework

Independent Audit

Framework

Risk Management Framework

ExternalStakeholdersFramework

Protect rights providesValue

Delegates day to day management

Ensures good Boardcomposition

Reviews Integrity of financial statements

EnsuresRemuneration is appropriate

Ensures good risk management

Elects the Board

Provides Transparent information

THE COMPLIANCY TO CORPORATE GOVERNANCE CODEThe compliance of Lanka Walltiles PLC with the Code of Best Practice on Corporate Governance issued by the Institute of Chartered Accountants of Sri Lanka and the Securities and Exchange Commission of Sri Lanka is as follows:

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Multiplying Value

Governance Principle Lanka Walltiles Adherence Compliance Status

A. Directors

A.1 - The Board

Frequency of Board Meetings The Board met on a monthly basis in the year under review. The Board’s Audit and Remuneration sub committees met on 05 occasions.

Board meeting attendance:

W D N H Perera (Chairman) - 11/11

J A P M Jayasekera (Managing Director) – 11/11

T de Zoysa (Director) – 07/11

Dr. S Selliah (Director) – 09/11

T G Thoradeniya (Director) – 10/10

K D G Gunaratne (Director) – 09/11

A M L Page (Director) – 09/11

M W R N Somaratne (Director) – 10/11

Compliant

Responsibility of the Board The Board is responsible for:

a. The formulation and implementation of a sound business strategy.

b. Monitoring compliance of governance, laws and regulations.

c. Overseeing systems of internal control and risk management.

d. Approving annual budgets and strategic plans.

e. Appointing and reviewing the performance of the Managing Director.

f. Approving any change in the Company’s business portfolio and sanctioning major investments and disinvestments in accordance with parameters set.

g. Ensuring that effective remuneration, reward and recognition policies are in place to assist employees in giving their best.

h. Submitting themselves for re-election at regular intervals and at least once in every three years.

Compliant

Compliance with applicable law The Board ensured in the year under review that the Company adhered to all applicable laws, rules and regulations.

Compliant

Company Secretary The services and advice of the Company Secretary M/s. PW Corporate Secretarial (Pvt.) Ltd. is made available to Directors as necessary. The Company Secretary keeps the Board informed of new laws, regulations and requirements coming into effect which are relevant individually as Directors and collectively to the Board.

Compliant

Independent judgment The Board members are required to divulge all functions with the Company, refrain from matters of self interest and to bring independent judgement to the decision making process.

Compliant

Dedication of adequate time and effort Board members attend all Board meetings in person and need to be prepared to engage in decision making matters which may entail an adequate amount of time and effort spent.

Compliant

Appropriate training for Directors All Directors have considerable experience in managing Companies and the ceramic industry. Relevant training opportunities are made available to all Directors locally and internationally to further their knowledge and expertise.

Compliant




A2 - Chairman and CEO

Division of responsibilities between the Chairman and CEO

There is a clear division of responsibility at the head of the Company. This is between the running of the Board (Chairman) and the executive responsibility of overseeing the Company’s business (Managing Director). No single individual has liberal powers with regard to decision making.

Compliant

A.3 - Role of the Chairman

Prepare good corporate governance and facilitate effective discharge of Board functions

The Chairman is responsible for the efficient conduct of Board meetings. The Chairman maintains close contact with all Directors and holds informal meetings with Non-Executive Directors whenever necessary.

Compliant

A.4 - Financial Acumen

Availability of sufficient financial acumen and knowledge.

The Board includes directors, who possess the necessary knowledge and competence to offer the Board guidance on financial matters. The Managing Director is a Chartered Accountant.

Compliant

A.5 - Board Balance

The Board should have an adequate number of Directors with a balance of executive and non-executive Directors of sufficient calibre along with independent Directors.

The Board comprises eight members, seven of whom including the Chairman are Non Executive Directors. The Board has determined that four of such Non Executive Directors are ‘independent’ as per the Listing Rules of the Colombo Stock Exchange.

Directors’ status is as follows:

W D N H Perera (Chairman) - Non executive

J A P M Jayasekera (Managing Director) - Executive

T de Zoysa (Director) – Non executive - Independent

Dr. S Selliah (Director) Non-executive - Independent

T G Thoradeniya (Director) - Non-executive

K D G Gunaratne (Director) - Non-executive - Independent

A M L Page (Director) - Non-executive - Independent

M W R N Somaratne (Director) - Non-executive

Compliant

A.6 - Supply of Information

Relevant information and agenda to be circulated in a timely manner to the Board.

The Board papers are circulated a week prior to Board meetings with an adequate briefing on relevant information.

Compliant

A.7 - Appointments to the Board

Procedure for the appointment and disclosure of new Directors/ Assessment of Board composition

The appointment to the Board is undertaken by the Board itself, taking into consideration the Board composition required and the strategic input required. All Board appointments are informed to the CSE as per the existing regulations.

Compliant

A.8 - Re-election

Re-election of Directors at regular intervals. As per the Articles of Association one-third of the Director for the time being shall retire from office and shall offer themselves for re-election each year by Shareholders.

Compliant


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A.9 - Appraisal of Board Performance

Boards should periodically appraise their own performance in order to ensure that responsibilities are discharged in a satisfactory manner.

The Board regularly evaluates its performance based on achievement of results, implementation of strategy, risk management, internal controls, compliance with laws and stakeholder requirements.

Compliant

A.10 - Disclosure of information with respect to Directors

Shareholders at all times should be aware of relevant details with respect to Directors.

All Directors have declared their details in pages 14 to 16 as Director profiles.

Compliant

A.11 - Appraisal of Chief Executive Officer

The Board should be required to assess the performance of the CEO annually.

The CEO is evaluated each year as per the yearly targets that have been agreed with the annual budget

Compliant

B. Directors’ remuneration

B.1 - Remuneration Procedure

Formal and transparent procedure for developing policies on remuneration.

The Board has implemented a formal and transparent procedure for developing policies on remuneration by setting up a Remuneration Committee. Its purpose is to assist the Board of Directors in matters relating to compensation of the Company’s Directors, Executive Officers and such other employees as determined by the Committee.

Compliant

Composition and disclosure of the members of the Remuneration Committee

The Remuneration Report which is in Page 44 of the report addresses all related matters.

Compliant

B.2 - The level and make up of Remuneration

Levels of Remuneration Remuneration levels have been designed to attract, retain and motivate Directors and Senior Management required to run the Company successfully, while remaining within the industry’s remuneration standards.

Compliant

B.3 - Disclosure of Remuneration

Disclosure of Remuneration in the Annual Report

Details of the Remuneration Committee and the statement of remuneration policy are provided in the Annual Report.

The aggregate remuneration paid to Executive and Non executive Directors are disclosed on Page 104 of this Report.

Compliant

C. Relations with Shareholders

C.1 - Constructive use of the Annual General Meeting

Boards should use the Annual General Meeting to communicate with shareholders and encourage their participation.

The active participation of shareholders at the AGM is encouraged. The Board believes the AGM is a means of continuing effective dialogue with Shareholders.

Compliant

C.2 - Major Transactions

Disclosure of major corporate transactions that will materially effect the net asset base.

There have been no transactions during the year under review, which fall within the definition of ‘Major Transactions’ in terms of the Companies Act.

Compliant

D. Accountability and Audit

D.1 - Financial Reporting

The Board should present a balanced and understandable assessment of the Company’s financial position, performance and prospects.

The Annual Report of the Company provides a balanced and understandable assessment of the Company which is in addition to the accounts of the management and financial reviews, Director’s report and responsibility structures.

Compliant




D.2 - Internal Control

The Board should maintain a sound system of internal control to safeguard shareholders’ investments and the Company’s assets.

Your Board has taken necessary steps to ensure the integrity of the Group’s accounting, financial reporting and internal control systems and also their review and monitoring on a periodic basis. Our systems covering risk management, financial and operational control, ethical conduct, compliance with legal and regulatory requirements and corporate social responsibility are detailed below.

Compliant

D.3 - Audit Committee

The Board should establish formal and transparent arrangements in the manner in which they select and apply accounting policies, financial reporting, internal control principles and maintaining an appropriate relationship with the Company’s Auditors.

The Audit Committee Report on page 45 of the report and the CSE adherence note 7.10.6 addresses this section in full.

Compliant

D.4 - Code of Business Conduct and Ethics

Companies must adopt a Code of Business Conduct and Ethics for Directors and members of the Senior Management team and promptly disclose any waivers of the Code for Directors or others.

The Code of Best Practice issued by the Institute of Chartered Accountants of Sri Lanka and the Securities Exchange Commission is adopted by the Directors who then ensure that the Company and the employees behave ethically.

Compliant

D.5 - Corporate Governance Disclosures

Directors should be required to disclose the extent to which the Company adheres to established principles and practices of good Corporate Governance.

Adhered to as per the Corporate Governance report in the Annual Report Pages 26 to 32.

Compliant

E. Shareholders

E.1 - Shareholder Voting

Institutional shareholders should be encouraged to ensure their voting intentions are translated into practice.

All institutional shareholders are encouraged to participate and their views are communicated to all concerned.

Compliant

E.2 - Evaluation of Governance Disclosures

Institutional investors should be encouraged to give due weight to all relevant factors drawn to their attention.

The Report contains the Company’s Corporate Governance process and structure for investor’s attention.

Compliant

F. Other Investors

F.1 - Investing / Divesting Decision

Individual shareholders, should be encouraged to carry out adequate analysis in investing or divesting decisions.

The Annual Report contains sufficient information to make an informed decision. The report is hosted in Colombo Stock Exchange website with the quarterly reports to facilitate investors and shareholders to make informed decisions.

Compliant

F.2 - Shareholder Voting

Individual shareholders should be encouraged to participate in the General Meeting of Companies and exercise their voting rights.

All shareholders are encouraged to participate at the Annual General Meeting / Extraordinary General Meeting and cast their votes. AGM’s are noticed in advance as per Companies Act and held on accessible area to ensure shareholders can participate effectively.

Compliant


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Multiplying Value


a. Non-Executive Directors

The Board of Directors should include at least two non-executive directors or such number of non-executive Directors equivalent to one third of the total number of directors whichever is higher.

Lanka Walltiles PLC has seven non- executive Directors out of eight as given in item A5 in the ICASL adherence table, which is above the minimum requirement.

Compliant

b. Independent Directors

The Board of Directors should include two or 1/3 of non-executive Directors appointed to the Board of Directors, whichever is higher shall be ‘independent’.

The Company has four independent Directors out of eight as given in item A5 in ICASL adherence table, which is above the minimum level.

Compliant

c. Disclosure relating to Directors

The Board shall make a determination annually as to the independence or non-independence of each non-executive Director based on such declaration and other information available to the Board and shall set out in the annual report the names of Directors determined to be ‘independent’.

The Board has determined the independence of each independent director and set out and declared the independence in the Annual Report.

Please refer Note ‘d’ below.

Compliant

d. Criteria for Defining ‘Independence’

The Colombo Stock Exchange identified criteria of independence should be met by the independent directors of the Company

All Directors meet the above criteria and the Board of Directors is of the view that the period of service as a Board member exceeding nine years rendered by Mr. Tilak de Zoysa, and Dr. S Selliah does not compromise their independence and objectivity in discharging their functions as Directors.

Accordingly, the Board has determined that Mr. Tilak de Zoysa, Dr. S Selliah, Mr. K D G Gunaratne and Ms. A M L Page are ‘independent’ Directors as per the criteria set out in the Listing Rules of the Colombo Stock Exchange.

Compliant

e. Remuneration Committee

i.Composition of Remuneration Committee

The remuneration committee shall comprise of at least two non-executive Directors in which a majority shall be Independent.

As per the remuneration committee report given in page44 the Remuneration Committee comprises of three independent non-executive Directors of Royal Ceramics Lanka PLC and who are also the members of the Group Remuneration Committee

Compliant

ii. Functions of Remuneration Committee

The Remuneration Committee shall recommend the remuneration payable to the executive directors and Chief Executive Officer of the Listed Entity to the board of the Listed Entity among other defined functions.

The remuneration committee met once for the year and have recommended the remuneration of the CEO and the Senior management of the Company to the board and there report is published in page 44.

Compliant

CSE LISTING RuLES COMPLIANCELanka Walltiles PLC’s extent of adherence to corporate governance rules under section 7.10 of continuous listing requirements of the Colombo Stock Exchange is given below.




iii. Disclosure in the Annual Report

The annual report should set out the names of Directors in comprising the remuneration committee and contain a statement of the remuneration policy and set out the aggregate remuneration paid to executive and non-executive directors

The remuneration committee report in page 44 as set out the names of the directors in the remuneration committee report and aggregate remuneration paid to all Directors is given in page 104

Compliant

f. Audit Committee

i. Composition of the Audit Committee

The audit committee shall comprise of at least two non-executive directors a majority of whom shall be independent

The Audit Committee comprises of three independent, non – executive Directors of Royal Ceramics Lanka PLC

Compliant

ii. Functions Audit Committee

Overseeing of the preparation, presentation and adequacy of disclosures in the financial statements of a Listed Entity, in accordance with Sri Lanka Accounting Standards.

The audit committee report in page 45 of the annual report explains the function of the audit committee which has executed the above function.

Compliant

iii. Disclosure in the Annual Report relating to Remuneration Committee

The names of the Directors comprising the audit committee should be disclosed in the annual report.

The audit committee report in page 45 has addressed this requirements.

Compliant

STATEMENT OF COMPLIANCEThe Company is fully compliant with the requirements of the Code of Best Practice on Corporate Governance issued jointly by the Institute of Chartered Accountants of Sri Lanka and the Securities and Exchange Commission of Sri Lanka in 2008. Please refer the tables appearing on pages 27 to 32 for the requirements of ‘Corporate Governance Principles’ and the response of the company on its adherence to the said requirements.

In addition, tables appearing on pages 31 to 32 demonstrate the company’s adherence to corporate governance rules under section 7.10 of continuous listing requirements of the Colombo Stock Exchange.

Further, the Board of Directors to the best of their knowledge and belief and is also satisfied that all statutory payments due to the Government, other regulatory institutions and those payments related to employees, have been made on time.

Therefore the Board has concluded and declared the Company is fully compliant to with the Corporate Governance Rules of the Colombo Stock Exchange.


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Multiplying Value

IntroductionRisk Management is a critical requirement for any company operating in a competitive market and a changing economy. Lanka Walltiles PLC henceforth has taken a strategic initiative to identify the areas relevant to the organisation and respond to potential risk. The risk management process will enable administration to evaluate strategies existing within the organisation to mitigate the risk factors identified, gain comfort over the continuation of the business and ensure the required returns to the stakeholders. This process additionally assists the Company in managing sustainability of growth and profitability. The objective is to improve performance and decision making through identification, evaluation and management of key risks. The responsibility of the Risk Management process lies with the Board of Directors and the process is supervised by the Company’s Executive Committee and reviewed by the Audit Committee. A review of the risk management framework and the process of the Company is described below.

Risk Management

Organisation Strategy

Risk Management Strategy

Risk Management Policies & Procedures

Risk Management Roles & Responsibilities

Governance

Risk Identification & Assessment

Risk Response & Reporting

Risk Management FrameworkThe Committee of Sponsoring Organisations of the Tradeway Commission (COSO)’s Enterprise Risk Management (ERM) integrated framework defines ERM as a process, effected by the entity’s Board of Directors and management and applied in strategy setting and across the enterprise, designed to identify potential events that may affect the entity, and manage risk to be within the risk appetite, to provide reasonable assurance regarding the achievement of entity objectives.

A graphical overview of the Company’s risk management framework is given below.

Lanka Walltiles PLC risk management frame work with COSO’s integrated enterprise risk management can be presented as follows;



Risk culture

A Company has to cultivate an appropriate risk awareness culture for effective ERM practice. A strong endorsement by the Board of Directors and senior management of the value of investing time and infrastructure into better understanding the organisation’s most significant risk exposures is an important and necessary condition that must be in place.

In this regard the senior management and the Board of Directors have a clear understanding of the objectives of ERM relative to traditional approaches to risk management and the CEO embraces the need and provides adequate endorsement of an enterprise wide approach to risk oversight that seeks to obtain a top-down view of major risk exposures. The Board of Directors is also supportive of management’s efforts to implement an enterprise wide approach to risk oversight and the Board of Directors sets aside agenda time at each of its meetings to discuss the most significant risks facing the organisation. The senior management has effective risk management capabilities and competencies.

Risk identification

Robust processes have to be in place in the organisation to identify risks, particularly those risks that may be currently unknown, but emerging and should encourage the management to regularly think about risk.

In this regard, the organisation has defined and widely communicated to members of management and the Board what it means by the term “risk.” The organisation has identified a broad range of risks that may arise both internally and externally, including risks that can be controlled or prevented, as well as those over which the organisation has no control. The organisation engages in identifiable processes to regularly scan the environment in an effort to identify unknown, but potentially emerging risks such as competitor moves, new regulations, changing consumer preferences, etc. Each member of the Board of Directors has provided input into the risk identification process.

Risk assessment

Organisation needs methods to prioritise risks that encourages a consistent consideration of both the likelihood of the risk occurring and the impact of the event to the organisation, if the risk occurs.

The organisation defines a five year time period over which risks should be assessed to ensure consistency in management’s evaluations. The organisation strives to assess inherent risk of the Company and industry and the organisation assesses not only the likelihood of a risk event occurring but also the impact of the risk to the organisation. The Board of Directors has concurred with the assessment of the risks completed by management.

Articulation of risk appetite

While determining the organisation’s appetite for risk taking can be challenging, it is important that the board and senior management make some attempt to articulate its overall appetite for risk taking.

The Board and management have engaged in discussions to articulate the organisation’s overall appetite for risk taking. The Board of Directors has concurred with the organisation’s risk appetite.

Risk response

It is very important to ensure that an appropriate risk response method is implemented, and then to ensure that the response is working as intended. Periodic evaluation of whether identified risk responses are effectively being carried out will ensure an effective ongoing ERM process.

The organisation has identified risk owners with responsibility for each of its most significant risks. The organisation has evaluated whether the existing response is sufficient to manage the risks to be within the organisation’s risk appetite. The organisation has separately evaluated the potential cost of the risk response relative to the benefit provided by the response towards either reducing the impact or reducing the probability of occurrence of the risk event. The organisation’s ERM process helps identify potential overlaps or duplications in risk responses across the enterprise.

Risk reporting

As risks are identified and assessed across the organisation, processes are needed to facilitate the communication of risk-related information so that an aggregate view of important risks and their related risk responses are provided to senior management, the Board, and to critical stakeholders.

The organisation has developed and monitors critical risk indicators that are leading in nature in that they provide some indication that a risk event is more likely to occur in the future. Senior management regularly review management reports that provide the status of critical risks and risk response plans. The Board monthly receives and reviews these reports which provide the status of critical risks and risk response plans.

Risk Management

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Multiplying Value

Integration with strategic planning

Effective ERM can be an important input and consideration into the determination and execution of any organisation’s strategy. ERM provides critical insights into the portfolio of existing and emerging risk exposures that can contribute to the strategic success of the organisation.

The organisation has a formal strategic planning process and the strategic plan is updated at least annually. The organisation’s existing risk profile is an important input for the strategic planning process. Senior management links the top risk exposures to strategic objectives to determine which objectives face the greatest number of risks and to determine which risks impact the greatest number of objectives.

Assessment of ERM effectiveness of the risk management process:

Senior management and the Board of Directors need to view ERM as an evolution, not a point-in-time project to be implemented.

In the organisation the senior management regards ERM as an ongoing process rather than just a project and they seek to understand and monitor emerging ERM best practices and adequate resources have been dedicated to support and complete the ERM function, successfully.

Risk Management ProcessThe risk management process has been designed to ensure identification of any situation or circumstance that would adversely effect the achievement of Company activities and to accept and manage unavoidable risks and to ensure surprise events or situations are minimized. This process is aligned directly to the Company strategy, annual plans and monitored by the Board which is reviewed by the Audit Committee.

To facilitate a professional risk management process a facilitative management structure and a robust management process needs to be in place in the organisation.

Lanka Walltiles PLC has the following management structure to facilitate risk management;

BOARD OF DIRECTORS

AuDIT COMMITTEE

CEO

GROuP EXECuTIVE COMMITTEE

OPERATION MANAGERS

RISK EXPOSuRES

Risk IdentificationThis part of the process will identify the events or scenarios that could prevent the Company from achieving its set objectives.

MonitoringOn a monthly basis the risk mitigation action plans will be monitored and reported to the Company Executive Committee and Board Meetings and on a quarterly basis these will be monitored and reported to the Audit Committee.

Risk Mitigation Action PlansIdentified and evaluated risks are assigned to risk owners. Risk mitigation action plans will be developed with time lines for implementation by the risk owners along with the management of the Company.

Risk Assessment and EvaluationThe management will determine whether the risk will have an ultra, high, moderate, low or insignificant impact on the operations of the Company and also the likelihood of risk occurrence based on past experience as well as future projections are evaluated.

Some of the Key Risks that may hinder the Achievement of the Company’s Strategic Business Objectives are set out below



Business Environment RiskEnvironment risk arises when there are external forces that may affect the viability of the enterprise’s business model, including the fundamentals that drive the overall objectives and strategies that define it. Adverse political actions and changing laws may be harmful to the firm ’s resources and future cash flows in a country in which the firm has invested significantly and is dependent on a significant volume of business.

To counter political and regulation risk the Company brings the relevant issues to the notice of government institutions, persistently monitors them and maintains a close relationship with relevant government institutions and industry associations and chambers. The Company also assists government institutions in formulating new laws and regulations pertaining to the industry and provides information on relevant issues to government institutions. In addition, a legal feasibility evaluation has been made a standard process in order to approve capital projects.

Operations RiskOperations risk is the risk of inefficiency in executing the firm’s business model, satisfying customers and achieving the Company’s quality, cost and time performance objectives. Unproductive operations threaten the Company’s capacity to produce goods at or below cost levels incurred by competitors.

To counter operations risk, the Company has a strong operational control mechanism where production, quality, cost and efficiency are monitored on a daily basis and improvement projects are undertaken to increase efficiency. Plant upgrades with new plants and machinery are done annually to be on par with world class manufacturers. In addition, a five year strategic plan has been implemented to enhance capacity and ensure operations run smoothly.

Capacity RiskInsufficient capacity will pose a hindrance to the Company’s ability to meet customer demands or excess capacity threatens the firm’s ability to generate competitive profit margins.

Presently the firm has identified that it needs more capacity and therefore a Capacity Expansion Program has been planned for next five years and reviewed monthly. This includes installation of the new kiln, importing tiles to meet specific demands and implementing the capacity expansion plan to monitor financial and resources requirements.

Integrity RiskIntegrity risk is the risk of management fraud, employee fraud, illegal acts, unauthorized acts and any or all of which could lead to loss of reputation in the marketplace.

To mitigate this risk the Company conducts a monthly internal audit of transactions undertaken by an independent firm of chartered accountants, to detect and reduce fraud and detail approval processes for official transactions which mitigate the above risk. In addition quarterly audit committee meeting to monitor the reporting status coupled with monthly Board meetings which supervise the financial status of the Company and the integrity of employees are held.

Financial RiskExposure to lower returns or the necessity to borrow due to shortfalls in cash or expected cash flows or variances in timing or significant movements in interest rates expose the firm to a number of negative factors. These include higher borrowing costs, lower investment yields or decreased asset values and result in financial helping risk. Movements in prices, rates, indices and such, affect the value of the Company’s financial assets and stock price, which may additionally impact its cost of capital and/ or the ability to raise capital.

Credit limits and given credit is reviewed through a detailed approval process reducing risk of debt, exports under DA terms are insured using SLECIC and monthly overdue debtors are reported to the Board for necessary action. These actions reduce cash flow risk and all capital projects are financially evaluated to ensure that inflows match with borrowings. Both floating and fixed rate debt is maintained and is structured using loans, share capital and internal fund management to reduce borrowings.

ConfirmationThe Board confirming that an effective risk management framework and an adequate ongoing risk management process are in place to minimize all potential risks and its probability of impact to the Company and the financial reporting.

System has been designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes has been done in according with applicable accounting standards and regulatory requirements and the Board has not any significant risks that may impact the operation of the business as a going concern.

Risk Management

37

Multiplying Value

Sustainability Report

Report Profile This report has been prepared to table sustainability efforts of Lanka Wall Tiles PLC’s (LWPLC) to coincide with the financial year ending 31st March 2015. The report contains Standard Disclosures from the GRI Sustainability Reporting Guidelines, a list of which is captured in the attached GRI content index.

Report Boundary and ScopeWhile the financial and operational capabilities of the company have been captioned in the Management Discussion and Analysis section on pages 18 to 23 of this annual report, the sustainability section aims to establish the environmental and social parameters that are deemed to be relevant to the company’s stakeholders.

As such, the sustainability section has been prepared to include operations at both the head office located in Nawala and the manufacturing facility in Meepe. Moreover to achieve completeness of reporting, the company has sought information from the following sources;

• HRinformationanddataobtainedfromtheHumanResourcesdepartment

• Environmentaldataobtainedfromthegreenteam

• CSRprojectinformationanddataobtainedfromCSRdivision

Ethics and GovernanceWhile the Corporate Governance report comprehensively captures all aspects of the company’s governance mechanism, given below is LWPLC’s organisational structure which embeds ethical business practices and sustainability governance as part of the day-to-day operations. It is also a representation of how we aim to create triple bottom line value for all stakeholders associated with our business.

Materiality and the Triple Bottom LineUsing the GRI G4 framework as a guideline, we have been able to determine the materiality of economic, environmental and social aspects by encouraging the active participation of all key stakeholders of the company. We have thus been able to gauge the opportunities available to us and identify the underlying downside risks applicable to the triple bottom line of the business. Having established what areas are material in this manner, we have been able to strengthen our core competencies and enhance our value creation process vis-à-vis strategies that would secure the expectation of all our stakeholders.

Managing Director

Head of Finance

Head of Marketing

Group Commercial

Manager

Customer Relations Manager

Group IT Manager

HR Manager

Stores Manager

Group Financial

AccountantManagement Accountant

Factory Manager

Group Engineer

Safety Manager

Technology AFM

Production AFM

Chief Designer

Export Manager

Sales Manager

Sales Administration

Manager

AM

AM AM AM

AM AM

AM AM AM



Material Economic Aspects

Shareholders

Enga

gem

ent

Mec

hani

sms AGM / EGM

Quarterly Publications

Dividend Announcement

Annual Report

Operational Efficiency

Opp

ortu

nitie

s

Capitalise on new emerging market trends both locally and internationally

Explore new technology and innovation

Changes in lifestyles and customer spending behaviour

Loss of market share due to imports

Highly competitive environment amidst saturating markets

Changes in lifestyles and customer spending behaviour

Risk

s

Sustainable Business Practices to improve overall performance

Consistent long term value creation

Improving profitability

Ethics and integrity Statutory Compliance and transparent reporting structure

Customers

Enga

gem

ent

Mec

hani

sms

Face to face interactions

Customer hotline

Customer complaints mechanism

Customer surveys

Customer satisfaction index

Customer Responsiveness

Opp

ortu

nitie

s

Risk

s

Innovative Design concepts in tandem with global trends and changing lifestyles

Unparalleled customer service

Product Responsibility Versatile, ergonomic product range

Marketing and Communications

Responsible advertising and marketing campaigns

High brand visibility and market presence across the country

Dealers/ Distributors

Enga

gem

ent

Mec

hani

sms Dealer convention

Monthly dealer / distributor visits

Product Responsibility

Opp

ortu

nitie

s

Risk

s

Availability of the product range

Marketing and Merchandising

Adequate merchandising support

Suppliers

Enga

gem

ent

Mec

hani

sms Supplier visits

Bi-weekly meetings

Knowledge sharing industrial workshops

Participation in industry forums

Stability and continuity of business

Opp

ortu

nitie

s

Risk

s

Sustainable business practices to improve overall performance

Enhanced competencies Knowledge transfer and skills development

Regulatory Authorities

Enga

gem

ent

Mec

hani

sms

Monthly reporting framework

Annual Reporting structure

Regulatory compliance

Opp

ortu

nitie

s

Risk

s

Good governance practices

Contribution towards national development

Creating employment and new business opportunities

Stakeholders Material Aspects Strategy and Focus


39

Multiplying Value

For the benefit of stakeholders who expect economic returns from our business, we have addressed how we manage all material economic aspects and demonstrated the effectiveness of our economic value creation mechanisms in the Management Discussion and Analysis section of this report. However, the above summary is intended to highlight how our economic value creation model correlates to the GRI G4 parameters for economic sustainability.

Case Study: Illustrating the importance of economic sustainability

The rapid changes in customer are likely to be both an opportunity as well as a risk for companies like LWPLC. To be able to benefit from

possible opportunities we are aware that we would need to make timely investments in improving the versatility of our product range. At the same time, it is important to make sure that our value proposition truly represents the demands of the customer. Thinking ahead, we have already started mapping out our strategic thrust for both the medium and long term. To do this, we have been working not only with current trends, but also trying to pre-empt future possibilities.

We continue to invest in developing our design function, as we feel herein lies the key to captioning these trends. While we have made sizable investments to improve our design infrastructure, we also continue to strengthen our design team. Now comprising of 12 ember unit, our designers possess internationally accredited qualifications and are experts in the field of design, backed by international design experiences.

Material Environmental Aspects

NATURE COMMUNITY

Enga

gem

ent

Mec

hani

sms

Monthly community meetings

Incident hotline to address community complaints

Participation in community activities

Conducting community welfare programmes

Promote resource efficiency

Opp

ortu

nitie

s

Promote “Green” energy concepts

Promote responsible mining practices

Pursue ethical sourcing alternatives

Minimize the use of hazardous materials

Environmental degradation and depletion of natural resources

Impact on bio-diversity

Carbon footprint

Risk

sSustainable operations that improve energy efficiency at all levels of the business

Explore alternative energy solutions

Reduce carbon footprint Sustainable operations that manage and control the usage of water

Mitigation of sound and dust pollution and Control of effluents

Promote the efficient use of manufacturing waste

SUPPLIERS

Enga

gem

ent

Mec

hani

sms Supplier visits

Bi-weekly meetings

Knowledge sharing industrial workshops

Participation in industry forums

Environmental outlook and approach

Opp

ortu

nitie

s

Risk

s

Develop partnerships that would promote a sustainable supply chain

Knowledge transfer and skills development to encourage better mining practices

Environmental track record

REGULATORY AUTHORITIES

Enga

gem

ent

Mec

hani

sms

Regular monitoring and audits

Improve compliance

Opp

ortu

nitie

s

Risk

s

Greater integration of environmental concerns as part of the day-to-day operations




Managing key impacts Given our energy intensive manufacturing operation, LWPLC’s primary environmental footprint arises from the dependency on non-renewable energy sources. Meanwhile, the high water usage, treatment of effluents and the disposal of manufacturing waste together with sound and dust emissions are the other key areas of concern for the company. Following an integrated approach to environmental stewardship, we made a conscious effort to integrate environmental concerns as part of the day-to-day operations at our production facility in Meepe. All processes at the factory have been developed cognizant to the ISO 14000 Standards for Environmental Management Systems, where continuous monitoring helps detect areas for further improvement.

Goals for the year

Reduce Energy Consumption by 3%

Reduce Water Consumption by 5%

Increase recycled Water by 5%

Improve manufacturing waste practices

Improving Energy Efficiency While we continue to depend largely on non-renewable LP Gas to for our energy requirements. Over the years we have introduced a number of improvements on the production floor which have resulted in a sizable reduction in the annual KWH consumed, despite notable capacity expansions. Moreover, to reduce the dependency on non-renewable energy sources, we continue to explore the possibility of introducing renewable and alternative energy sources to power certain aspects of the manufacturing process.

Water ManagementWith over 15 Mn. litres of water used annually, we intensified our efforts to control the volume drawn from municipal water resources, while at the same time, making a concerted effort to improve factory-wide efficiencies so as to reduce the amount of water used during manufacturing process. Meanwhile, we also stepped up efforts to increase the volume of recycled and reused water. These efforts were strongly linked to the treatment of effluents aimed at improving the positivity of the treated water.

Treatment of Effluents Current statistics indicate that nearly 75% of LWPLC’s treated water is recycled back through the manufacturing process, amounting to nearly 150 million litres for the current financial year. The remaining 25% was released to the environment as waste water. As part of our commitment to environmental stewardship, the safety of the waste water has been

established in conformity with the CEA stipulated parameters for water positivity.

Meanwhile, the quantity of solid waste deposits that are part of the effluent treatment process amounted to approximately 360 MT for the year. To address part of the issue, a new solid waste disposal programme was initiated during the year, in partnership with CENTEC, whereby local roof tile manufacturers were encouraged to use these residual deposits as a substitute for a portion of their red clay requirements.

Disposal of Manufacturing Waste Statistics for the year;

Tile Grog (Recycled) 1,570 MT

Glaze Disposal (refilling) 360 MT

Tile Chips (Sold to Cement industry) 1,223 MT

C Grade Tiles sold commercially 2,440 MT

D Grade Tiles Sold Commercially 373 MT

Strapping and Polythene 3.2 MT

Storage Pallets 900 Pts

Packaging Materials reclaimed and recycled 10%

Controlling of sound and dust emissions Sound emissions are an unavoidable part of our business, where the primary concerns originate during the crushing process. However, in the interest of the environment and the communities surrounding our factory, we have made a concerted effort to mitigate the sound emissions resulting from our operations. As such the crushing of calcite and feldspar is no longer done in-house, but is now outsourced. This has led to a considerable reduction in our sound emissions. Moreover, we continue to adhere to the minimum noise levels as stipulated by the CEA directives to regulate the noise levels within the factory premise and well as along the perimeter of the factory premises.

Dust emissions are yet another area of concern for our business. However, our ongoing efforts have been successful in minimizing dust levels released to the environment during the production process, whereby we have been able to register an improvement in the ambient air quality surrounding the Meepe facility.

Going beyond the call of duty the factory at Meepe have made a new fresh water lake using recycled water. This lake has natural fish, birds and flowers within it. This has created a mini bio habitat beautifying the factory environmental and displays the commitment to given environment by the Company.


41

Multiplying Value

Material Social Aspects

EMPLOYEES

Enga

gem

ent

Mec

hani

sms

Direct interactions with senior management

Labour forums

Quarterly and Annual Appraisals

Learning and awareness workshops

Company sponsored social interactions

Remuneration and Benefits

Opp

ortu

nitie

s

Social alienation due to changing lifestyles and technology developments

Loss of traditional cultural values due to technology, work practices and branding strategies

Social alienation due to changing lifestyles and technology developments

Loss of traditional cultural values due to technology, work practices and branding strategies

Risk

s

Remuneration Policy

Employee Engagement and Labour Relations

Fairness and Equality Performance and Reward Management

Job Security

Training and Mentoring

Career Development

Occupational Health and Safety

Safety and Well-being

COMMUNITY

Enga

gem

ent

Mec

hani

sms

Interactions with stakeholder communities

Livelihood Development

Opp

ortu

nitie

s

Risk

sInitiating livelihood development programmes to uplift the living standards of communities

Provision of basic facilities to improve the living standards of the community

Environmental track record


Enhancing value for our employeesGiven the rapid growth trajectory that the company has witnessed in the recent past, we are well aware of the crucial role played by our workforce in sustaining our business success. We have thus migrated towards a more proactive HR framework that would help us nurture our workforce as key drivers of corporate success in the years ahead.

As per our HR fundamentals, we encourage our employees to create greater value, by sharing their knowledge and experience to overcome both personal and workplace challenges. We have also nurtured a progressive work ethic aimed at inspiring employees to grow together with the company. Among other things, we ensure that the working conditions at our factory are non-discriminatory, while our leadership principles spell out the guidelines set out for managers, which includes the respectful treatment of colleagues, the creation of a strong feedback culture and the professional development of all employees.

As at 31st March 2015 Workforce Statistics Gender Distribution

Head Office

Factory Total As a percentage of total workforce

Executive Staff Operative

Female 23 26 49 10.43% 11 21 17

Male 62 359 421 89.57% 39 63 319

Total 85 385 470 50 84 336

Labour Turnover rate 9%

Attrition rate 2.76%

Return to work after maternity leave 100%



Remuneration and BenefitsBeing fully compliant with all applicable labour laws, our benefit structure is aligned to industry standards and as such may comprise of certain industry-specific entitlements from time to time.

However, in fairness to all employees, salaries are determined based on individual aptitudes, whereas ancillary benefits may vary based on the level of responsibility allocated to the employee either at the time of recruitment or through a subsequent evaluation. Moreover, salaries are regularly reviewed to take account of the employee’s job performance and variations in the market.

Employee engagement and labour relationsLWPLC’s proactive engagement with employees and an open-door management policy has been the basis of strong employee relations over the years. Moreover, regular employee forums take the form of interactive discussions that encourage employee feedback and serve to enhance the communicative culture within the company. We have in place an active grievance mechanism offering employees an opportunity to voice their concerns securely and confidentially.

Meanwhile, with 95% of our operative employees represented by collective bargaining agreements, LWPLC continues to emphasize the importance of maintaining a strong consultative dialogue with union representatives. This has laid the ground work for the company to work collectively with union representatives to ensure the betterment of those employees who are represented by these unions.

Performance and rewards managementAll employees are subject to regular performance evaluations to measure how well each employee has achieved certain pre-determined goals. The entire evaluation process is linked to an incentive-based remuneration mechanism that allows the company to set realistic, achievable targets that will motivate actually motivate employees, both individually and as a team. By fostering employee goal congruence in this manner, the performance management mechanism aims to also facilitate succession planning as the basis of long term sustainable growth for the employee as well as the company.

We also have a reward mechanism to recognise innovative contributions by employees that are likely to add value to the company, while merit awards are also conferred in recognition of extended loyal service to the company.

Training and MentoringOnce we have carried out an assessment to determine the competencies that need to developed, we focus on helping employees develop these specialized skills. We introduce employees to a wide range of specialized technical and non-technical skills that would not only enrich their employment capacity but also drive sustainable growth on for the company.

Meanwhile, our human resources policy is geared to identify talented employees and offer them opportunities for further development and enhanced prospects within the company. Our systematic approach to ensure personal growth of employees’ has prompted us to undertake a mentoring role towards developing our human capital. Our aim to groom the next generation of leaders capable of taking over the reins of the company. We hire external resource personnel in addition to our in-house trainers to conduct knowledge sharing workshops, covering both practical and classroom sessions that will help foster the leadership skills needed for the future.

Occupational health and safetyLWPLC’s corporate safety policy stems for the fundamental need to create a safe environment for our employees to work in. As we strive to achieve a zero accident workplace, we have activated a voluntary safety management mechanism alongside a risk-assessment approach aimed at pre-empting potential dangers on the production floor. Meanwhile, a hazard identification process has been put in place to document all incidents that occur. These hazard reports are then used as point of reference to trigger necessary preventative measures that will improve the overall safety standards of the production facility.

We also conduct regular training and safety awareness programmes that seek to imbibe the “Safety First” mindset among all employees and encourage them to be more vigilant not only about their own personal safety, but also with that of their colleagues.

2013/14 2014/15

Injuries 32 27

Days lost due to occupational health and Safety reasons

24 35

No. of hazardous incidents reported - -

Key areas for improvement - -

Safety Training

No. of Programs 6 6

No. of participants 68 43


43

Multiplying Value

Reiterating the commitment to secure greater occupational health and safety, the company is working towards obtaining the OHSAS 18001 certification for occupational health and safety mechanisms.

Community EmpowermentOur social responsibility initiatives are structured in such a manner that they link back to our business, vis-à-vis community stakeholders who are closely impacted by our work. We feel that linking our community efforts to our core business is the most effective way in which we can make a difference towards creating broader social change and inspiring national progress.

Our key initiative for the year was the launch of the Lanka Tiles, Tiler Club, as a livelihood development effort aimed at developing the Tiler-based communities across the country. As it is a sustainable business initiative, the details of the Tiler Club have been comprehensively captured on pages 18 to 21 of the Management Discussion and Analysis section of this report.

Additionally, we also offer practical help for construction projects by providing materials, time, financial assistance and know-how for projects that uplift community infrastructure. We also focus on improving the standard of education, general health and well-being of communities who are closely linked to our work. These projects are driven by our employees who volunteer their time and effort to bring about meaningful change for the community.

From an environmental perspective too, we remain bound by our green ethics, where we engage with our supplier communities, by providing them with technical expertise on sustainable clay mining practices and creating awareness regarding the importance of practicing mine restoration techniques. As a business at the forefront of Sri Lanka’s tile cluster, we consider this as one of our primary responsibilities.



Role of the Remuneration CommitteeThe Committee evaluates the performance of the Chief Executive Officer, Key Management Personal and staff against the set objectives and goals, and determines the remuneration policy of the Company for all levels of employees. The Committee supports and advises the Board on remuneration and remuneration related matters and makes decisions under delegated authority with a view to aligning the interests of employees and shareholders.

Composition of the Remuneration CommitteeThe Remuneration Committee is a sub - committee of the main Board, to which it is accountable. The Remuneration Committee comprises of the following three independent non-executive Directors of Royal Ceramics Lanka PLC.

Mr. R B Thambiayah Chairman of the Remuneration Committee

Mr. M D S Goonatilleke Committee Member

Mr. L T Samarawickrama Committee Member

The Managing Director attends the Committee meeting by invitation. The company secretary is the secretary of the Remuneration Committee.

The Committee members possess vast experience in the fields of Business Management, Human Resources Management, Labour Relations and Labour Law. Hence the Committee has adequate expertise in remuneration policy and management to deliberate and propose necessary changes, improvements to meet the roles and responsibility of the Committee.

MeetingsThe Remuneration Committee met once for the year where all members participated.

Functions performed by the Remuneration Committeea. The Remuneration Committee recommended the remuneration

payable to the Managing Director and the Key Management Personal of the Company to the Board to make the final determination. Based on that the aggregate remuneration paid to Executive and Non Executive Directors for last financial year is given on Page 104 of the Annual Report under key management remuneration.

b. Ensuring that the Board complies with the Companies Act in relation to Directors remunerations, especially the requirements of section 216. And it also ensures that employees are adequately compensated based on their performance and contribution for the period under review and future potential.

Remuneration Committee Report

c. Constructing a specific remuneration policy and remuneration framework that enables the Company to attract and retain a high quality and representative staff in its operations and do this inter alia with reference to appropriate market rates where these are relevant, and benchmarking specific categories where required.

d. Ensuring internal equity and fairness in and between the various pay categories and building incentives in the cost of employment structure to encourage and reward excellent performance, on objectively defined criteria.

e. Ensuring that staff costs are within the budget set by the Board, and are sustainable over time.

ConclusionThe Committee is satisfied that it has performed the responsibilities that were delegated to it by the Board for the year under review and the necessary objectives were achieved for the year under review.

R B ThambiayahChairman - Remuneration Committee

29th May 2015

45

Multiplying Value

Audit Committee Report

Role of the Audit CommitteeThe Audit Committee is a sub committee of the main Board to which it is accountable. The primary function of the Audit Committee is to assist the Board in its oversight of the integrity of the financial statements of the Company, to assess the adequacy of the risk management framework of the Company, assess the independence and the performance of the Company’s external audit function and internal audit functions, and review compliance of the Company with legal and regulatory requirements.

Composition of the Audit CommitteeThe Audit Committee comprises of the following four independent, non – executive Directors of Royal Ceramics Lanka PLC.

Mr. M D S Goonatilleke Chairman of the Audit Committee

Mr. L T Samarawickrama Committee Member

Mr. R N Asirwatham Committee Member

Mr. S H Amarasekera Committee Member

The Managing Director attends meetings at the invitation of the Audit Committee.

The company secretary functions as the Secretary to the Audit Committee. Representatives of the Company, external auditors and internal auditors also attend Audit Committee meetings by invitation.

The Audit Committee has the required expertise in finance, law and business management to deliberate Audit Committee matters and recommend necessary action to be taken.

MeetingsThe Audit Committee met 04 times during the year. The attendance of the members at the meeting is as follows.

Mr. M.D.S. Goonatilleke - 4/4

Mr. L.T. Samarawickrama - 3/4

Mr. R.N. Asirwatham - 3/4

Mr. S H Amarasekera - 1/2

Functions performed by the Audit Committeea. The Committee reviewed the provisional financial statements

that were published for financial year 2014/15 and the Annual Report of 2013/14. It oversaw of the preparation, presentation and adequacy of disclosures in the financial statements of the Company, in accordance with Sri Lanka Accounting Standards and SLFRS. It also reviewed the Company’s compliance with financial reporting requirements, information requirements of the Companies Act and other relevant financial reporting related regulations and requirements.

b. The Committee reviewed the monthly internal audit reports. The internal audit function is carried out by M/s. KPMG Ford Rhodes Thornton & Co. The Internal audits are done on a process based audits framework to improve process performance and control.

c. The Committee reviewed the external auditors’ report and management letter for the last year. All recommendations proposed by the external auditors were discussed with the senior partner and recommendations proposed were duly carried out by the management. In addition the Audit Committee reviewed the engagement partner’s relationships with the Company, and assessed that the external auditors are independent.

d. The Audit Committee in conjunction with the Managing Director of the Company reviewed the Company’s disclosure controls and procedures and internal control over financial reporting.

e. The Audit Committee reviewed the Company’s policies and practices with respect to risk assessment and risk management, including discussing with management the Company’s major financial risk exposures and the steps that have been taken to monitor and control such exposures.

ConclusionThe Audit Committee is satisfied that the Company’s accounting policies, independence of the auditors and risk management are adequate for its operations. The Audit Committee has also accomplished responsibilities and functions that are delegated to it by the Board.

M.D.S. GoonatillekeChairman – Audit Committee

29th May 2015

47

Multiplying Value

FINANCIALMultiplying Value

Annual Report of The Board of Directors

on The Affairs of The Company 48

Chief Executive Officer’s and Chief Financial Officer’s

Responsibility Statement 52

Statement of Directors Responsibilities 53

Independent Auditor’s Report 54

Statement of Financial Position 55

Statement of Comprehensive Income 56

Statement of Changes in Equity 57

Cash Flow Statement 58

Notes to the Financial Statements 59

Five Year Summary Statement Of Financial Position 112

Five Year Summary Statement of Comprehensive Income 114

Statement of Value Added 116

Shareholder Information 117

20 Major shareholders of the Company 118

Notice of Meeting 119

Form of Proxy 123



The Directors of Lanka Walltiles PLC have pleasure in presenting their Annual Report together with the Audited Financial Statements of the Company for the year ended 31st March 2015.

This Annual Report of the Board on the affairs of the Company contains the information required in terms of the Companies Act No. 07 of 2007, the Listing Rules of the Colombo Stock Exchange and is guided by recommended best practices.

General Lanka Walltiles PLC is a public limited liability company which was incorporated under the Companies Ordinance No.51 of 1938 as a public company on 24th day of September 1975. Pursuant to the requirements of the new Companies Act No. 7 of 2007, the Company was re-registered on 24th July 2007 and bears registration number PQ55.

Principal activities of the Company and review of performance during the year

The main activity of Lanka Walltiles PLC, is the manufacture of glazed ceramic walltiles for export and for sale in the local market.

This Report together with the Financial Statements, reflect the state of affairs of the Company.

Financial Statements`The Financial Statements of the Company duly signed by two Directors on behalf of the Board and the Auditors are given on pages 55 to 111

Summarised Financial Results

Year ended 31st March 2015 2014 Rs. ’000 Rs. ’000

Revenue 14,596,214 13,419,770Profit for the year 1,450,596 920,629

Independent Auditors’ ReportThe Report of the Independent Auditors on the Financial Statements of the Company is given on page 54

Accounting PoliciesThe financial statements of the Company have been prepared in accordance with the revised Sri Lanka Accounting Standards and the policies adopted thereof are given on pages 59 to 61 Figures pertaining to the previous period have been re-stated where necessary to conform to the presentation for the year under review.

Directors’ responsibility for Financial ReportingThe Directors are responsible for the preparation of Financial Statements of the Company to reflect a true and fair view of the state of its affairs. The Directors are of the view that these financial statements have been prepared in conformity with requirements of the Sri Lanka Accounting Standards, the Companies Act No.7 of 2007 and the Listing Rules of the Colombo Stock Exchange.

Annual Report of The Board of Directorson The Affairs of The Company

DirectorsThe names of the Directors who held office as at the end of the accounting period are given below and their brief profiles appear on pages 14 to 16

Executive Directors

Mr. J A P M Jayasekera - (Managing Director)

Non - Executive Directors

Mr. W D N H Perera - Chairman

Mr. T G Thoradeniya


Independent Non - Executive DirectorsDr. S Selliah

Mr. T de Zoysa

Mr. K D G Gunaratne

Ms. A M L Page

Messrs. T G Thoradeniya and K D G Gunaratne retire by rotation at the conclusion of the Annual General Meeting in terms of Articles 103 and 104 of the Articles of Association and being eligible are recommended by the Directors for re-election.

Directors of subsidiary Companies are given below.

Lanka Tiles PLCMr. W D N H Perera

Mr. Dhammika Perera

Mr. J A P M Jayasekera

Mr. P L Amarasinghe

Dr. S Selliah

Mr. T G Thoradeniya

Mr. K D G Gunaratne

Ms. A M L Page

Mr. G A R D Prasanna

Swisstek (Ceylon) PLCMr. W D N H Perera


Mr. K Y Choi

Mr. S A D M Ratnayake

Mr. J K A Sirinatha

Ms. K C Silva (Appointed w.e.f 01/09/14)

49

Multiplying Value

Swisstek Aluminum Limited Mr. W D N H Perera


Mr. N A Abeyesekera

Mr. D De Silva

Mr. A S Mahendra

Mr. B T T Roche

Mr. K Y Choi

Mr. S A D M Ratnayake


Vallibel Plantation Management Limited formerly known as Ceytea Plantation Management Limited

Mr. W D N H Perera

Mr. N T Bogahalande

Mr. T G Thoradeniya

Mr. N A Abeyesekera

Mr. J M Kariapperuma

Horana Plantations PLCMr. W D N H Perera

Mr. Dhammika Perera

Mr. L J A Fernando

Dr. S Selliah

Mr. K D H Perera

Mr. A M Pandithage

Mr. A N Wickremasinghe

Mr. J M Kariapperuma

Mr. R Rajadurai

Mr. K D G Gunaratne - Alternate Director to Mr. Dhammika Perera

Mr. N T Bogahalande - Alternate Director to Mr. K D H Perera)

uni Dil Packaging LimitedMr. W D N H Perera

Mr. D B Gamalath

Mr. N A Abeyesekera

Mr. H Somashantha

Mr. N T Bogahalande


uni Dil Paper Sacks (Private) LimitedMr. D B Gamalath

Mr. N A Abeyesekera


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

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

The relevant interests of Directors in the shares of the Company as at 31st March 2015 as recorded in the Interests Register are given in this Report under Directors’ shareholding.

Directors’ RemunerationThe Directors’ remuneration is disclosed under key management personnel compensation in Note 30.3 to the Financial Statements on page 104

Directors’ Interests in ContractsThe Directors have no direct or indirect interest in any other contract or proposed contract with the Company. Except for the transactions referred to in Note 30 to the Financial Statements, the Company did not carry out any transaction with any of the Directors.

The Company carried out transactions during the year in the ordinary course of its business at commercial rates with the following Director related entities.

AuditorsMessrs Ernst & Young, Chartered Accountants served as the Auditors during the year under review and also provided non audit/ consultancy services. They do not have any interest in the Company other than that of Auditor and provider of tax related services.

A total amount of Rs. 1,245,2600/- is payable by the Company to the Auditors for the year under review comprising Rs. 955,000/- as audit fees and Rs. 290,260/- for non audit services.

The Auditors have expressed their willingness to continue in office. The Audit Committee at a meeting held on 19th May 2015 recommended that they be re-appointed as Auditors. A resolution to re-appoint the Auditors and to authorise the Directors to determine their remuneration will be proposed at the Annual General Meeting.

Stated CapitalThe Stated Capital of the Company is Rs.787,765,736/-..

The number of shares issued by the Company stood at 54,600,000 fully paid ordinary shares as at 31st March 2015 (which was the same as at 31st March 2014).


Directors’ ShareholdingThe relevant interests of Directors in the shares of the Company as at 31st March 2015 and 31st March 2014 are as follows.

Shareholding Shareholding as at as at 31/03/2015 31/03/2014

Mr. W D N H Perera - -

Mr. J A P M Jayasekera 86 17,286

Dr. S Selliah - -

Mr. T de Zoysa - 2,520

Mr. T G Thoradeniya - -

Mr. K D G Gunaratne - -

Ms. A M L Page - -

Mr. M W R N Somaratne - -

Shareholders There were 10,885 shareholders registered as at 31st March 2015 (11,025 shareholders as at 31st March 2014). The details of distribution are given on page 117 of this Report.

Major Shareholders, Distribution Schedule and other informationInformation on the distribution of shareholding, analysis of shareholders, market values per share, earnings, dividends, net assets per share, twenty largest shareholders of the Company, percentage of shares held by the public as per the Listing Rules of the Colombo Stock Exchange are given on page 118 under Share Information.

Employment PolicyThe Company’s employment policy is totally non-discriminatory which respects individuals and provides carrier opportunities irrespective of the gender, race or religion.

As at 31st March 2015, 532 persons were in employment (543 persons as at 31st March 2014).

ReservesThe reserves of the Company with the movements during the year are given in Note 13 to the Financial Statements on page 83

Land holdingsThe book value of property, plant and equipment as at the balance sheet date amounted to Rs. 2,233,154,000/-

The extents, locations, valuations and the number of buildings of the Company’s land holdings are given below:

Location No. of Buildings

Lands in Extent Valuation‘000A R P

Head Office 1 1 2 5 353,675

Meepe Factory 17 23 3 35 352,969

Total 18 25 02 00 706,644

The movement of fixed assets during the year is given in Note 03 to the financial statements.

DividendsAn interim dividend of Rs. 2/- per share for the year ending 31st March 2015 was paid on 27th November 2014.

A second interim dividend of Rs. 2/- per share for the year ending 31st March 2015 was approved by the Board on 31st March 2015 and paid on 24th April 2015.

Substantial ShareholdingsThe Company is controlled by Lanka Ceramic PLC which holds 62.192% of the issued share capital of the Company. The ultimate parent Company is Vallibel One PLC.

InvestmentsDetails of the Company’s quoted and unquoted investments as at 31st March 2015 are given in Note 05 to the Financial Statements on pages 79 to 80

DonationsThe Company made donations amounting to Rs. 680,000/- in total, during the year under review. (2014 Rs. 539,000/-).

Risk Management An ongoing process is in place to identify and manage the risks that are associated with the business and operations of the Company. The Directors review this process through the Audit Committee.

Specific steps taken by the Company in managing the risks are detailed in the section on Risk Management on pages 33 to 36

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

Contingent LiabilitiesExcept as disclosed in Note 31 to the Financial Statements on pages 105 to 105, there were no material Contingent Liabilities as at the Balance Sheet date.

Events occurring after the Balance Sheet dateExcept for the matters disclosed in Note 32 to the Financial Statements on page 105 there are no material events as at the date of the Auditor’s report which require adjustment to, or disclosure in the Financial Statements.

Annual Report of The Board of Directorson The Affairs of The Company


51

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Corporate Governance The Board of Directors confirm that the Company is compliant with section 7.10 of the Listing Rules of the CSE.

An Audit Committee and a Remuneration Committee function as Board sub committees, with Directors who possess the requisite qualifications and experience. The composition of the said committees is as follows.

Audit CommitteeMr. M D S Goonatilleke - Chairman

Mr. L T Samarawickrama

Mr. R N Asirwatham

Mr. S H Amarasekera

Remuneration CommitteeMr. R B Thambiayah - Chairman

Mr. M D S Goonatilleke

Mr. L T Samarawickrama

The Corporate Governance of the Company is reflected in its strong belief in protecting and enhancing stakeholder value in a sustainable manner, supported by a sound system of policies and practices. Prudent internal controls ensure professionalism, integrity and commitment of the Board of Directors, Management and employees.

The Corporate Governance Statement on pages 26 to 32 explains the measures adopted by the Company during the year.

Corporate Social Responsibility The Company continued its Corporate Social Responsibility Programme, details of which are set out on pages 37 to 43 of this Report.

Environmental ProtectionAfter making adequate enquiries from the management, the Directors are satisfied that the Company operates in a manner that minimizes the detrimental effects on the environment and provides products and services that have a beneficial effect on the customers and the communities within which the Company operates.

Going ConcernThe financial statements are prepared on going concern principles. After making adequate enquires from the management, the Directors are satisfied that the Company has adequate resources to continue its operations in the foreseeable future.

Annual General MeetingThe Notice of the Thirty Eighth (38th) Annual General Meeting appears on page 119.

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

W D N H Perera J A P M JayasekeraChairman Managing Director

P W Corporate Secretarial (Pvt) LtdSecretaries

29th May 2015


The financial statements are prepared in compliance with the Sri Lanka Accounting Standards issued by the Institute of Chartered Accountants of Sri Lanka and the requirements of the Companies Act No. 7 of 2007 and any other applicable statues to the extent applicable to the Company. There are no departures from the prescribed accounting standards in their adoption. The accounting policies used in the preparation of the financial statements are appropriate and are consistently applied, except where otherwise stated in the notes accompanying the financial statements.

The Board of Directors and the management of your Company accept responsibility for the integrity and objectivity of these financial statements. The estimates and judgments relating to the financial statements were made on a prudent and reasonable basis, in order that the financial statements reflect in a true and fair manner, the form and substance of transactions, and reasonably present the Company’s state of affairs. To ensure this, the Company has taken proper and sufficient care in installing a system of internal control and accounting records, for safeguarding assets, and for preventing and detecting frauds as well as other irregularities, which is reviewed, evaluated and updated on an ongoing basis. Our internal auditors have conducted periodic audits to provide reasonable assurance that the established policies and procedures of the Company were consistently followed. However, there are inherent limitations that should be recognised in weighing the assurances provided by any system of internal controls and accounting.

The financial statements were audited by M/s. Ernst & Young, Chartered Accountants, the independent auditors.

Chief Executive Officer’s and Chief Financial Officer’s Responsibility Statement

The Audit Committee of your Company meets periodically with the internal auditors and the independent auditors to review the manner in which these auditors are performing their responsibilities, and to discuss auditing, internal control and financial reporting issues. To ensure complete independence, the independent auditors and the internal auditors have full and free access to the members of the Audit Committee to discuss any matter of substance.

It is also declared and confirmed that the Company has complied with and ensured compliance by the auditors with the guidelines for the audit of Listed Companies where mandatory compliance is required.

J A P M Jayasekera B T T RocheManaging Director Head of Finance

29th May 2015


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Statement of Directors Responsibilities

The Directors are required by the Companies Act, No. 7 of 2007 to prepare financial statements for each financial year, which give a true and fair view of the statement of affairs of the Company as at the end of the financial year and the income and expenditure of the Company for the financial year.

The Directors are also responsible to ensure that the financial statements comply with any regulations made under the Companies Act which specifies the form and content of financial statements and any other requirements which apply to the Company’s financial statements under any other law.

The Directors consider that the financial statements presented in this Annual Report have been prepared using appropriate accounting policies, consistently applied and supported by reasonable and prudent judgments and estimates and in compliance with the Sri Lanka Accounting Standards, Companies Act, No. 7 of 2007, Sri Lanka Accounting and Auditing Standards Act No. 15 of 1995.

The Directors are responsible for ensuring that the Company keeps sufficient accounting records, which disclose the financial position of the Company with reasonable accuracy and enable them to ensure that the financial statements have been prepared and presented as aforesaid. They are also responsible for taking measures to safeguard the assets of the Company and in that context to have proper regard to the establishment of appropriate systems of internal control with a view to prevention and detection of fraud and other irregularities.

The Directors continue to adopt the going concern basis in preparing the financial statements. The Directors, after making inquiries and review of the Company’s Business Plan for the financial year 2015/2016, including cash flows and borrowing facilities, consider that the Company has adequate resources to continue in operation.

By Order of the Board

Lanka Walltiles PLC

P W Corporate Secretarial (Pvt) LtdSecretaries

29th May 2015


Independent Auditor’s Report

TO THE SHAREHOLDERS OF LANKA WALLTILES PLCReport on the Financial Statements

We have audited the accompanying financial statements of Lanka Walltiles PLC (“Company”) and the consolidated financial statements of the Company and its Subsidiaries which comprise the statement of financial position as at 31 March 2015, and the statement of comprehensive income, statement of changes in equity and, cash flow statement for the year then ended, and a summary of significant accounting policies and other explanatory information set out on pages 59 to 111.

Board’s Responsibility for the Financial Statements

The Board of Directors (“Board”) is responsible for the preparation of these financial statements that give a true and fair view in accordance with Sri Lanka Accounting Standards and for such internal controls 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 Responsibility

Our 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 statements that give a true and fair view in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’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.

Opinion

In our opinion, the consolidated financial statements give a true and fair view of the financial position of the Group as at 31 March 2015, 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 Requirements

As required by Section 163(2) of the Companies Act No. 7 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 the financial position as at 31 March 2015, and of its financial performance and cash flows for the year then ended in accordance with Sri Lanka Accounting Standards and

- 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.

CHARTERED ACCOUNTANTSColombo 29th May 2015


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Note Group CompanyAs at 31st March 2015 2014 2015 2014 Rs.’000 Rs.’000 Rs.’000 Rs.’000

ASSETSNon-current assetsProperty, plant and equipment 3 10,061,471 9,796,164 2,233,154 2,306,044 Intangible assets - goodwill 4 24,519 24,519 - - Investments in subsidiaries 5 - - 1,276,096 1,276,096 Long term receivables 6 27,285 27,285 - - Deferred tax asset 7 52,183 22,729 - - 10,165,458 9,870,697 3,509,250 3,582,140

Current assetsInventories 8 3,473,262 3,648,372 1,349,134 1,363,613 Trade and other receivables 9 2,327,095 2,444,967 681,483 720,176 Amounts due from related parties 10 1,263 - 272 10,399 Income tax receivable 34,092 21,884 34,092 21,884 Short term investments 11 2,964 3,624 2,964 3,624 Cash and cash equivalents 28 977,467 168,900 34,805 12,187 6,816,143 6,287,747 2,102,750 2,131,883 Total assets 16,981,601 16,158,444 5,612,000 5,714,023

EQUITY AND LIABILITIESEquity attributable to equity holders of the parent Stated capital 12 787,765 787,765 787,765 787,765 Reserves 13 1,004,516 936,147 296,294 296,294 Retained earnings 4,705,024 4,018,704 1,886,370 1,728,484 Shareholders’ funds 6,497,305 5,742,616 2,970,429 2,812,543 Non controlling interest 2,750,143 2,383,029 - - Total equity 9,247,448 8,125,645 2,970,429 2,812,543

Non-current liabilitiesInterest bearing liabilities 14 1,742,100 1,923,947 358,697 560,105 Deferred tax liabilities 15 702,135 596,455 167,892 131,840 Retirement benefit liability 16 691,214 642,946 67,027 58,310 Deferred income & Capital grants 17 121,613 118,411 - - 3,257,062 3,281,759 593,616 750,255

Current liabilitiesTrade and other payables 18 1,649,063 1,356,977 360,936 300,804 Income tax liabilities 165,450 45,764 - - Amounts due to related parties 19 28,782 2,456 138,180 250,281 Current portion of interest bearing liabilities 14 2,633,796 3,345,843 1,548,839 1,600,140 4,477,091 4,751,040 2,047,956 2,151,225Total equity and liabilities 16,981,601 16,158,444 5,612,000 5,714,023

I certify that, these Financial Statements are in compliance with the requirements of the Companies Act No.07 of 2007.

B T T RocheHead of Finance

The Board of Directors is responsible for the preparation and presentation of these financial statements.

Signed for and on behalf of the Board,

W D N H Perera J A P M JayasekeraChairman Managing DirectorThe accounting policies and notes on pages 59 to 111 form an integral part of the financial statements.

29th May 2015 Colombo

Statement of Financial Position


Group CompanyFor the Year ended 31 March 2015 2014 2015 2014 Note Rs.’000 Rs.’000 Rs.’000 Rs.’000

Revenue 20 14,596,214 13,419,770 3,078,121 2,599,659 Cost of Sales (10,855,981) (10,282,638) (2,142,319) (1,951,099)Gross Profit 3,740,233 3,137,132 935,802 648,560

Other Income 21 189,012 167,148 277,718 245,093 Distribution Costs (987,637) (829,354) (292,894) (285,389)Administrative Expenses (822,113) (722,631) (201,007) (186,504)Finance Cost 22 (327,204) (600,231) (165,140) (226,973)Finance Income 23 5,913 23,266 - - Profit Before Tax 24 1,798,203 1,175,330 554,479 194,787

Income Tax Expense 25 (347,607) (254,701) (37,426) (755)Profit for the Year 1,450,596 920,629 517,052 194,032

Other Comprehensive IncomeNet Other Comprehensive Income not to be reclassified to profit or loss in subsequent periods (net of tax):Revaluation of Land 3 155,075 14,680 - - Actuarial Loss on Retirement Benefit Liability 16 (4,429) (85,448) (5,640) (2,217)Deferred tax on components of other comprehensive income 25 2,881 11,742 1,373 - Total Comprehensive Income for the Year 1,604,124 861,603 512,786 191,815

Profit attributable to :Equity holders of the parent 1,043,793 605,704 517,052 194,032 Non controlling interest 406,803 314,925 - - Profit for the year 1,450,596 920,629 517,052 194,032

Total comprehensive income attributable to :Equity holders of the parent 1,107,509 581,522 512,786 191,815 Non controlling interest 496,614 280,081 - - Total Comprehensive Income for the Year 1,604,124 861,603 512,786 191,815

Basic Earnings Per Share - Profit Attributable to Ordinary Equity Holders 26 19.12 11.09 9.47 3.55Dividends Per Share 27 - - 6.50 2.00

Statement of Comprehensive Income


57

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Attributable to equity holders of the parent Non controlling Total Note Stated Revaluation Retained Total interest equity capital reserve Earnings Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000

GROUP Balance as at 01 April 2014 787,765 971,218 3,254,614 5,013,597 3,370,511 8,384,108

Profit for the Year - - 605,704 605,704 314,925 920,629 Other Comprehensive Income - 14,680 (38,862) (24,182) (34,844) (59,026)Total Comprehensive Income - 14,680 566,842 581,522 280,081 861,603 Write back of unclaimed dividends - - 2,189 2,189 - 2,189 DividendsFinal 2012/2013 (Rs. 2.00 per share) 27 - - (109,200) (109,200) - (109,200)Reclassification of investment property - (49,751) 49,751 - - - Dividend to non controlling interest - - - - (131,808) (131,808)Acquisition of non controlling interest - - 254,508 254,508 (1,135,755) (881,247)Balance as at 31 March 2014 787,765 936,147 4,018,704 5,742,616 2,383,029 8,125,645

Profit for the Year - - 1,043,793 1,043,793 406,803 1,450,596 Other Comprehensive Income - 68,369 (4,652) 63,717 89,811 153,528 Total Comprehensive Income - 68,369 1,039,141 1,107,510 496,614 1,604,124 Dividends

Final 2013/14 (Rs. 2.50 per share) 27 - - (136,500) (136,500) - (136,500)1st Interim 2014/15 (Rs. 2.00 per share) - - (109,200) (109,200) - (109,200)2nd Interim 2014/15 (Rs. 2.00 per share) - - (109,200) (109,200) - (109,200) - - (354,900) (354,900) - (354,900)Dividend to non controlling interest - - 2,079 2,079 (129,500) (127,421)

Balance as at 31 March 2015 787,765 1,004,516 4,705,024 6,497,305 2,750,143 9,247,448

Stated Revaluation Retained Total capital reserve Earnings Rs.’000 Rs.’000 Rs.’000 Rs.’000

COMPANYBalance as at 01 April 2013 787,765 346,045 1,593,929 2,727,739 Profit for the Year - - 194,032 194,032 Other Comprehensive Income - - (2,217) (2,217)Total Comprehensive Income - - 191,815 191,815 Write back of unclaimed dividends - - 2,189 2,189 Reclassification of investment property - (49,751) 49,751 - Dividends

Final 2012/2013 (Rs. 2.00 per share) 27 - - (109,200) (109,200)Balance as at 31 March 2014 787,765 296,294 1,728,484 2,812,543

Profit for the Year - - 517,052 517,052 Other Comprehensive Income - - (4,266) (4,266) Total Comprehensive Income - - 512,786 512,786 Dividends

Final 2013/14 (Rs. 2.50 per share) 27 - - (136,500) (136,500)1st Interim 2014/15 (Rs. 2.00 per share) - - (109,200) (109,200)2nd Interim 2014/15 (Rs. 2.00 per share) - - (109,200) (109,200)

- - (354,900) (354,900)Balance as at 31 March 2015 787,765 296,294 1,886,370 2,970,429

The accounting policies and notes on pages 59 to 111 form an integral part of the financial statements.

Statement of Changes in Equity


Group CompanyFor the Year ended 31st March 2015 2014 2015 2014 Note Rs.’000 Rs.’000 Rs.’000 Rs.’000

Profit before income tax 1,798,203 1,175,330 554,479 194,787

Adjustments for Depreciation & amortisation 585,227 551,174 147,272 145,141 Income from investments 3 - - (236,778) (167,121)Profit/ (loss) on sale of property, plant & equipment (33,921) 3,898 2,101 2,153 Interest income (5,913) (23,266) - - Finance costs 327,204 600,231 165,140 226,973 Provision for retirement benefit obligations 16 115,803 108,358 12,107 10,751 Allowance/ (reversal) for obsolete and slow moving inventories 7,476 (16,502) 848 1,450 Allowance for impairment of trade receivable 12,889 653 (5,487) (1,246)Deferred income / capital grants amortisation 17 (4,653) (4,255) - -Changing in Fair Value of Biological Assets 3.1(9) (56,640) (26,052) - - Profit on sale of investment property - (50,000) - (50,000)Foreign exchange (gain)/ loss 4,017 4,116 3,508 6,245 Operating profit/(loss) before working capital changes 2,749,693 2,323,685 643,191 369,133

Working capital adjustments(Increase)/ decrease in inventories 167,633 143,128 13,631 33,787 (Increase)/ decrease in trade and other receivables 104,983 (255,233) 44,180 (122,009)(Increase) /decrease in due from related parties (1,263) - 10,127 18,357 Increase/ (decrease) in due to related parties 26,326 1,896 (112,101) 45,560 Increase /(decrease) in trade and other payables 292,837 (426,175) 60,132 (28,453)Increase/ (decrease) in investments 660 (289) 660 (238)Cash generated from operations 3,340,869 1,787,012 659,819 316,137

Interest received 5,913 931 - - Finance costs paid (327,204) (598,048) (165,140) (226,973)Retirement benefit plan costs paid (72,715) (82,425) (9,030) (5,200)Income tax paid (161,191) (80,632) (12,208) - Net cash flows from/(used in) operating activities 2,785,671 1,026,838 473,440 83,964

CASH FLOWS FROM / (USED IN) INVESTING ACTIVITIESAcquisition of property, plant & equipment (396,681) (550,406) (84,925) (166,995)Acquisition of plantation assets (240,800) (288,736) - - (Acquisition) / disposal of investments - (881,247) - (726,207)Proceeds from sale of property, plant & equipment 56,208 8,362 8,443 3,845 Income from investments - - 236,778 167,121Proceeds from disposal of investment property - 130,000 - 130,000 Net cash flows from/(used in) investing activities (581,273) (1,582,027) 160,296 (592,236)

CASH FLOWS FROM / (USED IN) FINANCING ACTIVITIESInterest bearing loans & borrowings obtained 463,082 3,963,744 - 734,859 Repayment of interest bearing borrowings (1,264,982) (3,395,338) (315,595) (166,572)Dividends paid - on Ordinary Shares 27 (354,900) (109,200) (354,900) (109,200)Dividend paid to non controlling interest (127,421) (131,808) - - Dividend write back - 2,189 - - Capital grants received 17 7,855 11,525 - - Net cash flows from/(used in) financing activities (1,276,366) 339,708 (670,495) 459,087

Net increase/(decrease) in cash and cash equivalents 928,032 (215,481) (36,760) (49,185)

Cash and cash equivalents at the beginning of the year (868,424) (652,943) (364,624) (315,439)Cash and cash equivalents at the end of the year 28 59,608 (868,424) (401,384) (364,624)

The accounting policies and the notes on pages 59 to 111 form an integral part of these financial statements.

Cash Flow Statement


59

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1. CORPORATE INFORMATION1.1 General

Lanka Walltiles PLC is a limited liability company incorporated and domiciled in Sri Lanka and listed on the Colombo Stock Exchange. The registered office and the principal place of business of the Company is located at No. 215, Nawala Road, Narahenpita, Colombo 05.

1.2 Principal activities and nature of operations

During the year, the principal activities of the Company were the manufacture and sale of ceramic walltiles for export and local markets and holding investments.

The principal activities of the other Companies of the Group are disclosed in Note 5.2 to the Financial Statements.

1.3 Parent enterprise and ultimate parent enterprise

The Company’s parent entity is Lanka Ceramic PLC. In the opinion of the Directors, the Company’s ultimate parent undertaking and controlling party is Vallibel One PLC, which is incorporated in Sri Lanka.

1.4 Date of authorization for issue

The Financial Statement of Lanka Walltiles PLC and its Subsidiaries for year ended 31 March 2015 was authorized for issue in accordance with a resolution of the Board of Directors (Awaiting Information).

2. SuMMARY OF SIGNIFICANT ACCOuNTING POLICIES

2.1 Basis of Preparation

The financial statements of the Company and the Group have been prepared in accordance with Sri Lanka Accounting Standards comprising SLFRS and LKAS (hereafter “SLFRS”) as issued by the Institute of Chartered Accountants of Sri Lanka.

2.1.1 Basis of measurement

The financial statements of the Company and the Group have been prepared on a historical cost basis, except otherwise indicated including land which have been measured at fair value.

The financial statements are presented in Sri Lankan Rupees (Rs), except when otherwise indicated.

2.1.2 Statement of Compliance

The financial statements of the Company and consolidated financial statements of the Group have been prepared in accordance with Sri Lanka Accounting Standards (“SLFRS”) as issued by Institute of Chartered Accountants of Sri Lanka.

The preparation and presentation of these financial statements is in compliance with the requirements of the Companies Act No.07 of 2007.

2.1.3 Going concern

When preparing financial statements, management has made assessments of the ability of the constituents of the Group to continue as going concern, taking into account all available information about the future, including intentions of curtailment of business, as decided by Board.

2.1.4 Changes in Accounting Policies

The accounting policies adopted are consistent with those of the previous financial year.

There has been no significant effect to the accounting policies due to the adoption of the SLFRS 10 -Consolidated Financial Statements, SLFRS 12 - Disclosure of Interests in Other Entities and SLFRS 13 - Fair Value Measurement. Changes to disclosure requirement, on adoption of SLFRS 13 – Fair value measurement and SLFRS 12 – Disclosure of interest in other Entities have been disclosed under note 3.1 (l) ,13.6 and Note 34 respectively.

2.1.5 Basis of Consolidation

The consolidated financial statements comprise the financial statements of the Group and its subsidiaries as at 31 March 2015. Control is achieved when the Group is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Specifically, the Group controls an investee if, and only if, the Group has:

1. Power over the investee (i.e., existing rights that give it the current ability to direct the relevant activities of the investee)

2. Exposure, or rights, to variable returns from its involvement with the investee

3. The ability to use its power over the investee to affect its returns

Generally, there is a presumption that a majority of voting rights result in control. To support this presumption and when the Group has less than a majority of the voting or similar rights of an investee, the Group considers all relevant facts and circumstances in assessing whether it has power over an investee, including:

1. The contractual arrangement with the other vote holders of the investee

2. Rights arising from other contractual arrangements

3. The Group’s voting rights and potential voting rights

The Group re-assesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control. Consolidation of a subsidiary begins when the Group obtains control over

Notes to the Financial Statements


the subsidiary and ceases when the Group loses control of the subsidiary. Assets, liabilities, income and expenses of a subsidiary acquired or disposed of during the year are included in the consolidated financial statements from the date the Group gains control until the date the Group ceases to control the subsidiary.

Profit or loss and each component of other comprehensive income (OCI) are attributed to the equity holders of the parent of the Group and to the non-controlling interests, even if this results in the non-controlling interests having a deficit balance. When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with the Group’s accounting policies. All intra-group assets and liabilities, equity, income, expenses and cash flows relating to transactions between members of the Group are eliminated in full on consolidation.

A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as an equity transaction.

If the Group loses control over a subsidiary, it derecognises the related assets (including goodwill), liabilities, non-controlling interest and other components of equity while any resultant gain or loss is recognised in profit or loss. Any investment retained is recognised at fair value.

Companies in the Group, the Group holdings in its subsidiary are given in Note 6.2 to the financial statements.

2.1.6 Goodwill

Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the aggregate of the consideration transferred measured at acquisition date fair value and the amount of any non-controlling interests in the acquiree. For each business combination, the Group elects whether to measure the non-controlling interests in the acquiree at fair value or at the proportionate share of the acquiree’s identifiable net assets. Acquisition-related costs are expensed as incurred and included in administrative expenses.

Goodwill is initially measured at cost, being the excess of the aggregate of the consideration transferred and the amount recognised for non-controlling interests, and any previous interest held, over the net identifiable assets acquired and liabilities assumed. If the fair value of the net assets acquired is in excess of the aggregate consideration transferred, the Group re-assesses whether it has correctly identified all of the assets acquired and all of the liabilities assumed and reviews the procedures used to measure the amounts to be recognised at the acquisition date. If the reassessment still results in an excess of the fair value of net assets acquired over the aggregate consideration transferred, then the gain is recognised in profit or loss.

After initial recognition, goodwill is measured at cost less any accumulated impairment losses. For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Group’s cash-generating units that are expected to benefit from the combination, irrespective of whether other assets or liabilities of the acquiree are assigned to those units.

2.2 Significant Accounting Judgments, Estimates And Assumptions

2.2.1 Judgments

In the process of applying the Group accounting policies, management has made the following judgments, apart from those involving estimations, which has the most significant effect on the amounts recognised in the financial statements.

a) Taxation

The Group is subject to Income Taxes and other taxes. Uncertainties exist, with respect to the interpretation of the applicability of tax laws, at the time of the preparation of these Financial Statements. Accordingly, the Group has exercised judgment in determining the tax effect due to the change in the accounting base and the tax base due to first time adoption of Sri Lanka Accounting Standards. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the income and deferred tax amounts in the period in which the determination is made.

b) Useful life-time of the Property, Plant and equipment

The Group reviews the useful lives and methods of depreciation of assets at each reporting date. Judgement of the management is exercised in the estimation of these values, rates, methods and hence they are subject to uncertainty (Note 3).

2.2.2 Estimates and Assumptions

The key assumptions concerning the future and other key sources of estimation uncertainty at the reporting date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below. The respective carrying amounts of assets and liabilities are given in related notes to the financial statements.

a) Defined benefit plans

The cost of defined benefit plan- gratuity is determined using actuarial valuations. The actuarial valuation involves making assumptions about discount rates, future salary increases, mortality rates and future pension increases. Due to the long term nature of these plans, such estimates are subject to significant uncertainty. Retirement benefit liability of the Group is disclosed in Note 16.



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b) Provision for Slow moving inventories

A provision for slow moving inventories is recognised based on the best estimates available to management on their future usability/sale. As management uses historical information as the basis to determine the future usability and recoverability, actual future losses on inventories could vary from the provision made in these financial statements (Note 8).

c) Freehold land

The fair value of freehold land and building was determined by means of a revaluation by independent valuers in reference to market based evidence as detailed in Note 3.1 (l).

d) Impairment of debtors

The Group reviews at each reporting date all receivables to assess impairment of debtors. (Note 9).

e) Deferred tax assets

Deferred tax assets are recognised in respect of tax losses to the extent it is probable that future taxable profits will be available against which such tax losses can be set off. Judgment is required to determine the amount of deferred tax assets that can be recognised, based on the likely timing and level of future taxable profits, together with the future tax-planning strategies.

f) Impairment of Non Financial Assets

The Group assesses whether there are any indicators of impairment for all non-financial assets at each reporting date. Non-financial assets are tested for impairment when there are indicators that the carrying amounts may not be recoverable. When values in use calculations are undertaken, management must estimate the expected future cash flows from the assets or cash generating unit and choose a suitable discount rate in order to calculate the present value of those cash flows.

g) Fair Value of Financial Instruments

Where the fair values of financial assets and financial liabilities disclosed in the financial statements cannot be derived from active markets, they are determined using a variety of valuation techniques that include the use of mathematical models. The inputs to these models are derived from observable market data where possible, but if this is not available, judgment is required to establish fair values. The judgments include considerations of liquidity and inputs such as discount rates. The valuation of financial instruments is described in more detail in Note 14.8.

h) Fair Valuation of Biological Assets

The fair value of managed timber determined based on discounted cash flow method using various financial and non-financial assumptions. The growth of the trees is determined by various biological features that are highly unpredictable. Any change to the assumptions will impact the fair value of biological assets. Key assumptions and sensitivity analysis of the biological assets are given in the note 3.1 (h) and 2.4.2 (b) (i).

2.3 Summary Of Significant Accounting Policies

2.3.1 Foreign currency translation

The financial statements are presented in Sri Lanka Rupees, which is the Group’s functional and presentation currency. Transactions in foreign currencies are initially recorded at the functional currency rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are re-translated at the functional currency rate of exchange ruling at the reporting date. All differences are taken to profit or loss. Non monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates as at the dates of the initial transactions. Non monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined.

2.3.2 Fair Value Measurement

Fair value related disclosures for assets measured at fair value or financial instruments that are not measured at fair value, for which fair values are disclosed, are summarized in the Note 3.1(l) and 14.8 to the financial statements.

The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest.

The Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximising the use of relevant observable inputs and minimising the use of unobservable inputs.

All assets and liabilities for which fair value is measured or disclosed in the Financial Statements are categorised within the fair value hierarchy, described as follows,

Level 1 - Quoted (unadjusted) market prices in active markets for identical assets or liabilities

Level 2 - Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable

Level 3 - Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable


For assets and liabilities that are recognised in the Financial Statements on a recurring basis, the Group determines whether transfers have occurred between levels in the hierarchy by re-assessing categorisation (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period.

The management determines the policies and procedures for both recurring fair value measurement and for non- recurring measurement.

For the purpose of fair value disclosures, the Group has determined classes of assets and liabilities on the basis of the nature, characteristics and risks of the asset or liability and the level of the fair value hierarchy as explained above.

2.3.3 Taxation

Current taxes

Current income tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted by the reporting date.

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 relevant tax legislations. Current income tax relating to items recognised directly in equity statement is recognised in equity and not in the statement of comprehensive income.

Deferred taxation

Deferred income tax is provided, using the liability method, on temporary differences at the reporting date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes.

Deferred income tax liabilities are recognised for all taxable temporary differences except where the deferred income tax liability arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss.

Deferred income tax assets are recognised for all deductible temporary differences, carry-forward of unused tax assets and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carry-forward of unused tax assets and unused tax losses can be utilised except where the deferred income tax asset relating to the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting

profit nor taxable profit or loss; and the carrying amount of deferred income tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilised.

Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the reporting date.

Deferred income tax relating to items recognised directly in equity statement is recognised in equity statement and not in the statement of total comprehensive income.

Sales tax

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

2.3.4 Borrowing costs

Borrowing 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 of an asset that takes a substantial period of time to get ready for its intended use or sale, are capitalised as part of that asset.

Borrowing costs that are not directly attributable to the acquisition, construction or production of a qualifying asset are recognised in statement of comprehensive income using the effective interest method.

The amounts of borrowing costs which are eligible for capitalisation are determined in accordance with LKAS 23 – “Borrowing Costs”.

Borrowing cost incurred in respect of specific loans that are utilised for the field development activities have been capitalised as part of the cost of relevant immature plantation. The capitalisation will ceased when crops are ready for commercial harvest.



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2.3.5 Inventories

Inventories are valued at the lower of cost and net realizable value, after making due allowances for obsolete and slow moving items. Net realizable value is the price at which inventories can be sold in the ordinary course of business less the estimated cost of completion and the estimated cost necessary to make the sale.

The cost incurred in bringing inventories to its present location and condition is accounted using the following cost formulae:-

Finished goods and work-in-progress

Manufacturing goods

At the cost of direct materials, direct labour and an appropriate proportion of fixed production overheads based on normal operating capacity, but excluding borrowing cost.

Trading goods

At purchase cost on first in first out basis

Consumable and spares

At actual cost on weighted average basis

Raw materials

At purchase cost on weighted average cost basis, except for Vallibel Plantation Management Limited and Swisstek (Ceylon) PLC which is on a first in first out basis.

Goods in transit

At actual cost

2.3.6 Financial Instruments

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 Group determines the classification of its financial assets at initial recognition.

All financial assets are recognised 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 recognised 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 short-term deposits, trade and other receivables, loans and other receivables and quoted and unquoted financial instruments.

Subsequent Measurement

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

a) 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 amortised cost using the effective interest rate method (EIR), less impairment. The losses arising from impairment are recognised in the statement of comprehensive income in finance costs.

Derecognition

A financial asset (or, where applicable a part of a financial asset or part of a Group of similar financial assets) is derecognised when:

• Therightstoreceivecashflowsfromtheassethaveexpired

• TheGrouphastransferreditsrightstoreceivecashflowsfrom the asset or has assumed an obligation to pay the received cash flows in full.

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 payments, the probability that they will enter bankruptcy or other financial reorganisation 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.

Financial Assets carried at Amortised Cost

For financial assets carried at amortised cost, the Group first assesses whether objective evidence of impairment exists individually for financial assets that are individually significant, or collectively for financial assets that are not individually significant. If the Group determines that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, it includes the asset in a Group of financial assets with similar credit risk characteristics


and collectively assesses them for impairment. Assets that are individually assessed for impairment and for which an impairment loss is, or continues to be, recognised are not included in a collective assessment of impairment.

If there is objective evidence that an impairment loss has been incurred, the amount of the loss is measured as the difference between the assets carrying amount and the present value of estimated future cash flows (excluding future expected credit losses that have not yet been incurred).

The carrying amount of the asset is reduced through the use of an allowance account and the amount of the loss is recognised in the statement of comprehensive income. Loans together with the associated allowance are written off when there is no realistic prospect of future recovery and all collateral has been realised or has been transferred to the Group. If, in a subsequent year, the amount of the estimated impairment loss increases or decreases because of an event occurring after the impairment was recognised; the previously recognised impairment loss is increased or reduced by adjusting the allowance account. If a future write-off is later recovered, the recovery is credited to finance costs in the statement of comprehensive income.

Financial Liabilities

Initial Recognition and Measurement

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

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

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

Accordingly Group financial liabilities have been classified as and loans and borrowings.

Subsequent Measurement

The measurement of financial liabilities depends on their classification as follows:

a) Loans and Borrowings

After initial recognition, interest bearing loans and borrowings are subsequently measured at amortised cost using the effective interest rate method. Gains and losses are recognised in the statement of comprehensive income

when the liabilities are derecognised as well as through the effective interest rate method (EIR) amortisation process.

Amortised cost is calculated by taking into account any discount or premium on acquisition and fees or costs those are an integral part of the EIR. The EIR amortisation is included in finance costs in the statement of comprehensive income.

Derecognition

A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires.

2.3.7 Property, plant and equipment

Property, plant and equipment is stated at cost or valuation, excluding the costs of day to day servicing, less accumulated depreciation and accumulated impairment in value. Such cost includes the cost of replacing part of the plant and equipment when that cost is incurred, if the recognition criteria are met.

Depreciation is calculated on a straight line basis over the useful life of the assets.

Free hold land is initially measured at cost and thereafter measured at fair value.

When each major inspection is performed, its cost is recognised in the carrying amount of the plant and equipment as a replacement if the recognition criteria are satisfied.

An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on de-recognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the statement of total comprehensive income in the year the asset is derecognised.

The asset’s residual values, useful lives and methods of depreciation are reviewed, and adjusted if appropriate, at each financial year end.

2.3.8 Leases

2.3.8.1 Finance leases

Assets obtained under finance lease, which effectively transfer to the Group substantially the entire risks and benefits incidental to ownership of the leased assets, are treated as if they have been purchased outright and are capitalised at their cash price. Assets acquired by way of a finance lease are measured at an amount equal to the lower of the present value of the minimum lease payments and fair value of the leased property.



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Assets held under finance lease are amortized shorter of the lease period or the useful lives of equivalent owned assets, unless ownership is not transferred at the end of the lease period.

The principal/capital element payable to the lessor is shown as liability/obligation. The lease rentals are treated as consisting of capital and interest elements. The capital element in the rental is applied to reduce the outstanding obligation and interest element is charged against profit, in proportion to the reducing capital outstanding.

The cost of improvements on leased property is capitalised, disclosed as improvements to leasehold property and depreciated over the unexpired period of the lease, or the estimated useful lives of the improvements, whichever is shorter.

2.3.8.2 Operating leases

Leases where the lessor effectively retains substantially all the risks and benefits of ownership over the leased term are classified as operating leases.

Rentals paid under operating leases are recognised as an expense in the income statement on a straight-line basis over the lease term. When an operating lease is terminated before the lease period has expired, any payment required to be made to the lessor by way of penalty is recognised as an expense in the period in which termination takes place.

2.3.9 Provisions

Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of past events, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation. When the Group expects some or all of a provision to be reimbursed, the reimbursement is recognised as a separate asset but only when the reimbursement is virtually certain. The expense relating to any provision is presented in the statement of total comprehensive income net of any reimbursement.

2.3.10 Retirement benefit obligations

(a) Defined Benefit Plan – Gratuity

A defined benefit plan is a post-employment benefit plan other than a defined contribution plan. The defined benefit is calculated by independent actuaries using Projected Unit Credit (PUC) method as recommended by LKAS 19 – “Employee benefits”. The present value of the defined benefit obligation is determined by discounting the estimated future cash outflows using interest rates that are denominated in the currency in which the benefits will be paid, and that have terms to maturity approximating to the terms of the related liability.

The present value of the defined benefit obligations depends on a number of factors that are determined on an actuarial basis using a number of assumptions about discount rate, expected rates of return on assets, future salary increases and mortality rates. Due to the long-term nature of these plans, such estimates are subject to significant uncertainty. All assumptions are reviewed at each reporting date.

Accordingly, the employee benefit liability is based on the actuarial valuation as of 31 March 2015.

Funding Arrangements

The Gratuity liability is not externally funded.

(b) Defined Contribution Plans- Employees’ Provident Fund and Employees’ Trust Fund

Employees are eligible for Employees’ Provident Fund Contributions and Employees’ Trust Fund Contributions in line with respective statutes and regulations. These are recognised as an expense in the statement of income as incurred.

The Group contributes 12% and 3% of gross emoluments of the employees to Employees’ Provident Fund and Employees’ Trust Fund respectively.

2.3.11 Impairment of non-financial assets

The Group assesses at each reporting date whether there is an indication that an asset may be impaired. If any such indication exists, the Group makes an estimate of the asset’s recoverable amount. An asset’s recoverable amount is the higher of an asset’s or cash-generating unit’s fair value less costs to sell and its value in use and is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets. Where the carrying amount of an asset exceeds its recoverable amount an asset is considered impaired and is written down to its recoverable amount.

2.3.12 Revenue recognition

Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Group and that 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 following specific criteria have been used for the purpose of recognition of revenue.

Sale of goods

Revenue from sale of goods is recognised when the significant risks and rewards of ownership of the goods have passed to buyer with the Group retaining neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold.


Interest

For all financial instruments measured at amortised cost and interest bearing financial assets, interest income or expense is recorded using the effective interest rate (EIR), which is the rate that exactly discounts the estimated future cash payments or receipts through the expected life of the financial instrument or a shorter period, where appropriate, to the net carrying amount of the financial asset or liability.

Interest income is included in finance income in the statement of total comprehensive income.

Dividends

Dividend income is recognised when the shareholders’ right to receive payment is established.

Rental income

Rental income receivable under operating leases is recognised on a straight-line basis over the term of the lease.

Other income

Other income is recognised on an accrual basis.

Net gains and losses of a revenue nature on the disposal of property, plant & equipment and other non- current assets including investments have been accounted for in the statement of total comprehensive income, having deducted from proceeds on disposal, the carrying amount of the assets and related selling expenses. On disposal of re-valued property, amount remaining in revaluation reserve relating to that asset is transferred directly to retained earnings.

Gains and losses arising from incidental activities to main revenue generating activities and those arising from a group of similar transactions which are not material, are aggregated, reported and presented on a net basis.

2.3.13 Segmental Reporting

A segment is a distinguishable component of the Group that is engaged either in providing products or services (business segment) or in providing products or services within a particular economic environment (geographical segment), which is subject to risks and rewards that are different from those of other segments.

Segment information is presented in respect of the Group’s business and has been prepared in conformation with the accounting policies adopted for preparing and presenting the consolidated financial statements of the Group. The business segments are reported based on Group’s management and internal reporting structure.

Inter segment pricing is determined at prices mutually agreed by the companies.

Segment result, assets and liabilities include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. Unallocated items mainly comprise of goodwill on consolidation.

The Group comprises the following main business segments:

Tiles and associated items

The manufacture and distribution of wall tiles, floor tiles and related products.

Biological Assets

Cultivation, processing and sale of tea and rubber

Aluminium products

The manufacture and distribution of aluminium extrusions and allied products through a network of dealers & distributors.

Packing materials

The manufacture and distribution of packing materials

Management considers that there is no suitable basis for allocating such assets and related liabilities to geographical segments. Accordingly, segment assets, segment liabilities and other segment information by geographical segment is not disclosed.

2.3 Significant accounting policies that are specific to the business of plantation

2.4.1 Basis of Preparation

The Financial Statements have been prepared on historical cost convention except for the following material items in the statement of financial position.

a) Lease hold right to Bare Land and leased assets of JEDB/ SLSPC, which have been revalued as more fully described in note 3.1.(d) and (e).

b) Consumable Mature Biological Assets are measured at fair value less cost to sell. (LKAS 41)

c) Employee Benefits recognised based on actuarial valuation (LKAS 19)

2.4.2 Property, Plant and Equipment

a) Permanent Land Development Cost

Permanent land development costs incurred in making major infrastructure development and building new access roads on leasehold lands.

These costs have been capitalised and amortised over the remaining lease period.



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Permanent impairments to land development costs are charged to the Statement of Comprehensive Income in full and reduced to the net carrying amounts of such assets in the year of occurrence after ascertaining the loss.

b) Biological Assets

(i) Bearer Biological Assets & Consumer Biological Assets

Biological assets are classified in to mature biological assets and immature biological assets. Mature biological assets are those that have attained harvestable specifications or are able to sustain regular harvests. Immature biological assets are those that have not yet attained harvestable specifications. Tea, rubber, other plantations and nurseries are classified as biological assets.

The cost of land preparation, rehabilitation, new planting, re-planting, crop diversifying, inter-planting and fertilizing, etc.,incurred between the time of planting and harvesting (when the planted area attains maturity), are classified as immature plantations. These immature plantations are shown at direct costs plus attributable overheads, including interest attributable to long term loans used for financing immature plantations.

Biological assets are further classified as bearer biological assets and consumable biological assets. Bearer biological asset includes tea and rubber trees, those that are not intended to be sold or harvested, however used to grow for harvesting agricultural produce from such biological assets. Consumable biological assets includes managed timber trees those that are to be sold as biological assets.

The expenditure incurred on bearer biological assets (tea and rubber) fields, which come in to bearing during the year, has been transferred to mature plantations. Expenditure incurred on consumable biological assets is recorded at cost at initial recognition and thereafter at fair value at the end of each reporting period.

The entity recognise the biological assets when, and only when, the entity controls the assets as a result of past event, it is probable that future economic benefits associated with the assets will flow to the entity and the fair value or cost of the assets can be measured reliably.

The bearer biological assets are measured at cost less accumulated depreciation and accumulated impairment losses, if any, in terms of LKAS 16 – Property Plant & Equipment as per the option provided by the ruling issued by Institute of Chartered Accountants of Sri Lanka.

The managed timber trees are measured on initial recognition and at the end of each reporting period at its fair value less cost to sell in terms of LKAS 41- Agriculture. The cost is treated as approximation to fair value of young plants as the impact on biological transformation of such plants to price during this period is immaterial. The fair

value of timber trees are measured using Discounted Cash Flow method taking in to consideration the current market prices of timber, applied to expected timber content of a tree at the maturity by an independent professional valuer

The main variables in DCF model concerns,

Variable Comment

Timber content Estimate based on physical verification of girth, height and considering the growth of the each species.

Factor all the prevailing statutory regulations enforced against harvesting of timber coupled with forestry plan of the Company.

Economic useful life

Estimated based on the normal life span of each species by factoring the forestry plan of the Company.

Selling price Estimated based on prevailing Sri Lankan market price. Factor all the conditions to be fulfilled in bringing the trees in to saleable condition

Planting cost Estimated costs for the further development of immature arrears are deducted.

Discount Rate Discount rate reflects the possible variations in the Cash flows and the risk related to the biological assets.

Nursery cost includes the cost of direct materials, direct labour and an appropriate proportion of directly attributable overheads, less provision for overgrown plants.

The gain or loss arising on initial recognition of biological assets at fair value less cost to sell and from a change in fair value less cost to sell of biological assets are included in the Statement of Comprehensive Income for the period in which it arises.

Permanent impairments to Biological Assets are charged to the Statement of Comprehensive Income in full and reduced to the net carrying amounts of such asset in the year of occurrence after ascertaining the loss.

(ii) Infilling Cost on Biological Assets

The land development costs incurred in the form of infilling have been capitalised to the relevant mature field, only if it increases the expected future benefits from that field, beyond its pre-infilling performance assessment. Infilling costs so capitalised are depreciated over the newly assessed remaining useful economic life of the relevant mature plantation, or the unexpired lease period, whichever is lower.


Infilling costs that are not capitalised have been charged to the Statement of Comprehensive Income in the year in which they are incurred.

2.4.3 Inventories

a) Agricultural produce harvested from Biological Assets

Agricultural produce harvested from Biological Assets are measured at their fair value less cost to sell at the point of harvest. The finished and semi finished inventories from Agricultural produce are valued by adding the cost of conversion to the fair value of agricultural produce.

b) Agricultural produce after further processing

Further processed output of agricultural produce are valued at the lower of cost and estimated net realisable value, after making due allowances for obsolete and slow moving items.

2.4.4 Retirement Benefit Obligation

a) Defined Benefit Plan

The retirement benefit plan adopted is as required under the Payment of Gratuity Act No.12 of 1983 and the Indian Repatriate Act No.34 of 1978 to eligible employees. This item is grouped under Retirement Benefit Liability in the Statement of Financial Position.

Provision for Gratuity on the Employees of the Company is based on an actuarial valuation, using the Project Unit Credit (PUC) method as recommended by LKAS 19 “Retirement Benefit Costs”. The actuarial valuation was carried out by a professionally qualified firm of actuaries, Messrs. Actuarial Management Consultants (Private) Limited as at 31.03.2015.

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

The liability is not externally funded.

b) Defined Contribution Plans - Provident Funds and Trust Fund

The Company contributes 12% on consolidated salary of the employees to Ceylon Planters’ Provident Society (CPPS)/Estate Staff’s Provident Society (ESPS)/ Employees’ Provident Fund (EPF).

All the employees of the Company are members of the Employees’ Trust Fund, to which the Company contributes 3% on the consolidated salary of such employees.

2.4.5 Deferred Income

a) Grants and Subsidies

Grants related to Property, Plant and Equipment other than grants received for consumer biological assets are initially

deferred and allocated to income on a systematic basis over the useful life of the related Property, Plant and Equipment is more fully mentioned in Note 17 to the Financial Statements.

Grants related to income are recognised in the Statement of comprehensive Income in the year which it is receivable.

Unconditional grants received for consumer biological assets are measured at fair value less cost to sell are recognised in the Statement of Comprehensive income when and only when such grants become receivable.

2.4.6 Revenue Recognition

Revenue is recorded at invoice value net of brokerage, sale expenses and other levies related to revenue. Revenue is recognised when persuasive evidence exists, usually in the form of an executed sales agreement, that the significant risks and rewards of ownership have been transferred to the buyer, recovery of the consideration is probable, the associated costs and possible return of goods can be estimated reliably, there is no continuing management involvement with the goods, and the amount of revenue can be measured reliably. If it is probable that discounts will be granted and the amount can be measured reliably, then the discount is recognised as a reduction of revenue as the sales are recognised. The fair value gain arising on the valuation of harvested crops has been separately disclosed as part of the revenue.

2.5 Effect Of Sri Lanka Accounting Standards Issued But Not Yet Effective:

The standards that are issued but not yet effective up to the date of issuance of the Group financial statements are disclosed below. The Group intends to adopt these standards, if applicable, when they become effective.

(i) SLFRS 9 -Financial Instruments: Classification and Measurement

SLFRS 9, as issued reflects the first phase of work on replacement of LKAS 39 and applies to classification and measurement of financial assets and liabilities.

This standard was originally effective for annual periods commencing on or after 01 January 2015. However the effective date has been deferred subsequently.

(ii) SLFRS 15 -Revenue from Contracts with Customers

SLFRS 15 establishes a comprehensive framework for determining whether, how much and when revenue is recognised. It replaces existing revenue recognition guidance, including LKAS 18 Revenue, LKAS 11 Construction Contracts and IFRIC 13 Customer Loyalty Programmes. This standard is effective for the annual periods beginning on or after 01 January 2017.



69

Multiplying Value

3 PROPERTY, PLANT & EQuIPMENT

3.1 GROUP

a) Gross Carrying Amounts

Balance Balance as at Revaluations Additions Disposals/ as at 01.04.2014 Transfers 31.03.2015 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000

At Cost Buildings 1,972,833 - 67,118 (24,419) 2,015,532 Plant and Machinery 5,785,634 - 202,242 1,600 5,989,476 Water Supply, Electricity Distribution Scheme 277,673 - 14,311 56,279 348,263 Tools, Implements, Furniture

& Fittings and Electrical Appliances 586,477 - 69,691 (118,878) 537,290 Transport & Communication Equipment 408,274 - 50,142 (35,024) 423,392 9,030,891 - 403,504 (120,442) 9,313,953


At Valuation Freehold Land 2,098,785 155,075 9,738 (75) 2,263,523 2,098,785 155,075 9,738 (75) 2,263,523 Assets on Finance Lease Leasehold Land 14,600 - - - 14,600 Plant and Machinery 63,342 - 6,099 (14,556) 54,885 Transport & Communication Equipment 44,712 - 17,617 - 62,329 122,654 - 23,716 (14,556) 131,814


In the Course of Construction Capital Work In Progress - Building & Others 80,419 - 90,651 (96,101) 74,969 Capital Work In Progress - Plant & Machinery 561 - - - 561 80,980 - 90,651 (96,101) 75,530 Total 11,333,309 155,075 527,609 (231,174) 11,784,821


b) Depreciation

Balance Balance as at Additions Disposals/ as at 01.04.2014 Transfers 31.03.2015 Rs.’000 Rs.’000 Rs.’000 Rs.’000

At Cost Buildings 337,482 46,429 (1,901) 382,010 Plant and Machinery 2,407,632 337,333 41,857 2,786,822 Water Supply, Electricity Distribution Scheme 208,207 21,513 (7,628) 222,092 Tools, Implements, Furniture & Fittings and Electrical Appliances 369,461 56,831 (52,707) 373,585 Transport & Communication Equipment 257,850 42,586 (30,188) 270,248 Total 3,580,632 504,691 (50,566) 4,034,757

Assets on Finance Lease Leasehold Land 568 487 (81) 974 Plant and Machinery 63,261 5,384 (49,937) 18,708 Transport & Communication Equipment 28,453 11,594 (1,000) 39,047 92,282 17,465 (51,018) 58,729 Total 3,672,914 522,156 (101,584) 4,093,486

c) Net book value of assets 2015 2014 Rs.’000 Rs.’000

At Valuation Freehold Land 2,263,523 2,098,785 At Cost Buildings 1,633,522 1,635,351 Plant and Machinery 3,202,654 3,378,002 Water Supply, Electricity Distribution Scheme 126,172 69,466 Tools, Implements, Furniture & Fittings and Electrical Appliances 163,706 217,016 Transport & Communication Equipment 153,144 150,424 7,542,720 7,549,044

Assets on Finance Leases Leasehold Land 13,626 14,032 Plant and Machinery 36,177 81 Transport & Communication Equipment 23,282 16,259 7,615,805 7,579,416 Capital Work in Progress 75,530 80,980 Net Value [ 3.1(i)] 7,691,335 7,660,396



71

Multiplying Value

(d) Leasehold right to bare land of JEDB/SLSPC estates 2015 2014 Rs.’000 Rs.’000

Capitalised value As at 22.06.1992 204,931 204,931

Amortisation At the beginning of the year 84,212 80,345 Charge for the year 3,866 3,867 At the end of the year 88,078 84,212 Carrying Amount At the end of the year 116,853 120,719

The leasehold rights to the bare land on all estates (except for Dumbara Estate which is under an operating lease) have been taken into the books of Horana Plantations PLC.(HPPLC), as at 22nd June 1992, immediately after formation of HPPLC, in terms of the opinion obtained from the Urgent Issue Task Force (UITF) of the Institute of Chartered Accountants of Sri Lanka. For this purpose lands have been revalued at Rs.204.931 Mn. being the value established for these lands by Valuation Specialist, D.R.Wickremasinghe just prior to the formation of HPPLC. However Institute of Chartered Accountants of Sri Lanka has withdrawn the UITF ruling with the implementation of LKAS/SLFRs and introduced Statement of Alternative Treatment SoAT on right to used land. As per the SoAT right to use land does not permit further revaluation.

(e) Immovable JEDB/SLSPC estate assets on finance leases (other than right to bare land)

Immature Mature Permanent Land Buildings Plant & 2015 2014 Plantations Plantations Development Cost Machinery Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000

Revaluation 145,993 68,817 4,014 47,173 6,818 272,815 272,815 As at 22.06.1992 Transfers to mature (145,993) 145,993 - - - - - - 214,810 4,014 47,173 6,818 272,815 272,815

Amortisation At the beginning - 139,644 2,915 41,096 6,818 190,473 181,292 During the year - 7,160 134 1,887 - 9,181 9,181 At the end - 146,804 3,049 42,983 6,818 199,654 190,473

Written Down Value As at 31.03.15 - 68,006 965 4,190 - 73,161 As at 31.03.14 - 75,166 1,099 6,077 - 82,342

All immovable estate property, plant and equipment under finance leases have been taken into the books of HPPLC retrospective to 22nd June 1992. For this purpose all estate immovables have been revalued at their book values as they appear in the books of the lessor (JEDB/SLSPC), as the case may be on the day immediately preceding the date of formation of HPPLC.

Investments in Bearer Biological assets which were immature, at the time of handing over to the Company by way of estate lease, are shown under Bearer Biological assets - immature (Revalue as at 22.06.1992). Further investments in such a bearer biological assets (Immature to bring them to maturity are shown under “ Note 3.1 (f) Bearer Biological assets (Immature Plantation). When these plantations become mature the additional investment to bring them to maturity will be moved from the Note 3.1 (f) - Bearer Biological assets(Immature plantations) to Note 3.1 (f) - Bearer Biological assets (Mature Plantations) shown under Note 3.1(f) and corresponding move from bearer biological assets (Immature) to bearer biological assets (Mature) will be made in the above category, namely cost incurred before take over.


(f) Bearer Biological Assets Tea Rubber Oil Palm Diversi- Total Total -fication 2015 2014 Rs’000 Rs’000 Rs’000 Rs’000 Rs’000 Rs’000

Immature Plantations Cost or Valuation : Opening Balance 182,325 505,649 41,497 5,380 734,851 627,112 Additions 69,703 133,163 23,703 5,286 231,855 277,536 Transfers from Mature (82,010) (112,814) - (4,127) (198,951) (169,797) At the end of the year 170,018 525,998 65,200 6,539 767,755 734,851

Mature Plantations Cost or Valuation : Opening Balance 494,711 686,696 - 19,695 1,201,102 1,031,305 Transfers from Immature 82,010 112,814 - 4,127 198,951 169,797 At the end of the year 576,721 799,510 - 23,822 1,400,053 1,201,102

Accumulated Amortization Opening Balance 91,401 190,580 - 5,193 287,174 244,423 Charge for the year 14,841 34,335 - 849 50,025 42,751 At the end of the year 106,242 224,915 - 6,042 337,199 287,174 Written Down Value 470,479 574,595 - 17,780 1,062,854 913,928 Total Bearer Biological Assets 640,497 1,100,593 65,200 24,319 1,830,609 1,648,779

These are investments in immature/mature plantations since the formation of HPPLC. The assets (including plantations) taken over by way of estate leases are set out in Notes 3.1(d) and 3.1(e). Further investments in the immature plantations taken over by way of these lease are also shown in the above. When such plantations become mature, the additional investments since take over to bring them to maturity have been (or will be ) moved from immature to mature under this category as and when field become mature.

(g) Consumable Biological Assets 2015 2014 Rs’000 Rs’000

Immature Plantations Cost : At the beginning of the year 20,916 14,790 Additions 8,945 11,200 Transfers to Mature Plantations (6,425) (5,074) At the end of the year 23,436 20,916

Mature Plantations Cost : At the beginning of the year 263,012 231,886 Increase due to new plantations 6,425 5,074 Change in Fair Value less costs to sell 56,640 26,052 At the end of the year 326,077 263,012 Total Consumable Biological Assets 349,513 283,928



73

Multiplying Value

(h) Basis of Valuation Under LKAS 41 the company has valued its managed plantations at fair value less cost to sell, Managed timber plantations as at 31st March

2015 comprised approximately 350 hectares.

Managed trees which are less than three years old are considered to be immature consumable biological assets, amounting Rs. 24.43 Mn as at 31st March 2015. The cost of immature trees is treated as approximate fair value, particularly on the ground that little biological transformation has taken place and the impact of the biological transformation on price is not material. When such plantation become mature, the additional investments since taken over to bring them to maturity are transferred from immature to mature.

The mature consumable biological assets were valued by Chartered Valuers Mr.S.M.Wijepala for 2014/15 using Discounted Cash Flow (DFC) method . In ascertaining the fair value of timber, physical verification was carried covering all the estates.

Key assumptions used in valuation are;

The prices adopted are net of expenditure

Discounted rates used by the Valuer are within the range of 10% - 12%.

The valuation, as presented in the external valuation model based on the net present value, takes into accounts the long-term exploitation of the timber plantation. Because of the inherent uncertainty associated with the valuation at fair value of the biological assets due to the volatility of the variables, their carrying value may differ from their realisation value. The Board of Directors retains their view that commodity markets are inherently volatile and their long-term price projection are highly unpredictable. Hence, the sensitivity analysis regarding the selling price and discount rate variation as included in this note allows every investor to reasonably challenge the financial impact of the assumptions used in the valuation against his own assumptions.

The biological assets of the Company are mainly cultivated in leased lands. When measuring the fair value of the biological assets it was assumed that these concession can and will be renewed at normal circumstances. Timber content expects to be realised in future and is included in the calculation of the fair value that takes into account the age of the timber plants and not the expiration date of the lease.

The Company is exposed to the following risks relating to its timber plantation:-

Regulatory and Environmental Risks

The Company is subject to laws and regulations in Sri Lanka. The Company has established environmental policies and procedures aimed at compliance with local environmental and other laws. Management performs regular reviews to identify environmental risks and to ensure that the systems in place are adequate to manage those risks.

Supply and Demand Risks

The Company is exposed to risks arising from fluctuations in the price and sales volume of timber. When possible the Company manages this risk by aligning its harvest volume to market supply and demand. Management performs regular industry trend analyses to ensure that the Company’s pricing structure is in line with the market and to ensure that projected harvest volumes are consistent with the expected demand.

Climate and Other Risks

The Company’s timber plantations are exposed to the risk of damage from climatic changes, diseases, forest fires and other natural forces. The Company has extensive processes in place aimed at monitoring and mitigating those risks, including regular forest health inspections and industry pest and disease surveys.


Sensitivity Analysis

Sensitivity Variation on Sales Price

Net Present Value of the Biological Assets as appearing in the Statement of Financial Position are very sensitive to changes in the average sales price applied. Simulations made for timber show that an increase or decrease by 10% of the estimated future selling price has the following effect on the Net Present Value of the Biological assets.

-10% 10%

Managed Timber 2015 Rs. 293.47 Mn Rs. 226.08 Mn Rs. 358.69 Mn

Sensitivity Variation on Discount Rate

Net Present Value of the Biological Assets as appearing in the Statement of Financial Position are very sensitive to changes in the discount rate applied. Simulations made for timber show that an increase or decrease by 1% of the estimated future discount rate has the following effect on the Net Present Value of the Biological assets.

-1% 1% Managed Timber 2015 Rs. 340.37 Mn Rs. 326.08 Mn Rs. 312.82 Mn

Borrowing costs amounting to Rs.48.664 Mn (Rs.43.195 Mn in 2013/14) directly relating to investment in Biological Assets (Immature Plantations) have been capitalised during the period, at an average borrowing rate of 7.58% (10.87% in 2013/14).

(i) Net book value of assets As at As at 31.03.2015 31.03.2014 Rs.’000 Rs.’000

Property, plant and equipment [3.1 (c)] 7,691,335 7,660,396 Leasehold right to bare land of JEDB/SLSPC Estates [3.1 (d)] 116,853 120,719 Immovable JEDB/SLSPC estate assets on finance leases (other than right to bare land) [3.1 (e)] 73,161 82,342 Bearer Biological Assets [3.1 (f)] 1,830,609 1,648,779 Consumable Biological Assets [3.1 (g)] 349,513 283,928 Total 10,061,471 9,796,164

(j) Fixed assets include fully depreciated assets, the cost of which at the reporting date amounted to Rs. 1,074 (2014- Rs. 805.08 Mn)

(k) During the financial year, the Group acquired property, plant & equipment to the aggregate value of Rs. 768.41Mn( 2014 - Rs. 839.39 Mn). Cash payments amounting to Rs. 637.48 Mn ( 2014 - Rs. 839.14 Mn) were made during the year for purchase of property, plant and equipment.

(l) “The following properties are revalued and recorded under freehold land & clay mining land. Fair Value measurement disclosure for revalued land based on un-observable inputs are as follows,

(A) Quoted Price (unadjusted) in active markets for identical assets or liabilities (Level -1).

(B) Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is derived from prices) (Level -2)

(C) Input for the assets or liability that are not based on observable market data (that is, unobservable inputs) (Level -3).



75

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3.2 The useful lives of the assets are estimated as follows ; As at As at 31.03.2015 31.03.2014 Rs.’000 Rs.’000

Non plantation assets Buildings on free hold land and roadway 25,40 & 50 25,40 & 50 Plant and machinery 5 to 20 5 to 20 Water supply and electricity distribution scheme 5 to 25 5 to 25 Tools, implements and furniture and fittings 2,4,5 & 10 2,4,5 & 10 Transport and communication equipment 4 to 12 4 to 12

Plantation assets The leasehold rights to JEDB/ SLSPC are amortised in equal amounts over the following years Bare land 53 53 Mature plantations 30 30 Permanent land development costs 30 30 Buildings 25 25 Plant and machinery 15 15

Mature Plantation(re-planting and new planting) Mature plantations (Tea) 33 1/3 33 1/3 Mature plantations (Rubber) 20 20 Mature plantations (Coconut) 50 50 Mature plantations (Cinnamon) 15 15 Mature plantations (Coffee and pepper) 4 4 Mature plantations (Pineapple) 3 3 Permanent Land Development Cost 40 40 No depreciation is provided for immature plantations.

The carrying amount of revalued assets of the Company would have been included in the Financial Statement had the assets been carried at cost less depreciation as follows

Group Company Cost Accumulated Net Carrying Net Carrying Cost Accumulated Net Carrying Net Carrying Depreciation Amount Amount Depreciation Amount Amount 2015 2015 2015 2014 2015 2015 2015 2014 Rs. 000’s Rs. 000’s Rs. 000’s Rs. 000’s Rs. 000’s Rs. 000’s Rs. 000’s Rs. 000’s

Freehold Land 1,167,022 - 1,167,022 1,157,284 410,350 - 410,350 410,350 1,167,022 - 1,167,022 1,157,284 410,350 - 410,350 410,350



77

Multiplying Value

3.3 PROPERTY, PLANT & EQUIPMENT

Balance Disposals/ Balance COMPANY as at Addition Transfers/ as at 01.04.2014 Write-off 31.03.2015 Rs.000 Rs.000 Rs.000 Rs.000

Gross Carrying Amounts At Cost Buildings 497,910 13,062 (23,112) 487,860 Plant and Machinery 1,712,583 13,967 (12,194) 1,714,356 Water Supply, Electricity Distribution Scheme 117,708 12,326 - 130,034 Tools, Implements, Furniture & Fittings and Electrical Appliances 194,829 17,532 (59,850) 152,512 Transport & Communication Equipment 140,021 5,580 (16,903) 128,698 2,663,051 62,467 (112,058) 2,613,460

Balance Disposals/ Balance as at Addition Transfers/ as at 01.04.2014 Write-off 31.03.2015 Rs.000 Rs.000 Rs.000 Rs.000

At Valuation Freehold Land 706,644 - - 706,644 706,644 - - 706,644

Assets on Finance Lease Leasehold Land 14,600 - - 14,600 14,600 - - 14,600


Capital Work In Progress Plant & Machinery and Building 561 43,754 - 44,315 561 43,754 - 44,315

Total 3,384,856 106,221 (112,058) 3,379,019



At Cost Buildings 114,758 9,857 (1,841) 122,774 Plant and Machinery 678,711 102,162 (10,263) 770,610 Water Supply, Electricity

Distribution Scheme 68,442 4,566 - 73,008 Tools, Implements, Furniture &

Fittings and Electrical Appliances 155,939 17,448 (59,440) 113,947 Transport & Communication Equipment 60,394 12,753 (8,595) 64,552 Total 1,078,244 146,786 (80,139) 1,144,891

Assets on Finance Lease Leasehold Land 568 487 (81) 974 568 487 (81) 974 Total 1,078,812 147,273 (80,220) 1,145,865

3.4 Net Book Value of Assets

2015 2014 Rs.’000 Rs.’000

At Valuation Freehold Land 706,644 706,644 At Cost Buildings 365,086 383,152 Plant and Machinery 943,746 1,033,872 Water Supply, Electricity Distribution Scheme 57,026 49,266 Tools, Implements, Furniture &

Fittings and Electrical Appliances 38,565 38,890 Transport & Communication Equipment 64,146 79,627 2,175,213 2,291,451

Assets on Finance Leases Leasehold Land 13,626 14,032 2,188,839 2,305,483 Capital Work in Progress 44,315 561 Total 2,233,154 2,306,044

3.5 Assets At Valuation

3.5.1 “The fair value of freehold lands were determined by means of a revaluation during the financial year 2012 / 2013 in reference to market based evidence by using following methods.

a) Property bearing assets No. 215, Nawala Road, Narahenpita, Colombo 05 (Lot No 1 in Plan No 270 and Lot No 11019 in Plan No 1916), which is

revalued at Rs.353,675,000/-. The Valuation was carried out by Messrs. Sunil Fernando and Associates (Pvt) Ltd an independent firm of chartered valuation surveyors. The Valuer’s assessment is based on reference made to market evidence of transacted prices for similar sized and located land. The results of such revaluation was incorporated in these financial statements as of the effective date which is 28 December 2012. The surplus arising from the revaluation was transferred to a revaluation reserve as of the said date (Note 13).



79

Multiplying Value

b) Property depicted as lot No.1 in Plan No. 2205 situated at Mawathgama and, Galagedara village, Meepe which is revalued at Rs.352,000,000/-. The Valuation was carried out by Messrs. Ranjan J Samarakone a corporate valuer. The Valuer assessment is based on reference made to market evidence of transacted prices for similar sized and located land. The results of such revaluations were incorporated in these financial statements as of the effective date which is 31 March 2013. The surplus arising from the revaluation was transferred to a revaluation reserve as of the said date (Note 13).

3.6 Assets on Finance Lease

During the financial year 2013, the Company acquired a right to leasehold land to the value of Rs.14.60 Mn for a period of 30 years.

3.7 During the financial year, the Company acquired property, plant and equipment to the aggregate value of Rs. 106.2 Mn (2013/2014 - Rs. 166.99 Mn). Cash payments amounting to Rs. 84.92 Mn (2013/2014- Rs. 66.99 Mn) were made during the year for purchase of Property, Plant and Equipment.

3.8 “Fixed assets include fully depreciated assets the cost of which at the reporting date amounted to Rs. 277.6 Mn (2013/2014 - Rs.228.22 Mn).

4 GOODWILL Goodwill is initially measured at cost, being the excess of the aggregate of the consideration transferred and the amount recognised for non-

controlling interest over the net identifiable assets acquired and liabilities assumed. After initial recognition, goodwill is measured at cost less any accumulated impairment losses.

Goodwill acquired through business combinations have been allocated to Lanka Tiles PLC and Horana Plantations PLC for impairment testing.

2015 2014 Rs.’000 Rs.’000

At the end of the year 24,519 24,519

5 INVESTMENTS IN SuBSIDIARIES Market Value/ Market Value/ COMPANY Number Directors’ Directors’ of Shares Holding Cost Valuation* Cost Valuation* 2015 2014 2015 2014 2015 2015 2014 2014 ’000 ’000 % % Rs.’000 Rs.’000 Rs.’000 Rs.’0005.1 Subsidiary

a) Quoted Lanka Tiles PLC 36,189 36,189 68.22 68.22 935,958 3,836,055 935,958 2,739,522 Swisstek (Ceylon) PLC 3,141 3,141 11.48 11.48 41,247 131,618 41,247 64,082 Total Quoted Investment in Subsidiary 977,205 3,967,673 977,205 2,803,604

b) Non-quoted Vallibel Plantation Management Ltd 10,336 10,336 100.00 100.00 298,891 298,891 298,891 298,891 Total Non-quoted

Investments in Subsidiaries 298,891 298,891 298,891 298,891

Carrying Value of Investments in Subsidiaries 1,276,096 1,276,096 Total Net Carrying Value of Investments in Subsidiaries 1,276,096 1,276,096

*Non quoted investments of the Company has been valued by the Directors based on the cost of investments.


5.2 Details of those companies in which Lanka Walltiles PLC, held a controlling interest, as at 31 March 2015 directly or indirectly (Group) are set out below:

Name of Company Percentage of share Principal activities Auditors holding in subsidiaries of the company Group Company 2015 2014 2015 2014

1) Lanka Tiles PLC 68.22 68.22 68.22 68.22 Manufacture of glazed M/s. Pricewater- ceramic floor tiles houseCoopers

2) Vallibel Plantation Management Ltd 100.00 100.00 100.00 100.00 Providing management M/s KPMG services to plantation industry3) Horana Plantations PLC 51.00 51.00 - - Agricultural production M/s KPMG4) Fairlawn Power (Pvt) Ltd 27.54 27.54 - - Mini hydro power project M/s KPMG5) Uni-Dil Packaging Ltd 100.00 100.00 - - Manufacture and sale of cartons for M/s KPMG packing6) Uni-Dil Paper Sacks (Pvt) Ltd 100.00 100.00 - - Manufacture and sale of paper sacks M/s KPMG for packing7) Swisstek (Ceylon) PLC 59.28 59.28 11.48 11.48 Manufacture and sale of tile grout M/s KPMG and tile mortar.8) Swisstek Aluminium Ltd 51.81 51.81 - - Manufacture and sale of aluminium M/s. Pricewater-

extrusions houseCoopers

5.3 The financial statements of Fairlawn Power (Pvt) Ltd has not been consolidated as at the reporting date, since the company is still in the pre operational stage and no real value to share holders of the Horana Plantations PLC, under section 153 (6)a of the companies act No. 07 of 2007. Further Horana Plantations PLC has fully provided for this investment. The shares of Fairlawn Power (Pvt) Ltd were allotted on 29th July 1997.

6 LONG TERM RECEIVABLES Group 2015 2014 Rs.’000 Rs.’000

Advance company tax receivable 27,285 27,285 Total 27,285 27,285

7 DEFERRED TAX ASSET Group 2015 2014 Rs.’000 Rs.’000

Deferred tax assets at the beginning of the year 22,729 22,369 Deferred tax (charge) / reversal 29,497 153 Deferred tax release on components of other comprehensive income (43) 207 Deferred tax assets at the end of the year 52,183 22,729



81

Multiplying Value

7.1 Deferred tax assets amounting to Rs. 39 Mn have been recognised as 31 March 2015 ( 2014 - 22.7Mn which was 50% of the Net Deferred Tax Asset ) in Swisstek (Ceylon) PLC based on recoverability as assessed by the management. Deferred tax assets have been recognised in respect of the unused tax losses to the extent that it is probable that future taxable profit will be available against which the unused tax losses can be used.

7.2 Uni Dil Paper Sacks (Pvt) Ltd has not recognised the deferred tax asset of Rs. 13.36 Mn as at 31 March 2014 as directors of the company were of the view that the reversal of the deferred tax asset will not be crystallized in the foreseeable future. However deferred tax asset of Rs. 12.5 Mn has been recognised as at 31 March 2015 based on recoverability as assessed by the management. Deferred tax assets have been recognised in respect of the unused tax losses to the extent that it is probable that future taxable profit will be available against which the unused tax losses can be used.

7.3 Vallibel Plantation Management Limited Deferred tax asset amounting to Rs. 1.06 Mn as at 31st March 2014 was not recognised as the Management were of the view that the deferred tax asset will not be crystallized in the foreseeable future. However Deferred Tax Asset amounting to Rs. 0.66 Mn has been recognised as at 31st March 2015 based on recoverability as assessed by the management. Deferred tax assets have been recognised in respect of the unused tax losses to the extent that it is probable that future taxable profit will be available against which the unused tax losses can be used.

7.4 In terms of the agreement entered into on 27 August 2009 with the Board of Investments of Sri Lanka, under section 17 of Law No. 04 of 1978, the profits and income of Swisstek Aluminium Ltd is exempted from income tax for a period of 5 years from the date on which the Company commences to make profits or any year of assessment not later than two years reckoned date of commencement of commercial production/ operation, whichever occurs earlier. Accordingly, Swisstek Aluminium Ltd did commence its tax exemption period from the year of assessment 2012/2013. The tax losses available to carry forward which were incurred prior to the commencement of exemption period amounted to Rs 188.7 Mn and company has not recognised Deferred Tax Asset or Deferred Tax Liability in the books of accounts as at 31 March 2014. Swisstek Aluminium Ltd has recognised Net Deferred Tax Liability of Rs. 9 Mn as at 31 March 2015. (Refer Note 15)

8 INVENTORIES Group Company 2015 2014 2015 2014 Rs.’000 Rs.’000 Rs.’000 Rs.’000

Raw materials 1,145,671 678,746 153,776 139,465 Work in progress 106,408 135,120 31,571 35,058 Finished goods 1,747,511 2,078,616 921,912 939,183 Goods in transit 1,719 3,265 381 1,363 Consumables and spares 358,504 615,564 259,031 265,233 Harvested crops 196,865 213,001 - - Allowances for obsolete and slow moving stock (83,416) (75,940) (17,537) (16,689) Total 3,473,262 3,648,372 1,349,134 1,363,613

9 TRADE AND OTHER RECEIVABLES Group Company 2015 2014 2015 2014 Rs.’000 Rs.’000 Rs.’000 Rs.’000

Trade debtors - related parties (9.1) 66,267 12,796 42,770 - Other 1,877,824 2,011,625 565,298 615,522 1,944,091 2,024,421 608,068 615,522 Less: Allowances for doubtful debts (43,435) (30,546) (17,511) (22,998) 1,900,656 1,993,876 590,557 592,525 Other debtors 258,979 265,632 32,982 34,980 Advance and prepayments 130,707 180,534 53,506 87,746 Loans to company officers 36,753 4,926 4,438 4,926 Total 2,327,095 2,444,967 681,483 720,176


9.1 Trade debtors - related parties

Group Company 2015 2014 2015 2014 Company Relationship Rs.’000 Rs.’000 Rs.’000 Rs.’000

Lanka Ceramic PLC Parent Company 126 315 - Royal Ceramics Lanka PLC Group Company 12,230 394 3,344 - Royal Porcelain (Pvt) Ltd Group Company 47,803 11,968 38,748 - Royal Bathware Ltd Group Company 2,795 118 - - Mabroc Teas (Pvt) Ltd Group Company 5 - Dipped Products PLC Group Company 3,308 - Swisstek Ceylon PLC Subsidiary Company - - 572 - Uni Dil Packaging Ltd Subsidiary Company - - 106 - Total 66,267 12,796 42,770 -

9.2 As at 31 March, the age analysis of trade receivables are as follows:

Group Neither past due Past due but not impaired nor impaired < 3 Months 3- 12 Months > 1 Year Total Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000

2015 1,139,997 618,477 170,870 14,748 1,944,091 2014 1,398,951 383,538 227,389 14,543 2,024,421

Company Neither past due Past due but not impaired nor impaired < 3 Months 3- 12 Months > 1 Year Total Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000

2015 528,921 66,310 11,679 1,158 608,068 2014 523,287 78,009 12,768 1,458 615,522

10 AMOuNTS DuE FROM RELATED PARTIES Group Company 2015 2014 2015 2014 Company Relationship Rs.’000 Rs.’000 Rs.’000 Rs.’000

Swisstek Aluminium Ltd Subsidiary Company - - 267 10,399 Royal Bathware Ltd Group Company 5 - 5 - Royal Ceramics Lanka PLC Group Company 1,258 - - - Total 1,263 - 272 10,399

11 SHORT TERM INVESTMENTS Group Company 2015 2014 2015 2014 Rs.’000 Rs.’000 Rs.’000 Rs.’000

Deposit of Tsunami donations 2,964 3,624 2,964 3,624 Total 2,964 3,624 2,964 3,624



83

Multiplying Value

12 STATED CAPITAL12.1 Issued & fully paid

Group Company 2015 2014 2015 2014 Rs.’000 Rs.’000 Rs.’000 Rs.’000

Balance at the beginning of the year 787,765 787,765 787,765 787,765 Balance at the end of the year 787,765 787,765 787,765 787,765

12.2 Issued & fully paid

Group Company 2015 2014 2015 2014 ’000 ’000 ’000 ’000

Balance at the beginning of the year 54,600 54,600 54,600 54,600 Balance at the end of the year 54,600 54,600 54,600 54,600

12.3 The holders of ordinary shares confer their right to receive dividends as declared from time to time and are entitled to one vote per share at a meeting of the Company. All shares rank equally with regard to the Company’s residual assets.

13 RESERVES Group Company 2015 2014 2015 2014 Rs.’000 Rs.’000 Rs.’000 Rs.’000

Revaluation reserve (13.1) 1,004,516 936,147 296,294 296,294 Total 1,004,516 936,147 296,294 296,294

13.1 Revaluation reserve

On: Property Plant & Equipment As at 01 April 936,147 971,218 296,294 346,045 Revaluation of freehold land (13.3) 72,859 14,680 - - Transferred to retained earnings (13.2) - (49,751) - (49,751) Revaluation reversal on disposal of land (13.4 (4,490) As at 31 March 1,004,516 936,147 296,294 296,294

The above revaluation surplus consists of net surplus resulting from the revaluation of freehold land described in Note 3.1 (i)

13.2 Lanka Walltiles PLC has disposed investment property (land and building) held at Balangoda during the 2013/14 financial year and the revaluation surplus resulted from the property has been transferred to Retained Earnings.

13.3 During the year Swisstek (Ceylon) PLC has revalued the land at Balummahara, Imbulgoda by an independent chartered valuer Mr. K.T.D Tissera on 31 March 2015 at Rs. 465 Mn. Refer Note 3 (i) for details pertaining to revaluation.

13.4 During the year Swisstek (Ceylon) PLC has disposed a land and revaluation surplus relating to the disposal of land has been reversed.


14 INTEREST BEARING LIABILITIES Group Company 2015 2014 2015 2014 Rs.’000 Rs.’000 Rs.’000 Rs.’000

Non Current Long term loans (14.1) 1,636,122 1,817,449 358,697 560,105 Finance leases (14.2) 105,978 106,498 - - Total 1,742,100 1,923,947 358,697 560,105

Current Long term loans (14.1) 522,582 511,452 204,710 204,081 Finance leases (14.2) 21,247 26,143 - - Short term loans 1,172,108 1,770,923 907,940 1,019,248 Bank overdrafts (28.0) 917,859 1,037,325 436,189 376,811 Total 2,633,796 3,345,843 1,548,839 1,600,140 Total 4,375,896 5,269,790 1,907,536 2,160,245

14.1 Long term loans


At the beginning 2,328,901 2,190,216 764,186 844,512 Loans obtained 446,896 593,639 - 80,000 Exchange gain/(loss) 4,017 (4,029) 3,508 6,246 Effect of fair value - (233) - - Repayments (621,110) (450,692) (204,287) (166,572) At the end 2,158,704 2,328,901 563,407 764,186 Amount payable within 12 months 522,582 511,452 204,710 204,081 Amount payable after 12 months 1,636,122 1,817,449 358,697 560,105 Total 2,158,704 2,328,901 563,407 764,186



85

Multiplying Value

14.2 Finance leases

For the Year ended 31 March Group 2015 2014 Rs.’000 Rs.’000

JEDB/SLSPC estates (14.3) 156,840 162,068 Other finance lease creditors 43,386 47,404 Gross liability 200,226 209,472 Finance charges allocated to future period (73,001) (76,831) Net liability 127,225 132,641 Amount payable within one year 21,247 26,143 Amount payable after one year 105,978 106,498 Total 127,225 132,641

JEDB/SLSPC estates (14.3) At the beginning 162,068 167,296 New leases obtained 12,393 11,287 Repayments (17,621) (16,515) At the end 156,840 162,068

Other finance lease creditors At the beginning 47,404 97,327 New leases obtained 27,509 - Repayments (31,527) (49,923) At the end 43,386 47,404

14.3 “The lease rentals have been amended with effect from 22nd June 1996 to an amount substantially higher than the previous nominal lease rental of Rs.500/-per estate per annum. The basic rental payable under the revised basis is Rs.5.228 Mn per annum. This amount is to be inflated annually by the Gross Domestic Product(GDP) deflator in the form of contingent rent.

This lease agreement was further amended on 10th June 2005, freezing the annual lease rental at Rs.7.472 Mn for a period of six years commencing from 22nd June 2002. Hence, the GDP Deflator adjustment will be frozen at Rs.2.244 Mn per annum until 21st June 2008. Accordingly, the Financial Statements have been adjusted, in order to reflect the future net liability in the following manner:-

14.4 Future liability on the revised annual lease payment of Rs.7.472 Mn will continue until 21st June 2008, and thereafter from 22nd June 2008, annual lease payment will remain at Rs.5.228 Mn, until 21st June 2045. The Net Present Value of this liability at a 4% discounting rate would result in a liability of Rs.89.551 Mn.

14.5 The net present value as at date is represented by :-

Rs. Mn Gross Liability - Overdue - 31 Years @ Rs. 5.228 million per annum 156,840 156,840 Less : Interest in Suspense (67,289) Net Present Value 89,551

14.6 The contingent rental charged during the current year to Statement of Comprehensive Income amounted to Rs. 12,393.029/- and the gross liability to make contingent rentals for the remaining 30 years of lease term at the current rate would be estimated to Rs. 371,790,870/- as at 31 March 2015.


14.7 Details of long term loans of the

Group

Financial Institution Repayment terms Principal Interest rate Security Balance as at 31.03.2015

Rs ‘000

Balanceas at 31.03.2014

Rs ‘000Lanka Walltiles PLC

NationalDevelopment Bank PLC

60 monthly instalments

4,960 8.50% Primary mortgage over plant & machinery worth Rs. 3.6 million

- 292

Hatton National Bank 60 monthly instalments

300,000 AWPLR based Primary mortgage bond for Rs. 390 million over the project assets comprising land, building and machinery at Meepe.

165,000 225,000


(USD 1,800,000)

LIBOR based Secondary mortgage bond for USD 1.8 million over the project assets comprising land, building and machinery at Meepe.

173,802 218,081

Commercial Bank of Ceylon PLC

60 instalments 200,000 AWPLR based Primary mortgage bond for Rs.200 million over the property situated at 215, Nawala Road, Colombo 5

55,950 96,150

60 instalments 80,000 AWPLR based Primary Mortgage bond for Rs.80Mn over the ceramic printer

58,655 74,664

DFCC Bank 60 monthly instalments

200,000 AWDR based Primary mortgage over movable machinery at Meepe

110,000 150,000

Company Total Lanka Walltiles PLC 563,407 764,186

Lanka Tiles PLC


150,000 AWPLR based A primary mortgage over land, building and plant and machinery of Lanka Tiles PLC at Ranalaamounting to Rs.300 million

97,500 127,500


165,000 AWPLR based 100,179 123,750


287,712 (USD 3,000,000)

LIBOR based 245,070 278,646


80,000 AWPLR based 72,593 -



22,243 AWPLR based A primary mortgage over land, building and immovable assets of Lanka Tiles PLC at Ranalaamounting to Rs.100 million

725 5,177


100,000 AWPLR based - 81,100

Hatton National Bank 59 monthly instalments

38,000 AWPLR based A primary mortgage bond for Rs.27million over the sorting line imported.

- 13,274

Company Total - Lanka Tiles PLC 516,066 629,447



87

Multiplying Value


Rs ‘000


Rs ‘000

Uni-Dil Packaging Limited

Sampath Bank PLC US$ 3,000 monthly instalments

USD 153,339 LIBOR based Mortgage bond for USD 175,000 over machineryConcurrent mortgage bond over stocks & debtors for USD 2.55 million with HNB, HSBC & Deutsche BankSecuring Sampath Bank for USD 575,000.

- USD 44,619

Central Finance PLC LKR 991,106 monthly instalments

42,500 14.10% Mortgage bond for 42.5 Mn over Moveable machinery

24,778 -

HSBC US$ 7,380.95 monthly instalments

USD 310,000 LIBOR based Mortgage bond for USD 310,000 over Moveable machinery

547 USD 303.4

-


LKR 308,300 monthly instalments

10,000 AWPLR based Concurrent Mortgage bond for LKR 110 Mn over immovable property

3 -

Company Total Uni-Dil Packaging Limited

65,349 USD 44,619

Horana Plantations PLC

Bank of Ceylon (75% of project cost out of ADB Line of credit)


244,988 11% -14% Primary mortgage over Leasehold rights of AltonBambarakelle, Eldon Hall and Gouravilla Estates, to the value of Rs. 244.99 million.

- 7,892

Lanka Orix Leasing Co.,PLCOut of ADB Plantationdevelopment projectline of credit


52,21421,079

10.86%11.63%

Secondary mortgageover the leasehold rights of Millakanda Estate and Mirishena Estate

- 23,590

People’s Leasing Co., Ltd Out of DFCC e-Friends line of credit


12,001 6.50% Promissory note and Primary mortgage overthe leasehold rights of Hillstream Estate of Horana Plantations PLC to the value of 12.00 million.

2,056 5,226



Rs ‘000


Rs ‘000



150,000200,000200,000

AWPLR based Primary mortgage for 150 million over the leasehold rights of Frocester Estate

545,800 350,000

National Development Bank PLC


200,000 AWPLR based Undertaking from tea brokers to recover & remit from sales

- 24,000

Indian Bank 54 monthly instalments

75,000 AWPLR based Primary mortgage over leasehold rights of Tillicoultry Estate

42,000 58,800

Central Finance Company PLC


16,483 AWPLR based Equipments and it’s accessories

14,868


100,000 AWPLR based Primary mortgage over leasehold rights of Alton, Bambarakelly, Eildon Hall and Gouravilla

100,000 -

Company Total Horana Plantations PLC

689,856 484,376

Swisstek (Ceylon) PLC

Bank of Ceylon 58 monthly instalments

25,817 AWPLR based Mortgage over immovable property at Balummahara, Imbulgoda

8,202 13,824

Company Total Swisstek (Ceylon) PLC

8,202 13,824

Swisstek Aluminium Limited


290,000 AWPR based Mortgage over land, building, plant & machinerystocks and book debts

159,872 250,993


50,000 AWPR based 32,850 -


10,000 AWPR based 9,511 -

Company Total Swisstek Aluminium Limited

202,234 250,993



89

Multiplying Value


Rs ‘000


Rs ‘000

Vallibel Plantation Management Limited



144,790 AWPR based 12,750,000 shares of Horana Plantation PLC

113,590 144,790

Company Total Vallibel Plantation Management Limited

113,590 144,790

14.8 Fair Value of Financial Assets and Liabilities not Carried at Fair Value

Set out below is a comparison, by class, of the carrying amounts and fair values of the Company’s financial instruments that are not carried at fair value in the Financial Statements. This table does not include the fair values of non–financial assets and non–financial liabilities.

Group Carrying Amount Fair value 2015 2014 2015 2014 Rs. 000 Rs. 000 Rs. 000 Rs. 000

Financial assets Trade and other receivables 2,327,095 2,444,967 2,327,095 2,444,967 Total 2,327,095 2,444,967 2,327,095 2,444,967

Financial liabilities Trade and other payables 1,649,063 1,356,977 1,649,063 1,356,977 Loans and borrowings- current 2,633,796 3,345,843 2,633,796 3,345,843 Loans and borrowings- non current 1,742,100 1,923,947 1,742,100 1,923,947 Total 6,024,960 6,626,767 6,024,960 6,626,767

Company Carrying Amount Fair value 2015 2014 2015 2014 Rs. 000 Rs. 000 Rs. 000 Rs. 000

Financial assets Trade and other receivables 681,483 720,176 681,483 720,176 Total 681,483 720,176 681,483 720,176

Financial liabilities Trade and other payables 360,936 300,804 360,936 300,804 Loans and borrowings- current 1,548,839 1,600,140 1,548,839 1,600,140 Loans and borrowings- non current 358,697 560,105 358,697 560,105 Total 2,268,472 2,461,049 2,268,472 2,461,049


The following describes the methodologies and assumptions used to determine the fair values for those financial instruments which are not already recorded at fair value in the Financial Statements.

Assets for which Fair Value Approximates Carrying Value

For financial assets and financial liabilities that have a short term maturity (original maturities less than a year), it is assumed that the carrying amounts approximate their fair values.

Financial assets and financial liabilities with variable interest rates are also considered to be carried at fair value in the books.

Fixed Rate Financial Instruments

In fair valuing financial assets and financial liabilities with fixed rate , Average Weighted Primary Lending Rates rates published by the CBSL were used.

15 DEFERRED TAX LIABILITIES Group Company 2015 2014 2015 2014 Rs.’000 Rs.’000 Rs.’000 Rs.’000

At the beginning of the year 596,455 471,843 131,840 131,085 Income/ (expense) arising during the year ( Note 15.2) 108,605 136,147 37,426 755 Deferred tax release on components of other comprehensive income ( Note 15.2) (2,925) (11,535) (1,373) - At the end 702,135 596,455 167,892 131,840

15.1 Statement of Financial Position

Deferred Tax Liability Capital Allowances 1,129,866 996,360 279,132 273,010 Deferred Tax Assets Retirement Benefit Liability (124,504) (119,987) (16,321) (14,461) Carried Forward Tax Losses (278,401) (254,982) (86,384) (116,558) Provision for Obsolete and Slow Moving, Consumables and Spares (20,561) (18,924) (4,270) (4,139) Allowances for Doubtful Debts (4,264) (6,012) (4,264) (6,012) 702,135 596,455 167,892 131,840

15.2 Statement of Comprehensive Income

Deferred Tax Charge / (Reversal) Capital Allowances 133,506 224,490 6,122 68,491 Retirement Benefit Liability (4,517) (27,021) (1,860) (1,911) Carried Forward Tax Losses (23,419) (83,249) 30,174 (65,478) Provision for Obsolete and Slow Moving, Consumables and Spares (1,637) 7,039 (131) (355) Allowances for Doubtful Debts 1,748 3,353 1,748 8 Income/ (expense) arising during the year 105,680 124,612 36,052 755



91

Multiplying Value

16 RETIREMENT BENEFIT LIABILITY Group Company 2015 2014 2015 2014 Rs.’000 Rs.’000 Rs.’000 Rs.’000

At the Beginning of the Year 674,196 557,963 58,310 50,542

Current service cost 48,007 44,958 5,467 4,807 Net interest on the net defined benefit liability (asset) 67,796 63,400 6,640 5,944 115,803 108,358 12,107 10,751

Net Actuarial Gain / loss for the year 4,429 85,448 5,640 2,217 Payments made during the Year (72,716) (77,573) (9,030) (5,200) (68,287) 7,875 (3,390) (2,983)

Payable for retired employees included under current liabilities (30,498) (31,249) - - At the End of the Year 691,214 642,947 67,027 58,310

Lanka Walltiles PLC - Company

In order to illustrate the significance of the salary escalation rates and discount rates assumed in this valuation a sensitivity analysis for all employees in Lanka Walltiles PLC is as follows;

2015 2014 Rs. 000’s Rs. 000’s

Discount Rate as at 31 March Effect on DBO due to decrease in the discount rate by 1% 6,758 6,129 Effect on DBO due to increase in the discount rate by 1% (5,870) (5,321)

Salary Escalation Rate as at 31 March Effect on DBO due to decrease in the salary escalation rate by 1% (5,691) (6,078) Effect on DBO due to increase in the salary escalation rate by 1% 6,409 6,916 Group

In order to illustrate the significance of the salary escalation rates and discount rates assumed in this valuation a sensitivity analysis for all employees of Lanka Walltiles PLC, Lanka Tiles PLC, Horana Plantation PLC ,Swisstek Ceylon PLC, Swisstek Aluminium Limited, Uni Dil Packaging (Pvt) Ltd and Uni Dil Paper Sacks (Pvt) Ltd is as follows;

2015 2014 Rs. 000’s Rs. 000’s

Discount Rate as at 31 March Effect on DBO due to decrease in the discount rate by 1% 61,719 59,043 Effect on DBO due to increase in the discount rate by 1% (54,715) (47,197)

Salary Escalation Rate as at 31 March Effect on DBO due to decrease in the salary escalation rate by 1% (40,549) (31,019) Effect on DBO due to increase in the salary escalation rate by 1% 43,244 34,401

Lanka Walltiles PLC The defined benefit liability as of 31 March 2015 was actuarially valued by M/s Piyal S. Goonetilleke and Associates qualified actuary. The principal assumptions underlying the valuation are as follows;


2015 2014

Discount rate (per annum) 10.14% 10.48% Salary scale (per annum) - Executives 12.82% 12.90% - Non Executives 11.03% 11.13%

Retirement Age 55 Years 55 Years

Rates of turnover at selected ages as follows;

Executive and staff Age 20 25 30 35 40 45 50 Turnover 10% 10% 10% 5% 3% 1% 1%

Lanka Tiles PLC The defined benefit liability of Lanka Tiles PLC was actuarially valued by Piyal S Gunathilake and Associates qualified actuary on 31 March 2015.

Principal Actuarial Assumptions are as follows 2015 2014

Discount rate 10.14% 10.33% Future salary increases Executives 13.65% 11.00% Non Executives 8.00% 8.12%

In addition to above, demographic assumptions such as mortality, withdrawal disability and retirement age were considered for the actuarial valuation.

GA 1983 mortality table issued by the Society of Actuaries USA was taken as the base for the valuation.


An actuarial valuation of the retirement benefit obligation was carried out as at 31st March 2015 by Mr. Poopalanathan, Acturial and Management Consultants (Pvt) Ltd.

The valuation method used by the actuary to value the benefit is the “projected Unit Credit Method”. Principal Actuarial Assumptions are as follows

Rate of interest 2015 2014 per annum

Rate of salary increase 10.50% 10.50% per annum Workers 15.00% 16% every two years Staff 12.50% 12.50% per annum Head Office Staff 8.00% 8.00% per annum beyond Retirement age Workers 60 60 years Staff 60 60 years Head Office Staff 55 55 years Daily wage rate Tea Rs.450.00 Rs.450.00 Rubber Rs.450.00 Rs.450.00

The company will continue as a going concern



93

Multiplying Value

Uni Dil Packaging Ltd and Uni Dil Paper Sacks (Pvt) Ltd

An actuarial valuation of the retirement benefit obligation was carried out as at 31st March 2015 by M/s Acturial and Management Consultants (Pvt) Ltd.

The valuation method used by the actuaries to value the benefit is the “projected Unit Credit Method”.


Discount rate p.a 10.0% 10% Rate of salary increase 10% 10% Staff turnover factor 8% 8%

Retirement age (Years) 55 55 The Company will continue as a going concern.

Swisstek (Ceylon)PLC Gratuity liability based on the actuarial valuation carried out by Messrs. Piyal S Gunathilake & Associates on 31 March 2015.


Discount rate p.a 9.80% 10% Rate of salary increase 14% 12.0%

Swisstek Aluminium Limited Gratuity liability based on the actuarial valuation carried out by Messrs. Piyal S Gunathilake & Associates on 31 March 2015.


Discount rate p.a 9.34% 10.96% Rate of salary increase 10% 12% Retirement age (Years) 55 55

17 CAPITAL GRANTS

GROUP 2015 2014 Rs.’000 Rs.’000

Capital grants (17.1) 121,613 118,411 Total 121,613 118,411


17.1 Capital grants

Capital grants received on plantations

Granted by Purpose of the grant Basis of amortisation Amount received

Balance at the beginning

Received during the period

Amortised during the period

Balance at the end

Rs.'000 Rs.'000 Rs.'000 Rs.'000 Rs.'000

Sri Lanka Tea Board Tea factory modernisation

Rate of depreciation applicable to plant & machinery (7.5% p.a.)

419 230 (31) 199

Tea replanting subsidy Will be amortised at rate applicable to Tea mature plantations, after become mature (3.00%)

1,215 1,215 1,215

Plantation development project / Asian Development Bank

Improvement of workers living environment

Rate of depreciation applicable to buildings (2.5% p.a.)

31,588 21,198 (790) 20,408

Plantation human development trust


Rate of depreciation applicable to buildings and furniture & fittings (2.5% & 10% p.a.)

45,143 33,697 (1,120) 32,577

Estate infrastructure development project



489 342 (12) 330

Plantation development project



20,051 16,836 (501) 16,335

Ergonomic equipment Rate of depreciation applicable to equipment (12.5% p.a.)

5,853 1,288 (732) 556

Internal road development and boundary posts

Rate of depreciation applicable to permanent land development cost (2.5% p.a.)

4,622 3,976 (116) 3,860

Minor factory development


10,099 8,771 (252) 8,519

Rubber Development Department

Rubber replanting subsidy

Rate applicable to rubber mature plantations (5% p.a.)

39,246 30,546 7,803 (1,048) 37,301

Rubber factory development

Rate of depreciation applicable to plant & machinery (7.5% p.a.)

675 312 (51) 261

Export Agriculture Department (EAD)

Cinnamon replanting subsidy

Rate applicable to rubber mature plantations (5% p.a.)

52 - 52 - 52

Total 159,452 118,411 7,855 (4,653) 121,613



95

Multiplying Value

18 TRADE AND OTHER PAYABLES Group Company 2015 2014 2015 2014 Rs.’000 Rs.’000 Rs.’000 Rs.’000

Trade creditors - other 720,861 684,246 72,498 176,191 - related parties [18.1] 33,718 31,456 2,506 3,391 754,579 715,702 75,004 179,582

Sundry creditors including accrued expenses 688,508 586,394 148,438 98,452 Provision for terminal benefits (current) [16.0] 30,498 31,249 - - Donations in respect of Tsunami fund 2,964 3,015 2,964 3,015 Dividends Payable 172,514 20,617 134,530 19,755 Total 1,649,063 1,356,977 360,936 300,804

18.1 Trade creditors - related parties

Group Company 2015 2014 2015 2014 Company Relationship Rs.’000 Rs.’000 Rs.’000 Rs.’000

Lanka Ceramic PLC Parent Company 12,225 17,903 2,506 3,391 Royal Ceramics Lanka PLC Group Company 15,852 2,810 - - Hayleys Agriculture Holding Subsidiary Company 1,575 730 - - Hayleys Agro Fertilizer Group Company 2,049 2,848 - - Agro Technica Group Company 1,396 759 - - Hayleys Agro Products Group Company 15 15 - - Hayleys Agro Farms Group Company - 42 - - Puritas (Pvt) Ltd Group Company 605 6,350 - - 33,718 31,456 2,506 3,391

19 AMOuNTS DuE TO RELATED PARTIES Group Company Current 2015 2014 2015 2014 Company Relationship Rs.’000 Rs.’000 Rs.’000 Rs.’000

Lanka Tiles PLC Subsidiary Company - - 124,941 247,520 Swisstek Ceylon PLC Subsidiary Company - - 1,308 305 Royal Ceramics PLC Ultimate Parent Company 25,080 2,456 8,229 2,456 Royal Porcelain (Private) Limited Group Company 3,702 - 3,702 - 28,782 2,456 138,180 250,281


20 REVENuE Group Company Year ended 31st March 2015 2014 2015 2014 Rs.’000 Rs.’000 Rs.’000 Rs.’000

Sale of tiles & associated items Export sales 945,093 558,518 702,160 532,522 Local sales 7,659,805 7,263,290 2,375,961 2,067,137 8,604,898 7,821,808 3,078,121 2,599,659

Sale of aluminium products 1,518,103 1,166,967 - - Sale of plantation products 2,164,860 2,268,825 - - Sale of packing materials 2,308,353 2,162,170 - - Turnover net of tax 14,596,214 13,419,770 3,078,121 2,599,659

Segmental information is given in Note 33 to these financial statements.

21 OTHER INCOME Group Company 2015 2014 2015 2014 Rs.’000 Rs.’000 Rs.’000 Rs.’000

Income from investments in related Parties - Quoted - - 213,522 132,806 - Non quoted - - 23,256 34,315 Rental income - Related parties - - 23,972 23,406 Amortisation of capital and revenue grants 4,653 5,659 - - Disposal Gain/(Loss) on Property, Plant and Equipment 33,921 48,190 - 48,035 Reversal of debtors impairment - 1,246 - 1,246 Change in fair value of consumable biological assets 56,640 26,052 - - Sundry income 93,798 86,001 16,968 5,285 189,012 167,148 277,718 245,093

22 FINANCE COST Group Company 2015 2014 2015 2014 Rs.’000 Rs.’000 Rs.’000 Rs.’000

Interest expense on overdrafts 47,964 74,244 22,584 39,264 Interest expense on bank loans 312,936 552,877 142,556 187,709 Finance charges on lease liabilities 14,968 16,305 - - Less : Capitalisation of borrowing costs on immature plantations (48,664) (43,195) - - 327,204 600,231 165,140 226,973

23 FINANCE INCOME Group Company 2015 2014 2015 2014 Rs.’000 Rs.’000 Rs.’000 Rs.’000

Interest income 5,913 23,266 - - 5,913 23,266 - -



97

Multiplying Value

24 PROFIT BEFORE TAX Is stated after Charging /(Crediting) Group Company 2015 2014 2015 2014 Rs.’000 Rs.’000 Rs.’000 Rs.’000

Included in cost of sales Depreciation 540,862 533,665 129,376 129,438 Defined benefit plan costs - gratuity 88,683 82,773 - - Defined contribution plan costs - EPF & ETF 183,168 180,786 16,905 8,090 Other staff cost 1,849,584 1,808,969 97,493 88,045 Operating lease rentals 838 838 - - Inventory written off and allowances 7,476 (16,502) - -

Included in administration expenses Depreciation 30,167 13,492 13,894 11,686 Defined benefit plan costs - gratuity 27,120 25,585 12,107 10,751 Defined contribution plan costs - EPF & ETF 19,489 11,138 3,553 4,189 Other staff cost 210,254 89,320 37,555 34,486 Exchange (Gain)/Loss 4,017 2,376 4,017 4,416 Audit Fee 5,530 5,021 1,332 1,021 Technical Fee 155,861 - 31,409 -

Included in distribution cost Depreciation 14,198 4,017 4,002 4,017 - Defined benefit plan costs - gratuity Defined contribution plan costs - EPF & ETF 7,746 6,491 3,341 2,903 - Other staff costs 104,217 66,288 40,119 20,252 Allowance for doubtful Debts 12,889 653 (5,487) -

25 INCOME TAX EXPENSES25.1 The major components of income tax expense are as follows ;

Group Company Year ended 31st March 2015 2014 2015 2014 Rs.’000 Rs.’000 Rs.’000 Rs.’000

(a) Current income tax Current income tax charge - continuing operations 244,192 103,892 - - Under/(over) provision of current taxes in respect of prior years 544 59 - - Tax effect on Inter company Dividends 23,933 14,756 - - 268,669 118,707 - -

(b) Deferred income tax Deferred taxation charge 78,939 135,994 37,426 755 Income tax expense reported in the Income statement 347,607 254,701 37,426 755

(c) Deferred tax reversal reported in the OCI (2,881) (11,742) (1,373) - 344,726 242,959 36,053 755


25.2 Reconciliation between current tax expense and the product of accounting profit.

Group Company 2015 2014 2015 2014 Year ended 31st March Rs.’000 Rs.’000 Rs.’000 Rs.’000

Accounting profit before income tax 1,798,203 1,175,330 554,479 194,787 Income considered as separate source of income 22,271 22,415 250 - Non deductible expenses 924,300 859,723 184,036 186,055 Deductible expenses (1,311,057) (1,711,388) (425,456) (668,194) Total Statutory Income 1,433,717 346,080 313,308 (287,352) Tax losses utilised (172,389) (56,789) (109,658) - Qualifying Payment Relief (464,791) (254,878) (203,650) - Taxable profit/loss 796,537 34,413 - -

Current income tax expense Taxation -10% - 1,606 Taxation -12% 18,520 11,850 - - Taxation -28% 222,072 85,406 - - Dividend tax 3,600 5,030 - - 244,192 103,892 - -

Deferred income tax reported in income statement Capital Allowances 172,940 224,739 6,122 68,491 Retirement Benefit Liability (2,497) (14,841) (487) (1,911) Carried Forward Tax Losses (91,020) (84,296) 30,174 (65,478) Provision for Obsolete and Slow Moving, Consumables and Spares (2,172) 7,039 (131) (355) Allowances for Doubtful Debts 1,689 3,353 1,748 8 Deferred taxation charge/(reversal) 78,939 135,994 37,426 755

Deferred income tax reported in other comprehensive income Retirement Benefit Liability (2,881) (11,742) (1,373) - 76,058 124,252 36,053 755

Effective Income Tax Rate 19.33% 21.67% 6.75% 0.39%

25.3 Notes on income tax of Group companies

Lanka Walltiles PLC, Lanka Tiles PLC, Vallibel Plantation Management Ltd, Unidil Packaging (Private) Limited and Swisstek (Ceylon) PLC The statutory tax rate of above companies are as follows; 2015 2014

Local sales and other profits 28% 28% Qualified export profit 12% 12% Agricultural profit 10% 10% Specified profits 12% 15%

Swisstek Aluminium Ltd

Swisstek Aluminium Ltd is exempted from income tax for a period of five years, commencing from the year of assessment 2012/2013.


In terms of Section 16 of the Inland Revenue Amendment Act No.10 of 2006,and subsequent amendments thereto, “Profits from any Agricultural Undertaking “ is liable for income tax at 10%, commencing from 01 April 2011. Manufacturing profit and other income are liable for income tax at 28% except for management fee which is taxable at 12%.



99

Multiplying Value

26 EARNINGS PER SHARE26.1 Earnings per share - basic

Basic earnings per share is calculated by dividing the net profit for the year attributable to ordinary shareholders of Lanka Walltiles PLC by the weighted average number of ordinary shares outstanding during the year. The weighted average number of ordinary shares outstanding during the year and the previous year are adjusted for events that have changed the number of ordinary shares outstanding without a corresponding change in the resources such as a bonus issue. The following reflects the income and share data used in the basic earnings per share computations.


Amounts used as the numerator: Profit attributable to equity holders for basic earnings per share 1,043,793 605,704 517,052 194,032

Profit attributable to equity holders for basic earnings per share - from continuing operations

2015 2014 2015 2014 Number of ordinary shares used as the denominator: ’000 ’000 ’000 ’000

Weighted average number of ordinary shares in issue applicable to basic earnings per share 54,600 54,600 54,600 54,600

27 DIVIDENDS PAID Group Company Declared and paid during the year 2015 2014 2015 2014 Equity dividends on ordinary shares : Rs.’000 Rs.’000 Rs.’000 Rs.’000

Final 2012/2013 (Rs. 2.00 per share) - 109,200 - 109,200 Final 2013/2014 (Rs. 2.50 per share) 136,500 - 136,500 - First Interim 2014/15 (Rs. 2.00 per share) 109,200 - 109,200 - Second Interim 2014/15 (Rs. 2.00 per share) 109,200 - 109,200 - 354,900 109,200 354,900 109,200

28. CASH AND CASH EQuIVALENTS Components of cash and cash equivalents Group Company 2015 2014 2015 2014 Rs.’000 Rs.’000 Rs.’000 Rs.’000

Favourable cash & cash equivalents balance Cash & bank balances 777,299 168,732 34,805 12,187 Short term bank deposits 200,168 168 - - 977,467 168,900 34,805 12,187 Unfavourable cash & cash equivalent balances Bank overdrafts (14) (917,859) (1,037,324) (436,189) (376,811) Total cash and cash equivalents for the purpose of cash flow statement 59,608 (868,424) (401,384) (364,624)


29. ASSETS PLEDGED Following Assets have been pledged as security for liabilities, in addition to the items disclosed in Note 14.7 to these financial statements.

Lanka Tiles PLC

Bank overdrafts are secured primarily on inventories.

Uni Dil Paper Sacks (Pvt) Ltd

Import Loans are secured by Primary on mortgage bond over land and building for Rs. 30 million at Naranpola, Dekatana for the banking facilities of Hatton National Bank PLC and registered primary floating mortgage bond over stock and book debts for Rs. 60 million for the banking facilities of Hong kong & Shanghai Banking corporation.


The following securities were offered for bank overdraft facilities .

Financial Institution Institution Securities Rate of Interest FacilityAvailable

Rs’000

Seylan Bank PLCMillennium BranchColombo 1

Primary Mortgage for - Rs. 3.50 million 7.47% p.a. 10,000

Secondary Mortgage for - Rs. 2.45 million (AWPLR based)

Tertiary Mortgage for - Rs.30.00 million over leasehold rights of leasehold rights of Mahanilu Estate


Mortgage over leasehold rights of Stockholm Estate andFairlawn Estate, including buildings, fixed and floating assets.

6.47% p.a.(AWPLR based)

200,000210,000

210,000

Lanka Walltiles PLC Hatton National Bank Rs. 100 Mn bank overdraft is secured primarily on registere primary floating mortgage bond for Rs.390 Mn over the

project assets comprising of land, building and machinery at Meepe.



101

Multiplying Value

30 RELATED PARTY DISCLOSuRES Details of significant related party disclosures are as follows

30.1 Company

Transactions with the Transactions with Transactions Royal Ceramic Lanka PLC the Parent Company, with Subsidiaries and Lanka Ceramic PLC Affiliate Companies

2015 2014 2015 2014 2015 2014 Note Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000

Balance as at 01 April (2,456) - (3,391) (6,112) (237,427) (153,172) Sale of Tiles/ (Sales returns) 13,477 13,388 - - 39,320 8,868 Purchase of raw materials - (5,201) (5,867) (12,132) (53,925) (36,951) Purchase of other items (796) - - - - - Sale of raw materials - 3,034 - - 7,265 2,069 Settlements/(Recoveries) by the Company 24,341 (7,494) 2,743 14,000 14,091 15,269 Allocation of common cost - 18 - 2,853 - (12,993) Rent received - - - - 16,611 16,363 Expenses apportioned (448) - - - (79,448) - Advances received/( paid) - - - - (34,488) (809) Commission on sales (7,439) (6,201) - - (4,083) (2,496) Expenses incurred and transferred 442 - 4,009 - 93,139 - Sale of fixed assets - - - - 61 - Other income - - - - 148,631 - Cash/Goods in transit (598) - - (2,000) - (8,575) Short Term Loan - - - - - (65,000) Technical Fees (31,409) - - - - - Balance as at 31 March (4,885) (2,456) (2,506) (3,391) (90,253) (237,427)

Included under Trade and other receivable 9.1 3,344 - - - 39,426 - Trade and other payable 18.1 - - (2,506) (3,391) - - Amount due from related parties 10 - - - - 272 10,399 Amount due to related parties 19 (8,229) (2,456) - - (129,951) (247,825) (4,885) (2,456) (2,506) (3,391) (90,253) (237,427)

The above subsidiaries and affiliates include following companies; Company - Lanka Tiles PLC - Unidil Packaging (Pvt) Ltd - Vallibel Plantation Management (Pvt) Ltd - Horana Plantations PLC - Swisstek Aluminum Ltd - Swisstek (Ceylon) PLC - Royal Porcelain (Pvt) Ltd - Royal Bathware Ltd

Terms and conditions with related parties

The ‘Sales to’ and ‘Purchases from’ related parties are made on commercial terms agreed with respective parties.

Outstanding balances as at the year and are unsecured, interest free and settlement occur in cash.

Technical fee paid to Royal Ceramic Lanka PLC is for services rendered in providing technical advises to improve manufacturing process of Lanka Walltiles PLC, Lanka Tiles PLC and Swisstek Aluminum Ltd.


30.2 Group - Related Party Transactions

30.2.1 Lanka Tiles PLC

Sale of goods to 2015 2014 Rs. ‘000 Rs. ‘000

Royal Porcelain (Pvt) Ltd Raw materials 7,188 13,404 Spares 694 - Consumables 6 - Royal Bathware Ltd Raw materials - 91 Services 184 - Spares 6 - Royal Ceramics Lanka PLC Raw materials 778 288 Spares 421 - Ever Paint and Chemical Industries Ltd Services 3 - 9,280 13,783

Purchase of goods/services from 2015 2014

Rs. ‘000 Rs. ‘000

Lanka Ceramic PLC Raw materials 113,753 125,852 Royal Porcelain (Pvt) Ltd Raw materials 7,051 1,441 Spares 900 - Consumables 15 - Royal Ceramics Lanka PLC Raw materials 126 48 Spares 151 - Ever Paint and Chemical Industries Ltd Raw materials 506 153 Delmage Freight Services (Pvt) Ltd Services 4,012 3,344 Delmage Forsyth & Co (Shipping) Ltd Services - 200 126,514 131,038

Expenses incurred and transferred to/(from) 2015 2014 Rs. ‘000 Rs. ‘000

Royal Ceramics Lanka PLC Technical fees 109,176 -

30.2.2 Swisstek (Ceylon ) PLC


Royal Ceramics Lanka PLC Finished goods 1,652 3,913

Other Income Royal Ceramics Lanka PLC Sales commission 8,196 789 Warehouse rental 1,312 -

Expenses incurred and transferred to/(from) Royal Ceramics Lanka PLC Reimbursement of security expenses 803 30



103

Multiplying Value

30.2.3 Swisstek Aluminium Ltd


Royal Ceramics Lanka PLC Administration expenses 21,661 - Technical fees 15,275 -

30.2.4 Uni Dil Packaging Ltd


Royal Porcelain (Pvt) Ltd Finished goods 47,661 29,704 Royal Bathware LTD Finished goods 11,240 2,573 Royal Ceramics Lanka PLC Finished goods 26,294 17,230


Lanka Ceramic PLC Expenses reimbursed 3,287 66

30.2.5 Uni Dil Papersack Ltd


Lanka Ceramic PLC Expenses reimbursed 947 -

30.2.6 Horana Plantations PLC


Royal Porcelain (Pvt) Ltd Sale of tea 48 5 Royal Bathware LTD Sale of tea 161 27 Royal Ceramics Lanka PLC Sale of tea 119 5 Lanka Ceramic PLC Sale of tea 55 11 Dipped Products PLC Sale of latex 79,591 - 79,974 48

Purchase of goods/services from 2015 2014 Rs. ‘000 Rs. ‘000

Hayleys Agriculture Holdings Ltd Chemicals 1,697 125,852 Hayleys Agro Fertilizer (Pvt) Ltd Fertilizer 48,003 18,839 Hayleys Agro Products Ltd Spraying equipment - 15 Hayleys Agro Farms (Pvt) Ltd Fertilizer 114 186 Agro Technica Ltd Chemicals 4,635 1,789 54,449 146,681



Lanka Ceramic PLC Expenses reimbursed 952 487 Royal Ceramics Lanka PLC Office rent 3,725 388 Expenses reimbursed 885 -

Other Income Royal Ceramics Lanka PLC Hiring of Vehicles 900 150

30.3 Transactions with key management personnel of the company

The key management personnel of the company are the members of its Board of Directors and that of its parent. Key management personnel compensation Group Company 2015 2014 2015 2014 Rs’000 Rs’000 Rs’000 Rs’000

Short Term Employment Benefits 54,765 56,513 9,430 18,486 Post Employment Benefits 11,985 9,705 2,329 2,025 66,750 66,218 11,759 20,511

31 COMMITMENTS AND CONTINGENCIES31.1 Capital commitments

There were no significant capital commitments as at reporting date in the Company or Group except as detailed below, Lease commitments

a) Lanka Tiles PLC has operating lease commitments where Lanka Tiles PLC is the lessee. The future minimum lease payments under non cancellable operating leases are as follows Group as at 31st March 2015 2014 Rs.’000 Rs.’000

Not later than one year - 2,881 Later than one year not later than five years - - - 2,881

Lanka Tiles PLC is committed to pay Rs. 324,500/- & Rs. 2,295,887/- respectively as rent per month for the use of buildings situated in Rajagiriya and Nawala.

b). Horana Plantation PLC has commitments under operating lease rentals on Dumbara Estate as given below;

1 - 10 years (per annum) Rs. 0.552 million 11 - 20 years (per annum) Rs. 0.698 million 21 - 30 years (per annum) Rs. 0.838 million

Finance lease rentals payable to the Secretary to the Treasury ;

22.06.2011 to 21.06.2045 (per annum) Rs. 5.228 million



105

Multiplying Value

31.1 Contingencies

a) The Lanka Walltiles PLC, Vallibel Plantation Management Limited and Horana Plantations PLC are defendants in lawsuits in respect of labour tribunal cases filed by employees for which maximum liability cannot be reliably measured as at the balance sheet date. The directors believe, based on the information currently available, that the ultimate resolution of such legal procedures would not likely to have a material adverse effect on the results of operations, financial position or liquidity. Accordingly no provision for any liability has been made in the financial statements.

Lanka Walltiles PLC

b) As at the reporting date, the Lanka Walltiles PLC has received assessments issued by the Department of Inland revenue in respect of Income tax, Value added tax and economic service charge totalling Rs. 52,581,411/- for the year of assessment 2008/09, 2009/10. The Company has appealed against the assessments in the appeal hearing branch. The Directors believe, based on the information currently available, the ultimate resolution of such assessment is not likely t have a material adverse effect on the Company. Accordingly no provision for liability has been made in these financial statements.

Horana Plantation PLC

c) Unfulfilled condition on capital grants - Capital grants received from Ceylon Electricity Board for stand by power generators is subject to a condition of minimum usage of CEB power as against the Generator power. A liability will arise only if the above condition is not fulfilled.

Horana Planatation PLC - Contingent Rent (Refer Note 14.6 to the Financial Statements)

The case bearing No 27692/L filed by Rev Hadapanagoda Mahinda Thero , claiming the possession of Dumbara Estate, on the basis that the terms of the indenture of the aforesaid lease agreement have been violated. The thero also made the claims for the value of rubber trees excavated together with the interest. Furthermore he claims for the loss incurred due to the non cultivation on the property leased. The directors believe, based on the information currently available, that the ultimate resolution of such legal procedures would not likely to have a material adverse effect on the results of operations, financial position or liquidity. Accordingly no provision for any liability has been made in the financial statements.

d) “Super Gain Tax (SGT) - As per the interim Budget 2015 passed in the Parliament of Sri Lanka on 07th February 2015, the government proposed a one off 25% Super Gain Tax (SGT) be imposed on companies which have earned in excess of Sri Lankan Rupees 2,000 million profit before income tax on Group profit as per the Audited Financial Statement in the Financial Year 2013/14. The Gazette notification in respect of the above budget proposal was issued by the Government of Sri Lanka on 30th March 2015.

Accordingly, liable Companies will be assessed for SGT based on taxable income for the year of assessment 2013/14 and would be required to pay such SGT in three instalments commencing from 15th May 2015. However, as of date, this bill has not been passed in the Parliament. In the event the Bill is enacted as a law in the future, the Company would become liable to pay the above SGT. The quantum of such have not yet been estimated by the company.

There are no other material contingent liabilities as at the reporting date.

32 EVENTS OCCuRRING AFTER THE REPORTING PERIOD There have been no material events occurring after the reporting date that require adjustments to or disclosure in the Financial Statements.


2015

2014

Tile

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8,52

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2,16

4,86

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382,

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14,

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7,76

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21,

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2,25

7,84

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210,

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1,5

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2,38

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9,91

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2

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1

3,66

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2,9

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295

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238

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Expe

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(551

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(89,

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(77,

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(822

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(508

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7,45

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8,83

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7,81

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Fina

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Cost

(210

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5,76

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2,49

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27,2

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(403

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5,3

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315

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23,

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1,5

91,9

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166

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3,86

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40,8

69

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7

0,72

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119

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Inco

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(284

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(30,

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173

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(1,5

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107

Multiplying Value

34. FINANCIAL RISK MANAGEMENT The Group’s activities are exposed to variety of financial risks: market risk (including currency risk, fair value interest rate risk, cash flow interest

rate risk and price risk), credit risk and liquidity risk.

The Group’s overall financial risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the financial performance of the Group. Financial risk management is carried out through risk reviews, internal control systems, insurance programmes and adherence to the Group’s financial risk management policies. The board of directors regularly reviews these risks and approves the risk management policies, which covers the management of these risks.

Market risk

Market risk is the risk that the fair value of future cash flows of the financial instruments will fluctuate because of the changes in market prices.

(i) Foreign currency exchange risk – risk that the value of a financial instrument will fluctuate due to changes in foreign exchange rates.

(ii) Cash flow interest rate risk – risk that future cash flows associated with a financial instrument will fluctuate.

Foreign currency/ exchange risk

Foreign currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates.

The group operate internationally and are exposed to foreign exchange risk arising from various currency exposures, primarily with respect to the USD, AUD and Euro.

Foreign exchange risk arises mainly as a result of foreign exchange gains/losses on translation of US dollar - denominated loans granted, trade receivables, trade creditors and Euro - denominated trade creditors.

Foreign currency sensitivity Change in Change in profit basis points before tax Rs. 000’s

2015 0.05 28,527 2014 0.05 18,165

Cash flow and fair value interest rate risk

The group’s interest rate risk arises from long-term borrowings issued at variable rates. The group manages its interest rate risk by actively monitoring the yield curve trend and interest rate movement for the various financial instruments.

The group’s borrowings comprise borrowings from financial institutions. The group’s interest rate risk objective is to manage an acceptable level of rate fluctuation on the interest expense. In order to achieve this objective, the group targets floating borrowings based on assessment of its existing exposure and desirable interest rate profile. The group analyses its interest rate exposure on a dynamic basis.

Change in Change in profit Interest rate sensitivity basis points before tax Rs. 000’s

2015 0.05 33,726 2014 0.05 22,014


Credit risk

Credit risk arises from cash and cash equivalents, deposits with banks, as well as credit exposures to customers, including outstanding receivables. Trade receivables are mainly secured with bank guarantees given by customers in favour of the Group. Individual credit limits are set based on the amount of bank guarantee. The utilisation of credit limits is regularly monitored.

The group places its cash and cash equivalents with a number of creditworthy financial institutions. The group’s policy limits the concentration of financial exposure to any single financial institution. The maximum credit risk exposure of the financial assets of the group is approximately the carrying amounts as at reporting date, except for trade receivables which are secured by bank guarantees. ( Please refer Note 10.3 for ageing analysis of trade receivables)

Liquidity risk

Prudent liquidity risk management implies maintaining sufficient liquid funds to meet its financial obligations.

In the management of liquidity risk, the group monitor and maintain a level of cash and cash equivalents deemed adequate by the management to finance the group’s operations and to mitigate the effects of fluctuations in cash flows. Due to the dynamic nature of the underlying business, the group aims at maintaining flexibility in funding by keeping both committed and uncommitted credit lines available.

The table below analyses the group’s non-derivative financial liabilities into relevant maturity groupings based on the remaining period at the statement of financial position date to the contractual maturity date.

Group

At 31 March 2015 Less than 3 Between 3 months Between year 1 Between year 2 months and 1 year and 2 year and year 5 Over 5 years Rs (‘000)

Bank Borrowings 2,156,170 479,990 582,342 793,554 363,840 Trade and other payables 1,649,064 - - - -


Bank Borrowings 2,526,174 805,694 483,889 1,267,516 186,517 Trade and other payables 1,356,977 - - - -

Company


Bank Borrowings 1,395,307 153,533 180,261 41,128 137,308 Trade and other payables 360,937 - - - -


Bank Borrowings 1,395,426 204,667 203,742 356,410 - Trade and other payables 300,804 - - - -

Capital management risk The primary objective of the Group’s capital management is to ensure that it maintains a strong credit rating and healthy capital ratios in order

to support its business and maximise shareholder value.



109

Multiplying Value

The Group manages its capital structure and makes adjustments to it in light of changes in economic conditions. To maintain or adjust the capital structure, the group may or may not make dividend payments to shareholders, return capital to shareholders or issue new shares or other instruments.

Consistent with others in the industry, the Group monitors capital on the basis of the gearing ratio. This ratio is calculated as total borrowings by total equity. Total borrowings including non-current and current borrowings as shown in the statements of financial position. Total equity is calculated as ‘Total equity’ in the statements of financial position.

The gearing ratio as at 31 March is as follows:

Group Company 2015 2014 2015 2014 Rs. 000’s Rs. 000’s Rs. 000’s Rs. 000’s

Borrowings 4,375,896 5,269,790 1,907,536 2,160,245 Total equity 9,247,448 8,125,645 2,970,429 2,812,543 Gearing ratio ; Debt to Equity 47% 65% 64% 77%

35. Material partly-owned subsidiaries Financial information of subsidiaries that have material non-controlling interests is provided below: Proportion of equity interest held by non-controlling interests:

Name Country of incorporation and operation 2015 2014

Lanka Tiles PLC Sri Lanka 31.78% 31.78% Horana Plantations PLC Sri Lanka 49.00% 49.00% Swisstek (Ceylon) PLC Sri Lanka 55.91% 55.91% Swisstek Aluminium Ltd Sri Lanka 61.48% 61.48%

2015 2014 Rs. 000’s Rs. 000’s

Accumulated Balances of Material Non - Controlling Interest Lanka Tiles PLC 1,402,061 1,282,929 Horana Plantations PLC 699,838 674,511 Swisstek (Ceylon) PLC 314,864 187,985 Swisstek Aluminium Ltd 333,380 237,603 2,750,143 2,383,029

Profit allocated to Material Non - Controlling Interest Lanka Tiles PLC 232,082 190,913 Horana Plantations PLC 30,368 67,246 Swisstek (Ceylon) PLC 47,613 13,288 Swisstek Aluminium Ltd 96,741 43,478 406,803 314,925


The summarised financial information of these subsidiaries is provided below. This information is based on amounts before inter-company eliminations.

Summarised statement of profit or loss for year ended 31 March 2015:

Lanka Tiles PLC Horana Swisstek Swisstek Plantations PLC (Ceylon) PLC Aluminium Ltd Rs. 000’s Rs. 000’s Rs. 000’s Rs. 000’s

Revenue 5,349,670 2,164,859 339,096 1,527,464 Cost of sales (3,421,137) (2,023,284) (277,112) (1,188,219) Distribution costs (598,823) - (22,661) (25,524) Administrative expenses (371,146) (95,240) (20,238) (103,976) Finance costs (49,242) (28,848) (14,573) (45,766) Profit before tax 956,225 86,980 89,052 180,195 Income tax (225,949) (25,004) 2,842 (9,392) Profit for the year 730,276 61,976 91,894 157,363 Total comprehensive income 719,692 76,685 247,143 155,794 Profit attributable to non-controlling interests 232,082 30,368 47,613 96,741 Dividends paid to non-controlling interests 109,586 12,250 7,664 -

Summarised statement of profit or loss for year ended 31 March 2014: Lanka Tiles PLC Horana Swisstek Swisstek Plantations PLC (Ceylon) PLC Aluminium Ltd Rs. 000’s Rs. 000’s Rs. 000’s Rs. 000’s

Revenue 5,109,318 2,269,092 320,128 1,180,893 Cost of sales (3,452,185) (1,997,931) (273,006) (928,679) Distribution costs (468,288) - (15,848) (40,899) Administrative expenses 316,315 (92,297) (15,307) (57,457) Finance costs (150,696) (50,399) (23,599) (87,141) Profit before tax 775,162 162,562 53,400 70,723 Income tax (174,426) (25,325) (3,738) - Profit for the year 600,736 137,237 49,662 70,723 Total comprehensive income 599,085 70,786 48,393 69,016 Profit attributable to non-controlling interests 190,389 67,246 13,288 43,478 Dividends paid to non-controlling interests 96,470 24,500 - -

Prior to the acquisition of non controlling interest in the 2014, Rs. 10.84 Mn paid as dividend for non controlling interest of the Vallibel Plantation Management Ltd.

Summarised statement of financial position as at 31 March 2015: Lanka Tiles PLC Horana Swisstek Swisstek Plantations PLC (Ceylon) PLC Aluminium Ltd Rs. 000’s Rs. 000’s Rs. 000’s Rs. 000’s

Current Assets 2,884,238 393,363 166,375 719,977 Non- Current Assets 3,433,863 2,957,747 902,334 611,919 Current Liabilities 1,036,292 494,553 181,280 605,213 Non- Current Liabilities 870,037 1,428,316 95,192 184,392 Total equity 4,411,772 1,428,241 792,237 542,291 Attributable to: Equity holders of parent 3,009,711 728,403 349,279 208,911 Non-controlling interest 1,402,061 699,838 314,864 333,380



111

Multiplying Value

Summarised statement of financial position as at 31 March 2014:


Current Assets 2,697,358 362,556 149,043 535,501 Non- Current Assets 3,516,696 2,719,752 753,029 651,586 Current Liabilities 1,260,388 516,600 198,659 559,373 Non- Current Liabilities 916,758 1,189,154 134,920 241,217 Total equity 4,036,908 1,376,554 568,493 386,497 Attributable to: Equity holders of parent 2,753,979 702,043 250,636 148,894 Non-controlling interest 1,282,929 674,511 187,985 237,603

Summarised cash flow information for year ending 31 March 2015:


Operating 1,688,420 105,620 19,135 174,845 Investing (196,896) (261,167) 37,863 (7,528) Financing (563,431) 147,153 (43,042) (140,941) Net increase / (decrease) in cash and cash equivalents 928,093 (8,394) 13,956 26,376

Summarised cash flow information for year ending 31 March 2014:


Operating 568,423 235,387 (7,663) 169,431 Investing (236,793) (361,631) 3,363 (35,677) Financing (400,977) 8,798 4,713 (132,984) (69,347) (117,446) 413 770


As at 31st March 2015 2014 2013 2012 2011 As at 31st March 2015 2014 2013 2012 2011

Rs.'000 Rs.'000 Rs.'000 Rs.'000 Rs.'000 Rs.'000 Rs.'000 Rs.'000 Rs.'000 Rs.'000

GROUP COMPANYASSETS ASSETSNon-current assets Non-current assetsProperty, plant & equipment 10,061,471 9,796,164 9,479,724 8,833,822 7,361,226 Property, plant & equipment 2,233,154 2,306,044 2,290,186 2,091,871 1,580,106 Investment property - - 80,000 56,691 56,691 Investment property - - 80,000 56,691 56,691 Intangible assets - goodwill 24,519 24,519 24,519 24,519 24,519 Intangible assets - goodwill - - - - -Investments in subsidiaries - - - - - Investments in subsidiaries 1,276,096 1,276,096 508,642 508,642 508,642 Investments in associates - - - - - Investments in associates - - 41,247 41,247 41,247 Long term receivables 27,285 27,285 27,285 27,285 27,285 Long term receivables - - - - -Deferred tax asset 52,183 22,729 22,369 22,369 - Deferred tax asset - - - - -

10,165,458 9,870,697 9,633,897 8,964,686 7,469,721 3,509,250 3,582,140 2,920,075 2,698,451 2,186,686 Current assets Current assetsInventories 3,473,262 3,648,372 3,774,997 2,447,523 1,810,414 Inventories 1,349,134 1,363,613 1,398,850 914,138 474,043 Trade and other receivables 2,327,095 2,444,967 2,186,173 1,904,371 1,124,516 Trade and other receivables 681,483 720,176 596,972 609,931 309,200 Amounts due from related parties 1,263 - - - 2,587 Amounts due from related parties 272 10,399 28,756 20,870 5,308 Income tax receivable 34,092 21,884 21,884 24,490 - Income tax receivable 34,092 21,884 21,884 24,490 -Short term investments 2,964 3,624 3,554 8,030 96,847 Short term investments 2,964 3,624 3,386 3,862 67,616 Cash and cash equivalents 977,467 168,900 231,901 92,069 276,654 Cash and cash equivalents 34,805 12,187 47,621 23,229 14,478 Assets classified as held for sale - - - - 21,339 Assets classified as held for sale - - - - 21,339

6,816,143 6,287,747 6,218,510 4,476,483 3,332,357 2,102,750 2,131,883 2,097,469 1,596,520 891,984 Total assets 16,981,601 16,158,444 15,852,407 13,441,169 10,802,078 Total assets 5,612,000 5,714,023 5,017,544 4,294,971 3,078,670

EQUITY AND LIABILITIES EQUITY AND LIABILITIESEquity attributable to equity holders of the parent Equity attributable to equity holders of the parentStated capital 787,765 787,765 787,765 787,765 787,765 Stated capital 787,765 787,765 787,765 787,765 787,765 Reserves 1,004,516 936,147 971,218 770,048 776,048 Reserves 296,294 296,294 346,045 170,296 176,296 Retained earnings 4,705,023 4,018,704 3,254,614 2,998,951 2,383,488 Retained earnings 1,886,370 1,728,484 1,593,929 1,553,799 1,195,486 Shareholders' funds 6,497,305 5,742,616 5,013,597 4,556,764 3,947,301 Shareholders' funds 2,970,429 2,812,543 2,727,739 2,511,861 2,159,547

Non controlling interest 2,750,143 2,383,029 3,370,511 3,023,396 2,801,930 Non controlling interest - - -Total equity 9,247,448 8,125,645 8,384,108 7,580,160 6,749,231 Total equity 2,970,429 2,812,543 2,727,739 2,511,861 2,159,547

Non-current liabilities Non-current liabilitiesAmounts due to related parties - - - - - Amounts due to related parties - - - - -Interest bearing liabilities 1,742,100 1,923,947 1,913,944 1,846,564 1,187,101 Interest bearing liabilities 358,697 560,105 683,417 799,406 312,321 Deferred tax liabilities 702,135 596,455 471,843 346,422 231,929 Deferred tax liabilities 167,892 131,840 131,085 85,510 3,386 Retirement benefit liability 691,213 642,946 531,565 538,611 474,557 Retirement benefit liability 67,027 58,310 50,542 49,080 36,582 Deferred income & Capital grants 121,613 118,411 112,545 114,926 116,743 - - - - -

3,257,061 3,281,759 3,029,897 2,846,523 2,010,330 593,616 750,255 865,044 933,997 352,289 Current liabilities Current liabilitiesTrade and other payables 1,649,064 1,356,977 1,783,712 1,665,402 1,228,801 Trade and other payables 360,937 300,805 331,444 539,079 451,209

Income tax liabilities 165,450 45,764 19,512 10,887 158,381 Income tax liabilities - - - 58,138

Amounts due to related parties 28,782 2,456 - 541 523 Amounts due to related parties 138,180 250,281 204,722 48 127 Current portion of interest bearing liabilities 2,633,796 3,345,843 2,635,178 1,337,655 654,812 Current portion of interest bearing liabilities 1,548,839 1,600,140 888,595 309,986 57,359

4,477,092 4,751,040 4,438,402 3,014,485 2,042,517 2,047,956 2,151,226 1,424,761 849,113 566,833 Total equity and liabilities 16,981,601 16,158,444 15,852,407 13,441,169 10,802,078 Total equity and liabilities 5,612,000 5,714,023 5,017,544 4,294,971 3,078,670

Five Year Summary Statement Of Financial Position


113

Multiplying Value

As at 31st March 2015 2014 2013 2012 2011 As at 31st March 2015 2014 2013 2012 2011


GROUP COMPANYASSETS ASSETSNon-current assets Non-current assetsProperty, plant & equipment 10,061,471 9,796,164 9,479,724 8,833,822 7,361,226 Property, plant & equipment 2,233,154 2,306,044 2,290,186 2,091,871 1,580,106 Investment property - - 80,000 56,691 56,691 Investment property - - 80,000 56,691 56,691 Intangible assets - goodwill 24,519 24,519 24,519 24,519 24,519 Intangible assets - goodwill - - - - -Investments in subsidiaries - - - - - Investments in subsidiaries 1,276,096 1,276,096 508,642 508,642 508,642 Investments in associates - - - - - Investments in associates - - 41,247 41,247 41,247 Long term receivables 27,285 27,285 27,285 27,285 27,285 Long term receivables - - - - -Deferred tax asset 52,183 22,729 22,369 22,369 - Deferred tax asset - - - - -

10,165,458 9,870,697 9,633,897 8,964,686 7,469,721 3,509,250 3,582,140 2,920,075 2,698,451 2,186,686 Current assets Current assetsInventories 3,473,262 3,648,372 3,774,997 2,447,523 1,810,414 Inventories 1,349,134 1,363,613 1,398,850 914,138 474,043 Trade and other receivables 2,327,095 2,444,967 2,186,173 1,904,371 1,124,516 Trade and other receivables 681,483 720,176 596,972 609,931 309,200 Amounts due from related parties 1,263 - - - 2,587 Amounts due from related parties 272 10,399 28,756 20,870 5,308 Income tax receivable 34,092 21,884 21,884 24,490 - Income tax receivable 34,092 21,884 21,884 24,490 -Short term investments 2,964 3,624 3,554 8,030 96,847 Short term investments 2,964 3,624 3,386 3,862 67,616 Cash and cash equivalents 977,467 168,900 231,901 92,069 276,654 Cash and cash equivalents 34,805 12,187 47,621 23,229 14,478 Assets classified as held for sale - - - - 21,339 Assets classified as held for sale - - - - 21,339

6,816,143 6,287,747 6,218,510 4,476,483 3,332,357 2,102,750 2,131,883 2,097,469 1,596,520 891,984 Total assets 16,981,601 16,158,444 15,852,407 13,441,169 10,802,078 Total assets 5,612,000 5,714,023 5,017,544 4,294,971 3,078,670

EQUITY AND LIABILITIES EQUITY AND LIABILITIESEquity attributable to equity holders of the parent Equity attributable to equity holders of the parentStated capital 787,765 787,765 787,765 787,765 787,765 Stated capital 787,765 787,765 787,765 787,765 787,765 Reserves 1,004,516 936,147 971,218 770,048 776,048 Reserves 296,294 296,294 346,045 170,296 176,296 Retained earnings 4,705,023 4,018,704 3,254,614 2,998,951 2,383,488 Retained earnings 1,886,370 1,728,484 1,593,929 1,553,799 1,195,486 Shareholders' funds 6,497,305 5,742,616 5,013,597 4,556,764 3,947,301 Shareholders' funds 2,970,429 2,812,543 2,727,739 2,511,861 2,159,547

Non controlling interest 2,750,143 2,383,029 3,370,511 3,023,396 2,801,930 Non controlling interest - - -Total equity 9,247,448 8,125,645 8,384,108 7,580,160 6,749,231 Total equity 2,970,429 2,812,543 2,727,739 2,511,861 2,159,547

Non-current liabilities Non-current liabilitiesAmounts due to related parties - - - - - Amounts due to related parties - - - - -Interest bearing liabilities 1,742,100 1,923,947 1,913,944 1,846,564 1,187,101 Interest bearing liabilities 358,697 560,105 683,417 799,406 312,321 Deferred tax liabilities 702,135 596,455 471,843 346,422 231,929 Deferred tax liabilities 167,892 131,840 131,085 85,510 3,386 Retirement benefit liability 691,213 642,946 531,565 538,611 474,557 Retirement benefit liability 67,027 58,310 50,542 49,080 36,582 Deferred income & Capital grants 121,613 118,411 112,545 114,926 116,743 - - - - -

3,257,061 3,281,759 3,029,897 2,846,523 2,010,330 593,616 750,255 865,044 933,997 352,289 Current liabilities Current liabilitiesTrade and other payables 1,649,064 1,356,977 1,783,712 1,665,402 1,228,801 Trade and other payables 360,937 300,805 331,444 539,079 451,209

Income tax liabilities 165,450 45,764 19,512 10,887 158,381 Income tax liabilities - - - 58,138

Amounts due to related parties 28,782 2,456 - 541 523 Amounts due to related parties 138,180 250,281 204,722 48 127 Current portion of interest bearing liabilities 2,633,796 3,345,843 2,635,178 1,337,655 654,812 Current portion of interest bearing liabilities 1,548,839 1,600,140 888,595 309,986 57,359

4,477,092 4,751,040 4,438,402 3,014,485 2,042,517 2,047,956 2,151,226 1,424,761 849,113 566,833 Total equity and liabilities 16,981,601 16,158,444 15,852,407 13,441,169 10,802,078 Total equity and liabilities 5,612,000 5,714,023 5,017,544 4,294,971 3,078,670


Year ended 31 March 2015 2014 2013 2012 2011 Year ended 31 March 2015 2014 2013 2012 2011


GROUP COMPANY

Continuing Operations Continuing Operations

Revenue 14,596,214 13,419,770 12,006,220 10,568,536 8,443,481 Revenue 3,078,121 2,599,659 2,308,935 2,413,704 676,383

Cost of Sales (10,855,981) (10,282,638) (9,048,800) (7,924,073) (5,939,049) Cost of Sales (2,142,319) (1,951,099) (1,572,001) (1,506,717) (477,516)

Gross Profit 3,740,233 3,137,132 2,644,464 2,644,463 2,504,432 Gross Profit 935,802 648,560 736,934 906,987 198,867

Other Income 189,012 167,148 88,167 82,204 58,388 Other Income 277,718 245,093 137,372 133,928 193,005

Distribution Costs (987,637) (829,354) (677,883) (469,891) (307,850) Distribution Costs (292,894) (285,389) (269,134) (204,461) (42,435)

Administrative Expenses (822,113) (722,631) (661,993) (636,432) (569,526) Administrative Expenses (201,007) (186,504) (173,457) (211,438) (129,214)

Finance Cost (327,204) (600,231) (501,577) (223,927) (180,312) Finance Cost (165,140) (226,973) (157,884) (42,515) (2,730)

Finance Income 5,913 23,266 2,606 6,839 11,983 Finance Income - - - 2,568 4,576

Release of negative goodwill - - - - 42,467 Release of negative goodwill - - - - -

Share of associate results - - - - - Share of associate results - - - - -

Deemed gain on legal mMerger - - - - - Deemed gain on legal merger - - - - 874,987

Fair value adjustment in investment property - - 23,309 - - Fair value adjustment in investment property - - 23,309 - -

Profit/(Loss) Before Tax from Continuing Operations 1,798,203 1,175,330 1,403,256 1,403,256 1,559,582 Profit/(Loss) Before Tax from Continuing Operations 554,479 194,787 297,140 585,068 1,097,056

Income Tax (Expense) / Reversal (347,607) (254,701) (203,070) (238,319) (268,924) Income Tax (Expense) / Reversal (37,426) (755) (45,575) (85,902) 71,429

Profit/(Loss) for the Year from Continuing Operations 1,450,596 920,629 1,200,186 1,164,936 1,290,658 Profit/(Loss) for the Year from Continuing Operations 517,052 194,032 251,565 499,166 1,168,485

Profit/(Loss) After Tax for the Year from Discontinued Operations

- - - (4,102) (300,637) Profit/(Loss) After Tax for the Year from Discontinued Operations

- - - (4,102) (300,637)

Profit for the Year 1,450,596 920,629 1,200,186 1,160,834 990,021 Profit for the Year 517,052 194,032 251,565 495,064 867,848

Profit attributable to : Profit attributable to :

Equity holders of the parent 1,043,793 605,703 509,553 753,229 484,467 Equity holders of the parent 517,052 194,032 251,565 495,064 867,848

Non controlling interest 406,803 314,925 517,426 407,605 505,554 Non controlling interest - - - -

Profit for the year 1,450,596 920,629 1,026,979 1,160,834 990,021 Profit for the year 517,052 194,032 251,565 495,064 867,848

Basic Earnings Per Share - Profit Attributable to Ordinary Equity Holders 19.12 11.09 9.33 13.80 10.65


Dividends Per Share 2.00 4.00 2.50 2.50 2.00

Five Year Summary Statement of Comprehensive Income


115

Multiplying Value

Year ended 31 March 2015 2014 2013 2012 2011 Year ended 31 March 2015 2014 2013 2012 2011


GROUP COMPANY

Continuing Operations Continuing Operations

Revenue 14,596,214 13,419,770 12,006,220 10,568,536 8,443,481 Revenue 3,078,121 2,599,659 2,308,935 2,413,704 676,383

Cost of Sales (10,855,981) (10,282,638) (9,048,800) (7,924,073) (5,939,049) Cost of Sales (2,142,319) (1,951,099) (1,572,001) (1,506,717) (477,516)

Gross Profit 3,740,233 3,137,132 2,644,464 2,644,463 2,504,432 Gross Profit 935,802 648,560 736,934 906,987 198,867

Other Income 189,012 167,148 88,167 82,204 58,388 Other Income 277,718 245,093 137,372 133,928 193,005

Distribution Costs (987,637) (829,354) (677,883) (469,891) (307,850) Distribution Costs (292,894) (285,389) (269,134) (204,461) (42,435)

Administrative Expenses (822,113) (722,631) (661,993) (636,432) (569,526) Administrative Expenses (201,007) (186,504) (173,457) (211,438) (129,214)

Finance Cost (327,204) (600,231) (501,577) (223,927) (180,312) Finance Cost (165,140) (226,973) (157,884) (42,515) (2,730)

Finance Income 5,913 23,266 2,606 6,839 11,983 Finance Income - - - 2,568 4,576

Release of negative goodwill - - - - 42,467 Release of negative goodwill - - - - -

Share of associate results - - - - - Share of associate results - - - - -

Deemed gain on legal mMerger - - - - - Deemed gain on legal merger - - - - 874,987

Fair value adjustment in investment property - - 23,309 - - Fair value adjustment in investment property - - 23,309 - -

Profit/(Loss) Before Tax from Continuing Operations 1,798,203 1,175,330 1,403,256 1,403,256 1,559,582 Profit/(Loss) Before Tax from Continuing Operations 554,479 194,787 297,140 585,068 1,097,056

Income Tax (Expense) / Reversal (347,607) (254,701) (203,070) (238,319) (268,924) Income Tax (Expense) / Reversal (37,426) (755) (45,575) (85,902) 71,429

Profit/(Loss) for the Year from Continuing Operations 1,450,596 920,629 1,200,186 1,164,936 1,290,658 Profit/(Loss) for the Year from Continuing Operations 517,052 194,032 251,565 499,166 1,168,485

Profit/(Loss) After Tax for the Year from Discontinued Operations

- - - (4,102) (300,637) Profit/(Loss) After Tax for the Year from Discontinued Operations

- - - (4,102) (300,637)

Profit for the Year 1,450,596 920,629 1,200,186 1,160,834 990,021 Profit for the Year 517,052 194,032 251,565 495,064 867,848

Profit attributable to : Profit attributable to :

Equity holders of the parent 1,043,793 605,703 509,553 753,229 484,467 Equity holders of the parent 517,052 194,032 251,565 495,064 867,848

Non controlling interest 406,803 314,925 517,426 407,605 505,554 Non controlling interest - - - -

Profit for the year 1,450,596 920,629 1,026,979 1,160,834 990,021 Profit for the year 517,052 194,032 251,565 495,064 867,848



Dividends Per Share 2.00 4.00 2.50 2.50 2.00


Year ended 31st March 2015 % 2014 % 2013 % 2012 % 2011 %

Rs. '000 Rs. '000 Rs. '000 Rs. '000 Rs. '000

Group

Turnover 14,596,214 13,419,770 12,006,220 10,568,536 8,443,481

Other income 189,012 167,148 88,167 82,204 58,388

Cost of material and services purchased

(10,000,114) (8,981,656) (8,321,924) (7,259,167) (5,511,124)

Value Added 4,785,112 4,605,262 3,772,463 3,391,573 2,990,745

Distributed as follows

To employees as remuneration 2,489,768 52.0 2,349,132 51.0 2,101,746 55.7 1,866,014 55.0 1,676,445 56.1

To providers of funds as interest 321,291 6.7 576,965 12.5 498,971 13.2 217,088 6.4 180,312 6.0

To state as taxes 347,607 7.3 254,701 5.5 203,070 5.4 238,319 7.0 268,924 9.0

To shareholders as dividends 354,900 7.4 109,200 2.4 218,400 5.8 136,500 4.0 136,500 4.6

Retained in the business

Depreciation 585,227 12.2 551,174 12.0 456,455 12.1 439,978 13.0 388,054 13.0

Reserves 686,319 14.3 764,090 16.6 293,821 7.8 493,674 14.6 340,510 11.4

Total 4,785,112 100.0 4,605,262 100.0 3,772,463 100.0 3,391,573 100.0 2,990,745 100.0

Statement of Value Added


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Distribution of shareholdings as at 31st march 2015

Size of shareholdings Shareholders ShareholdingNumber Number % Number %

1 - 1,000 10,171 93.44 2,176,166 3.99

1,001 - 10,000 587 5.39 1,567,841 2.87

10,001 - 100,000 98 0.90 2,669,745 4.89

100,001 - 1,000,000 23 0.21 7,442,760 13.63

Over 1,000,000 6 0.06 40,743,488 74.62

10,885 100.00 54,600,000 100.00

Categories of shareholders as at 31st march 2015

Category Shareholders Shareholding Number % Number %

Local Individuals 10,566 97.07 8,361,232 15.31

Local Institutions 228 2.09 45,887,563 84.04

Foreign Individuals 84 0.77 85,483 0.16

Foreign Institutions 7 0.06 265,722 0.49

10,885 100.00 54,600,000 100.00

Other information

GROUP COMPANYYear ended 31st March 2015 2014 2015 2014 Rs. Rs. Rs. Rs.

Net assets per ordinary share 119.00 105.18 54.40 51.51

Interest cover per rupee of interest 6.50 2.96 4.36 1.86

Share price - Highest 105.00 75.40

- Lowest 57.60 52.10

- Closing 95.80 61.50

The percentage of shares held by the public - 29.87% comprising 10,873 shareholders.

Shareholder Information


20 Major shareholders of the Company

No. of Shares No. of SharesName As at

31.03.2015 (%)As at

31.03.2014 (%)

1 Lanka Ceramics PLC 33,957,014 62.192 33,957,014 62.192

2 National Savings Bank 1,758,846 3.221 619,700 1.135

3 CT Holdings PLC 1,499,628 2.747 1,499,628 2.747

4 Arunodhaya Industries (Private) Limited 1,176,000 2.154 1,176,000 2.154

5 Arunodhaya (Private) Limited 1,176,000 2.154 1,176,000 2.154

6 Arunodhaya Investments (Private) Limited 1,176,000 2.154 1,176,000 2.154

7 Mr. A A Page 915,356 1.676 915,356 1.676

8 Sri Lanka Insurance Corporation Ltd-Life Fund 807,600 1.479 807,600 1.479

9 Royal Ceramics Lanka PLC 580,170 1.063 580,170 1.063

10 Bank of Ceylon A/C Ceybank Unit Trust 520,614 0.954 642,257 1.176

11 Andysel Private Limited 420,000 0.769 420,000 0.769

12 Bank of Ceylon No. 1 Account 409,515 0.750 410,040 0.751

13 Mrs. A Selliah 378,000 0.692 378,000 0.692

14 Mrs. A Kailasapillai 378,000 0.692 378,000 0.692

15 Bank of Ceylon A/C Ceybank Centure Growth Fund 375,941 0.689 419,900 0.769

16 Mr. K Aravinthan 336,000 0.615 336,000 0.615

17 Ms. S Subramaniam 311,000 0.570 336,000 0.615

18 Pinnacle Trust (Pvt) Limited 284,565 0.521 67,200 0.123

19 Mr. V Kailasapillai 250,000 0.458 378,000 0.692

20 Mr. D F G Dalpethado and Mrs H A K D Dalpethado 243,548 0.446 2,378 0.004

Sub Total 46,953,797 85.996 45,675,243 83.652

Other 10,865 Shareholders 7,646,203 14.004 8,924,757 16.348

Issued Capital 54,600,000 100.000 54,600,000 100.000

Shareholder Information


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NOTICE IS HEREBY GIVEN that the Thirty Eighth (38th) Annual General Meeting of Lanka Walltiles PLC will be held at the Victorian Ballroom (located in the 10th floor), The Kingsbury Hotel, No. 48, Janadhipathi Mawatha, Colombo 01 on Monday, 29th June 2015 at 11.00 a.m. for the following purposes:

1. To receive and consider the Annual Report of the Board of Directors on the affairs of the Company and the Statement of Accounts for the year ended 31st March 2015 and the Report of the Auditors thereon.

2. To re-elect Mr. T G Thoradeniya, who retires by rotation in terms of Articles 103 and 104 of the Articles of Association, as a Director of the Company.

3. To re-elect Mr. K D G Gunaratne, who retires by rotation in terms of Articles 103 and 104 of the Articles of Association, as a Director of the Company.

4. To re-appoint Messrs Ernst & Young, Chartered Accountants, the retiring Auditors and to authorize the Directors to determine their remuneration.

5. To authorize the Directors to determine Donations for the ensuing year.

By Order of the BoardLANKA WALLTILES PLC

P W Corporate Secretarial (Pvt) LtdDirector / Secretaries

At Colombo29th May 2015

Notes:

1) A shareholder entitled to attend or attend and vote at the Meeting is entitled to appoint a Proxy who need not be a shareholder, to attend and vote instead of him/her. A Proxy need not be a member of the Company. A Form of Proxy is enclosed for this purpose.

2) A Form of Proxy is enclosed in this Report.

3) The completed Form of Proxy should be deposited at the Registered Office of the Company, No. 215, Nawala Road, Narahenpita, Colombo 05, not less than forty-eight (48) hours before the time fixed for the commencement of the Meeting.

Notice of Meeting


Notes

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Notes


Notes

123

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*I/We…………………………………………………………………………………………………………………………………of………………………………………………………………………………....being a *Shareholder /Shareholders of Lanka Walltiles PLC, do hereby appoint ……………………………………………………………………………………………………….…... of ………………………………………………………………………………………………………………………………………or failing him/her

Mr. Wannakuwattawaduge Don Nimal Hemasiri Perera of Colombo or failing him*

Mr. Jayasekera Arachchige Panduka Mahendra Jayasekera of Colombo or failing him*

Mr. Tilak De Zoysa of Colombo or failing him*

Dr. Sivakumar Selliah of Colombo or failing him*

Mr. Tharana Gangul Thoradeniya of Colombo or failing him*

Mr. Kalupathiranalage Don Gamini Gunaratne of Colombo or failing him*

Ms. Anjalie Maryanne Letitia Page of Colombo or failing her*

Mr. Migel Wasam Rizvi Nandajith Somaratne of Colombo or failing him*

as *my/our proxy to represent me/us to speak and vote for me/us on my/our behalf at the Annual General Meeting of the Company to be held on 29th June 2015 at 11.00 a.m and any adjournment thereof and at every poll which may be taken in consequence thereof.

FOR AGAINST

1) To receive and consider the Annual Report of the Board of Directors

along with the Financial Statements of the company for the year ended

31st March 2015

2) To re-elect Mr. T G Thoradeniya, who retires by rotation in terms

of Article 103 and 104 of the Articles of Association as a Director of

the Company.

3) To re-elect Mr. K D G Gunaratne, who retires by rotation in terms

of Article 103 and 104 of the Articles of Association as a Director of

the Company.

4) To re-appoint M/s Ernst & Young as Auditors of the Company for

the ensuing year and to authorize the Directors to determine their

remuneration.

5) To authorize the Directors to determine donations for the ensuing year

Signed this…………………………… day of ……………………………. Two Thousand and Fifteen.

…………………………………… Signature

1) *Please delete the inappropriate words.

2) Instructions as to completion are noted on the reverse thereof.

Form of Proxy


INSTRuCTIONS AS TO COMPLETION1. This Form of Proxy must be deposited at No. 215, Nawala Road, Narahenpita, Colombo 5 not less than forty eight (48)

hours before the time fixed for the Meeting.

2. In perfecting the Form of Proxy please ensure that all details are legible.

3. If you wish to appoint a person other than a Director of the Company as your proxy, please insert the relevant details in the space provided.

4. Please indicate with an ‘X’ in the space provided, how your proxy is to vote on the resolution. If no indication is given, the proxy in his discretion will vote as he thinks fit.

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

6. In the case of a Proxy signed by an Attorney, the Power of Attorney must be deposited at The Secretaries’ Office (i.e. P W Corporate Secretarial (Pvt) Ltd, No.3/17, Kynsey Road, Colombo 8) for registration.

7. In the case of joint holders the Form of Proxy must be signed by the first holder.

ContentsPerformance Highlights 2Corporate Philosophy 3Chairman’s Statement 6Managing Director’s Review 10The Board of Directors 14Senior Management 17Management Discussion & Analysis 18Corporate Governance 26Risk Management 33Sustainability Report 37Remuneration Committee Report 44Audit Committee Report 45

Annual Report of The Board of Directors on The Affairs of The Company 48Chief Executive Officer’s and Chief Financial Officer’s Responsibility Statement 52Statement of Directors Responsibilities 53Independent Auditor’s Report 54Statement of Financial Position 55Statement of Comprehensive Income 56Statement of Changes in Equity 57Cash Flow Statement 58Notes to the Financial Statements 59

NAME OF THE COMPANY Lanka Walltiles PLC

LEGAL FORM Lanka Walltiles PLC is a public limited liability company which was incorporated under the Companies Ordinance No.51 of 1938 as a public company on 24th day of September 1975. Pursuant to the requirements of the new Companies Act No. 7 of 2007, the Company was re-registered on 24th July 2007 and bears registration number PQ 55.

DIRECTORS Mr. W D N H Perera (Chairman)

Mr. J A P M Jayasekera (Managing Director)

Mr. T de Zoysa

Dr. S Selliah

Mr. T G Thoradeniya

Mr. K D G Gunaratne

Ms. A M L Page


REGISTERED OFFICE 215, Nawala Road, Narahenpita, Colombo 05 Telephone : + 94 -11 - 4526700

Facsimile : + 94 -11 - 2805463


Website : www.lankatiles.com

FACTORY Meepe, Padukka

Telephone : + 94 - 11 - 4309809

Facsimile : + 94 - 11 - 2859168


PARENT COMPANY Lanka Ceramic PLC

No. 20, R A De Mel Mawatha

Colombo 03

Telephone : + 94 - 11 - 4336644

Facsimile : + 94 - 11 - 4412518

SECRETARIES P W Corporate Secretarial (Pvt) Ltd

No. 3/17, Kynsey Road

Colombo 08

Telephone : + 94 - 11 - 4640360-3

Facsimile : + 94 - 11 - 4740588


BANKERS Commercial Bank of Ceylon PLC


Bank of Ceylon

HSBC Bank

People’s Bank

DFCC Bank PLC

AUDITORS Ernst & Young Chartered Accountants

201, De Saram Place

Colombo 10

Corporate Information

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Lanka Walltiles PLCAnnual Report 2014/15

Multiplying Value

Lanka Walltiles PLC215, Nawala Road, Narahenpita, Colombo 05 Sri Lanka

www.lankatiles.com

Lanka Walltiles PLC Annual Report 2014/15

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