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Sathosa Motors PLC | Annual Report 2015/16

SATHOSA MOTORS PLC

Sathosa Motors PLC

Annual Report 2015/16

Corporate Information

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NAME OF THE COMPANY

Sathosa Motors PLC

LEGAL FORM

A public Limited Liability Company incorporated in Sri Lanka on 11th March 1982 under the Companies Ordinance No: 51 of 1938 and re-registered under the Companies Act No.7 of 2007. Listed on the Colombo Stock Exchange on 07th November 1993.

REGISTRATION NUMBER

PQ 105

BOARD OF DIRECTORS

Mr. Sumal Joseph Sanjeewa Perera ChairmanDeshamanya Tilak Dias Gunasekera Managing DirectorMr. J C Joshua Director (Alternate Director Mr. S H S Mendis)Mr. D A R Fernando DirectorMr. S H S Mendis DirectorMr. S D Munasinghe DirectorMr. R J S Gomez Director (Alternate Director Mr. S D Munasinghe)Mr. M M N De Silva DirectorMr. Chiran Wijesinghe Director

The Board of Directors who held office at 31st March 2016, are stated under “ Annual Report of the Board of Directors’ on the Affairs of the Company”

Senior Management Team

Neomal Fernando Assistant General Manager – New VehicleDilshan Nugera Sales Manager – New VehicleDeepal Dissanayake Service Manager – WorkshopHarsha Withana Sales Manager – ServicesUpul Ranasinghe Assistant Manager – ServicesNishantha Pieris Manager – Spare PartsEranga Dias Assistant Manager – Spare PartsNilanga Silva Manager HR & AdministrationThejani Kodithuwakku Finance ControllerLalith Jayathunga Finance ManagerInoka Jayawickrama AccountantDuminda Munasinghe Manager – IT

BANKERS

Hatton National BankNDB BankCommercial Bank of Ceylon PLCBank of CeylonSampath Bank PLC

AUDITORS

KPMGChartered Accountant,32 A, Sir Mohomad Macan Marker Mawatha,Colombo 03.

SECRETARIES & REGISTRARS

P W Corporate Secretarial (Pvt) LtdNo: 3/17, Kynsey Road,Colombo 08.

LAWYERS

Nithi Murugesu & AssociateAttorneys – At – Law – Notaries Public28 (level 2) W A D Ramanayake Mawatha,Colombo 02.

ACTUARIAL CONSULTANTS

Actuarial & Management Consultants (Pvt) Ltd1st Floor,No: 434, R A de Mel Mawatha,Colombo 03.

REGISTERED OFFICE

No: 25, Vauxhall Street,Colombo 02.

GENERAL OFFICE / BUSINESS ADDRESS

No: 25, Vauxhall Street,Colombo 02.Tel : 011-2432858, 011-2431568, 011- 2331621Fax : 011-2446129Web : www.sathosamotorsplc.com

Scan this QR code with your smart device to view this version of the Annual Report online

At Sathosa Motors, we have a reputation for courage, endurance and the will to succeed. That’s why we are excited to see our journey of success take flight with new energy and vigor. The past year has seen the Company make many positive changes which have strengthened us.

The years ahead are filled with the promise of what we can achieve, the limitless potential stemming from our far sighted vision. We believe our integrity, service and continuous stakeholder value will facilitate our future growth – the direction of our dreams.

ContentsHistory of Sathosa Motors PLC | 2

Financial Highlights | 4

The New ISUZU Series Reward | 6

A Message from the Chairman | 8

A Message from the Managing Director | 10

Board of Directors | 13

Management Discussion and Analysis | 18

Sustainability Report | 24

Corporate Governance | 27

Risk Management Review | 29

Annual Report of the Board of Directors on the Affairs of the Company | 34

Independent Auditors’ Report | 37

Statement of Profit or Loss and Other Comprehensive Income | 38

Statement of Financial Position | 39

Statement of Changes in Equity | 40

Statement of Cash Flow | 42

Notes to the Financial Statements | 43

Related Party Transactions Review Committee Report | 88

Report of the Audit Committee | 89

Information to Investor | 91

Statement of Value Added | 93

Notice of Annual General Meeting | 94

Form of Proxy | 95

Corporate Information | Inner Back Cover

Our VisionTo be the trusted leader in the Sri Lankan Automobile Industry by ensuring that we deliver only the best quality to our valued customers.

Our MissionTo achieve excellence in customer satisfaction by cultivating a dynamic and productive organizational culture with highly motivated staff to provide the best quality vehicles at competitive and affordable prices, thereby generating the maximum benefit to all our stakeholders.

Key Corporate Values• We value and believe in maintaining the highest standards of

integrity, honesty, transparency, responsibility and ethical behaviour in all our dealings and transactions.

• We respect the dignity of people

• We are passionate about delivering the highest levels of service quality to all our internal and external stakeholders.

• We encourage and respect diversity among our team in order to create an inclusive organizational culture.

• We believe in leading by example.

• We firmly believe in taking all prudent and responsible measures to strengthen our Company’s financial foundation.

• We believe in the importance of ensuring excellence in all our processes and systems as a means of maintaining a strong niche position in the Sri Lankan market: from expanding our dealership network, to introducing innovative product ranges to the market, to market development, to leveraging training as an opportunity to enhance expertise and productivity.

• We are committed at all times to strengthening the corporate image of Sathosa Motors by communicating and delivering on our core values.

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History of Sathosa Motors PLC

A leading company in Sri Lanka’s automobile sector, Sathosa Motors PLC came into being in 1962, when Sri Lanka’s Isuzu Agency was secured by the Co-operative Wholesale Establishment (CWE). The first agreement was signed between M/s Isuzu Motors Limited, Tokyo, Japan (Manufacturer); M/s C Itoch & Co. Ltd., (Distributor); and the Co-operative Wholesale Establishment C.W.E. (Franchise holder). Soon, with the liberalization of imports in 1978 and the open economic policy, Isuzu became the most sought-after brand by fleet owners, the government sector and so on. Sathosa Motors Limited was established as a fully-owned subsidiary of the C.W.E on 1st January 1985 in order to provide more freedom to carry on efficient business operations. Subsequently, Access Engineering Company Ltd (AEL), which went public, acquired a major controlling stake in Sathosa Motors PLC (SML) during 2012. Later, Sathosa Motors PLC obtained 50% ownership of SML Frontier Automotive Pvt Ltd, the Land Rover Company.

1962The Isuzu Agency was secured by the Co-operative Wholesale Establishment (CWE), under their New Vehicles and Machinery Department.

1992Partial privatization of Sathosa Motors Limited, in line with the government policy. 60% of the issued capital was acquired by M/s Itoch & Co limited (ITOUCH Corporation, Tokyo Japan, a leading trading organization in Japan, 10% of the balance shares were gifted to employees, and 30% was issued to the general public.

1985Converts the New Vehicles and Machinery Department into a fully owned subsidiary of the CWE, under the auspices of the Ministry of Trade and Commerce as “Sathosa Motors Limited” to enable the Company to operate more independently and efficiently, catering to the growing demand.

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2012The controlling stake of SML was acquired by Access Engineering Company Limited.

2015The company sets up a state of the art workshop at Vauxhall street, Colombo 2, to cater mainly to Isuzu SUV customers.

2007The Company was re-registered under the Company’s Act No 7 of 2007, as Sathosa Motors PLC (SML).

2013A strategic decision was made to acquire 50% stake in Frontier Automotive Pvt Ltd, the exclusive distributor for Land Rover in Sri Lanka, a luxury European Brand, best known as the ‘Sri Lankan Military’s Vehicle of Choice’.

2014Further strengthening the product offer with the Introduction of Isuzu SUV with distinctive styling, spacious interiors and the promise of a smooth drive, complementing the existing Isuzu heavy and light commercial trucks and Isuzu luxury buses and double cabs.

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Company Group08/09 09/10 10/11 11/12 12/13 13/14 14/15 15/16 13/14 14/15 15/16

Gross Turnover (Rs.000) 885,743 824,765 1,449,396 1,902,741 2,334,937 2,459,490 2,752,022 3,010,586 3,075,580 3,527,240 4,067,822

Profit before Taxation (Rs.000) 73,981 42,513 175,775 242,311 286,342 322,327 349,652 431,827 415,067 382,172 462,188

Profit after Taxation (Rs.000) 55,352 26,995 110,512 173,026 205,752 231,771 252,968 315,704 288,233 269,805 327,111

Property Plant & Equipment & pre paid Lease Payment (Rs.000) 51,364 45,393 41,349 39,012 44,897 74,465 118,079 133,505 178,779 337,928 593,144

Investment Property ( Rs.000) - - - - 21,683 24,192 24,192 45,360 24,192 24,192 45,360

Gross Dividends Paid Final (Rs.000) 36,202 12,067 30,168 30,168 30,168 30,168 30,168 42,235 30,168 30,168 42,235

Gross Dividends Paid Interim ( Rs.000) - - - - - - - 30,168 - - 30,168

Gross Dividends Proposed (Rs.000) - - - - - 30,168 42,235 90,504 30,168 42,235 90,504

Dividend Per Share (Rs.) 6.00 2.00 5.00 5.00 5.00 5.00 7.00 15.00 5.00 7.00 15.00

Dividend Cover (Times) 1.53 2.24 3.66 5.74 6.82 7.68 5.99 3.49 8.62 6.18 3.55

Earnings Per Share (Rs.) 9.17 4.47 18.32 28.68 34.10 38.41 41.93 52.33 43.09 43.32 53.22

Net Asset Per Share (Rs.) 60.22 58.69 74.51 98.64 127.76 161.08 197.96 224.88 165.76 204.02 231.82

Net Profit to Revenue (Before tax) (%) 8.42 5.20 12.28 13.02 12.39 13.24 12.77 14.37 13.65 10.91 11.42

Current Ratio (Times) 2.69 4.69 1.77 1.73 2.14 2.36 2.50 1.50 1.99 1.96 1.28

Quick Assets Ratio (Times) 0.87 2.61 0.85 0.83 0.74 1.30 1.14 0.47 1.15 0.97 0.47

Return on Capital Employed (%) 15.24 7.62 24.58 29.07 26.69 23.85 21.18 23.27 28.82 21.92 23.39

Financial Highlights

Company

Net Revenue

Rs. 3,006 Mn.PAT

Rs. 316 Mn.

ROCE

23.27%EPS

Rs. 52.33

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Rs.

New Vehicles 2,623,665,394

Spareparts 183,793,978

Workshop 201,257,863

Others 1,868,272

Total 3,010,585,507

In Rs. Mn.

Year 11/12 12/13 13/14 14/15 15/16

Revenue 1902.74 2334.94 2459.49 2752.02 3010.59

Year 11/12 12/13 13/14 14/15 15/16

Return on Capital Employed % 29.07% 26.69% 23.85% 21.18% 23.27%Capital Employed Rs.Mn. 595.17 770.83 971.90

1,194.39 1,356.83

Net Profit After Tax Rs.Mn. 173.02 205.75 231.77 252.97 315.77

In Rs. Mn.

Year 11/12 12/13 13/14 14/15 15/16

Profit Before Tax 242.31 286.34 322.33 349.65 431.83 Profit After Tax 173.03 205.75 231.77 252.97 315.70

In Rs.

Year 11/12 12/13 13/14 14/15 15/16

Dividend Per Share 5.00 5.00 5.00 7.00 12.00 Earning Per Share 28.68 34.10 38.41 41.93 52.33

Revenue Analysis of Year 2015/16 (Gross)

87.15%

6.10%

6.69% 0.06%

Revenue (Gross)

0500

1,0001,5002,0002,5003,0003,500

15/1614/1513/1412/1311/12

Rs. Mn.

Return on Capital Employed (After Tax)

10%

15%

20%

25%

30%

15/1614/1513/1412/1311/12

Profitability (Rs.Mn.)

100

200

300

400

500

15/1614/1513/1412/1311/12

Earning & Dividend Per Share (Rs.)

0102030405060

15/1614/1513/1412/1311/12

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The New ISUZU Series Reward

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Dear Valued Shareholders,

It gives me immense pride to place before you the annual report and audited financial statements for the financial year ended 31st March 2016. I am pleased to reiterate the same words as I did in the previous annual report, which is to announce that Your Company has surpassed last year’s historic financial performance in the year under review. It gives me pleasure to declare that Your Company has recorded the highest ever profit in the company’s history by posting group revenue of over Rs. 4 billion as compared to Rs.3.50 billion in the previous year. Your Company’s revenues rose by 9.78% from Rs.2.737 billion to record Rs.3.006 billion in the year under review.

Your Company has achieved the feat of posting a stellar performance for the second consecutive year, which reflects the stability and growth potential of the company, which persevered in its success despite a challenging external environment.

2015 Macro Economic Environment

The country recorded GDP growth of 4.8%, compared with 4.9% in the previous year. A slowdown in the growth of demand in Sri Lanka’s traditional export markets impacted the growth of the export sector while a strengthening US economy prompted short term capital outflows. The impact of these developments was offset to some extent by lower international commodity prices. Nevertheless, domestic consumption rebounded as incomes grew, particularly among public sector workers.

Later in the year, the government had to address the adverse implications of

A Message from the Chairman

... Company stayed the course and went on to post its strongest performance yet. As a result, the profit attributable to the owners or the ordinary shareholders of the Sathosa Motors Group rose from Rs.261.386 million in 2014/15 to Rs.321.083 million in 2015/16.

“

”

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growing demand pressures on price and financial stability and help cushion pressure on the balance of payment by taking early corrective action by imparting greater flexibility in the management of the exchange rate and enforcing new macro prudential regulation.

The high corporate tax and severe customs duties posed a challenge through the year for the vehicle sector, although it sustained its resilience. Unfortunately, the sector, which is a convenient source of hefty revenues to fill state coffers, continues to be taxed heavily and in an ad hoc manner.

With two national elections and fluctuating import duty rates on vehicles made 2015/16 a challenging year for business. We are hopeful that the import duties on vehicles will be rationalized to allow room for growth.

Stellar Performance

Despite these constraints, Your Company stayed the course and went on to post its strongest performance yet. As a result, the profit attributable to the owners or the ordinary shareholders of the Sathosa Motors Group rose from Rs.261.386 million in 2014/15 to Rs.321.083 million in 2015/16. The year under review further demonstrated the prudent financial management of Your Company, as we managed cash flows expertly to minimize the finance costs. Your Company has invested a large share of its profits in financial products from which we expect substantial tax free income, which will further boost our performance.

Another factor that Your Company leveraged on during the year was the

gain accrued from a depreciating Japanese Yen, which increased our margins drastically. We capitalized on the fluctuations of the Japanese Yen to enhance our profitability through forward exchange contracts. Meanwhile, the second half of the year witnessed sharp volatility of the Sri Lankan Rupee as it weakened against the US dollar.

Your Company was also able to post a breakout financial performance owing to its brand strength. The aspirations of the younger generation and the growing middle class are aimed at a better quality of life in tandem with changing lifestyles. Your Company remains sensitive to evolving customer needs and aligns its portfolio accordingly. Not surprisingly, Sathosa Motors leads the sector in the Light Commercial Vehicle category as the exclusive distributor of Isuzu and Land Rover brands in Sri Lanka, by its subsidiary SML Frontier Automotive Pvt Ltd.

This has resulted in the company declaring a total dividend of Rs.20/= per share for the year under review (interim of Rs.5/= and final of Rs.15/=) which is a substantial increase in comparison with dividends paid in the past.

Future

The future prospects for Your Company are extremely positive keeping in mind the ambitious plans we have chalked out for its growth. One of our first endeavors will be to introduce new lines of business in the upcoming financial year. We also have ambitious plans to expand Your Company’s portfolio to include world-renowned franchises. Your Company also has plans to expand

its presence in new strategic towns which are reflecting a growing middle-class and rising purchasing power. By going closer to these customers, we will be able to widen our customer base, offering them the convenience of not having to travel to the nearest large city to access our showroom. Your Company is an integral part of Access Engineering’s many verticals and we have ambitious investment plans for its future evolution.

Appreciation

I take this opportunity to thank my colleagues on the board for their unstinted support and to commend our Managing Director, Deshamanya Tilak Dias Gunasekera, and the management team and staff members for their immense contribution during the year. I would like to express my gratitude to our valued shareholders for placing their confidence in the company.

Sumal PereraChairman

15th June 2016,Colombo

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A Message from the Managing Director

“During the 2015/16 financial year, Sathosa Motors PLC recorded profit before tax of Rs. 431,827,259, which reflects a growth of 23.50% over Rs. 349,652,287, profit before tax achieved in the previous year. Apart from these exceptional financial results, the company succeeded in delivering operational excellence during the year to cap what has been a watershed year in our history.”

Our vision to achieve sustainable business growth is now a strong reality as the company recorded an exceptional financial performance for the second year running, posting the highest-ever profitability levels in the history of the company. During the 2015/16 financial year, Sathosa Motors PLC recorded profit before tax of Rs. 431,827,259, which reflects a growth of 23.50% over Rs. 349,652,287, profit before tax achieved in the previous year. Apart from these exceptional financial results, the company succeeded in delivering operational excellence during the year to cap what has been a watershed year in our history.

Outstanding Performance

Despite rising customs duties on vehicle imports and less than favourable market conditions, the company succeeded in recording higher sales of its Isuzu vehicles. In the year under review, we managed to sell 576 units as compared to 452 units in the previous year, marking an increase of 124 units. Our sales were boosted further by our aggressive marketing efforts coupled with participation in leasing schemes in partnership with banks and fleet owners.

The year under review proved challenging yet again, with ad hoc duty changes and an uncertain political backdrop, compounded further by two elections with a year’s time. Despite this, the company recorded a growth in the topline of 9.78% and an increase in the bottom line of 24.80%. The company posted a Profit after tax of Rs. 315.705 million in comparison to Rs. 252.968 million in the previous financial year. Subsequently, the company’s asset position was further

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improved from Rs. 1.85 billion in the previous financial year to Rs. 2.33 billion in the year under review.

The company recorded over 10.82% growth from new vehicle sales with segmental revenue of Rs. 2.623 billion compared to Rs. 2.367 billion in the previous year. I would like to bring to your notice that income generated from workshop services repairs recorded a robust growth from Rs. 160.397 million to Rs. 201.258 million during financial year 2015/16. Revenue from sales of Spare Parts too achieved an increase of over 5.08% - from Rs. 174.911 million to Rs. 183.794 million in the financial year under consideration.

Enhancing Brand Equity

Our success lies in the fact that we have been able to mine the potential of the company in a way that has fashioned a resilient and sustainable business model by partnering the right brands. As the leader in the Light Commercial Vehicle segment, the Isuzu brand strength, after-sales service and competitive price points have put us in the driving seat in this segment of

vehicles and our leadership position has been sustained irrespective of external factors.

During the year, we continued to highlight our world-class Isuzu after-sales services at our state-of-the-art repair and detailing workshops, which is a key differentiating factor for customers when they decide which brand to purchase. During the year, we found a new clientele in consumer marketing industry, with many companies from the sector opting for the rugged high performance of our Isuzu trucks. Our agency for Land Rover continued to perform reasonably as the market for luxury vehicles in Sri Lanka expanded during the year.

During the year under review, we upgraded our new workshop for Isuzu MU-X SUVs which was established in the preceding financial year with an investment of Rs. 30 Mn. This workshop has been enhanced to cater not only to Isuzu vehicles but also to other makes. Detailing of Toyota vehicles is also done here as per the agreement signed with Toyota Lanka.

Simultaneously, we have strengthened our Spare Parts division to ensure a seamless supply to our loyal customer base, occasionally offering discounts. Our spare parts sales too recorded high sales during the year. All these initiatives set in motion by the company’s bold vision contributed to drive strong growth across the enterprise.

Prudent Management

Our treasury management expertise is reflected in the prudent financial management of the company. As a result of which we were able to minimize our working capital borrowings during the year under review. The company has invested Rs. 667 Mn. in debentures from which we earned Rs. 67 Mn. as net tax-free gain during the year under review. This wise investment decision has strengthened the balance sheet and we remain focused on growing this investment in a cautious yet prudently aggressive manner into the future.

Our excellent performance during the year under review was achieved as a result of maintaining a loyal client base. The company never loses sight of the importance of placing customers at the heart of our operations. We are continuously exploring ways in which we can expand our business and have instituted numerous leasing programmes with banks to explore mutual customer base. In the course of marketing campaigns launched in partnership with banks, we extend attractive discounts and host of other benefits to our loyal customers. Fleet-owners, who form a major chunk of our clientele, get extended warranty for their vehicles along with an on call breakdown service from the company.

“The company recorded over 10.82% growth from new vehicle sales with segmental revenue of Rs. 2.623 billion compared to Rs. 2.367 billion in the previous year.”

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Sustainability Commitment

Our engagement with all our stakeholders, namely, employees, customers, partners and principals remains an ongoing one. Our deep roots in the country have helped build strong brand recall, respect from the public and the ability to influence our stakeholders, a power we use responsibly. During the year under review, Sathosa Motors invited fleet owners, transport managers and drivers to the Pannala racetrack, where we organized a three-day workshop in partnership with Isuzu Japan for training safe driving habits and economical driving. Training on how to attend to breakdowns and awareness on road signs was held. Participants were rewarded on the completion of training. Judging by the positive feedback received from participants about this year’s programme, we intend to conduct a similar initiative in the new financial year. The company remains closely engaged with promoting the sport of rugby as it mirrors the resilient and rugged qualities of Isuzu vehicles and instills similar qualities in school children who play the sport.

Future Prospects

Although we are bullish about the prospects for the company’s future, external factors remain a source of worry. An appreciating dollar pushes our prices upwards with the rupee depreciating 14% against dollar since January 2016 and 7% against the Japanese yen, which is a challenge for the industry as a whole. Furthermore, the government’s tax policies have changed with such frequency that customers tend to adopt a wait and watch policy. The company

has faced many cancellations due to this uncertain situation and the inconsistent policy environment is unfavorable for the stability of the sector and the economy. The motor vehicle sector contributes Rs. 280 Bn. in taxes to the government annually, but these tax levels need to be moderated. As a company, we are trying our best to push sales upwards but we need supportive economic policies as long term planning is difficult due to rising interest rates, higher lending rates and an economic slowdown.

We are commencing construction of a modern workshop at Peliyagoda during 2016, which will accommodate more than 50 vehicles at a time. This will be a one-of-a-kind workshop, with an investment of over Rs. 360 Mn. to ensure it is equipped with the most advanced machinery and technology. Further, the company plans to introduce the Isuzu MUX model with upgraded features than the previous SUV. We also plan to bring down buses from the new location where Isuzu Japan will establish its bus manufacturing plant shortly.

Despite operating in a volatile industry, the financial stability of the company has helped to garner respect for our management strength and team of employees. The company is now poised at the cutting edge of competitiveness, backed by the strength of a robust balance sheet. In keeping with our legacy, we will continue to view challenges as opportunities for growth while going about our business in an ethical and responsible manner.

Acknowledgements

I would like to place on record my gratitude to the Chairman, Board of Directors, the Audit Committee, our trading partners, M/s ITOCHU Corporation & Isuzu Motors, the management team, and all employees of Sathosa Motors for their guidance and cooperation through the year. I wish to thank all our stakeholders, including our customers, auditors, banks, secretaries, tax consultancies and lawyers for their support. The company is poised at one of the most defining moments in its evolution and is proud to share its success with all its stakeholders.

Deshamanya Tilak Dias GunasekeraManaging Director


A Message from the Managing Director

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Board of Directors

Mr. Sumal Perera Chairman

Mr. Sumal Perera was appointed to the Board of Sathosa Motors PLC on 12th June 1998. He is the Founder Chairman of the Access Group of Companies founded in 1989. He is a Fellow Member of the Chartered Institute of Management Accountants – UK (FCMA).

Deshamanya Tilak Dias Gunasekera Managing Director

Mr. Gunasekera joined Sathosa Motors PLC as Senior Deputy General Manager (Marketing) in 2003. He was promoted to the Deputy CEO position in 2005. In the year 2007 he was further promoted to the Board of Sathosa Motors PLC as the Executive Director.

He counts over 30 years of experience in the fields of Marketing Management and Administrative Management in well established Companies. He is a fellow of the Institute of Administrative Management, United Kingdom. He also holds qualifications in Marketing. He has been the Chairman of Ceylon Motor Trading Association (CMTA), which is an umbrella organization of Ceylon Chamber of Commerce (CCC) since 2010.

He is also a Director at SML Frontier Automotive (Pvt) Limited.

Mr. Shevantha Mendis Non-Executive Director

Mr. Shevantha Mendis was appointed to the Board of Sathosa Motors PLC in April 2012. Mr. Mendis has been attached to the Access Group since 1994 holding several positions over the years. He currently holds the position of Director Business Development at Access Engineering PLC and is a Director of Access International (Pvt) Ltd and SML Frontier Automotive (Pvt) Limited.

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Mr. Dharshana Munasinghe Non-Executive Director

Mr. Dharshana Munasinghe was appointed to the Board of Sathosa Motors PLC in April 2012. He has been attached to the Access Group since 1996. Having held several positions in the Group, he now functions as Director – Business Development at Access Engineering PLC and as a Director of Access International (Pvt) Ltd and SML Frontier Automotive (Pvt) Limited.

Mr. Joseph Christopher Joshua Non-Executive Director

Mr. Christopher Joshua was appointed to the Board of Sathosa Motors PLC in April 2012. He is one of the Founder Directors and Shareholders of Access Group of Companies and currently serves as the Managing Director of Access Engineering PLC. He is also the Joint Managing Director of the Access Group of Companies. He was instrumental in heading some of the most successful business units within the Access Group.

Mr. Rohana Fernando Non Executive Director

Mr. Rohana Fernando joined the Board of Sathosa Motors PLC in September 2012. He is an Engineer by profession and has been attached to the Access Group since 1998. He currently holds the position of Director / COO of Access Engineering PLC and serves as a Director of Access International (Pvt) Ltd and SML Frontier Automotive (Pvt) Limited.

He is a Corporate Member of the Institution of Engineers, Sri Lanka (IESL) and has a BSc Degree in Civil Engineering from the University of Peradeniya.

Board of Directors

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Mr. Ranjan John Suriyakumar Gomez Non- Executive Director

Mr. Ranjan Gomez was appointed to the Board of Sathosa Motors PLC in April 2012. He is also one of the Founder Directors and Shareholders of the Access Group of Companies and has functioned as the Joint Managing Director of the Access Group and CEO of many businesses units within the Access Group.

Mr. M M Nelson De Silva Independent Non-Executive Director

Mr. Nelson De Silva who joined the Board of Sathosa Motors PLC on 11th February 2009, is an Associate Member of the Institute of Chartered Accountants of Sri Lanka. Graduated with a B.Sc in Public Administration from Sri Jayawardenapura University.

He serves as the Managing Director of Ned Management Consultants (Pvt) Ltd and he is the sole Proprietor of M M N De Silva & Company.

He has been the Group Accountant of Tisara Group, Senior Accountant of John Keells Group, Finance Manager of Finlay Chemicals & Dyes (Pvt) Ltd, Director of PE Management Consultants (Pvt) Ltd and Partner of HLB Edirisinghe & Company.

Mr. Chiran Wijesinghe Independent Non-Executive Director

Mr. Wijesinghe has approximately 07 years of experience in Senior Management positions in different organizations in Sri Lanka. Manager in Risk Advisory Services of KPMG Sri Lanka, Group Internal Auditor of Oman Hotels & Tourism Co. SAGO (OHTC) managed by Aitken Spence Hotels (Pvt) Ltd.

Work Experience Current: Chief Risk Officer of Hirdaramani Group of Companies

Professional and Academic Qualifications

• Master of Business Administration (MBA) from the University of Southern Queensland (USQ)

• Associate Member of Institute of Chartered Accountants of Sri Lanka (ICASL)

• BSc. Business Administration (Special) – University of Sri Jayewardenepura

• Member of Institute of Internal Auditors (IIA) USA

“Your Company remains sensitive to evolving customer needs and aligns its portfolio to meet the aspirations of the younger generation, the growing middle class and the upper end of the spectrum. Sathosa Motors leads the sector in the Light Commercial Vehicle category as the exclusive distributor of Isuzu and Land Rover brands in Sri Lanka through its subsidiary SML Frontier Automotive Pvt Ltd”

Management Discussion and Analysis

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Sathosa Motors PLC (SML) ended financial year 2015/16 on a highly profitable note supported by aggressive sales strategies, superior after sales services, timely Information Technology (IT) initiatives and prudent cost management. During the year under review, we managed to leverage on our reputation and brand strength to penetrate new markets.

Overview of Vehicle Imports in 2015

Sri Lanka’s vehicle imports increased more than 60% to Rs. 288Bn. during 2015 compared to 2014. In terms of vehicles, imports of passenger vehicles have increased by 88% while imports of goods transport type vehicles increased by 79%. According to the Department of Motor Traffic, vehicle registrations increased by 56% during 2015 and the total vehicle population of the country increased by 11% compared to a year earlier. India

continued to dominate the Sri Lankan market on vehicles in terms of quantity accounting for 58% of total number of vehicles imported while Japan dominated in terms of value accounting for 50% of the total value of imported vehicles. The value of vehicle imports is about 7% of the total import bill of the country and takes up 13% of the country’s total export earnings. By January 2016, vehicle registrations recorded a sharp drop of 34% year-on-year and 41% month-on-month. This slowdown was impacted by the imposition by the Central Bank of a maximum 70% Loan-to-Value (LTV) ratio for loans and advances in respect of motor vehicle financing, the depreciation of the Rupee during latter half of 2015, and increases in motor vehicle import tariffs introduced in Budget 2016 announced in November.

Operational Review

SML is the franchise holder for Isuzu vehicles and spare parts manufactured by M/s Isuzu Motors Ltd. Our Isuzu range consists of: Double Cab Pickup Trucks, Light, Medium & Heavy Duty Commercial Vehicles, Luxury Passenger Coaches and MU-X SUVs. Special Purpose Vehicles include Fire Trucks, Logging Trucks, Dump Trucks, Water & Fuel Bowsers and other types of vehicles required in building construction, distribution of goods etc.

Aggressive Growth Initiatives

During the year under review, a total of 576 vehicles were sold as opposed to 452 vehicles in the previous year. Isuzu heavy vehicles have helped drive Sri Lanka’s economic growth over years by facilitating the mobility of people and goods for over a half-a-century. The brand enjoys over a market leadership

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of 49% of the Japanese Truck market due to high performance trucks repaying multi-fold.

The company has introduced dealer incentive schemes to increase sales and will continue to focus on expanding its ‘Supply Ratio’, which is the availability of spare parts for each dealer location in order to secure more market share from the spare parts sales.

The company aims to expand its sales via expansion of its franchise holders in four major cities including Ampara , Matara, Kandy, Jaffna & Anuradhapura. Plans have also been drawn up to upgrade franchise dealer points to 3S (Sales, Services, Spare parts) concept soon.

Spare Parts

Spare parts dealerships were increased to 128 during the period from 123 in the previous year. The objective is to increase dealerships to 150 in the upcoming financial year in tandem with growth in the company’s capacity and financial strength.

Enhanced Workshop Facilities

In an attempt to diversify the services portfolio to propel the company’s growth, a new workshop for Isuzu MU-X SUVs was established at Vauxhall Street, Colombo 02, with an investment of Rs. 30 Mn. Further, the company has plans to set us a state-of-the-art workshop at Peliyagoda by investing Rs. 360 Mn. during 2016. This workshop would use modern technology to service vehicles.

“The focus on providing the best quality vehicles at competitive and affordable prices was sustained throughout the year, thereby generating the maximum benefit for all stakeholders of the company.”

Net Revenue

Rs. 4.05 Bn.Group

Rs. 3.01 Bn.Company

“During the year under review, a total of 576 vehicles were sold as opposed to 452 vehicles in the previous year. Isuzu heavy vehicles have helped drive Sri Lanka’s economic growth over years by facilitating the mobility of people and goods for over a half-a-century.”

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Customer Engagement

During the current year, the company continued its Service Clinic concept in the region as part of a customer care and awareness raising programme, where SML provides free service advice to fleet owners. This process involves Japanese engineers from Isuzu, which allows local customers to gain a high level of technical exposure regarding the maintenance of their Isuzu vehicles.

During the year, the SML team worked tirelessly to achieve excellence in customer satisfaction by cultivating a dynamic and productive organizational culture with highly motivated staff. The focus on providing the best quality vehicles at competitive and affordable prices was sustained throughout the year, thereby generating the maximum benefit for all stakeholders of the company.

ISUZU Truck Seminar 2016

The company organized a workshop for the Isuzu customers 10th & 11th of February, 2016 at the Pannala Race Track. Transport Managers, relevant officers who are responsible for the lorry fleet and drivers from the companies attended the seminar. The company’s workshop staff together with a team of specialists from Isuzu Motors, Japan conducted the programme.

Future Outlook

Given the market uncertainty, we continue to adopt a strategy of product diversification, targeting a range of suitable market segments for expansion. The luxury motor vehicle industry of Sri Lanka and for that matter, the entire automobile industry is currently facing challenging times mainly due to the unstable political environment and the fluctuations in the duty structure that exists for various vehicle product ranges.

IT Review

The IT function played a leading role in streamlining systems and improving efficiencies across the company. SML started implementing a new ERP system to streamline core business operations and improve the efficiency of its IT reporting environment across its entire branch network. The IT

unit continues to play a dynamic role against the competitive backdrop of the sector to support the company’s sustainable progress. The company’s IT framework provides an effective platform and supports operations in implementing corporate objectives.

SML launched its new state-of-the-art website www.sathosamotorsplc.com recently. The new website was developed using the latest available technology and features with all relevant information about the company and its products. The website provides easy navigation and visitors to the site can easily search for the information they require in no time. The site includes all products and services of Sathosa Motors including Vehicles, Spare Parts outlets, Workshops & Corporate information. Public can log into the site not only through a PC but on Tabs and Smart Phones as well. Anyone can log onto the site and

“During the financial year 2015/16 Sathosa Motors PLC group recorded a 21.23% growth in group Profit After Tax (PAT) amounting to Rs. 327.11 million compared to Rs. 269.80 million in the previous year. However, the company alone recorded a 24.80% increase in PAT from Rs. 252.97 million to Rs. 315.70 million in the year under review.”

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get detailed information about the products, be it a truck, a pick-up, an SUV or Luxury Buses.

Financial Review

Gross Revenue

Sathosa Motors PLC’s group revenue rose by over 15.58% during the Financial Year 2015/16 from Rs. 3.50 billion in the previous year to Rs. 4.05 billion, while the company revenue rose by 9.78% from Rs. 2.73 billion to Rs. 3.01 billion.

Profit After Tax

During the financial year 2015/16 Sathosa Motors PLC group recorded a 21.23% growth in group Profit After Tax (PAT) amounting to Rs. 327.11 million compared to Rs. 269.80 million in the previous year. However, the company alone recorded a 24.80% increase in PAT from Rs. 252.97 million to Rs. 315.70 million in the year under review.

Sales Earnings

During the financial year 2015/16 Group’s Spare Parts sales dropped from Rs. 505.04 million to Rs. 491.40 million and the Group’s new vehicle sales topped Rs. 2.98 billion compared to a Rs. 2.56 billion year ago. The Group’s Workshop repairs contributed

Rs.272.42 million to the income during the year compared to Rs.235.67 million in the previous year.

The company’s Spare Parts sales grew from Rs. 174.91 million to Rs. 183.79 million and the Company’s new vehicle sales topped Rs. 2.62 billion compared to Rs. 2.37 billion a year ago. The company’s workshop repairs contributed Rs. 201.26 million to the income during the year compared to Rs. 160.40 million in the previous year.

Assets

During the year, the group’s asset value increased from Rs. 2.49 billion to Rs. 3.20 billion, rising by 28.51%. The company’s asset value increased from Rs. 1.85 billion to Rs. 2.33 billion, which is an increase of over 25.96%.

Earning per Share

Sathosa Motors PLC has 6,033,622 ordinary voting shares in issue and accordingly group Earnings per Share (EPS) increased from Rs. 43.32 to Rs. 53.22 during the year under review. The company’s EPS increased from Rs. 41.93 to Rs. 52.33 during the year under review.

“Our success lies in the fact that we have been able to mine the potential of the company in a way that has fashioned a resilient and sustainable business model by partnering the right brands. The Isuzu brand strength, after-sales service and competitive price points have put us in the driving seat in this segment of vehicles and our leadership position has been sustained irrespective of external factors.”

Sustainability Report

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SML strives to build a sustainable framework that meets the needs of the present without compromising the future. The company engages closely with its stakeholders to foster an environment that is conducive for growth and ensures its operations have a positive impact on all stakeholders. Our sustainable approach to business creates value for all our stakeholders

Employees

Our employees are the most important stakeholders of the company and employee engagement is our foremost priority. SML offers a productive and encouraging work atmosphere where employees have opportunities for learning and development of skills. SML is an equal opportunity employer and demonstrates strong diversity in its workforce.

Recruitment

Our group’s comprehensive employment policy ensures that candidates are recruited for their positive attitude and appropriate skills for the relevant positions. Our recruitment procedures are marked by fair, objective and accepted evaluation methods.

Our employees are familiarized with the company’s shared vision, mission, objectives, policies, procedures, rules, regulations and day to day business practices through various programmes and initiatives from the time of induction.

During the year under review, the number of employees within the company grew to 128 from 122 in the previous year. Our group consist of 239 employees as compared to 212 in the previous year.

Staff Composition

The majority of our staff is in the permanent cadre and over 63% are in the age group of 30-50 years, whilst 22% are below 30 years. Employees above 50 years account for about 15% of staff. Out of the total staff strength, 75% are males and 25% are female employees, whilst nearly 13.8% are Executives and 82.3% are Non-Executives. The Casual Staff only accounts for 3.9%.

Training and development

During the 2015/16 financial year, selected staff members participated in foreign training programmes and annual training programmes conducted by Isuzu in Japan and Thailand. Employees are continually encouraged to pursue professional development via various training and career guidance programmes. Apart

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from the foreign training, the company has invested on training employees locally during the year.

A series of Advanced Excel Training Programmes were conducted internally with the assistance of the IT department, which helped to enhance the IT skills of employees. Key staff is sent for external trainings programmes within Sri Lanka as needed.

All our employees are encouraged to actively participate in idea generation and problem solving in the organization. We remain committed to upgrading the knowhow and skills of staff by identifying gaps in their knowledge.

Our workshop is manned by technical experts who are backed by strong training in repairs of Isuzu and Toyota vehicles. The profitability growth experienced by our workshop operations demonstrates that an increasing number of customers are patronizing our state-of-the-art workshop.

World Grand Prix Isuzu Technical Competition

Some of the staff members from Spare Parts, and workshop departments participated in the World Grand Prix Isuzu Technical Competition, held during the year.

Fostering a Winning Culture

SML has been successful in creating a nurturing workplace where employees are valued and their efforts rewarded. The company’s open door policy enables cross pollination of ideas between management and staff, thereby heightening productivity, encouraging innovation and keeping the company dynamic at all times.

Our employees and their family members are also included in a comprehensive insurance scheme.

Work-Life Balance

At SML, employee welfare and well-being is given priority by the Human Resource unit. Plenty of opportunities are provided for employees to bond outside of the workplace, thereby promoting greater cooperation and teamwork. The Employee Welfare Society is an active unit and ensures that there are events regularly held to keep staff duly engaged.

The Employee’s Welfare Society organized an inter-departmental Six-a-Side Cricket Tournament on 6th February 2016 at the Buddhadasa Grounds in Pelawatta. The annual ‘Day-Out’ of the staff and their families, was a trip to Chaaya Tranz hotel, Hikkaduwa, which was held on 25th July 2015.

“Employees are continually encouraged to pursue professional development via various training and career guidance programmes. Apart from the foreign training, the company has invested on training employees locally during the year.”

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Further, a health camp was organized for all employees at Peliyagoda Workshop and Head Office on 24th & 25th September 2015 respectively.

Society

As one of the leading companies in the sector in which we operate, we feel a sense of deep social responsibility to the local communities. This sense of corporate stewardship is internalised across the enterprise and employee volunteerism is encouraged amongst staff. The company is closely engaged with the community and carries out Corporate Social Responsibility (CSR) initiatives in the Education, Religious and Cultural spheres of society.

Education and Learning

In keeping with our Corporate Social Responsibility (CSR) vision, SML continued its in-house scholarship scheme for children of employees, who qualify for Advanced Level education under ‘Sisu Nena’ scheme and for students who qualify for university education under ‘Vishwa Pravesha’ scheme.

Community Welfare

During the year under review, we took steps to distribute dry rations pack for employees in April, for the Sinhala and Tamil New year.

The company extended donations to religious organizations, Gangaramaya Temple’s ‘Nawam Perahera’ and ‘Vesak Kalapaya’. SML also supports welfare activities of the armed forces and government entities.

New Year Celebration

The company celebrated the dawn of the New Year on 1st of January 2016 by all employees participating at the customary breakfast.

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Introduction

Corporate Governance deals with the role of the Board of Directors, the framework of internal controls and the manner in which Companies are led and managed. The Board is committed to review and update the Company’s corporate governance structure taking into consideration current market practice and the best practice guidelines issued by the Institute of Chartered Accountants of Sri Lanka. The following sections explain how the Company has applied these principles.

Board Of Directors

The Board of Directors is responsible for the corporate governance of the Company. The main function of the Board is to oversee the business and the affairs of the Company. It is also responsible for the formulation of strategic objectives, policy framework, the approval of annual budgets (including major capital expenditure), regular reviews of financial performance compared to budgets, the appointment and evaluation of the performance of the Executive Director, and the periodic and timely reporting to shareholders.

It also has the task of ensuring that the Senior Management team has the necessary skills and experience to perform the functions effectively in the best interest of the company and that there are sufficient parameters in place for monitoring the performance of the management.

The Board comprises of Nine Directors including the Chairman. All the Directors are non-executive Directors except the Managing Director. Where decisions have to be taken on urgent matter, Board decisions are taken by circulation.

The Board has determined that Mr. M M N de Silva and Mr. W A C O Wijesinghe are ‘independent’ as per the criteria set out in the Listing Rules of the Colombo Stock Exchange.

Board Meetings

The Board has met on 03 occasions during the last financial year. All directors receive a comprehensive package of information prior to each Board Meeting thus ensuring that they are well informed in advance.

P W Corporate Secretarial (Pvt) Ltd who act as Secretaries to the Company are qualified to act as Secretaries as per the provisions of the Companies Act No.7 of 2007. Directors have access to the advice and services of the Company Secretaries, who are responsible to the Board for ensuring that Company Secretarial procedures are followed and that applicable rules and regulations are complied with.

Audit Committee

The Audit Committee consists of three non-executive Directors, two of whom are independent. The Audit Committee is chaired by Mr. M M N de Silva who is a Chartered Accountant. There were 04 Audit Committee meetings during the year.

The Managing Director and the Head of Finance attend meetings of the Audit Committee by invitation.

Remuneration Committee

The Remuneration Committee consists of three non-executive / independent Directors, one of them served as the Chairman of the Remuneration Committee.

Remuneration Policy

With the primary objective of the Group’s remuneration policy being effective enough to attract and retain the best human capital to sustain operations while rewarding performance, the Remuneration Committee is tasked with recommending the remuneration payable to the Chairman and Managing Director of the Company and/or equivalent position thereof. This recommendation is made to the Board, which is responsible for the final determination upon consideration of such recommendations.

Refer Note 13 to the Financial Statements for a disclosure of the aggregate remuneration paid to the Directors.

Related Party Transaction Review Committee

The Related Party Transaction Review Committee consists of three non-executive Directors, two of whom are independent and the Managing Director. The Related Party Transaction Review Committee is chaired by Mr. M M N de Silva who is a Chartered Accountant. There was 01 meeting during the year.

Corporate Governance

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Financial Disclosures and Transparency

The Company’s financial statements are prepared in accordance with the Sri Lanka Accounting Standards and Companies Act, No. 07 of 2007. The financial statements are published quarterly and annually on time in compliance with the disclosure requirements of the Colombo Stock Exchange.

The Statement of Directors Responsibilities for the Financial Statements is given on page 34 of this Report.

Internal Controls

The Board acknowledges overall responsibility and ensures that a sound internal control system is maintained to safeguard shareholders’ investments and company assets.

Going Concern

The Board is satisfied that the Company has adequate resources to continue in business for the foreseeable future. For this reason it continues to adopt the going concern basis when preparing and presenting financial statements

By Order of the BoardSathosa Motors PLC

Deshamanya Tilak Dias GunasekeraManaging Director



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Risk Management Review

The Risk Management Review aims to provide an inclusive view of the Risk Management Systems, procedures and protocols that operate throughout the group. The Risk Management Review also seeks to provide assurance that activities undertaken by the business contributes towards an organization which constantly works towards the better understanding and efficient mitigation of various risk factors that may affect the group.

SML group defines the pivotal area of Risk Management as the organized application of management Policies, procedures and practices for the establishment of relevant context, identification, analysis, mitigation, monitoring and thereby and communication of all risks. While the Group’s Risk Management framework is efficiently incorporated into the planning process, itself focuses on the effective achievement of objectives through mitigation, monitoring and thereby and communication of all risks. While the group’s risk Management framework is efficiently incorporated into the planning process, the planning process itself focuses on the effective achievement of objectives through mitigation of relevant and related risks. Through a dynamic process, risks are identified and evaluated at appropriate levels throughout the parent company and the subsidiary. This process is regularly reviewed by the Management Committee as a part of the group’s organizational and operational approach to Risk Management.

The group’s Risk Management Process ensures comprehensive identification and understanding of the risks, and enables the design and implementation of an effective plan to prevent losses or minimize the impact of any loss in the event that it occurs. The timely recognition and appropriate handling of these operational threats is incorporated into the group’s Risk Management process.

Substantial strategic controls of operational risks which require efficient management is enabled through policies and procedures which are covered by the group’s internal audit process. This includes the strict financial controls, and processes and systems which focus on monitoring and reporting matters related to the continued effectiveness of the system of internal controls. Having an accurate understanding of all possible risks enables the group to mitigate risks by implementation of timely decisions.

In addition to the above the group’s Risk Management process would cover curbing the loss of valuable resources including time, assets, income, property and people, protecting the reputation and public image of the organization, preventing or reducing legal liabilities and enhancing the Company’s smooth operations.

SML considers Risk Management process within the Company as an integral part of good management practice which makes it an intimate part of its business planning and continuity.

The principal risks associated with the Group’s activities and their mitigation strategies are as follows.

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Risk Management Review

Risk Factor Risk Mitigating Strategies

Credit Risk

This refers to risk of financial losses arising due to the unwillingness or inability of counter- parties to meet their financial or contralactual obligations in time and in full.

The group has introduced different discount slabs for it’s dealers who settle dues at different Intervals.

The group has introduced different targets for different customers. If the set targets are exceeded then based on same the dealers are rewarded.

The group’s Finance and Sales divisions closely monitor credit sales to ensure repayment on due dates and tie future sales based on outstanding value and customer performance.

Bank guarantees are obtained from dealers who purchase on credit terms.

The group conduct Credit Risk Management meetings every month in order to review the credit policies and adherence to them.

Credit ceilings are introduced to dealers who purchase on credit terms.

Discounts are offered to dealers having carefully evaluated the performance during a particular period.

Human Capital and Labour Risk

This is associated with losing experienced employees and experiencing an environment of unpleasant labour relations.

The group use a series of strategies in motivating, developing and retaining it’s human capital.

The group has a continuous provision for a comprehensive career development program for its staff, which focuses on helping employees to achieve their optimum potential and thereby improve job performance and satisfaction. Whereby technical staff is sent to Isuzu Japan on training and to face the technical competitions organized by Isuzu Japan.

Group strives to maintain healthy relationships with all employees through regular dialogues and discussions. The Company also ensures compliance with all regulatory requirements with regard to benefits applicable to employees.

SML provides attractive financial and performance based incentives.

The Group carefully monitors that all decisions taken with respect to employees are within the purview of the “Shop and Office Employees Act”.

Information Technology Risk

IT Risk is the risk associated with computer Security, hardware, software and other information technology systems failing and causing disruption to business operations.

A well designed and secured Information Technology security infrastructure has been implemented throughout the organization. The security infrastructure includes: recovery strategies, data back –ups stored at off- site locations, virus scanners, proxy servers. Compliance of security infrastructure is regularly monitored.

The company carries out regular meetings with the IT service provider to identify the requirement to upgrade the present system.

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Risk Factor Risk Mitigating Strategies

Regulatory and Compliance Risk

This risk is associated with changes in Government policies, laws, regulations and statutes. Compliance Risk relates to a company being able to comply with all the laws, regulations and statutes applicable to a country.

Both Regulatory and Compliance Risk factors can affect the business activities of the Company.

The Company constantly keeps abreast of changes to the Regulatory framework to mitigate the risk associated therein.

Competitive Risk

This relates to customers will buy competitor products due to variances in the product offering. The management maintains a good relationship with it’s customers.

Availability of non genuine spare parts in the market where prices are very low.

The group offers free service clinics in different locations with the presence of Japanese engineers and offering a warranty period , free of charge services during the warranty period

Our dedicated sales team explains to the customers the advantage of using genuine spare parts.

We have a 24 hour on call mobile clinic attending to break downs at a request of a customer.

Risk of Environmental issues

Refers to environmental issues which can take place due to disposal of solid waste.

The group releases waste water after purifying in 3 under ground treatment plants. Purified water is released to the Municipal Council Storage System.

Depreciation of the Rupee The adverse impact through depreciation of the Rupee against the other currencies is mitigated by pre agreeing upon the rate with the Bank. The main currencies through which the company transacts are THB, USD and JPY.

The subsidiary transacts through GBP. Sales takes place on indenting basis and through TT’s.

Interest Rate Fluctuations The adverse impact is mitigated by pre agreed rates entered into through with the Banks. All such transactions are backed by offer letters. Such transactions are processed after obtaining the approval of the Managing Director. The transactions are under direct purview of the Managing Director. All negotiations are channeled through the Managing Director who directly supervises the financing of the company, s requirements.

Financial Information

“Our deep roots in the country have helped build strong brand recall, respect from the public and the ability to influence our stakeholders, a power we use responsibly.”

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The Directors of Sathosa Motors PLC have pleasure in presenting their Annual Report together with the Audited Financial Statements of the Company for the year ended 31st March 2016.

This Report contains the information required in terms of the Companies Act, No. 7 of 2007, the Listing Rules of the Colombo Stock Exchange and guided by the recommended best practices.

General

Sathosa Motors PLC is a public limited liability Company which was incorporated under the Companies Ordinance (Cap.145) as a public limited liability company on 11th March 1982 and re-registered as per the Companies Act, No.7 of 2007 on 13th December 2007 with PQ 105 as the new number assigned to the Company.

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

The Company’s principal activity is the import and sale of Motor Vehicles and spare parts together with the repair and maintenance of such Motor Vehicles.

A review of the business of the Company, its performance during the year and its future prospects are contained in the Chairman’s Review, which forms an integral part of this Report.

This Report and the Financial Statements, therefore reflect the state of affairs of the Company.

Financial Statements

The complete Financial Statements of the Company, prepared in line with applicable accounting standards and regulatory requirements, inclusive of specific disclosures, duly signed by two Directors on behalf of the Board of Directors and the Auditors are given on pages 39 to 88.

Property, Plant & Equipment

The Company expenditure on the acquisition of property, plant & equipment during the year amounted to Rs. 39.40Mn. and information relating to movements in fixed assets is given in Note 16.2 of the accounts.

Investments

Details of the Company’s quoted and unquoted investments as at 31st March 2016 are given in Note 37 to the Financial Statements on pages 79 to 81.

Reserves

The reserves of the Company with the movements during the year are explained under the “Statement of Changes In Equity.”

Accounting Policies

The Financial Statements of the Company have been prepared in accordance with the revised Sri Lanka Financial Reporting Standards (SLFRS / LKAS) and the policies adopted thereof are given on pages 43 to 56. Figures pertaining to the previous periods have been re-stated where necessary to conform to the presentation for the year under review.

Interests Register

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

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

The relevant interests of Directors in the shares of the Company as at 31st March 2016 as recorded in the Interests Register are given in this report under the caption of “Directors’ Shareholding”.

Directors

The names of the Directors who held office as at the end of the accounting period are given below, with their brief profiles appearing on page 13.

Executive Directors

Deshamanya T D Gunasekera Managing Director

Annual Report of the Board of Directors on the Affairs of the Company

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Non-Executive Directors

Mr. S J S Perera Chairman

*Mr. M M N de Silva Director

Mr. J C Joshua Director

Mr. R J S Gomez Director

Mr. S H S Mendis Director Alternate Director to Mr. J C Joshua

Mr. S D Munasinghe Director Alternate Director to Mr. R J S Gomez

Mr. D A R Fernando Director

*Mr. W A C O Wijesinghe Director (Appointed w.e.f.15/07/2015)

* Independent Non-Executive Directors

In accordance with Article 88(i) of the Articles of Association of the Company, Mr. M M N de Silva retires by rotation and being eligible, offers himself for re-election.

Directors’ Remuneration

The total remuneration of the Directors during the year under review amounted to Rs. 10,218,560.

Directors’ responsibility for Financial Reporting

The Directors are responsible for the preparation of the Financial Statements of the Company to reflect a true and fair view of the state of its affairs. A further statement in this regard is included on pages 39 and 56.

Auditors

Messrs KPMG, Chartered Accountants served as the Auditors during the year under review and also provided tax related services. Based on the written representation made by the Auditors, they do not have any interest in the Company other than those referred to herein.

The Auditors were paid a sum of Rs. 829,000/- as Audit fees by the Company for the financial year under review. As far as they are aware, the Auditors do not have any relationship with the Company other than carrying out External Audits.

The Auditors have expressed their willingness to continue in office. A resolution to re-appoint the Auditors and to

authorise the Directors to determine their remuneration will be proposed at the Annual General Meeting.

Tax Related Services

All tax related services are provided by Ms. Ernst & Young, Chartered Accountants.

Stated Capital

The Stated Capital of the Company is Rs. 115,924,290/-

The number of shares issued by the Company stood at 6,033,622 ordinary shares as at 31st March 2016.

Directors’ Shareholding

The relevant interests of the Directors in the shares of the Company as at 31st March 2016 are as follows.

Shareholding Shareholding

as at as at

31/03/2016 31/03/2015

Mr. S J S Perera Nil Nil

Deshamanya T D Gunasekera 5,875 4,648

Mr. M M N De Silva 1,100 1,100

Mr. J C Joshua Nil Nil

Mr. R J S Gomez Nil Nil

Mr. S D Munasinghe Nil Nil

Mr. S H S Mendis Nil Nil

Mr. D A R Fernando Nil Nil

Mr. W A C O Wijesinghe Nil N/A

Shareholders

There were 1,193 shareholders registered as at 31st March 2016 (1,196 shareholders as at 31st March 2015). The details of distribution are given on page 91 of this report.

Major Shareholders, Distribution Schedule and other information

Information on the distribution of shareholding, analysis of shareholders, market values per share, earnings, dividends, net assets per share, the twenty largest shareholders of the Company, percentage of shares held by the public as per the Listing Rules of the Colombo Stock Exchange are given on page 91 under the caption “Information to Investors”.

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Donations

The Company did not make any donations during the year under review and the previous year.

Dividend

A final dividend of Rs. 15/- per share for the financial year ended 31st March 2016 was declared and will be paid on 5th July 2016.

Statutory Payments

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

Contingent Liabilities

There were no material Contingent Liabilities as at the Balance Sheet date, except as disclosed in Note. 32 to the Financial Statement on page 72.

Events occurring after the Balance Sheet date

No events have occurred since the balance sheet date which would require adjustment to, or disclosure in the Financial Statements.


The Board of Directors are responsible for the governance of the Company. The Board has placed considerable emphasis on developing rules, structures and processes to ensure integrity and transparency in all the dealings of the Company and its best effort in achieving performance and quality profits, adopting good governance in managing the affairs of the Company. The Directors confirm that the Company is in compliance with the Rules on Corporate Governance contained in the Listing Rules of the Colombo Stock Exchange.

An Audit Committee, Remuneration Committee and Related Party Transaction Review Committee function as Sub-Committees of the Board and the members of these Committees posses the requisite qualifications and

experience. The composition of the said Committees are as follows;

Audit Committee

Mr. M M N de Silva - Chairman

Mr. J C Joshua

Mr. W A C O Wijesinghe

Remuneration Committee

Mr. S J S Perera - Chairman

Mr. M M N de Silva


Related Party Transaction Review Committee

Mr. M M N de Silva - Chairman

Mr. J C Joshua


Mr. T D Gunasekara

Going Concern

The Board of Directors is satisfied that the company has adequate resources to continue its operations in the foreseeable future. Accordingly, the Financial Statements are prepared based on the going concerns concept.

Annual General Meeting

The Notice of the Thirty Second (32nd) Annual General Meeting appears on page 94.

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

S J S Perera T D GunasekeraChairman Managing Director

P W Corporate Secretarial (Pvt) LtdSecretaries

15th June 2016Colombo

Annual Report of the Board of Directors on the Affairs of the Company

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Independent Auditors’ Report

To the Shareholders of SATHOSA MOTORS PLC

Report on the Financial Statements

We have audited the accompanying financial statements of Sathosa Motors PLC, (“the Company”), and the consolidated financial statements of the Company and its Subsidiary (“the Group”), which comprise the statement of financial position as at March 31, 2016, and the statements of profit or loss and other comprehensive income, changes in equity and, cash flows for the year then ended, and a summary of significant accounting policies and other explanatory information set out on pages 38 to 87 of the annual report.

Board’s Responsibility for the Financial Statements

The Board of Directors (“Board”) is responsible for the preparation of these financial statements that give a true and fair view in accordance with Sri Lanka Accounting Standards, and for such internal control as Board determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

Auditors’ Responsibility

Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with Sri Lanka Auditing Standards. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors’ judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation of the financial statements that give a true and fair view in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of

accounting estimates made by Board, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

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

Report on Other Legal and Regulatory Requirements

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

a) The basis of opinion and scope and limitations of the audit are as stated above.

b) In our opinion:

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

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

- The financial statements of the Company, and the Group comply with the requirements of sections 151 and 153 of the Companies Act No. 7 of 2007.

CHARTERED ACCOUNTANTSColombo

15th June 2016

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Statement of Profit or Loss and Other Comprehensive Income

Group Company

For the year ended 31 March, 2016 2015 2016 2015

Note Rs. Rs. Rs. Rs.

Revenue 9 4,048,462,953 3,502,513,626 3,005,535,577 2,737,582,357

Cost of Sales (3,034,104,767) (2,653,631,498) (2,333,119,940) (2,163,156,898)Gross Profit 1,014,358,186 848,882,128 672,415,637 574,425,459

Other Income 10 44,405,535 42,667,566 44,289,081 38,997,239Administrative Expenses (445,776,218) (384,544,473) (256,487,764) (218,073,145)Distribution Expenses (137,093,141) (105,719,627) (39,478,746) (45,680,899)Other Operating Expenses 11 (227,790) (403,493) - -Results from Operating Activities 475,666,572 400,882,101 420,738,208 349,668,654

Finance Cost 12 (34,647,354) (18,710,118) (10,079,436) (16,367)

Results from Operating Activities Net of Finance Cost 441,019,218 382,171,983 410,658,772 349,652,287Fair Value Changes in Investment Property 19 21,168,487 - 21,168,487 -

Profit before Tax 13 462,187,705 382,171,983 431,827,259 349,652,287Income Tax Expense 14 (135,076,509) (112,367,176) (116,122,394) (96,684,257)Profit for the Year 327,111,196 269,804,807 315,704,865 252,968,030

Other Comprehensive IncomeActuarial losses on Employee benefit plans 28.3 (1,246,156) (633,424) (1,036,907) (434,885)Tax on other comprehensive income 29.1 348,923 177,359 290,333 121,768Other Comprehensive income for the year, net of tax (897,233) (456,065) (746,574) (313,117)

Total Comprehensive Income for the year 326,213,963 269,348,742 314,958,291 252,654,913

Profit attributable to:Owners of the Company 321,083,030 261,386,419 315,704,865 252,968,030Non-Controlling Interest 6,028,166 8,418,388 - -Profit for the Year 327,111,196 269,804,807 315,704,865 252,968,030

Total Comprehensive Income attributable to;Owners of the Company 320,261,127 261,001,828 314,958,291 252,654,913Non-Controlling Interest 5,952,836 8,346,914 - -Total Comprehensive Income for the Year 326,213,963 269,348,742 314,958,291 252,654,913

Earnings Per Share 15.1 53.22 43.32 52.33 41.93

Figures in brackets indicate deductions.

The accounting policies and notes from 43 to 87 form an integral part of these financial statements.

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Group Company

As at 31 March, 2016 2015 2016 2015

Note Rs. Rs. Rs. Rs.

ASSETSNon - Current AssetsProperty, Plant and Equipment 16 512,781,418 332,489,269 128,142,386 112,640,230Intangible Assets 17 3,254,526 4,495,734 - -Prepaid Lease Payments 18 80,362,542 5,438,809 5,362,542 5,438,809Investment Property 19 45,360,000 24,191,513 45,360,000 24,191,513Investment in subsidiary company 20 - - 65,000,020 65,000,020Investments in Debentures 676,508,941 84,113,507 676,508,941 84,113,507Total Non Current Assets 1,318,267,427 450,728,832 920,373,889 291,384,079

Current AssetsInventories 21 1,191,754,184 1,027,412,149 969,510,540 848,623,101Trade and Other Receivables 22 669,298,189 847,395,487 436,313,260 627,649,379Amounts due from Related Parties 23 10,632,532 72,925,958 - -Cash and Cash Equivalents 24.1 7,338,130 86,892,429 5,207,678 83,374,701Total Current Assets 1,879,023,035 2,034,626,023 1,411,031,478 1,559,647,181

Total Assets 3,197,290,462 2,485,354,855 2,331,405,367 1,851,031,260

EQUITYStated Capital 25 115,924,290 115,924,290 115,924,290 115,924,290Retained Earnings 1,282,785,193 1,115,041,617 1,240,904,535 1,078,463,795Total Equity attributable to Owners of the Company 1,398,709,483 1,230,965,907 1,356,828,825 1,194,388,085Non-Controlling Interest 106,880,677 101,577,841 - -Total Equity 1,505,590,160 1,332,543,748 1,356,828,825 1,194,388,085

Non - Current LiabilitiesInterest Bearing Borrowings 26 164,335,134 74,300,000 - -Assets Related Grants 27 6,362,263 6,581,652 6,362,263 6,581,652Employee Benefits 28 26,272,341 26,026,219 20,080,492 22,638,976Deferred Tax Liabilities 29 27,924,343 6,019,604 9,511,539 3,294,927Total Non Current Liabilities 224,894,081 112,927,475 35,954,294 32,515,555

Current LiabilitiesTrade and Other Payables 30 937,721,488 792,270,482 721,705,286 593,767,592Amounts due to Related Parties 31 19,530,885 1,034,343 - -Interest Bearing Borrowings 26 203,536,618 139,021,939 - -Unclaimed Dividend 1,906,595 1,227,902 1,906,595 1,227,902Current Tax Liabilities 67,424,671 64,495,719 33,411,906 29,132,126Bank Overdraft 24.2 236,685,964 41,833,247 181,598,461 -Total Current Liabilities 1,466,806,221 1,039,883,632 938,622,248 624,127,620

Total Liabilities 1,691,700,302 1,152,811,107 974,576,542 656,643,175

Total Equity and Liabilities 3,197,290,462 2,485,354,855 2,331,405,367 1,851,031,260

The accounting policies and notes from 43 to 87 form an integral part of these financial statements.It is certified that the Financial Statements have been prepared in compliance with the requirements of the Companies Act. No.07 of 2007.

Thejani KodithuwakkuFinance Controller

The Board of Directors is responsible for the preparation and presentation of these financial statements.Approved for and on behalf of the Board of Directors:

Deshamanya Tilak Dias Gunasekara Sumal PereraManaging Director Chairman


Statement of Financial Position

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Statement of Changes in Equity

Attributable to equity shareholders of parent

Stated Retained Non Controlling

Capital Earnings Total Interest Total

Rs. Rs. Rs. Rs. Rs.

GROUPBalance as at 1 April 2014 115,924,290 884,207,899 1,000,132,189 93,230,927 1,093,363,116

Comprehensive Income for the YearProfit for the year - 261,386,419 261,386,419 8,418,388 269,804,807

Other Comprehensive Income (net of tax) - (384,591) (384,591) (71,474) (456,065)

Total Comprehensive income - 261,001,828 261,001,828 8,346,914 269,348,742

Transactions with owners of the Company recognized directly in equityDividend Paid - (2013/2014) - (30,168,110) (30,168,110) - (30,168,110)

Balance as at 31 March 2015 115,924,290 1,115,041,617 1,230,965,907 101,577,841 1,332,543,748

Balance as at 1 April 2015 115,924,290 1,115,041,617 1,230,965,907 101,577,841 1,332,543,748

Super gain Tax * - (80,114,087) (80,114,087) - (80,114,087)

Adjusted balance as at 1 April 2015 115,924,290 1,034,927,530 1,150,851,820 101,577,841 1,252,429,661

Comprehensive Income for the YearProfit for the year - 321,083,030 321,083,030 6,028,166 327,111,196

Other Comprehensive Income (net of tax) - (821,903) (821,903) (75,330) (897,233)

Total Comprehensive income - 320,261,127 320,261,127 5,952,836 326,213,963

Transactions with owners of the Company recognized directly in equityDividend Paid - (72,403,464) (72,403,464) (650,000) (73,053,464)

Balance as at 31 March 2016 115,924,290 1,282,785,193 1,398,709,483 106,880,677 1,505,590,160

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Stated Retained

Capital Earnings Total

Rs. Rs. Rs.

COMPANYBalance as at 1 April 2014 115,924,290 855,976,992 971,901,282

Comprehensive Income for the YearProfit for the year - 252,968,030 252,968,030

Other Comprehensive Income (net of tax) - (313,117) (313,117)

Total Comprehensive income - 252,654,913 252,654,913

Transactions with owners of the Company recognized directly in equityDividend Paid - (2013/2014) - (30,168,110) (30,168,110)

Balance as at 31 March 2015 115,924,290 1,078,463,795 1,194,388,085

Balance as at 1 April 2015 115,924,290 1,078,463,795 1,194,388,085

Super Gain Tax * - (80,114,087) (80,114,087)

Adjusted balance as at 1 April 2015 115,924,290 998,349,708 1,114,273,998

Comprehensive Income for the YearProfit for the year - 315,704,865 315,704,865

Other Comprehensive Income (net of tax) - (746,574) (746,574)

Total Comprehensive income - 314,958,291 314,958,291

Transactions with owners of the Company recognized directly in equityDividend Paid

Final Dividend - (2014/2015) - (42,235,354) (42,235,354)

Interim Dividend (2015/2016) - (30,168,110) (30,168,110)

Balance as at 31 March 2016 115,924,290 1,240,904,535 1,356,828,825

* As per the provisions of Part III of the Finance Act, No. 10 of 2015, which was certified on 30th October 2015, the Group/Company is liable for Super Gain Tax of Rs. 80.1Mn. According to the Act, the Super Gain Tax was deemed to be expenditure in the Financial Statements relating to the year of assessment which commenced on 1st April 2013. The Act supersedes the requirements of the Sri Lanka Accounting Standards; hence the expense of Super Gain Tax is accounted in accordance with the requirements of the said Act as recommended by the Statement of Alternative Treatment (SoAT) on Accounting for Super Gain Tax issued by the Institute of Chartered Accountants of Sri Lanka, dated 24th November 2015.



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Statement of Cash Flow

Note Group Company


Rs. Rs. Rs. Rs.

CASH FLOWS FROM OPERATING ACTIVITIESProfit before Tax 462,187,705 382,171,983 431,827,259 349,652,287

Adjustments for:Depreciation & Amortisation 65,839,802 32,497,274 23,974,026 14,874,139 Provision for Gratuity 6,297,958 5,683,847 3,702,601 3,722,854 Amortisation of Grants Received (219,389) (219,389) (219,389) (219,389)Provision for Bad and Doubtful Debts & Inventories 3,323,627 1,889,762 3,323,627 1,889,762 Interest Expense 28,479,401 18,710,118 10,079,436 16,367 Profit on Sale of Property, Plant and Equipment (3,117,500) (10,032,544) (3,117,500) (10,032,544)Interest Income (31,246,387) (17,834,664) (31,246,387) (17,834,664)Write back of Unclaimed Dividend - (295,137) - (295,137)Write back of Over Provisions for Expenses - (1,000,000) - (1,000,000)Revaluation Gain (21,168,487) - (21,168,487) - Write back of Warranty Claim and Other (5,438,405) (5,749,138) (5,438,405) (5,749,138)Operating profit before working capital changes 504,938,325 405,822,112 411,716,781 335,024,537

Changes in working capital;Inventories (167,665,662) (282,480,110) (124,211,066) (228,112,931)Trade and Other Receivables 178,097,298 123,242,764 191,336,120 116,850,517 Amounts Due to Related Parties 18,496,542 602,830 - - Amounts Due from Related Parties (27,706,573) (46,496,137) - - Trade and Other Payables 150,889,411 46,569,263 133,376,098 39,920,948 Cash generated from operations 657,049,341 247,260,722 612,217,933 263,683,071

Income Tax & Super Gain Tax Paid (190,007,982) (104,200,136) (185,449,756) (95,689,318)Gratuity Paid (7,297,992) (1,518,191) (7,297,992) (1,518,191)Net Cash flows from Operating Activities 459,743,367 141,542,395 419,470,185 166,475,563

Cash Flows From Investment ActivitiesAcquisition of Property, Plant & Equipment (230,283,441) (190,404,635) (39,399,915) (58,487,761)Proceeds from Sale of Property, Plant & Equipment 3,586,464 10,032,544 3,117,500 10,032,544 Investment in Subsidiary company - - - (20)Investment in Debentures (592,395,434) (45,628,183) (592,395,434) (45,628,183)Interest Received 31,246,387 17,834,668 31,246,387 17,834,664 Net Cash Flows used in Investing Activities (787,846,024) (208,165,606) (597,431,462) (76,248,753)

Cash Flows From Financing ActivitiesInterest Paid (28,479,401) (18,710,118) (10,079,436) (16,367)Proceeds from Borrowings 192,850,729 359,262,243 - - Repayment of Loan (38,300,916) (204,816,946) - - Dividend Paid (72,374,771) (30,276,938) (71,724,771) (30,276,938)Net Cash Flows from / (used in) Financing Activities 53,695,641 105,458,241 (81,804,207) (30,293,305)

Net Increase/ (Decrease) in Cash and Cash Equivalents (274,407,016) 38,835,030 (259,765,484) 59,933,505 Cash and Cash Equivalents as at 1 April 45,059,182 6,224,152 83,374,701 23,441,196 Cash and Cash Equivalents as at 31 March 24 (229,347,834) 45,059,182 (176,390,783) 83,374,701

Cash and Cash Equivalents 7,338,130 86,892,429 5,207,678 83,374,701 Bank Overdraft (236,685,964) (41,833,247) (181,598,461) - Cash and Cash Equivalents as at 31 March (229,347,834) 45,059,182 (176,390,783) 83,374,701



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Notes to the Financial Statements

1 CORPORATE INFORMATION

1.1 Reporting Entity

Sathosa Motors PLC is a public limited liability company incorporated and domiciled in Sri Lanka and is listed on the Colombo Stock Exchange. The registered office and principal place of business of the Company is situated at No. 25, Vauxhall Street, Colombo 02.

The consolidated Financial Statements of Sathosa Motors PLC as at and for the year ended 31st March 2016 comprise the Company and its Subsidiary, SML Frontier Automotive (Pvt) Ltd. (together referred to as the ‘Group’). Sathosa Motors PLC holds 50% of SML Frontier Automotive (Pvt) Ltd.

The Financial Statements of the Company and its subsidiary have a common financial year which ends on 31st March.

1.1.2 Total number of employees

Company - 128 (2015: 122)Group - 239 (2015: 212)

1.2 Principal Activities and Nature of Operations

The principal activity of the Company is importing and distribution of Isuzu new vehicles and spare parts and operating workshops for vehicle repairs.

SML Frontier Automotive (Pvt) Ltd (SMLF) is the subsidiary of Sathosa Motors PLC. SMLF is in the business of importation and sale of Land Rover vehicles, the Subsidiary Company operates workshops and sale of Land Rover spare parts too.

1.3 Parent Company

The Parent Company of Sathosa Motors PLC is Access Engineering PLC (AEL). AEL is primarily involved in the business of construction activities.

2 BASIS OF PREPARATION

2.1 Statement of Compliance

The Financial Statements of the Company and those consolidated comprise the Statement of Financial Position, the Statements of Profit or Loss and other

Comprehensive Income, Changes in Equity, and Cash Flows together with the Accounting Policies and Notes to the Financial Statements.

These Financial Statements have been prepared and presented in accordance with Sri Lanka Accounting Standards (SLFRSs / LKASs) as issued by the Institute of Chartered Accountants of Sri Lanka (CA Sri Lanka) and with the requirements of the Companies Act No. 7 of 2007 and the Listing Rules of the Colombo Stock Exchange.

The consolidated and separate Financial Statements were authorized for issue by the Board of Directors in accordance with the resolution passed by the Board of Directors on 15th June 2016.

2.2 Basis of Measurement

The consolidated Financial Statements have been prepared on the historical cost basis except for the following material items in the Statement of Financial Position.

- Financial Assets and Financial Liabilities that have been measured at fair value

- Employee benefit liability recognized based on the actuarial valuation (LKAS 19)

- Land and building stated at revalued amounts - (revaluation has not been carried out during the current financial year)

- Investment property measured at fair value

The Directors have made an assessment of Group’s ability to continue as a going concern in the foreseeable future and they do not foresee a need for liquidation or cessation of business.

2.3 Functional and Presentation Currency

The financial statements are presented in Sri Lankan Rupees (Rs.), which is the Group’s functional currency.

2.4 Use of Estimates & Judgments

The preparation of the Financial Statements in conformity with Sri Lanka Accounting Standards

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(SLFRSs / LKASs) requires management to make judgments, 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.

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

Information about assumptions and estimate uncertainties that have a significant risk of resulting in a material adjustment in the financial statements are stated below.

Note 28 - Employee BenefitsNote 29 - Deferred TaxationNote 32 - Contingent Liabilities

3 SIGNIFICANT ACCOUNTING POLICIES

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

The accounting policies have been applied consistently by its Group entities.

3.1 Basis of Consolidation

3.1.1 Business Combination

Business combinations are accounted for using the acquisition method as at the acquisition date - i.e. when control is transferred to the Group. The Company “Controls” an investee if it is exposed to, or has right to, variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. In assessing control, the Group also takes into consideration potential voting rights that are currently exercisable.

The Group measures goodwill at the acquisition date as;

� The fair value of the consideration transferred plus

� The recognized amount of any non-controlling interests in the acquiree plus

� If the business combination is achieved in stages, the fair value of the pre-existing equity interest in the acquiree less

� The net recognized amount (generally fair value) of the identifiable assets acquired and liabilities assumed.

When the excess is negative, a bargain purchase gain is recognized immediately in profit or loss.

The consideration transferred does not include amounts related to the settlement of pre-existing relationships, such amounts are generally recognized in profit or loss. Transactions costs, other than those associated with the issue of debt or equity securities, that the Group incurs in connection with a business combination are expensed as incurred.

3.1.2 Non-Controlling Interests

The total profit or loss for the year of the Company and its subsidiary included in consolidation are shown in the consolidated Statement of Profit or Loss and other Comprehensive income with the proportion of profit or loss after taxation pertaining to minority shareholders of subsidiary being deducted as “Non controlling interest”. All assets and liabilities of the Company and of its subsidiary included in consolidation are shown in the consolidated Statement of Financial Position. The interest of minority shareholders of subsidiary in the fair value of net assets of the Group is indicated separately in the consolidated Statement of Financial Position under the heading “Non-controlling interest”. Changes in the Group’s interest in a subsidiary that do not result in a loss of control are accounted for as, equity transactions. Adjustments to non-controlling interests are based on a proportionate amount of the net assets of the subsidiary. No adjustments are made to goodwill and no gain or loss is recognized in profit or loss.

3.1.3 Subsidiary

Subsidiary entity is controlled by the Parent. The financial statements of subsidiary is included in the


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consolidated financial statements from the date that control commences, until the date that control ceases. In separate financial statements, investment in subsidiary is stated at cost.

3.1.4 Transactions Eliminated on Consolidation

Intra-group balances and transactions, and any unrealized income and expenses arising from intra group transactions, are eliminated in preparing the consolidated financial statements. Unrealized losses are eliminated in the same way as unrealized gains, but only to the extent that there is no evidence of impairment.

3.2 Foreign Currency

3.2.1 Foreign Currency Transactions

All foreign exchange transactions are converted to functional currency, at the rates of exchange prevailing at the time the transactions are effected.

Monetary assets and liabilities denominated in foreign currency are re-translated to functional currency equivalents at the spot exchange rate prevailing at the reporting date.

Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates as at the dates of the initial transactions. Non-monetary assets and liabilities are translated using exchange rates that existed when the values were determined. The gain or loss arising on translation of non-monetary items are recognized in line with the gain or loss of the item that gave rise to the translation difference.

3.3 Assets and Bases of their Valuation

Assets classified as current assets in the Statement of Financial Position are cash and bank balances and those, which are expected to be realized in cash during the normal operating cycle, or within one year from the Statement of Financial Position, whichever is shorter. Assets other than current assets are those, which the Company intends to hold beyond a one year period calculated from the reporting date.

3.3.1 Property, Plant & Equipment

3.3.1.1 Recognition and Measurement

Property, Plant and Equipment are stated at cost/revaluation less accumulated depreciation and accumulated impairment losses.

3.3.1.2 Owned Assets

The cost of an item of property, plant and equipment comprise its purchase price and any directly attributable costs of bringing the asset to working condition for its intended use. The cost of self-constructed assets includes the cost of materials, direct labour, and any other costs directly attributable to bringing the asset to the working condition for its intended use. This also includes cost of dismantling and removing the items and restoring in the site on which they are located and borrowing costs on qualifying assets.

Purchased software that is integrated to the functionality of the related equipment is capitalized as part of equipment.

When parts of an item of Property, Plant and Equipment have different useful lives, they are accounted for as separate items (major component) of Property, Plant and Equipment.

3.3.1.3 Leased Assets

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

Other leases are operating leases and, except for investment property, the leased assets are not recognized in the Group’s Statement of Financial Position.

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3.3.1.4 Subsequent Costs

The cost of replacing part of an item of Property, Plant and Equipment is recognized in the carrying amount of the item if it is probable that the future economic benefits embodied within the part will flow to the Group and its cost can be measured reliably. The carrying amount of the replaced part is de-recognized.

The costs of the day to day servicing of Property, Plant and Equipment are recognized in profit or loss as incurred.

3.3.1.5 De-Recognition

The carrying amount of an item of Property, Plant and Equipment is de-recognized on disposal or when no future economic benefits are expected from its use or disposal. Gains or losses on de-recognition are recognized within other income in profit or loss.

3.3.1.6 Revaluation

Revaluation Model is applied for freehold land and building by professionally qualified valuers using the open market value at least once in every three to five years. The valuation surplus is recognized on the net carrying value of the asset and is transferred to a revaluation reserve after restating the asset at the revalued amount. The revaluation reserve is transferred to retained earnings at the point of de-recognition.

3.3.1.7 Depreciation

Depreciation is recognized in Statement of Profit or Loss and other Comprehensive Income on the straight-line basis over the estimated useful lives of each part of item of Property, Plant and Equipment. Leased assets are depreciated over the shorter of the lease term and their useful lives unless it is reasonably certain that the Group will obtain ownership by the end of the lease term. Depreciation of an asset begins when it is available for use whereas depreciation of an asset ceases at the earlier of the date that the asset is classified as held for sale (or included in a disposal group that is classified as held for sale) and the date that the asset is de-recognized. Depreciation is not charged on Freehold Land and Capital Work in Progress.

The estimated useful lives are as follows:

Asset Category Useful Lives (Years) Lives

Years

Building–Peliyagoda -SML 50

Plant & Machinery 8

Motor Vehicles 5

Office Equipment 5

Furniture & Fittings 5

Tools- Workshop 5-8

Computers 5

Improvements to leasehold property 8-9

99 years Lease Agreement of SML Peliyagoda land would continue until 2086.

Depreciation methods, useful lives, and residual values are reviewed at each reporting date and adjusted if appropriate.

3.3.1.7.1 Leasehold Right – Land

Leasehold property comprise of land use rights and is amortized on a straight line basis over the period of the lease in accordance with the pattern of benefits expected to be derived from the lease. Leasehold property is tested for impairment annually and is written down where applicable. The impairment loss if any is recognized in the Profit or Loss.

The estimated useful life for the current period is as follows:

Item Useful Life

Leasehold rights 70 Years (Remaining Lease Period)

3.3.1.7.2 Prepaid Lease Payments

SMLF recognized prepaid lease payments in respect of Welisara workshop premises which has been sub leased by Frontier Automotive (Pvt) Ltd. Remaining lease period as at 31st March 2016 is 5 years until 2021.


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This sub-lease agreement is between SMLF and Frontier Automotive (Pvt) Ltd.

3.3.1.8 Capital Work in Progress

The cost of self constructed assets includes the cost of materials, direct labour , and any other costs directly attributable to bringing the asset to the working condition for its intended use. This also includes cost of dismantling and removing the items and restoring in the site on which they are located and borrowing costs on qualifying assets.

3.3.2 Intangible Assets

Intangible Assets are recognized if it is probable that economic benefits are attributable to the assets will flow to the entity and cost of the assets can be measured reliably. Intangible assets that are acquired by the Group/Company are measured at cost less accumulated amortization and accumulated impairment losses.

3.3.2.1 Software

All computer software cost incurred, which are not internally related to associate hardware, which can be clearly identified, reliably measured and its probable that they will lead to future economic benefits, are included in the Statement of Financial Position under the category of intangible assets.

3.3.2.2 Subsequent Expenditure

Subsequent expenditure is capitalized only when it increases the future economic benefits embodied in the specific asset to which it relates. All other expenditure is recognized in profit or loss as incurred.

3.3.2.3 Amortisation

Amortisation is calculated over the cost of the asset, or other amount substituted for cost, less its residual value.

Amortisation is recognized in the profit or loss on a straight line basis over the estimated useful lives of intangible assets, other than goodwill, from the date that they are available for use, since this most closely reflects the expected pattern of consumption of the

future economic benefits embodied in the asset. The estimated useful lives and amortization rates are as follows:

Asset Category Useful live (Years)

Depreciation Rate (%)

Computer Software 05 20%

Amortisation methods, useful lives and residual values are reviewed at each financial year end and adjusted prospectively, if appropriate.

3.3.3 Investment Properties

Investment property is property held either to earn rental income or for capital appreciation or for both, but not for sale in the ordinary course of business, use in the production or supply of goods or services or for administrative purposes.

3.3.3.1 Recognition and Measurement

Investment properties are measured initially at cost. The carrying amount includes the cost of replacing part of an existing investment property at the time that cost is incurred if the recognition criteria are met and exclude the costs of day-to-day servicing of an investment property. Subsequently, investment properties are stated at fair value, which reflects market conditions at the reporting date. Gains or losses arising from changes in the fair values of investment properties are included in the Statement of Profit or Loss and other Comprehensive Income in the year in which they arise. Fair values are evaluated at least every three years by an accredited external, independent valuer.

3.3.3.2 De-recognition

Investment properties are de-recognized either when they have been disposed of or when the investment property is permanently withdrawn from use and no future economic benefits are expected from its disposal. Any gains or losses on the retirement or disposal of an investment property are recognized in the Profit or Loss in the event of retirement or disposal.

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Transfers are made from investment property only when there is a change in use. For a transfer from investment property to owner occupied property, the deemed cost for subsequent accounting is the fair value at the date of change in use.

Where Group companies occupy a significant portion of the investment property of a subsidiary, such investment properties are treated as property, plant and equipment in the consolidated financial statements, and accounted using Group accounting policy for property, plant and equipment.

3.3.4 Investment in Subsidiary

Investment in Subsidiary is treated as long - term investment and valued at cost in separate financial statements of the Company.

3.3.5 Inventories

Inventories are stated at the lower of cost and net realizable value, after making due allowance for obsolete and slow moving items.

The cost of inventories is comprised of all costs of purchase, costs of conversion and other costs incurred in bringing the inventories to their present location and condition.

Net realizable value is the estimated selling price in the normal course of business less estimated cost of realization and/or cost of conversion from their existing state to saleable condition.

Inventory movement, mainly with respect to spare parts is reviewed at the end of reporting period by an experienced staff member ( head of the division) who has a fair knowledge / expertise to assess the recoverability of inventory and the items that are identified as irrecoverable are written off during the year. For this purpose the Company gets the support of the workshop manager who possesses a fair amount of technical expertise, which helps to identify the technical obsolescence of the inventory items.

The cost of each category of Inventory of the Group / Company is determined on the following basis:

Spare Parts - At actual cost on a weighted average basis

New Vehicles - At actual cost

Goods in transit - At Actual cost

Work-in-Progress - Includes only the cost of material and labour

3.3.6 Cash and Cash Equivalents

Cash and cash equivalents are defined as cash in hand, demand deposits and short term highly liquid investments, readily convertible to known amounts of cash and subject to insignificant risk of changes in value.

For the purpose of cash flow statement, cash and cash equivalents consist of cash in hand and deposits in banks net of outstanding bank overdrafts. Investments with short maturities i.e. three months or less from the date of acquisition are also treated as cash equivalents.

3.3.7 Impairment of Non-Financial Assets

The Group assesses at each reporting date, whether there is an indication that an asset may be impaired. If any indication exists, the Company estimates the asset’s recoverable amount. An asset’s recoverable amount is the higher of an asset’s or cash-generating unit’s (CGU) fair value less costs to sell and its value in use and is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets. Where the carrying amount of an asset or CGU exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. In determining fair value less costs to sell, recent market transactions are taken into account, if available. If no such transactions can be


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identified, an appropriate valuation model is used. These calculations are corroborated by valuation multiples, quoted share prices for publicly traded Companies or other available fair value indicators.

Impairment losses of continuing operations are recognized in the Profit or Loss in those expense categories consistent with the function of the impaired asset, except for a property previously revalued where the revaluation was taken to other comprehensive income. In this case, the impairment is also recognized in other comprehensive income up to the amount of any previous revaluation.

For assets excluding goodwill, an assessment is made at each reporting date as to whether there is any indication that previously recognized impairment losses may no longer exist or may have decreased. If such indication exists, the Group estimates the asset’s or cash-generating unit’s recoverable amount. A previously recognized impairment loss is reversed only if there has been a change in the assumptions used to determine the asset’s recoverable amount since the last impairment loss was recognized. The reversal is limited so that the carrying amount of the asset does not exceed its recoverable amount, nor exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognized for the asset in prior years. Such reversal is recognized in the Profit or Loss unless the asset is carried at a revalued amount, in which case the reversal is treated as a revaluation increase.

3.3.8 Financial Assets

3.3.8.1 Initial Recognition and Measurement

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

All financial assets are recognized initially at fair value plus, in the case of assets not at fair

value through profit or loss, directly attributable transaction costs.

Purchase or sale of financial assets that require delivery of assets within a time frame established by regulation or convention in the marketplace (regular way trades) are recognized on the trade date, i.e., the date that the Group commits to purchase or sell the asset.

The Group’s financial assets include cash and cash equivalents, short term deposits, trade and other receivables, loans, and related party receivables.

The subsidiary company has obtained long term loans for capital expenditure (showroom and a workshop) and short term loans during the current financial year.

3.3.8.2 Subsequent Measurement

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

3.3.8.3 Loans and Receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. After initial measurement, such financial assets are subsequently measured at amortized cost using the effective interest rate method (EIR), less impairment. Amortized cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the EIR. The EIR amortization is included in finance income in the Statement of Profit or Loss and other Comprehensive Income. The losses arising from impairment are recognized in the profit or loss in finance cost.

3.3.8.4 Held-to-Maturity Investments

Non-derivative financial assets with fixed or determinable payments and fixed maturities are classified as held-to-maturity when the Group has the positive intention and ability to hold them to maturity. After initial measurement, held-to-maturity investments are measured at amortized cost using the effective interest method, less

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impairment. Amortized cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the EIR. The EIR amortization is included in finance income in the Profit or Loss. The losses arising from impairment are recognized in profit or loss in finance costs.

3.3.8.5 Available-for-Sale Financial Investments

Available-for-sale financial investments include equity and debt securities. Equity investments classified as available-for-sale are those, which are neither classified as held for trading nor designated at fair value through profit or loss. Debt securities in this category are those which are intended to be held for an indefinite period of time and which may be sold in response to needs for liquidity or in response to changes in the market conditions.

After initial measurement, available-for-sale financial investments are subsequently measured at fair value with unrealized gains or losses recognized as other comprehensive income in the available-for-sale reserve until the investment is de-recognized, at which time the cumulative gain or loss is recognized in other operating income, or determined to be impaired, at which time the cumulative loss is reclassified to the finance costs in statement of Profit or Loss and removed from the available-for-sale reserve. Interest income on available-for-sale debt securities is calculated using the effective interest method and is recognized in profit or loss.

The Group evaluates its available-for-sale financial assets to determine whether the ability and intention to sell them in the near term is still appropriate. When the Group is unable to trade these financial assets due to inactive markets and management’s intention to do so significantly changes in the foreseeable future, the Group may elect to reclassify these financial assets in rare circumstances. Reclassification to loans and receivables is permitted when the financial assets meet the definition of loans and receivables and the Group has the intention and ability to hold these assets for the foreseeable future or until maturity. Reclassification to the held-to-maturity category is

permitted only when the entity has the ability and intention to hold the financial asset accordingly.

For a financial asset reclassified out of the available-for-sale category, any previous gain or loss on that asset that has been recognized in equity is amortized to profit or loss over the remaining life of the investment using the EIR. Any difference between the new amortized cost and the expected cash flows is also amortized over the remaining life of the asset using the EIR. If the asset is subsequently determined to be impaired, then the amount recorded in equity is reclassified to the profit or loss.

3.3.8.6 De recognition

A financial asset (or, where applicable a part of a financial asset or part of a group of similar financial assets) is de recognized when:

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

The Group has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full without material delay to a third party under a ‘pass-through’ arrangement; and either (a) the Group has transferred substantially all the risks and rewards of the asset, or (b) the Group has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.

When the Group has transferred its rights to receive cash flows from an asset or has entered into a pass-through arrangement, and has neither transferred nor retained substantially all of the risks and rewards of the asset nor transferred control of it, the asset is recognized to the extent of the Group’s continuing involvement in it.

In that case, the Group also recognizes an associated liability. The transferred asset and the associated liability are measured on a basis that reflects the rights and obligations that the Group has retained.

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


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3.3.8.7 Impairment of Financial Assets

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

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

3.3.8.8 Financial Assets Carried at Amortized Cost

For financial assets carried at amortized cost, the Group first assesses whether objective evidence of impairment exists individually for financial assets that are individually significant, or collectively for financial assets that are not individually significant. If the Group determines that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, it includes the asset in a group of financial assets with similar credit risk characteristics and collectively assesses them for impairment. Assets that are individually assessed for impairment and for which an impairment loss is, or continues to be, recognized are not included in a collective assessment of impairment.

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

discounted at the financial asset’s original effective interest rate. If a loan has a variable interest rate, the discount rate for measuring any impairment loss is the current effective interest rate.

The carrying amount of the asset is reduced through the use of an allowance account and the amount of the loss is recognized in the profit or loss. Interest income continues to be accrued on the reduced carrying amount and is accrued using the rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss. The interest income is recorded as part of finance income in the Profit or Loss. Loans together with the associated allowance are written off when there is no realistic prospect of future recovery and all collateral has been realized. If, in a subsequent year, the amount of the estimated impairment loss increases or decreases because of an event occurring after the impairment was recognized, the previously recognized impairment loss is increased or reduced by adjusting the allowance account. If a future write-off is later recovered, the recovery is credited to finance costs in the profit or loss.

3.3.9 Financial Liabilities

3.3.9.1 Initial Recognition and Measurement

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

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

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

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3.3.9.2 Subsequent Measurement

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

3.3.9.3 Loans and Borrowings

After initial recognition, interest bearing loans and borrowings are subsequently measured at amortized cost using the effective interest rate method. Gains and losses are recognized in the Profit or Loss when the liabilities are de-recognized as well as through the effective interest rate method (EIR) amortization process.

Amortized cost is calculated by taking into account any discount or premium on acquisition and fees or costs that is an integral part of the EIR. The EIR amortization is included in finance costs in the income statement.

3.3.9.4 De-recognition

A financial liability is de-recognized when the obligation under the liability is discharged or cancelled or expires. When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a de-recognition of the original liability and the recognition of a new liability, and the difference in the respective carrying amounts is recognized in profit or loss.

3.3.10 Off setting of Financial Instruments

Financial assets and financial liabilities are offset with the net amount reported in the Statement of Financial Position only if there is a current enforceable legal right to offset the recognized amounts and intent to settle on a net basis, or to realize the assets and settle the liabilities simultaneously.

Income and expense will not be offset in the statement of profit or loss and other comprehensive income unless required or permitted by any accounting standard or interpretation, as specifically disclosed in the accounting policies of the Group.

3.3.11 Fair Value of Financial Instruments

The fair value of financial instruments that are traded in active markets at each reporting date is determined by reference to quoted market prices or dealer price quotations (bid price for long positions and ask price for short positions), without any deduction for transaction costs.

For financial instruments not traded in an active market, the fair value is determined using appropriate valuation techniques. Such techniques may include:

� Using recent arm’s length market transactions;

� Reference to the current fair value of another instrument that is substantially the same;

� A discounted cash flow analysis or other valuation models.

An analysis of fair values of financial instruments and further details as to how they are measured are provided in Note 38.

3.4 Provision, Contingent Liabilities, Contingent Assets

Provisions are recognized when the Group has a present obligation (legal or constructive) as a result of a past event, where it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation.

All contingent liabilities are disclosed as a note to the financial statements unless the outflow of resources is remote.

Contingent assets are disclosed, where inflow of economic benefit is probable.

3.5 Employment Benefits

3.5.1 Defined Benefit Plans

The liability recognized in the Statement of Financial Position in respect of defined benefit plan is the present value of defined benefit obligation at the


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reporting date. The defined benefit obligation is calculated annually by independent actuary using Project Unit Credit (PUC) method as recommended by LKAS 19 - ‘Employee Benefits. Actuarial gains and losses for the defined benefit plans are recognized in full in the period in which they occur in Other Comprehensive Income.

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

3.5.2 Defined Contribution Plans- Employees’ Provident Fund and Employees’ Trust Fund

A defined contribution plan is a post-employment benefit plan under which an entity pays a fixed contribution into a separate entity and will have no legal or constructive obligation to pay further amounts.

All employees who are eligible for Employees’ Provident Fund Contributions and Employees’ Trust Fund Contributions are covered by relevant contributions funds in line with the relevant statutes. Employer’s contributions to the defined contribution plans are recognized as an expense in profit or loss when incurred.

4 STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME

4.1 Revenue

Revenue represents the amounts derived from the provision of services, which fall within the Group’s ordinary activities net of trade discounts and turnover related taxes.

4.2 Revenue Recognition

Revenue is recognized to the extent that it is probable that the economic benefits will flow to the Group and the revenue and the 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, and after eliminating sales within the Group. The following specific criteria are used for the purpose of recognition of revenue.

4.2.1 Rental Income

Rental income from investment property is recognized in profit or loss on a straight-line basis over the term of the lease.

4.2.2 Goods Sold

Revenue from the sale of goods in the course of ordinary activities is measured at the fair value of the consideration received or receivable, net of returns, trade discounts and volume rebates. Revenue is recognized when persuasive evidence exists, usually in the form of an executed sales agreement, that the significant risks and rewards of ownership have been transferred to the buyer, recovery of the consideration is probable, the associated costs and possible return of goods can be estimated reliably, there is no continuing management involvement with the goods, and the amount of revenue can be measured reliably.

4.2.3 Services Rendered

Revenue for services rendered is recognized in the Statement of Profit or Loss and other Comprehensive Income once all significant performance obligations have been provided.

4.2.4 Agency Commissions and Hire Income

Agency Commissions are recognized in the Statement of Profit or Loss and other Comprehensive Income on an accrual basis.

4.2.5 Interest Income

For all financial instruments measured at amortized cost and interest bearing financial assets classified as available for sale, interest income or expense is recorded using the effective interest rate (EIR), which is the rate that exactly discounts the estimated future cash payments or receipts through the expected life of the financial instrument or a shorter period, where appropriate, to the net carrying amount of the financial asset or liability. Interest income is included in finance income in the profit or loss.

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4.2.6 Dividend Income

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

4.2.7 Other Income

Profits or losses from disposal of property, plant and equipments recognized having deducted from proceeds on disposal, the carrying value of the assets and the related expenses.

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

4.3 Expenditure Recognition

Other Expenses

All expenditure incurred in the running of the business and in maintaining the Property, Plant and Equipment in a state of efficiency has been charged to revenue in arriving at the profit for the year.

For the purpose of presentation of Statement of Profit or Loss and other Comprehensive Income the directors are of the opinion that function of expenses method presents fairly the elements of the enterprises performance, hence such presentation method is adopted.

Borrowing Costs

Borrowing costs are recognized as an expense in the period in which they are incurred except those that are directly attributable to the construction or development of Property, Plant & Equipments which are capitalized as part of the cost of those assets during the period of construction or development.

4.4 Income Tax Expense

4.4.1 Current Taxes

Current Income tax liabilities for the current and prior periods are measured at the amount 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 reporting date.

The provision for income tax is based on the elements of income and expenditures reported in the Financial Statements and computed with in accordance with the provisions of the Inland Revenue Act.

The relevant details are disclosed in the respective notes to the Financial Statements.

4.4.2 Deferred Taxation

Deferred tax is provided, using liability method, providing for tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes.

Deferred tax is measured at the tax rates that are expected to apply in 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 reporting date.

Deferred tax assets and deferred tax liabilities are offset if a legally enforceable right exists to set off current tax assets against current income tax liabilities and the deferred taxes relate to the same taxable entity and the same taxation authority.

Sales Tax

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

5 SEGMENTAL REPORTING

The Segment is a distinguishable component of the Group that is engaged either in providing related products or services (business segment), or in providing Products or Services within a particular Economic Environment (Geographical Segment),


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which is subject to risks and returns that are different from those of the Segments.

Spare partsNew VehiclesRepairs & Services

6 RECOGNITION OF ASSETS RELATED GRANTS

Government Grants are recognized initially as deferred income at fair value when there is a reasonable assurance that they will be received and the Group will comply with the conditions associated with the Grant, and are then recognized in the Statement of Comprehensive income as other income on a systematic basis over the useful life of the asset. Grants that compensate the Group for expenses incurred are recognized in the Statement of Comprehensive income as other income on a systematic basis in the periods in which the expenses are recognized.

7 OTHER GENERAL ACCOUNTING POLICIES

7.1 Related Party Transactions

Disclosure has been made in respect of the transactions in which one party has the ability to control or exercise significant influence over the financial and operating policies/decisions of the other, irrespective of whether a price is being charged.

The relevant details are disclosed in the Note 34 to the Financial Statements.

7.2 Earnings per Share

Basic EPS is calculated by dividing the profit or loss attributable to ordinary share holders of the Company by the weighted average number of ordinary shares outstanding during the period.

7.3 Events Occurring after the Reporting Period

Events after the reporting period are those events favourable and unfavourable that occur between the end of the reporting period and the date when the Financial Statements are authorized for issue.

The materiality of the events occurring after the reporting period is considered and appropriate adjustments to or disclosures are made in the Financial Statements, where necessary. (Note 33)

7.4 Comparative Information

The comparative information is re-classified wherever necessary to conform with the current year’s presentation in order to provide a better presentation.

7.5 Statement of Directors’ Responsibility

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

7.6 Statement of Cash Flow

The statement of cash flows has been prepared using the ‘indirect method’ in accordance with Sri Lanka Accounting Standard - LKAS7 on ‘Statement of Cash Flows’. Cash and cash equivalent comprise of cash in hand, cash at bank and short term investments that are readily convertible to known amount of cash and subject to an insignificant risk of change in value.

Interest received and dividends received are classified as investing cash flows, while dividend paid is classified as financing cash flow and interest paid is classified under the operating cash flows for the purpose of presentation of Statement of Cash Flows.

Bank overdrafts and short term borrowings that are re payable on demand and forming an integral part of the Group’s cash management are included as a component of cash and cash equivalent for the purpose of the Statement of Cash Flow.

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8 SRI LANKA 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 on or after 1st January 2018. Accordingly these standards have not been applied in preparing these financial statements.

The extent of the impact of the above standards to the financial statements has not been determined as at 31st March 2016.

SLFRS 9 - Financial Instruments:

Classification and Measurement

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

SLFRS 9 was issued in 2012 and effective date of this standard has been deferred until 1st January 2018 until further notice.

SLFRS 15 - Revenue from contracts with customers

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

SLFRS 15 will become effective on 1st January 2018.


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Group Company


Rs. Rs. Rs. Rs.

9 REVENUESpare Parts 491,401,889 505,041,092 183,793,978 174,910,967

New Vehicles 2,982,380,234 2,560,935,285 2,623,665,394 2,367,465,952

Work Shop Repairs 272,420,148 235,676,552 201,257,863 160,396,871

Machinery - 45,039,262 - 45,039,262

Vehicles Local Charges 319,750,992 176,338,679 - -

Agency Commission 1,868,272 4,209,022 1,868,272 4,209,022

4,067,821,535 3,527,239,892 3,010,585,507 2,752,022,074

NBT (19,358,582) (24,726,266) (5,049,930) (14,439,717)

Net Revenue 4,048,462,953 3,502,513,626 3,005,535,577 2,737,582,357

10 OTHER INCOMEInterest Income on Reverse Repurchase Agreements, FDs and Debentures 31,047,072 17,653,234 31,047,072 17,653,234

Interest on Loans to Employees 199,315 181,430 199,315 181,430

Valuation and Fitness Certificates 179,189 148,354 179,189 148,354

Profit on Disposal of Property, Plant and Equipment 3,117,500 10,032,544 3,117,500 10,032,544

Fines and Surcharges 12,577 9,404 12,577 9,404

Sundry Income 1,740,588 4,925,436 1,039,134 1,255,109

Rent Income 2,450,000 2,400,000 2,450,000 2,400,000

Amortisation of Asset Related Grants 219,389 219,389 219,389 219,389

Non Refundable Tender Deposits 1,500 53,500 1,500 53,500

Dividend Received - - 585,000 -

Write back of Unclaimed Dividend - 295,137 - 295,137

Write back of Over Provisions of Expenses - 1,000,000 - 1,000,000

Write back of Warranty Claim and Other 5,438,405 5,749,138 5,438,405 5,749,138

44,405,535 42,667,566 44,289,081 38,997,239

11 OTHER OPERATING EXPENSESResearch Expenses 64,208 403,493 - -

Miscellaneous Expenses 79,402 - - -Stamp Duty 84,180 - - -

227,790 403,493 - -

12 FINANCE COSTImport loan Interest 9,653,931 - - -

Interest Expenses 18,825,470 18,710,118 10,079,436 16,367

Bank Charges 5,236,959 - - -

Credit Card Commission 930,994 - - - 34,647,354 18,710,118 10,079,436 16,367

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Group Company


Rs. Rs. Rs. Rs.

13 PROFIT BEFORE TAXIs stated after charging all expenses including the following,Directors’ Emoluments and Fees 16,218,560 13,992,800 10,218,560 7,992,800Auditors’ remuneration - Statutory Audit 1,741,000 1,620,000 829,000 775,000Fees paid for Non Audit services 1,927,500 3,467,530 1,310,000 1,180,000Legal Expense 279,952 924,276 279,952 924,276Depreciation on Property, Plant & Equipment 49,522,327 31,179,800 23,897,759 14,797,872Amortisation 16,317,475 1,317,474 76,267 76,267Personnel Cost ( Note 13.1) 188,977,694 164,170,836 92,847,973 78,722,957Professional fees & Secretarial Fees 15,413,234 - 7,512,695 -Bad debt written off 5,242,497 141,433 3,578 141,433Provision on Inventories 3,323,627 - 3,323,627 -

13.1 Personnel CostSalaries, Wages and Other related costs 164,257,190 143,221,042 80,669,783 67,735,359Defined Benefit Plan Cost - Retirement Gratuity 6,297,958 5,683,847 3,702,601 3,722,854Defined Contribution Plan - EPF & ETF 18,422,546 15,265,947 8,475,589 7,264,744

188,977,694 164,170,836 92,847,973 78,722,957

13.2 Exchange gain/ (losses) pertaining to importation of vehicles and Spare parts are accounted under cost of sales of the respective operational department.

The total Exchange gains accounted during the year under review amounts to Rs. 183.61 Mn. (2015-Rs. 130.21 Mn.).

14 INCOME TAX EXPENSE

14.1 Current TaxIn accordance with the provisions of the Inland Revenue Act No.10 of 2006 and amendments there to, the Company and its Subsidiary is liable for Income Tax at 28% on its taxable profit.

Group Company


Rs. Rs. Rs. Rs.

14.2 Current income TaxTaxation on current year profits (Note 14.4) 110,155,789 109,786,096 106,948,391 95,147,912Under provision of previous year 2,667,058 - 2,667,058 -Origination of deferred tax (assets) / liabilities (Note 14.7) 22,253,662 2,581,080 6,506,945 1,536,345Income Tax Expenses charged to Profit or Loss 135,076,509 112,367,176 116,122,394 96,684,257Tax on Other Comprehensive Income (Note 14.7) (348,923) (177,359) (290,333) (121,768)Net Tax Expense charged to Statement of Profit or Loss and Other Comprehensive Income 134,727,586 112,189,817 115,832,061 96,562,489


SATH

OSA

MO

TORS

PLC

| A

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l Rep

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16

59

Group Company


Rs. Rs. Rs. Rs.

14.2.1 Net Tax Expense charged to Statement of Profit or Loss and Other Comprehensive IncomeIncome Tax Expense 135,076,509 112,367,176 116,122,394 96,684,257

Tax on Other Comprehensive Income (348,923) (177,359) (290,333) (121,768)

134,727,586 112,189,817 115,832,061 96,562,489

14.3 Deferred Tax charged toProfit or Loss (Note 14.7) 22,253,662 2,581,080 6,506,945 1,536,345

Other Comprehensive Income (Note 14.7) (348,923) (177,359) (290,333) (121,768)

21,904,739 2,403,721 6,216,612 1,414,577

14.4 Reconciliation between Accounting Profit and Taxable ProfitAccounting Profit Before Income Tax Expense 462,187,705 382,171,983 431,827,259 349,652,287

Aggregated Disallowable Items 94,296,589 71,633,885 49,381,419 37,548,002

Aggregated Allowable Items (114,501,483) (55,892,410) (49,863,718) (41,566,060)

Aggregated Disallowable Income (50,283,147) (17,834,664) (50,868,147) (17,834,664)

Income from Other Sources 1,481,727 12,014,410 1,481,727 12,014,410

Total statutory Income 393,181,391 392,093,204 381,958,540 339,813,975

Statutory Tax Rate 28% 28% 28% 28%

110,090,789 109,786,096 106,948,391 95,147,912

Dividend Tax 65,000 - - -

Current Tax Expense 110,155,789 109,786,096 106,948,391 95,147,912

60

Grou

pCo

mpa

ny

For t

he y

ear e

nded

31

Mar

ch,

2016

2015

2016

2015

Rs.

Rs.

Rs.

Rs.

14.5

Reco

ncili

atio

n of

effe

ctiv

e ta

x ra

tePr

ofit f

or th

e ye

ar 3

27,11

1,19

6 2

69,8

04,8

07 3

15,7

04,8

65 2

52,9

68,0

30To

tal t

ax e

xpen

ses

135

,076

,509

112

,367

,176

116

,122

,394

96,

684,

257

Profi

t exc

ludi

ng ta

x 4

62,1

87,7

05 3

82,17

1,98

3 4

31,8

27,2

59 3

49,6

52,2

87

Tax

usin

g co

mpa

ny's

dom

estic

tax

rate

28%

129

,412

,558

28%

107

,008

,155

28%

120

,911

,633

28%

97,

902,

640

Non

dedu

ctib

le e

xpen

ses

6% 2

6,40

3,04

55%

20,

057,

487

3% 1

3,82

6,79

73%

10,

513,

441

Dedu

ctib

le e

xpen

ses

-7%

(32,

060,

415)

-4%

(15,

649,

875)

-3%

(13,

961,

841)

-3%

(11,

638,

497)

Tax

exem

pt in

com

e-3

% (1

4,07

9,28

2)-1

% (4

,993

,706

)-3

% (1

4,24

3,08

2)-1

% (4

,993

,707

)In

com

e fro

m o

ther

sou

rces

0% 4

14,8

841%

3,3

64,0

350%

414

,884

1% 3

,364

,035

Chan

ge in

reco

gnize

d de

duct

ible

tem

pora

ry d

iffer

ence

s5%

22,

253,

661

1% 2

,581

,080

2% 6

,506

,945

0% 1

,536

,345

Unde

r pro

visi

on in

resp

ect o

f pre

viou

s ye

ar1%

2,6

67,0

580%

-1%

2,6

67,0

580%

-Di

vide

nd T

ax0%

65,

000

0% -

0% -

0% -

29%

135

,076

,509

29%

112

,367

,176

27%

116

,122

,394

28%

96,

684,

257

Grou

pCo

mpa

ny

For t

he y

ear e

nded

31

Mar

ch,

2016

2015

2016

2015

Rs.

Rs.

Rs.

Rs.

14.6

Defe

rred

Tax

Lia

bilit

ies

Bala

nce

at th

e be

ginn

ing

of th

e ye

ar 6

,019

,604

3,6

15,8

83 3

,294

,927

1,8

80,3

50Ch

arge

for t

he y

ear

21,

904,

739

2,4

03,7

21 6

,216

,612

1,4

14,5

77Ba

lanc

e at

the

end

of th

e ye

ar 2

7,92

4,34

3 6

,019

,604

9,5

11,5

39 3

,294

,927

Defe

rred

Tax

(ass

et)/

liabi

lity

as a

t the

yea

r end

is m

ade

up o

f the

follo

wing

,Pr

oper

ty, P

lant

and

Equ

ipm

ent

35,

280,

598

13,

306,

945

15,

134,

076

9,6

33,8

40Re

tirem

ent B

enefi

t Obl

igat

ions

(7,3

56,2

55)

(7,2

87,3

41)

(5,6

22,5

37)

(6,3

38,9

13)

27,

924,

343

6,0

19,6

04 9

,511

,539

3,2

94,9

27


SATH

OSA

MO

TORS

PLC

| A

nnua

l Rep

ort 2

015/

16

61

14.7

Mov

emen

t on

Defe

rred

tax

(Ass

ets)

/ Lia

bilit

ies

GROU

P

Bala

nce

as a

t31

.03.

2014

Reco

gnize

d in

Profi

t or L

oss

Reco

gnize

din

Oth

erco

mpr

ehen

sive

inco

me

Bala

nce

as a

t31

.03.

2015

Reco

gnize

d in

Profi

t or L

oss

Reco

gnize

dIn

oth

erco

mpr

ehen

sive

inco

me

Bala

nce

as a

t31

.03.

2016

Rs.

Rs.

Rs.

Rs.

Rs.

Rs.

Rs.

Prop

erty

Pla

nt a

nd e

quip

men

t/In

vest

men

t pro

pert

y 9

,559

,482

3,7

47,4

63 -

13,

306,

945

21,

973,

653

- 3

5,28

0,59

8Re

tirem

ent B

enefi

t Obl

igat

ions

(5,9

43,5

99)

(1,16

6,38

3) (1

77,3

59)

(7,2

87,3

41)

280

,009

(348

,923

) (7

,356

,255

) 3

,615

,883

2,5

81,0

80 (1

77,3

59)

6,0

19,6

04 2

2,25

3,66

2 (3

48,9

23)

27,

924,

343

COM

PANY

Bala

nce

as a

t31

.03.

2014

Reco

gnize

d in

Profi

t or L

oss

Reco

gnize

din

Oth

erco

mpr

ehen

sive

inco

me

Bala

nce

as a

t31

.03.

2015

Reco

gnize

d in

Profi

t or L

oss

Reco

gnize

din

Oth

erco

mpr

ehen

sive

inco

me

Bala

nce

as a

t31

.03.

2016

Rs.

Rs.

Rs.

Rs.

Rs.

Rs.

Rs.

Prop

erty

Pla

nt a

nd e

quip

men

t/In

vest

men

t pro

pert

y 7

,480

,190

2,15

3,65

0 -

9,6

33,8

40 5

,500

,236

- 1

5,13

4,07

6Re

tirem

ent B

enefi

t Obl

igat

ions

(5,5

99,8

40)

(617

,305

) (1

21,7

68)

(6,3

38,9

13)

1,0

06,7

09 (2

90,3

33)

(5,6

22,5

37)

1,8

80,3

50 1

,536

,345

(121

,768

) 3

,294

,927

6,5

06,9

45 (2

90,3

33)

9,5

11,5

39

62

15 EARNINGS PER SHARE AND DIVIDEND PER SHARE

Basic Earnings per ShareBasic Earnings per Share has been calculated by dividing profit attributable to equity holders of Sathosa Motors PLC, by weighted average number of ordinary shares outstanding during the year.

Diluted Earnings per Share Diluted Earnings per Share is determined by adjusting the profit or loss attributable to ordinary share holders and the weighted average number of ordinary shares outstanding for the effects of all dilutive potential ordinary shares.

As there were no potential Dilutive Ordinary Shares outstanding as at the year end, Diluted Earnings per share is equal to Basic Earnings per share.

Group Company


Rs. Rs. Rs. Rs.

15.1 Earnings per ShareAmount used as the NumeratorProfits Attributable to Ordinary Shareholders (Rs.) 321,083,030 261,386,419 315,704,865 252,968,030 Amounts used as the DenominatorWeighted Average Number of Ordinary Shares as at the end 6,033,622 6,033,622 6,033,622 6,033,622 Basic Earnings Per Share (Rs.) 53.22 43.32 52.33 41.93

15.2 Dividend per ShareDividend paid during the yearFinal Dividend (2014/2015) 42,235,354 30,168,110 42,235,354 30,168,110 Interim Dividend (2015/2016) 30,168,110 - 30,168,110 -

72,403,464 30,168,110 72,403,464 30,168,110 Weighted Average number of Ordinary Shares as at the year end 6,033,622 6,033,622 6,033,622 6,033,622 Dividend Per Share (Rs.) 12 5 12 5

Previous year's (2014/2015) final Dividend paid during the current year (2015/2016) is Rs.7 Per share.

Interim Dividend paid during the current year (2015/2016) is Rs.5 Per share.

15.2.1 Dividend per Share - Proposed / Declared

Group/ Company

Final Dividend proposed for the year ended 31 March 2016 (Rs.) 90,504,330Weighted Average number of Ordinary Shares as at the year end 6,033,622Final Dividend Per Share - Proposed for 31 March 2016 (Rs.) 15

A final dividend of Rs.15/- per share is proposed for the year ended 31 March 2016. The final dividend proposed on 15th June 2016, has not been recognized as a distribution to owners during the period and has been disclosed under Note 33 in compliance with LKAS 10 - 'Events after the Reporting Period'.


SATH

OSA

MO

TORS

PLC

| A

nnua

l Rep

ort 2

015/

16

63

16PR

OPER

TY P

LANT

& E

QUIP

MEN

TS

16.1

GROU

P

Cost

Build

ing

onM

achi

nery

Wor

ksho

pFu

rnitu

reLe

aseh

old

and

Hand

Mot

oran

dOffi

ceCa

pita

l Wor

kLa

ndOt

hers

Tool

sVe

hicl

esFi

ttin

gsEq

uipm

ent

Com

pute

rIn

Pro

gres

sTo

tal

Rs.

Rs.

Rs.

Rs.

Rs.

Rs.

Rs.

Rs.

Rs.

Free

hold

Ass

ets

Bala

nce

as a

t 01

April

201

5 5

5,44

8,41

4 3

8,89

8,31

0 7

,188,

740

128,

256,

558

24,16

2,46

0 1

3,48

8,41

5 2

5,01

4,15

2 1

75,9

17,5

76

468,

374,

625

Addi

tions

dur

ing

the

year

8,0

13,8

10

13,

077,

222

1,17

8,98

6 5

,187,

654

4,0

94,6

26

5,11

0,90

0 4

,668

,614

1

88,9

51,6

29

230,

283,

441

Disp

osal

s dur

ing

the

year

-

(625

,000

) -

(3

,158,

923)

-

-

-

-

(3,7

83,9

23)

Tran

sfer

s dur

ing

the

year

265,

592,

000

9,15

8,91

5 -

-

46

,650

,194

26,

058,

002

-

(347

,459

,111)

-

Bala

nce

as a

t 31

Mar

ch 2

016

329,

054,

224

60,

509,

447

8,3

67,7

26

130,

285,

289

74,9

07,2

80

44,

657,

317

29,6

82,7

66

17,

410,

094

694,

874,

143

Accu

mul

ated

Dep

reci

atio

nBa

lanc

e as

at 0

1 Ap

ril 2

015

35,

881,7

69

16,

303,

742

3,7

79,8

78

38,3

36,4

10

11,4

79,0

81

9,6

76,6

72

20,4

27,8

05

-

135,

885,

357

Char

ge fo

r the

year

8,0

52,2

91

4,8

80,6

10

726

,103

25,8

48,5

00

5,5

11,9

37

2,4

05,7

74

2,0

97,11

2 -

49

,522

,327

Di

spos

als d

urin

g th

e ye

ar -

(1

56,0

36)

-

(3,15

8,92

3) -

-

-

-

(3

,314

,959

)Ba

lanc

e as

at 3

1 M

arch

201

6 4

3,93

4,06

0 21

,028

,316

4,

505,

981

61,0

25,9

87

16,9

91,0

18

12,0

82,4

46

22,5

24,9

17

-

182,

092,

725

Carr

ying

Val

ueBa

lanc

e as

at 3

1 M

arch

201

6 2

85,12

0,16

4 3

9,48

1,131

3

,861

,745

69

,259

,302

57

,916

,262

32

,574

,871

7,

157,

849

17,

410,

094

512,

781,

418

Bala

nce

as a

t 31

Mar

ch 2

015

19,

566,

645

22,

594,

568

3,40

8,86

3 8

9,92

0,14

8 12

,683

,379

3

,811

,743

4

,586

,347

1

75,9

17,5

76

332,

489,

269

64

16.2

Com

pany

Cost

Build

ing

onM

achi

nery

Wor

ksho

pFu

rnitu

re

Leas

ehol

d an

dHa

ndM

otor

and

Office

Capi

tal W

ork

Land

Othe

rsTo

ols

Vehi

cles

Fitt

ings

Equi

pmen

tCo

mpu

ter

In P

rogr

ess

Tota

l

Rs.

Rs.

Rs.

Rs.

Rs.

Rs.

Rs.

Rs.

Rs.

Free

hold

Ass

ets

Bala

nce

as a

t 01

April

201

5 5

5,44

8,41

4 9

,115,

435

4,10

9,07

9 8

4,25

6,55

8 9

,460

,906

1

1,33

2,58

2 2

2,51

5,74

1 2

5,21

8,89

5 2

21,4

57,6

10

Addi

tions

dur

ing

the

year

8,0

13,8

10

3,0

18,5

22

1,17

8,98

6 5

,112,

654

1,7

31,12

5 1

,687

,038

1

,247

,686

1

7,41

0,09

4 3

9,39

9,91

5

Disp

osal

s du

ring

the

year

-

-

-

(3,15

8,92

3) -

-

-

-

(3

,158,

923)

Tran

sfer

s du

ring

the

year

25,

218,

895

-

-

-

-

-

-

(25,

218,

895)

-

Bala

nce

as a

t 31

Mar

ch 2

016

88,

681,

119

12,

133,

957

5,2

88,0

65

86,

210,

289

11,

192,

031

13,

019,

620

23,

763,

427

17,

410,

094

257

,698

,602

Accu

mul

ated

Dep

reci

atio

nBa

lanc

e as

at 0

1 Ap

ril 2

015

35,

881,

769

8,9

30,7

23

3,6

83,0

02

23,

062,

711

7,9

71,0

54

9,3

10,9

67

19,

977,1

55

-

108

,817

,380

Char

ge fo

r the

yea

r 3

,256

,377

3

33,0

45

341

,145

1

7,00

9,39

0 8

38,9

33

847

,230

1

,271

,639

-

2

3,89

7,759

Disp

osal

s du

ring

the

year

-

-

-

(3,15

8,92

3) -

-

-

-

(3

,158,

923)

Bala

nce

as a

t 31

Mar

ch 2

016

39,

138,

146

9,2

63,7

68

4,0

24,1

47

36,

913,

178

8,8

09,9

87

10,

158,

197

21,

248,

794

-

129

,556

,216

Carr

ying

Val

ueBa

lanc

e as

at 3

1 M

arch

201

6 4

9,54

2,97

3 2

,870

,189

1

,263

,918

4

9,29

7,111

2

,382

,044

2

,861

,423

2

,514

,633

1

7,41

0,09

4 1

28,1

42,3

86

Bala

nce

as a

t 31

Mar

ch 2

015

19,

566,

645

184

,712

4

26,0

78

61,1

93,8

47

1,4

89,8

52

2,0

21,6

15

2,5

38,5

86

25,

218,

895

112

,640

,230

Build

ing

on le

aseh

old

land

was

rev

alue

d as

at 3

1 M

arch

201

2 fo

r Rs

. 20,

829,

851/

- by

R.T

.K. S

iris

ena,

an

inde

pend

ent p

rofe

ssio

nal v

alue

r on

dep

reci

ated

re

plac

emen

t cos

t bas

is fo

r bui

ldin

gs a

s at

the

date

of t

he v

alua

tion.

The

resu

lting

gai

n w

as n

ot in

corp

orat

ed in

the

finan

cial

sta

tem

ents

as

the

reva

luat

ion

surp

lus

was

not

mat

eria

l am

ount

ing

to R

s. 7

3,20

0/-

Build

ing

repr

esen

t Com

pany

's w

orks

hop

put u

p on

the

said

Lan

d at

Pel

iyag

oda

unde

r an

oper

atin

g le

ase

and

the

head

-offi

ce b

uild

ing

at C

olom

bo -

02

The

fully

dep

reci

ated

Pro

pert

y, P

lant

& E

quip

men

t of t

he C

ompa

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Group

As at 31 March, 2016 2015

Rs. Rs.

17 INTANGIBLE ASSETSCostAs at 1 April 6,206,040 6,206,040

Additions during the year - -

As at 31 March 6,206,040 6,206,040

Accumulated AmortizationAs at 1 April 1,710,306 469,098

Amortization during the year 1,241,208 1,241,208

As at 31 March 2,951,514 1,710,306

Carrying value as at 31 March 3,254,526 4,495,734

Intangible Assets include Software licenses of ERP System.

Group Company

As at 31 March, 2016 2015 2016 2015

Rs. Rs. Rs. Rs.

18 PREPAID LEASE PAYMENTSCostAs at 1 April 7,550,366 7,550,366 7,550,366 7,550,366

Addition during the year 90,000,000 - - -

Closing Balance as at 31 March 97,550,366 7,550,366 7,550,366 7,550,366

Accumulated AmortizationAs at 1 April 2,111,557 2,035,290 2,111,557 2,035,290

Charge for the year 15,076,267 76,267 76,267 76,267

As at 31 March 17,187,824 2,111,557 2,187,824 2,111,557Carrying Value 80,362,542 5,438,809 5,362,542 5,438,809

Prepaid Lease Payments disclosed above relate to the Company’s land at Peliyagoda acquired on a 99 years operating lease commencing from 1987. Remaining lease period as at 31st March 2016 is 70 years.

Further, SML Frontier (Pvt) Ltd. recognized prepaid lease payments amounting to Rs. 90 Mn. in respect of Welisara workshop premises which has been subleased by Frontier Automotive (Pvt) Ltd. Remaining lease period as at 31 March 2016 is 5 Years.

66

Group Company

As at 31 March, 2016 2015 2016 2015

Rs. Rs. Rs. Rs.

19 INVESMENT PROPERTYBalance at 1 April 24,191,513 24,191,513 24,191,513 24,191,513

Additions - - - -

Changes in Fair value during the year 21,168,487 - 21,168,487 -

Balance at 31 March 45,360,000 24,191,513 45,360,000 24,191,513

Investment Property comprises building leased to Avonsmart Engineering (Pvt) Ltd, with effect from 1st May 2013. In accordance with LKAS 40 - Investment Property, fair value of the above Investment Property was ascertained as at 31 March 2016 by Mr.R.T.K. Sirisena (A.I.V.) an independent professional valuer, for Rs. 45.36 Mn.

Rental Income earned from investment property by the Company amounts to Rs.2.45 Mn. (2015 - Rs.2.45 Mn. ).

The total land extent is 343.93 perches. There are 2 buildings for which the description is stated below.

1. SML workshop - 1 building - owner/user

2. Rented out - 1 building Investment property

3. The Company did not inccur any repair or maintenance cost on the said Investment Property during the year.

4. This Property is situated at No. 25/11, Ward 6, New Nuge Road, Peliyagoda.

5. The total floor area of the said Investment Property is 6800 sqft.

2016 2015

% No.of shares Cost No.of shares Cost

Holding Rs. Rs.

20 INVESTMENT IN SUBSIDIARY COMPANYSML Frontier Automotive (Pvt) Ltd. 50% 6,500,002 65,000,020 6,500,002 65,000,020

6,500,002 65,000,020 6,500,002 65,000,020


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Group Company

As at 31 March, 2016 2015 2016 2015

Rs. Rs. Rs. Rs.

21 INVENTORIESNew Vehicles 717,307,441 679,614,547 670,892,522 658,114,547 Spare Parts 217,907,728 182,897,693 80,823,398 81,476,513 Work in Progress 21,150,243 18,966,553 4,291,409 3,496,600 Goods in Transit 237,238,795 120,332,661 215,353,234 105,605,438 General Stores 4,545,452 28,672,543 4,545,452 3,001,851

1,198,149,659 1,030,483,997 975,906,015 851,694,949 Provision for Inventories (6,395,475) (3,071,848) (6,395,475) (3,071,848)

1,191,754,184 1,027,412,149 969,510,540 848,623,101

22 TRADE AND OTHER RECEIVABLESTrade Receivables - New Vehicles 429,407,917 652,434,096 359,129,621 542,619,469 - Spare Parts 35,857,052 29,265,367 35,857,052 29,265,367 - Work Shop 17,569,555 21,839,959 17,569,555 21,839,959

482,834,524 703,539,422 412,556,228 593,724,795 Provision for Bad and Doubtful Debts (2,463,882) (2,463,882) (840,913) (840,913)

480,370,642 701,075,540 411,715,315 592,883,882 Loans to Employees ( Note 22.1) 1,816,021 1,575,534 1,767,521 1,406,034 Other Debtors 50,043,459 71,457,473 17,227,149 19,150,432 Deposits and Prepayments 19,721,665 2,715,946 1,877,477 2,715,946 Withholding Tax Recoverable 511,404 2,591,958 511,404 2,591,958 VAT Receivable 3,214,394 8,901,127 3,214,394 8,901,127 Advances 102,157,666 48,079,249 - - Advances to suppliers 11,462,938 10,998,660 - -

669,298,189 847,395,487 436,313,260 627,649,379

22.1 Loans to EmployeesLoans to Employees include loans and advances granted to officers, equal to or exceeding Rs. 20,000/-. The total amount of such loans granted by the Company is Rs.1,060,400/-. The movements of these loans during the year is as follows:

Group Company

As at 31 March, 2016 2015 2016 2015

Rs. Rs. Rs. Rs.

Balance at the beginning of the year 1,575,534 1,718,208 1,406,034 1,361,208 Loans Granted during the year 1,945,400 651,500 1,060,400 651,500

3,520,934 2,369,708 2,466,434 2,012,708 Repayments during the year (1,704,913) (794,174) (698,913) (606,674) Balance at the end of the year 1,816,021 1,575,534 1,767,521 1,406,034

68

Group

As at 31 March, 2016 2015

Rs. Rs.

23 AMOUNTS DUE FROM RELATED PARTIESFrontier Automotive (Pvt) Ltd. 5,021,681 72,860,056

Mr. Sheran Fernando 380,046 65,902

Mr. Darshana Munasinghe 30,805 -

Foresight Engineering (Pvt) Ltd. 5,200,000 -

10,632,532 72,925,958

Group Company

As at 31 March, 2016 2015 2016 2015

Rs. Rs. Rs. Rs.

24 CASH AND CASH EQUIVALENTS24.1 Favorable Balance

Overnight Repos and Short Term Fixed Deposits 65,286 57,682,634 65,286 57,682,634 Cash in hand 2,031,202 1,395,416 - - Cash at Bank 5,241,642 27,814,379 5,142,392 25,692,067

7,338,130 86,892,429 5,207,678 83,374,701 24.2 Unfavorable Balance

Bank Overdraft (236,685,964) (41,833,247) (181,598,461) - Cash and Cash Equivalents for the purpose of Cash Flow Statement (229,347,834) 45,059,182 (176,390,783) 83,374,701

25 STATED CAPITAL6,033,622 Ordinary Shares 115,924,290 115,924,290 115,924,290 115,924,290

The holders of Ordinary Shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share at meetings of the Company. All shares rank equally with regard to the Company’s residual assets.

Group

As at 31 March, 2016 2015

Rs. Rs.

26 INTEREST BEARING BORROWINGSPayable within One Year Term Loan 14,280,000 11,900,000 Import Loan 15,975,000 63,900,000

Import Demand Loan 143,281,618 63,221,939

Short-Term Loan from HNB 30,000,000 -

203,536,618 139,021,939

Payable after One YearTerm Loan 164,335,134 74,300,000


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Details of all loans and facilities together with the related securities offered as at the reporting date are set out below,

Company NameLending Institution

Nature of the Facility

Repayment terms & Interest rate

Principal Amount (Rs.) Security Offered

SML Frontier Automotive Private Limited

National Development Bank

Bank Overdraft 13.5% 25,000,000 Corporate Guarantee from Sathosa Motors PLC For Rs.200,000,000/-

Bank Loan 12.5% 63,900,000 Import Loan 13% 150,000,000 Guarantee 1.5% 50,000,000

SML Frontier Automotive Private Limited

Hatton National Bank

Bank Loan AWPLR+2% (Renew

monthly)

200000000 Corporate Guarantee from Sathosa Motors PLC For Rs.200,000,000/-

Group/Company

As at 31 March, 2016 2015

Rs. Rs.

27 ASSETS RELATED GRANTSBalance at the beginning of the year 6,581,652 6,801,041

Amortisation for the year (219,389) (219,389)

Balance at the end of the year 6,362,263 6,581,652

The above represents the grants received for the construction of work shop at Peliyagoda and are amortised over a period of fifty (50) years.

Group Company

As at 31 March, 2016 2015 2016 2015

Rs. Rs. Rs. Rs.

28 EMPLOYEE BENEFITS28.1 Net Liability Recognised in the Statement of

Financial PositionBalance at the beginning of the year 26,026,219 21,227,139 22,638,976 19,999,428 Charge for the year 7,544,114 6,317,271 4,739,508 4,157,739 Payments during the year (7,297,992) (1,518,191) (7,297,992) (1,518,191)Balance at the end of the year 26,272,341 26,026,219 20,080,492 22,638,976

28.2 The amount Recognised in the Profit or LossService Cost 3,691,891 3,568,640 1,438,703 1,722,911 Net interest on the net defined benefit liability 2,606,067 2,115,207 2,263,898 1,999,943

6,297,958 5,683,847 3,702,601 3,722,854

70

Group Company

As at 31 March, 2016 2015 2016 2015

Rs. Rs. Rs. Rs.

28.3 The amount Recognised in Other Comprehensive IncomeActuarial loss 1,246,156 633,424 1,036,907 434,885

28.4 Employee Benefits Obligation ReconciliationBalance at the beginning of the year 26,026,219 21,227,139 22,638,976 19,999,428 Current service cost 3,691,891 3,568,640 1,438,703 1,722,911 Interest cost 2,606,067 2,115,207 2,263,898 1,999,943 Actuarial losses 1,246,156 633,424 1,036,907 434,885 Benefits paid during the year (7,297,992) (1,518,191) (7,297,992) (1,518,191)Balance at the end of the year 26,272,341 26,026,219 20,080,492 22,638,976

CompanyAn actuarial valuation of the provision for employee benefits was carried out as at 31 March 2016 by Mr. Munisamy Poopalanathan, Messrs. Actuarial & Management Consultants (Pvt) Ltd. a firm of professional actuaries. The valuation method used by the actuaries to value the employee benefits obligation is the ‘’Projected Unit Credit (PUC) method’’, the method recommended by the Sri Lanka Accounting Standard (LKAS 19) ‘’ Employee Benefits’’.

SubsidiaryThe gratuity liability of the subsidiary has been calculated using the Projected Unit Credit (PUC) method in compliance with LKAS 19 “Employee Benefits”.

28.5 Principal assumptions used;

Group Company

As at 31 March, 2016 2015 2016 2015

Rs. Rs. Rs. Rs.

a) Discount Rate 11% 10% 11% 10%b) Salary Increase 9%-11% 10% 11% 10%c) Retirement Age 55 Years 55 Years 55 Years 55 Years


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28.6 Sensitivity AnalysisSensitivity to a reasonably possible change in the key assumptions employed with all other variables held constant in the Employment Benefit Liability measurement.

Group Company

As at 31 March, 2016 2015 2016 2015

Rs. Rs. Rs. Rs.

Present Value of Defined Benefit Obligation

Present Value of Defined Benefit Obligation

Discount Rate1% less 27,547,017 27,211,221 20,908,522 23,557,349 1% More 25,100,124 22,582,015 19,315,236 21,796,208

Salary Escalation Rate1% less 25,021,286 22,415,382 19,243,586 21,740,484 1% More 27,611,849 27,258,068 20,973,354 23,604,196

Group Company

As at 31 March, 2016 2015 2016 2015

Rs. Rs. Rs. Rs.

29 DEFERRED TAX LIABILITY Balance at the beginning of the year 6,019,604 3,615,883 3,294,927 1,880,350 Charge/(Reversal) for the year 21,904,739 2,403,721 6,216,612 1,414,577 Balance at the end of the year 27,924,343 6,019,604 9,511,539 3,294,927

29.1 (Reversal) / Origination during the year(Reversal) / origination to income tax expenses 22,253,662 2,581,080 6,506,945 1,536,345 (Reversal) / origination to other comprehensive income (348,923) (177,359) (290,333) (121,768)

21,904,739 2,403,721 6,216,612 1,414,577

30 TRADE AND OTHER PAYABLESTrade Payable - ITOCHU Corporation 650,045,122 550,613,162 627,161,530 550,613,162 Accrued Expenses 36,461,051 22,036,309 25,783,004 18,130,088 Sundry Creditors 6,028,725 34,101,071 6,028,725 10,190,661 Advances and Retentions 62,240,806 14,833,681 62,240,806 14,833,681 VAT Payable 13,373,027 6,795,971 - - Advance Received for Vehicles 80,324,873 97,421,877 - - Advance Received for Parts 15,292,969 10,093,919 - - NBT Payable 8,134,563 4,971,110 491,221 - Provision for warranty 20,722,989 12,672,989 - - Payable to Guava 45,097,363 38,730,393 - -

937,721,488 792,270,482 721,705,286 593,767,592

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Group

As at 31 March, 2016 2015

Rs. Rs.

31 AMOUNTS DUE TO RELATED PARTIES

Reprographics (Pvt) Ltd - 17,760

Access Engineering PLC 750,896 977,620

Access Natural Water (Pvt) Ltd 99,611 38,963

Access Projects (Pvt) Ltd 18,680,378 -

19,530,885 1,034,343

32 CONTINGENT LIABILITIESOutcome of the current/pending litigation cases and pending tax assessments are as follows;

32.1 Labour Tribunal casesLabour Tribunal cases against the GroupThere are no litigation cases that requires reporting in the group’s perspective other than the litigation case referred to below.

Labour Tribunal cases against the CompanyW. A. Siriwardane vs Sathosa Motors PLC (Ref - Ct.78(25))The above application was filed in the Labour Tribunal by an ex-employee Mr. W A Siriwardena who was a driver of the Company for terminating his services. He seeks reinstatement in service, monthly salary inclusive of the relevant allowances pending reinstatement in service. The Company filed answer on 25th June 2009. The Company is vehemently resisting the claim. After the trial and upon filing written submissions the Order was delivered on 25th August 2013 and the application of Mr. W.A.Siriwardane was dismissed. We have not been notified of any appeal. As regards any gratuity dues, these would be payable accordingly to law. The Applicant has now appeal to the High Court of Colombo against the said Order and the matter was called before the High Court on 29.09.2014.Parties were directed to file Written Submissions on 27.11.2014.On 27.11.2014 the matter re-fixed again for written submissions on 13.02.2015.On 13.02.2015 parties filed written submissions and the matter was fixed for argument on 06.05.2015.On 06.05.2015 the matter was re-fixed for argument on 27.07.2015 and again for 16.11.2015. On 16.11.2015 the matter was taken up for argument and Counsel of both parties submitted the salient points of the matter before Hon. Manilal Waidyathilleke High Court Judge. Thereafter the matter was fixed for judgment.

32.2 Tax AssessmentsTax Assessments against the GroupThere are no tax assessments that require reporting in the group’s perspective other than the tax assessments referred below.

Tax Assessments against the CompanyNBT Assessments 2009/2010 and 2010/2011Revenue authorities are of the view 2/3rd disallowance is applicable for NBT paid on imports too. However the company is claiming the position that 2/3rd disallowance is applicable for NBT paid quarterly only.


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Liability assessed by the Revenue – 2009/2010 – Rs. 7,350,762 and the penalty calculated Rs. 3,675,381

Liability assessed by the Revenue – 2010/2011 – Rs. 7,790,377 and the penalty calculated Rs. 3,895,189

2009/2010- Appeal hearing is fixed for 9th August 2016 by Tax Appeal Commission

2010/2011- Appeal hearing is fixed for 4th May 2017 by Tax Appeal Commission

Having sought professional advise, the Management is confident that the said 2/3rd disallowance is applicable for NBT paid quarterly only and as such no liabilties would arise.Accordingly, no provision has been made in the financial statements.

32.3 Corporate GuaranteeSathosa Motors PLC has issued corporate Guarantees on behalf of its subsidiary amounting Rs. 400,000,000/- as at reporting date.

Name of the Company Relationship Performance Rs.

RefundRs.

Miscellaneous Rs.

TotalRs.

SML Frontier Automotive (Private) Limited

Subsidiary - - 400,000,000 400,000,000

- - 400,000,000 400,000,000

33 Events Occurring After The Reporting Date

Pursuant to a resolution adopted on 15th June 2016, the Board of Directors of the Company approved the payment of a final dividend of Rs. 15/- per share for the year ended 31 March 2016 (2015 Rs. 7/- per share)

As required by Section 56(2) of the Companies Act. No. 07 of 2007, the Board of Directors has confirmed that the Company satisfies the solvency test in accordance with Section 57 of the Companies Act. No. 07 of 2007, and has obtained concurrence from auditors, prior to declaration of dividends.

In accordance with LKAS 10 “Events Occurring after the Reporting Date’’, this proposed dividend has not been recognised as a liability as at the date of Statement of Financial Position.

Except for the above there were no material events occurring after the Reporting date that require adjustments to or disclosure in the Financial Statements.

34 RELATED PARTY TRANSACTIONSThe Company and its Subsidiary carries out transactions in the ordinary course of its business with parties who are defined as related parties in LKAS 24 “Related Party Disclosures”. The details of related party transactions are reported below.

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34.1 Transactions between Related CompaniesCompany

Name of the companyNature of the Interest Nature of Transactions

Amount2015/2016

Rs.

Amount2014/2015

Rs.

Access Natural Water (Pvt) Ltd Affiliate Company Purchase of Mineral water 227,623 144,022

Purchase of electronic dispenser

12,000 -

Access International (Pvt) Ltd Affiliate Company Repairs and sale of new vehicles

831,582 4,491,781

Reprographics (Pvt) Ltd Affiliate Company Purchase of Toner 29,414 120,855

Access International Projects (Pvt) Ltd Affiliate Company Vehicle repair & maintenance 15,919 -

ZPMC Lanka Company (Pvt) Ltd Affiliate Company Vehicle repair & maintenance 181,384 -

SML Frontier Automotive (Pvt) Ltd Subsidiary Vehicle repair & services 39,605 32,403

Dividend received 650,000 -

Access Engineering PLC Parent Company Dividend Payment 61,124,940 25,468,725

Repairs and sale of Machinery (SANNY), repair charges of mobile crane

- 45,010,247

ATSL International (Pvt) Ltd. Affiliate Company Construction of the workshop at No.25, Vauxhall Street

- 23,965,000

Subsidiary

Name of the company Nature of the Interest Nature of Transactions

Amount2015/2016

Rs.

Amount2014/2015

Rs.

Sathosa Motors PLC Parent Cmpany Vehicle Repair 39,605 32,403

Receipts (39,605) 32,403

Dividend Payment 650,000 Frontier Automotive (Pvt) Ltd. Affiliate Company Warranty Claimable 18,473,295 72,860,056

Prepaid Lease payment (90,000,000) -

Asset Transfer 550,000 -

Receipts 3,138,330 -

Access Natural Water (Pvt) Ltd. Affiliate Company Purchases 662,160 476,607

Settlement (601,512) (437,644)

R S Fernando Director Directors Salaries 2,400,000 2,400,000

Payment (2,400,000) (2,400,000)


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Name of the company Nature of the Interest Nature of Transactions

Amount2015/2016

Rs.

Amount2014/2015

Rs.

Sheran Fernando Managing Director Directors Salaries 3,600,000 3,600,000

Service Income 380,046 -

Payment (3,600,000) (3,665,902)

Darshan Munasinghe Director Service Income 187,449 -

Settlement (156,644) -

Foresight Engineering (Pvt) Ltd. Affiliate Company Vehicle Sale 52,000,000 -

Settlement (46,800,000) -

Access Projects (Pvt) Ltd. Affiliate Company Payable to Project Payment 51,881,013 -

Settlement (33,200,635) -

Access Engineering PLC Ultimate Parent Company Rent payable to 10,488,100 (4,477,620)

Boralesgamuwa land

Service Income Receivable 41,644 -

Settlement (10,303,020) 3,500,000

Reprographics (Pvt) Ltd. Affiliate Company Purchase of Assets - 59,341

Settlement (17,760) (41,581)

Terms & conditions of the Related Party TransactionsAll above transactions are carried out at arm’s length basis. The sales to and purchases from related parties are carried out at terms equivalent to those that prevail in any other arm’s length transaction with a party outside the group. There is no mortgage/ guarantee provided for outstanding balances as at any given time /date, accordingly all transactions are unsecured and no interest is charged at the time of settlement (interest free settlement).

The above explanation is applicable to all related party receivables and payables.

Rationale for entering into Related Party TransactionsAll Transactions refer to are either purchase of items or obtaining / provision of services. Accordingly above refer to transactions completed within the Group, at an arm’s length price.

34.2 Transactions with key Management PersonnelAccording to LKAS 24 “Related Party Disclosures”, Key Management Personnel are those having authority and responsibility for planning, directing and controlling the activities of the entity. Accordingly Board of Directors (including executive and non -executive Directors ) have been classified as key Management Personnel of the Group.

Fees, emoluments and other benefits paid to Key Management Personnel amounted to Rs. 10.2 Mn. (2014/2015 Rs. 7.99Mn.) for Company and Rs. 16.2 Mn. (2014/2015 Rs. 13.99) for Group.

There were no material related party transactions other than those disclosed above and in Note 23 and 31 to the Financial Statements.

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35 SEGMENT REPORTINGGroup

Spare Parts Vehicles Repairs & Services Vehicle Local Charges Machinery GroupYear Ended 31st March, 2015/2016 2014/2015 2015/2016 2014/2015 2015/2016 2014/2015 2015/2016 2014/2015 2015/2016 2014/2015 2015/2016 2014/2015

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

Revenue 486,488 499,990 2,978,743 2,549,098 222,870 188,340 313,420 172,794 - 44,588 4,001,521 3,454,811 Agency Commission - - 1,868 4,209 - - - - - - 1,868 4,209 Total Revenue from External 486,488 499,990 2,980,612 2,553,307 222,870 188,340 313,420 172,794 - 44,588 4,003,390 3,459,020 Internal - Sales - - - - 45,073 43,493 - - - - 45,073 43,493 Total Revenue 486,488 499,990 2,980,612 2,553,307 267,944 231,833 - - - 44,588 4,048,463 3,502,513 Segment Results 199,595 199,844 680,355 545,923 132,540 114,813 - - - (11,698) 1,014,358 848,882 Unallocated Income 44,406 42,668 Unallocated Expenses (583,097) (490,668)Profit from Operation before Financing Cost 475,666 400,882 Net Financing Cost (34,647) (18,710)Fair value Changes in Investment Property 21,168 - Profit from Operations 462,187 382,172 Income Tax Expenses (135,077) (112,367)Profit from Ordinary Activities 327,111 269,805

Capital Expenditure (230,283) 190,404 Depreciation and Amortization 65,840 32,497

Company

Spare Parts Vehicles Repairs & Services Machinery TotalYear Ended 31st March, 2015/2016 2014/2015 2015/2016 2014/2015 2015/2016 2014/2015 2015/2016 2014/2015 2015/2016 2014/2015

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

Revenue 181,956 173,162 2,623,577 2,357,564 153,061 114,566 - 44,588 2,958,594 2,689,880 Agency Commission - - 1,868 4,209 - - - - 1,868 4,209 Total Revenue from External 181,956 173,162 2,625,445 2,361,773 153,061 114,566 - 44,588 2,960,462 2,694,089 Internal - Sales - - - - 45,073 43,493 - - 45,073 43,493 Total Revenue 181,956 173,162 2,625,445 2,361,773 198,134 158,059 - 44,588 3,005,536 2,737,582 Segment Results 99,741 82,578 461,130 415,202 109,677 88,343 - (11,698) 672,416 574,425 Unallocated Income 44,289 38,997 Unallocated Expenses (295,967) (263,754)Profit from Operation before Financing Cost 420,738 349,669 Net Financing Cost (10,079) (16)Profit from Operations 410,659 349,652 Fair value Changes in Investment Property 21,168 - Income Tax Expenses (116,122) (96,684)Profit from Ordinary Activities 315,705 252,968



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35 SEGMENT REPORTINGGroup

Spare Parts Vehicles Repairs & Services Vehicle Local Charges Machinery GroupYear Ended 31st March, 2015/2016 2014/2015 2015/2016 2014/2015 2015/2016 2014/2015 2015/2016 2014/2015 2015/2016 2014/2015 2015/2016 2014/2015

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

Revenue 486,488 499,990 2,978,743 2,549,098 222,870 188,340 313,420 172,794 - 44,588 4,001,521 3,454,811 Agency Commission - - 1,868 4,209 - - - - - - 1,868 4,209 Total Revenue from External 486,488 499,990 2,980,612 2,553,307 222,870 188,340 313,420 172,794 - 44,588 4,003,390 3,459,020 Internal - Sales - - - - 45,073 43,493 - - - - 45,073 43,493 Total Revenue 486,488 499,990 2,980,612 2,553,307 267,944 231,833 - - - 44,588 4,048,463 3,502,513 Segment Results 199,595 199,844 680,355 545,923 132,540 114,813 - - - (11,698) 1,014,358 848,882 Unallocated Income 44,406 42,668 Unallocated Expenses (583,097) (490,668)Profit from Operation before Financing Cost 475,666 400,882 Net Financing Cost (34,647) (18,710)Fair value Changes in Investment Property 21,168 - Profit from Operations 462,187 382,172 Income Tax Expenses (135,077) (112,367)Profit from Ordinary Activities 327,111 269,805


Company

Spare Parts Vehicles Repairs & Services Machinery TotalYear Ended 31st March, 2015/2016 2014/2015 2015/2016 2014/2015 2015/2016 2014/2015 2015/2016 2014/2015 2015/2016 2014/2015

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

Revenue 181,956 173,162 2,623,577 2,357,564 153,061 114,566 - 44,588 2,958,594 2,689,880 Agency Commission - - 1,868 4,209 - - - - 1,868 4,209 Total Revenue from External 181,956 173,162 2,625,445 2,361,773 153,061 114,566 - 44,588 2,960,462 2,694,089 Internal - Sales - - - - 45,073 43,493 - - 45,073 43,493 Total Revenue 181,956 173,162 2,625,445 2,361,773 198,134 158,059 - 44,588 3,005,536 2,737,582 Segment Results 99,741 82,578 461,130 415,202 109,677 88,343 - (11,698) 672,416 574,425 Unallocated Income 44,289 38,997 Unallocated Expenses (295,967) (263,754)Profit from Operation before Financing Cost 420,738 349,669 Net Financing Cost (10,079) (16)Profit from Operations 410,659 349,652 Fair value Changes in Investment Property 21,168 - Income Tax Expenses (116,122) (96,684)Profit from Ordinary Activities 315,705 252,968


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36 NON-CONTROLLING INTEREST (NCI)

Ownership interest held by NCI

As at 31 March, Principal place of business

Operating segment 2015/2016 2014/2015

SML Frontier Automotive (Pvt) Ltd Sri Lanka Trading agent 50% 50%

The following are summarised financial information of SML Frontier Automotive (Private) Limited. The information is before inter-company eliminations.

As at 31 March, 2016 2015

Rs. Rs.

Statement of Profit or Loss and Other Comprehensive IncomeRevenue 1,042,966,982 764,931,269

Profit for the year 12,056,331 16,836,776

Profit attributable to NCI 6,028,165 8,418,388

Other Comprehensive Income (150,659) (142,948)

Total Comprehensive Income 11,905,672 16,693,828

Total Comprehensive Income attributable to NCI 5,952,836 8,346,914

Statement of Financial PositionCurrent assets 467,991,558 474,978,842

Non-current assets 462,893,559 224,344,773

Current liability 528,183,976 415,756,013

Non-current liability 188,939,787 80,411,920

Net asset 213,761,354 203,155,682

Net asset attributable to NCI 106,880,677 101,577,841

Statement of Cash FlowsNet Cash flows from operating activities 22,523,217 (43,626,899)

Net Cash flows used in investing activities (190,414,562) (131,916,873)

Net Cash flows used in financing activities 153,249,813 154,445,297

Net decrease in cash and cash equivalents (14,641,532) (21,098,475)

Dividend paid to NCI during the year 650,000 -


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37 FINANCIAL INSTRUMENTS

37.1 Financial Assets and Liabilities by categoriesFinancial Assets and Liabilities in the tables below are split into categories in accordance with LKAS 39,

GroupFinancial assets by categories

Loans & Receivables ( L&R) Held to Maturity(HTM) Available for sale financial assets (AFS)

As at 31 March, 2016 2015 2016 2015 2016 2015Rs. Rs. Rs. Rs. Rs. Rs.

Financial Instruments in Non current assetsInvestments in Debentures - - 676,508,941 84,113,507 - -

Financial Instruments in current assetsTrade and other receivables 665,572,391 835,902,402 - - - - Amount due from Related Parties 10,632,532 72,925,958 - - - - Cash and cash equivalents 7,272,844 29,209,795 - - 65,286 57,682,634 Total 683,477,767 938,038,155 676,508,941 84,113,507 65,286 57,682,634

Financial liabilities measured at amortised cost

As at 31 March, 2016 2015

Rs. Rs.

Financial Liabilities by categories

Financial Instruments in Non- current liabilitiesInterest Bearing Borrowings 164,335,134 74,300,000

Financial Instruments in current liabilitiesTrade and other payables 916,213,898 780,503,401

Interest Bearing Borrowings 203,536,618 139,021,939

Amount due to Related Parties 19,530,885 1,034,343

Bank Overdraft 236,685,964 41,833,247

Total 1,540,302,499 1,036,692,930

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CompanyFinancial assets by categories

Loans & Receivables ( L&R) Held to Maturity(HTM) Available For Sale Financial Assets (AFS)

As at 31 March, 2016 2015 2016 2015 2016 2015

Rs. Rs. Rs. Rs. Rs. Rs.

Financial Instruments in Non current assetsInvestment in Debentures - - 676,508,941 84,113,507 - -

Financial Instruments in current assetsTrade and other receivables 432,587,462 616,156,294 - - - - Cash and cash equivalents 5,142,392 25,692,067 - - 65,286 57,682,634 Total 437,729,854 641,848,361 676,508,941 84,113,507 65,286 57,682,634

Financial liabilities measured at amortised cost

As at 31 March, 2016 2015

Rs. Rs.

Financial Liabilities by categories

Financial Instruments in Non- current liabilitiesInterest Bearing Borrowings - -

Financial Instruments in current liabilitiesTrade and other payables 721,214,065 593,767,592

Bank Overdraft 181,598,461 -

Total 902,812,526 593,767,592

The Group/ Company has not disclosed the fair value for financial instruments such as short-term trade receivables and payables, because their carrying amounts are a reasonable approximation of the fair values.


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The Company invested Rs. 662.93 Mn. in quoted debentures at fixed interest rate, for which the details are stated below.

Investee Interest

Tenor Rate PA Number of Value Maturity in

Years % stocks Rs.

National Development Bank 5 13 372,900 37,290,000 2018

People’s Leasing Co. 4 9.63 25,600 2,560,000 2018

Hatton National Bank 3 7 422,900 42,290,000 2017

National Development Bank 5 9.4 2,064,600 206,460,000 2020

Access Engineering PLC 5 10.25 1,743,300 174,330,000 2020

Hatton National Bank 5 11.25 2,000,000 200,000,000 2021

662,930,000

Currently the Company has no reason to dispose them in the foreseeable future and the Company’s intention is to hold them until maturity.

37.2 Fair Value HierarchyThe table below analyses financial instruments carried at fair value, by valuation method.

The different levels have been defined as follows:

Level 1 : quoted prices (unadjusted) in active markets for identical assets or liabilities

Level 2 : inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices)

Level 3 : inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices)

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37.2 Fair Value Hierarchy

Group Level 1 Level 2 Level 3 Total

Rs. Rs. Rs. Rs.

As at 31/3/2016Financial investments available for sale Government of Sri Lanka Treasury Bills - 65,286 - 65,286

As at 31/3/2015Financial investments available for sale Government of Sri Lanka Treasury Bills - 57,682,634 - 57,682,634

Company Level 1 Level 2 Level 3 Total

Rs. Rs. Rs. Rs.

As at 31/3/2016Financial investments available for sale Government of Sri Lanka Treasury Bills - 65,286 - 65,286

As at 31/3/2015Financial investments available for sale Government of Sri Lanka Treasury Bills - 57,682,634 - 57,682,634

38 FINANCIAL RISK MANAGEMENTOverview

The Group has exposure to the following risks arising from financial instruments:

- Credit risk

- Liquidity risk

- Market risk

This note represents information about the Group’s exposure to each of the above risks, the Group’s objectives policies and processes for measuring and managing risk.

38.1 Credit RiskCredit risk is the risk of financial loss to the Group if a customer or counter party to a financial instrument fails to meet its obligations, and arises principally from the Group's receivables from customers and investment securities.


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Exposure to Credit RiskThe carrying amount of financial assets represents the maximum credit exposure. The maximum exposure to credit risk at the reporting date was as follows;

Group Company

As at 31 March, 2016 2015 2016 2015

Rs. Rs. Rs. Rs.

Investment in Debentures 676,508,941 84,113,507 676,508,941 84,113,507 Trade receivables 482,834,524 703,539,422 412,556,228 593,724,795 Other receivables 185,201,749 134,826,862 20,872,147 23,272,412 Amount due from Related Parties 10,632,532 72,925,958 - - Cash and cash equivalents 7,338,130 86,892,429 5,207,678 83,374,701

1,362,515,876 1,082,298,178 1,115,144,994 784,485,415

Age analysis of trade debts as at 31/3/2016 is as follows;

Group Less than 60days

61 - 90 days 91- 180 days 181- 365 days Over 365 days Total


New Vehicle Department 282,847,679 77,819,479 17,911,095 - 50,829,665 429,407,918

Spare parts & Workshop 42,650,842 5,648,615 2,604,811 2,474,404 47,934 53,426,606

Total 325,498,521 83,468,094 20,515,906 2,474,404 50,877,599 482,834,524

Company Less than 60days

61 - 90 days 91- 180 days 181- 365 days Over 365 days Total


New Vehicle Department 273,067,923 72,735,000 13,326,700 - - 359,129,622

Spare parts 31,618,589 3,001,164 1,103,776 86,225 47,297 35,857,051

Workshop 11,032,253 2,647,451 1,501,034 2,388,179 637 17,569,555

Total 315,718,765 78,383,615 15,931,510 2,474,404 47,934 412,556,228

The Group believes that the unimpaired amounts that are past due by more than 30 days are still collectible, based on historic payment pattern and extensive analysis and follow up procedures implemented on the customer credit risk.

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38.2 Liquidity RiskThe risk that the Group will encounter difficulty in meeting the obligations associated with its financial liabilities that are settled by delivering cash or another financial asset. The Group's approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Group's reputation. The maximum exposure to liquidity risk as at reporting date was as follows;

Group Within Within More than Total

1 year 1-2 years 2 years

Rs. Rs. Rs. Rs.

Non- Derivative Financial Liabilities Interest bearing borrowings 203,536,618 164,335,134 - 367,871,752

Trade and other payables 937,721,488 - - 937,721,488

Bank Overdraft 236,685,964 - - 236,685,964

Amount due to related parties 19,530,885 - - 19,530,885

1,397,474,955 164,335,134 - 1,561,810,089

Company Within Within More than Total

1 year 1-2 years 2 years

Rs. Rs. Rs. Rs.

Non- Derivative Financial Liabilities - - - -

Trade and other payables 721,705,286 - - 721,705,286

Bank Overdraft 181,598,461 - - 181,598,461

903,303,747 - - 903,303,747

Trade and other payables are settled during the availability of the credit terms.

Dividend payable is settled at the time of they are claimed as the company deposits the funds required for the purpose of the dividend distribution in advance in a separate account.

38.3 Market RiskThis has an impact on the market prices, such as forex rates, interest rates and equity prices will affect the Group's income or the value of its holdings of financial instruments.

The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimising the Return.

(a) Interest Rate RiskInterest rate risk is the risk that the fair value or future cash flows of a financial instrument fluctuate because of changes in the market interest rates. The Group’s exposure to the risk of changes in market interest rates relates primarily to the Group’s long term debt obligation. The Group utilises various financial instruments to manage exposures to interest rate risks.


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At the reporting date, the Group's interest - bearing financial instruments were as follows;

Group Company

Carrying Amount Carrying Amount

As at 31 March, 2016 2015 2016 2015

Rs. Rs. Rs. Rs.

Fixed Rate InstrumentsFinancial AssetsDebentures 676,508,941 84,113,507 676,508,941 84,113,507 Overnight Repos and short term fixed deposits 65,286 57,682,634 65,286 57,682,634

676,574,227 141,796,141 676,574,227 141,796,141

Variable Rate InstrumentsFinancial LiabilitiesTerm Loan (178,615,134) (86,200,000) - - Import demand loans (189,256,618) (127,121,939) - - Bank Overdraft (236,685,964) (41,833,247) (181,598,461) -

(604,557,716) (255,155,186) (181,598,461) -

(b) Currency Risk Exposure to Currency Risk

Group

As at 31st March, 2016 2016 2016 2016 2015 2015 2015 2015

GBP USD THB JPY GBP USD THB JPY

Trade Payables - Foreign Creditors 213,065 - 1,018,422 484,264,563 - 715,280 - 394,395,035

Gross Statement of Financial Position Exposure 213,065 - 1,018,422 484,264,563 - 715,280 - 394,395,035

Company

As at 31st March, 2016 2016 2016 2016 2015 2015 2015 2015

GBP USD THB JPY GBP USD THB JPY

Trade Payables - Foreign Creditors - - 1,018,422

484,264,563 - 715,280 - 394,395,035

Gross Statement of Financial Position Exposure - - 1,018,422

484,264,563 - 715,280 - 394,395,035

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The following significant exchange rates were applicable during the year

Group Average Rate Reporting Date Spot Rate

As at 31st March, 2016 2015 2016 2015

Rs. Rs. Rs. Rs.

GBP 206.27 211.66 USD 140.76 130.91 146.78 132.90

THB 4.08 4.03 4.08 4.11

JPY 1.22 1.19 1.32 1.11

Company Average Rate Reporting Date Spot Rate

As at 31st March, 2016 2015 2016 2015

Rs. Rs. Rs. Rs.

GBP 206.27 - 211.66 -

USD 140.76 130.91 146.78 132.90

THB 4.08 4.03 4.08 4.10

JPY 1.22 1.19 1.32 1.10

Sensitivity AnalysisA strengthening / weakening of the Rupee as indicated below, against the USD,THB, JPY at 31 March 2016 would have increased/ (decreased) the equity and profit or loss by the amounts shown below. This analysis is based on foreign currency exchange rate variances that the Group considered to be reasonably possible at the end of the reporting period. The analysis assumes that all other variables, in particular interest rates, remain constant.

Strengthening Weakening Strengthening WeakeningProfit or Loss Profit or Loss Profit or Loss Profit or Loss

Rs. Rs. Rs. Rs.Group Group Company Company

31st March 2016

USD (10% movement) - - - - THB (10% movement) (134,045) 416,000 (416,000) 416,000 JPY (10% movement) 63,738,902 63,738,902 (63,738,902) 63,738,902 GBP (10% movement) (4,509,734) 4,509,734 - -

31st March 2015

USD (10% movement) (9,506,071) - (9,506,071) 9,506,071

THB (10% movement) - - - -

JPY (10% movement) (43,730,521) 43,730,521 (43,730,521) 43,730,521


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38.4 Capital Management The Board’s policy is to maintain a strong capital base so as to maintain share holder, creditor and market confidence and to sustain future development of the business. The Board of Directors monitors the return on capital and level of dividends to ordinary shareholders.

The Group’s Net Debt to Equity ratio at the end of the reporting period was as follows:

Carrying amount

Group Company

As at 31 March, 2016 2015 2016 2015

Rs. Rs. Rs. Rs.

Total Liabilities 1,691,700,302 1,152,811,107 974,576,542 656,643,175 Less: Cash and Cash Equivalents (7,338,130) (86,892,429) (5,207,678) (83,374,701)Net Debt 1,684,362,172 1,065,918,678 969,368,864 573,268,474

Total Equity 1,398,709,483 1,230,965,907 1,356,828,825 1,194,388,085

Net Debt to Equity Ratio 120% 87% 71% 48%

There were no changes in the Group’s approach to capital management during the year and the Group is not subject to externally imposed capital requirements.

39 OPERATING LEASESNon cancellable operating lease rentals are payable as follows:

Group Company

2016 2015 2016 2015

Rs. Rs. Rs. Rs.

Variable Rate Instrumentswithin one year 528,000 528,000 528,000 528,000 1-5 years 264,000 792,000 264,000 792,000

Total 792,000 1,320,000 792,000 1,320,000

The above rentals are payable with respect to Panchikawatte operating lease.

Lease rental per month amounts to Rs. 44,000/- net of taxes. This payment is considered as an expense in the Statement of Profit or Loss and Other Comprehensive income. This is a five year lease. Commencement October 2012.

(Rent per month - Rs.40,000 recoverable from the advance whilst Rs. 44,000 is paid in cash terms)

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Related Party Transactions Review Committee Report

Sathosa Motors PLC, established the Related Party Transactions Review Committee with effect from 11th November 2015 in terms of the Code of Best practice on Related Party Transactions issued by the Securities & Exchange Commission of Sri Lanka and the Section 9 of the Listing Rules of the Colombo Stock Exchange.

Composition of the Committee

The Related Party Transactions Review Committee is appointed by and is responsible to the Board of Directors. The Related Party Transactions Review Committee consists of two independent non executive directors, one non executive director and the Managing Director. The Committee comprises the following directors:

� Mr. M M Nelson De Silva - Chairman (Independent Non Executive Director)

� Mr. J.Christopher Joshua - (Non Executive Director)

� Mr. Chiran Wijesinghe - (Independent Non Executive Director)

� Mr. Tilak Gunasekara - (Managing Director)

The duties of the Committee

The purpose of the Committee is to carry out the following functions:

� To review in advance all proposed related party transactions of the Company either prior to the transaction being entered into or, if the transaction is expressed to be conditional on such review, prior to the completion of the transaction.

� Seek any information the Committee requires from management, employees or external parties with regard to any transaction entered into with a related party.

� Obtain knowledge or expertise to assess all aspects of proposed related party transactions where necessary including obtaining appropriate professional and expert advice from suitably qualified persons.

� To recommend, where necessary, to the Board and obtain their approval prior to the execution of any related party transaction.

� To monitor that all related party transactions of the Company are transacted on normal commercial terms and are not prejudicial to the interest of the Company and its minority shareholders.

� To meet with the management, Internal Auditors and External Auditors as necessary to carry out the assigned duties.

� To review the transfer of resources, services or obligations between related parties regardless of whether a price is charged.

� To review the economic and commercial substance of both recurrent and non recurrent related party transactions.

� To monitor and recommend the acquisition or disposal of substantial assets between related parties, including obtaining competent independent advice from independent professional experts with regard to the value of the substantial asset of the related party transactions.

Tasks of the Committee

The Committee re-viewed the related party transactions of Sathosa Motors PLC and their compliances with Code of Best practice on Related Party Transactions issued by the Securities & Exchange Commission of Sri Lanka and communicated same to the Board

The Committee in its review process recognized the adequacy of the contents and quality of the information forwarded to its members by the management.

Meetings and Attendance

The Committee held one meeting during the year under review and it is in compliance with the requirements of Securities & Exchange Commission of Sri Lanka. The attendance of the members of Related Party Transactions Committee is as follows.

Date Director Attendance

31/03/2016 Mr.M.M.N.De Silva Present

Mr.J.C.Joshua Present

Mr. C Wijesinghe Present

Mr. Tilak Gunasekera Present

M M Nelson De SilvaChairman – Related Party Transactions Committee of Sathosa Motors PLC.


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Report of the Audit Committee

Composition

The Board Audit Committee of the Company is appointed by and is responsible to the Board of Directors. The Audit Committee consists of two independent non executive directors and one non executive director of the Board. The Audit Committee comprises the following non executive directors:

� Mr. M M Nelson De Silva - Chairman of the Audit Committee (Independent Non Executive Director)

� Mr. Christopher Joshua - (Non Executive Director)

� Mr. Chiran Wijesinghe - (Independent Non Executive Director - Appointed with effect from 15th July 2015)

Statement of Purpose

The purpose of the Committee is to carry out the following important activities:

� To review and ensure the integrity of the Company’s Financial Statements,

� To monitor the Company’s compliance with legal and regulatory requirements,

� To review in depth, periodic reports issued by the Internal Auditors & the Management Letter issued by the External Auditors and to ensure that all necessary follow up action have been initiated,

� To monitor the performance of the Company’s Internal Audit Function and its Independent Auditor,

� To review the design, evaluation and implementation of internal control systems and take steps to strengthen them when required.

� To evaluate and monitor risk management function of the Company and adherence to accounting policies and

� To ensure that sound Corporate Governance practices are upheld within the Company.

Mandate of Operation

The Board of Directors appoints the members of the Committee. The Mandate of the Audit Committee is approved

by the Board. Such mandate shall be reviewed and reassessed by this Committee periodically and any proposed changes shall be submitted to the Board of Directors for approval.

Meetings and Attendance

The Committee meets at least once a quarter and conducts its meeting according to a formal agenda. It had four sittings during the year. The attendance of the members at these meetings is given below. The Executive Director / Managing Director, Head of Finance and Internal Auditors attend audit committee meetings by invitation. As and when required other senior officers of the Company are invited to attend the meetings.

Financial Reporting and Related Disclosure

Management has the primary responsibility for the preparation of Financial Statements and the reporting process. The Audit Committee reviews the Monthly Management Accounts, Interim Financial Statements, Annual Report and formal announcements made to the Colombo Stock Exchange. The Audit Committee reviews and discusses the analysis prepared by Management and the Independent Auditors setting forth significant financial reporting issues and judgments made in connection with the preparation of the Financial Statements.

Company’s Internal Audit Functions

The Audit Committee monitors the internal auditors’ functions by approving annual internal audit program and reviewing quarterly Internal Auditor Reports and recommendations made for system and procedural improvements in the Company. The implementations of such recommendations were made after obtaining responses from the divisional heads.

A procedure has been laid down for reporting on quarterly basis by Internal Auditors with regard to statutory and regulatory compliance and internal control procedures. Instances of non compliances if any, are reported thru Internal Audit Report on quarterly basis and review of such report is taken up at the Audit Committee meetings together with appropriate corrective actions.

Internal Auditors have been appointed for the subsidiary. The reports made available by them on quarterly basis have been reviewed by the Committee headed by the Managing Director, Independent Non Executive Director and the Head of Finance of the subsidiary.

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Good Governance

The Committee also reviews the level of compliance with Corporate Governance rules as per Sec. 7.10 of the Listing Rules of the Colombo Stock Exchange. The Committee is satisfied that the Company has complied with all mandatory requirements of this code.

The Company’s whistle blowing policy is intended to serve as a channel of managing corporate fraud risk and staff is encouraged to raise their concerns on existing or potential wrong doings by other employees.

External Audit Functions

With regard to the external audit functions of the Company the role played by the Committee is as follows:

� Assisting the Board of Directors to implement the process of engaging External Auditors for audit services in compliance with the provisions and the directions and agree on their remuneration.

� Monitor and assess the independence of the External Auditors.

� Reviewing non-audit services provided by the Auditors with a view to safeguard and to support the independence and objectivity of the external auditors.

� Discussing with the Auditors their audit plan, scope and the methodology proposed to be adopted in conducting the audit prior to commencement of the Annual Audit.

� Approve the financial statements.

� Reviewing the External Auditors Management Letter and the management responses thereto.

The audit Committee has recommended to the Board that KPMG be re-appointed as statutory auditors for the financial year ending 31st March 2017 subject to the approval by the Shareholders at the forthcoming Annual General Meeting.

Conclusion

The Committee is satisfied that the internal controls and procedures in operation are adequate and operating effectively to provide reasonable assurance that the

Company’s assets are adequately safeguarded and steps are being taken continuously to improve the systems and controls as per the reports made available by the External and Internal Auditors and the review processed adopted by the Committee. The Company has adopted appropriate accounting policies in preparation and presentation of Financial Statements.

M M Nelson De SilvaChairman – Audit Committee


Attendance at the Audit Committee Meetings is as follows.

Date Director Attendance

3rd June 2015 Mr. M.M.N.De silva Present

Mr. J.C.Joshua Present

22nd July 2015 Mr. M.M.N.De silva Present



26th Nov. 2015 Mr. M.M.N.De silva Present

Mr. J.C.Joshua Excused

Mr. C Wijesinghe Excused

27th Jan. 2016 Mr. M.M.N.De silva Present



Report of the Audit Committee

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20 MAJOR SHAREHOLDERS OF THE COMPANY

NAME OF SHAREHOLDER NO. OF SHARES % NO. OF SHARES %

as at31-03-2016

as at31-03-2015

1 ACCESS ENGINEERING PLC 5,093,745 84.423 5,093,745 84.423

2 LAKSHMANS HOUSING AND CONSTRUCTION CO (PVT) LTD

612,712 10.155 610,850 10.124

3 MR M MAHIBALAN 21,666 0.359 6,927 0.115

4 BANK OF CEYLON NO. 1 ACCOUNT 16,000 0.265 16,000 0.265

5 MR T D GUNASEKERA 5,875 0.097 4,648 0.077

6 MR.S G N HERATH ,MRS.A N HERATH AND MS. N E HERATH

5,442 0.090 5,442 0.090

7 MR R D LEELARATNA 5,083 0.084 4,028 0.067

8 MR. U I SURIYABANDARA 4,962 0.082 5,338 0.088

9 MR N A N D D GUNASEKARA 4,794 0.079 4,500 0.075

10 MR. G C GOONETILLEKE 4,050 0.067 4,050 0.067

11 MR.R D U A RANAMUKA 4,000 0.066 4,000 0.066

12 MR K C VIGNARAJAH 3,749 0.062 3,370 0.056

13 MR. A H MUNASINGHE 3,598 0.060 3,598 0.060

14 MR S GOWRISANGAR 3,300 0.055 3,300 0.055

15 TEA CEYLON INVESTMENTS (PVT) LTD 2,850 0.047 2,850 0.047

16 MR J M D Q PINSIRI 2,566 0.043 1 0.000

17 MRS. S A KALEEL 2,400 0.040 2,400 0.040

18 MR. N L DIAS (DECEASED) 2,400 0.040 2,400 0.040

19 MR P K SAMBASIVAM 2,260 0.037 2,260 0.037

20 DR N I WIKRAMANAYAKE 2,206 0.037 2,206 0.037

SUB TOTAL 5,803,658 96.189 5,781,913 95.828

OTHERS 229,964 3.811 251,709 4.171

TOTAL 6,033,622 100.000 6,033,622 100.000

DISTRIBUTION OF SHARE HOLDING AS AT 31ST MARCH 2016

From To No of Holders No of Shares %

1 1,000 1,137 177,102 2.94

1,001 10,000 52 112,397 1.86

10,001 100,000 2 37,666 0.62

100,001 1,000,000 1 612,712 10.15

Over 1,000,000 1 5,093,745 84.42

1,193 6,033,622 100.00

Information to Investor

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Information to Investor

CATEGORIES OF SHAREHOLDERS

Local Individuals 993 259,861 4.31

Local Institutions 45 5,739,451 95.12

Foreign Individuals 151 32,746 0.54

Foreign Institutions 4 1,564 0.03

1,193 6,033,622 100.00

DIRECTORS SHAREHOLDING AS AT 31ST MARCH 2016

Name of Director No of Shares %

Sumal Joseph Sanjiva Perera Nil Nil

Tilak Dias Gunasekera 5,875 0.097%

Muthu Muni Nelson De Silva 1,100 0.018%

Joseph Christopher Joshua Nil Nil

Ranjan John Suriyakumar Gomez Nil Nil

S H S Mendis Nil Nil

S D Munasinghe Nil Nil

D A R Fernando Nil Nil

W A C O Wijesinghe (appointed w.e.f 15-07-2015) Nil Nil

SHARE PRICES

As at 31/03/2016 As at 31/03/2015

Highest Price during the year Rs 345.00 (06-08-2015) Rs.299.00(22-07-2014)

Lowest Price during the year Rs 243.50 (30-04-2015) Rs.235.00 (04-12-2014)

Rs.235.00 (04-07-2014)

Closing Price Rs 300.00 Rs.275.10

FINANCIAL CALENDAR 2015/2016

1ST Quarter ended 30-06-2015 Accounts Dispatched on 03-08-20152nd Quarter ended 30-09-2015 Accounts Dispatched on 05-11-20153rd Quarter ended 31-12-2015 Accounts Dispatched on 02-02-20164th Quarter ended 31-03-2016 Accounts Dispatched on 26-05-201629th Annual General Meeting 26th July 201330th Annual General Meeting 26th September 201431st Annual General Meeting 25th August 201532nd Annual General Meeting 28th July 2016

PUBLIC HOLDING

The Percentage of shares held by the Public is 15.462% comprising of 1,190 shareholders.

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Group CompanyFor the year ended 31st March 2016 2015 2016 2015

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

Value addedRevenue 4,048,463 3,502,514 3,005,536 2,737,582 Other Income 44,406 42,668 44,289 38,997

4,092,869 3,545,182 3,049,825 2,776,580

Cost of material & Services (3,332,962) (3,002,754) (2,480,586) (2,325,397) 759,907 542,428 569,239 451,183

Distribution of value addedTo employeesas salaries, Incentive & Other benefits 197,232 25.95 118,786 21.90 103,359 18.16 86,716 19.22

To government Revenueas taxes 135,077 17.78 112,367 20.72 116,122 20.40 96,684 21.43

To providers of Capitalas dividend 90,504 11.91 42,235 7.79 90,504 15.90 42,235 9.36

To maintain operationsDepreciation 65,839 8.66 31,179 5.75 23,974 4.21 14,798 3.28 Financing expenses 34,647 4.56 18,710 3.45 10,079 1.77 16 -

To Expansion & GrowthReserves 236,607 31.14 219,151 40.40 225,201 39.56 210,733 46.71

759,907 100.00 42,428 100.00 569,239 100.00 451,183 100.00

Statement of Value Added

2015Group

2016Group

2015Company

2016Company

To Expansion & GrowthTo maintain operations

To providers of CapitalTo government RevenueTo employees

19%

22%

9% 3%

47% 22%

21%8%9%

40%26%

18%

12% 13%

31% 18%

20%

16% 6%

40%

94

NOTICE IS HEREBY GIVEN that the Thirty Second (32nd)

Annual General Meeting of the Shareholders of Sathosa

Motors PLC will be held at the Institute of Chartered

Accountants of Sri Lanka, 30A, Malasekera Mawatha,

Colombo 7, on 28th July 2016, at 10.30 a.m for the following

purposes.

1. To receive and consider the Annual Report of the Board of Directors on the affairs of the Company and the Statement of Accounts for the year ended 31st March 2016 with the Report of the Auditors thereon.

2. To re-elect Mr. M N M de Silva who retires by rotation in terms of Article 88(i) of the Articles of Association of the Company.

3. To re-appoint M/s KPMG, Chartered Accountants as Auditors for the year ending 31st March 2017, and to authorise the Board of Directors to determine their remuneration.

4. To authorize the Directors to determine contributions to charities and other donations for the year 2016/2017.

By order of the Board

SATHOSA MOTORS PLC

P W CORPORATE SECRETARIAL (PVT) LTDDirector / Secretaries

15th June 2016Colombo

Notes

1. Any member of the Company unable to attend the meeting may appoint another person (whether a member or not) as a proxy to attend and vote for him/her

2. A proxy need not be a member of the Company. A proxy form is attached for your use. The completed form of proxy should be lodged with the Secretaries of the Company P W Corporate Secretarial (Pvt) Ltd, No. 3/17, Kynsey Road, Colombo 08 not less than 36 hours before the holding of the Annual General Meeting.

3. Shareholders appointing proxies (other than Directors of the Company) to attend the meeting are requested to indicate the number of the National Identity Card of the Proxy holder on the form or proxy.

4. Only registered Proxy holders will be permitted to attend the Annual General Meeting. Shareholders/Proxy holders attending the Annual General Meeting are kindly requested to bring with them their National Identity Card or any other form of valid identification.

Notice of Annual General Meeting

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I/We ..……………………………………................................................………………………………… (NIC No. ………...........……………)

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

being a member/members of SATHOSA MOTORS PLC hereby appoint;

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

………………………………………………………………………........................................................…………………… (or failing him).

Mr. Sumal Joseph Sanjiva Perera of Colombo or failing him*Mr. Tilak Dias Gunasekera of Colombo or failing him*Mr. Muthu Muni Nelson de Silva of Colombo or failing him*Mr. Joseph Christopher Joshua of Colombo or failing him*Mr. Ranjan John Suriyakumar Gomez of Colombo or failing him*Mr. Saumaya Darshana Munasinghe of Colombo or failing him*Mr. Shevantha Harindra Sudharaka Mendis of Colombo or failing him*Mr. Dalpadoruge Anton Rohana Fernando of Colombo or failing him*Mr. Wijesinghe Appuhamilage Chiran Okullo Wijesinghe of Colombo or failing him*

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

……………………………………..............………………. holder of NIC No ……………….………..................................…………………..

as my/our* proxy represent me/us and vote for me/us* and on my/our* behalf at the Thirty Second (32nd) Annual General

Meeting of the Company to be held on 28th July 2016 at 10.30 a.m. and at any adjournment thereof and every poll which may

be taken in consequence thereof.

Please indicate your preference by placing a þ against the following

For Against1. To re-elect Mr. M N M de Silva who retires in terms of Article 88(i) of the Articles of Association

of the Company.2. To re-appoint M/s KPMG Chartered Accountants as Auditors for the year ending 31st March

2017 and to authorise the Board of Directors to determine their Remuneration.3. To authorise the Directors to determine contributions to charities and other donations for the

year 2016/2017.

As witness my/our* hands this ……………. day of ……………. Two Thousand and Sixteen.

*Please delete as appropriate

………………………….......................... …………………...................Signature of Member/s NIC/REG.No.

Notes: 1. A proxy need not be a member of the Company.2. Instructions as to completion appear overleaf.

Form of Proxy

96

INSTRUCTIONS FOR THE COMPLETION OF PROXY

1. Please perfect the Form of Proxy overleaf by filling in legibly your full name address and the National Identity Card number and signing in the space provided and filling in the date of signature.

2. Please return the completed Form of Proxy after deleting one or other of the alternative words indicated by asterisk in the body of the form.

3. To be valid the completed Form of Proxy should be deposited with the Com[any Secretaries, P W Corporate Secretarial (Pvt) Ltd., No. 3/17, Kynsey Road, Colombo 08 not less than 36 hours before the time appointed for the holding of the meeting

4. If the Form of proxy has been signed by an attorney, 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.

5. 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.

6. A shareholder appointing a proxy (other than a Director of the Company) to attend the meeting should indicate the proxy holder’s National Identity Card (NIC) number on the Form of Proxy and request the proxy holder to bring his/her National Identity Card with him/her.

Form of Proxy




NAME OF THE COMPANY

Sathosa Motors PLC

LEGAL FORM


REGISTRATION NUMBER

PQ 105

BOARD OF DIRECTORS





BANKERS


AUDITORS




LAWYERS




REGISTERED OFFICE





























Form of Proxy | 95





NAME OF THE COMPANY

Sathosa Motors PLC

LEGAL FORM


REGISTRATION NUMBER

PQ 105

BOARD OF DIRECTORS





BANKERS


AUDITORS




LAWYERS




REGISTERED OFFICE





























Form of Proxy | 95


Sathosa Motors PLC | Annual Report 2015/16

SATHOSA MOTORS PLC

Sathosa Motors PLC

Annual Report 2015/16

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