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1INDUSTRIAL ASPHALTS (CEYLON) PLC ANNUAL REPORT 2018/2019

2 INDUSTRIAL ASPHALTS (CEYLON) PLC ANNUAL REPORT 2018/2019


Corporate Information 05

Notice of Annual General Meeting 06

Executive Director's Report 08

Annual Report of the Board of Directors 10

Statement of Directors' Responsibility 13

Board of Directors 14

Report of the Audit Committee 15

Report of the Remuneration Committee 16

Report of the Related Party Transactions Review Committee 17

Corporate Governance 18

Sustainability Reporting 21

Risk Management 25

Independent Auditors' Statement 30

Statement of Comprehensive Income 34

Statement of Financial Position 35

Statement of Changes in Equity 36

Cash Flow Statement 37

Notes to the Financial Statements 38

Shareholders Information 53

Form of Proxy 55

TABLE OF CONTENTS


CORPORATE INFORMATIONLegal Form Quoted Public Company with limited liability listed on the Colombo Stock Exchange

Date of Incorporation 30 June 1964

Date of Re-registration 1 August 2008

Accounting year end 31 March

New Registration Number PQ 185

Registered Office No.321, Negombo Road, Peliyagoda

Website www.iac.lk

Auditors A.I. Macan Markar & Co. Chartered Accountants 46- 2/1, 2nd Floor, Lauries Road, Colombo 04

Directors G. Ramanan (Executive Director) K. Naveenkanth (Managing Director/ CEO) S.P. Muthusammy (Non-Executive Independent Director) D. Daluwatte (Non-Executive Independent Director)

Company Secretaries & Registrars Ninecap Corporate Solutions (Pvt) Ltd No.55, Vinayalankara Mawatha, Colombo 10

Bankers Commercial Bank of Ceylon PLC Bank of Ceylon Hatton National Bank PLC


NOTICE OF ANNUAL GENERAL MEETINGNotice is hereby given that the 55th Annual General Meeting of Industrial Asphalts (Ceylon) PLC will be held on 10th September 2019 at the Auditorium of the National Olympic Committee of Sri Lanka "Olympic House", No. 100/9F, Independence Avenue, Colombo 07 at 10.30 a.m. to transact the following businesses;

1. To receive the Report of the Board of Directors and the Audited Financial Statements of the Company for the year ended 31st March 2019 together with the Report of the Auditor's thereon.

2. To declare a first and final dividend of Rs.4.50 per share for the year ended 31st March 2019 asrecommended by the Board of Directors.

3. To re-elect Mr. S. P. Muthusammy who retires in terms of Article 90 of the Articles of Association of the Company and offers himself for re-election as a Director.

4. To re-appoint Messrs A.I. Macan Markar & Co., Chartered Accountants, as Auditors of the Company for the ensuing year and authorize the Directors to determine their remuneration.

5. To authorize the Directors to determine and make donations.

Special Business :

Amendments to the Articles of Association ToconsiderandifthethoughtfittopassthefollowingSpecialResolution

"Resolved as a Special Resolution that the Articles of Association of the Company be amended as follows:

1. DeletethefirstsentenceofArticle10relatingtoSubArticle(1),(2)and(3)andrestatethefirstsentenceof Article 10 relating to Sub Article (1), (2) and (3) as follows; :

"10. The Board of Directors shall approve, without the need for approval by any ordinary resolution of the shareholders to

Powers to consolidate shares

(1) Consolidate and divide all or any of its share capital into shares of larger amount than its existing shares;

Power to cancel shares

(2) Cancel any shares which, at the date of the passing of the resolution, have not been taken or agreed to be taken by any person and diminish the amount of its capital by the amount of the shares so cancelled;

Power to subdivide shares

(3) Sub-divide its shares or any of them into shares of smaller amount than is fixed by the Memorandum of Association (subject nevertheless to theprovisions of the statutes), and so that the resolution where-by any share is sub-divided may determine that, as between the holders of the shares resulting from such sub-division one or more of the shares may have any such preferred or other special rights over, or may have such deferred rights, orbesubject toanysuch restrictionsascomparedwith theothersas theCompany has power to attach to unissued or new shares;"


NOTICE OF ANNUAL GENERAL MEETING [Contd.]

By order of the Board

(Sgd.)

Ninecap Corporate Solutions (Pvt) Ltd.

Secretaries

At Colombo,

13th August 2019

NOTES

A member entitled to attend and vote at the above Meeting is entitled to appoint a Proxy to attend and vote on behalf of him/ her.

A Proxy need not be a member of the Company.

A Form of Proxy is enclosed for this purpose.

ThecompletedFormofProxymust bedepositedat theOfficeof Industrial Asphalts (Ceylon)PLC, No.321,NegomboRoad,Peliyagodanotlessthan48hoursbeforethetimefixedfortheMeeting.

Payment of dividends

"125 TheBoardofDirectorsmayfromtimetotimeapprovethepaymentofafinalor an interimdividend to shareholders,where that appears to be justifiedby the Company's profits, without the need for approval by any ordinaryresolution of the shareholders."

Power to capitaliseprofits

"139 The Board of Directors shall approve without the need for approval by any ordinary resolution of the shareholders to capitalize any part of the amount for the time being standing to the credit of all or any of the Company's reserve accountsortothecreditoftheprofitandlossaccountorotherwiseavailablefor distribution amongst the members who would have been entitled thereto if distributed by way of dividend and in the same proportions on condition that the same be not paid in cash but be applied either in or towards paying up any amounts for the time being unpaid on any shares held by such members respectively or paying up in full unissued shares or debentures or securities of the Company to be allotted and distributed credited as fully paid up to and amongst such members in the proportion aforesaid or partly in the one way and partly in the other and the Directors shall give effect to such resolution."

"Provided that a share premium account and a capital redemption reserve fund may for the purpose of this Article only be applied in the paying up of the unissued shares to be issued to members of the Company as fully or partly paid bonus shares."

2. Article 125 be deleted and the following Article be inserted as Article 125 in the Articles of Association of the Company:

3. DeletethefirstsentenceofArticle139andrestatetheArticle139asfollows:


EXECUTIVE DIRECTOR'S REPORTIt gives me great pleasure to welcome our shareholders to the 55th Annual General Meeting of Industrial Asphalts (Ceylon) PLC.

OPERATING ENVIRONMENT

The operating environment for the year under review wasayearofgreatchallengesrequiringsignificantattention from the management. We were operating under the heavy influence of macro factors bothsocial and economic.

Macro Environment

Taking a clinical view of the macro environment, we can assess that time is a decoder of a country's true capabilities. As civilizations always depended on concerted effort to ensure economic wellbeing through the wise use of the levers of power, Sri Lanka is stemmed by its limitations. Paramount of these is the collective decision-making ability which culminates in the policy making, policy consistency and execution. Nothing is new for the trained eye, who have seen time and again how nations with great potential struggle to break out of ancient beliefs and drawbacks. Today, a nation can only be held down by the limitation of the collective - i.e, the collective dynamics of the various sections of the society in whatever way they are segmented. We as a nation continue to be categorized amongst less sophisticated economies of the world.

Operations of the Company

Thefinancial yearunder reviewwasapivotal yearforIAC.Lastfinancialyearwehadinitiatedapainfulrestructuring process with operations being shifted out of traditional premises located at New Nuge Road, Peliyagoda to a temporary facility also located withinPeliyagoda.ThisrelocationhasbenefitedtheCompany in two-folds, our 350 perches property has been leased to a tenant who is considered as one of the blue-chip corporates and monetizing the property. Secondly, the relocation has enabled the companytomoveawayfromtheoldandinefficientproduction processes to much more efficientproduction and inventory management for a scaled down product range. Our focus shifted back to bitumen-based products with selective introduction of epoxy-based products. This has augmented well for the Company. Our turnover rebounded during theyearwithadequateprofitability.Whilstwehaveseen decline in gross profit margin, our overallvolume growth has compensated for the decline. We are building on sustainable products and a sustainable customer base; we are confident ofcontinued growth in the coming years which would meet and exceed the shareholder expectations.

Financial Performance

Totalturnoversawanincreaseof243%,withprofitsdecline toRs.15.7million reflecting the impact onearnings from the one-off gain we had last year due to the gain from our real estate holding.

BITUMEN, THE BLACK GOLD

We have deep knowledge in Bitumen and Bituminous products. The range of bitumen-based products and innovation is second to none in the South and South East Asian region. We can proudly claim that we are only second to Anglo-Dutch giant Shell Petroleum from a global context. Intellectual Property is the currency of a modern economy, our IP in bitumen will reap us good reward in the years to come as we master the methodologies to harvest what we have. We go beyond IP, we have trademarks which are household names. They have become so prevalent that it is almost generic and widely branded under our brand name. A case in point is NOLEAK®. The brand NOLEAK® was launched in 1964 where our founding directors and management of IAC took inspiration from the James Bond movie - Dr.NO, starring the legendry actor Sean Connery. You are in 1964 and you have a revolutionary product for patching up leaks, what name should it carry? Yes, NOLEAK® is a brand owned by IAC but over the years the right to the brand had been neglected and left on wayside to wither away. Ironically, the brand survived through endemic counterfeiting and copycat branding. Today, IAC's market share in the NOLEAK market is less than 5%. In 2015, when the management change happened, we initiated a process of registering the iconic NOLEAK® brand under various Trademark Classes. The challenges were many, where other companies and individuals both related and unrelated to our industry with varying degrees of repute were essentially projecting themselvesas the owners of the brand. Our tireless effort has not only dislodged them from the list of registered brands but also ensured that our own registration of the brands was successful. Happy to announce that we have completely secured the NOLEAK® brand. As mentioned earlier, our portfolio of brands extendsbeyondNOLEAK®,mostaremorespecificto industries and functionalities. They too have been successfully registered and our commercial interest secured. We are now embarking on the exercise of securing our proprietary formulation for these products.


STRATEGIC INITIATIVE

At the time of reporting, the Colombo Stock Market has seen a rebound and coming off from a 5 year rout, the longest bear market on record. IAC would be looking to capitalize on the re-energized market by dipping into our deep knowledge and expertise in capital markets. On the traditional business lines, we are hoping to expand further to capture emerging opportunities. In the previous reports to the shareholders, I mentioned that we had initiated a process of carving out the traditional business activities to a separate entity. Whilst this was a good strategic move at that time, the Board is now of a contrarian view. We have essentially rolled back this initiative and the traditional business line remain within the company itself.

PROSPECT FOR 2020 AND BEYOND

A stronger Company with a world class management team. A focus on value creation. The ability to projectitsinsightsintocarefullyselectedeconomicactivities. From a position of strength I am very confidentofthepositiveprospectsfortheCompanyfor 2020 and beyond.

(Sgd)

G.Ramanan

Executive Director

EXECUTIVE DIRECTOR'S REPORT [Contd.]


ANNUAL REPORT OF THE BOARD OF DIRECTORSFor the financial year ended 31 March 2019

The Directors of Industrial Asphalts (Ceylon) PLC have pleasure in presenting their Annual Report on the affairs of the Company together with the audited Financial Statements for the year ended 31 March 2019 which were approved by the Board on 12th of August 2019.

Review of Operations

The Company reported a net profit after tax ofRs.15.7MnandanetprofitaftertaxofRs.473.6Mnwas reported in the previous year. A more comprehensive review of the operations of the Companyduring thefinancial yearand the resultsof those operations are contained in the Executive Director's Review on pages 8 to 9 of the Annual Report. This report forms an integral part of the Directors' Report.

Principal Activities

The Company's principal activities are the manufacture and distribution of bituminous products; distribution of a specialist range of surface coatings and industrial chemicals.

There were no significant changes to the principalactivities of the Company during the year under review.

Legal Status

Industrial Asphalts (Ceylon) PLC was incorporated on 30 June 1964 under the provisions of the Companies Ordinance (Cap 145) and re-registered under the Companies Act, No.7 of 2007. The Company is listed on the Main Board of the Colombo Stock Exchange and due to non-compliance with theMinimumPublicHoldingrequirementspecifiedin Rule 7.13.1(a) of the Listing Rules the Company has been transferred to the Watch List with effect from 2nd July 2018. The Board of Directors of the Company is currently in the process of taking measures to comply with the aforesaid Rules on Minimum Public Holding.

Shares

Stated Capital

The Stated Capital of the Company as at 31 March 2019 was Rs.6.6Mn consisting of 666,562 ordinary shares.

Share Information and Substantial Shareholders

As at 31 March 2019, there were 386 registered Shareholders. Share information and the twenty largest Shareholders as at 31 March 2019 are indicated in pages 53 and 54 of the Annual Report.

The Financial Statements of the Company are set out in pages 34 to 52 of the Annual Report.

Reserves

The movement of the reserves is given on page 36 under Statement of Changes in Equity.

Corporate Donations

During the year under review, the Company made no charitable donations.

Taxation

The Company has adopted accounting policy of making provision for deferred taxation. The Company's liability to income tax has been computed in accordance with the provisions of the Inland Revenue Act No. 24 of 2017. Details are given in Note 9 to the Financial Statements.

Information relating to market value of a share and information on share trading is stated under Shareholder and Investors' information on page 54 of the Annual Report.

Finance

Accounting Policies

The Company prepared its Financial Statements according to the Sri Lanka Accounting Standards (SLFRS/ LKAS). All relevant applicable standards have been followed in presenting the Financial Statements for the year ended 31 March 2019. The significant accountingpolicies adopted in thepreparation of the Financial Statements are given in pages 38 to 43 of the Annual Report.

Financial Results

Summarized results for the financial year underreview is set out below.

Year ended 31 March 2019Rs.'000

2018Rs.'000

Revenue 151,254 44,067

Results from operating activities

21,374 485,445

Profit/(Loss)beforeTax 5,916 473,440

Income Tax expense 9,862 214

Profit/(Loss)afterTax 15,778 473,655


Investment Property

The Land of the Company are classified andaccounted for as Investment Property. The Directors have adopted the fair value model for accounting for Investment Property. Details are given in note 13 to the Financial Statements.

Capital Expenditure

Details of property, plant and equipment and their movement during the year are given in Note 11 to the Financial Statements.

Events after the Reporting Date

There were no material events occurring after the financial reporting date which requires anadjustment to or a disclosure in the FinancialStatements, other than as disclosed in Note 31 to the Financial Statements.

Directors' Responsibility for Financial Reporting

The Directors' responsibility in relation to the Financial Statements is detailed under the Statement of Directors' responsibility on page 13 of the Annual Report.

Board of Directors

The following were the Directors of the Company as at 31 March 2019.

1. Mr. G. Ramanan2. Mr. K. Naveenkanth3. Mr. S.P. Muthusammy4. Mr. D. Daluwatte

Mr. Mahinda Perera, Independent Non-Executive Director who was on Board as at 31st March 2018 retired from being a Director of the Company with effect from 18th September 2018.

Directors and their shareholding as at 31 March 2019 were as follows:

ANNUAL REPORT OF THE BOARD OF DIRECTORS [Contd.]

Year ended 31 March No. of shares

31.03.2019

No. of shares

31.03.2018

Mr. G. Ramanan 445,837 445,837

Mr. K. Naveenkanth 2,669 N/A

Mr. M. Perera(retired w.e.f.18.09.2018)

N/A Nil

Mr.S.P. Muthusammy Nil Nil

Mr. D. Daluwatte Nil N/A

Retirement by Rotation and Re-election

Mr. S. P. Muthusammy the Independent Non-Executive Director will retire in terms of Article 90 of the Articles of Association of the Company and offers himself for re-election as a Director at the forthcoming AGM.

Related Party Transactions

The Company's transactions with Related parties, as detailed in Note 32 to the Financial Statements, have complied with Colombo Stock Exchange Listing Rule 9.3.2 and Code of Best Practices on Related Party Transactions under the Securities Exchange Commission Directive issued under Section 13 (c) of the Securities Exchange Commission Act as declared by the Board of Directors.

Directors' Interest

As required by the Companies Act, No.7 of 2007, an Interests Register was maintained by the Company during the period under review. Directors have made declarations as provided for in Section 192 (2) of the Companies Act. The Interests Register is available for inspection as required under the Companies Act.

Remuneration and Fees

Details of Directors' remuneration and fees are set out in Note 8 to the Financial Statements.

Risk and Internal Control

TheBoardofDirectorsissatisfiedthatthereexistsan effective and comprehensive system of internal controls to monitor, control and manage the risks to which the Company is exposed, to carry out its business in an orderly manner, to safeguard its assets and to secure as far as possible the reliability and accuracy of records.

Corporate Governance

The Directors acknowledge their responsibility for the Company's corporate governance and the system of internal controls. The Directors are responsible to the Shareholders for providing strategic direction to the Company and safeguarding the assets of the Company. The Board is satisfied with theeffectiveness of the system of internal control for the period up to the date of signing the Financial Statements.


The main corporate governance practices of the Company are set out on pages 18 to 20 of the Annual Report.

The performance of the Company is evaluated at regular review meetings. These meetings provide an opportunity to ensure that progress is in line with agreed targets. Regular Board Meetings are held to further strengthen the review process and ensure compliance with all statutory and regulatory obligations.

Statutory Payments and Compliance with Laws and Regulations

The Directors confirm that, to the best of theirknowledge, all taxes and duties due to the Government and all contributions, levies and taxes payable in respect of the employees and all other known statutory dues as at the reporting date have been paid and/ or provided.

Employee Issues and Industrial Relations

There were no material issues relating to employees and Industrial relations during the financial yearunder review.

Going Concern

The Board of Directors has reviewed the Company's business plans and is satisfied that theCompanyhas adequate resources to continue its operations in the foreseeable future. Accordingly, the Financial Statements are prepared on the going concern concept.

Equal Opportunities

The Company is committed to provide equal opportunities to all employees irrespective of their gender, marital status, age, religion, race or disability. It is the Company's policy to give full and fair consideration to persons, with respect to applications for employment, continued employment, training, career development and promotion, having regard for each individual's particular aptitudes and abilities.

Independent Auditors

The Company's Auditors during the period under review were Messrs A.I. Macan Markar & Co., Chartered Accountants. The fees paid to auditors are disclosed in Note 8 to the Financial Statements.Based on the declaration from Messrs A.I. Macan Markar & Co., Chartered Accountants, and as far as

ANNUAL REPORT OF THE BOARD OF DIRECTORS [Contd.]

the Directors are aware, the Auditors do not have any relationship or interest in the Company other than as disclosed in the above paragraph.

Messrs A.I. Macan Markar & Co., Chartered Accountants, have expressed their willingness to continue in office asAuditors of theCompany forthe ensuing year.

In accordance with the Companies Act No. 7 of 2007, a resolution proposing the re-appointment of Messrs A.I. Macan Markar & Co., Chartered Accountants, as Auditors to the Company for the ensuing year will be submitted at the forthcoming Annual General Meeting.

Independent Auditor's Report

The Independent Auditor's report on the Financial Statements is given on page 30 to 33 of the Annual Report.

Annual General Meeting

The 55th Annual General Meeting of the Company will be held on 10th September 2019. The notice convening the meeting and the agenda are given on pages 6 to 7 of the Annual Report.

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

(Sgd.)G. RamananExecutive Director

(Sgd.)K. NaveenkanthManaging Director/ CEOColombo12 August 2019

(Sgd.)Ninecap Corporate Solutions (Pvt) Ltd.SecretariesColombo12 August 2019


STATEMENT OF DIRECTORS’ RESPONSIBILITYSet out below are the responsibilities of the Directors of the Company.

The Board of Directors are responsible for preparation of Financial Statements for each financial yearandpresentFinancialStatements tothe Shareholders in accordance with the relevant provisions of the Companies Act No.7 of 2007 and other statutes which are applicable in preparation of Financial Statements. The Financial Statements comprise of the Statement of Financial Position as at 31 March 2019, the Statement of Comprehensive Income, Statement of Changes in Equity, Cash Flow Statement for the year ended and Notes thereto.

The Financial Statements of the Company for the year ended 31 March 2019 incorporated in this Annual Report have been prepared in accordance with the Companies Act No.7 of 2007, Sri Lanka Accounting Standards (SLFRSs and LKASs) and Listing Rules of the Colombo Stock Exchange.

The Directors are responsible to select suitable accounting policies which are applied in a consistent manner and appropriate estimates and judgementsmadetoreflectthetruesubstanceandform of transactions.

As per section 148 of the Companies Act No.7 of 2007, the Directors are required to maintain sufficient accounting records to disclose, withreasonable accuracy, the financial position of theCompany. The Directors have therefore caused the Company to maintain proper books of accounts and regular review financial reports at their meetings.The Board also reviews and approves all interim Financial Statements prior to their release.

The Directors have taken reasonable measures to safeguard the assets of the Company and to prevent and detect frauds and other irregularities. In this regard, the Directors have laid down effective and comprehensive internal control systems.

The Auditors of the Company, Messrs A.I. Macan Markar & Co., Chartered Accountants, who were appointed in accordance with a resolution passed at the last Annual General Meeting were provided with all necessary information required by them in order to carry out their audit and to express an opinion which is contained on page 30 to 33 of this Annual Report.

Directorsconfirmthatafterconsideringthefinancialposition, operating conditions and regulatory and other factors, the Directors have a reasonable expectation that the Company possesses adequate resources to continue in operation for the foreseeable future and that the Going Concern basis is the most appropriate in the preparation of these Financial Statements.

The Board of Directors is of the opinion that Board has discharged its responsibilities as set out above.

.

By order of the Board

(Sgd.)

Ninecap Corporate Solutions (Pvt) Ltd.

SecretariesColombo12 August 2019


BOARD OF DIRECTORSG. Ramanan

CFA, MBA (University of Chicago, Booth School of Business)Executive Director(Appointed to the Board on 30th May 2014)

Mr. Ramanan is an investor and entrepreneur who has wide expertise in financialmarkets, emergingtechnology and corporate value creation. He draws from his srellar corporate life more than 20 years at CXO level which propelled him to work closely with industry leaders toventureoutside theconfinesofthe corporate world to establish a pioneering private equity practice in Sri Lanka.Currently focused on expanding his sphere of expertise into the bigger and challenging Indian market with several initiatives into that markey whilst consolidating the portfolio of investments in Sri Lanka.

Mr Ramanan is a CFA Charter Holder, a Chartered Management Accountant, and obtained his MBA from University of Chicago Booth School of Business.

K. Naveenkanth

Managing Director/ CEO(Appointed to the Board on 29th August 2018)

Mr. K. Naveenkanth has a very strong background in commodity trading and investing into turnaround opportunities in traditional lines of business specifically in commodity trading. He is wellacquainntedinformulatingandstructuringfinancingfor commodity trading opportunities both locally and in international commodity trading centers. He has extensive experience in handling challenging operatingenvironments,specificallyinrestructuringcompanies with weak internal structures. Also Mr. K. Naveenkanth is well conversant with crisis management, formulating and executing strategic plans, rolling out effective marketing strategies and working with multiple regulatory authorities to achievecorporateobjectives.

S.P. Muthusammy

Non-Executive Independent Director(Appointed to the Board on 3rd November 2014)

Mr. Muthusammy has being in the business of tea plantation since 1961 and counts over 15 years of experience as a tea planter.

In 1990 Mr. Muthusammy moved into the business of growing, processing and exporting of Organic food products. Currently he is the Chairman of GreenfieldHoldings(Pvt)LimitedandtheSubsidiaryCompanies and the Associate Companies of the GreenfieldGroup.

D. Daluwatte

Non-Executive Independent Director(Appointed to the Board on 20th September 2018)

Mr. Daluwatte has held senior corporate management positions in diverse business operations in Banking, Finance, manufacturing, trading and service industry. The positions held includeChiefOperatingOfficerofMerchantBankofSri Lanka & Finance PLC (January 2015 to August 2018), Chief Executive Officer of MCSL FinancialServices (April 2013 to December 2014),Group Joint Managing Director of George Steuart & Company Limited (April 2008 to September 2012),Group CFO/Group Finance Director of George Steuart & Company Limited (October 2003 to March 2008), Deputy General Manager – Corporate Finance at Hatton National Bank PLC (July 1999 to September 2003), Assistant General Manager – Corporate Finance at Hatton National Bank PLC (July 1996 to June 1999), Chief Manager Corporate Finance at Hatton National Bank PLC (January 1995 to June 1996), Chief Accountant at Hatton National Bank PLC (October 1989 to December 1994) and Comptroller at Emirates Bank International Ltd Colombo(May 1988 to December 1989). Further, he served as Vice Chairman of the Finance House Association of Sri Lanka (FHA) and has represented the FHA at the Ceylon Chamber of Commerce committee. He is a Past President of Round Table Sri LankaandwasamemberoftheAsiaPacificboard.

He is a Fellow Member of Institute of Chartered Accountants of Sri Lanka(FCA) , Fellow Member of Chartered Institute of Management Accounts UK (FCMA) , Member of the Chartered Institute of IT UK (MBCS). Further, He is a life Member of Association of Professional Bankers of Sri Lanka, Member of Sri Lanka Institute of Directors and a Member of the CanfieldUniversityAlumniCommunity.

Mr.Daluwatte presently functions as a Non-Executive Director of Peoples Merchant Finance PLC and is a member of Integrated Risk Management Committee.


REPORT OF THE AUDIT COMMITTEEComposition of the Audit Committee and meetings

The Audit Committee of Industrial Asphalts (Ceylon) PLC comprises of the two (2) Independent Non-Executive Directors, Mr. Duleep Daluwatte (Chairman of the committee) and Mr.S.P.Muthusammy. The Directors have the required financial knowledgeand professional skills to carry out their functions effectively and efficiently. The Chief ExecutiveOfficerandtheFinancialControllerattendmeetingson invitation. The External Auditors, Messrs A.I. Macan Markar & Co., Chartered Accountants attend meetings on invitation. The Company Secretary functions as the Secretary to the Audit Committee. The Audit Committee had four (4) meetings during the financial year ended 31 March 2019. Theattendance of the Committee members at these meetings was as follows:

Name of Director Attendance

Mr. D. Daluwatte (Chairman - Audit Committee) 2

Mr. M. Perera (retired w.e.f. 18.09.2018) 2

Mr. S.P. Muthusammy 4

Responsibilities of the Audit Committee

The Audit Committee is responsible to review the adequacy and effectiveness of the internal controls and the risk management system to safeguard the assets of the Company and the compliance with legal and regulatory requirements. It is also responsible for supervision of all matters associated with the appointment, terms, remuneration and performance of the External Auditors and for reviewing the scope and results of the audit.

During the financial year ended 31 March 2019the Audit Committee reviewed and discussed the Quarterly Accounts and Annual Financial Statements with the Management in order to ensure its compliance with statutory requirements of Sri Lanka Accounting Standards, Companies Act No.7 0f 2007 and the listing rules of the Colombo Stock Exchange; and recommended to the Board of their approval prior to releasing the same to the Colombo Stock Exchange.

During the year the Audit Committee reviewed the adequacy and the effectiveness of the Company’s internal control system and the procedures relating to governance and risk management system. Accordingly, the Audit Committee is satisfiedthat the Company’s internal controls and the risk management framework in place provide a reasonable assurance that the financial positionof the Company is adequately monitored and the Company’s assets are safeguarded.

External Audit

The External Auditor’s letter of engagement, including the scope of the audit was reviewed and discussed by the Audit Committee with the Management and the External Auditors prior to the commencement of the annual audit. Further the audit committee reviewed the Management Letter for the financial year ended31stMarch2018withthe Management and the External Auditors during the year and necessary actions were taken where required.

Before the conclusion of the audit the Committee met with the External Auditors to discuss key audit matters and agree on their treatment.

The Audit Committee is satisfied that theindependence of the External Auditors has not been impaired by any event or service that gives rise to a conflictofinterest.

After evaluating and discussing the performance of the External Auditors with the Management of the Company, the Audit Committee has recommended to the Board of Directors that Messrs A.I. Macan Markar & Co., Chartered Accountants, be re-appointed as External Auditors for the financialyear ending 31 March 2020 at a remuneration to be determined by the Board, subject to the approvalof the Shareholders at the Annual General Meeting.

(Sgd)Duleep DaluwatteChairmanAudit Committee12 August 2019


REPORT OF THE REMUNERATION COMMITTEEThe Remuneration Committee of Industrial Asphalts (Ceylon) PLC comprises of the two (2) Independent Non-Executive Directors, Mr. S.P. Muthusammy (Chairman of the committee) and Mr. D. Daluwatte. The Company Secretary functions as the Secretary to the Remuneration Committee. The Remuneration Committeehadone(1)meetingduringthefinancialyear ended 31 March 2019. The attendance of the Committee members at these meetings was as follows:


Mr. S.P. Muthusammy (Chairman – Remuneration Committee)

1

Mr. M. Perera (retired w.e.f. 18.09.2018)

1

Mr. D. Daluwatte N/A

The Remuneration Committee is responsible for reviewing and recommending the framework and policy for remuneration of Senior Management. It is ensured that the remuneration at each level of management is competitive and based on performance they are rewarded in a fair manner.

The policy on remuneration is geared to attract and retain the best professional talent to the Company and to motivate and encourage them to perform at the highest possible level.

Evaluation of performance ensures equality and fairness without discrimination of gender, age, ethnicity, religion or any other consideration.

The aggregated remuneration of the Board of Directors and the Senior Management team are disclosed in the notes to the Financial Statements.

(Sgd.)S.P. MuthusammyChairmanRemuneration Committee12 August 2019


REPORT OF THE RELATED PARTY TRANSACTIONS REVIEW COMMITTEEComposition of the Related Party Transactions Review Committee and meetings

The Board has established the Related Party Transactions Review Committee (RPTRC) as a Board Sub-Committee. As at 31st March 2019 RPTRC comprised of two (2) Independent Non-Executive Directors, Mr.S.P. Muthusammy (Chairman of the committee) and Mr. D. Daluwatte. The Company Secretary functions as the Secretary to the RPTR Committee. The Committee had four (4) meetings duringthefinancialyearended31March2019.


Mr. S.P. Muthusammy

(Chairman - RPTRC)4

Mr. M. Perera (retired w.e.f. 18.09.2018) 2

Mr. D. Daluwatte 2

Objective of the Committee

Related Party Transactions Review Committee was formed to ensure that the Company complies with the requirements of the Code of Best Practices on Related Party Transactions issued by the Securities and Exchange Commission of Sri Lanka and the Section 9 of the Listing Rules of Colombo Stock Exchange.

The objective of these rules pertaining to RelatedParty Transactions is to ensure that the interests of shareholders as a whole are taken into account by the Company when entering into Related Party Transactions.

Role of the Committee

Except for transactions mentioned in Rule 9.5 of CSE Listing Rules pertaining to Related Party Transactions, all other Related Party Transactions are reviewed in advance by the RPTRC. If the transaction is expressed to be conditional on such review, prior to the completion of the transaction the approval of the Committee will be obtained.

The Committee shall update the Board of Directors on the Related Party Transactions of the Company on a quarterly basis.

Make recommendations to obtain shareholder approval for applicable related party transaction as per the provisions in the Code of Best Practice and Section 9 of CSE Listing Rules. Such approval shall be obtained either prior to the transaction being

entered into or, if the transaction is expressed to be conditional on such approval, prior to the completion of the transaction.

The Committee shall make immediate market disclosures on applicable related party transactions as required by the CSE Listing Rules.

Further shall make appropriate disclosures on related party transactions in Annual Report as required by the CSE Listing Rules.

Performance Review during the Year

Details of Related Party Transactions entered into by the Company during the year are disclosed in Note 32 of Notes to the Financial Statements.

Declaration

Non-recurrent Related Party Transactions

There were no any non-recurrent Related Party Transactions during the financial year which requireadditional disclosures in the 2018/19 Annual Report asspecifiedbytheSection9.3.2oftheListingRulesofColombo Stock Exchange.

Recurrent Related Party Transactions

There were no any recurrent Related Party Transactions during the financial year which require additionaldisclosuresinthe2018/19AnnualReportasspecifiedby the Section 9.3.2 of the Listing Rules of Colombo Stock Exchange.

TheCommitteeconfirmsthatallapplicablerulesintheCode of Best Practice on Related Party Transactions and Section 9 of CSE Listing Rules have been complied with by the Company during the financialyear ended 31st March 2019.

A Declaration by the Board of Directors on compliance with the Rules pertaining to the Related Party Transactions is included in the Annual Report of the Board of Directors on page 11 of this report.

(Sgd.)S.P. MuthusammyChairmanRelated Party Transactions Review Committee12 August 2019


CORPORATE GOVERNANCEThe Board of Directors is committed to maintain the highest standards of corporate governance practiced in the interest of stakeholders while maintaining business integrity, appropriate ethical standards and professionalism in all its operations and activities. The Board ensures that the Company is in compliance with relevant statutory and regulatory requirements including requirements of the Companies Act No.7 of 2007, listing rules of Colombo Stock Exchange, requirements of Securities and Exchange Commission of Sri Lanka and other applicable laws and regulations. The Directors are responsible to establish sound internal control systems including comprehensive risk management framework, to safeguard the Company’s assets, ensure accuracy and reliability of records and accountable for overall management of the Company.

In terms of section 7.10 of the listing rules of the Colombo Stock Exchange, Industrial Asphalts (Ceylon) PLC complied with the relevant provisions under Corporate Governance.

The Board of Directors

Composition of the Board of Directors and Meetings

The Board of Directors is responsible for the governance practices established within the Company. As at 31 March 2019 the Board comprised of Managing Director/ Chief Executive Officer, Executive Director and two IndependentNon-Executive Directors. Mr. Mahinda Perera, Independent Non-Executive Director who was on Board as at 31st March 2018 retired with effect from 18th September 2018.

TheprofilesofalltheDirectorsdetailingtheirareasof expertise are given on page 14 of the Annual Report.

The independence of the Non-Executive Directors were determined according to the CSE listing rules. Each Non-Executive Director has submitted a declaration of independence/ non-independence for the year. The Board makes a determination annually as to the independence/ non-independence of each Non-Executive Director.

The Non-Executive Directors bring independent objectivejudgementtobearonBoarddecisionsbyconstructively challenging management and helping todeveloptheCompany’sstrategicobjectives.

The Board met on four (4) occasions during the year under review. The Directors’ attendance at the Board meetings held is given below.

The Board is also encouraged to seek independent professional advice when necessary, at the Company’s expense and also have access to the Company Secretary to obtain advice and services as required.

Delegation of Authority

The Board has delegated the authority to the Chief Executive Officer (CEO)/ Managing Director tofacilitate the effective function of daily business affairs of the Company as per the set strategies, goals and objectives of the Board and to ensurehigh standards of governance. A team of Senior Management assists CEO in carrying out the day to day functions of the Company.

The Board has discussions with the CEO on the short term,mediumtermand longtermobjectivesof the Company. Additionally the Board meets with Senior Management regularly to review operational matters and disseminate the Board’s plan for the future.

Appointments to the Board

The appointment of Directors to the Board is decided by the Board in accordance with the Articles of Association of the Company and in compliance with rules of governance.

Information relating to change in Directorate is communicated to the Shareholders by way of appropriate announcements to the Colombo Stock Exchange.

Re-election of Directors

In accordance with the Articles of Association of the Company, members comprising one third of the Board of Directors except the Managing Director/ CEO, are required to stand for retirement by rotation at least once in every three years. A retiring Director is eligible for re-election at the Annual General Meeting.

Name of Director Board Meetings attended

Mr. G. Ramanan 4

Mr. K. Naveenkanth 2

Mr. S.P. Muthusammy 4

Mr. M. Perera (retired w.e.f. 18.09.2018)

2

Mr. D. Daluwatte 2


Company Secretary

The Company Secretary is appointed by the Board of Directors of the Company. The Company Secretary liaises with the Colombo Stock Exchange on the Company’s communications. It is the responsibility of the Company Secretary for making announcements with regard to AGMs and EGM to the shareholders and for accurate recording of proxy voting.

Remuneration Committee

The composition of the Remuneration Committee and the Report of the Remuneration Committee is given on page 16 of this Annual Report.

Related Party Transactions Review Committee

The composition of the Related Party Transactions Review Committee and the Report of the RPTR Committee is given on page 17 of this Annual Report.

Audit Committee

The composition of the Audit Committee and the Report of the Audit Committee is given on page 15 of this Annual Report.

Accountability

Financial Reporting

The Board of Directors is responsible for timely publication of Financial Statements annually and quarterly basis. These Financial Statements are prepared based on Sri Lanka Accounting Standards (SLFRS/ LKAS) and in compliance with the listing

Rule No. Requirement Compliance Status

Details

i. 7.10.1(a) The correct number of Executive/ Non-executive Directors

Compliant Two (2) Directors were Non-executive and two (2) Directors – MD/ CEO and Executive Director were Executive

ii. 7.10.2(a) The correct number of Independent Non-executive Directors

Compliant Two Non-executive Directors were Independent Directors

7.10.2(b) Non-executive Directors should submit a signed and dated declaration of their independence/ non-independence

Compliant The Board obtained declaration from the Non-executive Directors

iii. 7.10.3(a) Annual determination of criteria of independence and declaration of same by Board

Compliant The Board of Directors annually determine and disclose the names of Directors deemed to be ‘independent’.

Following table provides the summary of compliance with the Corporate Governance requirements under the listing rules of the Colombo Stock Exchange during the year under review.

CORPORATE GOVERNANCE [Contd.]rules of Colombo Stock Exchange. Board ensures thatthesepublicationsincludeallrelevantfinancialand non-financial information that needs to becommunicated to the shareholders.

Internal Controls

The Board of Directors is responsible for maintaining a sound internal control system within the organization to safeguard the Company’s assets. The Board has delegated this responsibility to the Audit Committee and the responsibility of the Audit Committee with this regard is given in the page 15 of this Annual Report.

Investor Relations and Communication to shareholders

The Board of Directors policy is to disclose all relevant information to stakeholders, within the boundsofprudentcommercialjudgement.

The Company ensures that the notice of the AGM along with the Annual Report containing the performanceoftheCompanyforthefinancialyearunder review are delivered to the shareholders at least 15 working days prior to the scheduled meeting.

Annual Report of the Board of Directors

The Annual Report of the Board of Directors on the Affairs of the Company for 31 March 2019 is given on pages 10 to 12 of this Annual Report.


Rule No. Requirement Compliance Status

Details

7.10.3(c) Published a brief resume in the Annual Report, of each Director of the Board, including each Director’s area of expertise

Complaint Refer ‘Board of Directors’

iv. 7.10.5(a) Appointment of Remuneration Committee Compliant Remuneration Committee was formed

7.10.5(a) The number of Independent Non-executive Directors in the Remuneration Committee

Compliant Refer ‘Report of the Remuneration Committee’

7.10.5(a) Whether the Chairman of the Remuneration Committee is a Non-executive Director

Compliant Chairman is a Non-executive Director

7.10.5(b) Disclosure on the functions of the Remuneration Committee

Compliant Refer ‘Report of the Remuneration Committee’

7.10.5(c) Disclosure in the Annual Report on the aggregate remuneration paid to Executive and Non-executive Directors

Compliant Refer page 44, Note No.08

v. 7.10.6(a) The number of Independent Non-executive Directors in the Audit Committee

Compliant Refer ‘Report of the Audit Committee’

7.10.6(a) Whether the Chairman of the Audit Committee is a Non-executive Director

Compliant Chairman is a Non-executive Director

7.10.6(a) Whether the Chairman or one member of the Audit Committee is a member of a recognized professional accounting body

Complaint Chairman is a member of a professional accounting body

7.10.6(b) Disclosure on the functions of the Audit Committee


7.10.6(c) Appointment of Audit Committee Compliant Audit Committee was formed

7.10.6(c) The basis for determining external auditors as being independent


vi. 9 Appointment of Related Party Transactions Review Committee (RPTRC)

Compliant Related Party Transactions Review Committee was formed

9.2.1 Except for transactions mentioned in Rule 9.5 all related party transactions should be reviewed by Related Party Transactions Review Committee.

Compliant Refer ‘Report of the Related Party Transactions Review Committee’

9.2.2 Related Party Transactions Review Committee should comprise a combination of Non-Executive Directors and Independent Non-Executive Directors.


9.2.2 One Independent Non-Executive Director shall be appointed as Chairman of the Related Party Transactions Review Committee.


CORPORATE GOVERNANCE [Contd.]


SUSTAINABILITY REPORTWe understand that, globally, stakeholders at large are demanding that companies they associate with demonstrate non-financial metrics to definesustainability and sustainable operations. Financial profitability as the sole criteria of a company'ssuccess is an outdated concept and out rightly rejected by most right-thinking stakeholders andthe organizations they support. More importantly, being an environmentally, economic and socially sustainable organization is helping companies earn corporate respect and drive customer loyalty, not to mention earning respect from peers and industry. In an era of growing global competition, climate change and diminishing resources, companies that put sustainability as their foremost goal are winning the race.

As one of the oldest, bitumen manufactures in existence in Sri Lanka, we are living proof of continuous improvement and sustainable business practices. While we celebrate over-a-century of existence in the year 2014, we consider this an opportunity to strengthen our conceptions of business practices that are environmentally and socially sustainable, while also being financiallysustainable, the key requirement of any commercial entity. In our journey over the decades within thecorporate arena of Sri Lanka, an overarching tenet has always been to ensure that our decisions, actions and impacts are sustainable and positive at all times. We are extremely cognizant that as a corporate steward involved in numerous business and industry areas, we must set an example to others, while making our stakeholders a part of our journey of progress. In this Sustainability Report,we set out the measures we take to ensure that sustainability is infused along the length and breadth of our value chain. Simultaneously, we continue to invest time and resources in understanding how we can enhance our proud track record as one of the most sustainable organizations in the country.

We believe that we have a responsibility towards our stakeholders to ensure that they are given a clear insight into how we have managed their business and how we intend to work in the future. This, therefore, is our honest effort in sustainability reporting. The report presents a balanced analysis of our sustainability performance strategy in relation to issues that are relevant and material to the Company and to our stakeholders, while complementing our ongoing engagement with stakeholders. This report focuses on key developments and includes only the most pertinent indicators in order to provide stakeholders with an integrated and succinct view

of our sustainability performance. Sustainability in our business is built on natural capital, social capital and economic capital, all of which must be taken together rather than in isolation for a true picture of sustainability. It is these capital segments that run through as themes of this report.

Collectively,theIACBoardhassignificantcorporateacumen, skill, knowledge and experience aided by astute and knowledgeable support and information from senior management and external specialists whentheneedarisestobesufficientlyinformedandbe independent. Board governance ensures that the Company discloses related party transactions periodically and if any director has a direct or leading interest in any matter being discussed, they will abstain from opining, discussing and voting, all ofwhichcould influence theoutcome.ThisavoidsconflictofinterestandensuresindependenceoftheBoard. IAC has established a governance structure that remains aligned to the laws of the land and ensures compliance to various regulatory mandates. The governance structure therefore includes committees responsible for specific tasks andsetting strategy and future direction for the Group. The Board sub committees are a vital conduit in identifying and managing economic, environmental and social performance, including relevant risks and opportunities, as well as compliance.

Our Sustainability Policy is based upon the following principles:

● We will continue to comply with and exceed wherever practicable, all applicable and related legislation, regulations and codes of practice

● We will integrate the principles and tenets of sustainability into all our business decisions

● We will strive to minimize any negative impacts that may ensue while engaging in our day to day activities

● We will integrate a sustainability mind-set among our team, making them fully aware of our sustainability policy and empower them with a sense of ownership and commitment to implement, practice and improve it

● We will cascade our Sustainability Policy among our valued business partners, encouraging them and assisting them to adopt sound sustainable management practices


SUSTAINABILITY REPORT [Contd.]● We intend to review and annually report and to continually strive towards improving our sustainable performance At IAC, we are committed to promoting sustainability. We remain extremely concerned for the environment and for Promoting a broader sustainability agenda, both of which are integral to our professional activities and the management of the organization. We aim to follow and to promote good sustainability practice to reduce the negative environmental impacts of all our activities and to helpourstakeholderstojoininthisjourneythatwillsurelybenefitourfuturegenerations.

The IAC Sustainability Framework, which incorporates our Sustainability Philosophy, Policy and Principles, articulates our strategic commitment to sustainable development and remains integral to risk management. This framework assists our stakeholders in imbuing a similar sustainability approach, promotes sound environmental and social practices, encourages transparency and accountability, and contributes to positive development impacts. We ensure that this framework reflects good practice for sustainabilityand risk mitigation, keeping abreast with trends that bring up challenging issues, which remain at the core to managing a sustainable business. These include supply chain management, resource efficiency,climatechangeandhumanrights.

Risks and challenges go hand in hand in the business of running an organization, whether the risk may be from environmental problems, social discontent, political and social unrest and even natural disasters. These can be termed costly, have negative publicity, threaten operating frameworks and also prompt unforeseen expenditure. Reputational damage too can far exceed the immediate cost impacts. While we seek to proactively reduce and manage these risks, challenges have never been a deterrent for us at IAC; rather, they have been a means of directing us towards opportunity and improving business performance over time. These opportunities have driven us to enhance business growth, while ensuring that we remain within compliance benchmarks, while ensuring that our stakeholders are empowered and remain inclusive to our end goal.Overtheyear,weidentifiedsomechallengesand risks that eventually saw an opportunity emerge, and which, through the inherent pragmatic and astute business acumen possessed within IAC, was transformed and included into the strategic way forward of the Group.

Stakeholder Involvement

We are extremely committed to engaging all of our stakeholders, both internally and externally, to become the most sustainable, responsible company we can possibly be. By listening to, partnering with and considering the perspectives of our associates, customers, shareholders, academic leaders, government, value business partners and sometimes, even our competitors, we can truly ensure that quantifiable and qualitativereturns are assured. Stakeholder engagement is a crucial element to sustainable development as it is this engagement process that prompts the two-way dialogue and communication process which eventually aligns the strong relationships among our stakeholders and forms the foundation to our sustainability journey. Having identified ourstakeholder groups, as given below, we engage with them at various forums related to their interests and expectations, in an effort to adapt to changing needs and issues, which continue to evolve. As we pursue our corporate sustainability goals, we intend to further strengthen these relationships. Together, we are establishing transparency and enhancing our relevancy with the customers and communities we serve. We have created more formal channels for interacting with stakeholders both to learn from their expertise and to provide a forum for them to provide us with feedback. The purpose of our sustainability reporting is to create greater transparency and accountability and to allow for better informed and more robust decision-making as it is becoming more important than ever to manage both positive and negative impacts of our business activities. Our consumers are increasingly developing an ethical conscience, using sustainability information to identify their chosen brands. Customers want transparency, clarity and accessibility to information and disclosures on social, environmental and economic performance. Needless to say, this information needs to be consistent and presented in a standardized approach, therefore, it is imperative that disclosures are succinct, clear, and truthful and hold fast to the underlying ethos of a principled ethical well governed business entity, which is what IAC espouses to be.

We have never knowingly harmed the environment through any process that we have engaged in. We ensure that in all our processes and systems, we implement as many environmentally friendly initiatives as possible as is seen in the waste water treatment, energy management, recycling initiatives, decrease in emissions and increase in forest cover that we have strategically embarked upon. We also


constantly engage our valued business partners, suppliers and wherever possible our customers, to permeate environmental best practices among them.

IAC is a strong believer of equal opportunities in the workplace and prides itself on respecting its workforce equally, regardless of gender, age, race, religion, sexual orientation, political beliefs, or any other factor. We unwaveringly uphold and support the tenets mandated by the International Labour Organisation and other prevalent regulatory bodies pertaining to human rights and child labour. We adhere to a strict policy of 'zero tolerance to child labour', a mandate that is permeated to our valued business partners including retailers and the supply chain.

Our philosophy is to partner the community in its sustainable development journey, which inturn gains us considerable advantage. We are inextricably entwined with our communities and we intend to ensure that our presence within these communities will benefit them and us. Ourlongevity and culture of achievement is rooted in the motivation and mind-set of our people, who are committed and dedicated towards achieving greater heights of performance and raising the benchmark. Given that the IAC has grown into a Company encompassing a number of diverse industries and yet is unequivocally positioned with a leadership status, evidences that our team is a winning one. The dynamism, motivation and 'overzealous' attitude they always espouse has enabled this Group to take on challenges, some deemed insurmountable and win against the odds.

HR Practice

● To provide and promote an encouraging and professional working environment for our team.

● Believe that the prosperity of our business depends on successfully developing an integrated group of motivated and innovative employees. Hence we facilitate positive employee relations and inspire employees by offering opportunities for challenging work, personal development and growth.

● Committed to hire, develop and retain the most talented people in order to achieve a committed pool of talent.

A range of processes have been instilled within the Company to ensure that recruitment is non-discriminatory, unbiased and driven by meritocracy. In addition, in a bid to streamline our recruitment processes, a recruitment requisition form was introduced, which is the base upon which recruitment is effected and a comprehensive interview evaluation form was brought in, to streamline the interview process from initial screening to finalinterview stage.

The company follows HR best practices ensuring consistency in HR Policy approach and fair playing field for Potential employees. As an organizationis nothing more than the collective capacity of its people to create value, organizational culture is an important element in any organization's make up and success. Therefore, at IAC new recruitment is based on alignment with the Company's internal culture, in addition to knowledge, skills and attitudes required for the role.

Training & Development

Training and development forms the axis to the sustainability of our business and into this we have instilled a knowledge gaining culture, which enables individuals to attain their personal goals while working towards the company's aspirations.

Recognition & Staff Well-Being

The IAC HR policy is based on the belief that a satisfied employee is a motivated employeewho will contribute towards achieving company goals voluntarily, while being more productive. We have continuously infused numerous rewards and remuneration schemes, while adding welfare initiatives that would add value to our employees to better their lifestyles.

● Continuous remuneration reviews and increases according to predetermined scales, which could also be tied to performance incentives and bonus scheme.

● A range of insurance policies are in effect including Workmen's Compensation and Personal Accident

● IAC holds annual staff get-together, sports days to build team spirit and facilitate fun and friendships

SUSTAINABILITY REPORT [Contd.]


Supplier Engagement

Forging strong supplier relationships offers a comprehensive way for IAC to assess and streamline the processes between our organization and our suppliers for an effective partnership. In reality, suppliers are people as well and we believe in emotionally engaging with our suppliers so that they work harder for us and help us cover potential risk areas. Whatever the size or category of supplier, the IAC's Supplier Policy ensures a level playing field and equal opportunities for all our suppliers.We have procedures in place to ensure responsible behavior towards all our suppliers, while committing our suppliers towards reciprocity in responsible behaviour towards the Company. This ensures our stringent quality and standards are understood and met by all our suppliers.

We believe strongly in positioning our supplier philosophy on good corporate conduct, sourcing and producing responsible quality products and influencing a win-win relationship worked on aplatform of mutual benefit. We strongly believethat we must permeate the best practices we have within our business, the standards and integrity and compliance initiatives to our entire supply chain. This in effect cascades to quality, productivity and standards overall being improved.

We believe that nurturing our customers is an ongoing dialogue and not a one-off event. Nurturing an ongoing and genuine relationship with customerswillhaveamajorimpactonthewaytheyperceive our brand but also serve to strengthen our operations through focused customer feedback. We engage our customers in numerous ways, nurturing and strengthening relationships to ensure strong loyalty to brand and product. From face to face ad hoc conversations, to conducting customer surveys, to formal gatherings and informal events, we are constantly engaged with our consumer. It is this feedback and varied dialogue and communication channels we have created that have assuredly enabled us to charter our future plans.

Goals towards long term sustainability

1. Be known as the preferred employer having the ability to attract and retain talented people, inducting them in a knowledge-based corporate culture, while assuring them of career enhancement in a responsible company they will be proud to be a part of.

2. Retain market leadership by ensuring that we work on high quality sustainable competitive advantages to infuse trust and loyalty among our customer base by evolving the business to be ahead of customer expectations, which in turn will deliver qualitative and quantitative sustainable returns.

3. Never lose sight of the tenets of corporate stewardship; instill governance and regulatory best practices, while demonstrating our commitment to being an ethical, transparent, accountable Group of companies.

4. Be a Green Ideologue; an advocate who will address environmental issues and 'change' the direction of climate change, walking the talk to spread the need to reduce our carbon footprint and ensure a better planet for future generations.

SUSTAINABILITY REPORT [Contd.]


RISK MANAGEMENT Risk can be defined as the combination of theprobability of an event and its consequences. Risk is a part of life. Avoiding all risk would result in no achievement, no progress and no reward. Undoubtedly, there is risk in today’s volatile and uncertain business environment, which demands increased transparency within an organizations risk profile. There are vulnerabilities, probabilities,threats and weaknesses that must be addressed to ensure that risk in any enterprise is mitigated. This greater emphasis on risk and risk management also prompts greater penalties on entities that do not or fail to manage key risks, which naturally permeates to organisations being more cognizant of identifying and assessing risks.

In this backdrop, it is also increasingly important thatonce these risksare identifiedandassessed,they are managed with pre-defined tolerances.Any entity faces myriad risks, from well-known risks that are inherent and characteristic of the business to unknown risks that may emerge or are just emerging. Risk resilient organizations mustobjectively assess their existing risk managementcapabilities, evaluate their organizational culture with regard to risk, performance and reward and implement sustainable risk management practices. In the current market context, risk is defined asthe probability or threat of a liability, loss or other negative occurrence, caused by external or internal vulnerabilities which would affect the desired objectives of the organization. This also meansthat stakeholder expectations must be worked into the organization’s risk management strategy. Vulnerabilities could mean exposure that could trigger an adverse outcome and therefore, prevent theachievementofcompanyobjectives.

The process of risk management at IAC involves analyzing exposure to risks, by identifying vulnerabilities and their probability of occurrence, which determines the way we handle such exposure. This would therefore involve the implementation of numerous policies, procedures and practices that work in conjunction to identifying, analyzing,evaluating, monitoring and prioritizing risks, which will follow the application of coordinated and economical solutions that minimize the probability and impact of identified vulnerabilities. Onceidentified, elimination, reduction, transfer andretention are the broad risk management strategies employed across IAC.

AtIACwehaveobjectivesatstrategic,tacticalandoperational levels - anything that makes achieving theseobjectivesuncertain isa risk.ThereforeRiskManagement is a central part of IAC’s strategic Plan. At IAC, the focus of the risk management process is the identification andmitigation of risks impactingthe Company. Moreover, the objective of our riskmanagement is to add maximum sustainable value to all the activities of the organization. It marshals the understanding of the potential benefits andthreats of all those factors which can affect the organisation. Further it increases the probability of success, and reduces both the probability of failure and uncertainty of achieving the organization’s overallobjectives.AstheCompanyisexposedtoawider range of risks arising from a dynamic business environment which it operates, it has to address the risksbasedonitsriskappetiteandsignificance

Corporate Culture & Internal Control

Framework

RiskIdentification

RiskAssessment

Monitoring

RiskResponse

ObjectiveSetting

Information and Communication


RISK MANAGEMENT [Contd.]

The following are an overview of the main type of risks faced by IAC.

1. Financial risks

(i). Interest Rate Risk

Interest rate risk is the exposure of a company's financial condition to adversemovements in interest rates. Accepting this risk is a normal part of operation of a company and can be an important link to profitability, cash flow and shareholdervalue. However, excessive levels can pose asignificantthreattoacompany'searnings.The impact on net interest cost of a change in interest rates depends on the interest terms of assets or liabilities.

The Company's Interest rate risk arises in two ways:

● The Company have invested in interest-bearing assets, the value of which changes when the interest rate changes.

● The cost of the company's borrowing fluctuateswhen thegeneral interest ratesituation changes. IAC's majority of itscapital employed is financed throughdebt. Further increased exposure to short term and floating rate borrowings hasincreased the exposure to the interest rate risk.

Accordingly, an effective risk management that maintains this risk at prudent levels is essential to the safety and soundness of the Company. Interest rate exposure is managed through the optimal structure decisions, striking a balance between short termsvs.longtermandfixedvs.floatingrateborrowings. Maintaining a deposit with higher return than interest paid on borrowings. Furthermore, negotiations with Banks/financiers are actively supported. Interestrates and socioeconomic circumstances are monitored by the finance officers toallow accurate and prudent forecasts to be built. Sensitivity analyses are carried out to regularly to assess the impact of the movementsofinterestratesonthefinancialstatements.

(ii). Foreign Exchange Risk

Foreign Exchange Risk is the risk of an investment/receivable/payable's value changing due to changes in currency exchange rates. Being a raw material & traded good importer, fluctuations in theexchange rate can significantly impactthe financial results and the pricing policywhich could in turn impact the competitive position of IAC Company. Potential impact on the business by an adverse movement in exchange rates is captured through sensitivity analysis. Also the pricing is linked to the exchange rates.

Further Companywide Foreign exchange exposures are monitored and appropriate actions such as forward exchange contracts and leading and lagging of payments/receipts are recommended to reduce inherent risks and minimize adverse impacts of currency rate movement of assets and liabilities.

(iii). Liquidity Risk

Liquidityriskistheriskofnothavingsufficientfunds tomeet its financial commitments ina timely manner. The two key elements of liquidity risk are: short-term cash flow riskand long-term funding risk. The long-term funding risk includes the risk that loans may not be available when the business requires them or that such funds will not be available for the required term or at acceptable cost. Unforeseen short fall in cash can sometimes lead to liquidity risk due to factors such as: seasonalfluctuations,unplannedreductioninrevenue, business disruption and sustained reduction in profitability, unplanned capitalexpenditure and increase in operational costs, future debt repayments, delays in subsidy settlements and inadequate or non-existent financing facilities. Businessmodels and working capital management arereviewedperiodicallytoensurecashflowalignment as far as possible and minimize dependence on unexpected external borrowings. Trade cycles are analysed with a view to generating liquidity from operations. Also the bank relationships are managed to ensure access to essential credit and cash management services.


(iv). Debtor Default Risk

This is the risk of losses arising from a debtor being unable to pay its loan obligations in full or the debtor is more than 90 days or overdue. IAC is rooted island-wide. Adverse economic conditions may result in diminishing the customer credit worthiness and thereby increasing the default risk to the Company. IAC extends credit facilities to customers based on the credit policy which entails evaluating customers periodically. Further, controls include structured approval levels, supervision and recovery procedures on overdue amounts and legal procedure for long outstanding receivables. Bank guarantees and cash deposits are made a requirement when selecting appropriate distributors where practical and other limit exposure on unsecured credit is after a careful scrutiny. Presently, an evaluation is being carried out on all debtors of IAC to further limit and strengthen the exposure.

(v). Fraud Risk

Fraud essentially involves using deception to dishonestly make a personal gain for oneself and/or create a loss for another. The term 'fraud' commonly includes activities such as theft, corruption, conspiracy, embezzlement, money laundering, bribery and extortion. Fraud may be attempted as the organization has valuable property such as cash, inventory and information and also due to human interfaces in the processors. In order to counter this, we are striving to strengthen an ethical culture and also to improve the effectiveness of the internal controls. Effective internal controls reduce exposure to fraud risks and contribute to the safeguarding of assets; however, a sound system of internal control cannot provide complete protection against all fraudulent behaviour. As a further measure, new areas have been added and the existing areas have been strengthened in the internal audit plan for the current year.

2. Information Technology Risk

Information technology (IT) plays a critical role in business of the Company. As the Company manages their businesses using IT, it is important to identify risks to the IT systems and data and to reduce or manage

those risks by developing a response plan in the event of an IT crisis. The Company has legal obligations in relation to privacy, electronic transactions, and staff training that influence IT riskmanagementstrategies. ITrisks include hardware and software failure, human error, spam, viruses and malicious attacks, as well as natural disasters such as fires,cyclonesorfloods.

In order to mitigate software failures system backups are taken and software's are regularly updated to the latest versions while root causes are found and problems are fixed in respect of application failures.Backups are restored in the event of a data base corruption and system logs are daily monitored to identify hardware failures while life cycle performance of hardware is checked and hardware's are replaced if there is necessity. Latest anti-virus and anti-spyware protection are installed in order to protectcomputersfromviruswhilefirewall&other security controls are in place to prevent hacking, unauthorized intrusions to the computers, servers and wireless networks of the company. If communications, connectivity failures occurs service providers are informed and it's being followed up so as to keep the outage to minimum. In order to protect the vital information, the company uses data backups that include off site or remote storage. Further the management trains the staff regularly in IT policies and procedures which covers areas such as safe handling of infected emails, protecting the privacy of customer details, and priority actions in the event of an online security breach. Moreover the management conducts workshops to identify potential IT risks, costs and impacts of those risks, and possible actions to minimize exposure.

3. Business risks

(i). Natural events risk

Adverse weather conditions may result in reduced demand for IAC Products. The tacit knowledge gathered from running the business during adverse weather conditions in the country has been of paramount importance in managing this risk. Performance, position and cash flow andwhere necessary realignment of investments are made with a view to making the business



model flexible enough to absorb thepressure from unexpected conditions.

(ii). the scarcity of raw materials.

Scarcity may occur due to usage of seasonal outputs, natural disaster, import bans and other events beyond the control of the Company. In order to mitigate the risk the company has increased the storage capacity and has upgraded the storage conditions for storing.

(iii). Quality failure risk

Qualityfailureisamajorrisktothecompany.Therefore all employees are responsible for the quality of the product. Proper training and awareness are given to the all levels of the employees relating to the production and quality processes. Moreover process/product improvements are implemented and the current processes are revised periodically. Further internal/external audits conducted regularly. Research and development /quality assurance department periodically revises quality control methods and testing methods according to the local standards.

(iv). Handling of chemicals

Due to the risk of handling chemicals, all the operations of factories are managed through management system to minimize the environmental impacts. All contaminated waste is disposed according to the government regulations. Further the factories have effluent treatment plantsinside the premises and maintains fully equipped laboratory to check the required standards. Industry is tightly regulated by the Government Regulatory bodies such as Register of Pesticides, Central Environmental Authority, Local governing councils etc. Industry related policies may change time to time according to the political situation of the country.

The Company strictly follows the current regulations relevant to the respective industry and maintains a close relationship with the regulatory bodies to implement sudden changes of the regulations.

(v). Loss of volumes/Market Share

Company faces the risk of losing volumes due to low market growth rates, intense competition from the existing players in the industry as well as new entrants. As a result competitors may continue to pursue price-centric strategies to gain market share within segments of the market.

On the other hand there are unlicensed operators in the market who resort to selling adulterated products. There is no effective regulatory mechanism to curb such illegal activities which affect the industry. Political unrest and instability which tend to constrain operations and distribution activities. Company manages these risks to an extent through customer and channel partner education, marketing communication on product value propositions, creating awareness among the relevant stakeholders and leveraging on the brand equity. We also offer constructive suggestions to the authorities to maintain the high product standards.

4. Human resources risks

In relation to human resources the risks which have been identified are alignment of payand performance, meeting organizational objectives through efficient/effective use ofhumanresourcesandfindingrighttalentforthejobwhilstkeepinglaborcostsatmoderatelimits. The Company has Introduced a performancedrivenculturewhereobjectivesget measured and individuals rated as per performance with due recognition on pay and succession planning. Introduction of a Position Requisition Procedure, where all replacements/new positions are to be justified with the financial benefit to theorganization has ensured that right talent is obtained while keeping the cost at a reasonable level.

5. Compliance, regulatory & legal risks

The risk of possible legal actions against the company by an individual or a corporate entity in the process of business conduct hasbeenidentifiedastheprimarylegalrisksof the company. Company has identifiedsuch risks and, gaged the impact and taken necessary actions to educate the respective



staff members. Best practices and processes of better business conduct are included. IAC has implemented numerous steps to foresee the possible risks and taken preventive actions beforehand. To mitigate the risks of breaching contractual obligations and prevent IAC entering in to unfavourable contracts, company constantly involves internal and external legal experts.

6. Strategic risk

Strategic risk of a company refers to the risk to its earnings and profitability that couldarise from strategic decisions, changes in the business conditions and improper implementation of decisions. Thus, strategic risk could materialize due to internal or external factors. IAC considers strategic risk asoneofthekeyelementsinitsriskprofile.

The Company has identified the followingstrategic risks that would arise through internal factors:

● Risks in connection with decisions about outsourcing or maintaining processes and competencies in-house

● Risks concerning new product developments, such as new innovations, R&D, new product lines

● Risks concerning acquisitions or disposals including the likelihood of achieving organizational objectives ordestroying Shareholder value The Board critically reviews the strategic goals of the Company through its well definedcorporate planning and its budgeting process. This robust process ensures that the above strategic risks are well managed in all activities of the Company.

The following strategic risks have been identified as most Relevant to businessof IAC which could arise through external factors:

● Risk concerning changes in customer demand

● Risk in technology developments

● Risk in changes in the industry and the economic environment

o Risk in regulatory requirements.

7. Reputational Risk

Being a Company which has customers at every level of the community, IAC has recognized the importance of aligning the corporate objectives and shareholderRequirements. Further, the Company has identified that maintaining and developingthe credibility of the Company and its brands, and most importantly, its standing in the eyes of its stakeholders is a crucial exercise in ensuring sustainable success. Accordingly, like all of the intangible assets of the Company (such as goodwill, talent, knowledge, know-how, and intellectual capital and brand equity)whose value has escalated in recent years, value of its reputation has been identified as a directeffect on its share price, market share and brand value.

In addition, IAC always supports the idea of maintaining the Company's integrity and reputation at any cost. IAC is sensitive to the attitude of local communities in which the Company operates the satisfaction and fidelityofcustomers.IACuses'transparency'as one of its best tools in managing its image. In addition, the Company is also focused on establishing strategic relationships with reputed third parties (i.e., supply agreements, joint ventures,etc.). When it comes to product liability, IAC ensures stringent quality assurance processes. Further, whilst being sensitive to the policymaking decisions of regulators and legislators, IAC adhere to all local laws and regulations pertaining to advertising and marketing.



INDEPENDENT AUDITOR'S REPORT

TO THE SHAREHOLDERS OF INDUSTRIAL ASPHALTS (CEYLON) PLC

Opinion

We have audited the financial statements of Industrial Asphalts (Ceylon) PLC ("the Company"), whichcomprise thestatementof financialpositionasatMarch31,2019,and thestatementofcomprehensiveincome,statementofchangesinequityandstatementofcashflowsfortheyearthenended,andnotestothefinancialstatements,includingasummaryofsignificantaccountingpoliciesassetoutonpages34to52 of this Annual Report.

Inouropinion,theaccompanyingfinancialstatementsgiveatrueandfairviewofthefinancialpositionoftheCompanyasatMarch31,2019,andofitsfinancialperformanceanditscashflowsfortheyearthenendedin accordance with Sri Lanka Accounting Standards.

Basis for Opinion

We conducted our audit in accordance with Sri Lanka Auditing Standards (SLAuSs). Our responsibilities under those standards are further described in the Auditor's Responsibilities for the Audit of the Financial Statements section of our report. We are independent of the Company in accordance with the Code of Ethics issuedbyCASriLanka(CodeofEthics)andwehavefulfilledourotherethicalresponsibilitiesinaccordancewiththeCodeofEthics.Webelievethattheauditevidencewehaveobtainedissufficientandappropriatetoprovide a basis for our opinion.

Key Audit Matters

Keyauditmattersarethosemattersthat,inourprofessionaljudgment,wereofmostsignificanceinourauditofthefinancialstatementsofthecurrentperiod.Thesematterswereaddressedinthecontextofourauditofthefinancialstatementsasawhole,andinformingouropinionthereon,andwedonotprovideaseparateopinion on these matters.

INDEPENDENT AUDITOR'S REPORT

The procedures we performed in relation to management’s fair valuation of investment properties included the following:-

² We evaluated the independent external valuers’ competence, capabilities and objectivity. We assessed the methodolo--gies and the appropriateness of the key assumptions used by the professional valuer by applying our knowledge of the property industry. We used independent and publicly available information on real estate of similar property and locations; and

Valuation of Investment Properties

Risk Description Our Responses

RefertoNote13inthefinancialstatements.

Management has estimated the fair value of company’s investment properties to be Rs. 587.6 Million as at 31st March 2019. An Independent external valuer’s service had been obtained in order to support management’s estimatesandjudgements.


INDEPENDENT AUDITOR'S REPORT [Contd.]

Recoverability of Deferred Tax Asset


The fair valuation of investment property was dependent on certain key assumptions that require significant management judgement, includingcapitalization rate and fair market rent. We have focused in this area due to the significantmanagementjudgementandthemagnitudeofthevalueofinvestmentpropertyreportedinthefinancialstatements.

² We checked on a sample basis, the accuracy and relevance of the input data used. We checked the completeness and accuracy of the investment properties by agreeing those assets and their book values to the general ledger and asset register.

² We found the key assumptions were supported by the available evidence. The fair market rents were supported by recent renewals and capitalization rates were in line with our expectations.


The Company has recognized deferred tax asset amounting to Rs. 8,440,285/- (2017/18 – Deferred tax liability of Rs. 1,440,511).

TheCompanyhad recognizedsignificantdeferredtaxasset in respectof futurebenefitofdeductibletemporary differences and accumulated tax losses which management considered would probably be utilized or recovered in the future through the generationoffuturetaxableprofitsbytheCompanyor by set-off against deferred tax liabilities.

The recognition of deferred tax asset relies on the exercise of significant judgement bymanagementin respect of assessing the sufficiency of futuretaxable profits and the probability of such futuretaxableprofitbeinggeneratedandfuturereversalsof existing taxable temporary differences.

We identified the recognitionofdeferred taxassetas a key audit matter because of its significanceto the financial statements and significantmanagementjudgementandestimationrequiredintheforecastingfuturetaxableprofitswhichcouldbesubjecttoerrororpotentialmanagementbias.

Our audit procedures included:

² Assessing the Company’s approach for evaluating the likelihood of the recoverability of deferred tax asset. This includes reviewing the key assumptions in future taxable profitsforecasts of the Company with accumulated unutilized tax losses by comparing the most significantinputsusedintheforecastsandourknowledge of the business gained from other audit procedures.

² Assessing adequacy of the disclosures in the financialstatements.

Recoverable amount of Trade & Other Receivables



The Company has recognized a total impairment provision for bad debts amounting to Rs. 28,407,887/- (2017/18 – Rs. 27,619,800/-) in the total trade and other receivable balances valued at Rs. 87,653,022/- (2017/18 – Rs. 42,748,974/-).

Recoverability of the trade and other receivable balances is an area of significant judgement,particularlywithregardtotheestimationofspecificimpairment provision for bad debts.

Our audit procedures included:

² Inquiring with regard to the calculation methodology, the basis for provision and the processes with respect to the provision for bad debts.

² Verifying the accuracy of the trade receivable aging and re-computing the provision for receivables.


INDEPENDENT AUDITOR'S REPORT [Contd.]Other Information

Management is responsible for the other information. The other information comprises the information includedintheannualreport,butdoesnotincludethefinancialstatementsandourauditor'sreportthereon.

Ouropiniononthefinancialstatementsdoesnotcovertheotherinformationandwewillnotexpressanyformof assurance conclusion thereon.

Inconnectionwithourauditof thefinancialstatements,ourresponsibility istoreadtheother informationidentifiedaboveand,indoingso,considerwhethertheotherinformationismateriallyinconsistentwiththefinancialstatementsorourknowledgeobtainedintheaudit,orotherwiseappearstobemateriallymisstated.

When we read the annual report, if we conclude that there is a material misstatement therein, we are required to communicate the matter to those charged with governance.

Responsibilities of Management and Those Charged with Governance for the Financial Statements

Management is responsible for the preparation of financial statements that give a true and fair view inaccordance with Sri Lanka Accounting Standards, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free frommaterialmisstatement,whether due to fraud or error.

Inpreparing thefinancialstatements,management is responsible forassessing theCompany'sability tocontinue as a going concern, disclosing as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so.

ThosechargedwithgovernanceareresponsibleforoverseeingtheCompany'sfinancialreportingprocess.

Auditor's Responsibilities for the Audit of the Financial Statements

Ourobjectivesaretoobtainreasonableassuranceaboutwhetherthefinancialstatementsasawholearefreefrom material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with SLAuSs will always detect a material misstatement when it exists, Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably beexpectedtoinfluencetheeconomicdecisionsofuserstakenonthebasisofthesefinancialstatements.

AspartofanauditinaccordancewithSLAuSs,weexerciseprofessionaljudgmentandmaintainprofessionalskepticism throughout the audit. We also:

² Identifyandassesstherisksofmaterialmisstatementofthefinancialstatements,whetherduetofraudor error, design and perform audit procedures responsive to these risks, and obtain audit evidence thatissufficientandappropriatetoprovideabasisforouropinion.Theriskofnotdetectingamaterialmisstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or override of internal control.

² Obtain and understanding of internal control relevant to the audit 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.

² Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.

² Conclude on the appropriateness of management's use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditionsthatmaycastsignificantdoubtontheCompany'sabilitytocontinueasagoingconcern.Ifwe conclude that a material uncertainty exists, we are required to draw attention in our auditor's report


INDEPENDENT AUDITOR'S REPORT [Contd.]totherelateddisclosuresinthefinancialstatementsor,ifsuchdisclosuresareinadequate,tomodifyouropinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor's report. However, future events or conditions may cause the Company to cease to continue as a going concern.

² Evaluate the overall presentation, structure and content of the financial statements, including thedisclosures,andwhetherthefinancialstatementsrepresenttheunderlyingtransactionsandeventsinamanner that achieves fair presentation.

We communicate with those charged with governance regarding, among other matters, the planned scope andtimingoftheauditandsignificantauditfindings,includinganysignificantdeficienciesininternalcontrolthat we identify during our audit.

We also provide those charged with governance with a statement that we have complied with ethical requirements in accordance with the Code of Ethics regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.

From the matters communicated with those charged with governance, we determine those matters that were ofmostsignificanceintheauditofthefinancialstatementsofthecurrentperiodandarethereforethekeyaudit matters. We describe these matters in our auditor's report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expectedtooutweighthepublicinterestbenefitsofsuchcommunication.

Report on Other Legal and Regulatory Requirements

As required by section 163 (2) of the Companies Act No. 07 of 2007, 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.

CA Sri Lanka membership number of the engagement partner responsible for signing this independent auditor's report is FCA 1850.

CHARTERED ACCOUNTANTS

Colombo.12th August 2019


For the year ended 31 March 2019 2018 Note Rs. Rs.

Revenue 4 151,254,073 44,067,284Cost of Sales (108,074,204) (31,948,047)Gross profit 43,179,869 12,119,237Other operating income 5 3,521,930 396,258Administrative expenses (15,726,186) (13,461,020)Distribution expenses (9,601,254) (6,781,201)Impairments/ Provisions 6 - (40,932,886)Surplus on revaluation of Investment Property 13 - 534,105,459Results from operating activities 21,374,359 485,445,847Finance income 131,595 90,899Finance costs (15,589,770) (12,096,143)Net financing costs 7 (15,458,174) (12,005,244)Profit/ (loss) before taxation 8 5,916,185 473,440,603Add: Current Taxation 9 9,862,656 214,463Profit/ (loss) for the year 15,778,841 473,655,066

Other comprehensive income/ (expense) for the year net of tax Actuarialgain/(loss)ondefinedbenefitplans 24 18,223 37,038Other comprehensive income/ (expense) for the year, net of tax 18,223 37,038Total comprehensive income/ (expense) for the year 15,797,064 473,692,104

Profit attributable to:Equity holders 15,797,064 473,692,104Total comprehensive income/ (expense) for the year 15,797,064 473,692,104

Basic earnings/ (loss) per share (Rupees) 10 23.67 710.59

Figures in brackets indicate deductions.

The Accounting Policies and Notes on pages 38 to 52 form an integral part of the Financial Statements.

STATEMENT OF COMPREHENSIVE INCOME


As at 31 March 2019 2018 Note Rs. Rs.

AssetsNon-current assetsProperty, plant and equipment 11 38,557,822 19,821,744Lease Hold Land 12 - -Investment Property 13 587,600,000 587,600,000Intangible assets 14 - -Total Non-current assets 626,157,821 607,421,743Current assetsInventories 15 9,401,758 18,514,153Short Term Investment in REPO 16 - 10,029,408Trade and other receivables 17 59,245,134 15,129,174Financialinvestments-Fairvaluethroughprofitorloss 18 3,225,701 3,507,456Held to maturity investments 19 375,683 375,683Cash and cash equivalents 20 472,066 1,088,273Total current assets 72,720,342 48,644,148Total assets 698,878,163 656,065,891Equity and liabilitiesEquityStated capital 21 6,665,620 6,665,620Revaluation reserve 46,112,663 46,112,663General reserve 22 15,141,299 15,141,299Retained earnings 479,377,302 466,579,767Total equity 547,296,884 534,499,349LiabilitiesNon-current liabilitiesDeferred Tax Liability/ (Asset) 23 (8,440,285) 1,440,511RetirementBenefitObligations 24 885,320 804,317Interest bearing loans and borrowings 25 6,576,136 4,624,184Total Non-current liabilities (978,829) 6,869,012Current liabilitiesInterest bearing loans and borrowings 25 24,392,240 12,534,023Trade and other payables 26 11,938,900 2,793,219Leased Rental Received in Advance 27 35,400,000 23,600,000Income tax payable 28 (497,196) 105Dividend payable 1,055,676 971,486Bank overdrafts 20 80,270,488 74,798,696Total current liabilities 152,560,108 114,697,530Total liabilities 151,581,279 121,566,542Total equity and liabilities 698,878,163 656,065,891Net asset value per share (Rupees) 821.07 801.87

Figures in brackets indicate deductions.

The Accounting Policies and Notes on pages 38 to 52 form an integral part of the Financial Statements.I certify that the Financial Statements have been prepared in compliance with the requirements of the Companies Act No.7 of 2007.

(Sgd)S.FernandoFinancial Controller

The Board of Directors is responsible for preparation and presentation of these Financial Statements.The Financial Statements on pages 34 to 52 were approved by the Board of Directors and were signed in Colombo on 12th August 2019 on its behalf by:

(Sgd) (Sgd)G.Ramanan D. DaluwatteDirector Director

STATEMENT OF FINANCIAL POSITION


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CASH FLOW STATEMENTAs at 31 March 2019 2018 Rs. Rs.

Cash Flows from operating activitiesProfit/(loss)beforetaxation 5,916,185 473,440,603Adjustments for:Depreciation of property, plant and equipment 11 3,292,927 5,586,000Amortization of intangible assets 12 & 14 - 19,290Impairments/Provisions for Plant & Machinery 6 - 9,903,804Fixed Assets Disposal Gain/(Loss) 5 (2,072,859) -Share Disposal Gain/(Loss) 5 (4,755) -Gain(/Loss) in Share Value 824,731 -Surplus on revaluation of Investment Property 13 - (534,105,459)Finance Income 7 (92,506) (51,095)Finance Cost 7 15,458,174 12,005,244Provisionforretirementbenefitobligation 24 170,976 198,181Operating profit before working capital changes 23,492,874 (33,003,433)

Changes in working capitalChange in inventories 15 9,112,395 19,256,330Change in Short Term Investments in REPO 16 10,029,408 (10,029,408)Change in trade and other receivables 17 (44,115,960) 16,625,304Change in trade and other payables 26 20,945,680 23,219,952Cash generated from operating activities 19,464,398 16,068,744

Finance Income 7 92,506 51,095Interest paid 7 (15,458,174) (12,005,244)Gratuity paid 24 (71,750) (441,875)Income tax paid 27 (515,440) (3,980)Net cash flows generated from operating activities 3,511,539 3,668,741

Cash Flows from investment activitiesPurchase of property, plant and equipment 11 (23,721,147) (511,192)Sales Proceeds from Property, Plant & Equipment 3,765,001 -Sales Proceeds from Quoted Investment 17,007,741 -Investment Property Development Cost 13 - (10,000,000)Capital work in progress 11 - (950,000)During the year Investments 18 (17,545,963) (2,121,025)Net cash flows generated from investment activities (20,494,368) (13,582,218)

Cash Flows from financing activitiesInterest bearing borrowings obtained/ (repayments) 25 13,810,169 5,179,029Dividend paid (2,915,340) -Net cash flows generated from financing activities 10,894,829 5,179,029

Net changes in cash and cash equivalents (6,088,000) (4,734,448)Cash and cash equivalents at the beginning of the year (73,710,422) (68,975,974)Cash and cash equivalents at the end of the year (79,798,422) (73,710,422)

Cash and cash equivalents at the end of the yearCash at bank and cash in hand 472,066 1,088,273Bank overdrafts (80,270,488) (74,798,696) 20 (79,798,422) (73,710,422)

Figures in brackets indicate deductions.The Accounting Policies and Notes on pages 38 to 52 form an integral part of the Financial Statements.


NOTES TO THE FINANCIAL STATEMENTSFor the year ended 31 March 2019

1. Reporting Entity

1.1 Corporate Information

Industrial Asphalts (Ceylon) PLC is a Public Limited liability Company incorporated and domiciledinSriLanka.Theregisteredofficeandthe principal place of the business is located at No. 321, Negombo Road, Peliyagoda.

1.2 Principal activities & Nature of Operations

The principal activities of the Company continued to be manufacture and distribution of bituminous products, distribution of specialist range of surface coating and industrial chemicals.

1.3 Number of Employees

The staff strength of the company as at 31st March 2019 was 20 (2018 - 13)

2 Basis of Preparation

2.1 Statement of Compliance

The Financial Statements comprising the Statement of Financial Position, Statement of Comprehensive Income, Statement of Changes in Equity and Statement of Cash Flows together with Notes to the Financial Statements are prepared and presented in accordance with Sri Lanka Financial Reporting Standards (SLFRSs) and Sri Lanka Accounting Standards (LKASs), (hereafter "SLFRS") laid down by the Institute of Chartered Accountants of Sri Lanka (ICASL). The presentation of the Financial Statements is in compliance with the requirements of the Companies Act No. 07 of 2007.

The Financial Statements were authorised for issue by the Board of Directors on 12th August 2019.

2.2 Basis of Measurement

Thefinancialstatementshavebeenpreparedona historical cost basis except where appropriate disclosures are made with regard to fair value under relevant notes.

2.3 Functional Currency & Presentation Currency

The financial statements are presented in SriLankan Rupees, unless otherwise indicated.

2.4 Presentation of Financial Statements

The assets and liabilities of the Company presented in the Financial Statements are grouped by nature and listed in an order that reflectstheirrelativeliquidityandmaturitypattern.Noadjustmentshavebeenmadeforinflationaryfactors affecting the Financial Statements.

2.5 Materiality and Aggregation

Each material class of similar items is presented separately in the Financial Statements. Items of dissimilar nature or function are presented separately unless they are immaterial as permitted by Sri Lanka Accounting Standards LKAS 1 Presentation of Financial Statements.

2.6 Off Setting

Financialassetsandfinancialliabilitiesareoffsetand the net amount reported in the Statement of Financial Position only when there is a legally enforceable right to offset the recognized amount and there is an intention to settle on a net basis, or to realize the assets and settle the liability simultaneously. Income and expenses are not offset in the Statement of Comprehensive Income unless required to be permitted by the Accounting Standards or interpretation, and specificallydisclosedintheAccountingPoliciesof the company.

2.7 Significant Accounting Judgment, Estimate and Assumption

The preparation of the financial statements inconformity with Sri Lanka Accounting Standards require management to make judgements,estimates and assumptions that affect the application of accounting policies, and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.

Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimates are revised and in any future periods affected.

Information about critical judgements inapplying accounting policies that have the most significant effect on the amounts recognizedin the Financial Statements is included in the respective notes.


NOTES TO THE FINANCIAL STATEMENTS [Contd.]For the year ended 31 March 2019

2.7.1 Going Concern

The company's management has made an assessment of its ability to continue as a going concernandissatisfiedthatithastheresourcesto continue in business for the foreseeable future. Furthermore, management is not aware of any material uncertainties that may cast significant doubt upon the company's abilityto continue as a going concern. Therefore, the financialstatementscontinuetobepreparedonthe going concern basis.

3. Significant Accounting Policies

3.1 Financial instruments - Initial recognition, Classification and subsequent measurement

3.1.1 Non-derivative financial assets

3.1.1.1 Loans and Receivables

Loans and receivables include trade and other receivables.Loansandreceivablesarefinancialassets with fixed or determinable paymentsthat are not quoted in an active market. Such assets are recognised initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition loans and receivables are measured at amortised cost using the effective interest method, less any impairment losses.

3.1.1.2 Available-for-sale financial assets

The Company's investments in equity securities are classified as available-for-sale financialassets. Subsequent to initial recognition, they are measured at fair value and changes therein are recognised in other comprehensive income.

3.1.1.3 Cash and cash equivalents

Company considers highly liquid investment instruments with an original maturity of three months or less to be cash and cash equivalents.

Cash and cash equivalents include cash in hand and bank balances. Bank overdrafts that are repayable on demand which form an integral part of the Company's cash management are included as a component of cash and cash equivalents for the purpose of the Statement of Cash Flow.

3.1.1.4 Held to maturity investments

Held to maturity investments are non-derivative financial assets with fixed or determinablepayments and fixed maturity that an entityhas the positive intention and ability to hold to maturity.

Held-to-maturityfinancialassetsarerecognisedinitially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition,held-tomaturityfinancialassetsaremeasured at amortised cost using the effective interest method, less any impairment losses.

3.1.1.5 Financial Assets at fair value through profit/(loss)

Financial assets at fair value through profit orloss include financial assets held for tradingand financial assets designated upon initialrecognitionatfairvaluethroughprofitorloss.

Fair value has been measured at active market price at each reporting date.

Financial assets at fair value through profit orloss are measured at fair value and changes therein, which takes into account any dividend income,arerecognisedinprofitorloss.

3.1.2 Non-derivative financial liabilities

The non-derivative financial liabilities of theCompany include loans and borrowings, bank overdrafts and trade and other payables.

Suchfinancialliabilitiesarerecognizedinitiallyatfair value plus any directly attributable transaction costs. Subsequent to initial recognition these financial liabilities are measured at amortisedcost using the effective interest method.

3.2 Taxation

3.2.1 Income Tax

Provision for the income tax liability is made on thebasis of theprofit for the year as adjustedfor taxation purposes in accordance with the provisions of the Inland Revenue Act No. 10 of 2006 and the amendments thereto.

Current income tax assets and liabilities for the current and prior periods consist of amounts expected to be recovered from or paid to the



Commissioner General of Inland Revenue. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted by the balance sheet date.

3.2.2 Deferred Taxation

Deferred tax is provided, using the liability method, on all temporary differences at the balance sheet date between the tax bases of assets and liabilities and their carrying amounts forfinancialreportingpurposes.

Deferred tax liabilities are recognised for all taxable temporary differences: except where the deferred 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 accountingprofitnortaxableprofitorlossand

Deferred tax assets is recognized for all deductible temporary differences, carry-forward of unused tax assets and unused tax losses, to the extent that it is probable that taxableprofitwill be available against which the deductible temporary differences, and the carry-forward of unused tax assets and unused tax losses can be utilized.

Industrial Asphalts (Ceylon) PLC reviews the carrying amount of deferred tax assets at each balance sheet date and reduced to the extent thatitisnolongerprobablethatsufficienttaxableprofitwillbeavailable toallowallorpartof thedeferred tax asset to be utilized.

Company measures Deferred tax assets and liabilities at the tax rates that are expected to be applied to the year when the asset is realized or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the balance sheet date.

Company recognizes in equity the deferred tax relating to items recognized directly in equity, and not in the income statement.

3.3 Post Balance Sheet Events

Industrial Asphalts (Ceylon) PLC considers all material events occurring after the balance sheet date and, where necessary we make adjustments or disclosures to these financialstatements.

3.4 Property, Plant, & Equipment

Company states property, plant & equipment at cost/valuation, excluding the costs of day to day servicing, less accumulated depreciation and accumulated impairment in value. Such cost includes expenditure that is directly attributable to the acquisition of the asset and cost of replacing part of the asset when that cost is incurred, if the recognition criteria are met.

We measure machinery, motor vehicles, land and buildings at fair value less depreciation and impairment charged subsequent to the date of the revaluation.

We perform valuations on every 3-5 years to ensure that the fair value of a revalued asset does not differ materially from its carrying amount.

We credit any revaluation surplus to the revaluation reserve included in the equity section of thestatementoffinancialposition,except tothe extent that it reverses a revaluation decrease ofthesameassetpreviouslyrecognizedinprofitor loss, in which case the increase is recognized inprofitorloss.Werecognizearevaluationdeficitin profit or loss, except that a deficit directlyoffsetting a previous surplus on the same asset is directly offset against the surplus in the asset revaluation reserve.

Subsequent Cost These are costs that are recognized in the

carrying amount of an item if it is probable that the future economic benefits embodied withinthatpartwillflowtothecompanyanditcanbemeasured.

Restoration Cost Expenditure incurred on replacement repairs or

maintenance of Property, Plants Equipment in order to restore or maintain the future economic benefits expected from the originally assessedstandard of performance is recognized as an expense when incurred.

Reclassification to Investment Property When the use of a property changes based

on commencement of an operating lease to another party, for a transfer from inventories to investment property; the property is measured at fair value and reclassified accordingly. Anydifference between the fair value of the property at that date and its previous carrying amount shallberecognizedinprofitorloss.



De-recognition Company derecognizes an item of property,

plant and equipment upon disposal or when no futureeconomicbenefitsareexpected fromits 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 income statement in the year the asset is derecognized.

Depreciation Company calculates the provision for

depreciation using written down value basis to write down cost of property, plant & equipment to their residual values over following useful lives. We do not depreciate land.

Class of Asset % per Annum

Plant & Machinery 10% Office,ComputerEquipment 25% Motor Vehicles 25% Building 2% Other Equipment 25%

Company now determines the depreciation charge separately for each significant part ofan item of property, plant and equipment and begins to depreciate when it is available for use, rather than adopting a method whereby property, plant and equipment are depreciated fully in the year of disposal with no such charge being accounted for in the year of purchase.

3.5 Intangible Assets

Basis of Recognition

An Intangible Asset is recognized if it is probablethat futureeconomicbenefitsthatareattributable to the asset will flow to the entityand the cost of the asset can be measured reliably in accordance with LKAS 38 'Intangible Assets'. Accordingly, these assets are stated in the Balance Sheet at cost, less accumulated amortization and accumulated impairment losses, if any.

Subsequent Expenditure

Subsequent expenditure on Intangible Assets is capitalized only when it increases the future economic benefits embodied in these assets.All other expenditure is charged to the Income Statement when incurred.

Useful Economic Lives, Amortization and Impairment

The useful lives of Intangible Assets are assessed to be either finite or indefinite. Thecompany does not possess intangible assets with indefinite useful lives. Useful economiclives,amortizationand impairmentof finiteandindefiniteintangibleassetsaredescribedbelow:

Intangible Assets with Finite Lives and Amortization

IntangibleAssetswith finite livesareamortizedover the useful economic lives. The amortization period and the amortization method for an intangibleassetwithfiniteusefullifearereviewedat least at each Balance Sheet date. Changes in the expected useful life or the expected pattern of consumption of future economic benefitembodied in the asset are accounted for by changing the amortization period or method, as appropriate, and are treated as changes in accounting estimates. The amortization expense onintangibleassetswithfinitelivesisrecognizedin the Income Statement as an expense.

Computer Software

All computer software costs incurred, licensed for use by the Company, which are not integrally related to associated hardware, which can be clearly identified, reliably measured and it isprobable that they will lead to future economic benefits, are included in the Statement ofFinancial Position under the category of intangible assets and carried at cost, less accumulated amortization and accumulated impairment losses, if any.

Amortization of Intangible Assets

Intangible assets are amortized using the straight line method to write down the cost over its estimated useful economic lives. Effective rates are as follows:-

Class of Asset % per Annum

Software 50%

The unamortized balances of intangible assets with finite lives are reviewed for impairmentwhenever there is an indication for impairment and recognized as expenses in the Income Statement to the extent that they are no longer probable of being recovered from the expected futurebenefits.



De-recognition of Intangible Assets

Intangible assets are derecognized on disposal or when no future economic benefits areexpected from its use. Gains or losses arising from de-recognition of an intangible asset are measured as the difference between the net disposal proceeds and the carrying amount of the asset and are recognized in the Income Statement.

3.6 Leased Assets

Leases in terms of which the Company assumes substantially all the risks and rewards of ownership are classified as "finance leases".Upon initial recognition the leased asset is measured at an amount equal to the lower of its fair value and the present value of the minimum lease payments. Subsequent to initial recognition, the asset is accounted for in accordance with the accounting policy applicable to that asset.

3.7 Inventories

Inventories are valued at the lower of cost or 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 estimated cost of completion and estimated cost necessary to make the sale.

The cost incurred in bringing inventories to its present location and conditions are accounted using the following cost formula:-

Raw Material - At actual cost on weighted average cost basis.

Finished Goods Work in Progress - At the cost of direct materials,fixedlabour and an appropriate proportion of manufactory overheads based on normal capacity.

Goods in Transits - At actual cost.

3.8 Impairment

3.8.1 Financial Assets

Afinancialassetnotcarriedatfairvaluethroughprofitorlossisassessedateachreportingdatetodeterminewhetherthereisobjectiveevidencethatitisimpairedifobjectiveevidenceindicatesthat a loss event has occurred after the initial recognition of the asset, and that the loss event had a negative effect on the estimated future cashflowsof thatasset thatcanbeestimatedreliably.

Animpairmentlossinrespectofafinancialassetmeasured at amortized cost is calculated as the difference between its carrying amount and the present value of the estimated future cash flowsdiscountedattheasset’soriginaleffectiveinterest rate. Losses are recognized in profitor loss and reflected in an allowance accountagainst receivables. Interest on the impaired asset continues to be recognised through the unwinding of the discount. When a subsequent event causes the amount of impairment loss to decrease, the decrease in impairment loss is reversedthroughprofitorloss.

3.8.2 Non-financial Assets

The carrying amount of the Company non-financial assets, other than inventories, arereviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, the asset’s recoverable amount is estimated.

An impairment loss is recognized if the carrying amount of an asset or cash generating unit exceeds its recoverable amount.

3.9 Liabilities and Provisions

3.9.1 Provisions

When company has a present obligation (legal or constructive) as a result of a past event, whenitisprobablethatanoutflowofresourcesembodying economic benefits will be requiredto settle the obligation and the company can reliably estimate the amount of the obligation, we recognize it as a provision in accordance with LKAS 37 – Provisions, Contingent Liabilities and Contingent Asset.


3.9.2 Retirement Benefit Obligations

3.9.2.1 Defined Benefit Plan - Gratuity

A defined benefit plan is a post-employmentbenefit plan other than a defined contributionplan. The Company is liable to pay retirement benefits under the Payment of Gratuity ActNo. 12 of 1983. Provision has been made for retirement gratuities using "Project Unit Credit"(PUC) method as recommended by LKAS 19 "Employee Benefits". The present value of thedefined benefit obligation is determined bydiscounting the estimated future cash flowsbased on the actuarial valuation carried out by an independent qualified actuary. Theassumptions based on which the results of actuarial valuation was determined are included in Notes to the Financial Statements. The liability is not externally funded.

However, under the payment of Gratuity Act No. 12 of 1983, the liability to an employee arises only on completion of 5 years of continues service.

3.9.2.2 Defined Contribution Plans - Employees' Provident Fund & Employees' Trust Fund

Employees are eligible for Employees’ Provident Fund Contributions and Employees’ Trust Fund Contributions in line with the respective statues and regulations. The Company contributes 12% and 3% of gross emoluments of employees to Employees’ Provident Fund and Employees’ Trust Fund respectively.

3.10 Income Statement

Revenue Recognition

Revenue is recognized to the extent that it is probablethattheeconomicbenefitswillflowtothe Company and the revenue and associated costs incurred or to be incurred can be reliably measured. Revenue is measured at the fair value of the consideration received or receivable net of trade discounts and sales taxes. The following specific criteria are used for the purpose ofrecognition of revenue.

a) Sale of Goods

Revenue from the sale of goods is recognised when the significant risks and rewards or

ownership of the goods, have passed to the buyer, usually on dispatch of the goods.

b) Interest

Revenue is recognised on a time proportion basis that takes in to accounts the effective interest rate on asset.

c) Dividends

Dividend Income is recognized when the shareholders’ right to receive the payment is established.

d) Rental income

Rental Income arising on investment properties is accounted for on a straight-line basis over the lease terms.

h) Others

Other income is recognized on an accrual basis.

Borrowing Costs

Finance costs comprise interest expense on borrowingsrecognizedinprofitorlossusingtheeffective interest method.

Foreign Currency translation

Foreign currency gains or losses are reported on a net basis.

3.11 New Accounting Standards Issued but not yet Effective

The Institute of Chartered Accountants of Sri Lanka has issued the following standards which become effective for annual periods beginning after the current financial year.Accordingly, these Standards have not been appliedinpreparingthesefinancialstatements.The Company will be adopting these standards when they become effective.

• SLFRS9 -FinancialInstruments

• SLFRS15-Revenuefromcontracts with customers

• SLFRS16-Leases



4 Revenue 2019 2018 Rs. Rs.

Paints and Coatings 26,215,523 18,046,345 Non - Coating Products 125,038,550 26,020,938 151,254,073 44,067,284

5 Other operating income 2019 2018 Rs. Rs.

Dividend income 444,316 46,298 Share Disposal Gain/(Loss) 4,755 - Fixed Assets Disposal Gain/(Loss) 2,072,859 - Sundry Income 1,000,000 349,960 3,521,930 396,258

6 Impairments/ Provisions 2019 2018 Rs. Rs.

Impairment of Plant & Machinery - 9,903,804 Impairment for slow-moving Stock - 11,387,404 Impairment for Doubtful Debtors - 19,641,678 - 40,932,886

7 Net financing costs 2019 2018 Rs. Rs.

Finance costs Bank Loan interest (2,681,094) (781,014) Share Transaction Fees (391,144) - Lease Interest Expense (804,596) (992,210) Overdraft interest (10,521,997) (9,905,088) Margin Trading Interest Expense - (137,279) Gain /loss in share value (824,731) (42,994) Bank Charges (366,207) (237,557) (15,589,770) (12,096,143)

Finance income Interestonfixeddeposits 39,090 39,803 Repo Interest Income 92,506 51,095 131,595 90,899 (15,458,174) (12,005,244)

8 Profit/ (loss) before tax 2019 2018 Rs. Rs.

Profit/ (loss) before tax is stated after charging: Depreciation of property, plant and equipment 3,292,927 5,586,000 Amortization of intangible assets - 19,290 Directors emoluments 1,288,000 - Personnel expenses (Note 8.1) 8,996,641 9,347,207 Auditors remuneration 240,000 220,000

8.1 Personnel expenses Salaries & wages 7,758,473 8,271,752 Contributiontodefinedcontributionplans(EPF&ETF) 1,067,192 877,274 Contributiontodefinedbenefitplanforgratuity 170,976 198,181 8,996,641 9,347,207

NOTES TO THE FINANCIAL STATEMENTS [Contd.]For the year ended 31 March


2019 2018 Rs. Rs.

9.2 Reconciliation of accounting profit to income tax: Profit/(loss)beforeincometax 5,916,185 473,440,603 Tax effect on disallowable expenses 6,170,159 (485,994,760) Tax effect on allowable expenses (10,155,955) (5,095,021) Income from separate sources (131,595) (90,899) Total statutory income 1,798,794 (17,740,077) Tax losses set-off (1,798,794) - Assessable income - (17,740,077) Less: Qualifying payments - - Taxable income/ (loss) - (17,740,077) Income tax @ 14% 18,423 10,908

9 Income tax expense 2019 2018 Rs. Rs.

Overprovision for Last Year (284) - Current tax expense Income tax for the current year (Note 9.2) 18,423 10,908 18,423 10,908 Deferred tax expense Deferred taxation (Note 23) (9,880,796) (225,371) (9,880,796) (225,371) (9,862,656) (214,463) 9.1 In terms of provisions of the Inland Revenue Act No.24 of 2017, the Company is liable for income tax at the rate of 14%.

2019 2018 Rs. Rs.

Netprofit/(loss)attributabletoordinaryshareholders 15,778,841 473,655,066 Weighted average number of ordinary shares (Note 10.1) 666,562 666,562 Basic earnings/ (loss) per share (Rupees) 23.67 710.59

10 Basic earnings per share

Basicearningspershareiscalculatedbydividingthenetprofitfortheyearattributabletoordinaryshareholdersby the weighted average number of ordinary shares outstanding during the year, as required by the Sri Lanka Accounting Standard (LKAS 33) on 'Earnings per Share'.

10.1 Weighted average number of ordinary shares

Issued ordinary shares at the beginning of the year 666,562 666,562 Issued ordinary shares at the end of the year 666,562 666,562




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12 Lease Hold Land 2019 2018 Rs. Rs.

Cost Balance at the beginning of the year - 3,858,030 Transfers to Investment Property (Note 13) - (3,858,030) Balance at the end of the year - - Accumulated amortization Balance at the beginning of the year - 1,284,841 Amortization charge for the year - 19,290 Transfers to Investment Property (Note 13) - (1,304,131) Balance at the end of the year - - Written down value as at 31 March - -

14 Intangible assets 2019 2018 Rs. Rs.

Cost Balance at the beginning of the year 266,899 266,899 Additions during the year - - Balance at the end of the year 266,899 266,899 Accumulated amortization Balance at the beginning of the year 266,899 266,899 Amortization charge for the year - - Balance at the end of the year 266,899 266,899 Written down value as at 31 March - -

13 Investment Property 2019 2018 Rs. Rs.

Balance at the beginning of the year 587,600,000 - Transfers from Property, plant & equipment and Leasehold Land - 43,494,540 Add: Land Development - 10,000,000 Change in value during the year - 534,105,459 Fair Value at the end of the year 587,600,000 587,600,000

Note 13.1 As per LKAS 40, "Investment Property", the Directors have adopted the fair value model for accounting for

Investment Property as at 30th September 2017.

The present value of Investment Property was increased to Rs. 577,600,000/- based on a valuation carried out by Mr. N.A.A.D.S. Nissanka, Registered and Incorporated Valuer and the resultant fair value gain was recorded in the Statement of Comprehensive Income. Further, the cost of Land Development Rs.10 Million was also added to the said amount.

15 Inventories 2019 2018 Rs. Rs.

Raw materials 12,629,047 18,145,296 Packing Materials 1,962,281 4,428,924 Finished goods 1,327,013 5,644,279 Work in progress 1,186,320 1,683,058 17,104,660 29,901,557 Less: Inventory Impairment (7,702,903) (11,387,404) 9,401,758 18,514,153

15.1 Inventories amounting to Rs.9,401,758 (2018 - Rs.18,514,153) have been pledged as security for short term loans and overdraft facilities obtained from banks (Note 33).



16 Short Term Investment in REPO 2019 2018 Rs. Rs.

Hatton National Bank - Ref. No: 5787921 - 10,029,408 - 10,029,408


Quoted investments - at market valueUnion Bank PLC 200 5,000 2,200 200 5,000 2,560Laughf Gas PLC 5 115 84 5 115 178ACL Cabels PLC 100 10,314 3,230 100 10,314 4,100Ceylon Grain Elevators PLC 10,330 722,770 538,193 - - -Dialog Axiata PLC 26,010 208,566 236,691 253,668 3,521,770 3,500,618Lanka IOC PLC 10,000 443,500 174,000 - - -Hatton Plantation PLC 5,000 40,500 33,500 - - -First Capital Holdings PLC 57,537 1,721,345 1,329,105 - - -Lion Brewery PLC 884 577,787 490,620 - - -Expo Lanka PLC 30,000 120,000 120,000 - - -Aitken Spence PLC 2,750 152,625 112,750 - - -John Keells Holdings PLC 1,188 172,500 185,328 - - - 4,175,021 3,225,701 3,537,199 3,507,456

No. of Cost Market No. of Cost Market shares value shares value Rs. Rs. Rs. Rs.

2019 2018 Rs. Rs.

18 Financial Investments - fair value through profit or loss

17 Trade and other receivables 2019 2018 Rs. Rs.

Trade receivables Trade receivables (Note 17.1) 52,687,680 9,612,613 Staff loans 878,823 514,823 Deposits, advances and prepayments (Note 17.2) 5,678,632 5,001,738 59,245,134 15,129,174

17.1 Trade receivables Trade receivables (Note 17.3) 77,494,970 33,631,816 Less: Impairment of Trade receivables (24,807,290) (24,019,203) 52,687,680 9,612,61317.2 Deposits, advances and prepayments & other receivables Deposit LECO 2,500 2,500 Refundable Deposit 540,000 - Prepayments 5,136,132 4,991,874 Repo Interest Receivable - 7,364 VAT receivable 3,600,597 3,600,597 9,279,229 8,602,335 Less: Impairment for VAT receivable (3,600,597) (3,600,597) 5,678,632 5,001,738

17.3 As at 31 March, the age analysis of Trade receivables is as follows:

17.4 Impairment of Trade Receivables Direct credits received to the Bank Accounts during the year amounting to Rs. 788,086.86 were

transferrred to the Trade Receivables impairment account as at 31 March 2019.

Trade Receivables 77,494,970 49,419,815 239,326 1,062,170 26,773,659

As at 31 March 2019 Total 01-90 91-180 181-270 > 270 Days Days Days Days Rs. Rs. Rs. Rs. Rs.



19 Held to maturity investments 2019 2018 Rs. Rs.

Investment in Fixed Deposits 375,683 375,683 375,683 375,683

20 Cash and cash equivalents 2019 2018 Rs. Rs.

20.1 Cash at Bank 459,631 1,074,671 Cash in hand 12,435 13,602 472,066 1,088,273 20.2 Bank overdrafts (80,270,488) (74,798,696) Cash and cash equivalents in the Cash Flow Statement (79,798,422) (73,710,422)

21 Stated capital 2019 2018 Rs. Rs.

Ordinary shares (No. of shares 666,562) 6,665,620 6,665,620 6,665,620 6,665,620

22 General Reserves 2019 2018 Rs. Rs.

General Reserves 15,141,299 15,141,299 15,141,299 15,141,299 General reserves refers to transfers made from retained earnings in the previous years. No particular

purposewasidentified.

23 Deferred tax liability 2019 2018 Rs. Rs.

Balance at the beginning of the year 1,440,511 1,665,882 Charge/(reversal) for the year (9,880,796) (225,371) Balance at the end of the year (8,440,285) 1,440,511

23.1 Deferred tax asset 815,754 4,646,015 Deferred tax liability (9,256,039) (3,205,504) Net deferred tax liability (8,440,285) 1,440,511

23.2 Deferred tax on gratuity (123,945) (112,604) Deferred tax on carried forward tax loss (9,132,094) (477,760) Deferred tax on property, plant and equipment 815,754 2,030,875 (8,440,285) 1,440,511


24 Retirement benefit obligation 2019 2018 Rs. Rs.

Balance at the beginning of the year 804,317 1,085,049 Current service cost 82,501 78,826 Interest cost 88,475 119,355 Payments made during the year (71,750) (441,875) Actuarial gain/(loss) (18,223) (37,038) Balance at the end of the year 885,320 804,317

The Company carried out an actuarial valuation of the gratuity as at 31 March 2019 by Mr. M. Poopalanathan, AIA, Messrs Actuarial and Management Consultant (Pvt) Ltd, a firm of professionalactuaries.Thevaluationmethodusedbytheactuariestovaluetheliabilityisthe"ProjectedUnitCreditMethod", the method recommended by the LKAS 19.

Discount rate 11.00% Future salary increase 7.50%

25 Interest bearing loans and borrowings 2019 2018 Rs. Rs.

Payable after one year Finance Lease 6,576,136 4,624,184 6,576,136 4,624,184

Payable within one year Finance Lease 3,331,773 2,249,413 Short term loans 21,060,468 10,284,610 24,392,240 12,534,023

25.1 Sourcesoffinance Commercial Bank of Ceylon PLC 30,968,376 17,158,207 30,968,376 17,158,207


26 Trade and other payables 2019 2018 Rs. Rs.

Trade Payables 8,642,236 865,318 Accrued Expenses 2,913,800 1,477,704 VAT Payable 382,864 450,197 11,938,900 2,793,219

27 Lease Rental Received in Advance 2019 2018 Rs. Rs.

Balance at the beginning of the year 23,600,000 - Lease Rental Received during the year (Rs. 2,950,000 x 15) 44,250,000 23,600,000 Less: Income recognised (Rs. 2,950,000 x 11) (32,450,000) - Balance at the end of the year 35,400,000 23,600,000

On 28th February 2018, Company entered into an Agreement to Lease with Siam City Cement (Lanka) Ltd to lease out it’s property situated at No. 28/1 New Nuge Road, Peliyagoda. According to the terms of the Lease Agreement, the lease rental received in advance as at 31st March 2018 amounted to Rs.23.6 million and the lease rental applicable from 1st May 2018 amounts to Rs.2,950,000/- per month. As at the year end, the Lease Rental received in advance amounted to Rs.35.4 million.


30 Capital commitment and contingencies There were no material capital commitments and contingencies as at 31st March 2019 except for the

following. - Guarantees given by Commercial Bank of Ceylon PLC on behalf of the Company amounts to Rs.

322,000/-.

31 Events occuring after the Statement of Financial Position date No circumstances have arisen since the Statement of Financial Position date which would require

adjustmentstoordisclosureintheFinancialStatements.

32 Related party transactions Disclosure as per the requirement of Colombo Stock Exchange Listing Rule Section 9.3.2 and Code

of Best Practices on Related Party Transactions, under the Security Exchange Commission Directive issued under Section 13 ( c ) of the Security Exchange Commission Act is on page 17 Related Party Transactions Review Committee Report.

Therewerenoanyrecurrentornon-recurrentrelatedpartytransactionsduringthefinancialyearunderreviewwhichrequireadditionaldisclosureinthefinancialstatements.

29 Dividends paid 2019 2018 Rs. Rs.

Interim Dividend paid 1,999,686 - Final Dividend paid 999,843 - Dividend payout ratio 0.19 - Dividend per share 4.50 -


28 Income tax (receivable)/ payable 2019 2018 Rs. Rs.

Balance at the beginning of the year (overpayment) 105 (6,823) Income tax provision for the year (Note 9) 18,423 10,908 18,529 4,085 Tax Credits WHT Receivables (310,080) (3,980) ESC Recoverable (198,717) - Income tax payments made during the year (6,928) - Balance at the end of the year (497,196) 105


34 Comparative Figures

Certaincomparativefigureshavebeenrestatedtoconformtotheclassificationandpresentationasat31st March 2019.


Name of Bank Loan Facility Security Carrying amount of Assets pledged 2019 2018

33 Assets pledged as securities against short term borrowings:

Commercial Bank Overdraft - Rs.22.5Mn Investment property at No.28/1, Investment Lease holdof Ceylon PLC Overdraft - Rs.75Mn New Nuge Road, Peliyagoda Property - Property - Short term loan Rs.21,060,468 Rs.587,600,000 Rs.587,600,000 over stock held at No.28/1, New Inventory- Inventory- Nuge Road, Peliyagoda Rs.9,401,758 Rs.18,514,153 over Trade Debtors Trade Debtors - Trade Debtors - Rs.52,687,680 Rs.10,993,594


SHAREHOLDERS INFORMATION

1 - 1,000 360 41,544 6.23% 339 28,355 4.25%1,001 - 10,000 20 58,104 8.72% 23 71,313 10.70%10,001 -100,000 5 121,077 18.16% 5 121,057 18.16%100,001 and over 1 445,837 66.89% 1 445,837 66.89% 386 666,562 100.00% 368 666,562 100.00%

Public Holding 382 217,586 32.64% 365 220,255 33.04%Total Holding 386 666,562 100.00% 368 666,562 100.00%

FloatAdjustedMarketCapitalization 80,724,406 75,921,899

Holdings (Shares) 31 March 2019 31 March 2018 No. of Total Holdings No. of Total Holdings Holders Shares % Holders Shares %

Holdings (Shares) 31 March 2019 31 March 2018 No. of Total Holdings No. of Total Holdings Holders Shares % Holders Shares %

GOVINDASAMY RAMANAN 445,837 66.89 445,837 66.89DR. T. SENTHILVERL 43,688 6.55 43,688 6.55K. S. SOMAPALA 29,746 4.46 29,746 4.46SAMPATH BANK PLC/ SHABBIR ABBAS GULAMHUSEIN 19,054 2.86 19,054 2.86M. MAHIBALAN 16,589 2.49 16,569 2.49D. B. WETHASINGHE 12,000 1.80 12,000 1.80D. P. KUMARA 7,436 1.12 7,436 1.12D. S. S. KUMARA - - 7,436 1.12H. W. M. WOODWARD - - 6,932 1.04C. A. D. S. WOODWARD 6,932 1.04 - -M. M. ABDUL LATIFF 6,253 0.94 6,253 0.94WALDOCK MACKENZIE LTD/ SHABBIR ABBAS GULAMHUSEIN 4,508 0.68 4,508 0.68R. UDALAGAMA 4,000 0.60 4,000 0.60P. O. BOGAHALANDA 3,718 0.56 - -M. A. JUNAID 3,622 0.54 3,746 0.56S. G. N. HERATH - - 3,330 0.50MBSL/ G. S. P. GUNASENA 3,248 0.49 3,248 0.49R. G. G. WIJESURIYA 2,810 0.42 2,810 0.42K. NAVEENKANTH 2,669 0.40 - -J. MYLVAGANAM 2,466 0.37 2,466 0.37A. L. HULANGAMUWA 2,306 0.35 2,306 0.35EXECUTOR OF THE LAST WILL AND TESTAMENT OF THE LATE MR. A.Y.S. GNANAM 2,254 0.34 2,254 0.34A.N. HERATH 2,195 0.33 - -N. K. PARANAGAMA DIVITOTAWELA - - 2,036 0.31

Twenty Largest Shareholders

Distribution Schedule of Shareholders

Public Holding

Name of Shareholder 31 March 2019 31 March 2018 No. of Shares % No. of Shares %


SHAREHOLDERS INFORMATION [Contd.]

Market Value of Shares

For the Year ended 31 March 2019 31 March 2018

Highest price per share (Rs.) 410.00 398.00Lowest price per share (Rs.) 273.90 248.00Last traded price per share (Rs.) 371.00 344.70


FORM OF PROXYI/We,.................................................................................................................................................................of

...................................................................................................................................................................being

a member/ members of the Company, hereby appoint

Mr/ Mrs/ Miss........................................................................................................................................................

(holder of N.I.C.No................................................................) of........................................................................

.......................................................................................................................................................whom failing

Mr. G. Ramanan whom failing Mr. K. Naveenkanth whom failing Mr. S.P. Muthusammy whom failing Mr. D. Daluwatte

As my/ our proxy to represent me/ us and vote on my/ our behalf at the 55th Annual General Meeting of the Company to be held on 10th September 2019 at the Auditorium of the National Olympic Committee of Sri Lanka "Olympic House", No. 100/9F, Independence Avenue, Colombo 07 at 10.30 a.m. and at any adjournmentthereofandateverypollwhichmaybetakeninconsequencethereof.

Please indicate your preference by placing a 'X' in the box of your choice against the Resolution No.

For Against

1. Receiving of the Annual Report of the Board of Directors and the Audited Financial Statements of the Company for the year ended 31st March 2019 together with the Report of the Auditor's thereon.

2. Declaration of a First and Final Dividend of Rs.4.50 per share as recommended by the Board

3. Re-election of Mr. S. P. Muthusammy Director who retires in terms of Article 90 of the Articles of Association of the Company and offers himself for re-election as a Director.

4. Re-appointment of Messrs A.I. Macan Markar & Co., Chartered Accountants, as Auditors of the Company for the ensuing year and authorize the Directors to determine their remuneration.

5. Authorize the Directors to determine and make donations.

Special Business

Amendments to the Articles of Association

Signed this...................... Day of............................... 2019

............................................................................... Signature

...............................................................................

Shareholder's N.I.C/ P.P./Co. Reg. No


1. PleaseperfecttheFormofProxyoverleaf,afterfillinginlegiblyyourfullnameandaddress,bysigninginthespaceprovidedandfillingthedateofsignatureandyourNationalIdentityCardnumber.

2. The completed Form of Proxy should be deposited at the Office of Industrial Asphalts (Ceylon) PLC, No.321, Negombo Road, Peliyagoda, 48 hours before the time appointed for the holding of the meeting.

3. If an Attorney has signed the Form of Proxy, the relative Power of Attorney should also accompany the completed Form of Proxy for registration, if such Power of Attorney has not already been registered with the Company.

4. If the Shareholder is a Company or a Corporate Body, the Proxy should be executed under its Common Seal in accordance with its Articles of Association or Constitution.

5. If there is any doubt as to how the vote is to be exercised, by reason of the manner in which the Form of Proxy has been completed, no vote will be recorded by the Form of Proxy.

INSTRUCTIONS FOR COMPLETION OF PROXY

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