Good to Grow

Good to Grow

The Bairaha proposition is manifold but two key elements deserve highlighting. First and foremost, chicken is acknowledged as one of the world’s best sources of high value protein, minerals, vitamins, and amino acids. It is a food source that is “good for growth” and nourishment. Secondly, as the tag line suggests, being one of Sri Lanka’s premier purveyors of quality chicken and poultry products, the Company is “good to go” and “good to grow” too, as a premium brand in the market.

Bairaha Farms PLC Annual Report 2019/20 01  Contents Contents

About This Management Financial Report 03 Discussion and 25 Reports 69 Analysis 70 Financial Calendar 26 Financial Capital 71 Statement of Directors’ Responsibilities Year at a Glance 28 Manufactured Capital 72 Independent Auditors’ Report 04 29 Institutional Capital 76 Statement of 31 Human Capital Financial Position 33 Social and 78 Statement of Relationship Capital This is Bairaha Profit or Loss and 07 About Us 06 34 Sustainability Other Comprehensive Income 08 Our Journey 35 Investor Relations 79 Statement of 10 The Bairaha Family Changes in Equity 12 Chairman’s Message 80 Statement of Cash Flows 15 Managing Director’s Review 82 Notes to the Stewardship Financial Statements 39 Board of Directors 38 42 Corporate Governance Business Model 53 Annual Report of the Supplementary 19 Operating Environment18 Board of Directors on the Affairs of the Company 145 22 Our Value Creation Process Reports 57 Report of the 146 Ten Year Financial Summary 24 Economic Value Added Audit Committee Statement 148 Key Financial Ratios and 59 Report of the Financial Terms Remuneration Committee 149 Notice of Meeting 60 Report of the Related Party Transactions 151 Form of Proxy Review Committee Inner 61 Risk Management Back Cover Corporate Information

02 Bairaha Farms PLC Annual Report 2019/20  About This Report

Reporting framework Format The information contained in this Report is in This report is available in pdf version which can be conformance with all relevant statutory provisions, accessed via the Company website (http://www.bairaha. regulations, standards and guidelines. The financial com/investors) or the Colombo Stock Exchange Website statements been prepared adhering to the Sri Lanka (https://www.cse.lk/home/company-info/BFL.N0000/ Accounting Standards while the financial reporting and financial). The printed report will be supplied to any corporate governance aspects are reported according to shareholder who requested for the same in writing. the provisions of the Companies Act No. 07 of 2007, the Listing Rules of the Colombo Stock Exchange and the Code of Best Practice on Corporate Governance jointly Contact issued by the Institute of Chartered Accountants and the Securities and Exchange Commission of Sri Lanka. We welcome your comments, queries and suggestions. These may be addressed to: Chief Financial Officer Scope and Boundary Bairaha Farms PLC The Report covers the 12-month period from No. 407 Galle Road, Colombo 3 1st April 2019 to 31st March 2020 and is consistent with Phone: +94 11 257 5255 our usual cycle for financial and sustainability reporting. Website: www.bairaha.com Email: [email protected] The financial statements present the consolidated performance of the Bairaha Group which consists of Bairaha Farms PLC and its subsidiaries: Siyane Farms Ltd., Hill Country Farms Ltd., Bairaha Foods (Pvt.) Ltd., Nature’s Best Industry Ltd. and its joint ventures: Fortune GP Farms (Lanka) Ltd. and Fortune Agro Industries (Pvt.) Ltd.

The Group’s financial statements have been assured by our auditors Messrs. Ernst and Young, Chartered Accountants.

Bairaha Farms PLC Annual Report 2019/20 03  04 Year ataGlance Return onReturn totalassets onReturn equity Net profit margin profitOperating margin Gross profit margin Total shareholders’ funds Total borrowings Total assets Profit tax after Profit from operations Gross profit Revenue Indicator Dividend payout Dividend pershare pershareMarket price Net assetsvaluepershare pershareEarnings Current ratio Debt/Capital

price inrecent history price Lowest day-old chick Lowest corn and delaying of anddelaying corn local production of local import permits import Easter attack Shortfall in Shortfall Price wars

Weaker PESTEL environment and external shocks external Resulted in Bairaha FarmsBairaha PLC Annual 2019/20 Report order cancellations by day by old order cancellations LKR Mn. LKR Mn. LKR Mn. LKR Mn. LKR Mn. LKR Mn. LKR Mn. Times Weaker demandand LKR LKR LKR LKR Weaker economic Unit Higher feed prices Higher feed chick customers chick % % % % % % % fundamentals COVID-19 2019/20 231.12 (12.26) 10.22 14.97 78.70 3,698 5,061 4,361

(5.19) (4.50) (1.31) (3.91) (196) 1.93 651 446 (57) – –

2018/19 114.80 241.62 22.79 11.12 11.54 31.00 11.14 25.81 1,076 3,866 4,960 4,724 8.74 8.61 8.00 3.24 485 413 545 Bairaha FarmsBairaha PLC Annual 2019/20 Report Intellectual Capital Intellectual Manufactured Capital Year ataGlance Natural Capital Capital andRelationship Social Human Capital period COVID-19 lockdown attendance during taxes to government natural resourcesnatural minimise utilisation of Improve to productivity LKR 732Mn. than80% More (FSSC 22000) 22000 Certificate Food System Safety toFirst receive LKR 342Mn. expenditurecapital of witha total technology to invest inlatest Company continued as

Brand value Brand of interms brands local top100 Finance in Brand paperless environmentpaperless towards a achieving Further stepstaken than1,000 More 852 sixranksMoved up integration through vertical business of resilience demonstrated the lockdown COVID-19during created Uncertainties farmers benefitedfarmers andoutgrowermaize Employees

3,432 employees paid asbenefits to LKR 488Mn. shareholders sales channel ofonline Launching 05

 Year at a Glance

This is Bairaha This is Bairaha

06 Bairaha Farms PLC Annual Report 2019/20 About Us This is Bairaha

The Company utilises the latest safety and supporting local farmers technology and processes to develop and businesses. True to its heritage, innovative products for consumers Bairaha continues to redefine while raising the standards of quality and expand the paradigms of the across the industry by ensuring food Sri Lankan poultry industry.

Vision Mission To be stakeholders’ and customers’ To provide superior quality preferred Company and brand in the poultry and meat products that poultry and meat production sectors. nourishes people’s health.

Bairaha Farms PLC Annual Report 2019/20 07 Our Journey This is Bairaha 1975 1976 1980 1986 Bairaha Farms Ltd. Establishment of a Parent Commencement of Bairaha Farms Ltd. (BFL) (formerly known as Broiler Breeder Farm and commercial Broiler Farm pioneered and inaugurated M I M Naleem Hajiar & Co. Hatchery in Katana. operation in a 65-acre site a Contract Growing Scheme Ltd.) was incorporated on at Pasyala. Establishment of a in the Gampaha District the 17th October 1975. pioneering project in setting enabling farmers to grow up of a state-of-the-art and supply live broiler birds chicken processing factory to the Company. Today, equipped with machinery there are hundreds of such imported from Europe. contract farmers, located in several districts.

2008 2011 2015 2016 Received Gold Award in the Bairaha Farms PLC share Produced and sold the The joint venture feed mill Manufacturers and Exporters price reached an all-time highest number of broiler commenced its operations. of Household Consumable high of LKR 525 in January day-old chicks by the Group Product category at the 4th 2011. Market capitalisation in its history. Annual Sri Lanka-Malaysian of Bairaha Farms PLC Business Awards 2008 reached LKR 8.4 Bn. Fortune ceremony organised by G-P Farms (Lanka) Ltd., the Sri Lanka – Malaysia received a Bronze Export Business Council. Award in the year 2010 from the National Chamber Received Gold Award in the of Exporters of Sri Lanka. Producer/Processor – Large Bairaha was presented with Category at the Agribusiness a prestigious Forbes Asia Awards 2008 organised by Award in a ceremony held the National Agribusiness in Hong Kong. Council.

08 Bairaha Farms PLC Annual Report 2019/20 Our Journey This is Bairaha 1994 2001 2004 2007 BFL became a Public Listed Bairaha Farms PLC was A landmark agreement was The Company was awarded Company and at the Initial awarded a Certificate signed between Bairaha the third place for running Public Offering (IPO) of the of Compliance for the Farms PLC and Hybro the Best Poultry Breeder Company shares were over 1999/2000 Annual Report B V of Netherlands at the Farm at the National subscribed by more than 2.04 in the category of Food Headquarters of Hybro in Livestock Award presented times on the opening day and Beverage Companies, Boxmeer, Netherlands to by the Ministry of Livestock itself of the public share issue. in the Annual Report set-up a joint venture Grand Development. Competition organised by Parent Broiler Breeder The Institute of Chartered project in Sri Lanka. The Accountants of Sri Lanka. first batch of Grand Parent In the same year Bairaha Chicks were imported by Group was awarded the the joint venture company, internationally-recognised namely, Fortune G-P Farms ISO 9002 Certificate for (Lanka) Ltd. Quality Management System and HACCP Food Safety Certificate.

2017 2018 2019 2020 Bairaha Group reported In a ceremony held in Fortune GP Farms was Awarded with the “FSSC the highest ever profit and March 2018, Cobb-Vantress recognised as the best grand 22000 Certification” (Food turnover in its history. Inc., informed Bairaha Farms parent farm in Asia by Safety System Certification), PLC, that the Company’s Cobb-Vantress Inc. the first Company in the breeder farms productivity FMCG meat sub-sector in was comparable to the best Completed implementation Sri Lanka to receive this in the Asian Region. of SAP ERP across all the prestigious compliance companies in the Group. certification. Broiler Farm performance has been tremendously Opening of a day-old chick Venturing into export market. improved mainly due to sales centre in Kochchikade, the high and consistent Gampaha District. quality of feed supplied by our joint venture company, Acquisition of CIC maize Fortune Agro Industries storage facility by the (Pvt) Ltd. joint venture company to strengthen backward integration.

Bairaha Farms PLC Annual Report 2019/20 09 The Bairaha This is Bairaha Family

Bairaha Farms PLC Bairaha Farms PLC (BFPLC) is the holding company and it directly owns and manages a large-scale state-of-the-art 100% chicken processing factory. It also owns Bairaha Trading (Pvt) Ltd. and operates modern breeder and broiler Our subsidiary company, farms and provides essential Elisa and Bairaha Trading (Pvt) Ltd., Bacteriological Laboratory services both to was established to import and Bairaha Group and the poultry industry. sell products needed by the poultry industry.

100% 50% Nature’s Best Industry Ltd. Fortune G-P Farms The Company owns and runs (Lanka) Ltd. a state-of-the-art broiler farm. Its principal activity is the operation It’s a BOI-approved company. of a grandparent broiler breeder farm and hatchery for the production of parent broiler breeder chicks.

100% Bairaha Foods (Pvt) Ltd. Bairaha Foods (Pvt) Ltd., is engaged in the manufacture of a range of value-added, pre-cooked meat products.

10 Bairaha Farms PLC Annual Report 2019/20 The Bairaha Family

50% Rajarata Land Development Ltd. Cultural Triangle Land Development Ltd. Windsor Real Estate Ltd. Engaged in providing support services to the joint venture companies by purchasing and then leasing agricultural lands to them for setting-up poultry projects. 100% BF Lands Development Ltd. Lanka Land Development Ltd. HCF Land Development Ltd. 100% Engaged in providing support services to Siyane Farms Ltd. the Group by purchasing and then leasing agricultural lands to it for setting-up Its principal activity is poultry projects. breeding of poultry for the production of broiler day-old chicks.

100% Hill Country Farms Ltd. Hill Country Farms Ltd. operates 50% breeder farms and a hatchery for Fortune Agro Industries (Pvt) Ltd. the production of broiler day-old chicks. The Company owns and runs a state-of-the-art feedmill and the principal activity is manufacturing and selling animal feed to the livestock industry. It commenced production in June 2016. • Golden Rooster Restaurants (Pvt) Ltd. – 100% owned subsidiary – not in operation

• Regency Real Estate Company Ltd. – 100% owned subsidiary – operation has not commenced yet Bairaha Farms PLC Annual Report 2019/20 11 Chairman’s Message Chairman’s This is Bairaha Message

In a year of great challenges, we have been able to weather the storms. It has also been a learning experience which will stand us in good stead for the future. 12 Bairaha Farms PLC Annual Report 2019/20 Chairman’s Message This is Bairaha

This was a year fraught with many challenges for Bairaha Chicken meat has the advantage of being considered Farms. At the outset there was the Easter Sunday terrorist as an essential food item by the Government. Though attack, the impact of which was felt till the end of the households are our end consumers, we have been year 2019. Then, in early 2020, COVID-19 pandemic dependent on supermarket chains, among others for brought about unprecedented volatility in the operating the distribution of our products. We constantly seek to environment due to immense social and economic introduce new value-added products, to add variety to disruptions, exerting tremendous pressure on many consumer choice. industries and business sectors. Fortunately, as more than 80% of the production staff continued to report for work, The purchase of the grain storage and drying facility our production activities during COVID-19 were not for maize by our joint venture companies located in disrupted. We are yet to see how the new normal and the the Monaragala District has greatly strengthened our full impact of the pandemic will be. position not only in producing feed for ourselves, but also for the industry. However, due to restrictions on imports, The Group’s financial performance for the year ended we are still beset by periodic shortages of raw materials 31 March 2020, was adversely affected by a number needed for feed production. After months of discussion, of factors. These include over-production of chicken the Government decided to disallow the import of maize and broiler day-old chicks, which led to lower prices in but instead has agreed to allow import of alternative raw comparison with the previous year. Further, the increase materials, like wheat. in feed prices due to higher raw material prices, specially the price of maize, together with the adverse impact on Continuous improvement is part of our business ethos. the economy due to the outbreak of COVID-19 caused During the year, production capacity in our broiler disruption to our sales activities in the latter part of hatchery was increased by introducing incubators March 2020. The lockdown and the imposition of equipped with the latest technology, which has also curfews due to COVID-19 outbreak also contributed to contributed for improvement in productivity. Our the adverse performance of the Company. principal, Cobb-Vantress Inc. of USA has always provided us with the technical support needed for process The Group loss for the year under review was LKR 196 Mn. improvement. Staff training and development are also compared to a Group profit of LKR 413 Mn. in the ongoing activities at Bairaha. The technical expertise preceding year. The Group is reporting a loss after many provided by our Principal is disseminated down the line. years of generating substantial profits. In the light of the challenges faced and the experiences Bairaha has a very specialised and focused business gained during the lockdown period due to COVID-19 model concentrating on poultry related activities and outbreak, the Company had to reassess its processes, in particular on chicken processing, parent breeding, including sales and distribution so as to take advantage broiler day-old chicks production, broiler farming, and of the social and economic changes taking place in value-added meat manufacturing. Broiler farming is the market. For example, during the pandemic, we carried out both in our own farms, as well as with a large commenced our online door-to-door delivery service, out-grower network, consisting of small, medium, and and two new products, namely Chicken Munch and large-scale farmers. We also continue to provide technical Skewers were successfully launched through this channel. advice to these farmers. Bairaha Group’s Organisation We may have to consider developing this distribution Structure is well aligned with the business operations. channel further as need arises.

Our joint venture companies handle different aspects of We may also have to look at our physical working our value chain such as feed manufacturing and operating arrangements in the future. We have introduced social of a grandparent farm and hatchery for producing broiler distancing as far as practical among staff in factories as a breeder chicks. We thus have a streamlined vertically safety measure for them, but there are still some practical integrated operation where all aspects of production and constraints in regard to their implementation. If the need supply are carefully managed and monitored. for social distancing continues in the future, we may

Bairaha Farms PLC Annual Report 2019/20 13 Chairman’s Message This is Bairaha

also have to seriously consider automating certain other operations. However, since this will involve heavy capital investment, it needs to be carefully thought-out and planned for implementation.

Our priority for the immediate future will be to recover from the adverse impact of COVID-19 on the economy and the industry. Expansion projects such as acquisition of land for increasing farm capacity will have to be placed on hold while we consolidate our present activities. However, we will continue to pursue avenues for improving efficiency and cost saving, when introducing new products. New product development would be part of our strategy to cater to varying palates and changing lifestyle of the consumers. We will also continue to expand our supporting services to the industry, as far as circumstances permit. The industry is seeking the support of the Government to overcome the obstacles the industry faces, and it will also continue to lobby the Government at all possible forums to achieve favourable outcomes for the issues faced by it.

Finally, I wish to thank all the members of the Board for their guidance and the Management Team for its unstinted co-operation. I would like to offer a special thanks to our employees whose dedication and commitment enabled us to survive during difficult and unprecedented times. Finally, I would also like to express my appreciation of the continued trust and confidence placed in us by our customers, dealers, distributors, suppliers, bankers and shareholders.

(Sgd.)

Desamanya Prof M T A Furkhan Chairman 16th September 2020

14 Bairaha Farms PLC Annual Report 2019/20 Managing Director’s Review Managing Director’s Review This is Bairaha

Our f inancial performance was adversely affected by the excess supply in the market for the poultry products arising from the reduced demand following the Easter Sunday attacks, leading to lower prices for both chicken and day old chicks as well as due to higher input prices, especially maize. Bairaha Farms PLC Annual Report 2019/20 15 Managing Director’s Review This is Bairaha

LKR 4,724 Mn. in the preceding year. The turnover The economic backdrop has come down by 7.6% in the year under review in The year 2019, as known to everyone, has been a year comparison with the previous year. We are reluctantly with unprecedented challenges. Nonetheless, I am compelled to report a net loss of LKR 196 Mn. for the pleased to report to you that at the time of writing this year under review compared to a profit of LKR 413 Mn. review, the challenges from COVID-19 outbreak faced reported in the previous year. by the country, the industry, and the Company from the later part of March 2020 up to 11th of May 2020, have The impact of the COVID-19 pandemic was felt only greatly eased. Prior to this, from April 2019, following at the very end of the year under review, and the extent the Easter Sunday attacks there was severe adverse of the negative effect on the operations and financial impact on the tourism sector, with spillover effects for results of the year, nevertheless was substantial. The many months on the rest of the economy and on business lockdown severely affected the Company’s sales and confidence in general. The GDP grew by only 2.3% in financial performance in April 2020 and thereafter, 2019 compared to 3.3% in the previous year. Dampened as we were unable to undertake normal sales of both economic activity and dented business confidence led to chicken and the day-old chicks. Nonetheless, we were very slow growth in credit to the private sector, which able to continue the operations of both the farms in turn affected the financial sector. However, in the and the factories since a very high percentage of our calendar year 2019, the balance of payments improved, employees reported for work despite the difficulties they and the rupee appreciated marginally by 0.6%, reflecting encountered. The industry representatives were able to a reduction in the trade deficit. convince authorities to recognise the poultry industry as an essential service so that the staff attached to the poultry industry could obtain curfew passes with relative The challenges we faced ease. Our Management, headed by our Group Manager, The slow growth in the economy naturally had its impact Administration, played a key role in liaising with local on the consumer purchasing power. Easter Sunday police and authorities to obtain the necessary curfew terrorist attack crippled the hospitality sector and also passes for the Company staff. The staff, who reported had a devastating effect on Company sales particularly for work were rewarded with a substantial additional to that sector. The subsequent civil unrest that took payment for their dedication and loyalty. place also had its dampening effect on the economy and the Company. In the year 2019, due to the long delay We took an innovative step by taking online orders and in issuing permits to import maize, the price of locally undertaking door-to-door delivery service during the purchased maize also increased. However, this problem lockdown and curfew period. However, even after the was eased to some extent as the permits to import maize re-opening of shops and supermarkets we cannot expect were issued in November, 2019. As the maize is the single a complete return to normalcy soon, and in any case the most important raw material needed for manufacture of purchasing power of consumers will most likely to remain animal feed, its quality and price have a direct impact on low due to the impact of the crisis. the cost of both day-old chicks and chicken.

It was around in November 2019, that our sales volume Safeguarding health recovered to the level prevailing prior to the Easter Due to the nature of our industry and biosecurity Sunday attack, but the prices for both day-old chicks and measures already in practice in our farms and hatchery, chicken were lower than what prevailed in the preceding we only had to introduce few additional measures to year. All the aforementioned factors, together with the comply with requirements prescribed by the health increased production of broiler day-old chicks by authorities. In our farms, the employees normally go the industry led to reduced margins, and it was one through a process of showering and complete change of the main contributory factor for the poor financial of clothing and footwear. The PHIs who came for performance of the Group after many years of recording inspection after the onset of the pandemic were indeed consistently solid profits. Group turnover for the very satisfied with the workplace and hygienic practices year under review was LKR 4,361 Mn. compared to adopted in our farms/operations. And in the case of the

16 Bairaha Farms PLC Annual Report 2019/20 Managing Director’s Review This is Bairaha

chicken processing factory, the staff normally wear special attire, footwear, and head-cover. Additional Acknowledgements precautions such as social distancing and walk-through First of all, I would like to offer my thanks to the disinfection were introduced under the guidance of the Chairman and the members of the Board of Directors PHIs. While social distancing is possible to some extent for their guidance, support, and encouragement given at when we operate with a reduced staff, it may pose some all times. I also wish to thank our Management Team challenges to continue that practice once we return to and employees for their dedication and the special efforts full capacity production. that they put into see us through an unprecedented crisis situation. I wish to offer my sincere thanks to our customers for their trust and continued loyalty. Accolades and recognition My thanks also go out to our shareholders, principals, out growers, distributors, and business partners for their Bairaha Foods (Pvt) Ltd. had the distinction of being continued support. I also acknowledge and appreciate the first company in the Fast Moving Consumer Goods the support and co-operation extended to us by the (FMCG) meat sub-sector to be awarded the Food Ministries, Government Departments and our bankers. Safety System Certification 22000 (FSSC 22000) by the Sri Lanka Standards Institution for value added meat production. This accolade is a tribute to the importance (Sgd.) we give to food safety, hygiene, and quality. Unfortunately, Yakooth Naleem the lockdown situation in the country prevented us from organising a ceremony to celebrate the receipt of this Managing Director/Chief Executive Officer prestigious award. 16th September 2020

Fruits of investment The acquisition by our joint venture companies of the grain storage and drying facility in the Monaragala District, nearly two years ago, proved to be strategically useful as we were able to procure and store most of our requirement of maize for poultry feed production. However, in the year under review, the maize prices increased significantly against the backdrop of Government’s delay in granting approvals to import maize or alternative products to replace maize for feed production.

Serving society Even in times of adversity, we do not forget our social responsibilities. School bags and stationery were provided for the children of the employees. During the time of the lockdown and curfew, the Company took the initiative to issue chicken free of charge to the families living in the neighborhood areas of the farms and factories. Sponsorships were also granted to sports and to a children’s art exhibition held at Royal College.

Bairaha Farms PLC Annual Report 2019/20 17 Managing Director’s Review

Business Model Business Model

18 Bairaha Farms PLC Annual Report 2019/20 Operating Environment Business Model

Tourist arrivals slipped from 2.33 million in 2018 to Global economy 1.91 million in 2019, a decline of 18%. The most severe Globally economic performance was subdued in 2019, impact was during the period May-October 2019 when with a growth rate of 2.9%, with a lower rate of growth arrivals reduced from 996,692 in the same period in the in the second half of the year. The 2019 growth rate previous year to 587,480 in 2019; a decline of 41%. was lower than the expected 3.2%, despite 3.6% growth recorded in 2018. Economic growth has decelerated As with the rest of the world, Sri Lanka has been over a number of years since 2008/09 and the lowest negatively impacted by the COVID-19 pandemic. growth rate was recorded in 2019. The main factors for An early lockdown and proactive mitigation measures this were the: imposition of trade barriers, geopolitical helped to prevent a major outbreak, confining the tensions affecting trade, low growth in productivity casualties largely to those returning from overseas and and aging population in certain advanced economies. containing it at a level where the healthcare sector was The uncertainties surrounding trade and the lack of able to cope. Although the uncertainty of a potential multilateral cooperation to resolve tensions dampened second wave hangs over the nation, exercising a high level investment and demand for capital goods. However, of caution is the only way to contain the pandemic whilst despite weaknesses in the manufacturing and trading gradually and systematically easing the restrictions and sectors, the service sector remained robust, and helped re-opening businesses, public transport and the airport to maintain a stable labour market. The lacklustre growth to tourist arrivals. The socio-economic impact is expected was despite the easing of the monetary policy across both to be far-reaching judging by the initial indication of advanced and emerging economies. loss of income and livelihoods of many. The hospitality sector has virtually shut down since April 2020 although Whilst the outlook for 2020 appeared positive at the local tourism is beginning to pick up as the lockdown beginning of the year, the COVID-19 pandemic has had eases. The impact of a halt in tourist arrivals will a devastating impact on human life and economies across continue to affect all industries and small businesses the globe, with the downturn said to be the worst since directly and indirectly associated with tourism. Apparel, the Great Depression. The global economy is expected to contract by 4.9% as per the June 2020 IMF World manufacturing, and retail trade have been identified Economic update, which as of now appears to be much as the most vulnerable sectors with small and medium worse than the impact of the 2008/09 financial crisis. enterprises being the worst hit. Offsetting this situation, The biggest challenge faced by many countries is their new opportunities are opening up to cater to domestic inability to adequately fund their healthcare system and demand against the backdrop of import controls and to provide stimulus to keep businesses operating and restriction being imposed on many products. households running whilst there is no vaccine in sight in the near future. Job-losses and pandemic related fears have resulted in a decline in foreign remittances from Sri Lankans employed abroad, which has been a key contributor to Sri Lankan economy the balance of payments. The economy is expected to contract in 2020 though accurate estimates are difficult The Sri Lankan economy continued to slowdown and to make at this point in time. Growth of around 4% is recorded only a modest growth of 2.3% in 2019. The forecast for 2021. year saw tourism picking up, and the economy was expected to rebound on the back of domestic demand and contributions from the service sector. However, the Easter Sunday attacks caused a major devastation, Global poultry industry resulting in the loss of human life, drastically impacting According to data published in the July edition of the the tourism sector with serious adverse impact across the Global Trade magazine, global poultry production economy. Extreme weather conditions caused disruptions trend has been relatively stable over the last 10 years to food supplies and this led to volatility in consumer from 2009-2019, with the output volume increasing prices. Growth in credit to the private sector was muted at an average annual rate of 3.4% during this period. as a result of reduced commercial activity and dampened Production of poultry meat peaked in 2019, increasing business confidence. This in turn had a negative impact by 3.7% to 130 million metric tonnes compared to on the financial sector too. 125.3 million metric tonnes in the previous year.

Bairaha Farms PLC Annual Report 2019/20 19 Operating Environment Business Model

Consumption of poultry meat generally increases with increasing standard of living and urbanisation. Domestic poultry industry The countries with the highest volumes of poultry During the period from December 2018-March 2019, consumption in 2019 were China, U.S.A. and Brazil with just prior to the Easter Sunday attacks, tourist arrivals a combined 40% share of total consumption. Although in Sri Lanka had reached an all-time peak. This was previous poultry consumption estimates indicated a a result of a concerted effort, and many larger players cumulative average growth rate (CAGR) of around 4% in tourism and hospitality had invested quite heavily for the period 2019-2023, latest forecasts made in a in capacity expansion during the preceding months to COVID-19 impacted world is expected to decelerate cater to the expected demand. Suppliers such as chicken CAGR to approximately 2.3% per annum from producers too were gearing up to meet the expected 2019-2030. growth in demand and accordingly expanded their production capacity. The period immediately following The impact of COVID-19 related lockdown and the terror attacks saw tourist arrivals falling to dismal curtailment of travel and tourism has led to reduction levels, which directly impacted the tourism industry in demand in the hospitality industry. All the stages and had a knock-on effect on suppliers and related of poultry supply chain have been affected which will industries. As a result of the drop in demand from the impact supplies in the future. However, there is still the Hotels, Restaurants and Cafes (HoReCa) segments, the prospect of an increase in consumption by about 1%, demand for chicken too dropped significantly soon after as gains in Brazil, China and the U.S. offset declines April 2019. It was further exacerbated by the reduction in in the EU and certain other countries. Chicken meat economic activity and impact on the purchasing power of consumption is more resilient in the face of economic the middle-class consumers. disruption than red meat due to the fact that it is a low cost protein substitute and is culturally more acceptable Despite this slump in demand in the immediate in most markets. Chicken is also hailed by health aftermath of the Easter Sunday attacks, poultry professionals as a healthier protein option compared to production increased by 5% to 225,000 metric tonnes red meat. in 2019 ( January-December).

Global corn price has fluctuated in recent years; after The absence of a clear policy on maize imports has dipping in post-2015 period, it has returned to the 2015 created a major problem to the local poultry industry over level in 2019. Since corn is a key ingredient for poultry the years, and 2019 was no exception. The ban on maize feed production, corn price has a direct impact on the imports was in place through most part of 2019 and cost of production of both chicken and egg. ultimately lifted in November. The ban was re-imposed after the Maha season in April 2020 due to pressure from maize collectors as well as from farmers. This created an Average prices for maize upward pressure on prices, as only 50% of the demand worldwide from 2015 to 2019 can be secured through local maize production. Although the Government subsequently agreed to permit the USD/metric ton import of alternative grains for feed production, the ban on import of maize is still in force. Due to the financial 180 impact of the COVID-19 pandemic the Government had introduced an import ban and restrictions on many 170 other products.

160 Low domestic production of maize and actions of few short-sighted intermediaries who attempted to control 150 the price of maize by creating a temporary shortage led to an artificially high price for maize at the expense of the 140 poultry farmers, who supply two main products, namely egg and chicken, which are considered to be essential 130 food to consumers while creating tens of thousands of 2015 2016 2017 2018 2019 jobs. The maize price in Sri Lanka is almost twice that

20 Bairaha Farms PLC Annual Report 2019/20 Operating Environment Business Model

of what is available in developed markets, and this is the There was a huge downward pressure on prices in the main factor in being a barrier for export of chicken from months of April and May 2020 due to high level of stock Sri Lanka despite there being a huge potential. holding of chicken and poultry producers were compelled to cut their production, and disposed of their breeding Opportunities for exports are opening up in several birds early due to uncertainties created by the adverse countries in the Middle East for frozen chicken, since consequences of COVID-19 outbreak. Thereafter, major producers such as Brazil are struggling to cater to company and the industry were able to deplete the stock the global demand due to the COVID-19 related issues fast due to a surge in demand in the subsequent months. impacting production. The shortage of raw material for feed production, import ban, restrictions and taxes which Once the pandemic situation eases and new market are imposed on the imported raw materials could hamper opportunities present themselves, we can look forward the industry’s ability to take advantage of this golden to a strong recovery and better industry performance. opportunity to export.

In the period 2013-2020 the maize price has increased by 73% whilst the price of chicken increased by only 13%. This reflects the efforts of the poultry industry to improve productivity, whilst absorbing the high prices arising from protectionist measures in place by the Government as well as the inefficiencies in maize farming. In addition, the depreciation of the rupee and increased PAL on imported raw materials led to higher cost of production thereby squeezing the margins and negatively impacting profitability.

As was the case with most industries, the pandemic and the resulting lockdown had a detrimental impact on the poultry industry. On the sales front, the industry was faced with business uncertainties, due to the non-availability of regular distribution channels such as supermarkets. At the time when the COVID-19 outbreak took place, the industry was gearing up for an increase in sales due to an expected increase in tourist arrivals and to cater to the high seasonal demand during the Sinhala and Tamil New Year. Unfortunately, due to COVID-19 related restrictions, only limited sales were possible during this period. However new sales channels like door-to-door delivery and online sales mitigated the drop in sales arising from the closure of supermarkets.

Bairaha Farms PLC Annual Report 2019/20 21 Our Value Business Model Creation Process

How we create value How we add value

Vision Governance Framework

Capital used Inputs Key business activities

• Shareholders’ funds Financial Capital • Debt • Cash flow from operations Finance • Farms Feed Hatchery Mill Manufactured Capital • • Manufacturing and processing Grandparent Farms Grandparent • Property, plant and machinery Sales and Marketing • Research and development Institutional Capital • Process knowledge • Brands

• Strong relationships with Technology Social and Relationship Capital communities, farmers, Information dealers and customers Feed Mill Parent Farms Parent

• Diverse team of loyal Human Capital employees • Skills and competencies

Hatchery • Land Water Natural Capital • • Energy supply • Air Risk Management Framework

22 Bairaha Farms PLC Annual Report 2019/20 Our Value Creation Process Business Model

Value delivered

Mission

Output Impact

Shareholders Improving Dividends industry standards Resource

Human Capital gains Distribution Improved capacity (SME) Employees

Remuneration and benefits Training and development Building entrepreneurs Career progression

Remuneration, benefits, Consumers and training for employees Quality products Affordability and convenience High quality food Customers and partners for consumers at Smooth supply chain reasonable prices Processing and Value Added Services Support Support Long-term relationships Growth opportunities Foreign exchange savings

Government Tax revenue Import substitution Employment creation Economic growth Recycled wastewater

Community Feed Mill Community development Fertiliser and manure Employment opportunities from waste

Broiler Farms Environment Solar energy Reducing carbon footprint Efficient resource management Efficient waste disposal Biomass steam boiler Mini hydro power

Bairaha Farms PLC Annual Report 2019/20 23 Economic Value Business Model Added Statement

31st March 2020 31st March 2019 LKR ’000 % LKR ’000 %

Revenue 5,050,346 5,630,205 Less: Cost of materials and services purchased (3,650,078) (3,294,091) Value added 1,400,267 2,336,114 To employees as remuneration 488,974 34.92 455,717 19.51 To Government as taxes 732,488 52.31 1,074,937 46.01

To providers of capital Finance cost on borrowings 73,999 5.28 76,016 3.25 Dividends to the shareholders 64,000 4.57 112,000 4.79

Retained in the business as Depreciation 236,913 16.92 204,499 8.75 Reserves (196,107) -14.00 412,945 17.68 1,400,267 100.00 2,336,114 100.00

Value distributed

Reserves – -14.0% 16.9% – Depreciation

Dividends – 4.6% 5.3% – Finance Cost

Employees – 34.9% 52.3% – Government

24 Bairaha Farms PLC Annual Report 2019/20 Economic Value Added Statement Management

Discussion Discussion and AnalysisManagement and Analysis

Bairaha Farms PLC Annual Report 2019/20 25 Financial Capital

Group Financial Performance

Management Discussion and AnalysisManagement 2019/20 2018/19 Change LKR Mn. LKR Mn. LKR Mn.

Financial summary Revenue 4,361 4,724 -363 Gross profit 446 1,076 -630 Operating expenses 542 564 -22 Operating profit -57 545 -602 Share of profit from joint ventures -62 41 -103 Profit before tax -193 510 -703 Profit for the year -196 413 -609

Key ratios Gross profit margin (%) 10.22 22.79 Operating profit margin (%) -1.30 11.50 Net profit margin (%) -4.50 8.74 Return on equity (%) -5.19 11.12 Return on assets -3.90 8.61

Group recorded a loss of LKR 196 Mn. in the year under Gross profit for the year declined by LKR 630 Mn. review and the bottom line was adversely impacted by compared to the previous year. Increased feed cost and two unfortunate events; first was the Easter Sunday reduced prices (for chicken and day-old chicks) were the attack, the negative impact on business from this started main reasons for the reduction in gross profit. In addition, from the beginning of the financial year and the second there were cancellation of orders by day-old chick was the outbreak of COVID-19 pandemic, and the customers soon after the COVID-19 pandemic outbreak, adverse effect from this on our sales arose at the end of resulting in the Company not being able to utilise the the year from March 2020. chicks produced soon after the lockdown in the latter part of March 2020 and accordingly cost of unutilised chicks Revenue for the year declined by LKR 363 Mn. or was charged to the year end accounts. In addition a one-off 7.6% compared to the previous year mainly due to the charge was also made to the year end accounts on account reduction in both day-old chick and chicken prices. of non-utilisation of hatching eggs produced in the latter part of March 2020 due to cancellation of orders. Day-old chick prices in the market reached the lowest level in the recent history due to supply and demand Reduction in operating profit by LKR 602 Mn. was imbalance, resulting in a glut situation for most part mainly due to drop in gross profit arising from the factors of the year. Many large poultry producers expanded mentioned above. their production in the previous year in anticipation of a growth in per capita consumption from an expected Share of Profit from joint ventures recorded a decline growth in the tourist arrivals, but instead experienced a in profit by LKR 103 Mn. compared to the previous year decline after the Easter Sunday attack. Chicken prices in and reported a loss of LKR 62 Mn. Absence of a clear the general trade too came down due to low purchasing policy by the Government on maize imports compelled us power of consumers and also due to the intense to store maize for many months longer than planned and competition that prevailed in the market place. this resulted in interest cost increasing by LKR 112 Mn. a 61% increase compared to the previous year.

26 Bairaha Farms PLC Annual Report 2019/20 Financial Capital

Depreciation of the Rupee, higher maize prices and increase in PAL charges contributed further to the loss.

Government has announced a tax exemption for agricultural activities; however, since the gazette was not issued in this Discussion and AnalysisManagement regard, income tax rates for agricultural businesses were kept at 14%. Once and if it is gazetted this year, it can result in a revision to the deferred taxation provision in the ensuing year with a substantial gain to the P & L.

Statement of financial position

2019/20 2018/19 Change LKR Mn. LKR Mn. LKR Mn.

Financial summary Total assets 5,061 4,960 101 Toatl borrowings 651 485 166 Total equity 3,698 3,866 -168

Key ratios Debt to capital (%) 14.97 11.14 Financial leverage 1.30 1.30

Total asset value increased in the year under review The Bairaha Group has built a strong balance sheet compared to the previous year by LKR 101 Mn. due to over the years; has the capacity to withstand shocks to the addition of property, plant and equipment, arising its business and operations; and the resilience and a from the ongoing investments in expansion (albeit sustainable business model for long-term value creation limited) in production, as well as investments in new for its stakeholders. technology (contributing to productivity improvements) and increase in inventory, arising from the disruption to sales in the two weeks prior to the year-end due to the COVID-19 lock down.

The increase in borrowing was mainly due to the long-term loans taken to finance capital expenditure during the year. Due to increased borrowings, the debt to capital ratio increased to 14.97%, which is quite low and gives the Company adequate leverage to borrow more, if needed.

Bairaha Farms PLC Annual Report 2019/20 27 Manufactured Capital

Our business model is complex with many activities With the advice and guidance of our principal including purchasing, drying and storage of maize, Cobb-Vantress Inc. of USA on new processes and

Management Discussion and AnalysisManagement feed milling, grandparent breeding, parent breeding, technology, our farms and factories have been able to commercial broiler farming and processing of chicken. identify and acquire new technology to keep up-to-date In addition, we manufacture a range of value-added with state-of-the-art plant, machinery and equipment – products. which have contributed to improved performance and efficiency. Our facilities are on par with those available Despite the crisis situation arising from the COVID-19 in other countries with high poultry farming standards. pandemic, we ensured the continuity of our business operation, (through probably the worst of times the world During the year, we expanded our broiler hatchery by has seen since the great depression), which demonstrated introducing incubators, again with the latest technology. the resilience of our business model. This resulted in the improvement in the quality of the chicks produced while also contributing to improved Through a vertically integrated operation we control all productivity. Looking ahead, we are unlikely to embark aspects of the production process and this provided us on a large increase in production capacity in the short with the levers to continue production. Over the years, term due to the impact of the COVID-19 pandemic. we have built a sustainable business model through However, we will continue to seek improvements in a combination of organic growth, joint ventures and our productivity, efficiency and quality. acquisitions to ensure continuity in our business operation and minimizing our reliance on external suppliers.

With the formation of the joint venture, Fortune Agro Industries (Pvt) Ltd. in 2016, and the subsequent acquisition of the grain storage and drying facility, we built a feed manufacturing facility together with a raw material procurement and storage facility.

Having a feed-mill greatly reduced our dependence on external suppliers. It proved to be especially beneficial during the lockdown period as we were able to source feed for our farms with relative ease. Besides, having a feed-mill enabled us to provide consistent quality feed to our farms. With the supply of quality feed, out-grower farmers among others, were able to bring pressure on other feed suppliers and this has contributed to improve feed quality across the entire feed industry, thus benefiting a wide range of farmers and consumers.

28 Bairaha Farms PLC Annual Report 2019/20 Institutional Capital

The Food industry is evolving constantly to cater to Bairaha carried out its operations in the farms and changing customer requirements, which in turn calls factories even during the recent COVID-19 lockdown for a continuous development in processes, technology period and in some cases staff continued to work in Discussion and AnalysisManagement and delivery methods. Chicken as a meat is fast gaining shifts to minimize risk of contamination and disruption popularity as a healthy, low cost protein. The Bairaha to the operations. The only new measures which were R & D and technical teams update their knowledge to introduced by the Ministry of Health and Indigenous keep abreast of the latest developments in food science Medical services under the “Operational guidelines on and technology, to provide a range of high quality preparedness and response for the COVID-19 outbreak products to consumers. Our processes are streamlined to for work settings” were implemented in cooperation with ensure compliance with Sri Lanka’s quality and hygiene area MOH and PHIs. standards. The company uses market research and customer feedback on social media and public forums to One technique that we use in our market research to improve and maintain superior product quality as well evaluate changes in consumer needs and wants is blind as to develop and introduce products to suit evolving testing of our products, to assess taste, texture etc. and customer tastes and preferences. such tests are conducted both within the Company and outside. Cobb Vantress Inc. are committed to continuously improve the performance of their breeding birds Two new products namely Chicken Munch and Skewers and they regularly share their knowledge with us to were aggressively promoted during the lockdown period. improve breeding practises. The workshops and training Our ability to introduce both value-added products as opportunities provided by Cobb-Vantress and other well as processed chicken to a wider market segment suppliers help expose our staff to the latest processes and through online delivery service during the lockdown technologies available in the industry. The knowledge and curfew times, was one of the positive features thus gained is then shared down the line to staff during this period. through internal training. We also use the services and expertise of other institutions such as the Sri Lanka In recent years we have used social media platforms Standards Institution for re-validation of our systems to assess the pulse of our customers and improve our and procedures, particularly pertaining to food safety products and services. Our social media presence during and hygiene. the COVID-19 lockdown period has enabled Bairaha name to be prominent in a number of private Facebook groups, which in turn has helped to strengthen the brand. Bairaha farms has obtained Quality Management System Certification ISO 9001:2015 and Food Safety In a post-Covid environment, innovation and R & D will Management System ISO 22000:2005 from Sri Lanka be areas of focus in further consolidating our position in Standards Institution to provide a guarantee on product the market. quality and safety to customers. Bairaha Food (Pvt) Ltd., was recently awarded the Food Safety System Certificate, FSSC 22000 and has the distinction of being the first meat products manufacturing company to receive this accolade in Sri Lanka from the Sri Lanka Standards Institution. Furthermore Sri Lanka Standards Institution granted the permission to use the SLS mark on “Bairaha” brand of chicken sausages and chicken meat balls.

Bairaha Farms PLC Annual Report 2019/20 29 Manufactured Capital Few customer comments on our on-line delivery service Management Discussion and AnalysisManagement

30 Bairaha Farms PLC Annual Report 2019/20 Human Capital

Nurturing our employees’ skills, which is vital for Bairaha ensures equal treatment of all employees in the future growth and profitability of the Company, matters relating to variable and performance-based is part of our ethos. Job satisfaction, competitive compensation. During the lockdown, when many Discussion and AnalysisManagement remuneration, along with opportunities for growth large players in the industry were forced to introduce are factors that motivate the staff, and contribute to significant salary cuts, we continued paying the fixed higher productivity as well as improvements in both compensation component. Special distress payments were product and service quality. made to staff who reported to work during lockdown and curfew days (19th March to 11th May 2020) and We are an equal opportunity employer, and do not these additional payments were a substantial portion discriminate on the basis of gender, race, ethnicity or of an employee’s salary. We believe that these measures religion. This together with our performance driven together with other welfare programmes motivated the culture, contribute to a contented and motivated work employees to go the extra mile in relation to their work. force. The dedication and commitment of our staff were amply demonstrated when they continued to work during the days of lockdown and curfew with more than 80 per cent attendance while the country and the industry faced huge challenges.

Our team Bairaha’s permanent workforce stood at 439 as at 31st March 2020. In addition, we employed a large number of out-sourced staff to support functions across the business. In total we employed 852 staff including permanent and out-sourced staff at the year-end. And when the staff employed in our joint venture companies are included, the total number of direct employees stands at 1,038.

Analysis of number of employees by

Gender Male Female 79% 21%

Years of Service 0-5 6-15 above 16 years 59% 26% 15%

Bairaha Farms PLC Annual Report 2019/20 31 Human Capital

Training and development Health and safety

Management Discussion and AnalysisManagement Training and development are ongoing initiatives at We consider the health and safety of our team members to Bairaha. Staff are encouraged and facilitated to acquire be of paramount importance. Accordingly, we organised and disseminate knowledge among other staff members. Health and safety programmes for staff to guide them in Training needs are identified from performance appraisals regard to dealing with medical emergencies and accident as well as those arising from the changes in the operation situations. In addition, medical check-ups were organised and production processes. Training programmes were at various locations for the benefit of our employees. conducted by in-house staff as well as by external resource personnel. Training consists of seminars and/or workshops as appropriate. Subjects that are commonly covered in training include sales and marketing, poultry management, change management, performance management, IT and work-life balance.

32 Bairaha Farms PLC Annual Report 2019/20 Social and Relationship Capital

CONSUMERS RURAL FARMERS Discussion and AnalysisManagement Increasingly chicken is gaining popularity as a healthy, low cost source The joint venture company involved in of protein among working families feed-milling sources maize from more seeking value for money and healthy than 1,000 rural farmers, predominantly food options. Pre-cooked and from Anuradhapura, Moneragala and marinated meat product range was Ampara Districts. introduced to meet the emerging consumer demand.

INTERNATIONAL SUPPLIERS OUT-GROWER FARMERS Cobb Vantress Inc. the largest poultry RELATIONSHIPS breeding company in the world provides BUILT OVER THE YEARS Bairaha supplies day old chicks and feed and provides technical support to our joint venture company Fortune WITH STAKEHOLDERS GP Farms (Lanka) Limited with around 250 outgrower farmers. The high quality breeding stock, technical HELP BAIRAHA BUILD farms range from small, medium to advise and professional support. This RESILIENCE AND large scale. Bairaha has supported the relationship helps Bairaha remain at the OVERCOME ADVERSITY. growth of the economy through this top of the industry in terms of hygiene business model. and quality standards throughout the production chain.

CUSTOMERS DISTRIBUTORS (supermarkets, restaurants and cafes) We have a network of distributors HORECA and modern trade demand who provide the channel to supply stringent quality, health and safety our products to small retail shops standards while the large throughout the country. international franchise chains require in addition to the above, Our sales team provides them compliance with international with the necessary skills, support standards as well. and guidance.

ONLINE SALES TEAM

The latest addition to Bairaha’s distribution network is online sales and door-to-door delivery. This was introduced to continue business with minmal disruption during the lockdown due to the COVID-19 outbreak. This segment has the potential for further growth.

Bairaha Farms PLC Annual Report 2019/20 33 Sustainability

We have taken two major steps in regard to operational We do not look at our results purely in terms of the sustainability in the last few years: first, the commencement bottom line. Bairaha is very conscious of the fact that our

Management Discussion and AnalysisManagement of the joint venture feed mill, Fortune Agro Industries sustainability provides a contribution to society. Directly Ltd. in 2016; and second the acquisition of a grain storage and indirectly we provide a livelihood to thousands of and drying facility in 2018. The feed-mill assures us of a employees, out-grower farmers, dealers, transport service regular supply of quality feed and thereby eliminates the providers, sub-contractors, retailers and distributors. company’s dependency on outside suppliers. This was The benefits from the activities we carry out are particularly a great asset especially during the recent lockdown and felt in the rural communities where our farms and factories curfew. The downside was that we incurred a high finance are located. During the lockdown period, we issued some cost when we purchased grain for long storage. But, the quantity of chicken free of charge to the people living longer term benefits of this facility are expected to far around our farms and factories to alleviate to some extent out-weigh the short-term additional cost and challenges. challenges they faced in obtaining essential food items. We also participated in sponsoring sports and art exhibitions, We are also able to make a great contribution to rural to encourage the youth to undertake such activities. communities through this initiative. Fortune Agro Industries purchases maize from farmers and collectors Preservation of the environment is a key component of located at Moneragala, Anuradhapura and Ampara Bairaha’s commitment to achieve sustainable growth. districts. Many farmers depend exclusively on the poultry The company’s initiatives in automation and digitisation industry for their livelihood. We also procure by-products are an effort toward moving into a paperless environment. from rice millers, which are used as inputs in feed We operate a responsible business by adhering to the manufacturing. Central Environment Authority (CEA) regulations with respect to minimising adverse impact on the surrounding The pandemic brought with it additional requirements to environment in and around our farms and factories. comply in regard to health, safety and hygiene measures. Sustainable energy consumption, recycling of waste and In the farms, we found that the measures already in place utilising renewable energy sources wherever possible, are were adequate. To our satisfaction, the inspecting PHIs initiatives the company would continue and engage in did not find anything lacking in farms. In the factories the future as well. however, some changes were necessary particularly regarding social distancing. However, social distancing All of the above have contributed to the reputation that was difficult to practice in the factories. If the situation the Bairaha brand has achieved. This is demonstrated persists in the long term, we may be forced to look at by the fact that Bairaha moved up by six places in the some process changes, including introducing automation, latest Brand Finance Sri Lanka 100 rankings. Bairaha which will involve heavy capital investment. intends to build on these strengths and deliver a strong, sustainable performance and value to our stakeholders by overcoming short-term challenges and constraints.

Siththam Art Exhibition at MAS Arena Royal College

Demonstration of talent by the children of employees at the help to learn project phase 2

34 Bairaha Farms PLC Annual Report 2019/20 Investor Relations

Twenty major shareholders as at 31st March 2020

31st March 2020 31st March 2019 Discussion and AnalysisManagement Name Number of shares Percentage Number of shares Percentage

1. Mr M N M Yakooth 1,701,867 10.64 1,701,867 10.64 2. Mr M N M Mubarak 1,660,908 10.38 1,660,908 10.38 3. Mr M N M Kamil 1,603,924 10.02 1,603,924 10.02 4. Employees’ Trust Fund Board 1,199,922 7.50 1,199,922 7.50 5. Mr M Y M Riyal 824,305 5.15 824,305 5.15 6. Mrs F S Imran 612,047 3.83 612,047 3.83 7. Mr M I Ilyas Naleem 543,396 3.40 543,885 3.40 8. Mr M E N Mohamed Ilyas 536,396 3.35 536,396 3.35 9. Seylan Bank PLC/W D N H Perera 500,000 3.13 NIL NIL 10. Shehans (Private) Limited 320,158 2.00 243,767 1.52 11. Mrs A W M S Rafeeka 300,000 1.88 300,000 1.88 12. Mrs F F Ilyas Naleem 268,197 1.68 268,197 1.68 13. Mr A C M Reyaz 240,954 1.51 180,927 1.13 14. Desamanya Prof M T A Furkhan 239,550 1.50 156,700 0.98 15. People’s Leasing & Finance PLC/Hi Line Trading (Pvt) Ltd. 235,691 1.47 269,665 1.69 16. Bank of Ceylon No. 1 Account 218,408 1.37 119,944 0.75 17. Mrs F I Mohamed Rauff 191,570 1.20 191,570 1.20 18. Sandwave Limited 172,675 1.08 223,626 1.40 19. Nowgem Jewellers (Pvt) Ltd. 160,000 1.00 NIL NIL 20. Elgin Investments Ltd. 139,801 0.87 177,957 1.11 11,669,769 72.94 10,815,607 67.60 Others 4,330,231 27.06 5,184,393 32.40 16,000,000 100.00 16,000,000 100.00

Bairaha Farms PLC Annual Report 2019/20 35 Investor Relations

Directors’ and Chief Executive Officer’s holding in shares

Management Discussion and AnalysisManagement as at 31st March 2020

Name Number of shares Percentage

1. Desamanya Prof M T A Furkhan Chairman 239,550 1.50 2. Mr M N M Yakooth Managing Director/CEO 1,701,867 10.64 3. Mr M Y M Riyal Executive Director 824,305 5.15 4. Mr M N M Kamil 1,603,924 10.02 5. Mr M N M Mubarak 1,660,908 10.38 6. Mr Chandana Lal De Silva Held Shares in the following manner: Mr Charith Prasanna De Silva and Mr Chandana Lal De Silva 85,000 0.531 Mr Chandana Lal De Silva 47,133 0.295 7. Prof H Abeygunawardena NIL NIL 8. Mr M I Wahid NIL NIL 6,162,687 38.516 Others 9,837,313 61.484 16,000,000 100.00

Market value per share during the quarter As at 31st March 2020 2019 LKR LKR

Highest 4th April 2019 124.00 31st August 2018 140.00 Lowest 20th March 2020 73.00 15th March 2019 110.00 Closing 78.70 114.80

Share trading

Number of shares traded during the year 2,518,179 Value of shares traded during the year (LKR) 265,960,734.40 Number of transactions during the year 3,947

36 Bairaha Farms PLC Annual Report 2019/20 Investor Relations

Period Number of transaction Share volume Turnover volume (Trade volume) (Number of shares traded) (Value of shares – LKR) Management Discussion and AnalysisManagement 1st April 2019-30 June 2019 760 264,492 27,415,153.80 1st July 2019-30 September 2019 1,179 623,977 61,511,334.90 1st October 2019-31st December 2019 1,368 1,149,984 127,274,846.50 1st January 2020-31st March 2020 640 479,726 49,759,399.20 3,947 2,518,179 265,960,734.40

Share distribution Shareholding as at 31st March 2020

From To Number of holders Number of shares Percentage

1 – 1,000 2,956 627,457 3.92 1,001 – 10,000 377 1,186,626 7.42 10,001 – 100,000 85 2,396,457 14.98 100,001 – 1,000,000 17 5,622,839 35.14 Over 1,000,000 4 6,166,621 38.54 3,439 16,000,000 100.00

Categories of shareholders

Number of holders Number of shares Percentage

Local Individuals 3,278 11,640,751 72.75 Local Institutions 132 3,790,485 23.7 Foreign Individuals 24 146,028 0.91 Foreign Institutions 5 422,736 2.64 3,439 16,000,000 100.00

Public Holding The percentage of shares held by the public as at 31st March 2020 is 61.48% comprising 3,432 shareholders. Float adjusted market capitalisation as at 31st March 2020 – LKR 774,196,533.10.

Bairaha Farms PLC Annual Report 2019/20 37 Investor Relations Stewardship Stewardship

38 Bairaha Farms PLC Annual Report 2019/20 Board of Stewardship Directors

Whatever adverse circumstances the Company may be placed in, the Board of Directors always strives to overcome obstacles and deliver the maximum possible value to all stakeholders.

4 6 7 8 5 3

1 2

Bairaha Farms PLC Annual Report 2019/20 39 Board of Directors Stewardship

1 Prof Furkhan has been a member of the Finance Commission of Sri Lanka – 1996-2002, member of the De-Regulations Desamanya Prof M T A Furkhan Committee – Ministry of Constitutional Affairs and Industrial Chairman Development – 2001-2002, and member of the Independent National Police Commission of Sri Lanka – 2002-2005. He was Desamanya Prof M T A Furkhan is the Founder Chairman of a member of the Board of Management of the Post Graduate all the Confifi Group Companies from the very inception in Institute of Management – 1975, and member of the Council 1969. He holds the Degrees of FCMA (UK), CGMA (UK), of the South Eastern University of Sri Lanka – 2005 to 2008. J. Dip MA (UK), FCMA (SL), FCPA (Aust), FCIS (UK), and FCCS (SL). In recognition of the services rendered to education and generally to the country, Prof. Furkhan was awarded the title He was the first Sri Lankan to be awarded the J.Dip MA(UK) of Deshabandu in 1987 and later conferred the title of Post Graduate qualification, which is the highest Management Desamanya in 2005 by H.E. the Presidents of Sri Lanka in Accounting qualification examination conducted jointly by the the respective years. Five leading Accountancy Institutions in England. In November 2017 he had the ultimate distinction of being inducted to the Global Management Accounting Hall of Fame, Australia. 2

Prof Furkhan was elected twice as President of CIMA Yakooth Naleem Sri Lanka, President, CIMA New South Wales, Australia, Managing Director/Chief Executive Officer President, Institute of Chartered Corporate Secretaries, President, Institute of Management (UK), President, Rotary Mr Yakooth Naleem is the CEO of the Company. Club of Colombo North and as Chairman/President of a He has been the Managing Director since 1990. He has a number of other institutions. He has been recognised and BA Econ. (Hons.) Degree from the University of Manchester awarded the CIMA UK. INSTITUTE PLAQUE in 1973, (formerly known as the Victoria University of Manchester) CIMA UK. CITATION in 1988 and the Institute of Chartered of the United Kingdom. He was awarded the Entrepreneur Secretaries UK CITATION in 2001. He was awarded the of the Year 2000 – merit award in the extra-large category in Professional Excellence Award by the Institute of Certified the Western Province by FCCISL. He was elected in January Management Accountants of Sri Lanka in 2018. 2013 as the first Chairman of the newly-established Standing Committee on Dairy and Livestock of the National Chamber He was awarded the first ever CIMA Business Leader Award in of Commerce of Sri Lanka. the year 2003, Entrepreneur of the Year – Second Place in the Western Province by the FCCISL of Sri Lanka in 1994 and was given the prestigious Tourism Legend of Sri Lanka Award by 3 H E the President of Sri Lanka in 2008. Kamil Naleem In addition to his business interests, Prof Furkhan has Executive Director maintained regular and long standing interest in the academia. Mr Kamil Naleem has been a Director of the Company since While being a regular Lecturer in Management Accountancy 1984. He previously looked after the operations of the Golden and Advanced Management subjects, he has held the positions Rooster Restaurant chain until the operation was discontinued. of Professor of Management Accounting of the University of He was also educated in the United Kingdom. Sri Jayewardenepura, Sri Lanka and the position of Principal Zahira College, Colombo. 4 Prof Furkhan has held office in various professional bodies, Government Institutions, State Corporations and Private Sector Riyal Yakoob Business Associations, including the Executive Committee of Executive Director the Ceylon Chamber of Commerce in 1969, 1974 and 1992, Executive Committee of the Sri Lanka National Chamber of Mr Riyal Yakoob is an Executive Director of the Company. Industries – 1970-1974, member of the Advisory Council – He worked as a Senior Assistant Accountant of Bairaha for University of Ceylon (Faculty of Management Studies) – seven years and subsequently he was appointed as an Executive 1973-1974, Finance Director of Sri Lanka Central Transport Director of the Company and he has been in this position Board – 1984-1986, and as President of the Tourist Hotels since 1990. He received his Higher National Diploma (Business Association of Sri Lanka – 1990-1993. and Finance) from the Southwest London College of the United Kingdom.

40 Bairaha Farms PLC Annual Report 2019/20 Board of Directors Stewardship

5 8 Mubarak Naleem Prof H Abeygunawardena Executive Director Director Mr Mubarak Naleem joined the Company in January 1994 Prof Harischandra Abeygunawardena received his Bachelor’s as an Executive Director and he was in-charge of the super Degree in Veterinary Science (BVSc) in 1977 from the markets chain until it was disposed off. He was also educated University of Peradeniya and his MSc and PhD Degrees in in the United Kingdom. 1985 and 1987, respectively from the University of Illinois at Urbana-Champaign USA. He commenced his academic career in 1978 as an Assistant Lecturer at the Faculty of Veterinary 6 Medicine and Animal Science. He was later promoted as a Senior Lecturer in 1987, Professor in 2000 and Senior C L de Silva Professor in 2008. In 2000, he became the Dean of the Faculty Director of Veterinary Medicine and Animal Science and continued in this capacity until he assumed duties as the Vice-Chancellor of Mr Chandana de Silva is a Fellow member of both the the University of Peradeniya in 2006. In October 2009, he was Chartered Institute of Sri Lanka and England and Wales and appointed as a member of the University Grants Commission holds a BSc (Hons) in Mathematics and Management from and served in that capacity until March 2015. He retired from the University of London. He held several Senior Management the University in April 2015. In 2017, Prof Abeygunawardena positions in the UK in the IT and Telecommunications sectors was bestowed with the honour of being one of the most before moving back to Sri Lanka in 2002. In Sri Lanka, he spent outstanding alumni of the University of Peradeniya at its nearly nine years in leadership positions at MAS Holdings. Diamond Jubilee Ceremony.

He presently serves as an advisor specialising in institution From 2009 to 2015, he also served the WB/HETC Project on building, strategy, governance, talent management and serves Higher Education as a consultant in external degree programmes as a mentor to senior managers in a variety of sectors. and quality assurance. He co-authored the current versions of UGC Quality Assurance Manuals; Manual for Review of He is a Non-Executive Director on the Boards of Eureka Sri Lankan Universities and Higher Education Institutions and Technologies (Pvt) Ltd., 24/7, Techies (Pvt) Ltd., Janashakthi Manual for Review of Undergraduate Study Programmes of PLC, First Capital Holdings PLC, Kelsey Developments PLC, Sri Lankan Universities and Higher Education Institutions. and Bairaha Farms PLC. Prof Abeygunawardena also served as a Member of the Governing Boards of the National Science Foundation, 7 Arthur C Clark Centre of Modern Technologies and Postgraduate Institute of Management. He also served as the Mohamed Imtizam Wahid Chairman of the Board of Management of Sri Lanka Education Director Operations Network (LEARN). He has also served as a Technical Officer Mr Mohamed Imtizam Wahid has been working with the of Animal Production and Health Division of FAO/IAEA, Company since 1985 to now, for a period of more than 30 years. Vienna, Austria, and undertaken several overseas assignments He has wide experience in all aspects of poultry management, as an animal production expert on behalf of FAO/IAEA and including hands-on-management especially on contract farming spent 10 months as a Commonwealth Senior Academic Fellow as well-broiler farming. at the University of Reading, UK. He was a prolific researcher, and supervised many graduate students, published many research He had attended workshops held in USA and Netherlands on articles, and co-authored several academic publications. Advanced Poultry Production and Management. In addition, he had also participated in a Corporate Management Programme Prof Abeygunawardena held the posts of Secretary and President held in Japan. of the Sri Lanka Veterinary Association and Sri Lanka College of Veterinary Surgeons. In his long career with Bairaha Farms PLC, he has held the positions of an Executive, Assistant Manager (Contract Since retirement Prof Abeygunawardena has functioned as an Farming), Manager – Extension Services, Group Manager independent consultant in many academic-related areas. (Broiler Operations), Chief Operations Officer and presently holds the position of Director Operations/General Manager.

Bairaha Farms PLC Annual Report 2019/20 41 Stewardship Corporate Governance

Our corporate governance framework is designed with The pages that follow set out the key components defined responsibilities and accountabilities to safeguard of our corporate governance framework including all our stakeholders’ interests. We believe it underpins our detailed information on our governance structure and ability to deliver our strategy and create long-term value the extent to which we comply with the rules and to our shareholders and other stakeholders. We strive regulations relating to corporate governance laid out to demonstrate our compliance with all applicable laws, in the Continuing Listing Requirements of the Colombo regulations, industry norms and standard practices on Stock Exchange and the Code of Best Practice on good corporate governance. We recognize that meeting Corporate Governance issued jointly by The Institute of standards and values mentioned above would be critical Chartered Accountants of Sri Lanka and the Securities to maintain the reputation we have earned over the past and Exchange Commission of Sri Lanka. four decades as a company dedicated to excellence in both performance and integrity.

Governance structure

The Board

Board subcommittees Executive Management Committee • Audit • Remuneration • Related party review

The Board • Establishing a process for corporate reporting on monthly basis and approving the quarterly interim The Board members are collectively responsible for the financial statements and annual accounts; long-term success of the Bairaha Group. The Board ensures proper stewardship of the Company’s affairs • Approving dividends after considering the growth by formulating business strategies and policies while plans, level of debt and need for capital expenditure monitoring the effective implementation of the strategies while maximising shareholder value, balanced against set. In addition, the Board provides leadership to the providing shareholders with a decent cash return; business by: • Ensuring compliance with statutory provisions of the Monitoring the Group’s overall financial performance; Companies Act, rules and regulations of Securities and • Exchange Commission, Colombo Stock Exchange and • Ensuring effective internal control and risk other laws and regulations relevant to the business; management practices, corporate governance practices, and succession plans are in place; • Ensuring adoption of appropriate accounting policies where necessary to comply with financial regulations • Reviewing and approving annual budgets and and reporting requirements; monitoring the actual performance against the budgets; • Ensuring compliance with corporate governance • Sanctioning major investments as well as capital best practices; expenditure;

42 Bairaha Farms PLC Annual Report 2019/20 Corporate Governance Stewardship

• Monitoring, reviewing and introducing internal controls of Executive Directors and Executive staff, and fees and where necessary while ensuring that effective systems are allowance payable to the Non-Executive Directors while in place to manage risks to ensure business continuity; providing guidance on the broader remuneration policy. • Incorporating a sustainable approach to the decision-making process by ensuring that all Related Party Transactions Review Committee: stakeholder interests are considered when making The main function of this Committee is to review and decisions, where applicable. approve related party transactions to ensure that those are being entered into at arm’s length prices with a view to ensuring that they are in the best interests of the Board subcommittees Company while safeguarding interests of various other stakeholders. The Board has formally delegated certain governance responsibilities to three Board subcommittees, namely Audit Committee, Remuneration Committee and Executive Management Committee Related Party Transactions Review Committee. These Committees are established in accordance with the (EMC) requirements of the Code of Best Practice on Corporate The Executive Management Committee, which is Governance issued jointly by The Institute of Chartered chaired by the CEO concentrates on the day-to-day Accountants of Sri Lanka and the Securities and management of the Group and the execution of the Exchange Commission of Sri Lanka and Code of Best strategy set out by the Board. Members of EMC have Practices on Related Party Transactions issued by the a range of responsibilities based on their background Securities and Exchange Commission of Sri Lanka. and expertise. The (EMC) meets every week and the members of this Committee are the Chief Executive The subcommittees meet regularly to discuss and Officer, Executive Director, Director – Operations, deliberate matters under their responsibility and the Chief Financial Officer and Heads of Divisions. Chair of each committee provides an update at the Board meeting to obtain the Board’s approval where necessary and to ensure that all Directors are made aware of the key An overview of the Board policy recommendations made at each subcommittees. Composition The areas of oversight of the subcommittees are set out Bairaha is headed by a Board of Directors comprising below and the Reports of the subcommittees are available eight Directors with diverse skills, knowledge and on pages 57 to 60 of this Report. experience, which are necessary to oversee the business and to deliver long-term shareholder value. The Audit Committee: The Audit Committee’s key composition of the Board of Directors as at the date of responsibilities include reviewing the integrity of financial this report are as follows: statements and reviewing the effectiveness of the internal control procedures and risk management practices. Desamanya Chairman Further, the Committee conducts discussions with Prof M T A Furkhan Internal and External Auditors based on independent Mr Yakooth Naleem Managing Director/ audit reports to identify areas for improvements while Chief Executive Officer follow-up on management actions on the matters Mr Riyal Yakoob Executive Director identified. The Audit Committee is also responsible for Mr C L de Silva Independent Non-Executive the appointment, compensation and oversight work of Director the Auditors. Prof H Abeygunawardena Independent Non-Executive Director Remuneration Committee: The Remuneration Committee oversees the remuneration policy, ensuring Mr Kamil Naleem Executive Director that it is aligned with long-term value creation goal of the Mr Mubarak Naleem Executive Director Company. It reviews and recommends the remuneration Mr Mohamed Imtizam Wahid Executive Director

Bairaha Farms PLC Annual Report 2019/20 43 Corporate Governance Stewardship

The profiles of the Directors are presented on pages 39 to 41 of this Report.

There were no changes to the Board composition during the year under review.

Executive Board Non-Executive 5 Composition 3

Financial Management Industry Background Expertise 5 6 Board Skills Matrix Marketing Operations Experience Management 5 7

44 Bairaha Farms PLC Annual Report 2019/20 Corporate Governance Stewardship

Roles and Responsibilities

Chairman

Independent Executive Non-Executive Directors The Board Directors

Company MD/CEO Secretary

Chairman Independent Non-Executive Directors The Chairman provides leadership to the Board to The Independent Non-Executive Directors (NED) ensure effective functioning of the Board responsibilities. bring-in external perspective and objectivity to the He provides direction and focus by setting the Board Board’s discussions. Using their wide and varied agenda and promotes a culture of openness to encourage experiences, the NEDs help shape the proposals on active participation of each Director in discussions and strategy and policies to ensure their effectiveness. Where debates to support sound decision-making. In addition, necessary, the NEDs support or constructively challenge Chairman ensures effective communication within the the Management and scrutinize their performance to Board and constructive relations between Executive and ensure successful achievement of Company’s objectives. Non-Executive Directors to facilitate smooth functioning of the Board. Executive Directors The Executive Directors provide critical insights at the Chief Executive Officer Board discussions using their extensive understanding The CEO is responsible for the day-to-day management of the business and greater access to the Company’s of the operations of Bairaha. He leads the Executive information. They support the CEO in implementing Management Committee and other Senior Management the strategies and policies agreed by the Board while to implement the recommendations, strategies and overseeing the day-to-day activities of the Company. policies set by the Board and ensures achievement of the objectives. In addition, CEO maintains a continual and active dialogue with all the stakeholders to identify Company Secretary opportunities and any risks facing the business and The Company Secretary guides the Directors on Board informs the Board, where necessary. procedures, corporate governance, statutory and disclosure requirements and other corporate administrative matters. The posts of the Chairman and CEO are held by two Moreover, the Company Secretary ensures effective separate individuals and there is a clear division of information flows within the Board by assisting and responsibilities between them to ensure a balance of distributing the Board agenda, Board minutes and other power and authority, such that no one individual has relevant documents. In addition, Company Secretary acts unfettered powers over the decision-making process. as a point of contact for the shareholders. The Chairman is an Independent Non-Executive Director while the CEO is an Executive Director.

Bairaha Farms PLC Annual Report 2019/20 45 Corporate Governance Stewardship

Independence of Non-Executive Directors The independence of the NEDs were evaluated against the following criteria as set out in the Code of Best Practice on Corporate Governance issued jointly by the Institute of Chartered Accountants of Sri Lanka and the Securities and Exchange Commission of Sri Lanka and Continuous Listing Requirements of the Colombo Stock Exchange.

Criteria for evaluation of the independence of Non-Executive Directors Criteria Adherence by the NEDs

Employment at the Company, two years immediately None of the NEDs have been employed by the Company and preceding the appointment its subsidiaries Material business relationship with the Company, within None of the NEDs had a material business relationship with two years immediately preceding appointment the Company A close family member is a Director, CEO or a key management No family members of NEDs are Directors, CEO or key personnel of the Company management personnel Significant shareholder of the Company or associated directly None of the NEDs has significant shareholdings in the with a significant shareholder of the Company Company or associated with a shareholder with significant shareholding. Refer to section on Twenty major shareholders of the Company on page 35 of this Report Served on the Board continuously for a period exceeding Except for the Chairman, Desamanya Prof M T A Furkhan, nine years from the date of the first appointment none of the NEDs have served in the Board for a period exceeding nine years. Required explanation is given below. Employment, directorship, material business relationship or None of the NEDs are employed, hold directorships, have significant shareholding in another company or business that material business relationships or has a significant shareholdings have a material business relationship, business connection or a as defined in the criteria significant shareholding in the Company, directly or indirectly Note: Material business relationship – income and benefits equivalent to 10% of Directors’ annual income/Business connection – transaction value equivalent to 10% of the turnover of that company/Significant shareholding – carrying more than 5% of voting shares.

Chairman, Desamanya Prof M T A Furkhan having at the start of the financial year as well as during the served in the Board for a period of more than nine years, financial year, when necessary. continues to be considered as an Independent Director. The Board recognises that Chairman, Desamanya During the year, self-declarations were submitted by Prof M T A Furkhan has brought in independent each Non-Executive Director declaring his status of judgement on matters relating to the Board and the independency against the specified criteria set out in subcommittees and has acted in an independent manner the Code. irrespective of his extended tenure in the Board. Therefore, the Board is of the opinion that there are no reasons to believe that his status as an Independent Director has The Board functions on a well-planned agenda and the been compromised in any manner and after considering Management provides the Board with comprehensive all the relevant aspects, the Board has determined that information that is relevant to the discussions prior to the Chairman, Desamanya Prof M T A Furkhan should the Board meeting, to ensure that its members have continue to serve in the capacity of an “Independent enough time to review the documents. In addition, Non-Executive Director”. senior executives who are members of the Executive Management Committee are invited to the Board Procedures are in place to avoid potential conflicts or bias meetings, where necessary. The Directors have the that can impair the Independence of the NEDs, where freedom and access to the Management to request for the Directors submit relevant disclosures of interests further information or to seek any clarifications on any

46 Bairaha Farms PLC Annual Report 2019/20 Corporate Governance Stewardship

matters presented to the Board. The Chairman ensures that all Directors are properly briefed on issues arising at Board meetings and the minutes of each meeting are circulated to the Directors prior to the next Board meeting.

Setting of the agenda

Agenda is finalised before the scheduled meeting date

Before the meeting

Meeting agenda, Board Papers and relevant supporting documents are sent to the Directors at least seven days prior to the scheduled meeting date

Board meeting

Items in the agenda are discussed; explanations are provided and presentations are made by invitees to facilitate greater understanding, where necessary

After the Board meeting

Minutes are prepared by the Company Secretary and sent to the CEO for review prior to circulating these to the Board members

The Board generally meets on a monthly basis and during the year under review, the Board met 10 times. Attendance at the scheduled meetings were commendable and it demonstrates the high levels of participation and responsiveness from the Directors. On occasions that a Director is unable to attend a meeting, he receives a briefing from the Chairman or the CEO of any important or strategic matters discussed at the last meeting, in addition to the Board minutes.

Name of Director Meeting attendance

Number of meetings held Attendance

Prof M T A Furkhan 10 8 Yakooth Naleem 10 10 Riyal Yakoob 10 10 C L de Silva 10 9 Prof H Abeygunawardena 10 9 Kamil Naleem 10 9 Mubarak Naleem 10 9 Mohamed Imtizam Wahid 10 10

Bairaha Farms PLC Annual Report 2019/20 47 Corporate Governance Stewardship

The Board focused on a number of specific matters at the meetings held during the year and a brief outline of these Appointment of Directors are provided below: The need for an appointment of a new Director arises either when an existing Director resigns or where the Strategic decisions: Board feels it is necessary to bring in persons with • Discussed the competitive strategies to be specific knowledge and expertise to strengthen the Board. adopted in building a sustainable organisation; A collective decision is made between the Board Thorough review of the business model for its • members to ensure that the proper talent is acquired to sustainability and resilience with discussions on various oversee the affairs of the Company. strategies to be adopted on different business scenarios after the outbreak of the COVID-19; When a new Director is appointed to the Board, the • Considered potential strategic initiatives such as Company communicates the new appointment to the diversification, expansion and exports markets Colombo Stock Exchange by means of a corporate to support future growth disclosure which includes a brief résumé of the Director covering the educational background and the expertise, Financial and operational performance: directorships held in other companies, details of • Reviewed and discussed the business progress shareholding and status of independence. including market situation for poultry products; • Reviewed the Group’s financial performance against There were no new appointments to the Board the key targets during the year under review. • Took measures to further strengthen the business analytics and KPI driven performance management • Reviewed and approved Induction and training – Interim quarterly financial statements for the On joining the Board, the new Directors are provided year 2019/20 and the Annual Financial Statements with appropriate induction enabling them to gain an for the year 2019/20; understanding of all aspects of the business. Each new Director receives a general induction which covers – Capital expenditure their duties and responsibilities as a Director of a listed company as well as matters specific to the company Governance and risk including details of its operations, policies, values and the • Reviewed the principal risks facing the business and culture of the company. developed strategies to mitigate them • Reviewed updates on corporate governance and regulatory matters Re-election of Directors Recommended reappointment of External Auditors At each Annual General Meeting, one-third of the • Directors retire by rotation subject to the guidelines set out in the Articles of Association of the Company. The Directors who are retire by rotation are those who have been longest in office since their last election/ appointment. The Directors who have been newly appointed to the Board are required to stand for re-election at the first General Meeting after their appointment. In addition, the Directors who are over the age of 70 years are required to submit themselves annually for re-election.

48 Bairaha Farms PLC Annual Report 2019/20 Corporate Governance Stewardship

The notice for Annual General Meeting includes the (ii) Level and structure names of the Directors submitted for election; thus shareholders are notified in advance enabling them When determining Executive Directors’ remuneration, to make an informed decision on their election. the Remuneration Committee ensures that the level of remuneration is adequate to attract and retain experienced Directors who are essential to achieve the The Directors have recommended the corporate goals. The Remuneration Committee takes re-appointment of Desamanya Prof M T A into account the remuneration paid by other companies, Furkhan who is 85years of age, as a Director of where necessary, to ensure that the level and structure the Company; accordingly, a resolution is placed of the Executive Directors’ remuneration is competitive. before the shareholders in terms of Section 211 of Presently, the Company does not have an Executive Share the Companies Act No. 07 of 2007 in regard to the Option Scheme. appointment of Desamanya Prof M T A Furkhan. Non-Executive Directors receive a fee and an allowance In accordance with the Articles 87 and 88 of the for being a Director of the Board and for being a member Articles of Association of the Company, both of Board subcommittees. Non-Executive Directors are Mr Riyal Yakoob and Prof H Abeygunawardena not entitled to performance incentives. retire by rotation and, being eligible, are recommended for re-election at the next Annual During the year under review, the Company made General Meeting to be held on 29th October 2020. payments of LKR 42.2 Mn. as aggregate emoluments of the Directors. Directors’ remuneration (i) Policy and procedures Relations with shareholders Company policies and procedures are in place to Understanding the needs of our shareholders are ensure that none of the Directors are involved in critical to help Management to create value. Hence, deciding his own remuneration. The Remuneration we communicate with them to understand and respond Committee is entrusted with the responsibility to to their concerns. The Company encourages active make recommendations to the Board regarding participation of the shareholders at the Annual General the remuneration of the Executive Directors. The Meeting and provides suitable answers and clarifications Remuneration Committee consists exclusively of three on issues and matters raised by shareholders. In addition, Independent Non-Executive Directors and details on by making available the quarterly and the annual financial its composition is set out on page 59 of this Report. statements on a timely basis as well as by other forms of Remuneration Committee consults the CEO on communication, the Board makes every effort to keep the matters relating to the remuneration of Non-Executive shareholders informed of the progress of the Company. Directors and the Remuneration Committee has access to professional advice from both within and outside the Company, in discharging its responsibilities. The Board determines the remuneration of the Non-Executive Directors and it is reviewed annually.

Bairaha Farms PLC Annual Report 2019/20 49 Corporate Governance Stewardship

Compliance status with the mandatory provisions of the Listing Rules of the Colombo Stock Exchange and Companies Act No. 07 of 2007 are disclosed below in detail:

Statement of Compliance under Section 7.6 of the Listing Rules of the Colombo Stock Exchange (CSE) on Annual Report Disclosure Mandatory provisions – Fully compliant

Rule Compliance Status

(i) Names of persons who were Directors of the Entity Yes (ii) Principal activities of the Entity and its subsidiaries during the year, and any changes therein Yes (iii) The names and the number of shares held by the 20 largest holders of voting and non-voting Yes shares and the percentage of such shares held (iv) The float adjusted market capitalisation, public holding percentage (%), number of public Yes shareholders and under which option the Listed Entity complies with the minimum public holding requirement (v) A statement of each Director’s holding in shares of the Entity at the beginning and end of Yes each financial year (vi) Information pertaining to material foreseeable risk factors of the Entity Yes (vii) Details of material issues pertaining to employees and industrial relations of the Entity There are no material issues that warrant a disclosure (viii) Extent, location, valuations and the number of buildings of the Entity’s land holdings and Yes investment properties (ix) Number of shares representing the Entity’s stated capital Yes (x) A distribution schedule of the number of holders in each class of equity securities and Yes the percentage of their total holdings (xi) Financial ratios and market price information Yes (xii) Significant changes in the Company’s or its subsidiaries’ fixed assets, and the market value Yes of land, if the value differs substantially from the book value as at the end of the year (xiii) Details of funds raised through a public issue, rights issue and a private placement N/A during the year (xiv) Information in respect of Employee Share Ownership or Stock Option Schemes N/A (xv) Disclosures pertaining to Corporate Governance practices in terms of Rules 7.10.3, 7.10.5 c. Yes and 7.10.6 c. of Section 7 of the Listing Rules (xvi) Related party transactions exceeding 10% of the equity or 5% of the total assets of the Entity Yes as per audited financial statements, whichever is lower

50 Bairaha Farms PLC Annual Report 2019/20 Corporate Governance Stewardship

Statement of Compliance under Section 7.10 of the Listing Rules of the CSE on Corporate Governance Mandatory provisions – Fully compliant

CSE Rule Compliance Status

7.10 Compliance a./b./c. Compliance with Corporate Governance Rules Yes

7.10.1 Non Executive Directors ( NED) a./b./c. At least two members or one third of the Board, whichever is higher, should be NEDs Yes

7.10.2 Independent Directors a. Two or one third of NEDs, whichever is higher shall be “independent” Yes b. Each NED to submit a signed and dated declaration of his/her independence or non-independence Yes

7.10.3 Disclosures relating to Directors a./b. Board shall annually determine the independence or otherwise of NEDs Yes c. A brief résumé of each Director should be included in the Annual Report including Yes the Directors’ experience d. Provide a résumé of new Directors appointed to the Board along with details to CSE Yes

7.10.4 Criteria for Determining independence a. to h. Requirements for meeting the criteria to be an Independent Director Yes

7.10.5 Remuneration Committee a.1 Remuneration Committee shall comprise NEDs, a majority of whom will be independent Yes a.2 One NED shall be appointed as Chairman of the Committee by the Board of Directors Yes b. Remuneration Committee shall recommend the remuneration of the Executive Directors Yes c.1 Names of Remuneration Committee members Yes c.2 Statement of Remuneration policy Yes c.3 Aggregate remuneration paid to NEDs should be included in the Annual Report Yes

7.10.6 Audit Committee a.1 Audit Committee (AC) shall comprise NEDs, a majority of whom should be independent Yes a.2 A NED shall be the Chairman of the Committee Yes a.3 CEO (MD) and Chief Financial Officer should attend AC meetings Yes a.4 The Chairman of the AC or one member should be a member of a recognised professional Yes accounting body b. The functions of the Audit Committee Yes b.1 Overseeing of the preparation, presentation and adequacy of disclosures in the financial statements in Yes accordance with SLFRS/LKAS

b.2 Overseeing the compliance with financial reporting requirements, information requirements of the Yes Companies Act and other related regulations and requirements

Bairaha Farms PLC Annual Report 2019/20 51 Corporate Governance Stewardship

CSE Rule Compliance Status

b.3 Overseeing the process to ensuring the internal and risk management controls are adequate to meet Yes the requirements of the SLFRS/LKAS b.4 Assessment of the independence and performance of the Entity’s External Auditors Yes b.5 Make recommendations to the Board pertaining to External Auditors appointment, reappointment, Yes removals and remuneration c.1 Names of the Audit Committee members Yes c.2 Audit Committee shall make a determination of the independence of the External Auditors Yes c.3 Report on the manner in which Audit Committee carried out its functions shall be disclosed in Yes the Annual Report.

Statement of Compliance under Section 9.3.2 of the Listing Rules of the CSE on Corporate Governance Mandatory provisions – Fully compliant CSE Rule Compliance Status

(a) Details pertaining to Non-Recurrent Related Party Transactions (RPT) Yes (b) Details pertaining to Recurrent Related Party Transactions Yes (c) Report of the Related Party Transactions Review Committee Yes (d) Declaration by the Board of Directors in the Annual Report as an affirmative statement of Yes compliance with the rules pertaining to RPT, or a negative statement otherwise

Statement of Compliance pertaining to Companies Act No. 07 of 2007 Mandatory provisions – Fully compliant CSE Rule Compliance Status

168 (1) (a) The nature of the business together with any change thereof during the accounting period Yes 168 (1) (b) Signed financial statements of the Group and the Company Yes 168 (1) (c) Auditors’ Report on financial statements Yes 168 (1) (d) Accounting policies and any changes therein Yes 168 (1) (e) Particulars of the entries made in the Interests Register Yes 168 (1) (f) Remuneration and other benefits paid to Directors of the Group Yes 168 (1) (g) Corporate donations made by the Group Yes 168 (1) (h) Information on the Directorate of the Company and its subsidiaries during and at the end of the Yes accounting period 168 (1) (i) Amounts paid/payable to the External Auditor as audit fees and fees for other services rendered Yes 168 (1) (j) Auditors’ relationship or any interest with the Company and its subsidiaries Yes 168 (1) (k) Acknowledgement of the contents of this Report and signatures on behalf of the Board Yes

52 Bairaha Farms PLC Annual Report 2019/20 Annual Report of the Stewardship Board of Directors on the Affairs of the Company The Directors of Bairaha Farms PLC have pleasure in presenting their Annual Report together with the audited Financial statements financial statements of the Company for the year ended The financial statements of the Company are given on 31st March 2020. pages 76 to 81.

General Summarised financial results Pursuant to the requirements of the new Companies 31st March 2020 31st March 2019 Act No. 07 of 2007, the Company was re-registered on 14th February 2008 and bears registration number LKR ’000 LKR ’000 PQ 122. Accordingly, the name of the Company has Group revenue 4,361,089 4,723,954 changed to Bairaha Farms PLC. Total comprehensive income (103,963) 415,286 Group activities Retained earnings 2,937,005 3,197,112 The core activities of the Group are vertically integrated poultry farming, chicken processing and manufacturing of pre-cooked meats and in particular the following: Auditor’s report • Breeding poultry and operating of hatcheries for the The Report of the Auditors on the financial statements production and sale of both parent and commercial of the Company is given on page 72. broiler day-old chicks; • Operating hundreds of outgrower farms as well as a few large-scale own broiler farms; Accounting policies • Processing, distributing and selling of packeted whole The financial statements of the Company have been broiler chicken, and broiler chicken portions (cut-ups); prepared in accordance with the Sri Lanka Accounting Standards (SLFRS/LKAS) and the policies adopted • Manufacturing, distributing and selling of pre-cooked thereof are given on pages 82 to 96. meats including chicken sausages, chicken meat balls, chicken sandwich slices, and marinated chicken; • Importing and distributing, as the exclusive local agent, Directors the world-renowned “Antec” brand disinfectants from The names of the Directors who held office as at the end DuPont Animal Health Solutions of USA; of the accounting period are given below and their brief • Marketing and selling of other products for poultry profiles appear on pages 39 and 41. farming, including sales of hypromeal (produced by recycling the by-products of poultry processing) to feed millers. Executive Directors Mr Yakooth Naleem (Managing Director) Mr Riyal Yakoob Mr Kamil Naleem Mr Mubarak Naleem Mr M I Wahid

Bairaha Farms PLC Annual Report 2019/20 53 Annual Report of the Board of Directors on the Affairs of the Company Stewardship

Independent Non-Executive Directors’ interests in contracts Directors The Directors have no direct or indirect interest in any contract or proposed contracts with the Company Desamanya Prof M T A Furkhan (Chairman) except for the transactions referred to in Note 32 to the Mr C L de Silva financial statements. Prof H Abeygunawardena

In accordance with Articles 87 and 88 of the Articles Directors’ responsibility for of Association of the Company, Mr Riyal Yakoob and Prof H Abeygunawardena retire by rotation and, being financial reporting eligible are recommended for re-election. The Directors are responsible for the preparation of financial statements of the Company and to ensure that Prof M T A Furkhan who is 85 years of age vacates they reflect a true and fair view of the state of its affairs. office on completion of one year from the date of the last A further statement in this regard is included on page 71. Annual General Meeting and is recommended by the Board for re-appointment as a Director under Section 211 of the Companies Act, and specially declaring that Auditors the age limit stipulated in Section 210 of the Companies Messrs Ernst & Young, Chartered Accountants served Act shall not apply to the said Director. as the Auditor during the year under review. As far as the Directors are aware, the Auditor’s only relationship with the Company is in regard to work relating to the audit Interest register and the computation done in regard to taxation. The Company maintains an Interest Register in terms of the Companies Act No. 07 of 2007. The audit fees including component auditors for the year under review are LKR 4.71 Mn. All related party transactions which encompass the transactions of Directors who were directly or indirectly The Auditors have also provided tax compliance services interested in a contract or a related party transaction during the year and the fee payable in this regard with the Company during the accounting period is amounts to LKR 1.3 Mn. recorded in the Interest Register in due compliance with the applicable rules and regulations of the relevant The Auditors have expressed their willingness to continue Regulatory Authorities. in office. A resolution to reappoint the Auditors and to authorise the Directors to determine their remuneration The relevant interests of Directors in the shares of the will be proposed at the Annual General Meeting. Company as at 31st March 2020 are recorded in the Interest Register and details are given in this Report under Directors’ Shareholding. Stated capital

The Stated Capital of the Company is LKR 256,305,197 Directors’ remuneration divided into 16,000,000 Ordinary Shares. The Directors’ remuneration is disclosed in Note 24 to the financial statements on page 124.

54 Bairaha Farms PLC Annual Report 2019/20 Annual Report of the Board of Directors on the Affairs of the Company Stewardship

Directors’ shareholding Land holdings The shareholdings of the Directors of the Company are Details of Company’s ownership of lands are given in as follows: Note 4.1.5 of the financial statements.

Number of Shares As at 31st March 2020 2019 Capital expenditure Directors The total capital expenditure during the year amounted to LKR 342.6 Mn. compared to LKR 287.1 Mn. incurred Desamanya Prof M T A Furkhan 239,550 156,700 in the previous year. Details of movement in property, Mr Yakooth Naleem 1,701,867 1,701,867 plant and equipment are given under Notes 4 to the Mr Riyal Yakoob 824,305 824,305 financial statements on page 97. Mr C L de Silva (joint) 85,000 60,000 Mr C L de Silva 47,133 32,000 Dividend Mr Kamil Naleem 1,603,924 1,603,924 A 2nd Interim Dividend for 2018/19 of LKR 4.00 Mr Mubarak Naleem 1,660,908 1,660,908 per share was declared on 8th May 2019 and paid on Prof H Abeygunawardena N/A N/A 29th May 2019. No dividends were declared for the year under consideration. Mr M I Wahid N/A N/A

Statutory payments Major shareholders, distribution The Directors confirm that to the best of their schedule and other information knowledge, all taxes, duties and levies payable by the Information on the twenty largest shareholders of the Company, and all contributions, levies and taxes payable Company, distribution schedule of the shareholders and on behalf of, and in respect of employees of the Company market value per share are given as per the Listing Rules and all other known statutory dues as were due and of the Colombo Stock Exchange on pages 35 to 37 under payable by the Company as at the balance sheet date have Investor Information. been paid or, where relevant provided for.

Public holding Donations Float adjusted market capitalisaion of LKR 774,196,533.10 The Company has made donations for charitable equivalent to 61.48% of the issued shares of the purposes amounting to LKR 4,140,593 (2019 – Company as at 31st March 2020 are in the hands of LKR 2,899,330) for the year ended 31st March 2020. 3,432 public shareholders. The Company complies with Option 5 of the Listing Rules 7.13.1 (a). Events occurring after the balance sheet date Reserves No circumstances have arisen since the reporting date, The movement of reserves during the year is given under which would require adjustment to, or disclosure in the the Statement of Changes in Equity on page 79. financial statements.

Bairaha Farms PLC Annual Report 2019/20 55 Annual Report of the Board of Directors on the Affairs of the Company Stewardship

There were no non-recurrent related party transactions Corporate governance that exceeded 10% of the equity or 5% of the total assets Corporate governance practices and principles with of the Company as per the audited financial statements respect to the management and operations of the for the year ended 31st March 2020. However there were Company are set out on pages 42 to 52 of this Report. recurrent related party transactions that exceeded 10% of The Directors confirm that the Company has complied the gross revenue/income of the Company as disclosed with the rules on corporate governance contained in the in Note 32.1.3 on page 143. The Directors confirm Listing Rules of the Colombo Stock Exchange. that transactions with the related parties in terms of the LKAS 24 – “Related Party Disclosure” is presented in An Audit Committee, Remuneration Committee and the Note 32 to the Financial Statements. Related Party Transaction Review Committee function as subcommittees of the Board and they are composed of The Directors declare that the Company is in compliance Directors with the requisite qualifications and experience. with Rule 9 of the Listing Rules of the Colombo Stock The composition of the said Committees is as follows: Exchange pertaining to Related Party Transactions during the financial year ended 31st March 2020. Audit Committee Mr C L de Silva – Chairman Annual General Meeting Desamanya Prof M T A Furkhan The Annual General Meeting will be held in the Prof H Abeygunawardena Auditorium, Sri Lanka Foundation, 100, Padanama Mawatha Colombo 7 at 11.00am on Thursday the 29th October 2020. The Notice of the Annual General Remuneration Committee Meeting appears on page 149. Desamanya Prof M T A Furkhan – Chairman By Order of the Board Mr C L de Silva Bairaha Farms PLC Prof H Abeygunawardena (Sgd.) Yakooth Naleem Related Party Transaction Review Managing Director Committee Mr C L de Silva – Chairman (Sgd.) Desamanya Prof M T A Furkhan Riyal Yakoob Mr Riyal Yakoob Executive Director Prof H Abeygunawardena (Sgd.) The Related Party Transaction Review Committee has reviewed all related party transactions that require their P W CORPORATE SECRETARIAL (PVT) LTD. review for the year ended 31st March 2020. Secretaries 16th September 2020 Colombo

56 Bairaha Farms PLC Annual Report 2019/20 Report of the Stewardship Audit Committee

The primary function of the Audit Committee (hereafter referred to as the Committee) is to assist the Board of Attendance at Audit Committee Directors (hereafter referred to as the Board) in fulfilling meetings held during the period its oversight responsibility. The main functions of the Committee include the review of financial statements, 1st April 2019 to 31st March 2020 internal control procedures, risk management processes, Attendance and compliance with relevant accounting standards whilst Name of the Director ensuring independence of the External Auditor. These 1. Mr C L de Silva 4/4 functions are carried out with a view to safeguarding the interests of shareholders and other stakeholders. The 2. Prof M T A Furkhan 2/4 Committee assists the Board in discharging its duties 3. Prof Abeygunawardane 4/4 by expressing an independent and objective view on the financial report taking into consideration compliance with mandatory, statutory, and other regulations laid down by the authorities. Where necessary, the Internal controls and risk Committee makes suggestions and recommendations to management processes the Board in areas within its purview. The Committee reviewed and assessed the Company’s risk management processes including the adequacy of the overall control and assessment of controls in areas Membership considered as posing significant risks. The Committee consists of three Non-Executive Directors all of whom are independent. Mr C L de Silva The Committee verifies the adequacy of internal is the Chairman of the Committee and is a Fellow of controls through both internal management reports The Institute of Chartered Accountants, in Sri Lanka as as well as independent reports from both Internal and well as in England and Wales. The other members of the External Auditors. Committee are: The internal audit function has been outsourced Desamanya Prof M T A Furkhan, who is a Fellow of the • to Messrs BDO Partners, Chartered Accountants. Chartered Institute of Management Accountants, UK. Generally, the audits are carried out on a quarterly basis. • Prof Harischandra Abeygunawardena, who has a The Internal Auditor carries out the audits as per a MSc from the University of Illinois and PhD from scheduled programme approved by the Committee. Urbana Champaign, USA in animal production. The Committee monitored and reviewed the scope, He had also served as the Vice-Chancellor of the extent, and effectiveness of the internal audit activity. University of Peradeniya. The processes covered and the regularity of audits depend on the level of risk of each process, with higher risk processes (which have more impact on the business) Meetings being audited more frequently. The Committee held four meetings during the year under review. The Chief Executive Officer, Executive Director, Director Operations and the Chief Financial Officer attended those meetings on invitation.

Bairaha Farms PLC Annual Report 2019/20 57 Report of the Audit Committee Stewardship

During the year the Committee met with the Internal Auditor to consider the findings, Management responses External Auditor and matters requiring follow-up. The Committee As far as the Committee is aware, the Auditor does discussed and briefed the Board on the reports relating to not have any relationship (other than that of Auditor) risks, controls and assurance including the assessment of with the Company. The Committee has also received the system of internal controls. The Committee approved a declaration from Messrs Ernst & Young, Chartered the fee to be paid for the services of the Internal Auditor. Accountants as required by the Companies Act No. 07 of 2007, confirming that they do not have any relationship with the Company, which may have a bearing on their Financial reporting framework and independence within the meaning of the Code of Best Practice on Corporate Governance 2017 issued by CA financial statements Sri Lanka and the Guidelines for Listed Companies on The Committee assists the Board in assuring the Audit and Audit Committees issued by the Securities integrity of financial statements and disclosures. and Exchange Commission of Sri Lanka. Before finalisation and signing off by the Auditor, the Committee met with the External Auditor to discuss The Committee has recommended to the Board that “key audit matters” and issues relating to the final Messrs Ernst & Young be re-appointed as the External accounts, particularly with regard to the valuation of Auditor for the financial year ending 31st March 2021, biological assets. Subsequently, the members of the subject to the approval of the shareholders at the Annual Committee recommended to the Board the adoption General Meeting. of the final accounts. (Sgd.) The Committee further reviews the appropriateness of the significant estimates and judgements made by C L de Silva the management. Chairman Audit Committee 16th September 2020

58 Bairaha Farms PLC Annual Report 2019/20 Report of the Stewardship Remuneration Committee

The Remuneration Committee meets once a year to As we have already communicated in our last year’s review salaries of Executive Staff and to rectify any annual report, we have been laying the foundation for a anomalies and/or to revise salaries of staff, as far as “Performance based Culture” whereby the “Employees’ possible, to be in line with market rates for the following Rewards and Recognition” policy is linked to the categories of staff: three key elements, that is, individual’s, Team’s and 1. Executive Staff Organisation’s overall performance. This would while motivating employees would also give a strong message to 2. Chief Executive Officer and Executive Directors them that the Board of Directors and the Leadership of 3. Non-Executive Directors – Fees and allowances the Organisation are fair and just to all staff, who actively contribute by delivering expected results for the wellbeing When deciding on the remuneration of executive staff, of the Organisation. the members of the Remuneration Committee take into account their educational qualifications, experience as well as the prevailing market rates and remuneration Attendance at remuneration offered by other companies to staff of similar grades. The main purpose of a good remuneration policy would be to committee meetings held during maintain the balance between the Company’s over-riding the period 01st April 2019 to financial goal of maximising shareholders’ wealth and striving to maximise dividend pay-out, while at the same 31st March 2020 time keeping the staff and the Management, motivated Attendance and committed to the Company’s, both short-term and Name of the Director long-term financial goals by adequately compensating 1. Prof M T A Furkhan 1/1 them for their services. 2. Mr C L de Silva 1/1 Besides salaries and allowances for sales and production 3. Prof Abeygunawardane 1/1 staff, incentives are currently paid to them covering both executives and non-executives alike, including staff in the Farms and other production units, provided they (Sgd.) achieve certain specific targets set by the Management. These measures have been introduced to motivate the Desamanya Prof M T A Furkhan staff while assisting the Company to achieve its sales and Chairman production targets stated in the budget. Remuneration Committee However, in order to create a performance driven 16th September 2020 culture, we intend linking individual/team rewards and recognition to performance by planning to introduce in the year in progress a new incentive bonus scheme by having a combination of both a fixed element together with variable component, linked to performance. There is a need to build a strong “Values” driven, “Performance” driven and a team-based culture.

Bairaha Farms PLC Annual Report 2019/20 59 Stewardship Report of the Related Party Transactions Review Committee This Committee was established to advise the Board on related party transactions as defined by LKAS 24, Meetings ensuring compliance with both the Code of Best The Committee held four (4) meetings during the Practices on Related Party Transactions issued by the year under review. Information on the attendance at Securities and Exchange Commission of Sri Lanka these meetings by the members of the Committee is and Section 9 of the Listing Rules of the Colombo given below: Stock Exchange. Name of the Director Attendance

1. Mr C L de Silva 4/4 Duties and responsibilities of 2. Desamanya Prof M T A Furkhan 2/4 the Committee 3. Prof H Abeygunawardena 4/4 4. Mr Riyal Yakoob 4/4 • To monitor all related party transactions to ensure that they are carried out at arm’s-length commercial terms and that they are not in any way disadvantageous to the The views/observations of the Committee were properly Company and its minority shareholders; documented in the minutes of the Committee meetings and were communicated to the Board of Directors. • Obtain expert knowledge and advice either from within the Company or from outside to assess the pricing of recurrent related party transactions; Review of related party • To review both recurrent and non-recurrent related party transactions; transactions • Recommend to the Board and obtain their approval During the year, there were no non-recurrent transactions before executing related party transactions; that exceeded the threshold limits specified in the Listing Rules, requiring disclosure in the Annual Report. The • To review proposed related party transactions prior to details of the recurrent related party transactions are them being entered into. disclosed in Note 32 of the Annual Report.

Composition of the Committee Declaration Members of this Committee consist of three There were no recurrent or non-recurrent related party Independent Non-Executive Directors and one transactions which required additional disclosure in the Executive Director. Annual Report under the Colombo Stock Exchange • Mr C L de Silva: Chairman Listing Rule 9.3.2 except for the disclosure made in (Independent, Non-Executive Director) Note 32 to the Financial Statements. Desamanya Prof M T A Furkhan • A declaration by the Board of Directors on compliance (Independent, Non-Executive Director) with the rules pertaining to the Related Party • Prof H Abeygunawardena Transactions appears in the Report of the Board of (Independent, Non-Executive Director) Directors on page 56 of the Report. • Mr Riyal Yakoob (Executive Director) (Sgd.)

C L de Silva Chairman Related Party Transactions Review Committee 16th September 2020

60 Bairaha Farms PLC Annual Report 2019/20 Risk Stewardship Management

Effectively managing and minimising risk is key to a successful and sustainable business operation and performance. The poultry industry has inherent risks along its entire value chain from sourcing breeding stock to consumption. The degree of risk varies based on the nature, size, and complexity of the business.

Bairaha takes great responsibility and care in managing and operating a sustainable poultry and food services business. Being a household name in Sri Lanka with a strong brand presence, we consider risk management to be a vital part of our management process. Our approach is guided by a comprehensive and robust risk management framework, which enables us to identify and characterise risks, assess related exposures and institute timely corrective action to safeguard our reputation, assets, and long-term business interests.

Bairaha Risk Management Framework

Business Strategy

Risk Appetite

Risk Management Process Risk Governance Risk Identification Risk Assessment Risk Response Risk Reporting Risk Monitoring Risk Culture

The Second Line of Defence are our systems and Risk Governance functions, which are specialised in overseeing the risk Our approach to risk governance is based on the management and compliance activities. These include “Three Lines of Defence” model. internal control systems for financial reporting, quality management systems, and IT controls. The First Line of Defence is our team at each business unit, who are the primary owners of the risks and are The Third Line of Defence is the internal audit directly involved in identifying and mitigating risks. function, which provides independent assurance on the effectiveness of our risk management processes.

Bairaha Farms PLC Annual Report 2019/20 61 Risk Management Stewardship

The Board has delegated responsibility to the Senior In order to prioritise the risks, we use a risk map where Management led by the Managing Director to conduct the impact is plotted against the likelihood. (Shown on the Company’s business activities within the risk page 68) Each area of the map is designated with a risk parameters and guidelines set by the Board. Consequently, level: low, medium, or high, where higher the combined the Senior Management provides leadership and direction impact and likelihood rating is, the higher the overall risk to employees on risk management and has the control of level. The risks that are plotted in the “high and medium overall risk-taking activities. risk levels” are designated as “principal risks” for Bairaha and Management’s attention is drawn to these risks for managing and monitoring. Risk Management Process We follow a five-step process to manage risk at Bairaha. Risk response: The Management has several options in responding Risk identification: to the “principal risks” identified, which are, accepting, reducing, sharing or avoiding the risks. We look at the At this stage we cast a wide net to understand the risks cost-benefit analysis of each option, and formulate the which make up Bairaha’s risk profile. We believe that risk response strategy accordingly. risks are best identified by the people who are closest to the particular tasks.Thus, responsibility for risk identification lies with the risk owners in each segment Risk reporting: and function. This process produces a comprehensive list Risk information is communicated in a timely manner to of risks which forms the risk universe of Bairaha. ensure that relevant employees are well informed to carry out their responsibilities. Risk assessment: Given the nature of the poultry business, and the myriad Risk monitoring: of associated risks, it is essential for us to prioritise the Monitoring is carried out through ongoing management risks to ensure that the Management is focused on activities to identify the appropriateness and timeliness the key risks. This prioritisation is accomplished by of our responses as well as the corrective measures taken. performing a risk assessment. Further, periodic evaluation of the risk management framework is performed to ensure that Bairaha has We collate and evaluate the risks identified in the risk the right standards, methods, and tools in place for identification stage, based on the potential impact managing risks. and likelihood of their occurrence, quantitatively and qualitatively. The interactions between different risks are also considered.

62 Bairaha Farms PLC Annual Report 2019/20 Risk Management Stewardship

Principal Risk Factors Discussed below are the principal risks that we see as most material to Bairaha’s business and performance at this point in time. In regard to the recent developments we have seen in these risk factors, we have commented on the actions that we have taken or are planning to take to manage these risks. In the event we are not successful in managing these risks to our expectations, it could impair our ability to meet the set targets and adversely impact our cash flow, profitability, financial position and/or reputation.

Principal risks Risk indicators Mitigating factors and measures

1. Macro- 1. Exchange rates 1. (a) High level of vertical integration economic reducing the need to rely on imports risk (b) Focusing on the export market to hedge part of the risk exposure

2. Interest rates 2. (a) Strong balance sheet with a low gearing level (b) Healthy cash reserves to finance working capital needs (c) Long-standing relationships with banks facilitate negotiation of competitive interest rates for funding

3. Inflation 3. (a) Continuous innovations on productivity improvements and automation (b) Inflationary impact will affect both supply and sales, and thus will create a neutralising effect

4. GDP growth rate 4. The strong brand name and chicken being the cheapest source of dietary protein for human consumption, minimises the (Adverse movement in macroeconomic threat of significant drop in consumption during an economic factors can create direct and transitory downturn. But, a reasonable dip in sales could be expected if price pressures on inputs affecting cost of inflationary pressures continue to impinge on households. production while also impacting consumer spending, leading to fluctuation in demand across all business segments)

2. Industry risk 1. Pathogens and diseases 1. (a) The Company follows internationally accepted practices and standards in regard to biosecurity, in all the facilities. This includes: • Biosecurity buffer zone • Operational safety and sanitation procedures for farm staff and visitors • Blood samples of every flock analysed regularly to ensure birds stay healthy and disease-free • All staff are trained on biosecurity controls on a regular basis (b) Isolation and treatment of infected birds and minimum quarantine period prior to re-entry to farms (c) Safe disposal of carcasses

Bairaha Farms PLC Annual Report 2019/20 63 Risk Management Stewardship

Principal risks Risk indicators Mitigating factors and measures

2. Adverse weather 2. (a) The grain storage facility greatly helps in times of poor crop production due to adverse weather (b) Controlled temperature in facilities protects poultry being exposed to adverse weather

3. Availability and quality of inputs for 3. (a) Historical vulnerabilities related to availability of maize for feed production feed production have been minimised with the acquisition of the Silo facility (b) End-to-end integration of the production processes greatly mitigate the dependence on external parties for sourcing inputs, although the Company still needs to rely on farmers for maize and overseas suppliers for other ingredients for feed production. (c) Quality of feed is maintained at a high standard, through high in-house production standards.

4. Supply chain risk 4. Supply chain risk is largely mitigated due to the Company’s integrated operation through wholly owned or joint venture entities.

5. Competition 5. (a) The strong brand equity and reputation helps Bairaha to remain a market leader despite fierce competition from a diverse set of competitors. (b) Superior product quality which differentiates Bairaha from the competition and keeps the Company ahead of the rest

6. Employee attrition 6. (a) Great place to work initiatives keep staff motivation levels high, leading to reduced attrition. (b) Employee empowerment. (c) Fixed plus variable pay for all employees. (d) Providing technical training has helped build a highly skilled, competent and satisfied team (e) Attrition in unskilled cadre is harder to contain, but having a strong resource pipeline helps mitigate the risk (f ) Automation

64 Bairaha Farms PLC Annual Report 2019/20 Risk Management Stewardship

Principal risks Risk indicators Mitigating factors and measures

7. Occupational health 7. Use of technology in the production operation, together with the high degree of focus on sanitation and biosecurity helps keep staff and products safe

8. Market demand 8. (a) Geographical diversification into the export market (b) Expanding out-grower customer base (c) Sufficient cold storage (d) Identifying and preparing for cyclical demand

9. Cyclicality 9. Management has experience in dealing with cyclicality

3. Concentration 1. Global epidemics can impact the 1. (a) The Company believes in specialisation and has built in risk (100% entire business various mitigants to overcome issues like an epidemic. The concentration principal and supplier, Cobb Vantress Inc., has operations in poultry across the USA and in other countries around the world. business) By diversifying the geographic locations from which the chicks are imported helps to source from other parts of the world unaffected or less affected by an epidemic (b) Although the Company is concentrated in poultry, with the vertical integration across supplying parent chicks, DOCs, processed chicken and various value added products, the Company is achieving diversifications across various segments of the market

2. Sustainability of the business is 2. Poultry meat enjoys a comparative advantage over other meat exposed to market demand products on factors such as affordability, convenience, and absence of religious restrictions. It is also recommended by nutritionists as a great source of dietary protein for children and adults. Additionally, healthy image, limited GHG emissions, lower production cost and short rearing time along with lower cost of investment all contribute to a steady growth in global poultry production and consumption. In light of this, regardless of seasonal fluctuations and short-term drop in demand due to other external factors, no long-term negative impact is anticipated, considering the global poultry industry outlook.

3. The Company’s customer base is 3. (a) The Company is exploring the export market at present to confined to a single geographic market, achieve geographic diversification. which exposes the Company extensively to vulnerabilities of the single market (b) The Company’s sales and distribution network covers the they operate entire country and targets customers along the value chain. This diversification of customer-base will contribute to mitigating the risk arising from geographic concentration in Sri Lanka.

Bairaha Farms PLC Annual Report 2019/20 65 Risk Management Stewardship

Principal risks Risk indicators Mitigating factors and measures

4. Environmental 1. Proximity to human habitat and The Company applies international standards risk other farms with regard to biosecurity in all its facilities, and all staff is trained on biosecurity controls on a regular basis.

1. Site selection with a plan to maintain its operations at a safe distance from residential neighborhoods and other farms.

2. Farm odour 2. (a) Biosecurity buffer zone (a safe distance from land boundary) (b) Enclosed farms (c) Scrubber system for odour treatment in factory (d) Intelligent farm design

3. Disposal of litter and manure 3. Litter and manure recycled as fertiliser

4. Carcass disposal 4. Safe disposal of carcasses

5. Wastewater management 5. Wastewater treatment and recycling

6. Energy management 6. (a) Investment in solar power and contribution to the national grid

(b) Use of firewood biomass boiler for processing and chiller

5. Regulatory risk 1. Non-compliance with regulatory 1. Company also employees professionally qualified management requirements including: with diverse back ground to ensure that we comply with the changing regulatory requirements. (a) Food and safety standards (b) Accounting standards (c) Tax compliance (d) Industry guidelines (e) Labour laws (f ) Environmental regulations

2. Imposition of unforeseen tariffs 2. Senior Management maintains a regular dialogue with the or levies authorities and represents the industry at key forums. We lobby for fair taxes and tariffs, prioritising the industry needs over the Company’s interests.

3. Policy inconsistencies 3. Senior Management maintains a rapport with policymakers and makes representations on behalf of the industry at key forums.

66 Bairaha Farms PLC Annual Report 2019/20 Risk Management Stewardship

Principal risks Risk indicators Mitigating factors and measures

6. Food safety, 1. Presence of bacteria in processed meat 1. (a) Bairaha is HACCP, ISO 22000 and ISO 9001:2015 quality and or value added products. certified and conforms to very high quality standards. reputation risk (b) The Company receives technical advice and support from our principal Cobb Vantress Inc. and ensures international standards are maintained in all the processes. (c) Representative samples of products are laboratory tested prior to releasing to the market. (d) Bairaha inspects and requires that their customers maintain freezer temperatures at specified levels to maintain food safety.

2. Processed food contamination. 2. (a) Bairaha maintains stringent quality control measures to ensure no contamination occurs in their facilities. (b) The Company uses high quality safety packaging and sealing to avoid freezer contamination.

3. Defamatory propaganda. 3. The Company values its reputation and brand image built over 45 years and works to dispel defamation and false propaganda whilst respecting credible criticism.

7. Fire and 1. Floods • Company has production facilities in multiple locations to natural reduce any devastating impact to the entire business operation. disasters risk 2. Fires • Insurance cover to safeguard our assets from loss or 3. Storms destruction due to unexpected events. 4. Earthquakes • Employee training and drills to prepare staff to deal with calamities. 5. Other natural calamities

8. COVID-19 Disruptions to business due to an outbreak • Working of alternative shifts in farms and factories along with pandemic of COVID-19 provision of transport facilities by the Company to minimise exposure. • Strict following of safety protocols in all farms with frequent follow up by Management on the compliance. • Strong discipline on cash flow management to have a strong financial muscle to sustain any uncertainties. • Developing multiple sourcing channels and markets to mitigate dependence. 9. Collection Default by customers • All distributors need to provide bank guarantees as security for risk their purchases. • ERP system provides real-time information for monitoring outstanding balances. • Proper due diligence on customer’s track record. • The Company closely tracks ageing reports to ensure timely recovery. • Prompt action is taken to recover overdue debts.

Bairaha Farms PLC Annual Report 2019/20 67 Risk Management Stewardship

Principal risks Risk indicators Mitigating factors and measures

10. Information 1. Cybersecurity risks associated with • Implementation of IT governance and policy control security risk various software and IT systems used mechanisms. by the Company. • External IT audit has confirmed the effectiveness of the IT security and controls, governance and control practices in place. 2. Access to Bairaha’s critical business information including own recipes and • Non-disclosure agreements with all vendors and contractors. management data by third parties.

Principal Risk Heat Map Impact

Incidental Minor Moderate Major Extreme

Almost certain 01

Likely 02

Possible 08 05 Likelihood

Unlikely 07, 09, 10 03, 04, 06

Rare

Low Medium High

1. Macroeconomic risk 2. Industry risk 3. Concentration risk 4. Environmental risk 5. Regulatory risk 6. Food safety, quality and reputation risk 7. Fire and natural disaster risk 8. Risk of a COVID-19 outbreak 9. Collection risk 10. Information security risk

68 Bairaha Farms PLC Annual Report 2019/20 

Financial Financial Reports Reports

Bairaha Farms PLC Annual Report 2019/20 69 Financial Financial Reports Calendar

Interim financial statements calendar

2019/20 Target set for 2020/21

1st Quarter (ended 30th June) 15th August 2019 13th August 2020 2nd Quarter (ended 30th September) 31st October 2019 31st October 2020 3rd Quarter (ended 31st December) 24th January 2020 31st January 2021 4th Quarter (ended 31st March) 13th August 2020 30th May 2021

Annual General Meeting calendar

2019/20 Target set for 2020/21

Annual Report and financial statements to shareholders 7th October 2020 10th June 2021 Annual General meeting (to be held) 28th October 2020 30th June 2021

Dividends calendar

(Based on payment date) 2019/20 Target set for 2020/21

Final dividend for previous financial year – – Interim dividend for current financial year – Yet to be decided

70 Bairaha Farms PLC Annual Report 2019/20 Statement of Directors’ Responsibilities Financial Reports

The Directors are responsible for ensuring that the Company keeps sufficient accounting records which disclose the financial position of the Company with reasonable accuracy and that the financial statements are prepared in conformity with the Sri Lanka Accounting Standards (SLFRS/LKAS) and comply with the provisions of the Companies Act. The Directors have adopted the going concern basis for the preparation of the financial statements.

The Directors are responsible for taking reasonable measures to safeguard the assets of the Company and in that regard maintain effective controls.

The Directors confirm that all statutory payments for the financial year have been made.

By Order of the Board, Bairaha Farms PLC

(Sgd.)

P W Corporate Secretarial (Pvt) Ltd. Company Secretaries 16th September 2020 Colombo

Bairaha Farms PLC Annual Report 2019/20 71 Independent Financial Reports Auditors’ Report

Ernst & Young Tel : +94 11 2463500 Chartered Accountants Fax Gen : +94 11 2697369 201 De Saram Place Tax : +94 11 5578180 P.O. Box 101 [email protected] Colombo 10 ey.com Sri Lanka

PNS/HLKC/JJ

responsibilities for the audit of the financial statements To the shareholders of Bairaha section of our report. We are independent of the Group Farms PLC in accordance with the Code of Ethics issued by CA Sri Lanka (Code of Ethics) and we have fulfilled our Report on the audit of the consolidated other ethical responsibilities in accordance with the Code financial statements of Ethics. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis Opinion for our opinion. We have audited the financial statements of Bairaha Farms PLC (“the Company”) and the consolidated Key audit matters financial statements of the Company and its Subsidiaries Key audit matters are those matters that, in our (“the Group”), which comprise the statement of financial professional judgement, were of most significance in our position as at 31st March 2020 and the statement of audit of the financial statements of the current period. profit or loss and other comprehensive income, statement These matters were addressed in the context of our audit of changes in equity and statement of cash flows for the of the financial statements as a whole, and in forming year then ended, and notes to the financial statements, our opinion thereon, and we do not provide a separate including a summary of significant accounting policies. opinion on these matters. For each matter below, our description of how our audit addressed the matter is In our opinion, the accompanying financial statements of provided in that context. the Company and the Group give a true and fair view of the financial position of the Company and the Group as We have fulfilled the responsibilities described in the at 31st March 2020, and of their financial performance Auditor’s responsibilities for the audit of the financial and cash flows for the year then ended in accordance with statements section of our report, including in relation Sri Lanka Accounting Standards. to these matters. Accordingly, our audit included the performance of procedures designed to respond to our Basis for opinion assessment of the risks of material misstatement of the financial statements. The results of our audit procedures, We conducted our audit in accordance with Sri Lanka including the procedures performed to address the Auditing Standards (SLAuSs). Our responsibilities under matters below, provide the basis for our audit opinion those standards are further described in the Auditor’s on the accompanying financial statements.

Partners: W R H Fernando FCA FCMA R N de Saram ACA FCMA Ms. N A De Silva FCA Ms. Y A De Silva FCA W R H De Silva ACA ACMA W K B S P Fernando FCA FCMA Ms. K R M Fernando FCA ACMA Ms. L K H L Fonseka FCA A P A Gunasekera FCA FCMA A Herath FCA D K Hulangamuwa FCA FCMA LLB (Lond) H M A Jayesinghe FCA FCMA Ms. A A Ludowyke FCA FCMA Ms. G G S Manatunga FCA Ms. P V K N Sajeewani FCA N M Sulaiman ACA ACMA B E Wijesuriya FCA FCMA Principal G B Goudian ACMA A A J R Perera ACA ACMA T P M Ruberu FCMA FCCA A member firm of Ernst & Young Global Limited

72 Bairaha Farms PLC Annual Report 2019/20 Independent Auditors’ Report Financial Reports

Key audit matters common to both Group and the Company

Key audit matter How our audit addressed the key audit matter

Fair valuation of bearer biological assets The Group carried bearer and consumable biological assets Our audit procedures included the followings: amounting to LKR 456,830,511 and LKR 155,628,779 respectively which are stated at fair value as at the reporting date. • We understood, evaluated and test-checked key internal controls and the methodology adopted in the valuation of We focused on this area due to significance of the balances and biological assets. the application of significant judgements and estimates by the • We test-checked the capitalised amounts relating to grower management as disclosed in Note 2.2 and 30.1.1.1 in ascertaining birds and consumable biological assets of which carrying value the carrying value as of the reporting date. approximated the fair value. • We evaluated the reasonableness of the estimated cash flows and the key assumptions used such as internal rate of return, hatchability of eggs, mortality of day-old chicks and day-old chick prices relating to fair valuation of layer birds. • We also assessed the adequacy of the related disclosures in Notes 2.2, 2.3.8, 12 and 30 to the financial statements.

Other information included in the Responsibilities of the management and those 2020 Annual Report charged with governance Other information consists of the information included Management is responsible for the preparation of in the Annual Report, other than the financial statements financial statements that give a true and fair view in and our auditor’s report thereon. Management is accordance with Sri Lanka Accounting Standards, and responsible for the other information. for such internal control as management determines is necessary to enable the preparation of financial Our opinion on the financial statements does not cover statements that are free from material misstatement, other information and we do not express any form of whether due to fraud or error. assurance conclusion thereon. In preparing the financial statements, management is In connection with our audit of the financial statements, responsible for assessing the Group’s ability to continue our responsibility is to read the other information and, as a going concern, disclosing, as applicable, matters in doing so, consider whether other information is related to going concern and using the going concern materially inconsistent with the financial statements basis of accounting unless management either intends or our knowledge obtained in the audit or otherwise to liquidate the Group or to cease operations, or has no appears to be materially misstated. If, based on the work realistic alternative but to do so. we have performed, we conclude that there is a material misstatement of this other information, we are required to Those charged with governance are responsible for report that fact. We have nothing to report in this regard. overseeing the Company’s and the Group’s financial reporting process.

Bairaha Farms PLC Annual Report 2019/20 73 Independent Auditors’ Report Financial Reports

Auditor’s responsibilities for the audit of the • Conclude on the appropriateness of management’s financial statements use of the going concern basis of accounting and, based on the audit evidence obtained, whether Our objectives are to obtain reasonable assurance about a material uncertainty exists related to events or whether the financial statements as a whole are free from conditions that may cast significant doubt on the material misstatement, whether due to fraud or error, Group’s ability to continue as a going concern. If we and to issue an auditor’s report that includes our opinion. conclude that a material uncertainty exists, we are Reasonable assurance is a high level of assurance, but is required to draw attention in our auditor’s report to not a guarantee that an audit conducted in accordance the related disclosures in the financial statements or, with SLAuSs will always detect a material misstatement if such disclosures are inadequate, to modify our when it exists. Misstatements can arise from fraud or opinion. Our conclusions are based on the audit error and are considered material if, individually or in the evidence obtained up to the date of our auditor’s report. aggregate, they could reasonably be expected to influence However, future events or conditions may cause the the economic decisions of users taken on the basis of Group to cease to continue as a going concern. these financial statements. • Evaluate the overall presentation, structure and content As part of an audit in accordance with SLAuSs, of the financial statements, including the disclosures, we exercise professional judgement and maintain and whether the financial statements represent the professional skepticism throughout the audit. We also: underlying transactions and events in a manner that achieves fair presentation. • Identify and assess the risks of material misstatement of the financial statements, whether due to fraud • Obtain sufficient appropriate audit evidence or error, design and perform audit procedures regarding the financial information of the entities responsive to those risks, and obtain audit evidence or business activities within the Group to express that is sufficient and appropriate to provide a basis an opinion on the consolidated financial statements. for our opinion. The risk of not detecting a material We are responsible for the direction, supervision and misstatement resulting from fraud is higher than for performance of the Group audit. We remain solely one resulting from error, as fraud may involve collusion, responsible for our audit opinion. forgery, intentional omissions, misrepresentations, or the override of internal control. We communicate with those charged with governance regarding, among other matters, the planned scope • Obtain an understanding of internal control relevant and timing of the audit and significant audit findings, to the audit in order to design audit procedures that including any significant deficiencies in internal control are appropriate in the circumstances, but not for the that we identify during our audit. purpose of expressing an opinion on the effectiveness of the internal controls of the Company and the Group. We also provide those charged with governance • Evaluate the appropriateness of accounting policies with a statement that we have complied with ethical used and the reasonableness of accounting estimates requirements in accordance with the Code of Ethics and related disclosures made by management. regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.

74 Bairaha Farms PLC Annual Report 2019/20 Independent Auditors’ Report Financial Reports

From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

Report on other legal and regulatory requirements As required by Section 163 (2) of the Companies Act No. 07 of 2007, we have obtained all the information and explanations that were required for the audit and, as far as appears from our examination, proper accounting records have been kept by the Company.

The Institute of Chartered Accountants of Sri Lanka membership number of the engagement partner responsible for signing this independent auditor’s report is 2965.

16th September 2020 Colombo

Bairaha Farms PLC Annual Report 2019/20 75 Statement of Financial Reports Financial Position

Group Company As at 31st March 2020 2020 2019 2020 2019 Notes LKR LKR LKR LKR

Assets Non-current assets Property, plant and equipment 4 2,346,143,851 2,167,020,443 808,992,576 791,056,270 Right-of-use asset 5 17,720,583 – 28,285,022 – Investment property 6 – – 56,568,055 58,883,495 Intangible assets 7 37,785,575 29,231,171 37,666,575 28,924,631 Investments in subsidiaries 8 – – 381,532,820 381,532,820 Investments in joint ventures 9 930,687,319 919,426,773 711,922,000 606,922,000 Other investments 10 651,700 960,400 651,700 960,400 Biological assets – bearer 12 59,641,139 50,944,176 35,711,040 27,343,145 3,392,630,167 3,167,582,963 2,061,329,788 1,895,622,761

Current assets Inventories 11 373,958,464 215,636,313 292,118,326 167,764,916 Biological assets – Consumable 12 155,628,779 142,907,896 63,785,561 48,861,870 Biological assets – Bearer 12 397,189,372 334,449,466 64,864,434 63,106,173 Trade and other receivables 13 490,719,673 520,880,949 389,737,204 349,300,213 Income tax receivable 45,223,901 4,419,939 29,303,428 18,037,765 Other investments 10 46,872,333 38,612,885 61,106 77,682 Amounts due from related parties 14 509,233 105,509,232 11,499,163 114,275,745 Cash and bank balances 27 158,691,332 429,737,269 97,326,413 195,970,974 1,668,793,087 1,792,153,949 948,695,635 957,395,338 Total Assets 5,061,423,254 4,959,736,912 3,010,025,423 2,853,018,099

76 Bairaha Farms PLC Annual Report 2019/20 Statement of Financial Position Financial Reports

Group Company As at 31st March 2020 2020 2019 2020 2019 Notes LKR LKR LKR LKR

Equity and liabilities Equity Stated capital 15 256,305,197 256,305,197 256,305,197 256,305,197 Revaluation surplus 16.1 507,589,644 420,576,631 149,823,471 143,057,421 Fair value reserve (1,494,307) (1,185,607) (1,494,307) (1,185,607) Actuarial gain on defined benefit plans (1,487,161) (6,926,620) (1,487,161) (6,926,620) Retained earnings 2,937,005,767 3,197,112,804 1,229,410,570 1,411,212,058 Total equity 3,697,919,140 3,865,882,405 1,632,557,770 1,802,462,449

Non-current liabilities Financing and lease (Ijara) payables 17 258,048,570 297,771,749 184,327,128 236,246,632 Deferred tax liabilities 25.2 157,626,438 164,318,259 44,511,685 64,245,128 Retirement benefit liability 18 81,451,767 78,625,064 70,758,916 69,075,407 497,126,775 540,715,072 299,597,729 369,567,167

Current liabilities Trade and other payables 19 458,720,474 352,181,624 537,143,410 398,037,096 Dividends payable 20 14,831,691 13,907,224 14,831,691 13,907,224 Amounts due to related parties 21 – – 239,503,122 101,143,776 Financing and lease (Ijara) payables 17 392,825,174 187,050,587 286,391,701 167,900,387 866,377,339 553,139,435 1,077,869,924 680,988,483 Total equity and liabilities 5,061,423,254 4,959,736,912 3,010,025,423 2,853,018,099

These financial statements are in compliance with the requirements of the Companies Act No. 07 of 2007

(Sgd) Chathuranga Abeyratne Chief Financial Officer

The Board of Directors is responsible for these financial statements. Signed for and on behalf the Board by;

(Sgd) (Sgd) Yakooth Naleem Riyal Yakoob Managing Director Executive Director

The accounting policies and Notes on pages 82 through 144 form an integral part of the financial statements. 16th September 2020 Colombo

Bairaha Farms PLC Annual Report 2019/20 77 Statement of Profit Financial Reports or Loss and other Comprehensive Income Group Company Year ended 31st March 2020 2019 2020 2019 Notes LKR LKR LKR LKR

Revenue 3 4,361,088,744 4,723,954,825 3,168,308,959 3,266,728,027 Cost of sales (3,915,358,566) (3,647,579,573) (2,995,938,090) (2,843,877,572) Gross profit 445,730,178 1,076,375,252 172,370,869 422,850,455 Other operating income 22 40,250,731 33,157,782 206,064,329 244,532,051 Distribution costs (301,957,414) (302,303,332) (239,188,184) (232,682,821) Administrative expenses (240,307,241) (261,719,218) (208,865,955) (222,826,006) Other operating expenses (950,911) (535,724) (948,662) (529,788) Finance cost 23 (73,999,421) (76,015,854) (56,795,674) (67,831,320) Share of profit/(loss) from joint venture companies (Net of tax) 9.2 (62,088,724) 41,114,566 – – Profit/(Loss) before tax 24 (193,322,802) 510,073,471 (127,363,278) 143,512,571 Income tax expense 25 (2,784,235) (97,128,108) 9,561,790 (31,731,550) Profit/(Loss) for the year (196,107,037) 412,945,363 (117,801,488) 111,781,021 Other comprehensive income Other comprehensive income not to be reclassified to profit or loss in subsequent periods: Fair value gain/(losses) – Other investments (308,700) (308,700) (308,700) (308,700) Actuarial gain on defined benefit plans 18.2 6,324,952 3,081,740 6,324,952 3,081,740 Deferred tax impact on defined benefit plans 25.2 (885,493) (431,444) (885,493) (431,444) Revaluation of property, plant and equipment 16.1 79,841,562 – 7,867,500 – Deferred tax impact on revaluation 16.1 (11,177,819) – (1,101,450) – Share of other comprehensive income net of tax equity accounted investees 16.1 18,349,269 – – – Other comprehensive income for the year 92,143,771 2,341,596 11,896,809 2,341,596 Total comprehensive income (103,963,266) 415,286,959 (105,904,679) 114,122,618 Profit/(loss) attributable to: Equity holders of the parent (196,107,037) 412,945,363 (117,801,488) 111,781,021 Non-controlling interest – – – – (196,107,037) 412,945,363 (117,801,488) 111,781,021 Total comprehensive income attributable to: Equity holders of the parent (103,963,266) 415,286,959 (105,904,679) 114,122,618 Non-controlling interest – – – – (103,963,266) 415,286,959 (105,904,679) 114,122,618 Earnings per share – Basic/diluted 26 (12.26) 25.81 (7.36) 6.99

The accounting policies and Notes on pages 82 through 144 form an integral part of the financial statements.

78 Bairaha Farms PLC Annual Report 2019/20 Statement of Changes in Equity Financial Reports

Stated Revaluation Fair value Actuarial gain Retained Total capital surplus reserve on defined earnings benefit plans LKR LKR LKR LKR LKR LKR

Group Balance as at 1st April 2018 256,305,197 420,938,276 (876,907) (9,576,916) 2,893,381,604 3,560,171,253 Impact of adoption of SLFRS 9 – – – – 2,424,194 2,424,194 Restated opening balance under SLFRS 9 256,305,197 420,938,276 (876,907) (9,576,916) 2,895,805,798 3,562,595,447 Profit for the year – – – – 412,945,363 412,945,363 Other comprehensive income (Net) – – (308,700) 2,650,296 – 2,341,596 Realised revaluation surplus on property, plant and equipment – (361,644) – – 361,644 – Dividends (DPS: LKR 7.00) – – – – (112,000,000) (112,000,000) Balance as at 31st March 2019 256,305,197 420,576,632 (1,185,607) (6,926,620) 3,197,112,804 3,865,882,405 Loss for the year – – – – (196,107,037) (196,107,037) Other comprehensive income (Net) – 87,013,012 (308,700) 5,439,459 – 92,143,771 Dividends (DPS: LKR 4.00) – – – – (64,000,000) (64,000,000) Balance as at 31st March 2020 256,305,197 507,589,644 (1,494,307) (1,487,161) 2,937,005,767 3,697,919,140

Company Balance as at 1st April 2018 256,305,197 143,057,421 (876,907) (9,576,916) 1,409,006,843 1,797,915,638 Impact of adoption of SLFRS 9 – – – – 2,424,194 2,424,194 Restated opening balance under SLFRS 9 256,305,197 143,057,421 (876,907) (9,576,916) 1,411,431,037 1,800,339,832 Profit for the year – – – – 111,781,021 111,781,021 Other comprehensive income – – (308,700) 2,650,296 – 2,341,596 Dividends (DPS: LKR 7.00) – – – – (112,000,000) (112,000,000) Balance as at 31st March 2019 256,305,197 143,057,421 (1,185,607) (6,926,620) 1,411,212,058 1,802,462,449 Loss for the year – – – – (117,801,488) (117,801,488) Other comprehensive income (Net) – 6,766,050 (308,700) 5,439,459 – 11,896,809 Dividends (DPS: LKR 4.00) – – – – (64,000,000) (64,000,000) Balance as at 31st March 2020 256,305,197 149,823,471 (1,494,307) (1,487,161) 1,229,410,570 1,632,557,770

Bairaha Farms PLC Annual Report 2019/20 79 Statement of Financial Reports Cash Flows

Group Company Year ended 31st March 2020 2019 2020 2019 Notes LKR LKR LKR LKR

Operating activities Profit/(Loss) before income tax expense (193,322,802) 510,073,471 (127,363,278) 143,512,571

Adjustments for: Allowance for weight loss 24 4,200,000 2,400,000 4,200,000 2,400,000 Depreciation 4 232,483,433 204,498,534 124,950,802 118,232,273 Right-of-use asset depreciation 5.1 4,430,147 – 7,071,256 – Transferred to cost of sales and fair value gain 12.1 621,158,295 539,700,985 202,394,357 193,901,664 Acquisition of biological assets 12.1 (692,595,165) (592,717,115) (212,520,513) (216,077,912) Share of profit/(loss) from joint venture companies (Net of tax) 9.2 62,088,724 (41,114,566) – – Fair value gain on quoted investments 16,576 24,467 16,576 24,467 Intangible assets amortisation 7 2,412,888 828,346 2,225,347 819,887 Income from investments 22 (23,718) (20,880) (75,048,768) (122,983,478) Profit on disposal of property, plant and equipment 22 (646,887) (1,255,357) (646,887) – Finance cost 23 73,999,421 76,015,854 56,795,674 67,831,320 SLFRS 9 adjustment to prior year – 2,424,194 – 2,424,194 Provision for defined benefit plans 18 14,055,922 12,649,665 12,078,930 10,349,898 Allowance for bad and doubtful debts 13.1 4,315,952 19,130,536 4,315,952 17,747,330 Operating profit before working capital changes 132,572,786 732,638,136 (1,530,552) 218,182,215 Increase in inventories (162,522,152) (52,339,243) (128,553,427) (52,281,202) (Increase)/Decrease in biological assets (12,720,884) 12,334,707 (14,923,692) 34,777,560 (Increase)/Decrease in trade and other receivables 25,845,325 (49,325,414) (44,752,943) (2,249,029) Increase/(Decrease) in related company balances (net) 105,000,000 (81,099,769) 241,135,929 14,238,666 Increase /(Decrease) in trade and other payables 106,538,848 77,544,929 139,106,329 134,800,145 Cash generated from operations 194,713,924 639,753,347 190,481,646 347,468,357 Finance costs paid 23 (73,999,421) (76,015,854) (56,795,674) (67,831,320) Defined benefit plan costs paid 18 (4,904,267) (3,313,467) (4,070,470) (2,540,697) Income tax paid (62,343,330) (84,153,629) (23,424,256) (34,457,540) Net cash flows from operating activities 53,466,907 476,270,397 106,191,245 242,638,800

80 Bairaha Farms PLC Annual Report 2019/20 Statement of Cash Flows Financial Reports

Group Company Year ended 31st March 2020 2019 2020 2019 Notes LKR LKR LKR LKR

Investing activities Acquisition of property, plant and equipment 4 (342,613,763) (287,150,629) (143,552,652) (110,624,708) Acquisition of investment property 6 – – – (1,200,275) Acquisition of intangible assets 7 (10,967,291) (26,268,038) (10,967,291) (25,953,038) Investment in Wakala investment (8,276,024) (38,535,203) – – Investment in joint ventures 9.3 (105,000,000) – (105,000,000) – Proceeds from sale of property, plant and equipment 11,495,371 3,400,000 11,495,370 – Dividend Received 22 50,023,718 35,020,880 75,048,768 122,983,478 Net cash flows used in investing activities (405,337,990) (313,532,990) (172,975,806) (14,794,543)

Financing activities Dividend paid 20.3 (63,075,533) (110,240,326) (63,075,533) (110,240,326) Proceeds from financing and lease (Ijara) 17 245,045,646 81,401,126 108,718,150 – Repayment of financing payable 17 (173,729,927) (160,711,768) (146,503,012) (120,960,768) Principal payment under lease (Ijara) 17 (903,364) (903,364) – – Net cash flows from/(used in) financing activities 7,336,823 (190,454,332) (100,860,394) (231,201,094) Net increase/(decrease) in cash and cash equivalents (344,534,260) (27,716,926) (167,644,954) (3,356,837) Cash and cash equivalents at the beginning of the year 27 378,973,994 406,690,922 145,207,699 148,564,537 Cash and cash equivalents at the end of the year 27 34,439,733 378,973,994 (22,437,255) 145,207,699

The accounting policies and Notes on pages 82 through 144 form an integral part of the financial statements.

Bairaha Farms PLC Annual Report 2019/20 81 Notes to the Financial Reports Financial Statements

1. Corporate information 1.3 Date of authorisation for issue The Consolidated financial statements of Bairaha 1.1 General Farms PLC, for the year ended 31st March 2020 were Bairaha Farms PLC (“Company”) is a public quoted authorised for issue by the Board of Directors on company incorporated and domiciled in Sri Lanka. 16th September 2020. The registered office of the Company is located at 407, Galle Road, Colombo 03. 2.1 basis of preparation The financial statements which comprise, statement of 1.2 Principal activities and financial position, the Statement of profit or loss and nature of operations other comprehensive income, statement of changes The core activities of the Group are vertical integrated in equity and the statement of cash flows, together poultry farming, chicken processing and manufacturing with the accounting policies and notes (the “financial of pre-cooked meats. Principal activities and nature of the statements”) have been prepared on a historical cost operations of the subsidiaries, sub subsidiaries and joint ventures are mentioned below.

Subsidiaries Principal activity Holding

%

Bairaha Foods (Pvt) Ltd. Manufacturing of pre-cooked meat products 100 Lanka Land Development Ltd Purchasing and leasing agricultural lands 100 HCF Land Development Ltd. Purchasing and leasing agricultural lands 100 BF Lands Development Ltd. Purchasing and leasing agricultural lands 100 Golden Rooster Restaurants (Pvt) Ltd. Not in operation 100 Siyane Farms Ltd. Breeder farming 100 Nature’s Best Industry Ltd. Broiler farming 100 Regency Real Estate Company Ltd. Operation has not started 100

Sub subsidiaries Hill County Farms Ltd. Breeder farming 100 Foster Real Estate Ltd. Purchasing and leasing agricultural lands 100 Bairaha Trading (Private) Ltd. Importing and selling disinfectants 100

Joint ventures Rajarata Land Development Ltd. Purchasing and leasing agricultural lands 50 Cultural Triangle Land Development Ltd. Purchasing and leasing agricultural lands 50 Windsor Real Estate Ltd. Purchasing and leasing agricultural lands 50 Fortune G-P Farms (Lanka) Ltd. Grandparent Breeder Farming 50 Fortune Agro Industries (Pvt) Ltd. Feed milling operation 50

82 Bairaha Farms PLC Annual Report 2019/20 Notes to the Financial Statements Financial Reports

basis, except for, all property, plant and equipment other 2.1.4 Comparative information than assets classified as plant and machinery, equipment The presentation and classification in the financial which includes computer equipment, other investments statements have been amended where appropriate to and consumable and bearer biological assets that have ensure comparability with the current year. been measured at fair value. The financial statements are presented in Sri Lankan Rupees. 2.1.5 Basis of consolidation 2.1.1 General policies The Consolidated financial statements comprise the financial statements of the Group and its subsidiaries “The Company” refers to Bairaha Farms PLC as the as at 31st March 2020. Control is achieved when the holding company and “the Group” refers to the Company Group is exposed, or has rights, to variable returns and all its subsidiaries. from its involvement with the investee and has the

ability to affect those returns through its power over 2.1.2 Statement of compliance the investee. Specifically, the Group controls an investee if, and only if, the Group has: The financial statements of the Group have been prepared in accordance with Sri Lanka Accounting • Power over the investee (i.e., existing rights that give Standards (SLFRSs/LKASs) as issued by The it the current ability to direct the relevant activities Institute of Chartered Accountants of Sri Lanka and of the investee) the preparation and presentation of these financial • Exposure, or rights, to variable returns from its statements is in compliance with the Companies Act involvement with the investee No. 07 of 2007. • The ability to use its power over the investee to affect its returns 2.1.3 Going concern In determining the going concern basis of preparing Generally, there is a presumption that a majority of voting the financial statements for the year ended 31st March rights results in control. To support this presumption and 2020, based on available information, the Management when the Group has less than a majority of the voting has assessed the existing and anticipated effects or similar rights of an investee, the Group considers all of COVID-19 on the Group Companies and the relevant facts and circumstances in assessing whether it appropriateness of the use of the going concern basis. has power over an investee, including: In March 2020, the Group evaluated the resilience • The contractual arrangement(s) with the other vote of its businesses considering a wide range of factors, holders of the investee relating to expected revenue streams, profitability, the Rights arising from other contractual arrangements ability to defer non-essential capital expenditure, cash • reserves and potential sources of financing facilities, if • The Group’s voting rights and potential voting rights required, and the ability to continue providing goods to ensure businesses continue without a major impact. The Group re-assesses whether or not it controls an investee if facts and circumstances indicate that there Therefore, the management of Bairaha Farms PLC has are Changes to one or more of the three elements of satisfied that the group has the resources to continue control. Consolidation of a subsidiary begins when the in business into a foreseeable future. Furthermore, the Group obtains control over the subsidiary and ceases management is not aware of any material uncertainties when the Group loses control of the subsidiary. Assets, that may cast significant doubt upon the group’s liabilities, income and expenses of a subsidiary acquired ability to continue as a going concern. Therefore, the or disposed of during the year are included in the Consolidated financial statements are continued to be Consolidated financial statements from the date the prepared on the going concern basis. Group gains control until the date the Group ceases to control the subsidiary.

Bairaha Farms PLC Annual Report 2019/20 83 Notes to the Financial Statements Financial Reports

Profit or loss and each component of OCI are attributed Useful lives of property, plant and equipment to the equity holders of the parent of the Group. The Group reviews the residual values, useful lives and methods of depreciation of assets as at each reporting All intra-group assets and liabilities, equity, income, date. Judgement of the management is exercised in the expenses and cash flows relating to transactions between estimation of these values, rates, methods and hence they members of the Group are eliminated in full on are subject to uncertainty. consolidation.

A change in the ownership interest of a subsidiary, Fair value of property, plant and equipment without a loss of control, is accounted for as an equity All property, plant and equipment except plant and Transaction. machinery and equipment including computer equipment of the Group are reflected at fair value. The Group If the Group loses control over a subsidiary, it engaged independent valuation specialist to determine derecognises the related assets (including goodwill), fair value of certain property, plant and equipment. liabilities, non-controlling interest and other components Further details are given in Note 04. of equity, while any resultant gain or loss is recognised in profit or loss. Any investment retained is recognised at Impairment losses on trade receivables fair value. The Group reviews individually significant receivables at each reporting date to assess whether an impairment loss 2.2 Significant accounting judgements, should be recorded in the statement of profit or loss and estimates and assumptions other comprehensive income. In particular, judgement of the Management is required in the estimation of The preparation of the Group financial statements the amount and timing of future cash flows when requires management to make judgements, estimates determining the impairment loss. These estimates are and assumptions that affect the reported amounts based on assumptions about a number of factors and of revenues, expenses, assets and liabilities and the actual results may differ, resulting in future changes to disclosure of contingent liabilities, at the reporting the impairment allowance. date. In the process of applying the Group accounting policies, the key assumptions made relating to the Consumable biological assets future and the sources of estimation at the reporting date together with the related judgments that have a In Management’s opinion, the fair value of the broiler significant risk of causing a material adjustment to the birds and hatching eggs are substantially represented by carrying amounts of assets and liabilities in the future formation cost, mainly due to the associated short life periods are discussed below. cycle of those assets and the fact that a significant value addition on broiler birds arises from the manufacturing Defined benefit plans process. Accordingly the cost of consumable biological assets approximates its fair value. The defined benefit obligation and the related charge for the year are determined using actuarial valuations. The Bearer biological assets actuarial valuation involves making assumptions about discount rates, future salary increases, mortality rates etc. Bearer biological assets (Grower Birds and Layer Due to the long-term nature of such obligations these Birds) of the Group are reflected at fair value. Grower estimates are subject to significant uncertainty. Further Birds (Weeks 1 to 25) are valued based on the directly details are given in Note 18. attributable cost since the cost approximate its fair value. Layer Birds (25 weeks to 65) are valued by using discounted cash flows model which require assumptions and unobservable inputs as disclosed under Notes 12 and 30.

84 Bairaha Farms PLC Annual Report 2019/20 Notes to the Financial Statements Financial Reports

2.3 Summary of significant (c) Depreciation accounting policies The provision for depreciation is calculated by using a straight line method on the cost or valuation of all The significant accounting policies applied by the property, plant and equipment other than freehold land, Group in preparation of its financial statements are in order to write off such amounts over the estimated included below. The accounting policies set out below useful lives by equal instalments. have been applied consistently to all periods presented in theses financial statements. Depreciation of an asset begins when it is available for use, i.e. when it is in the location and condition necessary 2.3.1 Property, plant and equipment for it to be capable of operating in the manner intended by management. (a) Cost and valuation All items of property, plant and equipment are initially An item of property, plant and equipment and any recorded at cost. Where items of property, plant and significant part initially recognised is derecognised equipment are subsequently revalued, the entire class upon disposal or when no future economic benefits are of such assets is revalued. Revaluations are made with expected from its use or disposal. Any gain or loss arising sufficient regularity to ensure that their carrying amounts on derecognition of the asset (calculated as the difference do not differ materially from their fair values at the between the net disposal proceeds and the carrying balance sheet date. Subsequent to the initial recognition amount of the asset) is included in the statement of profit as an asset at cost, revalued property, plant and equipment or loss and other comprehensive income when the asset is are carried at revalued amounts less any subsequent derecognised. depreciation thereon. All other property, plant and equipment are stated at historical cost less depreciation The asset’s residual values, useful lives and methods of and less any impairment in value. depreciation are reviewed, and adjusted if appropriate, at each financial year end. Any revaluation surplus is recognised in other comprehensive income and accumulated in equity in the The depreciation rates have been included in Note 4.1.7. asset revaluation reserve net of deferred tax, except to the extent that it reverses a revaluation decrease of the 2.3.2 Investment property same asset previously recognised in the profit or loss, in which case the increase is recognised in the profit or loss. (a) Recognition A revaluation deficit is recognised in the profit or loss, Investment properties are measured initially at cost, except to the extent that it offsets an existing surplus including transaction costs. The carrying value of on the same asset recognised in the asset revaluation investment property includes the cost of replacing part of reserve. Upon disposal, any revaluation reserve relating to an existing investment property, at the time that cost is the particular asset being sold is transferred to retained incurred if the recognition criteria are met, and excludes earnings. the cost of day-to-day servicing of investment property. Buildings, poultry sheds, furniture and fittings & motor Subsequent to initial recognition, all investment vehicles are revalued once in every five years and lands are properties are carried at cost less any accumulated revalued every two years. The rest of the classes of assets depreciation thereon. were kept at cost.

(b) Depreciation (b) Restoration costs The provision for depreciation is calculated by using a Expenditure incurred on repairs or maintenance of straight line method on the cost of investment property, property, plant and equipment in order to restore or in order to write off such amounts over the estimated maintain the future economic benefits expected from useful lives by equal instalments. originally assessed standard of performance, is recognised as an expense when incurred.

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The useful life of investment property is as follows; intended use or sale are capitalised as part of the cost of the respective assets. All other borrowing costs are Class of investment property Useful life Depreciation method recognised as expenses in the period in which they are incurred. Buildings 33.3 years Straight-line method

(c) Derecognition 2.3.5 Impairment of assets Investment properties are derecognised either when they The Group assesses at each reporting date whether there have been disposed of or when they are permanently is an indication that an asset may be impaired. If any such withdrawn from use and no future economic benefit is indication exists, or when annual impairment testing expected from their disposal. The difference between for an asset is required, the Group makes an estimate of the net disposal proceeds and the carrying amount of the asset's recoverable amount. An asset’s recoverable the asset is recognised in profit or loss in the period of amount is the higher of an asset's or cash-generating derecognition. unit’s fair value less costs to sell and its value in use and is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent 2.3.3 Intangible assets of those from other assets or groups of assets. Where Intangible assets acquired separately are measured on the carrying amount of an asset exceeds its recoverable initial recognition at cost. Following initial recognition, amount, the asset is considered impaired and is written intangible assets are carried at cost less any accumulated down to its recoverable amount. amortisation and any accumulated impairment losses. Impairment losses of continuing operations are Intangible assets with finite lives are amortised over recognised in the statement of profit or loss and other the useful economic life and assessed for impairment comprehensive income in those expense categories whenever there is an indication that the intangible consistent with the function of the impaired asset, except asset may be impaired. The amortisation period and the for property previously revalued where the revaluation amortisation method for an intangible asset with a finite was taken to other comprehensive income. In this case useful life is reviewed at least at each financial year end. the impairment is also recognised in other comprehensive income up to the amount of any previous revaluation. Changes in the expected useful life or the expected pattern of consumption of future economic benefits For assets excluding goodwill, an assessment is made at embodied in the asset is accounted for by changing each reporting date as to whether there is any indication the amortisation period or method, as appropriate, that previously recognised impairment losses may no and treated as changes in accounting estimates. The longer exist or may have decreased. If such indication amortisation expense on intangible assets with finite lives exists, the Group makes an estimate of recoverable is recognised in the statement of profit or loss and other amount. A previously recognised impairment loss is comprehensive income in the expense category consistent reversed only if there has been a change in the estimates with the function of the intangible asset. used to determine the asset’s recoverable amount since the last impairment loss was recognised. If that is the The useful life of intangible asset is as follows: case the carrying amount of the asset is increased to its recoverable amount. That increased amount cannot The class of intangible assets Useful life Amortisation method “exceed” the carrying amount that would have been determined, net of depreciation, had no impairment loss Computer software 10 years Straight-line method been recognised for the asset in prior years. Such reversal is recognised in the statement of profit or loss and other 2.3.4 Borrowing costs comprehensive income unless the asset is carried at revalued amount, in which case the reversal is treated Borrowing costs directly attributable to the acquisition, as a revaluation increase. Impairment losses recognised construction or production of an asset that necessarily in relation to goodwill are not reversed for subsequent takes a substantial period of time to get ready for its increases in its recoverable amount.

86 Bairaha Farms PLC Annual Report 2019/20 Notes to the Financial Statements Financial Reports

2.3.6 Interest in a joint venture Upon loss of significant influence over the joint control over the joint venture, the Group measures and recognises A joint venture is a type of joint arrangement whereby any retained investment at its fair value. Any difference the parties that have joint control of the arrangement between the carrying amount of the joint venture upon have rights to the net assets of the joint venture. Joint loss of significant influence or joint control and the fair control is the contractually agreed sharing of control of value of the retained investment and proceeds from an arrangement, which exists only when decisions about disposal is recognised in profit or loss. the relevant activities require unanimous consent of the parties sharing control. In the separate financial statements of the Company, such investments in joint venture is accounted for at cost. The considerations made in determining joint control is similar to those necessary to determine control over subsidiaries. 2.3.6.1 Investments in subsidiaries Investments in subsidiaries are stated at cost, net of any The Group’s investments in its joint venture are impairment losses which are charged to the statement accounted for using the equity method. Under the of profit or loss in the Company’s financial statements equity method, the investment in a joint venture is and it is in accordance with the Sri Lanka Accounting initially recognised at cost. The carrying amount of Standard – LKAS 27 – “Consolidated and Separate the investment is adjusted to recognise changes in the financial statements”. Group’s share of net assets of the joint venture since the acquisition date. Subsidiaries are entities that are controlled by the Group and the Company. Subsidiaries are consolidated from The statement of profit or loss reflects the Group’s share the date on which control is transferred to the Company of the results of operations of the joint venture. Any and continue to be consolidated until the date when such change in OCI of those investees is presented as part control ceases. The Company is presumed to control of the Group’s OCI. In addition, when there has been an investee when it is exposed, or has right to variable a change recognised directly in the equity of the joint returns from its involvement with the investee and has venture, the Group recognises its share of any changes, the ability to affect those returns through its power over when applicable, in the statement of changes in equity. the investee. Unrealised gains and losses resulting from transactions between the Group and joint ventures are eliminated to Intra-group balances and transactions, income, the extent of the interest in the joint ventures. expenses and any unrealised gains arising from intra- group transactions are eliminated in full in preparing The financial statements of the joint venture are prepared the Consolidated financial statements. for the same reporting period as the Group. When necessary, adjustments are made to bring the accounting Non-controlling interests represent the portion of profit policies in line with those of the Group. or loss and net assets of subsidiaries not owned, directly or indirectly, by the Company. At present Group do not After application of the equity method, the Group have any non-controlling interests. determines whether it is necessary to recognise an impairment loss on its investment in its joint venture. All subsidiaries of the Company have been incorporated At each reporting date, the Group determines whether in Sri Lanka. A list of subsidiaries are given in Note 8. there is objective evidence that the investment in the joint venture is impaired. If there is such evidence, the Group calculates the amount of impairment as the difference between the recoverable amount of the joint venture and its carrying value, and then recognises the loss as “Share of profit of a joint venture” in the statement of profit or loss and other comprehensive income.

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2.3.7 Financial Instruments – Initial A gain or loss on a financial asset that is measured at recognition and subsequent measurement amortised cost and is not part of a hedging relationship be recognised in profit or loss when the financial asset is Initial recognition of financial assets and derecognised, impaired or reclassified in accordance and financial liabilities through the amortisation process. The Group shall recognise a financial asset or a financial liability in its statement of financial position when, and Impairment – Recognition of expected credit losses only when, the entity becomes party to the contractual The Group recognise a loss allowance for expected provisions of the instrument. credit losses on trade debtors to which the impairment requirements apply. Measurement of financial assets A financial asset be measured at amortised cost if both of At each reporting date, the Group measure the loss the following conditions are met: allowance for a financial instrument at an amount equal to the lifetime expected credit losses if the credit risk on (a) The asset is held within a business model whose that financial instrument has increased significantly since objective is to hold assets in order to collect initial recognition. contractual cash flows and (b) The contractual terms of the financial asset give The objective of the impairment requirements is to rise on specified dates to cash flows that are solely recognise lifetime expected credit losses for all financial payments of principal and interest on the principal instruments for which there have been significant amount outstanding. increases in credit risk since initial recognition – whether assessed on an individual or collective basis – considering A financial asset shall be measured at fair value unless all reasonable and supportable information, including it is measured at amortised cost in accordance with that which is forward-looking. above criteria. The company measures Trade debtors and amount due from related parties at amortised cost. Simplified approach for trade receivables The Group always measure the loss allowance at an Classification of financial assets amount equal to lifetime expected credit losses for trade The Group classify financial assets as subsequently receivables or contract assets that result from transactions measured at either amortised cost or fair value on the that are within the scope of SLFRS 15, and that: basis of both: (i) do not contain a significant financing component (a) the entity’s business model for managing the (or when the entity applies the practical expedient for financial assets and contracts that are one year or less) in accordance with SLFRS 15; or (b) The contractual cash flow characteristics of the financial asset. (ii) contain a significant financing component in accordance with SLFRS 15, if the entity chooses as its accounting policy to measure the loss allowance Derecognition of financial assets at an amount equal to lifetime expected credit losses. The Group derecognise a financial asset when and That accounting policy shall be applied to all such only when: trade receivables or contract assets but may be applied separately to trade receivables and contract assets. (a) the contractual rights to the cash flows from the financial asset expire, or (b) it transfers the financial asset as and the transfer qualifies for derecognition.

88 Bairaha Farms PLC Annual Report 2019/20 Notes to the Financial Statements Financial Reports

Financial liabilities recognition in use and is determined for an individual asset, unless The Group measured the financial liability at fair value, the asset does not generate cash inflows that are largely including the costs of the transaction which can be directly independent of those from other assets or groups of assigned financial liability, when these are designated at assets. Where the carrying amount of an asset or CGU their fair value in the profit and loss account. exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. The Management assessed that the fair value of trade In assessing value in use, the estimated future cash flows payables, Bank overdraft and current liabilities. are discounted to their present value using a pre-tax discount rate that reflects current market assessments of Financial liabilities subsequent measurement the time value of money and the risks specific to the asset. In determining fair value less costs to sell, recent market All financial liabilities are measured at amortised cost, transactions are taken into account, if available. If no such except for financial liabilities at fair value through profit transactions can be identified, an appropriate valuation or loss. model is used. Derecognition of financial liabilities Impairment losses of continuing operations, including The Group remove a financial liability (or a part of a impairment on inventories, are recognised in the income financial liability) from its statement of financial position statement in those expense categories consistent with when, and only when, it is extinguished, i.e. when the the function of the impaired asset, except for a property obligation specified in the contract is discharged or previously revalued where the revaluation was taken to cancelled or expires. other comprehensive income. In this case, the impairment is also recognised in other comprehensive income up to The difference between the carrying amount of a the amount of any previous revaluation. financial liability (or part of a financial liability) extinguished or transferred to another party and the (i) Fair value measurement consideration paid, including any non-cash assets transferred or liabilities assumed, shall be recognised in The Group measures financial instruments such as Bearer profit or loss. biological assets, quoted shares, and non-financial assets such as property, plant and equipment other than assets A gain or loss on a financial liability that is measured at classified plant and machinery and equipment including amortised cost and is not part of a hedging relationship computer equipment at fair value at each reporting date. be recognised in profit or loss when the financial liability Fair value related disclosures for financial instruments is derecognised and through the amortisation process. and non-financial assets that are measured at fair value or where fair values are disclosed are summarised in the Inventories following notes: Inventories are valued at the lower of cost and net • Disclosures for valuation methods, significant estimates realisable value. and assumptions – Note 30 Quantitative disclosures of fair value measurement Net realisable value is the estimated selling price in • hierarchy – Note 30 the ordinary course of business, less estimated costs of completion and the estimated costs to sell. • Property, plant and equipment under revaluation model – Note 4 Impairment of non-financial assets • Investment properties – Note 6 The Group assesses at each reporting date whether Bearer biological assets – Note 12 there is an indication that an asset may be impaired. • If any indication exists, or when annual impairment Fair value is the price that would be received to sell testing for an asset is required, the Group estimates an asset or paid to transfer a liability in an orderly the asset’s recoverable amount. An asset’s recoverable transaction between market participants at the amount is the higher of an asset’s or cash-generating unit’s (CGU) fair value less costs to sell and its value measurement date. The fair value measurement is based

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on the presumption that the transaction to sell the asset 2.3.8 Biological assets and or transfer the liability takes place either: agricultural produce • In the principal market for the asset or liability A biological asset is a living animal. Biological assets or consist of parent livestock, used to breed hatching eggs, • In the absence of a principal market, in the most commercial DOCs and broiler birds. advantageous market for the asset or liability Consumable biological assets are those that are to be The principal or the most advantageous market must be harvested as agricultural produce or sold as biological accessible by the Group. assets. Broiler birds, hatching eggs and commercial DOCs have been identified as consumable biological assets. The fair value of an asset or a liability is measured using the assumptions that market participants would use Bearer biological assets are those other than consumable when pricing the asset or liability, assuming that market biological assets. Bearer biological assets are not participants act in their economic best interest. agricultural produce but, rather, are self-regenerating.

A fair value measurement of a non-financial asset takes The Group has identified parent livestock as bearer into account a market participant's ability to generate biological assets. economic benefits by using the asset in its highest and best use or by selling it to another market participant that Biological assets are measured at fair value less cost to would use the asset in its highest and best use. sell, within any changes therein recognised in profit or loss for the period in which it arises. All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorised 2.3.9 Inventories within the fair value hierarchy, described as follows, based Inventories are valued at the lower of cost and net realisable on the lowest level input that is significant to the fair value, after making due allowances for obsolete and slow value measurement as a whole: moving items. Net realisable value is the estimated price • Level 1 – Quoted (unadjusted) market prices in active at which inventories can be sold in the ordinary course markets for identical assets or liabilities. of business less the estimated cost of completion and the estimated cost necessary to make the sale. • Level 2 – Valuation techniques for which the lowest level input that is significant to the fair value The cost incurred in bringing inventories to its present measurement is directly or indirectly observable. location and condition is accounted as follows: • Level 3 – Valuation techniques for which the 2.3.9.1 Broiler meat lowest level input that is significant to the fair value measurement is unobservable. Broiler meat is valued at prime cost together with an appropriate proportion of overheads on weighted average External valuers are involved for valuation of significant basis, after making due allowance for weight losses. assets, such as property, plant and equipment other than assets classified plant and machinery. Involvement 2.3.9.2 Poultry feed, drugs and of external valuers is decided by the management. sundry inventories Selection criteria include market knowledge, reputation, Poultry feed, drugs and sundry inventories are valued at independence and whether professional standards are actual cost on weighted average basis after making due maintained. allowance for obsolete and slow moving items. For the purpose of fair value disclosures, the Group has 2.3.9.3 Trading inventories determined classes of assets and liabilities on the basis of the nature, characteristics and risks of the asset or liability Trading inventories which include retail items for sale are and the level of the fair value hierarchy as explained above. valued at actual cost on weighted average basis.

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2.3.9.4 Sundry stocks • the Group has the right to obtain substantially all of the economic benefits from use of the asset throughout Sundry stocks consist with packing materials and the period of use; and ingredients which are used for the production process. Stocks are valued at actual cost on weighted average • The Group has the right to direct the use of the asset. basis after making due allowance for obsolete and slow-moving items. The Group recognises a right of use asset and a lease liability at the lease commencement date. The right of use assets of the Group consists of lands and buildings 2.3.10 Cash and cash equivalents which were previously recognised as operating leases For the purpose of statement of cash flows, cash and cash under LKAS 17. equivalents consist of cash in hand, demand deposits and short term highly liquid investments, readily convertible to Leases classified as operating leases under LKAS 17 known amounts of cash and subject to insignificant risk of At the commencement date of the lease, the Group changes in value, net of outstanding bank overdrafts. recognises lease liabilities were measured at the present value of the remaining lease payments discounted at the incremental borrowings rates as at 1st April 2019. Right 2.3.11 Leases of use assets are measured at an amount equal to the Policy applicable from 1st April 2019 lease liability, adjusted by the amount of any pre-paid or accrued lease payments. In addition, the group applied The Group has applied SLFRS 16 using the modified following practical expedients permitted by SLFRS 16, retrospective approach from 1st April 2019, without to lease previously classified as operating leases under restating comparatives for 2018/19 reporting period, as LKAS 17. permitted under the specific transitional provisions in the standard. Additionally, the disclosure requirements • Applied a single discount rate to a portfolio of leases in SLFRS 16 have not generally been applied to with similar characteristics. comparative information. • Applied the exemption not to recognise right-of-use assets and liabilities for leases with less than 12 months SLFRS 16, Leases of lease term. SLFRS 16 “Leases” replaced Sri Lanka Accounting • Excluded initial direct costs, from the measurement of Standard (LKAS 17) – Leases, IFRIC 4 – Determining the right-of-use asset, for leases previously accounted Whether an Arrangement Contains a Lease, SIC 15 – for as operating leases at the date of initial application. Operating Leases – Incentives and SIC 27 – Evaluating the Substance of Transactions Involving the Legal Form Measurement of a Lease. SLFRS 16 sets out the principles for the The right of use asset is initially measured at cost, which recognition, measurement, presentation and disclosure of comprises the initial amount of the lease liability (present leases and requires leases to account for all leases under a value of future lease payments discounted using the single on-balance sheet model similar to the accounting interest rate implicit in the lease or, if that rate cannot be for finance leases under LKAS 17. readily determined group’s incremental borrowing rate) adjusted for any lease payments made at or before the Recognition commencement date less any lease incentives received, plus any initial direct costs incurred. At inception of a contract, the Group assess whether a contract is, or contains, a lease. A contract is, or contains, Where the Group is reasonably certain to obtain a lease if the contract conveys the right to control the use ownership of the leased asset at the end of the lease of an identified asset for a period of time in exchange for term, the recognised right of use asset is subsequently consideration. To assess whether a contract conveys the depreciated using the straight-line method from the right to control the use of an identified asset, the Group commencement date to the earlier of the end of the assess whether: useful life of the right of use asset or the end of the lease • the contract involves the use of an identified asset term. Right of use assets are subject to impairment.

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Changes to classification and measurement (b) Operating leases The Group leases assets include the lands and buildings. Leases where the lessor effectively retains substantially all The Group previously classified leases as operating leases the risk and benefit of ownership over the lease term are based on its assessment of whether the lease transferred classified as operating leases. significantly the entire risks and rewards incidental to ownership of the underlying asset to the Group. Rentals paid under operating leases are recognized as an expense comprise in the statement of profit or loss and At the commencement date of a lease, a lessee will other comprehensive income on a straight line basis over recognise a liability to make lease payments and an asset the lease term. representing the right to use the underlying asset during the lease term. Lessees will be required to separately recognise the interest expense on the lease liability. 2.3.12 Retirement benefit obligations (a) Defined benefit plan – Gratuity The Group recognises its lease liabilities in relation to Employees are eligible to receive a gratuity payment of leases and liabilities were measured at the present value half month’s salary per year of service at the end of service of the future lease payments, discounted using the lessee’s provided the employee has provided 5 years of service. incremental borrowing rate as of commencement date of the lease. The weighted average lessee’s incremental The liability recognised in the statement of financial borrowing rate applied to the lease liabilities was 14%. position is the present value of defined benefit obligation at the reporting date using the projected unit credit The Group transitioned to SLFRS 16 in accordance with method. Any actuarial gains or losses arising are the modified retrospective approach therefore prior year recognised immediately in the statement of profit or loss figures were not adjusted. and other comprehensive income.

Policy applicable before 1st April 2019 Funding arrangements (a) Finance leases The gratuity liability is not externally funded. Property, plant and equipment on finance leases, which effectively transfer to the Group substantially all of (b) Defined contribution plans – employees’ provident the risk and benefits incidental to ownership of the fund and employees’ trust fund leased item are capitalised at their fair value or if lower, at the present value of the minimum lease payments Employees are eligible for Employees’ Provident Fund and disclosed as property, plant and equipment and Contributions and Employees’ Trust Fund Contributions depreciated over the period the Group is expected to in line with respective statutes and regulations. The benefit from the use of the leased assets. Group contributes 12% and 3% of gross emoluments of employees to Employees’ Provident Fund and Employees’ The corresponding principal amount payable to the Trust Fund respectively. lessor together with the interest payable over the period of the lease is shown as a liability. Lease payments are 2.3.13 Provisions apportioned between the finance charges and reduction Provisions are recognised when the Group has a present of the lease liability so as to achieve a constant rate of obligation (legal or constructive) as a result of a past interest on the remaining balance of the liability. Finance event, where it is probable that an outflow of resources charges that are charged, are reflected in the statement of embodying economic benefits will be required to settle profit or loss and other comprehensive income. the obligation and a reliable estimate can be made of the amount of the obligation.

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2.3.14 Revenue recognition Identifying performance obligations Revenue is recognised when the Group satisfies a At contract inception, the Group assess the goods or performance obligation by transferring a promised services promised in a contract with a customer and shall good or services to a customer. For each performance identify as a performance obligation each promise to obligation identified, the Group determines at contract transfer to the customer either: inception whether it satisfies the performance obligation (a) a good or service (or a bundle of goods or services) over time or at a point in time. If the Company does that is distinct; or not satisfy a performance obligation overtime, the performance obligation is satisfied at a point in time. (b) a series of distinct goods or services that are An asset is transferred when the customer obtains control substantially the same and that have the same pattern of that asset and when evaluating whether a customer of transfer to the customer. obtains control of an asset, the company consider any agreement to repurchase the asset. Satisfaction of performance obligations The Group recognises revenue when (or as) the The following specific recognition and measurement Company satisfies a performance obligation by criteria should also be met before revenue is recognised: transferring a promised good or service (ie an asset) to a customer. An asset is transferred when (or as) the Identifying the contract customer obtains control of that asset. The Group account for a contract with a customer only when all of the following criteria are met: Performance obligations satisfied over time (a) the parties to the contract have approved the contract The Group transfers control of a good or service over (in writing, orally or in accordance with other time and, therefore, satisfies a performance obligation customary business practices) and are committed to and recognises revenue over time, if one of the following perform their respective obligations; criteria is met: (b) the Group can identify each party’s rights regarding (a) the customer simultaneously receives and consumes the goods or services to be transferred; the benefits provided by the Group’s performance as the Group performs; (c) the Group can identify the payment terms for the goods or services to be transferred; (b) the Group’s performance creates or enhances an asset (for example, work in progress) that the customer (d) the contract has commercial substance (ie the risk, controls as the asset is created or enhanced; or timing or amount of the Group’s future cash flows is expected to change as a result of the contract); and (c) the Group’s performance does not create an asset with an alternative use to the Group and the Group (e) it is probable that the Group will collect the has an enforceable right to payment for performance consideration to which it will be entitled in exchange completed to date. for the goods or services that will be transferred to the customer. In evaluating whether collectability of an amount of consideration is probable, the Determining the transaction price Group shall consider only the customer’s ability and The Group considers the terms of the contract and intention to pay that amount of consideration when its customary business practices to determine the it is due. The amount of consideration to which the transaction price. The transaction price is the amount of Group will be entitled may be less than the price consideration to which a Company expects to be entitled stated in the contract if the consideration is variable in exchange for transferring promised goods or services because the Group may offer the customer a price to a customer, excluding amounts collected on behalf concession. of third parties (for example, some sales taxes). The consideration promised in a contract with a customer may include fixed amounts, variable amounts, or both.

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2.3.15 Other operating income 2.3.17 Foreign currency translation (a) Dividends The financial statements are presented in Sri Lanka rupees, which is the Group’s functional and presentation Dividend Income is recognised when the shareholders’ currency. Transactions in foreign currencies are initially right to receive the payment is established. recorded at the functional currency rate ruling at the date of the transaction. Monetary assets and liabilities (b) Rental income denominated in foreign currencies are retranslated at the functional currency rate of exchange ruling at the Rental income is recognised on accrual basis. reporting date. Non-monetary items that are measured in terms of historical cost in a foreign currency are (c) Others translated using the exchange rates as at the dates of Other income is recognised on an accrual basis. the initial transactions. The resulting gains or losses are accounted for in the statement of profit or loss and Net Gains and losses of a revenue nature on the disposal other comprehensive income. of property, plant and equipment and other non-current assets including investments have been accounted for in 2.3.18 Taxation the statement of profit or loss and other comprehensive income, having deducted from proceeds on disposal, the (a) Current taxes carrying amount of the assets and related selling expenses. Current income tax assets and liabilities for the current On disposal of revalued property, plant and equipment, and prior periods are measured at the amount expected amount remaining in revaluation reserve relating to that to be recovered from or paid to the Commissioner asset is transferred directly to accumulated profit. General of Inland Revenue. The tax rates and tax laws used to compute the amount are those that are enacted or Gains and losses arising from incidental activities to main substantively enacted by the reporting date revenue generating activities and those arising from a group of similar transactions which are not material, are The provision for income tax is based on the elements aggregated, reported and presented on a net basis. of income and expenditure as reported in the financial statements and computed in accordance with the 2.3.16 Expenditure recognition provisions of the Inland Revenue Act.

(a) Expenses are recognised in the statement of profit or (b) Deferred taxation loss and other comprehensive income on the basis of direct association between the cost incurred and the Deferred income tax is provided, using the liability earning of specific item of income. All expenditure method, on all temporary differences at the reporting incurred in the running of the business and the date between the tax bases of assets and liabilities and maintenance of the property, plant and equipment in their carrying amounts for financial reporting purposes. a state of efficiency has been charged to income in arriving at the profit for the year. Deferred income tax liabilities are recognised for all taxable temporary differences except; (b) For the purpose of presentation of statement of profit or loss and other comprehensive income the Directors • where the deferred income tax liability arises from are of the opinion that function of expenses method the initial recognition of goodwill or the initial presents fairly the elements of the Group’s performance, recognition of an asset or liability in a transaction that and hence such presentation method is adopted. is not a business combination and, at the time of the transaction, affects neither the accounting profit nor (c) Finance expenses are recognised in the statement of taxable profit or loss; and profit or loss and other comprehensive income on effective interest cost basis.

94 Bairaha Farms PLC Annual Report 2019/20 Notes to the Financial Statements Financial Reports

• In respect of taxable temporary differences associated (d) IFRIC Interpretation 23 “Uncertainty over with investments in subsidiaries and interests in joint Income Tax Treatment” ventures, except where the timing of the reversal of the temporary differences can be controlled and it is The Interpretation addresses the accounting for income probable that the temporary differences will not reverse taxes when tax treatments involve uncertainty that affects in the foreseeable future. the application of LKAS 12 Income Taxes. It does not apply to taxes or levies outside the scope of LKAS 12, nor Deferred income tax assets are recognised for all does it specifically include requirements relating to interest deductible temporary differences, carry-forward of and penalties associated within certain tax treatments. unused tax assets and unused tax losses, to the extent that The Interpretation specifically addresses the following: it is probable that taxable profit will be available against which the deductible temporary differences, and the • Whether an entity considers uncertain tax treatments carry-forward of unused tax assets and unused tax losses separately can be utilised except; • The assumptions an entity makes about the • where the deferred income tax asset relating to the examination of tax treatments by taxation authorities deductible temporary difference arises from the initial • How an entity determines taxable profit (tax loss), tax recognition of an asset or liability in a transaction that bases, unused tax losses, unused tax credits and tax rates is not a business combination and, at the time of the How an entity considers changes in facts and transaction, affects neither the accounting profit nor • circumstances taxable profit or loss; and • in respect of deductible temporary differences The Group determines whether to consider each associated with investments in subsidiaries and uncertain tax treatment separately or together with one or interests in joint ventures, deferred tax assets are only more other uncertain tax treatments and uses the approach recognised to the extent that it is probable that the that better predicts the resolution of the uncertainty. temporary differences will reverse in the foreseeable future and taxable profit will be available against which The Group applies significant judgement in identifying the temporary differences can be utilised. uncertainties over income tax treatments. Since the Group operates in a complex environment, it assessed whether the The carrying amount of deferred income tax assets interpretation had an impact on its Financial Statements. is reviewed at each reporting date and reduced to the Upon adoption of the interpretation, the Group considered extent that it is no longer probable that sufficient taxable whether it has any uncertain tax positions, particularly profit will be available to allow all or part of the deferred those relating to transfer pricing. The tax filings of the income tax asset to be utilised. Group in different jurisdictions include deductions related to transfer pricing and the taxation authorities may Deferred income tax assets and liabilities are measured challenge those tax treatments. The Group determined, at the tax rates that are expected to apply to the year based on its tax compliance and transfer pricing study, that when the asset is realised or the liability is settled, based it is probable that its tax treatments will be accepted by on tax rates (and tax laws) that have been enacted or the taxation authorities. The interpretation did not have an substantively enacted at the reporting date. impact on the Financial Statements of the Group.

(c) Turnover based taxes 2.3.19 Current versus non-current classification Turnover based taxes include value added taxes, economic The Group presents assets and liabilities in statement services charges and nation building tax. Companies in of financial position based on current/non-current the Group pay such taxes in accordance with respective classification. An asset as current when it is: statutes. • Expected to be realised or intended to sold or consumed in normal operating cycle

Bairaha Farms PLC Annual Report 2019/20 95 Notes to the Financial Statements Financial Reports

• Held primarily for the purpose of trading (a) Amendments to LKAS 1 and LKAS 8: definition of “Material” • Expected to be realised within twelve months after the reporting period Amendments to LKAS 1 – Presentation of financial or statements” and LKAS 8 – Accounting policies, Changes in Accounting Estimates and Errors are made Cash or cash equivalent unless restricted from being • to align the definition of “material” across the standard exchanged or used to settle a liability for at least twelve and to clarify certain aspects of the definition. The new months after the reporting period definition states that, “information is material if omitting • All other assets are classified as non-current. or obscuring it could reasonably be expected to influence A liability is current when: decisions that the primary users of general-purpose • financial statements make on the basis of those financial • It is expected to be settled in normal operating cycle statements, which provide financial information about • It is held primarily for the purpose of trading a specific reporting entity. The amendments are applied prospectively for the annual periods beginning on or It is due to be settled within twelve months after • after 1st January 2020 with early application permitted. the reporting period or (b) Amendments to SLFRS 3: • There is no unconditional right to defer the settlement definition of a “Business” of the liability for at least twelve months after the reporting period Amendments to the definition of a business in SLFRS 3 – Business Combinations are made to help the The Group classifies all other liabilities as non-current. entities determine whether an acquired set of activities and assets is a business or not. They clarify the minimum Deferred tax assets and liabilities are classified as requirements for a business, remove the assessment of non-current assets and liabilities. whether market participants are capable of replacing any missing elements, add guidance to help entities to assess whether an acquired process is substantive, narrow the 2.3.20 Earnings per share definition of a business and of outputs, and introduce an The Group presents basic and diluted earnings per share optional fair value concentration test. The amendments (EPS) for its ordinary shares. Basic EPS is calculated are applied prospectively to all business combinations and by dividing the profit or loss attributable to ordinary asset acquisitions for which the acquisition date is on or shareholders of the Company by the weighted average after the first annual reporting period beginning on or number of ordinary shares outstanding during the period. after 1st January 2020, with early application permitted. Diluted EPS is determined by adjusting the profit or loss attributable to ordinary shareholders and the weighted (c) Amendments to references to the conceptual average number of ordinary shares outstanding for the framework in SLFRS standards effects of all dilutive potential ordinary shares Revisions to the Conceptual Framework were made because some important issues were not covered 2.3.21 Standard issued but not yet effective and some guidance was unclear or out of date. The revised Conceptual Framework includes a new chapter The amended standards that are issued but not yet on measurement, guidance on reporting financial effective up to the date of issuance of these financial performance, improved definitions of an asset and a statements are disclosed below. The Group intends to liability and guidance supporting these definitions, and adopt these amended standards, if applicable, when they clarifications in important areas such as the roles of become effective. stewardship, prudence and measurement uncertainty in financial reporting. The amendments are effective for annual periods beginning on or after 1st January 2020, with early application is permitted. Pending the detailed review of such amendment/s, the extent of the impact/ probable impact is not yet known/reasonably estimable.

96 Bairaha Farms PLC Annual Report 2019/20 Notes to the Financial Statements Financial Reports

3. Revenue

Group Company 2020 2019 2020 2019 LKR LKR LKR LKR

Sale of goods 4,361,088,744 4,723,954,825 3,168,308,959 3,266,728,027 4,361,088,744 4,723,954,825 3,168,308,959 3,266,728,027

4. Property, plant and equipment 4.1 Group 4.1.1 Gross carrying amounts

Balance Additions/ Revaluation Disposals/ Balance as at Transfers surplus Transfers as at 1st April 2019 31st March 2020 LKR LKR LKR LKR LKR

At valuation Land 466,420,469 – 79,841,562 – 546,262,031 Buildings 297,145,126 30,962,285 – – 328,107,411 Buildings on leasehold land 15,715,050 – – – 15,715,050 Poultry sheds 532,772,306 22,382,753 – – 555,155,059 Furniture and fittings 19,394,207 17,145,480 – – 36,539,687 Motor vehicles 204,302,919 50,916,525 – (16,318,550) 238,900,894 1,535,750,077 121,407,043 79,841,562 (16,318,550) 1,720,680,132

At cost Plant and machinery 822,874,048 174,755,299 – – 997,629,347 Equipment 482,057,963 121,350,131 – – 603,408,094 Computer equipment 23,118,935 1,368,360 – – 24,487,295 1,328,050,945 297,473,790 – – 1,625,524,736 Total value of depreciable assets 2,863,801,023 418,880,833 79,841,562 (16,318,550) 3,346,204,869

Bairaha Farms PLC Annual Report 2019/20 97 Notes to the Financial Statements Financial Reports

4.1.2 In the course of construction

Balance Additions/ Revaluation Disposals/ Balance as at Transfers surplus Transfers as at 1st April 2019 31st March 2020 LKR LKR LKR LKR LKR

Capital work-in-progress 156,637,845 132,130,195 – (208,397,265) 80,370,775 Total gross carrying amount 3,020,438,868 551,011,028 79,841,562 (224,715,815) 3,426,575,644

4.1.3 Depreciation

Balance Charge for Disposals/ Balance as at the year/ Transfers as at 1st April 2019 Transfers 31st March 2020 LKR LKR LKR LKR

At valuation Buildings 23,955,689 9,654,910 – 33,610,599 Buildings on leasehold land 1,487,463 471,457 – 1,958,919 Poultry sheds 87,406,724 32,251,897 – 119,658,621 Furniture and fittings 5,361,910 3,113,009 – 8,474,919 Motor vehicles 66,459,746 35,164,908 (5,470,066) 96,154,589 184,671,532 80,656,181 (5,470,066) 259,857,647

At cost Plant and machinery 340,787,561 80,963,447 – 421,751,008 Equipment 306,444,808 69,277,860 – 375,722,668 Computer equipments 21,514,525 1,585,946 – 23,100,470 668,746,893 151,827,252 – 820,574,146 Total depreciation 853,418,425 232,483,433 (5,470,066) 1,080,431,793

98 Bairaha Farms PLC Annual Report 2019/20 Notes to the Financial Statements Financial Reports

4.1.4 Net book values

Balance Balance as at as at 31st March 2020 1st April 2019 LKR LKR

At valuation Land 546,262,031 466,420,469 Buildings 294,496,812 273,189,437 Buildings on leasehold land 13,756,131 14,227,588 Poultry sheds 435,496,438 445,365,582 Furniture and fittings 28,064,768 14,032,297 Motor vehicles 142,746,305 137,843,173 1,460,822,486 1,351,078,545

At cost Plant and machinery 575,878,339 482,086,487 Equipment 227,685,426 175,613,155 Computer equipment 1,386,825 1,604,410 804,950,590 659,304,052

In the course of construction Capital work-in-progress 80,370,775 156,637,845 Total carrying amount of property, plant and equipment 2,346,143,851 2,167,020,443

4.1.5 Group The Company revalues all property, plant and equipment other than assets classified as plant and machinery, equipment and computer equipment once every five years. The following Lands were revalued on 31st March 2020 by Mr T M H Mutaliph an independent valuer. The results of such revaluation was incorporated in these financial statements from its effective date which was 31st March 2020. The buildings and other assets were valued on the current replacement cost basis and net replacement cost basis respectively. The fair value of property plant and equipment except lands was determined by means of a revaluation during the financial year 2016 by Messrs Ariyathilaka & Co. (Pvt) Ltd. an independent valuer in reference to market based evidence. The results of such revaluation were incorporated in these financial statements from its effective date which is 31st March 2016. The surplus arising from the revaluation was transferred to a revaluation reserve and revaluation deficit charge as current year expense.

Bairaha Farms PLC Annual Report 2019/20 99 Notes to the Financial Statements Financial Reports

Freehold land carried at revalued amount

Company Location Last Land Per perch Balance revaluation extent value as at date 31st March 2020 LKR LKR

Bairaha Farms PLC Ginigama Estate – Hiripitiya 31.3.2020 20A-4R-19.5P 5,312 17,952,000 Ganeshan Estate – Kottaramulla 31.3.2020 27A-3R-9P 3,751 16,686,000 34,638,000

Hill Country Farms Ltd. Ellakkala Estate – Pasyala 31.3.2020 39A-0R-28.9P 18,750 117,540,000 117,540,000

Lanka Land Development Ltd. Kendalanda Estate – Urapola 31.3.2020 31A-3R-24.55P 7,499 38,280,000 38,280,000

H.C.F. Land Development Ltd. Ginigama Estate – Hiripitiya 31.3.2020 9A-0R-0P 7,813 11,250,000 Pahalahammillewa – Nikawaratiya 31.3.2020 28A-1R-6.5P 5,279 23,896,000 Polgasagare Estate – Kalalpitiya 31.3.2020 0A-0R-12.5P 375,000 4,687,500 39,833,500

B F Lands Development Ltd. Ellakkala Estate – Pasyala 31.3.2020 25A-2R-5.1P 19,240 78,596,000 Kondagahamulla Estate – Kondagahamulla 31.3.2020 6A-1R-0.6P 22,786 22,800,000 101,396,000

Siyane Farms Ltd. St. Catherine Estate – Dolosbage 31.3.2020 24A-0R-15P 4,219 16,263,281 Siyambalagahawatte – Kochchikade 31.3.2020 0A-0R-43.55P 600,000 26,130,000 42,393,281

Nature’s Best Industry Ltd. Dangaswewa Estate – Anamaduwa 31.3.2020 48A-2R-10P 10,828 84,131,250 84,131,250

Foster Real Estate Ltd. Thalgahamula Estate – Kurunegala 31.3.2020 22A-3R-2P 24,176 88,050,000 88,050,000 Total 546,262,031

100 Bairaha Farms PLC Annual Report 2019/20 Notes to the Financial Statements Financial Reports

Freehold buildings carried at revalued amount /cost

Company Location Number of Gross carrying Number of Gross carrying buildings value as at buildings value as at as at 31st March 2020 as at 31st March 2019 31st March 2020 freehold buildings 31st March 2019 freehold buildings LKR LKR

Bairaha Farms PLC Ganeshan Estate – Kottaramulla 14 7,149,155 14 7,149,155 Ginigama Estate – Hiripitiya 17 13,591,480 15 6,500,034 Ellakkala Estate – Pasyala 76 148,413,160 72 143,096,447 Church View Estate – Kondagahamulla 11 2,051,340 11 2,051,340 Green Park – Nittambuwa 1 8,178,000 1 8,178,000 Thummodera – Nattandiya 7 1,243,260 7 1,243,260 Madurankuliya – Puttalam 6 4,194,910 6 4,194,910 184,821,305 172,413,146

Hill Country Ellakkala Estate – Pasyala 17 23,758,492 14 7,299,970 Farms Ltd. Halmillawa – Nikaweratiya 14 32,432,114 10 30,837,313 56,190,606 38,137,283

Siyane Farms Ltd. St. Catherine Estate – Dolosbage 11 11,095,603 9 10,594,800 Kendalanda Estate – Urapola 1 139,290 1 139,290 Siyambalagahawatte – Kochchikade 1 22,490,263 1 22,490,263 33,725,156 33,224,353

Nature’s Best Industry Ltd. Dangaswewa Estate – Anamaduwa 22 53,370,344 22 53,370,344 53,370,344 53,370,344 Total 328,107,411 297,145,126

Bairaha Farms PLC Annual Report 2019/20 101 Notes to the Financial Statements Financial Reports

The carrying amount of revalued assets that would have been included in the financial statements had the assets been carried at cost less depreciation is as follow:

Cost Cumulative Net carrying Net carrying depreciation amount amount if assets were 2020 2019 carried at cost LKR LKR LKR LKR

Class of assets Land 164,159,721 – 164,159,721 164,159,721 Buildings 133,780,923 49,706,042 84,074,880 88,092,325 Buildings on leasehold land 11,667,021 11,667,021 – – Poultry sheds 242,238,446 129,147,603 113,090,843 127,683,521 Furniture and fittings 14,860,390 14,860,390 – 1,726,218 Motor vehicles 144,611,125 68,343,317 76,267,808 105,238,299 711,317,626 273,724,374 437,593,252 486,900,084

4.1.6 During the financial year, the Group acquired property, plant and equipment to the aggregate value of LKR 342,613,763 (2019 – LKR 287,150,629). Cash payments amounting to LKR 342,613,763 (2019 – LKR 287,150,629) was paid during the year for purchases of property, plant and equipment. There were no items of property, plant and equipment of the Group/Company pledged as securities for liabilities other than disclosed in Note 17.1.1 to the financial statements.

4.1.7 The useful life of the assets (Group/Company)

Buildings Over 33.3 years Buildings on leasehold land Over 10 years Poultry sheds Over 16.6 years Plant and machinery Over 10 – 20 years Equipment Over 8 years Furniture and fittings Over 10 years Motor vehicles Over 6.67 years Computer equipment Over 4 years

102 Bairaha Farms PLC Annual Report 2019/20 Notes to the Financial Statements Financial Reports

4.2 Company 4.2.1 Gross carrying amounts

Balance Additions/ Revaluation Disposals/ Balance as at Transfers surplus Transfers as at 1st April 2019 31st March 2020 LKR LKR LKR LKR LKR

At valuation Land 26,770,500 – 7,867,500 – 34,638,000 Buildings 95,683,937 12,408,160 – – 108,092,096 Buildings on leasehold land 2,637,500 – – – 2,637,500 Poultry sheds 170,912,851 2,123,842 – – 173,036,693 Furniture and fittings 10,916,391 14,694,520 – – 25,610,910 Motor vehicles 168,357,393 50,806,525 – (16,318,550) 202,845,368 475,278,572 80,033,046 7,867,500 (16,318,550) 546,860,568

At cost Plant and machinery 453,924,530 44,181,878 – – 498,106,407 Equipment 262,559,434 35,367,032 – – 297,926,466 Computer equipment 22,145,808 1,218,860 – – 23,364,668 738,629,771 80,767,770 – – 819,397,541 Total value of depreciable assets 1,213,908,343 160,800,816 7,867,500 (16,318,550) 1,366,258,109

4.2.2 In the course of construction

Balance Additions/ Revaluation Disposals/ Balance as at Transfers surplus Transfers as at 1st April 2019 31st March 2020 LKR LKR LKR LKR LKR

Capital work-in-progress 54,649,219 94,024,829 – (111,272,993) 37,401,055 Total gross carrying amount 1,268,557,561 254,825,645 7,867,500 (127,591,543) 1,403,659,163

Bairaha Farms PLC Annual Report 2019/20 103 Notes to the Financial Statements Financial Reports

4.2.3 Depreciation

Balance Additions/ Revaluation Disposals/ Balance as at Transfers surplus Transfers as at 1st April 2019 31st March 2020 LKR LKR LKR LKR LKR

At valuation Buildings 7,727,151 3,180,437 – – 10,907,588 Buildings on leasehold land 606,625 79,125 – – 685,750 Poultry sheds 28,495,580 10,350,343 – – 38,845,923 Furniture and fittings 3,462,826 2,197,815 – – 5,660,641 Motor vehicles 53,062,754 29,773,149 – (5,470,066) 77,365,836 93,354,935 45,580,869 – (5,470,066) 133,465,738

At cost Plant and machinery 178,711,188 39,635,720 – – 218,346,908 Equipment 184,653,423 35,914,235 – – 220,567,658 Computer equipment 20,781,745 1,504,538 – – 22,286,283 384,146,356 77,054,493 – – 461,200,849 Total depreciation 477,501,292 122,635,362 – (5,470,066) 594,666,588

4.2.4 Net book values

Balance Balance as at as at 31st March 2020 1st April 2019 LKR LKR

At valuation Land 34,638,000 26,770,500 Buildings 97,184,508 87,956,786 Buildings on leasehold land 1,951,750 2,030,875 Poultry sheds 134,190,771 142,417,272 Furniture and fittings 19,950,269 7,453,565 Motor vehicles 125,479,532 115,294,639 413,394,829 381,923,636

104 Bairaha Farms PLC Annual Report 2019/20 Notes to the Financial Statements Financial Reports

Balance Balance as at as at 31st March 2020 1st April 2019 LKR LKR

At cost Plant and machinery 279,759,499 275,213,342 Equipment 77,358,808 77,906,011 Computer equipment 1,078,385 1,364,062 358,196,691 354,483,415 771,591,521 736,407,051

In the course of construction Capital work-in-progress 37,401,055 54,649,219 Total carrying amount of property, plant and equipment 808,992,576 791,056,270

4.2.5 Company The Company revalues all property, plant and equipment other than assets classified as plant and machinery, equipment and computer equipment once every five years. The Lands were revalued on 31st March 2020 by Mr T M H Mutaliph an independent valuer. The results of such revaluation was incorporated in these financial statements from its effective date which was 31st March 2020. The fair value of property plant and equipment except Lands was determined by means of a revaluation during the financial year 2016 by Messrs Ariyathilaka & Co. (Pvt) Ltd. an independent valuer in reference to market based evidence. The results of such revaluation were incorporated in these financial statements from its effective date which is 31st March 2016. The surplus arising from the revaluation was transferred to a revaluation reserve and revaluation deficit charge as current year expenses. The carrying amount of revalued assets that would have been included in the financial statements had the assets been carried at cost less depreciation is as follows:

Cost Depreciation Net carrying Net carrying if assets were amount amount carried at cost 2020 2019 LKR LKR LKR LKR

Class of assets Land 17,082,718 – 17,082,718 17,082,718 Buildings 86,614,039 38,209,442 48,404,597 51,005,619 Buildings on leasehold land 5,770,279 5,770,279 – – Poultry sheds 89,980,397 59,509,441 30,470,956 35,891,462 Furniture and fittings 11,368,186 11,368,186 – 1,076,952 Motor vehicles 127,762,239 54,096,101 73,666,138 92,820,897 338,577,857 168,953,449 169,624,408 197,877,647

4.2.6 During the financial year, the Company acquired property, plant and equipment to the aggregate value of LKR 143,552,652 (2019 – LKR 110,624,708). Cash payments amounting to LKR 143,552,652 (2019 – LKR 110,624,708) was paid during the year for purchases of property, plant and equipment.

Bairaha Farms PLC Annual Report 2019/20 105 Notes to the Financial Statements Financial Reports

5. Right of use assets Set out below, are the carrying amounts of the Group’s and Company’s right of use assets and the movements for the year ended 31st March 2020.

5.1 Right of use assets

Group Company 2020 2020 LKR LKR

Cost Balance at the beginning of the year – – Effect of adoption of SLFRS 16 at the beginning of the year 22,150,730 35,356,278 Acquired during the period – – Balance at the end of the year 22,150,730 35,356,278

Accumulated depreciation Balance at the beginning of the year – – Effect of adoption of SLFRS 16 at the beginning of the year – – Depreciation for the year 4,430,147 7,071,256 Balance at the end of the year 4,430,147 7,071,256 Net book value 17,720,583 28,285,022

Set out below are the carrying amounts of lease liabilities [financing and lease (Ijara) Payables – Note 17] and the movements for the year ended 31st March 2020.

5.2 Lease liabilities

Group Company 2020 2020 LKR LKR

Balance at the beginning of the year 903,364 – Effect of adoption of SLFRS 16 at the beginning of the year 22,150,730 35,356,278 Restated balance at the beginning of the year 23,054,094 35,356,278 Additions – – Interest expense 2,909,581 4,504,768 Payments (6,874,613) (9,658,488) As at 31st March 19,089,062 30,202,557

Payable within one year 3,807,019 6,061,042 Payable after one year 15,282,043 24,141,515 Total lease liability as at 31st March 2020 19,089,062 30,202,557

106 Bairaha Farms PLC Annual Report 2019/20 Notes to the Financial Statements Financial Reports

5.3 Lease liabilities as at 1st April 2019 can be reconciled to the operating lease commitments as of 31st March 2019, as follows:

Group Company 2020 2020 LKR LKR

Operating lease commitments as at 31st March 2019 30,821,500 49,275,940 Weighted average incremental borrowing rate as at 1st April 2019 (%) 14 14 Discounted operating lease commitments as at 1st April 2019 23,052,613 36,258,161

Less: Commitments relating to short-term leases (901,884) (901,884) Commitments relating to leases of low value – –

Add: Commitments relating to leases previously classified as finance leases 903,364 – Lease payment relating to renewal periods not included in operating lease – – Commitments as at 31st March 2019 – – Total lease liabilities as at 1st April 2019 23,054,094 35,356,278

The present value of operating lease commitments as at 1st April 2019 has been calculated using weighted average incremental borrowing rates of 14% for the Company and Group.

The maturity analysis of lease liabilities are as follows:

Group Company 2020 2019 2020 2019 LKR LKR LKR LKR

Less than 1 year 6,242,947 951,953 19,930,188 – 1 to 5 years 18,802,944 – 29,733,753 –

5.4 The following are the amounts recognised in Income Statement:

Group Company 2020 2020 LKR LKR

Depreciation expense of right-of-use assets 4,430,146 7,071,256 Interest expense on lease liabilities 2,909,581 4,504,768 Total amount recognised in profit or loss 7,339,727 11,576,023

Bairaha Farms PLC Annual Report 2019/20 107 Notes to the Financial Statements Financial Reports

6. Investment property 6.1 Company 6.1.1 Gross carrying amounts

At cost Rented to Balance Additions/ Disposals/ Balance as at (Transfers) (Transfers) as at 1st April 2019 31st March 2020 LKR LKR LKR LKR

Buildings Pasyala Hatchery Hill Country Farms Ltd. 55,656,902 – – 55,656,902 Bairaha Foods Factory Bairaha Foods (Pvt) Ltd. 14,461,432 – – 14,461,432 Breeder Farms Pasyala Hill Country Farms Ltd. 7,063,000 – – 7,063,000 Total value of depreciable assets 77,181,334 – – 77,181,334

6.1.2 Depreciation

At cost Balance Charge Disposals/ Balance as at (Transfers) as at 1st April 2019 31st March 2020 LKR LKR LKR LKR

Buildings Pasyala Hatchery 13,312,150 1,669,707 – 14,981,857 Bairaha Foods Factory 3,078,679 433,843 – 3,512,522 Breeder Farms Pasyala 1,907,010 211,890 – 2,118,900 Total depreciation 18,297,839 2,315,440 – 20,613,279

6.1.3 Net book values

At cost Balance Balance as at as at 31st March 2020 31st March 2019 LKR LKR

Buildings Pasyala Hatchery 40,675,045 42,344,752 Bairaha Foods Factory 10,948,910 11,382,753 Breeder Farms Pasyala 4,944,100 5,155,990 Total carrying amount of investment property 56,568,055 58,883,495

108 Bairaha Farms PLC Annual Report 2019/20 Notes to the Financial Statements Financial Reports

6.1.4 Relevant income and expenditure relating to investment properties

Company 2020 2019 LKR LKR

For the year ended 31st March Rent income earned 1,742,623 1,665,344 1,742,623 1,665,344

6.1.5 The fair value of investment property was determined by means of a revaluation during the financial year 2016 by Messrs Ariyathilaka & Co. (Pvt) Ltd. an independent valuer in reference to market based evidence. The results of such revaluation were not incorporated in these financial statements.

At cost Fair value Fair value as at as at 31st March 2020 31st March 2019 LKR LKR

Buildings Pasyala Hatchery 45,773,741 47,244,640 Bairaha Foods Factory 13,273,062 13,706,905 Breeder Farms Pasyala 5,742,096 5,953,986 Total carrying amount of investment property 64,788,899 66,905,531

7. Intangible assets 7.1 Group

2020 2019 LKR LKR

Cost Computer software Balance at the beginning of the year 10,892,542 9,449,044 Acquired during the year 35,791,831 1,443,498 Balance at the end of the year 46,684,373 10,892,542

Capital working progress Balance at the beginning of the year 24,824,540 – Acquired/(Transferred) during the year (24,824,540) 24,824,540 Balance at the end of the year – 24,824,540

Bairaha Farms PLC Annual Report 2019/20 109 Notes to the Financial Statements Financial Reports

2020 2019 LKR LKR

Amortisation Balance at the beginning of the year 6,485,911 5,657,564 Amortisation for the year 2,412,888 828,346 Balance at the end of the year 8,898,799 6,485,911 Net book value 37,785,575 29,231,171

7.2 Company

2020 2019 LKR LKR

Cost Computer software Balance at the beginning of the year 10,577,542 9,449,044 Acquired during the year 35,791,831 1,128,498 Balance at the end of the year 46,369,373 10,577,542

Capital working progress Balance at the beginning of the year 24,824,540 – Acquired/(Transferred) during the year (24,824,540) 24,824,540 Balance at the end of the year – 24,824,540

Amortisation Balance at the beginning of the year 6,477,451 5,657,564 Amortisation for the year 2,225,347 819,887 Balance at the end of the year 8,702,799 6,477,451 Net book value 37,666,575 28,924,631

110 Bairaha Farms PLC Annual Report 2019/20 Notes to the Financial Statements Financial Reports

8. Investments in subsidiaries 8.1 Subsidiaries

Principal activity Country of Holding Cost Cost incorporation 2020 2019 % LKR LKR

Non-Quoted Bairaha Foods (Pvt) Ltd. Manufacturing of Pre-Cooked Meat Products Sri Lanka 100 38,750,000 38,750,000 Lanka Land Development Ltd. Purchasing & Leasing Agricultural Lands Sri Lanka 100 17,087,150 17,087,150 HCF Land Development Ltd. Purchasing & Leasing Agricultural Lands Sri Lanka 100 17,154,620 17,154,620 BF Lands Development Ltd. Purchasing & Leasing Agricultural Lands Sri Lanka 100 10,540,000 10,540,000 Golden Rooster Restaurants (Pvt) Ltd. Not in Operation Sri Lanka 100 2,000,000 2,000,000 Siyane Farms Ltd. Breeder Farming Sri Lanka 100 35,000,050 35,000,050 Nature’s Best Industry Ltd. Broiler Farming Sri Lanka 100 263,000,000 263,000,000 Regency Real Estate Company Ltd. Operation has not started Sri Lanka 100 1,000 1,000 Total non-quoted investments in subsidiaries 383,532,820 383,532,820 Allowance for impairment losses (8.1.1) (2,000,000) (2,000,000) Total carrying value of investments in subsidiaries 381,532,820 381,532,820

8.1.1 Board of Directors decided to windup the business activities of Golden Rooster Restaurants (Pvt) Ltd., during the financial year 2001/2002. Accordingly the movable assets of the Company were sold after calling for tender. Full provision has been made for this investment.

Bairaha Farms PLC Annual Report 2019/20 111 Notes to the Financial Statements Financial Reports

9. Investments in joint ventures

Group Company Holding Carrying value Cost 2019 2018 2020 2019 2020 2019 % % LKR LKR LKR LKR

Non-quoted Rajarata Land Development Ltd. 50 50 15,991,117 12,532,588 1,495,000 1,495,000 Cultural Triangle Land Development Ltd. 50 50 6,173,718 4,817,401 1,400,000 1,400,000 Windsor Real Estate Limited 50 50 45,799,092 39,150,475 32,793,500 32,793,500 Fortune G-P Farms (Lanka) Ltd. 50 50 349,793,786 243,125,335 21,233,500 21,233,500 Fortune Agro Industries (Pvt) Ltd. 50 50 512,929,607 619,800,975 655,000,000 550,000,000 Investment in joint ventures 930,687,319 919,426,773 711,922,000 606,922,000

9.1 Rajarata Land Development Ltd., Cultural Triangle Land Development Ltd., Windsor Real Estate Ltd. holds lands on behalf of the Group.

9.2 Group share of financial details of joint ventures

2020 2019 LKR LKR

Non-current assets 2,752,207,119 2,558,929,106 Current assets 1,475,798,520 2,701,398,804 Non-current liabilities (314,375,437) (31,272,713) Current liabilities (1,852,255,546) (3,240,201,633) Equity 2,061,374,656 1,988,853,564 Group’s carrying amount of the investment 930,687,319 919,426,773

Revenue 5,627,613,689 5,003,843,455 Cost of sales (5,350,677,771) (4,632,269,243) Administrative expenses (374,104,046) (257,767,607) Profit before tax (97,168,128) 113,806,605 Income tax expenses (27,009,320) (31,577,474) Profit for the year (124,177,448) 82,229,131 Total profit for the year (124,177,448) 82,229,131 Group’s share of profit for the year (62,088,724) 41,114,566 Other comprehensive income 18,349,269 –

112 Bairaha Farms PLC Annual Report 2019/20 Notes to the Financial Statements Financial Reports

9.3 Investment in joint ventures equity reconciliation

2020 2019 LKR LKR

Beginning balance 919,426,773 913,312,208 Profit for the year (62,088,724) 41,114,566 Share issue 105,000,000 – Revaluation share of equity accounted investees 18,349,269 – Dividends paid (50,000,000) (35,000,000) Ending balance 930,687,319 919,426,773

9.4 Investment in joint ventures – Other information

Rajarata Land Cultural Triangle Windsor Real Fortune G-P Farms Fortune Agro Total Development Ltd. Land Development Estate Limited (Lanka) Ltd. Industries Ltd. (Pvt) Ltd.

LKR LKR LKR LKR LKR LKR

Cash and cash equivalents 75,671 134,317 1,293,855 31,567,117 173,997,750 207,068,710 Depreciation and amortisation – – – 24,231,878 64,625,840 88,857,718 Interest income – – – 630,501 213,535 844,036 Interest expense – – – 774,071 295,578,617 296,352,688

10. Other investments (Group/Company)

Group Company Number of shares Carrying value Carrying value 2020 2019 2020 2019 2020 2019 LKR LKR LKR LKR

Financial assets fair value through profit or loss Merchant Bank of Sri Lanka PLC 2,307 2,307 12,919 23,992 12,919 23,992 Mahaweli Reach Hotel PLC 3,500 3,500 42,000 47,600 42,000 47,600 Lanka Walltiles PLC 42 42 1,726 2,520 1,726 2,520 Blue Diamonds Jewellery Worldwide PLC 8,922 8,922 4,461 3,570 4,461 3,570 61,106 77,682 61,106 77,682

Financial instruments at amortised cost Wakala deposit – LOLC 46,811,227 38,535,203 – – 46,872,333 38,612,885 61,106 77,682

Bairaha Farms PLC Annual Report 2019/20 113 Notes to the Financial Statements Financial Reports

Group Company Number of shares Carrying value Carrying value 2020 2019 2020 2019 2020 2019 LKR LKR LKR LKR

Financial instruments at fair value through OCI Amãna Bank PLC 343,000 343,000 651,700 960,400 651,700 960,400 651,700 960,400 651,700 960,400 47,524,033 39,573,285 712,806 1,038,082

11. Inventories

Group Company 2020 2019 2020 2019 LKR LKR LKR LKR

Broiler meat 186,504,180 59,846,237 175,615,112 55,121,613 Poultry feed and drugs 133,182,119 98,344,647 93,909,708 77,433,833 Sundry stocks 54,272,164 57,445,429 22,593,506 35,209,470 373,958,464 215,636,313 292,118,326 167,764,916

12. Biological assets

Group Company 2020 2019 2020 2019 LKR LKR LKR LKR

Bearer biological assets Breeder birds – Non-current 59,641,139 50,944,176 35,711,040 27,343,145

Bearer biological assets Breeder birds – Current 397,189,372 334,449,466 64,864,434 63,106,173 Total bearer biological assets 456,830,511 385,393,642 100,575,474 90,449,318

Consumable biological assets Broiler birds – Own farms 58,106,054 46,376,647 7,933,158 4,825,965 Broiler birds – Outgrowers 50,072,169 35,243,432 50,072,169 35,243,432 Hatching Eggs 47,450,556 61,287,816 5,780,234 8,792,473 155,628,779 142,907,896 63,785,561 48,861,870

114 Bairaha Farms PLC Annual Report 2019/20 Notes to the Financial Statements Financial Reports

12.1 Bearer biological assets – Reconciliation of changing carrying value

Group Company 2020 2019 2020 2019 LKR LKR LKR LKR

Bearer biological assets – Reconciliation of changing carrying value Net book value as at 1st April 385,393,642 332,377,512 90,449,318 68,273,070 Net additions 672,763,238 592,717,115 217,021,377 216,077,912 Transferred to cost of sales (621,158,295) (541,025,083) (202,394,357) (195,797,284) Fair value gain/(loss) 19,831,927 1,324,098 (4,500,864) 1,895,620 Net book value as at 31st March 456,830,511 385,393,642 100,575,474 90,449,318

12.2 The measurement of fair value and the assumptions used have been disclosed in Note 30.1.1.

13. Trade and other receivables

Group Company 2020 2019 2020 2019 LKR LKR LKR LKR

Financial assets Trade receivables – Related parties (13.2) – – 26,924,187 27,576,246 – Others 449,844,529 436,510,346 365,390,805 326,641,442 Less: Allowance for impairment – Trade receivables (25,566,065) (25,792,370) (24,995,085) (20,679,133) 424,278,464 410,717,976 367,319,906 333,538,555

Other debtors 46,506,649 46,506,649 46,506,650 46,506,649 Loans to company officers 1,785,084 1,250,957 1,746,840 1,234,517 Less: Allowance for impairment – Other debtors (46,506,428) (46,506,428) (46,506,428) (46,506,428) 1,785,304 1,251,177 1,747,061 1,234,737

Non-financial assets Advances and prepayments 64,655,905 108,911,796 20,670,237 14,526,921 490,719,673 520,880,949 389,737,204 349,300,213

Total allowance for impairment (13.1) (72,072,494) (72,298,799) (71,501,514) (67,185,562)

Bairaha Farms PLC Annual Report 2019/20 115 Notes to the Financial Statements Financial Reports

13.1 Impairment of trade and other receivables

Group Company 2020 2019 2020 2019 LKR LKR LKR LKR

As at 1st April 72,298,799 92,249,554 67,185,562 78,121,761 Impact of adoption of SLFRS 9 – (2,424,190) – (2,424,190) Charge for the year 4,315,952 19,130,536 4,315,952 18,367,040 Write back during the year (3,261,653) – – – Write-off during the year (1,280,604) (36,657,102) – (26,879,049) As at 31st March 72,072,494 72,298,799 71,501,514 67,185,562

13.2 Trade dues receivable from related parties

Group Company Relationship 2020 2019 2020 2019 LKR LKR LKR LKR

Bairaha Foods (Pvt) Ltd. Subsidiary – – 26,924,187 27,576,246 – – 26,924,187 27,576,246

14. Amounts due from related parties

Group Company Relationship 2020 2019 2020 2019 LKR LKR LKR LKR

Bairaha Foods (Pvt) Ltd. Subsidiary – – 6,798,148 8,183,565 Golden Rooster Restaurants (Pvt) Ltd. Subsidiary – – 2,316,274 2,234,024 Lanka Land Development (Pvt) Ltd. Subsidiary – – – 36,132 Cultural Land Development Ltd. Joint venture 18,500 18,500 18,500 18,500 Nature’s Best Industry Ltd. Subsidiary – – 4,191,782 406,716 Rajarata Land Development Ltd. Joint venture 28,997 28,997 28,997 28,997 Windsor Real Estate Ltd. Joint venture 461,736 461,736 461,736 461,736 Fortune Agro Industries (Pvt) Ltd. Joint venture – 105,000,000 – 105,000,000 509,233 105,509,232 13,815,437 116,369,669

Less: Allowance made for amounts due from – Golden Rooster Restaurants (Pvt) Ltd. – – (2,316,274) (2,093,924) 509,233 105,509,232 11,499,163 114,275,745

116 Bairaha Farms PLC Annual Report 2019/20 Notes to the Financial Statements Financial Reports

15. Stated capital (Group/Company)

2020 2019 LKR LKR

Fully paid ordinary shares 256,305,197 256,305,197 (16,000,000 ordinary shares) 256,305,197 256,305,197

15.1 Rights, preference and restrictions of classes of capital The holders of ordinary shares has the right to receive dividends as declared from time to time and are entitled to one vote per share at the Annual General meeting of the Company.

16. Reserves

Group Company 2020 2019 2020 2019 Summary LKR LKR LKR LKR

Revaluation surplus (16.1) 507,589,644 420,576,631 149,823,471 143,057,421 507,589,644 420,576,631 149,823,471 143,057,421

16.1 Revaluation surplus

Group Company 2020 2019 2020 2019 LKR LKR LKR LKR

On property, plant and equipment Balance as at the beginning of the year 420,576,631 420,938,275 143,057,421 143,057,421 Revaluation surplus during the year 79,841,562 – 7,867,500 – Deferred tax adjustment on revaluation (11,177,819) – (1,101,450) – Share of other comprehensive income net of tax equity accounted investees 18,349,269 – – – Realised surplus on disposal transferred to retained profit – (361,644) – – Balance as at the end of the year 507,589,644 420,576,631 149,823,471 143,057,421

Bairaha Farms PLC Annual Report 2019/20 117 Notes to the Financial Statements Financial Reports

17. Financing and lease (Ijara) payables 17.1 Group

2020 2020 2020 2019 2019 2019 amount amount amount amount repayable repayable repayable repayable within 1 year after 1 year Total within 1 year after 1 year Total LKR LKR LKR LKR LKR LKR

Finance leases – Ijara – – – 903,364 – 903,364 Bank loans (17.1.1) 264,766,556 242,766,527 507,533,083 135,383,947 297,771,749 433,155,696 Bank overdrafts (27.2) 124,251,599 – 124,251,599 50,763,275 – 50,763,275 Lease liability on right of use assets (5.2) 3,807,019 15,282,043 19,089,062 – – – 392,825,174 258,048,570 650,873,744 187,050,587 297,771,749 484,822,336

Non-current lease liabilities are payable within 5 years.

17.1.1 Bank loans

As at Loans Repayments As at 1st April 2019 obtained 31st March 2020 LKR LKR LKR LKR

Amãna Bank PLC 355,527,140 181,280,621 (139,411,171) 397,396,590 MCB Bank Limited – Islamic Banking Unit 70,965,164 – (24,593,696) 46,371,468 Hatton National Bank PLC – Al Najah 6,663,392 63,765,025 (6,663,392) 63,765,025 433,155,695 245,045,646 (170,668,259) 507,533,083

Security: Immovable property, plant and machinery located at Ellakkala Estate in Pasyala and Dangaswewa Estate in Anamaduwa have been pledged against the loan facilities obtained rom Amãna Bank PLC.

Immovable property, plant and machinery located at St. Catherine Estate in Dolosbage have been pledged against the loan facilities obtained from Hatton National Bank PLC – Al Najah.

118 Bairaha Farms PLC Annual Report 2019/20 Notes to the Financial Statements Financial Reports

17.2 Company

2020 2020 2020 2019 2019 2019 amount amount amount amount repayable repayable repayable repayable within 1 year after 1 year Total within 1 year after 1 year Total LKR LKR LKR LKR LKR LKR

Bank loans (17.2.1) 160,566,991 160,185,613 320,752,604 117,137,112 236,246,632 353,383,744 Bank overdrafts (27.2) 119,763,668 – 119,763,668 50,763,275 – 50,763,275 Lease liability on right of use assets 6,061,042 24,141,515 30,202,557 – – – 286,391,701 184,327,128 470,718,830 167,900,387 236,246,632 404,147,019

Non-current lease liabilities are payable within 5 years.

17.2.1 Bank loans

As at Loans Repayments As at 1st April 2019 obtained 31st March 2020 LKR LKR LKR LKR

Amãna Bank PLC 312,728,807 108,718,150 (123,917,842) 297,529,115 MCB Bank Limited – Islamic Banking Unit 40,654,937 – (17,431,449) 23,223,488 353,383,744 108,718,150 (141,349,291) 320,752,603

Security: Immovable property, plant and machinery located at Ellakkala Estate in Pasyala and Dangaswewa Estate in Anamaduwa have been pledged against the loan facilities obtained from Amãna Bank PLC.

Bank Product type Rate Maturity

Amãna Bank PLC Diminishing Musharaka SLIBOR + 2% 60 to 84 months Bank Overdrafts SLIBOR + 2%

MCB Bank – Islamic Unit Diminishing Musharaka AWPLR + 2% 72 months (6 years) Local Murabaha AWPLR + 2% 90 days

Hatton National Bank PLC Diminishing Musharaka AWPLR + 3% 60 month

Bairaha Farms PLC Annual Report 2019/20 119 Notes to the Financial Statements Financial Reports

18. Retirement benefit liability Defined benefit obligation – Gratuity

Group Company 2020 2019 2020 2019 LKR LKR LKR LKR

Balance as at the beginning of the year 78,625,064 72,370,606 69,075,407 64,347,946 Charge for the year (18.1) 14,055,922 12,649,665 12,078,930 10,349,898 Amounts recognised in other comprehensive income (18.2) (6,324,952) (3,081,740) (6,324,952) (3,081,740) Payments during the year (4,904,267) (3,313,467) (4,070,470) (2,540,697) Balance as at the end of the year 81,451,767 78,625,064 70,758,916 69,075,407

18.1 Charge for the year

Group Company 2020 2019 2020 2019 LKR LKR LKR LKR

Current service cost 6,305,662 6,214,871 4,328,670 3,915,104 Interest cost on benefit liability 7,750,260 6,434,794 7,750,260 6,434,794 14,055,922 12,649,665 12,078,930 10,349,898

18.2 Amounts recognised in other comprehensive income

Group Company 2020 2019 2020 2019 LKR LKR LKR LKR

Liability experience loss/(gain) arising during the year (1,423,251) (1,049,526) (1,423,251) (1,049,526) Liability gain due to changes in assumptions during the year (4,901,701) (2,032,214) (4,901,701) (2,032,214) Total amount recognised in other comprehensive income (6,324,952) (3,081,740) (6,324,952) (3,081,740)

120 Bairaha Farms PLC Annual Report 2019/20 Notes to the Financial Statements Financial Reports

18.3 The retirement benefit liability, of Bairaha Farms PLC, is valued by Mr Piyal Goonatilleke, who is a fellow member of the Society of Actuaries (USA) and a member of the American Academy of Actuaries. Defined liability is valued as of March 2020 and the principal assumptions used in the valuation is as follows: Principal actuarial assumption

2020 2019

Discount rate 9.75% p.a 11.22% p.a Salary increases 5% p.a 7.5% p.a Staff turnover 20 to 35 years 10.00% 10.00% 35 to 40 years 7.50% 7.50% 40 to 45 years 5.00% 5.00% 45 to 50 years 2.50% 2.50% Over 55 years 1% 1% Number of active participants 235 235 Expected future working life time 7.8 8 Mortality table GA 1983 GA 1983

18.4 Sensitivity analysis Assumption Change Effect on Effect on PVDBO PVDBO 2020 2019 LKR LKR

Discount rate +1% (1,427,457) (1,484,278) -1% 1,582,558 1,645,969

Expected salary increase +1% 2,881,665 2,191,996 -1% (2,691,346) (2,033,991)

19. Trade and other payables

Group Company 2020 2019 2020 2019 LKR LKR LKR LKR

Trade creditors – Related parties (19.1) 211,034,453 122,902,928 409,276,561 263,811,095 – Others 117,794,675 73,680,253 57,407,187 34,162,864 328,829,128 196,583,180 466,683,747 297,973,959 Sundry creditors including accrued expenses 129,891,346 155,598,444 70,459,663 100,063,137 458,720,474 352,181,624 537,143,410 398,037,096

Bairaha Farms PLC Annual Report 2019/20 121 Notes to the Financial Statements Financial Reports

19.1 Trade dues payable to related parties

Group Company Relationship 2020 2019 2020 2019 LKR LKR LKR LKR

Nature’s Best Industries Ltd. Subsidiary – – 90,332,089 26,753,205 Siyane Farms Ltd. Subsidiary – – 111,553,043 108,307,389 Hill Country Farms Ltd. Subsidiary – – 72,960,544 52,482,525 Fortune Agro Industries Ltd. Joint venture 176,420,154 103,407,894 117,046,135 75,059,576 Fortune G-P Farms (Lanka) Ltd. Joint venture 34,614,299 19,495,034 17,384,749 1,208,400 211,034,453 122,902,928 409,276,561 263,811,095

20. Dividends

Group Company 2020 2019 2020 2019 LKR LKR LKR LKR

20.1 Dividends Payable (Unclaimed Dividends) (Note 20.3) 14,831,691 13,907,224 14,831,691 13,907,224 14,831,691 13,907,224 14,831,691 13,907,224

20.2 LKR 64,000,000.00 dividend has been declared and paid for the year ended 31st March 2020, which is given below:

A Final dividend for 2018/19 amounting to LKR 64,000,000.00 was paid on 31st May 2019.

20.3 Reconciliation for dividends

Group Company 2020 2019 2020 2019 LKR LKR LKR LKR

Payable balance 1st April 13,907,224 12,147,550 13,907,224 12,147,550 Dividends 64,000,000 112,000,000 64,000,000 112,000,000 Dividends paid (63,075,533) (110,240,326) (63,075,533) (110,240,326) Payable balance 31st March 14,831,691 13,907,224 14,831,691 13,907,224

122 Bairaha Farms PLC Annual Report 2019/20 Notes to the Financial Statements Financial Reports

21. Amounts due to related parties

Company Relationship 2020 2019 LKR LKR

BF Land Ltd. Subsidiary 859,553 104,612 HCF Land Ltd. Subsidiary 476,250 95,250 Lanka Land Ltd. Subsidiary 903,048 – Hill Country Farms Ltd. Subsidiary 27,426,441 24,713,728 Bairaha Trading (Pvt) ltd. Subsidiary 405,777 – Siyane Farms Ltd. Subsidiary 209,432,053 76,230,186 239,503,122 101,143,776

22. Other operating income

Group Company 2020 2019 2020 2019 LKR LKR LKR LKR

Income from other investments – Quoted 23,718 20,880 23,718 20,880 Dividend from other investments – Subsidiaries – – 25,025,050 87,962,598 Dividend from other investments – Joint ventures – – 50,000,000 35,000,000 Rental income from investment property – Related parties 125,227 – 1,742,623 1,665,344 Profit on disposal of property, plant and equipment 646,887 1,255,357 646,887 – Lab income – Related parties 1,094,921 – 5,258,177 5,390,688 Service fee from related parties – Shared services – – 116,122,883 103,958,588 Miscellaneous income 33,048,239 21,280,219 5,594,708 10,533,953 Exchange gain 1,650,283 – 1,650,283 – Sale of vaccines 419,819 9,101,365 – – Sale of agricultural produce 3,241,638 1,499,961 – – 40,250,731 33,157,782 206,064,329 244,532,051

Bairaha Farms PLC Annual Report 2019/20 123 Notes to the Financial Statements Financial Reports

23. Finance cost

Group Company 2020 2019 2020 2019 LKR LKR LKR LKR

Interest expense on overdrafts 6,750,119 6,293,925 6,750,117 6,293,925 Interest expense on lease liabilities 2,909,581 1,907,691 4,504,768 – Interest expense on fixed loans 64,339,721 67,814,238 45,540,790 61,537,395 73,999,421 76,015,854 56,795,674 67,831,320

24. Profit/(loss) from operating activities

Group Company 2020 2019 2020 2019 LKR LKR LKR LKR

Stated after charging/(crediting) Production overheads Allowance for weight losses 4,200,000 2,400,000 4,200,000 2,400,000 Depreciation 210,222,286 183,633,484 108,616,613 99,897,632 Staff cost (including following retirement benefit plan cost) 356,645,109 331,389,697 189,267,002 174,573,891 – Defined benefit plan cost – Gratuity 6,354,897 4,234,034 4,314,877 2,170,801 – Defined contribution plan costs – EPF and ETF 14,554,007 12,657,879 6,901,444 5,576,938

Administration expenses Directors’ emoluments 42,259,201 39,347,648 42,259,201 39,347,648 Legal fees 1,578,450 1,112,500 1,578,450 1,112,500 Donations 4,140,593 2,899,330 3,168,734 2,795,530 Depreciation/Amortisation 11,334,045 9,420,883 10,362,186 8,066,450 Auditors remuneration 4,716,000 4,560,000 3,180,000 2,632,155 Staff Cost (including following retirement benefit plan cost) 57,285,776 57,996,989 56,497,148 54,982,494 – Defined benefit plan cost – Gratuity 5,319,190 2,621,534 5,319,190 2,385,000 – Defined Contribution Plan Costs – EPF and ETF 10,207,144 9,298,581 10,104,600 8,892,885

Distribution cost Advertising costs 32,124,802 41,536,799 32,124,802 41,536,799 Allowance for impairment 4,315,952 19,130,536 4,315,952 17,747,330 Depreciation 17,770,138 12,272,513 15,266,423 11,088,078 Staff cost (including following retirement benefit plan cost) 75,043,997 77,519,694 73,590,829 75,571,889 – Defined benefit plan cost – Gratuity 2,381,835 5,794,097 2,444,863 5,794,097 – Defined contribution plan costs – EPF and ETF 4,409,323 4,326,630 4,409,323 4,196,630

124 Bairaha Farms PLC Annual Report 2019/20 Notes to the Financial Statements Financial Reports

25. Income tax expense The major components of income tax expense are as follows:

Group Company 2020 2019 2020 2019 LKR LKR LKR LKR

Income Statement Current income tax Current tax expense on ordinary activities for the year (25.1) 9,580,223 77,867,564 – 12,716,953 Under provision of current taxes in respect of prior years 1,455,638 2,447,739 1,655,089 2,387,050 Tax on dividend income 10,503,507 17,214,764 10,503,507 17,214,764 21,539,368 97,530,067 12,158,596 32,318,767

Deferred income tax Deferred taxation charge (25.2) (18,755,133) (401,958) (21,720,386) (587,217) Income tax expense reported in the Income Statement 2,784,235 97,128,108 (9,561,790) 31,731,550

25.1 Reconciliation of accounting profit and taxable profit

Group Company 2020 2019 2020 2019 LKR LKR LKR LKR

Accounting profit before tax from operations (193,322,802) 510,073,472 (127,363,278) 143,512,571 Disallowable expenses 280,650,746 288,726,126 182,504,117 208,266,140 Tax deductible expenses (317,707,505) (328,918,607) (183,501,235) (260,943,332) Tax exempt income (3,593,832) (11,615,182) – – (233,973,393) 458,265,809 (128,360,396) 90,835,379

Other income 5,062,332 1,237,041 2,919,550 – Tax loss utilised during the year (5,911,530) (1,160,102) (2,919,550) – Taxable profit (234,822,591) 458,342,747 (125,440,846) 90,835,379 Income tax @ 14% 8,299,599 73,786,564 – 12,716,953 Income tax @ 28% 1,280,624 4,081,000 – – Current tax expense on ordinary activities for the year 9,580,223 77,867,564 – 12,716,953

Tax loss brought forward 10,399,323 11,398,725 – – Tax loss for the year 134,976,614 160,700 128,360,396 – Tax loss utilised during the year (5,911,530) (1,160,102) (2,919,550) – Tax loss carried forward 139,464,407 10,399,323 125,440,846 –

Nature’s Best Industry Limited (fully owned subsidiary of Bairaha Farms PLC) is a BOI Company which enjoys a 10 year tax holiday (w.e.f. 2011/2012).

Bairaha Farms PLC Annual Report 2019/20 125 Notes to the Financial Statements Financial Reports

25.2 Deferred tax assets, liabilities and income tax relates to the followings 25.2.1 Group

Statement of Financial Position Statement of Profit or Loss Other Comprehensive Income 2020 2019 2020 2019 2020 2019 LKR LKR LKR LKR LKR LKR

Deferred tax liability Property, plant and equipment 122,320,731 122,518,158 197,427 (150,810) – – Revaluation of property, plant and equipment 66,739,045 55,561,226 – 655,522 (11,177,819) – 189,059,776 178,079,384

Deferred tax assets Allowance for bad and doubtful debts (3,499,312) (2,895,079) 604,233 (1,531,068) – – Defined benefit plans (10,180,720) (10,866,046) 200,167 1,428,315 (885,493) (431,444) ROU assets (191,588) – 191,588 – – – Tax losses carried forward (17,561,718) – 17,561,718 – – – (31,433,338) (13,761,124) Deferred income tax expense 18,755,133 401,958 (12,063,312) (431,444) Net deferred tax liability 157,626,438 164,318,259

25.2.1.1 Break-up of deferred tax charge on – Defined benefit plans

2020 2019 LKR LKR

Charge to income tax expenses (200,167) (1,428,315) Charge to other comprehensive income 885,493 431,444 685,326 (996,871)

126 Bairaha Farms PLC Annual Report 2019/20 Notes to the Financial Statements Financial Reports

25.2.2 Company

Statement of Financial Position Statement of Profit or Loss Other Comprehensive Income 2020 2019 2020 2019 2020 2019 LKR LKR LKR LKR LKR LKR

Deferred tax liability Property, plant and equipment 70,432,836 72,597,632 2,164,795 (1,024,997) – – Revaluation of property, plant and equipment 5,314,582 4,213,132 – – (1,101,450) – 75,747,418 76,810,764

Deferred tax assets Allowance for bad and doubtful debts (3,499,312) (2,895,079) 604,233 1,531,068 – – Defined benefit plans (9,906,248) (9,670,557) 1,121,184 (1,093,289) 885,493 431,444 ROU assets (268,455) – 268,455 – – – Tax losses carried forward (17,561,718) – 17,561,718 – – – (31,235,733) (12,565,636) Deferred income tax expense 21,720,386 (587,217) (215,957) 431,444 Net deferred tax liability 44,511,685 64,245,128

25.2.2.1 Break-up of deferred tax charge on – Defined benefit plans

2020 2019 LKR LKR

Charge to income tax expenses 1,121,184 (1,093,289) Charge to other comprehensive income 885,493 431,444 2,006,678 (661,845)

Bairaha Farms PLC Annual Report 2019/20 127 Notes to the Financial Statements Financial Reports

26. Earnings per share 26.1 Basic earnings per share is calculated by dividing the net profit for the year attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the year.

26.2 The following reflects the income and share data used in the basic earnings per share computations. Amounts used as the numerators:

Group Company 2020 2019 2020 2019 LKR LKR LKR LKR

Net profit (196,107,037) 412,945,363 (117,801,488) 111,781,021 Net profit attributable to ordinary shareholders for basic earnings per share (196,107,037) 412,945,363 (117,801,488) 111,781,021

Number of ordinary shares used as denominators:

Group Company 2020 2019 2020 2019 Number Number Number Number

Weighted average number of ordinary shares in issue applicable to basic earnings per share 16,000,000 16,000,000 16,000,000 16,000,000 Weighted average number of ordinary shares applicable to basic earnings per share 16,000,000 16,000,000 16,000,000 16,000,000

-12.26 25.81 -7.36 6.99

There is no dilusion of EPS during the current financial year.

27. Cash and cash equivalents 27.1 Favourable cash and cash equivalent balance Components of cash and cash equivalents

Group Company 2020 2019 2020 2019 LKR LKR LKR LKR

Cash and bank balances 158,691,332 429,737,269 97,326,413 195,970,974 158,691,332 429,737,269 97,326,413 195,970,974

128 Bairaha Farms PLC Annual Report 2019/20 Notes to the Financial Statements Financial Reports

27.2 Unfavourable cash and cash equivalent balances

Group Company 2020 2019 2020 2019 LKR LKR LKR LKR

Bank overdrafts (124,251,599) (50,763,275) (119,763,668) (50,763,275) Total cash and cash equivalents for the purpose of cash flow statements 34,439,733 378,973,994 (22,437,255) 145,207,699

28. Commitments and contingencies Commitments Capital commitments approved and contracted as at the reporting date, but not provided for in the financial statements for the Group and Company is nil.

Contingencies (Group /Company) Company has given Corporate Guarantee worth of LKR 400 Mn. to Amana Bank PLC and another Corporate Guarantee worth of LKR 525 Mn. to MCB Bank Limited on behalf of Fortune Agro Industries (Pvt) Ltd. for its working capital financing.

29. Assets pledged Assets pledged on bank loans are disclosed under Note 17.1.2 and 17.2.1 for group and company respectively.

30. Fair value of assets and liabilities 30.1 Fair value of assets and liabilities carried at fair value A description of how fair values are determined for assets and liabilities that are recorded at fair value using valuation techniques is summarised below which incorporates the Group's estimate of assumptions that a market participant would make when valuing.

Property, plant and equipment • Land have been valued according to the nature of the land, extent, location, accessibility, alternate user and present day market for similar land in such locations. • Buildings have been valued at the current gross replacement cost and their site works less an allowance for all appropriate factors such as age, condition, functional and environmental obsolescence which result in the existing property being worthless than a new replacement. • Other assets are valued on the Net Replacement Cost basis which is the value of the asset to the business or the “deprival value” namely the price the owner would have to pay in the market to require the asset in its existing condition or to recreate it if he was deprived of its ownership.

Bairaha Farms PLC Annual Report 2019/20 129 Notes to the Financial Statements Financial Reports

Biological assets – Consumable The fair value of the consumable biological assets is substantially represented by formation cost, mainly due to the short life cycle of the birds and the fact that a significant share of the profits arises from the manufacturing process and not from the live birds.

Biological assets – Bearer The valuation model considers the present value of the net cash flows expected to be generated by breeder farming. The expected net cash flows are discounted using the IRR of respective farm.

Financial assets at Fair Value through profit or loss Financial assets at Fair Value through profit or loss consist of quoted equities. Quoted equities classified as at Fair Value through profit or loss. These financial assets are valued using quoted market prices using active markets as at the reporting date.

Financial assets at Fair Value through OCI Quoted equities classified as financial instruments at fair value through OCI, are valued using quoted market prices using active markets as at the reporting date.

30.1.1 Fair value measurement – Group The following table provides the fair value measurement hierarchy of the Group’s assets and liabilities.

As at 31st March 2020 – Group

Fair value measurement using Total Quoted prices in Significant Significant active markets observable inputs unobservable inputs (Level 1) (Level 2) (Level 3) LKR LKR LKR LKR

Assets measured at fair value Property, plant and equipment Freehold land and buildings 840,758,843 – – 840,758,843 Buildings on leasehold lands 13,756,131 – – 13,756,131 Poultry sheds 435,496,438 – – 435,496,438 Furniture 28,064,768 – – 28,064,768 Motor vehicles 142,746,305 – – 142,746,305 1,460,822,486 – – 1,460,822,486 Biological assets – Consumable 155,628,779 – – 155,628,779 Biological assets – Bearer 456,830,511 – – 456,830,511

130 Bairaha Farms PLC Annual Report 2019/20 Notes to the Financial Statements Financial Reports

Fair value measurement using Total Quoted prices in Significant Significant active markets observable inputs unobservable inputs (Level 1) (Level 2) (Level 3) LKR LKR LKR LKR

Financial assets at fair value through profit or loss Quoted shares 61,106 61,106 – –

Financial assets at fair value through OCI Quoted shares 651,700 651,700 – –

As at 31st March 2019 – Group

Fair value measurement using Total Quoted prices in Significant Significant active markets observable inputs unobservable inputs (Level 1) (Level 2) (Level 3) LKR LKR LKR LKR

Assets measured at fair value Property, plant and equipment Freehold land and buildings 739,609,906 – – 739,609,906 Buildings on leasehold lands 14,227,588 – – 14,227,588 Poultry sheds 445,365,582 – – 445,365,582 Furniture 14,032,297 – – 14,032,297 Motor vehicles 137,103,635 – – 137,103,635 1,350,339,007 – – 1,350,339,007 Biological assets – Consumable 142,907,896 – – 142,907,896 Biological assets – Bearer 385,393,642 – – 385,393,642

Financial assets at fair value through profit or loss Quoted shares 77,682 77,682 – –

Financial assets at fair value through OCI Quoted shares 960,400 960,400 – –

Bairaha Farms PLC Annual Report 2019/20 131 Notes to the Financial Statements Financial Reports

30.1.1.1 Level 3 fair value measurement Unobservable inputs used in measuring fair value The table below sets out information about significant unobservable inputs used in measuring financial instruments categorised as Level 3 in the fair value hierarchy as at 31st March 2020.

Type of instrument Fair values as at Fair values as at Valuation technique Significant unobservable inputs 31st March 2020 31st March 2019 LKR LKR

Freehold land and buildings 840,758,843 739,609,906 Open market value plus current Estimated price per perch and gross replacement cost estimated rate per Sq. Ft. Buildings on leasehold lands 13,756,131 14,227,588 Current gross replacement cost Estimated rate per Sq. Ft. Poultry sheds 435,496,438 445,365,582 Current gross replacement cost Estimated rate per Sq. Ft. Furniture 28,064,768 14,032,297 Deprival value Estimated replacement cost adjusted for wear and tear Motor vehicles 142,746,305 137,103,635 Deprival value Estimated replacement cost adjusted for wear and tear Biological assets – 155,628,779 142,907,896 Formation costs Actual costs incurred which Consumable approximates its fair value Biological assets – Bearer 456,830,511 385,393,642 Discounted cash flows Hatchability of eggs, day old chick market price,mortality, and IRR of the farm

30.1.2 Fair value measurement – Company The following table provides the fair value measurement hierarchy of the Company’s assets and liabilities.

As at 31st March 2020 – Company

Fair value measurement using Total Quoted prices in Significant Significant active markets observable inputs unobservable inputs (Level 1) (Level 2) (Level 3) LKR LKR LKR LKR

Assets measured at fair value Property, plant and equipment Freehold land and buildings 131,822,508 – – 131,822,508 Buildings on leasehold lands 1,951,750 – – 1,951,750 Poultry sheds 134,190,771 – – 134,190,771 Furniture 19,950,269 – – 19,950,269 Motor vehicles 125,479,532 – – 125,479,532 413,394,829 – – 413,394,829 Biological assets – Consumable 63,785,561 – – 63,785,561 Biological assets – Bearer 100,575,474 – – 100,575,474

132 Bairaha Farms PLC Annual Report 2019/20 Notes to the Financial Statements Financial Reports

Fair value measurement using Total Quoted prices in Significant Significant active markets observable inputs unobservable inputs (Level 1) (Level 2) (Level 3) LKR LKR LKR LKR

Financial assets at fair value through profit or loss Quoted shares 102,150 102,150 – –

Financial assets at fair value through OCI Quoted shares 651,700 651,700 – –

Assets for which fair values are disclosed Investment property 64,788,899 – – 64,788,899

As at 31st March 2019 – Company

Fair value measurement using Total Quoted prices in Significant Significant active markets observable inputs unobservable inputs (Level 1) (Level 2) (Level 3) LKR LKR LKR LKR

Assets measured at fair value Property, plant and equipment Freehold land and buildings 114,727,286 – – 114,727,286 Buildings on leasehold lands 2,030,875 – – 2,030,875 Poultry sheds 142,417,272 – – 142,417,272 Furniture 7,453,565 – – 7,453,565 Motor vehicles 115,294,639 – – 115,294,639 381,923,636 – – 381,923,636 Biological assets – Consumable 48,861,869 – – 48,861,869 Biological assets – Bearer 90,449,318 – – 90,449,318

Financial assets at fair value through profit or loss Quoted shares 102,150 102,150 – –

Financial assets at fair value through OCI Quoted shares 960,400 960,400 – –

Assets for which fair values are disclosed Investment property 66,905,531 – – 66,905,531

Bairaha Farms PLC Annual Report 2019/20 133 Notes to the Financial Statements Financial Reports

30.2 Fair value of financial instruments Set out below is the comparison, by class, of the carrying amounts and fair values of the group's financial instruments that are not carried at fair value in the financial statements.

Group Company 2020 2019 2020 2019

Carrying Fair value Carrying Fair value Carrying Fair value Carrying Fair value amount amount amount amount

LKR LKR LKR LKR LKR LKR LKR LKR

Financial assets Trade and other receivables, net 426,063,768 426,063,768 411,969,154 411,969,154 369,066,967 369,066,967 334,773,292 334,773,292 Amounts due from related parties 509,233 509,233 105,509,232 105,509,232 11,499,163 11,499,163 114,275,745 114,275,745 Cash and bank balances 158,691,332 158,691,332 429,737,269 429,737,269 97,326,413 97,326,413 195,970,974 195,970,974 Total financial assets 585,264,332 585,264,332 947,215,655 947,215,655 477,892,543 477,892,543 645,020,012 645,020,012

Financial liabilities Trade and other payables 458,720,473 458,720,473 352,181,624 352,181,624 537,143,410 537,143,410 398,037,096 398,037,096 Amounts due to related parties – – – – 239,503,122 239,503,122 101,143,776 101,143,776 Financing and lease (Ijara) payables 650,873,744 650,873,744 484,822,336 484,822,336 470,718,830 470,718,830 404,147,019 404,147,019 Total financial liabilities 1,109,594,216 1,109,594,216 837,003,960 837,003,960 1,247,365,362 1,247,365,362 903,327,891 903,327,891

Fair value of financial assets and liabilities not carried at fair value The following describes the methodologies and assumptions used to determine the fair values for those financial instruments which are not already recorded at fair value in the Financial Statements.

Assets and liabilities for which fair value approximates carrying value For financial assets and financial liabilities that have a short term maturity (original maturities less than a year), it is assumed that the carrying amounts approximate their fair values. This assumption is applied to cash and cash equivalents, trade and other receivables, amounts due from and to related parties and trade and other payables.

Financing and lease (Ijara) payables for which periodical interest is paid are also considered to be carried at fair value in the books since the original financing rate does not differ materially from the current market rate.

134 Bairaha Farms PLC Annual Report 2019/20 Notes to the Financial Statements Financial Reports

30.3 Analysis of financial instruments by measurement basis – Group Financial assets and liabilities in the tables below are split into categories in accordance with SLFRS 09.

Financial assets at As at 31st March 2020 Fair value through Amortised Fair value Amortised Total profit or loss cost through OCI cost LKR LKR LKR LKR LKR

Financial assets Other investments 46,872,333 – 651,700 – 47,524,033 Trade and other receivables – – – 426,063,768 426,063,768 Amounts due from related parties – – – 509,233 509,233 Cash and bank balances – – – 158,691,332 158,691,332 Total financial assets 46,872,333 – 651,700 585,264,332 632,788,365

Financial liabilities Trade and other payables – – – 458,720,473 458,720,473 Dividends payable – – – 14,831,691 14,831,691 Financing and lease (Ijara) payables – – – 650,873,744 650,873,744 Total financial liabilities – – – 1,124,425,907 1,124,425,907

Financial assets at As at 31st March 2019 Fair value through Amortised Fair value Amortised Total profit or loss cost through OCI cost LKR LKR LKR LKR LKR

Financial assets Other investments 38,612,885 – 960,400 – 39,573,285 Trade and other receivables – – – 411,969,154 411,969,154 Amounts due from related parties – – – 105,509,232 105,509,232 Cash and bank balances – – – 429,737,269 429,737,269 Total financial assets 38,612,885 – 960,400 947,215,655 986,788,940

Financial liabilities Trade and other payables – – – 352,181,624 352,181,624 Dividends payable – – – 13,907,224 13,907,224 Financing and lease (Ijara) payables – – – 484,822,336 484,822,336 Total financial liabilities – – – 850,911,184 850,911,184

Bairaha Farms PLC Annual Report 2019/20 135 Notes to the Financial Statements Financial Reports

30.4 Analysis of financial instruments by measurement basis – Company

Financial assets at As at 31st March 2020 Fair value through Amortised Fair value Amortised Total profit or loss cost through OCI cost LKR LKR LKR LKR LKR

Financial assets Other investments 61,106 – 651,700 – 712,806 Trade and other receivables – – – 369,066,967 369,066,967 Amounts due from related parties – – – 11,499,163 11,499,163 Cash and bank balances – – – 97,326,413 97,326,413 Total financial assets 61,106 – 651,700 477,892,543 478,605,349

Financial liabilities Trade and other payables – – – 537,143,410 537,143,410 Dividends payable – – – 14,831,691 14,831,691 Amounts due to related parties – – – 239,503,122 239,503,122 Financing and lease (Ijara) payables – – – 470,718,830 470,718,830 Total financial liabilities – – – 1,262,197,054 1,262,197,054

Financial assets at As at 31st March 2019 Fair value through Amortised Fair value Amortised Total profit or loss cost through OCI cost LKR LKR LKR LKR LKR

Financial assets Other investments 77,682 960,400 1,038,082 Trade and other receivables – – – 334,773,292 334,773,292 Amounts due from related parties – – – 114,275,745 114,275,745 Cash and bank balances – – – 195,970,974 195,970,974 Total financial assets 77,682 – 960,400 645,020,012 646,058,094

Financial liabilities Trade and other payables – – – 398,037,096 398,037,096 Dividends payable – – – 13,907,224 13,907,224 Amounts due to related parties – – – 101,143,776 101,143,776 Financing and lease (Ijara) payables – – – 404,147,019 404,147,019 Total financial liabilities – – – 917,235,115 917,235,115

136 Bairaha Farms PLC Annual Report 2019/20 Notes to the Financial Statements Financial Reports

31. Risk management 31. 1 Introduction The Group’s principal financial liabilities comprise loans and borrowings, trade and other payables. The main purpose of these financial liabilities is to finance the Group’s operations. The Group has trade and other receivables, amounts due from related parties and cash and short-term deposits that arrive directly from its operations. The Group is exposed to credit risk, liquidity risk and market risk.

Market risk Market risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market prices. Financial instruments affected by market risk include investments in equity securities. The overall risk management program focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the entity’s financial performance.

31.2 Credit risk Credit risk is the risk that counterparty will not meet its obligations under a financial instrument or customer contract, leading to a financial loss. The group is exposed to credit risk from its operating activities (primarily for trade receivables) and from its financing activities. Company evaluates the credit worthiness of the customer before the appointment. Further it takes a refundable deposits from day old chicks customer, bank guarantee from its broiler chicken distributors and performs periodical debtors review and thereby assess the individual debtors’ status.

31.2.1 The following table shows the overdue amounts for the financial assets categories

Group Company As at 31st March 2020 Neither past Overdue Neither past Overdue due nor impaired due nor impaired LKR LKR LKR LKR

Carrying amount Trade and other receivables 224,873,210 173,839,189 169,066,774 173,258,047 Cash and cash equivalents 158,691,332 – 97,326,413 – Amounts due from related parties 509,233 – 11,499,163 – 384,073,774 173,839,189 277,892,350 173,258,047

Bairaha Farms PLC Annual Report 2019/20 137 Notes to the Financial Statements Financial Reports

Group Company As at 31st March 2019 Neither past Overdue Neither past Overdue due nor impaired due nor impaired LKR LKR LKR LKR

Carrying amount Trade and other receivables 236,506,873 148,418,733 177,560,900 135,298,522 Cash and cash equivalents 429,737,269 – 195,970,974 – Amounts due from related parties 105,509,232 – 114,275,745 – 771,753,374 148,418,733 487,807,620 135,298,522

31.2.2 Age analysis of trade receivables

Group Past due but not impaired Not past Less than 31 to 60 61 to 90 More than Impaired Total due 30 days days days 91 days LKR LKR LKR LKR LKR LKR LKR

Trade receivables net – 2020 224,873,210 82,367,044 40,977,546 21,737,409 28,757,190 25,566,065 424,278,464 Trade receivables net – 2019 236,506,873 24,930,715 26,443,433 62,040,479 35,004,106 25,792,370 410,717,976

Company Past due but not impaired Not past Less than 31 to 60 61 to 90 More than Impaired Total due 30 days days days 91 days LKR LKR LKR LKR LKR LKR LKR

Trade receivables net – 2020 169,066,774 97,434,261 31,168,039 16,007,973 28,647,773 24,995,085 367,319,906 Trade receivables net – 2019 177,560,900 22,076,051 19,607,824 59,428,752 34,185,895 20,679,133 333,538,555

138 Bairaha Farms PLC Annual Report 2019/20 Notes to the Financial Statements Financial Reports

31.2.3 Exposure to credit risk The following table shows the maximum exposure and net exposure to credit quality by class of financial assets.

Group Company As at 31st March 2020 Gross Net Gross Net exposure exposure exposure exposure LKR LKR LKR LKR

Carrying amount Trade and other receivables 426,063,768 426,063,768 369,066,967 369,066,967 Cash and cash equivalents 158,691,332 158,691,332 97,326,413 97,326,413 Amounts due from related parties 509,233 509,233 11,499,163 11,499,163 Other investments 47,524,033 47,524,033 712,806 712,806 632,788,365 632,788,365 478,605,349 478,605,349

Group Company As at 31st March 2019 Gross Net Gross Net exposure exposure exposure exposure LKR LKR LKR LKR

Carrying amount Trade and other receivables 411,969,154 411,969,154 334,773,292 334,773,292 Cash and cash equivalents 429,737,269 429,737,269 195,970,974 195,970,974 Amounts due from related parties 105,509,232 105,509,232 114,275,745 114,275,745 Other investments 39,573,285 39,573,285 1,038,082 1,038,082 986,788,940 986,788,940 646,058,094 646,058,094

31.3 Liquidity risk Liquidity risk refers to the risk that an entity will encounter difficulty in meeting obligations associated with financial liabilities that are settled by delivering cash or another financial asset. The Company manages liquidity risk by monitoring and managing its cash requirements to ensure access to sufficient funds to meet operational and investing requirements. The primary source of liquidity is cash generated from operations and supplemented by credit facilities.

Bairaha Farms PLC Annual Report 2019/20 139 Notes to the Financial Statements Financial Reports

31.3.1 Maturity analysis of financial assets and financial liabilities An analysis of financial assets and financial liabilities based on the remaining period at the reporting date to the respective contractual maturity dates is as follows.

Group Company 2020 2019 2020 2019 With in After Total as at With in After Total as at With in After Total as at With in After Total as at 12 months 12 months 31st March 2020 12 months 12 months 31st March 2019 12 months 12 months 31st March 2020 12 months 12 months 31st March 2019 LKR LKR LKR LKR LKR LKR LKR LKR LKR LKR LKR LKR

Assets Trade and other receivables, net 426,063,768 – 426,063,768 411,969,154 – 411,969,154 369,066,967 – 369,066,967 334,773,292 – 334,773,292 Amounts due from related parties 509,233 – 509,233 105,509,232 – 105,509,232 11,499,163 – 11,499,163 114,275,745 – 114,275,745 Cash and bank balances 158,691,332 – 158,691,332 429,737,269 – 429,737,269 97,326,413 – 97,326,413 195,970,974 – 195,970,974 Other investments 46,872,333 651,700 47,524,033 38,612,885 960,400 39,573,285 61,106 651,700 712,806 77,682 960,400 1,038,082 Total assets 632,136,665 651,700 632,788,365 985,828,540 960,400 986,788,940 477,953,649 651,700 478,605,349 645,097,694 960,400 646,058,094

Liabilities Trade and other payables 450,385,585 – 450,385,585 324,013,764 – 324,013,764 533,161,394 – 533,161,394 378,319,417 – 378,319,417 Amounts due to related parties – – – – – – 239,503,122 – 239,503,122 101,143,776 – 101,143,776 Financing and lease (ijara) payables 392,825,174 258,048,570 650,873,744 187,050,587 297,771,749 484,822,336 286,391,701 184,327,128 470,718,830 167,900,387 236,246,632 404,147,019 Total liabilities 843,210,758 258,048,570 1,101,259,328 511,064,351 297,771,749 808,836,100 1,059,056,218 184,327,128 1,243,383,346 647,363,580 236,246,632 883,610,212

Net (211,074,093) (258,048,570) (469,122,663) 474,764,189 (297,771,749) 176,992,440 (581,102,569) (183,675,428) (764,777,997) (2,265,886) (235,286,232) (237,552,118)

31.4 Interest rate risk Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Group’s exposure to the risk of changes in market interest rates relates primarily to the Group’s long-term debt obligations with floating interest rates.

Interest rate sensitivity The following table demonstrates the sensitivity to a reasonably possible change in interest rates on that portion of loans and borrowings.

140 Bairaha Farms PLC Annual Report 2019/20 Notes to the Financial Statements Financial Reports

31.3.1 Maturity analysis of financial assets and financial liabilities An analysis of financial assets and financial liabilities based on the remaining period at the reporting date to the respective contractual maturity dates is as follows.

Group Company 2020 2019 2020 2019 With in After Total as at With in After Total as at With in After Total as at With in After Total as at 12 months 12 months 31st March 2020 12 months 12 months 31st March 2019 12 months 12 months 31st March 2020 12 months 12 months 31st March 2019 LKR LKR LKR LKR LKR LKR LKR LKR LKR LKR LKR LKR

Assets Trade and other receivables, net 426,063,768 – 426,063,768 411,969,154 – 411,969,154 369,066,967 – 369,066,967 334,773,292 – 334,773,292 Amounts due from related parties 509,233 – 509,233 105,509,232 – 105,509,232 11,499,163 – 11,499,163 114,275,745 – 114,275,745 Cash and bank balances 158,691,332 – 158,691,332 429,737,269 – 429,737,269 97,326,413 – 97,326,413 195,970,974 – 195,970,974 Other investments 46,872,333 651,700 47,524,033 38,612,885 960,400 39,573,285 61,106 651,700 712,806 77,682 960,400 1,038,082 Total assets 632,136,665 651,700 632,788,365 985,828,540 960,400 986,788,940 477,953,649 651,700 478,605,349 645,097,694 960,400 646,058,094

Liabilities Trade and other payables 450,385,585 – 450,385,585 324,013,764 – 324,013,764 533,161,394 – 533,161,394 378,319,417 – 378,319,417 Amounts due to related parties – – – – – – 239,503,122 – 239,503,122 101,143,776 – 101,143,776 Financing and lease (ijara) payables 392,825,174 258,048,570 650,873,744 187,050,587 297,771,749 484,822,336 286,391,701 184,327,128 470,718,830 167,900,387 236,246,632 404,147,019 Total liabilities 843,210,758 258,048,570 1,101,259,328 511,064,351 297,771,749 808,836,100 1,059,056,218 184,327,128 1,243,383,346 647,363,580 236,246,632 883,610,212

Net (211,074,093) (258,048,570) (469,122,663) 474,764,189 (297,771,749) 176,992,440 (581,102,569) (183,675,428) (764,777,997) (2,265,886) (235,286,232) (237,552,118)

31.4 Interest rate risk The Group’s and the Company's profit before tax is affected through the impact on floating rate borrowings as follows: Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of 2020 2019 changes in market interest rates. The Group’s exposure to the risk of changes in market interest rates relates primarily Increase/Decrease in basis points Group effect on Company effect on Group effect on Company effect on to the Group’s long-term debt obligations with floating interest rates. profit before tax profit before tax profit before tax profit before tax LKR LKR LKR LKR Interest rate sensitivity +100 (6,508,737) (4,707,188) (4,848,223) (4,041,470) The following table demonstrates the sensitivity to a reasonably possible change in interest rates on that portion of 6,508,737 4,707,188 4,848,223 4,041,470 loans and borrowings. -100

The assumed movement in basis points for interest rate sensitivity analysis is based on the currently observable market environment.

Bairaha Farms PLC Annual Report 2019/20 141 Notes to the Financial Statements Financial Reports

32. Related party disclosures 32.1 Transactions with related entities The Company carried out following transactions with related parties in the ordinary course of its business on an arms length basis at commercial rates during the year.

32.1.1 Subsidiaries

Group Company Nature of transactions 2020 2019 2020 2019 LKR LKR LKR LKR

Sales – – 172,284,973 419,789,354 Purchases – – 791,001,439 705,297,489 Rent income – – 1,581,624 1,581,624 Rent expenses – – 3,687,240 3,687,240 Hatching fees – – 41,132,202 32,552,572 Dividend income – – 21,521,543 75,647,835 Shared service income – – 116,122,883 97,295,491 Expenses incurred – – 62,965,145 57,144,130 Collection – – 100,595,574 874,329,980 Settlement – – 557,678,994 856,220,812

32.1.2 Joint ventures

Group Company Nature of transactions 2020 2019 2020 2019 LKR LKR LKR LKR

Purchases 2,830,175,221 2,464,298,464 1,824,509,742 1,586,034,025 Dividend income 50,000,000 35,000,000 50,000,000 35,000,000 Investment made – 81,083,090 – 81,083,090 Share issue 105,000,000 – 105,000,000 – Expenses incurred – 75,249 – 75,249 Settlement 2,827,635,987 2,412,269,675 1,872,216,225 1,545,034,228

142 Bairaha Farms PLC Annual Report 2019/20 Notes to the Financial Statements Financial Reports

32.1.3 Recurrent transactions with related parties The following related party transaction for the year under review has been disclosed as per the listing rule 9.3.2 (b).

The below transactions were carried out under usual trade terms and conditions.

Company

Name of the related party Relationship Nature of the Value of As a % of net transaction transaction income

Fortune Agro Industries (Pvt) Ltd. Joint venture Feed purchases 1,755,105,242 55%

Group

Name of the related party Relationship Nature of the Value of As a % of net transaction transaction income

Fortune Agro Industries (Pvt) Ltd. Joint venture Feed purchases 2,668,680,175 61%

32.2 Transactions with Key Management Personnel The Key Management Personnel of the Company are the members of its Board of Directors. Transactions with close family members of Key Management Personnel are also taken in to account in the transactions with Key Management Personnel.

Group Company 2020 2019 2020 2019 LKR LKR LKR LKR

(a) Transactions with Key Management Personnel or their Close Family Members Rent of premises owned by Key Management Personnel 5,820,600 4,862,250 5,820,600 4,862,250

(b) Key Management Personnel Compensation Short term employee benefits 42,259,201 39,347,648 42,259,201 39,347,648

Bairaha Farms PLC Annual Report 2019/20 143 Notes to the Financial Statements Financial Reports

32.3 Trade dues receivable from related parties, amounts due from related parties, trade dues payable to related parties, and amounts due to related parties as at the reporting date are disclosed in Note 13.2, 14, 19.1 and 21 respectively.

32.4 Corporate guarantees were given to related parties are disclosed in Note 28.

32.5 Terms and conditions of transactions with the related companies Outstanding balances at the year-end relating to the related Companies are unsecured, interest free, and all related-party dues are on demand. There have been no guarantees provided or received for any related party receivables or payables for the year ended 31st March 2020. The Group has not recorded any impairment of receivables relating to amounts owed by related parties (2018/19 – LKR Nil).

33. Events occurring after the reporting period There have been no material events occuring after the statement of financial position date that require adjustments to or disclosure in the financial statements.

34. Capital management The Company’s policy is to maintain a strong capital base so as to ensure investor, creditor and market confidence and to sustain future development of the business. The impact of the level of capital on shareholders’ return is also recognised and the Company recognises the need to maintain a balance between the higher returns that might be possible with greater gearing and the advantages and security afforded by a sound capital position. The Company's capital structure consists comprising share capital, reserves and retained earnings, as disclosed in the statement of changes in equity.

144 Bairaha Farms PLC Annual Report 2019/20 

Supplementary Supplementary Reports Reports

Bairaha Farms PLC Annual Report 2019/20 145 Ten Year Financial Summary Supplementary Reports Income statement

Year ended 31st March 2020 2019 2018 2017 2016 2015 2014 2013 2012 2011

LKR Mn. LKR Mn. LKR Mn. LKR Mn. LKR Mn. LKR Mn. LKR Mn. LKR Mn. LKR Mn. LKR Mn.

Revenue 4,361 4,724 4,215 4,364 3,890 3,357 3,054 2,918 2,829 2,555 Gross profit 446 1,076 993 1,203 994 512 441 432 746 782 Profit from operations (57) 545 552 805 699 209 170 187 510 595 Share of profit from joint ventures and associates (net of tax) (62) 41 34 126 18 20 28 20 13 5 Profit before tax (193) 510 500 863 665 193 159 184 511 589 Income tax expense (3) (97) (95) (161) (74) (34) (21) (22) (67) (103) Profit for the year (196) 413 404 702 591 160 138 161 444 486

Balance sheet

Year ended 31st March 2020 2019 2018 2017 2016 2015 2014 2013 2012 2011

LKR Mn. LKR Mn. LKR Mn. LKR Mn. LKR Mn. LKR Mn. LKR Mn. LKR Mn. LKR Mn. LKR Mn.

Assets Non-current assets Property, plant and equipment 2,346 2,167 2,086 2,047 1,781 1,553 1,521 1,391 1,140 755 Investments in joint ventures 931 919 913 872 517 12 12 12 – – Investments in associates – – – – – 101 81 53 32 18 Biological assets 60 51 68 84 251 204 134 129 122 103 Other non-current assets 56 30 5 5 6 7 7 6 5 5 Total non-current assets 3,393 3,168 3,072 3,008 2,556 1,877 1,755 1,591 1,299 882

Current assets Inventories 374 216 166 156 124 124 99 85 86 80 Trade and other receivables 491 521 491 450 337 323 282 278 288 240 Biological assets 553 477 420 335 122 122 149 156 116 104 Cash and bank balances 159 430 438 377 327 147 159 165 173 238 Other current assets 93 149 43 24 257 220 87 77 37 40 Total current assets 1,669 1,792 1,557 1,342 1,168 935 776 762 700 703 Total assets 5,061 4,960 4,629 4,350 3,723 2,812 2,531 2,352 1,999 1,585

146 Bairaha Farms PLC Annual Report 2019/20 Ten Year Financial Summary Supplementary Reports

Year ended 31st March 2020 2019 2018 2017 2016 2015 2014 2013 2012 2011

LKR Mn. LKR Mn. LKR Mn. LKR Mn. LKR Mn. LKR Mn. LKR Mn. LKR Mn. LKR Mn. LKR Mn.

Equity and liabilities Equity Stated capital 256 256 256 256 256 256 256 256 256 256 Revaluation surplus 508 421 421 425 425 248 248 250 253 239 Retained earnings 2,937 3,197 2,893 2,601 2,019 1,500 1,323 1,209 1,079 707 Other reserves (3) (8) (10) (1) (2) (4) (8) 0 1 1 Total equity 3,698 3,866 3,560 3,281 2,699 2,000 1,819 1,716 1,589 1,203

Non-current liabilities Financing and lease payables 258 298 393 483 485 254 159 153 85 14 Other non-current liabilities 239 243 237 168 128 99 91 70 58 47 Total non-current liabilities 497 541 629 651 612 353 249 224 143 61

Current liabilities Trade and other payables 459 352 275 218 283 353 366 358 213 241 Financing and lease payables 393 187 153 156 110 102 93 52 37 32 Other current liabilities 15 14 12 44 20 4 3 3 16 49 Total current liabilities 866 553 440 418 413 459 463 413 266 321 Total equity and liabilities 5,061 4,960 4,629 4,350 3,723 2,812 2,531 2,352 1,999 1,585

Key ratios

Year ended 31st March 2020 2019 2018 2017 2016 2015 2014 2013 2012 2011

Gross profit margin (%) 10.22 22.79 23.57 27.57 25.54 15.24 14.45 14.81 26.39 30.60 Net profit margin (%) (4.50) 8.74 9.60 16.08 15.18 4.75 4.51 5.53 15.70 19.02 Return on average assets (%) (3.91) 8.61 9.01 17.39 18.07 5.97 5.65 7.42 24.78 34.43 Return on average equity (%) (5.19) 11.12 11.82 23.47 25.14 8.36 7.80 9.77 31.81 49.51 Current ratio (x) 1.93 3.24 3.54 3.21 2.83 2.04 1.68 1.84 2.63 2.19 Debt-to-capital ratio (%) 14.97 11.14 13.29 16.31 18.05 15.14 12.17 10.67 7.15 3.69 Earnings per share (LKR) (12.26) 25.81 25.28 43.87 36.91 9.97 8.62 10.09 27.75 30.37 Net assets per share (LKR) 231.12 241.62 222.51 205.08 168.66 125.01 113.68 107.22 99.34 75.16 Market price per share (LKR) 78.70 114.80 134.60 160.20 144.00 108.00 147.00 150.00 130.00 401.00 Dividend per share (LKR)* – 8.00 6.00 7.50 6.00 2.50 1.25 1.50 4.00 4.00 Price earnings ratio (x) – 4.45 5.32 3.65 3.90 10.83 17.06 14.86 4.68 13.20 Price to book value (x) 0.34 0.48 0.60 0.78 0.85 0.86 1.29 1.40 1.31 5.34 Dividend yield (%) – 6.97 4.46 4.68 4.17 2.31 0.85 1.00 3.08 1.00 Dividend payout (%) – 31.00 23.73 17.10 16.26 25.07 14.51 14.86 14.41 13.17

*Dividends per share – based on the dividends declared for the financial year

Bairaha Farms PLC Annual Report 2019/20 147 Key Financial Ratios and Financial Terms Supplementary Reports

Financial performance Financial position and cash flow Gross profit Gross profit for the year management = margin Revenue for the year Total borrowing from bank as at the Debt to year end Gross profit is revenue – Cost of sales which represents = direct cost of production in farms and factories in capital Total capital which includes deriving a saleable product to the end customer which is shareholders’ funds and borrowings day-old chicks or chicken meat. from the bank

Operating profit for the year Current Current assets at the year end Operating = = profit margin Revenue for the year ratio Current liabilities at the year end Operating profit is gross profit less sales and distribution Liquid current assets which excludes expenses and administration expenses adding up any Quick stocks and dues related party dues operating income. = ratio Current liabilities at the year end Share of profit from joint venture is the percentage share of the net profit generated from joint venture operations Working Revenue proportionate to the investment amount made. Capital = turnover Year end working capital which is calculated as total stocks including Net profit after tax including profit biological assets classified under current Net profit from joint venture operations assets plus trade receivables minus trade margin = Revenue payables

Net profit after tax Return on = equity Average equity Shareholder returns Net profit after tax for the year Average equity is the average equity figure (on Book Earnings = Value basis) between last year and current year. per share Total shares as at year end

Dupont analysis on ROE is a method use to analyse Net book value Total equity value ROE into its main components net profit margin, = per share Financial leverage and asset turnover. Total shares at the year end

Market price per share Financial Total assets Price earnings = = ratio leverage Total equity Earnings per share (Based on average method between last year and Market price per share current year) Price to book = value ratio Net book value per share Revenue Asset turnover = Per share dividend declared for the year Average assets Dividend = payout Earnings per share Return on Net profit after tax = assets Dividend Per share dividend declared for the year Average of total assets between last = year and current year yield Market price per share

148 Bairaha Farms PLC Annual Report 2019/20 Notice of Meeting Supplementary Reports

NOTICE IS HEREBY given that the Forty-Fifth Annual General Meeting of Bairaha Farms PLC will be held in the Auditorium, Sri Lanka Foundation, 100, Padanama Mawatha, Independence Square, Colombo 7 at 11.00am on Thursday the 29th October 2020 for the following purposes: 1. To pass the ordinary resolution set out below to appoint Desamanya Prof M T A Furkhan who is 85 years of age, as a Director of the Company; “IT IS HEREBY RESOLVED THAT the age limit stipulated in Section 210 of the Companies Act No. 07 of 2007 shall not apply to Desamanya Prof M T A Furkhan who is 85 years of age and that he is hereby appointed a Director of the Company in terms of Section 211 of the Companies Act No. 07 of 2007” 2. To receive and consider the Annual Report of the Board of Directors on the Affairs of the Company and the financial statements for the year ended 31st March 2020 and the Report of the Auditors thereon. 3. To re-elect as a Director Mr Riyal Yakoob, who retires by rotation in terms of Articles 87 and 88 of the Articles of Association of the Company. 4. To re-elect as a Director Prof H Abeygunawardena, who retires by rotation in terms of Articles 87 and 88 of the Articles of Association of the Company. 5. To authorise the Directors to determine donations for the ensuing year. 6. To re-appoint Messrs Ernst & Young, Chartered Accountants as Auditors of the Company and to authorise the Directors to determine their remuneration.

By Order of the Board, Bairaha Farms PLC

(Sgd.)

P W CORPORATE SECRETARIAL (PVT) LTD. Director/Secretaries 16th September 2020 Colombo

Notes: 1. A member is entitled to appoint a proxy to attend and vote instead of himself/herself and a proxy need not be a member of the Company. 2. A Form of Proxy is enclosed herewith for this purpose. 3. The instrument appointing a proxy must be deposited at the Registered Office of the Company, 2nd Floor, No. 407, Galle Road, Colombo 3 not less than forty-eight hours before the time fixed for the Meeting. The envelope in which the Proxy Form is enclosed must be marked with the words “Annual General Meeting” on the top left hand corner of the envelope, and the envelope must be addressed to Secretaries, Bairaha Farms PLC, 2nd Floor, No. 407, Galle Road, Colombo 3. 4. Shareholders/Proxy holders attending the Meeting are requested to bring their National Identity Cards and post the Attendance Notification Card (Business Reply Card) enclosed herewith to the Company to reach them not less than forty-eight hours before the time fixed for the Meeting.

Bairaha Farms PLC Annual Report 2019/20 149

Form of Proxy

I/We* ...... …………………………………………………… ...... ……………………………………....……………… of ………………………………………………………………………………………………………………...………… ………………………………………………………………………………………………....………………...………… being a shareholder/s* of Bairaha Farms PLC hereby appoint:

1. …………………………………………………….………………………...... …………………..…………....……… of ……………....……………………………………………………………………………………………..………… ………………...... ……………………………………………………………………………………...….………… bearing National Identity Card No. …...... …………………………………………………….……… or failing him,

2. Chairman of the Company or failing him one of the Directors of the Company as my/our* proxy to represent, speak and vote for me/us* and on my/our* behalf at the Forty-Fifth Annual General Meeting of the Company to be held on 29th October 2020 at 11.00am and at any adjournment thereof and at every poll which may be taken in consequence thereon.

For Against 1. To appoint Desamanya Prof M T A Furkhan who is 85 years of age as a Director of the Company pursuant to the provisions of the Companies Act No. 07 of 2007

2. To re-elect as a Director Mr Riyal Yakoob, who retires by rotation in terms of Articles 87 and 88 of the Articles of Association.

3. To re-elect as a Director Prof H Abeygunawardena, who retires by rotation in terms of Articles 87 and 88 of the Articles of Association.

4. To authorise the Directors to determine donations as they think fit during the year ending 31st March 2021 and up to the date of the next Annual General Meeting.

5. To re-appoint Messrs Ernst & Young, Chartered Accountants as Auditors of the Company and to authorise the Directors to determine their remuneration.

In witness my/our* hands this ...... day of ...... Two Thousand and Twenty. * Delete whichever is inapplicable.

...... Signature of shareholder/s*

Notes: 1. A proxy need not be a member of the Company. 2. Instructions as to completion of Form of Proxy appear overleaf.

Bairaha Farms PLC Annual Report 2019/20 Form of Proxy

Instructions for completion 1. This Form of Proxy must be deposited at the Registered Office, 2nd Floor, No. 407, Galle Road, Colombo 3 not less than forty-eight hours before the time fixed for the Meeting. The envelope in which the Form of Proxy is enclosed must be marked with the words “Annual General Meeting” on the top left-hand corner of the envelope, and the envelope must be addressed to Secretaries, Bairaha Farms PLC, 2nd Floor, No. 407, Galle Road, Colombo 3. 2. In perfecting the Form of Proxy please ensure that all details are legible. 3. If you wish to appoint a person other than the Chairman (or failing him, one of the Directors) as your Proxy please insert the relevant details. 4. Please indicate with an “X” in the space provided how your Proxy is to vote on each resolution. If no indication is given, the Proxy in his/her discretion will vote as he/she thinks fit. 5. In the case of a Company/Corporation the Proxy must be under its Common Seal, which should be affixed and attested in the manner prescribed by its Articles of Association. 6. In the case of a proxy signed by an Attorney, the original Power of Attorney must be deposited at the Registered Office for registration. 7. In the case of joint holders the Form of Proxy must be signed by the first holder.

Bairaha Farms PLC Annual Report 2019/20 Corporate Information

Company Name Secretaries and Registrars Bairaha Farms PLC P W Corporate Secretarial (Pvt) Ltd. No. 3/17, Kynsey Road, Colombo 8 Company Registration Number Telephone: +94 11 464 0360 PQ 122 Main Bankers Legal form Amãna Bank PLC Public Limited Liability Company No. 365, Galle Road, Colombo 3

Registered Office MCB Bank Ltd. No. 407, 2nd Floor, No. 8, Leyden Bastian Road, Galle Road, Colombo 3 Colombo 1 Telephone : +94 11 257 5255 Telefax : +94 11 257 5256 Hatton National Bank Website : www.bairaha.com No. 502/1A, Colpetty Road, Marine Drive, Email : [email protected] Colombo 3

Directors Bank of Ceylon Desamanya Prof M T A Furkhan – Chairman Corporate Branch, No. 04, Bank of Ceylon Mawatha, Mr Yakooth Naleem – Managing Director/ Colombo 1 Chief Executive Officer Mr Riyal Yakoob – Executive Director Mr C L de Silva – Non-Executive Director Mr Kamil Naleem – Executive Director Mr Mubarak Naleem – Executive Director Prof H Abeygunawardena – Non-Executive Director Mr M I Wahid – Executive Director

Auditors Messrs Ernst & Young, Chartered Accountants, No. 201, De Saram Place, Colombo 10

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