Distilleries Company of Sri Lanka PLC l Annual Report 2014Distilleries Company of Sri Lanka PLC l Annual Report / 15

Distilleries Company of Sri Lanka PLC | Annual Report 2014 / 15 www.dcslgroup.com Fax: +94 11 2696360 Tel. +94 11 5507000 / 2695295-7 Tel. 110, Norris Canal Road, Colombo 10, Sri Lanka. A distinguished history. A distinctive future.

DCSL is a legendary company with a heritage of over a hundred years; years we spent fine tuning and refining our classic range of arracks. Over the last two decades, we have diversified our business to include key growth sectors such as plantations, telecommunication, insurance, finance, textiles, power generation, leisure, logistics and media.

Today, as the market leader in the beverage industry, we continue to improve and expand our range of products to suit the changing tastes of consumers, while retaining the traditional flavour of pure coconut arrack.

We are proud of our reputation for quality and excellence, and we pledge to build on our distinguished history to create a distinctive future for the company and its stakeholders. Contents

3 Highlights of the Year 80 Statement of Profit or Loss and Other 4 Financial Highlights Comprehensive Income 6 A Diversified Portfolio of Business Operations 81 Statement of Financial Position 12 Historical Perspectives 82 Statement of Changes in Equity 14 The Story of Arrack 85 Statement of Cash Flows 16 What’s behind Our Continuing Success? 86 Notes to the Financial Statements 22 Chairman’s Message 161 Statement of Value Added 26 Board of Directors 162 Details of Real Estate 30 Group Management 163 Shareholder Information 32 DCSL Management 165 Ten Year Summary 34 Management Discussion & Analysis 166 DCSL Management Team 43 Sustainability Report 167 Group Directory 55 Corporate Governance 173 Notice of Meeting 67 Enterprise Risk Management 175 Form of Proxy 71 Audit Committee Report 177 Attendance Slip 73 Remuneration Committee Report 74 Annual Report of the Board of Directors 78 Statement of Directors Responsibility 79 Independent Auditors’ Report

Scan the QR code with your smart device to view this report online.

2 Distilleries Company of Sri Lanka PLC Highlights Of The Year

May March 2014 2015 November 2014

Melsta Regal Finance was reaffirmed Melsta Regal A+ (lka) / Stable by Fitch, thus signifying a won the bronze in very high credit rating for a finance company. SLIRTAD People DCSL’s ultra modern state-of-the-art fully Development automated plant in Seeduwa was declared Award 2014. open by his Excellency Dr. Jürgen Morhard the Ambassador of the Federal Republic of Germany to Sri Lanka

July November 2014 2014

DCSL was ranked No. 06 in the Business Today ‘Top Twenty Continental Insurance Lanka was Five’. This was the assigned ‘A-(lka)’ / Stable by Fitch. 16th consecutive year DCSL was listed among corporate July heavy weights in the 2014 rankings.

December 2014

Fitch Rating reaffirmed DCSL a national Melsta Regal Finance opened its Branch in long term Rating of AAA (lka) / stable Negombo. outlook - the best & highest entity credit rating for a corporate in Sri Lanka.

Annual Report 2014/15 3 Financial Highlights

2015 2014 2015 2014 Group Group Company Company

SUMMARY OF RESULTS Gross Turnover Rs Mn 66,765 63,186 51,800 47,756 Excise Duty Rs Mn 37,851 34,203 34,884 31,058 Net Turnover Rs Mn 28,914 28,983 16,916 16,698 Profit After Tax Rs Mn 6,474 6,231 10,285 5,357 Shareholders’ Funds Rs Mn 61,006 53,636 50,283 43,839 Working Capital Rs Mn 213 (1,905) (6,255) (4,449) Total Assets Rs Mn 92,689 83,742 65,028 61,190 Staff Cost Rs Mn 3,985 3,862 1,163 1,162 No. of Employees 11,897 12,897 1,197 1,250

PER SHARE Basic Earnings Rs. 21.84 20.41 15.48 17.86 Net Assets Rs. 203.35 178.79 167.61 146.13 Dividends Rs. 3.25 3.25 3.25 3.25 Market Price - High Rs. 246.00 218.00 246.00 218.00 Low Rs. 210.00 160.00 210.00 160.00 Year End Rs. 240.50 203.00 240.50 203.00

RATIOS Price Earnings times 11 10 16* 11 Return on Shareholders’ Funds % 10.74 11.42 9.24* 12.22 Current Ratio times 1.01 0.92 0.56 0.74 Interest Cover times 11.3 7.3 9.4* 10.3 Stock Turnover (Finished Goods) days 15 15 12 13 Debt to Equity % 22.68 24.97 12.88 22.87 Debt to Total Assets % 14.93 16.00 9.96 16.39 Dividend Payout % 14.87 15.92 20.99* 18.20 Dividend Yield % 1.35 1.60 1.35 1.60

* Current year Company’s profit has been adjusted for intra-group capital gain on assets transfer

4 Distilleries Company of Sri Lanka PLC Taxes Paid - Group 29,004 39,076 39,850 37,466 41,106 (Rs. Mn)

2010/11 2011/12 2012/13 2013/14 2014/15

Total Assets - Group 59,616 73,355 78,547 83,742 92,689 (Rs. Mn)

2010/11 2011/12 2012/13 2013/14 2014/15

Gross Turnover - Group 46,451 63,125 65,790 63,186 66,765 (Rs. Mn)

2010/11 2011/12 2012/13 2013/14 2014/15

Profit After Tax - Group 8,337 6,052 5,258 6,231 6,474 (Rs. Mn)

2010/11 2011/12 2012/13 2013/14 2014/15

Annual Report 2014/15 5 A Diversified Portfolio of Business Operations

Beverages

Distillation, Manufacture and Distribution of Liquor Products

Plantations

Cultivation & Processing of Tea & Rubber

6 Distilleries Company of Sri Lanka PLC Telecommunication

Voice, Data, Broadband, Hardware, Software and Networking Solutions

Insurance

General Insurance Services - Property, Motor, Marine, General Accident

Annual Report 2014/15 7 A Diversified Portfolio of Business Operations

Financial Services

Variety of innovative Financial Solutions under one roof.

Power Generation

Hydro Power Generation

Bogo Power (Pvt) Ltd.

8 Distilleries Company of Sri Lanka PLC Logistics

Automobile Servicing and Logistics

Textiles

Dyeing and Printing Fabric

Annual Report 2014/15 9 A Diversified Portfolio of Business Operations

BPO Services

BPO, KPO & Call Centre Services

Media

Media Buying & Creative Services

10 Distilleries Company of Sri Lanka PLC Leisure

Hotels & Hospitality

Beverages

Wines & Spirits

Annual Report 2014/15 11 Historical Perspective

Touching lives for over a century… Present in Sri Lanka for over a century, The Distilleries Company of Sri Lanka PLC (DCSL), is one of the most profitable and well respected corporate entities in the country. Its proud tradition, rich heritage and proven credentials have made the Company a beacon of inspiration for others. Over the past 100 years, our corporate DNA has been strengthened with our values of experience, maturity, innovation, resilience and the determination to succeed.

DCSL’s roots can be traced back to 1913, when the Excise Department of Ceylon, which was initially created as the enforcement authority to distribute and sell liquor products in Sri Lanka, branched out into the distillation and manufacture of liquor products. In 1974, the State Distilleries Corporation was incorporated by statute, to take over this venture, while the Excise Department realigned its operations as a monitoring body. Thus, DCSL has the distinction of being the pioneer distiller in Sri Lanka.

In 1989, under a government policy decision, the State Distilleries Corporation was converted into a limited company. This transfer of ownership took place at the Colombo Stock Exchange (CSE) in 1992, making it the largest transaction in the history of the CSE.

Under its new private management, the Company entered an era of modernisation that witnessed upgrading of machinery and equipment and the introduction of modern management systems and processes. Plant and machinery were upgraded to modern international standards and new technology developed by world renowned experts was introduced. Large investments have also been made in Research and Development (R&D) and in upgrading laboratories.

12 Distilleries Company of Sri Lanka PLC These improvements have equipped the Company with top of the line facilities enabling it to produce beverages of international standard. Furthermore, storage facilities and product distribution systems have been upgraded to modern standards with fully computerised systems. A fleet of modern vehicles ensures that customers in even the remotest areas are able to enjoy the best DCSL products delivered island wide. These improvements contributed towards higher production efficiencies across the supply chain. Our people are regularly trained in the best international practices in locations famed for high quality alcohol, such as France, Scotland and Ireland.

Over the years, we have not only grown to become Sri Lanka’s largest distiller, but have been recognised as a leading corporate with the highest quality standards. Despite these achievements and our strong position of business leadership, we continue to look for ways to improve and grow. Since 1992, the Company has not only expanded production, but has also diversified into other non-alcohol related activities.

Today, we are present in all parts of the country, operating under the principle of providing the highest standard of products and services for the people of Sri Lanka, imbued with a vision of uplifting the quality of life of our people. We aim to expand our presence into international markets to render our brand an internationally recognised one.

The newly installed ultra modern state-of-the-art fully automated plant (pictured below) will ensure that only products of the highest quality reach the consumer.

Annual Report 2014/15 13 The Story of Arrack

The Sri Lankan flavour that lingers on… is obtained by tapping the unopened coconut flower for its nectar. Thereafter, the toddy is collected in earthenware pots. The pristine ambrosia-like qualities of Sri Lanka’s unique This toddy when fresh contains much sugar, but yeasts, coconut arrack can be traced back thousands of centuries microscopic vegetable organisms soon find their way into it, earlier, finding mention in early literature - “…liquor drawn act on the sugar present and produce alcohol. This process from the coconut flower”. This delectable beverage is of converting the sugar into alcohol is called fermentation. steeped in legend and tradition, making it one of the most After a minute filtration process, this liquor is poured into prised offerings from Sri Lanka to the world. massive casks made of Halmilla wood and are gently The Sri Lankan coconut arrack is believed to be one of the transported to our factories for distillation. purest, naturally derived alcoholic beverages in the world The process of distillation comprises of two stages; distilled through a natural fermentation process. Sri Lanka continuous distillation (patent still distillation) and pot has perfected the technique of making coconut arrack distillation. This distillation process is usually completed through the years. Today, it has acquired the perfect balance within 24 hours. The purified spirit comes out with the for the discerning palate and coconut arrack reigns as the distinctive flavour of arrack, ready to be savoured. alcoholic beverage of choice in the country. The contents of the wooden vats are mixed artfully every The initial step in the process of making coconut arrack is fortnight for better aeration and to increase contact with toddy tapping, an age-old vocation which is lovingly passed the wood. Herbs and spices from ancient recipes are also down from father to son. Toddy Tapping is as much an added at particular stages, to enhance flavour and mellow intricate art as it is a science. Toddy tappers manually extract the liquor during the crucial maturation process. The the toddy from coconut trees which are coupled and girdled maturation process is completed after flavour enhancing and by deftly rappelling from tree to tree. Coconut sap or toddy smoothening while ageing in the wooden vats.

14 Distilleries Company of Sri Lanka PLC “This delectable beverage is steeped in legend and tradition, making it one of the most prised offerings from Sri Lanka to the world.”

“Sri Lankan coconut arrack, acknowledged as one of the purest alcoholic beverages in the world is extracted by an all-natural fermentation process.”

Finally, spirits of different ages and flavours are blended to create the various DCSL brands, all under the careful supervision of an experienced connoisseur and Master Blender. As the largest coconut arrack distillery in Sri Lanka, possibly even in the world, this golden brew remains our pride and flagship product.

Annual Report 2014/15 15 What’s behind Our Continuing Success? Tradition Served with Pride

A 100% coconut Superior blend Twice distilled A blend of 100% A blend of coconut spirit, refined, aged of mellow 100% in pot stills and aged coconut spirits and imported and matured in coconut arrack full matured slowly in spirits, well-matured neutral spirits Halmilla vats - giving of character and a Halmilla vats giving in Halmilla vats to bringing herbal a woody & natural distinctive flavour a remarkable taste give a taste of oak flavours with a vanilla flavour stemming from the and aroma distinctively rich traditional process taste and smooth of maturing aroma

16 Distilleries Company of Sri Lanka PLC A 100% coconut A 100% pure Crystal clear and A blend of coconut Finest blend of spirit, matured coconut spirit, which an absolutely pure and imported neutral matured coconut in Halmilla vats, brings out the full- blend of coconut spirits bringing a arrack and neutral producing a bodied taste and arrack and neutral distinctively rich and spirits giving a rich woody character aroma of desiccated spirits giving a tint smooth flavour and smooth flavour and exceptional coconut with a of fresh lime with smoothness subtle sweetness. a slight burning Best served as a sensation on your cocktail mixer tongue

Annual Report 2014/15 17 What’s behind Our Continuing Success? World Class Blends, Distinctly Sri Lankan

Exceptional A combination of Unique premium Premium blend of Unique variety of selection of spirits scotch and fine blended arrack, malts and fine spirits imported spirits blended to create a spirits to produce a smooth on the to produce this that combines great rum, matching rich blend of whisky palate with pleasant classic whisky together to produce international aromas an international standards standard vodka

18 Distilleries Company of Sri Lanka PLC Flavour of apple with Aged fine French A blend of finest Fine spirits blended Flavour of mango fine imported spirits brandy blended French brandy with a rich recipe with fine imported which provides a with fine spirits merged with fine flavoured with lemon spirits that combines rich apple aroma matured in vats to spirits to bring out a tempting aromas with a smooth apple enhance the smooth unique flavour that is and flavours of rich flavour on the palate characters of a incomparable mango superior brandy

Annual Report 2014/15 19 What’s behind Our Continuing Success? Premium Brands from Around the World

GRAND CHAIS DE FRANCE ALBERT BICHOT SOMERTON NAPOLÉON 1875 WINCARNIS - TONIC WINE Founded in 1979, our “THE EPIC STORY” OF A The Somerton range reflects the French traditional family company “Les GREAT HOUSE bright fruit flavours that are the brandy is made First produced in Grand Chais de France” From 1350, the Bichot hallmark of Australia’s sunny from the finest 1887, has built its family was established climate regions at incredible value wine eaux-de-vie, Wincarnis Tonic reputation upon the simple in Burgundy, with a deer for money. rigorously selected Wine is a natural motto… “Des Hommes, as a symbol. It was only by the master and tonic, incorporating des terriors, une passion” in the XIXth century that aged for a minimum an unique infusion of 12 months in oak As the owners of over 30 the family ventured into of herbs and spices. casks, until perfectly domains and chateaux the wine business, when It is also rich in matured. Its beautiful in some of the greatest Bernard Bichot found in amber colour, unique vitamins, especially French appellations, as 1831, a wine brokerage. woody bouquet, energy-giving well as being an influential The family heritage has full and soft palate Vitamins. player in the Bordeaux been passed down from and communicative Usually enjoyed market for Grand Crus father to son until now. warmth at the finish, straight, Wincarnis Classe, we Since 1996, Albéric Bichot are all thanks to the Tonic Wine can also hope that our customers has represented the 6th oak ageing. Can be be mixed with gin will benefit from our 20 generation to run the drunk as an aperitif to make a ‘Gin and years experience in wines House. or after-dinner. Win’. and spirits 20 Distilleries Company of Sri Lanka PLC AGAVITA – TEQUILA CAPE DREAMS MUD HOUSE TERRA ANDINA DOÑA PAULA - LOS By Sur Andina CARDOS Tequila Blanco, “OUR STORY” Our founders set sail to or white Tequila, The name Cape Dreams travel the world; only to fall From the magnificence of Doña Paula is among is a Mexican reflects our personal in love with New Zealand. the Andes to the cool waters the main Argentinean spirit that can be aspiration to build an After planting vines they of the Pacific, Terra Andina wineries that export served as a shot or internationally recognised used the local earth to use modern and innovative premium wines; mixed in cocktails. brand whilst making a build their home. Two winemaking skills to craft 97% of production is Even though it is difference. Our objective decades on, we continue premium wines. Terra Andina exported to more than is an innovator within the colourless, it gives is to develop and grow to celebrate the spirit of 60 countries and the Chilean wine industry. a slight taste of mint Cape Dreams into a striking out and breaking international press has Blending grapes from and peppery. brand synonymous with boundaries. Wherever you different valleys with different assigned our wines at wines of superb quality, are in the world look out climates and soil conditions, very high ratings. offering an enhanced for our distinctive wines for its full advantage of palate experience aimed and celebrate your taste richness and diversity of at both emerging and for adventure. Chile’s different wine growing established wine markets. regions. Fresh and innovative Like the Rainbow, Cape winery free of taboos, Terra Dreams is for the world Andina is focused on making to share. quality wines to capture full potential of Chilean viticulture. Annual Report 2014/15 21 Chairman’s Message

I am pleased to share with you, our valued shareholders, the company’s annual report and audited financial statements for the year ended 31st March 2015.

During this period, your company continued its pursuit Rs. 41 Bn 11,897 of growth and expansion. In the face of persisting unfair Taxes paid Employees practices favouring a few unscrupulous elements, we continue to operate in an industry which has not offered a level playing field in years. With the determination and hard work of our staff, we have managed to deliver value to our DCSL adheres to all the laws and tenets imposed on the shareholders and other stakeholders without compromising alcoholic beverage business and is one of the largest tax on our credo of fair play and ethical operations. payers in the country. However, when it comes to some others in the industry, the opposite holds true. Malpractices Although key indicators of the economy were favourable for such as non-invoiced and tax unpaid alcohol abound, growth, due to these reasons your company was unable to negating the rules and regulations on which a legitimate maximise the potential we know we can deliver. alcoholic beverage businesses is based. Although this business might be looked at negatively by certain socio- Macro Economic Climate religious quarters, it is a legitimate industry, licensed by the Despite an uncertain global economy and rising geo political state. However, some unscrupulous elements bring infamy tension in the Middle-East, Sri Lanka exhibited a strong and allegations of corruption to the industry, due to their performance against key economic indicators. GDP growth illegal practices, which impact legitimate businesses such as rate maintained its steady momentum, making ours one ours, which pay all taxes in accordance with the laws of the of the few economies displaying consistent growth in the land. What is perplexing is the fact that the state refuses to region. All sectors of the economy performed strongly intervene, despite losing millions of rupees in excise taxes except for agriculture, which was adversely impacted by due to these players who evade such taxes through various erratic weather patterns. Meanwhile, the regulators continued devious means. to ease monetary policy, resulting in low interest rates and record low inflation levels during the period. Sri Lanka’s A new breed of unscrupulous traders has emerged in the economic growth forecast for the next year seems optimistic, recent past. With the help of law makers, they import ethanol alongside a favourable uptick in the global economy as well. under the guise of other products and thereby flood the market. Law makers also became producers, and sadly, the Group Financial Performance department tasked with policing the industry also helps such people to produce tax unpaid liquor. Licenses were granted During the financial year under consideration, Gross Revenue to a few law makers to import ethanol under the guise of of the Group was Rs. 66.8 Bn, while the Group Profit after eau de cologne which leaked into the market, while DCSL Tax for the year was Rs. 6.5 Bn. The Group contributed maintained its quality and price. These imports went into Rs. 41.1 Bn in taxes to the national exchequer during this unlawful hands and the market was flooded with low retail financial year. price products which could not have been possible had all the legitimate duties been paid. Persistent Obstacles in our Path

As the market leader in our segment and a company in The industry as a whole is highly regulated and as a legitimate existence for over 100 years, DCSL’s credentials as a entity, we comply with all the rules and regulations laid down responsible corporate citizen are beyond question. However, by the National Authority on Tobacco and Alcohol (NATA) we are sorry to witness the continuation of unfair and illegal Act. The act mandates that companies will not advertise practices in the industry, taking place under the very nose of or promote their products in any form and in any medium; the enforcement authorities despite our repeated efforts to that they will not directly or indirectly lure young people bring these to their notice. Although all our representations to into alcoholism; and never, under any circumstance, target authorities seem to be falling on deaf ears, we will continue children. However, most of the players in the industry openly to spotlight these negative practices which are harming the flout the NATA Act by indulging in various barely disguised industry and preventing it from achieving the status of an advertising and promotional activities while authorities industry that is a key contributor to the state revenue. repeatedly turn a Nelsonian eye to such illegal practices.

22 Distilleries Company of Sri Lanka PLC D. H. S. Jayawardena Chairman / Managing Director

Annual Report 2014/15 23 Chairman’s Message

A unique and traditional Sri Lankan industry which has that some unscrupulous manufacturers are planning to been passed down generation to generation over the purchase the remaining retail licenses at exorbitant prices centuries is today an endangered industry. This sorry state which will further impact state revenue from excise earnings. of affairs is the direct result of the proliferation of illegal, It is disheartening to note that although this industry provides artificial toddy manufacturers, who feed the illegal alcoholic the state with enormous revenue, the Government does little beverage business by producing cheap artificial toddy, or nothing to prevent such abuses. unfit for human consumption. As a result, traditional toddy suppliers, who are unable to compete with such low cost It is observed that in the North and East tax unpaid and artificial toddy, are finding that their rich legacy is becoming non invoiced liquor is largely available in the market, at unsustainable. Amidst the barren wasteland of illegal prices 30% to 40% less than a product on which all taxes practices and disregard for tradition, DCSL remains the only have been paid. Such businesses are carried out with the company producing 100% natural coconut arrack using help of the officers of the state acting on behalf of these 100% pure coconut toddy distilled at our own distilleries, criminal parties instead of defending state laws. DCSL has providing consumers a 100% natural product. DCSL has brought these issues to the notice of the regulator who turns strengthened procedures by appointing qualified personnel a blind eye and is yet to take any measured steps to bring to inspect every barrel of toddy, in order to detect any form wrongdoers to book. of adulteration and extraneous matter in the toddy. We are single-handedly nurturing the traditional toddy tapping In the recent past, a shocking disclosure surfaced-when custom although only a handful of such genuine tappers perusing the price list of some players. The wholesale price remain in existence. Even though we lack trained toddy of a 750ml bottle of Extra Special Arrack is Rs. 688/- . This tappers, the Department of Excise is not focusing on this is not credible when the excise duty component alone is issue to help the industry and to ensure the production of Rs. 658/- leaving only Rs. 29/- to cover the cost of spirits, genuine coconut toddy. label, bottle, cap, labour, transport, overheads and profit. Obviously these products have not been declared for excise All around us we see that the rest of the toddy market is duties and eventually find their way to the retail liquor shops transforming into an artificial one, where vast quantities of run by these unscrupulous manufacturers, depriving billions sugar, ammonia, yeast, salt, rotten potatoes, sugar syrup and of rupees of revenue to state coffers. In addition to this fraud, remnants of toddy sludge are being used in the manufacture in order to maximise their profit, these parties channel such of artificial toddy. The addition of these unhealthy and products to the market offering very attractive incentives to artificial ingredients renders the natural form of fermentation licensees. extinct, putting consumers at risk. This is a calamity in the industry and it is high time that the generations old Excise Considering that we have successfully sustained our Ordinance is evaluated and modified to meet the challenges operations for over 100 years, your company remains of the present day. invested in and upbeat about the prospects for the alcoholic beverage sector. During this year, our Rs. 6 Bn investment While one may overlook the responses from the Government in a state-of-the-art blending and bottling plant has resulted bodies, it is not possible for responsible corporate citizens in improved capacity, modern packaging and presentation in the country to remain silent and watch the open and greater prevention of the possibility of adulteration of transgression of the law by those who should be protecting our products. This ultra modern plant has fully automated and upholding the law. The enactment of Excise Notification manufacturing operations resulting in higher productivity and 926, whereby a transferor could transfer a FL(4) license to greater efficiency at reduced cost to meet current demand. a transferee for Rs. 1,500,000/- and Rs. 200,000/- for other types of licenses, opened the flood gates for unprincipled DCSL complies with stringent quality controls along its manufacturers who embraced this unfortunate regulation and product chain. The company has installed advanced R&D obtained licenses in the names of their kith and kin, thereby capability in modern fully-equipped laboratories to ensure finding a channel to dispose of their non-invoiced, tax unpaid that its products are at the cutting edge of the industry. We liquor with ease. It is pathetic to observe that although continue to enjoy Fitch Ratings assigned long term rating the conditions of the manufacturing license indicate that a of AAA (lka) with a stable outlook, the highest possible manufacturer is prohibited from holding any interest in the credit rating, which places your company amongst the few retail sale of liquor, this condition is blatantly violated under exclusive corporates in Sri Lanka who enjoy such ratings. the very noses of the excise authorities. Some manufacturers Our fully-owned subsidiary, Periceyl, is working tirelessly to have taken over 233 retail licenses out of a total of 1000, provide customers with the trendiest portfolio of brands, both approximately 23%, which indicates how rampant corruption local and foreign. has spread like a disease in the sector. It has come to light

24 Distilleries Company of Sri Lanka PLC Diversified Performance With regard to Sri Lanka Insurance Corporation Ltd. (SLIC), With regard to other Group business interests, our even after a lapse of 6 years, we still await the payment of telecommunication arm Lanka Bell recorded a loss due to profit earned during DCSL Group’s tenure at the helm of challenges experienced in the sector. However, Lanka Bell SLIC. We are hopeful that the profit earned, which has to has a positive EBITDA despite many companies reporting be paid to us as per the Supreme Court directive, will be negative growth. We have already taken initiatives to reimbursed to us as early as possible. break-even and have established foreign collaboration to enhance the product. We are buoyed by future prospects for DCSL has complied with the Listing Rules of the Colombo the business as we have acquired 4G LTE technology, which Stock Exchange and the Code of Best Practices on will propel the company to the forefront of the country’s Corporate Governance issued by the Securities and data revolution. I expect the company to make a positive Exchange Commission and the Institute of Chartered contribution to Group revenue in the future by becoming a Accountants of Sri Lanka. We are committed to the front runner in the data sector. furtherance of best Corporate Governance principles. The measures taken in this regard are set out in the Corporate Meanwhile, Balangoda Plantations experienced a drop Governance Report. in revenue to Rs. 3 Bn and had an adverse effect on the profitability contributing to a pre-tax loss of Rs. 106 Mn Appreciation against a backdrop of wage increases and drop in revenue. I take this opportunity to thank the Board of Directors for We are glad to state that our hydro power project, Bogo their unstinted support and the management and staff for Power, which was commissioned in December 2011, is now their single-minded pursuit of profitability for the Group yielding encouraging results for the Group. DCSL Group is also against all odds. encouraged by the progressive results achieved by our key associate company, Aitken Spence during the financial year. During the year, the Board was deeply saddened at the passing away of our fellow director Mr. C. F. Fernando who In July 2014, the Group increased its investment in was the chairman of the Audit Committee too. His tenure on Continental Insurance to Rs. 750 Mn Established as one of the Board was of much value to the Company. the most innovative and dynamic insurance companies in Sri Lanka, Continental Insurance holds great potential for the future and its (A-) Fitch rating reflects the financial stability of We also lost a valued team member with the demise of Maj. the Company. The insurance industry is a fiercely contested Gen. Siri Peiris (Retd.), Head of Southern Region who was with space. However, companies that can position themselves us over 15 years and who performed a wonderful job to keep perfectly have much potential for growth. the DCSL flag flying despite the stiff competition from the illegal operators. Melsta Regal Finance embarked on its second year of operations with a focus on penetrating the market with I would also like to thank our valued shareholders for placing innovative financial solutions. Melsta Regal, A+(lka) rated their confidence in the Group. Our strength lies in the loyalty finance house, achieved noteworthy milestones in terms of shown by our customer base and other stakeholders, who asset size and achieved a balance sheet size of Rs 5 Bn and continue to inspire us to retain our position as one of the most earned pre-tax profit of Rs. 100 Mn during the year. valuable and respected corporate entities in the country.

The uncertainties surrounding the status of our subsidiary, Pelwatte Sugar Industries continues to weigh upon the Group. Following the occupation of the factory by state officials, the ownership of this property remains unresolved. The Group has not changed its position, advocated since the occurrence D. H. S. Jayawardena of this unfortunate incident, of being the legal owner of the Chairman / Managing Director property and as such we have communicated our views to the Treasury. However, as a precautionary measure, the Group has 25 August 2015 also lodged an official claim with the Compensation Tribunal appointed by the State. We hope that some clarity regarding this untoward situation would be forthcoming during the new financial year, after the General Election.

Annual Report 2014/15 25 Board of Directors

1. 2.

3. 4.

1. Mr. D. H. S. Jayawardena 3. Mr. N. de S. Deva Aditya Chairman / Managing Director DL, FRSA Independent Non-Executive Director 2. Mr. C. R. Jansz Executive Director 4. Capt. K. J. Kahanda (Retd.) Executive Director

26 Distilleries Company of Sri Lanka PLC 5. 6.

7. 8.

5. Dr. Naomal Balasuriya 7. Ms. V. J. Senaratne MBBS [Sri Lanka], MBA [Sri.J], CIM [UK], MCGP Attorney-At-Law, Notary Public, Solicitor (Eng.& Wales) [SL], MSLIM, MIMSL Alternate Director to K. J. Kahanda / Company Independent Non-Executive Director Secretary and Chief Legal Officer 6. Mr. D. Hasitha S. Jayawardena 8. Mr. Amitha Gooneratne BBA (Hons) (UK) FCA (SL), FCA (Eng. & Wales) Non-Independent Non-Executive Director Alternate Director to N. de S. Deva Aditya

Annual Report 2014/15 27 Board of Directors

1. Mr. D. H. S. Jayawardena 3. Mr. N. de S. Deva Aditya Chairman / Managing Director DL, FRSA Mr. Harry Jayawardena is one the most successful and Independent Non-Executive Director prominent business magnates in Sri Lanka. He was elected Mr. Niranjan Deva Aditya, is an aeronautical engineer, scientist Chairman of the DCSL Group in 2006 after serving as its and economist, is a Conservative Member of the European Managing Director for almost two decades. He heads many Parliament elected from the SE England. He is the Vice successful ventures in diversified fields of business. He is the President of the Development Committee; ECR Coordinator founder Director and the present Chairman / Managing Director and Conservative Spokesman for Overseas’ Development and of the Stassen Group of Companies. Co-operation.

He is the Chairman of Aitken Spence PLC., Aitken Spence He was the Co Leader of the Parliamentary Delegation to the Hotel Holding PLC., Lanka Milk Foods (CWE) PLC., Madulsima UN World Summit and General Assembly 2006, Chairman Plantations PLC., Milford Exports (Ceylon) (Pvt) Ltd., Ceylon Working Group A of Development Committee overseeing Asia, Garden Coir (Pvt) Ltd., Ambewela Products (Pvt) Ltd., Central Asia and Far East; - Co Co-ordinator Assembly of 79 Ambewela Livestock Co. Ltd., Danish Dairy Products Lanka Parliaments of the EU-ACP 2004 and the President EU India (Pvt) Ltd., Lanka Dairies (Pvt) Ltd., Melstacorp Ltd. and its Chamber of Commerce from 2005. In 2012 he stood for and subsidiaries; Balangoda Plantations PLC., Browns Beach came runner up, beating the Liberal candidate into 3rd place Hotels PLC., Lanka Bell Ltd., Periceyl (Pvt) Ltd., Bogo Power to be the President (Speaker) to the European Parliament. He (Pvt) Ltd. and Texpro Industries Ltd. was the first Asian to be elected as a Conservative Member of British Parliament, first Asian MP to serve in the British He is a former Director of Hatton National Bank PLC., the Government as PPS in the Scottish Office and first Asian largest listed bank in Sri Lanka and former Chairman of Ceylon born MP to be elected to the European Parliament. He was Petroleum Corporation and SriLankan Airlines. nominated as a candidate to succeed Kofi Annan as Secretary General to the UN in 2006. Mr. Jayawardena is the Honorary Consul for Denmark and was the only Sri Lankan honoured with the prestigious “Knight’s He is a Hon. Ambassador without portfolio for Sri Lanka; Cross of Dannebrog’ by Her Majesty, Queen Margrethe II of the first Asian to be appointed as Her Majesty’s Deputy Lord Denmark, for his significant contribution to the Danish arts, Lieutenant for Greater London, representing The Queen on sciences and business life. official occasions since 1985; awarded the honour “ViswaKirthi Sri Lanka Abhimani“ by the Buddhist Clergy for his Services to He has also been awarded the title, “Deshamanya” in Sri Lanka and given the Knighthood with Merit of the Sacred recognition of his services to the Motherland, since Constantinian Military Order of St. George for his global work November 2005. on poverty eradication. He is a Fellow of the Royal Society for Arts, Manufacture and Commerce (Est: 1765). 2. Mr. C. R. Jansz Executive Director 4. Capt. K. J. Kahanda (Retd.) Mr. C. R. Jansz has many years of experience in Logistics and Executive Director in Documentation, Insurance, Banking and Finance relating to Captain Kahanda joined the Company in 1993 as Regional international trade. Manager (Central Region) and was appointed a Director in December 2006. Being a former officer of the Sri Lanka Army, He is the Chairman of DFCC Bank PLC and DFCC Vardhana he spearheaded the re-organisation of the operations of the Bank. He serves on the Board of Melstacorp Limited, Central Region since privatisation. He specialises in logistics, Balangoda Plantations PLC., Lanka Bell Limited and several distribution and security matters, and is also a Director of G4S other companies of the Distilleries Group. He is also a Director Security Services (Pvt) Ltd. and Pelwatte Distilleries (Pvt) Ltd., a of Lanka Milk Foods (CWE) PLC. and its subsidiaries. subsidiary of the Group.

He was the former Chairman of Sri Lanka Shippers Council and former member of the National Trade Facilitation Committee of Sri Lanka. Mr. Jansz holds a Diploma in Banking and Finance from the London Guildhall University – UK. He is a Chevening Scholar and a UN-ESCAP Certified Training Manager on Maritime Transport for Shippers.

28 Distilleries Company of Sri Lanka PLC 5. Dr. Naomal Balasuriya 8. Mr. Amitha Gooneratne MBBS [Sri Lanka], MBA [Sri.J], CIM [UK], MCGP [SL], FCA (SL), FCA (Eng. & Wales) MSLIM, MIMSL Alternate Director to N. de S. Deva Aditya Independent Non-Executive Director Mr. Amitha Gooneratne has held several senior positions at Dr. Naomal Balasuriya, a medical doctor turned-entrepreneur Commercial Bank of Ceylon PLC and served as the Managing is internationally sought after as a life changing motivational Director from 1996 to April 2012. He is a Fellow member of the speaker. His professional expertise ranges from medicine, Institute of Chartered Accountants, United Kingdom and Wales military, management, marketing, mentoring to motivational and a Fellow member of the Institute of Chartered Accountants, speaking. He holds both the Master of Business Administration Sri Lanka. He was the Founder Chairman of the Financial (MBA) and CIM (UK) qualifications. Having worked in the Ombudsman Sri Lanka (Guarantee) Ltd., and former government sector, private sector and the Sri Lanka Air Force Chairman of the Sri Lanka Banks’ Association (Guarantee) as a medical doctor, he now leads his entrepreneurial training Ltd. He was also the Managing Director of Commercial company, Success Factory. He is also a Director of Melstacorp Development Company PLC, a Public Quoted Company Ltd., a subsidiary of the Group. listed in the CSE and was the Chairman of Commercial Insurance Brokers (Pvt.) Limited. He was also nominated 6. Mr. D. Hasitha S. Jayawardena to the Board of SriLankan Airlines during 2002–2004 by the BBA (Hons) (UK) Government of Sri Lanka. Non-Independent Non-Executive Director On his retirement, Mr. Gooneratne, assumed duties as Mr. Hasitha Jayawardena holds a Bachelor’s Degree in Managing Director of Melstacorp Limited, which is the strategic Business Administration BBA (Hons) from the University of Kent investment arm of the Distilleries Company of Sri Lanka PLC. in the United Kingdom. He is the Chairman of Melsta Regal Finance Limited, Melsta Logistics (Pvt.) Limited and Bellvantage (Pvt.) Limited; Board Mr. Jayawardena joined Stassen Group in February 2013. Member of Periceyl (Pvt.) Limited, Balangoda Plantation He is a Director of Stassen Exports (Pvt) Ltd., Milford Exports PLC, Lanka Bell Limited, Telecom Frontier (Pvt.) Limited, (Ceylon) (Pvt) Ltd., Stassen International (Pvt) Ltd., Stassen Bell Solutions (Pvt.) Limited, Timpex (Pvt.) Limited Texpro Natural Foods (Pvt) Ltd., Ceylon Garden Coir (Pvt). Ltd., Milford Industries Limited, Bogo Power Limited., Continental Insurance Developers (Pvt) Ltd., Stassen Foods (Pvt) Ltd., C. B. D. Limited and Browns Beach Hotel PLC., which are subsidiary Exports (Pvt) Ltd., Zahra Exports (Pvt) Ltd. and Mcsen Range companies of Melstacorp Limited. (Private) Ltd. He was appointed to the Board of Meltsacorp Ltd. in January 2015 and Periceyl (Pvt) Ltd. in April 2015. He is an independent Director of Lanka IOC, Textured Jersey and Commercial Development Company Limited. Mr. Jayawardena has also worked as an Intern at the Clinton Global Initiative programme (CGI) in New York in 2007. He is also the Alternate Director to Mr N. de S. Deva Aditiya on the Board of Distilleries Company of Sri Lanka and Aitken 7. Ms. V. J. Senaratne Spence PLC. Attorney-At-Law, Notary Public, Solicitor (Eng.& Wales) Alternate Director to K. J. Kahanda / Company Secretary and Chief Legal Officer Ms. Senaratne was appointed as the Company Secretary in 1993. She was admitted to the Bar in 1977 and was enrolled as a Solicitor (England & Wales) in June 1990. She also holds the position as Company Secretary of Periceyl (Pvt) Ltd

She also currently serves as a director on the Board of Paradise Resort Pasikudah (Private) Limited, Amethyst Leisure Limited, DFCC Bank PLC and as an alternate Director of MelstaCorp Limited and Distilleries Company of Sri Lanka PLC.

Annual Report 2014/15 29 Group Management

1. 2. 3.

4. 5. 6.

7. 8.

1. Amitha Gooneratne: 4. Maximus R. Peries: Managing Director - Melstacorp Ltd. / Chairman - Melsta CEO - Distilleries Company of Sri Lanka PLC / Director Regal Finance Ltd., Melsta Logistics (Pvt) Ltd., Bellvantage - Pelwatte Sugar Industries PLC, Lanka Bell Ltd., Melsta (Pvt) Ltd., Melsta Tower (Pvt) Ltd. / Director - Continental Logistics (Pvt) Ltd., Melsta Tower (Pvt) Ltd. Insurance Lanka Ltd., Periceyl (Pvt) Ltd., Lanka Bell Ltd., 5. Lalith Obeyesekere: Texpro Industries Ltd., Bogo Power (Pvt) Ltd. Director / CEO - Balangoda Plantations PLC, Madulsima 2. Capt. Jagath Kahanda (Retd.): Plantations PLC Managing Director - Pelwatte Sugar Distilleries (Pvt) 6. Capt. Ranjith Wettewa SLN (Retd.): Ltd. / Director - Distilleries Company of Sri Lanka PLC, Director - Pelwatte Sugar Industries PLC Melstacorp Ltd., Pelwatte Sugar Industries PLC, Melsta Properties (Pvt) Ltd., Milford Holdings (Pvt) Ltd. 7. Asoka Abeyewardene: Director - Continental Insurance Lanka Ltd. 3. Ms. Stasshani Jayawardena: Chairperson - Splendor Media, 8. Senaka Amarathunga: Director - Aitken Spence PLC Director / General Manager - Periceyl (Pvt) Ltd.

30 Distilleries Company of Sri Lanka PLC 9. 10. 11.

12. 13. 14.

15.

9. Dinal Peiris: Managing Director - Texpro Industries Ltd. 10. Chaminda De Silva: Managing Director - Continental Insurance Lanka Ltd. 11. Dr. Prasad Samarasinghe: Managing Director - Lanka Bell Ltd. 12. Janaka Abeysinghe: Director - Melsta Logistics (Pvt) Ltd. 13. Nishaman Karunapala: Director / CEO - Melsta Regal Finance Ltd. 14. Palitha Rodrigo: Managing Director - Melsta Technologies (Pvt) Ltd. 15. Ms. Farzana Sulaiman: Chief Operating Officer - Bellvantage (Pvt) Ltd.

Annual Report 2014/15 31 DCSL Management

Left to Right Brig. Aruna Wijewickrama (Retd.) : Head of Central Region Lalith Ratnayake : Head of Inventory Management Nimal Nagahawatte : Head of Finance Ms. V. J. Senaratne : Company Secretary & Chief Legal Officer Col. Ranjith Rupasinghe (Retd.) : Head of Extra Special Heritage Arena S. Rajanathan : Head of Procurement

32 Distilleries Company of Sri Lanka PLC Left to Right Maj. Roshan Cabraal (Retd.) : Head of Northern Region Maj. Gen. Jagath Rambukpotha (Retd.) : Head of Southern Region Ms. Gayathri Chakravarthy : Head of Human Resources Maximus R. Peries : Chief Executive Officer Premasiri Liyanaarachchi : Chief Internal Auditor Roshanth Kumar Perera : Head of Transport & Logistics Capt. Ranjith Wettewa SLN (Retd.) : Head of Uva Region

Annual Report 2014/15 33 Management Discussion & Analysis

The DCSL Group epitomises one of Sri Lanka’s reputed brand awareness and recall amongst key stakeholders. diversified conglomerates, holding a portfolio encompassing While heightened brand equity and an increased presence beverages, plantations, telecommunication, insurance, were achieved during the year, recent investments are yet finance, power generation, textiles, leisure, logistics and to yield commensurate returns. media and creative services. The group is synonymous with dynamism and professionalism, and has carved a unique Melsta Regal Finance Limited, during its second year of niche for itself in the sectors in which it operates. Having operations, achieved several financial milestones while steadily long established its credentials as a respected corporate consolidating its presence as one of the newest and most entity over a period of a century, DCSL embodies state- dynamic players in the financial services sector. of-the-art systems and processes led by an inspired and distinguished senior management board and a professional Buoyed by the infusion of capital in mid 2014, our insurance team of employees dedicated to deliver maximum value to venture, Continental Insurance, recorded its highest- shareholders and other valued stakeholders. ever profitability in the financial year under consideration, supported by establishing a wider geographical reach. Group Overview Our flagship company, which is engaged in the alcohol beverage Unfortunately, the expropriation of Pelwatte Sugar Industries sector, was impacted by a host of challenges which carried over PLC (PSIP), under the Revival of Under-Performing Enterprises from the preceding year, providing neither relief nor a level playing and Under-Utilised Assets Act (Act) in November 2011, was field in which to operate. The illegal practices rampant in the an issue that remained unresolved during the financial year industry succeeded in yet again adversely affecting the overall under review. Despite being listed as an ‘under-utilised asset’ performance of the Group. The beverage sector represents the under the Act, we remain emphatic that we are the legal majority of the Group’s revenue and profitability while DCSL owners of PSIP. We remain hopeful that this issue will be remains as the dominant market leader in the industry. resolved in a transparent manner at the earliest instance.

In order to offer superior products, DCSL has invested in a state-of-the-art fully automated blending and bottling plant to enhance efficiency and quality. DCSL remains committed and strongly believes that such high value investments will ensure the sustainability of its operations.

In order to offer superior products, DCSL has invested in a Furthermore, despite a lapse of six years, we have still not state-of-the-art fully automated blending and bottling plant to been reimbursed the profit earned during the DCSL Group’s enhance efficiency and quality. DCSL remains committed and tenure at the helm of Sri Lanka Insurance Corporation Ltd., strongly believes that such high value investments will ensure (SLIC). We are hopeful that the profit earned, which is rightfully the sustainability of its operations. ours, will be paid soon, as per the Supreme Court directive.

Melstacorp Group of Companies, under which falls The Group’s gross revenue recorded Rs. 66.8 Bn in the the other diversified sectors of the Group, succeeded current year. The Group’s profit before tax was Rs. 9.7 Bn in expanding its sphere of influence and in creating a and a profit after tax of Rs. 6.5 Bn. The contribution to distinct identity for itself. Our focused efforts to build the total revenue from the alcoholic beverage sector was Rs. Melstacorp brand yielded positive results, with greater 57 Bn and continues to be the largest contributor to the

34 Distilleries Company of Sri Lanka PLC Gross Turnover - Group Profit Before Tax - Group (Rs. Mn) (Rs. Mn)

2015 2014 2015 2014 8,398 8,02 7 Beverage Sector 56,993 53,137 Beverage Sector (106) 130 Plantations Sector 3,002 3,172 Plantations Sector (692) (639) Telecommunication Sector 3,372 3,634 Telecommunication Sector 737 536 Diversified Sector 3,398 3,244 Diversified Sector 1,391 1,440 Share of Associate Companies Profit 66,765 63,186 9,728 9,494

bottom line. The Group’s plantations business, contributed a Beverage Sector revenue of Rs. 3 Bn, with telecommunication at Rs. 3.4 Bn DCSL sustained its status as the Flagship Company and and diversified businesses at Rs. 3.4 Bn. Share of associate highest revenue generator for the Group in the year under investees contributed Rs. 1.4 Bn to the Group’s profitability. review. The challenges faced in the preceding year persisted The Group’s total assets increased to Rs. 92.7 Bn from Rs. despite aggressive lobbying efforts on our part to ensure a 83.7 Bn and the net assets per share rose to Rs. 203.35 from level playing field. Rs. 178.80. DCSL’s share price gained by 18% during the year, reaching Rs. 240.00 as at end of March 2015. The fact that DCSL continues to maintain market leader status The DCSL Group strived hard to generate social and economic despite operating in such a challenging eco system in the gains in order to make a significant contribution to the prosperity legal alcohol industry is a reflection of the loyal customer base of the country. As a market leader in the beverage sector and and brand loyalty we have succeeded in generating. Despite one of the most valued corporate entities in the county, we the infusion of cheaper priced alcohol in the market, DCSL consider it our responsibility to deliver sustainability across all our consumers uphold their trust in DCSL brands. Considering operations, while ensuring that our activities have a favourable that the excise duty component is over 65%, it is impossible impact on social, environmental and economic pillars. for legal producers to retain competitiveness in such markets.

Annual Report 2014/15 35 Management Discussion & Analysis

component were added to the excise duty. As a result, Value Gross Turnover Profit Before Tax Added Tax on purchases became unrecoverable and added Beverage Sector Beverage Sector (Rs. Mn) (Rs. Mn) to the cost. Further, customs duty on imported products was increased and taxes such as cess for bulk spirit/finished 56,993 53,137 8,398 goods were increased substantially. 8,027 During the current financial year, both DCSL and Periceyl continued to maintain profitability despite the challenges posed to the legal alcohol business in the country as a result of a skewed playing field. Gross turnover of DCSL was recorded at Rs. 51.8 Bn. DCSL recorded profit after tax of Rs. 4.7 Bn (adjusted for intra-group capital gain on structuring of investments and properties) as against profit after tax of Rs. 2013/14 2014/15 2013/14 2014/15 5.4 Bn in the previous year. The beverage sector contributed Rs. 41 Bn to the State by way of taxes.

Further, a high tax regime and escalating cost of living serve to Periceyl (Pvt) Ltd., achieved greater brand building success render consumers no choice but to opt for cheaper products, during the year, sustaining its profitability. Its brands - Black despite their dubious quality. Opal Arrack, Franklin Brandy, Galerie Brandy and Tillsider Whisky - performed convincingly. Further, Periceyl introduced

Group Group

92.7 Bn 61.0 Bn 21.84 203.35 Total Assets (Rs) Share Holders’ Earnings per Net Assets per Funds (Rs.) Share (Rs.) Share (Rs.)

It must be duly noted that we adhere strictly to the NATA Act new agency lines from Australia (Somerton wines), South which prohibits advertising and promoting alcoholic brands. Africa (Cape Dreams wines), New Zealand (Riverby and The fact that DCSL has sustained and grown its market share Mudhouse wines), Spain (Viejo Marchante wines) and despite these severe restrictions is a reflection of the superior Scotland (Queens Seal Whisky) and hopes to expand its spirit quality of our products which are appreciated by discerning portfolio in the near future. consumers. Therefore, our ongoing success can be attributed to our management skills and consumer loyalty. However, the year proved to be a challenging one in more ways than one, with some of the local manufacturers Unfortunately, unscrupulous operators do not pursue the distributing finished products, mainly Arrack, at a lower price. same sustainable goals as DCSL does, since they focus on Such products were supplied to retailers at a lesser cost and earning high profits with a short term view of the business, these same products were offered by the manufacturers with resulting in a high social cost. In contrast, the DCSL Group a larger margin to retailers, which encouraged the retailers to pays all taxes as per the laws of the land, making the Group sell the products over DCSL/Periceyl products one of the largest contributors to state coffers.

Artificial toddy being supplied at a cheaper price has also In October 2014, the beverage sector experienced a created a difficult situation for manufacturers such as DCSL/ significant change in the tax structure in October 2014, Periceyl, who are using 100% genuine coconut toddy to wherein the Value Added Tax and Nation Building Tax

36 Distilleries Company of Sri Lanka PLC produce coconut spirits. 100% Coconut Old Arrack is a Melstacorp Limited flagship product which is endemic to Sri Lanka and is similar Melstacorp holds 19 direct and indirect subsidiaries and to Scotch whisky in Scotland and Cognac in France. However, two associate companies under its wing as a result of our due to the weak monitoring framework in the country to crack Group restructuring plan put into effect during the previous down artificial toddy suppliers, the country will lose the edge year. Under the new arrangement, DCSL’s shareholdings of for authentic 100% Coconut Arrack. subsidiaries and associates were realigned to Melstacorp Limited, enabling Melstacorp to provide greater focus and Future Outlook attention to the diversified investments of the DCSL Group. Despite the challenges in the sector, we remain optimistic In a bid to ingrain the Group philosophy, a series of measures about the prospects for the beverage industry and for DCSL were taken to infuse Group culture and strengthen the shared to further secure even greater market share in the future. services framework. Some of the key areas of the shared Our massive investment in the ultra-modern blending and services such as treasury, finance, audit and control and bottling factory will enhance our capacity and ensure that human resources, were put in place. Our efforts to strengthen DCSL products can be accessed across the length and shared services and build a common brand under the ‘Melsta’ breadth of the country. DCSL is reputed for its innovation and umbrella will be sustained into the future. our R & D team perseveres in innovating new products to ensure that our products evolve and change with the times. Melstacorp is striving to combine the Group companies’ Periceyl remains in constant pursuit of new and emerging synergies in a manner that will drive optimum resource opportunities emanating from the country’s leisure and tourism utilisation and financial benefits. We have envisioned that sectors. In conclusion, we remain hopeful that the relevant Melstacorp will emerge as a diversified conglomerate, authorities will exert greater control to curb the illegal liquor enhancing the contribution from the non-alcohol sector whilst industry for the benefit of consumer. reducing the Group’s dependence on the alcohol sector.

Annual Report 2014/15 37 Management Discussion & Analysis

Plantations Sector The 2014 financial year proved to be a challenging one for the plantations sector as adverse weather conditions and labour wage increases accelerate cost of production which in turn served to erode profitability in the sector. Balangoda Plantations (BPL) recorded a pre tax loss of Rs. 106 Mn. The turnover of the company decreased from Rs. 3.2 billion in 2013 to Rs. 3.0 billion in 2014, reflecting a drop of 6.25%. The tea industry as a whole experienced an unfavourable year, posting a decline of 2.20 Mn Kgs in output. The shortfall is mainly due to the deficit shown by the medium grown sector, notwithstanding the positive crops recorded from both high and low grown sectors. important role in an industry beset by aging bushes and The decline in the rubber segment experienced in the previous depleted soils. We are optimistic that the authorities will year continued in the year under review as well. The BPL’s resolve some of the issues facing the plantation industry rubber production decreased by 18% to 98 Mn Kgs over such that Sri Lanka’s tea and rubber exports remain the previous year due to adverse weather conditions which competitive in the global arena. BPL is leveraging on a disrupted harvesting. Rubber prices continued to fall in 2014 slew of strategic measures to improve its positioning by due to built up stocks and slow growth in emerging markets. exercising greater cost controls and enhancing output. BPL sustained its momentum in replanting programmes in tea We believe that our adoption of sustainable practices will and rubber in order to position the company on a stronger strengthen us in the long term. platform for future growth. The company also invested in selected factories to reduce cost of production and to improve Telecommunication Sector efficiency. Despite the rise of operational costs during the year, the Future Outlook Group’s telecommunication arm, Lanka Bell, was able to sustain a reasonable EBITDA margin in line with the The future for the plantations sector seems challenging industry. due to a variety of factors, such as a slow global growth impacting export markets, geo-political tensions in export Lanka Bell is now equipped with the latest in technology to markets and the drop in world tea and rubber prices. propel itself to the forefront of the industry. The launch of Locally, the sector remains vulnerable to inclement weather 4G positions the company as one of only two leaders in the patterns as it does to wage increases which push the sector, thereby ensuring it takes a quantum leap into the cost of production to a non viable extent. Extension of future of wireless telephony and connectivity in its tradition the fertilizer subsidy and its availability will further play an of pioneering technology such as introducing CDMA technology to Sri Lanka in 2005.

Gross Turnover Profit / (Loss)Before Tax Plantations Sector Plantations Sector (Rs. Mn) (Rs. Mn)

3,172 3,002 130

(106)

2013/14 2014/15 2013/14 2014/15

38 Distilleries Company of Sri Lanka PLC Gross Turnover Profit / (Loss) Before Tax Gross Turnover Profit Before Tax Telecommunication Sector Telecommunication Sector Diversified Sector Diversified Sector (Rs. Mn) (Rs. Mn) (Rs. Mn) (Rs. Mn)

3,398 3,244 3,634 (692) 737 3,372 (639)

536

2013/14 2014/15 2013/14 2014/15 2013/14 2014/15 2013/14 2014/15

Lanka Bell operates its 4G LTE network on a bandwidth international cricket stadiums, local and international hotel of 25 MHz in the 2.3 GHz spectrum called the LTE Band chains, aviation and major conglomerates in the country. number 40 which is the most sought after band in the Asian region. LTE technology offers faster data rates to customers CILL has expanded its branch network to 37 branches and is the current trend and future of the ICT (Information strategically located around the country, offering easier and Communication Technology) industry. access to its array of solutions. New branches were opened in Wattala, Dambulla and Warakapola areas, with Lanka Bell offers an attractive portfolio of value-added further plans of expanding branch network to ensure that high speed broadband and voice services at competitive our valued customers enjoy hassle-free services. Striving rates, which makes it a preferred telecom service partner to service communities in need through CSR projects, CILL for customers. The strong reputation for customer care believes in creating a positive social reformation through and technical expertise of Lanka Bell staff is pushing the our community welfare programmes. The company carried company to reach the pinnacle. out various CSR projects across the country, serving communities in need. Future Outlook Lanka Bell is now well poised for greater growth in the year CILL is the first insurance company to be awarded a Fitch ahead, leveraging on the latest technologies, greater cost Rating A-(lka) within five years of operation and obtained ISO control measures and a technically adept team. Growth in 9001:2008 (Quality Management Systems) certification in data usage over the year has been encouraging and we 2013 in its quest for service excellence. CILL’s (A-) Fitch rating believe that the data industry will witness rapid expansion reflects the financial stability of the organisation. It further in the years ahead. Hence, we intend to strengthen our enhances the confidence of the policy holders to entrust presence in this segment further. The adoption of new business with absolute assurance. technology at an early stage, gives us a first mover status and we will build on this further. Lanka Bell is determined to pursue a leadership position in the data market as we are one of only two operators in the country to have a 4G-LTE Network.

Diversified Sector Insurance Continental Insurance (CILL) recorded its highest growth in gross written premium of 30% since beginning its operations five years ago. CILL has increased its market share to 3.5% in the General Insurance Sector and established itself as one of Sri Lanka’s fast growing Insurance companies. CILL was very successful in securing business during 2014 including that of major power plants,

Annual Report 2014/15 39 Management Discussion & Analysis

CILL offers a diverse product portfolio to its customers financing. The company has a formidable competitive encompassing property, motor, marine and general insurance. advantage as this product is offered in partnership with the The company is committed to constantly innovate and update Group Companies, who possess the relevant expertise. The its product portfolio to meet the ever-changing business company is recognised in the financial services industry as a landscape. The newest addition to the product portfolio is the Finance Company with the widest product range. company’s health insurance plans, which focuses on making Recognising the importance of expanding the Company’s quality health care affordable and ensures financial stability regional footprint, the company laid the initial foundation for its even during unforeseen events of sickness. branch network. Its presence was expanded to the key cities of Kurunegala, Kandy, Matara and Negombo. The Company The company has enhanced its focus on internet and mobile has also chartered an aggressive regional penetration strategy, banking in a proactive effort in anticipation of an exponential which will be implemented in the ensuing months. increase in usage across the country. Further, in order to offer Another key milestone achieved by the Company was when customer convenience through strategic partnerships, CILL it successfully negotiated and obtained a USD 10 Mn foreign has partnered with eZ cash to pay premiums using mobile currency funding line. This is a significant achievement given telephones. the short span of history of the Company. Fitch Rating (Lanka) CILL is on a mission to provide reliable, innovative, customer- Ltd reaffirmed its A+(lka) rating of Melsta Regal Finance Ltd. friendly insurance services through state-of-the-art technology, During the year, Melsta Regal Finance focused on Human and focuses continuously on product improvement to ensure Resources (HR) development, which is a critical success customer confidence in the brand’s value proposition, thereby factor in the financial services sector. The HR initiatives living up to its promise of “Service, Redefined”. implemented and practiced by the Company were recognised with a Bronze Award at the SLITAD People Development Financial Services Awards Ceremony in 2014. Melsta Regal Finance Ltd embarked on the second year of operation with a focus on penetrating the market with Future Outlook innovative financial solutions. The company achieved Melsta Regal Finance is laying strong foundations for noteworthy milestones in terms of asset size and achieved a future growth, expanding its branch network, and widening balance sheet size of Rs 5 Bn and earned NBT of Rs. 100 Mn. its portfolio of products and services, backed strongly The company was successful in introducing innovative by a unique brand of customer care which caters to the financial solutions such as the 360° trade finance facility, evolving needs of its customers. In the short period since its which proved to be a breakthrough product in the financial establishment, the company has demonstrated its innovative services arena. This service, which optimises the capacities streak by pioneering one-of-a-kind financial solutions and of the Group, encompasses a wide ranging financial solution building a customer centric team. including clearing of imports, warehousing, logistics and Collision Repair & Logistics The Collision Repair Centre at Melsta Logistics performed well during the year, and enabled the Group to add value for both internal and external clients. The Centre offers state-of-the-art technology, machinery, equipment and unparalleled know-how on treating vehicles based on the manufacturer’s specifications. These specialised facilities have served to create a distinctive niche for Melsta Logistics. The newly-formed logistics operation continues to accrue gains for Melsta Logistics. Melsta Logistics is now focused on expanding this facility beyond the Group, while investing in superior technology to enhance efficiency.

40 Distilleries Company of Sri Lanka PLC Textiles Power Generation During the year under review, sales volumes increased by Bogo Power (Pvt) Ltd was formed to set up a Mini Hydro Plant 30% with significant improvements to gross profit margins at Kirkoswald Group, Bogowantalawa. Bogo Power (Pvt) Ltd arising from better pricing. Significant cost savings were is registered with the Board of Investment of Sri Lanka (BOI) made on energy due to the use of biomass thermic fluid and has obtained necessary approvals from the Sustainable heaters as an alternative to furnace oil to generate hot air. Energy Authority of Sri Lanka and the Public Utilities Commission of Sri Lanka. A Power Purchase Agreement Demand for high-quality woven fabrics, which had fallen has been entered into with the Ceylon Electricity Board for significantly since 2008, is now starting to pick up, especially for the sale of electricity generated for a period of 20 years. high-end export and local consumption. Well-known international The project was fully commissioned in December 2011 and and European brands such as Marks & Spencer, Next, George, power capacity of the project is 4 MW and the average annual C&A, Metalan, etc, appear to be buying more garments energy that is expected to be generated is 15.2 GWH. During manufactured in Sri Lanka which is an encouraging sign. the year 2014/2015, the project delivered 21.2 GWH, thus exceeding the projected value. The textile industry is expecting a remarkable improvement in market conditions in the next year with the reinstatement Business Process Outsourcing of GSP+ in Sri Lanka. The industry has already witnessed Bellvantage (Pvt) Ltd delivered an excellent year with encouraging signs with enquiries from the European buyers expansion of its service portfolio. The Contact Centre as well as the reactivation of the buying offices in the country. continues to offer a host of services including call centre, Further, Texpro plans to generate our own steam using bio- chat, hosting, data entry, and customised voice and service mass during the second half of this year, which would result in solutions. The current year’s growth focused on the Banking and the Food chain industries, enabling it to be the pioneer a further reduction in cost. in handling multinational brands by capitalising on adopting further efficiencies in these segments. Beyond industry-based Future Outlook efficiencies, the Bellvantage Contact Centre as a whole is In the new financial year, the company’s results should reflect optimised by continuous expansion into existing and new the full effect of the biomass conversion which we expect will accounts offering 24/7 service. reduce the energy cost by over 30%. We are continuing to convert more of the fossil fuel consuming equipment which ICT solutions were further enhanced by investing in the will further reduce our operating cost, enabling Texpro to world-renowned latest version of the Contact Centre become very competitive in pricing with regional players, solution, enabling Bellvantage to keep in pace with the latest thereby increasing profitability. We will sustain our strategy technology in providing the best services to the clientele by to be an efficient, flexible niche market printer and dyer and having a competitive edge in the global marketplace. We provide value added services to discerning customers. We successfully launched international projects and still continue are optimistic of the future and expect a good turnaround in to be the leader in the market, having the best brands and performance in the coming year. names managed locally and internationally in the BPO sector.

Annual Report 2014/15 41 Management Discussion & Analysis

Apart from our established competencies, we created a Future Outlook new ICT arm this year, focusing on Contact centre hosting, Our leisure arm is poised to unveil a signature hospitality Customer Relationship Management (CRM), Hardware and experience as denoted by the Heritance brand, and we expect software solutions services to face the most demanding of the new property to rapidly accelerate to the forefront of the industries to cater to their requirements. country’s hospitality market. Overseas tour operators and industry partners have already expressed a keen interest in Melsta Technologies (Pvt) Ltd was established in March the property, and we are extremely bullish about the prospects 2015 with a vision to “Deliver technology solutions people for Heritance Negombo once it commences operations. can depend on”. To this end, it is envisaged that Melsta Technologies will play a strategic role and specialise in niche verticals within the fast evolving Information and Communication Technology (ICT) industry. This coupled with the ever-increasing demand for robust ICT solutions within the highly diversified Group, contributed to our strategic decision to establish Melsta Technologies Private Limited.

Since its inception in March 2015, Melsta Technologies has obtained the Oracle Gold Partner Status and has established an Oracle E‐Business Suite (EBS) implementation practice. Additionally, Melsta Technologies offers advisory services on Oracle Licensing, Oracle Premier Support renewal services, implementation services on Oracle Applications and Technologies and Local Support Services.

Leisure Media & Creative Services Sri Lanka’s tourism industry crossed the 1.5 million tourist Recent changes in Sri Lanka’s economic landscape have mark in 2014 and is strongly moving towards achieving its given rise to unprecedented opportunities. This in turn has target of 2.5 million tourists by 2016. A number of high profile informed the scope of various business units within the global hotel brands are setting up operations in the country, organisation and we are in the process of diversifying our which indicates the prosperous outlook for the industry in product portfolio to more proactively meet these changes. the months and years ahead. The Group’s leisure arm is also gearing up to position itself in this rapidly evolving scenario. By expanding service offering from a media-centric agency to The erstwhile Browns Beach Hotels PLC is in the process a full-service advertising agency, Splendor Media continues to of completing its extensive reconstruction and will soon be gain momentum as a tour de force within the local industry. re-launched as Heritance Negombo, offering a state-of-the-art The company’s expansion into a number of brand related luxury experience. Negombo’s rich culture and sandy beaches activities and recent investment in digital media solutions will help and its strategic location and proximity to the airport lend it a augment Splendor Media’s current core offering, while helping unique advantage and Heritance Negombo will spearhead the clients leverage on the latest digital media trends and more area’s tourism with its luxury signature hospitality. sophisticated performance media techniques. This in turn, marks an adventurous move towards a brave new frontier, with possible partnerships and collaborations lined up for the immediate future.

Future Outlook Splendor Media remains committed to nurturing a culture of creativity, passion and effectiveness, one that adds real value to the client and their brand, while doing work that remains true to the spirit of free enterprise and contributes positively towards social change.

42 Distilleries Company of Sri Lanka PLC Sustainability Report

Touching Lives take over this role. In 1989, the state agency was converted Our Sustainability Motto in Action to a limited company and DCSL took on the mantle of a pioneer in distillation and is now positioned as the largest We understand that, globally, stakeholders at large are distiller in the country. demanding that companies they associate with demonstrate non-financial metrics to define sustainability and sustainable DCSL is quoted on the Colombo Bourse since 1992 and is a operations. Financial profitability as the sole criteria of a modernised entity, working on a sophisticated knowledge base company’s success is an outdated concept and outrightly built on technology, experience, skill and acumen. Its large rejected by most right-thinking stakeholders and the investments in R & D, infrastructure, plants and machinery and organisations they support. More importantly, being an the diversification into key economic sectors in the country, environmentally, economic and socially sustainable organisation places DCSL today unequivocally as an industry captain and is helping companies earn corporate respect and drive one of Sri Lanka’s blue chip conglomerates. customer loyalty, not to mention earning respect from peers and industry. In an era of growing global competition, climate DCSL’s business areas are diverse and penetrative, ranging change and diminishing resources, companies that put from hospitality to telecommunication, BPO to textiles, sustainability as their foremost goal are winning the race. plantations to hydropower and insurance to finance and its largest and most influential business contributor – As one of the oldest, diversified, blue chip conglomerates beverages, encompassing alcohol. in existence in Sri Lanka, we are living proof of continuous improvement and sustainable business practices. While we Significant Events during the Reporting Period celebrate over-a-century of existence in the year 2015, we The global rating agency, Fitch, reaffirmed DCSL’s National consider this an opportunity to strengthen our conceptions Long-term Rating of AAA (lka) with a Stable outlook. This is of business practices that are environmentally and socially the best and highest entity credit rating for a corporate in sustainable, while also being financially sustainable, the key Sri Lanka. Today, DCSL remains one of the most preferred requirement of any commercial entity corporate among bankers, overseas lenders, suppliers and stock analysts. In fact, consequent to the rating In our journey over the decades within the corporate arena announcement, DCSL was able to significantly reduce its of Sri Lanka, an overarching tenet has always been to ensure interest costs. that our decisions, actions and impacts are sustainable and positive at all times. We are extremely cognisant that DCSL’s ultra modern state-of-the-art fully automated plant in as a corporate steward involved in numerous business and Seeduwa was declared open in March 2015. industry areas, we must set an example to others, while making our stakeholders a part of our journey of progress. Report Scope We believe that we have a responsibility towards our In this Sustainability Report, we set out the measures we stakeholders to ensure that they are given a clear insight take to ensure that sustainability is infused along the length into how we have managed their business and how we and breadth of our value chain. Simultaneously, we continue intend to work in the future. This, therefore, is our honest to invest time and resources in understanding how we effort in sustainability reporting. While we do know that this can enhance our proud track record as one of the most report is work in progress and requires to be developed sustainable organisations in the country. comprehensively, this attempt helps us to put our results, The DCSL Story both positive and negative, down on paper and work on plans that would ensure that our presence as a corporate History, Ownership and Legal Framework leader will surely be advantageous to all our stakeholders. The roots of DCSL hark back to 1913, when the Excise The report presents a balanced analysis of our sustainability Department of Ceylon, which was originally established as performance strategy in relation to issues that are relevant an enforcement authority, was mandated to distribute and and material to the Company and to our stakeholders, while sell liquor in Sri Lanka and also began the distillation and complementing our ongoing engagement with stakeholders. manufacture of liquor products. Much later, in 1974, the State Distilleries Corporation was incorporated by statute to

Annual Report 2014/15 43 Sustainability Report

This report focuses on key developments and includes only management and external specialists when the need arises the most pertinent indicators in order to provide stakeholders to be sufficiently informed and be independent. Board with an integrated and succinct view of our sustainability governance ensures that the Group discloses related party performance. Unless otherwise indicated, facts and figures transactions periodically and if any director has a direct or refer to the DCSL Group. Sustainability in our business is leading interest in any matter being discussed, they will built on natural capital, social capital and economic capital, abstain from opining, discussing and voting, all of which all of which must be taken together rather than in isolation could influence the outcome. This avoids conflict of interest for a true picture of sustainability. It is these capital segments and ensures independence of the Board. that run through as themes of this report. DCSL has established a governance structure that remains Materiality aligned to the laws of the land and ensures compliance to Having embarked on this sustainability reporting process, various regulatory mandates. The governance structure we must confess that in documenting the necessary therefore includes committees responsible for specific tasks areas, we may not yet have a clear idea or focus on the and setting strategy and future direction for the Group. The extent of materiality involved. However, we have focused Board structure and committees are detailed on page 57 in on earmarked areas and platforms that have formed the this report. foundation for our sustainability programme and hence, we have used those as the guideline to report on the arising DCSL’s Board comprises Six Directors (3 Executive, 2 issues. We have also been able to identify shortcomings and Independent Non-Executive, 1 Non-Independent Non- gaps in data gathering, which is now being documented and Executive), meeting regularly to map strategy and for speedy acted upon to ensure that we bridge those gaps in future. decision making which require Board intervention. The We initially garnered the information from all our business Board sub committees are a vital conduit in identifying and sectors on a common questionnaire and began mapping managing economic, environmental and social performance, the categories that were most common. Once charted, the including relevant risks and opportunities, as well as categories were placed in perspective and we were able to compliance. consider the materiality of our findings, positioning them in Ongoing Board education is an imperative at DCSL to ensure priority order and only focus on those that our stakeholders that Directors remain abreast of all applicable legislation and felt were crucial or important. regulations, changes to rules, standards and codes, as well Reporting Period as relevant sector developments, which could potentially impact the Group and its operations. During the year, all This report supports the DCSL Group’s Annual Report and Board Members and Committee Members were reviewed for presents our sustainability performance for the year ended compliance with the Colombo Stock Exchange requirements 31 March 2015. It covers company activities, including the for a listed company. subsidiaries’ reporting period (for example, fiscal/calendar year) for information provided 01 April 2014 to 31 March The DCSL Sustainability Approach 2015. Data measurement techniques and the bases of Vision calculations applied for compilation and other information in the report is disclosed wherever applicable. We invite To be an industry leader who will practice the tenets of a feedback from our stakeholders on this report and the way ‘green company’ and be upheld as a true proponent of we approach our sustainability priorities in order to continue sustainable development. improving our performance, transparency and accountability Mission practices. To truly ‘walk the talk’ in becoming green and espouse Governance, Commitments and Engagement upward momentum for people, planet and profit Board of Directors Philosophy Collectively, the DCSL Board has significant corporate acumen, skill, knowledge and experience aided by astute • Infusing innovation, value addition, quality and service and knowledgeable support and information from senior excellence to give our customers the best

44 Distilleries Company of Sri Lanka PLC • Create a knowledge gaining culture where our team promoting a broader sustainability agenda, both of which are grows and develops as individuals, while honing the integral to our professional activities and the management entrepreneurial spark to contribute towards macro of the organisation. We aim to follow and to promote good development sustainability practice to reduce the negative environmental impacts of all our activities and to help our stakeholders to join • Continue giving our shareholders the confidence and in this journey that will surely benefit our future generations. trust that we will always do what’s best, thus ensuring consistent growth in shareholder value and returns The Framework

• Make our planet healthy and green by contributing The DCSL Sustainability Framework, which incorporates our social dividends that will translate towards sustainable Sustainability Philosophy, Policy and Principles, articulates development for society and the environment our strategic commitment to sustainable development and remains integral to risk management. This framework • Ensure that everything we do will always keep us ahead assists our stakeholders in imbuing a similar sustainability and at the helm, collating the facets of economic, approach, promotes sound environmental and social social and environmental features into our business practices, encourages transparency and accountability, and dimensions. We integrate this three-pronged approach to contributes to positive development impacts. We ensure sustainability, so that the journey with our stakeholders that this framework reflects good practice for sustainability will remain one in which we grow together, forging and and risk mitigation, keeping abreast with trends that bring strengthening long-term relationships. up challenging issues, which remain at the core to managing a sustainable business. These include supply chain Sustainability Policy management, resource efficiency, climate change and human Our Sustainability Policy is based upon the following rights. principles: • We will continue to comply with and exceed wherever Key Challenges and Opportunities practicable, all applicable and related legislation, Risks and challenges go hand in hand in the business of regulations and codes of practice running an organisation, whether the risk may be from environmental problems, social discontent, political and • We will integrate the principles and tenets of sustainability social unrest or even natural disasters. These can be into all our business decisions termed costly, have negative publicity, threaten operating frameworks and also prompt unforeseen expenditure. • We will strive to minimise any negative impacts that may Reputational damage too can far exceed the immediate ensue while engaging in our day to day activities cost impacts. While we seek to proactively reduce and • We will integrate a sustainability mind-set among our manage these risks, challenges have never been a team, making them fully aware of our sustainability policy deterrent for us at DCSL; rather, they have been a means and empower them with a sense of ownership and of directing us towards opportunity and improving business commitment to implement, practice and improve it performance over time. These opportunities have driven us to enhance business growth, while ensuring that we remain • We will cascade our Sustainability Policy among our within compliance benchmarks, while ensuring that our valued business partners, encouraging them and stakeholders are empowered and remain inclusive to our assisting them to adopt sound sustainable management end goal. Over the year, we identified some challenges and practices risks that eventually saw an opportunity emerge, and which, through the inherent pragmatic and astute business acumen • We intend to review and annually report and to possessed within DCSL, was transformed and included into continually strive towards improving our sustainable the strategic way forward of the Group. performance Stakeholder Engagement At DCSL, we are committed to promoting sustainability. We remain extremely concerned for the environment and for We are extremely committed to engaging all of our stakeholders, both internally and externally, to become the

Annual Report 2014/15 45 Sustainability Report

most sustainable, responsible company we can possibly Suppliers be. By listening to, partnering with and considering the Regularly engage with suppliers to promote and institute perspectives of our associates, customers, shareholders, sustainability solutions academic leaders, government, value business partners and sometimes, even our competitors, we can truly ensure Disclosures that quantifiable and qualitative returns are assured. The purpose of our sustainability reporting is to create Stakeholder engagement is a crucial element to sustainable greater transparency and accountability and to allow for development as it is this engagement process that prompts better informed and more robust decision-making as it the two-way dialogue and communication process which is becoming more important than ever to manage both eventually aligns the strong relationships among our positive and negative impacts of our business activities. stakeholders and forms the foundation to our sustainability Our consumers are increasingly developing an ethical journey. Having identified our stakeholder groups, as given conscience, using sustainability information to identify below, we engage with them at various forums related to their chosen brands. Customers want transparency, clarity their interests and expectations, in an effort to adapt to and accessibility to information and disclosures on social, changing needs and issues, which continue to evolve. As environmental and economic performance. Needless to we pursue our corporate sustainability goals, we intend say, this information needs to be consistent and presented to further strengthen these relationships. Together, we are in a standardised approach, therefore, it is imperative establishing transparency and enhancing our relevancy with that disclosures are succinct, clear, and truthful and hold the customers and communities we serve. We have created fast to the underlying ethos of a principled ethical well more formal channels for interacting with stakeholders both governed business entity, which is what DCSL espouses to learn from their expertise and to provide a forum for them to be. to provide us with feedback. Economic Disclosures Key Stakeholders The company ensures that both positive and negative Shareholders information about itself is conveyed as fairly as possible to Quarterly and annual financial reporting, annual meeting of all stakeholders, especially shareholders. DCSL ensures shareholders, periodic individualised mailings and conference its shareholders and other interested parties are given calls between senior management and investors and/ accurate information to help them make an informed or analysts when necessary, serve to deepen shareholder choice when investing. Our investors have proof of engagement in an ongoing manner through the financial year. our consistent performance in our financials and share performance, as well as our astute business strategies Customers including restructuring and acquisitions. Given our status Listening and engaging with customers on a one-to-one as an industry leader, we also remain a strong partner in basis and through other select channels such as customer ensuring that the country meets its vision and objectives, satisfaction surveys has helped us understand them better. generating direct and indirect employment and thus improving lifestyles, investing in infrastructure, upping Employees quality and standards within the industry and thus setting We adopt numerous routes, such as regular communications benchmarks to develop these industries and imbuing best and engagement on one to one basis, monthly or quarterly practices. forums, opinion surveys, internal newsletters and an open door policy. We practice an environment of zero tolerance on bribery and corruption and eschew ethically unsound or corrupt Government/Regulators practices among any stakeholder segment. In this context, Regular meetings with relevant government authorities and we have had no incidences of bribery and corruption, regulators to discuss impending legal mandates are held to unethical practices or anti-competitive behaviour find solutions where necessary. This may involve discussions stemming from our Group brought to our notice. Our on challenges, risks, strategy development, execution of business dealings remain transparent and sincere in such laws and regulations and best practice permeation. action, while accountability remains a top priority.

46 Distilleries Company of Sri Lanka PLC We remain strictly compliant with all mandatory and Environmental Disclosure regulatory mandates that are prevalent in our business We have never knowingly harmed the environment through even though the regulatory environment in some of our any process that we have engaged in. We ensure that in businesses may be seen as unfair and unjust, We do not all our processes and systems, we implement as many make contributions to political parties; no member of the environmentally friendly initiatives as possible as is seen in Board of Directors is actively involved or an office bearer the waste water treatment, energy management, recycling of any political party in Sri Lanka. initiatives, decrease in emissions and increase in forest cover that we have strategically embarked upon. We also Product Disclosure constantly engage our valued business partners, suppliers As a company engaged in the business of alcoholic and wherever possible our customers, to permeate beverages, we ensure that our products, if used in a environmental best practices among them. responsible manner, and by the target age groups it is meant to be used by, will not have an ill-effect or increase risks to Human Rights and HR Practice Disclosures health. The processes that cover our supply chain including The DCSL Group espouses and commits itself as an the sourcing and use of ingredients, resources and raw equal opportunity employer, stringently applying a slew of materials are aligned to stringent quality standards that are non-discriminatory policies vis a vis gender, age, religion, initially tested repeatedly before product manufacture. ethnicity, social, cultural and economic backgrounds on the foundation of meritocracy. We unwaveringly uphold and We work with experts and specialists in the field both support the tenets mandated by the International Labour locally and internationally, who may also conduct their Organisation and other prevalent regulatory bodies pertaining independent analysis and research, which assists us in to human rights and child labour. We adhere to a strict manufacturing our final product. This would include the use policy of ‘zero tolerance to child labour’, a mandate that is of science, technology, experience and skill to determine the permeated to our valued business partners including retailers acceptability of not only the ingredients but also permitted and the supply chain. levels of these ingredients. Using the available scientific evidence, these expert opinions have repeatedly concluded Community Disclosure that our products, used responsibly by adults in the case Our philosophy is to partner the community in its sustainable of alcohol and spirits, do not increase health risks. There’s development journey, which in turn gains us considerable also a cohesive group that monitors legislation pertinent to advantage. We are inextricably entwined with our the product and individual ingredients which helps us in our communities and we intend to ensure that our presence decision making. within these communities will benefit them and us. This year, our social focus was based on ‘Education & Training In the beverages industry, we work in a ‘dark’ market where and Health, Sanitation & Housing’ and by sustaining social all advertising and promotions are prohibited by law. We initiatives in these key areas of interest, we believe that we remain very cognisant that our product in this industry is can empower these communities. to be sold and consumed by adults and our responsibility is to always ensure that this is the overarching tenet of Environmental our marketing initiatives. We communicate all product • Better waste and energy management in our information comprehensively either through the labelling or manufacturing processes through product information available on numerous channels. • Reducing our carbon footprint by introducing more We do not condone or agree to sell any of our products that ‘green’ initiatives are meant to be consumed by an adult, to any underage consumer under any circumstances. This is very strictly • Reducing dependency on fossil fuels adhered to, not only within the immediate Company and the team, but is a message that is cascaded very emphatically to • Enhancing forest cover and food security through our entire value chain and retailers. Any deviation from this, planting of hard wood and fruit trees is dealt with severely and may result in DCSL terminating its business relationship with the offender.

Annual Report 2014/15 47 Sustainability Report

Sustainability Focus 100% safe, the methane which is discharged during the Social purification process is used for factory consumption. • Enhancing entrepreneurial skills among estate youth In our bid to reduce the country’s dependence on fossil • Assisting educational initiatives from childcare to fuels and thereby reduce the expenditure of foreign university level students exchange, we embarked on a mini-hydro power project. The Kirkoswald Mini-Hydro Power Project, under the umbrella • Creating awareness of preventable diseases among of Bogo Power (Pvt) Limited and located within Madulsima lesser affluent communities Plantation’s land, has gained approval from the Sustainable Energy Authority of Sri Lanka, generating an average of Economic 21.1 GwH of power to the national grid. The water required • Ensuring that shareholder wealth is optimised without for the hydropower project is diverted and returned to the compromising on standards or principles river within a short distance from the point of diversion. The channel, weir and power house are small structures, which • Permeating best practices to valued business partners have minimum impact on the natural eco-system and the • Setting an example of ethical leadership through a well communities around the area. governed accountable entity The companies of the DCSL Group have all initiated in-house • Creating benchmarks for industry. modes of energy, waste and water management, as part of the Group’s holistic vision of environmental impact mitigation. Sustainability Performance Environmental Impact Continental Insurance (CILL) has commenced emphatically Our business interests are wide-ranging and diverse, ranging working on a better waste and energy management from manufacturing, plantations, telecommunication, financial practices in its journey with a view to become a carbon services, logistics, textiles, hydro power, to business process neutral company. As a way forward, the company places the outsourcing (BPO) and media. These, in different dimensions preservation of nature as a top priority taking the initiative to and levels, do impact the environment. The DCSL Group, give back to the environment to sustain our planet’s greenery having conformed and remain strictly compliant with the and fertility. Continental Insurance has tied up with Neptune Central Environmental Authority standards, is additionally Recyclers since 2011 for the recycling of all waste papers. subjected to regular audits to ensure full transparency. This The Company experienced a saving of 10 fully grown trees ensures that we remain conscious of the impacts our actions and total of 19,068 litres of water, while electricity usage would have on the environment and have through the years, decreased by 2,400 kwh and 1,053 litres of oil was also worked on improving our processes and systems that would saved which meant lesser usage of fossil fuels during eventually help us to reduce the negative impact we have on the year 2014, In addition, 2 cubic metres of landfill were the environment, while minimising climate change. conserved and Green House Gas Emission was reduced by Energy, Waste & Water Management 601 kg’s of Carbon Environment. Energy and waste management are crucial features in While creating economic value within the organisation, CILL our environmental management focus, especially in our strives to develop social value as a responsible corporate manufacturing processes. A sophisticated distilling system citizen. Being a benefactor to the society and communities using French technology which is totally environmentally- in which it operates, CILL believes in giving something back friendly embeds energy saving features into our plants, as to different segments of the society especially to those who low evaporation during distillation aids the saving of energy. are under privileged and isolated in the society. Hence, This technology has also helped in decreasing emission as a matter of priority they have made a firm a consistent levels. Waste water treatment plants and an environmentally commitment every year as one family volunteering to spend friendly zero-harm effluent management system ensures quality time with differently able children thus providing them that waste, water and effluents are all managed well within with their basic needs for their daily sustenance. the compliance norms. While the waste water is treated to neutralise acidity and released for further use once deemed

48 Distilleries Company of Sri Lanka PLC Going further, CILL organised a blood donation campaign environmental management and community development. This and distributed water for drought victims in north central exercise is also a testament to our continued commitment in province during the year. stepping into the growing market of enlightened consumers who make conscious choices about supporting sustainable The Collision Repair Centre, which comes under Melsta agricultural practices through their purchases and would be a Logistics Limited, remains very compliant with environmental baseline to benchmark us with players in the Industry with clear regulations and in fact, has ensured that its entire facility goals and targets to be achieved. is eco-friendly. Waste disposal is managed efficiently, with disposable waste being recycled and organic waste As a part of its pledge to continually improve environmental converted to compost, which is used to nurture vegetation and social sustainability, many initiatives were launched by within the premises. In addition, a waste water treatment Balangoda Plantations to protect and conserve the natural plant maximised the usage of water. Melsta Logistics also environment through the prevention of pollution, efficient took on the responsibility of managing the Group’s fleet of utilisation of resources, effective waste management vehicles to ensure that measures are taken to monitor and practices, promotion of environmental awareness and control emission levels and usage of fossil fuels and thus sensitivity amongst the plantation community. reduce its carbon footprint. Balangoda Plantations always espoused sustainable The fact that Texpro Industries is certified with a Global agricultural standards and good manufacturing practices. Organic Textile Standard ensures that the entire value chain The company ensured that nearly all its manufacturing must conform to globally accepted waste management facilities have gained ISO and HACCP certifications, which practices in addition to its sourcing and manufacturing ensured that it remained within the stringent guidelines processes. Texpro is subjected to continuous audits, required for conducting business, manufacturing processes which keeps compliance levels above the required norm. and systems. At present, Texpro is using biomass thermic fluid heaters instead of fossil fuel consuming equipment, as a result the In order to retain these standard certifications, the facilities Company managed to reduce the energy cost by 30%. are also continuously subjected to audits. The larger result however is that with the infusion of best practices in Recycling agriculture, we are not only enhancing our end product, but Packaging gained emphasis to mitigate environmental also ensuring that our practices are governed by a green impact with over 50% of the bottles used for alcohol and ethos. Further augmenting this green ethos, Balangoda spirits being recycled and crates used for transport, being Plantations embarked on a re-forestation drive, which, while reused. Cellophane, glass, aluminium and plastic generated increasing our forest cover, also significantly impacted the by the factory were outsourced to an external party for challenges the country will face in the future of food security. reuse, while used labels were transformed into pulp. This In addition, the estates began implementing a composting also reduced the number of trees being felled. programme, which converted non-usable materials into compost, deemed for use in the three hectares that are Continental Insurance imbued the 3R concept and engaged being replanted with tea. in recycling of waste paper, which resulted in the saving of ten trees for the year, which though may be considerably Organic Best Practices small, certainly lays the footprint for the Company to increase Texpro Industries, (a specialty dye and print business of its recycling initiatives and reduce the number of trees even woven fabric) as a backward integration to the apparel further. industry, stringently conforms to the Global Organic Textile Standard (GOTS), which ensures that the end product Sustainable Agriculture remains true to the tenets of an organic product. GOTS is We are proud to report that the Balangoda Plantation’s the worldwide leading textile processing standard for organic accreditation process of the Rain Forest Alliance Certification fibre and includes ecological and social criteria, backed (RAC) was finalised during the period under review. This by independent certification pertaining to the entire textile move will be a new milestone of Balangoda Plantations in its supply chain. This standard gives the product international commitment towards adding value and a greater emphasis on recognition in organic textile manufacture, from harvesting

Annual Report 2014/15 49 Sustainability Report

of raw materials, through environmentally and socially nothing more than the collective capacity of its people to responsible manufacturing, until the labelling process, create value, organisational culture is an important element providing a credible assurance to the end consumer. in any organisation’s make up and success. Therefore, at Continental Insurance new recruitment is based on Social: Diversity in Our Team alignment with the Company’s internal culture, in addition to Our longevity and culture of achievement is rooted in the knowledge, skills and attitudes required for the role. motivation and mind-set of our people, who are committed and dedicated towards achieving greater heights of Bellvantage is offering more than 50% part-time job performance and raising the benchmark. Given that the opportunities for undergraduates with flexible hours. This DCSL Group has grown into a diversified conglomerate will enable them to balance their studies and earn some encompassing a number of diverse industries and yet is extra cash to fund their expenses. As part of increasing unequivocally positioned with a leadership status, evidences employment opportunities, Bellvantage has been providing that our team is a winning one. The dynamism, motivation home-based working hours on both full time and part time and ‘overzealous’ attitude they always espouse has basis. This scheme concentrates on senior citizens and enabled this Group to take on challenges, some deemed housewives. This has enabled them to save expenses on insurmountable and win against the odds travelling and time. Furthermore, special arrangements have been made for visually handicapped citizens to carry on their HR Philosophy responsibilities without any difficulty. • To provide and promote an encouraging and professional Training & Development working environment for our team. Training and development forms the axis to the sustainability • Believe that the prosperity of our business depends on of our business and into this we have instilled a knowledge successfully developing an integrated group of motivated gaining culture, which enables individuals to attain their and innovative employees. Hence we facilitate positive personal goals while working towards the company’s employee relations and inspire employees by offering aspirations. Melstacorp is facilitating all the training opportunities for challenging work, personal development programmes for the Group. The training programmes span and growth. on the job, off the job, external, hands on and internal programmes, all designed to enhance knowledge, update • Committed to hire, develop and retain the most talented skill and create an empowered workforce people in order to achieve a committed pool of talent.

At Continental Insurance, the HR Department is responsible Recruitment & Retention for the recruitment of suitably qualified employees and A range of processes have been instilled within the Group retaining talent. Training requirements would be identified to ensure that recruitment is non-discriminatory, unbiased for respective functional areas through a systematic and driven by meritocracy. In addition, in a bid to streamline performance appraisal system in order to develop the our recruitment processes, a recruitment requisition form training plan, which ultimately will increase individual was introduced, which is the base upon which recruitment is performance up to the expected level. effected and a comprehensive interview evaluation form was brought in, to streamline the interview process from initial At Balangoda Plantations, training programmes are screening to final interview stage. conducted for senior managers, superintendents and assistant superintendents to enhance their managerial skills, The Group companies follow HR best practices ensuring to ensure higher productivity and better management of the consistency in HR Policy approach and fair playing large plantation workforce. field for potential employees. For instance, Continental Insurance strives to follow best practices in human resource Recognition & Staff Well-Being management as well as the development of human The DCSL HR policy is based on the belief that a satisfied resource. As a growing business, Continental Insurance employee is a motivated employee who will contribute is in need of regular fresh blood from the outside, while towards achieving company goals voluntarily, while being growing talent from within. Hence, Continental Insurance more productive. We have continuously infused numerous ensures a healthy mix of both. As an organisation is

50 Distilleries Company of Sri Lanka PLC rewards and remuneration schemes, while adding welfare we have taken numerous steps to ensure, to the best of our initiatives that would add value to our employees to better ability, that the workplace is safe, hygienic and not harmful their lifestyles. Given below briefly are some of the more to our team’s health. Our manufacturing processes conform important initiatives currently in place: to accepted industry guidelines and practices in safety management and we have set for ourselves a target of ‘a DCSL zero accident workplace’. By being proactive, conscious and • Continuous remuneration reviews and increases focused, we have inculcated a conscience and culture of according to predetermined scales, which could also be prevention, while team members have been trained to remain tied to performance incentives and bonus scheme. alert to any gaps and hazards that may arise.

• A range of insurance policies are in effect including Giving back to the Community Workmen’s Compensation and Personal Accident Balangoda Plantation contributes towards community Insurance. DCSL PLC offers all employees this 24 hour development by providing financial support to workers insurance cover which includes a natural death cover. including short term loans, housing loans and distress assistance, facilitating purchase of goods and equipment • The DCSL Quiz Competition 2014/15 was held with the on easy payment schemes and so on, through the Estate enthusiastic participation of the regions and divisions at Worker Housing Cooperatives, which are actively functioning the Colombo Office, Periceyl and Melstacorp. Over 100 on Balangoda Plantation. Community development efforts employees participated in the quiz programme. of Balangoda Plantations have not been limited to its own estate populations. The Company has always affirmed its • DCSL holds annual staff get-together, sports days and commitment to its surroundings outside the plantation, by children’s parties to build team spirit and facilitate fun and actively participating in estate village integration programmes friendships and by extending certain facilities provided to the plantation community, to the villagers as well. Periceyl

A continuous chain of performance related incentives We have maintained cordial and mutually supportive including social activities, training initiatives and excursions/ community relations throughout the century of our existence trips are extended to high achievers. on the basis that our surrounding communities are also stakeholders of the business. We continue to make an Continental Insurance unwavering effort to closely identify with the communities in The Continental Insurance HR policy aligns remuneration which we operate our businesses to ensure positive impacts with employee performance and the reward strategy not only through our presence and to make these communities focuses on monetary rewards, which will have a short term an inherent part of our sustainable development process. impact on employee behaviour, but also timely appreciation We have thus identified two platforms as the focus for our and recognition of employees. All employees and their community social initiatives, namely health, housing and immediate family members are covered under the staff sanitation and education and training. medical scheme which will ease the financial burden when hospitalisation is required. Health, Housing and Sanitation Balangoda Plantations has been actively involved in Melsta Logistics Limited uplifting the lifestyles of its estate community by facilitating The Melsta Logistics team is covered under a comprehensive new housing and better working conditions. In addition, medical scheme and other facilities include cafeteria, resting numerous awareness programmes were undertaken areas and lockers. towards improving the socio economic growth and health and nutritional status, and living environment, youth Occupational Health & Safety empowerment and community capacity building, of the As a diversified conglomerate with interests in wide-ranging resident plantation population. economic activities including manufacturing, it is imperative that we make our workplaces safe. Occupational Health and Safety remains a high priority for the DCSL Group and

Annual Report 2014/15 51 Sustainability Report

Housing Facilities largest contributors to the national treasury, having paid During the current year too, Balangoda Plantations Rs. 41 Bn at Group level this year. It is these funds that are continued its efforts at upgrading living standards of eventually used by the state for meeting its development plantation communities by building 10 housing units for goals. Therefore, we are proud to be a major contributor estate families. These new, modern housing units are built to to national development, as a legal, law abiding corporate high construction standards, enabling hygienic and healthy citizen with future potential to contribute toward the nation’s life styles for plantation families with the benefits of essential development agenda. amenities and conducted a re-roofing programme for 23 housing units The diversification of the DCSL Group into various industries has benefited the national economy through investments Health Care in human capital and on infrastructure, employment opportunities, uplifting industry standards and wider Balangoda Plantation manages a number of child care consumer choices. Our infrastructure investments into plant centres and pre-schools within the plantations. The child and machinery conform to stringent standards that naturally care centres are supported by full-time trained teachers and add value to the overall economy. nutritional feeding programmes. Regular child immunisation programmes are also conducted at the child care centres, Similarly, all companies in the Group conform to numerous ensuring access to proper child immunisation for estate and relevant international standards and have gained children. Further, dental clinics, eye clinics, awareness certifications of compliance, which means that the entire programmes on alcohol abuse prevention, infectious/ industry is being improved through the setting of higher contagious diseases such as dengue, T.B. programmes benchmarks. on oral cancer prevention, de-worming and so on, are some of the many activities carried out to create a healthy Currently, the DCSL Group provides employment to 11,897 community. people while indirectly granting employment to many others. The benefits, remuneration, rewards and welfare gained by our Economic Contribution employees also ensures that their families gain an improvement Today, although our core business is beverages, our scope in their lifestyles, while additional education and training adds to of business is diverse transcending different spheres elevating knowledge levels amongst our team across the national economy. Over the year, we have made inroads in telecommunications, plantations, apparel, BPO, Industry Leadership logistics, hospitality, financial services, insurance, media DCSL Group has contributed to industry development in and hydro-power, committing ourselves to add economic different spheres of operations through knowledge sharing, value to all these industry sectors, while being responsible innovative solutions and the latest technologies. Our for our actions and the decisions we make. Therefore, as a companies embrace international best practices, standards leading corporate, we will strive towards building continuous and quality certifications that have contributed towards sustainable value, generating returns for our shareholders, setting new standards within the industries we operate in. while ensuring that we consciously do the right thing not only However, we have also shared our knowledge, skills and for our stakeholders, but for the environment as well. It is this expertise with other corporates and like-minded individuals, holistic outlook that allows us to work proactively with all our as we believe knowledge sharing among the industry is vital stakeholders, creating shareholder wealth and social value, for sustained growth and ultimately national development. inspiring our team and permeating best practices among our suppliers. Investor Relations DCSL continued to attract high level interest from foreign Given our leadership status in the beverages industry, investors during the current financial year. We have the company has been subjected to numerous actions, conducted many meetings with current and prospective diktats and mandates that has continually stifled the shareholders locally and overseas during the year. Such legal alcohol and spirits industry, which have only served interest in the Company is symptomatic of positive external to allow the illegal trade to flourish. We believe that this perceptions regarding the Company’s future potential situation will eventually take a toll on the nation’s health, towards growth in shareholder value. both economically and socially. We are by far one of the

52 Distilleries Company of Sri Lanka PLC Supplier Engagement We Seek Suppliers into Our Value Chain who: Forging strong supplier relationships offers a comprehensive • will proactively support our efforts to combat illegal and way for DCSL to assess and streamline the processes between illicit trade practices our organisation and our suppliers for an effective partnership. • comply with laws and regulations pertaining to In reality, suppliers are people as well and we believe in conducting business and environmental performance, emotionally engaging with our suppliers so that they work occupational health and safety, do not support or harder for us and help us cover potential risk areas. condone child labour, slavery, harassment, corporal Whatever the size or category of supplier, the DCSL’s punishment or discrimination of gender or any other Supplier Policy ensures a level playing field and equal denominator opportunities for all our suppliers. We have procedures • are cognisant of human rights and the rights of workers in place to ensure responsible behaviour towards all our suppliers, while committing our suppliers towards reciprocity • do not engage in any fraudulent or corrupt practices in responsible behaviour towards the Company. This ensures our stringent quality and standards are understood and met • provide their teams with a safe and healthy work by all our suppliers. environment • actively engage to empower the communities in which We believe strongly in positioning our supplier philosophy on they operate good corporate conduct, sourcing and producing responsible quality products and influencing a win-win relationship worked Customer Interaction on a platform of mutual benefit. Just as we position ourselves We believe that nurturing our customers is an ongoing as a responsible industry leader, we strongly believe that dialogue and not a one-off event. Nurturing an ongoing we must permeate the best practices we have within our and genuine relationship with customers will have a major business, the standards and integrity and compliance initiatives impact on the way they perceive our brand but also serve to our entire supply chain. This in effect cascades to quality, to strengthen our operations through focused customer productivity and standards overall being improved. feedback. We engage our customers in numerous ways, nurturing and strengthening relationships to ensure strong DCSL has a widespread and diverse supply chain spanning loyalty to brand and product. From face to face ad hoc the full range of businesses from micro entrepreneurs, to conversations, to conducting customer surveys, to formal SMEs to large corporates. We also emphasise among our gatherings and informal events, we are constantly engaged supply chain and valued business partners the need to with our consumer. It is this feedback and varied dialogue implement and promote business practices that not only and communication channels we have created that have encourage a safe workplace, but also request them ‘to do assuredly enabled us to charter our future plans. right’ by the environment, their employees and communities. In other words, we want them to, in turn, be responsible Our beverage business is fundamentally about offering adult entities and individuals. Suppliers and business partners, consumers a range of high quality products and brands once among the DCSL Group, are provided with further with the necessary knowledge to make informed choices. support and guidance, enabling improvement against these We do not in any way coerce or inveigle our customers to principles as the business relationship develops. stay with us and our portfolio of products by any illegal or unscrupulous means. Our suppliers are selected on pre-determined criteria that would position them and align them to our standards and Moreover, though engaged in a legal industry forced to work principles. This conformance goes beyond compliance in a dark market, prohibitive excise duties and constant and would by no means involve us in engaging or aiding taxation, our products have remained at the helm, which and abetting illegal or hazardous and dangerous activities. has thus driven us to continually exceed our customers’ We want our suppliers to be partners with us, in joining demands. We do believe it is our responsibility to ensure us in our journey that will truly be one of mutual respect, that consuming alcohol must be done responsibly, knowing understanding and trust. that the product is manufactured to high standards and is

Annual Report 2014/15 53 Sustainability Report

a proven brand of quality. Therefore, we are vociferous in Awards & Recognitions numerous forums to curb and annihilate the illicit and illegal • DCSL was ranked No. 06 in Business Today’s ‘Top liquor trade. We work on education and awareness initiatives Twenty Five’ edition. This was the 16th consecutive year among various forums to take the message of the hazards DCSL was listed among corporate heavy weights in the and dangers posed to the eventual consumer in drinking ranking. illicit brew or illegal liquor, given that the latter too has no guarantee of quality. • Melsta Regal Finance won the bronze in SLIRTAD People Development Award 2014 Our subsidiary companies have continued to gain the trust and loyalty of their customers through their customer centric Long term Sustainability Goals policies, innovative solutions and technology applications for 1. Be known as the preferred employer having the ability increased cost savings and higher customer value creation. to attract and retain talented people, inducting them in a knowledge-based corporate culture, while assuring them Lanka Bell, the Group’s telecommunications subsidiary, of career enhancement in a responsible company they commenced rolling out its 4G LTE network during the will be proud to be a part of. previous financial year in line with its planned schedule. Following a successful test run, LB formally launched its 2. Retain market leadership by ensuring that we work on 4G connectivity in February 2014, becoming one of the high quality sustainable competitive advantages to infuse three operators in the country to have a 4G-LTE network. trust and loyalty among our customer base by evolving The introduction of this latest technology is to offer world the business to be ahead of customer expectations, class data solutions to customers, while providing access to which in turn will deliver qualitative and quantitative greater bandwidth capacity at faster speeds. sustainable returns.

Continental Insurance provides comprehensive policies to 3. Never lose sight of the tenets of corporate stewardship; large hotel chains operating luxury properties in Sri Lanka instil governance and regulatory best practices, while and the Maldives. CILL introduced an Android mobile demonstrating our commitment to being an ethical, application to all technical assessors to facilitate efficiency transparent, accountable Group of companies. in the processing of claims. In addition, payments of premiums online were also introduced in order to cater to the 4. Create economic and social value among the growing market of online users, thereby giving customers an communities we work with, supporting both the rural and enhanced service with greater convenience and ease. urban economies and key industries that are earmarked to be drivers in national development. During its short period of operations, Melsta Regal Finance Ltd (MRF) introduced a wide spectrum of financial solutions 5. Be a Green Ideologue; an advocate who will address in leasing, hire purchase, factoring, trade finance, corporate environmental issues and ‘change’ the direction of loans, personal loans and savings products for a client climate change, walking the talk to spread the need to portfolio ranging from corporates to SMEs to consumers. reduce our carbon footprint and ensure a better planet The key focus of the current financial year was market for future generations. expansion and product development. The geographical footprint of MRF was expanded to the key cities of Kurunegala, Matara, Kandy and Negombo.

54 Distilleries Company of Sri Lanka PLC Corporate Governance

Enterprise Governance processes and practice due diligence to protect the interests Working on an integrated approach for applying governance of our shareholders, while maintaining an unrelenting focus throughout the organisation, DCSL practices the key on the expectations of other stakeholder segments. principle of infusing the tenet that everyone is responsible DCSL has a strong and sound foundation of sustainability for the performance of the Group, the management of risk principles that remain the overarching fundamentals in and value creation. We strongly recommend and commit instituting and maintaining uncompromising governance ourselves to ensuring that Enterprise Governance operates practices and principles. The section of the report details through people, processes, policy, procedure, culture and the governance structure and the practices and guidelines ethics. DCSL has adopted in ensuring that we remain within the The principles of governance are applied effectively by parameters of the numerous regulatory and authorised the Board of Directors and are seen in the consistent bodies that govern the industry and the Company. We growth performance of the Group, while also improving the stringently adhere to and comply with the mandates of long term return to stakeholders. Beyond the Board, the the Colombo Stock Exchange and Securities & Exchange application of governance methodologies and the integration Commission of Sri Lanka, NATA, Excise Department, of governance into other organisational functions, we Central Bank of Sri Lanka and the Government Treasury, strongly believe that it has significantly benefited the long Institute of Chartered Accountants of Sri Lanka, term performance of DCSL. Telecommunication Regulatory Commission of Sri Lanka, To further augment our effective governance strategies, we Insurance Board of Sri Lanka, Central Environmental have implemented the following: Authority, relevant Ministry and departmental authorisations and regulations and numerous Codes • Strive to achieve corporate objectives of managing introduced by Professional Associations and the Chamber strategy, risk and compliance to ensure long term returns of Commerce from time to time. to shareholders and other stakeholders. This corporate governance statement defines in detail the • Oversee business objectives including management of IT, structures and processes that we use in our organisation to sustainability, finance and project portfolio management balance the interests of our stakeholders, reviewed at regular to ensure sustainable consistent results. intervals to ensure that Group’s expectations are met and are aligned with evolving growth strategies. • Board of Directors remain emphatic on due diligence to ensure accountability, transparency and sincerity of The Board of Directors action. Role of the Board of Directors • Implemented an environment of responsible and The Board of Directors is responsible to the Company’s balanced corporate governance that enhances shareholders to ensure at all times that the activities of the integrity and respect for the Company and ensures the Company are conducted to the highest ethical standards Company’s stewardship and stability in the industry and and in the best interest of all stakeholders. market. The key responsibilities of the Board are; • Introduced a culture in which the entire organisation takes ownership for risk, compliance and performance. • To enhance shareholder value.

We infuse governance tenets that continue to hold us in • Provide direction and guidance in formulating corporate high esteem and as a spearhead among our shareholders, strategies. stakeholders and peers. This is further augmented with our • Monitor systems and procedures especially with regard Board’s adherence to the highest standard of corporate to internal controls and risk management. behaviour and ethics at all times. To remain at the helm of Sri Lanka’s corporate landscape, we realise that we must • Approve major investments. incorporate new dimensions into our core decision-making

Annual Report 2014/15 55 Corporate Governance

Name of Director Status Attendance * D. H. S. Jayawardena Chairman / Managing Director 3/3 R. K. Obeyesekere (Ceased to be a director w.e.f. 26/01/2015) Non-Independent Non-Executive Director 1/2 C. R. Jansz Executive Director 3/3 N. de S. Deva Aditya Independent Non-Executive Director 3/3 K. J. Kahanda Executive Director 3/3 C. F. Fernando (Deceased on 15/11/2014) Independent Non-Executive Director 1/1 A. N. Balasuriya Independent Non-Executive Director 1/3 D. Hasitha S. Jayawardena (Appointed w.e.f. 21/11/2014) Non-Independent Non-Executive Director 1/1

*In person or by alternate

Composition of the Board and Independence Remuneration Committee The Board of Directors of DCSL comprises the The Remuneration Committee has two independent Non- Chairman / Managing Director, two Executive Directors, Executive Directors and one Non-Independent Non-Executive one Non-Independent Non-Executive Director and two Director: Independent Non-Executive Directors as given in the table above. Brief profiles of the Directors are given on pages A. N. Balasuriya - Chairman 28 to 29. N. de. S. Deva Aditya D. Hasitha S. Jayawardena (Appointed w.e.f. 05/08/2015) The Board considers that two of the three Non-Executive C. F. Fernando (Deceased on 15/11/2014) Directors are independent in accordance with the criteria detailed within the Listing Rules of the CSE and have The report of the Remuneration Committee is given on the submitted signed confirmations in this regard. The Board page 73. believes that the independence of N. de S. Deva Aditya is Investor Relations not compromised by virtue of him being a Director of Aitken Spence PLC, an associate of the Company. One of the prime fundamentals that are prevalent and identified with the Group’s sustained success and growth Meetings and Attendance has been the close rapport in investor relations. Given that The attendance of the meetings of the Board during the year we are mandated to safeguard and create shareholder is given above: wealth and are duty bound to share all Company information with our shareholders at all times in order to nurture Board Committees sustainable relationships with our stakeholders, we foster Certain responsibilities of the Board have been delegated to effective dialogue and engagement with the relevant the following sub-committees. stakeholders and the financial community. We strongly believe that it is our strategic management responsibility to Audit Committee maintain an open line of communication with shareholders The Audit Committee comprises three independent Non- and address any concerns or issues that may require Executive Directors as follows; discussion or resolution. The designated investor relations officers regularly meet shareholders and fund managers A. N. Balasuriya – (Chairman w.e.f. 03/03/2015) to fuel these long term relationship, providing information N. de. S. Deva Aditya and answering any queries. Further, the Group possesses D. Hasitha S. Jayawardena (Appointed w.e.f. 05/08/2015) performance measurement tools to ensure that these C. F. Fernando (Deceased on 15/11/2014) objectives are met. The detailed report of the Audit Committee is on pages 71 to 72.

56 Distilleries Company of Sri Lanka PLC Apart from personal interaction with stakeholders, our quarterly financial statements and the Annual Report offer a comprehensive canvas of the Group’s performance, constituting the principal means of communication with the shareholders.

Internal Controls The Board instills and maintains a strong set of internal controls to safeguard shareholder wealth. The responsibility of the Board has been clearly stated as one where it is in charge of the Group’s internal control systems and will regularly review if they are adequately safeguarding Company and shareholder assets while supplying precise and timely information for informed decision making. The responsibility of the Board covers financial, operational and compliance related activities and risk management.

The main companies in the Group have established internal audit divisions that are controlled by the annual internal audit plans approved by the respective Boards. The Audit Committee reviews and monitors the activities and the findings of the internal audit divisions at regular intervals.

Going Concern After an extensive review of the Group’s corporate plan, budgets, capital expenditure requirements and future cash flows, the Board has taken a decision to apply the Going Concern principle in the preparation of the Financial Statements for 2014/15. Further, the Board is satisfied that the Group possesses the necessary funds for adequate liquidity and to sustain its operations for the foreseeable future

The Company’s compliance with the CSE Listing Rules and the best practices set out in the Code of Best Practice on Corporate Governance issued jointly by ICASL and SEC is set out in the following table:

Annual Report 2014/15 57 Corporate Governance

The Company’s compliance with the CSE Listing Rules

Section Applicable Rule Compliance Status Details

7.10.1 Non-Executive Directors Complied Three of the six Directors At least one third of the total number of Directors should be Non- are Non-Executive Executive Directors. Directors

7.10.2(a) Independent Directors Complied Two of the three Non- Two or one third of Non-Executive Directors, whichever is higher, Executive Directors are should be Independent. Independent

7.10.2(b) Independent Director’s Declaration each Non-Executive Director Complied should submit a declaration of independence/ non-independence in the prescribed format

7.10.3(a) Disclosure relating to Directors Complied Please refer page 56 The Board shall annually make a determination as to the independence or otherwise of the Non-Executive Directors and names of Independent Directors should be disclosed in the Annual Report.

7.10.3(b) Disclosure relating to Directors Complied Please refer page 56 The basis for the Board to determine a Director is Independent, if criteria specified for Independence is not met.

7.10.3(c) Disclosure relating to Directors Complied Please refer pages 28 to 29 A brief resume of each Director should be included in the Annual Report and should include the Director’s areas of expertise.

7.10.3(d) Disclosure relating to Directors Complied A new Director was Forthwith provide a brief resume of new Directors appointed to appointed during the year. the Board with details specified in 7.10.3(a), (b) and (c) to the Please refer pages 29 and Exchange. page 56

7.10.4 Criteria for Defining ‘Independence’ Complied Selection criteria of Independent Directors of a listed company

7.10.5 Remuneration Committee Complied Please refer page 73 A listed Company shall have a Remuneration Committee.

7.10.5(a) Composition of Remuneration Committee Complied Two of the three Non- Shall comprise of Non-Executive Directors a majority of whom will Executive Directors are be Independent. independent

7.10.5(b) Functions of Remuneration Committee Complied Please refer page 73 The Remuneration Committee shall recommend the remuneration of the Chief Executive Officer and Executive Directors.

58 Distilleries Company of Sri Lanka PLC Section Applicable Rule Compliance Status Details

7.10.5(c) Disclosure in the Annual Report The Annual Report should set out; i. Names of the Directors comprising the Remuneration Committee. Complied Please refer page 56

ii. Statement of Remuneration Policy Complied Please refer page 73 iii. Aggregated remuneration paid to Executive and Non- Executive Directors. Complied Please refer note 11 to the financial statements

7.10.6 Audit Committee Please refer Audit The Company shall have an Audit Committee Committee report on page 71 to 72

7.10.6(a) Composition i. Shall comprise of Non-Executive Directors a majority of Complied Please refer page 71 whom will be Independent.

ii. One Non-Executive Director shall be appointed as Chairman Complied Please refer page 71 of the committee.

iii. Chief Executive Officer and Chief Financial Officer shall Complied Please refer page 71 attend Committee meetings. Complied iv. The Chairman or one member of the Committee should be Please refer page 71 a member of a professional accounting body.

7.10.6(b) Functions i. Overseeing the preparation, presentation and Complied Please refer Audit adequacy of disclosures in the Financial Statements in Committee accordance with Sri Lanka Accounting Standards report on pages 71 to 72

ii. Overseeing the compliance with financial reporting Complied requirements, information requirements of the Companies Act and other relevant financial reporting related regulations and requirements Complied iii. Overseeing the process to ensure that the Entity’s internal controls and risk management, are adequate to meet the requirements of the Sri Lanka Accounting Standards / IFRS migration Complied iv. Assessment of the independence and performance of the entity’s external auditors

v. Make recommendations to the Board pertaining to Complied appointment, re-appointment and removal of external auditors and to approve the remuneration and terms of engagement of the external auditors

Annual Report 2014/15 59 Corporate Governance

Section Applicable Rule Compliance Status Details 7.10.6(c) Disclosure in Annual Report i. The names of the Directors comprising the Audit Complied Please refer Corporate Committee. Governance Report on page 56 and Audit ii. Basis of the determination of the Complied Committee report on Independence of the Auditors. pages 71 to 72 iii. Report by the Audit Committee setting out the manner of Complied compliance by the Company.

Code of Best practice of Corporate Governance issued jointly by the Securities and Exchange Commission of Sri Lanka (SEC) and the Institute of Chartered Accountants of Sri Lanka (CA-Sri Lanka)

Ruling Description of the Ruling Compliance Details Index Status

A.1 The Board

A.1 Company to be headed by an effective board to direct P Board consists of members who are and control the company qualified and experienced in various fields. Please refer Corporate Governance Report on page 55.

A.1.1 Regular Board meetings and supply of information. P Please refer Corporate Governance Report on page 56.

A.1.2 Board should be responsible for matters including P Please refer Corporate Governance Report, implementation of business strategy, skills and succession Report of the Board of Directors and of the management team, integrity of information, internal Report of Audit Committee for the details. controls and risk management, compliance with laws and ethical standards, stakeholder interests, adopting appropriate accounting policies and fostering compliance with financial regulations and fulfilling other board functions.

A.1.3 Act in accordance with the laws of the country and obtain P Please refer Report of the Board of professional advice as and when required Directors on page 74.

A.1.4 Access to advice and services of the Company Secretary P The company secretary position is headed by a professionally qualified company secretary.

A.1.5 Bring Independent judgment on various business issues P All the Board members actively participate and standards of business conduct in the Board meetings by bringing up their own Independent judgment.

A.1.6 Dedication of adequate time and effort P The Directors dedicate sufficient time before a meeting to review Board Papers and call for additional information and clarification if necessary, and follow up issues consequent to the meeting.

60 Distilleries Company of Sri Lanka PLC Ruling Description of the Ruling Compliance Details Index Status

A.1.7 Board induction & training P The Directors are provided with training as and when it is required

A. 2 Chairman and Chief Executive officer

A.2.1 Justification for combining the roles of the Chairman and P The positions of Chairmen and CEO are CEO. separated

A.3 Chairman’s role

A.3.1 The Chairman should ensure Board proceedings are P Please refer Corporate Governance Report conducted in a proper manner on page 56 for the following details

- effective participation of both Executive and Non-Executive Directors

- balance of power between Executive and Non-Executive Directors

A.4 Financial Acumen

A.4 The Board should ensure the availability within it of those P Please refer the Audit committee report on with sufficient financial acumen and knowledge to offer page 71 guidance on matters of finance.

A.5 Board Balance

A.5.1 In the event the Chairman and CEO is the same person, Non- N/A N/A Executive Directors should comprise a majority of the Board

A.5.2 Where the constitution of the Board of Directors includes P Please refer Corporate Governance Report only two Non-Executive Directors, both such Non- on page 56 Executive Directors should be ‘independent’

A.5.3 Definition of Independent Directors P Please refer Corporate Governance Report on page 56

A.5.4 Declaration of Independent Directors P Please refer Corporate Governance Report on page 56

A.5.5 Board determinations on independence or non- P Please refer Corporate Governance Report independence of Non-Executive Directors. on page 56

A.5.6 If an Alternate Director is appointed by a Non-Executive N/A N/A Director such Alternate Director should not be an executive of the company.

A.5.7 In the event the Chairman and CEO is the same person, N/A N/A the Board should appoint one of the independent Non- Executive Directors to be the “Senior Independent Director” (SID)

Annual Report 2014/15 61 Corporate Governance

Ruling Description of the Ruling Compliance Details Index Status

A.5.8 The Senior Independent Director should make himself N/A N/A available for confidential discussions with other Directors who may have concerns

A.5.9 The Chairman should hold meetings with the Non- P Executive Directors only, without the Executive Directors being present

A.5.10 Where Directors have concerns about the matters of the P Company which cannot be unanimously resolved, they should ensure their concerns are recorded in the Board minutes

A.6 Supply of information

A.6.1 Board should be provided with timely information to enable P it to discharge its duties

A.6.2 Timely submission of the minutes, agenda and papers P required for the Board Meeting

A.7 Appointments to the Board

A.7 Formal and transparent procedure for Board appointments P Activities of the Nomination Committee are currently handled by the Board of Directors

A.7.1 Nomination Committee to make recommendations on new P Activities of the Nomination Committee Board appointments are currently handled by the Board of Directors

A.7.2 Assessment of the capability of Board to meet strategic P Activities of the Nomination Committee demands of the company are currently handled by the Board of Directors

A.7.3 Disclosure of new Board member profile and Interests P A new Director was appointed during the year. Please refer page 29

A.8 Re-election

A.8/ Re-election at regular intervals and should be subject to P Please refer Annual Report of the A.8.1/ election and re-election by shareholders Directors on page 75 A.8.2

A.9 Appraisal of Board performance

A.9.1 The Board should annually appraise itself on its P performance in the discharge of its key responsibilities

A.9.2 The Board should also undertake an annual self-evaluation P of its own performance and that of its committees

62 Distilleries Company of Sri Lanka PLC Ruling Description of the Ruling Compliance Details Index Status

A.9.3 The Board should state how such performance P evaluations have been conducted

A.10 Disclosure of information in respect of Directors

A.10.1 Profiles of the Board of Directors and Board meeting P Please refer page 28 to 29 and Corporate attendance Governance Report on page 56.

A. 11 Appraisal of the Chief Executive Officer

A.11.1/ Appraisal of the CEO against the set strategic targets P The CEO’s performance is reviewed A.11.2 annually.

B. Directors Remuneration

B.1 Remuneration Procedure

B.1.1 the Board of Directors should set up a Remuneration P Committee

B.1.2 Remuneration Committees should consist exclusively of P Non-Executive Directors

B.1.3 The Chairman and members of the Remuneration P Committee should be listed in the Annual Report each Please refer Remuneration Committee year Report on 73

B.1.4 Determination of the remuneration of Non-Executive P Directors

B.1.5 The Remuneration Committee should consult the P Chairman and/or CEO about its proposals relating to the remuneration of other Executive Directors

B.2 The Level and Makeup of Remuneration

B.2.1 to Performance related elements in pay structure and P B. 2.4 alignment to industry practices

B.2.5 Executive share options should not be offered at a discount N/A N/A

B.2.6 Designing schemes of performance-related remuneration P

B.2.7/ Compensation commitments in the event of early P B.2.8 termination of the Directors

B.2.9 Level of remuneration of Non-Executive Directors P

B.3 Disclosure of Remuneration

B.3/B.3.1 Disclosure of remuneration policy and aggregate P Please refer Remuneration Committee remuneration Report on 73 and note 11 to the financial statements

Annual Report 2014/15 63 Corporate Governance

Ruling Description of the Ruling Compliance Details Index Status

C. Relations with Shareholders

C.1 Constructive use of the Annual General Meeting (AGM) P The Company holds the AGM within the and conduct of general meetings appropriate regulatory time intervals and effectively uses it for communication with shareholders.

C.1.1 Counting of proxy votes P

C.1.2 Separate resolution to be proposed for each item P

C.1.3 Heads of Board sub-committees to be available to P answer queries

C.1.4 Notice of Annual General Meeting to be sent to P Please refer the page 173 of the Annual shareholders with other papers as per statute Report for the notice of the meeting.

C.1.5 Summary of procedures governing voting at General P meetings to be informed

C.2 Communication with Shareholders

C.2.1 Channel to reach all shareholders to disseminate timely P information

C.2.2 / Policy and methodology of communication with P C.2.7 shareholders and implementation

C.3 Major and material transactions including major related P party transactions

C.3.1 Disclosure of all material facts involving all material P Please refer note 35 to the Financial transactions including related party transactions Statements.

D. Accountability and Audit

D.1 Financial Reporting

D.1.1 Disclosure of interim and other price-sensitive and P The Board presents a balanced and statutorily mandated reports to Regulators. understandable assessment extends to interim and other price-sensitive public reports and reports to regulators, as well as to information required to be presented by statutory requirements complying with regulatory deadlines.

D.1.2 Declaration by the Directors that the company has not P Please refer Annual Report of the engaged in any activities, which contravene laws and Directors on page 74. regulations, declaration of all material interests in contracts, equitable treatment of shareholders and going concern with supporting assumptions or qualifications as necessary

64 Distilleries Company of Sri Lanka PLC Ruling Description of the Ruling Compliance Details Index Status

D.1.3 Statement of Directors Responsibility P Please refer the Statement of Directors Responsibility on Page 78.

D.1.4 Management Discussion and Analysis P Please refer Management Discussion and Analysis from page 34 to 42.

D.1.5 The Directors should report that the business is a going P Please refer Annual Report of the Director concern, with supporting assumptions or qualifications as on page 76. necessary

D.1.6 Remedial action at EGM if net assets fall below 50% of N/A N/A value of shareholders’ funds

D.1.7 Disclosure of Related Party Transactions P Please refer Note 35 to the Financial Statements.

D.2 Internal Control

D.2.1 Annual review of effectiveness of system of Internal P Please refer Audit Committee Report on Control and report to shareholders as required page 71 and Annual Report of the Board of Directors on page 74. D.2.2 Internal Audit Function P

D.2.3/ Maintaining a sound system of internal control P D.2.4

D.3 Audit Committee

D.3.1 The Audit Committee should be comprised of a P Please refer Audit Committee Report on minimum of two Independent Non-Executive Directors pages 71 to 72. or exclusively by Non-Executive Directors, a majority of whom should be independent, whichever is higher. The Chairman of the Committee should be a Non-Executive Director, appointed by the Board

D.3.2 Terms of reference, duties and responsibilities P

D.3.3 The Audit Committee to have written Terms of reference P coving the salient aspects as stipulated in the section

D.3.4 Disclosure of Audit Committee membership P

Annual Report 2014/15 65 Corporate Governance

Ruling Description of the Ruling Compliance Details Index Status

D. 4 Code of Business Conduct and Ethics

D.4.1 Availability of a Code of Business Conduct & Ethics and P Please refer Corporate Governance an affirmative declaration that the Board of Directors Report from page 55 to 66 abide by such Code

D.4.2 The Chairman must certify that he/she is not aware of any P violation of any of the provisions of this Code

D.5 Corporate Governance Disclosures

D.5.1 The Directors should include in the Company’s Annual P Please refer Corporate Governance Report a Corporate Governance Report Report from pages 55 to 66

E. Institutional Investors

E.1 Shareholder Voting

E.1.1 Conducting regular and structured dialogue with P Please refer Corporate Governance shareholders based on a mutual understanding of Report from page 56 objectives

E.2 Evaluation of Governance Disclosures

E.2. When evaluating Companies’ governance arrangements, P Please refer Corporate Governance particularly those relating to Board structure and composition, Report from page 56 institutional investors should be encouraged to give due weight to all relevant factors drawn to their attention

F. Other Investors

F. 1 Investing / Divesting Decision

F. 1 Individual shareholders, investing directly in shares of P companies should be encouraged to carry out adequate analysis or seek independent advice in investing or divesting decisions

F. 2 Shareholder Voting

F. 2 Individual shareholders should be encouraged to P participate in General Meetings of companies and exercise their voting rights

G Sustainability Reporting

G.1/ Disclosure on adherence to sustainability principles P Please refer Sustainability Report from G.1.7 page 43 to 54

66 Distilleries Company of Sri Lanka PLC Enterprise Risk Management

Undoubtedly, there is risk in today’s volatile and uncertain business risks and gaining assurance for managing these risks at an environment, which demands increased transparency within an acceptable level. organisation’s risk profile. There are vulnerabilities, probabilities, threats and weaknesses that must be addressed to ensure that Strategic Action Plan risk in any enterprise is mitigated. This greater emphasis on risk Board oversight coupled with a strong organisational ethic is the and risk management also prompts greater penalties on entities cornerstone of DCSL risk framework. that do not or fail to manage key risks, which naturally permeates to organisations being more cognisant of identifying and assessing The Board remains acutely aware that to generate business value risks. In this backdrop, it is also increasingly important that once it must manage and oversee all possible risks that the business or these risks are identified and assessed, they are managed with external factors could impose on the profitability of the Company, pre-defined tolerances. Any entity faces myriad risks, from well while in tandem, protecting and enhancing shareholder wealth. known risks that are inherent and characteristic of the business The DCSL Board is committed to deploying the highest standards to unknown risks that may emerge or are just emerging. Risk of risk management to support a strong governance framework, resilient organisations must objectively assess their existing risk ensuring that shareholder wealth is safeguarded from all the management capabilities, evaluate their organisational culture possible risk elements. with regard to risk, performance and reward and implement sustainable risk management practices. A dedicated team has been established to assist the Board in reviewing risk factors at regular intervals. Evaluation meetings are In the current market context, risk is defined as the probability held to ensure that the focus from effective risk coverage remains or threat of a liability, loss or other negative occurrence, caused strong and concentrated. The Board is kept updated on the by external or internal vulnerabilities which would affect the progress and its opinion sought for mitigating any challenges that desired objectives of the organisation. This also means that may emerge. stakeholder expectations must be worked into the organisation’s risk management strategy. Vulnerabilities could mean exposure Risk Management Framework that could trigger an adverse outcome and therefore, prevent the The Group remains committed to increasing shareholder value achievement of company objectives. within a carefully designed risk management framework. An effective risk management framework enables us to prioritise and The process of risk management at DCSL involves analysing allocate resources against those risks that underscore the ongoing exposure to risks, by identifying vulnerabilities and their probability of sustainability of the organisation. Our systematic policies help us to occurrence, which determines the way we handle such exposure. identify and uncover risks and help us to be cognisant of the same. This would therefore involve the implementation of numerous policies, This preparedness builds the resilience of the organisation and allows procedures and practices that work in conjunction to identifying, us to establish procedures for risk mitigation. analysing, evaluating, monitoring and prioritising risks, which will follow the application of coordinated and economical solutions that The principal risks in achieving the Group objectives of enhancing minimise the probability and impact of identified vulnerabilities. Once shareholder value and safeguarding the Group’s assets have been identified, elimination, reduction, transfer and retention are the broad identified as set out overleaf. The nature and the scope of risks are risk management strategies employed across DCSL. subject to change and not all of the factors listed, are within the control of your Company. It should be noted that the other factors Changes in Risk Profile besides those listed may affect the performance of the business, Given the range of industry, geographic locales and market although we do reiterate, that we remain very vigilant to both segments that our business spans, the diversification which we internal and external factors that could prompt risk in any form have embarked upon provides a prudent pathway that would and therefore, are able to, without delay, implement strategies to signal positive correlation between business and environmental prevent, minimise or mitigate those ensuing risks. risks, while on the converse, exposing the Group to a wider spread of risks, as well as opportunities. DCSL Group’s risk management framework takes into account the range of risks to be managed, the systems and processes in This therefore prompts the DCSL Board to make risk place to deal with these risks and the chain of responsibility within assessment and identification of mitigating activities a priority the organisation to monitor the effectiveness of the mitigation and pivotal in achieving the Group’s strategic objectives. The measures. Board is tasked with an overall responsibility for monitoring

Annual Report 2014/15 67 Enterprise Risk Management

Risk & Implication

Credit Risk & Implication Mitigation Strategies:

This risk ensues when a Group customer is unable to meet his • Measure, monitor and manage credit risk for each borrower financial obligations. through clear credit approval procedures

• Regularly review customer credit ratings and constantly update records to ensure complete awareness of borrower credit status

Please refer financial risk management note on pages 155 to 160

Legal and Regulatory Risk & Implication Mitigation Strategies

Risks arising from non conformance to statutory and regulatory • Established a dedicated unit to keep abreast of all policy requirements remain a reality due to the possibilities of changes changes, to manage risk and ensure adherence to all to regulations and policies being sudden or constant. It also regulations increases costs and liabilities due to these periodic regulatory • Recruitment of ex-regulators to senior positions within the changes. The nature of our liquor, telecommunications, insurance Group with an objective of enhance regulatory awareness and and finance businesses continue to be subjected to a steady increase compliance stream of changes in regulations and extensive compliance requirements. The authorities have severely restricted liquor advertising and limited other forms of communication with consumers via promotional and distribution activities, all of which affect profitability.

Investment Risk & Implication Mitigation Strategies

The Group handles significant market investments which require • The Chairman / Managing Director is tasked with tracking smooth pre-study, monitoring and control. In this regard, there is returns on Group investments with the assistance of the Head stringent conformance by the Board in practicing due diligence. of Finance and Group Financial Controller

• Carry out mark to market revaluation of equity portfolios to identify the viability of investments

• The Board develops policies and procedures to ensure that new investments and initiatives are subjected to mandatory compliance procedures.

• Regular reviews by Audit Committee and Internal Audit Division

Human Risk & Implication Mitigation Strategies

This is the risk arising from the inability to attract and retain • Maintaining above industry remuneration schemes skilled staff at middle to senior management levels. The • Skills upgrading migration of skilled workers, which is a phenomenon across most industry sectors, has created a brain-drain and the Group • Professional growth avenues remains at risk of losing key personnel to better job prospects • Performance-based reward systems overseas. • Best practices being introduced and upgraded continually

• Measures taken to retain and minimise casual / temporary labour turnover.

68 Distilleries Company of Sri Lanka PLC Risk & Implication

Operational Risk & Implication Mitigation Strategies

Operational risk is the risk of loss resulting from inadequate or • A structured internal control framework implemented failed internal processes, people and systems or from external works through a state of the art MIS system, internal audit events. The nature of our business renders us vulnerable to mechanism and insurance policies several common operational risks including fraud, human error, • A comprehensive system established to ensure that any natural disasters, loss of data and unrequited disclosure of loss is communicated to all related parties and across the sensitive information. company to prevent similar incidences

• Regular meetings are conducted to assess these risks

• Contingency plans are in place to minimise work-stop situations

• Regular reviews of contingencies and disaster recovery plans

• Financial risk arising from operation is covered in financial risk management on pages 155 to 160

Socio-Economic Risk & Implication Mitigation Strategies

Given the government dictate in stifling and repressing the • A committed Investigations Unit established to monitor and consumption of alcohol and tobacco, there is a very real report illegal activities that challenge our business threat being imposed on the Company’s profitability and the perception of our business. In this milieu also exists a thriving of spurious liquor manufacturers, which naturally erodes our profitability base. A resurgent economy however should boost licit alcohol consumption.

Socio-Political Risk & Implication Mitigation Strategies

Socio-Political risk is the possibility of instability in a country Our diversified portfolio of businesses encompasses or the world which would cascade to negatively impacting investments that will not be minimally impacted. The markets. Unrest of any kind could affect investor attitudes only exception was the enactment of the Revival of toward the markets in general, leading to disruption of Underperforming Enterprises and Underutilised Assets Act business. Continuity of a cohesive policy towards local that re-acquired land of Pelwatte Sugar Industries PLC. Here business is a key element here. again, the impact was managed and legal redress is being sought.

Technology Risk & Implication Mitigation Strategies

Stemming from the failure of the Group’s ICT systems where • Implementation of stringent barriers including password hardware, software and communications systems may have protection and restricted access, stringent user guidelines, breakdowns, halts and herald lack of recovery, as a business contingency plans and physical security measures closely that leverages strategically on ICT systems, we are very much monitored by the Central IT Unit. aware of the potentiality of risk and the cascading negativities • Comprehensive backup and recovery systems in place that could result to both business and profitability due to Technology Risk. The Group has identified system failures and • A robust ERP system is deployed in the Company. Phased theft of information as factors that can cause significant levels implementation of same across Group companies. of operational, reputational and financial loss to the Group.

Annual Report 2014/15 69 Enterprise Risk Management

Risk & Implication

Product Risk & Implication Mitigation Strategies

Product risk implies any negative impact or perceived impact of • Employing established operating procedures to review and our products on stakeholders in general which could decrease our approve all raw material prior to use, to ensure maintenance market share. There were no reported incidents of intoxication or of quality control health hazards arising from our range of liquor products. • Remain emphatic on safety, health and environmental hazards that may ensue due to possible negative publicity

• Equipping our R & D Team with ample knowledge to field any technical questions about our products

• Marketing and distribution procedures have complete control of the supply chain

Foreign Exchange Risk & Implication Mitigation Strategies

A depreciated Sri Lankan Rupee could impact the importation of • Remaining acutely attuned to the frequent changes seen in rectified spirits and foreign brands in our distilleries portfolio. foreign currency rates with our bankers

• Monitoring local and international events and news related to economics which can impact to exchange rates

Please refer financial risk management note on pages 155 to 160.

Cheaper Product, Counterfeiting and Unethical Competition Mitigation Strategies Risk & Implication

An increase in the import and in some cases smuggling • Ensuring our products are competitively priced and and counterfeit of cheaper products that compete directly continue to retain the highest standards of quality in order with our product portfolio could create an impact on our to drive a loyal consumer base who disregard cheaper locally manufactured products, leading our products to be options out priced in the market. This also endangers a reputational • Our Investigations unit maintains close scrutiny on any risk. The nature of the liquor business increases incidences counterfeit DCSL products in the market of counterfeiting and smuggling of low quality or sub-quality liquor. The success of our brands also fuels a lucrative breeding • Communicate and demonstrate to our consumers on ground for counterfeiters to indulge in illegal activity. measures and processes in identifying DCSL brands, authorised dealers and retailers

• Continuing to improve manufacturing process which includes tamper proof bottles

• Make every effort to sustain and enhance brand equity, ensuring that consumers are not cheated in any manner due to third party action

• Co-operate with law enforcement bodies to curb illegal distillation

70 Distilleries Company of Sri Lanka PLC Audit Committee Report

Composition Terms of Reference The Audit Committee appointed by and responsible to the The Audit Committee Charter approved and adopted by Board of Directors comprises of three Independent Non- the Board clearly sets out the terms of reference governing Executive Directors. Until 18th November 2014, the Chairman the Audit Committee ensuring highest compliance with the of the Committee was Mr. C .F. Fernando, a Senior Chartered Corporate Governance Rules applicable to Listed Companies Accountant and a former Managing Director of the Company. in accordance with the Rules of the CSE and the Code of Best Following the demise of Mr. C. F. Fernando, the Board of Practice on Corporate Governance. Directors appointed Dr. A. N. Balasuriya, Independent Non- Executive Director as the Chairman of the Audit Committee As allowed by the Listing Rules of the Colombo Stock of the Company as per the Listing Rules of Colombo Stock Exchange, the Audit Committee of the Company, functions Exchange. as the Audit Committee of each of the subsidiary companies which have not appointed a separate Audit Committee. All Mr. Ranjeevan Seevaratnan a fellow member of the Institute of matters are dealt with through the Agenda of the Parent Chartered Accountants of England & Wales was appointed as Company Audit Committee. a consultant by the Board to assist the Chairman of the Audit Committee. Mr. Seevaratnam will be proposed to be appointed Activities and Responsibilities of Financial Reporting to the Board as an Independent Non-Executive Director and The Committee reviewed and discussed the financial reporting also be appointed as the Chairman of the Audit Committee system adopted by the Group in the preparation of its quarterly at the Extra Ordinary General Meeting to be held on 21 and annual financial statements with the Management and September 2015. The other members of the Audit Committee the External Auditors, the purpose being to ensure reliability of comprise Mr. N. de S. Deva Aditya, Member of the European the processes and the consistency of the Accounting Policies Parliament. Mr. D. Hasitha S. Jayawardena, Non-Independent adopted and its compliance with the Sri Lanka Accounting Non-Executive Director was appointed to the Audit Committee Standards ,International Financial Reporting Standards and the on 05th August 2015. provisions of the Companies Act No. 07 of 2007.

A brief profile of each member is given on pages 28 to 29. Internal Audit The internal audit function of the Company was carried out by the The Company Secretary functions as the Secretary to the Audit Internal Audit Division. The Committee reviewed the effectiveness Committee. of the internal audit plan to ensure that it was designed to provide reasonable assurance that the financial reporting system Meetings adopted by the Group can be relied upon in the preparation The Audit Committee met three times during the year. Mr. N. de and presentation of the Financial Statements. The Committee S. Deva Aditya could not attend any meetings during the year due also reviewed the findings of the Internal Auditors and their to his engagements abroad. Nevertheless, Mr. Deva Aditya was recommendations together with the management responses represented at all meeting by his alternate and was kept informed and regularly followed up the progress of the implementation of of all the proceedings of the Audit Committee and his opinion was such recommendations in order to enhance the overall control sought on important matters through his alternate on the Board. environment. The attendance of the other members at these meetings is as follows: External Audit Mr. C. F. Fernando 2/2 The Audit Committee met with the External Auditors to discuss the scope and the audit strategy including the coordination of Dr. Naomal Balasuriya 3/3 the Group Audit. The Committee also reviewed the Report of the Auditors & Management Letters issued by them with and The Group Financial Controller, Head of Finance and Chief without the Management on separate occasions to ensure that Internal Auditor also attended these meetings by invitation no limitations were placed on their independence of work and when needed. conduct of the audit.

Annual Report 2014/15 71 Audit Committee Report

The Committee carried out an annual evaluation of the External Auditors to establish their independence and objectivity and also obtained a written declaration from the Auditors in this regard. The Committee stipulated that the Lead Audit Partner is rotated every five years.

The Audit Committee recommended to the Board of Directors that Messrs. KPMG be reappointed as Auditors for the financial year ending 31 March 2016.

Compliance with Laws and Regulations The Committee reviewed the quarterly compliance reports submitted by the relevant officers to ensure that the Group complied with all statutory requirements.

Conclusion The Audit Committee is satisfied that the Group’s accounting policies, operational controls and risk management processes provide reasonable assurance that the affairs of the Group are managed in accordance with Group policies and that Group assets are properly accounted for and adequately safeguarded.

Dr Naomal Balasuriya Chairman Audit Committee

25 August 2015

72 Distilleries Company of Sri Lanka PLC Remuneration Committee Report

The Remuneration Committee of the Distilleries Company of and adopted by the Board of Directors. It is responsible Sri Lanka records with deep sorrow the passing away of Mr. for determining the remuneration policy relating to the C.F. Fernando, member of the Remuneration Committee. Chairman, Directors and the Key Management Personnel of He was a tower of strength to this committee and it will miss the Company. him in its future deliberations. We wish to place on record our sincere appreciation for his significant contribution. Chairman / Managing Director who is responsible for the overall management of the Company assists the Committee. This committee comprises of two Independent, Non Executive Directors, namely Mr. N. de S. Deva Aditya, The Remuneration Committee is of the view that an attractive Member of the European Parliament and Dr. Naomal performance based remuneration package for the key Balasuriya, Motivational Speaker, who chairs the Committee. Management Personnel of Distilleries Company of Sri Lanka Mr. D. Hasitha S. Jayawardena, Non-Independent Non- is a critical need gap that calls for a highly attractive need Executive Director was appointed to the Remuneration gap filler in order to motivate them to steer the company to Committee on 05th August 2015. its next level of world class status.

Brief profiles of these Directors are given on pages 28 to 29.

The Remuneration Committee of the Distilleries Company of Sri Lanka is appointed and responsible to the Board of Directors of the Distilleries Company of Sri Lanka. Ms. Vijayanthi Senaratne, Company Secretary, functions as the Secretary to this Committee. Dr Naomal Balasuriya Chairman All members of this Committee are free from all business Remuneration Committee and other relationships that could hamper their duties as 25 August 2015 members of this body.

The Remuneration Committee is governed by the Remuneration Committee Charter, which has been approved

Annual Report 2014/15 73 Annual Report of the Board of Directors

The Board of Directors of Distilleries Company of Sri Lanka Results and Appropriations PLC has pleasure in presenting the 25th Annual Report and the The gross turnover of the Group in the year under review Audited Financial Statements of the Company and the Group amounted to Rs 66,765 Mn. The Group profit after tax was Rs. for the financial year ended 31 March 2015. 6,474 Mn. The segmental analysis of the turnover and profit is provided in Note 5 to the Financial Statements. Principal Activities The principal activities of Distilleries Company of Sri Lanka PLC The Board of Directors has recommended a dividend of Rs. are distillation, manufacture and distribution of liquor products. 3.25 per share (2013/14 - Rs. 3.25 per share) for the financial The Company has also invested in a portfolio of diverse year ended 31 March 2015, amounting to Rs. 975 Mn. The business enterprises comprising the DCSL Group. dividend payout for the year under review has been formulated in accordance with the Company’s policy to pay sustainable Business Review dividends linked to long term performance, keeping in view the A review of the Group’s business, providing a comprehensive Company’s need for capital for its growth plans and the intent analysis of the financial and operational performance along with to finance such plans through internally generated funds. An future trends and business development activities are described optimum debt / equity mix is warranted for DCSL given the in the ‘Chairman’s Message’ and ‘Management Discussion and volatility in money markets and fact that DCSL is taxed at high Analysis’ sections of the Annual Report. rate of 40%. Amount Due from Secretary to the Treasury o/a of Sri The Board of Directors confirm that the Company satisfies the Lanka Insurance Corporation Ltd (SLIC) requirements of the Solvency Test in accordance with Section We still await the payment of profit earned during DCSL 56 (2) of the Companies Act No. 07 of 2007 on the payment of Group’s tenure at the helm of SLIC. We are hopeful that the the proposed dividend. A solvency certificate in this regard is profit earned to be paid as per the Supreme Court directive will received from the Auditors. be reimbursed to us early as possible. Detailed note is given in note 37 to the Financial Statements. Financial Statements Pelwatte Sugar Industries PLC (PSIP) The Financial Statements of the Company and the Group for the year ended 31 March 2015 as approved by the Board of Following the expropriation of the PSIP by the State, the ownership of this property remains unresolved. The Company Directors on 25 August 2015 are given on pages 80 to 160. has not changed its position advocated since the occurrence of this unfortunate incident of being the legal owner of the property Audit Report and as such, we have communicated our views to the Treasury. The Auditor’s Report on the Financial Statements of the However, as a precautionary measure, the Company has also Company and the Group is given on page 79. lodged an official claim with the Compensation Tribunal, appointed by the State. Since our group is deprived of participating Accounting Policies in controlling the financial, operating policies and other The accounting policies adopted in the preparation and relevant activities, the financial statements of PSIP have been presentation of the Financial Statements are given on pages deconsolidated from the group financial statements. 86 to 103. There were no material changes in the accounting policies adopted by the Group during the year under review. We hope some clarity regarding this untoward situation would be forthcoming within the new financial year. Further details are given Investments in note 38 to the Financial Statements. Total investments of the Company in subsidiaries, associates Melstacorp Limited and other equity investments amounted to Rs. 51,088 Mn In July 2014, Melstacorp Limited increased its investment in (2013 /14 – Rs. 42,877 Mn). The details of the investments are Continental Insurance Lanka Limited by 250 Mn. As a result given in Notes 19, 20 and 21 to the Financial Statements. stated capital of Continental Insurance has increased to Rs. 750 Mn. Property, Plant and Equipment The net book value of property, plant and equipment of the Melstacorp Share Trust (Trustee) was created effective from 1 Company and the Group as at 31 March 2015 was 6,220 Mn April 2011 for the holding of the company shares. Details are (2013 /14 – Rs. 6,299 Mn) and Rs. 18,477 Mn (2013 /14 – Rs. given in note 26.1 to the financial statements. 16,221 Mn.)

74 Distilleries Company of Sri Lanka PLC Total capital expenditure during the year for acquisition of Directors Standing for Re-election property, plant and equipment by the Company and the Group In terms of Article 92 of the Articles of Association of the amounted to Rs. 4,481 Mn (2013/14 – Rs. 59 Mn) and Rs. Company, Capt. K. J. Kahanda and Dr. A. N. Balasuriya retire 6,576 Mn (2013/14 – Rs. 964 Mn) respectively. by rotation and being eligible are being recommended by the Board for re-election. The details of property, plant and equipment are given in Note 15 to the Financial Statements. In terms of Article 98 of the Articles of Association of the Company D. Hasitha S. Jayawardena retire and being eligible is Stated Capital and Reserves being recommended by the Board for re-election The Stated Capital of the Company as at 31 March 2015 was Rs.300 Mn consisting of an equal number of Ordinary Shares. Further, in terms of section 210 of the Companies Act, There was no change in the stated capital during the year. Mr. D. H. S. Jayawardena who is over the age of 70 years has The total Group Reserves as at 31 March 2015 amounted to be reappointed by the membership annually. Accordingly, to Rs. 60,706 Mn (2013 /14 – Rs. 53,336 Mn) comprising of notice has been given of a resolution in terms of section Capital Reserves of Rs. 5,963 Mn (2013 /14 – Rs. 5,906 Mn) 211 of the Companies Act No. 07 of 2007 to propose the and Revenue Reserves & Retained Earnings of Rs. 54,743 Mn reappointment of Mr. D. H. S. Jayawardena, notwithstanding (2013 /14 - Rs. 47,430 Mn) the movement of which is disclosed the age limit of 70 years. in the Statement of Changes in Equity. Interest Register Internal Controls and Risk Management The Company maintains an Interest Register in compliance with The Directors acknowledge their responsibility for the Groups’ the Companies Act No. 07 of 2007. This Annual Report also system of internal control. The systems are designed to contains particulars of entries made in the Interest Register. provide reasonable assurance that the assets of the Group are Directors’ Interests in Contracts are disclosed in the Related safeguarded and to ensure that proper accounting records are maintained. Party Transactions under Note 35 to the Financial Statements. A Code of Business Conduct and Ethics along with other The Board, having reviewed the system of internal control is controls are in place to ensure that related party transactions satisfied with the systems and measures in effect at the date involving directors, senior managers or their connected parties of signing this report. At present DCSL is rolling out an ERP are conducted on an arm’s length basis. The Directors to the system across the Group. best of their knowledge and belief hereby confirm compliance with this code. Capital and Other Commitments Contingent liabilities and capital commitments are disclosed in Directors’ Shareholdings Note 38 and 39 to the Financial Statements of the Company. The shareholdings of Directors of the Company as defined under the Colombo Stock Exchange Rules are as follows. Events after the Reporting Period As at 31 As at 31 There were no material events or circumstances that have arisen since the reporting date that would require adjustment, other than March March the information disclosed in Note 41 to the Financial Statements. 2015 2014 D. H. S. Jayawardena Nil Nil Employees The number of persons employed by the Company and Group R. K. Obeyesekere Nil Nil as at 31 March 2015 was 1,197 (2013 /14 1,250) and 11,897 (Ceased to be director w.e.f. 26/01/2015) (2013 /14 -12,897) respectively. C. R. Jansz Nil Nil

Board of Directors N. de S. Deva Aditya Nil Nil The Board of Directors of the Company as at 31 March 2015 Capt. K. J. Kahanda (Retd.) Nil Nil and their brief profiles are given on pages 28 and 29. C. F. Fernando (Deceased on 15/11/2014) - 2,062

During the year, the Board was deeply saddened at the passing Dr. A. N. Balasuriya Nil Nil away of our fellow director Mr. C. F. Fernando who was the D. Hasitha S. Jayawardena 1,882,833 1,882,833 Chairman of the Audit Committee too. His tenure on the Board (appointed w.e.f. 21/11/2014) was of much value to the Company.

Annual Report 2014/15 75 Annual Report of the Board of Directors

Messrs. D. H. S. Jayawardena and R. K. Obeyesekere are Going Concern shareholders of Milford Exports (Ceylon) Ltd. and Stassen The Directors having reviewed the business plans, capital Exports Limited, who hold significant stakes in the Company expenditure commitments and expected cash flows are directly and indirectly. The shareholdings by these entities are satisfied that the Company and the Group have adequate available on page 164 of the Annual Report. resources to continue operations for the foreseeable future and therefore continue to adopt the going concern basis in Directors’ Remuneration preparing these Financial Statements. Directors’ Remuneration in respect of the Company for the year is given in Note 11 to the Financial Statements. Auditors Messrs. KPMG, Chartered Accountants are deemed Share Information reappointed, in terms of section 158 of the Companies Act Information relating to Earnings, Dividends, Net Assets and No. 07 of 2007, as Auditors of the Company. A resolution to Market Value per Share is given on pages 4. There were authorise the Directors to determine their remuneration will be 10,626 registered shareholders holding ordinary voting shares proposed at the Annual General Meeting. Total audit fees paid as at 31 March 2015. The distribution and the composition to Messrs. KPMG and other Auditors of Group companies of shareholdings are given on page 163 of this report. Major are disclosed in Note 11 to the Financial Statements. The Shareholdings details of the Twenty Major Shareholders of the Auditors of the Company and its subsidiaries have confirmed Company including the number of shares held by them are that they do not have any relationship with the Company or given on page 164 of the Annual Report. its subsidiaries (other than that of Auditor) that would have an impact on their independence. Corporate Governance The Board has ensured that the Company has complied with Annual General Meeting the Listing Rules of the Colombo Stock Exchange and the The 25th Annual General Meeting of the Company will be held Code of Best Practices on Corporate Governance issued by at the Sri Lanka Foundation Institute, on 21st September 2015 the Securities and Exchange Commission and the Institute of at 10.00 a.m. The Notice of Meeting appears on page 173 of Chartered Accountants of Sri Lanka. The Board is committed the Annual Report. towards the furtherance of Corporate Governance principles of the Company. The measures taken in this regard are set out in For and on behalf of the Board of Directors, the Corporate Governance Report.

Board Committees The Board has appointed two Sub-Committees i.e. the Audit Committee and the Remuneration Committee. The composition and responsibilities of the said Committees are detailed in the D. H. S. Jayawardena C. R. Jansz Chairman / Managing Director Director respective reports.

Environment The Company has not engaged in any activity that was detrimental to the environment and has been in due compliance with all applicable laws and regulations of the country to the V. J. Senaratne best of its ability. The Group’s effort to conserve scarce and Company Secretary non-renewable resources are more fully described in the Sustainability Report. 25 August 2015 Colombo Statutory Payments The Directors, to the best of their knowledge and belief are satisfied that all statutory obligations due to the government and its employees have been duly paid or adequately provided for in the Financial Statements as confirmed by the Statement of Directors’ Responsibility.

76 Distilleries Company of Sri Lanka PLC Financial Statements 79 Independent Auditors’ Report 80 Statement of Profit or Loss and Other Comprehensive Income 81 Statement of Financial Position 82 Statement of Changes in Equity 85 Statement of Cash Flows 86 Notes to the Financial Statements

161 Statement of Value Added 162 Details of Real Estate 163 Shareholder Information 165 Ten Year Summary 166 DCSL Management Team 167 Group Directory 173 Notice of Meeting 175 Form of Proxy 177 Attendance Slip

Annual Report 2014/15 77 Statement of Directors Responsibility

The Directors are responsible under the Companies Act No. Compliance Report 07 of 2007, to ensure compliance of the requirements set The Directors confirm that to the best of their knowledge and out therein to prepare Financial Statements for each financial belief that all statutory payments in relation to regulatory and year giving a true and fair view of the state of the affairs of the statutory authorities that were due in respect of the Company Company and its Subsidiaries as at the Reporting date and and its Subsidiaries as at the reporting date have been paid or the profit of the Company and its Subsidiaries for the financial where relevant, provided for. year. The Directors are also responsible for ensuring that proper accounting records are kept to disclose, with reasonable By Order of the Board, accuracy, the financial position and enable preparation of the Financial Statements.

The Board accepts the responsibility for the integrity and objectivity of the Financial Statements presented. The Directors confirm that proper accounting records have been maintained and appropriate accounting policies have been selected V. J. Senaratne and applied consistently in the preparation of such Financial Company Secretary Statements which have been prepared and presented in accordance with the Sri Lanka Accounting Standards and 25 August 2015 provide information required by the Companies Act and the Listing Rules of the Colombo Stock Exchange.

Further, the Directors confirm that the Financial Statements have been prepared on a going concern basis and are of the view that sufficient funds and other resources are available within the Group to continue its operations and to facilitate planned future expansions and capital commitments.

The Directors have taken adequate measures to safeguard the assets of the Group and in this regard have established appropriate systems of internal control with a view to preventing and detecting fraud and other irregularities.

The External Auditors were provided with all information and explanations necessary to enable them to form their opinion on the Financial Statements.

The Directors are confident that the Company would satisfy the solvency test as mandated under Section 56 (2) of the Companies Act No. 07 of 2007 regarding the payment of the proposed dividend and have sought a Certificate of Solvency from its Auditors.

78 Distilleries Company of Sri Lanka PLC Independent Auditors’ Report

TO THE SHAREHOLDERS OF DISTILLERIES of accounting policies used and the reasonableness of COMPANY OF SRI LANKA PLC accounting estimates made by Board, as well as evaluating the overall presentation of the financial statements. Report on the Financial Statements We have audited the accompanying financial statements of We believe that the audit evidence we have obtained is Distilleries Company of Sri Lanka PLC, (“the Company”), and sufficient and appropriate to provide a basis for our audit the consolidated financial statements of the Company and opinion. its subsidiaries (“Group”), which comprise the statement of financial position as at 31 March 2015, and the statement of Opinion profit or loss and other comprehensive income, statement of In our opinion, the consolidated financial statements give a changes in equity and, statement of cash flows for the year true and fair view of the financial position of the Group as at then ended, and a summary of significant accounting policies 31 March 2015, and of its financial performance and cash and other explanatory information set out on pages 80 to 160 flows for the year then ended in accordance with Sri Lanka of the annual report. Accounting Standards.

Board’s Responsibility for the Financial Statements Report on Other Legal and Regulatory Requirements The Board of Directors (“Board”) is responsible for the As required by section 163 (2) of the Companies Act No. 07 of preparation of these financial statements that give a true and 2007, we state the following: fair view in accordance with Sri Lanka Accounting Standards, a) The basis of opinion and scope and limitations of the audit and for such internal control as Board determines is necessary are as stated above. to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. b) In our opinion: - we have obtained all the information and explanations that Auditors’ Responsibility were required for the audit and, as far as appears from our Our responsibility is to express an opinion on these financial examination, proper accounting records have been kept statements based on our audit. We conducted our audit by the Company, in accordance with Sri Lanka Auditing Standards. Those - The financial statements of the Company give a true and standards require that we comply with ethical requirements fair view of its financial position as at 31 March 2015, and and plan and perform the audit to obtain reasonable of its financial performance and cash flows for the year assurance about whether the financial statements are free then ended in accordance with Sri Lanka Accounting from material misstatement. Standards. An audit involves performing procedures to obtain audit - The financial statements of the Company, and the Group evidence about the amounts and disclosures in the financial comply with the requirements of sections 151 and 153 of statements. The procedures selected depend on the auditors’ the Companies Act No. 07 of 2007. 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 CHARTERED ACCOUNTANTS circumstances, but not for the purpose of expressing an Colombo opinion on the effectiveness of the entity’s internal control. 25 August 2015 An audit also includes evaluating the appropriateness

Annual Report 2014/15 79 Statement of Profit or Loss and Other Comprehensive Income

Group Company For the year ended 31 March, 2015 2014 2015 2014 Notes Rs. 000 Rs. 000 Rs. 000 Rs. 000

Gross Revenue 6 66,764,509 63,186,302 51,800,065 47,755,538 Net Revenue 6 28,912,874 28,982,884 16,916,526 16,698,158 Cost of Sales, Net Benefits Paid and Interest Expenses 7 (16,233,934) (15,219,099) (8,093,405) (7,753,967) Gross Profit 12,678,940 13,763,785 8,823,121 8,944,191 Other Operating Income 8 1,376,876 898,392 6,251,274 1,374,595 Distribution Expenses (1,719,883) (1,814,190) (387,056) (331,688) Administrative Expenses (3,835,464) (3,591,995) (1,313,387) (1,109,827) Other Operating Expenses 9 (18,676) (729,142) - - Results from Operating Activities 8,481,793 8,526,850 13,373,952 8,877,271 Finance Income 10.1.1 566,668 747,833 191,846 118,630 Finance Cost 10.1.2 (711,309) (1,220,766) (495,479) (859,321) Net Finance Income 10 (144,641) (472,933) (303,633) (740,691) Share of Profit of Equity-Accounted Investees (Net of Tax) 20 1,390,668 1,440,182 - - Profit before Income Tax Expense 11 9,727,820 9,494,099 13,070,319 8,136,580 Taxation 12 (3,254,315) (3,263,009) (2,785,596) (2,778,643) Profit for the Year 6,473,505 6,231,090 10,284,723 5,357,937 Other Comprehensive Income Items that will never be Reclassified to Profit or Loss Revaluation of Property, Plant and Equipment 26,092 - - - Share of Other Comprehensive Income of Equity-Accounted 20.1 85,771 461,475 - - Investees (Net of Tax) Actuarial Gain/(Losses) on Retirement Benefit Obligations 31.1 (53,859) 29,547 (19,885) 5,585 Income tax on Other Comprehensive Income 22.1.1 11,382 (6,976) 7,954 (2,234) 69,386 484,046 (11,931) 3,351 Items that are or may be Reclassified to Profit or Loss Net Change in Fair Value of Available for Sale Financial Assets 1,708,471 (136,569) 721,172 217,263 Reversal of AFS Reserve on Disposal of AFS Investments - - (3,574,279) - 1,708,471 (136,569) (2,853,107) 217,263 Total Other Comprehensive Income for the Year 1,777,857 347,477 (2,865,038) 220,614 Total Comprehensive Income for the Year 8,251,362 6,578,567 7,419,685 5,578,551

Profit attributable to: Equity Holders of the Parent 6,552,956 6,121,813 10,284,723 5,357,937 Non Controlling Interest (79,451) 109,277 - - 6,473,505 6,231,090 10,284,723 5,357,937 Total Comprehensive Income attributable to: Equity Holders of the Parent 8,339,918 6,457,079 7,419,685 5,578,551 Non Controlling Interest (88,556) 121,488 - - 8,251,362 6,578,567 7,419,685 5,578,551 Earnings per Share 13 Basic 21.84 20.41 34.28 17.86 Diluted 21.84 20.41 34.28 17.86

The notes from pages 80 to 160 form an integral part of these Financial Statements. Figures in brackets indicate deductions.

80 Distilleries Company of Sri Lanka PLC Statement of Financial Position

Group Company As at 31 March, 2015 2014 2015 2014 Notes Rs. 000 Rs. 000 Rs. 000 Rs. 000

ASSETS Non Current Assets Property, Plant and Equipment 15 18,477,298 16,221,042 6,219,769 6,298,670 Intangible Assets 16 2,736,603 2,990,493 22,971 23,640 Investment Property 17 586,095 - - - Biological Assets 18 3,551,869 3,176,036 - - Investments in Subsidiaries 19 - - 48,320,750 35,714,117 Investments in Equity Accounted Investees 20 24,192,237 22,994,509 28,703 28,703 Other Non Current Financial Investments 21 17,523,262 15,634,719 2,561,053 6,349,757 Deferred Tax Asset 22.1 502,714 396,816 54,845 44,068 Finance Lease and Hire Purchases Receivables 23 868,225 301,364 - - Advances and Other Loans 24 459,705 151,984 - - 68,898,008 61,866,963 57,208,091 48,458,955 Current Assets Inventories 25 4,984,050 4,435,796 2,796,489 2,246,156 Trade and Other Receivables 26 10,092,709 9,720,603 4,234,115 3,955,602 Finance Lease and Hire Purchases Receivables 23 311,999 114,199 - - Advances and Other Loans 24 1,224,551 673,015 - - Amounts due from Related Companies 35.1.1 672,539 567,714 426,925 5,324,230 Other Current Financial Investments 21 2,431,815 2,439,752 177,863 784,540 Cash at Bank and in Hand 27 4,072,931 3,923,512 184,718 420,103 23,790,594 21,874,591 7,820,110 12,730,631 Total Assets 92,688,602 83,741,554 65,028,201 61,189,586 Equity and Liabilities Share Capital and Reserves Stated Capital 28 300,000 300,000 300,000 300,000 Reserves 29 22,751,448 20,832,013 11,341,703 14,871,455 Retained Earnings/(Losses) 37,952,431 32,504,269 38,641,622 28,667,185 Equity Attributable to Owners of the Company 61,003,879 53,636,282 50,283,325 43,838,640 Non Controlling Interest 3,820,118 3,956,832 - Total Equity 64,823,997 57,593,114 50,283,325 43,838,640 Non Current Liabilities Interest Bearing Loans and Borrowings 30 1,776,356 670,975 - - Deferred Tax Liabilities 21.1 1,301,892 733,350 532,164 60,958 Employee Benefits 31 949,961 831,769 137,110 110,170 Other Deferred Liabilities 32 258,935 252,571 - - 4,287,144 2,488,665 669,274 171,128 Current Liabilities Trade and Other Payables 33 10,211,241 8,772,678 6,032,439 5,146,561 Deposit Liabilities 34 511,789 663,537 - - Other Deferred Liabilities 32 56,112 56,730 - - Amount due to Related Companies 35.1.2 272,403 263,905 1,305,721 1,035,020 Income Tax Payable 463,460 1,178,888 260,986 972,399 Interest Bearing Loans and Borrowings 30 7,809,076 7,603,794 4,795,000 6,215,006 Bank Overdrafts 27 4,253,380 5,120,243 1,681,456 3,810,832 23,577,461 23,659,775 14,075,602 17,179,818 Total Liabilities 27,864,605 26,148,440 14,744,876 17,350,946 Total Equity and Liabilities 92,688,602 83,741,554 65,028,201 61,189,586 Net Assets per Share (Rs.) 203.35 178.79 167.61 146.13 The notes from pages 80 to 160 form an integral part of these Financial Statements. I certified that the Financial Statements are prepared and presented in compliance with the requirements of the Companies Act No.7 of 2007.

N.N. Nagahawatte Head of Finance 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;

D. H. S. Jayawardena C. R. Jansz Chairman / Managing Director Director Colombo, 25 August 2015 Annual Report 2014/15 81 Statement of Changes in Equity - Total (111) Equity 6,752 Rs.000 22,571 461,475 347,477 (136,569) (789,123) (915,688) 6,231,090 6,578,567 (1,698,170) 52,712,717 57,593,114 - - - 63 Non Interest Rs.000 12,148 12,211 (94,714) (15,688) 109,277 121,488 (789,123) (899,525) Controlling Controlling 4,734,869 3,956,832 - - Total Total 6,752 Rs.000 10,423 94,603 461,475 335,266 (136,632) (900,000) (798,645) 6,121,813 6,457,079 47,977,848 53,636,282 - (5,009) (5,826) Rs.000 10,423 94,603 (Losses) (33,636) (15,432) Earnings/ Retained (900,000) (844,859) 6,121,813 6,116,804 27,232,324 32,504,269 ------854 854 Fund 1,990 2,844 Rs.000 Investment ------(5,898) for Sale Rs.000 Reserve Available Available (136,632) (142,530) (142,530) 5,870,033 5,727,503 ------Timber Rs.000 32,115 32,115 Reserve 565,806 597,921 ------Rs.000 45,946 45,946 45,946 Reserve 328,935 374,881 Exchange Fluctuation Attributable to Equity Holders of Parent Attributable to Equity Holders of Parent ------General Rs.000 12,578 12,578 Reserve 8,210,000 8,222,578 ------667 667 Fund 1,131 1,798 Rs.000 Reserve ------Capital Rs.000 Reserve 110,930 110,930 ------Rs.000 Reserve 436,859 436,859 436,859 5,356,699 5,793,558 Revaluation ------Stated Capital Rs.000 300,000 300,000

Balance as at 01 April 2013 Income for the period Comprehensive Total Year for the Profit Income Other Comprehensive for of Available Net Change in Fair Value Sale Financial Assets Defined Benefit Plan Actuarial Gains (Losses) (Net of Tax) Income of of Other Comprehensive Share Equity-Accounted Investees (Net of Tax) Income for Other Comprehensive Total the Period Income for the Period Comprehensive Total with Owners Directly Transactions in the Equity Recorded of Net Assets Equity-Accounted Share Investees (Net of Tax) Dividends Paid During the Period Retained Earnings from/to Transferred Effect on Change in Holding Subsidiaries Effect on Deemed Disposal of Subsidiaries (Note 5.1) Contributions by and Distributions Total to Owners 2014 Balance as at 31 March Group

82 Distilleries Company of Sri Lanka PLC - Total 714 Equity Rs.000 26,092 85,771 (15,674) (42,477) (30,519) (975,000) 6,473,505 1,708,471 8,251,362 1,777,857 (1,020,479) 57,593,114 64,823,997 - - - - Non 497 313 (9,915) (9,105) Interest Rs.000 (79,451) (88,556) (15,674) (32,484) (48,158) Controlling Controlling 3,956,832 3,820,118 - - 714 Total Total 1,965 Rs.000 25,595 85,771 (32,562) (975,000) (972,221) 6,552,956 1,708,158 8,339,918 1,786,962 53,636,282 61,003,879 - - 1,965 Rs.000 (Losses) (32,562) (23,825) (56,381) (34,090) (41,282) Earnings/ Retained (975,000) 6,552,956 6,496,569 (1,048,407) 32,504,269 37,952,431 ------Fund 2,844 (2,844) (2,844) Rs.000 Investment ------for Sale Rs.000 28,085 Reserve Available Available 5,727,503 7,463,746 1,708,158 1,736,243 1,736,243 ------Timber Rs.000 62,223 39,932 Reserve 597,921 700,076 102,155 ------Rs.000 Reserve (37,043) (37,043) (37,043) 374,881 337,838 Exchange Fluctuation Attributable to Equity Holders of Parent Attributable to Equity Holders of Parent ------General Rs.000 63,856 63,856 Reserve 8,222,578 8,286,434 ------Fund 1,798 5,992 4,194 4,194 Rs.000 Reserve ------Capital Rs.000 Reserve 110,930 110,930 ------Rs.000 25,595 Reserve (91,275) (91,275) 118,554 144,149 144,149 5,793,558 5,846,432 Revaluation ------Stated Capital Rs.000 300,000 300,000

Balance as at 01 April 2014 Income for the Comprehensive Total Period Year for the Profit Income Other Comprehensive for of Available Net Change in Fair Value Sale Financial Assets Defined Benefit Plan Actuarial Gains (Losses) (Net of Tax) Plant and Revaluation of Property, Equipment Income of of Other Comprehensive Share Equity-Accounted Investees (Net of Tax) Other Movements Income for Other Comprehensive Total the Period Income for the Comprehensive Total Period with Owners Directly Transactions in the Equity Recorded Interest Dividends Paid to Non Controlling of Net Assets Equity-Accounted Share Investees (Net of Tax) Dividends Paid During the Period Retained Earnings from/to Transferred Effect on Change in Holding Subsidiaries (Note 19.4) Contributions by and Distributions Total to Owners 2015 Balance as at 31 March Group The notes from pages 80 to 160 form an integral part of these financial statements. The notes from in brackets indicate deductions. Figures

Annual Report 2014/15 83 Statement of Changes in Equity - - - - Total Total 4,967 4,967 7,954 5,585 (2,234) Rs.000 (19,885) 220,614 217,263 (975,000) (900,000) (975,000) 7,419,685 5,578,551 5,357,937 (2,853,107) (2,865,038) 10,284,723 43,838,640 43,838,640 50,283,325 39,155,122 - - - - 7,954 3,351 5,585 (2,234) 85,410 85,410 Rs.000 (19,885) (11,931) Earnings 676,645 676,645 Retained Retained (975,000) (900,000) (975,000) 5,361,288 5,357,937 10,284,723 10,272,792 28,667,185 28,667,185 38,641,622 24,120,487 ------Rs.000 217,263 217,263 217,263 4,581,774 4,581,774 1,728,667 4,364,511 (2,853,107) (2,853,107) (2,853,107) Available for Available Sale Reserve ------Rs.000 General Reserve 8,210,000 8,210,000 8,210,000 8,210,000 ------Capital Rs.000 Reserve 107,882 107,882 107,882 107,882 ------4,967 Rs.000 (85,410) (80,443) Reserve (676,645) (676,645) 1,971,799 1,971,799 1,295,154 2,052,242 Revaluation Revaluation ------Stated Capital Rs.000 300,000 300,000 300,000 300,000 Deferred Tax Deferred Retained Earnings from/to Transferred other Movements Total 2014 Balance as at 31 March Balance as at 01 April 2014 Income for the Period Comprehensive Total Year for the Profit Income Other Comprehensive for Sale Financial Assets of Available Net Change in fair Value Benefit Obligations Actuarial Gain/(Losses) on Retirement Income on other Comprehensive Tax Income for the Period Other Comprehensive Total Income for the Period Comprehensive Total in the Equity Recorded with Owners Directly Transactions Dividends Paid During the Period Payment Transactions Share-Based Contributions by and Distributions to Owners Total Other Movements in Equity Tax Deferred Retained Earnings from/to Transferred Other Movements Total 2015 Balance as at 31 March Transactions with Owners Directly Recorded in the Equity Recorded with Owners Directly Transactions Dividends Paid During the Period Total Comprehensive Income for the Period Comprehensive Total Actuarial Gain/(Losses) on Retirement Benefit Obligations Actuarial Gain/(Losses) on Retirement Income on Other Comprehensive Tax Income for the Period Other Comprehensive Total Company Balance as at 01 April 2013 Income for the Period Comprehensive Total Year for the Profit Income Other Comprehensive for Sale Financial Assets of Available Net Change in Fair Value The notes from pages 80 to 160 form an integral part of these financial statements. The notes from in brackets indicate deductions. Figures

84 Distilleries Company of Sri Lanka PLC Statement of Cash Flows

Group Company For the year ended 31 March, 2015 2014 2015 2014 Note Rs.000 Rs.000 Rs.000 Rs.000

CASH FLOW FROM OPERATING ACTIVITIES Profit for the Year 9,727,820 9,494,099 13,070,319 8,136,580 Adjustment for: (Gain) / Loss on sale of Property, Plant and Equipment (39,762) (30,331) (430,761) (50,767) Depreciation and Amortisation of PPE, Intangible Assets and Investment Property 1,535,441 1,502,987 160,882 148,392 Provision for Gratuity 161,231 151,125 20,641 21,445 Provision/(Reversal) of Inventories (6,828) 226,679 - - Provision /(Reversal) of Bad & Doubtful Debts and Impairment of Loans and Receivables. 174,749 (135,241) 7,916 25,057 Interest Expenses 777,005 1,186,613 495,478 862,274 Share of Profit of Equity-Accounted Investees (Net of Tax) (1,390,668) (1,440,182) - - Amortisation of Biological Assets 39,245 37,339 - - Amortisation of Deferred Grants and Subsidiaries (11,443) - - - (Gain)/Loss on Change in Fair Value of Financial Assets at Fair Value Through Profit or Loss (143,869) (53,338) (35,161) (66,877) Interest Income (422,630) (429,894) (156,684) (51,443) Recognition of Share Warrants at Fair Value - (225,081) - (310) (Profit)/Loss on Disposal of Other Financial Investments (337,023) (29,973) - (16,828) (Profit)/Loss on Sale of Subsidiaries, Associates and Quoted Shares - - (5,429,933) - Dividend Income (351,653) (405,809) (278,221) (1,159,818) Deferred Income Recognised (72,576) (85,660) - - Loss on Deemed Disposal of Subsidiary and Associate - 726,439 - - (Gain) / Loss on Fair Valuation of Biological Assets (92,377) (74,294) - - Operating Profit Before Working Capital Changes 9,546,662 10,415,478 7,424,476 7,847,705 Working Capital Changes (Increase)/Decrease in Receivables (2,343,083) (4,324,074) (514,246) (2,824,720) (Increase)/Decrease in Inventories (541,426) (324,392) (550,332) 257,642 Increase/(Decrease) in Payables 1,286,815 1,982,363 1,257,545 (1,481,625) Cash Generated from Operations 7,948,968 7,749,375 7,617,443 3,799,002

Finance Cost Paid Interest Paid (772,985) (1,182,530) (495,478) (862,274) Income Tax Paid (3,495,720) (2,723,126) (3,028,617) (2,244,381) Defined Benefit Plan Costs Paid (96,898) (106,980) (13,585) (21,056) Net Cash from/(used in) Operating Activities 3,583,365 3,736,739 4,079,763 671,291

CASH FLOW FROM INVESTING ACTIVITIES Investment in Equity Accounted Investees (55,744) (507,636) - Acquisition of Property, Plant and Equipment,Intangible Assets and Investment Property (10,271,380) (4,812,025) (817,325) (2,700,384) Net Proceeds from Disposal / (Consideration Paid on Acquisition) of Other Financial 585,369 (1,635,723) 577,319 (250,964) Investments Proceeds from the Sale of Property, Plant and Equipment 6,213,329 38,625 14,334 170,757 Interest Received 422,630 429,894 156,684 51,442 Dividend Received 686,822 656,045 278,221 1,159,818 Additions to Biological Assets (322,702) (334,721) - Net Cash Flow from Investing Activities (2,741,676) (6,165,542) 209,233 (1,569,331)

CASH FLOW FROM FINANCING ACTIVITIES Principal Repayment Under Lease Liabilities (10,160) (8,439) - - Proceeds from Long-Term Interest Bearing Loans and Borrowings 1,259,137 1,477,684 - - Repayments of Long-Term Interest Bearing Loans and Borrowings (162,904) (2,434,426) - (1,270,002) Dividend Paid (975,000) (897,859) (975,000) (897,859) Dividend Paid by Subsidiaries to Minority Share Holders (15,674) (15,688) - - Acquisition of Non Controlling Interests (30,686) - - Receipt of Deferred Income 89,765 78,951 - - Net Cash Generated from Financing Activities 154,478 (1,799,777) (975,000) (2,167,861)

Net Increase/(Decrease) in Cash and Cash Equivalents During the Year 996,167 (4,228,580) 3,313,996 (3,065,902) Net Cash and Cash Equivalents Derecognised via Derecognition of Subsidiaries - (13,182) - Cash and Cash Equivalents at the Beginning of the Year (8,155,308) (3,913,546) (9,605,735) (6,539,833) Cash and Cash Equivalents at the End of the Year (7,159,141) (8,155,308) (6,291,739) (9,605,735)

Analysis of Cash and Cash Equivalents at the End of the Year Short Term Deposits 27.1 3,180,904 3,044,934 42,099 82,062 Cash at Bank 27 804,823 595,628 66,553 61,719 Cash in Hand 27 17,862 206,471 6,724 199,883 Cash in Transit 27 69,342 76,479 69,342 76,439 Other Short Term Borrowings 30 (6,978,692) (6,958,577) (4,795,000) (6,215,006) Bank Overdrafts 27 (4,253,380) (5,120,243) (1,681,456) (3,810,832) (7,159,141) (8,155,308) (6,291,738) (9,605,735) The notes from pages 80 to 160 form an integral part of these financial statements. Figures in brackets indicate deductions.

Annual Report 2014/15 85 Notes to the Financial Statements

1. Reporting Entity Company of Sri Lanka PLC, as at and for the year 1.1 Domicile & Legal Form ended 31 March 2015 comprise the Company and its subsidiaries (together referred to as the “Group”) and Distilleries Company of Sri Lanka PLC (Company) the Group’s interests in associates. is a quoted Public Limited Company incorporated and domiciled in Sri Lanka. The registered office 1.2 Principle Activities and Nature of Operation and principal place of business of the Company is located at 110, Norris Canal Road, Colombo 10. 1.2.1 Company The consolidated Financial Statements of Distilleries The principal activity of the Company is distillation, manufacture and distribution of liquor products.

1.2.2 Subsidiaries

Name of Subsidiary Principal Activities 1 Melstacorp Limited Investment Holding Company 2 Balangoda Plantations PLC Cultivation and Processing of Tea & Rubber 3 Bellvantage (Pvt) Ltd BPO, KPO & Software Development 4 Bogo Power (Pvt) Ltd Generation and Sale of Hydro Electric Energy 5 Browns Beach Hotel PLC Leisure 6 Continental Insurance Lanka Limited General Insurance Services 7 Melsta Logistics (Pvt) Ltd Automobile Servicing and Logistics 8 Melsta Regal Finance Ltd Finance, Leasing, Hire Purchasing and Factoring 9 Milford Holdings (Pvt) Ltd Investment Holding Company 10 Periceyl (Pvt) Ltd Distribution of Locally Manufactured Foreign Liquor 11 Splendor Media (Pvt) Ltd Media Buying & Creative Services 12 Timpex Ltd Investment Holding Company 13 Melsta Properties (Pvt) Ltd Management of Real Estate 14 Melsta Tower (Pvt) Ltd. Real Estate 15 Melsta Technologies (Pvt) Ltd. IT Services 16 Lanka Bell Ltd Telecommunication Services 17 Texpro Industries Ltd Dyeing and Printing Woven Fabrics 18 Negombo Beach Resorts (Pvt) Ltd Leisure 19 Bell Solutions (Pvt) Ltd Information & Communication Technology 20 Telecom Frontier (Pvt) Ltd Telecommunication Services

1.2.3 Associates

Name of Associate Principal Activities

1 Madulsima Plantations PLC Cultivation and Processing of Tea 2 Aitken Spence PLC Diversified Holdings

1.3 Parent Enterprise and Ultimate Parent Enterprise down by the Institute of Chartered Accountants of Sri The immediate and ultimate parent entity of Distilleries Lanka (ICASL) and the requirements of the Companies Company of Sri Lanka PLC is Milford Exports Ceylon Act No. 07 of 2007. (Pvt) Limited. 2.2 Directors Responsibility for Financial Statements 2. Basis of Preparation The Board of Directors is responsible for the 2.1 Statement of Compliance preparation and presentation of the Consolidated Financial Statements in accordance with Sri Lanka The Financial Statements of the Company and the Accounting Standards (SLFRS). Group have been prepared in accordance with new Sri Lanka Accounting Standards (referred “SLFRS”) as laid

86 Distilleries Company of Sri Lanka PLC 2.3 Approval of Financial statements Information about assumption and estimation The Consolidated Financial Statements for the year uncertainty that have significant effect on the amounts ended 31 March 2015 were authorised for issue on 25 recognised in the consolidated financial statements is August 2015 by the Board of Directors. included in notes; Note 18 – Biological Assets 2.4 Basis of Measurement Note 26 – Provisions for bad and doubtful debts The Consolidated Financial Statements have been prepared on the historical cost basis and applied Note 31 – Measurement of defined benefit plan; key consistently with no adjustments being made for actuarial assumptions inflationary factors affecting the Financial Statements, Note 38 – Provisions for contingencies; key except for the following items which are measured on assumptions about the likelihood and magnitude of an an alternative basis on each reporting date. outflow of resources.

Land and Building Fair value 3. Significant Accounting Policies Defined benefit obligation Actuarially valued and Except for the changes set out in Note 3.1 the Group recognised at present has consistently applied the accounting policies value of the defined as set out below to all periods presented in these benefit obligation consolidated financial statements. Available for sale financial Fair Value assets 3.1 Changes in accounting policies Fair value through profit Fair Value The Group has adopted the following new standards or loss financial assets and amendments to standards, including any Consumable Biological Fair Value consequential amendments to other standards, with a Assets date of initial application of 1 January 2014.

2.5 Functional and Presentation Currency • SLFRS 10 - Consolidated Financial Statements. The Consolidated Financial Statements are presented • SLFRS 12 - Disclosure of Interests in Other Entities. in Sri Lankan Rupees, which is the Company’s • SLFRS 13 - Fair Value Measurement. functional currency. All financial information presented in Sri Lankan Rupees has been given to the nearest The nature and the effects of the changes are thousand, unless stated otherwise indicated. explained below. 2.6 Materiality and Aggregation 3.1.1 Subsidiaries Each material class of similar item is presented As a result of SLFRS 10, the Group has changed separately in the Financial Statements. Items of its accounting policy for determining whether it has dissimilar nature or function are presented separately control over and consequently whether it consolidates unless they are immaterial. other entities. SLFRS 10 introduces a new control model that focuses on whether the Group has power 2.7 Use of Estimates and Judgments over an investee, exposure or rights to variable returns The preparation of Financial Statements in conformity from its involvement with the investee and the ability to with SLFRSs requires management to make use its power to affect those returns. judgments, estimates and assumptions that affect the application of accounting policies and the reported The change did not have a material impact on the amounts of assets, liabilities, income and expenses. Group’s financial statements. Actual results may differ from those estimates and judgemental decisions. 3.1.2 Interests in other entities As a result of SLFRS 12, the Group has expanded Estimates and underlying assumptions are reviewed on disclosures about its interests in subsidiaries (see Note an ongoing basis. Revisions to accounting estimates 19.3.1). are recognised prospectively.

Annual Report 2014/15 87 Notes to the Financial Statements

3.1.3 Fair value measurement 3.2.2 Non-controlling interests (“NCI”) In accordance with the transitional provisions of NCI are measured at their proportionate share of the SLFRS 13, the Group has applied the new definition acquiree’s identifiable net assets at the acquisition of fair value, as set out in Note 3.11, prospectively. date. Changes in the Group’s interest in a subsidiary The change had no significant impact on the that do not result in a loss of control are accounted for measurements of the Group’s assets and liabilities, but as equity transactions. the group has included new disclosures in the financial statements, which are required under SLFRS 13. 3.2.3 Subsidiaries These new disclosure requirements are not included ‘Subsidiaries’ are investees controlled by the Group. in the comparative information. However, to the extent The Group ‘controls’ an investee if it is exposed to, that disclosures were required by other standards or has rights to, variable returns from its involvement before the effective date of SLFRS 13, the Group has with the investee and has the ability to affect those provided the relevant comparative disclosures under returns through its power over the investee. The those standards. financial statements of subsidiaries are included in the consolidated financial statements from the date on 3.2 Basis of consolidation which control commences until the date when control The Financial Statements of the Company and Group ceases. comprise the Financial Statements of the Company and its Subsidiaries for the year ended 31 March 2015 3.2.4 Loss of control other than Periceyl (Pvt) Ltd, Continental Insurance When the Group loses control over a subsidiary, it Lanka Limited and Balangoda Plantations PLC whose derecognises the assets and liabilities of the subsidiary, financial year ends on 31 December. The difference and any related NCI and other components of equity. between the reporting date of the above companies Any resulting gain or loss is recognised in profit or and that of the parent does not exceed three loss. Any interest retained in the former subsidiary is months but adjustments are made for any significant measured at fair value when control is lost. transactions or events up to 31 March. 3.2.5 Transactions eliminated on consolidation 3.2.1 Business combinations Intra-group balances and transactions, and any Business combinations are accounted for using unrealised income and expenses (except for foreign the acquisition method as at the acquisition date currency transaction gains or losses) arising from – i.e. when control is transferred to the Group. intra-group transactions, are eliminated in preparing The consideration transferred in the acquisition the consolidated financial statements. Unrealised is generally measured at fair value, as are the gains and losses resulting from transactions between identifiable net assets acquired. Any goodwill that the Group and its Associates are also eliminated in arises is tested annually for impairment. Any gain preparing the consolidated financial statements to the on a bargain purchase is recognised in profit or loss extent of the Group’s interests in the Associates. immediately. Transaction costs are expensed as incurred, except if they are related to the issue of Unrealised losses are eliminated in the same way as debt or equity securities. unrealised gains, but only to the extent that there is no evidence of impairment. The consideration transferred does not include amounts related to the settlement of pre-existing 3.2.6 Interests in Equity Accounted Investees relationships. Such amounts are generally recognised Associates are those entities in which the Group in profit or loss. has significant influence, but not control, over the financial and operating policies. Significant influence is Any contingent consideration payable is measured presumed to exist when the Group holds between 20 at fair value at the acquisition date. If the contingent and 50 percent of the voting power of another entity. consideration is classified as equity, then it is not Investments in associate’s entities are accounted for remeasured and settlement is accounted for within using the equity method (equity-accounted investees) equity. Otherwise, subsequent changes in the fair value and are recognised initially at cost. The cost of the of the contingent consideration are recognised in profit investment includes transaction costs. or loss.

88 Distilleries Company of Sri Lanka PLC The Consolidated Financial Statements include the property, plant and equipment are recognised in the Company’s share of the profit or loss and other profit or loss. comprehensive income, after adjustments to align the accounting policies with those of the Group, from the d. Impairment date that significant influence commences until the Carrying amount of property, plant & equipment are date that significant influence ceases. reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount When the Company’s share of losses exceeds its may not be recoverable. An asset’s carrying amount interest in an equity-accounted investee, the carrying is written down immediately to its recoverable amount amount of that interest, including any long-term if the asset’s carrying amount is greater than its investments, is reported at nil, and the recognition of estimated recoverable amount. further losses is discontinued except to the extent that the Group has an obligation or has made payments on e. De-recognition behalf of the investee. If the associate subsequently An item of property, plant and equipment is reports profits, the Company’s resumes recognising its derecognised upon disposal or when no future share of those profits only after its share of the profits economic benefits are expected from its use or equals the share of losses not recognised. disposal. Any gain or loss arising on derecognising of the asset (calculated as the difference between the 3.3 Property, Plant & Equipment net disposal proceeds and the carrying amount of the 3.3.1 Freehold Assets asset) is included in the Statement of Comprehensive a. Recognition Income in the year the asset is derecognised. Properties, Plant & Equipments are tangible items that are held for servicing, or for administrative purposes f. Revaluation and are expected to be used during more than one The Group revalues its land and buildings at least period. Property, Plant & Equipment are recognised if once in every five years which is measured at its fair it is probable that future economic benefits associated value at the date of revaluation less any subsequent with the assets will flow to the Group and cost of the accumulated depreciation and accumulated asset can be reliably measured. impairment losses. On revaluation of land, any increase in the revaluation amount is credited to the revaluation b. Measurement reserve in shareholder’s equity unless it off sets a Items of property, plant & equipment are measured at previous decrease in value of the same asset that was cost or at fair value in the case of land and buildings recognised in the profit or loss. A decrease in value less accumulated depreciation and accumulated is recognised in the profit or loss where it exceeds impairment losses. The cost of property, plant & the increase previously recognised in the revaluation equipment includes expenditures that are directly reserve. Upon disposal, any related revaluation reserve attributable to the acquisition of the asset. The cost of is transferred from the revaluation reserve to retained self-constructed assets includes the cost of materials earnings and is not taken into account in arriving at the and direct labour, any other costs directly attributable gain or loss on disposal. to bringing the asset to a working condition for its intended use, and the costs of dismantling and g. Depreciation removing the items and restoring the site on which they Depreciation is recognised in the profit or loss on a are located. When parts of an item of property, plant straight-line basis over the estimated useful lives of and equipment have different useful lives, they are each part of an item of property, plant & equipment. accounted for as separate items (major components) Freehold land is not depreciated. Assets held under of property, plant and equipment. finance lease are depreciated over the shorter of the lease term or the useful lives of equivalent owned c. Subsequent Cost assets. Depreciation is based on the cost of an asset Subsequent costs are included in the asset’s less its residual value. Significant components of carrying amount or recognised as a separate asset, individual assets are assessed and if a component has as appropriate, only when it is probable that future a useful life that is different from the remainder of that economic benefit associated with the item will flow to asset, that component is depreciated separately. The the Group and the cost of the item can be measured estimated useful lives used for this purpose, which are reliably. The cost of the day-to-day servicing of consistent with that of the preceding years, are:

Annual Report 2014/15 89 Notes to the Financial Statements

Freehold Buildings 20 years The cost of improvements to or on leased property is capitalised, disclosed as improvements to leasehold Plant, Machinery & Equipment 10 years property and depreciated over the unexpired period Furniture, Fittings, Office Equipment & 10 years of the lease, or the estimated useful lives of the Fire Fighting Equipment improvements, whichever is shorter. Vats & Casks 10 years Oil Storage Tanks 10 years 3.4 Investment Property Computers 03 years Investment property is property held either to earn Motor Vehicles 04 years rental income or for capital appreciation or for both, but not for sale in the ordinary course of the business, Empty Drums 02 years use in the production or supply of goods or services Kitchen Equipment 10 years or administrative purpose. Investment properties Soft Furnishing, Crockery, Cutlery and 05 years are initially measured at its cost including related Glassware transaction costs. The group opts the cost model and it is therefore carried at its cost less any accumulated Depreciation of an asset begins when it is available for depreciation and any accumulated impairment losses. use and ceases at the earlier of the date that the asset is classified as held for sale and the date that the asset Investment properties are derecognised when is derecognised. disposed or permanently withdrawn from use because no future economic benefits are expected. Any gains Depreciation methods, useful lives and residual values or losses retirement or disposal is recognised in the are reviewed at each reporting date. profit or loss in the year of retirement or disposal. Transfers are made to investment property, when there h. Capital Work-in-progress is a change in use. Where group company occupies Capital work-in-progress is stated at cost. These are in a significant portion of an investment property of expenses of a capital nature directly incurred in the a subsidiary, such investment properties are treated construction of buildings, major plant and machinery, as property, plant & equipment the consolidated awaiting capitalisation. financial statements and accounted for as per LKAS 16 Property, Plant & Equipment. 3.3.2 Leased Assets Assets obtained under the finance lease, which 3.5 Operating Leases effectively transfer to the Group substantially, all of the When the lessor effectively retains substantially all risks and benefits incidental to ownership of the leased the risks and rewards of an asset under the lease assets, are treated as if they have been purchased agreement, such leases are classified as operating outright and are capitalised at their cash price. Assets leases. Payments under operating leases are acquired by way of a finance lease are measured recognised as expense in the profit or loss over the at an amount equal to the lower of their fair value period of lease on a straight line basis. and the present value of minimum lease payments at the inception, less accumulated depreciation and 3.6 Intangible Asset accumulated impairment losses. An intangible asset is recognised if it is probable that future economic benefits will flow to the entity Assets held under finance lease are amortised over and the cost of the asset can be measured reliably the shorter of the lease period or the useful lives in accordance with LKAS 38 “Intangible Assets”. of equivalent-owned assets, unless ownership is Intangible assets with finite useful lives are measured at not transferred at the end of the lease period. The cost less accumulated amortisation and accumulated principal/ capital elements payable to the lessor impairment losses. are shown as liability/ obligation. The lease rentals are treated as consisting of capital and interest 3.6.1 Goodwill elements. The capital element in the rental that Goodwill represents the excess of the cost of is applied to reduce the outstanding obligation acquisition over the fair value of Group’s share of the and interest element is charged against profit, net identifiable assets of the acquired Subsidiary at the in proportion to the reducing capital element date of acquisition. Goodwill acquired in a business outstanding. combination is tested annually for impairment or

90 Distilleries Company of Sri Lanka PLC more frequently if events or changes in circumstance The Group has following non derivative financial assets: indicate that it might be impaired and carried at cost Fair value through profit or loss, Loans and receivables, less accumulated impairment losses. Impairment Held to Maturity and Available for sale. losses on goodwill are not reversed. a. Fair Value Through Profit or Loss Goodwill is allocated to cash generating units for A financial asset is classified as fair value through the purpose of impairment testing. The allocation is profit or loss if it is classified as held for trading or is made to those cash generating units or groups of designated as such upon initial recognition. Financial cash generating units that are expected to benefit assets are designated as fair value through profit or from the business combination in which goodwill loss if the Group manages such investments and arose. makes purchase and sales decisions based on their fair value in accordance with the Group’s documented 3.6.2 Amortisation risk management or investment strategy. Upon Amortisation is recognised in profit or loss on a initial recognition attributable transaction costs are straight line basis over the estimated useful lives of recognised in profit or loss as incurred. Financial assets intangible assets from the date that they are available at fair value through profit or loss are measured at fair for use. The estimated useful lives for the current and value, and changes therein are recognised in profit or comparative periods are as follows: loss.

Computer Software 3 years Fair value through profit or loss comprise trading portfolio of the Group which includes investment in 3.7 Inventories quoted shares and share warrants. Inventories are measured at the lower of cost or net realisable value. Net realisable value is the estimated b. Loans and Receivables selling price in the ordinary course of business less the Loans and receivables are financial assets with fixed or estimated cost of completion and selling expenses. determinable payments that are not quoted in an active The general basis on which cost is determined is: all market. Such assets are recognised initially at fair inventory items, except manufactured inventories and value plus any directly attributable transaction costs. work-in progress are measured at weighted average Subsequent to initial recognition loans and receivables directly attributable cost. are measured at amortised cost using the effective interest method less any impairment losses. Loans Manufactured inventories and work-in-progress are and receivables comprise trade receivables, amounts measured at weighted average factory cost which due for related parties, trust certificates, short term includes all direct expenditure and appropriate shares deposits and cash and cash equivalents. of production overhead based on normal operating capacity. c. Held to Maturity If the Group has the positive intent and ability to hold 3.8 Financial Instruments debt securities to maturity, then such financial assets 3.8.1 Non-derivative Financial Assets are classified as held-to-maturity. Held to Maturity The Group recognises a financial asset or financial financial assets are recognised initially at fair value plus liabilities in its Statement of Financial Position when the any direct attributable transaction costs. Subsequent Group becomes a party to the contractual provisions to initial recognition, held-to-maturity financial assets of the instrument. are measured at amortised cost using effective interest method, less any impairment losses. Financial assets are initially measured at fair value. Transaction costs that are directly attributable to the Held to Maturity financial assets comprise debt acquisition or issue of a financial asset (other than securities. financial assets at fair value through profit and loss) are added or deducted from the fair value of the financial d. Available-for-Sale Financial Assets asset, as appropriate, on initial recognition. Transaction Available-for-sale financial assets are non-derivative costs that are directly attributable to the acquisition of financial assets that are designated as available-for- financial assets at fair value through profit or loss are sale or are not classified in any of the above categories recognised immediately in profit or loss. of financial assets. Available-for-sale financial assets

Annual Report 2014/15 91 Notes to the Financial Statements

are recognised initially at fair value plus any directly a. De-recognition attributable transaction costs. The Group derecognises a financial liability when its contractual obligations are discharged, cancelled or Subsequent to initial recognition, they are measured at expired. fair value and changes therein, other than impairment losses, are recognised in other comprehensive income 3.9 Stated Capital and presented in the fair value reserve in equity. Ordinary Capital When an investment is derecognised, the gain or loss accumulated in available for sale reserve is reclassified Ordinary Shares are classified as equity. Incremental to profit or loss. costs directly attributable to the issue of ordinary shares and share options are recognised as a Available- for-sale financial assets comprise of deduction from equity, net of any tax effects. investment in unquoted shares and unit trust an quoted shares purchased for long term investment 3.10 Impairment purpose. 3.10.1 Non Financial Assets The carrying amounts of the Group’s assets are e. Cash and Cash Equivalents reviewed at each reporting date to determine whether Cash and cash equivalents comprise cash balances there is any indication of impairment. If any such and call deposits. Bank overdrafts that are repayable indication exists then the asset’s recoverable amount on demand and form an integral part of the Group’s is estimated. For goodwill that has indefinite life, cash management are included as a component of recoverable amount is estimated at each reporting cash and cash equivalents for the purpose of the date or more frequently, if events or changes in Statement of Cash Flows. circumstances indicate that it might be impaired.

Investments with short maturities, i.e. three months An impairment loss is recognised if the carrying amount or less from the date of acquisition are also treated as of an asset or its cash-generating unit exceeds its cash equivalents. recoverable amount. A cash-generating unit is the smallest identifiable asset group that generates cash flows that are f. De-recognition largely independent from other assets and groups. The Group derecognises the financial asset when the rights to receive cash flows from the asset The recoverable amount of an asset or cash- have expired or when it transfer the financial asset generating unit is the greater of its value in use and in a transaction in which substantially all the risks its fair value less costs to sell. In assessing value in and rewards of ownership of the financial asset use, the estimated future cash flows are discounted are transferred or in which the Group neither to their present value using a pre-tax discount rate transfers nor substantially all risks and rewards that reflects current market assessments of the time of ownership and it does not retain control of the value of money and the risks specific to the asset. An financial asset. impairment loss in respect of goodwill is not reversed.

3.8.2 Non- derivative Financial Liabilities 3.10.2 Financial Assets Non-derivative financial liabilities are recognised initially A financial asset not carried at fair value through profit at fair value plus any directly attributable transaction or loss is assessed at each reporting date to determine costs. Subsequent to initial recognition, these financial whether there is objective evidence that it is impaired. liabilities are measured at amortised cost using the A financial asset is impaired if objective evidence effective interest method. indicates that a loss event has occurred after the initial recognition of the asset, and that the loss event had Financial liabilities comprise of interest bearing a negative effect on the estimated future cash flows loans, trade and other payables and bank of that can be estimated reliably. Objective evidence overdrafts. Bank overdrafts that are repayable on that financial assets are impaired can include default demand and form an integral part of the Group’s or delinquency by a debtor, restructuring of an amount cash management are included as a component due to the Group on terms that the Group would not of cash and cash equivalents for the statement of consider otherwise, indications that a debtor or issuer cash flows. will enter bankruptcy, or the disappearance of an active market for a security.

92 Distilleries Company of Sri Lanka PLC Financial Assets measured at Amortised Cost the most advantageous market to which the Group has The Group considers evidence of impairment for access at that date. The fair value of a liability reflects financial assets measured at amortised cost (loans and its non-performance risk. receivables and held-to-maturity financial assets) at both a specific asset and collective level. All individually When available, the Group measures the fair value significant assets are assessed for specific impairment. of an instrument using the quoted price in an active Those found not to be specifically impaired are then market for that instrument. A market is regarded as collectively assessed for any impairment that has active if transactions for the asset or liability take place been incurred but not yet identified. Assets that are with sufficient frequency and volume to provide pricing not individually significant are collectively assessed information on an ongoing basis. for impairment by grouping together assets with similar risk characteristics. In assessing collective If there is no quoted price in an active market, then the impairment, the Group uses historical trends of the Group uses valuation techniques that maximise the use probability of default, the timing of recoveries and the of relevant observable inputs and minimise the use of amount of loss incurred, adjusted for management’s unobservable inputs. The chosen valuation technique judgment as to whether current economic and credit incorporates all of the factors that market participants conditions are such that the actual losses are likely would take into account in pricing a transaction. to be greater or lesser than suggested by historical The best evidence of the fair value of a financial trends. An impairment loss in respect of a financial instrument at initial recognition is normally the asset measured at amortised cost is calculated as the transaction price – i.e. the fair value of the difference between its carrying amount and the present consideration given or received. If the Group value of the estimated future cash flows discounted determines that the fair value at initial recognition at the asset’s original effective interest rate. Losses differs from the transaction price and the fair value are recognised in profit or loss and reflected in an is evidenced neither by a quoted price in an active allowance account against loans and receivables or market for an identical asset or liability nor based held-to-maturity investment securities. Interest on the on a valuation technique that uses only data from impaired asset continues to be recognised. When an observable markets, then the financial instrument event occurring after the impairment was recognised is initially measured at fair value, adjusted to defer causes the amount of impairment loss to decrease, the the difference between the fair value at initial decrease in impairment loss is reversed through profit recognition and the transaction price. Subsequently, or loss. that difference is recognised in profit or loss on an appropriate basis over the life of the instrument but Available-for-Sale Financial Assets no later than when the valuation is wholly supported Impairment losses on available-for-sale financial by observable market data or the transaction is assets are recognised by reclassifying the losses closed out. accumulated in the fair value reserve to profit or loss. The amount reclassified is the difference between If an asset or a liability measured at fair value has a the acquisition cost (net of any principal repayment bid price and an ask price, then the Group measures and amortisation) and the current fair value, less any assets and long positions at a bid price and liabilities impairment loss previously recognised in profit or loss. and short positions at an ask price. If the fair value of an impaired available-for-sale debt security subsequently increases and the increase can Portfolios of financial assets and financial liabilities be related objectively to an event occurring after the that are exposed to market risk and credit risk that impairment loss was recognised, then the impairment are managed by the Group on the basis of the net loss is reversed through profit or loss; otherwise, it is exposure to either market or credit risk are measured reversed through OCI. on the basis of a price that would be received to sell a net long position (or paid to transfer a net short 3.11 Fair value measurement position) for a particular risk exposure. Those portfolio- Policy applicable from 1 January 2014 level adjustments are allocated to the individual ‘Fair value’ is the price that would be received to sell assets and liabilities on the basis of the relative risk an asset or paid to transfer a liability in an orderly adjustment of each of the individual instruments in the transaction between market participants at the portfolio. measurement date in the principal or, in its absence,

Annual Report 2014/15 93 Notes to the Financial Statements

The fair value of a demand deposit is not less than assets and long positions at a bid price and liabilities the amount payable on demand, discounted from the and short positions at an ask price. Where the Group first date on which the amount could be required to be has positions with offsetting risks, mid-market prices paid. are used to measure the offsetting risk positions and a bid or ask price adjustment is applied only to the net The Group recognises transfers between levels of the open position as appropriate. fair value hierarchy as of the end of the reporting period during which the change has occurred. The fair value of a demand deposit is not less than the amount payable on demand, discounted from the first Policy applicable before 1 January 2014 date on which the amount could be required to be paid. ‘Fair value’ is the amount for which an asset could be exchanged, or a liability settled, between 3.12 Employee Benefits knowledgeable, willing parties in an arm’s length Defined Contribution Plans transaction on the measurement date. Defined contribution plan is a post-employment benefit plan under which contributions are made When available, the Group measures the fair value of into a separate fund and the entity will have no legal an instrument using quoted prices in an active market or constructive obligation to pay further amounts. for that instrument. A market is regarded as active Obligations for contributions to defined contribution if quoted prices are readily and regularly available plan are recognised as an employee benefit expense in and represent actual and regularly occurring market profit or loss in the periods during services is rendered transactions on an arm’s length basis. by employees. Prepaid contributions are recognised as an asset to the extent that a cash refund or a reduction If a market for a financial instrument is not active, in future payments is available. then the Group establishes fair value using a valuation technique. The chosen valuation technique Employees’ Provident Fund (EPF): makes maximum use of market inputs, relies as The Company and employees contribute 15% and little as possible on estimates specific to the Group, 10% respectively on the basic salary of each employee incorporates all factors that market participants would to the above mentioned fund. consider in setting a price and is consistent with accepted economic methodologies for pricing financial Employees’ Trust Fund (ETF) instruments. The Company contributes 3% of the basic salary of The best evidence of the fair value of a financial each employee to the Employees’ Trust Fund. instrument at initial recognition is the transaction price – i.e. the fair value of the consideration given or Defined Benefit Plans received. However, in some cases the initial estimate of A defined benefit plan is a post-employment fair value of a financial instrument on initial recognition benefit plan other than a defined contribution plan. may be different from its transaction price. If this The Group’s net obligation in respect of defined estimated fair value is evidenced by comparison with benefit plans is calculated separately for each plan other observable current market transactions in the by estimating the amount of future benefit that same instrument (without modification or repackaging) employees have earned in return for their service or based on a valuation technique whose variables in the current and prior periods; that benefit is include only data from observable markets, then discounted to determine its present value. The the difference is recognised in profit or loss on initial valuation is performed annually by a qualified recognition of the instrument. In other cases, the fair actuary using the projected unit credit method. value at initial recognition is considered to be the When the valuation results in a benefit to the Group, transaction price and the difference is not recognised the recognised asset is limited to the total of any in profit or loss immediately but is recognised over the unrecognised past service costs and the present life of the instrument on an appropriate basis or when value of economic benefits available in the form of the instrument is redeemed, transferred or sold, or the any future refunds from the plan or reductions in fair value becomes observable. future contributions to the plan. An economic benefit is available to the Group if it is realisable during If an asset or a liability measured at fair value has a the life of the plan, or on settlement of the plan bid price and an ask price, then the Group measures liabilities. When the benefits of a plan are improved,

94 Distilleries Company of Sri Lanka PLC the portion of the increased benefit relating to past Gains and losses on the disposal of property, plant & service by employees is recognised in profit or loss equipment are determined by comparing the net sales on a straight line basis over the average period until proceeds with carrying amount. These are included in the benefits become vested. To the extent that the profit and loss. benefits vest immediately, the expense is recognised immediately in profit or loss. The Group recognises 3.15 Borrowing Costs all actuarial gains and losses arising from defined Borrowing costs are recognised as an expense benefit plans directly in the other comprehensive in the period in which they are incurred, except income and all expenses related to defined benefit to the extent where borrowing costs that are plan in personnel expense in profit or loss. directly attributable to the acquisition, construction or production of a qualifying asset that takes Short Term Benefits a substantial period of time to get ready for its Short-term employee benefit obligations are measured on intended use or sale is capitalised as part of that an undiscounted basis and are expensed as the related asset. service is provided. Borrowing costs that are not capitalised are 3.13 Provisions, Contingent Assets and Contingent recognised as expenses in the period which they are Liabilities incurred and charged to the Profit or Loss. Provisions are recognised, if as a result of a past event, the Group has a present legal or constructive obligation The amounts of the borrowing costs which that can be estimated reliably, and it is probable that an are eligible for capitalisation are determined in outflow of economic benefits will be required to settle the accordance with the in LKAS 23 – ‘Borrowing obligation. All the contingent liabilities are disclosed, as Costs’. Notes to the Financial Statements unless the outflow of resources is made contingent assets if exits are disclosed 3.16 Finance Income and Expenses when inflow of economic benefit is probable. Finance income comprises interest income on funds invested (including available for sale financial assets), 3.13.1 Commitments gains on the disposal of available for sale financial All material commitments as at the reporting date have assets. Interest income is recognised as it accrues in been identified and disclosed in the Notes to the Financial the profit or loss, using the effective interest method. Statements. Finance cost comprise interest expenses on 3.14 Revenue borrowings, unwinding of the discount on provisions and contingent consideration, losses on disposal of Revenue from the sale of goods is measured at the fair available for sale financial assets, impairment losses value of the consideration received or receivable, net recognised on financial assets (other than trade of returns and allowances, trade discounts and volume receivables). rebates. Revenue is recognised when the significant risks and rewards of ownership have been transferred Borrowing costs that are not directly attributable to the to the buyer, recovery of the consideration is probable, acquisition, construction or production of a qualifying the associated costs and possible return of goods asset are recognised in profit or loss using the effective can be estimated reliably, and there is no continuing interest rate method. management involvement with the goods. Foreign currency gains and losses are reported on Dividend Income from investment is recognised when a net basis as either finance income or finance cost the shareholder’s right to receive payment has been depending on whether foreign currency movements established. are in a net gain or net loss position.

Rental Income is recognised in profit and loss as it 3.17 Taxation accrues. Income tax expense comprises current and deferred tax. Gains and losses on the disposal of investments Income tax expense is recognised in profit or loss except held by the Group have been accounted for in the to the extent that it relates to items recognised directly in Statement of comprehensive income. equity, in which case it is recognised in equity.

Annual Report 2014/15 95 Notes to the Financial Statements

a. Income Tax the profit or loss attributable to ordinary shareholders Provision for taxation is based on the profit for the year and the weighted average number of ordinary shares adjusted for taxation purposes in accordance with the outstanding for the effects of all dilutive potential provisions of the Inland Revenue Act, No.10 of 2006 ordinary shares. and amendments made thereto. 3.20 Segment Reporting Current tax is the expected tax payable on the taxable A segment is a distinguishable component of the income for the year, using tax rates enacted at the Group that is engaged either in providing related reporting date and any adjustments to tax payable in products or services (Business Segment) or in respect of previous years. providing products or services within a particular economic environment (Geographical Segment), which b. Deferred Tax is subject to risks and rewards that are different from Deferred tax is recognised using the reporting method, those of other segments. providing for temporary differences between the carrying amounts of assets and liabilities for financial The activities of the segments are described in Note 05 reporting purposes and the amounts used for taxation to the Financial Statements. purposes. Deferred tax is not recognised for the following temporary differences: the initial recognition 3.21 Statement of Cash Flows of goodwill, the initial recognition of assets or liabilities The Statement of Cash Flows has been prepared in a transaction that is not a business combination using the ‘Indirect Method’ of preparing Cash Flows in and that affects neither accounting nor taxable profit, accordance with the Sri Lanka Accounting Standard and differences relating to investments in subsidiaries - LKA S 7 ‘Statement of Cash Flows.’ Cash and to the extent that they probably will not reverse in the cash equivalents comprise short term, highly liquid foreseeable future. Deferred tax is measured at the tax investments that are readily convertible to known rates that are expected to be applied to the temporary amounts of cash and are subject to an insignificant risk differences when they reverse, based on the laws that of changes in value. have been enacted or substantively enacted by the reporting date. 3.22 Comparative Figures Where necessary comparative figures have been A deferred tax asset is recognised only to the extent reclassified to conform to the current year’s that it is probable that future taxable profits will be presentation. available against which the asset can be utilised. Deferred tax assets are reviewed at each reporting 3.23 Grants and Subsidies date and are reduced to the extent that it is no longer Grants and subsidies are credited to the Statements probable that the related tax benefit will be realised. of Comprehensive Income over the periods necessary Tax withheld on dividend income from subsidiaries to match them with the related costs which they and associates is recognised as an expense in the are intended to compensate, on a systematic basis. Consolidated Income Statement at the same time as Grants related to assets, including non-monetary the liability to pay the related dividend is recognised. grants at fair value, are deferred in the Reporting and credited to the profit or loss over the useful life of the 3.18 Subsequent Events related asset. All material post reporting events have been considered and where appropriate adjustments or Grants related to income are recognised in the Income disclosures have been made in the respective notes to Statement in the period in which it is receivable. the Financial Statements. 3.24 Policies Specific to Plantation Sector 3.19 Earnings Per Share 3.24.1 Biological Asset The Group presents basic and diluted Earnings Per 3.24.1.1 Immature and Mature Plantations Share (EPS) for its ordinary shares. Basic EPS is calculated by dividing the profit or loss attributable to Biological assets are classified in to mature biological ordinary shareholders of the Group by the weighted assets and immature biological assets. Mature average number of ordinary shares outstanding during biological assets are those that have attained the period. Diluted EPS is determined by adjusting harvestable specifications or are able to sustain regular

96 Distilleries Company of Sri Lanka PLC harvests. Immature biological assets are those that period at its fair value less cost to sell in terms of have not yet attained harvestable specification. Tea, LKAS 41. The cost is treated as approximation rubber, other plantations and nurseries are classified as to fair value of young plants as the impact on biological assets. biological transformation of such plants to price during this period is immaterial. The fair Biological assets are further classified as bearer value of timber trees are measured using DCF biological assets and consumable biological assets. method taking in to consideration the current Bearer biological asset includes tea plants, those market prices of timber, applied to expected that are not intended to be sold or harvested, timber content of a tree at the maturity by an however used to grow for harvesting agriculture independent professional valuer. Key assumptions produce. Consumable biological assets includes and sensitivity analysis are given in Note 18.1.2. managed timber trees those that are to be harvested as agricultural produce from biological assets or sold The main variables in DCF model concerns as biological assets. Variable Comment The entity recognise the biological assets when, and only when, the entity controls the assets as a result Currency Valuation Sri Lankan Rupees of past event, it is probable that future economic benefits associated with the assets will flow to the Timber Content Estimate based on physical entity and the fair value or cost of the assets can be verification of girth, height measured reliably. and considering the growth of the each spices in different The bearer biological assets are measured at cost geographical regions. less accumulated depreciation and accumulated impairment losses, if any, in terms of LKAS 16 – Factor all the prevailing Property Plant & Equipment as per the ruling issued statutory regulations enforced by CASL. for harvesting of timber coupled with forestry plan of the The cost of land preparation, rehabilitation, new company. planting, replanting, crop diversification, inter planting and fertilizing, etc., incurred between the Economic Useful Estimated based on the normal time of planting and harvesting (when the planted Life life span of each spices by area attains maturity), are classified as immature factoring the forestry plan of the plantations. These immature plantations are shown Company at direct costs plus attributable overheads, including interest attributable to long-term loans used for Selling Price financing immature plantations. The expenditure incurred on bearer biological assets (Tea, Rubber, Estimated based on prevailing Timber fields) which comes into bearing during Sri Lankan market price. Factor the year, is transferred to mature plantations. all the conditions to be fulfilled Expenditure incurred on consumable biological in bringing the trees in to assets is recorded at cost at initial recognition and saleable condition thereafter at fair value at the end of each reporting period. Planting Cost Estimated costs for the further development of immature areas Permanent impairments to biological asset are are deducted. charged to the Income Statement in full and reduced to the net carrying amounts of such asset in the year Discount Rate Future cash flows are of occurrence after ascertaining the loss. discounted at following discount rates: Timber trees The managed timber trees are measured on initial 13% recognition and at the end of each reporting

Annual Report 2014/15 97 Notes to the Financial Statements

Nursery cost includes the cost of direct materials, No. of Years Rate (%) direct labour and an appropriate proportion of directly attributable overheads, less provision for Buildings & Roads 40 2.50 overgrown plants. Plant & Machinery 20/25 5.00/4.00 Motor Vehicles 15/20 6.67/5.00 The gain or loss arising on initial recognition of Equipment 8/4 12.50/25 biological assets at fair value less cost to sell and Furniture & Fittings 10 10.00 from a change in fair value less cost to sell of biological assets are included in profit or loss for the Mature Plantations period in which it arises. (Replanting and New Planting) 3.24.2 Infilling Cost on Bearer Biological Assets Tea 33 1/3 3.00 The land development costs incurred in the form of Rubber 20 5.00 infilling have been capitalised to the relevant mature field, if it increases the expected future benefits Depreciation of an asset begins when it is available for from that field, beyond its pre-infilling performance use and ceases at the earlier of the date on which the assessment. Infilling costs so capitalised are asset is classified as held for sale or is derecognised. Depreciation methods, useful lives and residual values depreciated over the newly assessed remaining useful are reassessed at the reporting date and adjusted economic life of the relevant mature plantation, or the prospectively, if appropriate. Mature plantations are unexpired lease period, whichever is lower. depreciated over their useful lives or unexpired lease period, whichever is less. No depreciation is provided Infilling costs that are not capitalised have been for immature plantations. charged to the Income Statement in the year in which they are incurred. (b) Amortisation The leasehold rights of assets taken over from SLSPC 3.24.3 Land Development Cost are amortised in equal amounts over the shorter of the Permanent land development costs are those costs remaining lease periods and the useful lives as follows: incurred in making major infrastructure development and building new access roads on leasehold lands. No. of Years Rate (%) Bare Land 53 1.89 These costs have been capitalised and amortised over the remaining lease period. Improvements to Land 30 3.33 Mature Plantations 30 3.33 Permanent impairments to land development costs (Tea & Rubber) are charged to the Income Statement in full or Buildings 25 4.00 reduced to the net carrying amounts of such assets Machinery 15 6.67 in the year of occurrence after ascertaining the loss. 3.24.5 Deferred Income 3.24.4 Depreciation and Amortisation (a) Depreciation 3.24.5.1 Grants and Subsidies Depreciation is recognised in Profit or Loss on Government grants are recognised where there is a straight-line basis over the estimated useful reasonable assurance that the grant will be received and all attached conditions will be complied with. economic lives of each part of an item of Property, When the grant relates to an expense item, it is Plant & Equipment. Assets held under finance leases recognised as income over the period necessary to are depreciated over the shorter of the lease term match the grant on a systematic basis to the costs and the useful lives of equivalent owned assets that it is intended to compensate. Where the grant unless it is reasonably certain that the Group will relates to an asset, it is recognised as deferred income have ownership by the end of the lease term. Lease and released to income in equal amounts over the period of land acquired from JEDB/ SLSPC will be expected useful life of the related asset. expired in year 2045. The estimated useful lives for Where the Group receives non-monetary grants, the the current and comparative periods are as follows: asset and the grant are recorded gross at nominal

98 Distilleries Company of Sri Lanka PLC amounts and released to the income statement over contracts can, however, be reclassified as insurance the expected useful life and pattern of consumption contracts after inception if insurance risk becomes of the benefit of the underlying asset by equal annual significant. instalments. Where loans or similar assistance are provided by governments or related institutions with All the products sold by the Group are insurance an interest rate below the current applicable market contracts and therefore classified as Insurance rate, the effect of this favourable interest is regarded contracts under the SLFRS 4 – Insurance Contracts. as additional government grant. Assets are amortised Thus, the Group does not have any investment over their useful lives as follows; contracts within its product portfolio as at the reporting date. - Buildings 40 years 3.25.2 Deferred acquisition Costs (DAC) 3.25 Policies Specific to Insurance Sector Those direct and indirect costs incurred during the 3.25.1 Insurance Contracts financial period arising from the writing or renewing of As permitted by SLFRS 4 Insurance Contracts, the insurance contracts are deferred and amortised over Group continues to apply the existing accounting the period in which the related revenues are earned. All policies for Insurance Contracts that were applied prior other acquisition costs are recognised as an expense to the adoption of SLFRS. when incurred.

Product Classification The DAC is applicable only to Non - Life Insurance Contracts. In line with the available regulatory SLFRS 4 requires contracts written by insurers guidelines from the Insurance Board of Sri Lanka to be classified as either “insurance contracts” or (IBSL), the DAC is calculated based on the 365 days “investment contracts” depending on the level of basis. insurance risk transferred. An impairment review is performed at each reporting Insurance contracts are those contracts when the date or more frequently when an indication of Group (the insurer) has accepted significant insurance impairment arises. When the recoverable amount is risk from another party (the policyholders) by agreeing less than the carrying value, an impairment loss is to compensate the policyholders if a specified recognised in the statement of comprehensive income. uncertain future event (the insured event) adversely No such indication of impairment was experienced affects the policyholders. As a general guideline, the during the year. DAC is derecognised when the related Group determines whether it has significant insurance contracts are either settled or disposed-off. risk, by comparing benefits paid with benefits payable if the insured event did not occur. Insurance contracts 3.25.3 Reinsurance can also transfer financial risk. The Group cedes insurance risk in the normal course Investment contracts are those contracts that transfer of business to recognised reinsurers through formal significant financial risk and no significant insurance reinsurance arrangements. Reinsurance assets include risk. the balances due from reinsurance companies for paid and unpaid losses and loss adjustment expenses. Financial risk is the risk of a possible future change Amounts recoverable from reinsurers are estimated in one or more of a specified interest rate, financial in a manner consistent with the outstanding claims instrument price, commodity price, foreign exchange provision or settled claims associated with the rate, index of price or rates, credit rating or credit reinsurer’s policies and are in accordance with the index or other variable, provided in the case of a non- related reinsurance contract. financial variable that the variable is not specific to a party to the contract. Reinsurance is recorded gross in the statement of financial position unless a right to offset exists. Once a contract has been classified as an insurance Reinsurance assets are reviewed for impairment at contract, it remains an insurance contract for the each reporting date, or more frequently, when an remainder of its lifetime, even if the insurance risk indication of impairment arises during the reporting reduces significantly during this period, unless all rights year. Impairment occurs when there is objective and obligations are extinguished or expire. Investment evidence as a result of an event that occurred after

Annual Report 2014/15 99 Notes to the Financial Statements

initial recognition of the reinsurance asset that the Liability Adequacy Test (LAT) Group may not receive all outstanding amounts due As required by the SLFRS 4- Insurance Contracts, the under the terms of the contract and the event has a Group performed a Liability Adequacy Test (LAT) in reliably measurable impact on the amounts that the respect of Non - Life Insurance contract liabilities with Group will receive from the reinsurer. The impairment the assistance of the external actuary. loss, if any is recorded in the Profit or Loss. 3.25.6 Revenue Recognition Ceded reinsurance arrangements do not relieve 3.25.6.1 Insurance Premiums the Group from its obligations to policyholders. Reinsurance assets or liabilities are derecognised when a) Non - Life Insurance Business the contractual rights are extinguished or expire or Gross written premiums - Non - Life Insurance comprise when the contract is transferred to another party. the total premiums received /receivable for the whole period of cover provided by contracts entered into 3.25.4 Premium Receivable during the accounting period. Gross Written Premium Insurance receivables are recognised when due and is generally recognised is written upon inception of the measured on initial recognition at the fair value of the policy. Upon inception of the contract, premiums are consideration receivable. Collectability of premiums is recorded as written and are earned primarily on a prorate reviewed on an ongoing basis. basis over the term of the related policy coverage.

According to the Premium Payment Warranty (PPW) Rebates that form part of the premium rate, such directive issued by the Insurance Board of Sri Lanka as no claim rebates, are deducted from the gross (IBSL), all Non-Life insurance policies are issued premium. Unearned premiums are those proportions subject to PPW and are cancelled upon the expiry of premiums written in a year that relate to periods of 60 days if not settled except some selected of risk after the reporting date. Unearned premiums customers where Group has allowed extra period for are calculated on 365 days basis in accordance with settlements. the Regulation of Insurance Industry Act, No. 43 of 2000. However, for those contracts for which the 3.25.5 Insurance Provision – Non - Life Insurance period of risk differs significantly from the contract period, premiums are earned over the period of risk Non - Life Insurance contract liabilities include the in proportion to the amount of insurance protection outstanding claims provision including IBNR /IBNER provided. The proportion attributable to subsequent and provision for unearned premiums. periods is deferred as a provision for unearned premiums which is included under liabilities. The outstanding claims provision is based on the estimated ultimate cost of all claims incurred but not settled at the reporting date, whether reported b) Reinsurance Premiums or not, together with related claims handling costs Gross reinsurance premiums on insurance contracts and reduction for the expected value of salvage and are recognised as an expense on the earlier of the other recoveries. Delays can be experienced in the date when premiums are payable or when the policy notification and settlement of certain types of claims, becomes effective. Reinsurance premiums are decided therefore, the ultimate cost of these cannot be known based on rates agreed with reinsurers. Unearned with certainty at the reporting date. reinsurance premiums are those proportions of premiums written in a year that relate to periods of The valuation of Unearned Premium Reserve is risk after the reporting date. Unearned reinsurance measured in accordance with guidelines of the premiums are deferred over the term of the underlying Regulation of Insurance Industry Act, No. 43 of 2000 direct insurance policies for risks-attaching contracts (i.e. based on the 365 days basis). The Incurred But (using 365 days basis in accordance with the Not Reported (IBNR) and Incurred But Not Enough Regulation of Insurance Industry Act, No. 43 of 2000). Reported (IBNER) claims reserve are actuarially computed. The liability is not discounted for the 3.25.7 Policy Income time value of money. No provision for equalisation Insurance contract policyholders are charged for or catastrophe reserves is recognised. The liabilities policy administration services and other contract fees. are derecognised when the obligation to pay a claim These fees are recognised as revenue upon receipt or expires, is discharged or is cancelled. becoming due and is classified under other income.

100 Distilleries Company of Sri Lanka PLC 3.25.8 Benefits, Claims and Expenses 3.26 Policies Specific to Telecommunication Sector a) Gross Benefits and Claims 3.26.1 Depreciation Non - Life Insurance Business The estimated useful lives used are as follows; Non - Life insurance claims include all claims occurring Buildings 8 years during the year, whether reported or not together Shelters and Other Equipment 5 years with claims handling costs that are directly related to the processing and settlement of claims, a reduction Vehicles 5 years for the value of salvage and other recoveries, and Furniture and Fittings 5 years any adjustments to claims outstanding from previous Computer Software 3 years years. Claims outstanding are assessed by review of Leasehold Improvements 5 years individual claim files and estimating changes in the Leased Equipment 3 – 10 years ultimate cost of settling claims. Office/Other Equipment 1 – 5 years The provision in respect of Claims Incurred But Not Digital Electronic Switches 10 years Reported (IBNR) and Claims Incurred But Not Enough Network Equipment 10 years Reported (IBNER) is actuarially valued to ensure a more Towers 10 years realistic estimation of the future liability based on the Customer Premise Equipment 1 – 10 years past experience and trends. Actuarial valuations are performed on a semi-annual basis. Whilst the Directors FLAG Project Assets 5 – 15 years consider that the provisions for claims are fairly stated WiMAX 5 – 10 years on the basis of information currently available, the ultimate liability will vary as a result of subsequent 3.26.2 Intangible Assets information and events. This may result in adjustments 3.26.2.1 License Fees and Access Rights to the amounts provided. Such amounts are reflected Separately acquired licences and access rights are in the financial statements for that period. shown at historical cost. Expenditures on license fees and access rights that is deemed to benefit or relate to The methods used to estimate claims and the more than one financial year is classified as intangible estimates made are reviewed regularly. assets and is being amortised over the agreement period on a straight line basis. b) Reinsurance Claims 3.26.2.2 Amortisation Reinsurance claims are recognised when the related gross insurance claim is recognised according to the Amortisation is recognised in profit or loss on a straight line basis over the estimated useful lives of terms of the relevant contract. intangible assets from the date that they are available for use. The estimated useful lives for the current and 3.25.9 Net Deferred Acquisition Expenses comparative periods are as follows: Acquisition expenses, representing commissions, which vary with and are directly related to the production of business, are deferred and amortised Computer Software 3 – 5 years over the period in which the related written premiums FLAG access Rights 15 years are earned. Licenses 10 years Reinsurance commission is also treated in the same 3.26.3 Revenue manner within deferred acquisition costs. Revenue from services rendered in the course of ordinary activities is measured at fair value of the 3.25.10 Premium income (GWP) and other sundry sales consideration received or receivable net of trade related taxes discounts and volume rebates. Revenue, expenses and assets are recognised net of the amount of sales taxes and premium taxes Revenue is recognised when persuasive evidence except where the premium or sales tax incurred on the exist, usually in the form of an executed sales purchase of assets services is not recoverable from agreement, that the significant risks and rewards of the taxation authority, in which case, the sale tax is ownership have been transferred to the customer, recognised as a part of the cost of acquisition of the recovery of the consideration is probable and the asset or as a part of the expense item, as applicable. amount of revenue can be measured reliably.

Annual Report 2014/15 101 Notes to the Financial Statements

If it is probable that discounts will be granted and the charged on a monthly basis based on usage, and the amount can be measured reliably, then the discount is contracts are for a short term. recognised as a reduction of revenue as the sales are recognised. 3.26.3.7 Prepaid Card Revenue Revenue from the sale of prepaid card on CDMA, The revenue is recognised as follows: Internet is recognised upon activation of the said 3.26.3.1 Domestic and International Call Revenue, Rental card as the period of expiry of the card and the non Income refundable nature of the amounts are considered immaterial to the revenue recognition process. Revenue for call time usage by customers is recognised as revenue as services are performed on 3.27 Policies Specific to Finance Sector accrual basis. 3.27.1 Revenue Recognition Fixed rental is recognised as income on a monthly Revenue is recognised to the extent that it is probable basis in relation to the period of the rental. that the economic benefits will flow to the Group and the revenue can be reliably measured. The following 3.26.3.2 Revenue from other Network Operators and specific recognition criteria must also be met before International Settlements revenue is recognised. The revenue received from other network operators, local and international, for the use of the Group’s a) Interest Income and Expense telecommunication network are recognised, net of For all financial instruments measured at amortised taxes, based on usage taking the traffic minutes/per cost, interest bearing financial assets classified as second rates stipulated in the relevant agreements available-for-sale and financial instruments designated and regulations and based on the terms of the lease as fair value through profit or loss, interest income agreements for fixed rentals. Revenue arising from and expense are recognised in profit or loss using the the interconnection of voice and data traffic between Effective Interest Rate (EIR) method. The EIR is the other telecommunications operators is recognised at rate that exactly discounts the estimated future cash the time of transit across the Group’s network and payments and receipts through the expected life of presented on gross basis. the financial asset or liability (or, where appropriate, a shorter period) to the carrying amount of the financial The relevant revenue accrued is recognised under asset or liability. When calculating the EIR, the Group income in Profit or Loss and interconnection expenses estimates future cash flows considering all contractual recognised under operating costs in the statement of terms of the financial instrument, but not future credit Profit or Loss. losses.

3.26.3.3 Revenue from Broadband The calculation of the EIR takes into account all contractual terms of the financial instrument (for Revenue from broadband service is recognised on example, prepayment options) and includes all material usage and the fixed rental on a monthly basis when it transaction costs and fees and points paid or received is earned net of taxes, rebates and discounts. that are an integral part of the EIR. Transaction costs include incremental costs that are directly attributable 3.26.3.4 Revenue from other Telephony Services to the acquisition or issue of a financial asset or liability. The revenue from Data services and other telephony services are recognised on an accrual basis based on The carrying amount of the financial asset or financial fixed rental contracts entered between the Group and liability is adjusted if the Group revises its estimates of subscribers. payments or receipts. The adjusted carrying amount is calculated based on the original EIR and the change 3.26.3.5 Installation Revenue in carrying amount is recorded in ‘Interest Income’ for The installation revenue relating to Code Divisional financial assets and in ’Interest and similar expense’ for Multiple Access (CDMA) and non CDMA connections financial liabilities. are deferred over the expected life of the customer on the network. However, for a reclassified financial asset for which the Group subsequently increases its estimates of future 3.26.3.6 Service Agreements Revenue cash receipts as a result of increased recoverability Capacity contracts which convey the right to use of those cash receipts, the effect of that increase is a specified capacity in an identified fibre cable are recognised as an adjustment to the EIR from the date accounted as service arrangements. Customers are of the change in estimate.

102 Distilleries Company of Sri Lanka PLC Once the recorded value of a financial asset or a group on the effect of concentrations of risks and economic of similar financial assets has been reduced due to data. an impairment loss, interest income continues to be recognised using the rate of interest used to discount 3.28 Policies Specific to Hotel Sector the future cash flows for the purpose of measuring the 3.28.1 Revenue impairment loss. Revenue is measured at the fair value of the consideration received or receivable, net of trade b) Lease Income discounts; value added taxes and intra-group revenue. In terms of the provisions of the Sri Lanka Accounting No revenue is recognised if there are significant Standard – LKAS 17 on ‘Leases’, the recognition of uncertainties regarding recovery of the consideration finance income on leasing is accounted, based on a due. pattern reflecting a constant periodic rate of return on capital outstanding. Apartment revenue is recognised for the rooms occupied on a daily basis, whilst food beverages sales The excess of aggregate lease rentals receivable over are accounted for at the time of sales. the cost of the leased assets constitutes the total unearned finance income at the commencement of a 4. New Accounting Standards Issued but not lease. The unearned finance income included in the Effective lease rentals receivable is recognised in profit or loss The Institute of Chartered Accountants of Sri Lanka over the term of the lease commencing from the month has issued the following new Sri Lanka Accounting in which the lease is executed using Effective Interest Standard which will become applicable for financial Rate. periods beginning on or after 1 January 2018. Accordingly, the Group has not applied the following Minimum lease payments made under finance leases new standards in preparing these consolidated are apportioned between the finance expense and the financial statements. reduction of the outstanding liability. 4.1 SLFRS 9-Financial Instruments c) Hiring Rental Income SLFRS 9 – “Financial Instruments” replaces Payments made under operating leases are recognised the existing guidance in LKAS 39 – Financial in profit or loss on a straight-line basis over the term Instruments: Recognition and Measurement. SLFRS of the lease. Lease incentives received are recognised 9 includes revised guidance on the classification and as an integral part of the total lease expense, over the measurement of financial instruments including a new term of the lease. expected credit loss model for calculating impairment on financial assets. 3.27.2 Impairment Losses on Loans and Advances The Group reviews its individually significant loans and SLFRS 9 is effective for annual period beginning on or advances at each reporting date to assess whether after 1 January 2018 with early adoption permitted. an impairment loss should be provided for in the Statement of Comprehensive Income. In particular, The Group is assessing the potential impact on its management’s judgment is required in the estimation Consolidated Financial Statements resulting from the of of the amount and timing of future cash flows when SLFRS 9. Given the nature of the Group’s operations, determining the impairment loss. These estimates are this standard is expected to have a pervasive impact based on assumptions about a number of factors and on the Group’s financial statements. actual results may differ, resulting in future changes to the allowance made. 4.2 SLFRS 15 – Revenue Recognition from Customer Contracts Loans and advances that have been assessed SLFRS 15 – “Revenue from Contracts with Customers” individually and found not to be impaired and all establishes a comprehensive framework for individually insignificant loans and advances are determining whether, how much and when revenue then assessed collectively, by categorising them into is recognised. It replaces existing revenue recognition groups of asset with similar risk characteristics, to guidance LKAS 18 Revenue, LKAS 11 Construction determine whether a provision should be made due Contracts. to incurred loss events for which there is objective evidence, but the effects of which are not yet evident. SLFRS 15 is effective for annual reporting period The collective assessment takes account of data from beginning on or after 1 January 2017, with early the loan portfolio (such as loan to collateral ratio, level adoption permitted. of restructured performing loans, etc.), and judgment

Annual Report 2014/15 103 Notes to the Financial Statements

5 Operating Segment Information A segment is a distinguishable component of the Group that is engaged either in providing related products or services (business segment), which is subject to risks and rewards that are different from those of other segments.

Segmental information is presented in respect of the Group’s business segments. The business segments are determined based on the Group’s management and internal reporting structure. Inter-segment transfers are based on fair market prices. Segment results, assets and liabilities include items directly attributable to a segment as well as those that can be allocated on a reasonable basis.

5.1 Segment Revenues

For the year ended 31 March, 2015 2014 Rs.000 Rs.000

Beverages 56,992,501 53,136,535 Plantations 3,002,156 3,171,983 Telecommunication 3,372,078 3,633,987 Diversified 3,397,774 3,243,797 Total Gross Revenue 66,764,509 63,186,302 Direct Turnover Related Taxes (37,851,635) (34,203,418) Total Net Revenue 28,912,874 28,982,884

5.2 Segment Profits

For the year ended 31 March, 2015 2014 Rs.000 Rs.000

Beverages 8,397,998 8,027,247 Plantations (106,444) 129,715 Telecommunication (691,844) (638,824) Diversified 737,442 535,779 8,337,152 8,053,917 Share of Profit of Equity-Accounted Investees (Net of Tax) 1,390,668 1,440,182 Profit Before Income Tax Expense 9,727,820 9,494,099 Taxation (3,254,315) (3,263,009) Profit for the Year 6,473,505 6,231,090

104 Distilleries Company of Sri Lanka PLC 2014 2014 9,040 Rs.000 Rs.000 236,393 309,269 831,769 396,816 733,350 1,266,594 1,185,348 5,249,338 1,178,888 83,741,554 26,148,440 2015 2015 Group Total Group Group Total Group 9,041 Rs.000 Rs.000 23,589 277,477 949,961 502,714 777,005 463,460 1,257,904 1,301,892 9,661,636 92,688,602 27,864,605 ------2014 2014 Rs.000 Rs.000 (15,290) 171,321 (117,500) (6,377,526) (50,205,065) ------2015 2015 Rs.000 Rs.000 (9,584) Eliminations/Other Eliminations/Other 171,321 (468,209) (1,835,944) Consolidated Adjustments Consolidated Adjustments (60,280,618) - 2014 2014 2014 9,262 Rs.000 Rs.000 13,872 34,293 48,069 44,028 Rs.000 168,346 151,854 278,734 677,090 979,791 (514,074) 8,367,156 1,913,074 56,988,042 (3,406,939) - Diversified Diversified 2015 2015 2015 Rs.000 Rs.000 11,823 21,575 48,712 34,697 42,915 Rs.000 173,278 310,851 185,813 (509,304) 3,759,208 7,590,056 3,080,418 71,891,259 (2,325,886) (4,897,000) - - 2014 2014 2014 9,040 Rs.000 Rs.000 70,377 70,159 18,385 Rs.000 (36,298) 626,819 182,215 349,063 139,033 111,326 (283,690) (358,718) 5,015,269 2,258,720 - - Plantation Plantation 2015 2015 9,041 2015 Rs.000 Rs.000 88,431 60,914 55,366 16,288 Rs.000 95,318 684,326 (24,910) 271,979 412,340 451,153 (330,925) 5,416,257 2,794,624 - 95 365 2014 2014 2014 3,540 Rs.000 Rs.000 55,861 Rs.000 (35,287) 227,131 289,034 763,478 223,089 Reporting Segments Reporting Segments 362,960 473,741 (871,988) 1,848,340 8,307,821 3,805,047 - - 383 125 565 2015 2015 2015 Rs.000 Rs.000 74,241 Rs.000 264,582 93,062 Telecommunication Telecommunication 719,974 167,982 169,028 663,290 (587,324) 1,106,899 7,908,267 4,086,434 - - 2014 2014 2014 6,363 Rs.000 Rs.000 45,889 61,017 Rs.000 114,723 154,005 859,321 872,359 2,702,375 1,112,935 63,635,487 18,095,042 (3,111,984) (2,267,861) (1,716,482) - Beverages Beverages 2015 2015 2015 1,072 2,014 Rs.000 Rs.000 57,074 Rs.000 166,165 142,682 495,479 532,293 403,692 442,798 5,208,372 67,753,437 3,584,864 4,217,066 15,229,435 (1,075,000) For the year ended 31 March, For the year ended 31 March, As at 31 March, Financing Cash Flow Investing Cash Flow Operating Segment Information (Contd.) Information Segment Operating Other Segmental Information Additions to Intangible Assets Amortisation and Impairment of Intangible Assets Biological AssetsAmortisation of Bearer at Finance Lease ((JEDB/SLPC) Benefit Obligations Retirement Segmental Cash Flows Operating Cash Flow Depreciation of PPE Depreciation Assets Tax Deferred Interest Expense Interest Deferred Tax Liabilities Tax Deferred Additions to PPE Income Tax Payable Income Tax Total Assets Total Total Liabilities Total 5 5.3 5.4

Annual Report 2014/15 105 Notes to the Financial Statements

6 Revenue

Group For the year ended 31 March, 2015 2014 Gross Revenue Direct Turnover Net Revenue Gross Revenue Direct Turnover Net Revenue Related Taxes Related Taxes Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000

Sale of Goods 61,674,643 (37,846,540) 23,828,103 58,000,543 (34,203,418) 23,797,125 Rendering of Services 5,089,866 (5,095) 5,084,771 5,185,759 - 5,185,759 Total 66,764,509 (37,851,635) 28,912,874 63,186,302 (34,203,418) 28,982,884 Company For the year ended 31 March, 2015 2014 Gross Revenue Direct Turnover Net Revenue Gross Revenue Direct Turnover Net Revenue Related Taxes Related Taxes Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000

Sale of Goods 51,800,065 (34,883,539) 16,916,526 47,755,538 (31,057,380) 16,698,158 Total 51,800,065 (34,883,539) 16,916,526 47,755,538 (31,057,380) 16,698,158

6.1 Business Segment Analysis

Group For the year ended 31 March, 2015 2014 Sale Of Goods Rendering Of Total Revenue Sale Of Goods Rendering Of Total Revenue Services Services Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000

Beverages 19,145,961 - 19,145,961 18,933,117 - 18,933,117 Plantation 3,002,156 - 3,002,156 3,171,983 - 3,171,983 Telecommunication - 3,372,078 3,372,078 - 3,633,987 3,633,987 Diversified 1,679,986 1,712,693 3,392,679 1,692,025 1,551,772 3,243,797 23,828,103 5,084,771 28,912,874 23,797,125 5,185,759 28,982,884

7 Cost of Sales, Net Benefits Paid and Interest Expenses This includes all the directly attributable costs of sale of goods and rendering of services. Further the interest expense on customer deposits in financial services and net insurance benefits and claims paid, net change in insurance claims outstanding and underwriting and net acquisition costs in insurance businesses are included.

106 Distilleries Company of Sri Lanka PLC 8 Other Operating Income Group Company For the year ended 31 March, 2015 2014 2015 2014 Note Rs.000 Rs.000 Rs.000 Rs.000

Gain on Change in Fair Value of Biological Assets 92,377 74,294 - - Government Grants 11,443 13,226 - - Gain on Sale of Property, Plant and Equipment 8.2 39,762 30,331 430,761 50,767 Fees and Commission Income 42,674 62,761 - - Rent Income 39,366 24,557 36,190 24,557 Refunds on Telecommunication Development Charge (TBC) 8.1 144,279 - - - Sale of Timber 19,941 40,664 - - Other Sundry Income 191,523 202,759 76,169 122,625 Dividend Income from Subsidiary Companies - - 920,000 Dividend Income from Equity Accounted Investees - - 602 279 Dividend Income on Available-for-Sale Financial Assets 407,267 332,815 255,727 200,619 Dividend Income from Fair Value Through Profit or Loss 55,614 72,994 21,892 38,920 Investments Gain on Disposal of Fair Value Through Profit or Loss 330,926 29,973 206,512 16,828 Investments Gain on Disposal of Available-for-Sale Financial Assets 8.2 - - 5,223,421 - Loan Loss Recoveries 500 14,018 - - Reversal of Impairment of Doubtful Debts 1,204 - - - 1,376,876 898,392 6,251,274 1,374,595

8.1 Lanka Bell Limited - Refunds on Telecommunication Development Charge (TDC) In accordance with the Finance Act No. 11 of 2004, all telecommunication gateway operators are required to pay a levy defined as the Telecommunication Development Charge (TDC) to the Government of Sri Lanka, based on international call minutes terminated in the country. This levy was made effective from 03rd March, 2003 where initially the levy was defined in such a way that operators were allowed to claim the 2/3rd of the TDC against the costs of network development charges. First revision to this regulation was introduced with effect from 15th July, 2010 with a TDC rate change from USD cents 3.80 to USD cents 1.50. Through the same revision the disbursement process was removed from the regulation. The revised rates prevailed until such time the rate was again revised to USD cents 3.0 per minute with effect from January, 2012 in accordance with the Budget Proposal for 2012. The total amount of the levy payable by the Company for the period from 1 April 2014 to 31 March 2015 was estimated at Rs.96,944,159/- (2014-Rs. 96,544,392), and has been recognised as expenses in the current financial year. The corresponding liability, net of payments, has been recognised in the statement of financial position. The total TDC refunds claimed during the year amounting to Rs. 144,279,145/- and these were for periods between 2009 to 2010.This will be the final refund the company will receive from Telecommunication Regulatory Commission (TRC).

8.2 Gain/(Loss) on Disposal of Shares / Lands and Buildings During the year ended 31 March 2015, the Company structured its Investments and lands and buildings into its fully own subsidiary, Melstacorp Limited. As a result a capital gain of Rs. 5.6 Bn was recognised in the Company and eliminated in the Group Financial Statements as an inter group transaction.

9 Other Operating Expenses Group Company For the year ended 31 March, 2015 2014 2015 2014 Note Rs.000 Rs.000 Rs.000 Rs.000 Impairment on Loans and Other Advances 18,676 2,703 - - Loss on De-Recognition of Subsidiaries - 640,155 - - Loss on De-Recognition of Equity Accounted Investee 19.1 - 86,284 - - 18,676 729,142 - -

Annual Report 2014/15 107 Notes to the Financial Statements

10 Finance Income and Finance Costs 10.1 Recognised in Profit and Loss 10.1.1 Finance Income Group Company For the year ended 31 March, 2015 2014 2015 2014 Note Rs.000 Rs.000 Rs.000 Rs.000

Interest Income on Unimpaired Held-to-Maturity 6,946 - - - Investments Interest Income on Available-for-Sale Financial Assets 53,477 27,302 31,998 2,893 Interest Income on Loans and Receivables 362,207 402,592 124,687 48,550 Foreign Exchange Gain 169 7,119 - - Gain on Change in Fair Value of Financial Assets at 143,869 85,739 35,161 66,877 Fair Value Through Profit or Loss Recognition of Share Warrants at Fair Value - 225,081 - 310 566,668 747,833 191,846 118,630

10.1.2 Finance Cost Interest Expense on Financial Liabilities Measured at Amortised Cost

- Interest Expense on Long Term Borrowings (122,238) (103,290) - (94,356) - Interest Expense on Bank Overdrafts and Other (628,437) (1,055,035) (495,479) (764,965) Short Term Borrowings - Interest Expense on Finance Leases (34) (2,645) - - Government Lease Interest (JEDB/SLSPC) (26,296) (24,378) - - Foreign Exchange Loss (12,950) (44,888) - - Loss on Change in Fair Value of Financial Assets at - (32,401) - - Fair Value Through Profit or Loss Preference Share Dividends (1,265) (1,265) - - (791,220) (1,263,902) (495,479) (859,321) Less: Borrowing Cost Capitalised 10.1.2.1 79,911 43,136 - - (711,309) (1,220,766) (495,479) (859,321) Net Finance Costs Recognised in Profit or Loss (144,641) (472,933) (303,633) (740,691)

10.1.2.1 During the year Balangoda Plantations PLC, a subsidiary of the company, capitalised borrowing cost amounting to Rs. 58,231,199 (2014 - Rs. 43,136,174/-) incurred on borrowings obtained to meet expenses relating to immature plantations being part of the cost of the immature plantations. The amount of borrowing cost eligible for capitalisation is determined in accordance with LKAS 23 (Borrowing Costs). Further this borrowing cost includes amount of Rs. 21,679,737 from Lanka Bell Limited.

10.2 The above finance income and finance costs include the following interest income and expense in respect of assets (liabilities) not at fair value through profit or loss:

Total interest income on financial assets 422,630 429,894 156,685 51,443 Total interest expense on financial liabilities (778,270) (1,186,613) (495,479) (859,321)

10.3 Recognised in Other Comprehensive Income

Net Change in Fair Value of Available-For-Sale Financial Assets 1,708,471 (136,568) 721,172 217,263 Reversal of AFS Reserve on Disposal of AFS Investments - - (3,574,279) - 1,708,471 (136,568) (2,853,107) 217,263

108 Distilleries Company of Sri Lanka PLC 11 Profit before Income Tax Expense Profit before Income Tax Expense is stated after charging all expenses including the following; Group Company For the year ended 31 March, 2015 2014 2015 2014 Notes Rs.000 Rs.000 Rs.000 Rs.000

Directors’ Emoluments 92,888 89,234 24,121 23,410 Auditor’s Remuneration Audit - KPMG 11,405 9,379 5,445 4,950 - Other Auditors 4,745 4,853 - Non-Audit - KPMG 2,803 4,641 2,376 3,327 - Other Auditors 1,026 693 1,026 693 Management Fees 31,841 44,887 - Personnel Costs 11.1 4,039,003 3,861,748 1,216,485 1,162,203 Depreciation and Amortisation Depreciation of Property Plant and Equipment Depreciation of Property Plant and Equipment 15 1,257,904 1,266,594 160,215 148,392 Depreciation of Investment Property 17 60 - Amortisation of Intangible Assets 16 277,477 236,393 669 - Amortisation of Bearer Biological Assets 18.1.1/18.1.2 39,245 37,339 - Provision /(Reversal) for Bad & Doubtful Debts 156,072 (137,944) 7,916 25,057 Provision /(Reversal) for Inventories (6,828) 226,679 - Donations 5,777 13,415 4,432 12,524

11.1 Personnel Costs Salaries, Wages and Other Benefits 3,524,677 3,356,525 1,104,705 1,050,753 Employee Benefits - - - Defined Contribution Plans - - - EPF and ETF 363,861 354,098 91,140 90,005 Defined Benefit Plans 31.1.1 161,227 151,125 20,640 21,445 Total 4,039,003 3,861,748 1,216,485 1,162,203

11.1.1 Number of Employees

As At 31 March, 2015 2014 2015 2014

11,897 12,897 1,197 1,250

12 Taxation Group Company For the year ended 31 March, 2015 2014 2015 2014 Notes Rs.000 Rs.000 Rs.000 Rs.000

Current Tax Charge 12.1 2,780,292 3,238,860 2,317,212 2,757,104 Deferred Tax Charged/(Credited) 22.1.1 474,023 24,150 468,384 21,539 3,254,315 3,263,009 2,785,596 2,778,643

Annual Report 2014/15 109 Notes to the Financial Statements

12.1 Current tax expense

Group Company For the year ended 31 March, 2015 2014 2015 2014 Notes Rs.000 Rs.000 Rs.000 Rs.000

Current Tax Charge 12.1.1 2,743,315 3,194,494 2,317,212 2,757,104 (Over)/Under Provision of Current Tax of Previous Years (567) (322) - - 10% Withholding Tax on Intercompany Dividends 37,544 44,688 - - 2,780,292 3,238,860 2,317,212 2,757,104

12.1.1 Numerical Reconciliation of Accounting Profits to Income Tax Expense

Group Company For the year ended 31 March, 2015 2014 2015 2014 Notes Rs.000 Rs.000 Rs.000 Rs.000

Profit Before Income Tax Expense 9,727,820 9,494,099 13,070,319 8,136,580 Share of Results of Equity Accounted Investees (1,390,668) (1,440,182) - - Dividend Income from Group Companies 337,894 1,292,453 - - Other Consolidation Adjustments - 726,439 - - 8,675,046 10,072,809 13,070,319 8,136,580 Exempt (Profits)/Loss (261,828) 411,685 - - Profit Before Income Tax Expense after Adjustments 8,413,218 10,484,494 13,070,319 8,136,580 (-) Income Not Subject to Tax (6,528,614) (2,352,292) (6,092,137) (1,279,853) (+) Disallowable Expenses 7,500,300 846,495 192,805 208,814 (-) Allowable Expenses (2,327,265) (1,065,422) (1,272,664) (108,769) (+) Tax Losses Incurred 12.1.4 553,118 304,188 - - (-) Tax Losses Utilised 12.1.4 (92,560) (72,533) - - Taxable Income 7,518,197 8,144,930 5,898,323 6,956,772 Income Tax at, 40% 2,528,189 2,979,452 2,218,937 2,697,359 28% 215,126 215,041 98,275 59,744 Total Current Tax Charge 2,743,315 3,194,494 2,317,212 2,757,104 Average Statutory Income Tax Rate (%) 36.49% 39.22% 39.29% 39.63%

Group Company For the year ended 31 March, 2015 2014 2015 2014 Notes % % % %

12.1.2 Effective Tax Rate 12.1.2.1 32.61% 30.47% 17.73% 33.89%

110 Distilleries Company of Sri Lanka PLC Group For the year ended 31 March, 2015 2014 Rs.000 % Rs.000 %

12.1.2.1 Reconciliation of Effective Tax Rate Accounting Profit / (Loss) Chargeable to Income Tax 8,413,218 10,484,494 Income Tax Expense at the Average Statutory Income Tax Rate 3,069,899 36.49% 4,112,086 39.22% Income Not Subject to Tax (2,382,226) -28.32% (922,584) -8.80% Disallowable Expenses 2,736,785 32.53% 332,001 3.17% Allowable Expenses (849,196) -10.09% (417,865) -3.99% Tax Losses Incurred 201,827 2.40% 119,304 1.14% Tax Losses Utilised (33,774) -0.40% (28,448) -0.27% Current Tax Expense 2,743,315 32.61% 3,194,494 30.47%

12.1.2.1 Reconciliation of Effective Tax Rate Company 2015 2014 Rs.000 % Rs.000 %

Accounting Profit / (Loss) Chargeable to Income Tax 13,070,319 8,136,580 Income Tax Expense at The Average Statutory 5,134,798 39.29% 3,224,684 39.63% Income Tax Rate Income Not Subject to Tax (2,393,354) -18.31% (507,231) -6.23% Disallowable Expenses 75,745 0.58% 82,758 1.02% Allowable Expenses (499,978) -3.83% (43,107) -0.53% Tax Losses Incurred - 0.00% - 0.00% Tax Losses Utilised - 0.00% - 0.00% (Over)/Under Provision of Current Tax of Previous Years - 0.00% Deem Dividend Tax Paid - 0.00% - 0.00% Current Tax Expense 2,317,212 17.73% 2,757,104 33.89%

12.1.3 Applicable rates and exemptions, concessions or holidays granted on income tax The tax liabilities of the companies are computed at the standard rate of 28% on non liquor business and 40% on liquor business except for the following companies which enjoy exemptions and concessions.

Company Sector Basis Exemption or Concessions Period Lanka Bell Telecommuni In terms of an agreement The profits and income of the company is exempt for a Commencing Limited cation entered in to with the Board period of 20 years. Thereafter the company will be taxed from year of of Investment (BOI) of Sri at a normal rate of 28%. assessment Lanka under section 17 of 97/98 Law No. 04 of 1978.

Bogo Power Generation and Pursuant to the agreement The Company is exempt from income tax arising from the For a period (Pvt) Limited sale of Hydro dated 22 April 2010 income of generation of hydropower. After the expiration of of 05 years Electric Energy entered with the Board of exemption period the profits and income of the enterprise commencing Investment under Section shall be charged to for each year of assessment at the rate from 01st April 17 of the BOI Law. of ten per centum (10%) (Concessionary period) for a period 2012 of two years immediately succeeding the last date of the tax exemption period during the which the profits and income of the Enterprise is exempted from income tax. After the expiration of concessionary period, the profits and income of the Enterprise shall, for any year of assessment be charged at the rate of twenty per centum (20%).

Annual Report 2014/15 111 Notes to the Financial Statements

Group Company For the year ended 31 March, 2015 2014 2015 2014 Rs.000 Rs.000 Rs.000 Rs.000 12.1.4 Tax Losses Losses Brought Forward 1,634,083 1,600,428 - - Acquisition/(Disposal) of Subsidiaries - (198,000) - - Losses Incurred 553,118 304,188 - - Losses Utilised (92,560) (72,533) - - Loss Carried Forward 2,094,641 1,634,083 - -

13 Earnings per Share 13.1 Basic Earnings per Share The calculation of basic earnings per share is based on the profit attributable to Ordinary shareholders and the weighted average number of shares outstanding during the year.

Group Company For the year ended 31 March, 2015 2014 2015 2014

Profit Attributable to Equity Holders of the 6,552,956 6,121,813 10,284,723* 5,357,937 Company (Rs.’000)* Weighted Average Numbers of Ordinary Shares (000) 300,000 300,000 300,000 300,000 Basic Earnings per Share (Rs.) 21.84 20.41 34.28 17.86

* The Company’s profit includes a capital gain of Rs. 5.6 Bn from intra-group assets transfers.

13.2 Diluted Earnings per Share There were no potential dilutive ordinary shares outstanding at any time during the year. Therefore, diluted Earnings per Share is same as Basic Earnings per Share shown above.

14 Dividend per Share Equity dividend on ordinary shares declared and paid during the year.

Company For the year ended 31 March, 2015 2014 Per share Total Per share Total Rs. Rs.000 Rs. Rs.000

Final Dividend Proposed / Paid 3.25 975,000 3.25 975,000 975,000 975,000

The Directors recommended a final dividend of Rs. 3.25 per share for the year ended 31 March 2015, for approval by the shareholders at the Annual General Meeting to be held on 21 September 2015. As stipulated by Sri Lanka Accounting Standards - Events After the Reporting date (LKAS 10), this proposed dividend is not recognised as a liability as at 31 March 2015.

As required by Section 56 of the Companies Act No7 of 2007, the Board of Directors have satisfied the solvency test in accordance with Section 57. A statement of solvency completed and duly signed by the directors has been audited by Messrs. KPMG.

However, for the purpose of computing dividend per share, the final dividend to be approved has been taken into consideration.

112 Distilleries Company of Sri Lanka PLC - - - (2) 854 As at 2014 4,017 Rs.000 50,804 16,260 78,622 29,985 22,275 26,350 49,627 24,826 598,095 377,878 188,754 113,131 643,132 210,247 581,149 176,713 454,435 589,296 269,831 265,056 31 March 1,377,049 4,655,042 5,682,672 10,273,314 16,221,042 - - (2) 618 2015 As at 3,470 1,314 7,180 Carrying Value Rs.000 34,083 13,228 83,062 28,763 19,292 10,215 53,791 (40,496) 566,648 312,095 461,049 493,931 200,897 195,061 349,763 467,374 254,842 31 March 2,654,942 4,864,983 3,617,166 3,824,029 14,415,813 18,477,298 237,456 - - 80 56 315 At the 1,781 End of 3,569 Rs.000 94,384 69,630 56,347 32,654 41,440 36,533 44,943 14,029 the Year 216,364 484,371 606,807 237,244 766,435 515,759 190,171 327,499 1,445,609 1,591,317 1,404,358 1,202,392 2,680,960 11,484,438 12,065,047 580,609 ------(985) (257) (445) Rs.000 (8,361) (3,423) (10,090) (60,085) (18,172) Disposals (101,818) (101,818) ------Year Rs.000 (20,931) (20,931) (20,931) During the Revaluations - - - - - 56 Year 609 176 for the 3,032 5,284 1,222 2,983 9,350 Rs.000 Charge 32,975 18,472 80,781 79,524 61,805 60,220 14,989 17,584 21,347 18,190 222,898 167,045 127,724 198,487 113,151 28,818 1,229,086 1,257,904 Accumulated Depreciation and Impairment Accumulated Depreciation - - - 80 559 315 At the 7,825 3,393 Rs.000 61,409 53,315 27,370 38,457 35,924 29,954 14,029 197,892 434,611 527,283 227,894 671,456 498,620 168,824 309,309 Beginning of the Year 1,282,796 1,432,633 1,277,619 1,145,595 2,482,730 10,378,101 10,929,892 551,791 80 315 674 At the end of 4,883 Rs.000 69,575 30,544 60,732 40,003 14,027 the Year 661,032 250,447 918,902 530,679 115,716 438,141 299,785 525,974 243,962 334,679 818,065 3,139,313 1,405,113 2,085,248 4,864,983 5,021,524 1,397,453 3,148,334 1,116,198 3,824,029 25,900,251 30,542,345 ------723 (820) Rs.000 (4,322) (2,588) 11,680 (24,960) (56,501) (12,147) (30,713) Transfers Disposals/ (1,326,976) (1,207,328) (4,944,072) (6,271,048) ------Year Rs.000 5,160 5,160 21,010 (15,850) During the Revaluations Cost or Valuation

------Year 62 674 636 544 Rs.000 1,528 1,751 9,724 1,824 1,218 13,741 70,024 21,630 79,467 21,020 78,896 24,788 Additions During the 334,100 6,574,989 1,331,603 1,433,119 3,151,076 3,085,429 9,661,636 - 80 315 At the Rs.000 4,247 69,575 30,544 60,732 39,941 14,027 Beginning 659,504 248,696 905,161 196,579 105,992 438,141 218,451 299,785 524,970 334,135 816,847 of the Year 1,811,660 1,395,927 2,075,765 4,655,042 1,858,768 1,322,308 1,125,891 3,072,026 5,682,672 20,651,415 27,150,934 15.2 15.2 15.1 Note Property, Plant and Equipment Property, Freehold Civil Constructions Wi-Max Drums Buildings Towers LTE Project LTE Vats & Casks Vats Land Improvements Plant & Machinery Motor Vehicles Network Equipment Sanitation Water Flag Project Oil Storage Tanks Land 15 Group Plant, Machinery & Other Equipment Fittings & Office Equipment Furniture, Computer Equipment & Software Mechanical Equipment Electro Switches Digital Electronic Equipment Customer Premise Shelters and Other Equipment Fighting Equipment Fire Leasehold Motor Vehicles Fittings & Equipment Furniture, Immovable (JEDB/SLSPC) Assets On Finance Lease Leasehold Improvements and Leasehold Freehold Total Plant & Equipment Property, Capital Work in Progress Capital Work Plant & Equipment Property, Total

Annual Report 2014/15 113 Notes to the Financial Statements - - - As at 2014 854 Rs.000 31 March 14,911 11,912 16,260 240,237 117,309 2,081,200 2,482,683 3,815,987 6,298,670 - - 2015 As at Carrying Value Rs.000 1,314 31 March 88,497 13,658 13,342 13,228 151,883 3,298,841 6,219,769 1,346,200 1,292,806 6,067,886 - - 80 At the End of 315 Rs.000 the Year 3,569 48,732 46,678 49,910 56,347 484,286 406,966 1,096,883 1,096,883 ------Rs.000 (130) Disposals (42,175) (10,090) (31,955) (42,175) - - - - Year for the 176 Rs.000 Charge 2,740 7,906 2,484 3,032 62,176 81,701 160,215 160,215 - - Accumulated Depreciation and Impairment Accumulated Depreciation 80 At the 315 Rs.000 3,393 Beginning of the Year 44,068 42,004 56,338 53,315 422,110 978,843 357,220 978,843 80 At the End of 315 Rs.000 the Year 4,883 60,336 63,252 69,575 151,883 495,463 3,783,127 7,316,652 1,346,200 7,164,769 1,341,538 - - - - - Rs.000 (130) Transfers Disposals/ (32,966) (10,090) (735,000) (778,186) (4,390,982) (5,169,168) - - - - Year 636 Rs.000 Cost or Valuation 1,487 9,336 Additions During the 53,900 726,878 1,295,290 3,120,780 4,481,429 5,208,307 80 At the 315 Rs.000 4,247 Beginning of the Year 56,338 58,979 53,916 69,575 662,347 474,529 2,081,200 3,461,526 3,815,987 7,277,513 15.2 15.2 Note Property, Plant and Equipment (Contd.) Property, Land Motor Vehicles Buildings Oil Storage Tanks Drums Vats & Casks Vats 15 Company Freehold Plant, Machinery & Other Equipment Fittings & Office Equipment Furniture, Computer Equipment & Software Fighting Equipment Fire in Progress Capital Work Plant & Equipment Property, Total

114 Distilleries Company of Sri Lanka PLC 15.1 Immovable (JEDB/SLSPC) Assets on Finance Lease

Group For the year ended 31 March, 2015 2014 Right to Use Unimproved Improvement Other Vested Buildings Machinery Total Total of Land Lease Land to Land Assets Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 (Note 15.1.1) Capitalised Value (18 June 1992) Balance at the Beginning of the Year 331,201 899 15,702 152 64,024 26,164 438,141 438,141 Balance at the End of the Year 331,201 899 15,702 152 64,024 26,164 438,141 438,141 Amortisation As at Beginning of the Year 134,719 366 11,283 152 55,210 26,164 227,894 218,544 Amortisation for the Year 6,249 17 524 - 2,561 - 9,350 9,350 At the End of the Year 140,968 383 11,807 152 57,771 26,164 237,244 227,894 Carrying Amounts As at Beginning of the Year 196,482 533 4,419 - 8,814 - 210,247 219,597 As at the End of the Year 190,233 516 3,895 - 6,253 - 200,897 210,247

These assets are being amortised in equal annual amounts over the following periods.

Mature plantations/improvements to land 30 years Buildings 25 years Machinery 15 years

15.1.1 Right to use of land “Right-To-Use of Land on Lease” as above was previously titled “Leasehold Right to Bare Land”. The change is in order to comply with Statement of Recommended Practice (SoRP) issued by the Institute of Chartered Accountants of Sri Lanka dated 19 December 2012. Such leases have been executed for all estates for a period of 53 years.

This right-to-use land is amortised over the remaining lease term or useful life of the right whichever is shorter and is disclosed under non-current assets. The Statement of Recommended Practice (SoRP) for right-to-use of land does not permit further revaluation of right-to-use land.

15.2 Land and buildings 15.2.1 Details of land and building stated at Fair Value Distilleries Company of Sri Lanka PLC A valuation of freehold Land and Buildings of Distilleries Company of PLC was carried out by incorporated Valuers Mr. A. R. M. M. Kaleel and Mr. S. Sivaskantha by using contracted test basis method and incorporated in the Financial Statements of the Company as at 1 March 2011. The surplus on revaluation of Land and Building, Rs. 2,558,782,865 and Rs.428,307,050 have been credited to the revaluation reserve respectively.

Lanka Bell Limited Free hold land and building of the company was valued by Mr. Sivaskanthan, A.M.I.V (Sri Lanka) a professional valuer on 31st March 2015 on “Contractor’s Basis” and the excess of Rs. 26,091,250 over the net book value as at 31 March 2015 has been credited to the revaluation reserve.

Annual Report 2014/15 115 Notes to the Financial Statements

Texpro Industries (Pvt) Ltd The Company’s land and building were revalued on 01 April 2009. The land was subsequently revalued on 3rd April 2013 by a professionally qualified independent valuer K. Arthur Perera. The valuation was based on contractors method of valuation.

Browns Beach Hotel PLC The Book value of freehold land owned by the Company, which is situated at No. 175, Lewis Place, Negombo has been revalued by Mr. J. Rajasooriya, (A.I.V. (Sri Lanka), M.P.V.A. (Sri Lanka) on 26 March 2003. The surplus on revaluation, Rs. 74.3 million, has been credited to the revaluation reserve.

Freehold land at No. 175, Lewis Place, Negombo was valued by Mr. J. Rajasooriya, A.I.V. (Sri Lanka), M.P.V.A. (Sri Lanka) a professional valuer, on 28 March 2007 on “Market pricing basis” and the excess of Rs.290,000,000 over the net book value has been placed to the credit of revaluation reserve.

Free hold land at No.175, Lewis Place, Negombo of Browns Beach Hotel PLC was revalued by Mr. K. C. B. Condegama, (A.I.V. Sri Lanka) a professional valuer on 31 March 2012 on “Market Pricing Basis” and the excess of Rs. 476,500,000 over the net book value as at 31 March 2012 has been placed to the credit of revaluation reserve.

15.2.2 The carrying amount of revalued land and buildings if they were carried at cost less depreciation would be as follows;

Group For the year ended 31 March, 2015 2014 Land Building Land Building Rs. Rs.000 Rs. Rs.000

Cost 591,554 446,412 591,554 446,412 Accumulated Depreciation and Impairment - (272,967) - (255,741) Carrying Values 591,554 173,445 591,554 190,671

Company For the year ended 31 March, 2015 2014 Land Building Land Building Rs. Rs.000 Rs. Rs.000

Cost 51,047 46,248 109,402 56,339 Accumulated Depreciation and Impairment - (46,248) - (56,339) Carrying Values 51,047 - 109,402 -

15.3 Gross Carrying Value of Fully Depreciated Assets The cost of the fully depreciated assets of the Group and the Company amounts to Rs.6,039.1 Mn (5,284 Mn - 2014) and 595.6 Mn (513 Mn - 2014) respectively as at reporting dated.

15.4 Property Plant and Equipment that have been Pledged The property plant and equipments that are pledged for long term borrowings are disclosed in Note 41 to these financial statements.

116 Distilleries Company of Sri Lanka PLC 16 Intangible Assets Group For the year ended 31 March, 2015 2014 License Flag Software Software Goodwill on Total Total Fees Cable Cost and Cost and Acquisition Implementation Implementation (WIP) Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000

Note 16.1 Note 16.2 Cost Balance at the Beginning of the Year 658,710 2,797,761 42,524 23,640 792,297 4,314,932 4,005,663 Additions 3,156 - 20,431 - - 23,587 309,269 Capitalisations/ Transfers - - 23,640 (23,640) - - - Balance at the End of the Period 661,866 2,797,761 86,595 - 792,297 4,338,519 4,314,932 Accumulated Amortisation and Impairment Balance at the Beginning of the Year 57,042 1,057,011 19,401 - 190,985 1,324,439 1,088,046 Amortised During the Year 78,041 186,518 12,918 - - 277,477 236,393 Impaired During the Year ------Balance at the End of the Period 135,083 1,243,529 32,319 - 190,985 1,601,916 1,324,439 Carrying Values As at Beginning of the Year 601,668 1,740,750 23,123 23,640 601,312 2,990,493 2,917,617 As at End of the Year 526,783 1,554,232 54,276 - 601,312 2,736,603 2,990,493

Company For the year ended 31 March, 2015 2014 Software cost and Software cost and Total Total implementation implementation (WIP) Rs.000 Rs.000 Rs.000 Rs.000

Cost Balance at the Beginning of the Year - 23,640 23,640 17,277 Additions - - - 6,363 Transfers 23,640 (23,640) - - Balance at the End of the Period 23,640 - 23,640 23,640 Accumulated Amortisation and Impairment Balance at the Beginning of the Year - - - - Amortised During the Year 669 - 669 - Balance at the End of the Period 669 - 669 - Carrying Values As at the Beginning of the Year - 23,640 23,640 17,277 As at the End of the Year 22,971 - 22,971 23,640

Annual Report 2014/15 117 Notes to the Financial Statements

16.1 License fees License fee includes the operator license fee of Rs. 300 million which was paid in 1996, and amortised over 226 months on straight line basis commencing from that year. The External Gateway License fee of Rs. 4.85 million which was renewed in 2013 amounting to Rs. 102Mn is amortised over a period of 10 years, commencing from 28th February 2013. The Wi-Max 2365-2380 MHz License Fee of Rs.510.2 Mn was paid in 2011/12 and 2012/13 and operations commenced on 01st July 2013.

16.2 FLAG cable FLAG expenditure represents the expenditure incurred on undersea fibre optic cable link and the landing station, which enables Lanka Bell to offer direct global connectivity and a complete end-to-end data connectivity solution. The total expenditure will be amortised over the license period of 15 years on a straight line basis from August 2008.

17 Investment Property Group For the year ended 31 March, Land Building Total 2015 Total 2014 Rs.000 Rs.000 Rs.000 Rs.000

Cost / Valuation Balance at the Beginning of the Year - - - - Additions 579,005 7,150 586,155 - Balance at the End of the Period 579,005 7,150 586,155 -

Accumulated Depreciation Balance at the Beginning of the Year - - - - Charge During the Year - 60 60 - Balance at the End of the Period - 60 60 -

Carrying Values As at Beginning of the Year - - - - As at End of the Year 579,005 7,090 586,095 -

17.1 Fair Value of Investment Property Since the above properties have been acquired during the year, the management believes there is no material difference between the cost and the fair value of above properties.

18. Biological Assets

Group As at 31 March, 2015 2014 Note Rs.000 Rs.000

Bearer Biological Assets 18.1 1,889,494 1,616,271 Consumer Biological Assets 18.2 1,662,375 1,559,765 3,551,869 3,176,036

18.1 Bearer Biological Assets

On Finance Lease (JEDB/SLSPC) 18.1.1 78,863 87,904 Investments after Formation of the Plantation Company 18.1.2 1,810,631 1,528,367 1,889,494 1,616,271

118 Distilleries Company of Sri Lanka PLC 18.1.1 On finance lease (JEDB/SLSPC) In terms of the ruling of the UITF of the Institute of Chartered Accountants of Sri Lanka prevailed at the time of privatisation of plantation estates, all immovable assets in these estates under finance leases have been taken into the books of the Company retroactive to 18th June 1992. For this purpose, the Board decided at its meeting on 8th March, 1995, that these assets be stated at their book values as they appear in the books of the JEDB/SLSPC, on the day immediately preceding the date of formation of the Company. These assets are taken into the Statement of Financial Position as at 18 June, 1992 and amortisation of immovable leased assets to 31 December 2014 are as follows.

Mature Plantations For the year ended 31 March, 2015 2014 Tea Rubber Total Total Rs.000 Rs.000 Rs.000 Rs.000

Cost Balance as at the Beginning of the Year 206,227 64,997 271,224 271,224 Balance as at the End of the Year 206,227 64,997 271,224 271,224

Accumulated Amortisation Balance as at the Beginning of the Year 139,677 43,643 183,320 174,280 Amortisation for the Year 6,874 2,167 9,041 9,040 Balance as at the End of the Year 146,551 45,810 192,361 183,320 Carrying Amounts 59,676 19,187 78,863 87,904

Investment in Immature Plantations at the time of handing over to the Company as at 18 June, 1992 by way of estate leases were shown under Immature Plantations.

However, since then all such investments in immature plantations attributable to JEDB/ SLSPC period have been transferred to mature plantations. These mature tea and rubber were classified as bearer biological assets in terms of LKAS 41 - Agriculture. The carrying value of the bearer biological assets leased from JEDB/SLSPC is recognised at cost less amortisation. Further investments in such plantations to bring them to maturity are shown in Note 18.1.2.

18.1.2 Investments after formation of the plantation company

For the year ended 31 March, 2015 2014 Immature Mature Total Total Plantations Plantations Rs.000 Rs.000 Rs.000 Rs.000

Cost Balance as at the Beginning of the Year 1,140,840 673,110 1,813,950 1,489,462 Additions During the Year 312,468 - 312,468 324,488 Transfers (from)/to (40,078) 40,078 - - Balance as at the End of the Year 1,413,230 713,188 2,126,418 1,813,950

Accumulated Amortisation Balance as at the Beginning of the Year - 285,583 285,583 257,284 Charge for the Year - 30,204 30,204 28,299 Balance as at the End of the Year - 315,787 315,787 285,583 Carrying Amounts at the End of the Year 1,413,230 397,401 1,810,631 1,528,367

Annual Report 2014/15 119 Notes to the Financial Statements

These are investments in immature/ mature plantations since the formation of the Company. The assets (including plantation assets) taken over by way of estate leases are set out in Notes 18.1.1 Further investment in immature plantations taken over by way of these leases are shown in the above note. When such plantations become mature, the additional investments since take over to bring them to maturity, will be moved from immature to mature under this note.

The requirement for recognition of bearer biological assets at its fair value less cost to sell under LKAS 41 was superseded by the ruling issued on March, 2nd 2012 by the Institute of Chartered Accountants of Sri Lanka. Accordingly, the Company has elected to measure the bearer biological assets at cost using LKAS 16 - Property, Plant & Equipment.

Specific borrowings have been obtained to finance the planting expenditure. The above additions include Rs.58,231,199 (2014-Rs.43,136,174/=) of borrowing costs capitalised during the year.

18.2 Consumer Biological Assets

Group For the year ended 31 March, 2015 2014 Rs.000 Rs.000

Balance as at the Beginning of the Year 1,559,765 1,475,236 Gain/(Loss) Arising from Changes in Fair Value Less Cost to Sell 92,376 74,293 Increase Due to Development 10,234 10,236 Balance as at the End of the Year 1,662,375 1,559,765

Managed timber plantations include commercial timber plantations cultivated in estates. The timber plantations are recorded at fair value other than young trees which are recorded at cost as the significant biological transformation has not taken place.

Managed timber plantation was measured at fair value initially as at 31 December 2012 and subsequently. The corresponding gain/loss was recognised in the profit or loss. However fair value surplus was recognised in the equity as a separate component which will be available for distribution only on realisation of consumable biological assets.

18.2.1 Measurement of Fair Values a) Fair Value Hierarchy The fair value measurements of for the standing timber have been categorised as Level 3 fair values based on the inputs to the valuation techniques used.

The fair value of managed timber plantations was ascertained since the LKAS 41 is only applicable for managed agricultural activity in terms of the ruling issued by The Institute of Chartered Accountants of Sri Lanka. The valuation was carried by Messers Mr. W.M.Chandrasena, incorporated valuers, using Discounted Cash Flow (DCF) methods. In ascertaining the fair value of timber a physical verification was carried out covering all the estates.

Key assumption used in the Valuation 1. The harvesting is approved by the PMMD and Forestry Department Based on the Forestry Department Plan. 2. The current market prices used are net of selling expenditure. 3. Discount rate is 13%, a Sensitivity analysis at (+) or (-) 1% is also disclosed 4. Though the replanting is a condition precedent for harvesting , yet the costs are not taken into consideration, as these are not considered to be material.

120 Distilleries Company of Sri Lanka PLC The valuations, as presented in the external valuation models based on net present values, take into account the long term exploitation of the timber plantations. Because of the inherent uncertainty associated with the valuation at fair value of the biological assets due to the volatility of the variables, their carrying value may differ from their realisable value. The Board of Directors retains their view that commodity markets are inherently volatile and that long term price projections are highly unpredictable. Hence, the sensitivity analysis regarding discount rate variations as included in this note allows every investor to reasonably challenge the financial impact of the assumptions used in the LKAS 41 against his own assumptions.

b) Level 3 Fair Values The break down of the total gains (losses) in respect of Level 3 fair values is shown below.

Group For the year ended 31 March, 2015 2014 Rs.000 Rs.000 Gain Included in Other Income Change in Fair Value (Realised) 19,941 40,664 Change in Fair Value (Unrealised) 92,377 74,294 112,318 114,958

18.2.2 Sensitivity analysis Sensitivity variation discount rate Values as appearing in the Statement of Financial Position are very sensitive to changes of the discount rate applied. Simulations made for timber trees show that a rise or decrease by 1% of the discount rate has the following effect on the net present value of biological assets:

12% 13% 14% Managed Timber 1,738,526 1,662,376 1,598,537 Total 1,738,526 1,662,376 1,598,537

19 Investments in Subsidiaries As at 31 March, 2015 2014 Number of Effective Cost Number of Effective Cost shares holding Rs.000 shares holding Rs.000

Melstacorp Limited 265,450,000 100% 48,320,750 200,000,000 100% 35,558,000 Timpex Limited* - - 15,611,661 51.03% 156,117 AION SG Residencies (Pvt) Ltd 100% 25,000 2,500,000 100% 25,000 Less: Provision for Impairment of (25,000) (25,000) Investment 48,320,750 35,714,117

* The Company has structured its investment in Timpex Limited to its fully owned subsidiary, Melstacorp Limited during the year as per group restructuring plan.

Annual Report 2014/15 121 Notes to the Financial Statements

19.1 Group Holdings in Subsidiaries

Subsidiary Principal Activity Reporting Reason for using a Indirectly 2015 2015 date different period holding No. of shares Effective through held ownership interest 1 Balangoda Plantations PLC BPL Cultivation and Processing of 31-Dec To comply with the rules MC 10,217,300 43.23% Tea & Rubber and regulations in the Plantation sector 2 Bell Solutions (Pvt) Ltd BSL Information & Communication 31-Mar - LB 98,090 98.09% Technology 3 Bellvantage (Pvt) Ltd BV BPO,KPO & Software 31-Mar - MC 5,000,100 100% Development 4 Bogo Power (Pvt) Ltd BP Generation and Sale of Hydro 31-Mar - MC 993,000,000 99.30% Electric Energy 5 Browns Beach Hotel PLC BBH Leisure 31-Mar - MC 54,273,234 41.88% 6 Continental Insurance Lanka CIL General Insurance 31-Dec To comply with the rules MC 50,000,000 100% Limited Services and regulations in the Insurance sector 7 Lanka Bell Ltd LB Telecommunication 31-Mar - MH 50,719,061 99.73% Services 8 Melstacorp Limited MC Investment Holding 31-Mar - Direct 265,450,000 100% Company 9 Melsta Logistics (Pvt) Ltd ML Automobile Servicing and 31-Mar - MC 66,572,573 100% Logistics 10 Melsta Regal Finance Ltd MRF Finance, Leasing, 31-Mar - MC 134,029,451 100% Hire Purchasing and Factoring 11 Milford Holdings (Pvt) Ltd MH Investment Holding 31-Mar - MC 333,067,925 98.36% Company 12 Negombo Beach Resorts NBR Leisure 31-Mar - BBH 91,400,001 41.88% (Pvt) Ltd 13 Periceyl (Pvt) Ltd PVL Distribution of locally 31-Dec To operate in line with MC 40,000 100% manufactured foreign strategic alliances Foreign Liquor 14 Splendor Media (Pvt) Ltd SM Media Buying & Creative 31-Mar - MC 100,002.00 100% Services 15 Telecom Frontier (Pvt) Ltd TF Telecommunication 31-Mar - LB 98,090 98.09% Services 16 Texpro Industries Ltd TEXP Dyeing and Printing Woven 31-Mar - TIM 46,836,524 41.75% Fabrics 17 Timpex Ltd TIM Investment Holding 31-Mar - MC 15,611,661 51.03% Company 18 Melsta Properties (Pvt) Ltd MP Management of Real 31-Mar - MC 170,194,901 100% Estate 19 Melsta Tower (Pvt) Limited MT Real Estate 31-Mar MC 42,500,000 100% 20 Melsta Technology (Pvt) Limited TECH IT Services 31-Mar MC 1,000,000 z 100%

19.2 Significant Judgements and Assumptions made in Determining whether the Group has Control Although the Group owns less that half of the voting rights of Browns Beach Hotel PLC (BBH) and Balangoda Plantations PLC (BPL), the Group assessed that it is able to govern the financial and operating policies of BBH and BPL by virtue of de facto control on the basis that the remaining share holders are widely depressed and there is no indication to believe that all of them will exercises their votes collectively.

122 Distilleries Company of Sri Lanka PLC 19.3 Disclosure of the Interest that Non-Controlling Interests have in the Group’s Activities and Cash Flows 19.3.1 Nature of Interests in Subsidiaries with Material NCI Name of the subsidiary : Balangoda Plantations PLC (BPL) Browns Beach Hotels PLC (BBH) Principal Place of Business : In the areas of Ratnapura, No. 175, Lewis Place, Balangoda and Badulla Negombo Proportion of Ownership Interest held by Non Controlling Interest : 56.77% 58.12% Profit / (Loss) allocated to Non Controlling Interest (Rs. ‘000) : (54,066) (9,108) Accumulated Non Controlling Interest at the End of the : 1,488,378 2,063,625 Reporting Period (Rs. ‘000)

19.3.2 Summarised Financial Information of Subsidiaries that have Material NCI BPL BBH As at/ for the year ended 31 March, 2015 2014 2015 2014 Rs.000 Rs.000 Rs.000 Rs.000 Dividends Paid to Non Controlling Interests 13,419 13,419 - - Current Assets 795,348 835,147 87,119 1,048,716 Non Current Assets 4,348,929 3,997,908 4,253,596 2,536,628 Current Liabilities 876,898 947,133 124,391 12,127 Non Current Liabilities 1,645,747 1,129,373 665,848 471 Revenue 3,002,156 3,171,983 - - Profit from Continuing Operations (95,231) 132,654 (15,671) 93,249 Other Comprehensive Income (16,601) 21,147 (169) 442 Total Comprehensive Income (111,832) 153,801 (15,840) 93,691

19.4 Acquisition of NCI In March 2015, the Group acquired 50% of interest in Splendor Media Private Limited for Rs.30,520,261, increasing its ownership from 50 to 100%. The Group recognised: • a decrease in NCI of Rs.32,484,965; • an increase in retained earnings of RS.1,964,704; and The carrying amount of Splendor Media Private Limited’s net assets in the Group’s financial statements on the date of the acquisition was Rs.64,867,930. The following summarises the changes in the Company’s ownership interest in Splendor Media Private Limited.

Group For the year ended 31 March, 2015 Rs.000 Company’s Ownership Interest at 31 March 2015 32,383 Effect of Increase in Company’s Ownership Interest 32,485 Company’s Ownership Interest at 31 March 2015 64,868

20 Investment in Equity Accounted Investees Group As at 31 March, 2015 2014 No. of Effective Equity Value Cost No. of Shares Effective Equity Value Cost Shares Holding Holding Rs.000 Rs.000 Rs.000 Rs.000

20.1 20.1 Aitken Spence Holdings PLC 167,584,298 41.28% 23,735,329 18,809,061 167,030,743 41.14% 22,538,992 14,239,687 Madulsima Plantations PLC 9,048,307 31.20% 456,908 90,000 9,048,307 31.20% 455,517 90,000 24,192,237 18,899,061 22,994,509 14,329,687

Annual Report 2014/15 123 Notes to the Financial Statements

Company As at 31 March, 2015 2014 No. of Shares Effective Holding Cost No. of Shares Effective Holding Cost

Rs.000 Rs.000 Aitken Spence PLC 186,500 0.001% 28,703 186,500 0.001% 28,703 28,703 28,703

20.1 Equity Value of Investment in Equity Accounted Investees to the Group For the year ended 31 March 2015

Equity Accounted Balance as at Acquisitions/ Share of Profit/ Dividend Share of Other Share of Balance As At Investee 1 April 2014 (Disposal) (Loss) Net Received Comprehensive Net Assets 31 March 2015 of Tax Income Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000

Aitken Spence PLC 22,538,992 55,744 1,477,319 (335,169) (2,271) 714 23,735,329 Madulsima Plantations PLC 455,517 - (86,651) - 88,042 - 456,908 22,994,509 55,744 1,390,668 (335,169) 85,771 714 24,192,237

For the year ended 31 March 2014

Equity Accounted Balance as at Acquisitions/ Share of Profit/ Dividend Share of Other Share of Balance As At Investee 1 April 2013 (Disposal) (Loss) Net Received Comprehensive Net Assets 31 March 2014 of Tax Income Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Aitken Spence PLC 20,303,398 507,636 1,508,771 (250,236) 462,671 6,752 22,538,992 Madulsima Plantations PLC 525,303 - (68,590) - (1,197) 455,517 Pelwatte Dairies (Pvt) Ltd 86,284 (86,284) - - - - 20,914,985 421,352 1,440,182 (250,236) 461,474 6,752 22,994,509

20.2 Fair Value of Quoted Equity Accounted Investees and Other Information

Group Company As at 31 March, Principal Activity Reporting Date 2015 2014 2015 2014 Rs.000 Rs.000 Rs.000 Rs.000

Aitken Spence PLC Diversified holdings 31 March 16,674,637 16,352,310 18,557 18,258 Madulsima Plantations PLC Cultivation and 31 December 103,151 91,388 - - processing of Tea 16,777,788 16,443,698 18,557 18,258

20.3 Disclosure of Nature, Extent and Financial Effects of the Entity’s Interests in Associates 20.3.1 Associates that are Individually Material to the Group Name of the Associate : Aitken Spence PLC Madulsima Plantations PLC Principal Place of Business : No.315, Vauxhall Street, Colombo 02. In the areas of Madulsima and Bogawanthalawa. Principal Activities : Investment Holding Company Cultivation and plantation of tea Proportion of Ownership Interests : 41.28% 31.20% Whether Strategic to the Group : Yes Yes Investment in Associate is Measured using : Equity method Equity method

124 Distilleries Company of Sri Lanka PLC 20.3.2 Summarised financial information of Equity Accounted Investees (entire amount reported in associate’s financial statements) Aitken Spence PLC Madulsima Plantations PLC As at / for the year ended 31 March, 2015 2014 2015 2014 Rs.000 Rs.000 Rs.000 Rs.000

Total Current Assets 25,703,317 25,865,144 411,709 452,701 Total Non Current Assets 39,729,771 35,280,093 4,454,513 3,891,249 Total Current Liabilities 12,426,235 13,816,605 2,202,176 1,862,099 Total Non Current Liabilities 10,727,403 8,550,368 1,088,871 911,134 Revenue 35,318,891 36,108,370 2,207,886 2,056,721 Profit / (Loss) from Continuing Operations 4,883,600 4,508,635 (277,727) (219,628) Other Comprehensive Income / (Expenses) 2,907 1,286,282 282,185 (3,831) Total Comprehensive Income / (Expenses) 4,886,507 5,794,917 4,458 (223,459) Cash and Cash Equivalents 2,911,135 2,728,514 1,747 2,364 Depreciation and Amortisation. 1,391,376 1,499,420 74,533 73,142 Interest Income. 622,825 800,721 212 205 Interest Expense. 804,836 1,145,540 192,877 111,840 Income Tax Expense 826,323 900,476 7,685 3,620

21 Other Financial Investments

Group Company As at 31 March, 2015 2014 2015 2014 Note Rs.000 Rs.000 Rs.000 Rs.000

Non Current Investments Available For Sale Financial Investments - (AFS) 21.1 17,340,724 15,452,954 2,561,053 6,349,895 Loans and Receivables (L&R) Financial 21.4 182,538 181,765 - - Investments Other Non Current Financial Investments 17,523,262 15,634,719 2,561,053 6,349,895

Current Investments Available for Sale Financial Investments - (AFS) 21.1 177,517 - - - Fair Value Through Profit or Loss (FVTPL) 21.2 2,011,416 2,184,859 177,863 784,540 Financial Investments Held to Maturity (HTM) Financial Investments 21.3 40,911 - - - Loans and Receivables (L&R) Financial 21.4 201,971 254,893 - - Investments Other Current Financial Investments 2,431,815 2,439,752 177,863 784,540

21.1 Available for Sale Financial Investments - (AFS)

Non Current Investments Quoted Equity Securities 21.1.1 16,931,800 15,213,946 2,223,612 6,126,080 Unquoted Equity Securities 21.1.2 114,102 338 113,771 7 Investments in Unit Trusts 21.1.3 59,152 3,000 3,000 3,000 Debt Securities 21.1.4 235,670 235,670 220,670 220,670 17,340,724 15,452,954 2,561,053 6,349,757 Current investments Government securities 21.1.5 177,517 - - - 177,517 - - -

Annual Report 2014/15 125 Notes to the Financial Statements ------3 4 - 7 9,216 4,945 4,700 3,000 9,216 3,000 Rs.000 Fair Value 1,502,441 2,452,467 2,152,311 6,116,864 6,126,080 ------3 4 - 7 Cost 2014 8,845 3,639 4,593 3,000 8,845 3,000 Rs.000 494,946 599,951 432,332 1,535,461 1,544,306 - - -

- 100 200 50,980 39,169 40,597 300,000 10,016,272 17,042,856 17,498,457 No. of Shares - 4 ------3 Company 3,000 3,000 Rs.000 113,771 113,764 Fair Value 2,223,612 2,223,612 2,223,612 - 4 2015 ------3 Cost 3,000 3,000 Rs.000 494,946 494,946 494,946 113,771 113,764 -

------200 100 300,000 10,016,272 43,266,167 No. of Shares - - - - - 3 4 - 261 331 338 3,000 4,945 4,700 3,000 Rs.000 636,854 636,854 Fair Value 1,502,441 2,452,467 8,294,340 2,317,938 6,282,752 8,294,340 15,213,946 2014 - - - 3 4 - 150 331 338 Cost 3,000 3,639 4,593 3,000 Rs.000 494,946 926,473 599,951 606,108 567,958 926,473 606,108 7,202,026 1,671,237 7,202,026 10,405,845 - - - - 100 200 1,626 3,310 50,980 39,169 300,000 5,946,351 10,016,272 17,042,856 18,845,020 33,140,501 36,538,938 No. of Shares ------3 4 Group 813 331 3,000 Rs.000 56,152 59,152 832,489 832,489 114,102 113,764 Fair Value 2,223,612 3,456,291 7,277,769 3,140,826 8,821,542 7,277,769 16,931,800 2015 ------3 4 Cost 3,000 Rs.000 54,000 57,000 494,946 926,473 606,109 606,109 926,473 113,771 113,764 3,566,627 7,193,181 2,921,577 6,983,150 7,193,181 14,782,440 - - - - - 100 200 3,252 300,000 301,614 5,946,351 10,016,272 17,042,856 18,989,272 33,140,501 43,266,167 36,498,341 No. of Shares No. of Shares / Warrants Quoted Equity Securities - Non Current Investments - AFS Quoted Equity Securities - Non Current Hatton National Bank PLC Bank finance & Insurance DFCC Bank PLC Amethyst Leisure Ltd Amethyst Leisure As at 31 March, Diversified Investments John Keells Holdings PLC Bank of Ceylon PLC Commercial Bank of Ceylon PLC-NV Commercial Hatton National Bank PLC - NV National Development Bank PLC Beverage, Food & Tobacco Lanka Milk Foods (CWE) PLC Manufacturing Pelwatte Sugar Industries PLC Quoted Equity Securities - AFS Total Unquoted Equity Securities - AFS International Distilleries Lanka Ltd (Pvt) Ltd Agro Northern Green (Pvt) Ltd Southern Agro Green of Sri Investment Bureau Credit Lanka Unquoted Equity Securities - AFS Total Investments in Unit Trusts Acuity Asset Mgt. Limited Guardian - AFS Investments in Unit Trusts Total W.M.Mendis & Co., Ltd W.M.Mendis Unit Trust Mgt Co., Ltd Unit Trust 21.1.1 21.1.2 21.1.3

126 Distilleries Company of Sri Lanka PLC 21.1.4 Debt Securities - AFS

Group Company As at 31 March, Fair Value Fair Value 2015 2014 2015 2014 Rs.000 Rs.000 Rs.000 Rs.000

Corporate Debentures 235,670 235,670 220,670 220,670 235,670 235,670 220,670 220,670

21.1.5 Government Securities - AFS

Group Company As at 31 March, Fair Value Fair Value 2015 2014 2015 2014 Note Rs.000 Rs.000 Rs.000 Rs.000

Treasury Bills matures after 3 Months 177,517 - - - 177,517 - - -

21.2 Fair Value through Profit or Loss (FVTPL) Financial Investments

Group Company As at 31 March, Fair Value Fair Value 2015 2014 2015 2014 Note Rs.000 Rs.000 Rs.000 Rs.000

Quoted Equity Securities 21.2.1 1,111,052 1,801,780 177,863 784,540 Investments in Unit Trusts 21.2.2 765,487 258,772 - - Quoted Debentures 21.2.3 134,877 124,307 - - 2,011,416 2,184,859 177,863 784,540

21.2.1 Quoted Equity Securities - FVTPL Group Company As at 31 March, 2015 2014 2015 2014 No. of Shares Fair Value No. of Shares Fair Value No. of Shares Fair Value No. of Shares Fair Value Rs.000 Rs.000 Rs.000 Rs.000

Bank Finance & Insurance Union Bank PLC - - 6,000 112 - - 6,000 112 Central Finance PLC - - 131,750 23,723 - - 106,950 19,358 Peoples Leasing Company PLC - - 26,478,500 378,367 - - 24,517,300 350,597 National Development Bank PLC - - 68,500 12,053 - - 58,500 10,448 Nation Trust Bank PLC - - 258,000 16,603 - - 206,000 13,369 Ceylinco Insurance PLC - NV - - 14,861 6,193 - - 10,990 4,649 Sampath Bank PLC - - 201,413 36,182 - - 152,794 27,824 Seylan Bank PLC 16,203 932 ------Commercial Bank of Ceylon PLC - - 75,000 9,030 - - - - Commercial Bank of Ceylon PLC - NV - - 42,027 4,641 - - - - Hatton National Bank PLC - NV - - 9,463 1,126 - - - - 932 488,030 - 426,357

Annual Report 2014/15 127 Notes to the Financial Statements

Group Company As at 31 March, 2015 2014 2015 2014 No. of Shares Fair Value No. of Shares Fair Value No. of Shares Fair Value No. of Shares Fair Value Rs.000 Rs.000 Rs.000 Rs.000

Beverage, Food & Tobacco Ceylon Tobacco PLC - - 11,600 12,635 - - 8,600 9,082 Cargills (Ceylon) PLC - - 49,900 6,950 - - 36,700 5,010 Bairaha Farms PLC - - 49,574 7,108 - - 39,274 5,781 Keells Foods Product PLC - - 110,669 6,272 - - 84,221 4,632 Ceylon Cold Stores PLC - - 68,970 9,799 - - 49,583 6,976 Renuka Agri Foods PLC 6,118,560 28,877 6,768,560 22,243 4,918,560 23,117 4,668,560 14,473 Nestle Lanka PLC 3,997 8,912 - - 2,625 6,024 - - Lanka Milk Foods (CWE) PLC 763,733 106,923 763,700 81,796 763,733 106,923 763,733 81,796 144,712 146,803 136,064 127,750

Hotel and Travels The Kingsbury Hotel PLC 823,600 13,588 1,323,600 17,224 618,600 9,898 618,600 7,918 Aitken Spence Hotel Holdings PLC 23,100 1,813 84,400 5,906 - - 61,300 4,291 Asian Hotels & Properties PLC ------Serandib Hotels PLC - - 220,000 6,244 - - 160,000 4,480 John Keells Hotels PLC 528,850 7,941 528,850 6,611 388,850 5,561 388,850 4,861 23,342 35,985 15,459 21,550

Construction & Engineering Access Engineering PLC - - 418,497 9,367 - - 295,797 6,655 Colombo Dockyard PLC - - 21,083 3,818 - - 12,053 2,106 - - 439,580 13,185 - - 307,850 8,761 Manufacturing ACL Cables PLC 63,000 4,813 249,000 15,630 - - 136,000 8,296 Royal Ceramics Lanka PLC - - 85,200 6,852 - - 67,100 5,321 Tokyo Cement PLC - - 858,800 24,359 - - 568,400 17,564 Chevron Lubricants Lanka PLC - - 37,500 9,944 - - 28,000 7,400 Lanka Tiles PLC - - 123,208 9,434 - - 89,815 6,799 Lanka IOC - - 100,000 3,850 - - 100,000 3,850 Bukit Darah PLC 72,200 48,952 72,200 42,663 - - - - Textured Jersey Lanka PLC 13,511,928 324,569 13,511,928 212,954 - - - - 378,334 325,686 - 49,230

Telecommunication Dialog Axiata PLC - - 2,280,893 20,528 - - 861,951 7,758 - 20,528 - 7,758

Power & Energy Vallibel Power Erathna PLC - - 1,605,425 9,080 - - 1,155,024 6,468 - 9,080 - 6,468

128 Distilleries Company of Sri Lanka PLC Group Company As at 31 March, 2015 2014 2015 2014 No. of Shares Fair Value No. of Shares Fair Value No. of Shares Fair Value No. of Shares Fair Value Rs.000 Rs.000 Rs.000 Rs.000 Diversified Investments John Keells Holdings PLC - - 19,190 4,362 - - - - John Keells Holdings PLC - Warrant 2015 1,666,208 34,657 1,676,292 115,030 - - 6,921 475 John Keells Holdings PLC - Warrant 2016 1,666,208 53,485 1,669,292 120,048 - - - - CT Holding PLC 1,475,500 188,864 1,475,500 199,193 - - - - Softlogic Holdings PLC 380,000 5,016 380,000 4,028 380,000 5,016 380,000 4,028 Softlogic Capital PLC 40,000,000 240,000 40,000,000 156,000 - - - - Free Lanka Capital Holdings PLC 2,850,850 4,561 2,850,850 5,987 2,850,850 4,561 2,850,850 5,987 Expo Lanka Holdings PLC - - 872,000 7,298 - - - - Carson Cumberbatch PLC 29,400 10,772 29,400 10,731 - - 632,000 5,498 Vallibel One PLC 121,084 2,671 124,200 2,080 - - - - Renuka Holdings PLC - - 67,358 2,061 - - - - 540,026 626,818 9,577 15,988

Hospitals Asiri Hospitals Holdings PLC - - 5,222,890 112,538 - - 4,672,890 103,738 Ceylon Hospitals PLC - Non Voting 135,909 10,403 140,120 10,709 95,869 7,200 100,080 7,706 10,403 123,247 7,200 111,444

Chemicals and Pharmaceuticals Haycarb PLC 73,876 13,303 67,755 12,418 52,255 9,563 50,255 9,096 73,876 13,303 67,755 12,418 52,255 9,563 50,255 9,096 Total Quoted Equity Securities -FVTPL 1,111,052 1,801,780 177,863 784,540

21.2.2 Investments in Unit trusts - FVTPL Group As at 31 March, 2015 2014 No. of Units Fair Value No. of Units Fair Value Rs.000 Rs.000

Namal High Yield Fund 5,186,213 71,309 5,186,213 66,416 JB Vantage Money Market Fund 14,617,175 215,543 4,964,585 66,312 Eagle Income Fund 5,639,583 58,894 3,741,112 40,254 Eagle Money Fund 4,236,359 44,581 2,107,020 25,745 Ceybank Savings Plus Money Market Fund 5,200,912 69,037 5,639,583 60,045 NDB GILT EDGED 2,509,294 25,573 - - Guardian Acuity Fixed Income Fund 1,689,189 20,557 - - Comtrust Money Market Fund 12,408,657 143,215 - - Investust Money Fund 10,919,517 116,778 - - Total Unit Trust Investment -FVTPL 765,487 258,772

Annual Report 2014/15 129 Notes to the Financial Statements

21.2.3 Quoted Debentures - FVTPL

Group As at 31 March, 2015 2014 Carrying Value Fair Value Carrying Value Fair Value Rs.000 Rs.000 Rs.000 Rs.000

People's Leasing Company PLC 50,000 59,625 50,000 52,427 Hatton National Bank PLC 19,003 19,003 19,003 19,844 Senkadagala Finance PLC 20,000 23,718 20,000 20,618 Lion Brewery (Ceylon ) PLC 15,000 16,082 15,000 15,736 Hayleys PLC 15,000 16,449 15,000 15,682 Total Investments in Quoted Debentures 119,003 134,877 119,003 124,307

21.3 Held to Maturity (HTM) Financial Investments

Group As at 31 March, 2015 2014 Rs.000 Rs.000

Commercial Papers 40,911 - 40,911 -

21.4 Loans and Receivables (L&R) Financial Investments

Non Current Investments Corporate Debentures 182,538 181,765 182,538 181,765 Current Investments Treasury Bills Matures After 3 Months - 42,516 Commercial Papers 83,341 - Term Deposits Matures After 3 Months 118,630 212,377 201,971 254,893

21.5 Investments that have been Pledged The investments that are pledged for liabilities are disclosed in Note 41 to these financial statements if any.

130 Distilleries Company of Sri Lanka PLC 22 Deferred Tax Asset and Liabilities 22.1 Recognised Deferred Tax Assets and Liabilities Deferred tax assets and liabilities are attributable to the following:

Group As at 31 March, 2015 2014 Assets Liabilities Net Assets Liabilities Net Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000

Property, Plant and Equipment (15,419) 923,078 907,659 (11,382) 416,080 404,698 Biological Assets - 347,301 347,301 - 308,814 308,814 Employee Benefits (178,715) - (178,715) (154,545) - (154,545) Accelerated Tax Depreciation on - 31,513 31,513 - 8,456 8,456 Leasing Assets Unutilised Tax Loss Carry-Forwards (308,580) - (308,580) (230,889) - (230,889) (502,714) 1,301,892 799,178 (396,816) 733,350 336,534 Company As at 31 March, 2015 2014 Assets Liabilities Net Assets Liabilities Net Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000

Property, Plant and Equipment - 532,164 532,164 - 60,958 60,958 Employee Benefits (54,845) - (54,845) (44,068) - (44,068) (54,845) 532,164 477,319 (44,068) 60,958 16,890

22.1.1 Movement in Recognised Deferred Tax Assets and Liabilities Group 2015 Charged/(Credited) Balance as at in in Other Directly in Balance as at 1 April 2014 Profit or Comprehensive Equity 31 March 2015 Loss Income Rs.000 Rs.000 Rs.000 Rs.000 Rs.000

Property, Plant and Equipment 404,698 502,961 - - 907,659 Biological Assets 308,814 38,487 - - 347,301 Employee Benefits (154,542) (12,791) (11,382) - (178,715) Accelerated Tax Depreciation on Leasing Assets 8,456 23,056 - - 31,512 Unutilised Tax Loss Carry-Forwards (230,889) (77,690) - - (308,579) 336,537 474,023 (11,382) - 799,178

Annual Report 2014/15 131 Notes to the Financial Statements

Group 2014 Charged/(Credited) Balance as at De-Recognition in in Other Directly in Balance as at 1 April 2013 of Subsidiary Profit or Loss Comprehensive Equity 31 March 2014 Income Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000

Property, Plant and Equipment 500,154 (147,595) 52,139 - - 404,698 Biological Assets 272,438 - 36,376 - - 308,814 Employee Benefits (192,793) 38,827 (7,552) 6,976 - (154,542) Accelerated Tax Depreciation on 6,463 - 1,993 - - 8,456 Leasing Assets Unutilised Tax Loss Carry-Forwards (172,083) - (58,806) - - (230,889) 414,179 (108,768) 24,150 6,976 - 336,537

Company 2015 Charged/(Credited) Balance as at in in Other Directly in Balance as at 1 April 2014 Profit or Loss Comprehensive Equity 31 March 2015 Income Rs.000 Rs.000 Rs.000 Rs.000 Rs.000

Property, Plant and Equipment 60,958 471,206 - - 532,164 Employee Benefits (44,068) (2,822) (7,954) - (54,844) 16,890 468,384 (7,954) - 477,320

Company 2014 Charged/(Credited) Balance as at in in Other Directly in Balance as at 1 April 2014 Profit or Loss Comprehensive Equity 31 March 2015 Income

Property, Plant and Equipment 44,230 21,694 - (4,967) 60,957 Employee Benefits (46,145) (155) 2,233 - (44,067) (1,915) 21,539 2,233 (4,967) 16,890

22.2 Unrecognised Deferred Tax Assets Deferred tax assets have not been recognised in respect of the following items: Group Company For the year ended 31 March, 2015 2014 2015 2014 Rs.000 Rs.000 Rs.000 Rs.000

Tax Losses 144,317 161,792 - - Other Deductible Temporary Differences 126,575 150,519 - - 270,892 312,311 - - Deferred tax assets have not been recognised in respect of these items because it is not probable that future taxable profits will be available against which the Group can utilise the benefits there from.

132 Distilleries Company of Sri Lanka PLC 23 Finance Lease and Hire Purchases Receivables

Group 2015 2014 As at 31 March, Finance Lease Hire Purchase Total Finance Lease Hire Purchase Total Receivables Receivables Receivables Receivables Note Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000

Non Current Assets Receivable from One to Five Years 23.1 704,659 163,566 868,225 199,562 101,802 301,364 Receivable from more than Five Years ------704,659 163,566 868,225 199,562 101,802 301,364 Current Assets Receivable within One Year 23.2 235,719 76,280 311,999 77,633 36,566 114,199 235,719 76,280 311,999 77,633 36,566 114,199

23.1 Receivable from One to Five Years

Gross Rental Receivable 881,254 204,215 1,085,469 258,125 133,997 392,122 Unearned Interest Income (172,668) (39,814) (212,482) (58,563) (32,195) (90,758) Allowance for Impairment 23.3 (3,927) (835) (4,762) - - - 704,659 163,566 868,225 199,562 101,802 301,364

23.2 Receivable within One Year

Gross Rental Receivable 365,945 111,979 477,924 127759 61441 189,200 Unearned Interest Income (128,917) (35,306) (164,223) (50,126) (24,875) (75,001) Allowance for Impairment 23.3 (1,309) (393) (1,702) - - - 235,719 76,280 311,999 77,633 36,566 114,199

23.3 Allowance for Impairment

Allowance for Individual Impairment Balance as at 1 April ------Charge/(Reversal) for the Year 2,845 - 2,845 - - - Balance as at 31 March 2,845 - 2,845 - - - Allowance for Collective Impairment Balance as at 1 April - - - - Charge/(Reversal) for the Year 2,391 1,228 3,619 - - - Balance as at 31 March 2,391 1,228 3,619 - - - Total Allowance for Impairment 5,236 1,228 6,464 - - -

Annual Report 2014/15 133 Notes to the Financial Statements

24 Advances and Other Loans

Group As at 31 March, 2015 2014 Loans and Factoring Total Loans and Factoring Total advances receivables advances receivables Notes Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000

Note 24.1 Note 24.1 Non Current Assets Receivable from One to Five Years 459,705 - 459,705 151,984 - 151,984 459,705 - 459,705 151,984 - 151,984 Current Assets Receivable within One Year 958,980 265,571 1,224,551 433,622 239,393 673,015 958,980 265,571 1,224,551 433,622 239,393 673,015 Total 1,418,685 265,571 1,684,256 585,606 239,393 824,999

24.1 Loans and Advances

Group As at 31 March, 2015 2014 Loans and Total Loans and Total advances advances Notes Rs.000 Rs.000 Rs.000 Rs.000

Loans Secured by Fixed Deposits - - 687 687 Loans Secured by Other Assets 640,873 640,873 259,363 259,363 Trade Finance Receivables 786,160 786,160 328,259 328,259 Allowance for Impairment 24.2 (8,348) (8,348) (2,703) (2,703) 1,418,685 1,418,685 585,606 585,606

24.2 Allowance for Impairment

Allowance for Individual Impairment Balance as at 1 April 2,703 2,703 - - Charge for the Year (671) (671) 2,703 2,703 Balance as at 31 March 2,033 2,033 2,703 2,703

Allowance for Collective Impairment Balance as at 1 April - - - - Charge/(Reversal) for the Year 6315 6,315 - - Balance as at 31 March 6,315 6,315 - -

Total Allowance for Impairment 8,348 8,348 2,703 2,703

134 Distilleries Company of Sri Lanka PLC 25 Inventories

Group Company As at 31 March, 2015 2014 2015 2014 Rs.000 Rs.000 Rs.000 Rs.000

Raw Materials 1,779,695 1,361,500 1,459,991 1,107,897 Packing Materials 637,827 518,818 556,689 453,429 Work in Progress 322,799 269,330 222,679 136,877 Finished Goods 722,604 650,638 250,360 283,012 Harvested Crop 273,323 376,037 - - Nurseries 18,163 21,519 - - Input Materials, Consumables and Spares 2,129,459 2,124,555 312,213 270,384 Goods in Transit 4,988 25,035 - - 5,888,858 5,347,432 2,801,932 2,251,599 Provision for Slow Moving and Obsolete Inventories (904,808) (911,636) (5,443) (5,443) 4,984,050 4,435,796 2,796,489 2,246,156

25.1 Inventories that have been Pledged The inventories that are pledged for liabilities are disclosed in Note 41 to these financial statements if any.

26 Trade and Other Receivables

Group Company As at 31 March, 2015 2014 2015 2014 Note Rs.000 Rs.000 Rs.000 Rs.000

Financial Assets Trade Receivables 4,414,892 4,975,673 2,167,795 2,534,074 Other Financial Receivables 2,128,136 1,213,119 390,674 452,161 Receivable from Share Trust 26.1 1,418,716 1,446,830 - - Insurance Contract Receivables 554,077 371,872 - - Loans given to Employees 5,379 4,123 - - Refundable Deposits 236,026 24,012 - 3,421 8,757,226 8,035,629 2,558,469 2,989,656 Provision for Impairment Loss on Financial Assets (1,114,985) (958,913) (161,625) (154,766) 7,642,241 7,076,716 2,396,844 2,834,890 Non Financial Assets Prepayments and Advances 1,933,284 1,440,808 1,772,319 1,054,318 Accrued Income 64,952 66,394 64,952 66,394 Prepaid Staff Costs 35,884 31,829 - - Other Non Financial Receivables 112,975 884,501 - - Tax Receivables 303,373 220,355 - - 2,450,468 2,643,888 1,837,271 1,120,712 Provision for bad and doubtful debts - - - - 2,450,468 2,643,888 1,837,271 1,120,712 10,092,709 9,720,603 4,234,115 3,955,602

Annual Report 2014/15 135 Notes to the Financial Statements

26.1 Receivable from Share Trust Trade and Other receivables balance of the group includes Rs. 1.4 Bn from Melstacorp Limited Share Trust “Trust”. Melstacorp Limited “Company” has acquired 8,650,732 shares of the Distilleries Company of Sri Lanka PLC for Rs. 1.5 Bn in order to form a Share Trust for the benefit of its employees and its subsidiaries “Beneficiaries”. Melstacorp Limited Share Trust was created effective from 01 April 2011 for the holding of shares in the company, its holding company, its subsidiary companies and associate companies and any other companies listed on the Colombo Stock Exchange at the discretion of the Trustees for the purpose of distributing the income, profit, dividends and benefits arising from such portfolio of shareholding/s among the said beneficiaries subject to the provisions in the Trust deed.

The intention of the Melstacorp Limited to transfer the said shares to the Trustees having been delayed, Melstacorp Limited itself continued to hold those shares in the Trust for the benefit of the said beneficiaries. Subsequently on 23 March 2015, Company declared itself as a Trustees of the Trust by an addendum to the original Trust Deed.

27 Cash at Bank & Cash in Hand

Group Company As at 31 March, 2015 2014 2015 2014 Note Rs.000 Rs.000 Rs.000 Rs.000

Favourable Balances Classified under Current Assets Short Term Deposits 27.1 3,180,904 3,044,934 42,099 82,062 Cash at Bank 804,823 595,628 66,553 61,719 Cash in Hand 17,862 206,471 6,724 199,883 Cash in Transit 69,342 76,479 69,342 76,439 Total 4,072,931 3,923,512 184,718 420,103

Unfavourable Balances Classified under Current Liabilities Bank Overdrafts 4,253,380 5,120,243 1,681,456 3,810,832 Total 4,253,380 5,120,243 1,681,456 3,810,832 (576,991) (1,196,731) (1,496,738) (3,390,729)

27.1 Short Term Deposits

Government securities which matures within 3 months 419,729 867,271 - - Fixed deposits which matures within 3 months 2,761,175 2,177,663 42,099 82,062 3,180,904 3,044,934 42,099 82,062

27.1.1 Short Term Deposits that have been Pledged The Short term deposits that are pledged for long term borrowings are disclosed in Note 41 to these financial statements if any.

28 Stated Capital

2015 2014 As at 31 March, No. of Shares Value of Shares No. of Shares Value of Shares Note Rs.000 Rs.000

Balance at the Beginning of the Year 300,000,000 300,000 300,000,000 300,000 Issue of Shares - - - - Balance at the End of the Year 300,000,000 300,000 300,000,000 300,000

The Company’s stated capital consist with fully paid ordinary shares which provides entitlement to its holders to receive dividends as declared from time to time and to vote per share at a meeting of the Company.

136 Distilleries Company of Sri Lanka PLC 29 Reserves

Group Company As at 31 March, 2015 2014 2015 2014 Note Rs.000 Rs.000 Rs.000 Rs.000 Capital Reserves Revaluation Reserve 29.1 5,846,432 5,793,558 1,295,154 1,971,799 Capital Reserve 29.2 110,930 110,930 107,882 107,882 Reserve Fund 29.3 5,992 1,798 - - Total Capital Reserves 5,963,354 5,906,286 1,403,036 2,079,681 Revenue Reserves General Reserve 29.4 8,286,434 8,222,578 8,210,000 8,210,000 Exchange Fluctuation Reserve 29.5 337,838 374,881 - - Timber Reserve 29.6 700,076 597,921 - - Afs Reserve 29.7 7,463,746 5,727,503 1,728,667 4,581,774 Investment Fund 29.8 - 2,844 - - Total Revenue Reserves 16,788,094 14,925,727 9,938,667 12,791,774 Total Reserves 22,751,448 20,832,013 11,341,703 14,871,455

29.1 Revaluation Reserve The revaluation reserve comprises of the gain arisen from the revaluation of Property, Plant and Equipment. This reserve is realised upon the de-recognition of the revalued Property, Plant and Equipment.

29.2 Capital Reserve Capital reserve comprises profits retained in order to utilise for the capital commitments.

29.3 Reserve Fund Reserve fund was created to comply with the Direction No.1 of 2003 (Capital funds) issued by the Central Bank. Melsta Regal Finance Limited is required to transfer 5% of annual profits to this reserve fund as long as the capital funds are not less 25% of total deposit liabilities.

29.4 General Reserve General reserve reflects the amount the Group has reserved over the years from its earnings.

29.5 Exchange Fluctuation Reserve Exchange fluctuation reserve comprises of all foreign exchange differences arising from the translation of foreign subsidiaries and the portion of exchange gain or loss arising from the translation of the hedge instrument in relation to cash flow hedges of Aitken Spence PLC Group.

29.6 Timber Reserve This represents the unrealised gains arising from the fair value of consumable biological assets ( Timber plantations) until the assets are derecognised or impaired.

29.7 AFS Reserve This represents the cumulative net change in the fair value of available-for-sale financial assets until the investments are derecognised or impaired.

29.8 Investment Fund During the year, the balance available in Investment Fund Reserve as at 31 March 2015 was transferred to retained earnings as per the instructions given by the Central Bank of Sri Lanka.

Annual Report 2014/15 137 Notes to the Financial Statements

30 Interest Bearing Loans and Borrowings Group Company As at 31 March, 2015 2014 2015 2014 Note Rs.000 Rs.000 Rs.000 Rs.000

Non Current Liabilities Term Loans Payable after One Year 30.1 1,661,933 549,408 - - Liability to Make Lease Payments Payable after One Year 30.2 97,133 98,852 - - Finance Lease Liabilities Payable after One Year 30.3 17,290 22,715 - - 1,776,356 670,975 - -

Current Liabilities Term Loans Payable within One Year 30.1 757,016 625,856 - - Liability to Make Lease Payments Payable within One Year 30.2 1,719 1,653 - - Finance Lease Liabilities Payable within One Year 30.3 6,000 5,062 - - Other Short Term Borrowings 6,978,692 6,958,577 4,795,000 6,215,006 Debt Instruments-Commercial Papers 53,003 - - - Redeemable Preference Shares 30.4 12,646 12,646 - - 7,809,076 7,603,794 4,795,000 6,215,006

30.1 Term loans Group Company As at 31 March, 2015 2014 2015 2014 Note Rs.000 Rs.000 Rs.000 Rs.000

Balance as at Beginning of the Year 1,175,264 2,284,095 - 1,270,002 Received During the Year 1,259,136 1,477,684 - - Acquisition / (De-recognition) of Subsidiaries - (152,089) - - Repaid During the Year (15,451) (2,434,426) - (1,270,002) Amortised Finance Cost - - - - 2,418,949 1,175,264 - -

Repayable within One Year 757,016 625,856 - - Repayable after One Year 1,661,933 549,408 - - 2,418,949 1,175,264 - -

30.2 Liability to make Lease Payments Group Company As at 31 March, 2015 2014 2015 2014 Note Rs.000 Rs.000 Rs.000 Rs.000

Gross Liability as at the Beginning of the Year 178,385 184,058 - - Acquisition of Subsidiaries (Gross Liability) - - - - Repayments During the Year (5,673) (5,673) - - 172,712 178,385 - - Finance Costs Allocated to Future Years (73,860) (77,880) - - Net Liability as at the End of the Year 98,852 100,505 - -

138 Distilleries Company of Sri Lanka PLC Group Company As at 31 March, 2015 2014 2015 2014 Note Rs.000 Rs.000 Rs.000 Rs.000

Repayable within One Year Gross Liability 5,673 5,673 - - Finance Costs allocated to Future Years (3,954) (4,020) - - Net Liability 1,719 1,653 - -

Repayable within Two to Five Years Gross Liability 22,692 22,692 - - Finance Costs allocated to Future Years (15,098) (15,385) - - Net Liability 7,594 7,307 - -

Repayable after Five Years Gross Liability 144,347 155,693 - - Finance Costs allocated to Future Years (54,808) (64,148) - - Net Liability 89,539 91,545 - - Finance Lease Liabilities Payable after One Year 97,133 98,852 - -

The lease of the estates have been amended, with effect from 11th June 1996 to an amount substantially higher than the previous lease rental of Rs. 500/= per estate per annum. The first rental payable under the revised basis is Rs.5,673 million from 11th June 1997.This amount is to be inflated annually by the Gross Domestic Product (GDP) deflator, and is in the from of Contingent rental. The contingent rental charged to the Income statement amounted to Rs.22,276,019/= Which is based on GDP deflator of 6.7% (2013).

The Statement of Recommended Practice (SoRP) for Right-to-use of Land on Lease was approved by the Council of the Institute of Chartered Accountants of Sri Lanka on 19th December 2012. Subsequently, the amendments to the SoRP along with the modification to the title as Statement of Alternative Treatment (SoAT) were approved by the Council on 21st August 2013. The Company has not reassessed the Right-to-use of Land because this is not mandatory requirement. However, if the liability is reassessed according to the alternative treatment (SoAT) on the assumption that the lease rent is increased constantly by GDP deflator of 4% and discounted at a rate of 7.3%, liability would be as follows.

As at 31 March, Amount Rs.000 Gross Liability 1,774,455 Finance Charges (830,826) Net Liability 943,629

The above reassessed liability is not reflected in theses financial statements.

30.3 Finance Lease

Financial Institution Terms of repayment Repayable Repayable Repayable Total as at within one year within 2-5 year after 5 year 31/03/2015

Central Finance 60 equal monthly instalments @ Rs. 5,786 16,929 - 22,715 Company PLC 707,793/- commencing from 23.05.2013 Hatton National 36 equal monthly instalments @ Rs.11,063/- 214 361 - 575 Bank commencing from 11/07/2014 6,000 17,290 - 23,290

Annual Report 2014/15 139 Notes to the Financial Statements

30.4 Redeemable Preference Shares As per LKAS/ SLFRS requirements, preference shares of 1,264,616 amounting to Rs. 12.646 Mn which is redeemable as per the terms of an agreement has been classified as borrowings based on the features of the said shares. Therefore the purpose of the financial reporting, the Company has classified the redeemable preference shares under borrowings.

31 Employee Benefits Group Company As at 31 March, 2015 2014 2015 2014 Note Rs.000 Rs.000 Rs.000 Rs.000

Present Value of Unfunded Obligations 31.1 949,961 831,769 137,110 110,170 Present Value of Funded Obligations - - - - Total Present Value of Obligations 949,961 831,769 137,110 110,170 Fair Value of Planed Assets - - - - Provision for Retirement Benefit Obligations 949,961 831,769 137,110 110,170

31.1 Movement in Present Value of Defined Benefit Obligations Group Company As at 31 March, 2015 2014 2015 2014 Note Rs.000 Rs.000 Rs.000 Rs.000

Balance as at Beginning of the Year 831,769 1,147,985 110,170 115,365 Acquisition/ (De-recognition) of Subsidiaries - (330,811) - - Benefits Paid by the Plan (96,894) (106,983) (13,585) (21,056) Expense Recognised in the in the Income 31.1.1 161,227 151,125 20,640 21,445 Statement Actuarial (Gain) / Loss Recognised in Other 53,859 (29,547) 19,885 (5,584) Comprehensive Income Balance as at the End of the Year 949,961 831,769 137,110 110,170

31.1.1 Expense Recognised in the Profit or Loss Group Company As at 31 March, 2015 2014 2015 2014 Rs.000 Rs.000 Rs.000 Rs.000

Current Service Costs 74,266 67,034 9,623 8,755 Interest Costs 86,961 84,091 11,017 12,690 161,227 151,125 20,640 21,445

31.1.2 Actuarial Assumptions Principal actuarial assumptions at the reporting date

Group Company As at 31 March, 2015 2014 2015 2014 Rs.000 Rs.000 Rs.000 Rs.000

Discount Rate (%) 9% - 10% 10-11.5% 9% 10% Future Salary Increases (%) 5-15% 5-10% 5% 5% Retirement Age (Years) 55-65 years 55-65 years 55-65 years 55-65 years

140 Distilleries Company of Sri Lanka PLC Sensitivity of assumptions used If one percentage increase in the assumptions, would have the following effects,

Group Company As at 31 March, 2015 2015 2015 2015 Note Discount Salary Discount Salary rate increment rate rate increment rate Effect on Define Benefit Obligation Liability, Increase by 1% (68,178) 52,974 (4,093) 4,790 Decrease by 1% 78,912 (48,186) 4,349 (4,577)

Effect on Comprehensive Income, Increase by 1% 68,178 (52,974) 4,093 (4,790) Decrease by 1% (78,912) 48,186 (4,349) 4,577 32 Other Deferred Liabilities Group As at 31 March, 2015 2014 Note Rs.000 Rs.000

Non Current Liabilities Deferred Grants and Subsidies 32.1 202,696 214,139 Deferred Revenue 32.2 56,239 38,432 258,935 252,571 Current Liabilities Deferred Revenue 32.2 56,112 56,730 56,112 56,730 32.1 Deferred Grants and Subsidies Group 2015 2014 Rs.000 Rs.000

Balance at the Beginning of the Year 214,139 227,365 Amortisation for the Year (11,443) (13,226) Balance at the End of the Year 202,696 214,139 The Balangoda Plantation PLC has received funding from the Plantation Housing and Social Welfare Trust and Plantation Development Project (PDP) for the development of workers facilities such as re-roofing of line rooms, latrines, water supply, sanitation and roads etc. The amounts spent are included under the relevant classification of property, plant & equipment and the grant component is reflected under Deferred Grants and Subsidies. Grants are amortised over the life of the assets for which they are being deployed.

32.2 Deferred Revenue Group 2015 2014 Rs.000 Rs.000

Balance at the Beginning of the Year 95,162 88,645 Revenue Received During the Year 89,765 78,951 Deferred Revenue Recognised During the Year (72,576) (72,434) Balance at the End of the Year 112,351 95,162

Deferred Revenue to be Recognised within One Year 56,112 56,730 Deferred Revenue to be Recognised after One Year 56,239 38,432 112,351 95,162 The above amount represent funding received by Balangoda Plantations PLC from various governmental and non- governmental Institutions for social and infrastructure development of estates.

Annual Report 2014/15 141 Notes to the Financial Statements

33 Trade and Other Payables

Group Company As at 31 March, 2015 2014 2015 2014 Note Rs.000 Rs.000 Rs.000 Rs.000

Financial Liabilities Trade Payables 1,209,700 941,271 127,411 121,226 Insurance Contract Liabilities 1,087,389 801,254 - - Other Financial Liabilities 3,327,835 3,234,670 2,937,834 2,771,217 Refundable Advances and Deposits 145,480 2,292 - - 5,770,404 4,979,487 3,065,245 2,892,443 Non Financial Liabilities Accrued Expenses 1,652,022 1,296,790 425,106 102,466 Direct and Indirect Taxes Payables 33.1 2,630,283 2,257,698 2,400,483 2,015,708 Non Refundable Advances and Deposits 3,047 90,989 - - Unclaimed Dividends 155,485 147,713 141,605 135,944 4,440,837 3,793,190 2,967,194 2,254,118 10,211,241 8,772,678 6,032,439 5,146,561

33.1 Direct and Indirect Taxes Payables

Group Company As at 31 March, 2015 2014 2015 2014 Rs.000 Rs.000 Rs.000 Rs.000

Excise Duty Payable 2,589,439 1,595,715 2,392,276 1,454,449 Value Added Tax (VAT) Payable 17,825 553,519 7,090 469,810 Nation Building Tax (NBT) Payable 23,019 108,464 1,117 91,449 2,630,283 2,257,698 2,400,483 2,015,708

34 Deposit Liabilities Group As at 31 March, 2015 2014 Note Rs.000 Rs.000

Term Deposits 458,609 605,876 Savings Deposits 26,485 5,121 Liabilities to FBIL Customers 34.1 26,695 52,540 511,789 663,537

34.1 Liabilities to FBIL Customers The liability is recognised based on the Scheme of Arrangements approved at the meeting of the creditors of First Barakah Investments Limited (FBIL), (Subsequently renamed as Group Subsidiary Melsta Regal Finance Limited) held on 12/02/2011 and upheld by the Colombo Commercial High Court (Case No. H.C.(Civil) 01/2011 (CO)).During the period under consideration, the Melsta Regal Finance Limited has repaid sum of Rs.25,845,383 to its creditors according to the repayment scheme.

142 Distilleries Company of Sri Lanka PLC 35 Related Party Disclosures The Company carries out transactions in the ordinary course of its business with parties who are defined as related parties in Sri Lanka Accounting Standard (LKAS 24) “Related Party Disclosures”, the details of which are reported below. The Pricing applicable to such transactions is based on the assessment of risk and pricing model of the Company and is comparable with what is applied to transactions between the Company and its unrelated Customers.

Outstanding current account balances at year end are unsecured, interest free and settlement occurs in cash except the balances arisen from restructure.

35.1 Balances with Related Parties 35.1.1 Amounts Due from Related Parties Group Company As at 31 March, 2015 2014 2015 2014 Note Rs.000 Rs.000 Rs.000 Rs.000

Subsidiaries 35.1.3 - - 415,825 4,764,832 Associates 35.1.4 660,492 561,721 - 553,821 Other Related Companies 35.1.5 12,047 5,993 11,100 5,577 672,539 567,714 426,925 5,324,230

35.1.2 Amounts Due to Related Parties Group Company As at 31 March, 2015 2014 2015 2014 Note Rs.000 Rs.000 Rs.000 Rs.000

Subsidiaries 35.1.3 - - 1,305,721 1,035,020 Associates 35.1.4 166 1,358 - - Other Related Companies 35.1.5 272,237 262,547 - - 272,403 263,905 1,305,721 1,035,020

35.1.3 Subsidiaries Group Company Amounts Due from Amounts Due to Amounts Due from Amounts Due to As at 31 March, 2015 2014 2015 2014 2015 2014 2015 2014 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000

AION SG Residencies (Pvt) Ltd - - - - 11,921 10,862 - - Bellvantage (Pvt) Ltd ------934 30,158 Continental Insurance Lanka Limited - - - - 2,790 2,033 - - Lanka Bell Ltd (Note 35.1.6) - - - - 68,181 100,299 - - Melsta Logistics (Pvt) Ltd ------603,982 400,831 Melsta Regal Finance Ltd - - - - 1,263 651 - - Periceyl (Pvt) Ltd ------674,316 577,251 Splendor Media (Pvt) Ltd ------25,360 25,652 Texpro Industries Ltd ------1,129 1,128 Melstacorp Limited - - - - 343,591 4,661,849 ------427,746 4,775,694 1,305,721 1,035,020 Provision for Impairment of - - - - (11,921) (10,862) - - Amounts Due from Subsidiaries - - - - 415,825 4,764,832 1,305,721 1,035,020

Annual Report 2014/15 143 Notes to the Financial Statements

35.1.4 Associates

Group Company Amounts Due from Amounts Due to Amounts Due from Amounts Due to As at 31 March, 2015 2014 2015 2014 2015 2014 2015 2014 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000

Aitken Spence PLC 2,331 2,520 166 1,358 - - - - Madulsima Plantations PLC (Note 658,161 559,201 - - - 553,821 - - 35.1.7) 660,492 561,721 166 1,358 - 553,821 - -

35.1.5 Other Related Companies

Group Company Amounts Due from Amounts Due to Amounts Due from Amounts Due to As at 31 March, 2015 2014 2015 2014 2015 2014 2015 2014 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000

Ace Power Generation Matara (Pvt) Ltd 5 2 ------Aitken Spence Hotel Holdings PLC 571 87 ------Aitken Spence Hotel Management 72 11 1,827 173 - - - - (Pvt) Ltd Ambewela Livestock Co.Ltd - 32 ------Ambewela Products (Pvt) Ltd 15 ------Comark Engineers (Pvt) Ltd - - - 53 - - - - Lanka Aluminium Industries PLC - - 4,355 1,507 - - - - Lanka Milk Foods (CWE) PLC 9,149 4,490 - 20 9,105 4,429 - - Lanka Stassens Distributors (Pvt) Ltd 119 1 ------Stassen Lanka Private Limited (Note - - 161,584 - - - - - 35.1.8) Stassen Export Private Limited 2,114 1,367 104,471 260,794 1,995 1,148 - - Stassen Natural Foods (Pvt) Ltd 2 3 ------12,047 5,993 272,237 262,547 11,100 5,577 - -

35.1.6 This represents the remaining balance of loan granted for Rs.200Mn to Lanka Bell Limited at the rate of AWPLR plus 1% adjusted on quarterly basis.

35.1.7 This amount represents the balance remaining on a short term loan granted to Madulsima Plantations PLC along with the interest.

35.1.8 This represents the an interest free loan amounting to USD 1.212Mn from Stassens Lanka Private Limited by the Texpro Industries Limited. The Company has to settle this loan on demand. Hence, it has been classified under current liabilities and no fair value adjustments have been made.

144 Distilleries Company of Sri Lanka PLC 35.2 Transactions with Related Parties 35.2.1 Transactions with subsidiaries, associates and other related companies

Name of the Names of Directors Nature of Nature of Transaction Transaction Value Balance due Company Interest (to) /from Rs.000 Rs.000

1 Milford Exports Mr. D. H. S. Jayawardena Parent Co. Dividend Paid 404,529 - (Ceylon) (Pvt) Limited Mr. R. K. Obeyesekere* (a) Mr. D. Hasitha S. Jayawardena* (c) 2 Periceyl (Pvt) Limited Mr. D. H. S. Jayawardena Subsidiary Co. Debtor Collections & 5,325,000 (674,316) Mr. R. K. Obeyesekere* (a) Transfers Mr. C. R. Jansz Supply of Goods & 421,724 Mr. D. Hasitha S. Services Jayawardena* (c) Trading Account Profit 42,673 Goods Received 122,810 3 Balangoda Mr. D. H. S. Jayawardena Subsidiary Co. Rent Paid 232 - Plantations PLC Mr. C. R. Jansz Purchase of Tea 129 Mr. R. K. Obeyesekere* (a) 4 Splendor Media (Pvt) Subsidiary Co. Loan Interest 2,098 (25,360) Ltd. Supply of Goods & 1,332 Services Services Received 1,085 5 Texpro Industries Mr. D. H. S. Jayawardena Subsidiary Co. Supply of Materials 1,953 (1,128) Limited 6 Continental Insurance Mr. C. F. Fernando* (b) Subsidiary Co. Insurance Premium 43,932 2,790 Lanka Ltd Insurance Claim 6,632 Received Supply of Goods & 1,832 Services 7 Melsta Logistics (Pvt) Subsidiary Co. Vehicle Hiring charges 315,096 (603,982) Ltd Repair Charges & Other Services 35,169 Rent 5,128 Settlements 88,000 Supply of Goods & 24,767 Services

Annual Report 2014/15 145 Notes to the Financial Statements

Name of the Names of Directors Nature of Nature of Transaction Transaction Value Balance due Company Interest (to) /from Rs.000 Rs.000 8 Melstacorp Limited Mr. D. H. S. Jayawardena Subsidiary Co. Dividend Paid 28,115 343,591 Mr. R. K. Obeyesekere* (a) Rent & Other Services 189,024 Mr. C. R. Jansz Supply of Goods & 2,886 Mr. N. de S. Deva Aditya Services Capt. K. J. Kahanda Financial Assistance for 1,152,438 Mr. C. F. Fernando* (b) Land & Building trf. MP Dr. A. N. Balasuriya Transfer Value of Loan 636,136 Mr. D. Hasitha S. Transferred Value of 6,428,955 Jayawardena* (c) Shares Funds Transferred 1,339,658 Funds Received 912,500 Investment Made 12,762,750 9 Lanka Bell Ltd Mr. D. H. S. Jayawardena Subsidiary Co. Loan Interest Received 7,235 68,181 Mr. C. R. Jansz Telephone Bills Paid & 11,150 Services Rendered Supply of Goods & 583 Services 10 Bellvantage (Pvt) Ltd Subsidiary Co. Maintenance Charges 14,329 (934) Supply of Goods & 55 Services 11 Bell Solutions (Pvt) Mr. D. H. S. Jayawardena Subsidiary Co. Maintenance Charges 3,672 - Ltd. 12 Melsta Regal Finance Subsidiary Co. Supply of Goods & 611 1,263 (Pvt) Ltd Services 13 Aitken Spence PLC Mr. D. H. S. Jayawardena Associate co. Supply of Services 307 - Mr. N. de S. Deva Aditya 14 Madulsima Mr. D. H. S. Jayawardena Associate co. Loan Interest 82,315 - Plantations PLC Mr. R. K. Obeyesekere* (a) Transfer Value of Loan 636,136 15 Stassen Exports (Pvt) Mr. D. H. S. Jayawardena Affiliate Co. Dividend Paid 6,871 1,995 Limited Mr. R. K. Obeyesekere* (a) Rent Income 29,520 Mr. D. Hasitha S. Maintenance & 52,659 Jayawardena* (c) Transport Charges Supply of Goods & 3,600 Services 16 Lanka Dairies (Pvt) Mr. D. H. S. Jayawardena Affiliate Co. Purchase of Milk Foods 301 - Ltd. Mr. R. K. Obeyesekere* (a) Mr. C. R. Jansz 17 Lanka Milk Foods Mr. D. H. S. Jayawardena Affiliate Co. Dividend Paid 123,375 9,105 (CWE) PLC Mr. R. K. Obeyesekere* (a) Purchase of Milk Foods 10,925 Mr. C. R. Jansz Supply of Goods & 25,210 Services 18 DFCC Bank PLC Mr. C. R. Jansz Affiliate Co. Dividend Received 91,741 -

146 Distilleries Company of Sri Lanka PLC Name of the Names of Directors Nature of Nature of Transaction Transaction Value Balance due Company Interest (to) /from Rs.000 Rs.000

19 Aitken Spence Hotel Mr. D. H. S. Jayawardena Affiliate Co. Sales 904 - Holding PLC 20 Melsta Properties Capt. K. J. Kahanda Subsidiary Co. Rent Expense 26,021 - (Pvt) Ltd Mr. C. F. Fernando* (b) Lands and Buildings 1,152,438 Transfer

*(a) Mr. R. K. Obeyesekere (Ceased to be a Director w.e.f. 26-01-2015) *(b) Mr. C. F. Fernando (Deceased on 15-11-2014) *(c) Mr. D. Hasitha S. Jayawardena (Appointed on 21-11-2014)

35.2.2 Transactions with Key Management Personnel According to Sri Lanka Accounting Standard (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, the Board of Directors (including executive and non-executive Directors) and their immediate family member have been classified as Key Management Personnel of the Company.

The immediate family member is defined as spouse or dependent. Dependent is defined as anyone who depends on the respective Director for more than 50% of his/her financial needs.

35.2.2.1 Compensations to Key Management Personnel There were no compensation paid to Key Management Personnel during the year other than those disclosed below.

Group Company For the year ended 31 March, 2015 2014 2015 2014 Note Rs.000 Rs.000 Rs.000 Rs.000

Short Term Employee Benefits 92,888 89,234 24,121 23,410 Post Employment Benefits 900 2,227 - - Other Long Term Benefits 1,750 - - - Share based Payments - - - -

35.2.2.2 Loans to Directors There were no loans granted to directors during the year.

35.2.3 Related party transactions exceeding 10% of the equity or 5% of the total assets of the entity as per audited financial statements, whichever is lower (CSE Ruling)

Date of Name of the Relationship Nature of the Amount Rational for Entering to the Transaction Related Party Transaction Rs. 000 Transaction

28-Nov-14 Melstacorp Ltd Subsidiary Disposal of Investment 3,523,201 As part of the group re-structuring plan. 28-Nov-14 Melstacorp Ltd Subsidiary Disposal of Investment 2,749,637 As part of the group re-structuring plan. 31-Dec-14 Melstacorp Ltd Subsidiary Disposal of Investment 156,117 As part of the group re-structuring plan. 6,428,955 25-Feb-15 Melstacorp Ltd Subsidiary Investment in Shares 12,533,404 As part of the group re-structuring plan. 31-Mar-15 Melstacorp Ltd Subsidiary Investment in Shares 229,346 As part of the group re-structuring plan. 12,762,750

Annual Report 2014/15 147 Notes to the Financial Statements 2,014 2,014 Rs.000 Rs.000 151,984 673,015 567,714 784,402 420,103 301,364 114,199 7,076,716 2,439,752 3,923,512 6,349,895 2,834,890 5,324,230 30,882,975 15,713,520 15,634,719 Total Total 2015 2015 Rs.000 Rs.000 459,705 672,539 426,925 177,863 184,718 868,225 311,999 5,747,403 7,642,241 1,224,551 2,431,815 4,072,931 2,561,053 2,396,844 35,207,268 17,523,262 ------2,014 2,014 Rs.000 Rs.000 6,349,895 6,349,895 15,452,954 15,452,954 ------2015 2015 assets (AFS) Assets (AFS) Rs.000 Rs.000 177,517 2,561,053 2,561,053 Available for sale financialAvailable Available for Sale FinancialAvailable 17,518,241 17,340,724 ------2,014 2,014 Rs.000 Rs.000 ------Group 2015 2015 Company Rs.000 Rs.000 Held to Maturity Held to maturity 40,911 40,911 investments (HTM) Investments (HTM) ------2,014 2,014 Rs.000 Rs.000 784,402 784,402 2,184,859 2,184,859 ------(FVTPL) (FVTPL) 2015 2015 Rs.000 Rs.000 Assets at fair value Assets at Fair Value Assets at Fair Value 177,863 177,863 through profit and loss profit through 2,011,416 2,011,416 Through Profit and Loss Profit Through - - 2014 2014 Rs.000 Rs.000 181,765 151,984 673,015 567,714 254,893 420,103 301,364 114,199 8,579,223 7,076,716 3,923,512 2,834,890 5,324,230 13,245,162 (L&R) (L&R) - - 2015 2015 Rs.000 Rs.000 182,538 459,705 672,539 201,971 426,925 184,718 868,225 311,999 Loans and receivables Loans and Receivables 3,008,487 7,642,241 1,224,551 4,072,931 2,396,844 15,636,700 21 24 26 24 21 27 21 26 21 27 23 23 Note Note 35.1.1 35.1.1 Current Assets Current Total Assets Current Total As at 31 March, Assets as per Statement of Financial Position Assets Non Current Financial Investments Other Non Current and Operating Purchases Finance Lease, Hire Lease Receivables Advances and Other Loans and Other Receivables Trade and Operating Purchases Finance Lease, Hire Lease Receivables Advances and Other Loans Related Companies Amounts Due from Financial Investments Other Current Cash and Equivalents Assets as per Statement of Financial Position Assets Non Current Financial Investments Other Non Current and Other Receivables Trade Related Companies Amounts Due from Financial Investments Other Current Cash and Equivalents As at 31 March, Financial Instruments Accounting Classification of Financial Instruments Accounting Classification of Financial Assets 36 36.1 36.1.1

148 Distilleries Company of Sri Lanka PLC 35.1.2 Accounting classification of financial liabilities

Group Financial Liabilities at Fair Financial Liabilities Measured Total Value Through Profit or Loss at Amortised Cost As at 31 March, 2015 2,014 2015 2014 2015 2014 Note Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000

Liabilities as per Statement of Financial Position Non Current Liabilities Interest Bearing Loans and 30 - - 1,776,356 670,975 1,776,356 670,975 Borrowings

Current Liabilities Trade and Other Payables 33 - - 5,770,404 4,979,488 5,770,404 4,979,488 Deposit Liabilities 34 - - 511,789 663,537 511,789 663,537 Amount Due to Related 35.1.2 - - 272,403 263,905 272,403 263,905 Companies Interest Bearing Loans and 30 - - 7,809,076 7,603,794 7,809,076 7,603,794 Borrowings Bank Overdrafts 27 - - 4,253,380 5,120,243 4,253,380 5,120,243 Total - - 20,393,408 19,301,942 20,393,408 19,301,942

Company Financial Liabilities at Fair Financial Liabilities Measured Total Value Through Profit or Loss at Amortised Cost As at 31 March, 2015 2,014 2015 2014 2015 2014 Note Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000

Liabilities as per Statement of Financial Position Current Liabilities Trade and Other Payables 33 - - 3,065,245 2,892,443 3,065,245 2,892,443 Amount Due to Related 35.1.2 - - 1,305,721 1,035,020 1,305,721 1,035,020 Companies Interest Bearing Loans and 30 - - 4,795,000 6,215,006 4,795,000 6,215,006 Borrowings Bank Overdrafts 27 - - 1,681,456 3,810,832 1,681,456 3,810,832 Total - - 10,847,422 13,953,301 10,847,422 13,953,301

36.2 Fair Value Hierarchy of Financial Instruments The 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.

The fair value of financial instruments traded in active markets is based on quoted market prices at the balance sheet date. A market is regarded as active if quoted prices are readily and regularly available from an exchange, dealer, broker, industry group, pricing service, or regulatory agency, and those prices represent actual and regularly occurring market

Annual Report 2014/15 149 Notes to the Financial Statements

transactions on an arm’s length basis. The quoted market price used for financial assets held by the group/company is the closing market price in Colombo Stock Exchange. These instruments are included in Level 1. Instruments included in Level 1 comprise equity investments classified as fair value through profit and loss securities or available for sale.

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).

The fair value of financial instruments that are not traded in an active market (for example, over-the-counter derivatives) is determined by using valuation techniques. These valuation techniques maximise the use of observable market data where it is available and rely as little as possible on entity specific estimates. If all significant inputs required to fair value an instrument are observable, the instrument is included in Level 2.

Level 3: Inputs for the asset or liability that are not based on observable market data (Unobservable inputs).

If one or more of the significant inputs is not based on observable market data, the instrument is included in Level 3.

Group Level 1 Level 2 Level 3 Total As at 31 March, 2015 2014 2015 2014 2015 2014 2015 2014 Note Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000

Non Current Assets Other Non Current Financial Investments Available for Sale Financial Investments - (AFS) Quoted Equity Securities 21.1.1 16,931,800 15,213,946 - - - - 16,931,800 15,213,946 Unquoted Equity Securities 21.1.2 - - - - 114,102 338 114,102 338 Investments in Unit Trusts 21.1.3 - - - - 59,152 3,000 59,152 3,000 Debt Securities 21.1.4 235,670 235,670 - - - - 235,670 235,670

Current Assets Other Current Financial Investments Available for Sale Financial Investments - (AFS) Quoted Equity Securities ------Government Securities 21.1.6 177,517 - - - - - 177,517 - Fair Value Through Profit or Loss (FVTPL) Financial Investments Quoted Equity Securities 21.2.1 1,111,052 1,801,780 - - - - 1,111,052 1,801,780 Quoted Debentures 21.2.3 134,877 124,307 - - - - 134,877 124,307 Investments in Unit Trusts 21.2.2 - - - - 765,487 258,772 765,487 258,772 Total 18,590,918 17,375,703 - - 938,741 262,110 19,529,657 17,637,813

150 Distilleries Company of Sri Lanka PLC Company Level 1 Level 2 Level 3 Total As at 31 March, 2015 2014 2015 2014 2015 2014 2015 2014 Note Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000

Non Current Assets Other Non Current Financial Investments Available for Sale Financial Investments - (AFS) Quoted Equity Securities 21.1.1 2,223,612 6,126,080 - - - - 2,223,612 6,126,080 Unquoted Equity Securities 21.1.2 - - - - 113,771 7 113,771 7 Investments in Unit Trusts 21.1.3 - - - - 3,000 3,000 3,000 3,000 Debt Securities 21.1.4 220,670 220,670 - - - - 220,670 220,670

Current Assets Other Current Financial Investments Fair Value Through Profit 21.2 or Loss (FVTPL) Financial Investments Quoted Equity Securities 21.2.1 177,863 784,540 - - - - 177,863 784,540 Total 2,622,145 7,131,290 - - 116,771 3,007 2,738,916 7,134,297

Fair value information of financial asserts and financial liabilities not measured at fair value has not been included in the carrying amount is a reasonably approximation of fair value.

For Variable interest bearing loans, it was considered that carrying value equal fair value.

37 Amount due from the Secretary to the Treasury on Account of SLIC a) In respect of Shares As per the Judgment delivered by the Supreme Court of the Democratic Socialist Republic of Sri Lanka on 4 June 2009 it was declared and directed that the shares of SLIC purported to have been sold to Distilleries Consortium on 11 April 2003 along with any shares purchased from employees as per SSPA shall be deemed to have been held for and on behalf of the Secretary to the Treasury.

As directed by the said judgment, the Secretary to the Treasury returned Rs.5,716 Mn in 2010/11 that was paid by Group Subsidiary Milford Holdings (Pvt) Limited (MHL) to purchase shares from SLIC.

b) In respect of Profits Earned Furthermore, MHL was entitled to retain the profits of SLIC derived by MHL from 11 April 2003 to 04 June 2009 in lieu of the interest for the aforesaid investment. The Secretary to the Treasury was directed to cause profits of SLIC to be computed and audited from the date of the last audited Reporting of SLIC to 04 June 2009 to enable MHL to obtain such profits.

However, Secretary to the Treasury has not yet determined the value of profits to be retained by the MHL; hence no adjustments were made to the financial statements in this regards.

Annual Report 2014/15 151 Notes to the Financial Statements

38 Impact of Revival of Underperforming Enterprises and Underutilised Assets Bill – Pelwatte Sugar Industries PLC Group (PSIP) Consequent to the enactment and passage of the above Act of Parliament on 9 November 2011, the state officials are occupying the land leased to PSIP. As the leasing of the land to PSIP was done in 1985, and the above mentioned Act empowers the vesting of land leased during a period of 20 years before the enactment of the Act. The Company believes that the land that was used by PSIP have not been vested in the state. At this moment the management is unable to comment further on the implications on the ruling as the Company is awaiting instructions by the Secretary to the Treasury.

Financial results up to 30 September 2011 were consolidated to Group results for the year ended 31 March 2012. Subsequent financial results have not been incorporated to the Group results due to non accessibility of the information. Subsequently a Compensation Tribunal was formed as required by the Act. Without assuming any liability or without any prejudice to, or impact on its rights, PSIP has submitted a claim to the Compensation Tribunal.

Commercial High Court of Western Province (Colombo Civil) issued a winding-up order of Pelwatte Sugar Industries PLC on 13 March 2013. The Court has appointed P.E.A. Jayewickreme and G.J. David, as the Liquidators.

39 Pending Litigations and Contingent Liabilities Based on the available information, the Management is of the view that following litigation claims that could not have material impact on the financial position on the group. Accordingly, no provision has been made in the Financial Statements.

39.1 Distilleries Company of Sri Lanka PLC A plaint filled by Censtear (Pvt) Limited against the Company claiming a sum of Rs 18 Mn was decided in favour of the plaintiff by the Commercial High Court of Colombo. The Company has filed an appeal against this order and a claim has been made in reconvention.

39.2 Lanka Bell Limited Sri Lanka Customs carried out an investigation claiming that Lanka Bell Limited is required to pay duty on the FLAG fibre optic submarine cable network which spans the globe connecting over 86 locations around the world. The Company is confident that no such duties are payable since Lanka Bell does not own this global network and also has already obtained BOI approval for the FLAG project.

The company filed a writ application in Court of Appeal citing irregularities in the procedure adopted by the Sri Lanka Customs in issuing such a notice. The argument is fixed for 03rd of September 2015.Accordingly no provision has been made in the financial statements.

39.3 Other Contingent Liabilities

Group As at 31 March, 2015 2014 Rs.000 Rs.000

Bank Guarantees 26,998 33,294 Import/Export Bill Collection 20,359 34,165 Letter of Credit 38,915 73,376 Shipping Guarantee 95,724 113,217

There are no material contingent liabilities as at 31 March 2015 other than disclose above.

152 Distilleries Company of Sri Lanka PLC 40 Capital and Other Commitments There were no material capital expenditure approved by the Board of Directors as at 31 March 2015 other than followings;

40.1 Browns Beach Hotel PLC The project for constructing a new resort hotel in the existing hotel compound is undertaken by Negombo Beach Resorts (Pvt) Ltd. Which is a 100% owned subsidiary of Browns Beach Hotels PLC. The total project cost is estimated to be in the region of Rs. 4.0 Billion.

40.2 Melsta Regal Finance Limited The Company has opened a sum of Rs. 92,977,700/- ( 2014 - Rs.18,111,175/-) worth of Letter of Credit on behalf of the customers.

40.3 Bogo Power Private Limited Operating Lease Commitments - Company as a Lease

The Company has entered into a lease on the land on which the power house has constructed with a lease term of thirty years. The Company has the option, to lease the land for additional terms as negotiated with the lessor.

The approximate future minimum lease rentals payable as per the above operating leases as at 31st March are as follows.

Company As at 31 March, 2015 2014 Rs.Mn Rs.Mn

Within One Year 22.9 22.7 After One Year but not more than Five Years 94.4 93.2 More than Five Years 624.7 648.8 742 764.7

41 Assets Pledged Following assets have been pledged as securities for liabilities.

Company Nature of Liability Security Value of the Assets Pledged (Rs.000) Description Asset Type 2015

Melstacorp Permanent over Long term investments held in Quoted Other Long Term 14,462,375 Limited draft facilities and shares of John Keels Holdings PLC (25 Investments and other short term mn shares) and Aitken Spence PLC Investments in Equity borrowings of (95.25 Mn shares) are pledged on the Accounted Investees. DCSL other short term borrowings obtained by Distilleries Company of Sri Lanka PLC. Balangoda Long Term Loan Primary mortgage over the lease hold Property, Plant and 690,000 Plantations PLC rights of Balangoda Estates. Equipment Mortgage on Colour Separator Property, Plant and 36,408 Equipment Finance Lease Absolute ownership of the leased bikes Property, Plant and 574 Equipment

Annual Report 2014/15 153 Notes to the Financial Statements

Company Nature of Liability Security Value of the Assets Pledged (Rs.000) Description Asset Type 2015 Texpro Long Term Loan The Company has provided existing Property, plant and 434,890 Industries (Pvt) primary floating mortgage bond for equipment Ltd USD 3.262 Mn over land, building and immovable machinery at Ranala as collateral against the bank facility and borrowings.

Other Short Term Hypothecation of Stock Inventory 232,056 Borrowings The Company has provided letter from Indemnity of the SL Army, Navy, Air Force and other Company, documents of Government departments regarding title to goods shipped award of order, indemnity of the Company, documents of title to goods shipped. Build up cash margin of 2% from each Revenue-Export 711,678 export proceeds,pro note Secondary mortgage over land, Property, plant and 199,980 building and immovable machinery at equipment Embulagama,Ranala for USD 1.5Mn Lanka Bell Term Loans and Tower portfolio has been pledged as a Property, plant and 425,000 Limited Other Borrowings security against the financing facilities. equipment Movable and immovable property has Property, plant and 1,073,226 been pledged as a security against the equipment financing facilities.

42 Subsequent Events There were no other material events occurring after the reporting period that requires adjustments to or disclosure in the Financial Statements other than the items disclosed below and proposed dividend disclosed in Note 14 to these financial statements.

42.1 Super Gain Tax The interim budget proposal presented by the Minister of Finance on 29 January 2015 and the pursuant bill presented to the Parliament on 7 April 2015, impose a one off tax of 25% on taxable profits for the year of assessment 2013/14 on any company or each company in a group of companies, if the company’s / Group’s profit before income tax exceeds Rs. 2 Bn. The impact to the company will be assessed and if required provisions will be made when the bill is enacted.

42.2 Melstacorp Limited Melstacorp Limited has invested Rs.735.5 Mn in 7.5Mn shares of Aitken Spence PLC after the reporting period. The Group’s stake in Aitken Spence PLC has gone up to 43.12% with the said investment.

154 Distilleries Company of Sri Lanka PLC 43 Financial Risk Management The Group has adopted practices to mitigate risks arising from adverse market conditions (prices, rates and volatile markets) by hedging (or not) using financial instruments.

Financial risk derives from economic uncertainty. The inability to forecast with certainty would either erode profitability (e.g. adverse exchange rate) or could jeopardise the ability of the company to raise finance from markets (e.g. volatile interest rates).

Group’s core business of beverage is essentially a cash business hence has a short cash cycle. This results in low financial risk adding to greater degree of control of finance. Other sectors such as Telecommunication, Plantation, Insurance, Finance and other diversified holdings exercise policies stemming from DCSL’s practices of effective financial risk management as common members of the board ensures uniformity. Continental Insurance and Melsta Regal Finance are exceptional and adhere to an even higher degree of management to comply with IBSL and CBSL regulatory compliance/guidelines respectively.

Financial Instruments Group’s financial instruments consist of ASSETS - its portfolio of equity investments, deposits in banks,accounts receivable. LIABILITIES - Loan obligations, accounts payable and accrued liabilities such excise duty, taxes, payroll and pension account.

43.1 Financial Risk Management Objectives and Policies Whilst ‘risk management’ is ingrained in the business from the Board down to operational level, financial risk management at Group is entrusted to a niche of in-house financial professionals ably supported by external economists, financial consultants, legal counsel, tax experts, banks and auditors.

In the normal course of business, the Group is exposed to financial risks that have the potential to negatively impact its financial performance. The Group does not use derivative financial instruments to manage these risks, as management believes that the risks arising from the financial instruments are already at an acceptable level. This is further accredited by the AAA/Stable rating assigned by Fitch this year.

The Group has exposure to the following risks from financial instruments

Credit Risk Liquidity Risk Market Risk

Equity Risk Interest Rate Risk Foreign Exchange Risk

43.1.1 Credit Risk This is the risk that counterparty will not meet its obligations under a financial instrument or customer contract, leading to financial loss. Group’s credit risk arises primarily from credit exposure to customers, including outstanding receivable from select retail chains.

The Group assesses the credit quality of its counter-parties, taking into account their financial position, past experience and seasonal factors.

The group trades only with recognised, credit worthy third parties. It is a group policy that all clients who wish to trade on credit terms are subject to credit verification procedures. In addition, receivable balances are monitored on an ongoing basis with the result that the Group’s exposure to bad debts is not significant.

Annual Report 2014/15 155 Notes to the Financial Statements

Maximum Credit Exposure The carrying amount of financial assets represents the maximum credit exposure. The maximum exposure to credit risk at the end of the reporting period was as follows,

Group Company As at 31 March, 2015 2014 2015 2014 Note Rs.000 % from total Rs.000 % from total Rs.000 % from total Rs.000 % from total exposure exposure exposure exposure

Trade and Other 43.1.1.1 7,642,241 48% 7,076,716 54% 2,396,844 76% 2,834,890 33% Receivables Receivables from/ in 43.1.1.2 2,864,480 18% 1,240,562 9% - 0% - 0% Finance Business Amounts Due from 43.1.1.3 672,539 4% 567,714 4% 426,925 14% 5,324,230 62% Related Companies Corporate Debt 43.1.1.4 553,085 3% 541,742 4% 220,670 7% 220,670 3% Securities Government Securities 43.1.1.5 419,729 3% 909,787 7% - 0% - 0% Deposits with Bank 43.1.1.6 2,879,805 18% 2,177,663 17% 42,099 1% 82,062 1% Cash at Bank 43.1.1.7 804,823 5% 595,628 5% 66,553 2% 61,719 1% 15,836,702 100% 13,109,812 100% 3,153,091 100% 8,523,571 100%

43.1.1.1 Trade and Other Receivables As the large majority of Beverage accounts receivable balances are collectable from licensed retailers, management believes that the sector’s credit risk relating to accounts receivable is at an acceptably low level. The Group has observed higher credit risk in telecommunication sector due to large number of small customers. However, risk is managed and mitigated by adopting timely disconnection policy and converting customer to prepaid mode. The requirement for an impairment is analysed at each reporting date on an individual basis for major customers. Additionally, a large number of minor receivables are grouped into homogenous groups and assessed for impairment collectively. The group’s maximum exposure to credit risk from Insurance contract receivables are mainly consist with Premium Receivables. Some of the actions specific to Premiums Receivables in Non-Life Insurance are shown below. -Premium Payment Warranty (PPW) is strictly implemented and all Non - Life Insurance policies with payments outstanding for more than 60 days are cancelled. - Follow-up meetings on debt collection are conducted with the participation of finance, distribution and underwriting officials on a monthly basis. - Claim settlements are processed only after reviewing the position of outstanding receivables.

43.1.1.2 Receivables from / in Finance Business The above stated financial assets are backed with the underlying securities.

43.1.1.3 Amounts Due from Related Companies The amounts due from related parties mainly consist of receivables from associates and other related ventures and those are closely monitored by the group.

The amounts receivable from related parties are mainly consist of its fully owned subsidiary, Melstacorp Limited and its due to the group restructuring process.

156 Distilleries Company of Sri Lanka PLC 43.1.1.4 Corporate Debt Securities The Corporate debt securities are entirely consist of Corporate Debentures which are listed in Colombo Stock Exchange which are guaranteed by local and foreign credit rating agencies as BBB+ or Better.

An Analysis of credit ratings of the issuers of debenture are as follows, Credit Rating

Group Company 2015 2014 2015 2014 Amount % from Total Amount % from Total Amount % from Total Amount % from Total Exposure Exposure Exposure Exposure Rs.'000 Rs.'000 Rs.'000 Rs.'000

AA– 92,156 17% 103,689 19% - - - 0% A+ 19,003 3% ------A– 220,670 40% 417,435 77% 220,670 100.00% 220,670 100% BBB+ 221,256 40% 20,618 4% - - - 0% 553,085 100% 541,742 100% 220,670 100.00% 220,670 100%

43.1.1.5 Government Securities Government securities are referred to as risk free instruments in its nature.

43.1.1.6 Deposits with Bank and Cash at Bank The Deposits with banks are entirely consist of fixed deposits and call deposits placed in both Banks and other financial institutions.

Further the cash at bank is mainly consist of favourable balances in Savings and current accounts of private and government commercial banks.

The Group has selected its bankers by considering the credit ratings of the rating agencies, the reputation in the economy, efficiency in transaction processing by minimising the transaction costs.

The financial institutions in which the deposits and cash at bank is existed are guaranteed by local and foreign credit rating agencies as AA- or Better.

43.1.2 Liquidity Risk Liquidity risk is the risk that the Group will encounter difficulty in meeting financial obligations on time.

Group’s sources of liquidity are its short term deposits in banks and its cash generated by operating activities. Group’s total contractual maturities are represented by its accounts payable and accrued liabilities, and are mostly due to be paid within one year. The Group believes that its deposits in cash management pools, ready bank lines (ODs, loans), debt with rollover options, combined with its historically strong and consistent operational cash flows, are more than sufficient to fund its operations, investing activities and commitments for the foreseeable future.

Group does not have any investments in asset-backed commercial papers and, therefore, has no exposure to this type of liquidity risk.

Annual Report 2014/15 157 Notes to the Financial Statements

Maturity Analysis The table below summarises the maturity profile of the Group’s financial liabilities as at 31 March 2015.

Within 1 year Between Between More than Total 1-3 years 3 to 5 years 5 years Rs'000 Rs'000 Rs'000 Rs'000 Rs'000

Interest Bearing Loans and Borrowings 7,809,076 462,380 433,604 880,373 9,585,433 Trade and Other Payables 10,211,241 - - - 10,211,241 Deposit Liabilities 482,714 19,775 9,300 - 511,789 Amount Due to Related Companies 272,403 - - - 272,403 Bank Overdrafts 4,253,380 - - - 4,253,380 23,028,814 482,155 442,904 880,373 24,834,246

The table below summarises the maturity profile of the Group’s financial liabilities as at 31 March 2015.

Within 1 year Between Between More than Total 1-3 years 3 to 5 years 5 years Rs'000 Rs'000 Rs'000 Rs'000 Rs'000

Interest Bearing Loans and Borrowings 4,795,000 - - - 4,795,000 Trade and Other Payables 6,032,439 - - - 6,032,439 Deposit Liabilities - - - - - Amount Due to Related Companies 1,305,721 - - - 1,305,721 Bank Overdrafts 1,681,456 - - - 1,681,456 13,814,616 - - - 13,814,616

43.1.3 Market Risk Market risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market prices. Market prices comprise four types of risk; equity price risk, interest rate risk, currency risk (or foreign exchange risk), and other price risks such as commodity price risk. Financial instruments at Group level affected by market risk include loans and borrowings, deposits, letters of credit and available for sale investments. The objective of market risk management is to manage and to control market risk exposures within acceptable parameters while optimising the return.

Equity Price Risk Certain companies of the Group have their major equity investment portfolios held on a long term basis; hence immune to daily fluctuations. Those are classified as AFS. Further, a small trading portfolio is managed by two reputed Unit Trust companies licensed by the SEC and individual companies manage their own short term portfolios as well. These investments are held by complying with group investment policies. Safe Custodian agreements with banks are in place that adds a control dimension.

The Group manages the equity price risk through diversification of its investments to each sector. Further the Management daily monitors the reports of the equity portfolios

158 Distilleries Company of Sri Lanka PLC The extend of diversification of short term equity investments (FVTPL) are analysed bellow.

Group Company As at 31 March, 2015 2014 2015 2014 Rs'000 % Rs'000 % Rs'000 % Rs'000 %

Bank, Finance and Insurance 932 0% 488,030 27% - 0% 426,357 54% Beverage, Food and Tobacco 144,712 13% 139,033 8% 136,064 76% 127,750 16% Chemicals and Pharmaceuticals 13,303 1% 12,418 1% 9,563 5% 9,096 1% Construction and Engineering - 0% 13,185 1% - 0% 8,761 1% Diversified Holdings 540,026 49% 626,818 35% 9,577 5% 16,126 2% Hospitals 10,403 1% 123,247 7% 7,200 4% 111,444 14% Hotel and Travels 23,342 2% 35,984 2% 15,459 9% 21,550 3% Manufacturing 378,334 34% 333,456 19% - 0% 49,230 6% Power and Energy - 0% 9,080 1% - 0% 6,468 1% Telecommunication - 0% 20,528 1% - 0% 7,758 1% 1,111,052 100% 1,801,779 100% 177,863 100% 784,540 100%

Interest Rate Risk Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Group has short and long-term debt facilities. Interest rate risk exists as Group earns market rates of interest on its deposits in cash management pools. An active risk management program does not exist, as management believes that changes in interest rates would not have a material impact on Group’s financial position over the long term.

Foreign Currency Risk The Group has exposure to foreign currency risk as it conducts business in a select few foreign currencies; however, its exposure is primarily limited to the US dollar. Group does not utilise derivative instruments to manage this risk. Subject to competitive conditions, changes in foreign currency rates may be passed on to consumers through pricing over the long term.

The beverage sector demand for USD has traditionally outpaced its supply, due to USD sourcing of production inputs (imported spirits and machinery) exceeding that of the sector’s USD sales. Therefore, decreases in the value of the Sri Lankan Rupee (LKR) relative to the USD will have an unfavourable impact on the sector earnings.

43.1.4 Financing Risk The company has a very strong Financial Position and is among the most preferred among local providers of finance. This was further cemented by the high credit rating assigned by Fitch negating any doubts of Group’s ability to secure funding at cheaper rates. Often the company has access to bank lines sans security. However, the management as a policy maintains a healthy gearing ratio and a Debt Service Coverage Ratio always in par with the industry without overstretching the Financial Position. Since of late foreign funding lines too have been cautiously approached to benefit from low interest rates globally.

Annual Report 2014/15 159 Notes to the Financial Statements

43.2 Capital Management The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital.

In order to maintain or adjust the capital structure, the Group’s may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt.

Consistent with others in the industry, the Group monitors capital on the basis of the gearing ratio. The ratio is calculated as net debt/total capital. Net debt is calculated as total borrowings (including current and non-current interest bearing borrowing as shown in the consolidated Statement of Financial Position plus bank overdrafts) less cash and cash equivalents. Total capital is calculated as “equity” as shown in the consolidated Statement of Financial Position plus net debt. Gearing ratios at 31 March 2015 and 2014 are as follows.

Group Company As at 31 March, 2015 2014 2015 2014 Rs.000 Rs.000 Rs.000 Rs.000

Total Interest Bearing Loans and Borrowing 9,585,432 8,274,769 4,795,000 6,215,006 Bank Overdrafts 4,253,380 5,120,243 1,681,456 3,810,832 Less: Cash & Cash Equivalents (4,072,931) (3,923,512) (184,718) (420,103) Net Debt 9,765,881 9,471,500 6,291,738 9,605,735 Total Equity 64,823,997 57,593,114 50,283,325 43,838,640 Total Capital 74,589,878 67,064,614 56,575,063 53,444,375 Gearing Ratio 13% 14% 11% 18%

160 Distilleries Company of Sri Lanka PLC Statement of Value Added

Value Added

For the year ended 31 March, 2015 2014 Group Company Group Company Rs.000 Rs.000 Rs.000 Rs.000

Gross Turnover 66,764,509 51,800,065 63,186,302 47,755,538 Other Operating Income 1,376,876 6,251,274 898,392 1,374,595 Finance Income 566,668 191,846 747,833 118,630 Share of Profit of Equity Accounted Investees 1,390,668 - 1,440,182 - 70,098,721 58,243,185 66,272,709 49,248,763

Value Distributed

For the year ended 31 March 2015 Group Company Rs.000 As a % of Total Rs.000 As a % of Total

To the State as Taxes 40,631,927 58% 37,200,751 64% Operating Expenses 17,768,954 25% 8,577,363 15% To the Employees 4,039,003 6% 1,216,485 2% To Providers of Debt Capital 778,270 1% 495,479 1% To the Shareholders as Dividends 975,000 1% 975,000 2% Retained with the Business As Depreciation 1,574,686 2% 160,881 0% As Retained Earnings 4,330,881 6% 9,617,226 17% 70,098,721 100% 58,243,185 100%

For the year ended 31 March 2014 Group Company Rs.000 As a % of Total Rs.000 As a % of Total

To the State as Taxes 37,442,278 56% 33,814,484 69% Operating Expenses 16,763,536 25% 8,033,279 16% To the Employees 3,861,748 6% 1,162,203 2% To Providers of Debt Capital 1,186,613 2% 859,321 2% To the Shareholders as Dividends 900,000 1% 900,000 2% Retained with the Business As Depreciation 1,540,326 2% 148,392 0% As Retained Earnings 4,578,208 7% 4,331,084 9% 66,272,709 100% 49,248,763 100%

Annual Report 2014/15 161 Details of Real Estate

Location Lands Buildings VALUE Extent No of Extent Cost/Revaluation A R P Units In (Sq. Ft.) Rs. 000 Distilleries Company of Sri Lanka PLC Seeduwa No. 3 Warehouse, New Bottling Plant Complex & 15 2 17.09 27 274,546.50 2,181,976 Housing Complex Seeduwa New W/H, Old W/H & Distillery 5 2 15.10 22 93,276.00 319,562 Kandy Mawilmada Land 2 0 0.00 0 - 22,200 Kalutara Bare Land 1 0 23.00 0 - 14,000 Melsta Properties (Pvt.)Limited Gampola Wholesale Outlet 0 3 35.50 5 8,415.00 33,279 Dickoya Wholesale Outlet 0 3 9.60 4 16,735.50 6,759 Dankotuwa Old Distillery 2 1 38.00 3 8,083.50 22,045 Marawila Toddy Collection Centre 2 0 0.00 0 - 16,639 Kalutara No. 1 Warehouse 4 0 33.38 5 56,580.00 145,599 Kalutara Teak Stores / Warehouse 1 0 32.82 3 14,870.00 20,799 Mirishena Warehouse 0 3 28.32 4 10,280.00 20,799 Badulla Warehouse 0 2 8.64 3 9,390.00 13,519 Vauniya Wholesale Outlet 0 3 33.69 2 14,315.50 44,719 Jaffna Bare Land 1 0 21.65 0 - 11,439 Batticaloa Wholesale Outlet 3 0 11.04 2 5,545.75 51,999 Trincomalee Wholesale Outlet 0 1 38.68 2 4,762.00 36,399 Kalutara No. 2 Warehouse / Premises No. 14 & 16 1 1 4.27 7 20,410.00 60,950 Kaithadi Bare Land 2 0 11.71 0 - 13,000 Colombo 10 Head Office 1 1 15.20 6 30,000.00 647,765 Negombo Wholesale Outlet 0 1 27.50 3 8,576.00 75,280 Melstacorp Limited Ambalantota Wholesale Outlet - 1 24.16 5 7,657.00 28,710 Anuradhapura Proposed Wholesale Outlet - 3 21.46 3 8,401.00 89,514 Badulla Warehouse - 3 37.20 1 1,522.00 6,030 Beruwala Warehouse 2 1 19.08 12 15,279.50 125,548 Colombo 14 Warehouse 2 1 14.10 8 86,500.00 410,799 Galle Wholesale Outlet - 1 37.00 4 9,879.00 36,711 Katugastota Warehouse - 2 27.50 6 11,798.50 38,167 Katugastota Wholesale Outlet 5 - 3.84 11 28,385.00 123,135 Kurunegala Wholesale Outlet - 2 29.00 2 9,519.00 48,879 Ranala - Nawagamuwa Industrial Building 10 - - 7 83,094.50 231,815 Ratmalana Wholesale Outlet 1 - 28.20 4 30,871.00 178,567 Seeduwa Bare Land 1 2 19.10 0 - 43,208 Seeduwa Factory Complex - 1 2.55 1 18,920.00 62,087 Seeduwa Residential Property - - 10.00 1 1,975.00 13,124 Seeduwa Residential Property - - 24.05 1 980.00 26,249 Seeduwa Residential Property - - 12.27 1 1,910.00 26,249 Seeduwa Residential Property - - 31.46 0 - 61,359 Seeduwa Residential Property - - 37.50 0 - 61,879 Seeduwa Residential Property - 2.00 22.00 0 - 44,446 Seeduwa Residential Property - - 18.75 2 2,771.00 61,802 Seeduwa Residential Property - - 22.85 1 1,470.00 61,802 Colombo 10. Residential Property - - 25.94 2 5,642.00 74,892 Melsta Tower (Private) Limited Colombo 10. Bare Land 2 38.75 0 - 405,662 Colombo 10. Bare Land - 0 15.27 0 - 48,318 Colombo 10. Residential Property 1 1.9 2 3,550.00 132,175 Lanka Bell Limited Minuwangoda Warehouse & Switch 1 3 35.35 2 20,920.00 98,650 Texpro Industries Limited Embulgama Factory - 2 - 4,000 Ranala Factory 6 - 6.05 5 92,537.00 173,889 Browns Beach Hotels PLC Negombo Hotel Complex-Under Constructions 6 3 33.50 1 225,347.00 856,500

162 Distilleries Company of Sri Lanka PLC Shareholder Information

1. Stock Exchange Listing The Issued Ordinary Shares of the Company are listed with the Colombo Stock Exchange. Ticker Symbol - DIST.N0000 Market Sector - Beverage, Food & Tobacco

2. Distribution of Shareholding

As at 31 March 2015 31 March 2014 Holding No. of Share Total Holdings % of Holding No. of Share Total Holding % of Holding Holders Holders

1 to 1,000 8,678 2,844,827 0.95% 8,788 2,937,971 0.98% 1,001 to 10,000 1,610 5,223,162 1.74% 1,682 5,481,178 1.83% 10,001 to 100,000 244 7,325,766 2.44% 250 7,593,906 2.53% 100,001 to 1000,000 65 18,367,339 6.12% 53 14,441,900 4.81% 1,000,001 & Over 29 266,238,906 88.75% 25 269,545,045 89.85% 10,626 300,000,000 100.00% 10,798 300,000,000 100.00%

3. Analysis of Shareholding

No. of Share Holding % of Holding Holders

Individuals 10,351 55,810,172 18.60% Institutions 275 244,189,828 81.40% 10,626 300,000,000 100.00% Resident 10,479 230,538,039 76.85% Non-Resident 147 69,461,961 23.15% 10,626 300,000,000 100.00%

4. Market Prices

31 March 2015 31 March 2014

Last Traded 240.50 203.00 Highest 246.00 218.00 Lowest 210.50 160.00

Share Price Performance

300

250

200

150

100

50

0 2011 2012 2013 2014 2015

Annual Report 2014/15 163 Shareholder Information

5 Twenty Largest Shareholders

As at 31 March, 2015 2014 Rank Name Share Holding % Share Holding %

1 Milford Exports (Ceylon) (Pvt) Limited 124,470,500 41.49% 124,470,500 41.49% 2 Lanka Milk Food (CWE) PLC 37,961,500 12.65% 37,961,500 12.65% 3 Mr. Muzaffar Ali Yaseen 25,418,512 8.47% 33,238,000 11.08% 4 Mrs. Lorraine Estelle Marlene Yaseen 10,721,177 3.57% 14,350,600 4.78% 5 Melstacorp Limited 8,650,732 2.88% 8,650,732 2.88% 6 Commercial Bank of Ceylon PLC/L.E.M.Yaseen 4,750,000 1.58% 4,750,000 1.58% 7 HSBC International Nominees Ltd- 4,400,000 1.47% - - Morgan Stanley and Co INTL P 8 HSBC INTL NOM LTD – SSBT – 4,230,100 1.41% 4,230,100 1.41% Wasatch Frontier Emerging Small COU 9 Commercial Bank of Ceylon PLC/M.A. Yaseen 4,000,000 1.33% - - 10 Caceis Bank Luxembourg S/A Barca Global Master Fund LP 3,713,286 1.24% 3,713,286 1.24% 11 Lahugala Plantation (Pvt) Ltd 3,695,560 1.23% 4,189,590 1.40% 12 BNYM SA/NV – Consilium Frontier Equity Fund L.P 2,949,848 0.98% - - 13 Mrs. Shantha Marie Chrysostom 2,847,500 0.95% 2,847,500 0.95% 14 Northern Trust CO S/A National Westminister Bank PLC as 2,800,000 0.93% 2,800,000 0.93% Trust C/O Standard Chartered Bank 15 HSBC INTL NOM LTD – MSCO-ROUTE ONE FUND 1, L.P. 2,527,485 0.84% 5,280,944 1.76% 16 HSBC International Nominees Ltd- MSCO-Route One 2,468,614 0.82% 4,767,395 1.59% Offshore Master Fund L.P 17 BNYM SA/NV – Blackrock Frontiers Investment Trust PLC 2,287,157 0.76% 1,411,238 0.47% 18 Stassen Exports Limited 2,114,200 0.70% 2,114,200 0.70% 19 Mr. Don Hasitha Stassen Jayawardena 1,882,833 0.63% 1,882,833 0.63% 20 HSBC International Nominees Ltd- MSNY- Bay Pond Partners 1,840,283 0.61% 1,840,283 0.61% Total 253,729,287 84.58% 258,498,701 86.15%

Percentage of Shares held by the public 42.34% 42.97% Total No. of share holders who hold the public holding 10,619

164 Distilleries Company of Sri Lanka PLC Ten Year Summary

In Rs Million - Company 2015 2014 2013 2012 2011 2010 2009 2008 2007 2006

RESULTS Gross Turnover 51,800.1 47,755.5 51,548.9 49,135.6 38,987.1 29,964.1 29,569.8 27,416.0 22,653.1 18,399.7 Excise Duty 34,883.6 31,057.4 34,087.5 33,859.7 25,464.4 18,979.0 18,339.2 16,458.0 14,020.3 11,263.9 Net Turnover 16,916.5 16,698.1 17,461.4 15,275.9 13,522.7 10,985.0 11,230.5 10,958.0 8,632.8 7,135.8 Profit/(Loss) Before Tax 13,070.3 8,136.6 9,275.9 6,905.4 9,972.0 4,004.5 3,977.9 3,014.9 2,826.6 2,480.7 Profit/(Loss) After Tax 10,284.7 5,357.9 6,872.7 4,297.2 7,768.7 2,815.0 2,682.4 1,981.6 1,868.9 1,807.6 FUNDS EMPLOYED Stated Capital 300.0 300.0 300.0 300.0 300.0 300.0 300.0 300.0 300.0 300.0 Capital Reserves 1,403.0 2,079.7 2,160.1 2,506.9 2,923.6 107.9 107.9 107.9 107.9 107.9 Revenue Reserves & Retained Earnings 48,580.3 41,459.0 36,695.0 29,790.3 21,718.0 14,849.3 12,709.3 10,551.8 8,708.1 7,019.2 Shareholders Funds 50,283.3 43,838.7 39,155.1 32,597.2 24,941.7 15,257.2 13,117.2 10,959.7 9,116.0 7,427.1 Total Borrowings 6,476.4 10,025.8 8,576.0 9,741.5 254.6 76.2 920.1 2,648.1 1,634.0 2,221.2 Non Current Liabilities Net of Borrowings 669.3 171.1 159.6 116.1 270.1 111.4 171.5 109.6 88.0 99.2 Current Liabilities Net of Borrowings 7,599.2 7,154.0 8,095.6 20,107.8 6,860.7 5,159.9 4,785.2 4,662.9 4,279.9 3,390.6 65,028.2 61,189.6 55,986.3 62,562.6 32,327.1 20,604.7 18,994.0 18,380.1 15,118.0 13,138.1 ASSETS EMPLOYED Non-Current Assets 57,208.1 48,459.1 45,578.4 54,982.5 20,212.7 14,024.6 12,840.9 12,302.9 10,383.5 10,398.5 Current Assets 7,820.1 12,730.5 10,407.9 7,580.1 12,114.4 6,580.1 6,153.1 6,007.5 4,734.4 2,739.6 65,028.2 61,189.6 55,986.3 62,562.6 32,327.1 20,604.7 18,994.0 18,310.4 15,117.9 13,138.1 CASHFLOW Net Cashflow from Operating Activities 4,079.8 671.2 3,148.9 1,954.9 4,275.1 2,692.7 1,881.7 2,509.3 1,118.2 1,974.1 Net Cashflow from Investing Activities 209.2 (1,569.3) (689.3) (16,037.3) 1,247.0 (661.2) (35.6) (3,041.8) (48.4) (2,662.4) Net Cashflow from Financing Activities (975.0) (2,167.9) (1,535.6) 1,147.0 (875.8) (675.0) (525.0) (465.0) (169.7) (149.7) Net Increase/(Decrease) in Cash & 3,314.0 (3,065.9) 924.0 (12,935.4) 4,646.3 1,356.5 1,321.1 (997.5) 900.1 (838.0) Cash Equivalents KEY INDICATORS Earnings per Share (Rs.) 15.48* 17.86 10.68* 11.85* 15.08 9.38 8.90 6.60 6.20 6.00 Net Assets per Share (Rs.) 167.61 146.13 130.52 108.66 83.14 50.86 43.70 36.50 30.40 24.80 Market Value per Share (Rs) Year End 240.50 203.00 166.50 145.00 180.00 118.00 65.00 98.00 105.00 35.00 Return on Shareholders’ Funds 9%* 12% 8%* 11%* 31% 18% 21% 18% 21% 24% Dividends per Share (Rs.) 3.25 3.25 3.00 3.00 3.00 2.50 2.25 1.75 1.55 0.60 Dividend Payout 21%* 18% 28%* 25%* 20% 27% 25% 27% 25% 10% Dividend Yield 1% 2% 2% 2% 2% 2% 3% 2% 1% 2%

With effect from year ended 31 March 2012 the figures are derived from financial statements prepared in accordance with Sri Lanka Accounting Standards (SLFRS/LKAS). Figures for the remaining periods are derived from financial statements prepared in accordance with previous version of Sri Lanka Accounting Standards (SLAS).

* For the purpose of calculation of EPS for the years ended 31 March 2015, 31 March 2013 and 31 March 2012, the Company profit has been adjusted for intragroup capital gain on assets transfer.

Annual Report 2014/15 165 DCSL Management Team

Head Office Group Security Manager Deshabandu R. M. L. N. Bandara MBA (USA), SSP (Retd.) Chief Executive Officer Maximus R. Peries B.Sc. (Eng), MBA (Merit), LLB (Hons) London, Head of Analytical Division T. D. Ekmon B.Sc. (Hons), M.I.Chem C, Chartered C. Eng. MIEE (London) Chemist Chief Engineer M. N. Perera Finance Division Head of Finance Nimal Nagahawatte B.Sc. Consultant - Analytical K. Sivarajah B.Sc. (Cey), M.Sc. (UK), F.I Chem. C, Procedures Chartered Chemist, (Retd. Govt. Analyst) Asst. Finance Manager Suranjan Lakmanaratchi Senior Production Manager Capt. K. A. P. Perera SLN (Retd.) RSP, Asst. Finance Manager Justin Algama B.Sc., Dip. Acc. B.Sc. (Defense Studies) Manager - IT Ms. P. Gamagedara Dip. (NIBM), AACS Production Manager S. G. Bandula Silva B.Sc. Supplies Division Transport Manager Sqn. Ldr. T. S. S. S. Perera (Retd.) Head of Procurement S. Rajanathan B.Sc. (Defense Studies)

Internal Audit Division Senior Chemist S. M. Sumanasekera B.Sc., M.Sc. (Food Science and Technology) I Chem Chief Internal Auditor L. P. Liyanaarachchi FCA, FCMA, Dip.Acc. Senior Executive - IT Capt. K. V. G. H. Harischandra (Retd.) Investigation Division Distillery Seeduwa Director - Investigations Alfred Wijewardene DIG (Retd.) Warehouses New Warehouse, No 3 Warehouse, Old Dy. Director - Investigations A. X. Clarence Motha ASP (Retd.) Warehouse Dy. Director - Investigations G. U. J. Vithanage SSP (Retd.) Wholesale Outlets Peliyagoda (W), Peliyagoda (S), Rajakadaluwa, Negombo, Kurunegala Company Secretarial & Legal Division Company Secretary & Chief Ms. V. J. Senaratne Attorney-At-Law & N.P., Southern Region - Kalutara Legal Officer Solicitor (Eng. & Wales) Head of Southern Region Maj. Gen. Jagath Rambukpotha (Retd.) Human Resources Division RSP, USP (Appointed w.e.f. 03rd August 2015) Head of Human Resources Ms. Gayathri Chakravarthy Senior Production Manager A. D. Amaradeva LLB, Attorney-at-Law Chemist W. A. I. Wickramasinghe A.I. Chem C, Grad Manager - Human Resources Ms. U. R. Edirisinghe Chem, Dip in POM MBA (Sri J), B.Sc. (HRM) Sp Asst. Engineer H. P. D. P. Mangala Gunasekara Asst. Manager - Human Resources T. S. Morawaka B.Sc. (Mgt) Sp Manager (Beruwala Distillery) C. E. Nanayakkara Transport Division Distillery Beruwala Head of Transport & Logistics Roshanth Kumar Perera Warehouses Kalutara No 01 & Kalutara No 02, Teak Store, Mirishena Stock Control Division Wholesale Outlets Kalutara, Ratmalana, Ambalantota, Galle, Kuruwita Head of Inventory Management Lalith Ratnayake MBA (WUSL), B.Sc. (B.Ad) Sp Consultant - Enactments and J. R. de Crusz Central Region - Kandy (Retd. Dy. Commissioner of Excise) Regulations Head of Central Region Brig. Aruna Wijewickrama (Retd.) USP, PQHRM (IPM) Senior Deputy Regional Manager Capt. Chula Ranasinghe USP - SLN (Retd.) Extra Special Heritage Arena Head of Extra Special Heritage Col. Ranjith Rupasinghe (Retd.) RSP, IG Senior Production Manager V. Jeiyachandiran B.Sc. (Hons) Arena (Appointed w.e.f. 03rd August 2015) Production Manager N. Thiranagama B.Sc. Project Engineer D. S. P. Jayawardena M.Sc. (Building Services Consultant - Quality Control W. W. M. S. U. Wijayarathna B.Sc. (Hons), M.Phil, Engineering), AMCIBSE U.K., Eng. Tec. U.K., Chartered Chemist MASHRAE U.S.A., Mar.Eng. (DIP) Senior Production Manager Capt. K. G. N. S. Senanayake SLN (Retd.), Civil Engineer A. M. A. J. B. Abeykoon MDS, B.Sc., psc Senior Executive-Operations/IT M. R. I. K. Bandara B.Sc. (Hons) Manager – Engineering Services W. M. U. R. Gunadasa B.Sc. (Eng) (Hons) Asst. Accountant Mrs. W. M. P. Perera Manager – Administration N. U. K. De Silva (Former CI of Police) Warehouse Nawayalatenna Manager – IT R. Aravinth B.Sc. (Hons) Wholesale Outlets Katugastota, Gampola, Vavuniya, Batticaloa, Minneriya, Manager – Distribution H. D. A. C. Herath BA (Sp) (Hons) Dickoya, Trincomalee, Jaffna, Anuradhapura Assistant Engineer – Civil R. W. D. M. N. Senadheera NCT (Civil) Assistant Security Manager H. M. T. R. B. Herath IP (Retd.) Uva Region - Badulla Head of Uva Region Capt. Ranjith Wettewa SLN (Retd.) RSP, P.S.N. Regional Offices Warehouse Badulla Northern Region - Seeduwa Wholesale Outlet Badulla Head of Northern Region Maj. R. M. Cabraal (Retd.) Deputy Regional Manager Col. A. M. B. Peiris (Retd.) RWP, MHRP, MBA Group Management Division (PIM / Sri’J) Group Financial Controller Cleetus Mallawaarachchi FCA, FCMA, MBA Deputy Regional Manager Cdr. C. M. Gunanayagam USP (Retd.)

166 Distilleries Company of Sri Lanka PLC Group Directory

Beverage Periceyl (Pvt) Limited Secretary Ms. V. J. Senaratne

Board of Directors Registered Office D. H. S. Jayawardena – Chairman 110, Norris Canal Road, Colombo 10 R. K. Obeyesekere (Ceased to be a director w.e.f. 17/04/2015) Tel: (94-11) 2808565 Fax: (94-11) 5551777 C. R. Jansz S. K. S. D. Amarathunga Co. Reg. No. PV 5529 A. L. Gooneratne D. Hasitha S. Jayawardena (Appointed w.e.f. 17/04/2015) Auditors Messrs Ernst & Young (Chartered Accountants)

Plantations Balangoda Plantations PLC Secretary P. A. Jayatunga

Board of Directors Registered Office D. H. S. Jayawardena – Chairman / Managing Director 110, Norris Canal Road, Colombo 10 R. K. Obeyesekere Tel: (94-11) 2522871-2 Fax: (94-11) 2522913 C. R. Jansz S. K. L. Obeyesekere Co. Reg. No. PQ 165 Dr. A. Shakthevale D. S. K. Amarasekera Auditors Messrs Ernst & Young (Chartered Accountants) A. L. Gooneratne

Telecommunication Lanka Bell Limited Secretary Ms. C. M. Chandrapala

Board of Directors Registered Office D. H. S. Jayawardena – Chairman 344, Galle Road, Colombo 03. Dr. T. K. D. A. P. Samarasinghe – Managing Director Tel: (94-11) 5335000 Fax: (94-11) 5545988 C. R. Jansz M. R. Peries Co. Reg. No. PB 306 D. S. C. Mallawaarachchi A. L. Gooneratne Auditors Messrs KPMG (Chartered Accountants)

Telecom Frontier (Pvt) Limited Secretary Ms. C. M. Chandrapala

Board of Directors Registered Office D. H. S. Jayawardena – Chairman No: 344, Galle Road, Colombo 3 Dr. T. K. D. A. P. Samarasinghe – Managing Director Tel: (94-11) 5335000 M. R. Peries D. S. C. Mallawaarachchi Co. Reg. No . PV 61396 A. L. Gooneratne Auditors Messrs Amarasekara & Company (Chartered Accountants)

Bell Solutions (Pvt) Limited Secretary Ms. C. M. Chandrapala

Board of Directors Registered Office No: 344, Galle Road, Colombo 3 D. H. S. Jayawardena – Chairman Tel: (94-11) 5335000 Dr. T. K. D. A. P. Samarasinghe – Managing Director M. R. Peries Co. Reg. No. PV 61398 D. S. C. Mallawaarachchi A. L. Gooneratne Auditors Messrs Amarasekara & Company (Chartered Accountants)

Annual Report 2014/15 167 Group Directory

Diversified Holdings Melstacorp Limited Secretaries P. W. Corporate Secretarial (Pvt) Limited Board of Directors D. H. S. Jayawardena – Chairman Registered Office A. L. Gooneratne – Managing Director 110, Norris Canal Road, Colombo 10 R. K. Obeyesekere (Ceased to be a director w.e.f. 20/02/2015) Tel: (94-11) 5696794 C. R. Jansz Web : www.melsta.com N. de. S. Deva Aditya Capt. K. J. Kahanda (Retd.) Co. Reg. No. PV 11755 PB C. F. Fernando (Deceased on 15/11/2014) Dr. A. N. Balasuriya Auditors Messrs KPMG (Chartered Accountants) D. Hasitha S. Jayawardena (Appointed w.e.f. 02/01/2015) Ms. V. J. Senaratne (Alternate to N. de. S. Deva Aditya)

Milford Holdings (Pvt) Limited Secretaries P. W. Corporate Secretarial (Pvt) Limited Board of Directors D. H. S. Jayawardena – Chairman Registered Office R. K. Obeyesekere 110, Norris Canal Road, Colombo 10 C. R. Jansz Tel: (94-11) 2695295-7 Fax: (94-11) 2696360 Capt. K. J. Kahanda (Retd.) Co. Reg. No. PV 5944

Auditors Messrs KPMG (Chartered Accountants)

Browns Beach Hotels PLC Secretaries Aitken Spence Corporate Finance (Private) Limited

Board of Directors Registered Office D. H. S. Jayawardena – Chairman 315, Vauxhall Street, Colombo 02 M. V. Theagarajah Tel: (94-11) 2308308 Fax: (94-11) 2308099 J. M. S. Brito S. M. Hapugoda Co. Reg. No. PQ 202 T. D. U. D. Peiris A. L. Gooneratne Auditors Messrs KPMG (Chartered Accountants)

Texpro Industries Limited Secretaries SSP Corporate Services (Pvt) Limited

Timpex (Pvt) Limited Registered Office Board of Directors 1st Floor, Lakshman’s Building, 321, D. H. S. Jayawardena – Chairman Galle Road, Colombo 3 J. D. Peries – Managing Director Tel: (94-11) 2565951 H. I. Munasingha A. L. Gooneratne Co. Reg. No. PB 748 D. S. C. Mallawaarachchi Auditors Messrs KPMG (Chartered Accountants)

168 Distilleries Company of Sri Lanka PLC Diversified Holdings (contd.) Melsta Logistics (Pvt) Limited Secretaries P. W. Corporate Secretarial (Pvt) Limited

Board of Directors Registered Office A. L. Gooneratne – Chairman 160, Negombo Road, Seeduwa A. M. J. Abeysinghe Tel: (94-11) 5223300 Fax: (94-11) 5223322 T. Q. Fernando Web: www.crc.lk M. R. Peries D. S. C. Mallawarachchi Co. Reg. No. PV 14051

Auditors Messrs Amarasekara & Company (Chartered Accountants)

Continental Insurance Lanka Ltd. Secretaries P. W. Corporate Secretarial (Pvt) Limited

Board of Directors Registered Office G. D. C. de Silva - Managing Director 79, Dr. C. W. W. Kannangara Mawatha, Colombo 07 A. S. Abeyewardene Tel : (94-11) 5200300 C. F. Fernando (Deceased on 15/11/2014) Co. Reg. No. PB 3784 A. L. Gooneratne A. M. De S. Jayaratne (Appointed w.e.f. 01/09/2014) Auditors Messrs KPMG (Chartered Accountants)

Splendor Media (Pvt) Limited Secretaries P. W. Corporate Secretarial (Pvt) Limited

Board of Directors Registered Office Ms. D. S. T. Jayawardena – Chairperson 110, Norris Canal Road, Colombo 10 Ms. G. Chakravarthy Tel: (94- 11) 5 639 501 Fax: (94-11) 5 373 344 N. N. Nagahawatte O. A. R. P. Obeysinghe Co. Reg. No. PV1230 P. Hennayake (Resigned w.e.f. 11/11/2014) A. P. L. Fernando (Resigned w.e.f.13/11/2014) Auditors Messrs Amarasekara & Company (Chartered Accountants)

Bogo Power (Pvt) Limited Secretary P. A. Jayatunga

Board of Directors Registered Office D. H. S. Jayawardena – Chairman 833, Sirimavo Bandaranaike Mawatha, Colombo 14 Dr. N. M. Abdul Gaffar Tel: (94-11) 2522871-2 Fax: (94-11) 2522913 S. K. L. Obeyesekere A. L. Gooneratne Co. Reg. No. PV 64901

Auditors Messrs Ernest & Young (Chartered accountants)

Bellvantage (Pvt) Limited Secretaries P. W. Corporate Secretarial (Pvt) Limited

Board of Directors Registered Office A. L. Gooneratne – Chairman 33, Park Street, Colombo 02 P. Karunanayke Tel: (+94-11)-5753753 Fax: (+94-11)-5753754 D. S. C. Mallawaarachchi E-mail : [email protected] Ms. S. A. Atukorale (Resigned w.e.f. 30/05/2014) Web : www.bellvantage.com

Co. Reg. No. PV 65022

Auditors Messrs Amarasekara & Company (Chartered Accountants)

Annual Report 2014/15 169 Group Directory

Diversified Holdings (contd.) Melsta Regal Finance Limited Secretaries P. W. Corporate Secretarial (Pvt) Limited

Board of Directors Registered Office A. L. Gooneratne – Chairman 110, Norris Canal Road, Colombo 10 D. M. N. P. Karunapala- CEO Tel: (94-11) 268 2742-3, 5288571 Fax: (94-11) 268 2741 L. P. Liyanarachchi Web : www.melstaregalfinance.lk N. A. Rodrigo K. D. Bernard Co. Reg. No. PB 878 M. S. J. D. Coorey D. S. C. Mallawaarachchi Auditors Messrs KPMG (Chartered Accountants) J. M. T. Galgamuwa Ms. S. A. Atukorale B. A. S. P. S. Balasuriya (Appointed w.e.f. 26/08/2014)

Melsta Properties (Private) Limited Secretaries: Financial Services and Commercial Agencies (Pvt) Ltd.

Board of Directors Registered Office C. F. Fernando (Deceased on 15/11/2014) 110, Norris Canal Road, Colombo 10 Capt. K. J. Kahanda (Retd.) Tel: (94-11) 5288625 Fax : (94-11) 2695794 S. Rajanathan R. R. P. L. S. Ratnayake Co. Reg. No. PV 78422

Auditors Messrs KPMG (Chartered Accountants)

Melsta Towers (Pvt) Ltd Secretaries: Financial Services and Commercial Agencies (Pvt) Ltd. Board of Directors A. L. Gooneratne Registered Office M. R. Peries 110, Norris Canal Road, Colombo 10 Ms. S. A. Atukorale Tel: (94-11) 5288625 Fax : (94-11) 2695794 D. S. C. Mallawaarachchi Co. Reg. No. PV 90157

Auditors Messrs KPMG (Chartered Accountants)

Melsta Technologies (Pvt) Ltd Secretaries P. W. Corporate Secretarial (Pvt) Limited

Board of Directors Registered Office B. A. S. P. S. Balasuriya 110, Norris Canal Road, Colombo 10 B. K. J. P. Rodrigo (Managing Director) Tel: (94-11) 5288625 Fax : (94-11) 2695794 P. Karunanayke D. A. C. Peiris Co. Reg. No. PV 104028 D. M. Welikandage Auditors Messrs KPMG (Chartered Accountants)

170 Distilleries Company of Sri Lanka PLC Diversified Holdings (contd.) Pelwatte Sugar Industries PLC Secretaries Managers & Secretaries (Pvt) Limited Board of Directors D. H. S. Jayawardena Registered Office Capt. K. J. Kahanda (Retd.) 27, Melbourne Avenue, Colombo 04 M. R. Peries Tel: (94-11) 2589390 Fax: (94-11) 2500674 R. Wettewa D. A. de S. Wickramanayake Co. Reg. No. PV 14051 D. H. J. Gunawardena C. S. Weeraratne Auditors Messrs Ernst & Young (Chartered Accountants) D. A. E. de S. Wickramanayake K. K. U. Wijeyesekera

Pelwatte Sugar Distilleries (Pvt) Limited Secretaries Managers & Secretaries (Pvt) Limited Board of Directors Capt. K. J. Kahanda (Retd.) - Managing Director Registered Office M. R. Peries 27, Melbourne Avenue, Colombo 04 D. A. de S. Wickramanayake Tel: (94-11) 2589390 Fax: (94-11) 2500674

Co. Reg. No. PV 10221

Auditors Messrs Ernst & Young (Chartered Accountants)

Pelwatte Agriculture & Engineering Services (Pvt) Limited Secretaries Managers & Secretaries (Pvt) Limited Board of Directors D. A. de S. Wickramanayake Registered Office C. S. Weeraratne 27, Melbourne Avenue, Colombo 04 Tel: (94-11) 2589390 Fax: (94-11) 2500674

Co. Reg. No. PV 66850

Auditors Messrs Ernst & Young (Chartered Accountants)

Associates Aitken Spence PLC Secretary R. E. V. Casie Chetty Board of Directors D. H. S. Jayawardena – Chairman Registered Office J. M. S. Brito – Managing & Finance Director 315, Vauxhall Street, Colombo 02 Dr. R. M. Fernando Tel: (94-11) 2308308 Fax : (94-11) 2445406 Dr. M. P. Dissanayake Web: www.aitkenspence.com Ms. D. S. T. Jayawardena G. C. Wickremasinghe Co. Reg. No. PQ 120 C. H. Gomez N. de S. Deva Aditya Auditors Messrs KPMG (Chartered Accountants) V. M. Fernando R. N. Asirwatham

Annual Report 2014/15 171 Group Directory

Madulsima Plantations PLC Secretary P. A. Jayatunga

Board of Directors Registered Office D. H. S. Jayawardena – Chairman / Managing Director 833, Sirimavo Bandaranaike Mawatha, Colombo 14 R. K. Obeyesekere (Ceased to be a director w.e.f 23 July 2015) Tel: (94-11) 2522871-2 Fax: (94-11) 2522913 Z. Alif (Ceased to be a director w.e.f 23 July 2015) Dr. N. M. Abdul Gaffar Co. Reg. No. PQ 184 S. K. L. Obeyesekere Dr. A. Shakthevale Auditors Messrs Ernst & Young (Chartered Accountants) D. S. K. Amarasekera

Pelwatte Dairy Industries Limited Secretaries Maidas Secretarial Services (Pvt) Limited

Board of Directors Registered Office D. A. de S. Wickramanayake A/4, Perahera Mawatha, Colombo 03 D. A. E. de S. Wickramanayake D. H. J. Gunawardena Co. Reg. No. PV 16876 A. N. F. Perera Auditors Messrs Ernst & Young (Chartered Accountants)

172 Distilleries Company of Sri Lanka PLC Notice of Meeting

NOTICE IS HEREBY GIVEN that the TWENTY FIFTH ANNUAL Notes: GENERAL MEETING OF DISTILLERIES COMPANY OF SRI LANKA PLC will be held at the Sri Lanka Foundation Institute 1. A member is entitled to attend and vote at the meeting or on 21st September 2015 at 10.00 a.m. for the following to appoint a proxy to attend and vote on behalf of him/her purposes. by completing the Form of Proxy enclosed herewith.

1. To receive and consider the Annual Report of the Directors 2. A Proxy need not be a member of the Company. and the Financial Statements of the Company for the year ended 31st March 2015. 3. The completed Form of Proxy should be deposited at the Registered Office of the Company at 110,Norris Canal Road, 2. To approve a final dividend as recommended by the Board Colombo 10, before 10:00 a.m. on 19th September 2015. of Directors. The Dividend warrants will be posted within seven market 3. To re elect Capt. K. J. Kahanda who retires by rotation at days, if the dividend proposed is approved at the Annual the Annual General Meeting in terms of Article 92 of the General Meeting. In accordance with the rules of the Articles of Association , as a Director of the Company. Colombo Stock Exchange, the shares of the Company will be quoted ex-dividend with effect from 2015. 4. To re elect Dr. A. N. Balasuriya who retires by rotation at the Annual General Meeting in terms of Article 92 of the THE SHAREHOLDERS AND THE PROXY HOLDERS Articles of Association, as a Director of the Company. ATTENDING THE MEETING ARE KINDLY REQUESTED TO BE IN THEIR SEATS BY 9.45A.M.THEY ARE ALSO 5. To re elect Mr. D. Hasitha S. Jayawardena who retires at REQUESTED TO BRING THIS ANNUAL REPORT, ALONG the Annual General Meeting in terms of Article 98 of the WITH AN ACCEPTABLE FORM OF IDENTITY. Articles of Association, as a Director of the Company.

6. To re elect as a Director, Mr. D. H. S. Jayawardena,who is over the age of 70 years and who retires in terms of Section 210 of the Companies Act No. 07 of 2007,by passing the following resolution.

“RESOLVED that Mr. D. H. S. Jayawardena,who attained the age of 70 on 17th August 2012 be and is hereby re-elected as a Director of the Company ,and it is hereby declared that the age limit of 70 years referred to in Section 210 of the Companies Act No.07 of 2007 shall not apply to the said Director.”

7. To authorise the Directors to determine contributions to charities.

8. To authorise the Directors to determine the remuneration of the Auditors, Messrs. KPMG who are deemed to have been reappointed as Auditors in terms of Section 158 of the Companies Act No. 07 of 2007.

By Order of the Board,

Ms.V.J.Senaratne Company Secretary

25 August 2015 Colombo.

Annual Report 2014/15 173 Notes

174 Distilleries Company of Sri Lanka PLC Form of Proxy

Folio No.

I/We...... of ...... being a member / members of the Distilleries Company of Sri Lanka PLC hereby appoint Don Harold Stassen Jayawardena* or failing him Cedric Royle Jansz* or failing him Niranjan de Silva Deva Aditya* or failing him Kolitha Jagath Kahanda* or failing him Adrian Naomal Balasuriya* or failing him Don Hasitha Stassen Jayawardena* or ...... of ...... as my/our* Proxy to represent me/us* and vote for me/us* on my/our* behalf at the Extra Ordinary General Meeting of the Company to be held on the 21st September 2015 and at any adjournment thereof and at every poll which may be taken in consequent thereof.

* Please delete the inappropriate words. ** Please write your Folio Number which is given on the top left of the address sticker

…………………………………… Signature of Shareholder Dated this ……………………day of …………….2015.

Notes: 1. Proxy need not be a member of the Company.

2. In terms of the Article 71 of the Article of Association of the Company.

The instrument appointing a Proxy shall be in writing under the hand of the appointer or his attorney duly authorised in writing, or where the appointer is a corporation, either under seal, or under the hand of an officer or attorney duly authorised. A Proxy need not be a member of the Company.

3. In terms of Article 71 of the Articles of Association of the Company.

The instrument appointing a Proxy and the Power of Attorney or other authority, if any, under which it is signed or notarially certified copy of that power of attorney shall be deposited at the registered office of the Company or at such other place within Sri Lanka as is specified for the purpose in the notice convening the meeting not later than 48 hours before the time of the holding of the meeting or adjourned meeting at which the person named in the instrument proposes to vote or in the case of the poll, not later than 24 hours before the time appointed for the taking of the poll and in default the instrument of Proxy shall not be treated as valid.

4. In terms of Article 66 of the Articles of Association of the Company.

In case of the Joint holders the votes of the senior who tenders a vote, whether in person or by Proxy, shall be accepted to the exclusion of the votes of the other joint-holders; and for this purpose seniority shall be determined by the order in which the names stand in the register of members.

The first joint-holder thereby has power to sign the Proxy without the consent of the other joint holder.

5. Instructions as to completion are noted overleaf.

Annual Report 2014/15 175 Instructions as to completion Kindly perfect the Form of Proxy, after filling in legibly your full name and address, by signing on the space provided and filling in the date of signature.

Kindly return the completed Form of Proxy to the Company after deleting one or other of the alternate words indicated by an asterisk.

To be valid the completed Form of Proxy should be deposited at the Registered Office of the Company at No.110, Norris Canal Road, Colombo-10, not later than 48 hours before the time appointed for the holding of the meeting.

Every alteration or addition to the Form of Proxy must be duly authenticated by the full signature of the shareholder signing the Form of Proxy. Such signature should as far as possible be placed in proximity to the alteration or addition intended to be authenticated.

176 Distilleries Company of Sri Lanka PLC Attendance Slip

Distilleries Company of Sri Lanka PLC PQ 112 110, Norris Canal Road, Colombo 10, Sri Lanka.

I / We hereby record my / our presence at the Twenty Fifth Annual General Meeting of the Distilleries Company of Sri Lanka PLC at the Sri Lanka Foundation Institute on 21st September 2015 at 10.00 a.m.

1. Full Name of Shareholder : ...... (In Capital Letters please)

2. Shareholder’s NIC No./Passport No. : ......

3. Number of Shares held and Folio No. : ......

4. Name of Proxy Holder : ......

5. Proxy Holder’s NIC No./Passport No. : ......

6. Signature of Attendee : ......

Notes 1. Shareholders / Proxy Holders are requested to bring this Attendance Slip with them when attending the meeting and hand it over at the entrance to the meeting hall after signing it.

2. Shareholders are also kindly requested to indicate any changes in their addresses / names by completing the following and forward same to the registered office 110, Norris Canal Road, Colombo 10, if not attending the meeting.

Name of the Shareholder : ......

Certificate No. : ......

Previous Address : ......

Present Address : ......

Any changes to the Name : ......

Annual Report 2014/15 177

fuu jdr®;dj iïmQr®Kfhkau ms

,t;twpf;if KOikahf Mq;fpyj;jpy; cs;sJ. jiythpd; nra;jp> gzpg;ghsh; rigapd; tUlhe;j mwpf;if> fzf;fha;thshpd; mwpf;if> Mfpatw;wpd; rpq;fsk; my;yJ jkpo; nkhopngah;g;G Ntz;Lkhapd;> jaTnra;J fbjk; %yk; gpd;tUk; tpyhrj;jpw;F> 2015> nrg;nlk;gH khjk; 14 jpfjpf;F Kd; mwptpf;fTk;. nrayhsh;> b];byhP]; fk;gdp xg; =yq;fh gp.vy;.rp> ,yf;fk; 110> nehhp]; nfdy; tPjp> nfhOk;G 10.

This report is entirely in English. If you require a translated copy of The Chairman’s Message, Annual Report of the Board of Directors and The Auditor’s Report in Sinhala or Tamil, please make a request by letter addressed to the Secretary, Distilleries Company of Sri Lanka PLC, No. 110, Norris Canal Road, Colombo 10 on or before 14th day of September 2015.

Annual Report 2014/15 179