Distilleries Company of Sri Lanka PLC | Annual Report 2013 / 14
OUR POWERFUL HERITAGE OUR CONTINUING SUCCESS
Distilleries Company of Sri Lanka PLC l Annual Report 2013 / 14
OUR POWERFUL HERITAGE OUR CONTINUING SUCCESS
Being in business for over a century means we have got it right - in the management of our Company, the process of our operations and the vision of our leadership. Today we are proud to be the nation’s leading distiller, a core business strongly supported by our diversified portfolio of vibrant industries - plantations, telecommunication, insurance, finance, power generation, textiles, leisure, logistics and media.
The influence of our long heritage is manifested in our desire to excel in all we do. It is the reason for our continuing success.
Distilleries Company of Sri Lanka PLC 1 CONTENTS
3 Highlights of the Year 4 Financial Highlights 6 A Diversified Portfolio of Business Operations 12 Our Businesses 13 Historical Perspectives 14 The Story of Arrack 16 What’s Behind Our Continuing Success? 20 Chairman’s Message 26 Board of Directors 30 Group Management 32 DCSL Management 35 Management Discussion & Analysis 44 Sustainability Report 56 Corporate Governance 68 Enterprise Risk Management 72 Audit Committee Report 74 Remuneration Committee Report 75 Annual Report of the Board of Directors 80 Statement of Directors Responsibility 81 Independent Auditors’ Report 82 Statements of Comprehensive Income 83 Statements of Financial Position 84 Statements of Changes in Equity 87 Statements of Cash Flows 88 Notes to the Financial Statements 160 Statement of Value Added 161 Details of Real Estate 162 Shareholder Information 164 Ten Year Summary 165 DCSL Management Team 166 Group Directory 172 Notice of Meeting 175 Form of Proxy 177 Attendance Slip
2 Annual Report 2013/14 HIGHLIGHTS OF THE YEAR
August 2013 December 2013 Melsta Regal Finance Limited opened its first branch in Fitch Rating reaffirmed DCSL a national long term Rating Kurunegala. of AAA (lka) / stable outlook - The best & highest entity credit rating for a corporate in Sri Lanka.
November 2013 February 2014 DCSL was ranked No. 09 in the Business Today ‘Top Lanka Bell 4G was formally launched under the patronage Twenty Five’. This was the 15th consecutive year DCSL of Director General of the Telecommunications Regulatory was listed among corporate heavy weights in the rankings. Commission Mr. Anusha Palpita.
March 2014 Investment in Meslta Regal Finance increased to Rs. 1,340 Mn.
May 2014 Melsta Regal Finance was reaffirmed A+ (lka) / Stable by Fitch. Thus signifying a very high credit rating for a finance company. November 2013 July 2014 DCSL tops the manufacturing, food & beverage sector in National Business Excellence Awards - 2013. Investment in Continental Insurance increased to Rs. 750 Mn.
Distilleries Company of Sri Lanka PLC 3 FINANCIAL HIGHLIGHTS
Financial Highlights 2014 2013 2014 2013 Group Group Company Company SUMMARY OF RESULTS Gross Turnover Rs Mn 63,186 65,790 47,756 51,549 Excise Duty Rs Mn 34,203 37,024 31,058 34,088 Net Turnover Rs Mn 28,983 28,766 16,698 17,461 Profit After Tax Rs Mn 6,231 5,258 5,357 6,873 Shareholders’ Funds Rs Mn 53,636 47,978 43,839 39,155 Working Capital Rs Mn (1,905) (1,578) (4,449) (6,139) Total Assets Rs Mn 83,742 78,547 61,190 55,942 Staff Cost Rs Mn 3,862 3,194 1,162 1,039 No. of Employees 12,897 14,681 1,250 1,343
PER SHARE Basic Earnings Rs. 20.41 17.13 17.86 *10.68 Net Assets Rs. 178.79 159.93 146.13 130.52 Dividends Rs. 3.25 3.00 3.25 3.00 Market Price - High Rs. 218.00 190.00 218.00 190.00 Low Rs. 160.00 117.00 160.00 117.00 Year End Rs. 203.00 166.50 203.00 166.50
RATIOS Price Earnings times 10 10 11 *16 Return on Shareholders’ Funds % 11.42 10.71 12.22 *8.18 Current Ratio times 0.92 0.93 0.74 0.63 Interest Cover times 7.3 4.9 10.3 *5.1 Stock Turnover (Finished Goods) days 15 14 13 12 Debt to Equity % 24.97 23.25 22.87 21.90 Debt to Total Assets % 16.00 14.20 16.39 15.32 Dividend Payout % 15.92 17.51 18.20 *28.08 Dividend Yield % 1.60 1.80 1.60 1.80
* Previous year Company’s profit has been adjusted for intra-group capital gain on share transfer
4 Annual Report 2013/14 Taxes Paid - Group (Rs. Mn)
39,076 39,850 37,466 Rs.Mn 29,004 37,466
21,072 2012/13: 39,850Rs.Mn Taxes Paid - Group
2009/10 2010/11 2011/12 2012/13 2013/14
Total Assets - Group (Rs. Mn)
83,742 78,547 Rs.Mn 73,355 83,742 59,616
35,322 2012/13: 78,547Rs.Mn
Total Assets - Group
2009/10 2010/112011/12 2012/13 2013/14
Gross Turnover - Group (Rs. Mn)
63,125 65,790 63,186 63,186Rs.Mn 46,451 39,810 2012/13: 65,790Rs.Mn Gross Turnover - Group
2009/10 2010/11 2011/12 2012/13 2013/14
Pro t after Tax - Group (Rs. Mn)
8,337 6,231Rs.Mn 6,052 6,231 5,258 2012/13: 5,258Rs.Mn
2,152 Profit after Tax - Group
2009/10 2010/112011/12 2012/13 2013/14 Distilleries Company of Sri Lanka PLC 5 A DIVERSIFIED PORTFOLIO OF BUSINESS OPERATIONS THE CHARACTERISTICS WE VALUE
MATURITY BEVERAGES Distillation, Manufacture and Distribution of Liquor Products
GROWTH PLANTATIONS Cultivation & Processing of Tea & Rubber
6 Annual Report 2013/14 Led by Beverages, Plantations, Telecommunication and Insurance.
CONNECTIVITY TELECOMMUNICATIONS Voice, Data, Broadband, Hardware, Software and Networking Solutions
RELIABILITY INSURANCE General Insurance Services - Property, Motor, Marine, General Accident
Distilleries Company of Sri Lanka PLC 7 A DIVERSIFIED PORTFOLIO OF BUSINESS OPERATIONS Financial Services, Power Generation, Logistics and Textiles.
CONVENIENCE FINANCIAL SERVICES Variety of innovative Financial Solutions under one roof.
POWER POWER GENERATION Hydro Power Generation
8 Annual Report 2013/14 EFFICIENCY LOGISTICS Automobile Servicing and Logistics
ARTISTRY TEXTILES Dyeing and Printing Fabric
Distilleries Company of Sri Lanka PLC 9 A DIVERSIFIED PORTFOLIO OF BUSINESS OPERATIONS BPO, Media Buying and Creative Services and Leisure.
EXCELLENCE BPO SERVICES BPO, KPO & Call Centre Services
CREATIVITY MEDIA Media Buying & Creative Services
10 Annual Report 2013/14 INSPIRATION LEISURE Hotels & Hospitality
QUALITY BEVERAGES Wines & Spirits
Distilleries Company of Sri Lanka PLC 11 OUR BUSINESSES
Sector Function Company
Beverages Distillation, Manufacture DCSL, & Distribution of Liquor Periceyl Products
Telecommunications Telecommunications LB, TCF, BSL Services
Plantations Cultivation & Processing BPL of Tea & Rubber
Diversified
Investment Investment Holding Melstacorp Company
Financial Services Insurance Continental
Finance Melsta Regal
Logistics Automobile Servicing & Melsta Logistics Logistics
Textiles Dyeing & Printing Fabrics Texpro
Information Technology BPO, KPO & Call Centre BellVantage Services
Power Generation Hydro Power Generation Bogo Power
Leisure Beach Hotel BBH
Manufacturing Manufacturing & Selling Pelwatte of Sugar & Molasses Sugar
Media Media Buying & Creative Splendor Services
12 Annual Report 2013/14 HISTORICAL PERSPECTIVE
Touching lives for over a century… have also been made in Research and Development (R&D) Present in Sri Lanka for over a century, The Distilleries and in upgrading laboratories. The latest addition is the Company of Sri Lanka PLC (DCSL), is one of the most state of the art blending and bottling plant currently under profitable and well respected corporate entities in the country. commission at the Company’s Seeduwa Distillery. Its proud tradition, rich heritage and proven credentials has These improvements have equipped the Company with top made the Company a beacon of inspiration for others. Over of the line facilities enabling it to produce beverages of the past 100 years, our corporate DNA has been strengthened international standard. Furthermore, storage facilities and with our values of experience, maturity, innovation, resilience product distribution systems have been upgraded to modern and the determination to succeed. standards with fully computerised systems. A fleet of modern DCSL’s roots can be traced back to 1913, when the Excise vehicles ensures that customers in even the remotest areas are Department of Ceylon, which was initially created as the able to enjoy the best DCSL products delivered island wide. enforcement authority to distribute and sell liquor products in These improvements contributed towards higher production Sri Lanka, branched out into the distillation and manufacture efficiencies across the supply chain. Our people are regularly of liquor products. In 1974, the State Distilleries Corporation trained in the best international practices in locations famed was incorporated by statute, to take over this venture, for high quality alcohol, such as France, Scotland and Ireland. while the Excise Department realigned its operations as a Over the years, we have not only grown to become Sri Lanka’s monitoring body. Thus, DCSL has the distinction of being the largest distiller, but have been recognised as a leading pioneer distiller in Sri Lanka. corporate with the highest quality standards. Despite these In 1989, under a government policy decision, the State achievements and our strong position of business leadership, Distilleries Corporation was converted into a limited company. we continue to look for ways to improve and grow. Since This transfer of ownership took place at the Colombo Stock 1992, the Company has not only expanded production, but Exchange (CSE) in 1992, making it the largest transaction in has also diversified into other non-alcohol related activities. the history of the CSE. Today, we are present in all parts of the country, operating Under its new private management, the Company entered an under the principle of providing the highest standard of era of modernisation that witnessed upgrading of machinery products and services for the people of Sri Lanka, imbued and equipment and the introduction of modern management with a vision of uplifting the quality of life of our people. We systems and processes. Plant and machinery were upgraded to aim to expand our presence into international markets to modern international standards and new technology developed render our brand an internationally recognised one. by world renowned experts was introduced. Large investments Distilleries Company of Sri Lanka PLC 13 THE STORY OF ARRACK
“Sri Lankan coconut arrack, acknowledged as one of the purest alcoholic beverages in the world is extracted by an all-natural fermentation process.”
The Sri Lankan flavour that lingers on… The pristine ambrosia-like qualities of Sri Lanka’s unique coconut arrack can be traced back thousands of centuries earlier, finding mention in early literature - “…liquor drawn from the coconut flower”. This delectable beverage is steeped in legend and tradition, making it one of the most prised offerings from Sri Lanka to the world.
The Sri Lankan coconut arrack is believed to be one of the purest, naturally derived alcoholic beverages in the world distilled through a natural fermentation process. Sri Lanka has perfected the technique of making coconut arrack through the years. Today, it has acquired the perfect balance for the discerning palate and coconut arrack reigns as the alcoholic beverage of choice in the country.
The initial step in the process of making coconut arrack is After a minute filtration process, this liquor is poured toddy tapping, an age-old vocation which is lovingly passed into massive casks made of Halmilla wood and are gently down from father to son. Toddy Tapping is as much an transported to our factories for distillation. intricate art as it is a science. Toddy tappers manually extract the toddy from coconut trees which are coupled and girdled The process of distillation comprises of two stages; by deftly rappelling from tree to tree. Coconut sap or toddy continuous distillation (patent still distillation) and pot is obtained by tapping the unopened coconut flower for its distillation. This distillation process is usually completed nectar. Thereafter, the toddy is collected in earthenware within 24 hours. The purified spirit comes out with the pots. This toddy when fresh contains much sugar, but yeasts, distinctive flavour of arrack, ready to be savoured. microscopic vegetable organisms soon find their way into it, act on the sugar present and produce alcohol. This process The contents of the wooden vats are mixed artfully every of converting the sugar into alcohol is called fermentation. fortnight for better aeration and to increase contact with
14 Annual Report 2013/14 the wood. Herbs and spices from ancient recipes are also added at particular stages, to enhance flavour and mellow the liquor during the crucial maturation process. The maturation process is completed after flavour enhancing and smoothening while ageing in the wooden vats.
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 Blenders. As the largest coconut arrack distillery in Sri Lanka, possibly even in the world, this golden brew remains our pride and flagship product.
Distilleries Company of Sri Lanka PLC 15 WHAT ’S BEHIND OUR CONTINUING SUCCESS? TRADITION SERVED WITH PRIDE
Superior blend of A blend of coconut mellow 100% coconut and imported neutral arrack full of character spirits bringing a and a distinctive distinctively rich and flavour stemming from smooth flavour the traditional process of maturing
Twice distilled in pot stills and matured slowly in Halmilla vats giving a remarkable taste and aroma
A 100% coconut A blend of coconut spirit, refined, aged spirits and imported and matured in neutral spirits bringing Halmilla vats - giving herbal flavours with a a woody & natural distinctively rich taste vanilla flavour and smooth aroma
16 Annual Report 2013/14 A 100% pure coconut A blend of 100% aged spirit, which brings coconut spirits, well- out the full-bodied matured in Halmilla taste and aroma of vats to give a taste desiccated coconut of oak with a subtle sweetness. Best served as a cocktail mixer
Crystal clear and an absolutely pure blend of coconut arrack and neutral spirits giving a tint of fresh lime with a slight burning sensation on your tongue
A 100% coconut Finest blend of spirit, matured matured coconut in Halmilla vats, arrack and neutral producing a spirits giving a rich woody character and smooth flavour and exceptional smoothness
Distilleries Company of Sri Lanka PLC 17 WHAT ’S BEHIND OUR CONTINUING SUCCESS? WORLD CLASS BLENDS, DISTINCTLY SRI LANKAN
A combination of Premium blend of scotch and fine spirits malts and fine spirits to produce a rich blend to produce this of whisky classic whisky
Unique premium blended arrack, smooth on the palate with pleasant aromas
Exceptional selection Unique variety of of spirits blended imported spirits that to create a great combines together rum, matching to produce an international international standard standards vodka
18 Annual Report 2013/14 Aged fine French Fine spirits blended brandy blended with with a rich recipe fine spirits matured in flavoured with lemon vats to enhance the smooth characters of a superior brandy
A blend of finest French brandy merged with fine spirits to bring out a unique flavour that is incomparable
Flavour of apple with Flavour of Mango fine imported spirits with fine imported which provides a rich spirits that combines apple aroma with a tempting aromas and smooth apple flavour flavours of rich Mango on the palate
Distilleries Company of Sri Lanka PLC 19 CHAIRMAN’S MESSAGE
It gives me great pleasure to present to you, valued shareholders, the annual report of your Company for the “As an ethical business that financial year 2013-14. DCSL has proved its resilience in the is responsible to the State and face of many economic trials and tribulations over its 100 years of operations and the financial year under review has people of this country, and been no exception. The level playing field we have sought for carrying out our business remains elusive on account of one that is accountable for its inaction by the powers that be, effectively stifling the Group from achieving its true financial potential. actions, we strictly adhere to the
Macroeconomic Performance NATA Act and stringently follow The Sri Lankan economy posted a reasonable GDP growth of 7.3 per cent in 2013, successfully restricting inflation its guidelines.” to single digit levels. This performance was due to positive contributions from all sectors, further supported by favourable weather conditions and improved global demand. The low As an ethical business that is responsible to the State and inflation that prevailed throughout the year enabled the Central people of this country, and one that is accountable for its Bank of Sri Lanka to ease monetary policy further to facilitate actions, we strictly adhere to the NATA Act and stringently economic growth. Meanwhile, the financial sector remained follow its guidelines. We do not directly or indirectly lure young resilient amidst uncertainties that increased volatility in the people into alcoholism, and never, under any circumstance, global financial markets during 2013. The weak performance target children. Any form of promotional campaign undermines of the agriculture sector during the first half of the year due the NATA Act. However, certain industry players circumvent to extreme weather conditions dragged its annual growth rate the Act and resort to various subtle, tactical and innovative down. The rebounding of global trade and the increase in campaigns. Yet, we note with concern that the authorities turn demand from major export destinations from the second half of a deaf ear and a blind eye to such actions. 2013 had a favourable impact on export earnings. Despite this disparity in treatment, the legal alcohol business Forecasts for the Sri Lankan economy suggest a high growth continues to gain bad press. It is my firm conviction that the momentum in the medium term supported by an increase in non-invoiced and tax unpaid alcohol sector should be the focus investment and a favourable macroeconomic environment. of investigation and national scrutiny as it is a scourge and The global economy is also expected to continue its recovery. promotes alcohol abuse and other social problems. Moreover, even the national coffers are denied substantial excise revenue Group Financial Performance which could be accrued if the non-invoiced and tax unpaid During the current financial year the Gross Revenue of the alcohol sector was discouraged by better enforcement and Group was recorded at Rs. 63.2 Bn, while the Company checks. Our tax payment to State coffers went down from achieved Rs. 47.8 Bn. Group Profit after Tax for the year was Rs. 40 Bn in 2013 to Rs. 37 Bn in 2014, due to a drop in Rs. 6.2 Bn, while Company Profit after Tax was Rs. 5.4 Bn. sales as a direct result of the rise in the non-invoiced and tax unpaid alcohol segment and duplicate products in the Challenges Abound market. If our Beverage sector had continued to grow at a Every business needs a level playing field to function to its steady trajectory, on a level playing field, State coffers would optimum potential, to expand, and to grow in volume and have benefitted from an approximate additional Rs. 15 to value. However, such a just and level playing field continues 20 Bn in tax revenue from us, considering that 65% of the to remain out of reach for us, year after year. The rampant labelled price of our product is in the form of taxes. We stand increase in the non-invoiced and tax unpaid alcohol sector committed to extend any assistance to the authorities towards is openly eating into the market share of legitimate alcoholic enforcing a level playing field in this sector. beverage businesses such as ours, which pay taxes as per the laws of the land while adhering to the strictest quality Moreover, the loss of excise revenue due to the rise of non- guidelines. invoiced and tax unpaid alcohol business is fed by leakage 20 Annual Report 2013/14 D. H. S. Jayawardena Chairman / Managing Director “The rampant increase in the non-invoiced and tax unpaid alcohol sector is openly eating into the market share of legitimate alcoholic beverage businesses such as ours, which pay taxes as per the laws of the land while adhering to the strictest quality guidelines.”
Distilleries Company of Sri Lanka PLC 21 CHAIRMAN’S MESSAGE
toddy manufacturers. Every day, large quantities of artificial “The entire toddy market is toddy are transported to manufacturers, while law-enforcing transforming into an artificial one authorities turn a Nelsonian eye. We are the only Company that produces 100% natural coconut arrack using 100% and the Department of Excise is pure coconut toddy distilled in our own distilleries, providing consumers a 100% natural product, vis-a-vis our competitors not taking action. Vast quantities who purchase spirits produced using artificial toddy. It is unfortunate that artificial toddy is used to produce spirits, of sugar, ammonia, yeast, salt, and unscrupulous suppliers are exploiting the opportunity rotten potatoes, sugar syrup and by selling such spirits to manufacturers who do not have distilling facilities. In order to ensure the quality of toddy, we remnants of toddy sludge are have invested in computerised modern equipment, which our trained and experienced staff utilise to detect adulteration being used in the manufacture by toddy suppliers. We have carefully selected our toddy suppliers, and the toddy is subjected to constant checks for of artificial toddy. The natural possible adulteration. form of fermentation is thus It is regrettable that the entire toddy market is transforming rendered extinct, substituted into an artificial one and the Department of Excise is not taking action. Vast quantities of sugar, ammonia, yeast, with poisonous ingredients which salt, rotten potatoes, sugar syrup and remnants of toddy sludge are being used in the manufacture of artificial toddy. are detrimental to the health of The natural form of fermentation is thus rendered extinct, substituted with poisonous ingredients which are detrimental consumers.” to the health of consumers. Currently, large-scale bottling of artificial toddy takes place in the tapping belt of Marawila, of ethanol from local sugar factories and the illegal import of Negombo, Wennappuwa, Madampe and adjacent areas. ethanol. It is common knowledge that the paint and cologne Such manufacturers of bottled toddy are presently accruing industries act as a front for the import of spirits in order huge profit by bottling artificial toddy and thereby exposing to pass through customs, while also functioning as a front consumers, predominantly the labour force in the hill country, for the illegal manufacture and sale of liquor, which is sold to serious diseases. This will result in a greater strain on cheaper than those that are heavily taxed. The North and East the health system and will have a negative impact on the are the best markets for such sales. Therefore, it is vital that plantation labour force. The Department of Excise should the regulators enforce the law and contain the widespread be held responsible for the downfall of the toddy industry as corruption that fuels such illicit business activities. The DCSL the Department has not taken any action to arrest the rapidly Group has made representations to the authorities in this declining situation. regard and we are hopeful that the government will reclaim The advent of Excise Notification 926, whereby a transferor its lost excise revenue by shrinking the non-invoiced and tax could transfer a FL(4) license to a transferee for unpaid alcohol business sooner rather than later. Rs. 1,500,000/- and Rs. 200,000/- for other types of licenses, It is heart rending to witness the collapse of the tradition of opened the flood gates for unscrupulous manufacturers, toddy tapping, a proud legacy in our country. Increasingly, who gleefully welcomed this unfortunate regulation and toddy suppliers are giving up their business by leasing or obtained licenses in the names of their kith and kin, thereby selling their lands and trees, leading to a decrease in the dumping their non-invoiced, tax unpaid liquor with ease. It is supply of toddy. This unique and traditional Sri Lankan regrettable that although the conditions of the manufacturing industry, which has been passed down over many generations, license indicate that a manufacturer is prohibited from is becoming an endangered industry. The main contributory having any interest in the retail sale of liquor, this condition factor is the considerable rise in the number of illegal, artificial is blatantly violated. This has escalated to an extent where
22 Annual Report 2013/14 12 manufacturers have taken over 233 retail licenses out of a total of 1000, approximately 23%. Further, we have “It is regrettable that although the made discreet inquiries and have ascertained that some conditions of the manufacturing unscrupulous manufacturers are targeting to purchase the remaining retail licenses at exorbitant prices which will further license indicate that a decrease the revenue accruing to State coffers. manufacturer is prohibited from In the recent past, the importation of ethanol at 96% A/Vol. has been substituted with methanol, which is used for having any interest in the retail industrial purposes, in order to qualify for a low band of tax. Such unscrupulous importers have used fictitious names and sale of liquor, this condition addresses in order to clear consignments. Eventually, such spirit is utilised in the production of tax unpaid liquor, which is blatantly violated. This has is then supplied non-invoiced to wine stores at approximately a 30% to 40% lower value than the labelled price. With the escalated to an extent where 12 excise duty and VAT component being over 65% of the labelled manufacturers have taken over price, it raises the question as to how these acts are being committed under the very nose of the Regulator, defrauding 233 retail licenses out of a total the Government of billions in revenue. The solution to this problem is that the Government should discontinue the issue of 1000...” of licenses to import methanol as a raw material for industrial purposes. DCSL adheres to stringent quality controls throughout production where quality is monitored by qualified and It is regrettable to witness officers in uniform openly accountable professionals. R&D is carried out in modern fully performing a sales act to unscrupulous licensees who are equipped laboratories to ensure the Company continues to be operating in large numbers and forcing licensees to buy tax at the cutting edge of our industry. unpaid products against their will. The licensees have no option but to face TCR action if they do refuse to purchase DCSL continues to enjoy the Fitch Ratings assigned long term same, falling prey to these corrupt officers who are depriving rating of AAA (lka) with a stable outlook, the highest possible the Government of billions in revenue. This is very common in credit rating, which places your Company amongst the few the North and East where such products are freely available in elite corporates in Sri Lanka who enjoy such exalted ratings. the market, and prices are 30% to 40% less than a product on which all taxes have been paid. We have brought these issues Diversified Sector Performance to the notice of the regulator who maintains silence, and is yet With regard to other Group business interests, our to take action to bring wrongdoers to book. telecommunication arm, Lanka Bell recorded a loss due to challenges experienced in the sector. However, Lanka Bell has Despite these serious violations taking place in the industry, we a positive EBITDA despite many companies reporting negative remain optimistic about the potential of our alcoholic beverage growth. We are buoyed by future prospects for the business business. This bullish view is reflected in our investment of as we have acquired 4G LTE technology, which will propel the Rs. 2.5 Bn in a state of the art blending and bottling plant company to the forefront of the country’s data revolution. Fixed which will enable enhanced capacity, better packaging, telephony is reaching saturation point in Sri Lanka and by presentation, and prevent adulteration of our products. The opting for mobile technology, Lanka Bell has effectively taken plant further mechanises several aspects of our operations, control of its destiny by forging new growth avenues for itself. yielding higher productivity and efficiency of operations. Our I expect the company to make a positive contribution to Group wholly owned subsidiary Periceyl, is focused on bringing in revenue in the future by becoming a front runner in the data bigger and better brands to Sri Lanka for the convenience of sector. customers.
Distilleries Company of Sri Lanka PLC 23 CHAIRMAN’S MESSAGE
Meanwhile, Balangoda Plantations showed an improved With regard to Sri Lanka Insurance Corporation Ltd. (SLIC), performance with a turnover of Rs. 3.2 Bn and a pre-tax profit even after a lapse of 5 years, we still await the payment of of Rs. 130 Mn. We are glad to state that our hydro power profit earned during DCSL Group’s tenure at the helm of SLIC. project, Bogo Power, which was commissioned in December We are hopeful that the profit earned, which has to be paid to 2011 is now yielding encouraging results for the Group. DCSL us as per the Supreme Court directive, will be reimbursed to us Group is encouraged by the progressive results achieved by as early as possible. our key associate company, Aitken Spence during the financial year. I wish to state that Company has complied with the Listing Rules of the Colombo Stock Exchange and the Code of Best In response to the Central Bank of Sri Lanka (CBSL) financial Practices on Corporate Governance issued by the Securities sector consolidation plan, the Group enhanced the stated and Exchange Commission and the Institute of Chartered capital of Melsta Regal Finance to Rs 1.34 Bn in March 2014, Accountants of Sri Lanka. We are committed towards the through which Melsta Regal Finance is compliant with the furtherance of Corporate Governance principles of the capital adequacy requirements of CBSL up to 2016. Melsta Company. The measures taken in this regard are set out in the Regal Finance’s sharp focus on the SME sector is attracting Corporate Governance Report. a base of loyal customers who appreciate its personalised products and services. In a climate where uncertainty prevails Future over the stability of finance companies, the fact that Melsta Sri Lanka is poised on the cusp of expansion and fast track Regal Finance is backed by the AAA rated DCSL Group is a development but there are certain obstacles in its path reassuring factor to the public. which must be cleared through political will. Supported by infrastructure development, rapid economic growth and access In July 2014, the Group increased its investment in to foreign markets, the only way to go is up, but what remains Continental Insurance to Rs. 750 Mn. Established as one to be seen is how the hurdles in the way of progress are of the most innovative and dynamic insurance companies, cleared. I am hopeful that the authorities will lend an ear to Continental Insurance holds great potential for the future. the challenges facing the alcoholic beverages sector and act in The insurance industry is a fiercely contested space, however accordance with the law of the land. companies that can position themselves perfectly have much potential for growth. I have confidence that Continental Appreciation Insurance is on the right path and will move into high gear in I would like to thank the Board of Directors, the management the months ahead. and every employee of the Company for their dedication and passion to achieve our corporate goals. I wish to express my The uncertainties surrounding the status of our subsidiary, gratitude to the regulators and to our shareholders for placing Pelwatte Sugar Industries continues to weigh upon the Group. their trust in the Group. Our loyal customer base and other Following the occupation of the factory by State Officials, the stakeholders remain our strength and our prime motivation for ownership of this property remains unresolved. The Group aspiring to be quite simply the most sustainable Company in has not changed its position, advocated since the occurrence Sri Lanka. of this unfortunate incident of being the legal owner of the property, and as such we have communicated our views to the Treasury. However, as a precautionary measure, the Group has also lodged an official claim with the Compensation Tribunal appointed by the State. Further, since our Group is deprived of participating in controlling the financial & operating policies and other relevant activities, the financial statements of PSIP have been deconsolidated from the Group financial statements D. H. S. Jayawardena of DCSL PLC during this year. We hope that some clarity Chairman / Managing Director regarding this untoward situation would be forthcoming during 22 August 2014 the new financial year.
24 Annual Report 2013/14 OUR LEADERSHIP
Distilleries Company of Sri Lanka PLC 25 BOARD OF DIRECTORS
1. 2.
3. 4.
1. Mr. D. H. S. Jayawardena Chairman / Managing Director 2. Mr. R. K. Obeyesekere Non-Independent Non-Executive Director 3. MR. C. R. Jansz Executive Director
4. Mr. N. de S. Deva Aditiya 5. DL, FRSA Independent Non-Executive Director 5. Capt. K. J. Kahanda (Retd.) Executive Director
26 Annual Report 2013/14 6. 7.
8. 9.
6. Mr. C. F. Fernando FCA Independent Non-Executive Director 7. Dr. Naomal Balasuriya MBBS [Sri Lanka], MBA [Sri.J], CIM [UK], MCGP [SL], MSLIM, MIMSL Independent Non-Executive Director 8. Ms. V. J. Senaratne Attorney-at-Law, Notary Public, Solicitor (Eng.& Wales) Alternate Director to K. J.Kahanda / Company Secretary and Chief Legal Officer 9. Mr. Amitha Gooneratne FCA (SL), FCA (Eng.& Wales) Alternate Director to N. de S. Deva Aditiya
Distilleries Company of Sri Lanka PLC 27 BOARD OF DIRECTORS
1. Mr. D. H. S. Jayawardena 3. Mr. C. R. Jansz Chairman / Managing Director Executive Director
Mr. Harry Jayawardena is one the most successful and Mr. C. R. Jansz has many years of experience in logistics in prominent business magnates in Sri Lanka. He was elected the Import / Export field and in Documentation, Insurance, Banking and Finance relating to international trade. Chairman of the DCSL Group in 2006 after serving as its Managing Director for almost two decades. He heads many He is the Chairman of DFCC Bank and a Director of DFCC successful ventures in diversified fields of business. He is the Vardhana Bank. He serves on the Board of Balangoda founder Director and the present Chairman / Managing Director Plantations PLC., Lanka Bell Limited and several other of the Stassen Group of Companies. companies of the Distilleries Group. He is also a Director of Lanka Milk Foods (CWE) PLC. and its subsidiaries.
He is the Chairman of Aitken Spence PLC., Aitken Spence He was the former Chairman of Sri Lanka Shippers Council Hotel Holding PLC., Lanka Milk Foods (CWE) PLC., and former member of the National Trade Facilitation Madulsima Plantations PLC., Milford Exports (Ceylon) (Pvt) Committee of Sri Lanka. Mr. Jansz holds a Diploma in Ltd., Ceylon Garden Coir (Pvt) Ltd., Ambewela Products (Pvt) Banking and Finance from the London Guildhall University – UK. Ltd., Ambewela Livestock Co. Ltd., Danish Dairy Products He is also a Chevening Scholar and a UN-ESCAP Certified Lanka (Pvt) Ltd., Lanka Dairies (Pvt) Ltd., Melstacorp Ltd. Training Manager on Maritime Transport for Shippers. and its subsidiaries; Balangoda Plantations PLC., Browns 4. Mr. N. de S. Deva Aditya Beach Hotels PLC., Lanka Bell Ltd., Periceyl (Pvt) Ltd., DL, FRSA Bogo Power (Pvt) Ltd. and Texpro Industries Ltd. Independent Non-Executive Director
He is a former Director of Hatton National Bank PLC., the Mr. Niranjan Deva Aditya, is an aeronautical engineer, scientist and economist, is a Conservative Member of the largest listed bank in Sri Lanka and former Chairman of European Parliament elected from the SE England. He is Ceylon Petroleum Corporation and SriLankan Airlines. the Vice President of the Development Committee; ECR Coordinator and Conservative Spokesman for Overseas’ Mr. Jayawardena is the Honorary Consul for Denmark and Development and Co-operation. was the only Sri Lankan honoured with the prestigious “Knight’s Cross of Dannebrog’ by Her Majesty, Queen He was the Co Leader of the Parliamentary Delegation to the Margrethe II of Denmark, for his significant contribution to UN World Summit and General Assembly 2006, Chairman the Danish arts, sciences and business life. Working Group A of Development Committee overseeing Asia, Central Asia and Far East; - Co Co-ordinator Assembly of 79 He has also been awarded the title, “Deshamanya” in Parliaments of the EU-ACP 2004 and the President EU India Chamber of Commerce from 2005. In 2012 he stood for and recognition of his services to the Motherland, since came runner up, beating the Liberal candidate into 3rd place November 2005. to be the President (Speaker) to the European Parliament. He was the first Asian to be elected as a Conservative 2. Mr. R. K. Obeyesekere Member of British Parliament, first Asian MP to serve in the Non-Independent Non-Executive Director British Government as PPS in the Scottish Office and first Asian born MP to be elected to the European Parliament. A Director of the Group since 1992, he counts over 35 He was nominated as a candidate to succeed Kofi Annan as years of experience in the export sector of the country. He Secretary General to the UN in 2006. is a Founder Director of Stassen Group of Companies. He is also a Director of Lanka Milk Foods (CWE) PLC., Balangoda He is a Hon. Ambassador without portfolio for Sri Lanka; Plantations PLC., Madulsima Plantations PLC., Periceyl (Pvt) the first Asian to be appointed as Her Majesty’s Deputy Lord Ltd., Melstacorp Ltd., Milford Holdings (Pvt) Ltd., Zahara Lieutenant for Greater London, representing The Queen Exports (Pvt) Ltd., Lanka Power Projects (Pvt) Ltd., Milford on official occasions since 1985; awarded the honour “ViswaKirthi Sri Lanka Abhimani“ by the Buddhist Clergy Exports (Ceylon) (Pvt) Ltd., Lanka Dairies (Pvt) Ltd., Danish for his Services to Sri Lanka and given the Knighthood Dairy Products Lanka (Pvt) Ltd., Ceylon Garden Coir (Pvt) with Merit of the Sacred Constantinian Military Order of Ltd., Milford Developers (Pvt) Ltd., Ambewela Livestock Co. St. George for his global work on poverty eradication. He Ltd., and Pattipola Livestock Co. Ltd. is a Fellow of the Royal Society for Arts, Manufacture and Commerce (Est: 1765).
28 Annual Report 2013/14 5. Capt. K. J. Kahanda (Retd.) 8. Ms. V. J. Senaratne Executive Director Attorney-at-Law, Notary Public, Solicitor (Eng.& Wales) Alternate Director to K. J. Kahanda / Company Secretary and Captain Kahanda joined the Company in 1993 as Regional Chief Legal Officer Manager (Central Region) and was appointed a Director in December 2006. Being a former officer of the Sri Lanka Ms. Senaratne was appointed as the Company Secretary in Army, he spearheaded the re-organisation of the operations 1993. She was admitted to the Bar in 1977 and was enrolled of the Central Region since privatisation. He specialises in as a Solicitor (England & Wales) in June 1990. She also logistics, distribution and security matters, and is also a holds the position as Company Secretary of Periceyl (Pvt) Ltd. Director of G4S Security Services (Pvt) Ltd. and Pelwatte Distilleries (Pvt) Ltd., a subsidiary of the Group. 9. Mr. Amitha Gooneratne FCA (SL), FCA (Eng.& Wales) 6. Mr. C. F. Fernando Alternate Director to N. de S. Deva Aditya FCA Mr. Amitha Gooneratne has held several senior positions at Independent Non-Executive Director Commercial Bank of Ceylon PLC. and served as the Managing Mr. Fernando, who previously served as the Managing Director and Director from 1996 to April 2012. He is a Fellow member as Chief Executive Officer of Distilleries Company of Sri Lanka of The Institute of Chartered Accountants, United Kingdom PLC., rejoined the company as an Independent Non-Executive and Wales and a Fellow member of The Institute of Chartered Director in 2008. He is the Chairman of the Audit Committee Accountants, Sri Lanka. He was the Founder Chairman of the Financial Ombudsman Sri Lanka (Guarantee) Ltd., and also serves on the Remuneration Committee. Qualified as a and former Chairman of the Sri Lanka Banks’ Association Chartered Accountant from the Institute of Chartered Accountants (Guarantee) Ltd. He was the former Chairman of the Sri of England and Wales, he is also a Fellow of the Institute of Lanka Banks’ Association (Guarantee) Ltd. He was also the Chartered Accountants in Sri Lanka. Mr. Fernando is a Director of Managing Director of Commercial Development Company DCSL subsidiary Melstacorp Ltd. and Continental Insurance Lanka PLC., a Public Quoted Company listed in the CSE and was Ltd., where he serves as the Chairman of the Audit Committee. the Chairman of Commercial Insurance Brokers (Pvt) Limited. He counts over 18 years of experience in financial and general He was also nominated to the Board of SriLankan Air Lines management of plantation companies and agency management during 2002–2004 by the Government of Sri Lanka. as Senior Accountant at Carson Cumberbatch & Co. Ltd., followed by 10 years experience as Director - Finance in Projects involving On his retirement, Mr. Gooneratne, assumed duties as paddy cultivation, shipping agency, nontraditional exports, bottling Managing Director of Melstacorp Ltd., which is the strategic investment arm of the Distilleries Company of Sri Lanka of soft drinks, earth moving contracts. He is presently a Director of PLC. He is the Chairman of Melsta Regal Finance Ltd. and Selinsing PLC. and Equity Three (Pvt) Ltd. of the Carsons Group. Melsta Logistics (Pvt) Ltd., Board member of Periceyl (Pvt) He was once Finance Director of the National Lotteries Board, a Ltd., Balangoda Plantation PLC., Lanka Bell Ltd., Telecom Director of the Coconut Cultivation Board and a former Chairman of Frontier (Pvt) Ltd., Bell Solutions (Pvt) Ltd., Bellvantage Low Country Products Association (LCPA). Until 30th June 2014 (Pvt) Ltd., Timpex (Pvt) Ltd., Texpro Industries Ltd., Bogo he was a Senior Trustee of the Ceylonese Rugby and Football Club. Power Ltd., Continental Insurance Lanka Ltd., and Browns Beach Hotels PLC., which are subsidiary companies of 7. Dr. Naomal Balasuriya Melstacorp Ltd. MBBS [Sri Lanka], MBA [Sri.J], CIM [UK], MCGP [SL], MSLIM, MIMSL He is the Alternate Director to Mr. N. de S. Deva Aditya on Independent Non-Executive Director the Board of Aitken Spence PLC. Dr. Naomal Balasuriya, a medical doctor turned- He is an Independent Director of Textured Jersey and Lanka entrepreneur is internationally sought after as a life changing IOC. He is also a Director of Commercial Development motivational speaker. His professional expertise ranges from Company PLC. medicine, military, management, marketing, mentoring to motivational speaking. He holds both the Master of Business Administration (MBA) and CIM (UK) qualifications. Having worked in the government sector, private sector and the Sri Lanka Air Force as a medical doctor, he now leads his entrepreneurial training company, Success Factory. He is also a Director of Melstacorp Ltd., a subsidiary of the Group. Distilleries Company of Sri Lanka PLC 29 GROUP MANAGEMENT
1. 2.
3. 4.
5. 6.
1. Amitha Gooneratne: Managing Director - Melstacorp Ltd. / Chairman - Melsta Regal Finance Ltd., Melsta Logistics (Pvt) Ltd., Bellvantage (Pvt) Ltd., Melsta Tower (Pvt) Ltd. / Director - Continental Insurance Lanka Ltd., Periceyl (Pvt) Ltd., Lanka Bell Ltd., Texpro 7. Industries Ltd., Bogo Power (Pvt) Ltd. 2. Capt. Jagath Kahanda (Retd.): Managing Director - Pelwatte Sugar Distilleries (Pvt) Ltd. / 5. Asoka Abeyewardene: Director - Distilleries Company of Sri Lanka PLC, Melstacorp Director - Continental Insurance Lanka Ltd. Ltd., Pelwatte Sugar Industries PLC, Melsta Properties (Pvt) Ltd., Milford Holdings (Pvt) Ltd. 6. Capt. Ranjith Wettewa SLN (Retd.): Director - Pelwatte Sugar Industries PLC. 3. Ms. Stasshani Jayawardena: Chairperson - Splendor Media, Director - Aitken Spence PLC 7. Maximus R. Peries: CEO - Distilleries Company of Sri Lanka PLC / Director - Pelwatte 4. Lalith Obeyesekere: Sugar Industries PLC, Lanka Bell Ltd., Melsta Logistics (Pvt) Ltd., Director / CEO - Balangoda Plantations PLC, Madulsima Melsta Tower (Pvt) Ltd. Plantations PLC
30 Annual Report 2013/14 8. 9.
10. 11.
12. 13.
8. Senaka Amarathunga: Director / General Manager - Periceyl (Pvt) Ltd. 9. Dinal Peiris: Managing Director - Texpro Industries Ltd. 14. 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. Ms. Farzana Sulaiman: Chief Operating Officer - Bellvantage (Pvt) Ltd.
Distilleries Company of Sri Lanka PLC 31 DCSL MANAGEMENT
1. 2.
3. 4.
5. 6.
1. Maximus R. Peries : Chief Executive Officer 2. Maj. Gen. Siri Peiris (Retd.) : Head of Southern Region 3. Capt. Ranjith Wettewa SLN (Retd.) : Head of Uva Region 4. Ms. V. J. Senaratne : Company Secretary & Chief Legal Officer 5. S. Rajanathan : Head of Procurement 6. Maj. Roshan Cabraal (Retd.) : Head of Northern Region
32 Annual Report 2013/14 7. 8.
9. 10.
11. 12.
7. Premasiri Liyanaarachchi : Chief Internal Auditor 8. Ms. Gayathri Chakravarthy : Head of Human Resources 9. Nimal Nagahawatte : Head of Finance 10. Roshanth Kumar Perera : Head of Transport & Logistics 11. Brig. Aruna Wijewickrama (Retd.) : Head of Central Region 12. Lalith Ratnayake : Head of Inventory Management
Distilleries Company of Sri Lanka PLC 33 34 Annual Report 2013/14 conditions prevailing in the local alcoholic beverage sector, DCSL Group manages one in addition to the rising cost of living trends in the economy. of the Sri Lanka’s most Since DCSL and the alcohol business accounts for the majority of the Group revenue, the rapidly shrinking successful diversified legal alcohol industry is adversely affecting the overall performance of the Group; thus reducing revenues for the portfolios spanning tax authorities. However, our century-old reputation and beverages, plantations, reliable operations as the market leader in the industry telecommunication, insurance, finance, power Group generation, textiles, leisure, logistics and media & creative services, thus making 20.41 178.79 Earnings Net Assets a substantial contribution to per Share (Rs.) per Share (Rs.) the national exchequer... MANAGEMENT DISCUSSION & ANALYSIS
DCSL Group manages one of the Sri Lanka’s most successful have earned us a loyal customer base, which ensured our diversified portfolios spanning beverages, plantations, products prevailed as the most preferred brand for discerning telecommunication, insurance, finance, power generation, customers during the year. textiles, leisure, logistics and media & creative services, thus making a substantial contribution to the national The other diversified sectors of the Group succeeded in exchequer and cementing its credentials as one of the most heightening brand awareness for Melstacorp Group of dynamic and diversified group of companies in this century. companies. The period under review, witnessed greater effort Commanding a presence of over 100 years, DCSL leverages across this sector to build the Melsta brand as a powerhouse. on superior systems and processes coupled with visionary Profitability in the year under review was however weighed leadership and a committed team of employees to deliver down by recent investments which are yet to yield returns. maximum returns to its stakeholders. Melsta Regal Finance Limited, which commenced operations in October 2012, is steadily carving a niche for itself while Group Overview spreading its network around the country. Our insurance Over the last 12 months the global economy has offered venture, Continental Insurance is slowly taking shape with a little or no relief from numerous challenges that beset the new infusion of capital in July 2014. The Group has made world of business. Our flagship Company which is engaged investments in the Beverage sector for enhancing efficiency in the alcohol beverage was impacted by some unfavourable and quality by installing an ultra-modern blending &
Distilleries Company of Sri Lanka PLC 35 MANAGEMENT DISCUSSION & ANALYSIS
“DCSL Group remain committed to generate prosperity in the communities in which it operates. As a market leader in the beverage sector and one of the most profitable groups in the county, we take it upon ourselves to drive social and environmental sustainability, apart from fulfilling our economic responsibility to our stakeholders..” Gross Turnover - Group bottling plant. The Group firmly believes that these futuristic Rs. Mn investments will pay off in the coming years.
The expropriation of Pelwatte Sugar Industries PLC (PSIP), 2014 2013 under the Revival of Under-performing Enterprises and 53,136 56,479 Beverage Sector Underutilised Assets Act (Act) in November 2011 remained 3,634 2,780 Plantation Sector unresolved during the current financial year. We have not 3,172 3,997 Telecommunication Sector changed our stand that we are the legal owners of PSIP, 3,244 2,534 Diversi ed Sector although the company was listed as an underutilised asset 64,186 65,790 in the Act. Since our Group is deprived of participating in controlling the financial & operating policies and other relevant activities, the financial statements of PSIP have been de-consolidated from the Group financial statements paid as per the Supreme Court directive, will be reimbursed to during this year. We hope some clarity regarding this untoward us at the earliest. situation would be forthcoming within the new financial year. The Group’s gross revenue recorded at Rs. 63.2 Bn in the Further, with regard to Sri Lanka Insurance Corporation Ltd. current year. The Group’s profit before tax was Rs.9.5 Bn and (SLIC), even after a lapse of Five years we still await the recorded a profit after tax of Rs. 6.2 Bn. The contribution payment of profit earned during the DCSL Group’s tenure at to total revenue from the alcoholic beverage sector was Rs. the helm of SLIC. We are hopeful that the profit earned be 53.1 Bn and continues to be the largest contribution to the bottom line. The Group plantation interest, contributed
36 Annual Report 2013/14 Overall, the DCSL Group remain committed to generate prosperity in the communities in which it operates. As a market leader in the beverage sector and one of the most profitable groups in the county, we take it upon ourselves to drive social and environmental sustainability, apart from fulfilling our economic responsibility to our stakeholders. We continuously engage closely with our key stakeholders in order to mitigate any adverse effects on the Group’s bottom line.
Beverage Sector The year under review was most challenging for the Company as well as for the entire industry. Excise figures for 2013 revealed a decline in the hard liquor sector by 11% in comparison to 2012. One of the main causes for this has been a leakage of tax unpaid liquor which is supplied, non-invoiced, to wine stores at prices approximately 30 to 40 percent lower than the labelled price. With the excise duty & VAT component being over 65%, it is impossible for legal producers to be competitive in such markets. A high tax regime and the rising cost of living have been forcing consumers to opt for cheaper products, despite poor quality. Our consistent performance, in the face of growing challenges to the legal alcohol industry is an indication of the high quality and consumer trust in our brands. Despite low priced alcohol flooding the market, we continue to see encouraging loyalty by discerning customers Pro t Before Tax - Group who appreciate the quality standards we maintain and the Rs. Mn consistent bouquet of our products.
2014 2013 Further, high tax regime encourages illegal producers to 8,027 6,34 9 Beverage Sector earn bigger profit within a short period of time at a very high 130 110 Plantation Sector social cost. On the other hand, sale of tax unpaid liquor leaks (639) (150) Telecommunication Sector revenue which would otherwise go into the State coffers. In 536 484 Diversi ed Sector contrast, DCSL Group pays all taxes as per the laws of the 1,440 1,29 2 Share of Pro t of Equity Accounted Investees land, making the Group one of the largest contributors to 9,494 8,084 State revenue. We must also emphasise that, unlike most businesses, we are unable to advertise to build market awareness and brand value. Therefore, our ongoing success a revenue of Rs. 3.6 Bn, telecommunication Rs. 3.2 Bn can be attributed to our management skills and consumer and diversified businesses Rs. 3.2 Bn. Share of associate loyalty. investees contributed Rs. 1.4 Bn to the Group’s profitability. The Group’s total assets increased to Rs. 83.7 Bn from Rs. DCSL remains the flagship Company and the highest revenue 78.5 Bn and the net assets per share rose to Rs 178.8 from generator for the Group. During the current financial year, Rs.159.9. The market price per share gained by 22% during both DCSL and Periceyl continued to maintain profitability the year, stood at Rs. 203 at the end of March 2014. despite the challenges posed to the legal alcohol business in the country as a result of a skewed playing field.
Distilleries Company of Sri Lanka PLC 37 MANAGEMENT DISCUSSION & ANALYSIS
Gross Turnover - Beverage Sector Pro t Before Tax - Beverage Sector such as treasury, finance, audit and control and human (Rs.Mn) (Rs.Mn) resources, were put in place. We will continue our efforts to strengthen shared services and build a common brand under 56,479 53,137 the “Melsta” umbrella. Melstacorp is trying to combine 8,027 the Group companies’ synergies in a manner that optimum 6,349 resource utilisation and financial benefits can be accrued. In time to come Melstacorp is expected to emerge as a diversified conglomerate to enhance the contribution from the non-alcohol sector whilst reducing the Group’s over- reliance on the alcohol sector.
2012/13 2013/14 2012/13 2013/14 Plantation Sector The plantation sector recorded an improved performance over Gross turnover of DCSL was recorded at Rs. 47.8 Bn. DCSL the previous year. Despite adverse climatic conditions and a recorded profit after tax of Rs. 5.4 Bn as against profit after wage increase of estate labour that came into force during tax of Rs. 6.9 Bn in previous year. Noteworthy to mention, the year. Balangoda Plantations PLC (BPL) recorded a pre- the beverage sector contributed Rs. 37.3 Bn to the State by tax profit of Rs.129.72 Mn at the end of the financial year way of taxes. attributed to attractive tea prices. As a result, the turnover of the Company increased from Rs. 2.8 Bn in 2012 to Rs. 3.2 Periceyl, was successful in enhancing its leading brand Bn in 2013 marking a growth of 14.28%. positions recording a revenue growth of 11%, while sustaining its profitability. This was achieved despite the However, the Company rubber production recorded a drop of downturn in the industry, due to the immense contributions 17.28% in 2013, as a result of adverse weather conditions, of the brands, Black Opal Arrack, Franklin Brandy, Galerie an increase in cost of production mainly due to wage Brandy and Tillsider Whisky. increase exacerbated with the decline in auction prices. BPL continued to invest in the plantation sector through Future Outlook development projects and crop diversification. A total of Rs. 393.3 Mn was injected into field development, plant and DCSL expects to reap dividends from the installation of the machinery, worker housing, community infrastructure and ultra-modern blending and bottling factory which will soon be other development projects. New planting was undertaken in running to full capacity. Meanwhile, our R&D team perseveres 226.9 hectares in the Balangoda and Badulla regions. in innovating new products to ensure that our products evolve and change with the times. Periceyl will explore new ventures to cater to the increasing demand of the tourist industry with wide varieties of wines and spirits. Further, we are hopeful that the authorities will exert greater control to curb the sale of illegal liquor for the benefit of the consumers.
Melstacorp Limited As part of our Group restructuring plan, DCSL shareholdings of subsidiaries and associates were realigned to Melstacorp Limited, enabling Melstacorp to provide greater focus and attention to the diversified investments of the DCSL Group. Thus Melstacorp has 14 subsidiaries (direct / indirect) and 2 associate companies under its wing.
In line with the Group’s philosophy, several steps were taken to build Group culture and strengthen the shared services structure. Some of the key areas of the shared services 38 Annual Report 2013/14 Gross Turnover-Plantation Sector Pro t Before Tax -Plantation Sector Gross Turnover-Telecommunication Pro t/(Loss) Before Tax-Telecommunication (Rs.Mn) (Rs.Mn) (Rs.Mn) (Rs.Mn) 3,997 3,634 130 3,172 110 (639) 2,780
(150)
2012/13 2013/14 2012/13 2013/14 2012/13 2013/14 2012/13 2013/14
We are proud to note that various grades of tea, manufactured One of the highlights of the financial year was that Lanka by Pettiagalla, Glen Alpin, Meddakande, Balangoda, Bell commenced rolling out its 4G LTE network in line Cecilton, Nonpareil, Telbedde, Palmgarden, Ury, Wewesse with its planned schedule. The initial lot of eNodeBs (base and Spring Valley Estates, obtained all island top prices on stations) was commissioned in December 2013 and the 201 occasions, at the Colombo Tea Auctions. Various grades Company immediately began test marketing its 4G services. of rubber, from Mahawela, Millawitiya, Rambukkande and Following a successful test run, Lanka Bell formally launched Galatura Estates, obtained top prices on 58 occasions. its 4G connectivity in February 2014 to coincide with the celebration of Sri Lanka’s 66th Independence anniversary. Future Outlook The future for the plantations sector is encouraging although Lanka Bell operates its 4G LTE network on a bandwidth the BPL’s performance hinges on favourable weather of 25 MHz in the 2.3 GHz spectrum called the LTE Band conditions. Extension of the fertilizer subsidy and its number 40, which is the most sought after band in the Asian availability will further play an important role in an industry region. LTE technology offers faster data rates to customers beset by aging bushes and depleted soils. and is the current trend and future of the ICT (Information and Communication Technology) industry. This is yet another Telecommunication Sector quantum leap into the future of wireless telephony and Despite the rise of operational costs during the year, the connectivity for Lanka Bell, the pioneers who introduced the Group’s telecommunication arm was able to sustain a revolutionary CDMA technology to Sri Lanka in 2005. reasonable EBITDA margin in line with the industry average. Future Outlook Further, revenue generated from the FLAG undersea cable showed an encouraging growth compared to the previous In the year ahead new strategies are in place to reduce costs year. The growth in data revenue had also strengthened and improve revenues. Lanka Bell presents a rich portfolio during the year. of value-added high speed broadband and voice services at unbeatable rates to its customers across the country; ably supported by a dedicated team of professionals with international expertise and local knowledge and strategic investments in low-cost cutting edge technology. The growth in data revenue has encouraged us to continue to expand our presence in this segment, since growth in voice related services is reaching saturation point. The adoption of the new technology at an early stage, puts Lanka Bell in a favourable position for future growth and
Distilleries Company of Sri Lanka PLC 39 MANAGEMENT DISCUSSION & ANALYSIS
will help to build the business further. Data is the future of CILL has comprehensive reinsurance arrangements to ensure the telecommunication industry and by equipping itself with the Company’s risks are effectively managed in collaboration the right technology at the right time. Lanka Bell will focus on with world renowned re-insurers such as Swiss Re, Lloyds, cornering greater market share of the data market as it is one of General Insurance Corporation of India, Malaysian Re, Best Re, only two operators in the country to have a 4G-LTE Network. Hannover Re.
Diversified Sector CILL introduced an Android mobile application to all technical Gross Turnover - Diversi ed Sector Pro t before Tax - Diversi ed Sector assessors to facilitate efficiency in the processing of claims. In (Rs.Mn) (Rs.Mn) addition, payments of premiums online were also introduced 484 3,244 461 in order to cater to the growing market of online users and thereby giving customers an enhanced service with greater 2,534 convenience and ease.
Based on the changing insurance landscape within Sri Lanka, Continental Insurance aims at providing a unique experience both in terms of products made available to target segments as well as services rendered during the execution of sales/
2012/13 2013/14 2012/13 2013/14 support operations. The focal point of Continental Insurance is on the high levels of service backed by a diversified local Insurance conglomerate to ensure customer confidence in the brand’s Continental Lanka Limited (CILL) recorded a Gross Written value proposition and thereby living up to its promise of Premium (GWP) of Rs. 1.4 Bn during the year 2013. CILL providing a “Service, Redefined.” secured a 2.7 % share of the General Insurance market. Motor Insurance premiums contributed 65% to the GWP of Financial Services the Company, while other non-motor insurance premiums The Group’s newest member, Melsta Regal Finance Limited recorded the balance percentage. achieved several milestones in its first year of operation - with the lending portfolio and the equity base of the Company The network of CILL consisted of 30 branches as at 31 exceeding Rs 1.0 Bn. Since its inception, the Company December 2013, strategically placed around the country, managed to achieve a continuous trajectory of growth, whilst including in the North and East. CILL was very successful in maintaining consistent profitability levels in a business securing business during 2013 including major power plants, environment of low credit growth. The Company did not international cricket stadiums, local and international hotel compromise on credit quality in achieving portfolio growth chains, aviation and major conglomerates in the country. and possesses one of the lowest NPA ratios in the non-bank financial services sector.
In response to the Central Bank of Sri Lanka (CBSL) financial sector consolidation plans, Melsta Regal Finance enhanced the stated capital by Rs. 650 Mn to Rs 1.35 Bn, making the company compliant with the capital adequacy requirements of CBSL up to 2016. Melsta Regal Finance continues to settle dues owed to customers of the erstwhile failed finance company before its takeover by the Company.
In its first year of operations, Melsta Regal Finance strived to create a niche in an intensely competitive and crowded financial services market. It positions itself as a financial 40 Annual Report 2013/14 to expand its reach by widening its geographical presence to five in key outstation locations, to cater mainly to the SME sector. Melsta Regal Finance will concentrate on strengthening and consolidating its position further, while complying with the Central Bank’s recommendation for finance companies to consider mergers and acquisitions to improve the health of the finance sector as a whole.
Power Generation As a policy of the Company to contribute towards the improvement and the preservation of the environment for posterity, Bogo Power (Pvt) Ltd was formed to set up a Mini Hydro Plant. We are elated to state that Bogo Power exceeded services specialist, offering the flexibility of a finance company performance forecasts during the period under review. During coupled with the versatility of a bank. As a result, the the last two financial years, the project generated 16.2 GWH Melsta Regal Finance has a diversified portfolio of lending, and 21.1 GWH respectively exceeding the projected average encompassing short to medium term lending, thereby, annual energy value of 15.2 GWH. This project is set up at successfully differentiating itself from other industry players, Kirkoswald Group, Bogowantalawa on land which has been whose lending portfolios consist predominantly of leasing and leased out from Madulsima Plantations PLC, an associate of hire purchase facilities. DCSL Group.
The key focus of the financial year 2013/14 was market Bogo Power is registered with the Board of Investment of Sri expansion and product development. The geographical foot Lanka (BOI) and the necessary approvals have been obtained print of Melsta Regal Finance expanded its presence to the from the Sustainable Energy Authority of Sri Lanka and the key cities of Kurunegala, Matara, Kandy and Negombo. The Public Utilities Commission of Sri Lanka. A Power Purchase first Premier Centre was set up in Kandy with the objective of Agreement has been entered into with the Ceylon Electricity offering value added services such as a vehicle trading hub in Board for the sale of electricity generated for a period of 20 collaboration with Melsta Logistics Limited. years.
Melsta Regal Finance introduced several new financial The project was fully commissioned in December 2011 and the products leveraging on the strengths of the Group. A novel power capacity of the project is 4 MW. The project is dependent product to the market known as the “360° Trade Finance” primarily on the rainfall in the catchment area of the project facility, which finances the entire working capital cycle of a and secondly on the efficient functioning of the machines. The business, has gained momentum. This facility encompasses energy generated by the hydro power project can be transmitted a gamut of financial services consisting of opening of letters to the CEB only if the transmission line is live, therefore of credit, post shipment financing, factoring and other value breakdown in the transmission line of the CEB due to falling adding services such as clearing, warehousing and debt of trees on the line, short circuiting of the line etc play an collection services. important role in the overall performance of the project.
Future Outlook Collision Repair & Logistics Differentiation and specialisation in key products, The Collision repair centre at Melsta Logistics sustained its characterised by a wide product range, are lending the Melsta market position by focusing on business lines that are created Regal Finance an edge over competition and enabling it to by the related companies for both internal and external clients. capture a market share. Melsta Regal Finance has planned Collision repair centre’s unique selling proposition of cutting
Distilleries Company of Sri Lanka PLC 41 MANAGEMENT DISCUSSION & ANALYSIS
edge technology, machinery, equipment and unparalleled Business Process Outsourcing know-how on treating vehicles based on the manufacturer’s Bellvantage is a leading BPO which focuses on providing Technology, specifications, has helped differentiate Melsta Logistics from its Consulting & Outsourcing Solutions. It was incorporated in 2008 competitors. The newly formed logistics operation contributed to enable domestic and offshore companies to leverage and add greatly towards the profitability of Melsta Logistics during the value to their business operations. With the assistance of various current financial year. Melsta Logistics is anticipating expanding front-end and back-end non-core functions, employers are able to this facility beyond the Group, while investing in latest focus on core business activities. Relying on our strong collaborative technology in order to increase the efficient usage of vehicles. partnerships with associates and employees to economise business activities, enabled our clients to benefit through optimised Textiles information technology and skill enabled outsourced services; we Texpro Industries Limited, the Group’s textiles arm, performed posted a robust performance during the year under review. better on the back of improved business confidence globally and a pickup in the source markets of the West. Demand for Through the period under review, Bellvantage strengthened its high-quality woven fabrics, which had fallen significantly since excellent track record of e-engineering processes and innovative 2008 is now starting to pick up especially for high end export thinking to increase productivity and efficiency. Bellvantage’s core and local consumption. Well-known international/European strengths lie in its well-positioned Contact Centre and Information brands such as Marks & Spencer, Next, George, C&A, Matalan, Technology Solutions services. The Contact Centre offers a host etc., appear to be buying more garments manufactured from Sri of services, including Outsourced Call Centre, Messaging, Data Lanka, which is an encouraging sign. Entry and Custom Solutions for our clients’ back office needs. Beyond industry-based efficiencies, the Contact Centre as a whole During the year under review, sales volumes increased by 30% is optimised by our continuous expansion into existing and new with significant improvements to gross profit margins arising accounts. We are proud of our track record of having most of our from better pricing, cost savings and the initial savings on clients renew their service contracts. Furthermore, we delivered energy due to the biomass thermic fluid heaters, which were premier Customer Relationship Management (CRM) solutions, commissioned in December 2013. considerably improving Customer experience of our clients in Future Outlook the most demanding of industries. In the coming year, the Company’s results should reflect the Future Outlook full effect of the biomass conversion which we expect to reduce Our retinue of best practices, process maturity, skilled workforce the existing energy cost by 30%. Further, Texpro continues and professional experience empowers us to provide efficient to convert more of the fossil fuel consuming equipment to and effective operations that empower our clients to grow biomass, which will further reduce operating cost and enable and optimise their business, while maintaining lower cost of Texpro to be competitive in pricing, with regional players. business operations. We aim to strengthen these competencies.
42 Annual Report 2013/14 Leisure continued its strong growth during the period under review, Taking inspiration from the boom in infrastructure construction, garnered new business by way of external clients outside of the the increased influx of tourists and the bright prospects for the group, in addition to the vast number of existing group clients. local tourism industry, the erstwhile Browns Beach Hotels PLC The agency was initially established as a media buying body for underwent a complete reconstruction and will be re-launched as the DCSL Group and has since evolved to meet the demands of Heritance Negombo during the financial year 2014 -15, offering the ever-changing silhouette of modern day advertising outside unparalleled luxury and a bespoke holiday experience. The of the Group. Splendor Media remains committed to introducing increased economic activity in the country is making Sri Lanka advanced creative trends to the local advertising arena the hub of the region, with Negombo’s attractiveness being its Future Outlook proximity to the international airport, its sun-kissed beaches and While continuing its strategy of adopting a measured approach rich culture offering both business travellers and tourists a slice to achieving corporate objectives in the coming year, Splendor of Sri Lanka. Heritance Negombo is located on the picturesque Media covers the entire 360˚ aspect in advertising - with public beachfront; the hotel boasts 143 rooms and suites, banqueting relations, events and activation as well as digital marketing as facilities, a spa, restaurants and bars. it takes steps towards becoming one of Sri Lanka’s foremost full Future Outlook service advertising agencies. Browns Beach Hotels PLC expects the new property to accrue dividends from the next tourist season from the time it opens for business in the 2014 /15 financial year, judging by the overwhelming response to the opening of the property by overseas tour operators. The ‘Heritance’ brand of luxury is legendary amongst the Company’s partners and guests and this latest property will heighten the signature bespoke experience.
Media & Creative Services Increased economic activity and favourable market conditions combined to create a conducive atmosphere for the business of advertising in the country. The Group’s creative and Media agency, Splendor Media, marked another successful year amidst the rigid competition in the advertising industry by providing the most strategic solutions to customers which stood out for their dynamism and innovative approach to creativity. The agency
Distilleries Company of Sri Lanka PLC 43 SUSTAINABILITY REPORT
Touching Lives State Distilleries Corporation was incorporated by statute to Our Sustainability Motto in Action take over this role. In 1989, the state agency was converted to a limited company and DCSL took on the mantle of a pioneer We understand that, globally, stakeholders at large are in distillation and is now positioned as the largest distiller in demanding that companies they associate with demonstrate the country. non-financial metrics to define sustainability and sustainable operations. Financial profitability as the sole criteria of a DCSL is quoted on the Colombo Bourse since 1992 and is a company’s success is an outdated concept and outrightly modernised entity, working on a sophisticated knowledge base rejected by most right-thinking stakeholders and the built on technology, experience, skill and acumen. Its large organisations they support. More importantly, being investments in R&D, infrastructure, plants and machinery and an environmentally, economic and socially sustainable the diversification into key economic sectors in the country, organisation is helping companies earn corporate respect and places DCSL today unequivocally as an industry captain and drive customer loyalty, not to mention earning respect from one of Sri Lanka’s blue chip conglomerates. peers and industry. In an era of growing global competition, climate change and diminishing resources, companies that DCSL’s business areas are diverse and penetrative, ranging put sustainability as their foremost goal are winning the race. from hospitality to telecommunication, BPO to textiles, plantations to hydropower and insurance to finance and its As one of the oldest, diversified, blue chip conglomerates largest and most influential business contributor – beverages, in existence in Sri Lanka, we are living proof of continuous encompassing alcohol. improvement and sustainable business practices. While we celebrate over-a-century of existence in the year 2014, we Significant Event during the Reporting Period consider this an opportunity to strengthen our conceptions The global rating agency, Fitch, reaffirmed DCSL’s National of business practices that are environmentally and socially Long-term Rating of AAA (lka) with a Stable outlook. This sustainable, while also being financially sustainable, the key is the best and highest entity credit rating for a corporate in requirement of any commercial entity. Sri Lanka. Today, DCSL remains one of the most preferred corporate among bankers, overseas lenders, suppliers In our journey over the decades within the corporate arena and stock analysts. In fact, consequent to the rating of Sri Lanka, an overarching tenet has always been to ensure announcement, DCSL was able to significantly reduce its that our decisions, actions and impacts are sustainable interest costs. and positive at all times. We are extremely cognisant that as a corporate steward involved in numerous business and Report Scope industry areas, we must set an example to others, while making our stakeholders a part of our journey of progress. We believe that we have a responsibility towards our stakeholders to ensure that they are given a clear insight In this Sustainability Report, we set out the measures into how we have managed their business and how we we take to ensure that sustainability is infused along the intend to work in the future. This, therefore, is our honest length and breadth of our value chain. Simultaneously, we effort in sustainability reporting. While we do know that continue to invest time and resources in understanding how this report is work in progress and requires to be developed we can enhance our proud track record as one of the most comprehensively, this attempt helps us to put our results, sustainable organisations in the country. both positive and negative, down on paper and work on plans that would ensure that our presence as a corporate leader will The DCSL Story surely be advantageous to all our stakeholders. The report History, Ownership and Legal Framework presents a balanced analysis of our sustainability performance strategy in relation to issues that are relevant and material to The roots of DCSL hark back to 1913, when the Excise the Company and to our stakeholders, while complementing Department of Ceylon, which was originally established as our ongoing engagement with stakeholders. an enforcement authority, was mandated to distribute and sell liquor in Sri Lanka and also began the distillation and This report focuses on key developments and includes only manufacture of liquor products. Much later, in 1974, the the most pertinent indicators in order to provide stakeholders
44 Annual Report 2013/14 with an integrated and succinct view of our sustainability in any matter being discussed, they will abstain from opining, performance. Unless otherwise indicated, facts and figures discussing and voting, all of which could influence the outcome. refer to the DCSL Group. Sustainability in our business is built This avoids conflict of interest and ensures independence of the on natural capital, social capital and economic capital, all of Board. which must be taken together rather than in isolation for a true picture of sustainability. It is these capital segments that DCSL has established a governance structure that remains run through as themes of this report. aligned to the laws of the land and ensures compliance to various regulatory mandates. The governance structure therefore Materiality includes committees responsible for specific tasks and setting Having embarked on this sustainability reporting process, strategy and future direction for the Group. The Board structure we must confess that in documenting the necessary areas, and committees are detailed on page 57 in this report. we may not yet have a clear idea or focus on the extent of DCSL’s Board comprises Seven Directors (3 Executive, 3 materiality involved. However, we have focused on earmarked Independent Non-Executive, 1 Non-Independent areas and platforms that have formed the foundation for our Non-Executive), meeting regularly to map strategy and for sustainability programme and hence, we have used those as speedy decision making which require Board intervention. The the guideline to report on the arising issues. We have also Board sub committees are a vital conduit in identifying and been able to identify shortcomings and gaps in data gathering, managing economic, environmental and social performance, which is now being documented and acted upon to ensure including relevant risks and opportunities, as well as that we bridge those gaps in future. We initially garnered compliance. the information from all our business sectors on a common questionnaire and began mapping the categories that were Ongoing Board education is an imperative at DCSL to ensure most common. Once charted, the categories were placed in that Directors remain abreast of all applicable legislation perspective and we were able to consider the materiality of our and regulations, changes to rules, standards and codes, as findings, positioning them in priority order and only focusing well as relevant sector developments, which could potentially on those that our stakeholders felt were crucial or important. impact the Group and its operations. During the year, all Reporting Period Board Members and Committee Members were reviewed for compliance with the Colombo Stock Exchange requirements for This report supports the DCSL Group’s Annual Report and a listed company. presents our sustainability performance for the year ended 31 March 2014. It covers company activities, including the The DCSL Sustainability Approach subsidiaries’ reporting period (for example, fiscal/calendar Vision year) for information provided 01 April 2013 to 31 March 2014. Data measurement techniques and the bases of To be an industry leader who will practice the tenets of calculations applied for compilation and other information in a ‘green company’ and be upheld as a true proponent of the report is disclosed wherever applicable. We invite feedback sustainable development. from our stakeholders on this report and the way we approach Mission our sustainability priorities in order to continue improving our performance, transparency and accountability practices. To truly ‘walk the talk’ in becoming green and espouse upward momentum for people, planet and profit Governance, Commitments and Engagement Board of Directors Philosophy • Infusing innovation, value addition, quality and service Collectively, the DCSL Board has significant corporate excellence to give our customers the best acumen, skill, knowledge and experience aided by astute and knowledgeable support and information from senior • Create a knowledge gaining culture where our team management and external specialists when the need arises to grows and develops as individuals, while honing the be sufficiently informed and be independent. Board governance entrepreneurial spark to contribute towards macro ensures that the Group discloses related party transactions development periodically and if any director has a direct or leading interest Distilleries Company of Sri Lanka PLC 45 SUSTAINABILITY REPORT
• Continue giving our shareholders the confidence and The Framework trust that we will always do what’s best, thus ensuring The DCSL Sustainability Framework, which incorporates our consistent growth in shareholder value and returns Sustainability Philosophy, Policy and Principles, articulates our strategic commitment to sustainable development and • Make our planet healthy and green by contributing remains integral to risk management. This framework assists social dividends that will translate towards sustainable our stakeholders in imbuing a similar sustainability approach, development for society and the environment promotes sound environmental and social practices, encourages transparency and accountability, and contributes to positive • Ensure that everything we do will always keep us ahead development impacts. We ensure that this framework reflects and at the helm, collating the facets of economic, good practice for sustainability and risk mitigation, keeping social and environmental features into our business abreast with trends that bring up challenging issues, which dimensions. We integrate this three-pronged approach to remain at the core to managing a sustainable business. These sustainability, so that the journey with our stakeholders include supply chain management, resource efficiency, climate will remain one in which we grow together, forging and change and human rights. strengthening long-term relationships.
Sustainability Policy Key Challenges and Opportunities Risks and challenges go hand in hand in the business of Our Sustainability Policy is based upon the following principles: running an organisation, whether the risk may be from • We will continue to comply with and exceed wherever environmental problems, social discontent, political and social practicable, all applicable and related legislation, unrest and even natural disasters. These can be termed costly, regulations and codes of practice have negative publicity, threaten operating frameworks and • We will integrate the principles and tenets of sustainability also prompt unforeseen expenditure. Reputational damage too into all our business decisions can far exceed the immediate cost impacts. While we seek to proactively reduce and manage these risks, challenges have • We will strive to minimise any negative impacts that may never been a deterrent for us at DCSL; rather, they have been ensue while engaging in our day to day activities a means of directing us towards opportunity and improving business performance over time. These opportunities have • We will integrate a sustainability mind-set among our team, driven us to enhance business growth, while ensuring that we making them fully aware of our sustainability policy and remain within compliance benchmarks, while ensuring that our empower them with a sense of ownership and commitment stakeholders are empowered and remain inclusive to our end to implement, practice and improve it goal. Over the year, we identified some challenges and risks • We will cascade our Sustainability Policy among our valued that eventually saw an opportunity emerge, and which, through business partners, encouraging them and assisting them to the inherent pragmatic and astute business acumen possessed adopt sound sustainable management practices within DCSL, was transformed and included into the strategic way forward of the Group. • We intend to review and annually report and to continually strive towards improving our sustainable performance Stakeholder Engagement We are extremely committed to engaging all of our At DCSL, we are committed to promoting sustainability. We stakeholders, both internally and externally, to become the remain extremely concerned for the environment and for most sustainable, responsible company we can possibly be. By promoting a broader sustainability agenda, both of which are listening to, partnering with and considering the perspectives integral to our professional activities and the management of our associates, customers, shareholders, academic leaders, of the organisation. We aim to follow and to promote good government, value business partners and sometimes, even sustainability practice to reduce the negative environmental our competitors, we can truly ensure that quantifiable and impacts of all our activities and to help our stakeholders qualitative returns are assured. Stakeholder engagement is to join in this journey that will surely benefit our future a crucial element to sustainable development as it is this generations. engagement process that prompts the two-way dialogue and communication process which eventually aligns the strong 46 Annual Report 2013/14 relationships among our stakeholders and forms the foundation negative impacts of our business activities. Our consumers to our sustainability journey. Having identified our stakeholder are increasingly developing an ethical conscience, using groups, as given below, we engage with them at various forums sustainability information to identify their chosen brands. related to their interests and expectations, in an effort to adapt Customers want transparency, clarity and accessibility to to changing needs and issues, which continue to evolve. As we information and disclosures on social, environmental and pursue our corporate sustainability goals, we intend to further economic performance. Needless to say, this information needs strengthen these relationships. Together, we are establishing to be consistent and presented in a standardised approach, transparency and enhancing our relevancy with the customers therefore, it is imperative that disclosures are succinct, and communities we serve. We have created more formal clear, and truthful and hold fast to the underlying ethos of a channels for interacting with stakeholders both to learn from principled ethical well governed business entity, which is what their expertise and to provide a forum for them to provide us DCSL espouses to be. with feedback. Economic Disclosures Key Stakeholders The company ensures that both positive and negative Shareholders information about itself is conveyed as fairly as possible Quarterly and annual financial reporting, annual meeting of to 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/or analysts accurate information to help them make an informed choice when necessary, serve to deepen shareholder engagement in an when investing. Our investors have proof of our consistent ongoing manner through the financial year. performance in our financials and share performance, as well as our astute business strategies including restructuring Customers and acquisitions. Given our status as an industry leader, we Listening and engaging with customers on a one-to-one also remain a strong partner in ensuring that the country basis and through other select channels such as customer meets its vision and objectives, generating direct and indirect satisfaction surveys has helped us understand them better. employment and thus improving lifestyles, investing in infrastructure, upping quality and standards within the industry Employees and thus setting benchmarks to develop these industries and We adopt numerous routes, such as regular communications imbuing best practices. and engagement on one to one basis, monthly or quarterly We practice an environment of zero tolerance on bribery and forums, opinion surveys, internal newsletters and an open door corruption and eschew ethically unsound or corrupt practices policy. among any stakeholder segment. In this context, we have had Government/Regulators no incidences of bribery and corruption, unethical practices or anti-competitive behaviour stemming from our Group brought Regular meetings with relevant government authorities and to our notice. Our business dealings remain transparent and regulators to discuss impending legal mandates are held to sincere in action, while accountability remains a top priority. find solutions where necessary. This may involve discussions on challenges, risks, strategy development, execution of such laws We remain strictly compliant with all mandatory and regulatory and regulations and best practice permeation. mandates that are prevalent in our business even though the Suppliers regulatory environment in some of our businesses may be seen as unfair and unjust, We do not make contributions to political Regularly engage with suppliers to promote and institute parties; no member of the Board of Directors is actively sustainability solutions involved or an office bearer of any political party in Sri Lanka. Disclosures Product Disclosure The purpose of our sustainability reporting is to create greater As a company engaged in the business of alcoholic beverages, transparency and accountability and to allow for better we ensure that our products, if used in a responsible manner, informed and more robust decision-making as it is becoming and by the target age groups it is meant to be used by, will not more important than ever to manage both positive and Distilleries Company of Sri Lanka PLC 47 SUSTAINABILITY REPORT
have an ill-effect or increase risks to health. The processes Human Rights and HR Practice Disclosures that cover our supply chain including the sourcing and use The DCSL Group espouses and commits itself as an equal of ingredients, resources and raw materials are aligned to opportunity employer, stringently applying a slew of non- stringent quality standards that are initially tested repeatedly discriminatory policies vis a vis gender, age, religion, ethnicity, before product manufacture. social, cultural and economic backgrounds on the foundation of meritocracy. We unwaveringly uphold and support the tenets We work with experts and specialists in the field both locally mandated by the International Labour Organisation and other and internationally, who may also conduct their independent prevalent regulatory bodies pertaining to human rights and analysis and research, which assists us in manufacturing child labour. We adhere to a strict policy of ‘zero tolerance our final product. This would include the use of science, to child labour’, a mandate that is permeated to our valued technology, experience and skill to determine the acceptability business partners including retailers and the supply chain. of not only the ingredients but also permitted levels of these ingredients. Using the available scientific evidence, these Community Disclosure expert opinions have repeatedly concluded that our products, Our philosophy is to partner the community in its sustainable used responsibly by adults in the case of alcohol and spirits, development journey, which in turn gains us considerable do not increase health risks. There’s also a cohesive group that advantage. We are inextricably entwined with our communities monitors legislation pertinent to the product and individual and we intend to ensure that our presence within these ingredients which helps us in our decision making. communities will benefit them and us. This year, our social In the beverages industry, we work in a ‘dark’ market where focus was based on ‘Education & Training and Health, all advertising and promotions are prohibited by law. We Sanitation & Housing’ and by sustaining social initiatives in remain very cognisant that our product in this industry is these key areas of interest, we believe that we can empower to be sold and consumed by adults and our responsibility these communities. is to always ensure that this is the overarching tenet of our Environmental marketing initiatives. We communicate all product information comprehensively either through the labelling or through product • Better waste and energy management in our information available on numerous channels. manufacturing processes
We do not condone or agree to sell any of our products that are • Reducing our carbon footprint by introducing more meant to be consumed by an adult, to any underage consumer ‘green’ initiatives under any circumstances. This is very strictly adhered to, not only within the immediate Company and the team, but • Reducing dependency on fossil fuels is a message that is cascaded very emphatically to our entire • Enhancing forest cover and food security through value chain and retailers. Any deviation from this, is dealt planting of hard wood and fruit trees with severely and may result in DCSL terminating its business relationship with the offender. Sustainability Focus Environmental Disclosure Social We have never knowingly harmed the environment through any • Enhancing entrepreneurial skills among estate youth process that we have engaged in. We ensure that in all our • Assisting educational initiatives from childcare to processes and systems, we implement as many environmentally university level students friendly initiatives as possible as is seen in the waste water treatment, energy management, recycling initiatives, decrease • Creating awareness of preventable diseases among lesser in emissions and increase in forest cover that we have affluent communities strategically embarked upon. We also constantly engage our valued business partners, suppliers and wherever possible our Economic customers, to permeate environmental best practices among • Ensuring that shareholder wealth is optimised without them. compromising on standards or principles 48 Annual Report 2013/14 • Permeating best practices to valued business partners the point of diversion. The channel, weir and power house are small structures, which have minimum impact on the natural • Setting an example of ethical leadership through a well eco-system and the 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 Sustainability Performance Group’s holistic vision of environmental impact mitigation.
Environmental Impact Continental Insurance has commenced emphatically working on Our business interests are wide-ranging and diverse, ranging a better waste and energy management practices in its journey from manufacturing, plantations, telecommunications, financial with a view to become a carbon neutral company. As a way services, logistics, textile, hydro power, to Business Process forward, the company places the preservation of nature as a Outsourcing (BPO) and media. These, in different dimensions top priority taking the initiative to give back to the environment and levels, do impact the environment. The DCSL Group, to sustain our planet’s greenery and fertility. Continental having conformed and remaining strictly compliant with the Insurance has tied up with Neptune Recyclers since 2011 for Central Environmental Authority standards, is additionally the recycling of all waste papers. subjected to regular audits to ensure full transparency. This ensures that we remain conscious of the impacts our actions The Company experienced a saving of a 10 fully grown trees would have on the environment and have through the years. and total of 18,655 litres of water, while electricity usage We have worked on improving our processes and systems that decreased by 2,348 kWh and 1,030 litres of oil was also saved would eventually help us to reduce the negative impact we have which meant lesser usage of fossil fuels during the year 2013. on the environment, while minimising climate change. In addition, 2 cubic meters of landfill were conserved and reduced the Green House Gas emission by 587 Kg of Carbon Energy, Waste & Water Management Equivalent. Energy and waste management are crucial features in our environmental management focus, especially in our While creating economic value within the organisation, CILL manufacturing processes. A sophisticated distilling system strives to develop social value as a responsible corporate using French technology which is totally environmentally- citizen. Being a benefactor to the society and communities in friendly embeds energy saving features into our plants, as low which it operates, CILL believes in giving something back to evaporation during distillation aids the saving of energy. This different segments of the society especially to those who are technology has also helped in decreasing emission levels. under privileged and isolated in the society. Hence, as a matter Waste water treatment plants and an environmentally friendly of priority they have made a firm a consistent commitment zero-harm effluent management system ensures that waste, every year as one family volunteering to spend quality time with water and effluents are all managed well within the compliance differently able children thus providing them with their basic norms. While the waste water is treated to neutralise acidity needs for their daily sustenance. and released for further use once deemed 100% safe, the methane which is discharged during the purification process is Going further, CILL was one of the sponsors for the mega used for factory consumption. event of the world famous comedian “Russell Peters – Live in Sri Lanka”, whose proceeds were in aids of the charity “Kids In our bid to reduce the country’s dependence on fossil fuels on the Street”. CILL was the exclusive insurance partner for and thereby reduce the expenditure of foreign exchange, CHOGM Exhibition held in Battaramulla in November 2013. we embarked on a mini-hydro power project which was commissioned in the previous financial year. The Kirkoswald The Collision Repair Centre, which comes under Melsta Mini-Hydro Power Project, under the umbrella of Bogo Power Logistics Limited, remains very compliant with environmental (Pvt) Limited and located within Madulsima Plantations land, regulations and in fact, has ensured that its entire facility has gained approval from the Sustainable Energy Authority of is eco-friendly. Waste disposal is managed efficiently, with Sri Lanka, generating an average of 21.1 GwH of power to the disposable waste being recycled and organic waste converted national grid. The water required for the hydropower project is to compost, which is used to nurture vegetation within diverted and returned to the river within a short distance from the premises. In addition, a waste water treatment plant Distilleries Company of Sri Lanka PLC 49 SUSTAINABILITY REPORT
maximised the usage of water. Melsta Logistics also took on Balangoda Plantations to protect and conserve the natural the responsibility of managing the Group’s fleet of vehicles to environment through the prevention of pollution, efficient ensure that took measures to monitor and control emission utilisation of resources, effective waste management practices, levels and usage of fossil fuels and thus reduce its carbon promotion of environmental awareness and sensitivity amongst footprint. the plantation community.
The fact that Texpro Industries is certified with a Global Organic Balangoda Plantations always espoused sustainable agricultural Textile Standard ensures that the entire value chain must standards and good manufacturing practices. The company conform to globally accepted waste management practices in ensured that nearly all its manufacturing facilities have gained addition to its sourcing and manufacturing processes. Texpro ISO and HACCP certifications, which ensured that it remained is subjected to continuous audits, which keeps compliance within the stringent guidelines required for conducting levels above the required norm. At present, Texpro is using business, manufacturing processes and systems. biomass thermic fluid heaters instead of fossil fuel consuming equipment, as a result the Company managed to reduce the In order to retain these standard certifications, the facilities are energy cost by 30%. also continuously subjected to audits. The larger result however is that with the infusion of best practices in agriculture, we are Recycling not only enhancing our end product, but also ensuring that our Packaging gained emphasis to mitigate environmental impact practices are governed by a green ethos. Further augmenting with over 50% of the bottles used for alcohol and spirits this green ethos, Balangoda Plantations embarked on a re- being recycled and crates used for transport, being reused. forestation drive, which, while increasing our forest cover, also Cellophane, glass, aluminium and plastic generated by the significantly impacted the challenges the country will face factory was outsourced to an external party for reuse, while in the future of food security. In addition, the estates began used labels were transformed into pulp. This also reduced the implementing a composting programme, which converted number of trees being felled. non-usable materials into compost, deemed for use in the three hectares that are being replanted with tea. Continental Insurance imbued the 3R concept and engaged in recycling of waste paper, which resulted in the saving of Organic Best Practices ten trees for the year, which though may be considerably Texpro Industries, (a specialty dye and print business of woven small, certainly lays the footprint for the Company to increase fabric) as a backward integration to the apparel industry, its recycling initiatives and reduce the number of trees even stringently conforms to the Global Organic Textile Standard further. (GOTS), which ensures that the end product remains true to the tenets of an organic product. GOTS is the worldwide Sustainable Agriculture leading textile processing standard for organic fibre and We are proud to report that the Balangoda Plantation’s includes ecological and social criteria, backed by independent accreditation process of the Rain Forest Alliance Certification certification pertaining to the entire textile supply chain. This (RAC) was finalised during the period under review. This standard gives the product international recognition in organic move will be a new milestone of Balangoda Plantations in its textile manufacture, from harvesting of raw materials, through commitment towards adding value and a greater emphasis on environmentally and socially responsible manufacturing, until environmental management and community development. This the labelling process, providing a credible assurance to the end exercise is also a testament to our continued commitment in consumer. stepping into the growing market of enlightened consumers who make conscious choices about supporting sustainable Social: Diversity in Our Team agricultural practices through their purchases and would be Our longevity and culture of achievement is rooted in the a baseline to benchmark us with players in the Industry with motivation and mind-set of our people, who are committed and clear goals and targets to be achieved. dedicated towards achieving greater heights of performance and raising the benchmark. Given that the DCSL Group has As a part of its pledge to continually improve environmental grown into a diversified conglomerate encompassing a number and social sustainability, many initiatives were launched by of diverse industries and yet is unequivocally positioned with
50 Annual Report 2013/14 a leadership status, evidences that our team is a winning one. working hours on both full time and part time basis. This The dynamism, motivation and ‘overzealous’ attitude they scheme concentrates on senior citizens and housewives. This always espouse has enabled this Group to take on challenges, has enabled them to save expenses on travelling and time. some deemed insurmountable and win against the odds Furthermore, special arrangements have been made for visually handicapped citizens to carry on their responsibilities without HR Philosophy any difficulty. • To provide and promote an encouraging and professional working environment for our team. Training & Development 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 aspirations. employee relations and inspire employees by offering Melstacorp is facilitating all the training programmes for the opportunities for challenging work, personal development Group. The training programmes span on the job, off the job, and growth. external, hands on and internal programmes, all designed to enhance knowledge, update skill and create an empowered • Committed to hire, develop and retain the most talented workforce. people in order to achieve a committed pool of talent.
Recruitment & Retention At Continental Insurance, the HR Department is responsible for the recruitment of suitably qualified employees and retaining A range of processes have been instilled within the Group to talent. Training requirements would be identified for respective ensure that recruitment is non-discriminatory, unbiased and functional areas through a systematic performance appraisal driven by meritocracy. In addition, in a bid to streamline our system in order to develop the training plan, which ultimately recruitment processes, a recruitment requisition form was will increase individual performance up to the expected level. introduced, which is the base upon which recruitment is effected and a comprehensive interview evaluation form was At Balangoda Plantations, training programmes are brought in, to streamline the interview process from initial conducted for senior managers, superintendents and assistant screening to final interview stage. superintendents to enhance their managerial skills, to ensure higher productivity and better management of the large The Group companies follow HR best practices ensuring plantation workforce. consistency in HR Policy approach and fair playing field for potential employees. For instance, Continental Insurance strives Recognition & Staff Well-Being to follow best practices in human resource management as well The DCSL HR policy is based on the belief that a satisfied as the development of human resource. As a growing business, employee is a motivated employee who will contribute towards Continental Insurance is in need of regular fresh blood from the achieving company goals voluntarily, while being more outside, while growing talent from within. Hence, Continental productive. We have continuously infused numerous rewards Insurance ensures a healthy mix of both. As an organisation is and remuneration schemes, while adding welfare initiatives nothing more than the collective capacity of its people to create that would add value to our employees to better their lifestyles. value, organisational culture is an important element in any Given below briefly are some of the more important initiatives organisation’s make up and success. Therefore, at Continental currently in place: Insurance new recruitment is based on alignment with the Company’s internal culture, in addition to knowledge, skills and DCSL attitudes required for the role. • Continuous remuneration reviews and increases Bellvantage is offering more than 50% part-time job according to predetermined scales, which could also be opportunities for undergraduates with flexible hours. This will tied to performance incentives and bonus scheme. enable them to balance their studies and earn some extra • A range of insurance policies are in effect including cash to fund their expenses. As part of increasing employment Workmen’s Compensation and Personal Accident opportunities, Bellvantage has been providing home-based Distilleries Company of Sri Lanka PLC 51 SUSTAINABILITY REPORT
Insurance. DCSL PLC offers all employees this 24 hour Giving back to the Community insurance cover which includes a natural death cover. Balangoda Plantation contributes towards community development by providing financial support to workers • The DCSL Quiz Competition 2013/14 was held with the including short term loans, housing loans and distress enthusiastic participation of the regions and divisions at assistance, facilitating purchase of goods and equipment the Colombo Office, Periceyl and Melstacorp. Over 100 on easy payment schemes and so on, through the Estate employees participated in the quiz programme. Worker Housing Cooperatives, which are actively functioning on Balangoda Plantation. Community development efforts • DCSL holds annual staff get-together, sports days and of Balangoda Plantations have not been limited to its own children’s parties to build team spirit and facilitate fun estate populations. The Company has always affirmed its and friendships commitment to its surroundings outside the plantation, Periceyl by actively participating in estate village integration programmes and by extending certain facilities provided to A continuous chain of performance related incentives the plantation community, to the villagers as well. including social activities, training initiatives and excursions/ trips are extended to high achievers. We have maintained cordial and mutually supportive Continental Insurance community relations throughout the century of our existence on the basis that our surrounding communities are also The Continental Insurance HR policy aligns remuneration stakeholders of the business. We continue to make an with employee performance and the reward strategy not only unwavering effort to closely identify with the communities in focuses on monetary rewards, which will have a short term which we operate our businesses to ensure positive impacts impact on employee behaviour, but also timely appreciation through our presence and to make these communities an and recognition of employees. All employees and their inherent part of our sustainable development process. We immediate family members are covered under the staff have thus identified two platforms as the focus for our medical scheme which will ease the financial burden when community social initiatives, namely health, housing and hospitalisation is required. sanitation and education and training.
Melsta Logistics Limited Health, Housing and Sanitation The Melsta Logistics team is covered under a comprehensive Balangoda Plantations has been actively involved in uplifting medical scheme and other facilities include cafeteria, resting the lifestyles of its estate community by facilitating new areas and lockers. housing and better working conditions. In addition, numerous Occupational Health & Safety awareness programmes were undertaken towards improving the socio economic growth and health and nutritional status, As a diversified conglomerate with interests in wide-ranging and living environment, youth empowerment and community economic activities including manufacturing, it is imperative capacity building, of the resident plantation population. that we make our workplaces safe. Occupational Health and Safety remains a high priority for the DCSL Group and Housing Facilities we have taken numerous steps to ensure, to the best of our During the current year too, Balangoda Plantations continued ability, that the workplace is safe, hygienic and not harmful its efforts at upgrading living standards of plantation to our team’s health. Our manufacturing processes conform communities by building 63 housing units for estate families. to accepted industry guidelines and practices in safety These new, modern housing units are built to high construction management and we have set for ourselves a target of ‘a standards, enabling hygienic and healthy life styles for zero accident workplace’. By being proactive, conscious and plantation families with the benefits of essential amenities and focused, we have inculcated a conscience and culture of conducted a re-roofing programme for 40 housing units. prevention, while team members have been trained to remain alert to any gaps and hazards that may arise. Tree Planting Event Environmental sustainability and good agricultural practices are fundamental to plantation sector longevity. During the 52 Annual Report 2013/14 current financial year, Balangoda plantations conducted a corporate citizen with future potential to contribute toward the tree planting event with the active involvement of the younger nation’s development agenda. generation estate populations. During this event, children of plantation employees joined the Company in planting native The diversification of the DCSL Group into various industries plants, contributing towards reforesting the environment and has benefited the national economy through investments inculcating concepts of sustainability into the next generation. in human capital and on infrastructure, employment opportunities, uplifting industry standards and wider consumer Child Care choices. Our infrastructure investments into plant and The Balangoda Plantation manages a number of child care machinery conform to stringent standards that naturally add centres and pre-schools within the plantations. The child value to the overall economy. care centres are supported by full-time trained teachers and nutritional feeding programmes. Regular child immunisation Similarly, all companies in the Group conform to numerous and programmes are also conducted at the child care centres, relevant international standards and have gained certifications ensuring access to proper child immunisation for estate of compliance, which means that the entire industry is being children. Further, dental clinics, eye clinics, awareness improved through the setting of higher benchmarks. programmes on infectious/contagious diseases such as dengue, Currently, the DCSL Group provides employment to 12,897 T.B. programmes on oral cancer prevention, de-worming and people while indirectly granting employment to many others. so on, are some of the many activities carried out to create a The benefits, remuneration, rewards and welfare gained by our healthy community. employees also ensures that their families gain an improvement Economic Contribution in their lifestyles, while additional education and training adds to elevating knowledge levels amongst our team. Today, although our core business is beverages, our scope of business is diverse transcending different spheres across Industry Leadership the national economy. Over the year, we have made inroads DCSL Group has contributed to industry development in in telecommunications, plantations, apparel, BPO, logistics, different spheres of operations through knowledge sharing, hospitality, financial services, insurance, media and hydro- innovative solutions and the latest technologies. Our companies power, committing ourselves to add economic value to all these embrace international best practices, standards and quality industry sectors, while being responsible for our actions and the certifications that have contributed towards setting new decisions we make. Therefore, as a leading corporate, we will standards within the industries we operate in. However, we strive towards building continuous sustainable value, generating have also shared our knowledge, skills and expertise with returns for our shareholders, while ensuring that we consciously other corporates and like-minded individuals, as we believe do the right thing not only for our stakeholders, but for the knowledge sharing among the industry is vital for sustained environment as well. It is this holistic outlook that allows us to growth and ultimately national development. work proactively with all our stakeholders, creating shareholder wealth and social value, inspiring our team and permeating Investor Relations best practices among our suppliers. DCSL continued to attract high level interest from foreign Given our leadership status in the beverages industry, the investors during the current financial year. We have conducted company has been subjected to numerous actions, diktats and many meetings with current and prospective shareholders mandates that has continually stifled the legal alcohol and locally and overseas during the year. Such interest in the spirits industry, which have only served to allow the illegal trade Company is symptomatic of positive external perceptions to flourish. We believe that this situation will eventually take regarding the Company’s future potential towards growth in a toll on the nation’s health, both economically and socially. shareholder value. We are by far one of the largest contributors to the national Supplier Engagement treasury, having paid Rs. 37.2 Bn at Group level this year. It is these funds that are eventually used by the state for meeting Forging strong supplier relationships offers a comprehensive its development goals. Therefore, we are proud to be a major way for DCSL to assess and streamline the processes between contributor to national development, as a legal, law abiding our organisation and our suppliers for an effective partnership.
Distilleries Company of Sri Lanka PLC 53 SUSTAINABILITY REPORT
In reality, suppliers are people as well and we believe in • comply with laws and regulations pertaining to emotionally engaging with our suppliers so that they work conducting business and environmental performance, harder for us and help us cover potential risk areas. occupational health and safety, do not support or condone child labour, slavery, harassment, corporal Whatever the size or category of supplier, the DCSL’s Supplier punishment or discrimination of gender or any other Policy ensures a level playing field and equal opportunities denominator for all our suppliers. We have procedures in place to ensure responsible behaviour towards all our suppliers, while • are cognisant of human rights and the rights of workers committing our suppliers towards reciprocity in responsible • do not engage in any fraudulent or corrupt practices behaviour towards the Company. This ensures our stringent quality and standards are understood and met by all our • provide their teams with a safe and healthy work suppliers. environment
We believe strongly in positioning our supplier philosophy on • actively engage to empower the communities in which good corporate conduct, sourcing and producing responsible they operate quality products and influencing a win-win relationship worked on a platform of mutual benefit. Just as we position ourselves Customer Interaction as a responsible industry leader, we strongly believe that we We believe that nurturing our customers is an ongoing dialogue must permeate the best practices we have within our business, and not a one-off event. Nurturing an ongoing and genuine the standards and integrity and compliance initiatives to relationship with customers will have a major impact on the our entire supply chain. This in effect cascades to quality, way they perceive our brand but also serve to strengthen our productivity and standards overall being improved. operations through focused customer feedback. We engage our customers in numerous ways, nurturing and strengthening DCSL has a widespread and diverse supply chain spanning the relationships to ensure strong loyalty to brand and product. full range of businesses from micro entrepreneurs, to SMEs From face to face ad hoc conversations, to conducting to large corporates. We also emphasise among our supply customer surveys, to formal gatherings and informal events, we chain and valued business partners the need to implement are constantly engaged with our consumer. It is this feedback and promote business practices that not only encourage a and varied dialogue and communication channels we have safe workplace, but also request them ‘to do right’ by the created that have assuredly enabled us to charter our future environment, their employees and communities. In other plans. words, we want them to, in turn, be responsible entities and individuals. Suppliers and business partners, once among the Our beverage business is fundamentally about offering adult DCSL Group, are provided with further support and guidance, consumers a range of high quality products and brands with enabling improvement against these principles as the business the necessary knowledge to make informed choices. We do not relationship develops. in any way coerce or inveigle our customers to 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 principles. Moreover, though engaged in a legal industry forced to work in This conformance goes beyond compliance and would by no a dark market, prohibitive excise duties and constant taxation, means involve us in engaging or aiding and abetting illegal or our products have remained at the helm, which has thus hazardous and dangerous activities. We want our suppliers to driven us to continually exceed our customers’ demands. We be partners with us, in joining us in our journey that will truly do believe it is our responsibility to ensure that consuming be one of mutual respect, understanding and trust. alcohol must be done responsibly, knowing that the product is manufactured to high standards and is a proven brand of We Seek Suppliers into Our Value Chain who: quality. Therefore, we are vociferous in numerous forums to • will proactively support our efforts to combat illegal and curb and annihilate the illicit and illegal liquor trade. We work illicit trade practices on education and awareness initiatives among various forums to take the message of the hazards and dangers posed to the
54 Annual Report 2013/14 eventual consumer in drinking illicit brew or illegal liquor, given Long term Sustainability Goals that the latter too has no guarantee of quality. 1. Be known as the preferred employer having the ability to attract and retain talented people, inducting them in a Our subsidiary companies have continued to gain the trust knowledge-based corporate culture, while assuring them and loyalty of their customers through their customer centric of career enhancement in a responsible company they policies, innovative solutions and technology applications for will be proud to be a part of. increased cost savings and higher customer value creation. 2. Retain market leadership by ensuring that we work on Lanka Bell, the Group’s telecommunications subsidiary, high quality sustainable competitive advantages to infuse commenced rolling out its 4G LTE network during the current trust and loyalty among our customer base by evolving financial year in line with its planned schedule. Following a the business to be ahead of customer expectations, successful test run, LB formally launched its 4G connectivity which in turn will deliver qualitative and quantitative in February 2014, becoming one of the three operators in sustainable returns. the country to have a 4G-LTE network. The introduction of this latest technology is to offer world class data solutions 3. Never lose sight of the tenets of corporate stewardship; to customers, while providing access to greater bandwidth instil governance and regulatory best practices, while capacity at faster speeds. demonstrating our commitment to being an ethical, transparent, accountable Group of companies. Continental Insurance has been successful in capturing and adding to its portfolio some of the country’s largest 4. Create economic and social value among the infrastructural development projects, such as the installation communities we work with, supporting both the rural and of double circuit transmission lines in the North and East and urban economies and key industries that are earmarked large power plants, which supply electricity to the main grid to be drivers in national development. and road development projects. The Company also provided comprehensive policies to large hotel chains operating luxury 5. Be a Green Ideologue; an advocate who will address properties in Sri Lanka and the Maldives. CILL introduced environmental issues and ‘change’ the direction of an Android mobile application to all technical assessors to climate change, walking the talk to spread the need to facilitate efficiency in the processing of claims. In addition, reduce our carbon footprint and ensure a better planet for payments of premiums online were also introduced in order future generations. to cater to the growing market of online users, thereby giving customers an enhanced service with greater convenience and ease.
During its short period of operations, Melsta Regal Finance Ltd (MRF) introduced a wide spectrum of financial solutions in leasing, hire purchase, factoring, trade finance, corporate loans, personal loans and savings products for a client portfolio ranging from corporates to SMEs to consumers. The key focus of the current financial year was market expansion and product development. The geographical footprint of MRF was expanded to the key cities of Kurunegala, Matara and Kandy.
Awards & Recognitions • DCSL was ranked No. 09 in Business Today’s ‘Top Twenty Five’ edition. This was the 15th consecutive year DCSL was listed among corporate heavy weights in the ranking.
• DCSL topped the Manufacturing, Food & Beverage Sector in National Business Excellence Awards – 2013. Distilleries Company of Sri Lanka PLC 55 CORPORATE GOVERNANCE
ENTERPRISE GOVERNANCE DCSL has a strong and sound foundation of sustainability Working on an integrated approach for applying governance principles that remain the overarching fundamentals in throughout the organisation, DCSL practices the key principle instituting and maintaining uncompromising governance of infusing the tenet that everyone is responsible for the practices and principles. The section of the report details the performance of the Group, the management of risk and value governance structure and the practices and guidelines DCSL creation. We strongly recommend and commit ourselves to has adopted in ensuring that we remain within the parameters ensuring that Enterprise Governance operates through people, of the numerous regulatory and authorised bodies that govern processes, policy, procedure, culture and ethics. the industry and the Company. We stringently adhere to and comply with the mandates of the Colombo Stock Exchange and The principles of governance are applied effectively by the Securities & Exchange Commission of Sri Lanka, NATA, Excise Board of Directors and are seen in the consistent growth Department, Central Bank of Sri Lanka and the Government performance of the Group, while also improving the long term Treasury, Institute of Chartered Accountants of Sri Lanka, return to stakeholders. Beyond the Board, the application of Telecommunication Regulatory Commission of Sri Lanka, governance methodologies and the integration of governance Insurance Board of Sri Lanka, Central Environmental Authority, into other organisational functions, we strongly believe that it relevant Ministry and departmental authorisations and has significantly benefited the long term performance of DCSL. regulations and numerous Codes introduced by Professional To further augment our effective governance strategies we have Associations and the Chamber of Commerce from time to time. implemented the following: This corporate governance statement defines in detail the • Strive to achieve corporate objectives of managing strategy, structures and processes that we use in our organisation to risk and compliance to ensure long term returns to balance the interests of our stakeholders, reviewed at regular shareholders and other stakeholders. intervals to ensure that Group’s expectations are met and are aligned with evolving growth strategies. • Oversee business objectives including management of IT, sustainability, finance and project portfolio management to The Board of Directors ensure sustainable consistent results. Role of the Board of Directors The Board of Directors is responsible to the Company’s • Board of Directors remain emphatic on due diligence to shareholders to ensure at all times that the activities of the ensure accountability, transparency and sincerity of action. Company are conducted to the highest ethical standards and in the best interest of all stakeholders. • Implemented an environment of responsible and balanced corporate governance that enhances integrity and respect The key responsibilities of the Board are; for the Company and ensures the Company’s stewardship and stability in the industry and market. • To enhance shareholder value.
• Introduced a culture in which the entire organisation takes • Provide direction and guidance in formulating corporate ownership for risk, compliance and performance. strategies.
We infuse governance tenets that continue to hold us in • Monitor systems and procedures especially with regard to high esteem and as a spearhead among our shareholders, internal controls and risk management. stakeholders and peers. This is further augmented with our Board’s adherence to the highest standard of corporate • Approve major investments. behaviour and ethics at all times. To remain at the helm of Sri Lanka’s corporate landscape, we realise that we must incorporate new dimensions into our core decision-making processes and practice due diligence to protect the interests of our shareholders, while maintaining an unrelenting focus on the expectations of other stakeholder segments.
56 Annual Report 2013/14 Name of Director Status Attendance * D.H.S. Jayawardena Chairman / Managing Director 100% R.K. Obeyesekere Non-Independent Non-Executive 100% C.R. Jansz Executive Director 100% N. de S. Deva Aditya Independent Non-Executive Director 100% K.J. Kahanda Executive Director 100% C.F. Fernando Independent Non-Executive Director 100% A.N. Balasuriya Independent Non-Executive Director 100%
*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 three independent Non- Chairman /Managing Director, two Executive Directors, Executive Directors: one Non-Independent Non-Executive Director and three Independent Non-Executive Directors as given in the table A. N. Balasuriya – Chairman above. Brief profiles of the Directors are given on pages 28 to 29. N. de S. Deva Aditya C. F. Fernando The Board considers that three of the four Non-Executive Directors are independent in accordance with the criteria The report of the Remuneration Committee is given on the detailed within the Listing Rules of the CSE and have page 74. submitted signed confirmations in this regard. The Board believes that the independence of N. de S. Deva Aditya is Investor Relations not compromised by virtue of him being a Director of Aitken One of the prime fundamentals that are prevalent and Spence PLC, an associate of the Company. identified with the Group’s sustained success and growth has been the close rapport in investor relations. Given that Meetings and Attendance we are mandated to safeguard and create shareholder wealth The attendance of the meetings of the Board during the year and are duty bound to share all Company information with is given above: our shareholders at all times in order to nurture sustainable relationships with our stakeholders, we foster effective Board Committees dialogue and engagement with the relevant stakeholders Certain responsibilities of the Board have been delegated to and the financial community. We strongly believe that it the following sub-committees. is our strategic management responsibility to maintain an open line of communication with shareholders and address Audit Committee any concerns or issues that may require discussion or The Audit Committee comprises three independent Non- resolution. The designated investor relations officers regularly Executive Directors as follows; meet shareholders and fund managers to fuel these long C. F. Fernando – Chairman term relationship, providing information and answering N. de S. Deva Aditya any queries. Further, the Group possesses performance measurement tools to ensure that these objectives are met. A. N. Balasuriya Apart from personal interaction with stakeholders, our The detailed report of the Audit Committee is on pages 72 to 73. 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.
Distilleries Company of Sri Lanka PLC 57 CORPORATE GOVERNANCE
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 2013 / 14. 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:
58 Annual Report 2013/14 The Company’s compliance with the CSE Listing Rules
Section Applicable Rule Compliance Status Details 7.10.1 Non-Executive Directors Complied Four of the seven Directors At least one third of the total number of Directors should be are Non-Executive Non-Executive Directors. Directors 7.10.2(a) Independent Directors Complied Three of the four Non- Two or one third of Non-Executive Directors, whichever is Executive Directors are higher, should be Independent. Independent 7.10.2(b) Independent Director’s Declaration each Non-Executive Complied Director should submit a declaration of independence/ non- independence in the prescribed format 7.10.3(a) Disclosure relating to Directors Complied Please refer page 57 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 57 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 Not applicable No new Director was Forthwith provide a brief resume of new Directors appointed appointed during the year to the Board with details specified in 7.10.3(a), (b) and (c) to the Exchange. 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 74 A listed Company shall have a Remuneration Committee. 7.10.5(a) Composition of Remuneration Committee Complied All three are independent Shall comprise of Non-Executive Directors a majority of whom Non-Executive Directors will be Independent. 7.10.5(b) Functions of Remuneration Committee Complied Please refer page 74 The Remuneration Committee shall recommend the remuneration of the Chief Executive Officer and Executive Directors. 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 57 ii. Statement of Remuneration Policy Complied Please refer page 74 iii. Aggregated remuneration paid to Executive and Non- Executive Directors. Complied Please refer Note 11
Distilleries Company of Sri Lanka PLC 59 CORPORATE GOVERNANCE
Section Applicable Rule Compliance Status Details 7.10.6 Audit Committee Please refer Audit The Company shall have an Audit Committee Committee report on page 72 to 73 7.10.6(a) Composition i. Shall comprise of Non-Executive Directors a majority of Complied Please refer page 72 whom will be Independent. ii. One Non- Executive Director shall be appointed as Complied Please refer page 72 Chairman of the committee. iii. Chief Executive Officer and Chief Financial Officer shall Complied Please refer page 72 attend Committee meetings. iv. The Chairman or one member of the Committee should Complied Please refer page 72 be a Member of a professional accounting body. 7.10.6(b) Functions i. Overseeing the preparation, presentation and adequacy Complied Please refer Audit of disclosures in the Financial Statements in accordance Committee with Sri Lanka Accounting Standards report on pages 72 to 73
ii. Overseeing the compliance with financial reporting Complied requirements, information requirements of the Companies Act and other relevant financial reporting related regulations and requirements iii. Overseeing the process to ensure that the Entity’s Complied internal controls and risk management, are adequate to meet the requirements of the Sri Lanka Accounting Standards/ IFRS migration iv. Assessment of the independence and performance of the Complied 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 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 57 and Audit ii. Basis of the determination of the Complied Committee report on Independence of the Auditors. pages 72 to 73 iii. Report by the Audit Committee setting out the manner of Complied compliance by the Company.
60 Annual Report 2013/14 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 56.
A.1.1 Regular Board meetings and supply of information. P Please refer Corporate Governance Report on page 57.
A.1.2 Board should be responsible for matters including P Please refer Corporate Governance Report, implementation of business strategy, skills and Report of the Board of Directors and succession of the management team, integrity of Report of Audit Committee for the details. information, internal 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 P Please refer Report of the Board of obtain professional advice as and when required Directors
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.
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.
Distilleries Company of Sri Lanka PLC 61 CORPORATE GOVERNANCE
Ruling Description of the Ruling Compliance Details Index Status 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 57 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 P Please refer the Audit committee report on those with sufficient financial acumen and knowledge page 72. to offer guidance on matters of finance. A.5 Board Balance A.5.1 In the event the Chairman and CEO is the same person, N/A N/A Non-Executive Directors should comprise a majority of the Board
A.5.2 Where the constitution of the Board of Directors P Please refer Corporate Governance Report includes only two Non-Executive Directors, both such on page 57. Non-Executive Directors should be ‘independent’
A.5.3 Definition of Independent Directors P Please refer Corporate Governance Report on page 57.
A.5.4 Declaration of Independent Directors P Please refer Corporate Governance Report on page 57.
A.5.5 Board determinations on independence or non- P Please refer Corporate Governance Report independence of Non-Executive Directors. on page 57. 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) A.5.8 The Senior Independent Director should make him N/A N/A self 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
62 Annual Report 2013/14 Ruling Description of the Ruling Compliance Details Index Status
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 P enable 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 P Activities of the Nomination Committee appointments are currently handled by the Board of Directors
A.7.1 Nomination Committee to make recommendations on P Activities of the Nomination Committee new 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 N/A No new Director was appointed during the year. A.8 Re-election
A.8/ Re-election at regular intervals and should be subject P Please refer Annual Report of the A.8.1/ to election and re-election by shareholders Directors on page 76 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- P evaluation of its own performance and that of its committees
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 57.
Distilleries Company of Sri Lanka PLC 63 CORPORATE GOVERNANCE
Ruling Description of the Ruling Compliance Details Index Status 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 74
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 N/A N/A discount
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 74 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
64 Annual Report 2013/14 Ruling Description of the Ruling Compliance Details Index Status
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 172 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 P Please refer Annual Report of the not engaged in any activities, which contravene laws Directors on page 75. and regulations, declaration of all material interests in contracts, equitable treatment of shareholders and going concern with supporting assumptions or qualifications as necessary
D.1.3 Statement of Directors Responsibility P Please refer the Statement of Directors Responsibility on Page 80.
D.1.4 Management Discussion and Analysis P Please refer Management Discussion and Analysis from page 35 to 43.
D.1.5 The Directors should report that the business is a going P Please refer Annual Report of the concern, with supporting assumptions or qualifications Director on page 77. as necessary
Distilleries Company of Sri Lanka PLC 65 CORPORATE GOVERNANCE
Ruling Description of the Ruling Compliance Details Index Status 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 from page143 to 147. 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 72 and Annual Report of the Board of Directors on page 75. 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 72 to 73. 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 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 56 to 67 abide by such Code
D.4.2 The Chairman must certify that he/she is not aware of P any 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 56 to 67
66 Annual Report 2013/14 Ruling Description of the Ruling Compliance Details Index Status 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 57. 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 Report from page 57. composition, 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 44 to 55.
Distilleries Company of Sri Lanka PLC 67 ENTERPRISE RISK MANAGEMENT
Undoubtedly, there is risk in today’s volatile and uncertain objectives. The Board is tasked with an overall responsibility business environment, which demands increased transparency for monitoring risks and gaining assurance for managing within an organisation’s risk profile. There are vulnerabilities, these risks at an acceptable level. probabilities, threats and weaknesses that must be addressed to ensure that risk in any enterprise is mitigated. This greater STRATEGIC ACTION PLAN emphasis on risk and risk management also prompts greater Board oversight coupled with a strong organisational ethic is penalties on entities that do not or fail to manage key risks, the cornerstone of DCSL risk framework. which naturally permeates to organisations being more cognisant of identifying and assessing risks. In this backdrop, The Board remains acutely aware that to generate business it is also increasingly important that once these risks are value it must manage and oversee all possible risks that the identified and assessed, they are managed with pre-defined business or external factors could impose on the profitability tolerances. Any entity faces myriad risks, from well known of the Company, while in tandem, protecting and enhancing risks that are inherent and characteristic of the business to shareholder wealth. The DCSL Board is committed to deploying unknown risks that may emerge or are just emerging. Risk the highest standards of risk management to support a strong resilient organisations must objectively assess their existing risk governance framework, ensuring that shareholder wealth is management capabilities, evaluate their organisational culture safeguarded from all the 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 In the current market context, risk is defined as the probability are held to ensure that the focus from effective risk coverage or threat of a liability, loss or other negative occurrence, caused remains strong and concentrated. The Board is kept updated by external or internal vulnerabilities which would affect the on the progress and its opinion sought for mitigating any desired objectives of the organisation. This also means that challenges 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 Group remains committed to increasing shareholder value the 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 sustainability of the organisation. Our systematic policies help us probability of occurrence, which determines the way we handle to identify and uncover risks and help us to be cognisant of the such exposure. This would therefore involve the implementation same. This preparedness builds the resilience of the organisation of numerous policies, procedures and practices that work in and allows us to establish procedures for risk mitigation. conjunction to identifying, analysing, evaluating, monitoring and prioritising risks, which will follow the application of coordinated The principal risks in achieving the Group objectives of and economical solutions that minimise the probability and enhancing shareholder value and safeguarding the Group’s impact of identified vulnerabilities. Once identified, elimination, assets have been identified as set out overleaf. The nature reduction, transfer and retention are the broad risk management and the scope of risks are subject to change and not all of the strategies employed across DCSL.. factors listed, are within the control of your Company. It should be noted that the other factors besides those listed may affect Changes in Risk Profile the performance of the business, although we do reiterate, that Given the range of industry, geographic locales and market we remain very vigilant to both internal and external factors segments that our business spans, the diversification which that could prompt risk in any form and therefore, are able to, we have embarked upon provides a prudent pathway that without delay, implement strategies to prevent, minimise or would signal positive correlation between business and mitigate those ensuing risks. environmental 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 This therefore prompts the DCSL Board to make risk in place to deal with these risks and the chain of responsibility assessment and identification of mitigating activities a within the organisation to monitor the effectiveness of the priority and pivotal in achieving the Group’s strategic mitigation measures. 68 Annual Report 2013/14 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 financial obligations. borrower 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 154 to 159 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, Group. insurance and finance businesses continue to be subjected to a steady 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 stringent conformance by the Board in practicing due diligence. Head of Finance and Group Financial Controller
• 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 • Professional growth avenues Group remains at risk of losing key personnel to better job • Performance-based reward systems prospects overseas. • Best practices being introduced and upgraded continually
• Measures taken to retain and minimise casual / temporary labour turnover.
Distilleries Company of Sri Lanka PLC 69 ENTERPRISE RISK MANAGEMENT
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 events. The nature of our business renders us vulnerable to audit mechanism and insurance policies several common operational risks including fraud, human • A comprehensive system established to ensure that any error, natural disasters, loss of data and unrequited disclosure loss is communicated to all related parties and across of sensitive information. the company to prevent similar incidences
• Regular meetings are conducted to assess these risks
• Contingency plans are in place to minimise work-stop situations
• Financial risk arising from operation is covered in financial risk management onpages 154 to 159 Socio-Economic Risk & Implication Mitigation Strategies Given the government diktat in stifling and repressing the • A committed Investigations Unit established to monitor consumption of alcohol and tobacco, there is a very real and 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 being 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. business is a key element here. 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 breakdowns, halts and herald lack of recovery, as a business guidelines, contingency plans and physical security that leverages strategically on ICT systems, we are very much measures closely 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. theft of information as factors that can cause significant levels Phased implementation of same across Group of operational, reputational and financial loss to the Group. companies.
70 Annual Report 2013/14 Risk & Implication Product Risk & Implication Mitigation Strategies Product risk implies any negative impact or perceived impact • Employing established operating procedures to review of our products on stakeholders in general which could and approve all raw material prior to use, to ensure decrease our market share. There were no reported incidents of maintenance of quality control intoxication or health hazards arising from our range of liquor • Remain emphatic on safety, health and environmental products. 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
Please refer financial risk management note on pages 154 to 159. Cheaper Product, Counterfeiting and Unethical Mitigation Strategies Competition 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 with our product portfolio could create an impact on our order to drive a loyal consumer base who disregard locally manufactured products, leading our products to be cheaper 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 • Communicate and demonstrate to our consumers on breeding 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
Distilleries Company of Sri Lanka PLC 71 AUDIT COMMITTEE REPORT
Composition Activities and Responsibilities of Financial The Audit Committee appointed by and responsible to the Reporting Board of Directors comprises of three Independent Non- The Committee reviewed and discussed the financial Executive Directors. The Chairman of the Committee is Mr. reporting system adopted by the Group in the preparation C .F. Fernando, a Senior Chartered Accountant and a former of its quarterly and annual financial statements with the Managing Director of the Company. The other members of the Management and the External Auditors. Purpose being to Audit Committee comprise Mr. N. de S. Deva Aditya, Member ensure reliability of the processes and the consistency of the of the European Parliament and Dr. Naomal Balasuriya, a Accounting Policies adopted and its compliance with the renowned Motivational Speaker and Corporate Trainer. A brief Sri Lanka Accounting Standards and the provisions of the profile of each member is given on pages 28 to 29. Companies Act No. 07 of 2007.
The Company Secretary functions as the Secretary to the Audit Internal Audit Committee. The internal audit function of the Company was carried out by the Internal Audit Division. The Committee reviewed the Meetings effectiveness of the internal audit plan to ensure that it was The Audit Committee met six times during the year. Mr. N. designed to provide reasonable assurance that the financial de S. Deva Aditya could not attend any meetings during reporting system adopted by the Group can be relied the year due to his engagements abroad. Nevertheless, Mr. upon in the preparation and presentation of the Financial Deva Aditya was represented at all meeting by his alternate Statements. The Committee also reviewed the findings of the and was kept informed of all the proceedings of the Audit Internal Auditors and their recommendations together with Committee and his opinion was sought on important matters the management responses and regularly followed up the through his alternate on the Board. The attendance of the progress of the implementation of such recommendations in other members at these meetings are as follows: order to enhance the overall control environment. Mr. C. F. Fernando 6/6 External Audit Dr. Naomal Balasuriya 6/6 The Audit Committee met with the External Auditors to The Group Financial Controller, Head of Finance and Chief discuss the scope and the audit strategy including the Internal Auditor also attended these meetings by invitation coordination of the Group Audit. The Committee also when needed. reviewed the Report of the Auditors & Management Letters issued by them with and without the Management on Terms of Reference separate occasions to ensure that no limitations were placed The Audit Committee Charter approved and adopted by on their independence of work and conduct of the audit. the Board clearly sets out the terms of reference governing the Audit Committee ensuring highest compliance with the The Committee carried out an annual evaluation of the Corporate Governance Rules applicable to Listed Companies External Auditors to establish their independence and in accordance with the Rules of the CSE and the Code of objectivity and also obtained a written declaration from the Best Practice on Corporate Governance. Auditors in this regard. The Committee stipulated that the Lead Audit Partner is rotated every five years. As allowed by the Listing Rules of the Colombo Stock Exchange, the Audit Committee of the Company, functions The Audit Committee recommended to the Board of Directors as the Audit Committee of each of the subsidiary companies that Messrs. KPMG be reappointed as Auditors for the which have not appointed a separate Audit Committee. All financial year ending 31 March 2015. matters are dealt with through the Agenda of the Parent Company Audit Committee.
72 Annual Report 2013/14 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.
C. F. Fernando Chairman Audit Committee
22 August 2014.
Distilleries Company of Sri Lanka PLC 73 REMUNERATION COMMITTEE REPORT
The Remuneration Committee of the Distilleries Company information and by participating in its of Sri Lanka [DCSL] is appointed and responsible to the deliberations by invitation. Board of Directors. It comprises of three Independent, Non Executive Directors, namely Mr. C. F. Fernando, a Senior This Committee firmly believes that given Chartered Accountant and former Managing Director of the competitive forces in today’s market, DCSL, Mr. N. de S. Deva Aditya, Member of the European remuneration of the key drivers of the business Parliament and Dr. Naomal Balasuriya, Motivational Speaker, becomes a crucial need gap filler towards who chairs the Committee. motivating them to ensure growth of the business. Brief profiles of these Directors are given on pages 28 to 29. Ms. Vijayanthi Senaratne, Company Secretary functions as the Secretary to this Committee. All members of this Committee are free from all business and other relationships that could hamper their duties as members of this body. Dr Naomal Balasuriya Chairman, The Remuneration Committee is governed by the Remuneration Committee Remuneration Committee Charter, which has been approved and adopted by the Board of Directors. It is responsible 22 August 2014 for determining the remuneration policy relating to the Chairman, Directors and the Key Management Personnel of the Company.
The Committee formally met once during the year with all members being present. The Chairman / Managing Director who is responsible for the overall management of the Company assist the Committee by providing necessary
74 Annual Report 2013/14 ANNUAL REPORT OF THE BOARD OF DIRECTORS
The Board of Directors of Distilleries Company of Sri Lanka Melstacorp Limited PLC has pleasure in presenting the 24th Annual Report and In March 2014, Melstacorp Limited increased its investment the Audited Financial Statements of the Company and the by Rs.650 Mn in Melsta Regal Finance Limited (MRFL) in Group for the financial year ended 31 March 2014. response to the Central Bank of Sri Lanka (CBSL) financial sector consolidation plan. This increased the stated capital Principal Activities to Rs. 1.34 Bn, through which MRFL is compliant with the The principal activities of Distilleries Company of Sri Lanka capital adequacy requirements of CBSL till 2016. PLC are distillation, manufacture and distribution of liquor products. The Company has also invested in a portfolio of In July 2014, Melstacorp Limited increased its investment in diverse business enterprises comprising the DCSL Group. Continental Insurance Lanka Limited by 250 Mn. As a result stated capital of Continental Insurance has increased to Rs. Business Review 750 Mn. A review of the Group’s business, providing a comprehensive analysis of the financial and operational performance along Melstacorp Share Trust (Trustee) was created effective from with future trends and business development activities are 1 April 2011 for the holding of the company shares. Details described in the ‘Chairman’s Message’ and ‘Management are given in note 25.1 to the financial statements. Discussion and Analysis’ sections of the Annual Report. Results and Appropriations Amount Due from Secretary to the Treasury o/a of The gross turnover of the Group in the year under review Sri Lanka Insurance Corporation Ltd (SLIC) amounted to Rs 63,186 Mn. The Group profit after tax was We still await the payment of profit earned during DCSL Rs. 6,231 Mn. The segmental analysis of the turnover and Group’s tenure at the helm of SLIC. We are hopeful that the profit is provided in Note 4 to the Financial Statements. profit earned to be paid as per the Supreme Court directive will be reimbursed to us early as possible. Detailed note is The Board of Directors has recommended a dividend of given in note 37 to the Financial Statements. Rs. 3.25 per share (2012/13 - Rs.3.00 per share) for the financial year ended 31 March 2014, amounting to Rs.975 Pelwatte Sugar Industries PLC (PSIP) Mn. The dividend payout for the year under review has been Following the expropriation of the PSIP by the State, the formulated in accordance with the Company’s policy to pay ownership of this property remains unresolved. The Company sustainable dividends linked to long term performance, has not changed its position advocated since the occurrence keeping in view the Company’s need for capital for its growth of this unfortunate incident of being the legal owner of the plans and the intent to finance such plans through internally property and as such, we have communicated our views to the generated funds. An optimum debt / equity mix is warranted Treasury. However, as a precautionary measure, the Company for DCSL given the volatility in money markets and fact that has also lodged an official claim with the Compensation DCSL is taxed at high rate of 40%. Tribunal, appointed by the State. Since our group is deprived of The Board Directors confirm that the Company satisfies participating in controlling the financial, operating policies and the requirements of the Solvency Test in accordance with other relevant activities, the financial statements of PSIP have Section 56 (2) of the Companies Act No. 07 of 2007 on the been deconsolidated from the group financial statements. payment of the proposed dividend. A solvency certificate in We hope some clarity regarding this untoward situation would this regard is received from the Auditors. be forthcoming within the new financial year. Further details Financial Statements are given in note 38 to the Financial Statements. The Financial Statements of the Company and the Group for the year ended 31 March 2014 as approved by the Board of Directors on 22 August 2014 are given on pages 82 to 159.
Distilleries Company of Sri Lanka PLC 75 ANNUAL REPORT OF THE BOARD OF DIRECTORS
Audit Report Internal Controls and Risk Management The Auditor’s Report on the Financial Statements of the The Directors acknowledge their responsibility for the Company and the Group is given on page 81. Groups’ system of internal control. The systems are designed to provide reasonable assurance that the assets of the Accounting Policies Group are safeguarded and to ensure that proper accounting The accounting policies adopted in the preparation and records are maintained. presentation of the Financial Statements are given on pages 88 to 105. There were no material changes in the The Board, having reviewed the system of internal control is accounting policies adopted by the Group during the year satisfied with the systems and measures in effect at the date under review. of signing this report. At present DCSL is rolling out an ERP system across the Group. This is underway and will be fully Investments functional by the next financial year ending 31 March 2015. Total investments of the Company in subsidiaries, associates Capital and Other Commitments and other equity investments amounted to Rs.42,877 Mn (2012/13 – Rs. 42,325 Mn). The details of the investments Contingent liabilities and capital commitments are disclosed are given in Notes 18, 19 and 20 to the Financial in Note 39 and 40 to the Financial Statements of the Statements. Company.
Property, Plant and Equipment Events after the Reporting Period The net book value of property, plant and equipment of There were no material events or circumstances that the Company and the Group as at 31 March 2014 was have arisen since the reporting date that would require 6,299 Mn (2012/13 – Rs.3,875 Mn) and Rs. 16,221 Mn adjustment, other than the information disclosed in Note 42 (2012/13 – Rs.15,341 Mn.) to the Financial Statements.
Total capital expenditure during the year for acquisition Employees of property, plant and equipment by the Company and the The number of persons employed by the Company and Group Group amounted to Rs. 59 Mn (2012/13 – Rs. 21 Mn) and as at 31 March 2014 was 1,250 (2012/13 1,343) and Rs. 964 Mn (2012/13 – Rs. 787 Mn) respectively. 12,897 (2012/13 -14,681) respectively.
The details of property, plant and equipment are given in Board of Directors Note 15 to the Financial Statements. The Board of Directors of the Company as at 31 March 2014 and their brief profiles are given on pages 28 and 29. Stated Capital and Reserves The Stated Capital of the Company as at 31 March 2014 Directors Standing for Re-election was Rs.300 Mn consisting of an equal number of Ordinary In terms of Article 92 of the Articles of Association of the Shares. There was no change in the stated capital during Company, Mr. C. R. Jansz and Mr. N. de S. Deva Aditya retire the year. The total Group Reserves as at 31 March 2014 by rotation and being eligible are being recommended by the amounted to Rs. 53,336 Mn comprising of Capital Reserves Board for re-election. of Rs. 5,906 Mn and Revenue Reserves & Retained Earnings of Rs. 47,430Mn, the movement of which is disclosed in the Further, in terms of section 210 of the Companies Act, Statement of Changes in Equity. Mr. D. H. S. Jayawardena who is over the age of 70 years has to be reappointed by the membership annually. Accordingly, notice has been given of a resolution in terms of section
76 Annual Report 2013/14 211 of the Companies Act No. 07 of 2007 to propose the Directors’ Remuneration reappointment of Mr. D. H. S. Jayawardena, notwithstanding Directors’ Remuneration in respect of the Company for the year the age limit of 70 years. is given in Note 11 to the Financial Statements.
Also, in terms of section 210 of the Companies Act, Mr. Share Information C. F. Fernando who is over the age of 70 years has to be Information relating to Earnings, Dividends, Net Assets and reappointed by the membership annually. Accordingly, notice Market Value per Share is given on pages 4. There were has been given of a resolution in terms of section 211 of 10,798 registered shareholders holding ordinary voting the Companies Act No. 07 of 2007 to propose the re- shares as at 31 March 2014. The distribution and the appointment of Mr. C. F. Fernando, notwithstanding the age composition of shareholdings are given on page 162 of this limit of 70 years. report. Major Shareholdings details of the Twenty Major Interest Register Shareholders of the Company including the number of shares held by them are given on page 163 of the Annual Report. The Company maintains an Interest Register in compliance with the Companies Act No. 07 of 2007. This Annual Report Corporate Governance also contains particulars of entries made in the Interest The Board has ensured that the Company has complied with Register. Directors’ Interests in Contracts are disclosed in the the Listing Rules of the Colombo Stock Exchange and the Related Party Transactions under Note 35 to the Financial Code of Best Practices on Corporate Governance issued by Statements. A Code of Business Conduct and Ethics along the Securities and Exchange Commission and the Institute of with other controls are in place to ensure that related party Chartered Accountants of Sri Lanka. The Board is committed transactions involving directors, senior managers or their towards the furtherance of Corporate Governance principles connected parties are conducted on an arm’s length basis. of the Company. The measures taken in this regard are set The Directors to the best of their knowledge and belief out in the Corporate Governance Report. hereby confirm compliance with this code. Board Committees Directors’ Shareholdings The Board has appointed two Sub-Committees i.e. the The shareholdings of Directors of the Company as defined Audit Committee and the Remuneration Committee. The under the Colombo Stock Exchange Rules are as follows. composition and responsibilities of the said Committees are As at 31 As at 31 detailed in the respective reports. March March 2014 2013 Environment The Company has not engaged in any activity that was D. H. S. Jayawardena Nil Nil detrimental to the environment and has been in due R. K. Obeyesekere Nil Nil compliance with all applicable laws and regulations of C. R. Jansz Nil Nil N. de S. Deva Aditya Nil Nil the country to the best of its ability. The Group’s effort to K. J. Kahanda Nil Nil conserve scarce and non-renewable resources are more fully C. F. Fernando 2,062 2,062 described in the Sustainability Report. A. N. Balasuriya Nil Nil Statutory Payments Messrs. D. H. S. Jayawardena and R. K. Obeyesekere are The Directors, to the best of their knowledge and belief are shareholders of Milford Exports (Ceylon) Ltd. and Stassen satisfied that all statutory obligations due to the government Exports Limited, who hold significant stakes in the Company and its employees have been duly paid or adequately directly and indirectly. The shareholdings by these entities provided for in the Financial Statements as confirmed by the are available on page 163 of the Annual Report. Statement of Directors’ Responsibility.
Distilleries Company of Sri Lanka PLC 77 ANNUAL REPORT OF THE BOARD OF DIRECTORS
Going Concern Annual General Meeting The Directors having reviewed the business plans, capital The 24th Annual General Meeting of the Company will be expenditure commitments and expected cash flows are held at the Committee Room “B” of Bandaranaike Memorial satisfied that the Company and the Group have adequate International Conference Hall (BMICH) on 29th September resources to continue operations for the foreseeable future 2014 at 10.00 a.m. The Notice of Meeting appears on page and therefore continue to adopt the going concern basis in 172 of the Annual Report. preparing these Financial Statements. For and on behalf of the Board of Directors, Auditors Messrs. KPMG, Chartered Accountants are deemed reappointed, in terms of section 158 of the Companies Act No. 07 of 2007, as Auditors of the Company. A resolution to authorise the Directors to determine their D. H. S. Jayawardena C. R. Jansz remuneration will be proposed at the Annual General Chairman / Managing Director Director Meeting. Total audit fees paid to Messrs. KPMG and other Auditors of Group companies are disclosed in Note 11 to the Financial Statements. The Auditors of the Company and its subsidiaries have confirmed that they do not have any relationship with the Company or its subsidiaries (other V. J. Senaratne than that of Auditor) that would have an impact on their Company Secretary independence. 22 August 2014. Colombo
78 Annual Report 2013/14 CREATING LONG TERM VALUE
Financial Statements 81 Independent Auditors’ Report 82 Statements of Comprehensive Income 83 Statements of Financial Position 84 Statements of Changes in Equity 87 Statements of Cash Flows 88 Notes to the Financial Statements 160 Statement of Value Added 161 Details of Real Estate 162 Shareholder Information 164 Ten Year Summary 165 DCSL Management Team 166 Group Directory 172 Notice of Meeting 175 Form of Proxy 177 Attendance Slip Distilleries Company of Sri Lanka PLC 79 STATEMENT OF DIRECTORS RESPONSIBILITY
The Directors are responsible under the Companies Act Compliance Report No. 07 of 2007, to ensure compliance of the requirements The Directors confirm that to the best of their knowledge and set out therein to prepare Financial Statements for each belief that all statutory payments in relation to regulatory and financial year giving a true and fair view of the state of statutory authorities that were due in respect of the Company the affairs of the Company and its Subsidiaries as at the and its Subsidiaries as at the Reporting date have been paid Reporting date and the profit of the Company and its or where relevant, provided for. By Order of the Board, Subsidiaries for the financial year. The Directors are also responsible for ensuring that proper accounting records are kept to disclose, with reasonable accuracy, the financial position and enable preparation of the Financial Statements.
The Board accepts the responsibility for the integrity and V. J. Senaratne objectivity of the Financial Statements presented. The Company Secretary Directors confirm that proper accounting records have been maintained and appropriate accounting policies have been 22 August 2014. selected and applied consistently in the preparation of such Financial Statements which have been prepared and presented in accordance with the Sri Lanka Accounting Standards and 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.
80 Annual Report 2013/14 INDEPENDENT AUDITORS’ REPORT
TO THE SHAREHOLDERS OF DISTILLERIES Opinion- Company COMPANY OF SRI LANKA PLC In our opinion, so far as appears from our examination, the Company maintained proper accounting records for the year Report on the Financial Statements ended 31 March 2014 and the financial statements give a We have audited the accompanying financial statements of true and fair view of the financial position of the Company Distilleries Company of Sri Lanka PLC (“the Company”) and as at 31 March 2014, and of its financial performance and the consolidated financial statements of the Company and its its cash flow for the year then ended in accordance with Sri subsidiaries (“the Group”), which comprise the statements Lanka Accounting Standards. of financial position as at 31 March 2014, the statements of comprehensive income, changes in equity and cash flows Opinion- Group for the year then ended, and notes, comprising a summary As described in note 25.1 to the financial statements, Trade of significant accounting policies and other explanatory and Other receivable of the group includes Rs.1,446.83 Mn information set out on pages 82 to 159 of the annual report. receivable from Melstacorp Limited Share Trust. However as at the reporting date share ownership has not been Management’s Responsibility for the Financial transferred under the name of the Trust and the terms of Statements loan and recoverability not determined. Management is responsible for the preparation and fair presentation of these financial statements in accordance with In our opinion, except for the possible effect on the financial Sri Lanka Accounting Standards. This responsibility includes: statements of the matter described in the preceding designing, implementing and maintaining internal control paragraph, the consolidated financial statements give a true relevant to the preparation and fair presentation of financial and fair view of the financial position of the Company and its statements that are free from material misstatement, whether subsidiaries dealt with thereby as at 31 March 2014, and of due to fraud or error; selecting and applying appropriate its financial performance and its cash flows for the year then accounting policies; and making accounting estimates that are ended in accordance with Sri Lanka Accounting Standards. reasonable in the circumstances. Report on Other Legal and Regulatory Scope of Audit and Basis of Opinion Requirements Our responsibility is to express an opinion on these financial These financial statements also comply with the requirements statements based on our audit. We conducted our audit of Sections 153(2) to 153(7) of the Companies Act No. 07 of in accordance with Sri Lanka Auditing Standards. Those 2007. standards require that we plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement.
An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial CHARTERED ACCOUNTANTS statements. An audit also includes assessing the Colombo, accounting policies used and significant estimates made by management, as well as evaluating the overall financial 22 August 2014. statement presentation.
We have obtained all the information and explanations which to the best of our knowledge and belief were necessary for the purposes of our audit. We therefore believe that our audit provides a reasonable basis for our opinion.
Distilleries Company of Sri Lanka PLC 81 STATEMENTS OF COMPREHENSIVE INCOME
Group Company For the year ended 31 March, 2014 2013 2014 2013 Notes Rs. 000 Rs. 000 Rs. 000 Rs. 000
Gross Revenue 6 63,186,302 65,790,460 47,755,538 51,548,909
Net Revenue 6 28,982,884 28,766,493 16,698,158 17,461,451 Cost of Sales, Net Benefits Paid and Interest Expenses 7 (15,219,099) (15,897,683) (7,753,967) (9,103,172) Gross Profit 13,763,785 12,868,810 8,944,191 8,358,279
Other Operating Income 8 898,392 1,208,921 1,374,595 4,291,436 Distribution Expenses (1,814,190) (1,842,069) (331,688) (297,129) Administrative Expenses (3,591,995) (3,435,743) (1,109,827) (918,143) Other Operating Expenses 9 (729,142) (776,566) - (926,473) Results from Operating Activities 8,526,850 8,023,353 8,877,271 10,507,970
Finance Income 10.1.1 747,833 733,357 118,630 144,896 Finance Cost 10.1.2 (1,220,766) (1,964,142) (859,321) (1,376,919) Net Finance Income 10 (472,933) (1,230,785) (740,691) (1,232,023)
Share of Profit of Equity-Accounted Investees (Net of Tax) 19.1 1,440,182 1,291,749 - - Profit before Income Tax Expense 11 9,494,099 8,084,317 8,136,580 9,275,947
Taxation 12 (3,263,009) (2,826,147) (2,778,643) (2,403,225) Profit for the Year 6,231,090 5,258,170 5,357,937 6,872,722
Other Comprehensive Income
Net Change in Fair Value of Available for Sale Financial Assets (136,568) 2,021,748 217,263 578,500 Actuarial Gain/(Losses) on Retirement Benefit Obligations (Net of Tax) 22,571 10,047 3,351 6,667 Revaluation of Property, Plant and Equipment - 96,611 - - Share of Other Comprehensive Income of Equity-Accounted Investees (Net of Tax) 19.1 461,474 109,196 - - Total Other Comprehensive Income for the Year 347,477 2,237,602 220,614 585,167 Total Comprehensive Income for the Year 6,578,567 7,495,772 5,578,551 7,457,889
Profit Attributable to: Equity Holders of the Parent 6,121,813 5,139,807 5,357,937 6,872,722 Non Controlling Interest 109,277 118,363 - - 6,231,090 5,258,170 5,357,937 6,872,722
Total Comprehensive Income Attributable to: Equity Holders of The Parent 6,457,079 7,321,046 5,578,551 7,457,889 Non Controlling Interest 121,488 174,726 - - 6,578,567 7,495,772 5,578,551 7,457,889
Basic Earnings per Share 13.1 20.41 17.13 17.86 10.68
The notes from pages 88 to 159 form an integral part of these Financial Statements.
Figures in brackets indicate deductions.
82 Annual Report 2013/14 STATEMENTS OF FINANCIAL POSITION
Group Company As at 31 March, 2014 2013 2014 2013 Notes Rs. 000 Rs. 000 Rs. 000 Rs. 000 ASSETS Non Current Assets Property, Plant and Equipment 15 16,221,042 15,341,042 6,298,670 3,874,904 Intangible Assets 16 2,990,493 2,917,617 23,640 17,277 Biological Assets 17 3,176,036 2,804,360 - - Investments in Subsidiaries 18 - - 35,714,117 35,714,117 Investments in Equity Accounted Investees 19 22,994,509 20,914,985 28,703 28,703 Other Non Current Financial Investments 20 15,754,657 14,512,561 6,349,895 5,897,294 Deferred Tax Asset 21.1 396,816 364,879 44,068 46,145 Finance Lease, Hire Purchases and Operating Lease Receivables 22 301,364 122,051 - - Advances and Other Loans 23 151,984 100,118 - - 61,986,901 57,077,613 48,459,093 45,578,440 Current Assets Inventories 24 4,435,796 6,139,705 2,246,156 2,503,798 Trade and Other Receivables 25 9,720,603 7,827,963 3,955,602 3,366,090 Finance Lease, Hire Purchases and Operating Lease Receivables 22 114,199 38,532 - - Advances and Other Loans 23 673,015 101,594 - - Amounts due from Related Companies 35.1.1 567,714 749,654 5,324,230 3,087,130 Other Current Financial Investments 20 2,319,814 1,768,476 784,402 684,758 Cash at Bank and in Hand 26 3,923,512 4,842,646 420,103 766,199 21,754,653 21,468,570 12,730,493 10,407,975 Non Current Assets Held for Sale 27 - 518 - - Total Assets 83,741,554 78,546,701 61,189,586 55,986,415 Equity and Liabilities Share Capital and Reserves Stated Capital 28 300,000 300,000 300,000 300,000 Reserves 29 20,832,013 20,445,524 14,871,455 14,734,635 Retained Earnings/(Losses) 32,504,269 27,232,324 28,667,185 24,120,487 Equity Attributable to Owners of the Company 53,636,282 47,977,848 43,838,640 39,155,122 Non Controlling Interest 3,956,832 4,734,869 - - Total Equity 57,593,114 52,712,717 43,838,640 39,155,122 Non Current Liabilities Interest Bearing Loans and Borrowings 30 670,975 602,217 - 125,006 Deferred Tax Liabilities 21.1 733,350 779,055 60,958 44,230 Employee Benefits 31 831,769 1,147,982 110,170 115,365 Other Deferred Liabilities 32 252,571 257,882 - - 2,488,665 2,787,136 171,128 284,601 Current Liabilities Trade and Other Payables 33 8,772,678 11,188,408 5,146,561 6,688,336 Deposit Liabilities 34 663,537 278,372 - - Other Deferred Liabilities 32 56,730 58,128 - - Amount due to Related Companies 35.1.2 263,905 242,479 1,035,020 971,425 Income Tax Payable 1,178,888 726,650 972,399 435,903 Interest Bearing Loans and Borrowings 30 7,603,794 4,856,908 6,215,006 3,714,998 Bank Overdrafts 26 5,120,243 5,695,903 3,810,832 4,736,030 23,659,775 23,046,848 17,179,818 16,546,692 Total Liabilities 26,148,440 25,833,984 17,350,946 16,831,293 Total Equity and Liabilities 83,741,554 78,546,701 61,189,586 55,986,415 Net Assets per Share (Rs.) 178.79 159.93 146.13 130.52 The notes from pages 88 to 159 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.F. Fernando Chairman / Managing Director Director Colombo, 22 August 2014 Distilleries Company of Sri Lanka PLC 83 STATEMENTS OF CHANGES IN EQUITY - Total (867) Equity 109,196 (900,000) 2,021,748 - - - - Non 686 686 (236) (236) Interest Controlling Total Total 40,335 56,276 96,611 2,021,748 (867) (867) (947) 109,196 9,960 9,960 87 10,047 5,132 5,132 (33,875) (28,743) 9,013 2,181,239 56,363 2,237,602 (Losses) Earnings/ (42,685) (23,219) 23,219 Retained (900,000) (900,000) (938,420) (918,954) (10,206) (929,160) 5,139,807 5,139,807 118,363 5,258,170 5,148,820 7,321,046 174,726 7,495,772 - - - - - Fund Investment - - - - Sale Reserve 14,733 2,021,748 2,036,481 2,036,481 Available for Available - - - Timber Reserve 19,466 19,466 Reserve (20,371) (20,371) (20,371) Exchange Fluctuation Attributable to Equity Holders of Parent General Reserve Fund Reserve ------Capital Reserve Reserve 40,335 115,781 156,116 156,116 Revaluation ------Stated Capital Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 300,000 5,200,583 110,930 1,131 8,210,000 349,306 546,340 3,833,552 1,990 41,575,756 23,021,924 4,570,349 46,146,105 300,000 5,356,699 110,930 1,131 8,210,000 328,935 565,806 5,870,033 1,990 47,977,848 27,232,324 4,734,869 52,712,717
Group Balance as at 01 April 2012 Comprehensive Income for the Period Total Year Profit for the Other Comprehensive Income for of Available Net Change in Fair Value Sale Financial Assets Actuarial Gain/(Losses) on Retirement Tax) Benefit Obligations (Net of Plant and Equipment Revaluation of Property, Share of Other Comprehensive Income Equity-Accounted Investees (Net of Tax) Other Comprehensive Income for the Period Total Comprehensive Income for the Period Total with Owners Directly Transactions Recorded in the Equity Dividends Paid to Non Controlling Interest Effect on Percentage Holding Change Direct Cost on Issue of Share from Retained Earnings Transferred Share Capital Issued Dividend Paid (2011/12) with Owners Transactions Total Balance as at 31 March 2013 The notes from pages 88 to 159 form an integral part of these financial statements. Figures in brackets indicate deductions.
84 Annual Report 2013/14 Total (111) (111) Equity 6,752 461,474 (900,000) - - - Non Interest (15,688) (15,688) (789,123) (789,123) Controlling - - - - Total Total (136,631) 63 (136,568) - - 94,603 94,603 (94,714) (5,826) 6,752 (5,009) 335,266 12,211 347,477 (Losses) 10,423 10,423 12,148 22,571 Earnings/ (15,432) 461,474 Retained (900,000) (900,000) 6,121,813 6,121,813 109,277 6,231,090 6,116,804 6,457,079 121,488 6,578,567 - - - - 854 (33,636) 854 (844,859) (798,645) (899,525) (1,698,170) Fund Investment - - - - Sale Reserve (5,899) (136,631) (142,530) (142,530) Available for Available - - - - Timber Reserve 32,115 32,115 - - - - - Reserve 45,946 45,946 45,946 Exchange Fluctuation Attributable to Equity Holders of Parent - - General Reserve 12,578 667 667 12,578 Fund Reserve ------Capital Reserve Reserve 436,859 436,859 436,859 Revaluation ------Stated Capital Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 300,000 5,356,699 110,930 1,131 8,210,000 328,935 565,806 5,870,033 1,990 47,977,848 27,232,324 4,734,869 52,712,717 300,000 5,793,558 110,930 1,798 8,222,578 374,881 597,921 5,727,503 2,844 53,636,282 32,504,269 3,956,832 57,593,114 Group Balance as at 01 April 2013 Comprehensive Income for the Period Total Year Profit for the Other Comprehensive Income for of Available Net Change in Fair Value Sale Financial Assets Actuarial Gains / (Losses) on Retirement Tax) Benefit Obligation (Net of Share of Other Comprehensive Income Equity-Accounted Investees (Net of Tax) Other Comprehensive Income for the Total Period Comprehensive Income For The Total Period with Owners Directly Transactions Recorded in the Equity Dividends Paid to Non Controlling Interest Share of Net Assets Equity-Accounted Investees (Net of Tax) Dividends Paid During The Period from Retained Earnings Transferred Effect on Percentage Holding Change Effect on Deemed Disposal of Subsidiaries (Note 5.1) with Owners Transactions Total Balance as at 31 March 2014 The notes from pages 88 to 159 form an integral part of these Financial Statements. Figures in brackets indicate deductions.
Distilleries Company of Sri Lanka PLC 85 STATEMENTS OF CHANGES IN EQUITY - - Total Total 4,967 217,263 578,500 (900,000) - - - 3,351 3,351 6,667 6,667 85,410 Earnings Retained 346,849 (814,590) (895,033) (553,151) (900,000) (900,000) (900,000) (900,000) 5,357,937 5,357,937 6,872,722 6,872,722 ------217,263 217,263 5,361,288 3,351 5,578,551 220,614 217,263 578,500 578,500 6,879,389 6,667 7,457,889 585,167 578,500 Sale Reserve Available for Available ------General Reserve
------Capital Reserve ------4,967 Reserve (80,443) (85,410) (346,849) (346,849) Revaluation ------Stated Capital Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 300,000 1,971,799 107,882 8,210,000 4,581,774 28,667,185 43,838,640 300,000 2,052,242 300,000 2,052,242 107,882 8,210,000 107,882 4,364,511 8,210,000 24,120,487 4,364,511 39,155,122 24,120,487 39,155,122 300,000 2,399,091 107,882 8,210,000 3,786,011 17,794,249 32,597,233 Balance as at 31 March 2013 Figures in brackets indicate deductions. The notes from pages 88 to 159 form an integral part of these Financial Statements. Figures in brackets indicate deductions. Total Transactions with the Owners of Company Transactions Total Transferred from/to Retained Earnings Transferred Total Other Comprehensive Income for the Period Total Comprehensive Income for the Period Total with Owners Directly Recorded in the Equity Transactions Dividends Paid During the Period Other Comprehensive Income for Sale Financial Assets of Available Net Change in Fair Value Tax) Actuarial Gain/(Losses) on Retirement Benefit Obligations (Net of Balance as at 31 March 2013 Balance as at 01 April 2013 Comprehensive Income for the Period Total Year Profit for the Total Transactions with the Owners of Company Transactions Total Transferred from/to Retained Earnings Transferred Total Other Comprehensive Income for the Period Total Comprehensive Income for the Period Total with Owners Directly Recorded in the Equity Transactions Dividends Paid during the Period Other Comprehensive Income for Sale Financial Assets of Available Net Change in Fair Value Tax) Actuarial Gain/(Losses) on Retirement Benefit Obligations (Net of Company Balance as at 01 April 2012 Comprehensive Income For The Period Total Year Profit for the Deferred Tax 86 Annual Report 2013/14 STATEMENTS OF CASH FLOWS
Group Company For the year ended 31March, Note 2014 2013 2014 2013 Rs.000 Rs.000 Rs.000 Rs.000 CASH FLOW FROM OPERATING ACTIVITIES Profit for the Year 9,494,099 8,084,317 8,136,580 9,275,947 Adjustment for: (Gain) / Loss on Sale of Property, Plant and Equipment (30,331) (11,268) (50,767) (39,985) Depreciation and Amortisation of PPE and Intangible Assets 1,502,987 1,663,148 148,392 158,678 Provision for Gratuity 151,125 152,584 21,445 18,494 Provision/(Reversal) of Inventories 226,679 150,760 - - Provision /(Reversal) of Bad & Doubtful Debts and Impairment of Loans and Receivables. (135,241) 171,550 25,057 - Interest Expenses 1,186,613 1,648,649 862,274 1,376,919 Share of Profit of Equity-Accounted Investees (Net of Tax) (1,440,182) (1,291,749) - - Amortisation of Biological Assets 37,339 36,980 - - (Gain)/Loss on Change in Fair Value of Financial Assets at Fair Value through Profit or Loss (53,338) (14,974) (66,877) 855,617 Impairment of Goodwill - 776,566 - - Interest Income (429,894) (539,701) (51,443) (74,040) Recognition of Share Warrants at Fair Value (225,081) - (310) - (Profit)/Loss on Disposal of Other Financial Investments (29,973) (49,041) (16,828) (30,326) Dividend Income (405,809) (542,561) (1,159,818) (460,947) Deferred Income Recognised (85,660) (97,647) - - Gains on Disposal of Group Investments - - - (3,644,589) Loss on Deemed Disposal of Subsidiary and Associate 726,439 - - - (Gain) / Loss on Fair Valuation of Biological Assets (74,294) (42,685) - - Operating Profit before Working Capital Changes 10,415,478 10,094,928 7,847,705 7,435,768 (Increase)/Decrease in Receivables (4,324,074) (377,125) (2,824,720) (2,818,189) (Increase)/Decrease in Inventories (324,392) (505,433) 257,642 (417,621) Increase/(Decrease) in Payables 1,982,363 50,659 (1,481,625) 3,254,127 Cash Generated from Operations 7,749,375 9,263,029 3,799,002 7,454,085 Interest Paid (1,182,530) (1,648,649) (862,274) (1,376,919) Income Tax Paid (2,723,126) (3,488,446) (2,244,381) (2,915,614) Defined Benefit Plan Costs Paid (106,980) (97,640) (21,056) (12,566) Net Cash from/(used in) Operating Activities 3,736,739 4,028,294 671,291 3,148,986
CASH FLOW FROM INVESTING ACTIVITIES Investment in Subsidiary Companies - (2,853) - - Investment in Equity Accounted Investees (507,636) (68,406) - - Acquisition of Property, Plant and Equipment and Intangible Assets (4,812,025) (2,593,749) (2,700,384) (1,139,371) Net Proceeds from Disposal / (Acquisition) of Other Financial Investments (1,635,723) (269,567) (250,964) (32,447) Proceeds from sale of Subsidiaries, Associates and Shares - - - - Proceeds from the sale of Property, Plant and Equipment 38,624 24,511 170,757 4,394 Interest Received 429,894 539,701 51,442 74,040 Dividend Received 656,045 485,687 1,159,818 404,073 Additions to Biological Assets (334,721) (243,636) - - Net Cash Flow from Investing Activities (6,165,542) (2,128,312) (1,569,331) (689,311)
CASH FLOW FROM FINANCING ACTIVITIES Principal Repayment under Lease Liabilities (8,439) (5,673) - - Proceeds from Long-Term Interest Bearing Loans and Borrowings 1,477,684 1,396,517 - 500,000 Repayments of Long-Term Interest Bearing Loans and Borrowings (2,434,426) (2,076,854) (1,270,002) (1,144,998) Stamp Duty Paid on Issuance of Shares - (867) - Dividend Paid (897,859) (890,624) (897,859) (890,624) Dividend Paid by Subsidiaries to Minority Share Holders (15,688) (236) - - Receipt of Deferred Income 78,951 91,550 - - Net Cash Generated from Financing Activities (1,799,777) (1,486,187) (2,167,861) (1,535,622) Net Increase/(Decrease) in Cash and Cash Equivalents During the Year (4,228,580) 413,795 (3,065,902) 924,053 Net Cash and Cash Equivalents Derecognised Via Derecognition of Subsidiaries (13,182) - - - Cash and Cash Equivalents at the Beginning of the Year (3,913,546) (4,327,341) (6,539,833) (7,463,886) Cash and Cash Equivalents at the end of the Year (8,155,308) (3,913,546) (9,605,735) (6,539,833)
Analysis of Cash and Cash Equivalents at the end of the Year Short Term Deposits 26.1 3,044,934 3,824,871 82,062 70,410 Cash at Bank 26 595,628 504,495 61,719 193,501 Cash in Hand 26 206,471 235,886 199,883 231,501 Cash in Transit 26 76,479 277,394 76,439 270,787 Other Short Term Borrowings 30 (6,958,577) (3,060,289) (6,215,006) (2,570,002) Bank Overdrafts 26 (5,120,243) (5,695,903) (3,810,832) (4,736,030) (8,155,308) (3,913,546) (9,605,735) (6,539,833) The notes from pages 88 to 159 form an integral part of these Financial Statements. Figures in brackets indicate deductions.
Distilleries Company of Sri Lanka PLC 87 NOTES TO THE FINANCIAL STATEMENTS
1. Reporting Entity Land and Building Fair value 1.1 Domicile & Legal Form Defined benefit obligation Actuarially valued Distilleries Company of Sri Lanka PLC (Company) and recognised at is a quoted Public Limited Company incorporated present value of and domiciled in Sri Lanka. The registered office the defined benefit and principal place of business of the Company is obligation located at 110, Norris Canal Road, Colombo 10. Available for sale financial Fair Value The consolidated Financial Statements of Distilleries assets Company of Sri Lanka PLC, as at and for the year Fair value through profit or Fair Value ended 31 March 2014 comprise the Company and its loss financial assets subsidiaries (together referred to as the “Group”) and Consumable Biological Fair Value the Group’s interests in associates. Assets
1.2 Principle Activities and Nature of Operation 2.4 Functional and Presentation Currency The principal activity of the Company is distillation, The Financial Statements are presented in Sri Lankan manufacture and distribution of liquor products. Rupees, which is the Group’s functional currency. All Description of the nature of the operations and financial information presented in Sri Lankan Rupees principal activities of the subsidiaries and associates has been given to the nearest thousand, unless stated are given in Note 18.1 and Note 19.2. otherwise.
1.3 Parent Enterprise and Ultimate Parent 2.5 Use of Estimates and Judgments Enterprise The preparation of Financial Statements in conformity The immediate and ultimate parent entity of with SLFRSs requires management to make Distilleries Company of Sri Lanka PLC is Milford judgments, estimates and assumptions that affect the Exports Ceylon (Pvt) Limited. The Financial application of accounting policies and the reported Statements of all the companies in the Group other amounts of assets, liabilities, income and expenses. than those mentioned in Note 18.1 to the Financial Actual results may differ from those estimates and Statements are prepared for a common financial year, judgmental decisions. which ends on 31 March. Estimates and underlying assumptions are reviewed 2. Basis of Preparation on an ongoing basis. Revisions to accounting 2.1 Statement of Compliance estimates are recognised in the period in which the The Financial Statements of the Company and the estimate is revised if the revision affects only that Group have been prepared in accordance with new Sri period or in the period of the revision and future Lanka Accounting Standards (SLFRS) as laid down by periods if the revision affects both current and future the Institute of Chartered Accountants of Sri Lanka periods. (ICASL) and the requirements of the Companies Act No. 07 of 2007. Information about assumption and estimation uncertainty that have significant effect on the 2.2 Approval of Financial statements amounts recognised in the consolidated financial statements is included in notes; The Financial Statements were authorised for issue by the Board of Directors on 22 August 2014. Note 17 – Biological Assets 2.3 Basis of Measurement Note 25 – Provisions for bad and doubtful debts The Financial Statements have been prepared on the Note 31 – Measurement of defined benefit plan historical cost basis except as indicated below. Note 39 – Provisions for contingencies
88 Annual Report 2013/14 3. Significant Accounting Policies (ii) Non-Controlling interests Accounting policies set out below have been applied For each business combination, the Group elects to consistently to all periods presented in these financial measure any non controlling interests in the acquire statements. The accounting policies have been either: applied consistently by the entities in the Group. • at fair value; or Where applicable and deviations if any, have been • at their proportionate share of the acquiree’s disclosed accordingly. identifiable net assets, which are generally at fair 3.1 Basis of Consolidation value. (i) Business combinations Changes in the Group’s interest in a subsidiary that Business combinations are accounted for using the do not result in a loss of control are accounted for as acquisition method as at the acquisition date – i.e. transactions with owners in their capacity as owners. when control is transferred to the Group. Control Adjustments to non controlling interests are based is the power to govern the financial and operating on a proportionate amount of the net assets of the policies of an entity so as to obtain benefits from its subsidiary. No adjustments are made to goodwill and activities. In assessing control, the Group takes into no gain or loss is recognised in profit or loss. consideration potential voting rights that are currently exercisable. (iii) Subsidiaries Subsidiaries are entities controlled by the Group. The The Group measures goodwill at the acquisition date as: financial statements of subsidiaries are included in • the fair value of the consideration transferred; plus the consolidated financial statements from the date that control commences until the date that control • the recognised amount of any non-controlling interests in the acquiree; plus ceases.
• if the business combination is achieved in stages, (iv) Transactions Eliminated on Consolidation the fair value of the pre-existing equity interest in Intra-group balances and transactions and any the acquiree; less unrealised gains arising from intra-group transactions, • the net recognised amount (generally fair value) are eliminated in preparing the consolidated of the identifiable assets acquired and liabilities financial statements. Unrealised gains arising from assumed. transactions with Associates are eliminated against the investment in the associate, to the extent of the When the excess is negative, a bargain purchase gain Group’s interest in the enterprise. is recognised immediately in profit or loss. (v) Loss of Control The consideration transferred does not include Upon the loss of control, the Group de-recognises amounts related to the settlement of pre-existing the assets and liabilities of the subsidiary, any non relationships. Such amounts are generally recognised in profit or loss. controlling interests and the other components of equity related to the subsidiary. Any surplus or deficit Transactions costs, other than those associated with arising on the loss of control is recognised in profit or the issue of debt or equity securities, that the Group loss. If the Group retains any interest in the previous incurs in connection with a business combination are subsidiary, then such interest is measured at carrying expensed as incurred. amount at the date that control is lost. Subsequently it is accounted for as an equity-accounted investee or Any contingent consideration payable is measured at as an available-for-sale financial asset depending on fair value at the acquisition date. If the contingent the level of influence retained. consideration is classified as equity, then it is not remeasured and settlement is accounted for within (vi) Foreign Currency Translation equity. Otherwise, subsequent changes in the fair Transactions in foreign currencies are translated value of the contingent consideration are recognised into Rupees at the rate of exchange prevailing in profit or loss.
Distilleries Company of Sri Lanka PLC 89 NOTES TO THE FINANCIAL STATEMENTS
on the dates of the transactions. Monetary assets in circumstances indicate that the carrying amount and liabilities denominated in foreign currencies may not be recoverable. An asset’s carrying amount is are translated into Rupees at the rate of exchange written down immediately to its recoverable amount prevailing at the Reporting date. Foreign exchange if the asset’s carrying amount is greater than its differences arising on the settlement or reporting of estimated recoverable amount. the Group’s monetary items at rates different from those which were initially recorded are dealt with in e. De-recognition the Statement of Comprehensive Income. An item of property, plant and equipment is derecognised upon disposal or when no future 3.2 Property, Plant & Equipment economic benefits are expected from its use or 3.2.1 Freehold Assets disposal. Any gain or loss arising on derecognising of a. Recognition the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the Properties, Plant & Equipments are tangible items asset) is included in the Statement of Comprehensive that are held for servicing, or for administrative Income in the year the asset is derecognised. purposes and are expected to be used during more than one period. Property, Plant & Equipment are f. Revaluation recognised if it is probable that future economic benefits associated with the assets will flow to the The Group revalues its land and buildings at least Group and cost of the asset can be reliably measured. once in every five years which is measured at its fair value at the date of revaluation less any subsequent b. Measurement impairment losses. On revaluation of land, any Items of property, plant & equipment are measured at increase in the revaluation amount is credited cost or at fair value in the case of land and buildings to the revaluation reserve in shareholder’s equity less accumulated depreciation and accumulated unless it off sets a previous decrease in value of the impairment losses. The cost of property, plant & same asset that was recognised in the Statement equipment includes expenditures that are directly of Comprehensive Income. A decrease in value is attributable to the acquisition of the asset. The recognised in the Statement of Comprehensive cost of self-constructed assets includes the cost of Income where it exceeds the increase previously materials and direct labour, any other costs directly recognised in the revaluation reserve. Upon disposal, attributable to bringing the asset to a working any related revaluation reserve is transferred from the condition for its intended use, and the costs of revaluation reserve to retained earnings and is not dismantling and removing the items and restoring the taken into account in arriving at the gain or loss on site on which they are located. When parts of an item disposal. of property, plant and equipment have different useful lives, they are accounted for as separate items (major g. Depreciation components) of property, plant and equipment. Depreciation is recognised in the Statement of c. Subsequent Cost Comprehensive Income on a straight-line basis over Subsequent costs are included in the asset’s the estimated useful lives of each part of an item of carrying amount or recognised as a separate asset, property, plant & equipment. Freehold land is not as appropriate, only when it is probable that future depreciated. Assets held under finance lease are economic benefit associated with the item will flow to depreciated over the shorter of the lease term or the the Group and the cost of the item can be measured useful lives of equivalent owned assets. Depreciation reliably. The cost of the day-to-day servicing of is based on the cost of an asset less its residual property, plant and equipment are recognised in the value. Significant components of individual assets Statement of Comprehensive Income. are assessed and if a component has a useful life that is different from the remainder of that asset, d. Impairment that component is depreciated separately. The Carrying amount of property, plant & equipment are estimated useful lives used for this purpose, which reviewed for impairment whenever events or changes are consistent with that of the preceding years, are:
90 Annual Report 2013/14 Freehold Buildings 20 years element is charged against profit, in proportion to the reducing capital element outstanding. Plant, Machinery & Equipment 10 years
Furniture, Fittings, Office Equipment & 10 years The cost of improvements to or on leased property is Fire Fighting Equipment capitalised, disclosed as improvements to leasehold Vats & Casks 10 years property and depreciated over the unexpired period Oil Storage Tanks 10 years of the lease, or the estimated useful lives of the Computers 03 years improvements, whichever is shorter. Motor Vehicles 04 years 3.3 Investment Property Empty Drums 02 years Kitchen Equipment 10 years Investment property is property held either to earn rental income or for capital appreciation or for both, Soft Furnishing, Crockery, Cutlery and 05 years but not for sale in the ordinary course of the business, Glassware use in the production or supply of goods or services Depreciation of an asset begins when it is available or administrative purpose. Investment properties for use and ceases at the earlier of the date that the are initially measured at its cost including related asset is classified as held for sale and the date that transaction costs. The group opts the cost model and the asset is derecognised. it is therefore carried at its cost less any accumulated depreciation and any accumulated impairment losses. Depreciation methods, useful lives and residual values are reviewed at each reporting date. Investment properties are derecognised when disposed or permanently withdrawn from use because h. Capital Work-in-progress no future economic benefits are expected. Any gains or losses retirement or disposal is recognised Capital work-in-progress is stated at cost. These are in the Statement of Comprehensive Income in the expenses of a capital nature directly incurred in the year of retirement or disposal. Transfers are made construction of buildings, major plant and machinery, to investment property, when there is a change in awaiting capitalisation. use. Where group companies a significant portion of 3.2.2 Leased Assets investment property of a subsidiary, such investment properties are treated as property, plant & equipment Assets obtained under the finance lease, which the consolidated financial statements and accounted effectively transfer to the Group substantially, all for as per LKAS 16 Property, Plant & Equipment. of the risks and benefits incidental to ownership of the leased assets, are treated as if they have been 3.4 Operating Leases purchased outright and are capitalised at their cash When the lessor effectively retains substantially price. Assets acquired by way of a finance lease all the risks and rewards of an asset under the are measured at an amount equal to the lower of lease agreement, such leases are classified as their fair value and the present value of minimum operating leases. Payments under operating leases lease payments at the inception, less accumulated are recognised as expense in the Statement of depreciation and accumulated impairment losses. Comprehensive Income over the period of lease on a straight line basis. Assets held under finance lease are amortised over the shorter of the lease period or the useful lives 3.5 Intangible Asset of equivalent-owned assets, unless ownership is An intangible asset is recognised if it is probable not transferred at the end of the lease period. The that future economic benefits will flow to the principal/ capital elements payable to the lessor are entity and the cost of the asset can be measured shown as liability/ obligation. The lease rentals are reliably in accordance with LKAS 38 on Intangible treated as consisting of capital and interest elements. Assets. Intangible assets with finite useful lives are The capital element in the rental that is applied measured at cost less accumulated amortisation and to reduce the outstanding obligation and interest accumulated impairment losses.
Distilleries Company of Sri Lanka PLC 91 NOTES TO THE FINANCIAL STATEMENTS
3.5.1 Goodwill The Group has following non derivative financial Goodwill represents the excess of the cost of assets: Fair value through profit or loss, Loans and acquisition over the fair value of Group’s share of receivables, Held to Maturity and Available for sale. the net identifiable assets of the acquired Subsidiary a. Fair Value through Profit or Loss at the date of acquisition. Goodwill acquired in a business combination is tested annually for A financial asset is classified as fair value through impairment or more frequently if events or changes in profit or loss if it is classified as held for trading or is circumstance indicate that it might be impaired and designated as such upon initial recognition. Financial carried at cost less accumulated impairment losses. assets are designated as fair value through profit or Impairment losses on goodwill are not reversed. loss if the Group manages such investments and makes purchase and sales decisions based on their Goodwill is allocated to cash generating units for fair value in accordance with the Group’s documented the purpose of impairment testing. The allocation is risk management or investment strategy. Upon made to those cash generating units or groups of loan initial recognition attributable transaction costs are generating units that are expected to benefit from the recognised in profit or loss as incurred. Financial business combination in which goodwill arose. assets at fair value through profit or loss are measured at fair value, and changes therein are recognised in 3.6 Inventories profit or loss. Inventories are measured at the lower of cost or net realisable value. Net realisable value is the estimated Fair value through profit or loss comprise trading selling price in the ordinary course of business less the portfolio of the Group which includes investment in estimated cost of completion and selling expenses. quoted shares. The general basis on which cost is determined is: all b. Loans and Receivables inventory items, except manufactured inventories and work-in progress are measured at weighted average Loans and receivables are financial assets with fixed directly attributable cost. or determinable payments that are not quoted in an active market. Such assets are recognised initially at Manufactured inventories and work-in-progress are fair value plus any directly attributable transaction measured at weighted average factory cost which costs. Subsequent to initial recognition loans and includes all direct expenditure and appropriate shares receivables are measured at amortised cost using the of production overhead based on normal operating effective interest method less any impairment losses. capacity. Loans and receivables comprise trade receivables, amounts due for related parties, trust certificates, 3.7 Financial Instruments short term deposits and cash and cash equivalents. 3.7.1 Non-derivative Financial Assets c. Held to Maturity The Group recognises a financial asset or financial liabilities in its Statement of Financial Position If the Group has the positive intent and ability to when the Group becomes a party to the contractual hold debt securities to maturity, then such financial provisions of the instrument. assets are classified as held-to-maturity. Held to Maturity financial assets are recognised initially at fair Financial assets are initially measured at fair value. value plus any direct attributable transaction costs. Transaction costs that are directly attributable to the Subsequent to initial recognition, held-to-maturity acquisition or issue of a financial asset (other than financial assets are measured at amortised cost using financial assets at fair value through profit and loss) effective interest method, less any impairment losses. are added or deducted from the fair value of the financial asset, as appropriate, on initial recognition. Held to Maturity financial assets comprise debt Transaction costs that are directly attributable to the securities. acquisition of financial assets at fair value through profit or loss are recognised immediately in profit or loss.
92 Annual Report 2013/14 d. Available-for-Sale Financial Assets Financial liabilities comprise of interest bearing Available-for-sale financial assets are non-derivative loans, trade and other payables and bank overdrafts. financial assets that are designated as available- Bank overdrafts that are repayable on demand and forsale or are not classified in any of the above form an integral part of the Group’s cash management categories of financial assets. Available-for-sale are included as a component of cash and cash financial assets are recognised initially at fair value equivalents for the statement of cash flows. plus any directly attributable transaction costs. a. De-recognition Subsequent to initial recognition, they are The Group derecognises a financial liability when its measured at fair value and changes therein, other contractual obligations are discharged, cancelled or than impairment losses, are recognised in other expired. comprehensive income and presented in the fair value reserve in equity. When an investment is 3.7.3 Share Capital derecognised, the gain or loss accumulated in equity Ordinary Share Capital is reclassified to profit or loss. Ordinary Shares are classified as equity. Incremental costs directly attributable to the issue of ordinary Available- for-sale financial assets comprise of shares and share options are recognised as a investment in unquoted shares and unit trust an deduction from equity, net of any tax effects. quoted shares purchased for long term investment purpose. 3.8 Impairment e. Cash and Cash Equivalents 3.8.1 Non Financial Assets Cash and cash equivalents comprise cash balances The carrying amounts of the Group’s assets are and call deposits. Bank overdrafts and other short reviewed at each reporting date to determine whether terms facilities that are repayable on demand or there is any indication of impairment. If any such repayble with in three months and form an integral indication exists then the asset’s recoverable amount part of the Group’s cash management are included is estimated. For goodwill that has indefinite life, as a component of cash and cash equivalents for the recoverable amount is estimated at each reporting purpose of the Statement of Cash Flows. date or more frequently, if events or changes in circumstances indicate that it might be impaired. Investments with short maturities, i.e. three months or less from the date of acquisition are also treated as An impairment loss is recognised if the carrying cash equivalents. amount of an asset or its cash-generating unit exceeds its recoverable amount. A cash-generating f. De-recognition unit is the smallest identifiable asset group that generates cash flows that are largely independent The Group derecognises the financial asset when from other assets and groups. the rights to receive cash flows from the asset have expired or when it transfer the financial asset in The recoverable amount of an asset or cash- a transaction in which substantially all the risks generating unit is the greater of its value in use and and rewards of ownership of the financial asset are its fair value less costs to sell. In assessing value in transferred or in which the Group neither transfers nor use, the estimated future cash flows are discounted substantially all risks and rewards of ownership and it to their present value using a pre-tax discount rate does not retain control of the financial asset. that reflects current market assessments of the time value of money and the risks specific to the asset. An 3.7.2 Non- derivative Financial Liabilities impairment loss in respect of goodwill is not reversed. Non-derivative financial liabilities are recognised initially at fair value plus any directly attributable 3.8.2 Financial Assets transaction costs. Subsequent to initial recognition, A financial asset not carried at fair value through these financial liabilities are measured at amortised profit or loss is assessed at each reporting date to cost using the effective interest method.
Distilleries Company of Sri Lanka PLC 93 NOTES TO THE FINANCIAL STATEMENTS
determine whether there is objective evidence that it profit or loss. The cumulative loss that is reclassified is impaired. A financial asset is impaired if objective from equity to profit or loss is the difference between evidence indicates that a loss event has occurred the acquisition cost, net of any principal repayment after the initial recognition of the asset, and that the and amortisation, and the current fair value, less loss event had a negative effect on the estimated any impairment loss recognised previously in profit future cash flows of that can be estimated reliably. or loss. Changes in cumulative impairment losses Objective evidence that financial assets are impaired attributable to application of the effective interest can include default or delinquency by a debtor, method are reflected as a component of interest restructuring of an amount due to the Group on income. If, in a subsequent period, the fair value terms that the Group would not consider otherwise, of an impaired available-for-sale debt security indications that a debtor or issuer will enter increases and the increase can be related objectively bankruptcy, or the disappearance of an active market to an event occurring after the impairment loss was for a security. recognised, then the impairment loss is reversed, with the amount of the reversal recognised in profit Financial Assets measured at Amortised Cost or loss. However, any subsequent recovery in the fair The Group considers evidence of impairment for value of an impaired available-for-sale equity security financial assets measured at amortised cost (loans is recognised in other comprehensive income. An and receivables and held-to-maturity financial impairment loss in respect of an equity-accounted assets) at both a specific asset and collective level. investee is measured by comparing the recoverable All individually significant assets are assessed amount of the investment with its carrying amount. for specific impairment. Those found not to be An impairment loss is recognised in profit or loss. specifically impaired are then collectively assessed An impairment loss is reversed if there has been a for any impairment that has been incurred but not yet favourable change in the estimates used to determine identified. Assets that are not individually significant the recoverable amount. are collectively assessed for impairment by grouping together assets with similar risk characteristics. In 3.9 Employee Benefit assessing collective impairment, the Group uses Defined Contribution Plans historical trends of the probability of default, the Defined contribution plan is a post-employment timing of recoveries and the amount of loss incurred, benefit plan under which contributions are made adjusted for management’s judgment as to whether into a separate fund and the entity will have no legal current economic and credit conditions are such that or constructive obligation to pay further amounts. the actual losses are likely to be greater or lesser than Obligations for contributions to defined contribution suggested by historical trends. An impairment loss plan are recognised as an employee benefit expense in respect of a financial asset measured at amortised in profit or loss in the periods during services is cost is calculated as the difference between its rendered by employees. Prepaid contributions are carrying amount and the present value of the recognised as an asset to the extent that a cash estimated future cash flows discounted at the asset’s refund or a reduction in future payments is available. original effective interest rate. Losses are recognised in profit or loss and reflected in an allowance account Defined Benefit Plans against loans and receivables or held-to-maturity A defined benefit plan is a post-employment investment securities. Interest on the impaired asset benefit plan other than a defined contribution plan. continues to be recognised. When an event occurring The Group’s net obligation in respect of defined after the impairment was recognised causes the benefit plans is calculated separately for each plan amount of impairment loss to decrease, the decrease by estimating the amount of future benefit that in impairment loss is reversed through profit or loss. employees have earned in return for their service in the current and prior periods; that benefit is Available-for-Sale Financial Assets discounted to determine its present value. The Impairment losses on available-for-sale financial valuation is performed annually by a qualified assets are recognised by reclassifying the losses actuary using the projected unit credit method. accumulated in the fair value reserve in equity to When the valuation results in a benefit to the Group, 94 Annual Report 2013/14 the recognised asset is limited to the total of any net of returns and allowances, trade discounts and unrecognised past service costs and the present value volume rebates. Revenue is recognised when the of economic benefits available in the form of any significant risks and rewards of ownership have been future refunds from the plan or reductions in future transferred to the buyer, recovery of the consideration contributions to the plan. An economic benefit is is probable, the associated costs and possible return available to the Group if it is realisable during the life of goods can be estimated reliably, and there is no of the plan, or on settlement of the plan liabilities. continuing management involvement with the goods. When the benefits of a plan are improved, the portion of the increased benefit relating to past service by Dividend Income from investment is recognised when employees is recognised in profit or loss on a straight the shareholder’s right to receive payment has been line basis over the average period until the benefits established. become vested. To the extent that the benefits vest immediately, the expense is recognised immediately Rental Income is recognised in profit and loss as it in profit or loss. The Group recognises all actuarial accrues. gains and losses arising from defined benefit plans Gains and losses on the disposal of investments directly in the other comprehensive income and all held by the Group have been accounted for in the expenses related to defined benefit plan in personnel Statement of comprehensive income. expense in profit or loss.
Gains and losses on the disposal of property, plant & Short Term Benefits equipment are determined by comparing the net sales Short-term employee benefit obligations are measured proceeds with carrying amount. These are included in on an undiscounted basis and are expensed as the profit and loss. related service is provided. 3.11.2 Expenses 3.10 Provisions, Contingent Assets and Contingent Liabilities All expenditure incurred in the running of the business has been charged to income in arriving Provisions are recognised, if as a result of a past at the profit for the year. Repairs and renewals are event, the Group has a present legal or constructive charged to the profit and loss in the year in which the obligation that can be estimated reliably, and it is expenditure is incurred. Expenditure incurred for the probable that an outflow of economic benefits will be purpose of acquiring, extending or improving assets of required to settle the obligation. All the contingent a permanent nature by means of which to carry on the liabilities are disclosed, as Notes to the Financial business or for the purpose of increasing the earning Statements unless the outflow of resources is made capacity of the business has been treated as capital contingent assets if exits are disclosed when inflow of expenditure. economic benefit is probable. 3.11.2.1 Borrowing Costs 3.10.1 Commitments Borrowing costs are recognised as an expense in the All material commitments as at the reporting date period in which they are incurred, except to the extent have been identified and disclosed in the Notes to the where borrowing costs that are directly attributable Financial Statements. to the acquisition, construction or production of a qualifying asset that takes a substantial period 3.11 Income Statement of time to get ready for its intended use or sale is For the purpose of presentation of the Income capitalised as part of that asset. Statement, the function of expenses method is adopted, as it represents fairly the elements of Group Borrowing costs that are not capitalised are performance. recognised as expenses in the period which they are incurred and charged to the Income Statement. 3.11.1 Revenue Revenue from the sale of goods is measured at the fair value of the consideration received or receivable, Distilleries Company of Sri Lanka PLC 95 NOTES TO THE FINANCIAL STATEMENTS
The amounts of the borrowing costs which are eligible the carrying amounts of assets and liabilities for for capitalisation are determined in accordance with financial reporting purposes and the amounts used the in LKAS 23 – ‘Borrowing Costs’. for taxation purposes. Deferred tax is not recognised for the following temporary differences: the initial 3.11.2.2 Finance Income and Expenses recognition of goodwill, the initial recognition of Finance income comprises interest income on funds assets or liabilities in a transaction that is not a invested (including available for sale financial assets), business combination and that affects neither gains on the disposal of available for sale financial accounting nor taxable profit, and differences relating assets. Interest income is recognised as it accrues in to investments in subsidiaries to the extent that they the Statement of Comprehensive Income, using the probably will not reverse in the foreseeable future. effective interest method. Deferred tax is measured at the tax rates that are expected to be applied to the temporary differences Finance cost comprise interest expenses on when they reverse, based on the laws that have been borrowings, unwinding of the discount on provisions enacted or substantively enacted by the reporting and contingent consideration, losses on disposal of date. available for sale financial assets, impairment losses recognised on financial assets (other than trade A deferred tax asset is recognised only to the extent receivables). that it is probable that future taxable profits will be available against which the asset can be utilised. Borrowing costs that are not directly attributable Deferred tax assets are reviewed at each reporting to the acquisition, construction or production of a date and are reduced to the extent that it is no longer qualifying asset are recognised in profit or loss using probable that the related tax benefit will be realised. the effective interest rate method. Tax withheld on dividend income from subsidiaries and associates is recognised as an expense in the Foreign currency gains and losses are reported on a Consolidated Income Statement at the same time as net basis as either finance income or finance cost the liability to pay the related dividend is recognised. depending on whether foreign currency movements are in a net gain or net loss position. 3.12 General 3.12.1 Events Occurring after the Reporting Date 3.11.2.3 Income Tax Expense All material post reporting events have been Income tax expense comprises current and deferred considered and where appropriate adjustments or tax. Income tax expense is recognised in profit or loss disclosures have been made in the respective notes to except to the extent that it relates to items recognised the Financial Statements. directly in equity, in which case it is recognised in equity. 3.12.2 Earnings Per Share The Group presents basic and diluted Earnings Per a. Income Tax Share (EPS) for its ordinary shares. Basic EPS is Provision for taxation is based on the profit for the calculated by dividing the profit or loss attributable year adjusted for taxation purposes in accordance to ordinary shareholders of the Group by the weighted with the provisions of the Inland Revenue Act, No.10 average number of ordinary shares outstanding during of 2006 and amendments made thereto. the period. Diluted EPS is determined by adjusting the profit or loss attributable to ordinary shareholders Current tax is the expected tax payable on the taxable and the weighted average number of ordinary shares income for the year, using tax rates enacted at the outstanding for the effects of all dilutive potential reporting date and any adjustments to tax payable in ordinary shares. respect of previous years. 3.12.3 Segment Reporting b. Deferred Tax A segment is a distinguishable component of the Deferred tax is recognised using the reporting Group that is engaged either in providing related method, providing for temporary differences between
96 Annual Report 2013/14 products or services (Business Segment) or in Biological assets are further classified as bearer providing products or services within a particular biological assets and consumable biological assets. economic environment (Geographical Segment), Bearer biological asset includes tea plants, those that which is subject to risks and rewards that are are not intended to be sold or harvested, however different from those of other segments. used to grow for harvesting agriculture produce. Consumable biological assets includes managed The activities of the segments are described in Note timber trees those that are to be harvested as 4 to the Financial Statements. agricultural produce from biological assets or sold as biological assets. 3.12.4 Satemant of Cash Flows The cash flow statement has been prepared using the The entity recognise the biological assets when, and in-direct method. only when, the entity controls the assets as a result of past event, it is probable that future economic 3.12.5 Comparative Figures benefits associated with the assets will flow to the Where necessary comparative figures have been entity and the fair value or cost of the assets can be reclassified to conform to the current year’s measured reliably. presentation. The bearer biological assets are measured at cost 3.12.6 Grants and Subsidies less accumulated depreciation and accumulated impairment losses, if any, in terms of LKAS 16 – Grants and subsidies are credited to the Statements Property Plant & Equipment as per the ruling issued of Comprehensive Income over the periods necessary by CASL. to match them with the related costs which they are intended to compensate, on a systematic basis. The cost of land preparation, rehabilitation, new Grants related to assets, including non-monetary planting, replanting, crop diversification, inter grants at fair value, are deferred in the Reporting and planting and fertilising, etc., incurred between the credited to the Income Statement over the useful life time of planting and harvesting (when the planted of the related asset. area attains maturity), are classified as immature plantations. These immature plantations are shown Grants related to income are recognised in the at direct costs plus attributable overheads, including Income Statement in the period in which it is interest attributable to long-term loans used for receivable. financing immature plantations. The expenditure 3.12.7 Pricing incurred on bearer biological assets (Tea, Rubber, Timber fields) which comes into bearing during the The Group transfers products from one industry year, is transferred to mature plantations. Expenditure segment for use in another. These transfers are based incurred on consumable biological assets is recorded on cost/fair market prices. at cost at initial recognition and thereafter at fair 3.13 Policies Specific to Plantation Sector value at the end of each reporting period.
3.13.1 Biological Asset Permanent impairments to biological asset are 3.13.1.1 Immature and Mature Plantations charged to the Income Statement in full and reduced Biological assets are classified in to mature biological to the net carrying amounts of such asset in the year assets and immature biological assets. Mature of occurrence after ascertaining the loss. biological assets are those that have attained harvestable specifications or are able to sustain The managed timber trees are measured on initial regular harvests. Immature biological assets are those recognition and at the end of each reporting period that have not yet attained harvestable specification. at its fair value less cost to sell in terms of LKAS Tea, rubber, other plantations and nurseries are 41. The cost is treated as approximation to fair classified as biological assets. value of young plants as the impact on biological transformation of such plants to price during this
Distilleries Company of Sri Lanka PLC 97 NOTES TO THE FINANCIAL STATEMENTS
period is immaterial. The fair value of timber 3.13.2 Infilling Cost on Bearer Biological Assets trees are measured using DCF method taking in to The land development costs incurred in the form of consideration the current market prices of timber, infilling have been capitalised to the relevant mature applied to expected timber content of a tree at the field, if it increases the expected future benefits maturity by an independent professional valuer. Key from that field, beyond its pre-infilling performance assumptions and sensitivity analysis are given in assessment. Infilling costs so capitalised are Note 17.2. depreciated over the newly assessed remaining useful economic life of the relevant mature plantation, or the The main variables in DCF model concerns unexpired lease period, whichever is lower. Variable Comment Infilling costs that are not capitalised have been Currency valuation Sri Lankan Rupees charged to the Income Statement in the year in which Timber content Estimate based on physical they are incurred. verification of girth, height 3.13.3 Land Development Cost and considering the growth of the each spices in different Permanent land development costs are those costs incurred in making major infrastructure development geographical regions. and building new access roads on leasehold lands. Factor all the prevailing statutory regulations enforced These costs have been capitalised and amortised over for harvesting of timber coupled the remaining lease period. with forestry plan of the company. Permanent impairments to land development costs are charged to the Income Statement in full or Economic useful Estimated based on the normal reduced to the net carrying amounts of such assets in life life span of each spices by the year of occurrence after ascertaining the loss. factoring the forestry plan of the Company 3.13.4 Depreciation and Amortisation Selling price (a) Depreciation Estimated based on prevailing Depreciation is recognised in Income Statement on a Sri Lankan market price. Factor straight-line basis over the estimated useful economic all the conditions to be fulfilled lives of each part of an item of Property, Plant & in bringing the trees in to Equipment. Assets held under finance leases are saleable condition depreciated over the shorter of the lease term and the Planting cost Estimated costs for the further useful lives of equivalent owned assets unless it is development of immature areas reasonably certain that the Group will have ownership are deducted. by the end of the lease term. Lease period of land acquired from JEDB/ SLSPC will be expired in year Discount rate Future cash flows are discounted 2045. The estimated useful lives for the current and at following discount rates: comparative periods are as follows: Timber trees 13% No. of Years Rate (%) Nursery cost includes the cost of direct materials, Buildings & Roads 40 2.50 direct labor and an appropriate proportion of directly Plant & Machinery 20/25 5.00/4.00 attributable overheads, less provision for overgrown Motor Vehicles 15/20 6.67/5.00 plants. Equipment 8/4 12.50/25 Furniture & Fittings 10 10.00 The gain or loss arising on initial recognition of Mature Plantations biological assets at fair value less cost to sell and (Replanting and New Planting) from a change in fair value less cost to sell of Tea 33 1/3 3.00 biological assets are included in profit or loss for the Rubber 20 5.00 period in which it arises.
98 Annual Report 2013/14 Depreciation of an asset begins when it is available 3.14 Policies Specific to Insurance Sector for use and ceases at the earlier of the date on 3.14.1 Insurance Contracts which the asset is classified as held for sale or is As permitted by SLFRS 4 Insurance Contracts, the derecognised. Depreciation methods, useful lives and Group continues to apply the existing accounting residual values are reassessed at the reporting date policies for Insurance Contracts that were applied and adjusted prospectively, if appropriate. Mature prior to the adoption of SLFRS. plantations are depreciated over their useful lives or unexpired lease period, whichever is less. No Product Classification depreciation is provided for immature plantations. SLFRS 4 requires contracts written by insurers to (b) Amortisation be classified as either “insurance contracts” or “investment contracts” depending on the level of The leasehold rights of assets taken over from SLSPC insurance risk transferred. are amortised in equal amounts over the shorter of the remaining lease periods and the useful lives as Insurance contracts are those contracts when the follows: Group (the insurer) has accepted significant insurance No. of Years Rate (%) risk from another party (the policyholders) by agreeing Bare land 53 1.89 to compensate the policyholders if a specified Improvements to land 30 3.33 uncertain future event (the insured event) adversely Mature Plantations (Tea 30 3.33 affects the policyholders. As a general guideline, the & Rubber) Group determines whether it has significant insurance risk, by comparing benefits paid with benefits Buildings 25 4.00 payable if the insured event did not occur. Insurance Machinery 15 6.67 contracts can also transfer financial risk. 3.13.5 Deferred Income Investment contracts are those contracts that transfer 3.13.5.1 Grants and Subsidies significant financial risk and no significant insurance risk. Government grants are recognised where there is reasonable assurance that the grant will be received Financial risk is the risk of a possible future change and all attached conditions will be complied with. in one or more of a specified interest rate, financial When the grant relates to an expense item, it is instrument price, commodity price, foreign exchange recognised as income over the period necessary to rate, index of price or rates, credit rating or credit match the grant on a systematic basis to the costs index or other variable, provided in the case of a non that it is intended to compensate. Where the grant financial variable that the variable is not specific to a relates to an asset, it is recognised as deferred party to the contract. income and released to income in equal amounts over the expected useful life of the related asset. Once a contract has been classified as an insurance contract, it remains an insurance contract for the Where the Group receives non-monetary grants, the remainder of its lifetime, even if the insurance risk asset and the grant are recorded gross at nominal reduces significantly during this period, unless all amounts and released to the income statement over rights and obligations are extinguished or expire. the expected useful life and pattern of consumption Investment contracts can, however, be reclassified as of the benefit of the underlying asset by equal annual insurance contracts after inception if insurance risk installments. Where loans or similar assistance are becomes significant. provided by governments or related institutions with an interest rate below the current applicable market All the products sold by the Group are insurance rate, the effect of this favorable interest is regarded contracts and therefore classified as Insurance as additional government grant. Assets are amortised contracts under the SLFRS 4 – Insurance Contracts. over their useful lives as follows; Thus, the Group does not have any investment contracts within its product portfolio as at the Buildings 40 years. reporting date.
Distilleries Company of Sri Lanka PLC 99 NOTES TO THE FINANCIAL STATEMENTS
3.14.2 Deferred acquisition Costs (DAC) Ceded reinsurance arrangements do not relieve Those direct and indirect costs incurred during the the Group from its obligations to policyholders. financial period arising from the writing or renewing Reinsurance assets or liabilities are derecognised of insurance contracts are deferred and amortised when the contractual rights are extinguished or expire over the period in which the related revenues are or when the contract is transferred to another party. earned. All other acquisition costs are recognised as 3.14.4 Premium Receivable an expense when incurred. Insurance receivables are recognised when due and The DAC is applicable only to Non - Life Insurance measured on initial recognition at the fair value of the Contracts. In line with the available regulatory consideration receivable. Collectability of premiums is guidelines from the Insurance Board of Sri Lanka reviewed on an ongoing basis. (IBSL), the DAC is calculated based on the 365 days basis. According to the Premium Payment Warranty (PPW) directive issued by the Insurance Board of Sri Lanka An impairment review is performed at each reporting (IBSL), all Non-Life insurance policies are issued date or more frequently when an indication of subject to PPW and are cancelled upon the expiry impairment arises. When the recoverable amount of 60 days if not settled except some selected is less than the carrying value, an impairment loss customers where Group has allowed extra period for is recognised in the statement of comprehensive settlements. income. No such indication of impairment was experienced during the year. DAC is derecognised 3.14.5 Insurance Provision – Non - Life Insurance when the related contracts are either settled or Non - Life Insurance contract liabilities include the disposed-off. outstanding claims provision including IBNR /IBNER and provision for unearned premiums. 3.14.3 Reinsurance The Group cedes insurance risk in the normal The outstanding claims provision is based on the course of business to recognised reinsurers through estimated ultimate cost of all claims incurred but formal reinsurance arrangements. Reinsurance not settled at the reporting date, whether reported assets include the balances due from reinsurance or not, together with related claims handling costs companies for paid and unpaid losses and loss and reduction for the expected value of salvage and adjustment expenses. Amounts recoverable from other recoveries. Delays can be experienced in the reinsurers are estimated in a manner consistent with notification and settlement of certain types of claims, the outstanding claims provision or settled claims therefore, the ultimate cost of these cannot be known associated with the reinsurer’s policies and are in with certainty at the reporting date. accordance with the related reinsurance contract. The valuation of Unearned Premium Reserve is Reinsurance is recorded gross in the statement of measured in accordance with guidelines of the financial position unless a right to offset exists. Regulation of Insurance Industry Act, No. 43 of 2000 Reinsurance assets are reviewed for impairment at (i.e. based on the 365 days basis). The Incurred But each reporting date, or more frequently, when an Not Reported (IBNR) and Incurred But Not Enough indication of impairment arises during the reporting Reported (IBNER) claims reserve are actuarially year. Impairment occurs when there is objective computed. The liability is not discounted for the evidence as a result of an event that occurred after time value of money. No provision for equalisation initial recognition of the reinsurance asset that the or catastrophe reserves is recognised. The liabilities Group may not receive all outstanding amounts are derecognised when the obligation to pay a claim due under the terms of the contract and the event expires, is discharged or is cancelled. has a reliably measurable impact on the amounts that the Group will receive from the reinsurer. The Liability Adequacy Test (LAT) impairment loss, if any is recorded in the statement As required by the SLFRS 4- Insurance Contracts, of comprehensive income. the Group performed a Liability Adequacy Test (LAT)
100 Annual Report 2013/14 in respect of Non - Life Insurance contract liabilities These fees are recognised as revenue upon receipt or with the assistance of the external actuary. becoming due and is classified under other income.
3.14.6 Revenue Recognition 3.14.8 Benefits, Claims and Expenses 3.14.6.1 Insurance Premiums a) Gross Benefits and Claims a) Non - Life Insurance Business Non - Life Insurance Business Gross written premiums - Non - Life Insurance Non - Life insurance claims include all claims comprise the total premiums received /receivable occurring during the year, whether reported or for the whole period of cover provided by contracts not together with claims handling costs that are entered into during the accounting period. Gross directly related to the processing and settlement Written Premium is generally recognised is written of claims, a reduction for the value of salvage and upon inception of the policy. Upon inception of the other recoveries, and any adjustments to claims contract, premiums are recorded as written and are outstanding from previous years. Claims outstanding earned primarily on a prorate basis over the term of are assessed by review of individual claim files and the related policy coverage. estimating changes in the ultimate cost of settling claims. Rebates that form part of the premium rate, such as no claim rebates, are deducted from the gross The provision in respect of Claims Incurred But premium. Unearned premiums are those proportions Not Reported (IBNR) and Claims Incurred But Not of premiums written in a year that relate to periods Enough Reported (IBNER) is actuarially valued to of risk after the reporting date. Unearned premiums ensure a more realistic estimation of the future are calculated on 365 days basis in accordance with liability based on the past experience and trends. the Regulation of Insurance Industry Act, No. 43 of Actuarial valuations are performed on a semi- 2000. However, for those contracts for which the annual basis. Whilst the Directors consider that the period of risk differs significantly from the contract provisions for claims are fairly stated on the basis of period, premiums are earned over the period of risk information currently available, the ultimate liability in proportion to the amount of insurance protection will vary as a result of subsequent information provided. The proportion attributable to subsequent and events. This may result in adjustments to the periods is deferred as a provision for unearned amounts provided. Such amounts are reflected in the premiums which is included under liabilities. financial statements for that period. b) Reinsurance Premiums The methods used to estimate claims and the Gross reinsurance premiums on insurance contracts estimates made are reviewed regularly. are recognised as an expense on the earlier of the date when premiums are payable or when the b) Reinsurance Claims policy becomes effective. Reinsurance premiums Reinsurance claims are recognised when the related are decided based on rates agreed with reinsurers. gross insurance claim is recognised according to the Unearned reinsurance premiums are those terms of the relevant contract. proportions of premiums written in a year that relate to periods of risk after the reporting date. Unearned 3.14.9 Net Deferred Acquisition Expenses reinsurance premiums are deferred over the term Acquisition expenses, representing commissions, of the underlying direct insurance policies for which vary with and are directly related to the risks-attaching contracts (using 365 days basis in production of business, are deferred and amortised accordance with the Regulation of Insurance Industry over the period in which the related written premiums Act, No. 43 of 2000). are earned.
3.14.7 Policy Income Reinsurance commission is also treated in the same Insurance contract policyholders are charged for manner within deferred acquisition costs. policy administration services and other contract fees.
Distilleries Company of Sri Lanka PLC 101 NOTES TO THE FINANCIAL STATEMENTS
3.14.10 Premium income (GWP) and other sundry sales Computer software 3 – 5 years related taxes FLAG access rights 15 years Revenue, expenses and assets are recognised net of Licenses 10 years the amount of sales taxes and premium taxes except where the premium or sales tax incurred on the 3.15.3 Revenue purchase of assets services is not recoverable from Revenue from services rendered in the course of the taxation authority, in which case, the sale tax is ordinary activities is measured at fair value of the recognised as a part of the cost of acquisition of the consideration received or receivable net of trade asset or as a part of the expense item, as applicable. discounts and volume rebates.
3.15 Policies Specific to elecommunicationT Revenue is recognised when persuasive evidence Sector exist, usually in the form of an executed sales 3.15.1 Depreciation agreement, that the significant risks and rewards of The estimated useful lives used are as follows; ownership have been transferred to the customer, recovery of the consideration is probable and the Buildings 8 years amount of revenue can be measured reliably. Shelters and other equipment 5 years Vehicles 5 years If it is probable that discounts will be granted and the Furniture and fittings 5 years amount can be measured reliably, then the discount Computer software 3 years is recognised as a reduction of revenue as the sales Leasehold improvements 5 years are recognised. Leased equipment 3 – 10 years The revenue is recognised as follows: Office/Other equipment 1 – 5 years Digital Electronic Switches 10 years 3.15.3.1 Domestic and International Call Revenue, Rental Income Network Equipment 10 years Towers 10 years Revenue for call time usage by customers is recognised as revenue as services are performed on Customer premise equipment 1 – 10 years accrual basis. FLAG project assets 5 – 15 years WiMAX 5 – 10 years Fixed rental is recognised as income on a monthly basis in relation to the period of the rental. 3.15.2 Intangible Assets 3.15.2.1 License Fees and Access Rights 3.15.3.2 Revenue from other Network Operators and Separately acquired licences and access rights are International Settlements shown at historical cost. Expenditures on license The revenue received from other network operators, fees and access rights that is deemed to benefit or local and international, for the use of the Group’s relate to more than one financial year is classified telecommunication network are recognised, net of as intangible assets and is being amortised over the taxes, based on usage taking the traffic minutes/per agreement period on a straight line basis. second rates stipulated in the relevant agreements and regulations and based on the terms of the lease 3.15.2.2 Amortisation agreements for fixed rentals. Revenue arising from Amortisation is recognised in profit or loss on a the interconnection of voice and data traffic between straight line basis over the estimated useful lives of other telecommunications operators is recognised at intangible assets from the date that they are available the time of transit across the Group’s network and for use. The estimated useful lives for the current and presented on gross basis. comparative periods are as follows: The relevant revenue accrued is recognised under income in the statement of comprehensive income and interconnection expenses recognised under
102 Annual Report 2013/14 operating costs in the statement of comprehensive EIR is the rate that exactly discounts the estimated income. future cash payments and receipts through the expected life of the financial asset or liability (or, 3.15.3.3 Revenue from Broadband where appropriate, a shorter period) to the carrying Revenue from broadband service is recognised on amount of the financial asset or liability. When usage and the fixed rental on a monthly basis when it calculating the EIR, the Group estimates future cash is earned net of taxes, rebates and discounts. flows considering all contractual terms of the financial instrument, but not future credit losses. 3.15.3.4 Revenue from other Telephony Services The revenue from Data services and other telephony The calculation of the EIR takes into account all services are recognised on an accrual basis based on contractual terms of the financial instrument (for fixed rental contracts entered between the Group and example, prepayment options) and includes all subscribers. material transaction costs and fees and points paid or received that are an integral part of the EIR. 3.15.3.5 Installation Revenue Transaction costs include incremental costs that are directly attributable to the acquisition or issue of a The installation revenue relating to Code Divisional financial asset or liability. Multiple Access (CDMA) and non CDMA connections are deferred over the expected life of the customer on The carrying amount of the financial asset or financial the network. liability is adjusted if the Group revises its estimates of payments or receipts. The adjusted carrying 3.15.3.6 Service Agreements Revenue amount is calculated based on the original EIR and Capacity contracts which convey the right to use a the change in carrying amount is recorded in ‘Interest specified capacity in an identified fiber cable are Income’ for financial assets and in ’Interest and accounted as service arrangements. Customers are similar expense’ for financial liabilities. charged on a monthly basis based on usage, and the contracts are for a short term. However, for a reclassified financial asset for which the Group subsequently increases its estimates 3.15.3.6.7 Prepaid Card Revenue of future cash receipts as a result of increased Revenue from the sale of prepaid card on CDMA, recoverability of those cash receipts, the effect of that Internet is recognised upon activation of the said increase is recognised as an adjustment to the EIR card as the period of expiry of the card and the non from the date of the change in estimate. refundable nature of the amounts are considered immaterial to the revenue recognition process. Once the recorded value of a financial asset or a group of similar financial assets has been reduced 3.16 Policies Specific to Finance Sector due to an impairment loss, interest income continues 3.16.1 Revenue Recognition to be recognised using the rate of interest used to Revenue is recognised to the extent that it is probable discount the future cash flows for the purpose of that the economic benefits will flow to the Group and measuring the impairment loss. the revenue can be reliably measured. The following b) Lease Income specific recognition criteria must also be met before revenue is recognised. In terms of the provisions of the Sri Lanka Accounting Standard – LKAS 17 on ‘Leases’, the recognition of a) Interest Income and Expense finance income on leasing is accounted, based on a For all financial instruments measured at amortised pattern reflecting a constant periodic rate of return on cost, interest bearing financial assets classified capital outstanding. as available-for-sale and financial instruments The excess of aggregate lease rentals receivable over designated as fair value through profit or loss, interest the cost of the leased assets constitutes the total income and expense are recognised in profit or loss unearned finance income at the commencement of using the Effective Interest Rate (EIR) method. The
Distilleries Company of Sri Lanka PLC 103 NOTES TO THE FINANCIAL STATEMENTS
a lease. The unearned finance income included in Apartment revenue is recognised for the rooms the lease rentals receivable is recognised in profit or occupied on a daily basis, whilst food beverages sales loss over the term of the lease commencing from the are accounted for at the time of sales. month in which the lease is executed using Effective Interest Rate. 3.18 New Standards and Interpretation not yet Adopted Minimum lease payments made under finance leases The following SLFRSs have been issued by the are apportioned between the finance expense and the Institute of Chartered Accountants of Sri Lanka that reduction of the outstanding liability. have an effective date in the future and have not been applied in preparing these financial statements. c) Hiring Rental Income Those SLFRSs will have an effect on the accounting Payments made under operating leases are recognised policies currently adopted by the Group and may have in profit or loss on a straight-line basis over the term an impact on the future financial statements. of the lease. Lease incentives received are recognised as an integral part of the total lease expense, over the SLFRS 09 – Financial Instrument Classification and term of the lease. Measurement
3.16.2 Impairment Losses on Loans and Advances SLFRS 09, as issued reflects the first phase of The Group reviews its individually significant loans work on replacement of LKAS 39 and applies to and advances at each reporting date to assess classification and measurement of financial assets whether an impairment loss should be provided and liabilities. for in the Statement of Comprehensive Income. In particular, management’s judgment is required in the This standard was originally effective for annual estimation of the amount and timing of future cash periods commencing on or after 01 January 2015. flows when determining the impairment loss. These However the effective date has been deferred estimates are based on assumptions about a number subsequently and the revised effective date is yet to of factors and actual results may differ, resulting in be announced. future changes to the allowance made. SLFRS 10 - Consolidated Financial Statements Loans and advances that have been assessed individually and found not to be impaired and all SLFRS 10 introduces a single control model individually insignificant loans and advances are to determine whether an investee should be then assessed collectively, by categorising them into consolidated. As a result, the Group may need to groups of asset with similar risk characteristics, to change its consolidation conclusion in respect of its determine whether a provision should be made due investees, which may lead to changes in the current to incurred loss events for which there is objective accounting for these investees. This standards are evidence, but the effects of which are not yet evident. effective in annual period beginning on or after 1 The collective assessment takes account of data from January 2014. the loan portfolio (such as loan to collateral ratio, level of restructured performing loans, etc.), and SLFRS 11 - Joint Arrangements judgment on the effect of concentrations of risks and SLFRS 11, the structure of the joint arrangement, economic data. although still an important consideration, is no 3.17 Policies Specific to Hotel Sector longer the main factor in determining the type of joint arrangement and therefore the subsequent 3.17.1 Revenue accounting. This standards are effective in annual Revenue is measured at the fair value of the consideration period beginning on or after 1 January 2014. received or receivable, net of trade discounts; value added taxes and intra-group revenue. No revenue is recognised if there are significant uncertainties regarding recovery of the consideration due.
104 Annual Report 2013/14 SLFRS 12 - Disclosure of Interests in Other Entities
SLFRS 12 brings together into a single standard all the disclosure requirements about an entity’s interests in subsidiaries, joint arrangements, associates and unconsolidated structured entities. The Group is currently assessing the disclosure requirements for interests in subsidiaries, interests in joint arrangements and associates and unconsolidated structured entities in comparison with the existing disclosures. SLFRS 12 requires the disclosure of information about the nature, risks and financial effects of these interests. This standards are effective in annual period beginning on or after 1 January 2014.
SLFRS 13 - Fair Value Measurement
SLFRS 13 provides a single source of guidance on how fair value is measured, and replaces the fair value measurement guidance that is currently dispersed throughout SLFRS. Subject to limited exceptions, SLFRS 13 is applied when fair value measurements or disclosures are required or permitted by other SLFRSs. The Group is currently reviewing its methodologies in determining fair values. SLFRS 13 is effective for annual periods beginning on or after 1 January 2014 with early adoption permitted.
Distilleries Company of Sri Lanka PLC 105 NOTES TO THE FINANCIAL STATEMENTS
4 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.
4.1 Segment Revenues For the year ended 31March, 2014 2013 Rs.000 Rs.000
Beverages 53,136,535 56,478,892 Telecommunication 3,633,987 2,779,742 Plantation 3,171,983 3,997,328 Diversified 3,243,797 2,534,498 Total Gross Revenue 63,186,302 65,790,460 Direct Turnover Related Taxes (34,203,418) (37,023,967) Total Net Revenue 28,982,884 28,766,493
4.2 Segment Profits For the year ended 31March, 2014 2013 Rs.000 Rs.000
Beverages 8,027,247 6,348,704 Telecommunication (638,824) (150,185) Plantation 129,715 110,308 Diversified 535,779 483,741 8,053,917 6,792,568 Share of Profit of Equity-Accounted Investees (Net of Tax) 1,440,182 1,291,749 Profit before Income Tax Expense 9,494,099 8,084,317 Taxation (3,263,009) (2,826,147) Profit for the Year 6,231,090 5,258,170
106 Annual Report 2013/14 9,040 156,059 190,776 364,879 779,055 726,650 1,147,982 1,450,831 1,652,681 2,967,990 78,546,701 25,833,979 Group Total Group Total 9,040 831,769 309,269 236,393 396,816 733,350 1,266,594 1,185,348 5,249,338 1,178,888 83,741,554 26,148,440 ------(18,118) 166,354 (386,500) (7,020,826) (51,716,298) ------(15,290) Eliminations/Other Eliminations/Other 171,321 (117,500) (6,377,515) Consolidated Adjustments Consolidated Adjustments (50,205,065) - 4,299 18,103 32,790 361,205 182,617 287,127 100,479 256,058 110,603 (314,179) 1,045,417 1,807,264 (1,460,075) 59,496,715 10,457,652 - Diversified Diversified 9,262 34,366 13,872 48,069 44,028 168,347 278,734 151,854 677,090 979,791 (514,074) 8,367,146 1,913,074 (3,406,939) 56,988,042 - - 9,040 59,167 36,525 56,339 15,481 (10,399) 620,570 134,459 712,033 312,251 218,402 (483,232) 4,522,945 1,896,563 - - Plantation Plantation 9,040 70,377 70,159 18,385 (36,298) 626,819 182,215 349,063 139,033 111,326 (358,718) (283,690) 5,015,269 2,258,720 - 90 413 1,633 47,732 (54,910) (90,037) Reporting Segments Reporting Segments 136,740 186,477 941,323 227,296 224,565 352,733 (262,423) 8,281,673 3,027,424 - 95 365 3,540 55,861 (35,287) 227,131 Telecommunication Telecommunication 473,741 362,960 (871,988) 8,307,821 3,805,047
- - 47,390 44,302 118,475 598,933 (663,517) 3,324,378 1,025,239 (1,635,622) 57,961,666 17,473,166 - - Beverages Beverages 2014 2013 2014 2013 2014 2013 2014 2013 2014 2013 2014 2013 2014 2013 20142014 2013 2013 2014 2014 2013 2013 2014 2014 2013 2013 2014 2013 2014 2013 2014 2013 6,363 1,216 289,034 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 45,889 61,017 114,723 154,005 163,214 763,478 859,321 1,376,919 223,089 872,359 2,702,375 1,138,154 1,848,340 1,112,935 (1,716,482) (2,267,861) (3,111,984) 63,635,487 18,095,042 Segment Information (Contd.) Information Segment Operating Other Segmental Information Segmental Cash Flows For the year ended 31March, Additions to Intangible Assets Amortisation and Impairment of Intangible Assets Amortisation of Bearer Biological Assets at Finance Lease ((JEDB/SLPC) As at 31 March, Retirement Benefit Obligations For the year ended 31March, Deferred Tax Assets Deferred Tax Depreciation of PPE Operating Cash Flow Interest Expense Investing Cash Flow Deferred Tax Liabilities Deferred Tax Financing Cash Flow Additions to PPE Assets Total Income Tax Payable Income Tax Total Liabilities Total
4 4.3 4.4 Distilleries Company of Sri Lanka PLC 107 NOTES TO THE FINANCIAL STATEMENTS
5 Business Combinations and Loss of Control in Subsidiaries 5.1 De-Recognition of Pelwatte Sugar Industries PLC (PSIP) Group in the Year 2013/14 Since the Group is deprived of participating in controlling the financial, operating policies and other relevant activities, the financial statements of PSIP Group have been deconsolidated from the Group financial statements of DCSL PLC during the year 2013/14. The Investment made in Pelwatte Sugar Industries PLC is now classified as a fully impaired long term investment of the Group. More information is included in Note 38 to the financial statements.
Total Rs.000 ASSETS
Property, Plant and Equipment 2,378,930 Deferred Tax Asset 38,827 Inventories 1,801,622 Other Investments 14,000 Trade and Other Receivables 344,440 Amounts due from Related Companies 1,525,908 Cash and Cash Equivalents 25,834
Liabilities Interest Bearing Loans and Borrowings (152,089) Deferred Tax Liabilities (147,595) Employee Benefits (330,812) Trade and Other Payables (1,454,313) Amount due to Related Companies (2,539,326) Current Tax Payables (63,497) Bank Overdrafts (12,652) - Total Net Assets at De-Recognition 1,429,278 Attributable to Parent Company 640,155 Attributable to Non Controlling Interest 789,123 - Profit / (Loss) from De-Recognition Fair Value of Investment made in PSIP - Less: Net Assets Attributable to Parent Company (640,155) (640,155)
Net Prceeds from De-Recognition Received in Cash - Less: Cash and Cash Equivalents of Subsidiaries De-Recognised (13,182) Net Cash Inflow (13,182)
108 Annual Report 2013/14 6 Revenue Group For the year ended 31March, 2014 2013 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 58,000,543 (34,203,418) 23,797,125 60,583,390 (37,023,967) 23,559,423 Rendering of Services 5,185,759 - 5,185,759 5,207,070 - 5,207,070 Total 63,186,302 (34,203,418) 28,982,884 65,790,460 (37,023,967) 28,766,493
Company For the year ended 31March, 2014 2013 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 47,755,538 (31,057,380) 16,698,158 51,548,909 (34,087,458) 17,461,451 Total 47,755,538 (31,057,380) 16,698,158 51,548,909 (34,087,458) 17,461,451
6.1 Business Segment Analysis Group For the year ended 31March, 2014 2013 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 18,933,117 - 18,933,117 19,454,925 - 19,454,925 Telecommunication - 3,633,987 3,633,987 - 3,997,328 3,997,328 Plantation 3,171,983 - 3,171,983 2,779,741 - 2,779,741 Diversified 1,692,025 1,551,772 3,243,797 1,324,757 1,209,741 2,534,498 23,797,125 5,185,759 28,982,884 23,559,423 5,207,070 28,766,493
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.
Distilleries Company of Sri Lanka PLC 109 NOTES TO THE FINANCIAL STATEMENTS
8 Other Operating Income Group Company For the year ended 31March, 2014 2013 2014 2013 Note Rs.000 Rs.000 Rs.000 Rs.000
Gain on Change in Fair Value of Biological Assets 74,294 42,685 - - Government Grants 13,226 13,770 - - Gain on Sale of Property, Plant and Equipment 30,331 11,268 50,767 39,985 Fees and Commission Income 62,761 76,223 - - Rent Income 24,557 36,547 24,557 34,567 Refunds on Telecommunication Development Charge (TDC) 8.1 - 234,229 - - Sale of Timber 40,664 56,333 - - Other Sundry Income 202,759 144,883 122,625 81,023 Dividend Income from Subsidiary Companies - - 920,000 - Dividend Income from Equity Accounted Investees - - 279 66,232 Dividend Income from Available-For-Sale Financial Assets 332,815 475,003 200,619 355,726 Dividend Income from Fair Value Through Profit 72,994 67,558 38,920 38,988 and Loss Investments Gain on Disposal of Fair Value Through Profit 29,973 49,041 16,828 30,326 and Loss Investments Gain on Disposal of Group Investments - - - 3,644,589 Loan Loss Recoveries 14,018 1,381 - - 898,392 1,208,921 1,374,595 4,291,436
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 2013 to 31 March 2014 was estimated at Rs. 96,544,392 (2013- Rs.145,997,125) 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.
9 Other Operating Expenses Group Company For the year ended 31March, 2014 2013 2014 2013 Note Rs.000 Rs.000 Rs.000 Rs.000
Impairment on Loans and Other Advances 2,703 - - - Impairment on Investment in Subsidiaries - - - 926,473 Loss on De-Recognition of Subsidiaries 5.1 640,155 - - - Loss on De-Recognition of Equity Accounted Investee 19.1 86,284 - - - Impairment of Goodwill 16.3 - 776,566 - - 729,142 776,566 - 926,473
110 Annual Report 2013/14 10 Finance Income and Finance Costs 10.1 Recognised in Profit and Loss
10.1.1 Finance Income Group Company For the year ended 31March, 2014 2013 2014 2013 Note Rs.000 Rs.000 Rs.000 Rs.000 Interest Income on Loans and Receivables 402,592 500,069 48,550 74,040 Interest Income on Available-For-Sale Financial Assets 27,302 39,632 2,893 - Interest Income on Unimpaired Held-To-Maturity - - - - Investments Foreign Exchange Gain 7,119 16,016 - - Gain on Change in Fair Value of Financial Assets 85,739 177,640 66,877 70,856 at Fair Value Through Profit or Loss Recognition of Share Warrants at Fair Value 225,081 - 310 - 747,833 733,357 118,630 144,896
10.1.2 Finance Cost Interest Expense on Financial Liabilities Measured at Amortised Cost - Interest Expense on Long Term Borrowings (103,290) (529,447) (94,356) (275,626) - Interest Expense on Bank Overdrafts and Other (1,055,035) (1,099,549) (764,965) (1,101,293) Short Term Borrowings - Interest Expense on Finance Leases (2,645) - - - Government Lease Interest (JEDB/SLSPC) (24,378) (22,420) - - Foreign Exchange Loss (44,888) (2,257) - - Transaction Costs on Acquisition of Financial - (663) - - Assets at Fair Value Through Profit or Loss Impairment Losses on Financial Investments - (149,907) - - Loss on Change in Fair Value of Financial Assets (32,401) (162,666) - - at Fair Value Through Profit or Loss Preference Share Dividends (1,265) (1,265) - - (1,263,902) (1,968,174) (859,321) (1,376,919) Less:Borrowing Cost Capitalised 10.1.2.1 43,136 4,032 - - (1,220,766) (1,964,142) (859,321) (1,376,919) Net Finance Costs Recognised in Profit or Loss (472,933) (1,230,785) (740,691) (1,232,023)
10.1.2.1 During the year Balangoda Plantations PLC, a subsidiary of the company, capitalised borrowing cost amounting to Rs. 43,136,174/- (2013 - Rs. 4,031,638 /-) 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).
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 429,894 539,701 51,443 74,040 Total interest expense on financial liabilities (1,185,348) (1,651,416) (859,321) (1,376,919)
10.2 Recognised in Other Comprehensive Income
Net Change in Fair Value of Available-For-Sale Financial Assets (136,568) 2,021,748 217,263 578,500 (136,568) 2,021,748 217,263 578,500
Distilleries Company of Sri Lanka PLC 111 NOTES TO THE FINANCIAL STATEMENTS
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 31March, 2014 2013 2014 2013 Notes Rs.000 Rs.000 Rs.000 Rs.000
Directors’ Emoluments 89,234 60,107 23,410 22,247 Auditor’s Remuneration Audit - KPMG 9,379 9,142 4,950 4,604 - Other Auditors 4,853 4,420 - - - - Non-Audit - KPMG 4,641 4,404 3,327 1,553 - Other Auditors 693 606 693 606 Management Fees 44,887 59,606 - - Personnel Costs 11.1 3,861,748 3,194,238 1,162,203 1,039,048 Depreciation and Amortisation - Depreciation of Property Plant and Equipment 15 1,266,594 1,500,311 148,392 158,678 Amortisation of Intangible Assets 16 236,393 190,776 - - Amortisation of Bearer Biological Assets 17.1 37,339 36,980 - - Provision /(Reversal) for Bad & Doubtful Debts (137,944) 171,550 25,057 - Provision /(Reversal) for Inventories 226,679 150,760 - - Donations 13,415 7,058 12,524 6,952
11.1 Personnel Costs Salaries, Wages and Other Benefits 3,356,525 2,715,083 1,050,753 932,085 Employee Benefits - - - - Defined Contribution Plans - - - - EPF and ETF 354,098 326,571 90,005 88,469 Defined Benefit Plans 31.1.1 151,125 152,584 21,445 18,494 Total 3,861,748 3,194,238 1,162,203 1,039,048
11.1.1 Number of Employees As At 31 March, 2014 2013 2014 2013 12,897 14,681 1,250 1,343
12 Taxation Group Company For the year ended 31March, 2014 2013 2014 2013 Notes Rs.000 Rs.000 Rs.000 Rs.000 Current Tax Expense 12.1 3,238,859 2,819,781 2,757,104 2,394,917 Deferred Tax Charged/(Credited) 21.1.1 24,150 6,366 21,539 8,308 3,263,009 2,826,147 2,778,643 2,403,225
12.1 Current Tax Expense Current Tax Charge 12.1.1 3,194,493 2,824,523 2,757,104 2,394,917 (Over)/Under Provision of Current Tax of Previous Years 44,366 (4,742) - - 3,238,859 2,819,781 2,757,104 2,394,917
112 Annual Report 2013/14 12.1.1 Numerical Reconciliation of Accounting Profits to Income Tax Expense Group Company For the year ended 31March, 2014 2013 2014 2013 Notes Rs.000 Rs.000 Rs.000 Rs.000
Profit before Income Tax Expense 9,494,099 8,084,317 8,136,580 9,275,947 Share of Results of Equity Accounted Investees (1,440,182) (1,291,749) - - Dividend Income from Group Companies 1,292,453 315,992 - - Other Consolidation Adjustments 726,439 3,825,983 - - 10,072,809 10,934,543 8,136,580 9,275,947 Exempt (Profits)/Loss 411,685 31,380 - - Accounting Profit / (Loss) Chargeable to Income Tax 10,484,494 10,965,923 8,136,580 9,275,947 (-) Income Not Subject to Tax (2,352,292) (4,057,561) (1,279,853) (3,318,869) (+) Disallowable Expenses 846,495 872,279 208,814 188,952 (-) Allowable Expenses (1,065,422) (434,580) (108,769) (101,441) (+) Tax Losses Incurred 12.1.4 304,188 - - - (-) Tax Losses Utilised 12.1.4 (72,533) (29,455) - - Taxable Income 8,144,930 7,316,606 6,956,772 6,044,589 Income Tax At, 40% 2,979,452 2,613,437 2,697,359 2,341,440 28% 215,041 200,593 59,745 53,477 15.76% - 10,477 - - 10% - 16 - - Total Current Tax Charge 3,194,493 2,824,523 2,757,104 2,394,917 Average Statutory Income Tax Rate (%) 39.22% 38.60% 39.63% 39.62%
Group Company For the year ended 31March, 2014 2013 2014 2013 Notes % % % %
12.1.2 Effective Tax Rate 12.1.2.1 30.89% 25.71% 33.89% 25.82%
Group For the year ended 31March, 2014 2013 Rs.000 % Rs.000 % 12.1.2.1 Reconciliation of Effective Tax Rate Accounting Profit / (Loss) Chargeable to Income Tax 10,484,494 10,965,923
Income Tax Expense at the Average Statutory 4,112,086 39.22% 4,233,316 38.60% Income Tax Rate Income Not Subject to Tax (922,584) -8.80% (1,566,392) -14.28% Disallowable Expenses 332,001 3.17% 336,736 3.07% Allowable Expenses (417,865) -3.99% (167,766) -1.53% Tax Losses Incurred 119,303 1.14% - 0.00% Tax Losses Utilised (28,448) -0.27% (11,371) -0.10% (Over)/Under Provision of Current Tax of Previous Years 44,366 0.42% (4,742) -0.04% Deem Dividend Tax Paid - 0.00% - 0.00% Current Tax Expense 3,238,859 30.89% 2,819,781 25.71%
Distilleries Company of Sri Lanka PLC 113 NOTES TO THE FINANCIAL STATEMENTS
12.1.2.1 Reconciliation of Effective Tax Rate (Contd.) Company 2014 2013 Rs.000 % Rs.000 %
Accounting Profit / (Loss) Chargeable to Income Tax 8,136,580 9,275,947 Income Tax Expense at The Average Statutory 3,224,684 39.63% 3,675,208 39.62% Income Tax Rate Income Not Subject to Tax (507,231) -6.23% (1,314,963) -14.18% Disallowable Expenses 82,758 1.02% 74,864 0.81% Allowable Expenses (43,107) -0.53% (40,192) -0.43% Tax Losses Incurred - 0.00% - 0.00% Tax Losses Utilised - 0.00% - 0.00% (Over)/Under Provision of Current Tax of Previous - 0.00% - 0.00% Years Deem Dividend Tax Paid - 0.00% - 0.00% Current Tax Expense 2,757,104 33.89% 2,394,917 25.82%
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 entered The profits and income of the company Commencing Limited cation in to with the Board of Investment is exempt for a period of 20 years. from year of (BOI) of Sri Lanka under section Thereafter the company will be taxed at assessment 17 of Law No. 04 of 1978. a normal rate of 28%. 97/98
Bogo Generation and Pursuant to the agreement The company is exempt from income tax For a period Power (Pvt) sale of Hydro dated 22 April 2010 entered arising from the income of generation of of 05 years Limited ElectricEnergy with the Board of Investment hydropower, After the expiration of the commencing under Section 17 of the BOI exemption period, the profit & income of from 01st April Law. the enterprise shall be charged for each 2012 year of assessment at the rate of ten per centum (10%) (“concessionary period)
Group Company For the year ended 31March, 2014 2013 2014 2013 Rs.000 Rs.000 Rs.000 Rs.000
12.1.4 Tax Losses Losses Brought Forward 1,600,428 1,629,883 - - Acquisition/(Disposal) of Subsidiaries (198,000) - - - Losses Incurred 304,188 - - - Losses Utilised (72,533) (29,455) - - Loss Carried Forward 1,634,083 1,600,428 - -
114 Annual Report 2013/14 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 31March, 2014 2013 2014 2013
Profit Attributable to Equity Holders of the 6,121,813 5,139,807 5,357,937 3,204,723 Company (Rs.’000)* Weighted Average Numbers of Ordinary Shares (000) 300,000 300,000 300,000 300,000 Basic Earnings per Share (Rs.) 20.41 17.13 17.86 10.68
* For the purpose of calculation, Company’s profit for the year ended 31 March 2013 has been adjusted for intra-group capital gain on share transfer.
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 Company For the year ended 31March, 2014 2013 Per share Total Per share Total Rs. Rs.000 Rs. Rs.000
Final Dividend Proposed / Paid 3.25 975,000 3.00 900,000 975,000 900,000
The Directors recommended a final dividend of Rs.3.25 per share for the year ended 31 March 2014, for approval by the shareholders at the Annual General Meeting to be held on 29 September 2014. 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 2014.
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.
Distilleries Company of Sri Lanka PLC 115 NOTES TO THE FINANCIAL STATEMENTS - - - - As at 953 2013 6,799 2,649 70,131 19,360 25,295 56,203 48,800 50,135 59,196 31 March 612,373 426,325 334,467 805,401 272,240 271,047 180,224 523,728 651,175 284,576 219,598 1,493,635 4,517,339 2,467,273 2,213,167 12,856,828 15,341,042 - - - - As at 853 2014 Carrying Value 4,017 50,805 16,259 78,623 22,275 29,985 24,824 49,591 26,349 31 March 598,094 377,878 188,754 643,132 112,962 265,057 541,927 169,781 454,433 589,296 269,833 210,248 1,380,950 4,651,144 5,729,029 10,226,956 16,221,042 - - - 80 315 559 At the end of 7,825 3,393 the Year 61,409 53,315 27,370 38,457 35,925 29,953 14,028 434,611 227,894 ------(58) 551,791 (40) 1,512,961 (58) 309,310 (878) 527,285 (144) 168,857 (3,222) 197,892 (4,800) 1,432,633 (1,033) 2,482,730 (1,146) 498,621 Disposals (59,884) 671,457 ------(7,195) (1,427) Acquisition/ Subsidiaries (Disposal) of ------Year 559 170 for the Charge 7,825 Accumulated Depreciation and Impairment - - - - 80 At the 1,427 Beginning of the Year - 80 315 7,510 At the end of 4,246 3,223 the Year 69,574 50,214 3,101 60,732 35,437 3,020 39,942 31,562 4,363 30,544 14,028 14,028 659,503 29,098 32,311 196,579 105,993 78,535 5,300 (56,465) 299,786 14,974 14,979 438,142 218,544 9,350 1,815,561 733,861 61,828 (361,078) 4,651,144 ------(65) 816,848 516,162 37,114 (1,427) (65) 334,134 282,163 27,205 (6,239) 248,697 158,858 42,256 (1,855) 905,163 447,433 80,730 (7,232) 3,072,026 2,268,852 214,911 (1,455) 218,448 149,835 19,166 (1,416) 524,970 462,194 37,573 Transfers (10,586) 2,075,765 1,268,128 169,305 (66,256) 1,125,890 616,465 114,876 Disposals/ ------(4,076) (63,398) (307,009) Acquisition/ Subsidiaries (Disposal) of Cost or Valuation ------70 Year 236 30,544 Additions 196,579 During the - - 80 At the 4,176 4,076 69,574 60,732 38,361 1,581 63,713 14,028 Beginning 641,471 18,032 228,989 25,947 873,758 33,260 413,002 787,209 33,780 (4,076) 199,970299,550 19,933 521,390 4,996 330,963 3,236 of the Year 1,483,288 100,906 (74,002)2,073,529 (114,267) 1,395,925 12,822 1,211,048 228,159 (67,007) (89,237) 1,282,963 4,698,1901,124,505 31,736 (2,674,694) 66,3981,140,193 (105,186) (344) 2,054,888 51,953 (5,679)2,920,027 2,230,917 1,080,038 159,231 129,129 944,281 (847,045) 60,479 (93,999) (504) 910,257 2,213,167 4,284,637 (99,407) (669,368) 5,729,029 23,599,333 930,921 (3,709,660) (215,329) 20,605,265 10,742,505 1,229,481 (1,432,789) (160,888) 10,378,309 26,599,709 5,249,338 (3,813,143) (884,762) 27,151,142 11,258,667 1,266,594 (1,434,216) (160,945) 10,930,100 24,386,542 964,701 (3,713,736) (215,394) 21,422,113 11,258,667 1,266,595 (1,434,216) (160,946) 10,930,100 10,492,013 13,127,875 Note Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 15.2 2,227,496 29,286 (441,221) 15.2 4,517,339 177,955 (44,150) 15.1 438,142 , Plant and Equipment Property
Civil Constructions Wi-Max Drums Buildings Towers Lte Project Vats & Casks Vats Land Improvements Motor Vehicles Network Equipment Sanitation Water Flag Project Oil Storage Tanks Plant & Machinery Land 15 Group Freehold Plant, Machinery & Other Equipment Furniture, Fittings & Office Equipment Computer Equipment & Software Electro Mechanical Equipment Digital Electronic Switches Customer Premise Equipment Shelters and Other Equipment Fire Fighting Equipment Leasehold Motor Vehicles Furniture, Fittings & Equipment Immovable (JEDB/SLSPC) Assets On Finance Lease Leasehold Improvements Freehold and Leasehold Property, Total Plant & Equipment in Progress Capital Work Plant & Equipment Property, Total
116 Annual Report 2013/14 - - 953 As at 2013 20,845 10,765 19,360 76,450 31 March 277,568 183,063 2,691,678 1,183,226 3,874,904 2,102,674 - - - Carrying Value 853 As at 2014 21,897 11,882 16,260 31 March 233,238 117,139 2,482,470 3,816,200 6,298,670 2,081,201 - - 80 315 At the end of 3,393 the Year 50,767 42,033 53,315 415,422 ------Disposals - - - Year for the Charge - - Accumulated Depreciation and Impairment 80 315 At the Beginning of the Year 80 315 At the end of 4,246 3,223 170 the Year 72,664 46,833 3,934 69,575 50,214 3,101 648,660 366,134 49,288 ------Transfers (82,548) 2,081,201 (20,111) 56,339 61,075 858 (5,594) 56,339 Disposals/ - - - - - 70 Year Cost or Valuation Additions During the 80 315 At The 4,176 66,788 5,876 46,747 7,771 (603) 53,915 35,982 6,051 69,575 644,591 4,069 529,521 40,876 (95,869) 474,528 346,458 84,990 (74,059) 357,389 Beginning of the Year 3,601,992 58,662 (199,131) 3,461,523 910,314 148,392 (79,653) 979,053 1,183,226 2,635,359 4,785,218 2,694,021 (2,385) (201,516) 3,816,200 7,277,723 910,314 148,392 (79,653) 979,053 Note Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 15.2 2,163,749 15.2 76,450 , Plant and Equipment (Contd.) Property
Furniture, Fittings & Office Equipment 15 Company Plant, Machinery & Other Equipment Computer Equipment & Software Fire Fighting Equipment Plant & Freehold Property, Total Equipment in Progress Capital Work Plant & Equipment Property, Total Freehold Motor Vehicles Oil Storage Tanks & Casks Vats Drums Land Buildings
Distilleries Company of Sri Lanka PLC 117 NOTES TO THE FINANCIAL STATEMENTS
15.1 Immovable (JEDB/SLSPC) Assets on Finance Lease Group For the year ended 31March, 2014 2013 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 26,164 438,142 438,142 Balance at the End of the Year 331,201 899 15,702 152 64,024 26,164 438,142 438,142
Amortisation As at Beginning of the Year 128,470 349 10,760 152 52,649 26,164 218,544 209,194 Amortisation for the Year 6,249 17 523 - 2,561 - 9,350 9,350 At the End of the Year 134,719 366 11,283 152 55,210 26,164 227,894 218,544
Carrying Amount As at Beginning of the Year 202,731 550 4,942 - 11,375 - 219,598 228,948 As at the End of the Year 196,482 533 4,419 - 8,814 - 210,248 219,598
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 Valuation 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. A.R.M.M. Kaleel, A.M.I.V (Sri Lanka) a professional valuer on 25th March 2010 on “Contractor’s Basis” and the excess of Rs. 87,755,658 over the net book value as at 31 March 2010 has been credited to the revaluation reserve.
Texpro Industries Limited 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.
118 Annual Report 2013/14 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 As at 31March, 2014 Land Building Rs.000 Rs.000
Cost 1,467,789 478,802 Accumulated Depreciation and Impairment - (280,310) Carrying Value 1,467,789 198,492
Company As at 31March, 2014 Land Building Rs.000 Rs.000
Cost 109,402 56,339 Accumulated Depreciation and Impairment - (56,339) Carrying Value 109,402 -
15.3 Gross Carrying Value of Fully Depreciated Assets The cost of the fully depreciated assets of the Group amounts to Rs.5,284 Mn as at reporting dated. The Company’s property, plant and equipment with a cost of Rs.513 Mn are fully depreciated as at reporting date.
15.4 Property Plant and Equipment that have been Pledged The property plant and equipments that are pledged for Liabilites are disclosed in Note 41 to these financial statements.
Distilleries Company of Sri Lanka PLC 119 NOTES TO THE FINANCIAL STATEMENTS
16 Intangible Assets
Group For the year ended 31March, 2014 2013 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 Note 16.3 Cost/Carrying Value Balance at the Beginning of the Year 369,675 2,797,761 28,653 17,277 1,568,863 4,782,229 4,638,475 Additions 289,034 - 13,872 6,363 - 309,269 156,059 Capitalisations/ Transfers ------(12,305) Balance at the End of the Period 658,709 2,797,761 42,525 23,640 1,568,863 5,091,498 4,782,229
Accumulated Amortisation and Impairment Balance at the Beginning of the Year 16,450 870,494 10,117 - 967,551 1,864,612 897,270 Amortised During the Year 40,592 186,517 9,284 - - 236,393 190,776 Impaired During the Year ------776,566 Balance at the End of the Period 57,042 1,057,011 19,401 - 967,551 2,101,005 1,864,612
Carrying Value As at Beginning of the Year 353,225 1,927,267 18,536 17,277 601,312 2,917,617 3,741,205 As at End of The Year 601,667 1,740,750 23,124 23,640 601,312 2,990,493 2,917,617
Company For the year ended 31March, 2014 2013 Software cost and Total Total implementation (WIP) Rs.000 Rs.000 Rs.000 Cost / Carrying Value Balance at the Beginning of the 17,277 17,277 16,061 Year Additions 6,363 6,363 1,216 Transfers - - - Balance at the End of the Period 23,640 23,640 17,277
Carrying Value As at the Beginning of the Year 17,277 17,277 16,061 As at the End of the Year 23,640 23,640 17,277
16.1 License Fees License fee represents 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.306.12Mn was paid in 2011/12 and 2012/13 and operations commenced on 01 July 2013.
120 Annual Report 2013/14 16.2 FLAG Cable FLAG expenditure represents the expenditure incurred on undersea fiber 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.
16.3 Goodwill on Acquisition Group has recognised an impairment loss of Rs. 776.5 Mn on the Goodwill which was recognised at the acquisition of Pelwatte Sugar Industries PLC Group in year 2012/13..
17. Biological Assets Group As at 31 March, 2014 2013 Note Rs.000 Rs.000 Bearer Biological Assets 17.1 1,616,271 1,329,124 Consumer Biological Assets 17.2 1,559,765 1,475,236 3,176,036 2,804,360
17.1 Bearer Biological Assets On Finance Lease (JEDB/SLSPC) 17.1.1 87,904 96,946 Investments after Formation of the Plantation Company 17.1.2 1,528,367 1,232,178 1,616,271 1,329,124
17.1.1 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 2013 are as follows.
Mature Plantations For the year ended 31March, 2014 2013 Tea Rubber Total Total Rs.000 Rs.000 Rs.000 Rs.000 Cost Balance as at the Beginning of the Year 206,227 64,997 271,224 271,225 Balance as at the End of the Year 206,227 64,997 271,224 271,225
Accumulated Amortisation Balance as at the Beginning of the Year 132,803 41,477 174,280 165,238 Amortisation for the Year 6,874 2,166 9,040 9,041 Balance as at the End of the Year 139,677 43,643 183,320 174,279 Carrying Amount 66,550 21,354 87,904 96,946
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 17.1.2.
Distilleries Company of Sri Lanka PLC 121 NOTES TO THE FINANCIAL STATEMENTS
17.1.2 Investments after Formation of the Plantation Company For the year ended 31March, 2014 2013 Immature Mature Total Total Plantations Plantations Rs.000 Rs.000 Rs.000 Rs.000 Cost Balance as at the Beginning of the Year 826,287 663,175 1,489,462 1,255,591 Additions During the Year 324,488 - 324,488 233,871 Transfers (from)/to (9,935) 9,935 - - Balance as at the End of the Year 1,140,840 673,110 1,813,950 1,489,462
Accumulated Amortisation Balance as at the Beginning of the Year - 257,284 257,284 229,345 Charge for the Year - 28,299 28,299 27,939 Balance as at the End of the Year - 285,583 285,583 257,284 Carrying Amount at the End of the Year 1,140,840 387,527 1,528,367 1,232,178
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 17.1.1 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.43,136,174/= (2013-Rs.4,031,638/= ) of borrowing costs capitalised during the year.
17.2 Consumer Biological Assets Group For the year ended 31March, 2014 2013 Rs.000 Rs.000
Balance as at the Beginning of the Year 1,475,236 1,422,786 Gain/(Loss) Arising from Changes in Fair Value Less Cost to Sell 74,293 42,685 Increase Due to Development 10,236 9,765 Balance as at the end of the year 1,559,765 1,475,236
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 income statement. 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.
122 Annual Report 2013/14 Group For the year ended 31March, 2014 Rs.000
Timber Reserve Balance at the Beginning of the Year 1,308,826 Gain Recognised During the Year 74,294 Balance at the End of the Year 1,383,120
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. K.D Tissera, accredited Chartered 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.
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.
17.2.1 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 1,631,636 1,559,765 1,498,116 Total 1,631,636 1,559,765 1,498,116
18 Investments in Subsidiaries As at 31 March, 2014 2013 Number of Effective Cost Number of Effective Cost shares holding Rs.000 shares holding Rs.000
Melstacorp Limited 200,000,000 100% 35,558,000 200,000,000 100% 35,558,000 Timpex Limited 15,611,661 51.03% 156,117 15,611,661 51.03% 156,117 AION SG Residencies (Pvt) Ltd 2,500,000 100% 25,000 2,500,000 100% 25,000 Less: Provision for Impairment (25,000) (25,000) of Investment 35,714,117 35,714,117
Distilleries Company of Sri Lanka PLC 123 NOTES TO THE FINANCIAL STATEMENTS
18.1 Group Holdings in Subsidiaries Subsidiary Principal Activity Reporting Reason for using a Indirectly No. of shares Effective date different period holding held ownership through interest 1 Balangoda Plantations BPL Cultivation and processing 31-Dec To comply with the MC 10,217,300 43.23% PLC of Tea & Rubber rules and regulations in the Plantation sector
2 Bell Solutions (Pvt) Ltd BSL Information & 31-Mar - LB 98,090 98.09% Communication 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 31-Mar - MC 993,000,000 99.30% Hydro Electric Energy
5 Browns Beach Hotels PLC BBH Leisure 31-Mar - MC 54,273,234 41.88%
6 Continental Insurance CIL General Insurance Services 31-Dec To comply with the MC 50,000,000 100% Lanka Limited rules 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 - - 200,000,000 100% Company
9 Melsta Logistics (Pvt) Ltd ML Automobile Servicing and 31-Mar - MC 41,000,002 100% Logistics
10 Melsta Regal Finance Ltd MRF Finance, Leasing, Hire 31-Mar - MC 134,029,451 100% 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 PPL Distribution of locally 31-Dec To operate in line MC 40,000 100% manufactured Foreign with foreign strategic Liquor alliances
14 Splendor Media (Pvt) Ltd SM Media Buying & Creative 31-Mar - MC 50,000 50% 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 - - 15,611,661 51.03% Company
18 Melsta Properties (Pvt) Ltd MP Management of Real Estate 31-Mar - MC 40,194,901 100%
124 Annual Report 2013/14 18.2 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 exercise their votes collectively.
18.3 Disclosure of the Interest that Non-Controlling Interests Have in The Group’s Activities and Cash Flows 18.3.1 Nature of Interests in Subsidiaries with Material NCI Name of the subsidiary : Balangoda Plantations PLC Browns Beach Hotels (BPL) 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) : 75,312 52,818 Accumulated non controlling interest at the end of the : 1,564,974 2,076,569 reporting period (Rs. ‘000)
18.3.2 Summarised Financial Information of Subsidiaries that have Material NCI BPL BBH As at/ for the year ended 31 March, 2014 2013 2014 2013 Rs.000 Rs.000 Rs.000 Rs.000
Dividends Paid to Non Controlling Interests 13,419 - - - Current Assets 835,147 745,843 1,048,716 1,869,577 Non Current Assets 3,997,908 3,642,643 2,536,628 1,638,450 Current Liabilities 947,133 629,755 12,127 26,295 Non Current Liabilities 1,129,373 1,132,347 471 695 Revenue 3,171,983 2,779,742 - - Profit from Continuing Operations 132,654 92,205 93,249 187,744 Other Comprehensive Income 21,147 - 442 - Total Comprehensive Income 153,801 92,205 93,691 187,744
Distilleries Company of Sri Lanka PLC 125 NOTES TO THE FINANCIAL STATEMENTS
19 Investment in Equity Accounted Investees
Group As at 31 March, 2014 2013 No. of Shares Effective Equity Value Cost No. of Shares Effective Equity Value Cost Holding Holding Rs.000 Rs.000 Rs.000 Rs.000 (Note 19.1) (Note 19.1) Aitken Spence PLC 167,030,743 41.14% 22,538,992 14,239,687 161,647,628 39.81% 20,303,398 13,732,051 Madulsima Plantations PLC 9,048,307 31.20% 455,517 90,000 9,048,307 31.20% 525,303 90,000 Pelwatte Dairies (Pvt) Ltd - - - - 286,847,001 24.38% 86,284 100,000 22,994,509 14,329,687 20,914,985 13,922,051
Company As at 31 March, 2014 2013 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
19.1 Equity Value of Investment in Equity Accounted Investees to the Group
Equity Accounted Balance as at Acquisitions/ Share of Profit/ Dividend Share of Other Share of Balance As Investee 1 April 2013 (Disposal) (Loss) Net Received Comprehensive Net Assets At 31 March of Tax Income 2014 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
19.2 Market Value Quoted Equity Accounted Investees and Other Information
Principal Activity Reporting Date Group Company As at 31 March, 2014 2013 2014 2013 Rs.000 Rs.000 Rs.000 Rs.000
Aitken Spence PLC Diversified holdings 31 March 16,352,310 19,333,056 18,258 22,305 Madulsima Plantations PLC Cultivation and 31 December 91,388 111,294 - - processing of Tea 16,443,698 19,444,350 18,258 22,305
126 Annual Report 2013/14 19.3 Disclosure of Nature, Extent and Financial Effects of the Entity’s Interests in Associates 19.3.1 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 In the areas of Madulsima and 02. Bogawanthalawa.
Principal Activities : Investment Holding Company Cultivation and plantation of tea
Proportion of ownership interests : 41.14% 31.20%
Whether strategic to the Group : Yes Yes
Investment in associate is measured using : Equity method Equity method
Summarised financial information (entire amount reported in associate’s financial statements)
Aitken Spence PLC Madulsima Plantations PLC As at / for the year ended 31March, 2014 2013 2014 2013 Rs.000 Rs.000 Rs.000 Rs.000
Total current assets 25,865,144 22,408,357 452,701 417,643 Total non current assets 35,280,093 33,742,653 3,891,249 3,653,715 Total current liabilities 13,816,605 15,450,825 1,862,099 1,424,427 Total non current liabilities 8,550,368 7,197,484 911,134 852,755 Revenue 36,108,370 36,606,286 2,056,721 1,693,075 Profit / (loss) from continuing operations 4,508,635 4,275,511 (219,628) (66,686) Other comprehensive income / (Expenses) 1,286,282 242,273 (3,831) 45,960 Total comprehensive income / (Expenses) 5,794,917 4,517,784 (223,459) (20,726) Cash and cash equivalents 2,728,514 2,217,994 2,364 1,065 Depreciation and amortisation. 1,499,420 1,349,568 73,142 88,401 Interest income. 800,721 704,339 205 160 Interest expense. 1,145,540 1,327,591 111,840 86,681 Income tax expense 900,476 749,970 3,620 3,556
Distilleries Company of Sri Lanka PLC 127 NOTES TO THE FINANCIAL STATEMENTS
20 Other Financial Investments Group Company As at 31 March, 2014 2013 2014 2013 Note Rs.000 Rs.000 Rs.000 Rs.000
Non Current Investments Available For Sale Financial Investments - (AFS) 20.1 15,572,892 14,512,561 6,349,895 5,897,294 Loans and Receivables (L&R) Financial 20.4 181,765 - - - Investments Other Non Current Financial Investments 15,754,657 14,512,561 6,349,895 5,897,294
Current Investments Available for Sale Financial Investments - (AFS) 20.1 114,777 - 475 - Fair Value Through Profit or Loss (FVTPL) 20.2 1,950,144 1,668,328 783,927 684,758 Financial Investments Held to Maturity (HTM) Financial 20.3 - 100,148 - - Investments Loans and Receivables (L&R) Financial 20.4 254,893 - - - Investments Other Current Financial Investments 2,319,814 1,768,476 784,402 684,758
20.1 Available for Sale Financial Investments - (AFS) Non Current Investments Quoted Equity Securities 20.1.1 15,333,884 14,468,554 6,126,218 5,894,287 Unquoted Equity Securities 20.1.2 338 30,007 7 7 Investments in Unit Trusts 20.1.3 3,000 3,000 3,000 3,000 Debt Securities 20.1.4 235,670 11,000 220,670 - 15,572,892 14,512,561 6,349,895 5,897,294
Current investments Quoted equity securities 20.1.5 114,777 - 475 - 114,777 - 475 -
128 Annual Report 2013/14 ------3 4 7 Rs.000 Fair Value ------3 4 7 2013 3,000 3,000 Rs.000 1,523,544 5,885,066 6,233 9,221 1,529,777 5,894,287 ------100 200 37,333 6,233 9,221 49,981 3,549 52,874 4,843 6,150 6,969 300,000 3,000 3,000 17,373,575 418,948 1,963,214 17,042,856 599,951 10,016,272 2,234,318 494,946 1,675,722 No. of Shares Cost ------3 4 7 Company Rs.000 Fair Value - - 138 ------3 4 7 2014 8,845 9,354 3,000 3,000 Rs.000 1,535,461 6,116,864 1,544,306 6,126,218 - - 100 200 1,921 40,597 8,845 9,216 50,980 3,63939,169 4,945 4,593 4,700 300,000 3,000 3,000 17,498,457 432,33217,042,856 2,152,311 10,016,272 599,951 2,452,467 494,946 1,502,441 No. of Shares Cost - - - - 3 4 Rs.000 Fair Value 2013 - - Rs.000 15,000 15,000 15,000 15,000 6,324,684 7,789,692 606,108 643,990 1,656,936 6,034,872 8,587,728 14,468,554 3,000 3,000 30,007 30,007 ------100 3 200 4 1,626 150 150 49,981 3,549 52,874 4,843 6,150 6,969 300,000 3,000 3,000
5,946,351 606,108 643,990 31,537,216 6,324,684 7,789,692 18,697,963 552,191 2,112,870 17,042,856 599,951 10,016,272 2,234,318 494,946 1,675,722 No. of Shares Cost - - - - 3 4 Group Rs.000 Fair Value - 119,938 - - 3 4 2014 338 338 Cost 3,000 3,000 Rs.000 606,108 636,854 926,473 7,202,026 8,414,278 1,671,237 6,282,752 10,405,845 15,333,884 - - 100 200 1,626 150 261 3,310 331 331 50,980 3,63939,169 4,945 4,593 4,700 300,000 3,000 3,000 1,668,129 5,946,351 606,108 636,854 36,538,938 7,202,026 8,294,340 18,845,020 567,95817,042,856 2,317,938 10,016,272 599,951 2,452,467 494,946 1,502,441 33,140,501 926,473 No. of Shares / Warrants As at 31 March, Diversified investments John Keells Holdings PLC 2016 John Keells Holdings PLC - Warrants Bank finance & insurance Commercial Bank of Ceylon PLC Commercial Bank of Ceylon PLC-NV DFCC Bank PLC Hatton National Bank PLC 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 Northern Green Agro (Pvt) Ltd Southern Green Agro (Pvt) Ltd Credit Investment Bureau of Sri Lanka & Co., Ltd W.M.Mendis Unquoted Equity Securities - AFS Total Investments in Unit Trusts Mgt Co., Ltd Unit Trust - AFS Investments in Unit Trusts Total Quoted Equity Securities - Non Current Investments AFS
20.1.2 20.1.3 20.1.1 Distilleries Company of Sri Lanka PLC 129 NOTES TO THE FINANCIAL STATEMENTS
20.1.4 Debt Securities - AFS As at 31 March, Group Company Fair Value Fair Value 2014 2013 2014 2013 Rs.000 Rs.000 Rs.000 Rs.000 Corporate Debentures 235,670 11,000 220,670 - 235,670 11,000 220,670 -
20.1.5 Quoted Equity Securities - Current Investments - AFS Group Company As at 31 March, 2014 2013 2014 2013 No. Of Fair Value No. of Fair Value No. of Fair Value No. of Fair Value Warrants Rs.000 Warrants Rs.000 Warrants Rs.000 Warrants Rs.000 John Keells Holdings PLC- 1,673,129 114,777 - - 6,921 475 - - Warrents 2015 114,777 - - 475 - -
20.2 Fair Value through Profit or Loss (FVTPL) Financial Investments Group Company As at 31 March, Fair Value Fair Value 2014 2013 2014 2013 Note Rs.000 Rs.000 Rs.000 Rs.000 Quoted Equity Securities 20.2.1 1,567,065 1,526,614 783,927 684,758 Investments in Unit Trusts 20.2.2 258,772 141,714 - - Quoted Debentures 20.2.3 124,307 - - - 1,950,144 1,668,328 783,927 684,758
20.2.1 Quoted Equity Securities - FVTPL Group Company As at 31 March, 2014 2013 2014 2013 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 People's Leasing Company PLC 26,478,500 378,367 28,439,700 372,787 24,517,300 350,597 24,517,300 321,177 Commercial Bank PLC - Voting 75,000 9,030 29,260 3,014 - - - - Commercial Bank PLC - Non Voting 42,027 4,641 14,979 1,365 - - - - Sampath Bank PLC 201,413 36,182 49,305 10,804 152,794 27,824 37,658 8,469 Central Finance PLC 131,750 23,723 131,750 23,275 106,950 19,358 106,950 19,250 Nations Trust Bank PLC 258,000 16,603 133,000 7,963 206,000 13,369 103,000 6,283 National Development Bank PLC 68,500 12,053 - - 58,500 10,448 - Ceylinco Insurance PLC-Non Voting 14,861 6,193 16,861 5,532 10,990 4,649 12,490 4,087 Hatton National Bank PLC - Non Voting 9,463 1,126 23,775 2,675 - - - - Union Bank PLC 6,000 112 306,800 3,113 6,000 112 6,000 102 488,030 430,528 426,357 359,368 Beverage, Food & Tobacco Ceylon Tobacco PLC 11,600 12,635 20,600 16,428 8,600 9,082 13,600 10,618 Cargills (Ceylon) PLC 49,900 6,950 49,900 7,492 36,700 5,010 36,700 5,571 Bairaha Farms PLC 49,574 7,108 28,648 4,352 39,274 5,781 20,348 3,046 Keells Food Products PLC 110,669 6,272 87,302 6,230 84,221 4,632 64,854 4,546 Ceylon Cold Stores PLC 68,970 9,799 71,970 9,553 49,583 6,976 51,083 6,942 The Lion Brewery PLC - - 136,723 40,652 - - 59,322 19,754 Lanka Milk Foods (CWE) PLC 763,733 81,796 763,733 82,712 763,733 81,796 763,733 82,712 Renuka Agri Foods PLC 6,768,560 22,243 21,511,995 35,590 4,668,560 14,473 4,668,560 19,141 146,803 203,009 127,750 152,330 130 Annual Report 2013/14 20.2.1 Quoted Equity Securities - FVTPL (Contd.) Group Company As at 31 March, 2014 2013 2014 2013 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 Hotel and Travels The Kingsbury Hotel PLC 1,323,600 17,224 1,323,600 20,345 618,600 7,918 618,600 8,289 Aitken Spence Hotel Holdings PLC 84,400 5,906 84,400 6,225 61,300 4,291 61,300 4,536 Asian Hotels & Properties PLC ------Serendib Hotels PLC 220,000 6,244 220,000 5,202 160,000 4,480 160,000 3,792 John Keells Hotels PLC 528,850 6,611 528,850 7,065 388,850 4,861 388,850 5,133 35,985 38,836 21,550 21,750 Diversified Investment CT Holdings PLC 1,475,500 199,193 1,480,500 186,828 - - - - Vallibel One PLC 124,200 2,080 124,200 2,118 - - - - Carsons Cumberbatch PLC 29,400 10,731 29,400 12,936 - - - - Softlogic Capital PLC 40,000,000 156,000 40,000,000 224,000 - - - - Softlogic Holding PLC 380,000 4,028 830,000 8,707 380,000 4,028 680,000 7,072 Free Lanka Capital Holdings PLC 2,850,850 5,987 2,850,850 7,127 2,850,850 5,987 2,850,850 7,127 Expo Lanka Holdings PLC 872,000 7,298 240,000 6,114 632,000 5,498 652,000 4,434 John Keells Holdings PLC 19,190 4,362 19,400 4,266 - - - - John Keells Holdings PLC - Warrant 2015 3,163 253 ------John Keells Holdings PLC - Warrant 2016 1,163 110 ------Renuka Holdings PLC 67,358 2,061 134,858 4,868 - - 392,103 456,964 15,513 18,633 Manufacturing Textured Jersey Lanka PLC 13,511,928 212,955 16,206,028 172,003 - - - - Chevron Lanka Lubricants PLC 37,500 9,944 39,000 8,373 28,000 7,400 33,000 7,161 Bukit Darah PLC 72,200 42,663 72,200 50,937 - - - - ACL Cables PLC 249,000 15,630 299,000 19,894 136,000 8,296 136,000 8,908 Royal Ceramics Lanka PLC 85,200 6,852 65,200 6,478 67,100 5,321 47,100 4,686 Tokyo Cement PLC -Voting 440,400 12,225 491,000 9,217 150,000 5,430 144,000 2,520 Tokyo Cement PLC -Non Voting 418,400 12,134 - - 418,400 12,134 - - Lanka Tiles PLC 123,208 9,433 123,208 8,413 89,815 6,799 89,815 6,242 Lanka IOC 100,000 3,850 - - 100,000 3,850 - 325,686 275,315 49,230 29,517 Construction & Engineering Access Engineering PLC 418,497 9,367 488,497 9,373 295,797 6,655 340,797 6,714 Colombo Dockyard PLC 21,083 3,818 30,662 6,652 12,053 2,106 21,812 4,670 13,185 16,025 8,761 11,384 Chemicals and Pharmaceuticals Heycarb PLC 67,755 12,418 46,455 8,103 50,255 9,096 31,455 5,536 12,418 8,103 9,096 5,536 Plantations Kegalle Plantation PLC - - 55,000 6,160 - - 55,000 6,160 - 6,160 - 6,160 Telecommunication Dialog Axiata PLC 2,280,893 20,528 2,155,600 19,169 861,951 7,758 1,824,200 16,418 20,528 19,169 7,758 16,418 Power & Energy Vallibel Power Erathna PLC 1,605,425 9,080 1,358,425 7,927 1,155,024 6,468 1,003,024 5,617 9,080 7,927 6,468 5,617 Hospitals Asiri Hospitals Holdings PLC 5,222,890 112,538 4,782,370 54,379 4,672,890 103,738 4,432,370 50,529 Ceylon Hospitals PLC - Non Voting 140,120 10,709 140,120 10,199 100,080 7,706 100,080 7,516 123,247 64,578 111,444 58,045 Total Quoted Equity Securities - FVTPL 1,567,065 1,526,614 783,927 684,758
Distilleries Company of Sri Lanka PLC 131 NOTES TO THE FINANCIAL STATEMENTS
20.2.2 Investments in Unit trusts - FVTPL Group As at 31 March, 2014 2013 No. of Units Fair Value No. of Units Fair Value Rs.000 Rs.000
Namal High Yield Fund 5,186,213 66,416 3,178,987 35,819 JB Vantage Money Market Fund 4,964,585 66,312 3,031,222 35,405 Eagle Income Fund 3,741,112 40,254 3,286,385 35,329 Eagle Money Fund 2,107,020 25,745 - - Ceybank Savings Plus Money Market Fund 5,639,583 60,045 3,228,782 35,161 Total Unit Trust Investment -FVTPL 258,772 141,714
20.2.3 Quoted Debentures - FVTPL Group As at 31 March, 2014 2013 Carrying Value Fair Value Carrying Value Fair Value Rs.000 Rs.000 Rs.000 Rs.000
People's Leasing Company PLC 50,000 52,427 - - Hatton National Bank PLC 19,003 19,844 - - Senkadagala Finance PLC 20,000 20,618 - - Lion Brewery (Ceylon ) PLC 15,000 15,736 - - Hayleys PLC 15,000 15,682 - - Total Investments In Quoted Debentures - FVTPL 119,003 124,307 - -
20.3 Held to Maturity (HTM) Financial Investments Group As at 31 March, 2014 2013 Rs.000 Rs.000 Commercial Papers - 100,148 - 100,148
20.4 Loans and Receivables (L&R) Financial Investments Non Current Investments Corporate Debentures 181,765 - 181,765 - Current Investments Treasury Bills Matures After 3 Months 42,516 Trust Certificates 212,377 - 254,893 -
20.5 Investments that have been Pledged The Investments that are pledged for Liabilites are disclosed in Note 41 to these financial statements if any.
132 Annual Report 2013/14 21 Deferred Tax Asset and Liabilities 21.1 Recognised Deferred Tax Assets and Liabilities Deferred tax assets and liabilities are attributable to the following: Group As at 31 March, 2014 2013 Assets Liabilities Net Asset Liabilities Net Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Property, Plant and Equipment (11,382) 416,080 404,698 - 500,154 500,154 Biological Assets - 308,814 308,814 - 272,438 272,438 Employee Benefits (154,545) - (154,545) (192,796) - (192,796) Accelerated Tax Depreciation on - 8,456 8,456 - 6,463 6,463 Leasing Assets Unutilised Tax Loss Carry-Forwards (230,889) - (230,889) (172,083) - (172,083) (396,816) 733,350 336,534 (364,879) 779,055 414,176
Company As at 31 March, 2014 2013 Assets Liabilities Net Asset Liabilities Net Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000
Property, Plant and Equipment - 60,958 60,958 - 44,230 44,230 Employee Benefits (44,068) - (44,068) (46,145) - (46,145) (44,068) 60,958 16,890 (46,145) 44,230 (1,915)
21.1.1 Movement in Recognised Deferred Tax Assets and Liabilities Group 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 (192,796) 38,827 (7,552) 6,976 - (154,545) Accelerated Tax Depreciation on 6,463 - 1,993 - - 8,456 Leasing Assets Unutilised Tax Loss Carry-Forwards (172,083) - (58,806) - - (230,889) 414,176 (108,768) 24,150 6,976 - 336,534
Company Charged/(credited) Balance as at in in other directly in Balance as at 1 April 2013 Profit or loss comprehensive equity 31 March 2014 income Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 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
Distilleries Company of Sri Lanka PLC 133 NOTES TO THE FINANCIAL STATEMENTS
21.2 Unrecognised Deferred Tax Assets Deferred tax assets have not been recognised in respect of the following items: Group Company For the year ended 31March, 2014 2013 2014 2013 Rs.000 Rs.000 Rs.000 Rs.000
Tax Losses 161,792 179,338 - - Other Deductible Temporary Differences 150,519 176,710 - - 312,311 356,048 - - 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.
22 Finance Lease, Hire Purchases and Operating Lease Receivables Group 2014 2013 As at 31 March, Finance Hire Operating Total Finance Hire Operating Total Lease Purchase Lease Lease Purchase Lease Receivables Receivables Receivables Receivables Receivables Receivables Note Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Non Current Assets Receivable from One to Five Years 22.1 199,562 101,802 - 301,364 101,402 20,649 - 122,051 199,562 101,802 - 301,364 101,402 20,649 - 122,051 Current Assets Receivable Within One Year 22.2 77,633 36,566 - 114,199 31,478 7,054 - 38,532 77,633 36,566 - 114,199 31,478 7,054 - 38,532
22.1 Receivable from One to Five Years Gross Rental Receivable 258,125 133,997 - 392,122 139,465 27,106 - 166,571 Unearned Interest Income (58,563) (32,195) - (90,758) (38,063) (6,457) - (44,520) Allowance for Impairment ------199,562 101,802 - 301,364 101,402 20,649 - 122,051
22.2 Receivable within One Year Gross Rental Receivable 127,759 61,441 - 189,200 60971 12894 - 73,865 Unearned Interest Income (50,126) (24,875) - (75,001) (29,493) (5,840) - (35,333) Allowance for Impairment ------77,633 36,566 - 114,199 31,478 7,054 - 38,532
134 Annual Report 2013/14 23 Advances and Other Loans Group As at 31 March, 2014 2013 Loans and Factoring Total Loans and Factoring Total advances receivables advances receivables Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Note 23.1 Note 23.1 Non Current Assets Receivable from One to Five Years 151,984 - 151,984 100,118 - 100,118 151,984 - 151,984 100,118 - 100,118 Current Assets Receivable within One Year 433,622 239,393 673,015 40,205 61,389 101,594 433,622 239,393 673,015 40,205 61,389 101,594 Total 585,606 239,393 824,999 140,323 61.389 201.712 23.1 Loans and Advances Group As at 31 March, 2014 2013 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 Loans Secured by Fixed Deposits 687 - 687 1,367 - 1,367 Loans Secured by Other Assets 259,363 - 259,363 87,543 - 87,543 Trade Finance Receivables 328,259 - 328,259 51,413 51,413 Allowance for Impairment 23.2 (2,703) - (2,703) - - - 585,606 - 585,606 140,323 - 140,323 23.2 Allowance for Impairment Collective Allowance for Impairment Balance as at 1 April ------Charge for the Year 2,703 - 2,703 - - - Balance as at 31 March 2,703 - 2,703 - - -
24 Inventories Group Company As at 31 March, 2014 2013 2014 2013 Rs.000 Rs.000 Rs.000 Rs.000
Raw Materials 1,361,500 2,779,129 1,107,897 1,385,421 Packing Materials 518,818 752,514 453,429 421,270 Work in Progress 269,330 284,130 136,877 145,193 Finished Goods 650,638 563,180 283,012 290,930 Harvested Crop 376,037 708,660 - - Nurseries 21,519 15,747 - - Input Materials, Consumables and Spares 2,124,555 1,675,851 270,384 266,427 Goods in Transit 25,035 45,451 - - 5,347,432 6,824,662 2,251,599 2,509,241 Provision for Slow Moving and Obsolete Inventories (911,636) (684,957) (5,443) (5,443) 4,435,796 6,139,705 2,246,156 2,503,798 24.1 Inventories that have been Pledged The Inventories that are pledged for Liabilites are disclosed in Note 41 to these financial statements if any.
Distilleries Company of Sri Lanka PLC 135 NOTES TO THE FINANCIAL STATEMENTS
25 Trade and Other Receivables Group Company As at 31 March, 2014 2013 2014 2013 Note Rs.000 Rs.000 Rs.000 Rs.000
Financial Assets Trade Receivables 4,975,673 3,063,258 2,534,074 2,209,016 Other Financial Receivables 1,213,119 2,560,888 452,161 325,926 Receivable from Share Trust 25.1 1,446,830 1,471,493 - - Insurance Contract Receivables 371,872 342,952 - Loans Given to Employees 4,123 17,879 - - Refundable Deposits 24,012 10,999 3,421 3,354 8,035,629 7,467,469 2,989,656 2,538,296 Provision for Impairment Loss on Financial Assets (958,913) (1,462,110) (154,766) (130,785) 7,076,716 6,005,359 2,834,890 2,407,511
Non Financial Assets Prepayments and Advances 1,440,808 1,375,391 1,054,318 832,333 Accrued Income 66,394 131,018 66,394 126,246 Tax Recoverables 220,355 217,721 - - Prepaid Staff Costs 31,829 27,723 - - Other Non Financial Receivables 884,501 70,751 - - 2,643,887 1,822,604 1,120,712 958,579 Provision for Bad and Doubtful Debts - - - - 2,643,887 1,822,604 1,120,712 958,579 9,720,603 7,827,963 3,955,602 3,366,090
25.1 Receivable from Share Trust Melstacorp Limited has acquired 8,650,732 shares of the Company for Rs.1,446.83 Mn in order to form a Share Trust for the benefit of its employees. Melstacorp Limited Share Trust (Trustee) was created effective from 1 April 2011 for the holding of shares. Melstacorp Limited and the trustees will initiate an inter transfer of said shares to be held in the name of the trustees as per the provision in the trust deed ratified by the board on 9 August 2012.
26 Cash at Bank and Cash in Hand Group Company As at 31 March, 2014 2013 2014 2013 Note Rs.000 Rs.000 Rs.000 Rs.000 Favorable Balances Classified Under Current Assets
Short Term Deposits 26.1 3,044,934 3,824,871 82,062 70,410 Cash At Bank 595,628 504,495 61,719 193,501 Cash in Hand 206,471 235,886 199,883 231,501 Cash in Transit 76,479 277,394 76,439 270,787 Total 3,923,512 4,842,646 420,103 766,199
Unfavorable Balances Classified Under Current Liabilities Bank Overdrafts 5,120,243 5,695,903 3,810,832 4,736,030 Total 5,120,243 5,695,903 3,810,832 4,736,030
(1,196,731) (853,257) (3,390,729) (3,969,831)
136 Annual Report 2013/14 26.1 Short term deposits Group Company As at 31 March, 2014 2013 2014 2013 Rs.000 Rs.000 Rs.000 Rs.000
Government Securities which Matures Within 3 Months 867,271 715,337 - - Fixed Deposits which Matures Within 3 Months 2,177,663 3,109,534 82,062 70,410 3,044,934 3,824,871 82,062 70,410
26.1.1 Short Term Deposits that have been Pledged The Short term deposits that are pledged for Liabilites are disclosed in Note 41 to these financial statements if any.
27 Non Current Assets held for Sale Group Company As at 31 March, 2014 2013 2014 2013 Rs.000 Rs.000 Rs.000 Rs.000
Property, Plant and Equipment - 518 - - - 518 - -
27.1 Consequent to the decision taken to demolish and reconstruct the new hotel the carrying amount of assets held by Browns Beach Hotels PLC is recognised under assets held for sale.
28 Stated Capital For the year ended 31March, 2014 2013 No. of Shares Value of Shares No. of Shares Value of Shares 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 of 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.
29 Reserves Group Company As at 31 March, 2014 2013 2014 2013 Note Rs.000 Rs.000 Rs.000 Rs.000
Capital Reserves Revaluation Reserve 29.1 5,793,558 5,356,699 1,971,799 2,052,242 Capital Reserve 29.2 110,930 110,930 107,882 107,882 Reserve Fund 29.3 1,798 1,131 - - Total Capital Reserves 5,906,286 5,468,760 2,079,681 2,160,124
Revenue Reserves General Reserve 29.4 8,222,578 8,210,000 8,210,000 8,210,000 Exchange Fluctuation Reserve 29.5 374,881 328,935 - - Timber Reserve 29.6 597,921 565,806 - - Afs Reserve 29.7 5,727,503 5,870,033 4,581,774 4,364,511 Investment Fund 29.8 2,844 1,990 - - Total Revenue Reserves 14,925,727 14,976,764 12,791,774 12,574,511 Total Reserves 20,832,013 20,445,524 14,871,455 14,734,635
Distilleries Company of Sri Lanka PLC 137 NOTES TO THE FINANCIAL STATEMENTS
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 derecognition 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. The Company 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 of equity accounted investees in the Group and the portion of exchange gain or loss arising from the translation of the hedge instrument in relation to cash flow hedges.
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 The reserve is created in accordance with the Central Bank guidelines issued to create an Investment Fund reserve by transferring
- 8% of the profits liable for ATV on financial services monthly when the payment of VAT on financial services for such month becomes due
- 5% of the profits before tax calculated for payment of income tax purposes on dates specified in the Inland Revenue Act for the self assessment payment of tax.
138 Annual Report 2013/14 30 Interest Bearing Loans and Borrowings Group Company As at 31 March, 2014 2013 2014 2013 Note Rs.000 Rs.000 Rs.000 Rs.000
Non Current Liabilities Term Loans Payable after One Year 30.1 549,408 501,713 - 125,006 Liability to Make Lease Payments Payable After One Year 30.2 98,852 100,504 - - Finance Lease Liabilities Payable After One Year 30.3 22,715 670,975 602,217 - 125,006
Current Liabilities Term Loans Payable Within One Year 30.1 625,856 1,782,383 - 1,144,996 Liability To Make Lease Payments Payable 30.2 1,653 1,590 - - Within One Year Finance Lease Liabilities Payable Within One Year 30.3 5,062 - - - Other Short Term Borrowings 6,958,577 3,060,289 6,215,006 2,570,002 Redeemable Preference Shares 30.4 12,646 12,646 - - 7,603,794 4,856,908 6,215,006 3,714,998
30.1 Term Loans Group Company As at 31 March, 2014 2013 2014 2013 Rs.000 Rs.000 Rs.000 Rs.000
Balance as at Beginning of the Year 2,284,095 2,970,106 1,270,002 1,915,000 Received During the Year 1,477,684 1,396,517 - 500,000 Acquisition / (De- Recognition) of Subsidiaries (152,089) - - - Repaid During the Year (2,434,426) (2,082,527) (1,270,002) (1,144,998) 1,175,264 2,284,096 - 1,270,002
Repayable within one Year 625,856 1,782,383 - 1,144,996 Repayable after one Year 549,408 501,713 - 125,006 1,175,264 2,284,096 - 1,270,002
30.2 Liability to Make Lease Payments Group Company As at 31 March, 2014 2013 2014 2013 Rs.000 Rs.000 Rs.000 Rs.000
Gross Liability as at the Beginning of the Year 184,058 189,731 - - Repayments During the Year (5,673) (5,673) - - 178,385 184,058 - - Finance Costs Allocated to Future Years (77,880) (81,964) - - Net Liability as at the End of the Year 100,505 102,094 - -
Repayable within one Year Gross Liability 5,673 5,673 - - Finance Costs Allocated to Future Years (4,020) (4,083) - - Net Liability 1,653 1,590 - -
Distilleries Company of Sri Lanka PLC 139 NOTES TO THE FINANCIAL STATEMENTS
30.2 Liability to Make Lease Payments (Contd.) Group Company As at 31 March, 2014 2013 2014 2013 Rs.000 Rs.000 Rs.000 Rs.000
Repayable within Two to Five Years Gross Liability 22,692 22,692 - - Finance Costs Allocated to Future Years (15,385) (15,671) - - Net Liability 7,307 7,021 - -
Repayable after Five Years Gross Liability 155,693 155,693 - - Finance Costs Allocated to Future Years (64,148) (62,210) - - Net Liability 91,545 93,483 - -
Finance Lease Liabilities Payable after One Year 98,852 100,504 - -
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.20,294,271/= Which is based on GDP deflator of 8.9% (2012)
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 13% , liability would be as follows.
As at 31 March, 2014 Rs.000
Gross Liability 1,620,514 Finance Charges (1,105,970) Net Liability 514,544
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 within 2-5 after 5 Year 31/03/2014 Year Year Central Finance 60 equal monthly instalments @ 5,062 22,715 - 27,777 Company PLC Rs. 707,793/- commencing from 23.05.2013
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.
140 Annual Report 2013/14 31 Employee Benefits Group Company As at 31 March, 2014 2013 2014 2013 Note Rs.000 Rs.000 Rs.000 Rs.000
Present Value of Unfunded Obligations 31.1 831,769 1,147,982 110,170 115,365 Present Value of Funded Obligations - - - - Total Present Value of Obligations 831,769 1,147,982 110,170 115,365 Fair Value of Planed Assets - - - - Provision for Retirement Benefit Obligations 831,769 1,147,982 110,170 115,365
31.1 Movement in Present Value of Defined Benefit Obligations Group Company For the year ended 31 March, 2014 2013 2014 2013 Note Rs.000 Rs.000 Rs.000 Rs.000
Balance as at Beginning of the Year 1,147,982 1,103,085 115,365 116,105 Acquisition/ (De-Recognition) of Subsidiaries (330,811) - - - Benefits Paid by the Plan (106,980) (97,640) (21,056) (12,567) Expense Recognised in the Profit or Loss 31.1.1 151,125 152,584 21,445 18,494 Actuarial (Gain) / Loss Recognised in Other (29,547) (10,047) (5,584) (6,667) Comprehensive Income Balance as at the End of the Year 831,769 1,147,982 110,170 115,365
31.1.1 Expense Recognised in the Profit or Loss Group Company For the year ended 31 March, 2014 2013 2014 2013 Rs.000 Rs.000 Rs.000 Rs.000
Current Service Costs 67,034 76,512 8,755 8,045 Interest Costs 84,091 76,072 12,690 10,449 151,125 152,584 21,445 18,494
31.1.2 Actuarial Assumptions Principal Actuarial Assumptions at the Reporting Date Group Company As at 31 March, 2014 2013 2014 2013
Discount Rate (%) 10 - 11.5% 10 - 12.15% 10% 10% Future Salary Increases (%) 5-10% 5-10% 5% 5% Retirement Age (Years) 55-65 years 55-65 years 55-65 years 55-65 years
31.1.3 Sensitivity of Assumptions Used If one percentage increase in the assumptions, would have the following effects to the define benefit obligation liability,
Group Company As at 31 March, 2014 2014 Discount Rate Salary Discount Rate Salary Increment Rate Increment Rate
Increase by 1% (60,347) 43,341 (3,452) 4,044 Decrease by 1% 69,637 (39,514) 3,671 (3,857)
Distilleries Company of Sri Lanka PLC 141 NOTES TO THE FINANCIAL STATEMENTS
32 Other Deferred Liabilities Group As at 31 March, 2014 2013 Notes Rs.000 Rs.000
Non Current Liabilities Deferred Grants and Subsidies 32.1 214,139 227,365 Deferred Revenue 32.2 38,432 30,517 252,571 257,882 Current Liabilities Deferred Revenue 32.2 56,730 58,128 56,730 58,128
32.1 Deferred Grants and Subsidies Group For the year ended 31March, 2014 2013 Rs.000 Rs.000
Balance at the Beginning of the Year 227,365 241,135 Amortisation for the Year (13,226) (13,770) Balance at the End of The Year 214,139 227,365
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 For the year ended 31March, 2014 2013 Rs.000 Rs.000
Balance at the Beginning of the Year 88,645 80,972 Revenue Received During the Year 78,951 91,550 Deferred Revenue Recognised During the Year (72,434) (83,877) Balance at the End of the Year 95,162 88,645
Deferred Revenue to be Recognised within One Year 56,730 58,128 Deferred Revenue to be Recognised after One Year 38,432 30,517 95,162 88,645
142 Annual Report 2013/14 33 Trade and Other Payables
Group Company As at 31 March, 2014 2013 2014 2013 Note Rs.000 Rs.000 Rs.000 Rs.000
Financial Liabilities Trade Payables 941,271 1,276,025 121,226 129,853 Insurance Contract Liabilities 801,254 777,138 - Other Financial Liabilities 3,234,670 4,327,214 2,771,217 2,687,366 Refundable Advances and Deposits 2,293 170,603 - - 4,979,488 6,550,980 2,892,443 2,817,219 Non Financial Liabilities Accrued Expenses 1,296,790 160,213 102,466 123,244 Direct & Indirect Tax Payables 33.1 2,257,698 4,333,674 2,015,708 3,614,070 Non Refundable Advances and Deposits 90,989 61 - - Unclaimed Dividends 147,713 143,480 135,944 133,803 3,793,190 4,637,428 2,254,118 3,871,117
8,772,678 11,188,408 5,146,561 6,688,336
33.1 Direct & Indirect Tax Payables Excise Duty Payable 1,595,715 3,418,414 1,454,449 3,217,859 Value Added Tax (VAT) Payable 553,519 817,781 469,810 308,683 Nation Building Tax (NBT) Payable 108,464 97,479 91,449 87,528 2,257,698 4,333,674 2,015,708 3,614,070
34 Deposit Liabilities Group As at 31 March, 2014 2013 Rs.000 Rs.000
Term Deposits 605,876 132,540 Savings Deposits 5,121 361 Liabilities to FBIL Customers 52,540 145,471 663,537 278,372
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.
Distilleries Company of Sri Lanka PLC 143 NOTES TO THE FINANCIAL STATEMENTS
35.1 Balances with Related Parties 35.1.1 Amounts due from Related Parties Group Company As at 31 March, 2014 2013 2014 2013 Note Rs.000 Rs.000 Rs.000 Rs.000
Subsidiaries 35.1.3 - - 4,764,832 2,531,056 Associates 35.1.4 561,721 744,339 553,821 550,996 Other Related Companies 35.1.5 5,993 5,315 5,577 5,078 567,714 749,654 5,324,230 3,087,130
35.1.2 Amounts due to Related Parties Subsidiaries 35.1.3 - - 1,035,020 971,383 Associates 35.1.4 1,358 1,083 - - Other Related Companies 35.1.5 262,547 241,396 - 42 263,905 242,479 1,035,020 971,425
35.1.3 Subsidiaries Group Company Amounts due from Amounts due to Amounts due from Amounts due to As at 31 March, 2014 2013 2014 2013 2014 2013 2014 2013 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000
AION SG Residencies (Pvt) Ltd - - - - 10,862 9,782 - - Bellvantage (Pvt) Ltd - - - - - 30,158 3,518 Continental Insurance Lanka - - - - 2,033 1,254 - - Limited Lanka Bell Ltd (Note 35.1.6) - - - - 100,299 94,299 - - Melsta Logistics (Pvt) Ltd ------400,831 248,213 Melsta Regal Finance Ltd - - - - 651 27 - - Periceyl (Pvt) Ltd - - - - - 577,251 692,694 Splendor Media (Pvt) Ltd - - - - - 25,652 25,830 Texpro Industries Ltd - - - - - 1,128 1,128 Melstacorp Limited - - - - 4,661,849 2,435,476 ------4,775,694 2,540,838 1,035,020 971,383
Provision for Impairment of - - - - (10,862) (9,782) - - Amounts due from Subsidiaries - - - - 4,764,832 2,531,056 1,035,020 971,383
35.1.4 Associates Group Company Amounts due from Amounts due to Amounts due from Amounts due to As at 31 March, 2014 2013 2014 2013 2014 2013 2014 2013 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000
Aitken Spence PLC 2,520 2,135 1,358 1,083 - - - - Madulsima Plantations PLC (Note 35.1.7) 559,201 554,449 - - 553,821 550,996 - - Pelwatte Dairies (Pvt) Ltd - 187,755 ------561,721 744,339 1,358 1,083 553,821 550,996 - -
144 Annual Report 2013/14 35.1.5 Other Related Companies Group Company Amounts due from Amounts due to Amounts due from Amounts due to As at 31 March, 2014 2013 2014 2013 2014 2013 2014 2013 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000
Ace International Express (Pvt) Ltd - 3 ------Ace Power Generation Matara (Pvt) Ltd 2 ------Aitken Spence Hotel Holdings PLC 87 91 ------Aitken Spence Hotel Management 11 6 173 727 - - - - (Pvt) Ltd Ambewela Livestock Co.Ltd 32 ------Ambewela Products (Pvt) Ltd - 16 ------Comark Engineers (Pvt) Ltd - - 53 53 - - - - Lanka Aluminium Industries PLC - - - 136 - - - - Lanka Aluminium PLC - - 1,507 - - - - - Lanka Milk Foods (CWE) PLC 4,490 5,140 20 11 4,429 5,078 - - Lanka Stassens Distributors (Pvt) Ltd 1 2 ------Sithma Development Private Limited - - - 177 - - - - Stassen Exports Limited 1,367 50 260,794 240,292 1,148 - - 42 Stassen Natural Foods (Pvt) Ltd 3 7 ------5,993 5,315 262,547 241,396 5,577 5,078 - 42
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 at 16% per annum.
Distilleries Company of Sri Lanka PLC 145 NOTES TO THE FINANCIAL STATEMENTS
35.2 Transactions with Related Parties
35.2.1 Transactions with Subsidiaries, Associates and Other Related Companies
Name of the Company Names of Directors Nature of Nature of Transaction Transaction Balance due Interest Value (to) / from Rs.000 Rs.000 1 Milford Exports (Ceylon) (Pvt) Mr. D.H.S.Jayawardena Parent Co. Dividend paid 373,412 - Limited Mr. R.K.Obeyesekere 2 Periceyl (Pvt) Limited Mr. D.H.S.Jayawardena Subsidiary Co. Debtor collections & transfers 6,167,914 (577,251) Mr. R.K.Obeyesekere Supply of goods & services 580,843 Mr. C.R.Jansz Trading account profit 56,708 Goods received 50,781 3 Balangoda Plantations PLC Mr. D.H.S.Jayawardena Subsidiary Co. Rent paid 218 - Mr. R.K.Obeyesekere Purchase of tea 107 Mr. C.R.Jansz 4 Splendor Media (Pvt) Ltd. Subsidiary Co. Loan interest 3,539 (25,652) Supply of goods & services 1,432 Services received 1,127 5 Texpro Industries Limited Mr. D.H.S.Jayawardena Subsidiary Co. (1,128) 6 Continental Insurance Lanka Ltd Mr. C. F. Fernando Subsidiary Co. Insurance premium 29,900 2,032 Insurance claim received 2,175 Supply of goods & services 3,707 7 Melsta Logistics (Pvt) Ltd Subsidiary Co. Vehicle hiring charges 263,821 (400,831) Repair charges & other services 14,538 Rent 5,143 Temporary loan repayment 11,037 Temporary loan 11,000 8 Melstacorp Limited Mr. D.H.S.Jayawardena Subsidiary Co. Dividend paid 25,952 4,661,849 Mr. R.K.Obeyesekere Rent & other services 171,271 Mr. C.R.Jansz Supply of goods & services 6,021 Mr. N.de S. Deva Aditya Rent income 12,938 Capt. K.J.Kahanda Transferred value of land & building 33,000 Mr. C. F. Fernando Funds transferred 2,683,779 Dr. N. Balasuriya Funds received 1,239,426 Dividend received 920,000 9 Lanka Bell Ltd Mr. D.H.S.Jayawardena Subsidiary Co. Loan interest received 12,582 100,299 Mr. C.R.Jansz Telephone bills paid & services 14,188 Supply of goods & services 1,423
10 Bellvantage (Pvt) Ltd Subsidiary Co. Maintenance charges 52,224 (30,158) Supply of goods & services 2,359
11 Bell Solutions (Pvt) Ltd. Mr. D.H.S.Jayawardena Subsidiary Co. Maintenance charges 3,428 12 Melsta Regal Finance (Pvt) Ltd Subsidiary Co. Supply of goods & services 624 651 13 Melsta Properties (Pvt) Ltd. Capt. K.J.Kahanda Subsidiary Co. Land & Building Transfer 84,500 - Mr. C. F. Fernando 14 Aitken Spence PLC Mr. D.H.S.Jayawardena Associate Co. Dividend received 279 - Mr. N.de S. Deva Aditya 15 Madulsima Plantations PLC Mr. D.H.S.Jayawardena Associate Co. Loan interest 1,351 553,821 Mr. R.K.Obeyesekere Supply of goods & services 5 16 Stassen Exports (Pvt) Limited Mr. D.H.S.Jayawardena Affiliate co. Dividend paid 6,343 1,148
146 Annual Report 2013/14 Name of the Company Names of Directors Nature of Nature of Transaction Transaction Balance due Interest Value (to) / from Rs.000 Rs.000 Mr. R.K.Obeyesekere Purchases, repairs & maintenance 46,688 & transport charges Supply of goods & services 639 17 Lanka Dairies (Pvt) Ltd. Mr. D.H.S.Jayawardena Affiliate co. Purchase of Milk Foods 725 - Mr. R.K.Obeyesekere Mr. C.R.Jansz 18 Lanka Milk Foods (CWE) PLC Mr. D.H.S.Jayawardena Affiliate co. Dividend paid 113,885 4,429 Mr. R.K.Obeyesekere Dividend received 1,146 Mr. C.R.Jansz Purchase of Milk Foods 6,953 Supply of goods & services 17,592 19 DFCC Bank PLC Mr. C.R.Jansz Affiliate co. Dividend received 84,060 - 20 Aitken Spence Hotel Holding PLC Mr. D.H.S.Jayawardena Affiliate co. Sales 918 -
35.2.2 Melstacorp Share Trust Melstacorp has advanced Rs.1,446.83 Mn to form a share trust for the benefit of employees of the Group where the Mr.C.F. Fernando and Dr.N. Balasuriya are the Trustees.
35.2.3 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.
35.2.3.1 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 31March, 2014 2013 2014 2013 Rs.000 Rs.000 Rs.000 Rs.000
Short Term Employee Benefits 89,234 60,107 23,410 22,247 Post Employment Benefits 2,227 - - - Other Long Term Benefits - - - - Share Base Payments - - - -
35.2.3.2 Loans to Directors There were no loans granted to Directors during the year.
35.2.4 There are no Related party transactions which exceed 10% of the equity or 5% of the total assets of the entity as per audited financial statements, whichever is lower (CSE Ruling)
Distilleries Company of Sri Lanka PLC 147 NOTES TO THE FINANCIAL STATEMENTS 38,532 100,118 101,594 749,654 122,051 684,758 766,199 4,842,646 6,005,359 1,768,476 2,407,511 3,087,130 5,897,294 14,512,561 28,240,991 12,842,892 Total Total 151,984 673,015 567,714 301,364 114,199 784,402 420,103 3,923,512 7,076,716 2,319,814 2,834,890 5,324,230 6,349,895 15,754,657 30,882,975 15,713,520 ------5,897,294 5,897,294 14,512,561 14,512,561 ------Assets (AFS) 475 Assets (AFS) 114,777 6,350,370 6,349,895 Available for Sale Financial Available Available for Sale Financial Available 15,572,892 15,687,669 ------100,148 100,148 ------Group ------Company Held to Maturity Held to Maturity Investments (HTM) Investments (HTM) ------(FVTPL) (FVTPL) 684,758 684,758 1,668,328 1,668,328 ------Profit and Loss 783,927 783,927 Profit and Loss Assets at Fair Value through Assets at Fair Value 1,950,144 1,950,144 Assets at Fair Value Through Assets at Fair Value - - - - 38,532 100,118 101,594 749,654 122,051 766,199 4,842,646 6,005,359 2,407,511 6,260,840 3,087,130 11,959,954 (L&R) - - (L&R) 2014 2013 2014 2013 2014 2013 2014 2013 2014 2013 2014 2013 2014 2013 2014 2013 2014 2013 2014 2013 151,984 673,015 567,714 181,765 254,893 301,364 114,199 Loans and Receivables 420,103 Loans and Receivables 3,923,512 7,076,716 2,834,890 8,579,223 5,324,230 13,245,162 26 23 23 20 25 20 22 22 20 25 20 26 Note Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Note Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 35.1.1 35.1.1 Cash and Equivalents Advances and Other Loans Advances and Other Loans Financial Instruments Accounting Classification of Financial Instruments Accounting Classification of Financial Assets As at 31 March, Assets as per Balance Sheet Non Current Assets Other Non Current Financial Investments Finance Lease, Hire Purchases and Operating Lease Receivables Current Assets and Other Receivables Trade Finance Lease, Hire Purchases and Operating Lease Receivables Amounts due from Related Companies Other Current Financial Investments Total As at 31 March, Assets as per Balance Sheet Non Current Assets Other Non Current Financial Investments Current Assets and Other Receivables Trade Amounts due from Related Companies Other Current Financial Investments Total Cash and Equivalents
36 36.1.1 36.1
148 Annual Report 2013/14 36.1.2 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, 2014 2013 2014 2013 2014 2013 Note Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000
Liabilities as per Balance Sheet Non Current Liabilities Interest Bearing Loans and Borrowings 30 - - 670,975 602,217 670,975 602,217
Current Liabilities Trade and Other Payables 33 - 4,979,488 6,550,980 4,979,488 6,550,980 Deposit Liabilities 34 - 663,537 278,372 663,537 278,372 Amount due to Related Companies 35.1.2 - 263,905 242,479 263,905 242,479 Interest Bearing Loans and Borrowings 30 - 7,603,794 4,856,908 7,603,794 4,856,908 Bank Overdrafts 26 - 5,120,243 5,695,903 5,120,243 5,695,903 Total - - 19,301,942 18,226,859 19,301,942 18,226,859
Company Financial Liabilities at Fair Financial Liabilities Measured Total Value Through Profit or Loss at Amortised Cost As at 31 March, 2014 2013 2014 2013 2014 2013 Note Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000
Liabilities as per Balance Sheet Non Current Liabilities Interest Bearing Loans and Borrowings 30 - - - 125,006 - 125,006
Current Liabilities Trade and Other Payables 33 - - 2,892,443 2,817,219 2,892,443 2,817,219 Amount due to Related Companies 35.1.2 - - 1,035,020 971,423 1,035,020 971,425 Interest Bearing Loans and Borrowings 30 - - 6,215,006 3,714,998 6,215,006 3,714,998 Bank Overdrafts 26 - - 3,810,832 4,736,030 3,810,832 4,736,030
Total - - 13,953,301 12,364,636 13,953,301 12,364,636
The above tables do not include fair value information for financial assets and financial liabilities not measured at fair value because their carrying amounts are a reasonable approximation of fair value.
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 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.
Distilleries Company of Sri Lanka PLC 149 NOTES TO THE FINANCIAL STATEMENTS
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 2014 2013 2014 2013 2014 2013 2014 2013 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 20 Available for Sale Financial Investments 20 - (AFS) Quoted Equity Securities 20.1.1 15,333,884 14,468,554 - - - - 15,333,884 14,468,554 Unquoted Equity Securities 20.1.2 - - - - 338 30,007 338 30,007 Investments in Unit Trusts 20.1.3 - - - 3,000 3,000 3,000 3,000 Debt Securities 20.1.4 235,670 11,000 - - - - 235,670 11,000
Current Assets Other Current Financial Investments 20 Available for Sale Financial Investments 20 - (AFS) Quoted Equity Securities 20.1.5 114,777 - - - - - 114,777 - Government Securities 20.1.6 ------Fair Value Through Profit or Loss (FVTPL) 20 - - Financial Investments Quoted Equity Securities 20.2.1 1,567,065 1,526,614 - - - - 1,567,065 1,526,614 Quoted Debentures 20.2.3 124,307 - - - - - 124,307 - Investments in Unit Trusts 20.2.2 258,772 141,714 - - - - 258,772 141,714 Total 17,634,475 16,147,882 - - 3,338 33,007 17,637,813 16,180,889
Company Level 1 Level 2 Level 3 Total As at 31 March 2014 2013 2014 2013 2014 2013 2014 2013 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Rs.000 Non Current Assets Other non current financial investments 20 Available for sale financial investments 20 - (AFS) Quoted equity securities 20.1.1 6,126,218 5,894,287 - - - - 6,126,218 5,894,287 Unquoted equity securities 20.1.2 - 0 - - 7 7 7 7 Investments in unit trusts 20.1.3 - 0 - - 3,000 3,000 3,000 3,000 Debt securities 20.1.4 220,670 - - - - - 220,670 -
Current Assets Other Current Financial Investments 20 Available for Sale Financial Investments 20 - (AFS) Quoted Equity Securities 20.1.5 475 - - - - - 475 - Government Securities 20.1.6 ------Fair Value Through Profit or Loss (FVTPL) 20 Financial Investments Quoted Equity Securities 20.2.1 783,927 684,758 - - - - 783,927 684,758 Investments in Unit Trusts 20.2.2 ------Total 7,131,290 6,579,045 - - 3,007 3,007 7,134,297 6,582,052
150 Annual Report 2013/14 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.
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.
Until financial year ended 31March 2013, the financial results of PSIP up to 30 September 2011 were consolidated to the Group results and financial results. Thereafter up to 31 March 2013 was not 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 there are no material litigation or clams that could have material impact on the financial position of the group. Accordingly, no provision has been made for following legal claims 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 favor of the plaintiff by the Commercial High Court of Colombo. The Company has filed an appeal against order and a claim has been made in reconvention. The next court date is on 2 December 2014.
Distilleries Company of Sri Lanka PLC 151 NOTES TO THE FINANCIAL STATEMENTS
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 fiber 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 next court date is on 25 November 2014.
There are no material contingent liabilities as at 31 March 2014 other than disclose above.
40 Capital and Other Commitments There were no material capital expenditure approved by the Board of Directors as at 31 March 2014 other than followings;
40.1 Distilleries Company of Sri Lanka PLC The Board of Directors has approved a capital expenditure of approximately Rs.1 Bn for new machinery and buildings.
40.2 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.
40.3 Melsta Regal Finance Limited The Company has opened a sum of Rs. 18,111,175/- ( 2013 - Rs.1,137,780/-) worth of Letter of Credit on behalf of the customers.
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 2014
Distilleries Company Permanent over draft Long term investments held in quoted shares of Other long term 4,816,300 of Sri Lanka PLC facilities and other short DFCC Bank PLC (17 Mn shares), Commercial investments term borrowings Bank of Ceylon PLC (15Mn shares) and Hatton National Bank PLC (3.5Mn shares) is pledged.
Melstacorp Limited Permanent over draft Long term investments held in Quoted shares Other long term 11,475,575 facilities and other short of John Keels Holdings PLC (25 mn shares) investments term borrowings of DCSL and Aitken Spence PLC (59.25 Mn shares) and are pledged on the other short term borrowings Investments obtained by Distilleries Company of Sri Lanka in equity PLC. accounted investees.
152 Annual Report 2013/14 Company Nature of Liability Security Value of the assets pledged (Rs.000)
Description Asset type 2014
Balangoda Long Term Loan Primary mortgage over the Lease hold rights Property, plant 6,116 Plantations PLC to the land Term and building of Palmgarden, and equipment Loans Pettiagala and Balangoda Estates.
Further mortgage over the lease hold rights to Property, plant the land and building of Palmgarden, Pettiagla and equipment and Galatura Estates.
Primary mortgage over the lease hold rights Property, plant to the land and buildings of Balangoda, and equipment Meddekande and Rassagalla Estates.
Finance Lease Mortgage on Colour Separator Property, plant 27,777 and equipment
Texpro Industries Long term loan The Company has provided existing primary Property, plant 631,860 (Pvt) Ltd floating mortgage bond for USD 3.262 Mn over and equipment land, building and immovable machinery at Ranala as collateral against the bank facility and borrowings.
Other short term Hypothecation of Stock Inventory 292,825 borrowings
Permanent over draft Lien over Call & Fixed Deposits Cash and cash 21,258 facilities equivalents
Primary Floating Mortgage over Land, Building & Property, plant 631,861 Immovable Machinery at Ranala. and equipment
Saving Certificate of Rs 10 Mn. Cash and cash 10,100 equivalents
Lanka Bell Limited Term Loans and other Tower portfolio has been pledged as a security Property, plant 425,000 borrowings against the financing facilities. and equipment
Movable and immovable property has been Property, plant 1,124,020 pledged as a security against the financing and equipment facilities.
42 Events after the Reporting Period 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 Melstacorp Limited Melstacorp Limited has infused a capital of Rs.250 Mn. to its fully owned subsidiary, Continental Insurance Lanka Limited after the reporting period.
Distilleries Company of Sri Lanka PLC 153 NOTES TO THE FINANCIAL STATEMENTS
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.
154 Annual Report 2013/14 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.
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 2014 2013 % from Total 2014 % from Total 2013 %from Total Note Rs.000 % from Total Rs.000 Exposure Rs.000 Exposure Rs.000 Exposure Exposure
Trade and Other Receivables 43.1.1.1 9,720,603 61% 7,827,963 59% 3,955,602 41% 3,366,090 50% Receivables in Finance 43.1.1.2 1,240,562 8% 362,295 3% - 0% - 0% Business Amounts due from Related 43.1.1.3 567,714 4% 749,654 6% 5,324,230 55% 3,087,130 46% Companies Corporate Debt Securities 43.1.1.4 541,742 3% 11,000 0% 220,670 2% - 0% Government Securities 43.1.1.5 909,787 6% 715,337 5% - 0% - 0% Deposits with Bank 43.1.1.6 2,177,663 14% 3,109,534 23% 82,062 1% 70,410 1% Cash at Bank 43.1.1.7 595,628 4% 504,495 4% 61,719 1% 193,501 3% 15,753,699 100% 13,280,278 100% 9,644,283 100% 6,717,131 100%
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 homogeneous 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 in Finance Business The above stated financial assets are backed with the underlying securities and, are neither past due or impaired. 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.
Distilleries Company of Sri Lanka PLC 155 NOTES TO THE FINANCIAL STATEMENTS
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. Further 96% of corporate debt securities are with A- or better credit ratings.
An Analysis of credit ratings of the issuers of debenture are as follows,
Group Company 2014 2013 2014 2013 Credit Rating 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 - 0% 10,000 91% - 0% - 0% AA– 103,689 19% 1,000 9% - 0% - 0% A- 417,435 77% - 0% 220,670 100% - 0% BBB+ 20,618 4% - 0% - 0% - 0% 541,742 100% 11,000 100% 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.
156 Annual Report 2013/14 Maturity analysis The table below summarises the maturity profile of the Group’s financial liabilities as at 31 March 2014.
Within Between Between Between Between More than Total 1 year 1-2 years 2-3 years 3-4 years 4-5 years 5 years Rs’000 Rs’000 Rs’000 Rs’000 Rs’000 Rs’000 Rs’000
Interest bearing loans and borrowings 7,603,794 118,375 120,811 118,044 112,316 201,429 8,274,769 Trade and other payables 8,772,678 - - - - - 8,772,678 Deposit liabilities 663,537 - - - - - 663,537 Amount due to related companies 263,905 - - - - - 263,905 Bank overdrafts 5,120,243 - - - - - 5,120,243 22,424,157 118,375 120,811 118,044 112,316 201,429 22,542,532
The table below summarises the maturity profile of the Company’s financial liabilities as at 31 March 2014.
Within Between Between Between Between More than Total 1 year 1-2 years 2-3 years 3-4 years 4-5 years 5 years Rs’000 Rs’000 Rs’000 Rs’000 Rs’000 Rs’000 Rs’000
Interest bearing loans and borrowings 6,215,006 - - - - - 6,215,006 Trade and other payables 5,146,561 - - - - - 5,146,561 Amount due to related companies 1,035,020 - - - - - 1,035,020 Bank overdrafts 3,810,832 - - - - - 3,810,832 16,207,419 - - - - - 16,207,419
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
Distilleries Company of Sri Lanka PLC 157 NOTES TO THE FINANCIAL STATEMENTS
The extend of diversification of short term equity investments (FVTPL) are analysed bellow.
Group Company 2014 2013 2014 2013 Rs’000 % Rs’000 % Rs’000 % Rs’000 %
Bank Finance and Insurance 488,030 31 430,529 28 426,357 55 359,368 53 Beverage Food and Tobacco 139,033 9 186,560 12 127,750 16 152,330 22 Chemicals and Pharmaceuticals 3,322 0 8,102 1 - 0 5,536 1 Construction and Engineering 13,185 1 16,025 1 8,761 1 11,384 2 Diversified Holdings 392,104 25 456,963 30 15,513 2 18,633 3 Hospitals 123,247 8 64,578 4 111,444 14 58,045 8 Hotel and Travels 35,984 2 38,837 3 21,550 3 21,750 3 Manufacturing 333,456 21 291,765 19 49,230 6 29,517 4 Plantations 9,096 1 6,160 0 9,096 1 6,160 1 Power and Energy 9,080 1 7,927 1 6,468 1 5,617 1 Telecommunications 20,528 1 19,168 1 7,758 1 16,418 2 1,567,065 100 1,526,614 100 783,927 100 684,758 100
43.1.3 Market Risk 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.
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.
158 Annual Report 2013/14 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 2014 and 2013 are as follows.
Group Company 2014 2013 2014 2013 Rs’000 Rs’000 Rs’000 Rs’000
Total Interest Bearing Loans and Borrowing 8,274,769 5,459,125 6,215,006 3,840,004 Bank Overdrafts 5,120,243 5,695,903 3,810,832 4,736,030 Less: Cash & Cash Equivalents (3,923,512) (4,842,646) (420,103) (766,199) Net Debt 9,471,500 6,312,382 9,605,735 7,809,835 Total Equity 57,593,114 52,712,717 43,838,640 39,155,122 Total Capital 67,064,614 59,025,099 53,444,375 46,964,957 Gearing Ratio 14% 11% 18% 17%
Distilleries Company of Sri Lanka PLC 159 STATEMENT OF VALUE ADDED
VALUE ADDED For the year ended 31March, 2014 2013 Rs. '000 Rs. '000 Group Company Group Company
Gross Turnover 63,186,302 47,755,538 65,790,460 51,548,909 Other Operating Income 898,392 1,374,595 680,119 3,830,490 Finance Income 747,833 118,630 1,082,262 534,987 Share from Profit of Equity Accounted Investees 1,440,182 - 1,291,749 - 66,272,709 49,248,763 68,844,590 55,914,386
VALUE DISTRIBUTED
For the year ended 31March, 2014 Group Company Rs. '000 As a % of Total Rs. '000 As a % of Total
To the State as Taxes 37,442,277 56 33,814,484 69 Other Operating Expenses 16,012,148 24 7,884,887 16 To the Employees 3,861,748 6 1,162,203 2 To Providers of Debt Capital 1,160,970 2 859,321 2 To the Shareholders as Dividends 900,000 1 900,000 2 Retained within the Business As Depreciation 1,540,326 2 148,392 0 As Retained Profits 5,355,240 9 4,479,476 9 66,272,709 100 49,248,763 100
For the year ended 31March, 2013 Group Company Rs. '000 As a % of Total Rs. '000 As a % of Total
To the State as taxes 39,843,748 58 36,482,375 65 Other operating expenses 16,281,792 24 9,120,718 16 To the Employees 3,194,238 5 1,039,048 2 To Providers of debt capital 1,652,681 2 1,376,919 2 To the Shareholders as dividends 900,000 1 900,000 2 Retained within the business As Depreciation 1,700,128 2 158,678 1 As Retained Profits 5,272,003 8 6,836,648 12 68,844,590 100 55,914,386 100
160 Annual Report 2013/14 DETAILS OF REAL ESTATE
Location Lands Buildings VALUE Extent No of Floor Area Cost/Revaluation ARP Units In (Sq. Ft.) Rs. 000 Distilleries Company of Sri Lanka PLC Colombo 10 Head Office 1 1 15.20 6 30,000.00 647,765 Dankotuwa Carrington Group Estate 2 2 5.00 3 8,083.50 22,045 Kandy Mawilmada Land 2 0 0.00 - 22,200 Negombo Wholesale Outlet 0 1 27.50 3 8,576.00 75,280 Kalutara 1 0 23.00 - 14,000 Seeduwa No. 3 Warehouse & Housing Complex 15 2 17.09 11 103,710.50 886,686 Seeduwa New W/H, Old W/H & Distillery 5 2 15.10 22 93,276.00 319,562 Melsta Properties (Pvt.)Limited Badulla Warehouse 0 2 8.64 3 9,390.00 13,519 Batticaloa Wholesale Outlet 3 0 11.04 2 5,545.75 51,999 Dickoya Wholesale Outlet 0 3 9.60 4 16,735.50 6,759 Gampola Wholesale Outlet 0 3 35.50 5 8,415.00 33,279 Jaffna 0 4 21.65 0 - 11,439 Kaithadi 2 0 11.71 0 - 13,000 Kalutara No. 1 Warehouse 4 0 33.38 5 56,580.00 145,599 Kalutara No. 2 Warehouse / Premises No. 14 & 16 1 3 8.41 4 - 60,950 Kalutara Teak Stores / Warehouse 1 0 32.82 3 14,870.00 20,799 Marawila Toddy Collection Centre 2 0 0.00 0 - 16,639 Mirishena Warehouse 0 3 28.32 4 10,280.00 20,799 Trincomalee Wholesale Outlet 0 1 38.68 2 4,762.00 36,399 Vauniya Wholesale Outlet 0 3 33.69 2 14,315.50 44,719 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 Factory Complex - - 19.75 0 - 1,559 Seeduwa Factory Complex - 1 2.55 1 18,920.00 62,087 Seeduwa Factory Complex - 1 20.50 1 3,096.00 15,079 Seeduwa Factory Complex - 3 22.60 1 1,835.00 19,031 Seeduwa Factory Complex - - 36.25 0 - 7,539 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 Lanka Bell Limited Minuwangoda Warehouse & Switch 1 3 35.35 2 20,920.00 93,490 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
Distilleries Company of Sri Lanka PLC 161 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
31 March 2014 31 March 2013 No. of Total % No. of Total % Holding Shareholders Holding Holding Shareholders Holding Holding
1-1,000 8,788 2,937,971 0.98 9,136 3,136,683 1.05 1,001 - 10,000 1,682 5,481,178 1.83 1,879 6,342,024 2.11 10,001- 100,000 250 7,593,906 2.53 308 8,737,877 2.91 100,001- 1,000,000 53 14,441,900 4.81 55 16,413,148 5.47 Over 1,000,000 25 269,545,045 89.85 24 265,370,268 88.46 Grand Total 10,798 300,000,000 100.00 11,402 300,000,000 100.00
3. Analysis of Shareholding No. of Holding % of Holding Shareholders
Individuals 10,535 69,453,286 23 Institutions 263 230,546,714 77 10,798 300,000,000 100
Resident 10,647 226,092,603 75 Non-Resident 151 73,907,397 25 10,798 300,000,000 100
4. Market Price
31 March 2014 31 March 2013 (Rs.Per Share) (Rs.Per Share)
Last Traded 203.00 166.50 Highest 218.00 190.00 Lowest 160.00 117.00
Share Price Performance
0 250
200
150
100
50 0 2009 2010 2011 2012 2013 2014
162 Annual Report 2013/14 SHAREHOLDER INFORMATION
5. Twenty Largest Shareholders As at 31 March 2014 2013 No of Shares % of issued No of Shares % of issued capital capital 1 Milford Exports (Ceylon) Limited 124,470,500 41.49 124,470,500 41.49 2 Lanka Milk Food (C.W.E.) PLC 37,961,500 12.65 37,961,500 12.65 3 Mr. Muzaffar Ali Yaseen 33,238,000 11.08 33,238,000 11.08 4 Mrs. Lorraine Estelle Marlene Yaseen 14,350,600 4.78 14,650,500 4.88 5 Melstacorp Limited 8,650,732 2.88 8,650,732 2.88 6 HSBC International Nominees Ltd- MSCO-Route One Fund 1 L.P 5,280,944 1.76 5,056,661 1.69 7 HSBC Intl Nom Ltd-Msco-Route One Offshore Master 4,767,395 1.59 4,824,190 1.61 Offshore Master Fund, L.P 8 Commercial Bank of Ceylon PLC/L.E.M.Yaseen 4,750,000 1.58 4,750,000 1.58 9 HSBC Intl Nom Ltd – SSBT – Wasatch Frontier Emerging Small cou 4,230,100 1.41 - - 10 Lahugala Plantation (Pvt) Ltd 4,189,590 1.40 4,511,795 1.50 11 Caceis Bank Luxembourg S/A Barca Global Masrer Fund LP 3,713,286 1.24 3,713,286 1.24 12 Mrs. Shantha Marie Chrysostom 2,847,500 0.95 2,847,500 0.95 13 Northern Trust CO S/A National Westminster Bank PLC 2,800,000 0.93 2,800,000 0.93 as Trust c/o Standard Chartered Bank 14 Stassen Exports Limited 2,114,200 0.70 2,114,200 0.70 15 HSBC Intl Nom Ltd-SSBT-Russell Institutional Funds Public L 1,887,937 0.63 920,383 0.31 16 Mr. Don Hasitha Stassen Jayawardena 1,882,833 0.63 1,882,833 0.63 17 HSBC International Nominees Limited-MSNY-Bay Pond Partners L 1,840,283 0.61 1,840,283 0.61 18 BNYM SA/NV – Consilium Frontier Equity Fund L.P 1,434,404 0.48 - - 19 Deutsche Bank AG - London 1,421,557 0.47 - - 20 BNYM SA/NV - Blackrock Frontiers Investment Trust PLC 1,411,238 0.47 - - TOTAL 263,242,599 87.73 254,232,363 84.73
Percentage of Shares held by the public : 42.97%
Distilleries Company of Sri Lanka PLC 163 TEN YEAR SUMMARY
In Rs Million - Company 2014 2013 2012 2011 2010 2009 2008 2007 2006 2005
RESULTS Gross Turnover 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 14,391.8 Excise Duty 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 9,235.4 Net Turnover 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 5,156.4 Profit/(Loss) before Tax 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 1,762.1 Profit/(Loss) after Tax 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 1,247.8
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 2,079.7 2,160.1 2,506.9 2,923.6 107.9 107.9 107.9 107.9 107.9 107.9 Revenue Reserves & Retained Earnings 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 5,361.6 Shareholders Funds 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 5,769.5 Total Borrowings 10,025.8 8,576.0 9,741.5 254.6 76.2 920.1 2,648.1 1,634.0 2,221.2 1,500.6 Non Current Liabilities net of Borrowings 171.1 159.6 116.1 270.1 111.4 171.5 109.6 88.0 99.2 90.7 Current Liabilities net of Borrowings 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 2,135.3 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 9,495.1
ASSETS EMPLOYED Non-current Assets 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 7,619.1 Current Assets 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 1,876.0 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 9,495.1 CASHFLOW Net Cashflow from Operating Activities 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 1,774.3 Net Cashflow from Investing Activities (1,569.3) (689.3) (16,037.3) 1,247.0 (661.2) (35.6) (3,041.8) (48.4) (2,662.4) (12.2) Net Cashflow from Financing Activities (2,167.9) (1,535.6) 1,147.0 (875.8) (675.0) (525.0) (465.0) (169.7) (149.7) (146.4) Net Increase/(Decrease) in Cash & Cash Equivalents (3,065.9) 924.0 (12,935.4) 4,646.3 1,356.5 1,321.1 (997.5) 900.1 (838.0) 1,615.7
KEY INDICATORS Earnings per Share (Rs.) 17.86 10.68* 11.85* 15.08 9.38 8.90 6.60 6.20 6.00 4.20 Net Assets per Share (Rs.) 146.13 130.52 108.66 83.14 50.86 43.70 36.50 30.40 24.80 19.20 Market Value per Share (Rs) Year End 203.00 166.50 145.00 180.00 118.00 65.00 98.00 105.00 35.00 32.00 Return on Shareholders’ Funds 12% 8%* 11%* 31% 18% 21% 18% 21% 24% 22% Dividends per Share (Rs.) 3.25 3.00 3.00 3.00 2.50 2.25 1.75 1.55 0.60 0.50 Dividend Payout 18% 28%* 25%* 20% 27% 25% 27% 25% 10% 12% Dividend Yield 2% 2% 2% 2% 2% 3% 2% 1% 2% 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 2013 and 31 March 2012, the Company profit has been adjusted for intragroup capital gain on share transfer.
164 Annual Report 2013/14 DCSL MANAGEMENT TEAM
Head Office Senior Chemist S. M. Sumanasekera B.Sc., MSc. (Food Chief Executive Officer Maximus R. Peries Science and Technology) I Chem B.Sc. (Eng), MBA (Merit), LLB (Hons) Accountant K. W. N. V. Fernando B.Com., MAAT, London, C. Eng. MIEE (London) PGDED (Col), CBA Finance Division Distillery Seeduwa Head of Finance Nimal Nagahawatte B.Sc. Warehouses New Warehouse, No 3 Warehouse, Old Asst. Finance Manager Suranjan Lakmanaratchi Warehouse Asst. Finance Manager Justin Algama B.Sc., Dip. Acc. Wholesale Outlets Peliyagoda (W), Peliyagoda Asst. Manager (IT) Ms. P. Gamagedara Dip. (NIBM), AACS (S), Rajakadaluwa, Negombo, Supplies Division Anuradhapura, Kurunegala Head of Procurement S. Rajanathan Southern Region - Kalutara Internal Audit Division Chief Internal Auditor L. P. Liyanaarachchi FCA, FCMA, Dip.Acc. Head of Southern Region Maj. Gen. Siri Peiris (Retd.) RSP, VSV, USP, IG Investigation Division Deputy Regional Manager Col. D. J. R. Rupasinghe (Retd.) RSP, IG Director - Investigations Alfred Wijewardene DIG (Retd.) Senior Production Manager A. D. Amaradeva Dy. Director - Investigations A. X. Clarence Motha ASP (Retd.) Chemist W. A. I. Wickramasinghe A.I. Chem C, Grad Dy. Director - Investigations G. U. J. Vithanage SSP (Retd.) Chem, Dip in POM Company Secretarial & Legal Division Accountant Ms. Amali Bandara Dip. in Fin. Mgmt. Attorney-At-Law & Company Secretary & Chief Ms. V. J. Senaratne Asst. Engineer H. P. D. P. Mangala Gunasekara Legal Officer N.P., Solicitor (Eng. & Wales) Manager (Beruwala Distillery) C. E. Nanayakkara Human Resources Division Distillery Beruwala Head of Human Resources Ms. G. Chakravarthy Warehouses Kalutara No 01 & Kalutara No 02, LLB, Attorney-At-Law Teak Store, Mirishena Asst. Manager - Human Ms. U. R. Edirisinghe Resources MBA (Sri J), B.Sc. (HRM) Sp Wholesale Outlets Kalutara, Ratmalana, Ambalantota, Galle, Asst. Manager - Human T. S. Morawaka B.Sc. (Mgt) Sp Kuruwita Resources Central Region - Kandy Transport Division Head of Central Region Brig. Aruna Wijewickrama USP (Retd.), Head of Transport & Roshanth Kumar Perera PQHRM (IPM) Logistics Senior Deputy Regional Capt. R. A. U. Chula Ranasinghe Stock Control Division Manager USP - SLN (Retd.) Head of Inventory Lalith Ratnayake MBA (WUSL), B.Sc. Senior Production Manager V. Jeiyachandiran B.Sc. (Hons) (B.Ad) Sp Management Production Manager N. Thiranagama B.Sc. Consultant J. R. de Crusz Consultant W. W. M. S. U. Wijayarathna B.Sc. (Hons), (Retd. Dy. Commissioner of Excise) M.Phil, Chartered Chemist Civil Engineer A. M. A. J. B. Abeykoon Regional Offices Asst. Accountant Mrs. W. M. P. Perera Northern Region - Seeduwa Warehouse Nawayalatenna Head of Northern Region Maj. R. M. Cabraal (Retd.) Wholesale Outlets Katugastota, Gampola, Vavuniya, Deputy Regional Manager Col. A. M. B. Peiris (Retd.) RWP, MHRP, Batticaloa, Minneriya, Dickoya, MBA (PIM / Sri J) Trincomalee, Jaffna Deputy Regional Manager Cdr. C.M. Gunanayagam (Retd.) Group Security Manager Deshabandu R. M. L. N. Bandara MBA Uva Region - Badulla (USA), SSP (Retd.) Head of Uva Region Capt. Ranjith Wettewa SLN (Retd.) RSP, Head of Analytical Division T. D. Ekmon B.Sc. (Hons), M.I.Chem C, P.S.N. Chartered Chemist Warehouse Badulla Chief Engineer M. N. Perera Wholesale Outlet Badulla Consultant K. Sivarajah B.Sc. (Cey), MSc. (UK), F.I Chem. C, Chartered Chemist, (Retd. Govt. Analyst) Group Management Division Senior Production Manager Capt. K.G.N.S. Senanayake SLN (Retd.), Group Financial Controller Cleetus Mallawaarachchi FCA, FCMA, MBA MDS, B.Sc. Production Manager S. G. Bandula Silva B.Sc. Transport Manager Sqn. Ldr. T. S. S. S. Perera (Retd.) B.Sc.
Distilleries Company of Sri Lanka PLC 165 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 Tel: (94-11) 2808565 Fax: (94-11) 5551777 C. R. Jansz S.K.S.D. Amarathunga Co. Reg. No. PV 5529 A. L. Gooneratne Auditors Messrs Ernst & Young (Chartered Accountants)
Plantation
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)
166 Annual Report 2013/14 Telecommunication (contd.)
Bell Solutions (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 61398 A. L. Gooneratne Auditors Messrs Amarasekara & Company (Chartered Accountants)
Diversified Holdings
Melstacorp Limited Secretaries P. W. Corporate Secretarial (Pvt) Limited
Board of Directors Registered Office D. H. S. Jayawardena – Chairman 110, Norris Canal Road, Colombo 10 A. L. Gooneratne – Managing Director Tel: (94-11) 5696794 R. K. Obeyesekere Web : www.melsta.com C. R. Jansz C. F. Fernando Dr. N. Balasuriya N. de. S. Deva Aditya Co. Reg. No. PV 11755 PB Capt. K. J. Kahanda (Retd.) Ms. V. J. Senaratne Auditors Messrs KPMG (Chartered Accountants) (Alternate to N. de. S. Deva Aditya)
Milford Holdings (Pvt) Limited Secretaries P. W. Corporate Secretarial (Pvt) Limited
Board of Directors Registered Office D. H. S. Jayawardena – Chairman 110, Norris Canal Road, Colombo 10 R. K. Obeyesekere Tel: (94-11) 2695295-7 Fax: (94-11) 2696360 C. R. Jansz 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)
Distilleries Company of Sri Lanka PLC 167 GROUP DIRECTORY
Diversified Holdings (contd.)
Texpro Industries Limited Secretaries SSP Corporate Services (Pvt) Limited
Timpex (Pvt) Limited
Board of Directors Registered Office D. H. S. Jayawardena – Chairman 1st Floor, Lakshman’s Building, 321, J. D. Peries – Managing Director Galle Road, Colombo 3 H. I. Munasingha Tel: (94-11) 2565951 A. L. Gooneratne D. S. C. Mallawaarachchi Co. Reg. No. PB 748
Auditors Messrs KPMG (Chartered Accountants)
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 (Appointed w.e.f. 01/05/2013) D. S. C. Mallawarachchi (Appointed w.e.f. 01/05/2013) 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 H. Wickramasinghe Co. Reg. No. PB 3784 A. L. Gooneratne 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 (Appointed w.e.f. 21/12/2013) Tel: (94- 11) 5 639 501 Fax: (94-11) 5 373 344 C. P. Abeywickrema (Chairman - Resigned w.e.f. 21/12/2013) Ms. G. Chakravarthy N. N. Nagahawatte O. A. R. P. Obeysinghe Co. Reg. No. PV1230 P. Hennayake A. P. L. Fernando (Appointed w.e.f. 21/06/2013) Auditors Messrs KPMG (Chartered Accountants) D. A. D. V. Gunasekera (Resigned w.e.f. 15/05/2013)
168 Annual Report 2013/14 Diversified Holdings (contd.)
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 (Appointed w.e.f. 28/10/2013) Tel: (+94-11)-5753753 Fax: (+94-11)-5753754 D. H. S. Jayawardena E-mail : [email protected] (Chairman – Resigned w.e.f. 12/09/2013) Web : www.bellvantage.com P. Karunanayke D. S. C. Mallawaarachchi (Appointed w.e.f. 12/09/2013) Co. Reg. No. PV 65022 D. A. C. Peiris (Resigned w.e.f. 01/04/2013) P. S. Suriyaarachchi (Resigned w.e.f. 30/04/2013) Auditors Messrs Amarasekara & Company (Chartered Accountants) Y. D. B. Guneratne (Resigned w.e.f. 30/06/2013) O. A. R. P. Obeysinghe (Resigned w.e.f. 12/09/2013) Ms. F. F. S. Sulaiman (Resigned w.e.f. 12/09/2013) Ms. S. A. Atukorale (Appointed w.e.f. 12/09/2013 – resigned w.e.f. 30/05/2014)
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
Melsta Properties (Private) Limited Secretaries Financial Services and Commercial Agencies (Pvt) Ltd.
Board of Directors Registered Office C. F. Fernando 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)
Distilleries Company of Sri Lanka PLC 169 GROUP DIRECTORY
Diversified Holdings (contd.)
Pelwatte Sugar Industries PLC Secretaries Managers & Secretaries (Pvt) Limited
Board of Directors Registered Office D. H. S. Jayawardena 27, Melbourne Avenue, Colombo 04 Capt. K. J. Kahanda (Retd.) Tel: (94-11) 2589390 Fax: (94-11) 2500674 M. R. Peries Co. Reg. No. PV 14051 R. Wettewa D. A. de S. Wickramanayake Auditors Messrs Ernst & Young (Chartered Accountants) D. H. J. Gunawardena C. S. Weeraratne D. A. E. de S. Wickramanayake K. K. U. Wijeyesekera
Pelwatte Sugar Distilleries (Pvt) Limited Secretaries Managers & Secretaries (Pvt) Limited
Board of Directors Registered Office Capt. K. J. Kahanda (Retd.) - Managing Director 27, Melbourne Avenue, Colombo 04 M. R. Peries Tel: (94-11) 2589390 Fax: (94-11) 2500674 D. A. de S. Wickramanayake Co. Reg. No. PV 10221
Auditors Messrs Ernst & Young (Chartered Accountants)
Pelwatte Agriculture & Engineering Services (Pvt) Limited
Board of Directors Secretaries Managers & Secretaries (Pvt) Limited D. A. de S. Wickramanayake C. S. Weeraratne Registered Office 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 Registered Office D. H. S. Jayawardena – Chairman 315, Vauxhall Street, Colombo 02 J. M. S. Brito – Managing & Finance Director Tel: (94-11) 2308308 Fax : (94-11) 2445406 Dr. R. M. Fernando Web: www.aitkenspence.com Dr. M. P. Dissanayake Ms. D. S. T. Jayawardena (Apointed w.e.f. 01.12.2013) 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 C. R. De Silva (Deceased on 07.11.2013)
170 Annual Report 2013/14 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 Tel: (94-11) 2522871-2 Fax: (94-11) 2522913 Z. Alif 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)
Distilleries Company of Sri Lanka PLC 171 NOTICE OF MEETING
NOTICE IS HEREBY GIVEN that the TWENTY FOURTH 7. To authorise the Directors to determine contributions to ANNUAL GENERAL MEETING OF DISTILLERIES COMPANY charities. OF SRI LANKA PLC will be held at the Committee Room “B” of Bandaranaike Memorial International Conference 8. To authorise the Directors to determine the remuneration Hall (BMICH) on 29th September 2014 at 10:00AM for the of the Auditors, Messrs. KPMG who are deemed to have following purposes. been reappointed as Auditors in terms of Section 158 of the Companies Act No. 07 of 2007. 1. To receive and consider the Annual Report of the Directors and the Financial Statements of the Company By Order of the Board, for the year ended 31st March 2014.
2. To approve a final dividend as recommended by the Board of Directors. Ms. V. J. Senaratne Company Secretary 3. To re elect Mr. C. R. Jansz who retires by rotation at the Annual General Meeting in terms of Article 92 of the 22 August 2014 Articles of Association , as a Director of the Company. Colombo.
4. To re elect Mr. N. De. S. Deva Aditya who retires by Notes: rotation at the Annual General Meeting in terms of Article 92 of the Articles of Association, as a Director of the 1. A member is entitled to attend and vote at the meeting or Company. to appoint a proxy to attend and vote on behalf of him / her by completing the Form of Proxy enclosed herewith. 5. 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 2. A Proxy need not be a member of the Company. Section 210 of the Companies Act No. 07 of 2007, by passing the following resolution. 3. The completed Form of Proxy should be deposited at the Registered Office of the Company at 110, Norris “RESOLVED that Mr. D. H. S. Jayawardena , who Canal Road, Colombo 10, before 10:00 a.m. on 27th attained the age of 70 on 17th August 2012, be and is September 2014. hereby re-elected as a Director of the Company, and it is hereby declared that the age limit of 70 years referred The Dividend warrants will be posted within seven market to in Section 210 of the Companies Act No. 07 of 2007 days, if the dividend proposed is approved at the Annual shall not apply to the said Director.” General Meeting. In accordance with the rules of the Colombo Stock Exchange, the shares of the Company will 6. To re-elect as a Director, Mr. C. F. Fernando, who is over be quoted ex-dividend with effect from 30th September the age of 70 years and who retires in terms of Section 2014. 210 of the Companies Act No. 07 of 2007 by passing the following resolutions. THE SHAREHOLDERS AND THE PROXY HOLDERS ATTENDING THE MEETING ARE KINDLY REQUESTED “RESOLVED that Mr. C. F. Fernando, who attained the TO BE IN THEIR SEATS BY 9:45 A.M. THEY ARE ALSO age of 70 on 1st March 2005, be and is hereby re- REQUESTED TO BRING THIS ANNUAL REPORT, ALONG elected as a Director of the Company, and it is hereby WITH AN ACCEPTABLE FORM OF IDENTITY. 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.”
172 Annual Report 2013/14 NOTES
Distilleries Company of Sri Lanka PLC 173 NOTES
174 Annual Report 2013/14 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 Rajpal
Kumar Obeyesekere* or failing him Cedric Royle Jansz* or failing him Niranjan de Silva Deva Aditya* or failing him Kolitha Jagath
Kahanda* or failing him Chrisantha Francis Fernando* or failing him Adrian Naomal Balasuriya* or ...... of ...... as my/our* Proxy to represent me/us* and vote for me/us* on my/our* behalf at the Twenty Fourth Annual General Meeting of the Company to be held on the 29th September 2014 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 ...... 2014.
Notes:
1. Proxy need not be a member of the Company.
2. In terms of the Article 71 of the Articles 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 72 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. Distilleries Company of Sri Lanka PLC 175 Instructions as to Completion. 1. 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.
2. Kindly return the completed Form of Proxy to the Company after deleting one or other of the alternate words indicated by an asterisk.
3. 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.
4. 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 Annual Report 2013/14 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 Fourth Annual General Meeting of the Distilleries Company of Sri Lanka PLC at the Committee Room “B” of Bandaranaike Memorial International Conference Hall (BMICH) on 29th September 2014 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 : ......
Distilleries Company of Sri Lanka PLC 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> 2014> nrg;nlk;gH khjk; 22k; 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 22nd day of September 2014. Distilleries Company of Sri Lanka PLC 179 CORPORATE INFORMATION Company Name Auditors Distilleries Company of Sri Lanka PLC KPMG (Chartered Accountants) 32A, Sir Mohamed Macan Marker Mawatha, Domicile and Legal Form of the Holding Company Colombo 03, Sri Lanka Public Limited Liability Company incorporated and domiciled in Sri Lanka and listed on the Colombo Stock Exchange Registrars P. W. Corporate Secretarial (Pvt) Ltd. Registration No. 3 / 17, Kynsey Road, PQ 112 Colombo 08, Sri Lanka Ultimate Parent Company Lawyers Milford Exports (Ceylon) Ltd. Prasanna Goonawardene & Company 26 / 1, Colonel T. G. Jayawardena Mawatha, Registered Office Colombo 03, Sri Lanka 110, Norris Canal Road, Colombo 10, Sri Lanka Bankers Tel : +94 11 5507000 / 2695295 -7 Bank of Ceylon Fax : +94 11 2696360 Commercial Bank of Ceylon Web : www.dcslgroup.com Hatton National Bank Hong Kong & Shanghai Banking Corporation Board of Directors MCB Bank Mr. D. H. S. Jayawardena (Chairman / Managing Director) Nations Trust Bank Mr. R. K. Obeyesekere People’s Bank Mr. C. R. Jansz Standard Chartered Bank Mr. N. de S. Deva Aditya Capt. K. J. Kahanda (Retd.) Credit Rating Mr. C. F. Fernando The Company has been assigned ‘AAA (lka)’ National Long Dr. A. N. Balasuriya Term Rating with a Stable Outlook by Fitch Ratings Lanka Mr. A. L. Gooneratne (Alternate to Mr. N. de S. Deva Aditya) Limited. Ms. V. J. Senaratne (Alternate to Mr. K. J. Kahanda) Audit Committee Mr. C. F. Fernando – Chairman Mr. N. de S. Deva Aditya Dr. A. N. Balasuriya Remuneration Committee Dr. A. N. Balasuriya – Chairman Mr. N. de S. Deva Aditya Mr. C. F. Fernando Secretary Ms. V. J. Senaratne Designed & produced by Digital Plates & Printing by Aitken Spence Printing & Packaging (Pvt) Ltd Distilleries Company of Sri Lanka PLC | Annual Report 2013 / 14 www.dcslgroup.com