AGALAWATTE PLANTATIONS PLC | ANNUAL REPORT 2016
AGALAWATTE PLANTATIONS PLC ANNUAL REPORT 2016
Our Vision To be the benchmark among plantation companies.
Our Mission To contribute towards the growth of the Company through optimum utilization of available resources and opportunities with the use of best management practices, whilst enhancing shareholder wealth and improving the quality of life of all stakeholders, thereby being a partner in National Development. AGALAWATTE PLANTATIONS PLC
Contents
Corporate Information | 3
Financial Highlights | 4
Annual Report of the Board of Directors | 5
Statement of Corporate Governance | 7
Statement of Directors’ Responsibilities | 9
Audit Committee Report | 11
Independent Auditors’ Report | 12
Statement of Profit or Loss and Other Comprehensive Income | 15
Statement of Financial Position | 16
Statement of Changes In Equity | 18
Statement of Cash Flows | 19
Notes to the Financial Statements | 21
Shareholders Information | 73
Information on Estates | 75
Definitions | 76 AGALAWATTE PLANTATIONS PLC Corporate Information
Name Agalawatte Plantations PLC (PQ 214) Board of w.e.f. 22nd May 2017 to date of the Directors Mr. G.P.N.A.G. Gunathilake Company (Appointed 22nd May 2017) Mr. W.A. Arosha Asanga Registered During the financial year 2016 up to (Appointed 22nd May 2017) Office 08th December 2016 No. 10, Gnanartha Pradeepa Mawatha, Mr. L.R.W.S. Rajasekara Colombo 08. (Appointed 22nd May 2017) Mr. R.P.L. Ramanayake w.e.f. 09th December 2016 (Appointed 22nd May 2017) Browns Capital Building, No. 19, Dudly Senanayake Mawatha, Colombo 08. Mr. A.S. Amarasuriya ( Appointed 22nd Jun 2017) w.e.f. 21st June 2017 Mr. W.L.P. Wijewardena No. 361, Kandy Road, Nittambuwa. ( Appointed 22nd Jun 2017 Tel: 0334679200/ 0332299000 Fax: 0332285681 Email: [email protected] Mr. R.K.A. Ranaweera ( Appointed 20th Sep 2017) Legal A Public Quoted Company with Limited Liability Form Incorporated in Sri Lanka on 22nd June 1992 Bankers Hatton National Bank PLC D F C C Bank Auditors Ms.KPMG, (Chartered Accountants) Sampath Bank PLC No.32 A, Sir Mohamed Macan Marker Mawatha, People’s Bank Colombo. NDB Bank Tel No: +94 11 5 426426 Commercial Bank of Ceylon PLC Board of During the financial year 2016 Nations Trust Bank Directors Dr. C.N.A. Nonis Bank of Ceylon (Resigned 11th Nov 2016) Indian Bank Mr. R.K.M. Ng State Bank of India (Resigned 11th Nov 2016) MCB Bank Limited
Dr. W.S. Ng Secretaries Resigned 18th Nov 2016 (Alternate to Mr. R.K.M. Ng) Corporate Services (Private) Limited Mr. L.L. Samarasinghe No. 216, De Saram Place, (Resigned 29th Jun 2016) Colombo 10, Sri Lanka. Mr. F.L. Fonseka Tel: 011 4718200 (Resigned 11th Nov 2016) Email: [email protected]
Mr. S.C.J. Devendra Appointed 18th Nov 2016 (Resigned 11th Nov 2016) LOLC Corporate Services (Pvt) Ltd Mrs. S.M.A. Nonis Ranaweera No. 100/1, Sri Jayawardenapura Mawatha, (Resigned 11th Nov 2016) Rajagiriya.
w.e.f. 20th Oct 2016 to 14th Jun 2017 Appointed 01st Feb 2017 Mr. K.A.K.P Gunewardena S.F.L Services (Pvt) Ltd (Appointed 20th Oct 2016 & Resigned 14th Jun 2017) 481, T B Jayah Mawatha, Colombo 10. Mr. D.S.K. Amarasekera Appointed 30th March 2017 (Appointed 20th Oct 2016 & Resigned 14th Jun 2017) Nexia Corporate Consultants (Pvt) Ltd Ms. V.G.S.S. Kotakadeniya No.181, First Floor, Nawala Road, Narahenpita. (Appointed 20th Oct 2016 & Resigned 14th Jun 2017) Tel : 011 4 510709/ 011 2 368154 Mr. A.S. Perera E-mail : [email protected] (Appointed 20th Oct 2016 & Resigned 13th Sep 2017) Registrar Business Intelligence Limited Mr. K.G. Punchihewa No. 08, Tickell Road, Colombo 08, Sri Lanka. (Appointed 18th Nov 2016 & Resigned 14th Jun Tel: 011 5 579950 2017) Email: [email protected]
ANNUAL REPORT 2016 | 3 AGALAWATTE PLANTATIONS PLC Financial Highlights
Summary of Results Group Company 2016 2015 Change 2016 2015 Change
Rs.000 Rs.000 % Rs.000 Rs.000 %
Revenue 1,405,709 1,829,321 (23.16) 1,226,933 1,630,229 (24.74)
Loss before interest and tax (798,004) (233,403) 241.90 (813,208) (249,708) 225.66 Loss before tax including share of profits from associated companies (1,149,627) (506,338) 127.05 (1,218,721) (503,651) 141.98
Loss after tax (1,256,379) (500,799) 150.87 (1,319,452) (495,927) 166.06
Stated capital 250,000 250,000 - 250,000 250,000 -
Equity (1,845,388) (631,330) 192.30 (1,988,936) (711,805) 179.42
Total assets 3,365,483 4,397,474 (23.47) 3,155,676 4,263,199 (25.98)
Personel costs 1,119,452 1,095,366 2.19 1,077,188 1,055,545 2.05
Per Share
Basic Earnings/(losses) per share (Rs.) (50.26) (20.03) 150.92 (52.78) (19.84) 166.13
Net assets/ (liabilities) per share (Rs.) (73.82) (25.25) 192.36 (79.56) (28.47) 179.45
Market Values
Highest 24.00 28.60 (16.08) 24.00 28.60 (16.08)
Lowest 15.30 19.00 (19.47) 15.30 19.00 (19.47)
Year End 17.50 20.50 (14.63) 17.50 20.50 (14.63)
The above figures were extracted from the audited Financial Statements for the year ended 31st December 2015 and 2016, thus it should be read in conjunction with the related notes to the said Financial Statements.
4 | ANNUAL REPORT 2016 AGALAWATTE PLANTATIONS PLC Annual Report of the Board of Directors
The Directors of the Company have pleasure in presenting the Dr. C.N.A. Nonis (Non-Executive Director) Annual Report together with the Audited Financial Statements of Resigned w.e.f 11/11/2016 (Chairman at the time of resignation) Agalawatte Plantations PLC and Consolidated Financial Statements Mr. R.K.M. Ng (Non-Executive Director) of the Company and its Subsidiary for the year ended 31st December Resigned w.e.f 11/11/2016 2016. The Board emphasizes the fact that this Report together with financial statements, corporate governance reports and related Mr. F.L. Fonseka (Non-Executive Director) disclosures have been prepared and presented on behalf of the Resigned w.e.f 11/11/2016 (Managing Director at the time of previous Board of Directors of the Company who held the office resignation) during the period under review. Further the Board wishes to notify Dr. W.S.Ng (Non-Executive Director) that some of relevant information/records are not available with (Alternate to Mr. R.K.M.Ng) the company and proper accounting & internal control system had not been maintained during the year. Therefore the Board could Mr. S.C.J. Devendra (Executive Director) not assure on the accuracy and completeness of the information Resigned w.e.f 11/11/2016 (CEO at the time of resignation) contained in this report and has however made a reasonable effort Mrs. S.M.A. Nonis Ranaweera (Non-Executive Director) to prepare and present its annual report for the year 2016 in view of Resigned w.e.f 11/11/2016 meeting the compliance requirements while fulfilling its duty to the stakeholders of the company and also the general public. Mr. L.L. Samarasinghe (Independent Non-Executive Director) Resigned w.e.f 29/06/ 2016 Principal Activities Mr. K.A.K.P Gunewardena (Non-Independent Non-Executive Director) The principal activities of the Company consist of cultivation, Appointed on 20/10/2016 & Resigned w.e.f. 14/06/2017 production, processing and sale of Tea, Rubber and Oil Palm and selected non-crop diversification initiatives. Mr. D.S.K. Amarasekera (Non-Independent Non-Executive Director) Appointed on 20/10/2016 & Resigned w.e.f. 14/06/2017 Agalawatte Plantations PLC is a holding Company that owns, directly, Ms. V.G.S.S. Kotakadeniya (Non-Independent Non-Executive Director) 100% stake in Mackply Industries (Pvt) Ltd. The principal activity of Appointed on 20/10/2016 & Resigned w.e.f. 14/06/2017 Mackply Industries (Pvt) Ltd is the production and sale of Plywood products. Mr. K.G. Punchihewa (Executive Director) Appointed on 18/11/2016 & Resigned w.e.f. 14/06/2017 Parent Enterprise Mr. A.S. Perera (Executive Director) The Company’s parent undertaking was Browns Power Holdings Appointed on 20/10/2016 & resigned w.e.f.13/09/2017 (Pvt) Ltd as at 31st December 2016, which is a member of the LOLC Group. Directors’ Remuneration However, D.R. Investments (Pvt) Ltd has become the parent company Directors’ remuneration is disclosed in Note 12 to the Financial with the acquisition of 61.1% shares held in the company by Browns Statements. Power Holdings (Pvt) Ltd on 27th March 2017. Auditors Financial Statements Pursuant to the provisions of Section 154, sub section 2 of the The financial statements of the Company and the Group are given on Companies Act 07 of 2007, M/s. KPMG, (Chartered Accountants), pages 15 to 72. was appointed as statutory auditors of the company w.e.f. 7th July 2017 to fulfill the casual vacancy caused due to the resignation Auditors’ Report of existing auditor M/s Hulugalle Samarasinghe & Company, The Auditors’ report on the financial statements is given on pages 12 to14. (Chartered Accountants).
Accounting Policies The Auditors M/s KPMG (Chartered Accountants) were paid The accounting policies adopted in the preparation of the financial Rs.2,500,000/- as audit fees and Rs.300,000/- for non-audit related statements are given on pages 21 to 31. work.
Corporate Governance/Internal Control Based on the declaration made by M/s KPMG (Chartered Details of Corporate Governance Practices of the Company and Accountants) as far as the Directors are aware, the Auditors do not specific measures taken with regard to internal controls are have any relationship or interest in the Company other than disclosed elaborated on pages 7 & 8. above.
Directorate Shareholders Information The names of the Directors of the Company who held the office As at 31st December 2016, the Company had 11,271 registered during the financial year are given below. shareholders. An analysis of the shareholding, distribution and
ANNUAL REPORT 2016 | 5 AGALAWATTE PLANTATIONS PLC Annual Report of the Board of Directors
names of the 20 largest shareholders are given in the Shareholders Donations Information section (Pages 73 & 74). There were no donations given during the year ended 31st December 2016. Earnings and Net Assets/ (Liabilities) Value Per Share Earnings/ (Losses) per share and net assets/ (Liabilities) per share For and on behalf of the Board figures are given below:
Sgd. Sgd. 2016 2015 W.A.A. Asanga L.R.W.S. Rajasekara Rs. Rs. Director Director Earnings/ (Losses) per share (52.78) (19.84) Net assets/ (Liabilities) per share (79.56) (28.47) Sgd. Nexia Corporate Consultants (Pvt) Ltd Secretaries Share Trading Information Agalawatte Plantations PLC The shares of the Company were listed in the Colombo Stock Exchange from 22nd January 1996. Colombo Information relating to the trading of the Company’s shares during 14th December 2017 2016 are given below:
2016 2015 Rs. Rs.
Market value per share -Highest 24.00 28.60 Market value per share – Lowest 15.30 19.00 Market value per share - Closing 17.50 20.50
Personnel The Company had in its employment 5,256 (2015: 6,097) persons as at 31st December 2016.
Going Concern The Directors have adopted the going concern concept in preparing the Financial Statements which is explained in Note 37 to the Financial Statements.
6 | ANNUAL REPORT 2016 AGALAWATTE PLANTATIONS PLC Statement of Corporate Governance
Corporate Governance is meant to be the system of rules, practices The Directors who held the office during the year are responsible and processes by which a Company is directed and controlled. for protecting the rights and interests of shareholders and are The Company is primarily guided by the Code of Best Practices accountable to them for the overall management of the Company. on Corporate Governance issued by the Institute of Chartered Also, they are accountable toward attaining a high standard of Accountants of Sri Lanka and the Listing Rules of the Colombo Stock corporate governance practices as specified by regulatory bodies Exchange on Corporate Governance. and legislation such as the Institute of Chartered Accountants of Sri Lanka, the Securities & Exchange Commission of Sri Lanka and the This statement, prepared by the current Board on behalf of previous Companies Act No. 7 of 2007. members of the Board who held the office during the year 2016, sets out the Company’s Corporate Governance practices only with The Board is mainly responsible for formulation of overall business the available information & records with the Company under the policy and strategy and for monitoring of effective monitoring thereof. present management. However the content of this statement may It is further responsible to ensure that adequate internal controls and not be complete and accurate in compliance with said Listing Rules the highest ethical standards are maintained and compliance with and Code of Best Practices and presented with the objectives of laws and regulations. meeting the mandatory requirements under the corporate laws and regulations of the country. A statement of Directors’ Responsibilities is set out on pages 9 & 10.
Board of Directors Board Meetings The names of the Members of the Board of Directors who held the The Board meetings have been scheduled on a regular basis, and office during the year 2016 are given as follows. adhoc meetings held as and when required. The Board has met 10 times during the year under review. However, 5 meetings have been Dr. C.N.A.Nonis (Non-Executive Director) held without the Company Secretaries. Resigned w.e.f 11/11/2016 (Chairman at the time of resignation) Corporate Management Mr. R.K.M. Ng (Non-Executive Director) The Company is having multiple crops viz. Tea, Rubber and Oil Palm Resigned w.e.f 11/11/2016 and has diversified into selected diversification initiatives.
Mr. F.L. Fonseka (Non-Executive Director) The production and processing operations of the Company have been Resigned w.e.f 11/11/2016 (Managing Director at the time of effectively divided into three geographic regions, namely the Nuwara resignation) Eliya, Ratnapura and Kalutara Districts. The General Managers are in charge of Tea, Rubber and Oil Palm estates respectively. At Dr. W.S.Ng (Non-Executive Director) Corporate level, Director/Chief Executive Officer and the General (Alternate to Mr. R.K.M.Ng) Managers along with Senior Managers are associated with the Mr. S.C.J. Devendra (Executive Director) Management Team. The Senior Management team oversees the Resigned w.e.f 11/11/2016 (CEO at the time of resignation) day to day management of the Company under the direction of the Director/Chief Executive Officer (CEO). Mrs. S.M.A. Nonis Ranaweera (Non-Executive Director) Resigned w.e.f 11/11/2016 Internal Control & Risk management The Directors are responsible for the Company’s system of internal Mr. L.L. Samarasinghe (Independent Non-Executive Director) controls. The current management does not have sufficient evidence/ Resigned w.e.f 29/06/ 2016 information whether the system which was in place during the year was adequate enough to ensure that proper accounting records Mr. K.A.K.P Gunewardena (Non-Independent Non-Executive Director) have been maintained and reliable financial information have been Appointed on 20/10/2016 & Resigned w.e.f. 14/06/2017 generated. Mr. D.S.K. Amarasekera (Non-Independent Non-Executive Director) Appointed on 20/10/2016 & Resigned w.e.f. 14/06/2017 Disclosure of Information The Present Board places great emphasis on complete disclosure Ms. V.G.S.S. Kotakadeniya (Non-Independent Non-Executive Director) of both financial and non-financial information within the bounds Appointed on 20/10/2016 & Resigned w.e.f. 14/06/2017 of commercial reality, and on the early adoption of sound reporting practices. However the Board of Directors who held the office Mr. K.G. Punchihewa (Executive Director) during the financial year 2016 have already resigned and Financial Appointed on 18/11/2016 & Resigned w.e.f. 14/06/2017 Statements for the year had not been finalized during their tenure. Mr. A.S. Perera (Executive Director) As some of relevant records/information are not available with Appointed on 20/10/2016 & resigned w.e.f.13/09/2017 the company, complete disclosures have not been made under the Statement of Corporate Governance.
ANNUAL REPORT 2016 | 7 AGALAWATTE PLANTATIONS PLC Statement of Corporate Governance
Accordingly, the following Committee Reports for the year ended 31st December 2016 have not been included as an integral part of this report, due to the unavailability of information on the meetings held in connection with Remuneration and Audit Committees of the Company during the year.
1. Remuneration Committee (Members as per the previous Annual Report-2014) Mr. L.L. Samarasinghe (Chairman), Mrs. N.S.M. Samaratunga and Mr. S.N. Guneratne
2. Audit Committee (Members as per the previous Annual Report-2014) Mr. F.L. Fonseka (Chairman), Mr. S.N. Guneratne and Mr. R.T. de Sylva
8 | ANNUAL REPORT 2016 AGALAWATTE PLANTATIONS PLC Statement of Directors’ Responsibilities
The following statement, which should be read in conjunction with On 27th March 2017, 61.1% shares of Agalawatte Plantations PLC the Auditors’ Report of their responsibilities set out in their report, is was acquired by D.R. Investments (Private) Limited and the following made with a view to distinguish the respective responsibilities of the members were appointed to the Board. Directors and of the Auditors, in relation to the financial statements. Mr. R.P.L. Ramanayake - (Appointed 22nd May 2017) Directors are responsible, under the Sections 150(1), 151, 152(1) Mr. G.P.N.A.G. Gunathilake - (Appointed 22nd May 2017) and 153 of the Companies Act No. 7 of 2007, to prepare Financial Mr. W.A.A. Asanga - (Appointed 22nd May 2017) Statements for each financial year, which give a true and fair view of the state of affairs of the Company as at the end of the financial Mr. L.R.W.S. Rajasekara - (Appointed 22nd May 2017) year and of the profit and loss for the financial year. The Directors are Mr. A.S. Amarasuriya - (Appointed 22nd June 2017 as the required to prepare these financial statements on the going concern Director/Chairman) basis, unless it is not appropriate. Mr. W.L.P. Wijewardena - (Appointed 22nd June 2017 as the Director/ Deputy Chairman) The Board of Directors who held office during the year under review has resigned and financial statements for the year 2016 had not been Mr.R.K.A. Ranaweera - (Appointed 20th Sep 2017) prepared and presented during their tenure. Therefore the financial Following Directors tendered their resignation from the Board on statements for the year 2016 have been prepared subject to the 14th June 2017. following circumstances and limitations. Mr. K.A.K.P. Gunawardena The Company’s parent undertaking was Mackwoods Plantations (Pvt.) Ltd during 2016, which is a member of the Mackwoods Group Mr. D.S.K. Amarasekera of Companies. Subsequently Browns Power Holdings (Private) Mrs. V.G.S.S. Kotakadeniya Limited acquired the controlling stake of Agalawatte Plantations PLC Mr. K.G. Punchihewa on 14th July 2016 and the previous Board of Directors tendered their Mr. A.S. Perera (Resigned 13th Sep 2017) resignations before the audit of financial statements for the year 2016 concluded. The Current Board of Directors consists of following members.
Dr. C.N.A. Nonis - Chairman (Resigned 11th Nov 2016) Mr. A.S. Amarasuriya - Independent Non-Executive Director Mr. R.K.M. Ng - Director (Resigned 11th Nov 2016) (Chairman) Mr. W.S. Ng (Alternate to Mr.R.K.M. Ng) Mr. W.L.P. Wijewardena - Independent Non-Executive Director (Deputy Chairman) Mr. L.L. Samarasinghe - Director (Resigned 29th June 2016) Mr. R.K.A. Ranaweera - Independent Non-Executive Director Mr. F.L. Fonseka - Director (Resigned 11th Nov 2016) (Appointed 20th Sep 2017) Mr. S.C.J. Devendra - Director (Resigned 11th Nov 2016) Mr. G.P.N.A.G. Gunathilake - CEO/ Executive Director Mrs. S.M.A. Nonis Ranaweera - Director (Resigned 11th Nov 2016) Mr. W.A.A. Asanga - Non-Independent Non-Executive Director Subsequently following members were appointed to the Board on Mr. L.R.W.S. Rajasekara - Non-Independent Non-Executive Director behalf of Browns Power Holdings (Private) Limited. Mr. R.P.L. Ramanayake - Non-Independent Non-Executive Director Mr. K.A.K.P. Gunawardena - (Appointed 20th Oct 2016 and Appointed Therefore the present Board who did not hold any office during the as Chairman 18th Jan 2017) year 2016, are not responsible for the transactions and operation Mr. D.S.K. Amarasekera - (Appointed 20th Oct 2016) during the year and merely facilitated the external auditors to the Mrs. V.G.S.S. Kotakadeniya - (Appointed 20th Oct 2016) best of their knowledge and information/records available with the Mr. A.S. Perera - (Appointed 20th Oct 2016) company to carry out the audit with certain limitations and lack of proper internal controls etc. during the period under the audit. Mr. K.G. Punchihewa - (Appointed 18th Nov 2016) The Directors who held the office during the year ended 31st December 2016 are responsible for the compliance on good corporate governance, maintenance of proper books of accounts, preparation of financial statements in compliance with Sri Lanka Accounting Standards and also to comply with the Companies Act No.07 of 2007, listing rules and other compliance requirements.
ANNUAL REPORT 2016 | 9 AGALAWATTE PLANTATIONS PLC Statement of Directors’ Responsibilities
The Directors also have general responsibility for taking such steps that are reasonably open to them, to safe guard the assets of the Company and to prevent and detect frauds and other irregularities.
The Audit Committee of the Company has been reinstated under the new management and meets periodically with the internal Auditors and External Auditors to review the manner in which the Auditors are performing their responsibilities, and to discuss auditing, internal controls and financial reporting issues. The Committee ensured that the External Auditors and the Internal Auditors have full and free access to the member of the Audit Committee to discuss any matter of substance. Further other committees i.e. Remuneration Committee and Related Party Transactions Review Committee were established during latter part of year 2017.
By order of the Board
Sgd. Nexia Corporate Consultants (Pvt) Ltd Secretaries Agalawatte Plantations PLC
Colombo 14th December 2017
10 | ANNUAL REPORT 2016 AGALAWATTE PLANTATIONS PLC Audit Committee Report
Audit Committee is the sub-Committee of the Board of Directors and it is accountable to the Board. The Committee is responsible for supporting the Board in ensuring that the Group’s financial results, internal controls and risk management are effectively managed in line with the best practices and in compliance with the accounting standards laid down by the Institute of Chartered Accountants of Sri Lanka, requirements of the listing rules of the Colombo Stock Exchange and other relevant laws and regulations. In addition, the Committee considers the contents of internal and external audit reports and recommends the appointment of the external auditors.
The present management was unable to present the role and the procedures carried by the Audit Committee of Agalawatte Plantations PLC during the year 2016 due to the absence of Audit Committee Minutes of Meetings for the period.
However, the new management has taken immediate measures in developing a good governance structure for the company. As a result, the Audit Committee re-established during the year 2017 for Agalawatte Plantations PLC and committee meetings are being held on regular basis & proper records of minutes are kept based on regulatory requirements.
Sgd. W.L.P. Wijewardena Chairman- Audit Committee
Colombo 14th December 2017
ANNUAL REPORT 2016 | 11 AGALAWATTE PLANTATIONS PLC Independent Auditors’ Report
TO THE SHAREHOLDERS OF AGALAWATTE PLANTATIONS PLC the year ended 31st December 2016. Further as explained in Note 41 to the financial statements, the present board of Report on the Financial Statements directors has taken the limited responsibility for the preparation and presentation of the financial statements for the year ended We were engaged to audit the accompanying financial statements of 31st December 2016. We were unable to verify the impact to the Agalawatte Plantations PLC, (“the Company”), and the consolidated financial statements for the year ended 31st December 2016 as financial statements of the Company and its subsidiary (“Group”), a result of this. which comprise the statement of financial position as at 31st December 2016, and the statements of profit or loss and other 3. The Company has recorded revenue of Rs. 117,809,450/- cost comprehensive income, changes in equity and cash flows for the of sales of Rs. 84,282,195/- other income of Rs. 2,617,910/- year then ended and notes, comprising a summary of significant property, plant and equipment of Rs. 5,950,607/- bank accounting policies and other explanatory information set out on overdrafts of Rs. 7,822,876/- and trade and other payables pages 15 to 72. of Rs. 35,884,504/- relating to Labookellie Tea Center of the Company for the year ended 31st December 2016. We have Board’s Responsibility for the Financial Statements not been provided with sufficient and appropriate supporting The Board of Directors (“Board”) is responsible for the preparation of documents to assess the completeness, existence, accuracy these financial statements that give a true and fair view in accordance and valuation of those amounts. Accordingly, we are unable to with Sri Lanka Accounting Standards, and for such internal control as assess the completeness, existence, accuracy and valuation of Board determines is necessary to enable the preparation of financial those amounts recorded in the financial statements for the year statements that are free from material misstatement, whether due ended 31st December 2016. to fraud or error. 4. As disclosed in Notes 6.1 to the financial statements, Auditors’ Responsibility the Company has recorded local tea sales amounting to Our responsibility is to express an opinion on these financial Rs. 11,569,994/- for the year ended 31st December 2016. statements based on our audit. We conducted our audit in accordance However, we were unable to verify the completeness, existence with Sri Lanka Auditing Standards. Because of the matters described and accuracy of local sales recorded under tea revenue for the in the Basis for Disclaimer of Opinion paragraph, we were not able year ended 31st December 2016 in the absence of sufficient and to obtain sufficient and appropriate audit evidences to provide a basis appropriate audit evidences. for an audit opinion. 5. As disclosed in Notes 12 to the financial statements, the Basis for Disclaimer of Opinion Company has recognized an amount of Rs. 7,975,000/- as 1. Because of the disclaimer of opinion issued in respect of the prior directors’ remunerations under administration expenses for period ended 31st December 2015, we were unable to satisfy the year ended 31st December 2016. However, we were unable ourselves as to the accuracy and completeness of the opening to verify the accuracy and completeness of said expenses balances for inventories, property, plant and equipment, bearer for the year ended 31st December 2016 due to absence of biological assets, consumable biological assets, cash & cash sufficient and appropriate audit evidences. equivalents, loans & borrowings, trade payables, tax balances, 6. As disclosed in Notes 7 to the financial statements, the trade & other receivables, other payables and total equity. Since Company has recorded profit on disposal of property, plant and these opening balances entered into the determination of the equipment of Rs. 14,710,000/- in the financial statements for results of operations and cash flows of the Company and the the year ended 31st December 2016. We are unable to verify Group for the year ended 31st December 2016, we were unable the accuracy and completeness of this profit on disposal in to determine whether adjustments to the financial position, the absence of sufficient and appropriate audit evidences. results of the operations and cash flows for the year ended 31st Accordingly, we are unable to determine whether any December 2016 might have been necessary. adjustment relating to the profit on disposal of property, plant 2. The present board of directors of the Company could not provide and equipment was necessary in the financial statements for a letter of representation as per Sri Lanka Auditing Standards the year ended 31st December 2016. 580 “Written Representations”, as they did not hold office during
12 | ANNUAL REPORT 2016 AGALAWATTE PLANTATIONS PLC
7. Based on the samples selected for our verification, we were • The Company has used half month salary basis to compute the unable to obtain sufficient and appropriate audit evidences retirement benefit obligation as at 31st December 2015 which over completeness and accuracy of expenses recorded in the is a non-compliance with Sri Lanka Accounting Standards. financial statements for the year ended 31st December 2016 The retirement benefit obligation as at 31st December 2016 of Rs. 3,643,983/- included in selling and distribution expenses has been computed as per actuarial valuation method and the and Rs. 38,608,332/- included in administration expenses in the Company has reversed an amount of Rs. 54,618,225/- in the absence of documentary evidences. financial statements for the year ended 31st December 2016 8. As disclosed in Note 16.2 to the Financial Statements, the without restating the comparative figures. Company has recorded costs of property, plant, equipment • The Company had not considered the temporary difference of Rs. 896,704,388/- and related accumulated depreciation of arising from consumer biological assets for the calculation of Rs. 535,192,349/- under property, plant and equipment as at 31st December 2016. We were unable to verify the deferred tax liability as at 31st December 2015. The deferred tax completeness, accuracy, existence and valuation of these impact of Rs. 64.19 Mn on consumer biological assets relating balances in the absence of accurate fixed asset registers. to previous years has been adjusted in the financial statements for the year ended 31st December 2016 without restating the 9. As disclosed in Note 17.2.1 and Note 17.2.2 to the financial comparative figures. statements, the Company has recorded the cost of immature and mature bearer biological assets of Rs. 442,045,000/- and 12. As disclosed in Note 32.1 to the Financial Statements, the Rs. 2,142,981,404/- respectively as at 31st December 2016. We Company has recorded retirement benefit payments of were not provided with sufficient and appropriate documentation Rs. 29,083,219/- and unsettled gratuity payments of to verify the cost of immature and mature bearer biological Rs. 2,927,075/- in retirement benefit obligation as at 31st assets as at 31st December 2016. Accordingly, we are unable December 2016. We were unable to establish the completeness, to establish the existence and valuation of the cost of immature existence and accuracy of these balances in the absence of and mature bearer biological assets balances recorded in the appropriate and sufficient supporting documents. financial statements for the year ended 31st December 2016. 13. The Company has not capitalized the borrowings costs relating 10. The produce on bearer biological assets has not been accounted to biological assets during the year ended 31st December 2016 in accordance with LKAS 41 “Agriculture” in the financial as required by LKAS 23 “Borrowing Costs” due to unavailability statements for the year ended 31st December 2016. We are of records to identify the relevant borrowing costs. Accordingly, unable to quantify the impact on the financial statements due to we are unable to quantify the impact on the financial statements departure from the Sri Lanka Accounting Standards. due to this departure from Accounting Standards.
11. In accordance with LKAS 8 “Accounting Policies, Changes in 14. We were appointed as auditors of the Company after 31st Accounting Estimates and Errors’’, the correction of material December 2016 and thus we did not observe the counting prior-period errors should be corrected with retrospective of physical inventories as at 31st December 2016. We were application unless it is impracticable. The Company has unable to satisfy ourselves by alternative audit procedures to corrected following errors prospectively in the financial verify completeness, existence and accuracy of the inventory statements for the year ended 31st December 2016 which is quantities and inventory value of Rs. 169,709,000/- as at 31st non-compliances with Sri Lanka Accounting Standards. December 2016.
• The Company has incorrectly calculated depreciation on 15. We were unable to obtain direct representations from the leasehold and freehold bearer biological assets as at 31st external legal counsels on pending litigations and accordingly December 2015. The accurate accumulated depreciation as at to evaluate the financial impact and contingent liabilities as 1st January 2016 was calculated during the year ended 31st at 31st December 2016 and disclosures required if any in the December 2016 and the accumulated depreciation difference financial Statements for the year ended 31st December 2016. on tea and rubber of leasehold bearer biological assets relating We were unable to satisfy ourselves by alternative procedures, to previous years were Rs. 6,257,750/- and Rs. 15,729,000/- the effects of any pending litigations on the financial statements respectively and accumulated depreciation difference relating for the year ended 31st December 2016. to freehold bearer biological relating to previous years was Rs. 134,542,595/-. These differences have been adjusted in the 16. As disclosed in Note 24.1 to the Financial Statements, the financial statements for the year ended 31st December 2016 Company has recorded receivables from related companies of without restating the comparative figures. the previous management/owners of the Company amounting • The Company has fair valued the consumable biological to Rs. 120,594,480/- as at 31st December 2016. We were assets after 4 years as at 31st December 2016 even though unable to establish the completeness, existence, accuracy and the Company is required to fair value the biological assets at valuation of these balances in the absence of sufficient and each reporting date as per LKAS 41 ”Agriculture”. The entire fair appropriate audit evidences or direct confirmations from the value gain of Rs. 49,524,196/- arising from the fair valuation respective parties. of biological assets as at 31st December 2016 has been recognized in the financial statements for the year ended 31st December 2016 without restating the comparative figures. ANNUAL REPORT 2016 | 13 AGALAWATTE PLANTATIONS PLC Independent Auditors’ Report
17. As disclosed in Note 34.1 to the Financial Statements, the Disclaimer of Opinion Company has recognized unsubstantiated payable balance Because of the significance of the matters described in the Basis for of Rs. 392,083,846/- as at 31st December 2016. However, we Disclaimer of Opinion paragraph, we have not been able to obtain were unable to verify the existence, accuracy and valuation of sufficient and appropriate audit evidences to provide a basis for an this balance in the absence of sufficient and appropriate audit audit opinion. Accordingly, we do not express an opinion on these evidences. financial statements.
18. We were unable to obtain sufficient and appropriate audit Emphasis of Matter evidences for majority of journal entries incorporated in Without further qualifying our opinion, we draw attention to Note 37 the general ledger of the Company for the year ended 31st to the financial statements which more fully describes the existence December 2016 since those journal entries are not supported of doubt on the going concern of the Company and the steps taken with appropriate documentary evidence and required approvals by the Company. by the responsible personnel of the Company. As a result, we were unable to determine whether any further adjustments Other Matter might have been found necessary in respect of recorded or The financial statements of the Company for the year ended 31st unrecorded balances, and the elements making up these December 2015 were audited by another auditor who expressed a financial statements. disclaimer audit opinion on those financial statements on 21st June 19. The company has not made adequate disclosures for financial 2017. risk management policies of the company in the financial statements in accordance with SLFRS 7 “Financial Instrument Report on Other Legal and Regulatory Requirements Disclosures”. As required by section 163 (2) of the Companies Act No. 07 of 2007, we state the following: 20. We were unable to establish whether the company has identified and disclosed all the balances and transactions with related a) The basis of opinion and scope and limitations of the audit parties correctly in the financial statements for the year ended are as stated above. 31st December 2016 in accordance with LKAS 24 “Related Party Disclosures” since the Company has not maintained proper b) In our opinion: financial records in relation to the same.
21. As per LKAS 28 “Investment in Associates”, the Group should - We have not obtained all the information and explanations account for its investments in associates using the equity that were required for the audit and, as far as appears from method of accounting. However, as disclosed in Note 20 to the our examination, proper accounting records have not been financial statements, the Group has not recognized share of kept by the Company. profit / (loss) from associate companies for the year ended 31st - The financial statements of the Company and the Group December 2016 and accordingly, the Group has not applied the have not complied with the requirements of sections 151 equity method of accounting for investment in associates as at and 153 of the Companies Act No. 07 of 2007. 31st December 2016. Consequently, we were unable to quantify the impact on the financial statements because of this non- compliance with the Sri Lanka Accounting Standards due to the non-availability of audited financial statements of the associate companies for the year ended 31st December 2016.
22. The consolidated financial statements of the Group for the Chartered Accountants year ended 31st December 2016 have been prepared based on un-audited financial statements of AEN Palm Oil Processing Colombo (Private) Limited, an joint venture of the group as disclosed 14th December 2017 in Note 21 to the financial statements. These financial statements are unaudited and have been furnished to us by the management. As a result, we were unable to determine whether any adjustments or disclosures might have been found necessary in respect of recorded or unrecorded total assets and total liabilities, and the elements making up the statement of comprehensive income, statements of changes in equity and statements of cash flows had the audited financial statements of said joint venture made available to us.
14 | ANNUAL REPORT 2016 AGALAWATTE PLANTATIONS PLC Statement of Profit or Loss and Other Comprehensive Income
For the Year Ended 31st December Group Company Note 2016 2015 2016 2015 Rs. 000 Rs. 000 Rs. 000 Rs. 000
Revenue 6.1 1,405,709 1,829,321 1,226,933 1,630,229 Cost of sales 6.2 (1,564,847) (1,816,834) (1,430,089) (1,662,933) Gross profit/ (loss) (159,138) 12,487 (203,156) (32,704)
Other income 7 145,722 105,805 194,518 108,205 Gain on changes in fair value of biological assets 8 49,524 - 49,524 - Selling and distribution expenses (9,825) (35,180) (3,782) (28,224) Administration expenses (219,838) (243,414) (189,095) (223,884) Other expenses 9 (604,449) (73,101) (661,217) (73,101) Results from operating activities (798,004) (233,403) (813,208) (249,708)
Finance income 11.1 1,076 826 1,076 826 Finance costs 11.2 (409,856) (256,439) (406,589) (254,768) Net finance costs 11 (408,780) (255,613) (405,513) (253,942) Share of loss in associate companies 20.6 - (21,312) - - Share of profit in jointly controlled entity 21.1.1 57,157 3,991 - - Loss before taxation 12 (1,149,627) (506,338) (1,218,721) (503,651)
Income tax (expenses)/ reversal 13 (106,752) 5,539 (100,731) 7,724 Loss for the year (1,256,379) (500,798) (1,319,452) (495,926)
Other comprehensive income Actuarial gain on retirement benefit obligation 32 48,741 - 48,741 - Tax on other comprehensive income (6,419) - (6,419) - Other comprehensive income for the year, net of taxes 42,322 - 42,322 - Total comprehensive expense for the year (1,214,057) (500,798) (1,277,130) (495,926)
Loss attributable to: Equity holders of the company (1,256,379) (500,798) (1,319,452) (495,926) Non controlling interests - - - - Loss for the year (1,256,379) (500,798) (1,319,452) (495,926)
Total comprehensive expense attributable to: Equity holders of the company (1,214,057) (500,798) (1,277,130) (495,926) Non controlling interests - - - - Total comprehensive expense for the year (1,214,057) (500,798) (1,277,130) (495,926) Basic loss per share (Rs.) 14 (50.26) (20.03) (52.78) (19.84)
Figures in brackets indicate deductions
The financial statements are to be read in conjunction with the related notes, which form an integral part of the Financial Statements of the Group set out on pages 21 to 72.
ANNUAL REPORT 2016 | 15 AGALAWATTE PLANTATIONS PLC Statement of Financial Position
As At 31st December Group Company Note 2016 2015 2016 2015 Rs. 000 Rs. 000 Rs. 000 Rs. 000
ASSETS Non-current assets Rights to use the leasehold land 15 150,476 155,756 150,476 155,756 Property, plant and equipment 16 399,375 541,352 365,844 509,759 Bearer biological assets 17 1,803,068 2,341,025 1,803,068 2,341,025 Consumable biological assets 18 500,261 450,737 500,261 450,737 Investment in subsidiary 19 - - 12,500 12,500 Investment in associates 20 - 21,481 - 78,250 Investment in jointly controlled entity 21 109,702 106,211 7,965 13,128 Available for sale financial assets 22 12,418 22,305 12,418 22,305 2,975,300 3,638,867 2,852,532 3,583,460
Current assets Inventories 23 200,870 209,106 169,709 173,014 Trade and other receivables 24 169,629 196,269 94,610 126,759 Amount due from related parties 25 49 328,394 20,782 355,181 Cash and cash equivalents 26 19,635 24,838 18,043 24,785 Total current assets 390,183 758,607 303,144 679,739 Total assets 3,365,483 4,397,474 3,155,676 4,263,199
EQUITY AND LIABILITIES Stated capital and reserves Stated capital 27 250,000 250,000 250,000 250,000 General reserves 28 515,000 515,000 515,000 515,000 Accumulated Losses (2,610,388) (1,396,330) (2,753,936) (1,476,805) Non controlling interests - - - - Equity attributable to owners of the Company (1,845,388) (631,330) (1,988,936) (711,805)
Non-current liabilities Loans and borrowings 29.1.b 850,585 672,876 848,085 668,375 Net liability to lessor of JEDB/SLSPC 30.2.b 223,993 228,567 223,993 228,567 Deferred tax liabilities 31 199,184 98,378 198,163 98,378 Retirement benefit obligation 32 711,812 768,004 701,922 760,638 Deferred income 33 91,023 94,658 91,023 94,658 Total non current liabilities 2,076,597 1,862,482 2,063,186 1,850,616
Current liabilities Trade and other payables 34 2,141,393 1,611,443 2,112,518 1,594,545 Amounts due to related parties 35 35,433 472,229 35,433 472,229 Loans and borrowings 29.1.a 841,710 958,382 832,169 951,470 Net liability to lessor of JEDB/SLSPC 30.2.a 4,574 4,398 4,574 4,398 Income tax payable 50,617 30,302 45,364 31,749 Bank overdrafts 26 60,547 89,568 51,368 69,998 Total current liabilities 3,134,274 3,166,322 3,081,426 3,124,388 Total liabilities 5,210,871 5,028,804 5,144,612 4,975,005 Total equity and liabilities 3,365,483 4,397,474 3,155,676 4,263,199
Figures in brackets indicate deductions.
16 | ANNUAL REPORT 2016 AGALAWATTE PLANTATIONS PLC
The financial statements are to be read in conjunction with the related notes, which form an integral part of the Financial Statements of the Group set out on pages 21 to 72.
I certify that these financial statements have been prepared in compliance with the requirements of the Companies Act No.7 of 2007 subject to the circumstances and limitations set out in Note 41 to the Financial Statements.
Sgd. T. A. D. A. K. Thudugala Head of Finance
The Board of Directors is responsible for the preparation and presentation of these financial statements subject to the circumstances and limitations set out in Note 41 to the Financial Statements.
Approved and signed for and on behalf of the Board of Directors of Agalawatte Plantations PLC.
Sgd. Sgd. W.A.A. Asanga L.R.W.S. Rajasekara Director Director
Colombo 14th December 2017
ANNUAL REPORT 2016 | 17 AGALAWATTE PLANTATIONS PLC Statement of Changes In Equity
For the Year Ended 31st December Stated General Accumulated Non Total Capital Reserve Losses Controlling Interests Group Rs. 000 Rs. 000 Rs. 000 Rs. 000 Rs. 000
Balance as at 1st January 2015 250,000 515,000 (895,532) - (130,532) Total comprehensive expense for the year Loss for the year - - (500,798) - (500,798) - - (500,798) - (500,798) Balance as at 31st December 2015 250,000 515,000 (1,396,330) - (631,330)
Balance as at 1st January 2016 250,000 515,000 (1,396,330) - (631,330) Total comprehensive expense for the year Loss for the year - - (1,256,379) - (1,256,379) Other comprehensive income for the year, net of taxes - - 42,322 - 42,322 - - (1,214,057) - (1,214,057) Balance as at 31st December 2016 250,000 515,000 (2,610,388) - (1,845,388)
Stated General Accumulated Total Capital Reserve Losses Company Rs. 000 Rs. 000 Rs. 000 Rs. 000
Balance as at 1st January 2015 250,000 515,000 (980,879) (215,879) Total comprehensive expense for the year Loss for the year - - (495,926) (495,926) - - (495,926) (495,926) Balance as at 31st December 2015 250,000 515,000 (1,476,805) (711,805)
Balance as at 1st January 2016 250,000 515,000 (1,476,805) (711,805 ) Total comprehensive expense for the year Loss for the year - - (1,319,452) (1,319,452) Other comprehensive income for the year, net of taxes - - 42,322 42,322 - - (1,277,130) (1,277,130) Balance as at 31st December 2016 250,000 515,000 (2,753,936) (1,988,936)
Figures in brackets indicate deductions
The financial statements are to be read in conjunction with the related notes, which form an integral part of the Financial Statements of the Group set out on pages 21 to 72.
18 | ANNUAL REPORT 2016 AGALAWATTE PLANTATIONS PLC Statement of Cash Flows
For the Year Ended 31st December Group Company 2016 2015 2016 2015 Rs. 000 Rs. 000 Rs. 000 Rs. 000
CASH FLOWS FROM OPERATING ACTIVITIES Loss before taxation (1,149,627) (506,338) (1,218,721) (503,651) Adjustments for : Share of loss in associate companies - 21,312 - - Share of profit in jointly controlled entity (57,157) (3,991) - - Provision for impairment of property, plant and equipment 108,475 - 108,475 - Write-off of property, plant and equipment 1,766 - 1,766 - Gain on changes in fair value of biological assets (49,524) - (49,524) - Provision made/(reversal) for trade and other receivables 4,427 (34,125) 5,502 (34,125) Provision for obsolete inventories 15,243 - 15,108 - Provision for impairment of investment in associates 21,482 - 78,250 - Depreciation and amortization 307,326 125,690 304,487 123,501 Write off of bearer biological assets 327,726 - 327,726 - Gain on disposal of Property, Plant and Equipment (16,448) - (16,448) - Provision for retirement benefit obligation 79,277 88,242 76,653 86,774 Over provision of gratuity payable with respect to previous years (54,618) - (54,618) - Dividend income - (401) (2,494) (401) Provision for impairment of available for sale financial assets 9,368 6,245 9,368 6,245 Gain on disposal of investment in joint venture - (31,943) (46,009) (31,943) Interest expenses 411,352 254,341 408,085 252,670 Interest income (1,076) (826) (1,076) (826) Amortization of government grants (3,635) (3,103) (3,635) (3,103) Operating loss before working capital changes (45,643) (84,896) (57,105) (104,858)
Working capital changes Increase in inventories (7,007) (20,426) (11,802) (10,198) (Increase) / decrease in trade and other receivables 22,213 (3,234) 26,647 424 Decrease in amounts due from related parties 341,291 58,525 346,770 60,526 Decrease in trade and other payables 535,050 255,842 517,973 259,600 Increase / (decrease) in amounts due to related parties (436,796) 53,610 (436,796) 53,610 Cash generated from operations 409,108 259,421 385,688 259,104 Interest paid (409,856) (238,715) (407,097) (237,044) Income tax paid (2,986) (3,642) - - Gratuity paid (32,111) (12,881) (32,010) (12,881) Net cash generated from / (used in) operating activities (35,845) 4,183 (53,419) 9,179
CASH FLOWS FROM INVESTING ACTIVITIES Investment in bearer biological assets (53,267) (98,455) (53,267) (98,455) Purchase of property, plant and equipment (6,811) (42,574) (2,034) (29,129) Proceeds from disposal of investment in joint venture 51,172 38,332 51,172 38,332 Proceeds from disposal of property, plant and equipment 4,939 - 4,939 - Interest received 1,076 - 1,076 - Dividend received 2,494 401 2,494 401 Net cash generated from/ (used in) investing activities (397) (102,296) 4,380 (88,851)
ANNUAL REPORT 2016 | 19 AGALAWATTE PLANTATIONS PLC Statement of Cash Flows (Contd.)
For the Year Ended 31st December Group Company 2016 2015 2016 2015 Rs. 000 Rs. 000 Rs. 000 Rs. 000 CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from long term borrowings 119,790 669,963 98,955 660,086 Repayment of long term borrowings (60,249) (501,353) (38,546) (501,353) Proceeds from disposal of available for sale investment 519 826 519 826 Lease rentals paid - (22,834) - (22,834) Net cash generated from financing activities 60,060 146,602 60,928 136,725
Net increase in cash and cash equivalents 23,818 48,488 11,888 57,053 Cash and cash equivalents at beginning of the year (64,730) (113,219) (45,213) (102,266) Cash and cash equivalents at end of the year (a) (40,912) (64,730) (33,325) (45,213)
(a) Analysis of cash and cash equivalents at end of the year Cash in hand and at bank 19,635 24,838 18,043 24,785 Bank overdrafts (60,547) (89,568) (51,368) (69,998) (40,912) (64,730) (33,325) (45,213)
Figures in brackets indicate deductions
The financial statements are to be read in conjunction with the related notes, which form an integral part of the Financial Statements of the Group set out on pages 21 to 72.
20 | ANNUAL REPORT 2016 AGALAWATTE PLANTATIONS PLC Notes to the Financial Statements For the Year Ended 31st December 2016
1. REPORTING ENTITY 1.4.3 Immediate and Ultimate Parent Enterprise 1.1. Domicile and Legal form In the opinion of the Directors, the Group’s immediate Agalawatte Plantations PLC is a limited liability Company parent undertaking as at the date of statement of financial incorporated and domiciled in Sri Lanka, under the position was Browns Power Holdings (Private) Limited and Companies Act No. 17 of 1982 (reregistered under the the ultimate parent undertaking and controlling party was Companies Act No. 7 of 2007) in terms of the provisions Lanka Orix Leasing Company PLC, a Company incorporated of the Conversion of Public Corporation and Government in Sri Lanka. Owned Business Undertaking into Public Companies Act No. Subsequently, on 27th March 2017, D.R. Investments 23 of 1987. The registered office of the Company is located (Private) Limited acquired 61.1% shares of Agalawatte at No.361, Kandy Road, Nittambuwa and Plantations are Plantations PLC. The ultimate parent undertaking and situated in the planting districts of Nuwara Eliya, Rathnapura controlling party is now D.R. Investments (Private) Limited, and Kalutara. a Company incorporated in Sri Lanka. 1.2. Consolidated Financial Statements 2. BASIS OF PREPARATION The consolidated financial statements of the Group as at 2.1. Statement of Compliance and for the year ended 31st December 2016 comprise the Company and its subsidiaries (together referred to as the Subject to the Note 41 to the financial statements and based “Group” and individually as “Group entities”). on the available information and best of the knowledge of present Board of Directors, the audited financial statements 1.3. Authorization for issue of the Group and the separate audited financial statements The financial statements of Agalawatte Plantations PLC of the Company are prepared in accordance with Sri for the year ended 31st December 2016 were authorized Lanka Accounting Standards laid down by the Institute of for issue in accordance with a resolution of the Board of Chartered Accountants of Sri Lanka and in compliance with Directors of the Company dated on 14th December 2017 the requirements of the Companies Act No.07 of 2007 and even though the present Directors were not the Directors of Sri Lanka Accounting and Auditing Standards Act No. 15 of the Company during the year ended 31st December 2016. 1995.
1.4. Principal Activities and Nature of Operations 2.2. Basis of Preparation 1.4.1 Principal Activities These financial statements of the Group have been prepared subject to Note 41 to the financial Statements and in During the year the principal activities of Agalawatte accordance with the historical cost conversion except for Plantations PLC consist of cultivation, production, processing the following material items in the statement of financial and sale of tea, rubber and oil palm. position:
1.4.2 Subsidiaries, Associates and Joint Ventures - Consumable biological assets are measured at fair All the Companies in the Group have a common financial value less cost to sell as per LKAS 41 – Agriculture. year, which ends on 31st March other than Agalawatte - Liability for retirement benefit obligations is recognized Planations PLC which has been prepared up to 31st as the present value of the defined benefit obligation December. based on the actuarial valuation. Name of the Company Relationship Principal business activity - Lease hold right to Bare Land and leased assets of JEDB/SLSPC estates, which have been revalued Mackply Industries (Private) Subsidiary Manufacturing of as more fully described in Note 15 to the financial Limited (MIPL) plywood sheets statements. & wooden flush doors 2.3. Functional and Presentation Currency Mackwoods Rubber Associate Invested in a Products (Private) Limited Company involved The Consolidated financial Statements of the Group are in manufacturing presented in Sri Lankan Rupees, which is the Group’s of centrifuge latex functional currency. All financial information presented in Sri Taprospa Resorts (Private) Associate Owned and Lankan Rupees has been rounded to the nearest Thousand, Limited managed tourist unless otherwise indicated. hotels and bungalows 2.4 Presentation of Financial Statements AEN Palm Oil Processing Joint Processing and (Private) Limited Venture selling of palm oil The assets and liabilities of the group and the company presented in its statement of financial position are grouped
ANNUAL REPORT 2016 | 21 AGALAWATTE PLANTATIONS PLC Notes to the Financial Statements For the Year Ended 31st December 2016
by nature and listed in an order that reflects their relative Retirement Benefit Obligation 32 58 liquidity and maturity pattern. Deferred Taxation 31 57 2.5 Materiality and Aggregation (b) Measurement of fair value Each material class of similar items is presented separately A number of accounting policies and disclosures require the in the financial statements. Items of dissimilar nature measurement of fair values, for both financials and non- or function are presented separately unless they are financial assets and liabilities. immaterial, as permitted by the Sri Lanka Accounting Standard 1 “Presentation of Financial Statements”. The Group has an established control framework with respect to the measurement of fair values. This includes a Financial assets and financial liabilities are offset and the valuation team that has overall responsibility for overseeing net amount reported in the statement of financial position, all significant fair value measurements, including Level 3 only when there is a legally enforceable right to offset the fair values, and report directly to Chief Financial Officer. recognized amounts and there is an intention to settle on a net basis, or to realize the assets and settle the liability The said officer regularly reviews significant unobservable simultaneously. inputs and valuation adjustments.
2.6 Significant Accounting judgements, Estimates and When measuring the fair value of an asset or a liability, Assumptions the Group uses observable market data as far as possible. The preparation of the financial statements of the Group in Fair values are categorized into different levels in a fair conformity with SLFRS and LKAS requires management value hierarchy based on the inputs used in the valuation to make judgements, estimates and assumptions that techniques as follows. influence the application of accounting policies and the reported amounts of assets, liabilities, income and Fair Value Measurement Hierarchy expenses. Actual results may differ from these estimates. • Level I Quoted market prices (unadjusted) in active Estimates and underlying assumptions are based on markets for identical assets or liabilities historical experience and various other factors that are that the company can access at the believed to be reasonable under the circumstances, the measurement date. results which form the basis of making the judgments about the carrying amount of assets and liabilities that are The fair value for financial instruments not readily apparent from other sources. traded in active markets at the reporting date is based on their quoted market price Estimates and underlying assumptions are reviewed on or dealer price quotations (bid price for long an ongoing basis. Revisions to accounting estimates are positions and ask price for short positions), recognized in the period in which the estimates are revised, without any deduction for transaction costs. if the revision affects only that period and any future periods affected. • Level II Inputs other than quoted market prices included within Level I that are observable a) Judgements for the asset or liability, either directly (i.e. Information about critical judgements in applying accounting as prices) or indirectly (i.e. derived from policies that have most significant effect on the amounts prices). recognized in the Financial Statements of the Company are included in the following notes to these Financial For all other financial instruments not Statements; traded in an active market, the fair value is determined by using appropriate valuation Disclosure techniques. Valuation techniques include the Reference discounted cash flow method, comparison Financial Statement Area with similar instruments for which market Note Page observable prices exist, options pricing models, credit models and other relevant Consumable Biological Assets – Timber 18 44 valuation models.
22 | ANNUAL REPORT 2016 AGALAWATTE PLANTATIONS PLC
• Level III Inputs for the asset or liability that are The company held an extra-ordinary general meeting on not based on observable market data 5th May 2017 as per section 220 of Companies Act No.07 (unobservable inputs). of 2007, in order to address the serious loss of capital prevailing in Agalawatte Plantation PLC. Certain financial instruments are recorded at fair value using valuation techniques in which 3. SIGNIFICANT ACCOUNTING POLICIES current market transactions or observable The accounting policies set out below have been applied market data are not available. Their fair consistently to all periods presented in these Financial value is determined using a valuation model Statements, unless otherwise indicated. that has been tested against prices or inputs to actual market transactions and using the 3.1 Basis of Consolidation best estimate of the most appropriate model 3.1.1 Subsidiaries assumptions. Subsidiaries are those enterprises controlled by the Group. If the inputs used to measure the fair value of Control exists when the Group has the power, directly or an asset or a liability fall into different levels indirectly, to govern the financial and operating policies of an of the fair value hierarchy, then the fair value enterprise so as to obtain benefits from its activities. measurement is categorized in its entirety in The consolidated financial statements incorporate the the same level of the fair value hierarchy as results, and assets and liabilities of the Group and its the lowest level input that is significant to the subsidiary, associates and joint venture companies. Uniform entire measurement. accounting policies have been adopted by the Company and its subsidiary in all significant respects in the preparation The Group recognizes transfers between levels of the fair and presentation of financial statements. value hierarchy at the end of the reporting period during Intra group balances and transactions and any unrealized which the change has occurred. gains from intra group transactions are eliminated in Further information about the assumptions made in preparing the consolidated financial statements. measuring fair values is included in the following notes. The investment in subsidiary is shown at cost in the Group’s Disclosure financial statements. Financial Statement Area Reference Note Page 3.1.2 Associates Associates are those enterprises in which the Group has Consumable Biological Assets - Timber 18 44 significant influence, but not control, over financial and Retirement Benefit Obligation 32 58 operating policies. The Associates are accounted at cost in Fair Values of Financial Instruments 43 69 the Company whereas consolidated financial statements include the Group’s share of the total recognized gains and 2.7 Going Concern losses of associates on an equity accounted basis, from the The Board of Directors is informed about the conditions date that significant influence commences until the date that which raise doubt whether the Company will be able significant influence ceases. to continue as a going concern in the future as further explained in Note 37. However, the financial statements of 3.1.3 Jointly Control Entities the Company have been prepared on the assumption that Jointly controlled entities are those entities over whose the Company is a going concern as the present immediate activities of the Group have joint control, established and ultimate parent Companies have agreed to provide by contractual agreement. The consolidated financial continuous financial support as necessary. statements include the Group’s share of the total recognized gains and losses of joint venture on an equity accounted 2.8 Comparative information basis (LKAS-11), from the date that joint control commences Previous period figures and notes have been reclassified until the date that joint control ceases. wherever necessary to conform to the current year’s presentation of the Company. Financial periods of subsidiary, associates and joint venture represent twelve months period from 1st April to 31st March. 2.9 Serious Loss of Capital 3.2 Foreign Currency Translations The Company has reported negative net assets as at 31st December 2016. All foreign exchange transactions are converted to Sri Lankan Rupees, which is the reporting currency, at the rates
ANNUAL REPORT 2016 | 23 AGALAWATTE PLANTATIONS PLC Notes to the Financial Statements For the Year Ended 31st December 2016
of exchange prevailing at the time the payment was made. The cost of self-constructed assets includes the cost Monetary assets and liabilities denominated in foreign of materials direct labour, and any other costs directly currencies are translated to Sri Lankan Rupees equivalents attributable to bringing the assets to a working condition for using year-end spot foreign exchange rates. Non-monetary their intended use. assets and liabilities are translated using exchange rates that existed when the values were determined. The resulting 3.3.2.3 Subsequent Cost gains and losses are accounted for in the statement of profit When significant parts of property, plant and equipment or loss and other comprehensive income. are required to be replaced at intervals, the company derecognizes the cost of replaced part, and recognizes the 3.3. Assets and Basis of their Valuation new part as individual assets (major Components) with 3.3.1 Leased Assets its own associated useful life and depreciation. Likewise, Property, plant and equipment financed by leasing when a major inspection is performed, its cost is recognized arrangements which transfer substantially all the risks in the carrying amount of the plant and equipment as a and rewards incidental to ownership, (i.e. finance leases) replacement if the recognition criteria are satisfied. All are treated as if they have been purchased outright and other repairs and maintenance costs are recognized in the are classified as such in the financial statements. The statement of profit or loss as incurred. capital element of the leasing commitment is shown as an obligation under finance leases. 3.3.2.4 De-recognition An item of property, plant and equipment and any significant Lease rentals are treated as consisting of a capital and an part initially recognised is derecognised upon disposal or interest element. The capital element is applied to reduce when no future economic benefits are expected from its the outstanding obligation while the interest element is use or disposal. Any gain or loss arising on derecognition charged against profit in proportion to the reducing capital of the asset (calculated as the difference between the net element outstanding. disposal proceeds and the carrying amount of the asset) is Leasehold rights are amortized / depreciated in equal included in the statement of profit or loss when the asset is annual amounts over the following periods: derecognised.
Bare land 53 years (i.e. period of lease) 3.3.2.5 Land Development cost Mature plantations 30 years Permanent land development costs are the costs incurred in Buildings 25 years making major infrastructure development and building new Machinery 15 years access roads on leasehold lands. Improvements to land 30 years Motor vehicles 05 years These costs have been capitalised and amortised over the Other vested assets 30 years remaining lease period.
Permanent impairment to land development costs are 3.3.2 Property, Plant and Equipment charged to the Profit or Loss Statement in full or reduced 3.3.2.1 Basis of Recognition to the net carrying amounts of such assets in the year of Property, plant and equipment are recognized if it is probable occurrence after ascertaining the loss. that future economic benefits associated with the asset will flow to the Group and cost of the asset can be reliably 3.3.2.6 Depreciation measured. Depreciation is based on the cost of an asset less its residual value. Significant components of individual assets 3.3.2.2 Basis of Measurement are assessed and if a component has a useful life that is Property, Plant and equipment are stated at cost less different from the remainder of that asset, that component accumulated depreciation and any accumulated impairment is depreciated separately. loss. Depreciation is recognized in the statement of profit or The cost of Property, Plant and Equipment includes loss on a straight line basis over the estimated useful lives expenditures that are directly attributable to the acquisition of each part of an item of Property, Plant and Equipment. of the asset. Such costs includes the cost of replacing part Assets held under finance leases are depreciated over the of the property, plant and equipment and borrowing costs shorter of the lease term and the useful lives of equivalent for long term construction projects if the recognition criteria owned assets unless it is reasonably certain that the Group are met. will have ownership by the end of the lease term.
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The principle annual rates of depreciation used are as replanting, crop diversification, inter-planting and fertilizing follows: etc, incurred between the time of planting and harvesting (When the planted area attains maturity) are classified as Buildings 2.5% immature plantations. These immature plantations are Plant and Machinery 7.5% to 20% shown at direct costs plus attributable overheads, including Office Equipment 12.5% to 33.33% interest (borrowing cost) attributable to long-term loans Motor Vehicles 20% used for financing immature plantations. The expenditure Furniture and Fittings 10% incurred on bearer biological assets (Tea, Rubber & Oil Sanitation, water and electricity 5% Palm fields), which come into bearing during the year, has been transferred to mature bearer biological assets and Depreciation of an asset begins when it is available for use depreciated over their useful life in accordance with the and ceases at the earlier of the date on which the asset is LKAS 16- Property, Plant and Equipment. classified as held for sale or is derecognized. Depreciation methods, useful lives and residual values are reassessed at 3.3.3.3.1 Immature and Mature Plantations the reporting date and adjusted prospectively, if appropriate. The cost of replanting and new planting are classified as immature plantations up to the time of harvesting the crop. 3.3.2.7 Capital Work-In-Progress Further, the general charges incurred on the plantation are The cost of capital work-in-progress is the cost of purchase apportioned based on the labour days spent on respective or construction together with any related expenses thereon. replanting and new planting and capitalized on the immature areas. The remaining portion of the general charges is Capital work–in-progress is transferred to the respective expensed in the accounting period in which it is incurred. The asset accounts at the time of first utilization or at the time cost of areas coming into bearing is transferred to mature the asset is commissioned. plantations at end of the financial year.
3.3.3 Biological Assets 3.3.3.3.2 Infilling Costs 3.3.3.1.Recognition The land development costs incurred in the form of infilling The Group recognizes the biological assets when, and only have been capitalized to the relevant mature field, only if it when, the Group controls the assets as a result of a past increases the expected future benefits from that field, beyond event, it is probable that future economic benefits associated its pre-infilling standard of performance assessment. with the assets will flow to the Group and the fair value or Infilling costs so capitalized are depreciated over the newly cost of the assets can be measured reliably. assessed remaining useful life of the relevant mature plantation or the unexpired lease period, whichever is lower. 3.3.3.2.Basis of Classification Infilling cost that are not capitalized have been charged to Biological assets are classified as mature biological assets the statement of Profit or loss for the year in which they are and immature biological assets. Mature biological assets incurred are those that have attained harvestable specifications or are able to sustain regular harvests. Immature biological 3.3.3.3.3 Growing Crop Nurseries assets are those that have not yet attained harvestable Nursery cost includes the cost of direct materials, direct specifications. Tea, Rubber, Oil Palm, Timber, Other labour and an appropriate proportion of directly attributable plantations and nurseries are classified as biological assets. overheads.
Biological assets of the Group are further classified as 3.3.3.3.4 Amortization bearer biological assets and consumable biological assets. The cost of areas coming in to bearing are transferred to Bearer biological assets includes tea, rubber, oil Palm mature plantation and depreciated as follows. and other crops, those that are not intended to be sold or Bearer Biological Asset at Cost (Replanting and New harvested, however, used to grow for harvesting agricultural Planting) produce from such biological assets. No. of Years Rate (p.a.) Consumable biological assets include managed timber trees those that are to be harvested as agricultural produce Tea 33 1/3 years 3% from biological assets or sold as biological assets. Rubber 20 Years 5% Oil Palm 20 Years 5% 3.3.3.3. Bearer Biological Assets The cost of land preparation, rehabilitation, new planting, No amortization is provided for immature plantations.
ANNUAL REPORT 2016 | 25 AGALAWATTE PLANTATIONS PLC Notes to the Financial Statements For the Year Ended 31st December 2016
3.3.3.4 Consumable Biological Assets on leased property is capitalized, and depreciated over the Consumable biological assets include managed timber unexpired period of the lease or the estimated useful lives trees that are to be harvested as agricultural produce or sold of the improvements, whichever is shorter. as biological assets. b) Operating Leases The managed timber trees of the 15 estates of the Company Leases where the lessor effectively retains substantially all are measured on initial recognition at cost and at the end the risks and benefits of ownership over the leased term of each reporting period at its fair value less cost to sell in are classified as operating leases. Lease payments paid terms of LKAS 41–“Agriculture”. The cost of young plants under operating leases are recognized as an expense in the which are below 4 years is treated as an approximation to statement of Profit or loss for the period. the fair value as the impact on biological transformation of such plants to price during the period is immaterial. 3.6 Financial Instruments Group does not have any derivative financial instruments. The fair value of timber trees are measured using Recognition and measurement criteria for non-derivative discounting cash flows method taking in to consideration financial instruments are as follows. the current market prices of timber, applied to expected timber content of a tree at the maturity by an independent 3.6.1 Non-derivative Financial Assets professional valuer. 3.6.1.1 Initial Recognition and Measurement
3.4 Capitalization of Borrowing Costs Financial assets within the scope of LKAS 39 - ‘Financial Instruments: Recognition and Measurement’ are classified Borrowing costs that are directly attributable to acquisition, as, loans and receivables (L&R) and available-for-sale (AFS) construction or production of a qualifying asset, which takes financial assets, as appropriate. The Group determines the a substantial period of time to get ready for its intended use classification of its financial assets at initial recognition. or sale, are capitalized as a part of the asset. All financial assets are recognized initially at fair value plus, Borrowing costs that are not capitalized are recognised as in the case of financial assets not at fair value through profit expense in the period in which they are incurred and charged or loss, transaction costs that are directly attributable to the to the statement of Profit or Loss for the period. acquisition or issue of such financial assets. The amount of borrowing costs which are eligible for Purchases or sales of financial assets that require delivery capitalization are determined in accordance with the LKAS of assets within a time frame established by regulation or 23 - “Borrowing Costs”. convention in the marketplace (regular way trades) are Borrowing cost incurred in respect of specific loans that recognized on the trade date, i.e., the date that the Company are utilized for field development activities have been commits to purchase or sell the asset capitalized as a part of the cost of the relevant immature The Company’s financial assets include cash and short- bearer biological assets. The capitalization will cease when term deposits, trade and other receivables, loans and other the crops are ready for commercial harvesting. receivables. 3.5 Leases 3.6.1.2 Subsequent Measurement a) Finance Leases The subsequent measurement of financial assets depends Property, Plant and Equipment on finance leases, which on their classification as described below effectively transfer to the Company substantially the entire risk and rewards incidental to ownership of the leased (a) Loans and Receivables items, are disclosed as finance leases at their cash price Loans and receivables are non-derivative financial assets and depreciated over the period the Company is expected to with fixed or determinable payments that are not quoted in benefit from the use of the leased assets. The corresponding an active market. After initial measurement, such financial principal amount payable to the lessor is shown as a liability. assets are subsequently measured at amortized cost using the Effective Interest Rate (EIR) method, less impairment. The finance charges allocated to future periods are Amortized cost is calculated by taking into account any separately disclosed in notes to the financial statements. discount on acquisition and fees or costs that are an The interest element of the lease rental applicable to each integral part of the EIR. financial year is charged to the statement of Profit or loss over the period of the lease so as to produce a constant Loans and receivables of the company comprise of trade periodic rate of interest on the remaining balance of the receivables, amounts due from related parties, deposits, liability for each period. The cost of improvements to or
26 | ANNUAL REPORT 2016 AGALAWATTE PLANTATIONS PLC
advances, and other receivables and cash and cash transferred control of it, the asset is recognized to the extent equivalents. of the company’s continuing involvement in it.
(b) Trade and Other Receivables In that case, the Company also recognizes an associated Trade receivables are amounts due from customers for liability. The transferred asset and the associated liability are merchandise sold or services performed in the ordinary measured on a basis that reflects the rights and obligations course of business. If collection is expected in one year that the company has retained. Continuing involvement that or less (or in the normal operating cycle of the business if takes the form of a guarantee over the transferred asset is longer), they are classified as current assets. If not, they are measured at the lower of the original carrying amount of the presented as non-current assets. asset and the maximum amount of consideration that the company could be required to repay. Trade and other receivables are stated at the amounts they are estimated to realize, net of provisions for bad and Any interest in transferred financial assets that qualify for doubtful receivables. A provision for doubtful debts is made de-recognition that is created or retained by the company is where as there is objective evidence that the company will recognized as a separate asset or liability in the statement not be able to recover all amounts due according to the of financial position. On de-recognition of a financial asset, original terms of receivable. Bad debts are written-off when the difference between the carrying amount of the asset (or identified. the carrying amount allocated to the portion of the asset transferred), and the sum of (i) the consideration received (c) Cash and Cash Equivalents (including any new asset obtained less any new liability Cash and cash equivalents are defined as cash in hand, assumed) and (ii) any cumulative gain or loss that had been demand deposits and short term highly liquid investments recognized in other comprehensive income is recognized in readily convertible to known amounts of cash and subject to profit or loss. insignificant risk of changes in value. 3.6.1.4 Impairment of Financial Assets For the purpose of cash flow statement, cash and cash The Company assesses at each reporting date whether equivalents consists of cash in hand and deposits in banks there is any objective evidence that financial asset or a group net of outstanding bank overdrafts that are repayable on of financial assets is impaired. A financial asset or a group demand and form an integral part of the company’s cash of financial assets is deemed to be impaired if, and only if, management. there is objective evidence of impairment as a result of one or more events that has occurred after the initial recognition 3.6.1.3 De-recognition of Financial Assets of the asset (an incurred ‘loss event’) and that loss event has A financial asset (or, where applicable apart of a financial an impact on the estimated future cash flows of the financial asset or part of a Group of similar financial assets) is asset or the group of financial assets that can be reliably derecognized when: estimated.
• The rights to receive cash flows from the asset have Evidence of impairment may include indications that the expired. debtors or a group of debtors is experiencing significant financial difficulty, default or delinquency in interest or • The Company has transferred its right to receive cash principal payments, the probability that they will enter flows from the asset or has assumed an obligation to bankruptcy or other financial reorganization and where pay the received cash flows in full without material delay observable data indicate that there is a measurable decrease to a third party under a ‘pass-through’ arrangement; in the estimated future cash flows, such as changes in and either; arrears or economic conditions that correlate with defaults. a) The Company has transferred substantially all the risks and 3.6.1.5 Financial assets carried at amortized cost rewards of the asset, or Impairment losses on financial assets carried at amortized b) The Company has neither transferred nor retained cost are measured as the difference between the carrying substantially all the risks and rewards of the asset, but has amount of the financial asset and the present value of transferred control of the asset. estimated future cash flows discounted at the asset’s original effective interest rate. When the Company has transferred its rights to receive cash flows from an asset or has entered into a pass-through Impairment losses are recognized in the income statement. arrangement, and has neither transferred nor retained When a subsequent event causes the amount of impairment substantially all of the risks and rewards of the asset nor loss to decrease, the decrease in impairment loss is
ANNUAL REPORT 2016 | 27 AGALAWATTE PLANTATIONS PLC Notes to the Financial Statements For the Year Ended 31st December 2016
reversed through the Statement of profit or loss and other terms of an existing liability are substantially modified, such comprehensive income. an exchange or modification is treated as the de-recognition of the original liability and the recognition of a new liability. 3.6.2 Non-derivative Financial Liabilities The difference in the respective carrying amounts is 3.6.2.1 Initial Recognition recognized in the Profit or loss for the period. Financial liabilities within the scope of LKAS 39 are classified 3.6.2.4 Fair Value of Financial Instruments as financial liabilities at fair value through profit or loss and loans and borrowings, as appropriate. The company The fair value of financial instruments that are traded in active determines the classification of its financial liabilities at markets at each reporting date is determined by reference initial recognition. to quoted market prices or dealer price quotations (bid price for long positions and ask price for short positions), without All financial liabilities are recognized initially at fair value and, any deduction for transaction costs. A market is regarded in the case of loans and borrowings, carried at amortized as active if quoted prices are readily and regularly available cost. This includes directly attributable transaction costs. and represent actual and regularly occurring market The company’s financial liabilities include trade and other transactions on an arm’s length basis. payables, amounts due to related parties, loans and borrowings and bank overdrafts. For financial instruments not traded in an active market, the fair value is determined using appropriate valuation 3.6.2.2 Subsequent Measurement techniques. Such techniques may include: The company does not have any financial liabilities at fair • Using recent arm’s length market transactions value through profit or loss. The measurement of financial liabilities depends on their classification as follows. • Reference to the current fair value of another instrument that is substantially the same (a) Loans and Borrowings After initial recognition, interest bearing loans and • A discounted cash flow analysis or other valuation borrowings are subsequently measured at amortized cost models using the effective interest rate (EIR) method. Gains and losses are recognized in the Profit or Loss for the period 3.7 Inventories when the liabilities are derecognized as well as through the Finished Goods Manufactured from Agricultural Produce of effective interest rate method (EIR) amortization process. Biological Assets.
Amortized cost is calculated by taking into account any These are valued at the lower of cost and estimated net discount or premium on acquisition and fees or costs that realizable value, after making due allowance for obsolete are an integral part of the EIR. The EIR amortization is and slow moving items. Net realizable value is the estimated included in finance costs in the income statement. Other selling price at which inventories can be sold in the ordinary financial liabilities comprise interest bearing loans and course of business after allowing cost of realization and/ borrowings, trade payables, other payables, amounts due or cost of conversion from their existing state to saleable to related parties, loans from related parties and bank condition. overdrafts. Input Materials, Spares and Consumables (b) Trade and Other Payables At actual Cost using Weighted Average Cost Formula. Trade and other payables are obligations to pay for goods or services that have been acquired in the ordinary course Agricultural Produce Harvested from Biological Assets of business from suppliers. Accounts payable are classified Agricultural produce represent the tea leaves, latex and as current liabilities, if payment is due within one (1) year coconut harvested at the reporting date and which were or less (or in the normal operating cycle of the business if not further processed at the end of the reporting period. longer). If not, they are presented as non-current liabilities. Agricultural produce harvested from its biological assets are measured at their fair value less cost to sell at the point Trade and other payables are stated at their cost. of harvest.
3.6.2.3 De-recognition of Financial Liabilities The finished and semi-finished inventories from agricultural A financial liability is derecognized when the obligation produce are valued by adding the cost of conversion to their under the liability is discharged or cancelled or expires. fair value of the agricultural produce.
When an existing financial liability is replaced by another from the same lender on substantially different terms, or the
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3.8 Liabilities and Provisions A provision is recognized in the Statement of Financial 3.8.1 General Position when the Company has a legal or constructive obligation as a result of a past event and it is probable that (a) Liabilities an outflow of economic benefits will be required to settle the Liabilities classified as current liabilities on the statement obligation. of financial position are those which fall due for payment on demand or within one year from the reporting date. The Company recognizes all the re-measurements of the net Noncurrent liabilities are those balances that fall due for defined benefit liability in other comprehensive income. Re payment after one year from the reporting date. measurements of the net defined benefit liability comprise an actuarial gain or loss. All known liabilities have been accounted for in preparing these Financial Statements. 3.9.2 Defined Contribution Plans - EPF, ESPS, CPPS and ETF All employees who are eligible for defined Provident Fund Provisions and liabilities are recognized when the Company Contributions (EPF, ESPS and CPPS) and Employees Trust has a legal or constructive obligation as a result of past Fund Contributions are covered by relevant contributory events and it is probable that an outflow of economic funds in line with respective statutes. benefits will be required to settle the obligation. 3.10 Income Tax Expense (b) Provisions The tax liability is computed according to the provisions Provisions are recognized when the Company has a present of the Inland Revenue Act using tax rates enacted at the legal or constructive obligation as a result of past events reporting date and any adjustments to tax payable in respect when it is more probable that an outflow of resources will be of previous years. required to settle the obligation and when a reliable estimate of the amount can be made. Provisions are not recognized Deferred tax is recognized using the liability method, for future operating losses. providing for timing differences between the carrying amounts of assets and liabilities for financial reporting Where there are number of similar obligations, the purposes and the amounts used for taxation purposes. likelihood that an outflow will be required in settlement is determined by considering the class of obligations as a Deferred tax is measured at the tax rates that are expected to whole. A provision is recognized, even if the likelihood of an be applied to the temporary differences when they reverse, outflow with respect to any one item included in the same based on the laws that have been enacted or substantively class of obligations may be small. enacted by the reporting date.
3.9 Retirement Benefits to Employees 3.11 Statement of Profit or Loss and Other Comprehensive 3.9.1 Defined Benefit Plans Income A defined benefit plan is a post employment benefit plan For the purpose of presentation of the statement of profit other than a defined contribution plan. or loss and other comprehensive income, the nature of expenses method is adopted, as it represents fairly the Retiring Gratuity elements of the company performance. The Retirement Benefit Plan adopted is as required under the Payment of Gratuity Act No. 12 of 1983. This item is grouped 3.11.1 Revenue Recognition under Retirement Benefit Obligation in the Statement of Revenue is recognized to the extent that it is probable that Financial Position. the economic benefits will flow to the Company and the revenue and associated costs incurred or to be incurred can Provision for Gratuity on the employees of the Company is be reliably measured. Revenue is measured at the fair value on an actuarial basis using the Projected Unit Credit Method of the consideration received or receivable, net of trade (PUC Method) as recommended by Sri Lanka Accounting discounts and sales taxes. Standard 16 “Employee Benefits”. The Company is used actuarial method under Sri Lanka Accounting Standard The following criteria are used for the purpose of recognition 19, “Employee Benefits” effective from the financial year of revenue. commencing on 1st January 2016. a) Sale of goods However, under the Payment of Gratuity Act No. 12 of 1983, Revenue from the sale of goods in the ordinary course of the liability to an employee arises only on completion of activities is measured at the fair value of the consideration 5 years of continued service. The liability is not externally funded.
ANNUAL REPORT 2016 | 29 AGALAWATTE PLANTATIONS PLC Notes to the Financial Statements For the Year Ended 31st December 2016
received or receivable, net of brokerage, public sale the Company and are consistent with those of the previous expenses and other levies related to turnover. year’s figures and phrases and have been re-arranged wherever necessary to conform to the current presentation. Revenue is recognized when persuasive evidence exists, usually in the form of an executed sales agreement, that the 3.14 Events occurring after the reporting date significant risks and rewards incidental to the ownership of All the events after the reporting date known to the present the goods have been transferred to the customer, recovery management with certainty and matters arisen during the of the consideration is probable, the associated costs and audit are considered, and where necessary adjustments are possible return of goods can be estimated reliably, there is made in the financial statements or appropriate disclosures no continuing management involvement with the goods, made in accompanying notes. and the amount of revenue can be measured reliably. 4. NEW ACCOUNTING STANDARDS ISSUED BUT NOT If it is probable that discounts will be granted and the amount EFFECTIVE AS AT REPORTING DATE can be measured reliably, then the discount is recognized The Institute of Chartered Accountants of Sri Lanka has as a reduction of revenue as the sales are recognized. The issued the following new Sri Lanka Accounting Standards timing of the transfer of risks and rewards varies depending which will become applicable for financial periods on the individual terms of the sales agreement. beginning on or after 1st January 2018. Accordingly, these b) Other Income Standards have not been applied in preparing these financial statements. Other income is recognized on an accrual basis. 4.1. SLFRS 15 – Revenue from contract with customers c) Grants This standard establishes a comprehensive framework Grants related to assets are recognized as income in the for determining whether, how much and when revenue Statement of Comprehensive Income over the related is recognized. It replaces existing revenue recognition assets’ useful life so as to match them with the related guidance, including LKAS 18 – ‘Revenue’, LKAS 11 – costs which they are intended to compensate. Other grants ‘Construction Contracts’ and IFRIC 13 – ‘Customer Loyalty are set-off against related expenses and the net amount is Programmes’. reflected in the Statement of Comprehensive Income. SLFRS 15 is effective for annual periods beginning on or Grants relating to assets, including non-monetary grants after 1st January 2018 with early adoption permitted. at fair value, are presented in the Statement of Financial Position by setting up the grant as deferred income. The Group is assessing the potential impact to the financial statements resulting from the application of SLFRS 15. 3.12 Segment reporting A segment is a distinguishable component of the group that 4.2. SLFRS 9-Financial Instruments: Classification and is engaged either in providing product or services (business Measurement segments), or in providing products or services within a SLFRS 9 “Financial Instruments: Classification and particular economic environment (geographical segments), Measurement” replaces the existing guidance in LKAS 39 which is subject to risks and rewards that are different from - ‘Financial Instruments: Recognition and measurement’. those of other segments. SLFRS 9 includes revised guidance on the classification and measurement of financial instruments including a new Segment information is presented in respect of the Group’s expected credit loss model for calculating impairment on business. There are no distinguishable components to financial assets. be identified as geographical segment for the Group. The business segments are reported based on the Group The Group shall apply this SLFRS to all items within the management and reporting structure. scope of LKAS 39 “Financial Instruments: Recognition and
Inter segment pricing is determined at prices mutually agreed between the Companies.
3.13 Comparative Figures The Accounting Policies have been consistently applied by
30 | ANNUAL REPORT 2016 AGALAWATTE PLANTATIONS PLC
Measurement”. SLFRS 9 is effective for annual periods beginning on or after 1st January 2018 with early adoption permitted.
4.3. SLFRS 16- Leases SLFRS 16 requires lessees to recognize all leases on their Statement of Financial Position as lease liabilities, with corresponding right of-use assets. The profit or loss recognition pattern for recognised leases will be similar to existing finance lease accounting, with interest and depreciation expense recognised separately in Profit or Loss. SLFRS 16 is effective for annual periods beginning on or after 1st January 2019.
ANNUAL REPORT 2016 | 31 AGALAWATTE PLANTATIONS PLC Notes to the Financial Statements
For the Year Ended 31st December Group Company 2016 2015 2016 2015 Rs. 000 Rs. 000 Rs. 000 Rs. 000
6 REVENUE 6.1 Industry Segment Rubber 500,354 522,189 500,354 522,189 Tea 451,484 842,582 451,484 842,582 Oil palm 275,095 265,458 275,095 265,458 Others 178,776 199,092 - - 1,405,709 1,829,321 1,226,933 1,630,229
6.2 Cost of Sales Industry Segment Rubber (625,273) (604,045) (625,273) (604,045) Tea (644,851) (941,939) (644,851) (941,939) Oil palm (159,965) (116,949) (159,965) (116,949) Others (134,758) (153,901) - - (1,564,847) (1,816,834) (1,430,089) (1,662,933)
6.3 Gross profit / (loss) Industry segment Rubber (124,919) (81,856) (124,919) (81,856) Tea (193,367) (99,357) (193,367) (99,357) Oil palm 115,130 148,509 115,130 148,509 Others 44,018 45,191 - - (159,138) 12,487 (203,156) (32,704)
7 OTHER INCOME Amortization of government grants 3,635 3,103 3,635 3,103 Dividend income - 401 2,494 401 Gain on disposal of shares on joint venture (Note 21.2) - 31,943 46,009 31,943 Sale of rubber trees 116,744 41,946 116,744 41,946 Rent income 627 2,380 627 2,380 Sale of refuse tea 4,257 6,178 4,257 6,178 Gain on disposal of Property, Plant and Equipment (Note 7.1) 16,448 - 16,448 - Sundry income 4,011 19,854 3,704 19,854 Management fee Income - - 600 2,400 145,722 105,805 194,518 108,205
7.1 There are no documentary evidences relating to gain on disposal of property, plant and equipment of Rs. 14,710,000/- for the year ended 31st December 2016.
32 | ANNUAL REPORT 2016 AGALAWATTE PLANTATIONS PLC
For the Year Ended 31st December Group Company 2016 2015 2016 2015 Rs. 000 Rs. 000 Rs. 000 Rs. 000
8 GAIN ON CHANGES IN FAIR VALUE OF BIOLOGICAL ASSETS Consumable biological assets (Note 18) 49,524 - 49,524 - 49,524 - 49,524 -
8.1 The Company has fair valued its consumable biological assets after 4 years as at 31st December 2016 and total fair value gain of Rs. 49.52 Mn has been recognized in the financial statements for the year ended 31st December 2016.
Group Company 2016 2015 2016 2015 Rs. 000 Rs. 000 Rs. 000 Rs. 000
9 OTHER EXPENSES Write-off of trade and other receivables 39,698 - 39,698 - Provision for Impairment of trade debtors 5,502 - 5,502 - Reversal of impairment of amount due from related parties - (34,125) - (34,125) Impairment provision on investment in associates 21,482 - 78,250 - Surcharges on EPF/ETF/ESPS/CPPS and Gratuity payable (Note 9.1) 75,324 100,981 75,324 100,981 Write off of bearer biological assets (Note 9.2) 327,726 - 327,726 - Provision for obsolete inventories 15,108 - 15,108 - Impairment provision for property, plant and equipment 108,475 - 108,475 - Write off of property, plant and equipment 1,766 - 1,766 - Impairment on available for sale of financial assets 9,368 6,245 9,368 6,245 604,449 73,101 661,217 73,101
9.1 Surcharges on EPF/ETF/ESPS/CPPS and Gratuity payable EPF surcharges 15,622 74,313 15,622 74,313 ETF surcharges 5,430 6,258 5,430 6,258 ESPS surcharges 5,895 486 5,895 486 CPPS surcharges 4,562 - 4,562 - Gratuity surcharges 43,815 19,924 43,815 19,924 75,324 100,981 75,324 100,981
9.2 Write off of bearer biological assets Write off of immature plantations 290,699 - 290,699 - Write off of mature plantations 19,129 - 19,129 - Write off of growing crop nurseries 17,898 - 17,898 - 327,726 - 327,726 -
ANNUAL REPORT 2016 | 33 AGALAWATTE PLANTATIONS PLC Notes to the Financial Statements
For the Year Ended 31st December Group Company 2016 2015 2016 2015 Rs. 000 Rs. 000 Rs. 000 Rs. 000
10 MANAGEMENT FEES Management fees to managing agent ------
The Company has entered into a management agreement with Managing Agents, Mackwoods Plantations (Private) Limited. As per the agreement, the basis of computing management fee is at the rate of 25% of net profits before depreciation, amortization, interest and tax (EBITDA) inclusive of all sundry and other income or such other percentage or basis to be mutually agreed between the parties from time to time. There is no management fee for the period as well as for the previous year since the EBITDA of the Company is negative. However, this agreement was cancelled by Browns Power Holdings (Private) Limited on 4th Jan 2017 after the change of ownership of the company.
Group Company 2016 2015 2016 2015 Rs. 000 Rs. 000 Rs. 000 Rs. 000
11 NET FINANCE COSTS 11.1 Finance Income Interest income 1,076 826 1,076 826 1,076 826 1,076 826
11.2 Finance costs Interest on leases of JEDB/SLSPC 44,958 43,772 44,958 43,772 Interest on finance leases 2,079 3,577 2,079 3,577 Interest on broker advances 28,799 24,282 28,799 24,282 Interest on loans and overdrafts 332,929 211,714 329,662 210,044 Interest on commercial papers - 8,173 - 8,173 Net foreign currency exchange losses 1,091 2,098 1,091 2,098 409,856 293,616 406,589 291,946 Less: Borrowing costs capitalized during the year - (37,177) - (37,177) 409,856 256,439 406,589 254,768 Net finance costs (408,780) (255,613) (405,513) (253,942)
34 | ANNUAL REPORT 2016 AGALAWATTE PLANTATIONS PLC
For the Year Ended 31st December Group Company 2016 2015 2016 2015 Rs. 000 Rs. 000 Rs. 000 Rs. 000
12 LOSS BEFORE TAXATION Loss before taxation is stated after charging all the expenses including the followings;
Directors' remunerations 7,975 8,700 7,975 8,700 Auditors' remunerations 2,944 2,875 2,500 2,500 Depreciation / Amortization - Right to use leasehold land 5,280 5,280 5,280 5,280 - Immovable leased assets 2,475 3,741 2,475 3,741 - Property, Plant and equipment 35,890 34,017 33,233 31,829 - Bearer biological assets 263,497 82,652 263,497 82,652 Personnel costs - Salaries and wages 878,585 999,969 838,226 963,873 - Defined benefit plan costs - Retiring gratuity 79,277 88,242 76,653 86,774 - Defined contribution plan cost - EPF / CPPS / ESPS and ETF 88,066 95,397 84,361 91,672 - Surcharges on EPF / ETF/ ESPS / Gratuity payable 75,324 100,981 75,324 100,981
13 INCOME TAX EXPENSES/ (REVERSAL) 13.1 Current Income Tax Expenses Income tax expense on current year's profit (Note 13.2) 2,876 - - - Under provision with respect to previous years 9,489 16,579 7,365 14,394 Charge/ (reversal) of deferred tax (Note 31) 94,387 (22,118) 93,366 (22,118) 106,752 (5,539) 100,731 (7,724)
13.2 Reconciliation between the Tax Expense and Accounting Loss Accounting loss before tax (1,149,627) (500,092) (1,218,721) (497,405) Less : Exempt income (120,642) (35,046) (120,642) (35,046) (1,270,269) (535,139) (1,339,363) (532,451) Aggregate disallowable expenses 961,195 360,942 956,453 360,942 Aggregate allowable expenses (597,715) (206,283) (590,146) (206,283) (906,789) (380,479) (973,056) (377,792) Aggregate non business income - - - - Statutory loss from business (906,789) (380,479) (973,056) (377,792)
Less: Section 32 Deductions Loss Claimed (35% of Total Statutory Income) ------Taxable Income at Special Rate @ 10% - - - - Taxable Income liable at Normal Rate @ 28% 10,272 - - - Total Taxable Income 10,272 - - - Income Tax Expense Taxable income at special rate of 10% - - - - On Taxable Income liable @ 28% 2,876 - - - Total Income Tax Expense 2,876 - - -
ANNUAL REPORT 2016 | 35 AGALAWATTE PLANTATIONS PLC Notes to the Financial Statements
For the Year Ended 31st December Group Company 2016 2015 2016 2015 Rs. 000 Rs. 000 Rs. 000 Rs. 000
13 INCOME TAX EXPENSES (CONTD.) 13.3 Tax losses carried forward Tax losses brought forward 1,763,859 1,386,067 1,763,859 1,386,067 Add : Tax losses for the year 973,056 412,422 973,056 377,792 Less : Utilization of tax losses - - - - Adjustment in respect of previous year - - - - 2,736,915 1,798,489 2,736,915 1,763,859
Applicable Rates of Income Tax In terms of Section 48A - 14A of the Inland Revenue (Amendment) Act No.22 of 2011, “Specified Profit” from agricultural undertaking would be liable for income tax at the rate of 10%. The corporate tax rate applicable to manufacture and other income is 28%.
14 BASIC LOSS PER SHARE The basic loss per share has been computed based on loss attributable to ordinary shareholders for the year divided by weighted average number of ordinary shares in issue during the year and calculated as follows:
Group Company 2016 2015 2016 2015
Loss for the year (Rs. '000) (1,256,379) (500,799) (1,319,452) (495,927) Weighted average number of ordinary shares in issue (Nos '000) 25,000 25,000 25,000 25,000 Basic loss per share (Rs.) (50.26) (20.03) (52.78) (19.84)
36 | ANNUAL REPORT 2016 AGALAWATTE PLANTATIONS PLC
15 RIGHT TO USE THE LEASEHOLD LAND Lease agreements of all JEDB/SLSPC estates handed over to the Company have been executed to date. All of these lease are retroactive to 22nd June 1992, the date of formation of the Company. The leasehold rights to the bare land on all of these estates have been taken into the books of the Company on 22nd June 1992, immediately after formation of the Company, in terms of the ruling obtained from the Urgent Issue Task Force (UITF) of the Institute of Chartered Accountants of Sri Lanka. For this purpose, the Board of Directors of the company decided at its meetings that lease bare land would be revalued at the value established for this land by Valuation Specialist Dr.Wickramasinghe just prior to the formation of the Company. The fair value as at 22nd June 1992 was taken into the books of Company.
Leasehold Rights to Bare Land of JEDB/SLSPC Estate Assets and Immovable (JEDB/SLSPC) Estates Assets on Finance Lease obtained on a long term basis, are stated at the recorded carrying values under Sri Lanka Accounting Standard No.19 – Leases, in line with Ruling of the Urgent Issues Task Force of the Institute of Chartered Accountants of Sri Lanka. Such carrying amounts are amortized over the remaining Lease term or useful life of such asset whichever is shorter.
Group Company As at 31st December 2016 2015 2016 2015 Rs. 000 Rs. 000 Rs. 000 Rs. 000
Capitalized value (22nd June 1992) 279,832 279,832 279,832 279,832 Closing balance 279,832 279,832 279,832 279,832
Accumulated amortization
Balance at the beginning of the year (124,076) (118,796) (124,076) (118,796) Charge for the year (5,280) (5,280) (5,280) (5,280) Balance at end of the year (129,356) (124,076) (129,356) (124,076)
Carrying value 150,476 155,756 150,476 155,756
(a) The Company has obtained 17 estates on lease from Janatha Estates Development Board (JEDB) and Sri Lanka State Plantations Corporation (SLSPC). Some important terms under which these leases have been obtained are as follows:
(i) The period of the leases is 53 years from 22nd June 1992 to 21st June 2045.
(ii) The effective total lease rental for any twelve-month period is the previous twelve-month period’s lease rental escalated by the applicable Gross Domestic Product (GDP) deflator. The lease rental is payable quarterly in advance.
(b) The present value of future lease rentals (excluding the portion arising from the annual escalation of the amount due by using the GDP deflator)is shown as a liability.
15.1 Leasehold Rights to Bare Land of JEDB/SLSPC Estate Assets and Immovable (JEDB/SLSPC) Estates Assets on Finance Lease. The Government of Sri Lanka has initiated actions under provisions of the Land Acquisition act to acquire land from lands leased to the Company in Peenkande,Kiribathgalla, Doloswella, Niriella and Noragalla estates located in Ratnapura district; Ambetenna, Mohamedi, Culloden, Clyde, Pimbura and Kiriwanaketiya located in Kalutara district and Labookelle, Weddamulla and Frotoft located in Nuwara eliya district. The total extent of land in question is approximately 282.50 Hectare which has been taken over. As per the lease agreement, the company is entitled to the compensations of any lands acquired. The details are given below.
No adjustments have been made to the Financial statements in respect of the lands acquired as the compensation receivable on these acquisitions are not known and the transactions pertaining to those acquisitions have been incomplete as at 31st December 2016.
ANNUAL REPORT 2016 | 37 AGALAWATTE PLANTATIONS PLC Notes to the Financial Statements
The details of lands required by the government are given below.
15 RIGHT TO USE THE LEASEHOLD LAND (CONTD.) 15.1.a Land Acquired by the Government
District Estate Division Purpose of acquisition Extent (Hectares)
Provide land and houses for Soldiers Kaluthara Pimbura Agalawatte and construct a Police station 4.32 Kiriwanaketiya Bulathsinhala Provide land and houses for Soldiers 4.59 Provide land and houses for Soldiers and Mohamadi Palindanuwara construct a bridge 14.23 Southern Highway and Provide land and Clyde Dodangoda houses for Soldiers 36.02 Culloden Dodangoda Southern Highway 1.67 Culloden Matugama Provide land and houses for Soldiers 4.33 Rathnapura Noragalla Nivithigala Village expansion, construct school and Flood Victims 19.32 Noragalla Pelmadulla Construct houses for Flood victims 1.32 Peenkanda Nivithigala Village expansion 71.71 Niriella Nivithigala Village expansion 23.64 Niriella Elapatha Construct houses for Flood victims 4.99 Doloswella Nivithigala Landside Victims and Village expansion 31.68 Kiribathgala Nivithigala Village expansion and contract hospital 44.19 Watapotha Kahawatte Construct houses for Flood victims 9.90 Nuwara Eliya Labookellie Nuwara Eliya Gampola Highway 3.17 Labookellie Kotmale Gampola Highway 3.32 Weddamulla Kotmale Gampola Highway and construct School 2.47 Frotoft Kotmale Construct hospital and School 1.61 282.50
16 PROPERTY, PLANT AND EQUIPMENT Group Company As at 31st December 2016 2015 2016 2015 Rs. 000 Rs. 000 Rs. 000 Rs. 000
Immovable (JEDB/SLSPC) assets on finance lease (other than bare land) (Note 16.1) 4,331 6,806 4,331 6,806 Tangible assets other than biological assets (Note 16.2) 395,044 534,546 361,513 502,953 399,375 541,352 365,844 509,759
38 | ANNUAL REPORT 2016 AGALAWATTE PLANTATIONS PLC
16 PROPERTY, PLANT AND EQUIPMENT (CONTD.) 16.1 Immovable (JEDB/SLSPC) assets on finance lease (other than bare land) (Company / group) As explained in Note 15 to financial statements, all JEDB/SLSPC estate lease deeds have been executed to date. In terms of the ruling of the UITF of the Institute of Chartered Accountants of Sri Lanka, all immovable assets in the JEDB/SLSPC estates under finance leases have been taken into the books of the Company as at 22nd June 1992. These assets are taken into the statement of financial position of Company as at 22nd June 1992 and the amortization of immovable lease assets as at 31st December 2016 are as follows.
Vested improvements Other vested to land Buildings Machinery assets Total Rs. 000 Rs. 000 Rs. 000 Rs. 000 Rs. 000
Capitalized value (22nd June 1992) 14,275 46,430 11,259 4,283 76,247 As at 31st December 2016 14,275 46,430 11,259 4,283 76,247
Amortization As at 31st December 2015 11,183 43,644 11,259 3,355 69,441 Charge for the year 475 1,858 - 142 2,475 As at 31st December 2016 11,658 45,502 11,259 3,497 71,916
Written down value As at 31st December 2016 2,617 928 - 786 4,331 As at 31st December 2015 3,092 2,786 - 928 6,806
16.2 Tangible assets other than biological assets Land and Plant and Motor Sanitation, Equipment Others Total buildings machinery Vehicles water and Company electricity Rs. 000 Rs. 000 Rs. 000 Rs. 000 Rs. 000 Rs. 000 Rs. 000
Cost
(a) Freehold assets
As at 1st January 2016 443,105 171,222 126,057 29,926 40,980 9,392 820,682 Additions during the year - 17 - 22 229 1,766 2,034 Write-off during the year - - - - - (1,766) (1,766) As at 31st December 2016 443,105 171,239 126,057 29,948 41,209 9,392 820,950
(b) Leasehold assets As at 1st January 2016 - - 116,995 - - - 116,995 Disposals during the year - - (35,825) - - - (35,825) Write-off during the year - - (5,415) - - - (5,415) As at 31st December 2016 - - 75,755 - - - 75,755
(c) Total gross carrying amount 443,105 171,239 201,812 29,948 41,209 9,392 896,705
Depreciation and Impairment (i) Freehold assets As at 1st January 2016 (46,549) (101,619) (120,520) (21,665) (37,063) (8,290) (335,706) Charge for the year (9,667) (6,835) (5,537) (2,494) (1,627) (1,056) (27,216) Provision for Impairment (Note 16.2.1) (108,475) - - - - - (108,475) As at 31st December 2016 (164,691) (108,454) (126,057) (24,159) (38,690) (9,346) (471,397)
ANNUAL REPORT 2016 | 39 AGALAWATTE PLANTATIONS PLC Notes to the Financial Statements
16 PROPERTY, PLANT AND EQUIPMENT (CONTD.) Land and Plant and Motor Sanitation, Equipment Others Total buildings machinery Vehicles water and Company electricity Rs. 000 Rs. 000 Rs. 000 Rs. 000 Rs. 000 Rs. 000 Rs. 000
(ii) Leasehold assets As at 1st January 2016 - - (99,018) - - - (99,018) Charge for the year - - (6,017) - - - (6,017) Disposals during the year - - 35,825 - - - 35,825 Write-off during the year - - 5,415 - - - 5,415 As at 31st December 2016 - - (63,795) - - - (63,795) (iii) Total depreciation and Impairment (164,691) (108,454) (189,852) (24,159) (38,690) (9,346) (535,192) Written down value As at 31st December 2016 278,414 62,785 11,960 5,789 2,519 46 361,513 As at 31st December 2015 396,556 69,603 23,514 8,261 3,917 1,102 502,953
16.2.1 The Company has made an impairment provision of Rs. 93.12 Mn and Rs. 15.35 Mn for Tea Museum and Helipad in Labookellie Estate respectively as at 31st December 2016 since the management is of the view that no future economic benefits will flow to the Company through those assets.
Sanitation, Capital Land and Plant and Motor water and work in Group buildings machinery Vehicles electricity Equipment Others progress Total Rs. 000 Rs. 000 Rs. 000 Rs. 000 Rs. 000 Rs. 000 Rs. 000 Rs. 000
Cost (a) Freehold assets As at 1st January 2016 455,769 201,384 129,826 29,926 46,710 10,313 3,139 877,067 Additions during the year 1,761 2,195 - 22 465 2,368 - 6,811 Transfers 3,139 - - - - - (3,139) - Write off during the year - - - - - (1,766) - (1,766) As at 31st December 2016 460,669 203,579 129,826 29,948 47,175 10,915 - 882,112
(b) Leasehold assets As at 1st January 2016 - - 116,995 - - - - 116,995 Disposals during the year - - (35,825) - - - - (35,825) Write off during the year - - (5,415) - - - - (5,415) As at 31st December 2016 - - 75,755 - - - - 75,755
(c) Total gross carrying amount 460,669 203,579 205,581 29,948 47,175 10,915 - 957,867
Depreciation and Impairment (a) Freehold assets As at 1st January 2016 (48,324) (117,746) (123,359) (21,665) (40,196) (9,208) - (360,498) Charge for the year (10,420) (8,114) (5,702) (2,494) (1,699) (1,626) - (30,055) Provision for Impairment (Note 16.2.1) (108,475) ------(108,475) As at 31st December 2016 (167,219) (125,860) (129,061) (24,159) (41,895) (10,834) - (499,028)
40 | ANNUAL REPORT 2016 AGALAWATTE PLANTATIONS PLC
16 PROPERTY, PLANT AND EQUIPMENT (CONTD.) Sanitation, Capital Land and Plant and Motor water and work in Group buildings machinery Vehicles electricity Equipment Others progress Total Rs. 000 Rs. 000 Rs. 000 Rs. 000 Rs. 000 Rs. 000 Rs. 000 Rs. 000
(b) Leasehold assets As at 1st January 2016 - - (99,018) - - - - (99,018) Charge for the year - - (6,017) - - - - (6,017) Disposals during the year - - 35,825 - - - - 35,825 Write off during the year - - 5,415 - - - - 5,415 As at 31st December 2016 - - (63,795) - - - - (63,795)
Total depreciation and (c) Impairment (167,219) (125,860) (192,856) (24,159) (41,895) (10,834) - (562,823)
Written down value As at 31st December 2016 293,450 77,719 12,725 5,789 5,280 81 - 395,044 As at 31st December 2015 407,445 83,638 24,444 8,261 6,514 1,105 3,139 534,546
16.2.1 The Company has made an impairment provision of Rs. 93.12 Mn and Rs. 15.35 Mn for Tea Museum and Helipad in Labookellie Estate respectively as at 31st December 2016 since the management is of the view that no future economic benefits will flow to the Company through those assets.
17 BEARER BIOLOGICAL ASSETS (COMPANY / GROUP)
2016 2015 Tea Rubber Oil palm Others Total Tea Rubber Oil palm Others Total Rs. 000 Rs. 000 Rs. 000 Rs. 000 Rs. 000 Rs. 000 Rs. 000 Rs. 000 Rs. 000 Rs. 000
On finance lease (Note 17.1) 14,837 37,298 - - 52,135 23,792 59,809 - - 83,601 Investments after formation of the company (Note 17.2) 313,622 933,306 501,515 2,490 1,750,933 396,300 1,196,321 583,740 81,062 2,257,423 328,459 970,604 501,515 2,490 1,803,068 420,092 1,256,130 583,740 81,062 2,341,024
17.1 On Finance Lease Balance as at 1st January 80,925 203,448 - - 284,373 80,925 203,448 - - 284,373 Balance 31st December 80,925 203,448 - - 284,373 80,925 203,448 - - 284,373 Amortization Balance as at 1st January (57,133) (143,639) - - (200,772) (54,436) (136,857) - - (191,293) Amortization for the year (Note 17.1.1) (8,955) (22,511) - - (31,466) (2,697) (6,782) - - (9,479) Balance 31st December (66,088) (166,150) - - (232,238) (57,133) (143,639) - - (200,772) Carrying Amount 14,837 37,298 - - 52,135 23,792 59,809 - - 83,601
17.1.1 The Company has identified an error in the computation of depreciation charge for tea and rubber relating to previous financial years and under depreciation charge of Rs 21.99 Mn during the previous years has been recognized in the financial statements for the year ended 31st December 2016.
ANNUAL REPORT 2016 | 41 AGALAWATTE PLANTATIONS PLC Notes to the Financial Statements
17 BEARER BIOLOGICAL ASSETS (COMPANY / GROUP) (CONTD.) 17.2 Investments after Formation of the Company As at 31st December 2016 2015 Rs. 000 Rs. 000
Immature plantations (Note 17.2.1) 442,045 1,187,802 Mature plantations (Note 17.2.2) 1,306,149 1,050,237 Growing Crop Nurseries (Note 17.2.3) 2,739 19,384 1,750,933 2,257,423
2016 2015 Tea Rubber Oil palm Others Total Tea Rubber Oil palm Others Total Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000 17.2.1 Immature plantations
Balance as at 1st January 186,410 706,975 227,513 66,904 1,187,804 168,168 687,668 323,477 60,170 1,239,483 Additions during the year 5,869 37,403 7,418 1,323 52,013 20,084 79,517 34,127 6,735 140,462 Transfer out during the year * (71,959) (211,609) (216,811) (6,692) (507,071) (1,841) (60,211) (130,090) - (192,143) Write off during the year (39,956) (187,749) (1,458) (61,535) (290,699) - - - - - Balance 31st December 80,364 345,020 16,662 - 442,045 186,411 706,974 227,514 66,905 1,187,804
17.2.2 Mature plantations Balance as at 1st January 311,449 834,890 503,691 12,857 1,662,886 309,607 774,679 373,601 12,857 1,470,744 Transfer in during the year * 71,959 211,609 216,811 6,692 507,071 1,841 60,211 130,090 - 192,142 Write off during the year (13,569) (10,352) - (3,056) (26,977) - - - - - Balance 31st December 369,839 1,036,147 720,502 16,493 2,142,981 311,448 834,890 503,691 12,857 1,662,886
Depreciation Balance as at 1st January (106,306) (352,605) (150,197) (3,541) (612,650) (97,837) (313,261) (124,998) (3,381) (539,477) Charge for the year * (34,208) (99,502) (87,496) (10,826) (232,031) (8,469) (39,344) (25,199) (160) (73,173) Write off during the year 3,719 4,129 - - 7,848 - - - - - Balance 31st December (136,795) (447,978) (237,693) (14,367) (836,833) (106,306) (352,605) (150,197) (3,541) (612,649) Carrying Amount Mature Plantations 233,044 588,169 682,809 2,126 1,306,148 205,143 482,285 353,494 9,315 1,050,237
*The present management has carried out various procedures to calculate correct amount of mature and immature plantations and related depreciation with available information and time constraints. Accordingly, the company has transferred an amount of Rs. 507 Mn from immature plantations to mature plantations and written-off biological assets amounting to Rs.327 Mn as at 31st December 2016. However, total depreciation impact related to transfers has been adjusted to the financial statements for the year ended 31st December 2016.
42 | ANNUAL REPORT 2016 AGALAWATTE PLANTATIONS PLC
As at 31st December 2016 2015 Tea Rubber Oil palm Others Total Tea Rubber Oil palm Others Total Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000
17.2.3 Growing Crop Nurseries Balance as at 1st January 4,747 7,061 2,733 4,842 19,383 5,632 8,464 4,359 5,759 24,214 Increase / (Decrease) during the year 1,426 922 (431) (663) 1,254 (885) (1,403) (1,626) (917) (4,831) Write off during the year (5,959) (7,866) (1,938) (2,135) (17,898) - - - - - Balance 31st December 214 117 364 2,044 2,739 4,747 7,061 2,733 4,842 19,383
17.2.3 These are investments in bearer biological assets carried at cost (Tea, Rubber, Palm Oil and Mixed Crop) which comprises of immature/ mature plantations since the formation of the Company. The assets (including plantations assets) taken over by way of estate leases are set out in the Notes 15 to the Financial Statements. Investment in immature plantations taken over by way of leases are shown in this note. When such plantations become mature, the additional investments since, taken over to bring them to maturity will be moved from immature to mature under this note. A corresponding movement from immature to mature of the investment undertaken by JEDB/ SLSPC on the same plantation prior to the lease will also be carried out under this note.
ANNUAL REPORT 2016 | 43 AGALAWATTE PLANTATIONS PLC Notes to the Financial Statements
17 BEARER BIOLOGICAL ASSETS (COMPANY / GROUP) (CONTD.) 17.3 Bearer Biological Assets - Capital Expenditure As at 31st December 2016 2015 Extent - Ha Rs. 000 Extent - Ha Rs. 000
Uprooting - Tea 3.00 1,870 - - - Rubber - - - - - Oil Palm - - - - - Mixed Crop - - - -
Planting - - - - - Tea - - 6.00 5,727 - Rubber - - 11.86 18,205 - Oil Palm - - 22.00 12,980 - Mixed Crop - - 24.75 6,735
Upkeep - Tea 10.67 3,999 15.17 14,357 - Rubber 638.48 37,403 702.46 61,312 - Oil Palm 95.02 7,418 168.77 21,147 - Mixed Crop 8.00 1,323 - - 52,013 140,463
Group Company 2016 2015 2016 2015 Rs. 000 Rs. 000 Rs. 000 Rs. 000
18 CONSUMABLE BIOLOGICAL ASSETS Mature Plantations (Note 18.1) 500,261 450,737 500,261 450,737 Immature Plantations (Note 18.2) - - - - 500,261 450,737 500,261 450,737
44 | ANNUAL REPORT 2016 AGALAWATTE PLANTATIONS PLC
18 CONSUMABLE BIOLOGICAL ASSETS (CONTD.)
As at 31st December Group Company 2016 2015 2016 2015 Rs. 000 Rs. 000 Rs. 000 Rs. 000
18.1 Mature Plantations - at fair value Balance as at 1st January 450,737 450,737 450,737 450,737 Increased due to new plantation - - - - Harvested trees during the year - - - - 450,737 450,737 450,737 450,737 Gain arising from changes in fair value (Note 18.1.1) 49,524 - 49,524 - Fair value as at 31st December 500,261 450,737 500,261 450,737
18.1.1 The company had fair valued its consumable biological assets after 4 years as at 31st December 2016 and total fair value gain of Rs. 49.52 Mn has been recognized in the financial statements for the year ended 31st December 2016.
18.2 The cost of immature trees up to the age of 4 years is treated as approximate to fair value perticularly on the ground of little biological transformation has taken place and impact of such transformation is expected to be immaterial. The company does not hold any Cost of immature plantation up to the age of 4 years and cost of Growing crop nurseries as at 31st December 2016. (2015 - Nil).
18.3 Measurement of Fair value The valuation of consumable biological assets was carried by Mr. K.T.D. Tissera, an independent Chartered Valuation Surveyor, using Discounted Cash Flows (DCF) methods. The Valuation Report dated 31st December 2016 has been prepared based on the physically verified timber statistics provided by the Company.
The future cash flows are determined by reference to current timber prices.
The fair value measurement for the consumable biological assets has been categorized as Level 3 fair value based on the inputs to the valuation technique used.
ANNUAL REPORT 2016 | 45 AGALAWATTE PLANTATIONS PLC Notes to the Financial Statements
18 CONSUMABLE BIOLOGICAL ASSETS (CONTD.) c) Valuation techniques and significant unobservable inputs Following table shows the valuation techniques used in measuring Level 3 fair value of consumable biological asses as well as the significant unobservable inputs used for the valuation as at 31st December 2016.
Inter-relationship between key unobservable inputs and fair value Type Valuation technique used Significant Unobservable Inputs measurement
Standing timber Discounted cash flows Determination of Timber Content The estimated fair value at the time of harvesting each specific species is sensitive to the following Standing timber The valuation model considers Timber trees in inter-crop areas and pure variables, older than 4 years. present value of future net cash crop areas have been identified field-wise flows expected to be generated and spices were identified and harvestable - the estimated timber content by the plantation from the timber trees were separated, according to their content of managed timber average girth and estimated age. - the estimated timber prices per plantation on a tree-per-tree cubic meter basis .
Expected cash flows are Timber trees that have not come up to a - the estimated selling related discounted using a risk-adjusted harvestable size are valued working out the costs. discount rate of 15% comprising period that would take for those trees to a risk premium of 4%. grow up to a harvestable size. - the estimated maturity age
- the risk-adjusted discount rate.
Determination of Price of Timber Trees have been valued as per the current timber prices per cubic meter based on the price list of the State Timber Corporation prices of timber trees sold by the estates and prices of logs sawn timber at the popular timber traders in Sri Lanka.
In this exercise, following factors have been taken into consideration. a) Cost of obtaining approval of felling. b) Cost of felling and cutting into logs. c) Cost of transportation. d) Sawing cost.
Risk-adjusted discount rate. 2016 - 15% (Risk Premium - 4%)
18.3 Sensitivity Analysis Values as appearing in the statement of financial position are sensitive to price changes with regard to the average sales prices applied. Simulations made for timber show that an increase or decrease by 10% of the estimated future selling price has the following effect on the net present value of biological assets: -10% 2016 +10% Rs. 000 Rs. 000 Rs. 000
Timber 450,235 500,261 550,287 Total 450,235 500,261 550,287
46 | ANNUAL REPORT 2016 AGALAWATTE PLANTATIONS PLC
18 CONSUMABLE BIOLOGICAL ASSETS (CONTD.) Sensitivity Variation on Discount Rate “Values as appearing in the Statement of Financial Position are sensitive to changes of the discount rate applied. Simulations made for timber show that an increase or decrease by 1% of the estimated future discount rate has the following effect on the net present value of biological assets:
-1% 2016 +1% Rs. 000 Rs. 000 Rs. 000
Timber 514,265 500,261 487,004 Total 514,265 500,261 487,004
Group Company As at 31st December 2016 2015 2016 2015 Rs. 000 Rs. 000 Rs. 000 Rs. 000
19 INVESTMENT IN SUBSIDIARY Mackply Industries (Private) Limited - - 12,500 12,500 - - 12,500 12,500
2016 2015 Rs. 000 Rs. 000
19.1 Investment in subsidiary Assets and liabilities 142,011 135,168 Total assets 83,631 78,185 Total liabilities 58,380 56,984 Net assets
Revenue and profit Total revenue 178,766 152,658 Total profit after tax 9,177 11,784
Group Company 2016 2015 2016 2015 Rs. 000 Rs. 000 Rs. 000 Rs. 000
20 INVESTMENT IN ASSOCIATES Mackwoods Rubber Products (Private) Limited (Note 20.4) 7,145 7,145 6,250 6,250 Taprospa Resorts (Private) Limited (Note 20.5) 14,337 14,337 72,000 72,000 21,482 21,482 78,250 78,250 Less: Provision for impairment (Note 20.3) (21,482) - (78,250) - - 21,482 - 78,250
ANNUAL REPORT 2016 | 47 AGALAWATTE PLANTATIONS PLC Notes to the Financial Statements
20 INVESTMENT IN ASSOCIATES (CONTD.) As at 31st December 2016 2015 Rs. 000 Rs. 000
20.1 Name of the Company Mackwoods Rubber Products (Pvt) Ltd 50% 50% Taprospa Resorts (Private) Limited 40% 40%
20.2 Since the Company has not received the audited financial statements of Mackwoods Rubber Product (Private) Limited and Taprospa Resorts (Private) Limited for the year ended 31st December 2016, the consolidated financial statements for the year ended 31st December 2016 has been prepared without consolidating the financial position and result of operations of those associate companies.
20.3 The impairment provision has been made for the investment in associates as at 31st December 2016 due to unavailability of the financial statements of associates and the doubtfulness of the recoverability of the investments made by the Group.
Group Company 2016 2015 2016 2015 Rs. 000 Rs. 000 Rs. 000 Rs. 000
20.4 Mackwoods Rubber Products (Private) Limited Balance as at 1st January 7,145 8,217 6,250 6,250 Share of loss for the year - (1,073) - - Less: Provision for impairment (Note 20.3) (7,145) - (6,250) - Balance as at 31st December - 7,144 - 6,250
Group Company 2016 2015 2016 2015 Rs. 000 Rs. 000 Rs. 000 Rs. 000
20.5 Taprospa Resorts (Private) Limited Balance as at 1st January 14,337 34,577 72,000 72,000 Share of loss for the year - (20,240) - - Less: Provision for impairment (Note 20.3) (14,337) - (72,000) - Balance as at 31st December - 14,337 - 72,000
20.6 Total Share of Loss of Associates - (21,312) - -
Group Company Percentage of holding 2016 2015 2016 2015 2016 2015 Rs. 000 Rs. 000 Rs. 000 Rs. 000
21 INVESTMENT IN JOINTLY CONTROLLED ENTITY AEN Palm Oil Processing (Private) Limited 33.33% 33.33% 109,702 106,211 7,965 13,128 109,702 106,211 7,965 13,128
48 | ANNUAL REPORT 2016 AGALAWATTE PLANTATIONS PLC
21 INVESTMENT IN JOINTLY CONTROLLED ENTITY (CONTD.) 21.1 Summarized information of the Joint Venture
21.1.1 AEN Oil Palm Processing (Pvt) Ltd The Group has invested in 33.33% of stated capital of AEN Oil Palm Processing (Pvt) Ltd, a Joint Venture involved in the business of processing crude Palm Oil. The Group’s interest in AEN Palm Oil Processing (Pvt) Ltd is accounted for by using the equity method in the consolidated financial statements. Summarised financial information of this Joint Venture are set out below. 2016 2015 Rs. 000 Rs. 000 (Unaudited) (Unaudited)
Summarised statement of financial position of AEN Palm Oil Processing (Pvt) Ltd Current assets, including cash and cash equivalents 186,853 109,989 Non current assets 292,775 302,649 Current liabilities, including tax payable (111,415) (57,944) Non current liabilities, including deferred tax liabilities (39,107) (36,061) Total Equity 329,106 318,633 Group's carrying amount of the investment 109,702 106,211
Revenue 2,256,417 1,683,418 Cost of sales (1,841,021) (1,500,899) Other income 2,874 875 Administration expenses including depreciation (217,340) (45,486) Finance cost (1,278) (357) Profit before taxation 199,652 137,551 Income tax expense (28,182) (30,017) Profit for the year 171,470 107,534 Total comprehensive income for the year 171,470 107,534 Group’s share of profit after tax 57,157 35,845 Gain/ (Loss) recognized on equity method - (31.854) Group’s share of profit for the year 57,157 3,991
Group's share of profit before tax 66,551 45,850 Group's share of profit after tax 57,157 35,845 Number of shares invested (Nos) 796,463 1,312,830 Dividend received 2,494 401 Proceeds from disposal of shares (Note 21.2) 51,172 38,333
21.2 The AEN Palm Oil Processing (Private) Limited has executed an equal re-purchase of the shares held by each shareholder at the rates of Rs. Rs. 118.88 and Rs. 81.78 per share amounting to Rs.51.62 Mn. The gain on disposal of shares amounting to Rs. 46 Mn has been recognized under other income for the year ended 31st December 2016 (2015 - Rs. 31.94 Mn).
2016 2015 No of shares Fair Value No of shares Fair Value Rs. 000 Rs. 000
22 AVAILABLE FOR SALE FINANCE ASSETS (GROUP/COMPANY) Mackwoods Energy PLC 4,282,079 12,418 4,460,972 22,305 12,418 22,305
ANNUAL REPORT 2016 | 49 AGALAWATTE PLANTATIONS PLC Notes to the Financial Statements
Group Company As at 31st December 2016 2015 2016 2015 Rs. 000 Rs. 000 Rs. 000 Rs. 000
23 INVENTORIES Input materials 10,314 5,610 10,314 5,610 Inventory in Labookellie tea centre (Note 23.1) 61,029 78,455 61,029 78,455 Harvested crops : - Tea 51,296 40,324 51,296 40,324 - Rubber 57,384 44,650 57,384 44,650 Consumables and spares 4,928 4,109 4,794 3,975 Others 32,073 36,869 - - 217,024 210,017 184,817 173,014 Less : Provision for obsolete inventories (Note 23.2) (16,154) (911) (15,108) - 200,870 209,106 169,709 173,014
23.1 The inventory in Labookellie tea centre includes sealed inventory of Labookellie Tea Centre amounting to Rs.61,028,950/- as at 31st December 2016.
Group Company 2016 2015 2016 2015 Rs. 000 Rs. 000 Rs. 000 Rs. 000
23.2 Movement of Provision for obsolete inventories Balance as at 1st January 911 911 - - Provision made during the year 15,243 - 15,108 - Balance as at 31st December 16,154 911 15,108 -
Group Company 2016 2015 2016 2015 Rs. 000 Rs. 000 Rs. 000 Rs. 000
24 TRADE AND OTHER RECEIVABLES Produce trade receivables 130,220 42,459 56,860 42,459 Advances, deposits and prepayments 35,443 38,876 33,479 38,876 Other debtors (Note 24.1) 130,368 116,314 130,368 45,424 296,031 197,649 220,707 126,759 Less : Provision for impairment (Note 24.2) (126,402) (1,380) (126,097) - 169,629 196,269 94,610 126,759
24.1 Other debtors include amounts due from EPOC Research Laboratories Limited , Claridge Diversified Funds Limited and Paklan Latex (Private) Limited of Rs.65.16 Mn, Rs. 55.43 Mn and Rs. 1.42 Mn respectively as at 31st December 2016. These balances have been classified as amounts due from related parties as at 31st December 2015 since they were related parties as at that date. However, they ceased to be related parties upon the change of ownership of the company on 14th July 2016.
50 | ANNUAL REPORT 2016 AGALAWATTE PLANTATIONS PLC
24 TRADE AND OTHER RECEIVABLES (CONTD.)
Group Company As at 31st December 2016 2015 2016 2015 Rs. 000 Rs. 000 Rs. 000 Rs. 000
24.2 Movement of Provision for impairment Balance as at 1st January 1,380 1,278 - - Provision made during the year 4,427 102 5,502 - Transferred from amount due from related parties 120,595 - 120,595 - Balance as at 31st December 126,402 1,380 126,097 -
Group Company 2016 2015 2016 2015 Rs. 000 Rs. 000 Rs. 000 Rs. 000
25 AMOUNTS DUE FROM RELATED PARTIES Taprospa Resorts (Private) Limited 73,892 401,175 73,892 401,175 EPOC Research Laborataries Limited (Note 25.1) - 65,162 - 65,162 Claridge Diversified Funds Limited (Note 25.1) - 55,433 - 55,433 Mackply Industries (Private) Limited - - 20,733 26,787 Paklan Latex (Private) Limited (Note 25.1) - 1,111 - 1,111 Pussellawa Plantations Limited 49 - 49 - 73,941 522,881 94,674 549,668 Less : Provision for Impairment (Note 25.2) (73,892) (194,487) (73,892) (194,487) 49 328,394 20,782 355,181
25.1 These balances have been reclassified as other debtors as at 31st December 2016 since these parties ceased to be related parties as per LKAS 24 - “Related Party Disclosures” with effect from 14th July 2016 as a result of change of ownership of the company.
25.2 Movement of Provision for Impairment Balance as at 1st January 194,487 228,612 194,487 228,612 Reversal during the year - (34,125) - (34,125) Transferred to Other receivables (120,595) - (120,595) - Balance as at 31st December 73,892 194,487 73,892 194,487
Group Company 2016 2015 2016 2015 Rs. 000 Rs. 000 Rs. 000 Rs. 000
26 CASH AND CASH EQUIVALENTS Favourable balances Cash in hand 1,668 1,985 1,291 1,932 Cash in transit 377 115 377 115 Cash at banks 9,121 14,738 7,906 14,738 Investment in fixed deposits 8,469 8,000 8,469 8,000 19,635 24,838 18,043 24,785 Unfavourable balances Less: Bank overdrafts (60,547) (89,568) (51,368) (69,998) Cash and cash equivalents for the purpose of cash flows (40,912) (64,730) (33,325) (45,213)
ANNUAL REPORT 2016 | 51 AGALAWATTE PLANTATIONS PLC Notes to the Financial Statements
26.1 Bank Overdrafts Company The overdraft facilities of the company are secured by a primary mortgage and a secondary mortgage on inventories and book debts of the company and a primary mortgage on leasehold right to land and other estate assets of Watapotha, Peenkanda, Frotoft and Noragalla Estates.
The Company has pledged fixed deposit of Rs 8 Mn against the overdrafts granted by Hatton National Bank PLC.
Group The overdraft facilities of the Subsidiary is secured by a primary mortgage on its inventories and book debts. In addition, the Company has also provided a Corporate Guarantee for Rs. 9.25 Mn to the bank as a security for this facility.
As at 31st December 2016 2015 Rs. 000 Rs. 000
27 STATED CAPITAL 25,000,001 Ordinary Shares Including One Golden Share Held by the Treasury 250,000 250,000 250,000 250,000
27.1 Golden Shareholder The holders of ordinary shares and the Golden Share are entitled to receive dividends as declared from time to time and are entitled to one vote per share at meetings of the Company.
The Golden Share has been allotted to the Secretary to the Treasury by capitalization of revaluation reserve on 1st August 1995. Articles of Association of the Company embodies the specific rights assigned to the Golden Shareholder on behalf of the State of Democratic Socialist Republic of Sri Lanka. In addition to the rights of the normal ordinary shareholders, in terms of the Articles of the Company, following special rights are vested with the Golden Shareholder.
The Golden share of Rs. 10/- held by the Secretary to the Treasury, enjoys the following special rights: (a) The concurrence of the Golden Shareholder should be obtained to sub-lease estate lands and amend the Articles of Association of the Company in which the Golden Shareholder’s rights are given.
(b) The Golden Shareholder and or his nominee shall be entitled to inspect the books of accounts of the Company after giving two weeks written notice to the Company.
(c) The company shall submit to the Golden Shareholder, within 60 days of the end of each quarter, a quarterly report relating to the performance of the Company during the said quarter in a pre- specified format agreed to by the Golden Shareholder and the Company.
(d) The Golden Shareholder shall be entitled to call upon the Board of Directors once in three months to meet him or his nominee to discuss matters of the Company of interest to the estate.
(e) The Company shall submit to the Golden Shareholder, within 90 days of the end of each fiscal year, information related to the company in a pre-specified format agreed to by the Golden Shareholder and the Company.
Definition of the ‘Golden share’ - a share allotted to the Secretary to the Treasury in his official capacity and not in his own name, for and on behalf of the state of the Democratic Socialist Republic of Sri Lanka, and or by any transferee permitted in terms of the Articles. Definition of ‘Golden shareholder’ – the holder of the ‘Golden Share’.
The concurrence of the Golden Shareholder in writing shall be first obtained to amend the definition of the words ‘Golden Share’ and ‘Golden Shareholder’ and the Articles 5(1) to 5(12) of the Articles of Association of the Company which deals with the Golden shareholder.
The Company shall obtain the written consent of the Golden Shareholder prior to subleasing, ceding or assigning its rights in part or all of the lands set out in the Article of Association of the Company.
52 | ANNUAL REPORT 2016 AGALAWATTE PLANTATIONS PLC
As at 31st December Group Company 2016 2015 2016 2015 Rs. 000 Rs. 000 Rs. 000 Rs. 000
28 GENERAL RESERVE Opening balance 515,000 515,000 515,000 515,000 Closing balance 515,000 515,000 515,000 515,000
As at 31st December Group Company 2016 2015 2016 2015 Rs. 000 Rs. 000 Rs. 000 Rs. 000
29 LOANS AND BORROWINGS Term loans (Note 29.2) 1,682,337 1,610,195 1,670,296 1,598,782 Finance leases (Note 29.3) 9,958 21,063 9,958 21,063 1,692,295 1,631,258 1,680,254 1,619,845
29.1 Maturity analysis 29.1.a Amount payable within one year Term loans 833,657 943,958 824,116 937,046 Finance leases 8,053 14,424 8,053 14,424 841,710 958,382 832,169 951,470 29.1.b Amount payable after one year and less than five years Term loans 848,680 666,237 846,180 661,736 Finance leases 1,905 6,639 1,905 6,639 850,585 672,876 848,085 668,375 1,692,295 1,631,258 1,680,254 1,619,845
29.2 Term loans (a) Summary Balance as at 1st January 1,610,195 1,443,338 1,598,782 1,441,802 Loans obtained during the year 119,790 668,210 97,459 658,333 Repayments during the year (47,648) (501,353) (25,945) (501,353) Balance as at 31st December 1,682,337 1,610,195 1,670,296 1,598,782
(b) Lender-wise summary Hatton National Bank PLC 271,884 273,826 262,343 262,413 Sampath Bank PLC 395,791 338,784 395,791 338,784 Commercial Bank of Ceylon PLC 236,735 235,601 236,735 235,601 National Development Bank PLC 351,072 350,468 351,072 350,468 People's Bank 90,455 90,455 90,455 90,455 State Bank of India- Sri Lanka Branch 49,750 49,600 49,750 49,600 DFCC Bank PLC 1,670 1,945 1,670 1,945 Lanka ORIX Finance Co PLC 109,900 110,000 109,900 110,000 Soft Logic Finance PLC 60,000 60,000 60,000 60,000 Alliance Finance Co PLC 51,240 54,639 51,240 54,639 Commercial Leasing and Finance PLC 25,869 25,000 25,869 25,000 Sri Lanka Tea Board 35,471 19,877 35,471 19,877 LOLC Factors Limited 2,500 - - - 1,682,337 1,610,195 1,670,296 1,598,782
ANNUAL REPORT 2016 | 53 AGALAWATTE PLANTATIONS PLC Notes to the Financial Statements
29 LOANS AND BORROWINGS (CONTD.) 29.3 Assets pledged as collaterals by the Group / Company
Name of financial institution Nature of facility Facility Balance Securities pledged granted/ as at rescheduled 31.12.2016 Rs. 000 Rs. 000 Hatton National Bank PLC Term loan 50,000 31,738 Leasehold rights of Niriella estate Term loan 200,000 169,669 Leasehold rights of Kiriwanaketiya estate Term loan-E-Friends 13,640 8,907 Leasehold rights of Watapotha estate Term loan 55,000 52,029 Leasehold rights of Clyde estate & Ambatenna estate Import Loans 9,500 6,041 Primary floating mortgage bond over trade stock Term loan 5,000 3,500 Primary floating mortgage bond over factory Short term Loan 2,500 2,500 property at Pohorabawa
Sampath Bank PLC Term loan 358,100 357,600 Leasehold rights of Frotoft estate Term loan 40,000 35,605 Irrevocable letter of undertaking from John Keells Vehicle Loan - B M W 8,900 2,586 Stock mortgage -Export Car loan Leasehold rights of Pimbura estate Leasehold rights of Delgoda estate Commercial Bank of Ceylon PLC Term loan 207,000 206,950 Leasehold rights of Weddamulla estate & Noragalla estate Packing credit loan 34,251 29,785 Stock mortgage -Export Leasehold rights of Weddamulla estate
National Development Bank PLC ADB Loan 50,000 28,715 Leasehold rights of Mohamedi estate Term Loan - Leasehold rights of Mohamedi estate and Securitization 200,000 113,717 irrevocable letter of undertaking from John Keells
Term loan 250,000 198,640 Leasehold rights of Mohamedi estate & letter of undertaking from Forbes & Walkers Tea Short term loan 10,000 10,000 Leasehold rights of Mohamedi estate & buildings and plant machinery of Mohamedi estate People’s Bank Term loan 44,951 70,455 Leasehold rights of Peenkande estate Term loan 20,000 20,000 Leasehold rights of Peenkande estate and an undertaking from Mackwoods (Private) Limited State Bank of India - Sri Lanka Term loan - 100,000 49,750 Leasehold rights of Kiribathgalla estate and Branch Securitization Irrevocable letter of undertaking from John Keells DFCC Bank Term loan 1,627 1,670 Leasehold rights of Culloden estate
Lanka ORIX Finance Co PLC Revolving credit facility 110,000 109,900 Corporate Guarantee from Mackply Industries (Private) Limited
Softlogic Finance PLC Revolving credit facility 60,000 60,000 Leasehold rights of Peenkande estate Corporate Gurantee from Taprospa Resorts (Private) Limited Alliance Finance Co PLC Term loan 25,000 292 Land owned by Mackwoods (Private) Limited Term loan 10,900 3,020 Term loan 45,000 47,928 Commercial Leasing and Term Loan 25,000 25,869 Corporate Guarantee from Mackply Industries Finance PLC (Private) Limited Sri Lanka Tea Board Short term Loan 35,471 35,471 Total loans and borrowings 1,971,840 1,682,337
54 | ANNUAL REPORT 2016 AGALAWATTE PLANTATIONS PLC
29 LOANS AND BORROWINGS (CONTD.)
As at 31st December Group Company 2016 2015 2016 2015 Rs. 000 Rs. 000 Rs. 000 Rs. ‘000
29.4 Finance leases Balance as at 1st January 24,248 36,976 24,248 36,976 Leases obtained during the Year - 10,106 - 10,106 24,248 47,082 24,248 47,082 Repayments during the year (12,601) (22,834) (12,601) (22,834) Balance as at 31st December 11,647 24,248 11,647 24,248 Finance charges allocated to future periods (1,689) (3,185) (1,689) (3,185) Carrying value 9,958 21,063 9,958 21,063
29.4.1 Maturity analysis (a) Amount payable within one year Amount payable 8,906 16,080 8,906 16,080 Less : Finance charges allocated to future periods (853) (1,656) (853) (1,656) 8,053 14,424 8,053 14,424 (b) Amount payable after one year Amount payable 2,741 8,168 2,741 8,168 Less :Finance charges allocated to future periods (836) (1,529) (836) (1,529) 1,905 6,639 1,905 6,639 (c) Grand total 9,958 21,063 9,958 21,063
29.5.2 Lender-wise summary Hatton National Bank PLC - 3,902 - 3,902 Alliance Finance Co PLC - 2,451 - 2,451 Commercial Bank of Ceylon PLC - 503 - 503 Sampath Bank PLC - 77 - 77 Siyapatha Finance PLC 2,838 3,539 2,838 3,539 UB Finance Co Limited - 1,733 - 1,733 The Finance & Guarantee Company Limited - 1,937 - 1,937 Commercial Leasing & Finance PLC 8,809 10,106 8,809 10,106 11,647 24,248 11,647 24,248 Finance charges allocated to future periods (1,689) (3,185) (1,689) (3,185) Net liability 9,958 21,063 9,958 21,063
ANNUAL REPORT 2016 | 55 AGALAWATTE PLANTATIONS PLC Notes to the Financial Statements
Group Company As at 31st December 2016 2015 2016 2015 Rs. 000 Rs. 000 Rs. 000 Rs. 000 30 NET LIABILITY TO LESSOR OF JEDB / SLSPC (a) Gross liability Opening balance 397,793 411,510 397,793 411,510 Less : paid/payable during the year (13,717) (13,717) (13,717) (13,717) Closing balance 384,076 397,793 384,076 397,793 (b) Finance charges allocated to future periods Opening balance 164,828 174,316 164,828 174,316 Less : Finance charges written off during the year (9,319) (9,488) (9,319) (9,488) Closing balance 155,509 164,828 155,509 164,828 (c) Net liability 228,567 232,965 228,567 232,965
30.1 Leasehold Right to Bare Land of JEDB/SLSPC Estates assets and immovable (JEDB/SLSPC) assets on finance lease Leasehold rights to bare land of JEDB/SLSPC Estate assets and immovable (JEDB/SLSPC) estates assets on finance lease obtained on a long term basis, are stated at the recorded carrying values as at the effective date of Sri Lanka Accounting Standard No.17 – “Leases”, in line with ruling of the urgent issues task force (UITF) of the Institute of Chartered Accountants of Sri Lanka. Such carrying amounts are amortized over the remaining lease term or useful life of such asset whichever is shorter.
As at 31st December Group Company 2016 2015 2016 2015 Rs. 000 Rs. 000 Rs. 000 Rs. 000
30.2 Maturity analysis (a) Amount payable within one year 13,717 13,717 13,717 13,717 Less : Finance charges allocated to future periods (9,143) (9,319) (9,143) (9,319) 4,574 4,398 4,574 4,398
(b) Amount payable after one year Amount payable after one year and less than five years 54,868 54,868 54,868 54,868 Less : Finance charges allocated to future periods (34,666) (35,443) (34,666) (35,443) 20,202 19,425 20,202 19,425
Amount payable after five years 315,491 329,208 315,491 329,208 Less : Finance charges allocated to future periods (111,700) (120,066) (111,700) (120,066) 203,791 209,142 203,791 209,142 223,993 228,564 223,993 228,567 (c) Grand total 228,567 232,965 228,567 232,965
The basic rental payable under the revised basis is Rs. 13,717,001/- per annum and this amount is to be inflated annually by Gross Domestic Production (GDP) Deflator and is in the form of contingent lease rental. Contingent lease rentals charged for the current year in the statement of comprehensive income amounts to Rs.9,142,690 /- (2015 - Rs.9,318,625/-).
Lease rental have been revised by the Ministry of Finance after the relief period of 2002 to 2008.The rentals have been computed in accordance with amendment of leases.
(1) Further liability on annual lease payment of Rs.13,717,001/- would continue until year 2045. The net present value of this liability at 4% discounting rate (as recommended by UITF) would result in a liability of Rs.228,567,223/- (2015-Rs.232,965,598/-). (2) Net present value of Rs.228,567,223/- (as at 31st December 2015-Rs.232,965,598/-) is presented by gross liability of Rs.386,191,907/- (as at 31st December 2015-Rs.397,793,040/- ) and interest in suspense of Rs.157,625,000/-(as at 31st December 2015- Rs.164,827,402/-). (3) The charge to the comprehensive income statement during the year is Rs.44,958,325/- (2015-Rs.43,772,499/-)
56 | ANNUAL REPORT 2016 AGALAWATTE PLANTATIONS PLC
Group Company As at 31st December 2016 2015 2016 2015 Rs. 000 Rs. 000 Rs. 000 Rs. ‘000
31 DEFERRED TAX LIABILITIES Balance as at 1st January 98,378 120,496 98,378 120,496 Recognised in profit or loss Deffered tax charge/ (reversal) during the year 94,387 (22,118) 93,366 (22,118) Recognised in other comprehensive income Deffered tax charge during the year 6,419 - 6,419 - Balance as at 31st December 199,184 98,378 198,163 98,378
The effective rate used to calculate deferred tax liability as at 31st December 2016 is 13.17% (2015-14.24%)
The deferred tax liability is relating to the followings,
2016 2015 Temporary Temporary Difference Tax Effect Difference Tax Effect Rs. 000 Rs. 000 Rs. 000 Rs. 000
Group Accumulated Tax losses (Note 31.1) - - (1,004,011) (142,999) Retirement benefit obligation (711,812) (94,974) (760,638) (108,336) Provision for Warranties (406) (114) - - Property, plant and equipment 195,807 27,728 114,343 16,286 Bearer biological assets 1,748,194 200,658 2,341,026 333,427 Consumable biological assets 500,261 65,886 - - 1,732,044 199,184 690,720 98,378
Company Accumulated Tax losses (Note 31.1) - - (1,004,011) (142,999) Retirement benefit obligation (701,922) (92,446) (760,638) (108,336) Property, plant and equipment 182,724 24,065 114,343 16,286 Bearer biological assets 1,748,194 200,658 2,341,026 333,427 Consumable biological assets 500,261 65,886 - - 1,729,257 198,163 690,720 98,378
31.1 Deferred tax asset of Rs. 360,451,706/- as at 31st December 2016 arising out of the below temporary difference has not been recognized since it is not probable that future taxable profits will be available against which the Company will utilize the benefits there from. Deferred tax assets are recognized in the financial statements up to the extent of the deferred tax liabilities as at 31st December 2016.
The unrecognized deferred tax assets are attributable to the following;
As at 31st December 2016 2015 Deductible Deductible Temporary Temporary Difference Tax Effect Difference Tax Effect Rs.000 Rs.000 Rs.000 Rs.000
On Accumulated Tax Losses 2,736,915 360,452 - -
ANNUAL REPORT 2016 | 57 AGALAWATTE PLANTATIONS PLC Notes to the Financial Statements
As at 31st December Group Company 2016 2015 2016 2015 Rs. 000 Rs. 000 Rs. 000 Rs. 000
32 RETIREMENT BENEFIT OBLIGATION 32.1 Movement in the present value of the retirement benefit obligations Provision for Gratuity Opening Balance 575,602 692,643 568,236 686,745 Expenditure recognized in the Profit or Loss for the year 79,277 1,468 76,653 - Actuarial (Gain)/Loss in Other Comprehensive income (48,741) - (48,741) - 606,138 694,111 596,148 686,745 Benefits paid during the year (29,183) - (29,083) - Transfer of unsettled gratuity claimed during the year to current liability (134,963) (118,509) (134,963) (118,509) Closing Balance 441,992 575,602 432,102 568,236
Unsettled Gratuity Payable Opening Balance 192,402 143,981 192,402 143,981 Unsettled gratuity claimed during the year 134,963 118,509 134,963 118,509 Over provision of gratuity payable with repect of previous year (54,618) (57,208) (54,618) (57,208) Benefits paid during the year (2,927) (12,881) (2,927) (12,881) Closing Balance 269,820 192,402 269,820 192,402 Grand Total 711,812 768,004 701,922 760,638
32.2 The retirement benefit obligation of the company as at 31st December 2016 is based on the Actuarial Valuation carried out by Actuarial & Management Consultants (Private) Limited, a firm of professional actuaries. However, the liability has been calculated based on the half a month salary as at 31st December 2015. The impact on such charge has been adjusted in the financial statements for the year ended 31st December 2016.
32.3 Expenses recognized in the Profit or Loss and Other Comprehensive income. Group Company For the year ended 31st December 2016 2015 2016 2015 Rs. 000 Rs. 000 Rs. 000 Rs. 000
Current service costs 31,617 - 28,993 - Interest Costs 47,660 - 47,660 - Actuarial gain for the year (48,741) - (48,741) - 30,536 - 27,912 -
58 | ANNUAL REPORT 2016 AGALAWATTE PLANTATIONS PLC
32 RETIREMENT BENEFIT OBLIGATION (CONTD.) 32.4 Actuarial assumptions The key assumptions used by M/s Actuarial & Management Consultants (Private) Limited include the following, 2016
Rate of Discount (Long Term Government Bond) 11% Rate of Future Salary Increases - For Staff (Per Annum) 7.5% - For Workers (Every Two Years) 18% Retirement Age - For Staff 55 years - For Workers 60 years Daily Wage rate - Tea Rs. 500/- - Rubber Rs. 500/-
In addition to the above, demographic assumptions such as mortality, withdrawal and disability and retirement age were considered for the actuarial valuation. Following “ 1949/52 Mortality Table” issued by the Institute of Actuaries, London was used to estimate the gratuity liability of the company.
32.5 Sensitivity Analysis The sensitivity analysis on the total Comprehensive Expense and the financial position based on the assumed rate on salary increment and discount rate as at 31st December 2016 is given below,
Present value of defined Discount Rate Salary Escalation Rate benefit obligation Change Rs. 000 Rs. 000
One percentage point increase As stated above 402,140 (29,962) One percentage point decrease As stated above 466,462 34,360 As stated above One percentage point increase 448,901 16,799 As stated above One percentage point decrease 416,300 (15,802)
Group Company As at 31st December 2016 2015 2016 2015 Rs. 000 Rs. 000 Rs. 000 Rs. 000
33 DEFERRED INCOME Capital grants (a) Total capital grants received Balance as at 1st January 135,601 96,437 135,601 96,437 Total grants received during the year - 39,164 - 39,164 Balance at the 31st December 135,601 135,601 135,601 135,601 (b) Total amortization Balance as at 1st January 40,943 37,840 40,943 37,840 Amount amortized during the year 3,635 3,103 3,635 3,103 Balance at the 31st December 44,578 40,943 44,578 40,943 (c) Total unamortized capital grants at the end of the year 91,023 94,658 91,023 94,658
ANNUAL REPORT 2016 | 59 AGALAWATTE PLANTATIONS PLC Notes to the Financial Statements
33 DEFERRED INCOME (CONTD.) The above represents the following; (a) The funds received from the Plantation Housing and Social Welfare Trust (PHSWT), Plantation Development Project (PDP) and Plantation Human Development Trust (PHDT) for the development of workers’ welfare facilities and improvements to institutional facilities.
(b) The funds received from the plantation reform project for the development of forestry plantations.
(c) The amount spent is capitalized under the relevant classification of property, plant and equipment and corresponding grant component is reflected under deferred grants and subsidies and is amortized over the useful life span of the related assets.
Group Company As at 31st December 2016 2015 2016 2015 Rs. 000 Rs. 000 Rs. 000 Rs. 000
34 TRADE AND OTHER PAYABLES Trade creditors 60,761 43,847 50,466 43,846 Employee related payables 766,396 942,162 761,937 942,162 Dividends payable 20,855 27,107 20,855 27,107 Broker Advances 162,497 155,674 162,497 155,674 Lease Rental Payable to JEDB/SLSPC 195,258 143,701 195,258 143,701 Accrued Interest Payable 260,107 12,516 260,107 12,516 Economic Service Charge Payable 39,550 28,159 39,550 28,159 Other creditors 243,885 258,277 229,764 241,380 Unsubstantiated payables (Note 34.1) 392,084 - 392,084 - 2,141,393 1,611,443 2,112,518 1,594,545
34.1 The Company has reclassified amount due to related parties of the previous management of the Company amounting to Rs. 392,083,846/- as unsubstantiated payables. Such parties are not related parties of the Company as at 31st December 2016. The present management of the Company has initiated processes to establish actual legal and contractual obligation for these payable balances or to disclaim such obligations and accordingly, to challenge such payable balances as at the year end. The Board of Directors has decided to continue to record these balances as unsubstantiated payables until all such transactions are substantiated with the valid documentary evidences. Group Company As at 31st December 2016 2015 2016 2015 Rs. 000 Rs. 000 Rs. 000 Rs. 000
35 AMOUNTS DUE TO RELATED PARTIES Mackwoods IT (Private) Limited (Note 35.1) - 44,463 - 44,463 Mackwoods Infortec (Private) Limited (Note 35.1) - 15,244 - 15,244 Claridge Stock Broker (Private) Limited (Note 35.1) - 12,819 - 12,819 Mackwoods Insurance Broker (Private) Limited (Note 35.1) - 7,392 - 7,392 Mackwoods Energy PLC (Note 35.1) - 113,506 - 113,506 Mackwoods (Private) Limited (Note 35.1) - 253,884 - 253,884 Mackwoods Plantations (Private) Limited (Note 35.1) - 20,100 - 20,100 APL Teas (Private) Limited (Note 35.1) - 4,821 - 4,821 Browns Properties (Private) Limited 35,433 - 35,433 - 35,433 472,229 35,433 472,229
35.1 These balances have been reclassified as unsubstantiated payables as at 31st December 2016 since these parties ceased to be related companies as per LKAS 24 - “Related Party Disclosures” which effect from 14th July 2016 as a result of change of ownership of the company.
36 RELATED PARTY DISCLOSURES 36.1 Substantial Shareholding and Ultimate Parent Company The company is a subsidiary of Browns Power Holdings (Private) Limited., which holds 61.1 % of the issued stated capital of the company as at 31st December 2016. In the opinion of the directors, the company’s ultimate parent company as at the reporting date is Lanka Orix Leasing Company PLC .
60 | ANNUAL REPORT 2016 AGALAWATTE PLANTATIONS PLC
36 RELATED PARTY DISCLOSURES (CONTD.) 36.2 Transactions with Key Management Personnel (KMP) The Company considers the Board of Directors as key management personnel of the company.
Compensations to Key Management Personnel of the Company Emoluments to the directors of the company are disclosed in Note 12 to the Financial Statements.
Other than those disclosed on Note 12 to the financial statements, there are no transactions with the key management personnel of the company and its parent company
36.3 Transactions with Related Companies
Name of the Nature of Name of the Nature of the Transactions Transaction Amount Balance as at 31st Company Relationship Directors December
2016 2015 2016 2015 Rs. 000 Rs. 000 Rs. 000 Rs. 000
(a) Related parties who ceased to be related parties with effect from 14th July 2016 Mackwoods IT Affiliate Mr. C. N. A Nonis Plantation software professional Charges - (8,250) - (44,463) (Private) Limited Mrs. N.S.M Reversed debit note Plantation software - 3,750 Samarathunga professional Charges Mrs. S.M.A Nonis Transferred to unsubstantiated payables 44,463 - Ranaweera Mr. F.L Fonseka Mackwoods Infortec Affiliate Mr. C. N. A Nonis Reversal of provisions 15,244 - - (15,244) (Private) Limited Mrs. N.S.M Samarathunga Mr. F.L Fonseka
Mrs. S.M.A Nonis Ranaweera Mackwoods Affiliate Mr. C. N. A Nonis Consultancy fee charged - (1,050) - (7,392) Insurance Broker (Private) Limited Transferred to unsubstantiated payables 7,392 - Mackwoods Energy Affiliate Mr. C. N. A Nonis Debit note to APL Teas (Private) Limited - (1,644) - (113,506) PLC on labookellie mini hydro power project operation, electricity net meeting charges Mrs. N.S.M Interest charged on commercial paper - (8,173) Samarathunga Mr. F.L Fonseka short term advance - (4,500)
Mr. L. L Dividend received - 401 Samarasinghe Mrs. S.M.A Nonis Reversal of overstated interest on 2,109 - Ranaweera commercial paper Payment made 4,500 - Debit notes on Labookellie Mini Hydro (691) - power project operation, electricity net metering Transferred to unsubstantiated payables 107,588 - Claridge Stock Broker Affiliate Mr. C. N. A Nonis Plantation sector review research - (2,700) - (12,819) (Private) Limited reports Mr. F.L Fonseka Fee based income - (1,930)
ANNUAL REPORT 2016 | 61 AGALAWATTE PLANTATIONS PLC Notes to the Financial Statements
36 RELATED PARTY DISCLOSURES (CONTD.) 36.3 Transactions with Related Companies
Name of the Nature of Name of the Nature of the Transactions Transaction Amount Balance as at 31st Company Relationship Directors December
2016 2015 2016 2015 Rs. 000 Rs. 000 Rs. 000 Rs. 000 (a) Related parties who ceased to be related parties with effect from 14th July 2016 Claridge Stock Broker Affiliate Mrs. S.M.A Nonis Short term advance (519) (897) (Private) Limited Ranaweera Demand promissory note issued to APL - (9,100) Teas (Private) Limited Interest on promissory note - (667) Debit note settlements 2,850 15,965 Payments made on behalf of Mr. F.L 897 - Fonseka Sale of Mackwood Energy shares 519 - Reversal of promissory notes ‘interest (645) - Transferred to unsubstantiated payables 9,717 - Mackwoods (Private) Limited Affiliate Mr. C. N. A Nonis Other costs, salary allocation etc. - (142) - (253,884) Mrs. N.S.M Repair and maintenance office & vehicle - (785) Samarathunga Mr. L. L Electricity - (1,031) Samarasinghe Mrs. S.M.A Nonis Parking fee - (900) Ranaweera Mr. F.L Fonseka Travelling and fuel - (511) Private ledger expenses - (1,980) Space allocation - (1,304) Office services - (2,880) Security systems - (1,905) Legal services - (1,950) Head office general shared cost - (14,530) Head office telecom / electricity - (1,512) DMCD building rent - (22,406) Holiday work costs - (1,010) Consultancy fee - (793) Project support costs - (3,720) Chemicals - (2,137) Loans received (3,260) (20,437) Head office support service cost, project - 12,000 support cost, holiday OT support service cost & other expenses charged by debit notes reversed. Loans settlements - 847 Reversal of debit notes 85,384 - Reversal of provisions 8,673 Transferred to unsubstantiated payables 163,087 -
62 | ANNUAL REPORT 2016 AGALAWATTE PLANTATIONS PLC
36 RELATED PARTY DISCLOSURES (CONTD.) 36.3 Transactions with Related Companies (Contd.)
Name of the Nature of Name of the Nature of the Transactions Transaction Amount Balance as at 31st Company Relationship Directors December
2016 2015 2016 2015 Rs. 000 Rs. 000 Rs. 000 Rs. 000
(a) Related parties who ceased to be related parties with effect from 14th July 2016 Claridge Diversified Common control Provision for impairment - (55,433) - (55,433) Funds (Private) Transferred to Other Receivables 55,433 Limited EPOC Research Affiliate Common control Provision for impairment - (65,162) - (65,162) Laborataries Limited Transferred to Other Receivables 65,162
Mackwoods Immediate Mrs. S.M.A Nonis Management fee settled - 500 - (20,100) Plantations (Private) parent Ranaweera Limited Company Mr. F.L Fonseka Transferred to unsubstantiated payable 20,100 Dr. W.S Ng Mr. C. N. A Nonis Mr. R.K.M Ng Mrs. N. S. M Samarathunga Paklan Latex (Private) Affiliate Mr. C. N. A Nonis Advances Received (14,047) (76,906) - 1,111 Limited Mr. F.L Fonseka Latex sales 15,668 76,698 Mrs. N. S. M. Interest charged, chemicals issues to (218) (3,755) Samarathunga Company Loans settlements - 26,744 Factory rent 337 - Settlements (1,434) Transferred to other receivables (1,417) -
APL Teas (Private) Affiliate Mr. C. N. A Nonis Tea allowance to Staffs, Trade mark - (2,030) - (4,821) Limited registration, tea donations on behalf of the Company Mr. F.L Fonseka Business travel expenses - (7,489) Mrs. S.M.A Nonis Tea marketing & promotional expenses - (18,771) Ranaweera Silver Tips Sale - 625 Tea sales from labookellie, atapotha, - 43,925 weddamulla, noragalla, doloswella and frotoft estate Tea sales 23,384 6,095 Fuel and maintenance of vehicles - (636) Electricity paid and Telephone paid by - (64) APL Teas (Private) Limited transferred to Company, Air port shop rental paid by APL Teas - (4,864) (Private) Limited and transferred to Company
ANNUAL REPORT 2016 | 63 AGALAWATTE PLANTATIONS PLC Notes to the Financial Statements
36 RELATED PARTY DISCLOSURES (CONTD.) 36.3 Transactions with Related Companies (Contd.)
Name of the Nature of Name of the Nature of the Transactions Transaction Amount Balance as at 31st Company Relationship Directors December
2016 2015 2016 2015 Rs. 000 Rs. 000 Rs. 000 Rs. 000
(a) Related parties who ceased to be related parties with effect from 14th July 2016 APL Teas (Private) Affiliate Mr. C. N. A Nonis Maligawatte stores rent (828) Limited Mr. F.L Fonseka Labookellie Tea Museum expenses - (101) incurred by APL Teas (Private) Limited Mrs. S.M.A Nonis and transferred to Company Ranaweera Tea Breeze Galle capital expenses - (345) incurred by APL Teas (Private) Limited transferred to Company Noris avenue stores expenses - (60) incurred by APL Teas (Private) Limited transferred to company Salary reimbursements - (3,234) Tea sale settlement (1,503) (7,286) Packers wages paid by Company on - 2,565 behalf of APL Teas (Private) Limited and expenses incurred by Labookellie tea centre transferred to Company Loan received from APL Teas (Private) (98,223) (26,563) Limited Funds transferred to APL Teas (Private) - 6,000 Limited Tea marketing & promotional expenses - 30,002 & other expenses charged by debit notes reversed. Demand promissory note issued to APL - (5,500) Teas (Private) Limited Interest on promissory note - (1,339) HNB (USD) transactions -Credits (3,261) - HNB (USD) transactions -Debits ( 6,114 - Transfer to promotion expenses, bank charges, interest) Sale of motor vehicle 12,000 - Expenses incurred (2,704) - IP Memo settlement 5,430 - Reversal of debit notes 24,000 - Debit notes received (152) - Transferred to unsubstantiated payables 39,736 - (b) Related parties who are being throughout the year Mackply Industries Subsidiary Mr. C. N. A Nonis Recovery of management fee, salaries, 5,453 2,200 20,733 26,787 (Private) Limited Telephone, electricity, photo copy and stationery etc. Mrs. N. S. M Short term advance for executive - (3,600) Samarathunga salary,MC case and wages Mr. F.L Fonseka Management fee settlement - (600) Mr. S.C.J Exchange of funds 3,000 - Devendra Short term advances (14,507) -
64 | ANNUAL REPORT 2016 AGALAWATTE PLANTATIONS PLC
36 RELATED PARTY DISCLOSURES (CONTD.) 36.3 Transactions with Related Companies (Contd.)
Name of the Nature of Name of the Nature of the Transactions Transaction Amount Balance as at 31st Company Relationship Directors December
2016 2015 2016 2015 Rs. 000 Rs. 000 Rs. 000 Rs. 000
(b) Related parties who are being throughout the year Taprospa Resorts Associates Mr. C. N. A Expenses incurred 723 3,063 73,892 327,283 (Private) Limited Nonis Mr. F.L Fonseka Funds transferred to Taprospa 12,107 29,706 Mrs. S.M.A Settlements received (213,364) (78,763) Nonis Ranaweera Mr. S.C.J Tissa project expenses,Tymore Villa - 8,176 Devendra expenses,Labookelle Villa expenses, rent income receivable Capitalize Labookellie villa current - (18,851) account balance as a building Capitalize tymore villa current account - (1,255) balance as a building Capitalize westward ho villa current - (1,712) account balance as a building Provision for impairment - (73,892) Set of against debit notes (52,857) -
AEN Oil Processing Joint venture Mr. C. N. A Total sales to the AEN Oil Processing 275,095 265,458 6,129 - (Private) Limited Nonis Factory Mr. F.L Fonseka Settlement of dues by AEN Oil 268,966 (265,458)
(c) Related parties who became related parties as at 14th July 2016 Browns Properties Affiliate Mr. K A K P Short term loan received (60,732) - (35,433) - (Private) Limited Gunawardena Mr. D S K Interest on short term loan (1,459) - Amarasekera Mrs. V G S S Loans settlements 25,732 - Kotakadeniya Mr. A S Perera Settlement of interest 1,026 - Mr. K G Punchihewa
Pussellawa Affiliate Mr. K A K P Bought leaf supply 867 - 49 - Plantations Limited Gunawardena Mr. D S K Debit notes 49 - Amarasekera Mrs. V G S S Green leaf/firewood/electricity (867) - Kotakadeniya Mr. A S Perera Mr. K G Punchihewa
ANNUAL REPORT 2016 | 65 AGALAWATTE PLANTATIONS PLC Notes to the Financial Statements
37 GOING CONCERN The Company has recorded accumulated losses of Rs. 2,753 Mn as at 31st December 2016. Its current liabilities exceeded its current assets as at 31st December 2016 by Rs. 2,778 Mn and total liabilities exceeded its total assets by Rs. 1,989 Mn. Further, the Company’s net assets are less than half of its stated capital and faces serious loss of capital situation as at the reporting date. These conditions raise significant doubt whether the Company will be able to continue as a going concern in the future.
However, the financial statements of the Company have been prepared on the assumption that the Company is a going concern as the present immediate parent Company have agreed to provide continuous financial support as necessary to continue as a going concern.
The ownership of the Company has been changed to D R Investment (Private) limited with effect from 27th March 2017. New Management has taken number of actions to overcome situation faced by the Company as at 31st December 2016. As a result, the Company has settled following overdue balances as at the approval of financial statements by the board of directors with the financial support of immediate parent company.
(1) Government lease rentals amounting to Rs. 207 Mn (2) EPF and ETF surcharges and contribution amounting to Rs. 300 Mn (3) Overdue Gratuity payments amounting to Rs. 278 Mn (4) Overdue bank loans and loan interest amounting to Rs. 815 Mn (5) Overdue loans and leases amounting to Rs. 233 Mn (6) Overdue income taxes amounting to Rs. 16 Mn
Further, present management has initiated following actions to overcome the current situation faced by the Company.
The new management has focused on the discussions with relevant banks and other financial institutions in relation to the settlements of overdue loan and balances amounting to Rs.1.7 billion as at 31st December 2016. Subsequent to the reporting date, the company has settled overdue bank loans and accrued interest amounting to Rs. 815 Mn together with the overdue loans and lease balances obtained from finance companies amounting to Rs. 233 Mn after deducting a significant portion of interest and other charges waived off.
Further, the Company has incorporated an in-house internal audit division to build up a sound internal controls over the overall operation of the company. Therefore the Board of Directors are optimistic that the Company could improve its performance within next few years as a result of new strategic initiatives introduced by the management towards the organizational goals and objectives.
38 EVENTS OCCURRING AFTER REPORTING DATE Subsequent to the reporting date, D R Investment (Private) limited has acquired the controlling stake of Agalawatte Plantations as at 27th March 2017.
There are no any other circumstances arisen after the reporting date that require material adjustment to or disclosure in the financial statements other than what is disclosed above.
39 COMMITMENTS There are no material commitments as at the reporting date.
40 CONTINGENT LIABILITIES There are no material contingent liabilities as at the reporting date that require adjustment to or disclosure in the financial statements.
41 STATEMENT OF DIRECTORS’ RESPONSIBILITIES Consequent to the acquisition of controlling interest in Agalawatte Plantations PLC by Browns Power Holdings (Pvt) Ltd on 14th July 2016, the previous Board of Directors whose names are listed below tendered their resignations on the dates given below. Subsequently, on 27th March 2017, 61.1% of the shares of Agalawatte Plantations PLC was acquired by D R Investments (Pvt) Ltd.
Dr. C N A Nonis Resigned w.e.f 11th November 2016 (Chairman at the time of resignation) Mr. R K Man Ng Resigned w.e.f 11th November 2016 Mr. F L Fonseka Resigned w.e.f 11th November 2016 (Managing Director at the time of resignation) Mr. S C J Devendra Resigned w.e.f 11th November 2016 (CEO at the time of resignation) Mrs. S M A Nonis Ranaweera Resigned w.e.f 11th November 2016
66 | ANNUAL REPORT 2016 AGALAWATTE PLANTATIONS PLC
41 STATEMENT OF DIRECTORS’ RESPONSIBILITIES (CONTD.) Following board of directors were appointed and they resigned on the dates given below.
Mr. K A K P Gunawardena Appointed w.e.f 20th October 2016 and appointed as the chairman w.e.f 14th January 2017 and resigned 14th June 2017 Mr. D S K Amarasekera Appointed w.e.f 20th October 2016 and resigned 14th June 2017 Mrs. V G S S Kotakadeniya Appointed w.e.f 20th October 2016 and resigned 14th June 2017 Mr. A S Perera Appointed w.e.f 20th October 2016 and resigned 13th September 2017 Mr. K G Punchihewa Appointed w.e.f 18th November 2016 and resigned 14th June 2017
With the disposal of 61.1% shares held in the company by Browns Power Holdings (Pvt) Ltd on 27th March 2017, following directors were appointed to the board.
Mr. G.P.N.A.G. Gunatilake Appointed w.e.f 22nd May 2017 Mr. R.P.L. Ramanayake Appointed w.e.f 22nd May 2017 Mr. W.A.A. Asanga Appointed w.e.f 22nd May 2017 Mr. L.R.W.S. Rajasekara Appointed w.e.f 22nd May 2017
Subsequent to the initial appointments, the below Directors were appointed with effects from 22nd June 2017.
Mr. A.S.Amarasuriya Chairman of Agalawatte Plantations PLC w.e.f 31/07/2017 Mr. W.L.P.Wijewardena Deputy Chairman of Agalawatte Plantations PLC w.e.f 31/07/2017 Mr. R.K.A.Ranaweera Appointed w.e.f. 20/09/2017
The present Board of Directors and Head of Finance who did not hold any office during the year ended 31st December 2016 (other than Mr.Anusha Perera, Director who resigned w.e.f 13/09/2017) merely facilitated the external auditors to the best of their knowledge exercising reasonable care as practical as possible to carry out the audit with available information and encountered limitations during the process of audit which may have affected the fair presentation of financial statements for the year ended 31st December 2016.
The directors who held office during the year ended 31st December 2016 are responsible for the compliance on good corporate governance, maintenance of proper books of accounts, preparation of financial statements in compliance with Sri Lanka Accounting Standards and also to comply with the Companies Act no.07 of 2007, listing rules and other compliance requirements.
42 FINANCIAL RISK MANAGEMENT 42.1 Financial Risk Factors The company’s principal financial liabilities comprise with loans and borrowings and trade and other payables, amounts due to related companies and short term loans. Receivables and cash that arrive directly from its operations.
Accordingly, the company’s activities exposed to variety of financial risks: - Credit Risk - Liquidity Risk - Market Risk - Operational Risk
42.2 Risk management framework The Board of Directors has overall responsibility for the establishment and oversight of the Company’s risk management framework subject to the Note 41.
42.2.1 Credit risk Credit risk is the risk that a counterparty will not meet its obligations under a financial instrument or customer contract, leading to a financial loss. The Company is exposed to credit risk from its operating activities.
ANNUAL REPORT 2016 | 67 AGALAWATTE PLANTATIONS PLC Notes to the Financial Statements
42 FINANCIAL RISK MANAGEMENT (CONTD.) 42.2.1.1Risk exposure The maximum risk positions of financial assets which are generally subject to credit risk are equal to their carrying amounts. Following figures shows the maximum risk positions.
Group Company As at 31st December 2016 2015 2016 2015 Rs. 000 Rs. 000 Rs. 000 Rs. 000
Trade and other receivables 169,929 196,269 94,610 126,759 Amounts due from related parties 49 328,394 20,782 355,180 Cash in hand and at bank 19,635 24,838 18,043 24,785 Total Credit Risk Exposure 189,313 549,501 133,435 506,724
42.3 Liquidity Risk Liquidity risk is the risk that the Company will encounter difficulty in meeting the obligations associated with its financial liabilities that are settled by delivering cash or another financial asset.
Group Company As at 31st December 2016 2015 2016 2015 Rs. 000 Rs. 000 Rs. 000 Rs. 000
42.3.1 Net (debt) / cash ratio Cash in hand and at bank 19,635 24,838 18,043 24,785 Liquid assets 19,635 24,838 18,043 24,785
Current portion of borrowings 841,710 958,382 832,169 951,470 Bank overdrafts 60,547 89,568 51,368 69,998 Liquid liabilities 902,257 1,047,950 883,537 1,021,468 Net (debt)/ Cash (882,622) (1,023,112) (865,494) (996,683)
42.4 Market risk Market risk is the risk that changes in market prices, such as foreign exchange rates and interest rates will affect the Company’s income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimizing the return.
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 risk comprise of the following types of risk: (a) Interest rate risk (b) Currency risk (c) Commodity price risk (d) Equity price risk a) Currency risk The Company is exposed to currency risk mostly on purchases that are denominated in a currency other than Sri Lankan Rupees (LKR). The foreign currencies in which these transactions primarily denominated are United Stated Dollars (USD). Since the frequency of the transaction done in foreign currency is very low, the company is not exposed to a higher degree of currency risk.
b) Interest rate risk The company’s exposure to the risk of changes in the market interest rate relates primarily to company’s long term debt obligations with floating interest rates.
68 | ANNUAL REPORT 2016 AGALAWATTE PLANTATIONS PLC
42 FINANCIAL RISK MANAGEMENT (CONTD.) 42.5 Operational risk Operational risk is the risk of direct or indirect loss arising from a wide variety of causes associated with the Company’s processes, personnel, technology and infrastructure, and from external factors other than credit, market and liquidity risks such as those arising from legal and regulatory requirements and generally accepted standards of corporate behavior. Operational risks arise from all of the Company’s operations.
42.6 Capital management The Company’s Debt to Equity ratio at the end of the reporting periods is as follows:
Carrying Amounts Group Company As at 31st December 2016 2015 2016 2015 Rs. 000 Rs. 000 Rs. 000 Rs. 000
Total Liabilities 5,210,871 5,028,804 5,144,612 4,975,005
Less: Cash and cash equivalents (19,635) (24,838) (18,043) (24,785) Net debts 5,191,236 5,003,966 5,126,569 4,950,220
Total Equity (1,845,388) (631,331) (1,988,936) (711,806)
Adjusted Debt to Equity ratio (282%) (797%) (259%) (699%)
43 FAIR VALUES OF FINANCIAL INSTRUMENTS 43.1 Fair values versus the Carrying amounts The fair values of financial assets and liabilities, together with the carrying amounts shown in the Statement of Financial Position, are as follow;
Company As at 31st December 2016 2015 Carrying Carrying Amount Fair Value Amount Fair Value Rs. 000 Rs. 000 Rs. 000 Rs. 000
Assets carried at amortised cost Trade and other receivables 94,610 94,610 126,759 126,759 Amounts due from related parties 20,782 20,782 355,181 355,181 Cash & Cash Equivalents 18,043 18,043 24,785 24,785 133,435 133,435 506,725 506,725
Group As at 31st December 2016 2015 Carrying Carrying Amount Fair Value Amount Fair Value Rs. 000 Rs. 000 Rs. 000 Rs. 000
Assets carried at amortised cost Trade and other receivables 169,629 169,629 196,269 196,269 Amounts due from related parties 49 49 328,394 328,394 Cash & Cash Equivalents 19,635 19,635 24,838 24,838 189,313 189,313 549,501 549,501
ANNUAL REPORT 2016 | 69 AGALAWATTE PLANTATIONS PLC Notes to the Financial Statements
43 FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTD.) 43.2 Fair values versus the Carrying amounts Company As at 31st December, 2016 2016 2015 Carrying Carrying Amount Fair Value Amount Fair Value Rs. 000 Rs. 000 Rs. 000 Rs. 000
Liabilities carried at amortised cost Loans and Borrowings 1,680,254 1,680,254 1,619,845 1,619,845 Net liability to lessor of JEDB/SLSPC 228,567 228,567 232,965 232,965 Trade and other payables 2,112,518 2,112,518 1,594,545 1,594,545 Amounts due to related parties 35,433 35,433 472,229 472,229 Income tax payables 45,364 45,364 31,749 31,749 Bank overdrafts 51,368 51,368 69,998 69,998 4,153,504 4,153,504 4,021,332 4,021,332
Group As at 31st December 2016 2015 Carrying Carrying Amount Fair Value Amount Fair Value Rs. 000 Rs. 000 Rs. 000 Rs. 000
Liabilities carried at amortised cost Loans and Borrowings 1,692,295 1,692,295 1,631,258 1,631,258 Net liability to lessor of JEDB/SLSPC 228,567 228,567 232,965 232,965 Trade and other payables 2,141,393 2,141,393 1,611,443 1,611,443 Amounts due to related parties 35,433 35,433 472,229 472,229 Income tax payables 50,617 50,617 30,302 30,302 Bank overdrafts 60,547 60,547 89,568 89,568 4,208,852 4,208,852 4,067,765 4,067,765
43.3 Financial assets and liabilities by categories Financial assets and liabilities in the tables below are split into categories in accordance with LKAS 39.
a) Financial assets by categories
Group Company As at 31st December, 2016 2016 2015 2016 2015 Rs. 000 Rs. 000 Rs. 000 Rs. 000
Financial instruments in current assets Trade and Other Receivables 169,629 196,269 94,610 126,759 Amounts Due From Related Parties 49 328,394 20,782 355,181 Cash and Cash Equivalents 19,635 24,838 18,043 24,785 Total 189,313 549,501 133,435 506,725
The fair value of loans and receivables does not significantly vary from the value based on amortized cost methodology.
70 | ANNUAL REPORT 2016 AGALAWATTE PLANTATIONS PLC
43 FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTD.) b) Financial liabilities by categories
Group Company As at 31st December, 2016 2016 2015 2016 2015 Rs. 000 Rs. 000 Rs. 000 Rs. 000
Financial instruments in non-current liabilities Loans and Borrowings 850,585 672,876 848,085 668,375 Net Liability to lessor of JEDB/SLSPS Estates 223,993 228,567 223,993 228,567
Financial instruments in current liabilities - - Trade and Other Payables 2,141,393 1,611,443 2,112,518 1,594,545 Amounts Due To Related Parties 35,433 472,229 35,433 472,229 Loans and Borrowings 841,710 958,382 832,169 951,470 Net Liability to lessor of JEDB/SLSPS Estates 4,574 4,398 4,574 4,398 Bank Overdrafts 60,547 89,568 51,368 69,998 Total 4,158,235 4,037,463 4,108,140 3,989,582
The management assessed that, cash and short-term deposits, trade receivables, trade payables, bank overdrafts and other current financial liabilities approximate their carrying amounts largely due to the short-term maturities of these instruments.
The fair value of the financial assets and liabilities is included at the amount at which the instrument could be exchanged in a current transaction between knowledgeable and willing parties, other than in a forced sale or on liquidation
The following methods and assumptions were used to estimate the fair values: The fair value of unquoted instruments, loans from banks and other financial liabilities, obligations under finance leases, as well as other non-current financial liabilities is estimated by discounting future cash flows using rates currently available for debt on similar terms, credit risk and remaining maturities.
43.4 Financial assets and liabilities by fair value hierarchy The Company uses the following hierarchy for determining and disclosing the fair value of financial instruments by valuation technique as explained in Note 2.6 to the financial statements:
Level 1 : Quoted (unadjusted) prices in active markets for identical assets or liabilities.
Level 2 : Other techniques for which all inputs with significant effect on the recorded fair value are observable, either directly or indirectly.
Level 3 : Techniques that use inputs that have a significant effect on the recorded fair value that are not based on observable market data.
ANNUAL REPORT 2016 | 71 AGALAWATTE PLANTATIONS PLC Notes to the Financial Statements
43 FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTD.) 43.4 Financial assets and liabilities by fair value hierarchy (Contd.)
Group Company Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total Rs. 000 Rs. 000 Rs. 000 Rs. 000 Rs. 000 Rs. ‘000 Rs. 000 Rs. ‘000 As at 31st December 2016 Assets Carried at amortised Cost Trade and other receivables - - 169,629 169,629 - - 94,610 94,610 Amounts due from related parties - - 49 49 - - 20,782 20,782 Cash & Cash Equivalents - 19,635 - 19,635 - 18,043 - 18,043 - 19,635 169,678 189,313 - 18,043 115,392 133,435
Liabilities Carried at amortised Cost Loans and Borrowings - - 1,692,295 1,692,295 - - 1,680,254 1,680,254 Net liability to lessor of JEDB/ SLSPC - - 228,567 228,567 - - 228,567 228,567 Trade and other payables - - 2,141,393 2,141,393 - - 2,112,518 2,112,518 Amounts due to related parties - - 35,433 35,433 - - 35,433 35,433 Income tax payables - - 50,617 50,617 - - 45,364 45,364 Bank overdrafts - - 60,547 60,547 - - 51,368 51,368 - - 4,208,852 4,208,852 - - 4,153,504 4,153,504
72 | ANNUAL REPORT 2016 AGALAWATTE PLANTATIONS PLC Shareholders Information Distribution of shareholding (Ordinary Shares) as at 31st December 2016
No of shares held No of Shareholders No of Shares Total Holding %
I.1-1000 shares 11,149 1,953,783 7.82%
II.1,001-10,000 shares 90 311,218 1.24%
III.10,001-100,000 shares 26 884,348 3.54%
IV.100,001-1,000,000 shares 3 1,080,551 4.32%
V. Over 1,000,000 shares 3 20,170,100 83.08% 11,271 25,000,000 100.00%
No of Shareholders No of Shares Total Holding %
Resident 11,259 20,851,150 83.40%
No resident 12 4,148,850 16.59%
11,271 25,000,000 100.00%
No of Shareholders No of Shares Total Holding % Company Holders 49 18,466,571 73.87% Member Holders 11,222 6,533,429 26.13% 11,271 25,000,000 100.00%
Market Value Analysis Date 2016 Date 2015 Rs Rs Highest -for the period ended 31st Dec 2016 18.10.2016 22.50 21.01.2015 28.60 Lowest -for the period ended 31st Dec 2016 20.12.2016 17.10 16.10.2015 19.00 Year ended 31st Dec 2016 30.12.2016 17.50 29.12.2015 20.50
ANNUAL REPORT 2016 | 73 AGALAWATTE PLANTATIONS PLC Shareholders Information
TWENTY LARGEST SHAREHOLDERS AS AT 31ST DECEMBER 2016
Number of % of the Name Shares holding
1 BROWNS POWER HOLDINGS (PRIVATE) LIMITED 15,200,000 60.80
2 MISS.SONIA WIN-YEN NG 3,570,100 14.28
3 SAMPATH BANK PLC/ DR.T.SENTHILVERL 2,000,000 8.00
4 SEYLAN BANK PLC/DR.THIRUGNANASAMBANDAR SENTHILVERL 556,899 2.23
5 HSBC INTERNATIONAL NOMINEES LTD-SSBT-DEUSTCHE BANK AG SINGAPORE 290,000 1.16
6 DR. THIRUGNANASAMBANDAR SENTHILVERL 233,652 0.93
7 MRS. MARIA STEPHANIE ELISABETH VERA EUGENIE ATHENAIS URSULA VON ST 100,000 0.40
8 MR. MOHAMED IMTIZAM ABDUL HAMEED/ 88,200 0.35
9 MOULDEX LIMITED 75,206 0.30
10 THE MANDATORY OFFER BY BROWNS POWER HOLDINGS(PVT) LTD TO PURCHASE 74,527 0.30
11 HARNAM HOLDINGS SDN BHD 69,019 0.28
12 MR. PATWANT SINGH NIRANJAN SINGH/’5057FI’ 61,525 0.25
13 BANK OF CEYLON NO. 1 ACCOUNT 45,600 0.18
14 MR. DULSHAN THIVANKA BERUWALAGE 40,450 0.16
15 MRS. JASBINDERJIT KAUR PIARA SINGH 37,986 0.15
16 MRS. ASHANI NIMALI KIRIDENA 30,000 0.12
17 MR. ALLAN JAGATH MONESH JINADASA 25,000 0.10
18 POBRAN INVESTMENTS (PVT) LTD 25,000 0.10
19 MR. KANGASU CHELVADURAI VIGNARAJAH 20,630 0.08
20 COMMERCIAL BANK OF CEYLON PLC/S.A.GULAMHUSEIN 20,255 0.08
22,564,049 90.26
BALANCE HELD BY 11,251 SHAREHOLDERS 2,435,951 9.74
25,000,000 100.00
“Percentage of Shares held public is 24.92%
THE GOLDEN SHARE HOLDER The Golden share of Rs 10/- is currently held by the Secretary of the Treasury and should be owned either directly by the Government of Sri Lanka or by a 100% Government owned Public Company. In addition to the rights of the normal shareholder, the Golden Shareholder has specific rights according to the Articles of Association of the company which are specified in Note No 27.
74 | ANNUAL REPORT 2016 AGALAWATTE PLANTATIONS PLC Information on Estates
As at 31st December 2016 TEA/RUBBER/OIL PLAM Total Mature Immature Total Production Net Sales Planted Estate Crop Extent Extent Extent Extent Average Ha Ha Ha Ha Kg Rs/Kg RATNAPURA DISTRICT Peenkande Rubber 752 107 859 572,533 234.44 1401 Oil Palm 157 2 159 543,685 41.28
Doloswella Tea 871 102 7 109 58,257 396.00 Rubber 305 47 352 138,789 244.83
Kiribatgala Rubber 747 206 88 294 256,169 237.87
Noragalla Tea 133 76 1 77 80,793 435.21
Watapotha Tea 365 47 - 47 23,401 414.77 Rubber 40 52 92 24,205 211.87
Niriella Tea 9 - 9 6,191 414.57 Rubber 895 275 94 369 211,257 235.08 Oil Palm 14 22 36 97,103 41.94 Delgoda Tea 7 - 2 2 - - KALUTARA DISTRICT
Culloden Rubber 1,771 628 74 702 394,739 221.17 Oil Palm 668 12 680 3,685,586 42.22 Clyde Rubber 604 342 52 394 225,387 236.65
Kiriwanaketiya Rubber 767 312 40 352 222,682 227.66 Oil Palm 18 52 70 67,782 42.83
Mohamedi Tea 11 - 11 7,373 323.57 Rubber 724 187 39 226 107,749 212.15 Oil Palm 193 4 197 985,710 42.47 Pimbura Rubber 115 3 118 70,412 220.20 374 Oil Palm 170 - 170 1,125,749 42.83 NUWARA ELIYA DISTRICT Labookellie Tea 538 311 4 315 310,102 431.51
Frotoft Tea 1,016 525 22 547 306,641 399.06
Weddemulle Tea 706 329 4 333 219,018 330.57
Tea Rubber Oil Palm Tea Rubber Oil palm Total Mature Extent (HA) 1,410 3,161 1,220 Total Crop ( kg ) 1,011,775 2,223,922 6,505,615 Total Immature Extent (HA) 39 597 92 Total NSA (Rs/kg) 339.00 229.05 42.29 Total Planted Extent (HA) 1,449 3,758 1,311 Total Extent (Ha) 10,919
ANNUAL REPORT 2016 | 75 AGALAWATTE PLANTATIONS PLC Definitions
FINANCIAL TERMS UITF Urgent Issues Tasks Force of The Institute of Chartered Accountants Accounting policies of Sri Lanka. Specific principles, bases, conventions, rules and practices adopted by an enterprise in preparing and presenting financial statements. Value Addition The quantum wealth generated by the activities Company measured Borrowings as the difference between turnover and the cost of materials and All interest bearing liabilities. services bought in.
Capital employed Working capital Total assets less interest free liabilities and provisions. Capital required to finance the day-to-day operations (current assets minus current liabilities). Cash equivalents Liquid investments with original maturities of three months or less. SLFRSs /LKASs Sri Lanka Accounting Standard corresponding to International Contingent liabilities Financial Reporting Standard. Conditions or situations at the Balance Sheet date, the financial effect of which are to be determined by future events which may or may SLFRS not occur. Sri Lanka Financial Reporting Standards.
Current ratio Market capitalisation Current assets divided by current liabilities. Number of shares in issue multiplied by the market value of each share at the year end. Dividend yield Gross dividend per share as a percentage of the market price. A Fair Value measure of return on investment. Is the amount which an asset could be exchanged between a knowledgeable willing buyer and knowledgeable seller in an arms Earnings per share length transaction. Profits attributable to ordinary shareholders divided by the number of ordinary shares in issue. Effective Tax Rate Income tax Expense divided by profit from ordinary activities before EBITDA tax. Earnings before interest tax depreciation & amortization. Deferred Tax Liability Equity The amounts of income taxes Payable in future periods in respect of Shareholders’ funds, i.e. share capital and reserves. taxable temporary differences.
Net assets per share Deferred Tax asset Shareholders’ funds after conversion of mandatorily convertible The amounts of income taxes recoverable in future periods in respect debentures divided by the number of ordinary shares after of deductible temporary differences, the carry forward of unused tax conversion. losses and the carry forward of unused tax credits.
Price earnings ratio Consumable Biological Asset Market price of a share divided by earnings per share. The biological assets those that are to be harvested as agricultural produce or sold as biological asset. Related parties Bearer Biological Asset Parties who could control or significantly influence the financial and operating policies of the business. Biological assets those are not to be harvested as agricultural or sold as biological asset. Segment Key Management Personnel Constituent business units grouped in terms of nature and similarity of operations. Key management Personnel are those persons having authority and responsibility for planning ,directing and controlling the activities of SLAS the entity, directly or indirectly. Sri Lanka Accounting Standards.
76 | ANNUAL REPORT 2016 AGALAWATTE PLANTATIONS PLC
NON-FINANCIAL TERMS
COP The Cost of Production. This generally refers to the Cost of producing a kilo of produce (Tea/Rubber/Oil Palm).
Crop The total produce harvested over a given period of time (usually during a financial year).
Extent in bearing The extent of land from which crop is being harvested. Also see “Immature Plantation”.
Field An unit extent of land. Estates are divided into fields in order to facilitate management.
Immature plantation The extent of plantation that is under-development and is not being harvested.
Infilling A method of field development whereby planting of individual plants is done in order to increase the yield of a given field, whilst allowing the field to be harvested.
Mature plantation The extent of plantation from which crop is being harvested. Also see “Extent in Bearing”.
NSA The Net Sales Average. This is the average sale price obtained (over a period of time) after deducting Brokerage fees and cost of Gratis teas.
Replanting A method of field development where an entire unit of land is taken out of “bearing” and developed by way of uprooting the existing trees, bushes and replanting with new trees/bushes.
Yield The average crop per unit extent of land over a given period of time (usually kgs. per hectare per year).
ANNUAL REPORT 2016 | 77 AGALAWATTE PLANTATIONS PLC Notes
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AGALAWATTE PLANTATIONS PLC | ANNUAL REPORT 2016