Achieving New HEights SERENDIB HOTELS PLC | ANNUAL REPORT 2012/13

SERENDIB HOTELS PLC ANNUAL REPORT 2012/13 www.serendibleisure.com CORPORATE INFORMATION

NAME OF THE COMPANY MANAGING AGENT Serendib Hotels PLC Serendib Leisure Management Ltd. Contents LEGAL FORM AUDITORS 3 Our Vision, Mission and Core Values A Public Quoted Company with Limited Ernst & Young 4 Financial Highlights (Group) Liability incorporated on 9 September Chartered Accountants 6 Serendib Leisure Properties 1966 under the Companies Ordinance 201, De Saram Place, No. 51 of 1938 (Cap 145) and 10. 10 Chairman’s Message re-registered under the Companies 12 Managing Director’s Review Act No. 7 of 2007. BANKERS 15 Board of Directors Commercial PLC 20 Senior Management COMPANY REGISTRATION NO PLC 24 Management Discussion and Analysis PQ 223 30 Hotel Management HOTEL 36 Sustainability Report BOARD OF DIRECTORS Avani Bentota Resort & Spa 41 Risk Management A.N. Esufally – Chairman Bentota (Alt V.H.A. Perera) Tel : + 94 (34) 2275353 46 Corporate Governance D.T.R. De Silva – Managing Director Fax : + 94 (34) 2275313 57 Report of the Remuneration Committee J.C.L. De Mel 58 Annual Report of the Board of Directors H.N. Esufally - (Alt. Ms. K.A.C. Wilson) 62 Directors’ Interest in Contracts with the Company W.M. De F. Arsakularatne 65 Report of the Audit Committee Prof. L.D.K.B. Gamage E.J.D. Rajakariar Financial Reports M.A. Jafferjee 68 Statement of Directors’ Responsibility in Relation to R.N. Athukorala Preparing Financial Statements REGISTERED OFFICE 69 Independent Auditor’s Report Level 5, Hemas House, 70 Statement of Financial Position 75, Braybrooke Place, Colombo 02. 71 Income Statement Tel : +94 (11) 4790500-6 72 Statement of Comprehensive Income Fax : +94 (11) 2438933 73 Statement of Changes in Equity (Group) E-mail: [email protected] 74 Statement of Changes in Equity (Company) Website: www.serendibleisure.com 75 Cash Flow Statement 76 Notes to the Financial Statements SECRETARIES & REGISTRARS Hemas Corporate Services (Pvt) Ltd. Level 9, Hemas House, Supplementary Information 75, Braybrooke Place, Colombo 02 128 Investor Information Tel : + 94 (11) 4731731 132 Ten Year Financial Review (Group) Fax : +94 (11) 4731777 133 Notice of Meeting 135 Form of Proxy IBC Corporate Information

Produced by Copyline (Pvt) Ltd Printed by Printel (Pvt) Ltd Achieving New HEights After completing a successful year that saw us moving towards our goal of excellence, we at Serendib Hotels PLC are dedicated to being a leader in hospitality. Achieving record breaking levels of profitability, we are proud to state that our commitment and enthusiasm in providing the best has proved to be a success in the year under review. This has been augmented through the exceptional trust placed in us by our stakeholders that we have rewarded and we will continue to do so in the years ahead... 2 Serendib Hotels PLC I Annual Report 2012/13 OUR VISION “To be a leading Hotel Group in the country operating lifestyle properties with a Sri Lankan flavour”

OUR MISSION | Create experiences to write home about by exceeding the expectations of Our Guests at all times | Our People will be treated with respect, dignity and fairness | We will improve The Community we work in and obtain their co-operation to support our industry | We will strive to deliver superior returns to Our Shareholders

OUR CORE VALUES | Concern for People | Passion for Customers | Obsession for Performance | Driven by Innovation

Serendib Hotels PLC I Annual Report 2012/13 3 FINANCIAL HIGHLIGHTS (GROUP)

Year ended 31 March 2013 2012

Revenue Rs. 000’s 1,447,478 1,047,460 Earnings before Interest, Tax, Depreciation & Amortisation (EBITDA) Rs. 000’s 550,071 236,397 Profit before Tax Rs. 000’s 431,422 111,846 Profit after Tax Rs. 000’s 365,809 91,261 Profit Attributable to Equity Holders of the Parent Rs. 000’s 270,123 40,874 Earnings per Share Rs. 000’s 2.4 0.4 Cash Earnings per Share Rs. 4.4 1.9 Interest Cover Times 11 3 Return on Equity (ROE) % 16 5 Return on Capital Employed (ROCE) % 12 4

Balance Sheet Highlights and Ratios Total Assets Rs. 000’s 3,887,831 3,143,647 Total Debt Rs. 000’s 1,211,902 801,190 Total Shareholders’ Funds Rs. 000’s 2,265,994 1,933,285 Number of Shares in Issue 000’s 111,526 111,526 Net Assets per Share Rs. 20 17 Debt / Total Equity % 53 41 Debt / Total Assets % 31 25

Market/ Shareholder Information Market Price of Share Rs. 23.7 24.8 Market Capitalisation Rs. 000’s 2,412,691 2,438,139 Price Earnings Ratio Times 9.8 65.2

4 Serendib Hotels PLC I Annual Report 2012/13 Rs. 1,447Mn Growth 38% Revenue 2012: Rs. 1,047Mn

Rs. 556Mn Growth 88% Gross Operating Profit 2012: Rs. 296Mn

Rs. 431Mn Growth 286% Profit Before Tax 2012: Rs. 112Mn

Rs. 616Mn Growth 116% Cash Generated from Operations 2012: Rs. 286Mn

Earnings per Share Net Assets per Share Market Price per Share Rs. Mn Rs. Mn Rs. Mn 3.00 25.0 40.0

20.0 2.00 30.0 15.0 1.00 20.0 10.0 0.00 10.0 5.0

-1.00 0 0 08/09 09/10 10/11 11/12 12/13 08/09 09/10 10/11 11/12 12/13 08/09 09/10 10/11 11/12 12/13

Serendib Hotels PLC I Annual Report 2012/13 5 serendib leisure properties

One of the leading hotel groups in , Serendib Leisure has built up a sound reputation as a renowned operator of some of the most unique hotel brands in the island, underscored by a sustainable tourism philosophy.

The Serendib Leisure Group’s hospitality offerings encompass the island’s key attractions: beach, jungle and lagoon. Each property is known for its stunning architecture, strategic location and excellent service.

Avani Bentota Resort & Spa, Avani Kalutara Resort, Club Hotel Dolphin and Hotel Sigiriya are popular holiday destinations in themselves and the clientele is multi-cultural and hails from many countries in the world. Serendib Leisure hotels are nationally and internationally acclaimed for their skilled culinary teams and an extremely professional service staff that goes the extra mile to make our guests feel special and cared for.

6 Serendib Hotels PLC I Annual Report 2012/13 Designed by world-renowned architect Geoffrey Bawa, who took inspiration from an 18th century Dutch village to create this home-away-from-home. Located on one of the best beaches on the Southern Coast, this resort is an escape of laid back relaxation.

Situated in close proximity to the airport, Club Hotel Dolphin is the only hotel in Sri Lanka to offer the best of both worlds! Be it an adventure-filled holiday or a chilled out one, Club Hotel Dolphin provides fun, adventure and relaxation for the entire family.

Located at the foot of the magnificent Sigiriya Rock Fortress, this charming but rustic hotel has been in the forefront in energy conservation and has been offering unique cultural experiences to guests for decades.

Nestled in an estuary, where the majestic meets the Indian Ocean, AVANI Kalutara Resort blends authentic Sri Lankan culture and old colonial charm with contemporary design flair and all the ingredients that really matter for a quiet romantic holiday.

Serendib Hotels PLC I Annual Report 2012/13 7 ACHIEVING NEW HEIGHTS

8 Serendib Hotels PLC I Annual Report 2012/13 As you relax near the blue waters of Bentota, we offer a range of tempting activities that invigorate and unwind. Revel in the ambiance of escape encapsulated in a hotel designed by Geoffrey Bawa in the style of an 18th Century Dutch village, and experience true Sri Lankan hospitality.

Serendib Hotels PLC I Annual Report 2012/13 9 CHAIRMAN’S MESSAGE

provides the largest share of visitors to our shores. This trend will require our industry to re-engineer itself to meet the changing requirements of the travellers from these markets.

Your Management is using their binoculars to look into the future and align their marketing strategies to the future trends to ensure they continue to deliver high occupancies and yields at your hotels.

Sri Lanka’s Tourism With mounting accolades, Sri Lanka is attracting the world’s attention as a I am delighted to welcome you to the 45th Annual General Meeting prime travel destination with over a million of Serendib Hotels PLC, particularly as we are reviewing yet tourists arriving in Sri Lanka in 2012. The influx of tourists post-war has continued another record year for your Group of Companies. This excellent resulting in a 17.5% growth in visitor result has been achieved in spite of the challenging economic arrivals in 2012.

environment and volatile exchange rate fluctuations. Sri Lanka’s industry is planned to receive 1.2 Mn visitors in 2013. The first 4 In the calendar year 2012, Sri Lanka’s Western Europe, growth in international months to April reported growth at 11.7% Tourism Industry reached twin milestones tourism is expected to continue in 2013 which is ahead of the monthly plan. – visitor arrivals topped 1 million and at a similar pace led by growth in Asia Coupled with the growth in arrivals, many industry earnings surpassed US$ 1 Pacific. new hotels are being developed across Billion. This boosted the economy as it the country with several international provided valuable foreign reserves and Destinations in Asia Pacific recorded a chains entering the hotel management contributed towards job creation. 6% increase in arrivals and earnings of space. With this comes the added value US$ 323 Bn which accounts for 30% of the branding, international marketing Having become a billion dollar industry, of international tourism receipts. In the and expertise. the tourism sector will continue to play emerging economies, the highest receipts an integral role towards the country’s were recorded by Thailand (+25%) and The year under review saw your Associate fortunes and her macro-economic plans. India (+22%). Company, Avani Kalutara being fully refurbished at a cost of approximately Global Tourism Landscape While demand from the traditional Rs. 600 Mn. It reopened its doors for World travel continued its forward markets remain stagnant, the emerging operation in November 2012. As you are march in 2012. International tourism economies are proving to be an attractive already aware Avani Bentota (formerly receipts grew 4% to US$ 1,075 Bn and tourism market. Growth is expected to be Hotel Serendib) was fully refurbished last international tourist arrivals also grew by fuelled from the BRIC nations with China year. This is in line with the Group’s vision 4%, reaching 1,035 Mn travellers across leading the way. The Russian Federation of improving the standards and facilities the world. In spite of the challenging has risen to the Number 5 position in provided at your hotels. I am also proud global economic conditions, particularly in international terms. In Sri Lanka, India to announce that Serendib Leisure is the

10 Serendib Hotels PLC I Annual Report 2012/13 first Sri Lankan management company The performance of the subsidiary in environmental and social governance entrusted with managing an International Companies have contributed to the while balancing this with its commercial Brand. success of the Group with Club Hotel objectives. As part of the Group’s Dolphin contributing a PBT of commitment to sustainability, each hotel Sri Lanka has to compete with other well Rs. 230 Mn (up 130%), Hotel Sigiriya aims to enrich the community in which it established and mature destinations in contributing a PBT of Rs. 80 Mn (up 55%) operates. the region. In order to do so, several key and Avani Bentota contributing a PBT of strategic issues need to be dealt with at Rs. 126 Mn (up 267%). In Recognition and Appreciation national level, many of which I highlighted As an unprecedented year for the in last year’s message too; I am delighted to report that these are the Serendib Hotels PLC come to a close, I best ever results achieved by your group would like to thank the Board of Directors • Sri Lanka needs to be branded and both in terms of revenue and profit. of Serendib Hotels PLC for their guidance marketed internationally. Without this, and unwavering support. We look the Sri Lankan Tourism Industry may Importance of Good Governance forward to their continued support in the not achieve its full potential. Your Board of Directors has New Year. • It is vital to carry out international conscientiously ensured that governance promotions in emerging new markets. standards align with best practices and I would like to extend my appreciation In 2012, China has become the functions effectively. The Management’s to the Board of Management headed number one source market in terms actions are guided by high integrity and by Mr. Ranil De Silva whose leadership of tourism expenditure. The Chinese they are committed to establishing a and dedication has been paramount in travellers have taken the number one transparent and accountable framework achieving this year’s record results. slot In terms of arrivals in Thailand that promotes the interests of all and Maldives. stakeholders. I would also like to recognise the • The focus on training and skills formidable effort and dedication of all development of staff at all levels in The Board has established guiding the employees, who again this year the tourism industry needs to be principles and processes which provide demonstrated their commitment and accelerated to meet the requirements a framework for the effective governance passion to serve our customers. I express of the discerning traveller. of the Group which are listed in detail in my sincere gratitude to them all. • The administrative process for the Corporate Governance section of this approval of construction of hotels report from page 46 to 56. They continue We remain committed to delivering value and tourist establishments need to ensure that governing mechanisms to all stakeholders as we move forward to be further simplified to attract and standards are current and conform in our vision to become a leading hotel international and local investors to to best practices. group in Sri Lanka. invest in the tourism industry in Sri Lanka. Sustainable Tourism • The protection and preservation of The need for sustainable tourism has our nation’s tourism assets is critical become more pressing in order to for the sustainability of the industry. preserve the nation’s natural assets. A.N. Esufally Your management is committed to green Chairman Group Performance concepts and have strategically planned The key highlights are:- hotel operations to leave a minimum 21 May 2013 Turnover Rs. 1,447 Mn Up 38% ecological footprint. Gross Operating Rs. 556 Mn Up 88% Profit (GOP) The Management continues to integrate Profit Before Tax Rs. 431 Mn Up 286% sustainable practices to all facets of hotel (PBT) operations by adopting best practices

Serendib Hotels PLC I Annual Report 2012/13 11 Managing director’s review

East which compensated for the downturn normally experienced during the off-season and ensured consistently high occupancy all year round.

We have identified that web based marketing will be the future of the hospitality trade and thus, will form an important part in our strategy to improve RevPar. This year, over 10% of our group-wide sales were generated via popular OTAs (On-Line Travel Agents), and our own web site. We will continue to invest in developing and improving our web presence, both as a distribution Since the post war resurgence of we saw channel, as well as a medium for reputation management. the full potential of our group of hotels for the first time during the year under review. Hence, it gives me great pleasure to present Another element that strengthened our this Annual Report to announce a year of record profits for your bottom line is the many control measures company, undoubtedly the best in its history. we have adopted to minimise waste and contain our costs through sustainable practices. We completed the automation It has been our philosophy to upgrade Performance Review of all our hotels in the current year. This our hotels since the dawn of peace in The benefits of our strategy was clearly has improved the relevance and the 2009, to meet the expectations of the evident in the current financial year with integrity of data, as well as the speed of new breed of travellers and cater to Group revenue increasing by 38% to response and service to our guests. their challenging demands. We believe Rs. 1.4 Bn, while profit before tax that the only justifiable way to attract increased by an astounding 286% to As much as we are pleased with our better room rates and occupancy is by Rs. 431 Mn, from the previous year. performance in 2012/13, we believe it is upgrading both the infrastructure and The three properties consolidated in only the beginning of our journey. the service standards in the hotels we our financial results; Avani Bentota operate. As such, we embarked on Resort & Spa, Club Hotel Dolphin and Our Differentiation investing in refurbishment programmes Hotel Sigiriya, reported exceptional Our hotels are renowned for their unique in our hotels, which necessitated the growth in RevPar (Revenue per Available architecture which complements the closure of Club Hotel Dolphin in 2010 Room), which was also the result of our scenic locations they are situated in. and Avani Bentota in 2011. In the current strategies in developing new markets Yet, we strive to differentiate our hotels year, we refurbished and rebranded Avani and new distribution channels. In fact, it with great F&B experiences and superior Kalutara Resort (formerly known as Kani was encouraging to note the significant service to our guests. To this end, our Lanka) to enhance its guest offering. increase of visitors from non traditional partners, Minor International of Thailand markets, such as India and the Middle has been highly supportive providing our staff with training and cross exposure

12 Serendib Hotels PLC I Annual Report 2012/13 experiences at their overseas properties. The quality of our staff accommodation at 2013, in time to welcome our winter I am happy to state that our relationship Club Hotel Dolphin is widely recognised guests. with Minor International, the fastest as the benchmark for the industry. In growing hotel chain in Asia, further August 2013, we will open the new staff Our unique property in the Cultural strengthened during the year, with the accommodation building in Bentota, Triangle, Hotel Sigiriya will also undergo launch of the second Avani Hotel in replicating similar facilities and comforts. a Rs. 75 Mn renovation in the new Kalutara. Although the Minor Hotel financial year and will be reopened in Group is more renowned for their flagship Outlook for 2013/14 August 2013, after a short three month brand ‘Anantara’, they opted to launch Although this has been an exceptionally makeover. good year for the Serendib Leisure their second international brand ‘Avani’ Group, year 2013/14 poses many Marketing the Destination with the newly refurbished former Hotel challenges. The rising energy prices, The sharp increase in arrivals in the Serendib in 2011. As such, Serendib coupled with the increase in minimum immediate aftermath of war was due to Leisure is probably the only Sri Lankan wages as stipulated by the Wages the fact that Sri Lanka was previously hotel management company entrusted Board, will disproportionately increase seen as inaccessible during wartime, with the task of managing an international our operating costs. This is in the face and this has added a sense of mystery chain of hotels in the country. of growing concerns that Sri Lanka is to the destination. As a nation, we need perceived as an over-priced destination to market this sense of discovery by Our People compared to other popular regional bringing alive the mystique and creating a Success in the hospitality industry is tourism destinations. This is evident from destination that offers value to a greater dependent on the quality of service the tapering number of tourist arrivals to cross-section of travellers. Sri Lanka offered. That is why our people are a the country. has a distinct advantage in this, because vital component of the business mix. as a destination, we offer a myriad of Hence, we plan to strengthen our focus On a positive note, it is comforting experiences within a compact space. I on training and skills development of our that at least the ease of access to the believe that the possibilities are endless, employees, by drawing on the synergies destination may be addressed by more if Sri Lanka is branded well and marketed of our partnership with the Minor Hotel airlines flying to the country. British collectively. Group. Airways resumed flights to Sri Lanka in April and Turkish Airlines is also expected Clearly, we need to grow the hotel We are committed to creating the right to follow suit. inventory at a controlled pace and protect atmosphere for our people to work with our unique culture, while ensuring that pride, happiness and enthusiasm, which This year, we will continue our programme our environment and natural assets will reflect in the high standard of service to upgrade and improve our existing remain protected. Essentially, we hotels. At Club Hotel Dolphin, we are should pursue long-term goals aimed and the genuine hospitality extended investing a further Rs. 500 Mn to refurbish at sustainable tourism, as opposed to to our guests. With the guidance from 100 rooms, improve banqueting facilities seeking short-term gains. The advent of our parent company, , and add more dining options. This more International brands will play a dual which ranks highly on the list of most refurbishment will affect the operation of role in this positioning. On the one hand, respected organisations, we will continue the Hotel for six months from May 2013 they will uplift the industry standards, our activities to improve employee and will temporarily reduce room capacity and on the other hand, they can create a engagement as it will lead to higher staff in the new financial year. We expect comfort zone for international investors, satisfaction and motivation. to re-open at full strength in November thereby, catalysing further investment.

Serendib Hotels PLC I Annual Report 2012/13 13 Managing director’s review Contd.

Future Plans home and return to us every year. I also Despite the stagnant economy in the express my gratitude and appreciation Eurozone, world tourism trends indicate for the visionary guidance and support of that tourism will continue to grow in spite the Chairman and Board of Directors of of the state of the economy, as tourism Serendib Hotels PLC and its subsidiaries, has now become a basic need rather and the commitment of the management than a luxury. Therefore, even though our and staff of our hotels. Their collective traditional European markets have slowed efforts have made it possible to achieve down, we anticipate a gradual recovery such successful results during the year over the next few years. It is our intention under review. Last but not least, I extend to position ourselves to meet this future my gratitude to our shareholders, for demand by investing in new capacity at their confidence in the management the present time. Consequently, the year and supporting our growth plans. I look 2013/14 will be a year of ‘Investing for forward to the continued support of all growth’. our stakeholders in our journey to make Serendib Leisure a key player in To expand our capacity, we plan to Sri Lanka’s leisure sector. invest approximately US$ 75 Mn on constructing three new, internationally branded hotels, in the popular southern coast of Sri Lanka. In collaboration with our partners, the Minor Hotel Group, D.T.R. De Silva we will commence construction of Managing Director two high-end, five-star resort hotels in Tangalle and Kalutara, under the 21 May 2013 revered ‘Anantara’ brand with a collective inventory of almost 300 keys. We also plan to introduce another ‘Avani’ Hotel in Sri Lanka by constructing a 64-key resort, in Ambalangoda. Given the brand strength of both Anantara and Avani, I am confident that both hotels will add to the versatility of the Serendib Leisure portfolio. All three hotels are expected to open to guests by early 2015.

Appreciations First and foremost, I extend my warmest regards to our customers, and make a special mention of our guests that treat our hotels as their home-away-from-

14 Serendib Hotels PLC I Annual Report 2012/13 BOARD OF DIRECTORS

1 2 3

4 5 6

7 8 9

Serendib Hotels PLC I Annual Report 2012/13 15 BOARD OF DIRECTORS Contd.

1. A.N. Esufally 3. J.C.L. De Mel 5. W.M. De F. Arsakularatne Chairman Independent Director Non Executive Director Appointed to the Board in 1994 and Appointed to the Board in 2002. Has a Appointed to the Board in 2007. elected Chairman of the Company in Master of Arts Degree from Cambridge Mr. Arsakularatne functions as the Chief 2003. He is a Fellow of both the Institute University, UK. and the AMP Harvard Financial Officer of Hemas Holdings PLC. of Chartered Accountants of England Business School USA. He counts over 40 He is also a member of the Board of & Wales and The Institute of Chartered years of Board experience having served Management of Hemas Holdings PLC. Accountants of Sri Lanka. He has as a Director of several companies in He has been part of the Hemas Group experience of over 35 years in the hotel Sri Lanka and abroad. Presently he for the past 9 years and has over 9 years and tourism sector both in Sri Lanka and serves as Chairman of Hemas Holdings experience in the fund management overseas and has been in the forefront PLC and First Capital PLC. industry. Mr. Arsakularatne is a CFA of the leisure industry in Sri Lanka. He charterholder and Fellow Member of is also the Honorary Consul General of He has served most of his career at the Chartered Institute of Management Bhutan in Sri Lanka and an All Island Reckitt Benckiser PlC. UK (a FT 100 Accountants (CIMA) U.K. He also holds Justice of the Peace. Other directorships Company) and was a main Board a MSc in Investment Management from include Hemas Holdings PLC, Dolphin Director. He was also a Director CDC the Cass Business School, U. K., a BSc Hotels PLC, Hotel Sigiriya PLC, Printcare PLC, the UK Government arm for in Computer Science & Engineering from PLC, Mahaweli Reach Hotels PLC, Royal investing in developing countries. In Sri the University of Moratuwa, Sri Lanka Palms Beach Hotels PLC and several Lanka he has served as the Chairman and a Postgraduate Diploma in Marketing other companies. of the Board of Investment and the from the Chartered Institute of Marketing Chairman of Sri Lanka Telecom PLC and (CIM), U.K. Other directorships include 2. D.T.R. De Silva was a Senior Advisor Ministry of Finance. Hotel Sigiriya PLC , Dolphin Hotels PLC, Managing Director He is also a Trustee of the Cambodia Hemas Power PLC and several other Appointed as the Managing Director of Trust UK. companies. Serendib Hotels PLC in 2010. He is also a Director of Dolphin Hotels PLC and Hotel 4. H.N. ESUFALLY 6. Professor L.D.K.B. Gamage Sigiriya PLC. He is a Fellow Member of Non Executive Director Independent Director the Chartered Institute of Management Appointed to the Board in 2003. Appointed to the Board in March 2008. Accountants UK, Associate member of Serves as the Chief Executive Officer of The President & CEO of the Sri Lanka the Institute of Chartered Accountants of Hemas Holdings PLC. Mr. Esufally was Institute of Information Technology. An Sri Lanka and a Member of the Chartered appointed as a member of the Board Adjunct Professor of the University of Institute of Marketing UK. He began his of Management of the Postgraduate British Columbia, Canada and also at the career at Ernst & Young and has worked Institute of Management in March this Curtin University, Australia, is serving the overseas with a multinational for 10 years. year. Has over 28 years of management IT industry and the Government of Sri Mr. De Silva has wide experience locally experience and holds a Bachelor of Lanka in such capacities as Chairman, in diverse industries having previously Science (Honours) degree in Electronics Arthur C. Clarke Institute for Modern held the position of Group CEO of the from the University of Sussex, U.K. Other Technologies (ACCIMT), Chairman, Lanka DCSL Group. directorships include Hemas Holdings Software Foundation (LSF), Advisory PLC, Hemas Power PLC and several Board Member of Sri Lanka Association other companies. of Software and Service Companies (SLASSCOM) and has also served these

16 Serendib Hotels PLC I Annual Report 2012/13 sectors as the Chairman of the ICT Currently, on an honorary basis, he He has a Masters in Business Cluster, the Executive Director of Sri serves the country as the Chairman of the Administration, U.K. He is also a Lanka Export Development Board and Tea Cluster-Ministry of Industries, Board Member of UK Institute of Management Chairman of the IT Task Force, Ministry Director-Sri Lanka Export Development Information Systems (MIMIS), Associate of Enterprise Development. An Electronic Board, Industrial Development Board Member of British Association of Hotel and Telecommunication Engineering of Ceylon and Tea Board Marketing Accountants (ABAHA), Member of graduate from Moratuwa University, Committee. He is Board Member of the Association of Computer Professionals holds a Master’s degree in Information Mother Sri Lanka Trust at the President’s (MACP), Member of Association of Technology from De Montfort University, Office and the Senior Advisor to the Business & Administrative Computing, UK and PhD in Artificial Intelligence and Minister of Industry and Trade. In 2012 UK (MABAC) and Member of the Institute Computer Vision from University of British he was appointed to the sovereign rating of Directors (IOD). Columbia, Vancouver, Canada. team of the Central Bank of Sri Lanka. 9. M.A. Jafferjee 7. R.N.A. Athukorala A sought after columnist in the local Independent Director Independent Director and international media on business Appointed to the Board in 2010, he is Appointed to the Board in 2010. He is the and leadership, he has been invited to the CEO of JB Securities Ltd. and has Head of National Portfolio Development address many global conferences such 20 years of industry experience in the for Sri Lanka & Maldives for United as Asian Development Bank-Manila, stock market in Sri Lanka. He serves on Nations (UNOPS). He has twice been The Global CEO Summit-New York, the Board of as an rated for outstanding performance and and the Middle Eastern Tea and Coffee Independent Director and on the Board is a recipient of the UNOPS 1st global conference in Dubai. of So Others May See (SOMS) – a not Merit award on the setting up of the first for profit organisation. He is the current Industrial Zone in the North of Sri Lanka Mr. Athukorala has a double degree advocacy chair for CFA Sri Lanka, the in Atchchuvely. in Marketing, MBA and is reading local member society of the CFA Institute. for his Doctoral degree in Business He also served on the Board of the In his tenure of 17 years in top Administration. He is an alumnus of the Colombo from August multinationals Reckitt, Lever and University of Harvard(Boston). 2007 to July 2009. JohnsonDiversey in brand marketing and country management he has twice 8. Mr. E.J.D. Rajakarier He has a Bachelors Degree in Mechanical been awarded the Marketing Achiever Non Executive Director Engineering and Computer Science from award in Sri Lanka, Business Achiever Appointed to the Board in 2010. the University of NSW, Australia and a award from the Alumni PIM, University Mr. Dillipraj Rajakarier is the Chief Masters in Financial Economics from of Sri Jayewardenepura and a Global Operating Officer of Minor International the University of Colombo. He is also a Leadership award from JohnsonDiversey. Public Company Ltd. and Chief Executive Chartered Financial Analyst (CFA). He was the 8th Chairman Sri Lanka Officer- Minor Hotel Group. He also Export Development Board and the 1st served as the Deputy Chief Financial Executive Director of the Government’s Officer of Orient- Express Hotels, Trains & Economic Council (NCED) under the Cruises and Group Financial Controller of when Sri Lanka Easi Solutions PLC. crossed six billion rupees in exports and GDP registered at seven percent.

Serendib Hotels PLC I Annual Report 2012/13 17 ACHIEVING NEW HEIGHTS

18 Serendib Hotels PLC I Annual Report 2012/13 Merging the ideas of play and pause, Club Hotel Dolphin is the perfect getaway for all those who seek peace as well as adventure. For families and individuals alike, this hotel offers the opportunity to have a fun-filled holiday that combines the best of both worlds.

Serendib Hotels PLC I Annual Report 2012/13 19 SENIOR MANAGEMENT

20 Serendib Hotels PLC I Annual Report 2012/13 1. Ranil De Silva 4. Sanjika Perera Managing Director Director – Business Development and Refer to Board of Directors Profile on Projects page 16. He possesses extensive Branding, Marketing and General Management 2. Ronald Perera experience in diverse sectors such as Director / Consultant Employee FMCG, Retail, B2B and Service Sectors Relations and Admin in and Western Europe Ronnie, as he is commonly known, is during a career spanning 19 years. arguably the most senior hotelier still He last served as the Director – UK serving the industry, since 1968. In 1996, and Ireland for Sri Lanka Tourism. He he joined the Serendib Group as Hotel read for his MBA at The Postgraduate GM and after obtaining certification from Institute of Management, University of the Institute of Personnel Management, Jayewardenepura. He is a Fellow of the shifted to corporate office to head human Chartered Institute of Marketing and resources and administration. He has a Chartered Marketer. He is a Board previously served in various capacities Member of CIM – Sri Lanka Regional at resort belonging to the John Keells Office, where he currently serves as the Group, including Hotel Ceysands, Vice-Chairman to the CIM Sri Lanka Hotel Bayroo (now Chaaya Bey) and Regional Board. Hotel Swanee. He was instrumental in formulating the Beruwala Hoteliers 5. Suranjith De Fonseka Association in 1982 and was a member Director – Sales and Marketing of the classification committee appointed He has over 10 years of industry related in 1985 by the then Ceylon Tourist Board experience and holds a B.A. (Hons) to evaluate and recommend changes to Degree in Business Administration from the criteria of star class hotels. Nottingham Trent University, UK and an MBA from the Postgraduate Institute 3. Indresh Puvimanasinghe Fernando of Management at the University of Director – Finance Jayewardenepura. He is a Sri Lankan Joined the Transportation sector of prize winner and Member of the the Hemas Group in 2006 and moved Chartered Institute of Marketing – UK and to the hotel sector in 2011. A fellow of is a Chartered Marketer. the Chartered Institute of Management Accountants UK, she counts for over 17 years of experience in the accounting 2 4 profession in diverse sectors such as Financial services, Inbound travel, 1 3 5 Telecommunications and Outbound travel.

Serendib Hotels PLC I Annual Report 2012/13 21 Beneath the 8th wonder of the world, Hotel Sigiriya offers a taste of culture and nature in a setting that is designed to create rest, relaxation and a sense of tranquillity that stays with you long after your holiday.

22 Serendib Hotels PLC I Annual Report 2012/13 ACHIEVING NEW HEIGHTS

Serendib Hotels PLC I Annual Report 2012/13 23 MANAGEMENT DISCUSSION AND ANALYSIS

Revenue / Profit Before Tax Rs. Mn 1,500

1,000

500

0 08/09 09/10 10/11 11/12 12/13 Revenue Profit Before Tax

Gross Operating Profit / Rs. Mn Cash Generated from Operations 700 600 500 400 300 200 2012/13 has been a record year for the Serendib Leisure 100 Group both in terms of Revenue and Profits. Revenue of 0 Rs. 1.4 Bn resulted in Gross Operating Profit (GOP) and Profit 08/09 09/10 10/11 11/12 12/13 Gross Operating Profit Before Tax (PBT) for the year of Rs. 556 Mn and Rs. 431 Mn Cash Generated from Operations respectively.

24 Serendib Hotels PLC I Annual Report 2012/13 Financial review Equity / Debt Composition of Revenue 2012/13 (Group) Rs. Mn 2,500 100% Overview of Group Performance Room 65% 2,000 80% 2012/13 has been a record year for the Food & Beverage 30% Serendib Leisure Group both in terms of 1,500 60% Others 5% Revenue and Profits. Revenue of 1,000 40%

Rs. 1.4 Bn resulted in Gross Operating 500 20% Profit (GOP) and Profit Before Tax (PBT) 0 0 for the year of Rs. 556 Mn and Rs. 431 Mn respectively. 08/09 09/10 10/11 11/12 12/13 Equity Debt The Group comprise of Serendib Hotels in revenue is commendable given the stiff Gearing PLC and its subsidiaries Dolphin Hotels competition exerted by both regional and PLC, Hotel Sigiriya PLC and Serendib local peers in the hotel industry and high Leisure Management Ltd. It also has to borrow lower interest bearing foreign inflation regime. an associate investment in Jada Resort currency loans to aid new investments. and Spa (Pvt) Ltd., the owning company This enabled the Group to reduce its The main contributors to the Group of Avani Kalutara Resort. The Group finance costs by 17% compared to revenue were Club Hotel Dolphin currently manages Avani Bentota Resort previous year. accounting for 53%, while Avani Bentota & Spa, Avani Kalutara Resort, Club contributed 28%, followed by Hotel Hotel Dolphin and Hotel Sigiriya with a To be in line with our operational Sigiriya with 17%. It is also positive to consolidated inventory of 410 keys. improvements and increased demand, note that the Group witnessed growth in all our hotels are now equipped with a all areas of its revenue including rooms The year under review, is the first financial fully automated Property Management revenue, food & beverage revenue and year since the end of war that all three System (PMS). This not only has helped other operating areas. of our subsidiary hotels have been fully in the day-to-day operations of the hotels operational throughout the year. Aided but also further improved the internal Profit Before Tax by a welcome increase in tourism into control systems, strengthening good Consolidated PBT witnessed an Sri Lanka, our hotels enjoyed high governance. exceptional rise from last year by 286% occupancy throughout the year. This to Rs. 431 Mn. The increase in revenue enabled the Group to report an average Revenue was due to higher yields and occupancy occupancy of 77% whilst enjoying higher Consolidated revenue increased by an which was a major factor in marking this room rates which saw a healthy increase astounding 38% to Rs. 1.4 Bn during the phenomenal growth. Further, good cost compared to the previous financial year, financial year 2012/13 compared to last management practices adopted by the across the three hotels. The increase in year, with GOP increasing by 88%. This Group and centralising the procurement rates was fully supported by upgraded was boosted by the seasonal peak during process, enabled the Group to improve facilities and services rendered. the last quarter of the financial year, the its GP margin from 74% to 79%. As a increase in web-based sales and by result, the Group witnessed significant In addition, the relaxation of regulations attracting new clientele from the Middle- improvement in the PBT margin from on foreign currency loans during the East during the off peak season between 11% to 30% in 2012/13 compared to previous financial year made it possible May and October. The increase of 38% previous year.

Serendib Hotels PLC I Annual Report 2012/13 25 MANAGEMENT DISCUSSION AND ANALYSIS Contd.

Administrative expense of the Group Cash Generation Long-haul destinations were popular for increased by 26% year-on-year and this The return to full operation of all hotels, Europeans in 2012, with a healthy 4% is mainly due to Avani Bentota which was and the excellent performance of the increase in trips to overseas destinations. in operation for the full financial year in Serendib Leisure Group coupled with Europeans travelled more to the Americas 2012/13 compared to only six months in good working capital management and above all to the Asia Pacific, with 2011/12. In addition, the continued rise resulted in the growth of 116% in Cash the number of trips to the region rising in energy costs also contributed to this Generated from Operations compared to by 8%. The boom market was Russia increase. previous year amounting to Rs. 616 Mn. with a 12% rise in outbound travel as the strong economy and increasing affluence Sales and marketing expenses of the The main contributor to the Cash combined to generate more international Group was at 3% of the Net Revenue. Generated from Operations was Club travel. In contrast, Germany, the largest It is also noteworthy that the Group Hotel Dolphin, which saw a rise by 37% outbound market in Europe, stagnated was able to write back Rs. 7.5 Mn year on year to Rs. 303 Mn, followed by this year despite the stable economy, from its provision for doubtful debts Avani Bentota and Hotel Sigiriya both while UK outbound travel grew by a slight demonstrating the improved efficiency in reporting an increase of 640% and 58% 1% amidst tough economic conditions. debt collection. respectively. The internet has now clearly established Composition of Expenses 2012/13 (Group) Business Environment itself as the main place to buy travel. 54% of all bookings in 2012 were made Key Global Trends through the web, well ahead of travel Cost of Sales 28% In 2012, international tourist arrivals agencies which have slipped back to Administrative 65% increased by 4% reaching 1,035 Mn 24%. Interestingly, this is a global trend Sales & travellers. The growth is equal to the 4% with Asians and South Americans now Marketing 3% increase in international tourism receipts catching up with North Americans and Finance cost 4% which hit a new record in 2012, reaching Europeans. Social media are becoming an estimated US$ 1,075 Bn worldwide in more and more important to help spite of continued economic challenges. consumers plan and enjoy travel as they Asia Pacific showed the highest growth switch to online and mobile technology. In addition to reducing the finance costs across regions with a 7% increase in The dramatic growth of social media by 17%, the Group was also able to arrivals, while Americas achieved the platforms such as Facebook, Twitter and increase its finance income by over 220% highest increase in tourism earnings of an YouTube is increasingly being felt in the to Rs. 40 Mn. In order to achieve the increase of 7%. South Asia witnessed a travel and tourism sector. Consumers are same, the Group Treasury Team used healthy increase of 4.2% in tourist arrivals using technology more intensively than a mix of both short term and long term and an increase of 5.2% in receipts. ever to talk about their holidays, show investments to optimise the returns. pictures and videos, exchange ideas Looking ahead to 2013, world tourism is about possible holiday trips and seek The contribution of the results of expected to show resilience once again opinions and reviews of destinations, the Group’s Associate Hotel, Avani with international trips growing in the hotels, attractions and countless other Kalutara Resort was lower in 2012/13 in 3% range demonstrating that tourism is travel-related activities. About 40% comparison to previous year since it was remarkably stable, despite slow global of travellers say that social network closed for refurbishment for six months. economic growth and the impact of the comments influenced their travel planning Euro-Zone crisis. while 50% actually based their travel plans on other people’s reviews.

26 Serendib Hotels PLC I Annual Report 2012/13 Key travel and tourism trends in in tourism following the end of war has Operational Review Sri Lanka now tapered down from 46% in 2010 Sri Lanka crossed the much awaited to 17% by end 2012. There is also a Avani Bentota mark of one million tourist arrivals in 2012 perception that the country is over-priced Stemming from the Sanskrit word welcoming 1,005,605 visitors to the against regional competitors such as for ‘Earth’ Avani Hotels offer relaxed country, a 17% growth over the previous Thailand, Malaysia and Cambodia. contemporary comfort that fuses year. Despite the economic recession, traditional warmth with modern lifestyle arrivals from traditional Western European essentials. An elegant designer hotel, countries such as Germany, France Tourist Arrivals to Sri Lanka by Month Avani Bentota is known for its gracious and the UK increased during the year architecture modelled according to with arrivals from Germany recording 120 an 18th century Dutch sea side village an increase of 28%, while arrivals from 100 designed by the renowned Architect, the UK and France increased by 8% 80 Geoffrey Bawa. and 17% respectively. Meanwhile new 60 markets continued to strengthen and Thousands 40 In its first full year of operation after India remained the biggest source market 20 refurbishment, Avani Bentota achieved with 176,340 visitors during the year, 0 average occupancy of 67% with a healthy Jul Apr Oct Jan which was a growth of 3%, while visitors Jun Feb Mar Aug Sep Dec Nov May increase in room rates which culminated from Russia, Japan and China also in revenue of Rs. 409 Mn and PBT of Rs. contributed to this growth. 2009/ 2010 2010/ 2011 126 Mn, inclusive of Rs. 55 Mn dividends 2011/ 2012 from its subsidiaries. Cash Generated However, occupancy levels at graded 2012/ 2013 from Operations stood at Rs. 165 Mn establishments dropped by 5% across achieved as a result of the good the country from 75% in 2011 to 70% by performance of the hotel and effective end-December 2012 with Colombo city, working capital management. the South coast, East coast, Hill country Top 10 Markets to Sri Lanka in 2012 and ancient cities all reporting lower levels The hotel has seen a steep increase in of occupancy during the year. India 28% its online reservations with over 15% UK 18% of reservations during the financial The positive effect of the tourism boom Middle East 11% year 2012/13, being generated via the has been felt across many industries Germany 9% internet. Germany remained as the main including infrastructure development France 8% source market with 24% of all bookings and construction, as hotels and resorts Maldives 8% followed by United Kingdom which across the island engage in upgrades Australia 5% contributed 16%. and renovations. Several renowned Canada 5% international hotel and resort chains Avani Bentota obtained the Crescent USA 4% including our partner brand Anantara, rating certifying that the hotel is officially Netherlands 4% Shangri-la, Sheraton and Marriot have compliant with Islamic food and sanitation committed to investing in Sri Lanka. standards. This has made it possible to position the hotels to cater to the However, the rate of growth in arrivals is increasing number of Middle Eastern showing signs of tapering. The sharp rise travellers visiting Sri Lanka.

Serendib Hotels PLC I Annual Report 2012/13 27 MANAGEMENT DISCUSSION AND ANALYSIS Contd.

Club Hotel Dolphin During the current financial year, Lanka Resort, Avani Kalutara Resort, was Club Hotel Dolphin is positioned as an all- Hotel Sigiriya saw an average annual closed in May 2012 for renovations and inclusive club hotel that offers a range of occupancy of 71% dominated by the reopened in October 2012, for the winter sporting and recreational activities for the German, British and French nationals. 2012/13 season. entire family but also allows for time-out Revenue increased by 18% to Rs. 252 Mn and relaxation. This concept has proved during the year, compared to the Recognition of our standards to be extremely popular among the target previous year resulting in PBT to increase The service standards of our hotels groups and during the current financial by 55% to Rs. 80 Mn. Cash Generated were recognised as among the best in year the hotel reported occupancy of from operations was a healthy Rs. 89 Mn. the world by online travel agents and 86%, which is amongst the highest in the Sigiriya is also making its presence felt other awarding bodies. It gives us great country. on the web with a significant number of pleasure to announce that many of these reservations from online sources during awards are based on feedback from Revenue was up by 19% year on year the year. The sustainable practices at the customers who have experienced our amounting to Rs. 765 Mn with PBT hotels have contributed towards lower hospitality or as a result of our sustainable increasing by a staggering 130% to operating costs such as lower energy practices. Rs. 231 Mn. The hotel enjoys strong costs, while ensuring lower environmental patronage from Western Europe, mainly impact. Avani Bentota Germany and the United Kingdom. The • Gold Circle Award by AGODA in hotel has also obtained the Crescent Avani Kalutara Resort 2012, for exemplifying a hotel that rating in order to cater to the Middle- A beautiful coastal hideaway blessed with leads by example in the competitive Eastern travellers. pristine beaches, perfect surf and warm hospitality industry and as a mark of golden sunshine, Avani Kalutara Resort excellence in online distribution. In accordance with our growth strategy, is a heavenly holiday experience that you • TripAdvisor Certificate of Excellence Club Hotel Dolphin closed operations in will never forget. for 2012. May 2013 for a refurbishment programme • Merit Certificate for Energy and as outlined in the Managing Director’s In line to bring the hotel to Avani Water Conservation and Waste Review. brand conformity, during the current Management by the EU Switch Asia financial year Avani Kalutara Resort was Greening Sri Lankan Hotels awards Hotel Sigiriya refurbished at a cost of approximately for 2012. Hotel Sigiriya is located in the vicinity Rs. 600 Mn. Formerly known as Kani of Sri Lanka’s historic Sigiriya Rock Hotel Sigiriya popularly referred to as the eighth wonder • Recognised as one of the Top 25 of the world. As the hotel is built within Group Occupancy Hotels in Sri Lanka, in 2013, by the UNESCO World Heritage Site, we % winning the Travellers’ Choice Award. 100 have taken all precautions to ensure • TripAdvisor Certificate of Excellence, minimum impact on the environment. 80 2012. In fact, Hotel Sigiriya has been in the 60 • Merit Certificate for Energy and forefront of eco friendly practices in the 40 Water Conservation and Waste Sri Lankan tourism sector and remains Management by the EU Switch Asia 20 hugely popular with foreign visitors due Greening Sri Lankan Hotels awards to the growing interest in sustainable 0 for 2012. business practices. 08/09 09/10 10/11 11/12 12/13

28 Serendib Hotels PLC I Annual Report 2012/13 Club Hotel Dolphin focus has always been on customer as the Middle East, Japan, India, China • HolidayCheck Award in both 2013 service, operational excellence and ethical and Russia, while continuing to expand and 2012 for being one of the 99 conduct. Training is also provided in in our traditional markets in Western most popular hotels worldwide in the language proficiency, first aid, leadership Europe. Keeping pace with the growing beach holiday category. and soft skills such as grooming and popularity of online and mobile media, • Travellers’ Choice Award by the personal hygiene. These deliver a two we will develop an integrated platform TripAdvisor traveller review website pronged advantage – enhancing the for mobile and online technologies. Plans 2013. guest experience and satisfying personal are also underway to develop a mobile • TripAdvisor Certificate of Excellence development and knowledge building of friendly website that allows our guests to in 2012. our people. book their accommodation at Serendib • ITS Red Star Award in 2012 for being Leisure hotels via mobile devices. We one of the best and most popular 60 Prospects will also enhance our online presence hotels worldwide. Following the best year in the history of to increase our share of online sales by the Serendib Leisure Group, we are now further enhancing our corporate website Our People investing for the future, with investments and by marketing via online travel agents. The Group has always been committed in more hotels, new markets and to investing in its most valuable asset – provision of new facilities and services. The tourism sector is facing a situation its Human Capital. The development of of rising costs and stringent competition Human Capital is therefore an integral To expand our capacity, we are investing from both local and regional competitors. part of the Group’s sustainable strategy. around US$ 75 Mn to build three branded Increasing energy costs, wages and As Sri Lanka’s leisure industry is faced hotels in the popular southern coast of Sri import tariffs will result in overall increases with a supply shortage of skilled human Lanka. In collaboration with our strategic in operating costs and hotel rates, which resources, Serendib Leisure Hotels too, is partner, Minor International – Thailand, may dampen growth momentum of the grappling with this challenge. Therefore, we are in the process of building two, sector. Amidst this, we are confident of we are gearing towards best practices international five-star Anantara hotels in our strategy to differentiate our properties in managing our human resources as Tangalle and Kalutara along with the third successfully and maintain our market we encourage continuous development Avani hotel in Ambalangoda. The three share. of skills and knowledge of our staff at hotels are expected to be operational all levels. In the current financial year, by early 2015. In addition, we will also In 2012/13 we were determined in we doubled our training budget, which continue to upgrade and improve our “Achieving New Heights”. As we look to re-emphasises our commitment towards existing hotels. We are currently investing the future, we are confident that our goals our people. Along with our partner, Minor around Rs. 500 Mn to upgrade 104 and plans will come to fruition, and that International, we also provided many rooms at the Club Hotel Dolphin and the excellent progress made and results opportunities for cross exposure by around Rs. 75 Mn to give Hotel Sigiriya a delivered, will continue to be a part of our sending our staff abroad to international facelift. Club Hotel Dolphin is scheduled growth trajectory in 2013/14 and beyond. hotels in the Maldives, Dubai and to be fully operational in time for the Thailand to get first hand exposure on winter season of 2013, whilst Hotel industry best practices. Sigiriya will be operational from August 2013. Our training programmes have been conducted by industry experts, both by We will continue our market development local and foreign trainers. Our primary drive by tapping into new markets such

Serendib Hotels PLC I Annual Report 2012/13 29 HOTEL MANAGEMENT

Standing from left : Indika De Silva - Resident Engineer, A.D.G.A. Jayawardane - HR Manager

Seated from left : E.P.D. Zoysa - Community Development & Sales Promotion Manager, Ms. Himali Perera - Front Office Manager, Ms. Sigrid Stelling - General Manager, M.A.S. Samarasinghe - Financial Controller

30 Serendib Hotels PLC I Annual Report 2012/13 From left : Saman Dewasurendra - Manager Training and Development, S. Malkanthi Perera - Execuwtive Housekeeper, Daniel Ludwig - General Manager, Chitra Fernando - Financial Controller, Dadison Zoysa - Executive Chef

Serendib Hotels PLC I Annual Report 2012/13 31 HOTEL MANAGEMENT Contd.

Standing from left : W.A.M.B Wickramarachchi - Executive Chef, T.M.S Kumara - Financial Controller, Suranga Wewegedara - HR Manager, W.M.S.S Bandara - Ayurveda Doctor, Supun Mindika - Naturalist, E.G.G.N Ekanayeka - Pastry chef

Seated from left : E.G.N Karunaratne - Engineer, A.U Clements - Executive House Keeper, A.A.C.T Abeysinghe - F & B Manager, E.W.P.C Samarakoon - Front Office Manager, Laksitha Wegodapola - General Manager

32 Serendib Hotels PLC I Annual Report 2012/13 Standing from left : W.A.I. Sampath De Silva - Front Office Manager, B. Anparasu - Head of Finance, P.L. I.U. Alwis - Training Manager, K.V. Ajantha - Chief Engineer, K.K. Pradeep - Executive Chef, A.D.G.A. Jayawardane - HR Manager, N.E.I. Fernando - Executive House Keeper

Seated from left : L. Jude Silva - Resident Manager, Ms. Sigrid Stelling - General Manager

Serendib Hotels PLC I Annual Report 2012/13 33 ACHIEVING NEW HEIGHTS

34 Serendib Hotels PLC I Annual Report 2012/13 Welcome to the epitome of elegance, a place where rest and relaxation call your name. Where beauty and bliss go hand in hand to make your stay an experience of a lifetime. A place that will entrance you with stunning seascapes, lush foliage and of course the pampering hands of our talented staff that is sure to make you feel like royalty. We’re here to make sure that your holiday is nothing but perfection.

Serendib Hotels PLC I Annual Report 2012/13 35 Sustainability Report

This year, Serendib Leisure Group took its first step to align its CSR activities with its parent company Hemas Holdings PLC. As part of this process we embarked on the development of a sustainability framework for the group, in line with Hemas sustainability principles. We are confident this initiative will support more meaningful efforts towards sustainable business practices by the Serendib Leisure Group.

During the year, we obtained the services of an external consultant to design a EU Switch Asia Greening Sri Lankan Hotels Award - 2012 sustainable business framework for the Serendib Leisure Group comprising the by embracing opportunities and Recognition of our achievements four hotels, Avani Bentota, Avani Kalutara, managing risks deriving from economic, We are proud to announce that during Hotel Sigiriya and Club Hotel Dolphin. As environmental and social developments, the year, the Group continued to gain part of this process, stakeholder surveys thereby ensuring long-term viability, recognition for our high standards in the were conducted to identify their views, profitability and integrity of the Group. field of hospitality, which proves that concerns, and requirements. In depth our investments towards improving our interviews were held with the immediate Our commitment to preserve the standards have been effective. communities, relevant regulatory bodies, environment stems from the Hemas local government agencies, guests, travel Green Pledge where we take We are pleased to note that both agents, tour operators, employees and responsibility as individuals and Avani Bentota and Hotel Sigiriya were international partners. The findings of collectively as part of the Hemas Group. presented Merit Certificates for Energy this survey were then used to develop a This will in turn minimise harmful practices and Water Conservation and Waste sustainability framework that will guide and enable the Group to leave a gentler Management by the EU Switch Asia the entire Group in the coming years environmental footprint. This philosophy Greening Sri Lankan Hotels awards for towards socially, environmentally and to safeguard the environment drives 2012. This is an encouraging recognition financially sustainable business practices. green practices within the Group. In of our efforts towards conservation and the year under review, we were able sustainable business practices. We will The Hemas Group itself has a well to add further depth and breadth to strive to keep building on our successes entrenched sustainability policy based on our conservation efforts and achieved to set the benchmark for the local the overall impact of the organisation’s significant gains in distilling our pledge industry in the area of conservation. operations on the environment, society among our employees, who are the key and economy. We believe this approach drivers of this green philosophy. All three of our subsidiary hotels obtained creates long-term shareholder value the TripAdvisor Certificate of Excellence

36 Serendib Hotels PLC I Annual Report 2012/13 2012, while Avani Bentota won the Gold to external training programmes, all of the highest levels. To this end, we strive Circle Award by Agoda in 2012. Club our hotels have an In-House Training and to provide a home away from home for Hotel Dolphin was placed among the 99 Development Manager who is entrusted our employees by providing them with most popular hotels in the world, in the with the implementation of the annual superior accommodation with all required Beach Holiday category by the premier training calendar in coordination with the facilities and comforts. Annual family get- German online review site Holiday Check, corporate office. togethers, staff Christmas parties, annual and also won the ITS Red Star Award for trips and numerous sports events are being one of the 60 most popular hotels During the current financial year, Avani organised to ensure a strong team spirit in the world for the third consecutive year. Bentota and Hotel Sigiriya continued and camaraderie which is substantiated These awards reflect the quality of our to offer internship programmes in by the fact that staff accommodation customer service standards due to our collaboration with hotel schools, at Club Hotel Dolphin is considered as well trained and hospitable staff. NAITA, and the German Technical the benchmark for the industry. These Institute to provide young people welfare measures build a sense of loyalty Training and development of with the opportunity to enhance their towards the organisation and ultimately our people skills through work experience. We contribute towards superior quality of We acknowledge that being in the have provided cross exposure for our service to our guests. During the year, service industry, our people are the key employees to travel overseas to Anantara Avani Bentota also commenced work to success. The quality of customer Hotels operated by our international on its staff accommodation, which is care that makes us stand out from partner, Minor International of Thailand. scheduled to be completed by August hotels across the world, is due to our In addition, numerous task force training 2013. people. Their passion, commitment and sessions have also been conducted creativity to go above and beyond the throughout the year by Minor International Employee engagement expectation of our customers define the at our hotels to raise the service The Serendib Leisure Group hosts excellence that Serendib Leisure stands standards to an international level. many employee events to build for. Therefore, we consider training an relationships and team spirit. Such integral component of both business During the year, employees of the Group activities have ensured a culture of trust success and also as part of our strategy underwent many internal and external and cooperation within the Group that to achieve sustainable employee relations training programmes focused on skills has motivated staff to give their best at and thus the Group invested over 72,000 development and team building. As part work. We also value the opinions of our hours in the area during the current of our team building exercises for the employees and welcome suggestions financial year. year, several Out Bound Training (OBT) on how we can improve our service programs were held for our staff at the standards. Therefore, we conduct Our vision is to create an atmosphere Kukule Ganga Army Resort. employee satisfaction surveys twice a for our team to work with pride, year to obtain employee feedback and happiness and enthusiasm which will Employee benefits opinions. We strive to add value to such reflect in the high standard of service We believe our employees are a key surveys by incorporating the findings into and the genuine hospitality extended ingredient of our success. In the our daily operations. The surveys also to our guests. Therefore, the Group hospitality industry it is vital for our contribute towards identifying skill gaps invests extensively on training and employees to enjoy coming to work and and training needs, while making our development of its employees. In addition to have fun at work, while performing at employees feel valued.

Serendib Hotels PLC I Annual Report 2012/13 37 sustainability report Contd.

Supporting the Community In keeping with the Philosophy of the contributed towards upgrading the The communities we operate in are Hemas Outreach Programme, all hotels Community Centre at a cost of significant stakeholders of our business. engage in helping local schools and Rs. 1.4 Mn. Beach pollution is a key Therefore, we make every endeavour to education programmes. Club Hotel concern in these areas. The hotels establish mutually-beneficial relationships Dolphin continued to support St. Odilia maintain a regular beach cleanup with our communities by minimising any College in Kammala and continued programme, not simply to maintain the adverse impacts and by contributing English classes for village children beauty of the location but also to have towards community development. During at the community centre which has a pollution free home for the marine life. the year, the Group conducted many supplemented the school education Further, Avani Bentota also conducts programmes with different communities of the children and improved their annual cleaning and maintenance work at with the aim of improving their living future employability. Avani Bentota too the Bentota Government Hospital. standards.

Opening ceremony of a ‘Piyawara’ school Maintenance of the Bentota Railway Station

Serendib Leisure Group continued continued conducting its free English Bentota and Kalutara are well known for to support the Hemas Outreach classes for community youth for the third their rich cultural and religious activities. Foundation which is an approved charity, consecutive year with the support of the To maintain and sustain this heritage managed by a Board of Trustees. The Udakotuwa Temple. We also promote our Avani Bentota and Avani Kalutara have Foundation supports Early Childhood loyal repeat guests to contribute towards been instrumental in supporting places of Care & Development (ECCD) through the many of our community projects, and worship of all religions. establishment of child friendly pre-schools reach out to the community. across Sri Lanka. At present we foster Hotel Sigiriya held a special three day 36 pre-schools island wide, under the Our hotels gave back to the community workshop for hotel staff and school banner ‘Piyawara’, where approximately in many different ways during the year. children on environmental conservation 3,000 children are receiving their early Avani Bentota takes pride in maintaining chaired by Prof. Kotagama and the Field education. the Bentota railway station and the Hotel Ornithology Group of Sri Lanka about staff contributed towards renovating the birds in Sri Lanka, bird conservation rail track. Furthermore Avani Bentota

38 Serendib Hotels PLC I Annual Report 2012/13 and bird watching techniques. This has blood. During the year under review they Such contributions towards community helped improve awareness about the continued the “Village Lunch Excursion” welfare have helped establish the hotels rich diversity of birdlife in Sri Lanka and ensuring a regular income for several as part of the community with community generated an interest in conserving this families at the neighbouring Diyakepilla support for the hotel and its activities, national asset. They also organised a village. This excursion involves a walk and while also helping to improve quality of life blood donation campaign in September tour of the village ending with a lunch of for the community. 2012, where Hotel Sigiriya staff and typical Sri Lankan dishes all set amidst a employees from other hotels donated typical dry zone . Conserving the environment We have adopted the 3R method; Reduce-Reuse-Recycle at all our hotels for energy and water conservation. A comprehensive environment management system is in place and various energy saving initiatives have been carried out in an extensive manner at all functional and operational levels.

Our sustainability policy guides our commitment to conserving the environment through the process of infrastructure design, implementation and adherence to policies and adaptation of new technology. When it comes to considering new capital investment we Prof. Kotagama and his team on bird conservation take long term view looking at life cycle costs, instead of merely upfront costs. Along with factors such as cost, quality and functionality, environmental impact has become an integral part in our investment decision making process. The new projects are developed with advice from external consultants on energy conserving processes which are incorporated in the new design process.

Hotel Sigiriya was one of the first hotels in the country to adopt a greening policy. In line with this philosophy, Hotel Sigiriya conducted many projects that

Prize giving of the English class at Udakotuwa Temple contributed towards environmental

Serendib Hotels PLC I Annual Report 2012/13 39 sustainability report Contd.

conservation. The use of aerosols is minimised and used only in emergencies. Further, many of the chemicals used in the hotel are environmental friendly and non hazardous. All organic waste is composted, wet garbage is sent to the piggery and dry garbage is sent for recycling. Furthermore, they use recycled water for up keeping the garden.

All four of the Serendib Leisure Group hotels monitor electricity and water consumption on a daily basis with sub meters and with a colour coded system for light switches. We have replaced all Energy Conservation Team - AVANI Bentota halogen bulbs with LED and CFL bulbs at all our properties and this resulted lives of present and future generations of in a notable reduction in electricity Sri Lankans. Our socially, economically consumption and emissions. Key-tag and environmentally sustainable practices switches have been installed in all rooms have endeared tremendous goodwill and for lighting and A/Cs. A/C controllers support for our business operations by have also been installed to minimise all our stakeholders. We are confident energy consumption when not in use. that our sustainability policies built on the Most of our hotels have switched to solar belief in being a responsible corporate panels for the hot water system. During citizen will be an example to the entire the year, energy audits were carried out tourism industry in Sri Lanka. by specialised consultants at all hotels and appropriate actions have been taken based on the recommendations made. Special energy conservation teams have been appointed at each hotel for data gathering, monitoring and implementation of our green policies and practices.

Conclusion The Group strives to deliver its commitment to all its stakeholders. Accordingly, we strongly believe that our corporate goals should be aligned with our sustainability policies to enhance the

40 Serendib Hotels PLC I Annual Report 2012/13 Risk Management

Serendib Hotels PLC believes that our Group Risk Management Committee As a part of the risk management dynamic approach to risk management (GRMC) of Hemas Holdings PLC, the process, at the Group level, the Board ensures that key risks are pro actively ultimate parent of Serendib Hotels PLC reviews its strategies, processes, identified, assessed and responded. Our overlooks the risk management process procedures and guidelines on a ongoing assessment process takes into of the leisure sector. The GRMC reviews continuous basis to effectively identify, account the likelihood of an event, its Company’s risk profile and provides assess and respond to risks. potential impact on the business and the guidance on required risk responses on a The Group wide risk management need for mitigation. quarterly basis. programme is being facilitated by Risk and Control division with the inputs from We have adopted the ISO 31000 The agenda for the Group Audit Business Strategy, Corporate Finance, standard of risk management. It Committee contains standing items Group Treasury and Group Human elaborates on risk identification, risk on internal controls. These include the Resource divisions. assessment, risk response and risk internal audit reports, quarterly risk reporting methodologies. reports and compliance statements. Risk facilitation is exercised through risk workshops, risk reviews, essential control Company’s risk policy checklists and risk reporting. Our policy for risk management is to pro actively manage risk to ensure continued THE BOARD AND RISK MANAGEMENT growth of our business and to protect our people, assets and reputation. This implies that we will: Stakeholders

• Implement an effective and integrated risk management system while maintaining business flexibility. Board • Identify and assess material risks associated with our business, monitor, manage and mitigate risks. Audit Risk Committee Committee Internal Control and Risk Management The Group reviews and assess significant Senior Management risks on a regular basis and has Stakeholders Stakeholders

implemented an oversight programme to Risk & Control ensure that there is a system of internal Risk Champions controls in place.

Head of the Department

Stakeholders

Serendib Hotels PLC I Annual Report 2012/13 41 Risk Management Contd.

ISO 31000 RISK MANAGEMENT FRAMEWORK

COMMUNICATION AND CONSULTATION

ESTABLISH IDENTIFY THE ANALYSE EVALUATE TREAT THE CONTEXT RISKS THE RISKS THE RISKS THE RISKS Analyse business Deviation from Analyse Prioritise the Implement a environment and achievement of Probability and risks suitable risk set objectives expected results consequence treatment plan

MONITOR AND REVIEW

Key Risks and Action Plans The following framework depicts the specific and most relevant risks faced by the Group and the management actions to mitigate the risks. Risk Risk exposure Mitigating actions Competition Adverse impact on yields and • Sourcing new markets and developing new channels (eg. Web). occupancies. • Analyse resources and capabilities to identify core competencies and differentiate through brand and service levels. • Increase the value addition within the value chain to provide a better value for money. • Establish a sustainable relationship with travel agents and tour operators. • Make necessary investments to upgrade facilities. Human Resource Risk of losing skilled and • Establish career development programs and succession plans in Risk trained human capital and order to retain and motivate the talent pool of the Group. recruitment of staff for new hotel • Provide focused and structured training for staff at all levels to aid developments. personal and professional development. Trade union activities resulting in • Develop a strong employer brand to attract staff of the right quality. work disruptions.

42 Serendib Hotels PLC I Annual Report 2012/13 Risk Risk exposure Mitigating actions Project Management New projects involve high risks • Conduct a PESTEL analysis and a feasibility study before initiating Risk and uncertainties in terms of the projects. delay and cost overruns. Failure • Effective project management to ensure timelines are established of major projects will affect communicated and agreed on by all stakeholders. capital structure and reputation. • Formal processes have been established to ensure transparency in project consultancy, project procurement. • Project leader / project consultants appointed to ensure that project time and costs are monitored and reviewed on an ongoing basis against set timelines and budget. Country Risk Rising costs such as higher • Ensure that all costs incurred in the operations are scrutinized and (Economical) energy costs, interest rates, streamlined to ensure optimum productivity is achieved. inflation, Forex fluctuations and • Work closely in partnership with industry peers to communicate increased minimum wage can concerns and suggestions on macroeconomic decisions made by have a detrimental impact both the government. in the development of the hotel industry and sustaining long term profitability. Health and Safety Risk of litigation due to non- • Insurance taken to cover both employee and guest injuries. Further, Risk adherence to laid down health regular maintenance of the property and equipments is done to and safety regulations. This ensure all operating equipment are of good operating condition. could be due to, but not • The hotels manageed by the Group takes all precautions from restricted to food poisoning, sourcing the supplier to storage and preparation of food to ensure personal or accidental harm to contamination is avoided. guest or employee. • Tour operator safety standards are complied with and necessary action is taken immediately on any concern area related to health and safety based on audit inspections done by tour operators. • The company sources its products and services from approved suppliers. Foreign Exchange Depreciation of the rupee • Exchange rate movements are taken into consideration when Rate Risk value and loss on exchange in entering into contracts with travel agents. conversion of loans taken in • Borrowings in foreign currency are naturally hedged, provided the foreign currency. inflows match the outflows.

Serendib Hotels PLC I Annual Report 2012/13 43 Risk Management Contd.

Risk Risk exposure Mitigating actions Fluctuations in Recession period in the • Closely monitor the socio-economic environment of the traditional Demand traditional European markets markets and looking into every possibility to enter new emerging may cause reduction in markets. demand. • Upgrade the corporate website to improve revenue through direct bookings and marketing the hotel by partnering with popular online travel agents to push web based sales. • Participate in trade fairs both local and foreign in order to promote the property and to attract new tour operators. • Market the properties to emerging markets in the off-peak season, such as Middle-East, China, Australia and India. Financing and Inability to satisfy debt • Borrowings in foreign currency to bring down finance charges. Interest Rate Risk repayments and secure Foreign currency borrowings are also naturally hedged. financing for proposed projects. Credit Risk Risk arising due to default of • Credit is allowed only to approved customers which is reviewed payment. Higher credit risk may yearly. adversely impact both liquidity • Maintain records on debtors for at least six years. and profitability. • Actively monitor and review the debtor balances. • Advances on bookings are taken from non-credit customers. • Compliance to laid down credit SOPs. • Obtain credit rating of our customers from an international credit rating agency. Operational Process Internal process failures, fraud, • Outsource internal audits to reputed Audit Firms to review and Risk pilferage and breakdown of report on the adequacy of the financial and operational controls. internal controls. • Systems and procedures are in place to ensure compliance with internal controls, which are monitored and reviewed for their continued efficiency and effectiveness. • Required action taken immediately as per employment policy on any staff involved on fraud / pilferage issues. • Provide focused and structured training to staff at all levels to familiarise processes and procedures. Fire and Natural Fire or natural disaster can halt • Insurance is taken to cover all aspects of fire and natural disaster Disaster or cease operation. • Fire safety drills and training is given to ensure the chances of occurrence are kept to a minimum. Further, hotel is equipped and maintains firefighting equipment at all strategic locations of the hotel

44 Serendib Hotels PLC I Annual Report 2012/13 Risk Risk exposure Mitigating actions Statutory and Risk of non-compliance with • Create awareness of statutory obligations at all levels. Regulatory Risk changes in legal and regulatory • Use an independent external tax consultant to review and advice on environment, taxation, labour all statutory computations and returns submitted in respect of fiscal and other laws will result in levies and taxes. judiciary actions. • Make compliance audits as part of the scope of internal audits. • Seek advice from external consultant and legal division of the parent company on all matters relating to contracts and litigation. Reputation Risk Adverse impact on the • Maintenance of highest ethical standards at all times in all business corporate image and brand activities. equity which is likely to diminish • Continuous review of guest comments in order to exceed customer shareholder value. This will expectations and ensure quality standards are adhered and finally lead to a decline in market improved upon. share and customer base. • Proper adherence to the statutory, health and safety concerns by obtaining appropriate quality certification standards including HACCAP and environmental regulations. • The company plays a corporate citizen role through CSR initiatives in the locale of the hotel. • Reputation management software (Brand-Gain) is used to monitor, report and respond to the on-line reviews in the public domain/ review sites (for e.g. Trip Advisor, HolidayCheck, etc).

In conclusion, Serendib Hotels PLC’s transparent risk management system tackles risks posed to the Group on a broad front. Our risk management process is watertight hence it is entrenched in the core values of the company and the senior management demonstrates leadership in championing the Group's risk management initiative, thereby ensuring the company’s competitiveness and sustainability into the long-term.

Serendib Hotels PLC I Annual Report 2012/13 45 CORPORATE GOVERNANCE

Introduction Corporate Governance is the system by which companies are directed and controlled by the Board in the best interest of the stakeholders and others. The shareholders' role in governance is to appoint Directors and the Auditors to satisfy themselves that an appropriate governance structure is in place.

Company’s Philosophy on Corporate Governance Serendib Hotels PLC is fully aware and committed to implementing governance standards that conform to best practices. As part of the corporate culture, it engages and interacts with all the stakeholders in a way that promotes mutual trust, better understanding and good faith.

The main scope of Serendib’s good corporate governance policies encompass; clear description of duties and responsibilities among the Board of Directors, checks and balances, clear business roles and strategies within the Company, ethical business conduct, engagements with stakeholders through risk mitigation, upholding corporate social responsibility in sustaining good corporate citizenship as well as disclosure of material information in a timely and accurate manner.

The extent to which the Company complies with the Code of Best Practice on Corporate Governance issued jointly by the Securities & Exchange Commission of Sri Lanka and the Institute of Chartered Accountants of Sri Lanka is set out below:

Corporate Governance SEC & ICASL Level of Compliance Principle Code Reference Board Meetings A 1.1 Five regular Board meetings are scheduled during a year to review the strategic direction of the operational units, annual budgets and progress towards achieving those budgets and key business risks and other matters. Ad hoc meetings are also held when necessary.

Apart from taking decisions at meetings, the Board also takes decisions via circular resolutions. These resolutions are required to be signed by all the Directors. Responsibilities of the A 1.2 The Directors are responsible for; Board • Formulating, implementing and monitoring overall business policy and strategy. • Ensuring effective systems to secure integrity of information, internal controls and risk management. • Ensuring compliance with relevant laws, statutes and regulations. • Ensuring all stakeholder interests are considered in corporate decisions. • Promoting of open and proper communication between the Company and its stakeholders. Compliance with the A 1.3 The Board collectively and the Directors individually act in accordance with the law and independent laws and regulations applicable to the business enterprise. professional advice In discharging their duties, Directors seek independent professional advice from external parties when necessary at the expense of the Company.

46 Serendib Hotels PLC I Annual Report 2012/13 Corporate Governance SEC & ICASL Level of Compliance Principle Code Reference Company Secretary A1.4 All Directors have access to the advice and services of the Company Secretary who is responsible to the Board in ensuring that proper Board procedures are followed and applicable rules and regulations are complied with.

The appointment and removal of the Company Secretary is a decision taken by the Board as a whole. Independent judgment A1.5 The Directors exercise independent judgment on matters pertaining to strategy, performance, resource allocation and standards of business conduct and acts free from any undue influence and bias from other parties. Dedication of adequate A1.6 The members of the Board dedicate adequate time and effort in discharging their time and effort by the duties and responsibilities towards the Company. Directors The Board met on five occasions during the year under review and the attendance at these meetings are given below: Name of Director Capacity No. of meetings attended Mr. A.N. Esufally Chairman/ NED 5/5 Mr. D.T.R. De Silva MD 5/5 Mr. J.C.L. De Mel ID 5/5 Mr. H.N. Esufally NED 4/5 Mr. W.M. De F. Arsakularatne NED 5/5 Prof. L.D.K.B. Gamage ID 4/5 Mr. E.J.D. Rajakarier NED -* Mr. M.A. Jafferjee ID 5/5 Mr. R.N.A. Athukorala ID 5/5

NED - Non Executive Director, ID - Independent Director, MD - Managing Director

*Mr. E.J.D. Rajakarier, CEO of Minor Hotel Group has not been able to attend Board meetings during the financial year. However, his observations on the Discussion Papers are sent to the Chairman prior to the Board Meetings in order that his views may be discussed and recorded. He has also had several discussions with the Chairman and Managing Director on matters of the Company which require Board guidance during his regular visits to Sri Lanka.

The Board has delegated some of its functions to its Sub-Committees, while retaining the rights for final decision pertaining to matters under the purview of the Committees. The composition and the functions of these sub-committees are discussed in detail under the relevant sections of this Report.

The operation of the hotel owned by the Company has been delegated to Serendib Leisure Management Ltd., Managing Agents through a formal Management Agreement. The Managing Agent operates the hotel within the policy framework outlined by the Board and is assessed periodically by way of Management Reports and presentations.

Serendib Hotels PLC I Annual Report 2012/13 47 CORPORATE GOVERNANCE Contd.

Corporate Governance SEC & ICASL Level of Compliance Principle Code Reference Induction and Training A1.7 An Induction programme is in place which includes the provision of key corporate for Directors documents, facilitation of visits to hotels and meetings with the MD and the senior management team.

In addition, the Directors are also encouraged to participate in continuous professional and self-development activities.

Chairman and Managing Director Corporate Governance SEC & ICASL Level of Compliance Principle Code Reference Separation of the role of A.2.1. The role of the Chairman and Managing Director is distinct, ensuring the balance of Chairman & MD power and authority within the organisation.

Chairman’s Role Corporate Governance SEC & ICASL Level of Compliance Principle Code Reference Role of Chairman in A 3.1 The Chairman encourages the participation of all the Directors in decision making, conducting meetings seeks and ascertains the views of the Directors and thereby ensures that the Board functions in an efficient manner which is beneficial to the stakeholders and the Company.

Financial Acumen Corporate Governance SEC & ICASL Level of Compliance Principle Code Reference Availability of those A.4 The Board comprise of professional accountants who posses the necessary with sufficient financial knowledge and competence to guide the Board on matters pertaining to finance. knowledge

Board Balance Corporate Governance SEC & ICASL Level of Compliance Principle Code Reference Non Executive Directors A.5.1 All the Directors except the Managing Director are Non Executive Directors. Independent Directors A.5.2 Four out of the Eight Non Executive Directors are considered independent. A.5.3 These Directors are independent of management and free of any business or other relationship that could materially interfere with or could reasonably be perceived to materially interfere with the exercise of their unfettered and independent judgment. Annual Declaration A.5.4 The Independent Directors have submitted written Declarations of their independence as required by section 7.10.2(b) of the Listing Rules.

48 Serendib Hotels PLC I Annual Report 2012/13 Corporate Governance SEC & ICASL Level of Compliance Principle Code Reference Determination of A.5.5 The Board annually determines the independence of each Non Executive Director independence based on the Declarations submitted by them.

The Board believes that the independence of Mr. J.C.L. De Mel is not compromised by him serving on the Board continually for a period exceeding nine years from the date of his first appointment.

Therefore, the following Directors are considered Independent in terms of the Listing Rules. • Mr. J.C. L. De Mel • Prof. L.D.K.B. Gamage • Mr. M.A. Jafferjee • Mr. R.N.A. Athukorala Chairman’s meetings A.5.8 Chairman meets with the NEDs with the Executive Director not being present with NEDs whenever necessary. Recording of concerns A.5.9 Concerns raised by the Directors on matters of the Company which cannot be in Board Minutes unanimously resolved are recorded in the Board minutes.

Supply of Information Corporate Governance SEC & ICASL Level of Compliance Principle Code Reference Management’s A.6.1 The Board is provided with appropriate and timely information to discharge its obligation to provide A.6.2 duties. The Directors are also entitled to request for additional information where appropriate and timely they consider such information necessary to make informed decisions. information The Agenda for the Board meetings and connected discussion papers are circulated to the Directors at least seven days in advance to facilitate the effective conduct of the meeting

Appointments to the Board Corporate Governance SEC & ICASL Level of Compliance Principle Code Reference Nominations Committee A 7.1 The Board has not established a Nominations Committee to make recommendations on Board appointments; instead appointments to the Board are made collectively and with the consent of all the Directors. Assessment of Board A.7.2 The Board assesses its composition to ascertain whether the combined knowledge composition and experience of the Board matches the strategic demands facing the Company and takes it into account when new Board appointments are considered.

Serendib Hotels PLC I Annual Report 2012/13 49 CORPORATE GOVERNANCE Contd.

Corporate Governance SEC & ICASL Level of Compliance Principle Code Reference Disclosure of required A.7.3 On appointment of a new Director, the Company informs the Colombo Stock details of new Directors Exchange a brief resume of the Director which includes; • the nature of his experience in relevant functional area • other Directorships or memberships in Board sub committees; and • whether the Director is considered an Independent, Non Executive or Executive Director

Re – election Corporate Governance SEC & ICASL Level of Compliance Principle Code Reference Re-election of Directors A.8.1 The Company’s Articles require a Director appointed by the Board to hold A.8.2 office until the next Annual General Meeting and seek re-appointment by the shareholders at that meeting.

One third of the Directors including the Chairman retire by rotation at each Annual General Meeting in conformity with the Articles of Association of the Company. Directors who retire are those who have served for the longest period after their re-appointment / re-election.

In addition, a Director who has reached 70 years of age vacates office at the conclusion of the Annual General Meeting commencing next after he attains the age of 70 years or if he is re-appointed as a Director after attaining the age of 70 years at the Annual General Meeting following that re-appointment.

Appraisal of Board Performance Corporate Governance SEC & ICASL Level of Compliance Principle Code Reference Appraisal of the Board A.9.1 The Board undertakes an annual evaluation of its own performance and its and Sub-committees A.9.2 committees in the discharge of its key responsibilities. A.9.3

Disclosure of Information in Respect of Directors Corporate Governance SEC & ICASL Level of Compliance Principle Code Reference Information in respect of A.10.1 The Biographical details of the Directors, membership in Board sub-committees, Directors attendance at Board and sub-committee meetings and Directors' Interest in Contracts are disclosed under the relevant sections in the Annual Report.

50 Serendib Hotels PLC I Annual Report 2012/13 Appraisal of Managing Director Corporate Governance SEC & ICASL Level of Compliance Principle Code Reference Setting of annual A.11.1 At the commencement of each financial year, the Board in consultation with the targets and appraisal of A.11.2 Managing Director sets reasonable financial and non-financial goals based on the performance short, medium and long term objectives of the Company.

The Annual Appraisal of the Managing Director is carried out by the Board at pre-agreed performance targets.

B. DIRECTORS REMUNERATION Remuneration Procedure Corporate Governance SEC & ICASL Level of Compliance Principle Code Reference Establishment of B.1.1 The Board has delegated powers to the Remuneration Committee of its Parent a Remuneration Company to make recommendations to the Board on remuneration policy and Committee practice that is consistent with the objectives of the Company. Composition B.1.2 The Remuneration Committee of the Parent Company consists of two Independent B.1.3 Non Executive Directors.

The Chairman of the Committee is an Independent Director appointed by the Board.

The names of the members of the Remuneration Committee are indicated in the Annual Report of the Board of Directors. Determination of B.1.4 In terms of the Articles of Association of the Company, the Board determines the remuneration fees payable to the Independent Directors. Consultation of the B.1.5 The committee consults the Chairman on proposals relating to the remuneration of Chairman and access to the Executive Director and has access to professional advice in discharging their professional advice duties.

The Level and make up of Remuneration Corporate Governance SEC & ICASL Level of Compliance Principle Code Reference Executive Directors B.2.1 The Committee structures remuneration packages to attract, retain and motivate Remuneration package Executive Directors and senior management of the required quality. Comparison of B.2.2 The Committee ensures that the remuneration of executives at each level of remuneration with other B.2.3 management is competitive and in line with their performance. Surveys are companies and group conducted as and when necessary to ensure that the remuneration is competitive with those of comparative companies.

It also takes into consideration data concerning executive pay among the group companies.

Serendib Hotels PLC I Annual Report 2012/13 51 CORPORATE GOVERNANCE Contd.

Corporate Governance SEC & ICASL Level of Compliance Principle Code Reference Performance-related B.2.4 Performance-based incentives have been determined by the Remuneration element of remuneration Committee to ensure that the total earnings of the Executive Director is aligned with the achievement of objectives and budgets of the Group companies.

Disclosure of Remuneration Corporate Governance SEC & ICASL Level of Compliance Principle Code Reference Disclosures B.3.1. The remuneration policy supports a strong performance-oriented culture and ensures that individual rewards and incentives relate directly to the performance of the individual, the operations and functions for which they are responsible and the group as a whole.

The aggregate remuneration paid to Executive and Independent Directors is disclosed in Note 7 of the Financial Statements.

C. RELATIONS WITH SHAREHOLDERS

Constructive use of the Annual General meeting and conduct of General Meetings Corporate Governance SEC & ICASL Level of Compliance Principle Code Reference Proxy votes C.1.1 The Company counts all proxies lodged on each resolution. Separate resolutions C.1.2 A separate resolution is proposed for each issue at the AGM. Availability of Board sub C.1.3 The Chairpersons of the Board sub-committees are present at the AGM to answer committee Chairpersons any questions raised by the shareholders if so requested by the Chairman. Adequate notice of AGM C.1.4 The Notice of the Annual General Meeting and the relevant documents are published and dispatched to the shareholders 15 working days prior to the meeting as required by the Companies Act No. 7 of 2007. Procedure of voting at C.1.5 The procedure for voting at the meeting is circulated along with the Notice of General meetings meeting.

Major Transactions Corporate Governance SEC & ICASL Level of Compliance Principle Code Reference Disclosure on major C.2.1 The Directors ensures that any corporate transaction that would materially affect transactions the net assets base of the Company is communicated to the Shareholders.

There were no major transactions as defined under section 185 of the Companies Act No. 7 of 2007 during the year under review.

52 Serendib Hotels PLC I Annual Report 2012/13 D. ACCOUNTABILITY AND AUDIT

Financial Reporting Corporate Governance SEC & ICASL Level of Compliance Principle Code Reference Board’s responsibility for D.1.1 The Board is accountable for presenting the consolidated Financial Statements of statutory and regulatory the Company and its subsidiaries to regulators as well as the information required reporting to be presented by Statute. Declarations by D.1.2 The Declarations to be made by the Directors are included in the Annual Report of Directors. the Board of Directors. Statement of D.1.3 The Statement of Directors responsibility in preparation of the Financial Statements Directors and Auditors is given on page 68 while the Independent Auditors Report on page 69 state the responsibility for the Auditors responsibility for the Financial Statements. Financial Statements Management Discussion D.1.4 Management Discussion and Analysis is given on pages 24 to 29 of this Report. Analysis Declaration on Going D.1.4 The Declaration by the Board that the Company is a Going Concern is given in the Concern of business Annual Report of the Board of Directors.

Internal Control Corporate Governance SEC & ICASL Level of Compliance Principle Code Reference Annual review of the D.2.1 The Board maintains a sound system of internal control to safeguard shareholders system of internal investments and the Company’s assets. The adequacy and the effectiveness of controls the Internal controls are reviewed by the Internal Auditors under direction of the Audit Committee.

Audit Committee Corporate Governance SEC & ICASL Level of Compliance Principle Code Reference Composition D.3.1 In terms of the Listing Rules, the Audit Committee consists of two Independent Directors and a Non Executive Director. The Chairman of the Committee is an Independent Director. Duties D.3.2 The main purpose of the committee is to assist the Board in the effective discharge of its responsibilities on financial reporting, risk management and internal control. It also reviews the nature and extent of non-audit services provided by the Auditors seeking to balance objectivity and independence. Terms of Reference D.3.3 The Committee has written Terms of Reference dealing clearly with its authorities and duties.

Serendib Hotels PLC I Annual Report 2012/13 53 CORPORATE GOVERNANCE Contd.

Corporate Governance SEC & ICASL Level of Compliance Principle Code Reference Disclosures D.3.4 The members of the Committee are indicated in the Annual Report of the Board of Directors.

The Committee met four times during the year under review and the attendance at these meetings are given below: Name of Director Capacity No. of meetings attended Prof. L.D.K.B. Gamage Chairman/ID 4/4 Mr. M.A. Jafferjee Member/ID 4/4 Mr. A.N. Esufally Member/NED 4/4

The Report of the Audit Committee is given on page 65.

Code of Business conduct and ethics Corporate Governance SEC & ICASL Level of Compliance Principle Code Reference Disclosure of Code of D.4.1 The Company has adopted a Code of Business Conduct and Ethics and the Business Conduct and Directors and members of the senior management are committed to the Code and Ethics the principles contained therein.

Corporate Governance Disclosures Corporate Governance SEC & ICASL Level of Compliance Principle Code Reference Corporate Governance D.5.1 The manner and extent to which the Company complies with the provisions and Report principles of the Code is disclosed in the Report on Corporate Governance.

SECTION 2 : SHAREHOLDERS

E: INSTITUTIONAL INVESTORS

Shareholder voting Corporate Governance SEC & ICASL Level of Compliance Principle Code Reference Communication with E.1.1 The Chairman conducts a structured dialogue with the institutional shareholders shareholders based on the mutual understanding of objectives and ensures that the views of the shareholders are communicated to the Board as whole.

54 Serendib Hotels PLC I Annual Report 2012/13 F : OTHER INVESTORS

Investing /Divesting decision Corporate Governance SEC & ICASL Level of Compliance Principle Code Reference Individual shareholders F.1. Individual investors are encouraged to carry out adequate analysis or seek independent advice in investing and divesting decisions.

The Company places great emphasis on releasing its Financial Statements in a timely manner as to ensure that shareholders have access to information on which they could make informed decisions.

Shareholder Voting Corporate Governance SEC & ICASL Level of Compliance Principle Code Reference Individual shareholder F.2 All shareholders are encouraged to participate at meetings of the Company and a voting Form of Proxy accompanies each Notice providing shareholders who are unable to attend such meeting the opportunity to cast their vote.

The following table presents the Company’s compliance with Section 7.10 of Listing Rules on Corporate Governance issued by the Colombo Stock Exchange. CSE Rule No. Applicable Rule Requirement Status of compliance Board of Directors 7.10.1. Non executive One-third of the total number of Directors subject to a minimum of two. Complied Directors (NEDs) 7.10.2 (a) Independent One-third of the Non-Executive Directors subject to a minimum of two. Complied Directors 7.10.2 (b) Each Non-Executive Director should submit a declaration of independence/ Complied non-independence. 7.10.3 (a) and (b) Disclosure relating Names of Independent Directors should be disclosed in the Annual Report Complied to Directors and the basis for determination of independence of NEDs, if criteria for Independence independence is not met. 7.10.3 (c) A brief resume of each Director should be included in the Annual Report, Complied including his area of expertise. 7.10.3 (d) Upon appointment of a new Director a brief resume of the Director to be Complied submitted to the Exchange.

Serendib Hotels PLC I Annual Report 2012/13 55 CORPORATE GOVERNANCE Contd.

CSE Rule No. Applicable Rule Requirement Status of compliance Remuneration Committee 7.10.5 (a) Composition The Committee shall Comprise of a Minimum of two Independent Directors Complied or Non-Executive Directors, a majority of whom shall be independent.

The Chairman of the Committee shall be a Non-Executive Director. 7.10.5(b) Functions of the The Committee shall recommend the remuneration payable to the Complied Remuneration Executive Directors and Chief executive officer or equivalent role. Committee 7.10.5 (c) Disclosure in the The Annual Report should set out the names of the members of the Complied Annual Report Remuneration Committee, a Statement of Remuneration Policy and the aggregate remuneration paid to Executive and Non-Executive Directors. Audit Committee 7.10.6.( a) Composition The Committee shall comprise of two Independent Directors or Non- Complied Executive Directors a majority of who shall be independent.

The Chairman shall be a Non-Executive Director.

The Chairman or a member should be a member of a recognized professional accounting body. 7.10.6. (b) Functions • Overseeing the preparation, presentation and adequacy of the Complied disclosures in the Financial Statements in accordance with the SLAS. • Overseeing compliance with financial reporting related regulations and requirements. • Overseeing the processes to ensure that internal controls and risk management are adequate. • Assessing the independence and performance of the external Auditors. • Recommending to the Board the appointment, re- appointment and removal of the external Auditors and approving their remuneration and terms of engagement. 7.10.6.(c) Disclosure in the The names of the members of the Audit Committee should be disclosed in Complied Annual Report the Annual Report

The committee to determine the independence of Auditors and disclose the basis of such determination in the Annual Report.

Annual Report to contain a report by the Audit Committee setting out the manner of compliance in relation with their functions.

56 Serendib Hotels PLC I Annual Report 2012/13 REPORT OF THE REMUNERATION COMMITTEE

In accordance with the Rules on Role & responsibilities of the Corporate Governance issued by Committee the Colombo Stock Exchange, the The scope of the Remuneration Remuneration Committee appointed Committee shall cover the following by the Board of the Parent Company, responsibilities: Hemas Holdings PLC functions as • Compensation philosophy / policies the Remuneration Committee of the including stock options and benefits Company. • Fixed pay (based on grading / evaluation) Composition of the Remuneration • Performance Bonus Committee: • Special Schemes • Mr. Lalith De Mel (Independent • Performance Management systems Director and Chairman of Hemas • Annual Goals and performance Holdings PLC). targets • Mr. Maithri Wickremesinghe • Performance assessment and (Independent Director of Hemas development plans Holdings PLC). • Executive search

Frequency of meetings The Committee meets at least five times a year. Additional meetings shall be convened at the request of the Chairman or a member of the Committee. J.C.L. De Mel Chairman Remuneration Policy The Committee has given full 21 May 2013 consideration to the principles of Good Governance as set out in the Code with reference to Directors’ remuneration. The main objectives of the policy are to ensure that pay and benefit packages are sufficiently competitive to attract, develop and retain high caliber executives. The Committee will continue in the future to ensure that a competitive and well- balanced package is maintained. It also seeks to align individual reward and incentives with the performance of the Group and hence, with the interests of the shareholders. When carrying out its role the Committee will consider corporate performance on environmental, social and corporate governance issues.

Serendib Hotels PLC I Annual Report 2012/13 57 ANNUAL REPORT OF THE BOARD OF DIRECTORS

The Board of Directors of Serendib the Management Discussion & Analysis. addressed in the Corporate Governance Hotels PLC takes pleasure in presenting These Reports together with the Audited Code, have a reasonable expectation their Report together with the Audited Financial Statements reflect the state of that the Company possesses adequate Financial Statements of the Company and affairs of the Company and the Group. resources to continue its operations for Consolidated Financial Statements of the the foreseeable future. For this reason, group for the year ended 31 March 2013. Corporate Governance the Company continues to adopt the The Directors confirm that the Company ‘Going Concern basis’ in preparing the Principal Activity of the Company & is in compliance with the Rules on Financial Statements. Group Corporate Governance laid down by The Principal activity of the Company the Colombo Stock Exchange. The Financial Statements and its subsidiaries which is hoteliering Corporate Governance practices of the The Financial Statements of the Company remained unchanged during the year Company are given from pages 46 to 56 and Group as at 31st March 2013 are under review. of this report. given from pages 70 to 127 of the Annual Report. The Company owns and operates Risk Management Avani Bentota Resort & Spa at Bentota. The Company has put in place a process Auditor’s Report (formerly known as “Hotel Serendib”) to identify, evaluate and manage any The Auditor’s Report on the Financial significant risks faced by the entity. The Statements of the Company and the Subsidiaries & Associates principal risks and mitigating action Group is given on page 69. Serendib Hotels PLC is the major are reviewed by the Audit Committee shareholder of Hotel Sigiriya PLC, which regularly. A detailed overview of the Risk Accounting Policies owns Hotel Sigiriya in Dambulla and Management process is outlined in the The Accounting Policies adopted in the Dolphin Hotels PLC, which owns the Risk Management Report from pages 41 preparation of the Financial Statements Club Hotel Dolphin and Miami Cottages to 45. are given from pages 76 to 87. in Waikkal. It also has a 19.9% stake in Jada Resort & Spa (Pvt) Ltd., which owns Going Concern Results Avani Kalutara Resort in Kalutara. The Board of Directors after considering The Financial Results of the Company the financial position, operating and Group as at the Balance Sheet date The Company’s fully owned subsidiary conditions, regulatory and other factors is tabulated below: Serendib Leisure Management Ltd. and such matters required to be manages all of the above properties. Group Company The Directors to the best of their 2013 (Rs) 2012 (Rs) 2013 (Rs) 2012 (Rs) knowledge and belief confirm that Revenue 1,447,478,145 1,047,459,644 408,823,970 138,462,687 neither the Company nor its subsidiaries Gross Profit 1,138,169,534 777,612,331 335,292,635 97,993,107 have been engaged in any activity that Profit Before Tax 431,422,359 111,846,260 126,308,174 (75,830,204) contravenes laws and regulations. Income Tax (65,613,776) (20,585,171) (7,683,230) 5,345,539 expenses Review of Operations & Future Profit/(loss) After Tax 365,808,583 91,261,089 118,624,944 (70,484,665) Developments Attributable to: The financial and operational performance Equity holders of the 270,122,976 40,873,544 - - of the Company during the year under Parent review and future developments are Non Controlling 95,685,607 50,387,546 - - discussed in the Chairman’s Review and Interest

58 Serendib Hotels PLC I Annual Report 2012/13 The Directors have not recommended Statutory Payments & Compliance Mr. J.C.L. De Mel the payment of a dividend for the financial with Laws and regulations Mr. H.N. Esufally year 2012/13. (2011/12 - Nil). The Directors confirm that to the best Mr. W.M. De F. Arsakularatne of their knowledge, all taxes, duties and Prof. L.D.K.B. Gamage Property Plant & Equipment levies payable by the Company and its Mr. E.J.D. Rajakariar The capital expenditure incurred by the subsidiaries, all contributions, levies and Mr. M.A. Jafferjee Group and Company during the year taxes payable on behalf of and in respect Mr. R.N. Athukorala amounted to Rs. 69,628,697/- (2012 – of the employees of the Company and Mr. V.H.A. Perera (Alternate Director to Rs. 653,735,759/-) and Rs. 40,420,635/- its subsidiaries as at the Balance sheet Mr. A.N. Esufally) (2012 - Rs. 595,418,311/- ) respectively. date have been paid or where relevant Ms. K.A.C. Wilson (Alternate Director to provided for in the Financial Statements. Mr. H.N. Esufally) Details of Property, Plant & Equipment and their movement during the financial The Company has also ensured that it Mr. A.N. Esufally and Prof. L.D.K.B. year is disclosed under Note 10 to the complies with the applicable laws and Gamage retire by rotation in terms of Financial Statements. regulations including the Listing Rules of Article 85 of the Articles of Association the Colombo Stock Exchange. of the Company and being eligible offer Details of Land and Buildings held by the themselves for re-election, with the Company is given below: Employment unanimous support of the Board. Permanent and Contract employees in Location Extent the Group as at the Balance Sheet date Mr. J.C.L. De Mel, who reached the age Tourist Resort, 3 Acres 1 Rood were 640 (2012 - 664). of 76 years on 6th May 2013 vacates Bentota 3 Perches office in terms of Section 210 (2) (b) of The Group adopts a non discriminatory the Companies Act No. 7 of 2007. A Stated Capital policy in recruitment and employment resolution to re-appoint Mr. J.C.L De Mel The stated capital of the Company as at which gives full and fair consideration in accordance with Section 211 (1) of the 31 March 2013 amounted to to persons in selection, training, Statute, is given in the Notice convening Rs. 913,121,694 (2012 - Rs. 913,121,694/-) development and promotion ensuring the meeting. He is therefore eligible divided into 75,514,738 (2012- that all decisions are based on merit. for re-appointment with the unanimous 75,514,738) ordinary voting and consent of the Board. 36,011,056 (2012 - 36,011,056) ordinary Corporate Donations non voting shares. Donations made by the Group and Board Committees Company during the year under review The following members served on the Events Occurring After the Balance amounted to Rs. 2,757,846/- (2012 – Audit & Remuneration Committees of the Sheet Date Rs. 361,904/-) and Rs. 17,749/- (2012 – Board: No circumstances have arisen since Rs. 262,258/-) respectively. the Balance Sheet date that would Audit Committee require adjustment to or disclosure in the Directors Prof. L.D.K.B. Gamage - Chairman Accounts other than those disclosed in The Board of Directors of the Company Mr. M.A. Jafferjee Note. 29 to the Financial Statements. as at 31 March 2013 is given below: Mr. A.N. Esufally

Mr. A.N. Esufally – Chairman Mr. D.T.R. De Silva – Managing Director

Serendib Hotels PLC I Annual Report 2012/13 59 ANNUAL REPORT OF THE BOARD OF DIRECTORS Contd.

Remuneration Committee The shareholdings of the Directors during the financial year were as follows: The Remuneration Committee of the 2013 2012 Parent Company, Hemas Holdings PLC 31.03.13 01.04.12 31.03.12 functions as the Remuneration Mr. A.N. Esufally 16,565 16,565 16,565 Committee of the Company. The names Mr. J.C.L. De Mel 661,925 661,925 661,925 of the members of the committee are Mr. H.N. Esufally 500 500 500 given below: Mr. W.M. De F. Arsakularatne - - - Prof. L.D.B.K. Gamage - - - Mr. J.C.L. De Mel Mr. M.E. Wickremesinghe Mr. E.J.D. Rajakarier - - - Mr. R.N.A. Athukorala - - - Remuneration & Other Benefits of Mr. M.A. Jafferjee - - Directors Mr. D.T.R. De Silva 7,681 7,681 7,681 Details of Directors emoluments paid during the year are disclosed in Note 7 of the Financial Statement. Related Party transactions exceeding Shareholders 10% of the equity or 5 % of the Total The Company has made all endeavours Interest Register assets of the Company. to ensure equitable treatment to all its In compliance with the requirements of Transactions carried out by the Company shareholders. the Companies Act No. 7 of 2007, an with its related parties during the year Interest Register was maintained by the ended 31 March 2013 did not exceed Auditors Company during the accounting period 10% of the shareholders equity or 5% of During the year under review Messrs ended 31 March 2013. the total assets of the Company. Ernst & Young, Chartered Accountants served as the External Auditors of the In terms of Section 192 of the Companies Company Secretaries & Registrars Company. The Audit Fees payable and Act, the Directors have declared their Messrs Hemas Corporate Services fees paid for other services rendered are interests in contracts in the Company and (Pvt) Ltd. of Level 9 Hemas House, 75, as follows; have refrained from voting on matters in Braybrooke Place, Colombo 02 functions which they were materially interested. as the Secretaries & Registrars of the Audit Fees: Directors Interest in contracts with the Company. Rs. 696,736/- (2012 - Rs. 577,800/-) Company is disclosed from page 62 to 64 of the report. Internal Control Fees for Non-Audit Services: The Board has reviewed the internal Rs. 174,440/- (2012 - Rs. 195,740/-) Directors’ interest in shares controls covering financial, operational In compliance with Section 200 of the and compliance controls and risk The Directors have confirmed that to the Companies Act, the Directors have management and have obtained best of their knowledge the Auditors have disclosed their relevant interest in shares reasonable assurance of its effectiveness. had no interest in or relationship with the of the Company. Company or its subsidiaries other than that of External Auditors.

60 Serendib Hotels PLC I Annual Report 2012/13 The Auditors have confirmed that they are independent in accordance with the Code of Ethics of the Institute of Chartered Accountants of Sri Lanka.

Messrs. Ernst & Young have expressed their willingness to continue in office. A resolution to re-appoint them and to authorise the Directors to determine their remuneration will be proposed at the forthcoming Annual General Meeting.

By Order of the Board of Serendib Hotels PLC

A. N. Esufally D.T.R. De Silva Chairman Managing Director

Hemas Corporate Services (Pvt) Ltd. Secretaries

21 May 2013

Serendib Hotels PLC I Annual Report 2012/13 61 Directors' Interest in Contracts with the Company

Related party disclosures as required by the Sri Lanka Accounting Standards No. 24 on Related Party Disclosures is detailed in Note 31 to the Financial Statements. In addition, the Company carried out transactions in the ordinary course of business with entities where the Directors of the Company are Directors of such entities. COMPANY DIRECTORS NATURE OF Rs. Rs. TRANSACTION 2012/13 2011/12 Dolphin Hotels PLC A.N. Esufally Purchases of goods / services (93,022) - H.N. Esufally - Resigned 17.10.2012 Sale of properties & other assets - 317,831 W.M. De F. Arsakularatne D.T.R. De Silva - Finance charges payable (4,492,447) - Appointed 17.10.2012 Interest income receivable - (648,772)

Expenses incurred on behalf of the 2,647,998 (643,760) company

Settlement of dues from related parties (1,670,279) (2,179,545)

Settlement of dues to related parties 5,892,914 -

Expenses incurred on behalf of others (6,718,858) 2,205,138

Finance charges paid 4,866,124 275,096

Loan capital paid/granted (62,287,450) (62,287,450) Hotel Sigiriya PLC A.N. Esufally Finance charges payable (445,933) - H.N. Esufally - Resigned 17.10.2012 Interest income receivable - (98,308) W.M.De F. Arsakularatne D.T.R. De Silva - Expenses incurred on behalf of the 1,429,968 (32,435) Appointed 17.10.2012 company

Settlement of dues from related parties (1,971,725) (2,306,494)

Settlement of dues to related parties 2,272,307 2,128,990

Expenses incurred on behalf of others (2,221,454) 797,301

Finance charges paid 462,919 81,323

Loan capital paid/granted 2,500,000 (2,500,000)

62 Serendib Hotels PLC I Annual Report 2012/13 COMPANY DIRECTORS NATURE OF Rs. Rs. TRANSACTION 2012/13 2011/12 Serendib Leisure A.N. Esufally Sale of properties & other assets - 85,486 Management Ltd. D.T.R. De Silva E.J.D. Rajakarier Management fee payable - (10,645,315)

Interest income receivable - (310,227)

Expenses incurred on behalf of the 1,881,692 (8,629,762) company

Settlement of dues from related parties (3,186,059) (13,920,054)

Settlement of dues to related parties 39,976,727 10,839,246

Management fee paid - 6,714,108

Expenses incurred on behalf of others (35,893,789) 1,863,919 Jada Resort & A.N. Esufally Sale of properties & other assets - 265,143 Spa (Pvt) Ltd. E.J.D. Rajakarier Finance charges payable (47,342) (168,580)

Expenses incurred on behalf of the company 7,154,342 -

Settlement of dues from related parties (5,594,242) (811,676)

Settlement of dues to related parties (15,405,705) 134,606

Expenses incurred on behalf of others 16,720,815 1,178,042

Finance charges paid 81,315 - Peace Haven Resorts Ltd. A.N. Esufally Expenses incurred on behalf of the 208,750 365,975 H.N. Esufally company D.T.R. De Silva Income received on behalf of the (40,000) (464,998) company Diethelm Travels Lanka A.N. Esufally Sale of goods / services - 4,088,956 (Pvt) Ltd. H.N. Esufally W.M. De F. Arsakularatne Expenses incurred on behalf of the 9,475,251 - company

Settlement of dues from related parties (9,065,283) (4,438,697)

Serendib Hotels PLC I Annual Report 2012/13 63 Directors’ Interest in Contracts with the Company Contd.

COMPANY DIRECTORS NATURE OF Rs. Rs. TRANSACTION 2012/13 2011/12 Hemas Corporate H.N. Esufally Accounting fee payable - (232,704) Services (Pvt) Ltd. W.M. De F. Arsakularatne Settlement of dues to related parties 410,235 -

Expenses incurred on behalf of others (3,216,731) -

Accounting fee paid - 232,704 Hemas Holdings PLC J.C.L. De Mel Sale of properties & other assets - 228,571 A.N. Esufally H.N. Esufally Finance charges payable - (4,730,576)

Expenses incurred on behalf of the company 115,674,101 (1,380,000)

Settlement of dues from related parties (119,271,002) -

Settlement of dues to related parties - 78,407

Finance income received - 4,932,526

Loan capital paid/granted - (11,796,250)

Loan Settlement - 65,306,554

64 Serendib Hotels PLC I Annual Report 2012/13 REPORT OF THE AUDIT COMMITTEE

Composition of the Committee risk management of Company are Internal audit independently reviews the The Audit Committee comprises two adequate to meet the requirements of risks and control processes operated by Independent Directors namely Prof. Lalith the Sri Lanka Auditing Standards. management. It carries out independent Gamage (Chairman) Mr. Murtaza Jafferjee Audits in accordance with an Internal and a Non Executive Director Mr. Abbas (v) assess the independence and Audit Plan which is approved by the Audit Esufally. performance of the external Committee before the commencement of auditors of the Company and make the financial year. The Managing Director, Director Finance recommendations to the Board of the Managing Agent and the Head pertaining to the appointment, The Internal Audit Report which of Risk & Control of the Group attend re-appointment and removal of includes recommendations to improve meetings by invitation. The Company external auditors and approve internal controls together with agreed Secretary serves as the Secretary to the the remuneration and terms of management action plans to resolve Committee. engagement of the external auditors. the issues, is presented to the Audit Committee for review. The Group Internal As permitted by the Listing Rules of Main activities carried out during the audit follows up the implementation of the Colombo Stock Exchange, the year recommendations and reports progress Committee also functions as the Audit The Audit Committee met four times to the Audit Committee. Committee for its quoted subsidiaries M/s during the year ended 31 March 2013 Dolphin Hotels PLC & Hotel Sigiriya PLC. and carried out the following activities; External Audit • Reviewed of the un-audited quarterly Role & Responsibilities The External Audit function of the Financial Statements and discussion The Audit Committee operates within Company is carried out by M/s Ernst & of these statements with the the Terms of Reference outlined in Young, Chartered Accountants. management. the Its Charter and the main role and • Reviewed the audited Financial responsibility are to assist the Board in The Committee is satisfied that the Statements for the financial year and fulfilling their oversight responsibilities in independence of the External Auditors discussion of the financial statements the following areas: has not been impaired by any event with both the management and or service that gives rise to a conflict (i) quality and integrity of the Company’s external Auditors. of interest. Confirmation has been Financial Statements and financial • Discussed the management letter obtained from the external auditors of reporting process including the issued by the external auditors and their compliance with the independence preparation, presentation and monitoring follow up action by the guidance given in the Code of Ethics of adequacy of disclosures in the management. the Institute of Chartered Accountants of Financial Statements in accordance • Reviewed of the Internal Audit Plan Sri Lanka. with the Sri Lanka Accounting of the Company and monitoring the Standards; performance of the Internal Auditors Having reviewed the effectiveness • Reviewed of the Internal Audit reports of the external audit, the Committee (ii) system of internal accounting and and monitoring follow-up action by recommends to the Board that M/s financial control of the Company; the management. Ernst & Young, Chartered Accountants • Reviewed the Report on statutory and be appointed external auditors of the (iii) compliance with legal and statutory regulatory compliance submitted by Company for the year ending requirements including financial the management 31 March 2014, subject to approval reporting requirements, disclosure • Recommended to the Board for by the shareholders at the forthcoming requirements of the Companies Act approval the revised Terms of Annual General Meeting. and other relevant financial reporting Reference for the committee. related regulations and requirements; Internal Audits (iv) performance of internal audit The Internal Audit function of the Prof. L.D.K.B. Gamage function including the process to Company is carried out by M/s BDO Chairman – Audit Committee ensure that the internal controls and Burah Hathy, Chartered Accountants. 21 May 2013 Serendib Hotels PLC I Annual Report 2012/13 65 From your first glimpse to a fond farewell, we promise that your stay at Avani Kalutara is nothing short of paradise. And as you step on warm sands and gaze out at the endless sea, you can be sure that your first taste of our brand of luxury will not be your last…

66 Serendib Hotels PLC I Annual Report 2012/13 ACHIEVING NEW HEIGHTS

Serendib Hotels PLC I Annual Report 2012/13 67 STATEMENT OF DIRECTORS’ RESPONSIBILITY IN RELATION TO PREPARING FINANCIAL STATEMENTS

In accordance with the Companies Act establish proper systems of internal No. 7 of 2007, the Directors are required control with a view to detect and prevent to prepare Financial Statements which any irregularities. give a true and fair view of the state of affairs of the Company and of the Group The Directors are of the view that they as at the end of the financial year and the have discharged their responsibilities as profit and loss of the Company and the set out in this Statement. Group for the financial year. Compliance Report The Directors are required to ensure that The Directors confirm that to the in preparing the Financial Statements; best of their knowledge, all statutory • appropriate accounting policies payments relating to employees and the are used, selected and applied in Government that were due in respect of a consistent manner, and material the Company and its subsidiaries as at departures, if any, have been the Balance Sheet date have been paid disclosed and explained. or where relevant provided for the in • all applicable and relevant Accounting Financial Statements. Standards have been followed • judgment and estimates have been By order of the Board of made which are reasonable and Serendib Hotels PLC prudent.

The Directors have taken responsibility to ensure that the companies within the Group maintain accounting records, Hemas Corporate Services (Pvt) Ltd. which disclose with reasonable accuracy Secretaries the financial position of the Company 21 May 2013 and the Group and that the Financial Statements comply with the Companies Act No. 7 of 2007, Sri Lanka Accounting Standards and the Listing Rules of the Colombo Stock Exchange.

The Directors having reviewed the Group’s future financial projections cash flows and current performance are satisfied that the Company has adequate resources to continue its operations in the foreseeable future. The Directors have thus adopted the ‘Going Concern basis’ in preparing the Financial Statements.

The Directors have also taken reasonable steps to safeguard the assets of the Company and of the Group and to

68 Serendib Hotels PLC I Annual Report 2012/13 INDEPENDENT AUDITOR’S REPORT

TO THE SHAREHOLDERS OF Scope of Audit and Basis of March 2013 and its financial performance SERENDIB HOTELS PLC Opinion and cash flows for the year then ended Our responsibility is to express an opinion in accordance with Sri Lanka Accounting Report on the Financial on these financial statements based Standards. Statements on our audit. We conducted our audit We have audited the accompanying in accordance with Sri Lanka Auditing In our opinion, the Consolidated Financial financial statements of Serendib Hotels Standards. Those standards require Statements give a true and fair view of PLC (“Company”), the consolidated that we plan and perform the audit to the statement of the financial position financial statement of the Company obtain reasonable assurance whether the as at 31 March 2013 and its the financial and its subsidiaries which comprise the financial statements are free from material performance and cash flows for the year Statements of Financial Position as at 31 misstatement. then ended, in accordance with Sri Lanka March 2013, and the Income Statements, Accounting Standards, of the Company Statements of Comprehensive Income, An audit includes examining, on a and its subsidiaries dealt with thereby, so Statements of Changes in Equity and test basis, evidence supporting the far as concerns the Shareholders of the Statements of Cash Flows for the year amounts and disclosures in the financial Company. then ended, and a summary of significant statements. An audit also includes accounting policies and other explanatory assessing the accounting policies used Report on Other Legal and notes. and significant estimates made by Regulatory Requirements management, as well as evaluating the These financial statements also comply Management’s Responsibility overall financial statement presentation. with the requirements of Section 151(2) for the Financial Statements and Section 153(2) to 153 (7) of the Management is responsible for the We have obtained all the information and Companies Act No. 07 of 2007. preparation and fair presentation of explanations which to the best of our these financial statements in accordance knowledge and belief were necessary with Sri Lanka Accounting Standards. for the purposes of our audit. We This responsibility includes: designing, therefore believe that our audit provides a implementing and maintaining internal reasonable basis for our opinion. control relevant to the preparation and 21 May 2013 fair presentation of financial statements Opinion Colombo that are free from material misstatement, In our opinion, so far as appears from our whether due to fraud or error; selecting examination, the Company maintained and applying appropriate accounting proper accounting records for the year policies; and making accounting ended 31 March 2013 and the financial estimates that are reasonable in the statements give a true and fair view of circumstances. the Company’s financial position as at 31

Serendib Hotels PLC I Annual Report 2012/13 69 STATEMENT OF FINANCIAL POSITION As at 31 March 2013

Group Company Note As at As at 2013 2012 1 April 2011 2013 2012 1 April 2011 Rs. Rs. Rs. Rs. Rs. Rs.

ASSETS Non-Current Assets Property, Plant and Equipment 10 2,243,073,801 2,290,250,094 1,510,295,437 843,294,521 857,512,775 201,069,019 Leasehold Property 11 36,549,090 38,380,081 40,207,704 34,033,948 35,735,645 37,437,342 Intangible Assets 12 178,476,561 177,845,911 178,941,205 1,433,348 1,801,989 1,826,989 Investments in Subsidiaries 13 - - - 260,497,335 260,497,335 260,497,335 Investment in an Associate 14 220,736,225 179,398,523 168,001,628 360,623,100 319,873,970 319,873,970 Other Non Current Financial Assets 15 12,000,010 10,000,000 10,000,000 4,000,010 3,333,340 3,333,340 Deferred Tax Assets 8 4,171,719 11,082,268 2,534,199 3,517,525 10,368,084 2,534,199 2,695,007,406 2,706,956,877 1,909,980,173 1,507,399,787 1,489,123,138 826,572,194 Current Assets Inventories 16 17,017,415 17,791,423 17,672,960 5,460,315 5,777,490 4,031,755 Trade and Other Receivables 17 207,387,262 271,047,278 277,992,166 65,419,910 94,283,938 91,957,533 Taxation Recoverables 1,581,897 9,793,073 9,093,503 1,581,898 1,399,380 - Other Current Financial Assets 15 747,663,420 - - 23,463,420 - - Cash and Cash Equivalents 18 219,173,998 138,058,042 89,730,615 74,899,965 35,073,194 26,278,166 1,192,823,992 436,689,816 394,489,244 170,825,508 136,534,002 122,267,454 Total Assets 3,887,831,398 3,143,646,693 2,304,469,417 1,678,225,295 1,625,657,140 948,839,648

EQUITY AND LIABILITIES Equity Stated Capital 19.1 913,121,694 913,121,694 411,659,117 913,121,694 913,121,694 411,659,117 Other Component of Equity 20 180,198,391 185,685,931 99,892,912 44,016,582 46,710,556 49,392,406 Other Revenue Reserve 20 19,940,000 19,940,000 19,940,000 14,500,000 14,500,000 14,500,000 Retained Earnings 701,344,418 425,554,791 383,081,015 178,084,296 56,765,378 128,309,628 Equity Attributable to Equity holders of the parent 1,814,604,503 1,544,302,416 914,573,044 1,149,722,572 1,031,097,628 603,861,151 Non Controlling Interest 451,389,880 388,983,314 292,824,109 - - - Total Equity 2,265,994,383 1,933,285,730 1,207,397,153 1,149,722,572 1,031,097,628 603,861,151

Non-Current Liabilities Interest Bearing Loans and Borrowings 21 605,438,365 666,987,520 462,061,828 321,834,272 307,787,285 143,420,167 Deferred Tax Liabilities 8 68,090,347 62,132,583 62,690,774 - - - Employee Benefit Liability 22 31,150,606 26,112,590 26,483,472 9,296,951 7,912,132 8,406,500 Deferred Income 23 1,214,932 1,333,836 1,452,740 - - - 705,894,250 756,566,529 552,688,814 331,131,223 315,699,417 151,826,667 Current Liabilities Trade and Other Payables 24 281,879,633 309,552,897 212,633,467 97,915,530 150,249,706 59,279,562 Dividends Payable 26 3,619,070 3,519,125 10,866,246 1,385,354 1,385,354 1,395,786 Income Tax Liabilities 22,772,590 5,313,881 5,451,248 - - 3,041,903 Other Current Financial Liabilities 27 400,000,000 - - - - - Non-interest Bearing Loans and Borrowings 25 1,207,000 1,207,000 1,207,000 - - - Interest Bearing Loans and Borrowings 21 206,464,472 134,201,531 314,225,489 98,070,616 127,225,035 129,434,579 915,942,765 453,794,434 544,383,450 197,371,500 278,860,095 193,151,830 Total Equity and Liabilities 3,887,831,398 3,143,646,693 2,304,469,417 1,678,225,295 1,625,657,140 948,839,648

These Financial Statements are in compliance with the requirements of the Companies Act No.07 of 2007.

Indresh Puvimanasinghe Fernando Director Finance

The Board of Directors is responsible for the preparation and presentation of these Financial Statements. Signed for and on behalf of the Board by,

A.N. Esufally D.T.R. De Silva Chairman Managing Director

The Accounting Policies and Notes on page 76 through 127 from an integral part of the Financial Statements.

21 May 2013 Colombo 70 Serendib Hotels PLC I Annual Report 2012/13 INCOME STATEMENT Year ended 31 March 2013

Group Company Note 2013 2012 2013 2012 Rs. Rs. Rs. Rs.

Revenue 3 1,447,478,145 1,047,459,644 408,823,970 138,462,687 Cost of Sales (309,308,611) (269,847,313) (73,531,335) (40,469,580) Gross Profit 1,138,169,534 777,612,331 335,292,635 97,993,107 Dividend Income 4 - - 55,241,150 11,306,446 Other Operating Income & Gains 5 2,956,134 13,377,991 815,999 5,497,392 Sales & Marketing Expenses (35,524,528) (37,352,974) (15,541,507) (13,522,178) Administrative Expenses (710,744,962) (564,777,223) (246,348,650) (141,193,658) Operating Profit 394,856,178 188,860,125 129,459,627 (39,918,891) Finance Cost 6.1 (41,237,607) (49,614,862) (25,243,991) (19,631,849) Finance Income 6.2 40,411,592 12,605,220 5,510,910 9,608,605 Exchange Gain/(Loss) 36,803,624 (51,401,117) 16,581,628 (25,888,069) Share of Results of Associate 14 588,572 11,396,894 - - Profit Before Tax 431,422,359 111,846,260 126,308,174 (75,830,204) Income Tax Expense 8 (65,613,776) (20,585,171) (7,683,230) 5,345,539 Profit for the Period 365,808,583 91,261,089 118,624,944 (70,484,665)

Attributable to: Equity Holders of the Parent 270,122,976 40,873,544 Non-Controlling Interest 95,685,607 50,387,546 365,808,583 91,261,090

Earnings Per Share-Basic 9 2.42 0.38

The Accounting Policies and Notes on page 76 through 127 form an integral part of the Financial Statements.

Serendib Hotels PLC I Annual Report 2012/13 71 STATEMENT OF COMPREHENSIVE INCOME Year ended 31 March 2013

Group Company 2013 2012 2013 2012 Rs. Rs. Rs. Rs.

Other Comprehensive Income

Profit for the Period 365,808,583 91,261,089 118,624,945 (70,484,665)

Other Comprehensive Income Surplus/(Deficit) on Revaluation - 141,849,741 - (765,472)

Deferred Tax Attributable to Revaluation Surplus - 664,860 - 777,596 Other Comprehensive Income for the Year, Net of Tax - 142,514,601 - 12,124

Total Comprehensive Income for the Period, Net of Tax 365,808,583 233,775,690 118,624,945 (70,472,541) Attributable to: Equity Holders of the Parent 270,122,976 132,031,703 Non Controlling Interest 95,685,607 101,743,988 365,808,583 233,775,691

The Accounting Policies and Notes on page 76 through 127 form an integral part of the Financial Statements.

72 Serendib Hotels PLC I Annual Report 2012/13 STATEMENT OF CHANGES IN EQUITY (GROUP) Year ended 31 March 2013

Attributable to Equity Holders of the Parent Stated Other Retained Other Total Non- Total Capital Components Earnings Revenue Controlling of Equity Reserves Interests Revaluation Reserve Rs. Rs. Rs. Rs. Rs. Rs. Rs.

Balance as at 1 April, 2011- (SLFRS) 411,659,117 99,892,912 383,081,015 19,940,000 914,573,044 292,824,109 1,207,397,153

Net Profit for the Year - - 40,873,544 - 40,873,544 50,387,546 91,261,090 Other Comprehensive Income - 91,158,159 - - 91,158,159 51,356,442 142,514,601

Total Comprehensive Income - 91,158,159 40,873,544 - 132,031,703 101,743,988 233,775,691

Right Issue 501,462,577 - - - 501,462,577 - 501,462,577 Transaction Cost of Right Issue and Share Subdivision - - (3,753,559) - (3,753,559) - (3,753,559) Depreciation Transfer on Revaluation Surplus for Building - (5,365,140) 5,365,140 - - - - Dividends - - - - - (5,584,783) (5,584,783) Adjustments - - (11,349) - (11,349) - (11,349)

Balance as at 31 March, 2012 913,121,694 185,685,931 425,554,791 19,940,000 1,544,302,416 388,983,314 1,933,285,730

Net Profit for the Year - - 270,122,976 - 270,122,976 95,685,607 365,808,583 Other comprehensive income ------

Total comprehensive income - - 270,122,976 - 270,122,976 95,685,607 - 365,808,583

Depreciation Transfer on Revaluation Surplus for Building - (5,666,651) 5,666,651 - - - - Deferred Tax Effect of Items Taken Directly to or Transferred from Equity - 179,111 - - 179,111 109,911 289,022 Dividends - - - - - (33,388,952) (33,388,952) Other comprehensive income ------Balance as at 31 March, 2013 913,121,694 180,198,391 701,344,418 19,940,000 1,814,604,503 451,389,880 2,265,994,383

The Accounting Policies and Notes on page 76 through 127 form an integral part of the Financial Statements.

Serendib Hotels PLC I Annual Report 2012/13 73 STATEMENT OF CHANGES IN EQUITY (COMPANY) Year ended 31 March 2013

Attributable to Equity Holders of the Parent Stated Other Retained Other Total Capital Components Earnings Revenue of Equity Reserves Revaluation Reserve Rs. Rs. Rs. Rs. Rs.

Balance As at 1 April, 2011 - (SLFRS) 411,659,117 49,392,406 128,309,628 14,500,000 603,861,151

Net Profit for the Year - - (70,484,665) - (70,484,665) Other Comprehensive Income - 12,124 - - 12,124

Total Comprehensive Income - 12,124 (70,484,665) - 70,472,541

Rights Issue 501,462,577 - - - 501,462,577 Depreciation Transfer on Revaluation Surplus for Building - (2,693,974) 2,693,974 - - Transaction Cost of Rights Issue and Share Subdivision - - (3,753,559) - (3,753,559)

Balance As at 31 March 2012 913,121,694 46,710,556 56,765,378 14,500,000 1,031,097,628

Net Profit for the Year - - 118,624,944 - 118,624,944

Total Comprehensive Income - - 118,624,944 - 118,624,944

Depreciation Transfer on Revaluation Surplus for Building - (2,693,974) 2,693,974 - -

Balance As at 31 March 2013 913,121,694 44,016,582 178,084,296 14,500,000 1,149,722,572

The Accounting Policies and notes on page 76 through 127 form an integral part of the Financial Statements.

74 Serendib Hotels PLC I Annual Report 2012/13 CASH FLOW STATEMENT Year ended 31 March 2013

Group Company Note 2013 2012 2013 2012 Rs. Rs. Rs. Rs.

Cash Flows From/(Used in) Operating Activities

Net Profit/(loss) Before Income Tax 431,422,359 111,846,260 126,308,174 (75,830,204) Adjustments for Depreciation of PPE 10 115,050,031 84,745,709 54,474,955 22,707,170 Amortization 11 & 12 2,772,842 2,795,460 2,070,338 1,766,697 Foreign Currency (Gains)/Losses (36,803,624) 51,401,117 (16,581,628) 25,888,069 Dividend Income - - (55,241,150) (11,306,446) Finance income 6.2 (40,411,592) (12,605,220) (5,510,910) (9,608,605) Finance Costs 6.1 41,237,607 49,614,862 25,243,991 19,631,849 Share of Results of Associate (Net of tax) 14 (588,572) (11,396,894) - - Loss/(Gains) on Disposal of Property, Plant and Equipment 78,888 (5,730,967) 61,294 2,422,353 Writing Back of Grant Received (118,904) (118,904) - - Movements in Provisions, Pensions and Government Grants 8,102,743 4,185,318 1,998,669 171,532 520,741,778 274,736,741 132,823,733 (24,157,585) Working Capital Adjustments: (Increase)/Decrease in Inventories 16 774,008 (118,463) 317,176 (1,745,735) (Increase)/Decrease in Trade and Other Receivables 17 63,691,797 7,375,852 28,864,028 (2,506,180) Increase/(Decrease) in Trade and Other Payables 24 31,141,220 3,797,835 3,084,354 (2,151,451) Cash Generated from Operations 616,348,803 285,791,965 165,089,291 (30,560,951)

Repayment of Project Creditors (58,814,484) - (55,418,530) - Finance Cost Paid 6.1 (41,237,607) (49,614,862) (25,243,991) (19,631,849) Defined Benefit Plan Costs Paid 22 (3,064,727) (4,556,200) (613,850) (665,900) Income Tax Paid (26,718,394) (23,003,371) (1,015,187) (5,972,259) Net Cash Flows from Operating Activities 486,513,591 208,617,532 82,797,732 (56,830,959)

Investing Activities Acquisition of Property, Plant and Equipment and Intangibles 10 & 12 (69,628,697) (653,735,759) (40,420,034) (596,371,906) Proceeds from Disposal of Property, Plant and Equipment 103,571 17,011,997 102,040 7,114,751 Acquisition of Investment 14 & 15 (42,749,140) (34,077) (41,415,800) - Loans Granted to Related Parties (743,200,000) - (157,000,000) - Loans Settled by Related Parties 395,536,580 - 133,536,580 - Interest Received 6.2 40,411,592 12,605,220 5,510,910 9,608,605 Dividend Received - - 55,241,150 11,306,446 Net Cash Flows Used in Investing Activities (419,526,094) (624,152,619) (44,445,154) (568,342,104)

Financing Activities Net Proceeds From Rights Issue - 497,709,018 - 497,709,018 Proceeds from Interest Bearing Loans and Borrowings 21 65,274,721 923,908,855 147,114,189 588,621,150 Repayment of Interest Bearing Loans and Borrowings 21 (59,280,357) (789,671,938) (156,497,201) (418,568,265) Dividend Paid (33,388,952) (7,347,121) - (10,432) Net Cash Flows From Financing Activities (27,394,588) 624,598,814 (9,383,012) 667,751,471

Effect of Exchange Rate Changes on Cash and Cash Equivalents 36,803,624 (51,401,117) 16,581,628 (25,888,069) Net Increase/(Decrease) in Cash and Cash Equivalents 39,592,909 209,063,727 28,969,566 42,578,408 Cash and Cash Equivalents at the Beginning of the Year 18 84,848,097 (72,814,513) 12,285,774 (4,404,565) Cash and Cash Equivalents at the End of the Year 18 161,244,630 84,848,097 57,836,968 12,285,774

The Accounting Policies and Notes on page 76 through 127 form an integral part of the Financial Statements.

Serendib Hotels PLC I Annual Report 2012/13 75 NOTES TO THE FINANCIAL STATEMENTS Year ended 31 March 2013

1. Corporate Information Institute of Chartered Accountants of Sri a going concern and they do not intend 1.1 General Lanka. either to liquidate or to cease trading. The Company is a limited liability Company incorporated and domiciled For all periods up to and including 2.2 Basis of Consolidation in Sri Lanka. The registered office is the year ended 31 March 2012, the The Consolidated Financial Statements located at Level 5, Hemas House, 75, Company and its subsidiaries prepared comprise the Financial Statements of the Braybrooke Place, Colombo 2. its Financial Statements in accordance Serendib Hotels PLC and its Subsidiaries with Sri Lanka accounting standard and Associates as at 31 March 2013. 1.2 Consolidated Financial (SLAS). These Financial Statements Statements for the year ended 31 March 2013 are The Financial Statements of the The Consolidated financial statements the first the Group has prepared in subsidiaries are prepared for the same of the Company for the year ended 31 accordance with SLFRS. reporting period as the Parent Company March 2013 comprise Serendib Hotels and in compliance with the Group’s PLC (“Company”) and all its Subsidiaries The Financial Statements of the accounting policies unless specially and Associates whose accounts have Group have been prepared on and stated. been consolidated therein (The “Group”). under the historical cost conversion unless otherwise stated. The Financial All intra-group balances, transactions, 1.3 Principal Activities and Nature Statements are presented in unrealised gains and losses resulting from of Operations Sri Lankan Rupees, which is the Group’s intra-group transactions and dividends The principal activity of the Company is functional and presentation currency. The are eliminated in full. hotel operation. preparation and presentation of these Financial Statements are in compliance (a) Subsidiaries 1.4 Parent Entity and Ultimate with the Companies Act No. 07 of 2007. Subsidiaries are fully consolidated from Parent Entity the date of acquisition, being the date The Company’s ultimate parent Subject to certain transition elections on which the Group obtains control, and undertaking and controlling party and exceptions disclosed in Note 2.6,the continue to be consolidated until the date is Hemas Holdings PLC, which is Group has consistently applied the when such control ceases. incorporated in Sri Lanka. accounting policies used in preparation of its opening SLFRS statement of financial Subsidiaries are those enterprises 1.5 Date of Authorisation for Issue position at 01 April 2011 through all controlled by the parent. Controlled The Financial Statements of the Company periods presented, as if these policies exists when the parent holds more than for the year ended 31 March 2013 were had always been in effect. 50% of voting rights or otherwise has a authorised for issue in accordance with controlling interest. a resolution of the directors on 21 May Note 2.6 discloses the impact of the

2013 transition to SLFRS on the Group’s Non-Controlling Interests represent the reported financial position and cash portion of profit or loss and net assets 2.1 Basis of Preparation and flows, including the nature and effect that is not held by the group and are Adoption of Slas (Slfrs of significant changes in accounting presented separately in the Consolidated and Lkas) Effective from the policies from those used in the Group’s Statement of Comprehensive Income Financial Period Beginning on Consolidated Financial Statements for and within equity in the consolidated or After 1 April 2012 the year ended 31 March 2012 prepared Statement of Financial Position separately The Financial Statements of the Company under SLASs. from parent shareholders’ equity. and its subsidiaries have been prepared in accordance with Sri Lanka Accounting 2.1.1 Going Concern Standards, comprising SLFRSs/LKASs The Directors have made an assessment (hereafter "SLFRS") as issued by the of the Company’s ability to continue as

76 Serendib Hotels PLC I Annual Report 2012/13 (b) Investment in Associate loss on its investment in its associate. The as at the acquisition date. This includes The Group’s investments in associates is Group determines at each reporting date the separation of embedded derivatives in accounted for using the equity method. whether there is any objective evidence host contracts by the acquiree. An associate is an entity in which the that the investment in the associate is Group has significant influence. impaired. If this is the case, the Group If the business combination is achieved in calculates the amount of impairment as stages, the previously held equity interest Under the equity method, the investment the difference between the recoverable is remeasured at its acquisition date fair is initially recognised at cost. The carrying amount of the associate and its carrying value and any resulting gain or loss is amount of the investment is adjusted value and recognises the amount in recognised in income statement. to recognise changes in the Group’s ‘share of losses of an associate’ in share of net assets of associate since the income statement. Upon loss of Any contingent consideration to be acquisition date. significant influence over the associate, transferred by the acquirer will be the Group measures and recognises any recognised at fair value at the acquisition Goodwill relating to the associate is retained investment at its fair value. Any date. Contingent consideration which is included in the carrying amount of the difference between the carrying amount deemed to be an asset or liability that investment and is neither amortised nor of the associate upon loss of significant is a financial instrument and within the individually tested for impairment. influence and the fair value of the retaining scope of LKAS 39 Financial Instruments: investment and proceeds from disposal is Recognision and measurement, is The income statement reflects the recognised in profit or loss. measured at fair value with changes in Group’s share of results of operations of fair value either in profit or loss or as a the associate. When there has been a (c) Business Combination and change to other comprehensive income change recognised directly in the equity Goodwill (OCI). If the contingent consideration of the associate, the Group recognises its Business combinations are accounted is not within the scope of LKAS 39, share of any changes, when applicable, for using the acquisition method. The it is measured in accordance with in the statement of changes in equity. cost of an acquisition is measured as the appropriate SLFRS. Contingent Unrealised gains and losses resulting the aggregate of the consideration consideration that is classified as equity from transactions between the Group and transferred, measured at the acquisition is not reameasured and subsequent the associate are eliminated to the extent date fair value and the amount of any settlement is measured at fair value with of the interest in the associate. non-controlling interest in the acquiree. change in fair value either in the income For each business combination, the statement or as a change to the other The Group’s share of the profit or loss Group elects whether to measure the comprehensive income (OCI). of an associate is shown on the face of non-controlling interest in the acquiree the income statement and represents at fair value or at the proportionate share Goodwill is initially measured at cost, profit or loss after tax and non-controlling of the acquiree at the fair value or at the being the excess of the aggregate of the interests in the subsidiaries of the proportionate share of the acquiree’s consideration transferred and the amount associate. The Financial Statements of identifiable net assets. Acquisition-related recognised for non-controlling interest the associate are prepared for the same costs are expensed as incurred and over the net identifiable assets acquired reporting period as the Group. When included in administrative expenses. and liabilities assumed. If the fair value of necessary, adjustments are made to the net assets acquired is in excess of the bring the accounting policies in line with When the Group acquires a business, it aggregate consideration transferred, the those of the Group. assesses the financial assets and liabilities gain is recognised in profit or loss. assumed for appropriate classification After application of the equity method, and designation in accordance with After initial recognition, goodwill is the Group determines whether it is the contractual terms, economic measured at cost less any accumulated necessary to recognise an impairment circumstances and pertinent conditions impairment losses. For the purpose of

Serendib Hotels PLC I Annual Report 2012/13 77 NOTES TO THE FINANCIAL STATEMENTS Contd. Year ended 31 March 2013

impairment testing, goodwill acquired (b) Rendering of Services consolidation and has elected to recycle in a business combination is, from the Revenue from rendering of services is the gain or loss arises from this method. acquisition date, allocated to each of the recognised in the accounting period Group’s cash generating units that are in which the services are rendered or (a) Transactions and Balances expected to benefit from the combination performed. Transactions in foreign currencies are transferred; the gain is recognised in initially recorded by the Group entities profit or loss. (c) Interest Income their respective functional currency rates For all financial instruments measured prevailing at the date of the transaction. Where goodwill has been allocated to at amortised cost and interest bearing a cash-generating unit and part of the financial assets classified as available Monetary assets and liabilities operation within that unit is disposed for sale, interest income or expense is denominated in foreign currencies are of, the goodwill associated with the recorded using the effective interest retranslated at the functional currency operation disposed of is included in the rate (EIR), which is the rate that exactly spot rate of exchange ruling at the carrying amount of the operation when discounts the estimated future cash reporting date. determining the gain or loss on disposal payments or receipts through the of the operation. Goodwill disposed of expected life of the financial instrument Differences arising on settlement or in this circumstance is measured based or a shorter period, where appropriate, to transaction of monitory items are on the relative values of the operation the net carrying amount of the financial recognised in Profit or Loss with the disposed of and the portion of the cash- asset or liability. Interest income is exception of all monetary items that generating unit retained. included in finance income in the income forms part of a net investment in a statement. foreign operation. These are recognised 2.3 Summary of Significant in other comprehensive income until the Accounting Policies (d) Dividends disposal of the net investment, at which 2.3.1 Revenue Recognition Revenue is recognised when the time they are reclassified to profit or loss. Revenue is recognised to the extent that Company’s right to receive the payment Tax charges and credits attributable it is probable that the economic benefits is established. to exchange differences on those will flow to the Company and the revenue monetary items are also recorded in other and associated costs or to be incurred (e) Rental Income comprehensive income. can be reliably measured, regardless Rental income is recognised on an of when the payment is being made. accrual basis. Non-monetary items that are measured Revenue is measured at the fair value of in terms of historical cost in a foreign the consideration received or receivable (f) Others currency are translated using the net of trade discounts value added taxes. Other income is recognised on an accrual exchange rates as at the dates of the basis. initial transactions. Non-monetary items The following specific recognition criteria measured at fair value in a foreign must also be met before revenue is 2.3.2 Foreign Currencies currency are translated using the recognised: The Group’s/Company’s consolidated exchange rates at the date when the fair Financial Statements are presented in Sri value is determined. (a) Apartment, Food & Beverage Lankan Rupees, which is also the parent Sales Company’s functional currency. For each The gain or loss arising on translation Apartment revenue is recognised on the entity the Group determines the functional of non-monetary items is recognised in rooms occupied on a daily basis, and currency and items included in the line with the gain or loss of the item that food and beverage are accounted for at Financial Statements of each entity are gave rise to the translation difference the time of sales. measured using that functional currency. (translation differences on items whose The Group uses the direct method of gain or loss is recognised in other

78 Serendib Hotels PLC I Annual Report 2012/13 comprehensive income or profit or loss is neither the accounting profit nor carry-forward of unused tax credits and also recognised in other comprehensive taxable profit or loss; and unused tax losses can be utilised except: income or profit or loss respectively). ii) In respect of taxable temporary differences associated with i). Where the deferred income tax asset 2.3.3 Taxation investments in subsidiaries, except relating to the deductible temporary (a) Current Taxes where the timing of the reversal of difference arises from the initial Current income tax assets and liabilities the temporary differences can be recognition of an asset or liability in for the current and prior periods are controlled and it is probable that the a transaction that is not a business measured at the amount expected temporary differences will not reverse combination and, at the time of in the foreseeable future. to be recovered from or paid to the the transaction, affects neither the accounting profit nor taxable profit or Commissioner General of Inland Deferred income tax assets are loss; and Revenue. The tax rates and tax laws used recognised for all deductible temporary to compute the amount are those that differences, carry-forward of unused tax ii). In respect of deductible temporary are enacted or substantively enacted by credits and unused tax losses, to the differences associated with the reporting date in the country where extent that it is probable that taxable investments in subsidiaries, deferred the Company operates and generates profit will be available against which the tax assets are only recognised to taxable income. Current income tax deductible temporary differences, and the the extent that it is probable that the relating to items recognised directly in carry-forward of unused tax credits and temporary differences will reverse in equity is recognised in equity and not in the foreseeable future and taxable unused tax losses can be utilised except: the income statement. profit will be available against which the temporary differences can be i). Where the deferred income tax asset The provision for income tax is based on utilised. relating to the deductible temporary the elements of income and expenditure difference arises from the initial as reported in the Financial Statements The carrying amount of deferred income recognition of an asset or liability in and computed in accordance with the tax assets is reviewed at each reporting a transaction that is not a business provisions of the Inland Revenue Act No. date and reduced to the extent that it is combination and, at the time of no longer probable that sufficient taxable 10 of 2006 and amendments thereto. the transaction, affects neither the accounting profit nor taxable profit or profit will be available to allow all or part (b) Deferred Taxation loss; and of the deferred income tax asset to be Deferred income tax is provided, using ii) In respect of taxable temporary utilised. Unrecognised deferred tax assets the liability method, on all temporary differences associated with are reassessed at each reporting date differences at the reporting date between investments in subsidiaries, except and are recognised to the extent that it the tax bases of assets and liabilities where the timing of the reversal of has become probable that future taxable and their carrying amounts for financial the temporary differences can be profits will allow the deferred tax assets to reporting purposes. controlled and it is probable that the be recovered. temporary differences will not reverse Deferred income tax liabilities are in the foreseeable future. Deferred income tax assets and liabilities recognised for all taxable temporary are measured at the tax rates that are differences except; Deferred income tax assets are expected to apply to the year when the recognised for all deductible temporary asset is realised or the liability is settled, i) Where the deferred income tax liability differences, carry-forward of unused tax based on tax rates (and tax laws) that arises from the initial recognition of an credits and unused tax losses, to the have been enacted or substantively asset or liability in a transaction that extent that it is probable that taxable enacted as at the reporting date. is not a business combination and, profit will be available against which the at the time of the transaction, affects deductible temporary differences, and the

Serendib Hotels PLC I Annual Report 2012/13 79 NOTES TO THE FINANCIAL STATEMENTS Contd. Year ended 31 March 2013

Deferred tax relating to items recognised losses, if any. Such cost includes the income and accumulated in equity in outside profit or loss is recognised cost of replacing component parts the asset revaluation reserve, except to outside profit or loss. Deferred tax items of the property, plant and equipment the extent that it reverses a revaluation are recognised in correlation to the and borrowing costs for long-term decrease of the same asset previously underlying transaction either in other construction projects if the recognition recognised in the income statement, in comprehensive income or directly in criteria are met. When significant parts which case the increase is recognised equity. of property, plant and equipment are in the income statement. A revaluation required to be replaced at intervals, the deficit is recognised in the income Deferred tax assets and deferred tax Company derecognises the replaced statement, except to the extent that it liabilities are offset, if a legally enforceable part, and recognises the new part offsets an existing surplus on the same right exists to set off current tax assets with its own associated useful life and asset recognised in the asset revaluation against current tax liabilities and when the depreciation. Likewise, when a major reserve. deferred taxes relate to the same taxable inspection is performed, its cost is entity and the same taxation authority. recognised in the carrying amount of the Accumulated depreciation as at the plant and equipment as a replacement revaluation date is eliminated against the (c) Tax on Dividend Income if the recognition criteria are satisfied. All gross carrying amount of the asset and Tax on dividend income from subsidiaries other repair and maintenance costs are the net amount is restated to the revalued is recognised as an expense in the recognised in the income statement as amount of the asset. Upon disposal, Consolidated Income Statement. incurred. any revaluation reserve relating to the particular asset being sold is transferred 2.3.4 Property, Plant and Equipment Where items of Property, Plant and to retained earnings. Property, plant and equipment is stated Equipment are subsequently revalued, at cost, net of accumulated depreciation the entire class of such assets is Depreciation is calculated on straight line and/or accumulated impairment revalued. Any revaluation surplus is basis over the estimated useful lives of recognised in other comprehensive the assets as follows:

2013 2012 As at 1 April 2011 Buildings (Old) on Leasehold Land Over the remaining Over the remaining Over the remaining Lease Period Lease Period Lease Period Buildings (New) on Leasehold Land 60 Years 60 Years - Buildings on Freehold Land 60 Years 60 Years 66 Years Furniture and Fittings 5 - 10 Years 5 - 10 Years 5 - 10 Years Motor Vehicles 5 - 10 Years 5 - 10 Years 5 - 10 Years Plant and Machinery and Equipments 5 - 10 Years 5 - 10 Years 5 - 10 Years Soil Erosion Prevention 10 Years 10 Years 10 Years Energy Saving Technique 5 - 15 Years 5 - 15 Years 5 - 15 Years Paintings, Murals etc. 4 - 9 Years 4 - 9 Years 4 - 9 Years Landscaping Over 60 Years Over 60 Years Over 60 Years

An item of property, plant and equipment (calculated as the difference between the a) Operating Leases and any significant part initially recognised net disposal proceeds and the carrying Operating lease payments are recognized is de-recognised upon disposal or when amount of the asset) is included in the as an operating expense in the income no future economic benefits are expected income statement when the asset is statement on straight line basis over the from its use or disposal. Any gain or loss derecognised. lease term. arising on derecognition of the asset

80 Serendib Hotels PLC I Annual Report 2012/13 2.3.5 Borrowing Costs the amortisation period or method, as of business, less estimated costs of Borrowing costs directly attributable appropriate, and are treated as changes completion and the estimated costs to the acquisition, construction or in accounting estimates. The amortisation necessary to make the sale. production of an asset that necessarily expense on intangible assets with takes a substantial period of time to get finite lives is recognised in the income 2.3.8 Financial Instruments - Initial ready for its intended use or sale are statement in the expense category Recognition and Subsequent capitalised as part of the cost of the consistent with the function of the Measurement respective assets. All other borrowing intangible assets. costs are expensed in the period they i) Financial Assets occur. Borrowing costs consist of interest Intangible assets with indefinite Initial Recognition and Measurement and other costs that an entity incurs in useful lives are not amortised, but are Financial assets within the scope of LKAS connection with the borrowing of funds. tested for impairment annually, either 39 are classified as financial assets at fair individually or at the cash-generating value through profit or loss, loans and 2.3.6 Intangible assets unit level. The assessment of indefinite receivables, held-to-maturity investments Intangible assets acquired separately are life is reviewed annually to determine and available-for-sale financial assets, measured on initial recognition at cost. whether the indefinite life continues to be as appropriate and determine the The cost of intangible assets acquired in supportable. If not, the change in useful classification of its financial assets at initial a business combination is their fair value life from indefinite to finite is made on a recognition. as at the date of acquisition. Following prospective basis. initial recognition, intangible assets All financial assets are recognised initially are carried at cost less accumulated Gains or losses arising from derecognition at fair value plus transaction costs of amortisation and accumulated of an intangible asset are measured as assets, in the case of investments not at impairment losses, if any. Internally the difference between the net disposal fair value through profit or loss. generated intangible assets, excluding proceeds and the carrying amount of capitalised development costs, are not the asset and are recognised in the The financial assets include cash and capitalised and expenditure is reflected in income statement when the asset is short-term deposits, trade and other the income statement in the year in which derecognised. receivables, other financial assets. the expenditure is incurred. 2.3.7 Inventories Subsequent Measurement The useful lives of intangible assets are Inventories are valued at the lower of cost The subsequent measurement of financial assessed as either finite or indefinite. and net realisable value, after making due assets depends on their classification as allowances for obsolete and slow moving follows: Intangible assets with finite lives are items. amortised over their useful economic Loans and Receivables lives and assessed for impairment The cost incurred in bringing inventories Loans and receivables are non-derivative whenever there is an indication that the to its present location and conditions financial assets with fixed or determinable intangible asset may be impaired. The are accounted using the following cost payments that are not quoted in an amortisation period and the amortisation formulae: active market. After initial measurement, method for an intangible asset with Foods and Beverages Stocks: such financial assets are subsequently a finite useful life is reviewed at least At actual cost on weighted average basis. measured at amortised cost using the at the end of each reporting period. Maintenance and Others: effective interest rate method (EIR), less Changes in the expected useful life or At actual cost on weighted average basis. impairment. Amortised cost is calculated the expected pattern of consumption of by taking into account any discount future economic benefits embodied in Net realisable value is the estimated or premium on acquisition and fees or the asset is accounted for by changing selling price in the ordinary course costs that are an integral part of the

Serendib Hotels PLC I Annual Report 2012/13 81 NOTES TO THE FINANCIAL STATEMENTS Contd. Year ended 31 March 2013

EIR. The EIR amortisation is included in markets and management’s intention • The Group has transferred finance income in the income statement. to do so significantly changes in the substantially all the risks and rewards The losses arising from impairment are foreseeable future, the Group may elect of the asset, or recognised in the income statement in to reclassify these financial assets in rare • The Group has neither transferred finance cost. circumstances. Reclassification to loans nor retained substantially all the risks and receivables is permitted when the and rewards of the asset, but has Available-for-Sale Financial Investments financial assets meet the definition of transferred control of the asset. Available-for-sale financial investments loans and receivables and the Group has include equity and debt securities. the intent and ability to hold these assets When the Group has transferred its Equity investments classified as for the foreseeable future or until maturity. rights to receive cash flows from an available-for-sale are those, which are Reclassification to the held-to-maturity asset or has entered into a pass-through neither classified as held for trading nor category is permitted only when the entity arrangement, and has neither transferred designated at fair value through profit or has the ability and intention to hold the nor retained substantially all of the risks loss. Debt securities in this category are financial asset accordingly. and rewards of the asset nor transferred those which are intended to be held for control of it, the asset is recognised to an indefinite period of time and which For a financial assets reclassified out the extent of the company’s continuing may be sold in response to needs for of the available for sale category, any involvement in it. liquidity or in response to changes in the previous gain or loss on that asset market conditions. that has been recognised in equity In that case, the Group also recognises is amortised to profit or loss over the an associated liability. The transferred After initial measurement, available- remaining life of the investment using assets and the associated liability are for-sale financial investments are the EIR. Any difference between the measured on a basis that reflects the subsequently measured at fair value with new amortized cost and the expected rights and obligations that the Group has unrealised gains or losses recognised cash flows is also amortised over the retained. as other comprehensive income in remaining life of the asset using the EIR. If the available-for-sale reserve until the the assets is subsequently determined to Continuing involvement that takes the investment is derecognised, at which be impaired, then the amount recorded form of a guarantee over the transferred time the cumulative gain or loss is in equity is reclassified to the income asset is measured at the lower of the recognised in other operating income, statement. original carrying amount of the asset and or determined to be impaired, at which the maximum amount of consideration time the cumulative loss is reclassified to Derecognition that the Group could be required to the income statement in finance costs A financial asset (or, where applicable a repay. and removed from the available-for-sale part of a financial asset or part of a group reserve. Interest income on available- of similar financial assets) is derecognised ii) Impairment of Financial Assets for-sale debt securities is calculated when, The Group assesses at each reporting using the effective interest method and is date whether there is any objective recognised in profit or loss. i) The rights to receive cash flows from evidence that a financial asset or a group the asset have expired of financial assets is impaired. A financial The Group evaluates its available- ii) The Group has transferred its rights asset or a group of financial assets is for-sale financial assets to determine to receive cash flows from the asset deemed to be impaired if, and only if, whether the ability and intention to sell or has assumed an obligation to pay there is objective evidence of impairment them in the near term is still appropriate. the received cash flows in full without as a result of one or more events that has When the Group is unable to trade material delay to a third party under occurred after the initial recognition of the these financial assets due to inactive a ‘pass-through’ arrangement; and asset and that loss event has an impact either on the estimated future cash flows of the

82 Serendib Hotels PLC I Annual Report 2012/13 financial asset or the group of financial future expected credit losses that have In the case of equity investments assets that can be reliably estimated. not yet been incurred). The present value classified as available-for-sale, objective of the estimated future cash flows is evidence would include a significant or Evidence of impairment may include discounted at the financial asset’s original prolonged decline in the fair value of the indications that the debtors or a group effective interest rate. If a loan has a investment below its cost. Where there is of debtors is experiencing significant variable interest rate, the discount rate evidence of impairment, the cumulative financial difficulty, default or delinquency for measuring any impairment loss is the loss measured as the difference between in interest or principal payments, the current effective interest rate. the acquisition cost and the current probability that they will enter bankruptcy fair value, less any impairment loss on or other financial reorganisation and The carrying amount of the asset is that investment previously recognised where observable data indicate that reduced through the use of an allowance in the income statement, is removed there is a measurable decrease in account and the amount of the loss is from other comprehensive income and the estimated future cash flows, such recognised in the income statement. recognised in the income statement. as changes in arrears or economic Interest income continues to be accrued Impairment losses on equity investments conditions that correlate with defaults. on the reduced carrying amount and is are not reversed through the income accrued using the rate of interest used statement; increases in their fair value Financial Assets Carried at Amortised to discount the future cash flows for the after impairments are recognised directly Cost purpose of measuring the impairment in other comprehensive income. For financial assets carried at amortised loss. The interest income is recorded cost, the Group first assesses whether as part of finance income in the income In the case of debt instruments classified objective evidence of impairment exists statement. Loans together with the as available-for-sale, impairment is individually for financial assets that are associated allowance are written off assessed based on the same criteria individually significant, or collectively for when there is no realistic prospect of as financial assets carried at amortised financial assets that are not individually future recovery and all collateral has cost. However, the amount recorded significant. If the Group determines that been realised or has been transferred to for impairment is the cumulative loss no objective evidence of impairment the Group. If, in a subsequent year, the measured as the difference between exists for an individually assessed amount of the estimated impairment loss the amortised cost and the current fair financial asset, whether significant or increases or decreases because of an value, less any impairment loss on that not, it includes the asset in a group of event occurring after the impairment was investment previously recognised in the financial assets with similar credit risk recognised, the previously recognised income statement. characteristics and collectively assesses impairment loss is increased or reduced them for impairment. Assets that are by adjusting the allowance account. If Future interest income continues to be individually assessed for impairment a future write-off is later recovered, the accrued based on the reduced carrying and for which an impairment loss is, recovery is credited to finance costs in amount of the asset, using the rate of or continues to be, recognised are not the income statement. interest used to discount the future cash included in a collective assessment of flows for the purpose of measuring the impairment. Available-for-Sale Financial impairment loss. The interest income Investments is recorded as part of finance income. If there is objective evidence that an For available-for-sale financial If, in a subsequent year, the fair value impairment loss has been incurred, investments, the Group assesses at each of a debt instrument increases and the the amount of the loss is measured reporting date whether there is objective increase can be objectively related to an as the difference between the assets evidence that an investment or a group of event occurring after the impairment loss carrying amount and the present value investments is impaired. was recognised in the income statement, of estimated future cash flows (excluding the impairment loss is reversed through the income statement.

Serendib Hotels PLC I Annual Report 2012/13 83 NOTES TO THE FINANCIAL STATEMENTS Contd. Year ended 31 March 2013

iii) Financial Liabilities Derecognition 2.3.9 Impairment of Non - Financial A financial liability is derecognized Assets Initial Recognition and Measurement when the obligation under the liability is The Group assesses at each reporting Financial liabilities within the scope discharged or cancelled or expires. When date whether there is an indication that an of LKAS 39 are classified as financial an existing financial liability is replaced asset may be impaired. If any indication liabilities at fair value through profit by another from the same lender on exists, or when annual impairment or loss, loans and borrowings, other substantially different terms, or the terms testing for an asset is required, the financial liabilities or as derivatives of an existing liability are substantially Group estimates the asset’s recoverable designated as hedging instruments in modified, such an exchange or amount. An asset’s recoverable amount an effective hedge, as appropriate. The modification is treated as a derecognition is the higher of an asset’s or cash- Group determines the classification of its of the original liability and the recognition generating unit’s (CGU) fair value less financial liabilities at initial recognition. of a new liability, and the difference costs to sell and its value in use and in the respective carrying amounts is is determined for an individual asset, All financial liabilities are recognised recognised in the income statement. unless the asset does not generate cash initially at fair value and, in the case of inflows that are largely independent of loans and borrowings, and other financial iv) Offsetting of Financial those from other assets or groups of liabilities carried at amortised cost. This Instruments assets. Where the carrying amount of an includes directly attributable transaction Financial assets and financial liabilities are asset or CGU exceeds its recoverable costs. offset and the net amount reported in the amount, the asset is considered impaired statement of financial position if, and only and is written down to its recoverable The Group’s financial liabilities include if, there is a currently enforceable legal amount. In assessing value in use, trade and other payables, bank right to offset the recognised amounts the estimated future cash flows are overdrafts, loans and borrowings, other and there is an intention to settle on a net discounted to their present value using financial liabilities. basis, or to realise the assets and settle a pre-tax discount rate that reflects the liabilities simultaneously. current market assessments of the time Subsequent Measurement value of money and the risks specific to The measurement of financial liabilities v) Fair Value of Financial the asset. In determining fair value less depends on their classification as follows; Instruments costs to sell, recent market transactions The fair value of financial instruments are taken into account, if available. If Loans and Borrowings / Other that are traded in active markets at each no such transactions can be identified, Financial Liabilities. reporting date is determined by reference an appropriate valuation model is used. After initial recognition, interest bearing to quoted market prices or dealer price These calculations are corroborated by loans and borrowings are subsequently quotations (bid price for long position and valuation multiples, quoted share prices measured at amortised cost using the ask price for short positions), without any for publicly traded subsidiaries or other effective interest rate method. Gains deduction for transaction costs. available fair value indicators. and losses are recognised in the income statement when the liabilities For financial instruments not traded in an Impairment losses of continuing are derecognised as well as through active market, the fair value is determined operations, including impairment on the effective interest rate method (EIR) using appropriate valuation techniques. inventories, are recognised in the income amortisation process. Amortised cost Such techniques may include using statement in those expense categories is calculated by taking into account any recent arm’s length market transactions; consistent with the function of the discount or premium on acquisition and reference to the current fair value of impaired asset, except for a property fees or costs that are an integral part of another instrument that is substantially previously revalued where the revaluation the EIR. The EIR amortisation is included the same; a discounted cash flow was taken to other comprehensive in finance costs in the income statement. analysis or other valuation models. income. In this case, the impairment is

84 Serendib Hotels PLC I Annual Report 2012/13 also recognised in other comprehensive Intangible Assets the passage of time is recognised as a income up to the amount of any previous Intangible assets with indefinite useful finance cost. revaluation. lives are tested for impairment annually as at 31 March either individually or at 2.3.12 Retirement Benefit Liability For assets excluding goodwill, an the CGU level, as appropriate and when assessment is made at each reporting circumstances indicate that the carrying (a) Defined Contribution Plans - date as to whether there is any indication value may be impaired. Employees’ Provident Fund that previously recognised impairment and Employees’ Trust Fund losses may no longer exist or may have 2.3.10 Cash and Short Term Deposits Employees are eligible for Employees’ decreased. If such indication exists, the Cash and short-term deposits in the Provident Fund Contributions and Group estimates the asset’s or cash- statement of financial position comprise Employees’ Trust Fund Contributions generating unit’s recoverable amount. A cash at banks and on hand and short- in line with the respective statutes and previously recognised impairment loss is term deposits with a maturity of three regulations. The Company contributes reversed only if there has been a change months or less. 12% and 3% of gross emoluments of in the assumptions used to determine employees to Employees’ Provident Fund the asset’s recoverable amount since For the purpose of the Company and Employees’ Trust Fund respectively. the last impairment loss was recognised. statement of cash flows, cash and cash The reversal is limited so that the carrying equivalents consist of cash and short- (b) Defined Benefit Plan – Gratuity amount of the asset does not exceed term deposits as defined above, net of The Group measures the present value its recoverable amount, nor exceed the outstanding bank overdrafts. of the promised retirement benefits of carrying amount that would have been gratuity which is a defined benefit plan determined, net of depreciation, had no 2.3.11 Provisions with the advice of an actuary using the impairment loss been recognised for Provisions are recognised when the projected benefit valuation method. the asset in prior years. Such reversal Group has a present obligation (legal Actuarial gains and losses for defined is recognised in the income statement or constructive) as a result of a past benefit plans are recognised in full in the unless the asset is carried at a revalued event, it is probable that an outflow of period in which they occur in the income amount, in which case the reversal is resources embodying economic benefits statement. treated as a revaluation increase. will be required to settle the obligation and a reliable estimate can be made of However, as per the payment of Gratuity Goodwill the amount of the obligation. Where the Act No. 12 of 1983 this liability only arises Goodwill is tested for impairment annually Group expects some or all of a provision upon completion of 5 years of continued as at 31 March and when circumstances to be reimbursed, for example under an service. indicate that the carrying value may be insurance contract, the reimbursement The gratuity liability is not externally impaired. Impairment is determined for is recognised as a separate asset but funded. goodwill by assessing the recoverable only when the reimbursement is virtually amount of each CGU (or group of certain. The expense relating to any 2.4 Significant Accounting Judgments, CGUs) to which the goodwill relates. provision is presented in the income Estimates and Assumptions Where the recoverable amount of the statement net of any reimbursement. The preparation of the Group financial cash-generating unit is less than their statements requires management carrying amount, an impairment loss is If the effect of the time value of money to make judgments, estimates and recognised. Impairment losses relating is material, provisions are discounted assumptions that affect the reported to goodwill cannot be reversed in future using a current pre-tax rate that reflects, amounts of revenues, expenses, assets periods. where appropriate, the risks specific to and liabilities, and the disclosure of the liability. Where discounting is used, contingent liabilities, at the end of the the increase in the provision due to reporting period. However, uncertainty

Serendib Hotels PLC I Annual Report 2012/13 85 NOTES TO THE FINANCIAL STATEMENTS Contd. Year ended 31 March 2013

about these assumptions and estimates Defined Benefit Plans In addition to the above, following could result in outcomes that require The cost of defined benefit plans-gratuity standards were also issued with an a material adjustment to the carrying is determined using actuarial valuations. original effective date of 01 January 2013, amount of the asset or liability affected in The actuarial valuation involves making which were also deferred subsequently. future periods. assumptions about discount rates, SLFRS 10-Consolidated Financial futures salary increases and retirement Statements Judgments age. Due to the long term nature of these SLFRS 12-Disclosure of Interest in In the process of applying the company plans, such estimates are subject to Other Entities accounting policies, management has significant uncertainty. All assumptions The Group will adopt these standards made the following judgments, which are reviewed at each reporting date. when they become effective. Pending a have the most significant effect on the detailed review, the financial impact is amounts recognised in the financial 2.5 Standards Issued But not yet not reasonably estimate as at the date of statements: Effective publication of these Financial Statements. The following SLFRS have been issued Deferred Tax Assets by the Institute of Chartered Accountants 2.6 FIRST TIME ADOPTION OF Deferred tax assets are recognised for of Sri Lanka that have an effective date SLFRS all unused tax losses to the extent that in the future and have not been applied These financial statements, for the year it is probable that taxable profit will be in preparing these Financial Statements. ended 31 March 2013, are the first the available against which the losses can Those SLFRS will have an effect on the Company has prepared in accordance be utilised. Significant management Accounting policies currently adopted by with SLFRS. For periods up to and judgment is required to determine the the group and may have an impact on including the year ended 31 March 2012, amount of deferred tax assets that can be the future Financial Statements. the Company prepared its financial recognised, based upon the likely timing statements in accordance with Sri Lanka and level of future taxable profits together (i) SLFRS 9- Financial Instruments: Accounting Standards (SLAS). with future tax planning strategies. Classification and Measurement SLFRS 9, as issued reflect the first Accordingly, the Group has prepared Estimates and Assumptions phase of work on replacement of financial statements which comply with The key assumptions concerning LKAS 39 and applies to Classification SLFRS applicable for periods ending on the future and other key sources of and Measurement of financial Assets or after 31 March 2013, together with the estimation uncertainty at the reporting and Liabilities. This is standard will comparative period data as at and for the date, that have a significant risk of be effective from the financial period year ended 31 March 2012, as described causing a material adjustment to beginning on or after 1 January 2015. in the accounting policies. In preparing the carrying amounts of assets and these financial statements, the Group’s liabilities within the next financial year, (ii) SLFRS 13- Fair Value measurements opening statement of financial position are described below. The Group based SLFRS 13 establishes a single source was prepared as at 1 April 2011, the its assumptions and estimates on of guidance under SLFRS for all fair Group’s date of transition to SLFRS. This parameters available when the financial value measurements. SLFRA 13 note explains the principal adjustments provides guidance on all fair value statements were prepared. Existing made by the Company in restating its measurement under SLFRS. circumstances and assumptions about SLAS statement of financial position as at future developments, however, may 1 April 2011 and its previously published This standard was originally effective for change due to market changes or SLAS Financial Statements as at and for the financial period beginning on or after circumstances arising beyond the control the year ended 31 March 2012. 01 January 2013 and early application of the Company. Such changes are was allowed. However effective date has reflected in the assumptions when they been deferred subsequently. occur.

86 Serendib Hotels PLC I Annual Report 2012/13 Exemptions Applied Group has tested goodwill for impairment which were previously de-recognised SLFRS 1 First-Time Adoption of Sri Lanka at the date of transition to SLFRS. under SLAS as a result of a transaction Financial Reporting Standards allows No goodwill impairment was deemed that occurred before the transition date 1 first-time adopters certain exemptions necessary at 1 April 2011. April 2011 has not been re-recognised in and exceptions from the retrospective the SLFRS Financial Statements. application of certain SLFRS. Set out The Group has not applied LKAS 21 below are the applicable exemptions retrospectively to fair value adjustments Non-Controlling Interests and exceptions under SLFRS 1 applied and goodwill from business combinations The following requirements of LKAS 27 by the Company in preparing the first that occurred before the date of transition are applied prospectively from the date of Consolidated Financial Statements for the to SLFRS. transition to SLFRS. year ended 31 March 2013 under SLFRS. (i) to attribute total comprehensive Investments in Subsidiaries and income to non controlling interest Optional Exemptions which the Group Associates irrespective of whether this results in has Opted to Apply The basis of measurement of an a deficit balance. investment in a subsidiary or associate is (ii) to treat changes in a parent’s Business Combinations at its deemed cost in the separate SLFRS ownership interest that does not SLFRS 3 Business Combinations has financial statements of the subsidiary, result in a loss of control as equity not been applied to acquisitions of jointly controlled entity or associate. The transactions. (iii) to apply LKAS 27 to loss of control subsidiaries, which are considered group has applied the previous carrying of a subsidiaries. businesses for SLFRS or of interests value under SLAS on 1 April 2011 as the in associates and joint ventures that deemed cost of such investments. occurred before 1 April 2011. Designations of Previously Recognised Use of this exemption means that the Financial Instruments local SLAS carrying amounts of assets The Group has designated unquoted and liabilities, which are required to be equity instruments held at 1 April 2011 as recognised under SLFRS, is their deemed available-for-sale investments. cost at the date of the acquisition. After the date of the acquisition, measurement Exceptions the Group has not Applied is in accordance with SLFRS. Assets and Retrospectively liabilities that do not qualify for recognition under SLFRS are excluded from the Estimates opening SLFRS statement of financial The estimates at 1 April 2011 and at 31 position. The Group did not recognise March 2012 are consistent with those or exclude any previously recognised made for the same dates in accordance amounts as a result of SLFRS recognition with SLAS (after adjustments to reflect requirements. any differences in accounting policies).

SLFRS 1 also requires that the local De-recognition of Financial Assets and SLAS carrying amount of goodwill Financial Liabilities must be used in the opening SLFRS The Group has applied the derecognition statement of financial position (apart from requirements in LKAS 39 prospectively to adjustments for goodwill impairment and transactions occurring after 1 April 2011. recognition or derecognition of intangible Therefore the non-derivative financial assets). In accordance with SLFRS 1, the assets or non-derivative financial liabilities

Serendib Hotels PLC I Annual Report 2012/13 87 NOTES TO THE FINANCIAL STATEMENTS Contd. Year ended 31 March 2013

2.6.1 Group/Company Reconcilation of Equity as at 1April 2011 (Date of transition to SLFRS)

Group Company Note SLAS Re- SLFRS SLAS Re- SLFRS Balance measurements as at Balance measurements as at 1 April 1 April 2011 2011 Rs. Rs. Rs. Rs. Rs. Rs.

ASSETS Non-Current Assets Property, Plant and Equipment A 1,515,111,736 (4,816,299) 1,510,295,437 202,896,008 (1,826,989) 201,069,019 Leasehold Property 40,207,704 - 40,207,704 37,437,342 - 37,437,342 Intangible Assets G & A 22,252,564 156,688,641 178,941,205 - 1,826,989 1,826,989 Investments in Subsidiaries - - - 260,497,335 - 260,497,335 Investment in an Associate G - 168,001,628 168,001,628 - 319,873,970 319,873,970 Other Non Current Financial Assets G 329,873,970 (319,873,970) 10,000,000 323,207,310 (319,873,970) 3,333,340 Deferred Tax Asset 2,534,199 - 2,534,199 2,534,199 - 2,534,199 1,909,980,173 - 1,909,980,173 826,572,194 - 826,572,194 Current Assets Inventories 17,672,960 - 17,672,960 4,031,755 - 4,031,755 Trade and Other Receivables B & D 279,395,926 (1,403,760) 277,992,166 74,397,181 17,560,352 91,957,533 Amounts Due from Related Parties D 893,321 (893,321) - 17,401,812 (17,401,812) - Taxation Recoverable 9,093,503 - 9,093,503 - - - Cash and Cash Equivalents 89,730,615 - 89,730,615 26,278,166 - 26,278,166 396,786,325 (2,297,081) 394,489,244 122,108,913 158,540 122,267,454 Total Assets 2,306,766,498 (2,297,081) 2,304,469,417 948,681,107 158,540 948,839,648

EQUITY AND LIABILITIES Equity Stated Capital 411,659,117 - 411,659,117 411,659,117 - 411,659,117 Reserves D 119,832,912 (119,832,912) - 63,892,406 (63,892,406) - Other component of Equity D - 99,892,912 99,892,912 - 49,392,406 49,392,406 Other Revenue Reserve D - 19,940,000 19,940,000 - 14,500,000 14,500,000 Retained Earnings B & C 384,514,059 (1,433,044) 383,081,015 128,151,088 158,540 128,309,628 Equity Attributable to Equity Holders of the Parent 916,006,088 (1,433,044) 914,573,044 603,702,611 158,540 603,861,151 Non Controlling Interest B & C 293,688,146 (864,037) 292,824,109 - - - Total Equity 1,209,694,234 (2,297,081) 1,207,397,153 603,702,611 158,540 603,861,151

Non-Current Liabilities Interest Bearing Loans and Borrowings 462,061,828 - 462,061,828 143,420,167 - 143,420,167 Deferred Tax Liability 62,690,774 - 62,690,774 - - - Employee Benefit Liability 26,483,472 - 26,483,472 8,406,500 - 8,406,500 Deferred Income 1,452,740 - 1,452,740 - - - 552,688,814 - 552,688,814 151,826,667 - 151,826,667 Current Liabilities Trade and Other Payables D 212,173,145 460,322 212,633,467 48,431,490 10,848,072 59,279,562 Amounts Due to Related Parties D 460,322 (460,322) - 10,848,072 (10,848,072) - Dividends Payable 10,866,246 - 10,866,246 1,395,786 - 1,395,786 Income Tax Liabilities 5,451,248 - 5,451,248 3,041,903 - 3,041,903 Non-interest Bearing Loans and Borrowings 1,207,000 - 1,207,000 - - - Interest Bearing Loans and Borrowings 314,225,489 - 314,225,489 129,434,579 - 129,434,579 544,383,450 - 544,383,450 193,151,830 - 193,151,830 Total Equity and Liabilities 2,306,766,498 (2,297,081) 2,304,469,417 948,681,107 158,540 948,839,648

88 Serendib Hotels PLC I Annual Report 2012/13 2.6.2 Company Reconcilation of Equity as at 31 March 2012

Group Company Note SLAS Re- SLFRS SLAS Re- SLFRS Balance measurements as at Balance measurements as at 31 March 31 March 2012 2012 Rs. Rs. Rs. Rs. Rs. Rs.

ASSETS Non-Current Assets Property, Plant and Equipment A 2,293,971,100 (3,721,006) 2,290,250,094 859,314,764 (1,801,989) 857,512,775 Leasehold Property 38,380,081 - 38,380,081 35,735,645 - 35,735,645 Intangible Assets A & G 22,252,564 155,593,347 177,845,911 - 1,801,989 1,801,989 Investments in Subsidiaries - - - 260,497,335 260,497,335 Investment in an Associate G - 179,398,523 179,398,523 - 319,873,970 319,873,970 Other Non Current Financial Assets G 329,873,970 (319,873,970) 10,000,000 323,207,310 (319,873,970) 3,333,340 Deferred Tax Asset 11,082,268 - 11,082,268 10,368,084 - 10,368,084 2,695,559,983 11,396,894 2,706,956,877 1,489,123,138 - 1,489,123,138 Current Assets Inventories 17,791,423 - 17,791,423 5,777,490 - 5,777,490 Trade and Other Receivables B & D 271,449,120 (401,842) 271,047,278 89,921,761 4,362,177 94,283,938 Amounts Due from Related Parties D 1,968,250 (1,968,250) - 5,860,464 (5,860,464) - Taxation Recoverable 9,793,073 - 9,793,073 1,399,380 - 1,399,380 Cash and Cash Equivalents 138,058,042 - 138,058,042 35,073,194 - 35,073,194 439,059,908 (2,370,092) 436,689,816 138,032,289 (1,498,287) 136,534,002 Total Assets 3,134,619,891 9,026,802 3,143,646,693 1,627,155,427 (1,498,287) 1,625,657,140

EQUITY AND LIABILITIES Equity Stated Capital 913,121,694 - 913,121,694 913,121,694 - 913,121,694 Reserves D 205,625,931 (205,625,931) - 61,210,556 (61,210,556) - Other component of Equity D - 185,685,931 185,685,931 - 46,710,556 46,710,556 Other Revenue Reserve D - 19,940,000 19,940,000 - 14,500,000 14,500,000 Retained Earnings B & C 416,216,799 9,337,992 425,554,791 58,263,665 (1,498,287) 56,765,378 1,534,964,424 9,337,992 1,544,302,416 1,032,595,915 (1,498,287) 1,031,097,628 Equity Attributable to Equity Holders of the Parent Non Controlling Interest B & C 389,294,504 (311,190) 388,983,314 - - - Total Equity 1,924,258,928 9,026,802 1,933,285,730 1,032,595,915 (1,498,287) 1,031,097,628

Non-Current Liabilities Interest Bearing Loans and Borrowings 666,987,520 - 666,987,520 307,787,285 - 307,787,285 Deferred Tax Liability 62,132,583 - 62,132,583 - - - Employee Benefit Liability 26,112,590 - 26,112,590 7,912,132 - 7,912,132 Deferred Income 1,333,836 - 1,333,836 - - - 756,566,529 - 756,566,529 315,699,417 - 315,699,417 Current Liabilities Trade and Other Payables D 296,559,213 12,993,684 309,552,897 136,997,226 13,252,480 150,249,706 Amounts Due to Related Parties D 12,993,684 (12,993,684) - 13,252,480 (13,252,480) - Dividends Payable 3,519,125 - 3,519,125 1,385,354 - 1,385,354 Income Tax Liabilities 5,313,881 - 5,313,881 - - - Non-interest Bearing Loans and Borrowings 1,207,000 - 1,207,000 - - - Interest Bearing Loans and Borrowings 134,201,531 - 134,201,531 127,225,035 - 127,225,035 453,794,434 - 453,794,434 278,860,095 - 278,860,095 Total Equity and Liabilities 3,134,619,891 9,026,802 3,143,646,693 1,627,155,427 (1,498,287) 1,625,657,140

Serendib Hotels PLC I Annual Report 2012/13 89 NOTES TO THE FINANCIAL STATEMENTS Contd. Year ended 31 March 2013

2.6.3 Company Reconciliation of Comprehensive Income for the Year Ended 31 March 2012

Income Statement Group Company Notes SLAS Re- SLFRS SLAS Re- SLFRS Balance measurements as at Balance measurements as at 31 March 31 March 2012 2012 Rs. Rs. Rs. Rs. Rs. Rs.

Revenue F 1,015,148,101 32,311,543 1,047,459,644 133,805,485 4,657,202 138,462,687 Cost of Sales F (237,535,770) (32,311,543) (269,847,313) (35,812,378) (4,657,202) (40,469,580) Gross Profit 777,612,331 - 777,612,331 97,993,107 - 97,993,107 Dividend Income - - - 11,306,446 - 11,306,446 Other Operating Income & Gains 13,377,991 - 13,377,991 5,497,392 - 5,497,392 Sales and Marketing Expenses B (37,291,312) (61,662) (37,352,974) (11,865,351) (1,656,827) (13,522,178) Administrative Expenses (564,777,223) - (564,777,223) (141,193,658) - (141,193,658) Operating Profit 188,921,787 (61,662) 188,860,125 (38,262,064) (1,656,827) (39,918,891) Finance Costs (49,614,862) - (49,614,862) (19,631,849) - (19,631,849) Finance Income 12,605,220 - 12,605,220 9,608,605 - 9,608,605 Exchange Gain/(Loss) (51,401,117) - (51,401,117) (25,888,069) - (25,888,069) Share of Results of Associate (Net of tax) G - 11,396,894 11,396,894 - - - Profit before Tax 100,511,028 11,335,232 111,846,260 (74,173,377) (1,656,827) (75,830,204) Income Tax Expense (20,585,171) (20,585,171) 5,345,539 5,345,539 Profit for the Year 79,925,857 11,335,232 91,261,089 (68,827,838) (1,656,827) (70,484,665)

Attributable to: Equity-holders of the Parent 30,091,159 10,782,385 40,873,544 Minority Interest 49,834,699 552,847 50,387,546 79,925,858 11,335,232 91,261,090

STATEMENT OF COMPREHENSIVE INCOME

Other Comprehensive Income

Surplus/(Deficit) on Revaluation E - 141,849,741 141,849,741 - (765,472) (765,472)

Deferred Tax Attributable to Revaluation Surplus E - 664,860 664,860 - 777,596 777,596 Other Comprehensive Income for the Year, Net of Tax - 142,514,601 142,514,601 - 12,124 12,124

Total Comprehensive Income for the Year, Net of Tax - 233,775,690 233,775,690 - (70,472,541) (70,472,541)

Earnings Per Share - Basic 0.27 0.38

Attributable to: Equity Holders of the Parent 132,031,703 Non-Controlling Interest 101,743,988 233,775,691

90 Serendib Hotels PLC I Annual Report 2012/13 2.6.4 Notes to the Reconciliation Mn. as at 1 April 2011. The effect on and 2012 respectively. Further Amount of Equity as at 1 April 2011 Retained Earnings for the year ended due to Related Parties balance has and 31 March 2012 and 31 March 2011 was Rs. 2.3 Mn. for the also reclassified under Trade and Other Comprehensive Income for the Group and Rs. 0.2 Mn. for the company Payables amounting to Rs. 10.8 Mn. and year ended 31 March 2012 and for the year ended 31 March 2012 Rs. 13.3 Mn. in Company and Rs. 0.5 Rs. 0.06 Mn. for the group and Rs. 1.7 Mn. and Rs. 13 Mn. in the Group in year A. Transfer from PPE to Intangible Mn. for the Company are also recognised 2011 and 2012 respectively. Assets in profit under SLFRS. Computer software that are not integral E. Revaluation to operate the hardware were reclassfied C. Fair Valuation of Staff Loans Revaluation surplus on Land and Building as a separate intangible assets at the Under SLAS staff loans were initially in year 2012 has been recognised date of transition to SLFRS. Therefore net measured at cost. As per LKAS 39 under the Other Comprehensive Income book value of Rs. 4.8 Mn in Group and financial assets are initially measured amounting to Rs. 142.5 Mn. in the Group Rs.1.8 Mn. in Company were transferred at fair value. Hence, staff loans given at and Rs. 0.01 Mn. in the Company. to intangible assets as at 01 April 2011. below market rates should be fair valued. In year 2011/12 net book value of Rs. The effect of valuing staff loan at fair value F. Revenue and Cost of Sales 3.7 Mn. in Group and Rs.1.8 Mn. in Rs. 0.01 Mn. was recognised in profit for Under the Previous practice, Group Company were transfered to intangible the year 2011 under SLFRS." and Company had not grossed revenue assets. for Nation Building Levy and Tourism D. Reclassification Development Levy. Therefore revenue B. Impairment of Trade Reserve amounting to Rs. 119.8 Mn. and cost sales have been restated by Rs. Receivables in the Group and Rs. 63.9 Mn. in the 32.3 Mn. In Group and Rs. 4.7 Mn. In Under current practice, the provision Company were reclassified as Other Company. for impairment of receivables consists Component of Equity amount of Rs. of both a specific amount for incurred 99.9 Mn. for Group and Rs. 49.4 Mn. G. Investment in Associate losses and general amount for expected for the Company and Other Revenue Investment in Jada Resorts and Spa future losses. SLFRS does not permit Reserve Rs. 19,9 Mn. in Group and Rs. (Pvt) Ltd, amounting Rs. 320 Mn. recognition of impairment for expected 14.5 Mn. in Company under SLFRS as was de-recognised from Other Non- future losses and amount of Rs. 8.1 at 01.04.2011. In the year 2012 Reserve Current Investment and recognised Rs. Mn. in the Group and Rs. 4 Mn. in the amounting to Rs. 205.6 Mn. in the 168 Mn. as an investment Associate Company have been eliminated against Group and Rs. 61.2 Mn. in the Company by recognising Goodwill arising on retained earnings at 1 April 2011. A were reclassified as Other Component acquisition, Rs.152 Mn. as an Intangible debtor or a group of debtors are deemed of Equity amount of Rs. 185.7 Mn. for assets as at 01 April 2011. During year to be impaired if, and only if, there is Group and Rs. 46.7 Mn. for the Company ended 31 March 2012, Rs. 11.4 Mn. objective evidence of impairment as a and Other Revenue Reserve Rs. 19.9 Mn. was recognised as share profit of the result of one or more events that has in Group and Rs. 14.5 Mn. in Company. Associate. occurred after the initial recognition of the debtor (an incurred ‘loss event’) During the year 2011, and 2012, the In Company, investment in Jada Resorts and that loss event has an impact on Group/Company has reclassified Amount and Spa (Pvt) Ltd., amounting Rs. 320 the estimated future cash flows of the due from Related Parties balance under Mn. was de-recognised from Other Non- debtor or the group of debtors that can Trade and Other Receivables amounting Current Investment and recognised as an be reliably estimated. Accordingly Group to Rs. 17.4 Mn. and Rs. 5.8 Mn. in the investment Associate as at 01 April 2011 recognised an impairment of Rs. 10.3 Company and Rs. 0.9 Mn. and Rs. and 31 March 2012. Mn. and Company recognised Rs. 3.6 1.97 Mn. in the Group in year 2011

Serendib Hotels PLC I Annual Report 2012/13 91 NOTES TO THE FINANCIAL STATEMENTS Contd. Year ended 31 March 2013

3. REVENUE Group Company 2013 2012 2013 2012 Rs. Rs. Rs. Rs.

Rendering of Services 1,401,893,551 1,015,148,101 395,775,165 133,805,485 Tourism Development Levy 14,096,806 9,947,449 4,061,846 1,423,524 Nations Building Tax 31,487,788 22,364,094 8,986,959 3,233,678 1,447,478,145 1,047,459,644 408,823,970 138,462,687

4. DIVIDEND INCOME Group Company 2013 2012 2013 2012 Rs. Rs. Rs. Rs.

Income from Investments - Related Parties - - 55,241,150 11,306,446 - - 55,241,150 11,306,446

5. OTHER INCOME AND GAINS Group Company 2013 2012 2013 2012 Rs. Rs. Rs. Rs.

Rental Income from - Related Parties - - - 1,444,800 - Others 601,390 540,000 - - Write Back of Grant Received 118,904 118,904 - - Write Back of Unclaimed Salaries and Service Charges 572,881 - - - Profit on Disposal of Property Plant and Equipment 1,566,397 6,589,357 748,540 - Sundry Income 96,562 6,129,730 67,459 4,052,592 2,956,134 13,377,991 815,999 5,497,392

92 Serendib Hotels PLC I Annual Report 2012/13 6. FINANCE COST AND INCOME Group Company 2013 2012 2013 2012 Rs. Rs. Rs. Rs.

6.1 Finance Costs Interest Expense on Overdrafts 29,701 4,153,574 18,379 739,882 Interest Expense on Loans and Borrowings - Related Parties 7,409,116 5,117,174 8,096,879 5,961,744 Interest Expense on Loans and Borrowings - Others 33,798,790 40,344,114 17,128,733 12,930,223 41,237,607 49,614,862 25,243,991 19,631,849

6.2 Finance Income Group Company 2013 2012 2013 2012 Rs. Rs. Rs. Rs.

Interest Income from - Related Parties 34,233,821 - 4,268,156 - - Others 6,177,771 12,605,220 1,242,754 9,608,605 40,411,592 12,605,220 5,510,910 9,608,605

7. PROFIT BEFORE TAX Group Company 2013 2012 2013 2012 Rs. Rs. Rs. Rs.

Stated after Charging/(Crediting)

Included in Administrative Expenses Employees Benefits including the following 333,950,753 174,882,477 85,725,253 53,160,649 - Defined Benefit Plan Costs - Gratuity 8,102,743 4,185,318 1,998,669 171,532 - Defined Contribution Plan Costs - EPF and ETF 19,948,569 16,451,154 5,004,797 3,755,813 Depreciation 115,050,031 85,713,546 54,474,955 22,707,170 Amortisation 2,772,842 2,491,819 2,070,338 1,766,697 Loss on Disposal of Property, Plant and Equipment 1,566,397 858,390 - 2,422,353 Directors’ Fees and Remuneration 28,407,014 22,220,667 3,700,652 918,562 Auditors’ Remuneration (Fees and Expenses) 1,746,338 1,462,323 696,736 577,800 Management Fees - 62,795,647 25,827,060 4,816,915 Legal Fees 428,267 130,720 62,750 46,220 Donations 2,757,846 361,904 17,749 262,258

Included in Selling and Marketing Expenses Advertising & Sales Promotion Cost 29,142,718 22,973,971 8,384,199 8,428,808 Impairment of Debts (7,472,521) 6,398,266 (1,614,054) 2,522,132 Others 13,854,331 7,980,737 8,771,362 2,571,238

Serendib Hotels PLC I Annual Report 2012/13 93 NOTES TO THE FINANCIAL STATEMENTS Contd. Year ended 31 March 2013

8. INCOME TAX EXPENSE Group Company 2013 2012 2013 2012 Rs. Rs. Rs. Rs.

Current Income Tax Current Tax Expense on Ordinary Activities for the Year (8.1) 47,446,720 25,288,377 797,895 1,609,131 Under/(Over) Provision of Current Taxes in respect of prior years (1,128,185) 2,481,913 34,776 101,619 Tax on Dividends 6,137,906 1,256,272 - - Deferred Income Tax Deferred Taxation Charge/(Reversal) (8.2) 13,157,335 (8,441,390) 6,850,559 (7,056,289)

Income Tax Expense reported in the Income Statement 65,613,776 20,585,171 7,683,230 (5,345,539)

8.1 Reconciliation between Current Tax Expense and the product of Accounting Profit Group Company 2013 2012 2013 2012 Rs. Rs. Rs. Rs.

Accounting Profit/(Loss) Before Tax 431,422,359 100,511,028 126,308,174 (74,173,377) Aggregate Disallowed Items 165,385,506 340,470,466 65,304,026 40,302,863 Aggregate Allowable Items (336,994,014) (95,545,957) (196,433,425) (128,839,921) Trade Business Losses Incurred During the Year 4,821,224 (162,710,435) 4,821,224 (162,710,435)

Taxable Trade Profit 221,519,560 182,725,102 - - Taxable Profit from Interest Income 39,759,336 12,119,953 - 8,841,377 Tax Losses Brought Forward and Utilised 19,916,553 (10,823,800) 1,534,413 (3,094,482) 281,195,449 184,021,255 1,534,413 5,746,895

Income Tax - 12% (2012-12%) 34,309,245 19,678,181 - - Income Tax - 28% (2012-28%) 13,137,475 5,610,196 797,895 1,609,131 Current Income Tax Expense 47,446,720 25,288,377 797,895 1,609,131

Tax Losses Brought Forward (246,097,935) (94,211,300) (242,564,534) (82,948,581) Tax Losses Incurred During the Year - (162,710,435) - (162,710,435) Tax Losses Utilised 19,916,553 10,823,800 1,534,413 3,094,482 Tax Losses Carried Forward (226,181,382) (246,097,935) (241,030,121) (242,564,534)

94 Serendib Hotels PLC I Annual Report 2012/13 8. INCOME TAX EXPENSE (Contd.)

8.2.1 Group Balance Sheet Income Statement As at 2013 2012 1 April 2011 2013 2012 Rs. Rs. Rs. Rs. Rs.

Deferred Tax Liability Capital Allowances for Tax Purposes 71,671,516 57,229,319 55,547,654 14,428,031 1,681,665 Revaluation of Buildings (Directly in Equity) 26,261,080 26,550,102 27,214,972 97,932,596 83,779,421 82,762,626 Deferred Tax Assets Defined Benefit Plans 3,738,072 4,908,234 3,102,793 1,184,328 (1,805,441) Carry Forward of Unused Tax Losses 30,275,896 27,820,872 19,503,258 (2,455,024) (8,317,614) 34,013,968 32,729,106 22,606,051 Deferred Income Tax - Income 13,157,335 (8,441,390) Net Deferred Tax Liability 63,918,628 51,050,315 60,156,575

Balance Sheet As at 2013 2012 1 April 2011 Rs. Rs. Rs.

Deferred Tax Liability 68,090,347 62,132,583 62,690,774 Deferred Tax Assets (4,171,719) (11,082,268) (2,534,199) Net Deferred Tax Liability 63,918,628 51,050,315 60,156,575

8.2.2 Company Deferred Tax Assets, Liabilities and Income Tax Relates to the Followings ;

Balance Sheet Income Statement As at 2013 2012 1 April 2011 2013 2012 Rs. Rs. Rs. Rs. Rs.

Deferred Tax Liability Capital Allowances for Tax Purposes 25,920,723 15,829,246 8,528,639 10,091,477 7,300,607 Revaluation of Buildings (Directly in Equity) 1,953,282 1,953,282 2,730,878 27,874,005 17,782,528 11,259,517 Deferred Tax Assets Defined Benefit Plans 1,115,634 949,456 1,260,975 (166,178) 311,519 Carry Forward of Unused Tax Losses 30,275,896 27,201,156 12,532,741 (3,074,740) (14,668,415) 31,391,530 28,150,612 13,793,716 Deferred Income Tax - Income 6,850,559 (7,056,289) Net Deferred Tax Liability/(Assets) (3,517,525) (10,368,084) (2,534,199)

Serendib Hotels PLC I Annual Report 2012/13 95 NOTES TO THE FINANCIAL STATEMENTS Contd. Year ended 31 March 2013

9. EARNING PER SHARE

9.1 Basic Earnings Per Share amounts are calculated by dividing the net profit for the year attributable to ordinary equity holders of the Ordinary Shareholders by the weighted average number of ordinary shares outstanding during the year.

9.2 The following reflects the income and share data used in the Basic Earnings Per Share computation

Group 2013 2012 Amounts Used as the Numerator: Rs. Rs. Rs.

Profit Attributable to Ordinary Shareholders 270,122,976 40,873,544

Number of Ordinary Shares used as the denominator: 2013 2012 Number Number

Weighted Average Number of Ordinary Shares in Issue Applicable to Basic Earnings Per Share 111,525,794 108,284,744

Earnings Per Share - Basic 2.42 0.38

As there were no potential ordinary shares outstanding as at the year end, Diluted Earnings per Share is equal to the Basic Earnings per Share for the year.

96 Serendib Hotels PLC I Annual Report 2012/13 as at as at Balance Balance 2,440,591 1,250,000 2,194,000 2,194,000 3,096,270 3,638,325 7,545,563 1,337,752 1,242,702 5,719,000 31.03.2013 31.03.2013 19,108,92 2 18,335,909 19,095,683 19,095,683 922,662,450 734,735,915 205,269,751 744,418,823 429,889,125 252,064,664 2,610,530,939 1,863,918,116 2,629,626,623 ------Increase/ Increase/ Revaluation Revaluation (decrease) in (decrease) in

------355,683 Transfers/ Transfers/ 14,823,876 14,823,876 14,468,193 (14,823,876) (14,823,876) Adjustments Adjustments

------(47,792) (741,078) (741,078) (693,286) (741,078) Disposals

------Year During 64,733 Incurred Disposals the 887,019 - Additions 1,337,752 47,950,559 47,950,559 17,313,319 28,347,736 68,056,197 20,105,638 20,105,638 - - as at as at Balance Balance 1,250,000 2,194,000 2,194,000 3,096,270 3,638,325 7,528,622 2,440,591 5,719,000 31.03.2012 31.03.2012 19,108,922 18,335,909 13,813,921 13,813,921 922,662,450 734,735,915 205,269,751 682,385,466 398,800,899 223,716,928 2,548,497,582 1,863,918,116 2,562,311,503 ------(2,109,607) 47,265,638 96,693,710 Increase/ Increase/ Revaluation Revaluation 141,849,741 141,849,741 141,849,741 (decrease) in (decrease) in ------(40,000) 2,202,057 Transfers/ Transfers/ 1,633,362 17,556,040 (95,531,411) (17,895,943) (95,531,411) (17,556,040) 463,252,749 443,494,652 Adjustments Adjustments (558,784,160) (524,925,539)

------Disposals (1,889,390) (9,027,694) (1,452,141) (67,421,701) (67,421,701) (33,769,919) (21,282,557) (655,719,751) (588,298,050) (588,298,050)

------Year During 49,500 Incurred Disposals the Additions 3,096,270 8,471,998 5,719,000 17,721,086 86,447,585 17,895,943 728,043,433 728,043,433 162,341,200 594,258,816 426,300,851 594,258,816 1,322,302,249 - - - Rs. Rs. as at as at Balance Balance

614,823 2,194,000 7,853,155 1,250,000 2,194,000 5,527,715 7,853,155 01.04.2011 01.04.2011 91,020,001 19,108,922 16,506,816 11,524,633 580,547,894 922,570,000 243,975,625 270,269,618 156,918,538 100,076,829 1,258,815,626 1,841,557,520 1,849,410,675 In the Course of Construction PROPERTY, PLANT AND E Q UIPMENT Gross Carrying Amounts Total Value of Depreciable Assets

Buildings on Freehold Land Land Improvements Buildings on Leasehold Land At Valuation Freehold Land

Assets on Finance Leases Motor Vehicle

Landscaping Energy Saving Technique Soil Erosion Prevention Motor Vehicles Paintings, Murals etc. Furniture, Fittings and Equipment Plant and Machinery Buildings on Freehold Land Total Gross Carrying Amount Land Improvements

Buildings on Leasehold Land Capital Work in Progress At Cost/Cost Incurred Since Last Revaluation Freehold Land

10. 10.1 Group 10.1.1 10.1.2

Serendib Hotels PLC I Annual Report 2012/13 97 NOTES TO THE FINANCIAL STATEMENTS Contd. Year ended 31 March 2013

- as at 3,487 78,915 845,768 Balance 2,194,000 2,194,000 3,400,239 4,382,460 15,172,995 31.03.2013 30,916,772 15,743,777 13,871,439 386,552,821 353,442,049 207,331,384 123,528,358 ------Increase/ Revaluation (decrease) in ------Transfers/ Adjustments

------(47,792) (36,666) (558,619) (558,619) (474,161) Disposals - - - - 78,915 the year 249,987 847,110 761,328 Charge for 2,853,819 30,916,772 15,743,777 15,172,995 84,133,259 56,509,198 22,832,903 115,050,031 - - - - - as at 3,487 Balance 595,781 2,194,000 2,194,000 2,686,703 1,528,641 31.03.2012 13,024,329 272,061,409 269,867,409 151,296,347 100,732,121 ------Increase/ Revaluation (decrease) in ------742,265 (244,196) Transfers/ (96,626,704) (77,007,967) (61,431,300) (15,576,667) (19,618,737) (20,116,806) Adjustments

------(5,738) Disposals (1,889,390) (7,109,516) (56,140,671) (56,140,671) (28,596,885) (18,539,142) - - - - 3,487 the year 847,109 Charge for 8,852,487 1,558,870 1,474,430 4,717,683 85,713,546 24,429,154 15,576,667 61,284,392 37,082,971 15,599,842 - - - Rs. as at 54,211 Balance 2,194,000 2,194,000 2,485,171 8,237,349 52,578,813 01.04.2011 52,578,813 12,177,220 15,404,861 339,115,238 284,342,425 143,054,457 102,929,156 PROPERTY, PLANT AND E Q UIPMENT C ontd .

Total Depreciation

Buildings on Leasehold Land At Valuation Buildings on Freehold Land

Assets On Finance Leases Motor Vehicle

Landscaping Energy Saving Technique Soil Erosion Prevention Motor Vehicles Paintings, Murals etc. Furniture, Fittings and Equipment Plant and Machinery Buildings on Freehold Land At Cost/ Cost incurred since Last Revaluation Buildings on Leasehold Land 10. 10.1.3 Depreciation

98 Serendib Hotels PLC I Annual Report 2012/13 10. PROPERTY, PLANT AND EQUIPMENT Contd.

10.1.4 Net Book Value 2013 2012 As at 1 April 2011 Rs. Rs. Rs.

At Cost Freehold Land 5,719,000 5,719,000 - Buildings on Leasehold Land 1,163,787 - 84,671,968 Land Improvements 2,440,591 2,440,591 11,524,633 Buildings on Freehold Land 1,337,752 - - Plant and Machinery 128,536,306 122,984,807 53,989,382 Furniture, Fittings and Equipment 222,557,741 247,504,551 127,215,161 Paintings, Murals etc. 13,953,449 16,807,268 560,612 Motor Vehicles 4,145,324 4,841,919 8,269,467 Soil Erosion Prevention 5,237,483 6,084,593 6,931,702 Energy Saving Technique 2,792,557 3,042,544 3,042,544 Landscaping 3,092,783 3,092,783 - 390,976,774 412,518,057 296,205,469

At Valuation Freehold Land 205,269,751 205,269,751 91,020,001 Buildings on Leasehold Land 718,992,138 734,735,915 191,396,812 Land Improvements 1,250,000 1,250,000 1,250,000 Buildings on Freehold Land 907,489,455 922,662,450 922,570,000 1,833,001,344 1,863,918,116 1,206,236,813 In the Course of Construction Building Work in Progress 19,095,683 13,813,921 7,853,155 19,095,683 13,813,921 7,853,155

Total Carrying Amount of Property, Plant & Equipment 2,243,073,801 2,290,250,094 1,510,295,437

10.1.5 The Group acquired Property, Plant and Equipment to the aggregate value of Rs. 68,056,197/- during the financial year (2012 - Rs. 720,190,278 and 2011 - Rs. 569,871,914/-). Cash payments amounting to Rs. 68,056,197/- (2012 - Rs. 653,735,759 and 2011 - Rs. 569,871,914/-) were made during the year for purchase of Property, Plant and Equipment.

10.1.6 Freehold Land of Hotel Sigiriya PLC has been acquired by the State in terms of the Land Acquisition Act, by the time it was sold to the Company. Whilst steps have been taken to institute legal action against the land owners seeking damages for the illegal deed transfers, the company has been taken steps of finding the possibilities of retaining this land with the company under a long term lease. The Company is confident that the relevant Government authorities will consider favorably the request of the company.

10.1.7 Property, Plant and Equipment includes fully depreciated assets having a gross carrying amounts of Rs. 136,074,515/- (2012 Rs. 100,115,990/- and 2011 Rs. 109,510,118/-).

10.1.8 During the year an amount of Rs. Nil (2012 - Rs. 12,028,825 and 2011- Rs. 13,732,104 /-) was capitalised as borrowing costs to Buildings.

Serendib Hotels PLC I Annual Report 2012/13 99 NOTES TO THE FINANCIAL STATEMENTS Contd. Year ended 31 March 2013 - as at As At Balance Balance 970,082 7,334,988 3,133,548 3,096,270 5,719,000 31.03.2013 31.03.2013 17,859,211 16,125,328 16,125,328 923,397,749 588,167,351 588,167,351 335,230,398 939,523,077 181,235,743 115,881,556 ------Increase/ Increase/ (Decrease) (Decrease) ------Transfers/ Transfers/ Adjustments Adjustments ------(200,000) (200,000) (200,000) (200,000) Transfers Transfers Disposal/

------Year During the 970,082 Incurred Additions Disposals/ 5,197,706 25,495,631 25,495,631 40,420,034 14,924,403 19,327,843 14,924,403 - - as at as at Balance Balance 7,334,988 3,133,548 3,096,270 1,200,925 1,200,925 5,719,000 31.03.2012 31.03.2012 17,859,211 96,553,713 898,102,118 588,167,351 588,167,351 309,934,767 899,303,043 176,238,037

------(765,472) (765,472) (765,472) (765,472) Increase/ Increase/ Revaluation Revaluation (Decrease) in (Decrease) in

------(40,000) Transfers/ Transfers/ (50,349,584) (50,349,584) 429,042,323 Adjustments Adjustments 429,042,323 (479,391,907) (479,351,907) ------Transfer Transfers Disposals/ (3,057,994) (1,889,390) (1,452,141) (52,409,875) (52,409,875) (27,607,853) (18,402,497) (635,404,482) (582,994,607) (582,994,607)

- - - - year During the Incurred Additions Disposals/ 3,133,548 3,096,270 5,719,000 17,721,086 78,307,531 692,571,038 692,571,038 153,727,191 578,963,476 578,963,476 430,866,412 1,271,534,514 - - - Rs. Rs. as at as at Balance Balance 138,125 5,232,056 1,889,390 5,232,056 01.04.2011 01.04.2011 10,392,982 50,158,699 36,648,679 49,937,636 149,165,511 309,056,011 159,890,500 159,890,500 314,288,067 Gross Carrying Amounts In the Course of Construction PROPERTY, PLANT AND E Q UIPMENT C ontd . Total Value of Depreciable Assets

At Valuation Buildings on Leasehold Land

Motor Vehicles Sports Equipments - Animation Landscaping Energy Saving Technique Paintings, Murals etc. Total Gross Carrying Amount Furniture, Fittings and Equipment

Plant and Machinery Capital Work in Progress Buildings on Leasehold Land

10. 10.2 Company 10.2.1 At Cost/Cost Incurred Since Last Revaluation Freehold Land 10.2.2

100 Serendib Hotels PLC I Annual Report 2012/13 - - - - - As At Rs. 55,092 18,706 609,301 Balance As at 3,289,930 1,221 96,228,557 13,071,032 83,157,525 31.03.2013 13,071,032 28,363,883 10,260,009 40,560,604

- - - - - 5,405,110 6,955,608 5,232,056 5,232,056 - - - - - 42,903,791 15,399,149 70,664,879 1 April 2011 125,172,084 125,172,084 201,069,019 Increase/ ------

- - Transfers/ Adjustments 2012 ------

5,719,000 1,200,925 3,092,783 3,046,505 4,778,557 1,200,925 (36,667) (36,667) (36,667) 79,125,655 16,247,877 Transfers 156,134,122 588,167,351 268,144,499 588,167,351 857,512,775 Disposals/ - 51,605 18,706

733,499 522,258 the year 8,648,675 - Charge for 13,071,032 20,456,689 10,972,491 54,474,955 13,071,032 41,403,923 Rs. 2013 - - - - 951,376 as at 3,487 5,719,000 87,043 7,599,202 3,041,179 2,524,247 4,045,058 Balance 16,125,328 87,517,673 16,125,328 2,556,431 1,611,334 575,096,319 252,072,874 20,103,915 31.03.2012 140,675,139 575,096,319 843,294,521 41,790,268 41,790,268 17,428,058

------Increase/ Revaluation (Decrease) in ------Transfers/ (9,901,528) (9,901,528) (50,309,584) (40,408,056) (40,408,056) Adjustments - - - - - (5,738) Transfers Disposals/ (2,304,082) (1,889,390) (43,826,366) (43,826,366) (23,330,458) (16,296,698) - 3,487 87,043 the year 5,689,640 5,689,640 1,423,139 1,474,430 8,674,823 2,481,187 2,873,421 Charge for 22,707,170 17,017,530 - - Rs. as at Balance 136,904 3,437,374 1,889,390 7,033,845 34,718,416 01.04.2011 34,718,416 78,500,632 34,759,550 31,243,569 113,219,048 Depreciation PROPERTY, PLANT AND E Q UIPMENT C ontd . Net Book Values Total Depreciation

At Valuation Buildings on Leasehold Land

Motor Vehicles Sports Equipments - Animation Landscaping Energy Saving Technique Paintings, Murals etc. Furniture, Fittings and Equipment Plant and Machinery At Cost/Cost Incurred Since Last Revaluation Buildings on Leasehold Land

10. 10.2.3 At Cost 10.2.4 Land Freehold

Buildings on Leasehold Land Plant and Machinery Fittings and Equipment Furniture, Painting & Murals etc. Energy Saving Technique In the Course of Construction in Progress Building Work Landscaping Sports Equipments - Animation Motor Vehicles At Valuation Buildings on Leasehold Land Plant & Equipment Carrying Amount of Property, Total

Serendib Hotels PLC I Annual Report 2012/13 101 NOTES TO THE FINANCIAL STATEMENTS Contd. Year ended 31 March 2013

10. PROPERTY, PLANT AND EQUIPMENT Contd.

10.2.5 The Company acquired Property, Plant and Equipment to the aggregate value of Rs.40,420,034/- during the financial year (2012 - Rs. 687,338,982 and 2011 - Rs.15,122,469/-). Cash payments amounting to Rs.40,420,634/- (2012 - Rs. 596,371,906 and 2011 - Rs.18,716,657/-) were made during the year for purchase of Property, Plant and Equipment.

10.2.6 Property, Plant and Equipment includes fully depreciated assets having a gross carrying amounts of Rs.17,032,647/- (2012 - Rs. 21,788,255/- and 2011 - Rs. 8,920,525/-).

10.2.7 During the year an amount of Nil (2012 - Rs. 12,028,855 and 2011- Nil /-) was capitalised as borrowing costs to Buildings on Leasehold Land.

10.2.8 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:

Net Cumulative Carrying Depreciation Net Net Amount If assets Carrying Carrying As at Class of Asset were carried Amount Amount 1 April Cost at Cost 2013 2012 2011 Rs. Rs. Rs. Rs. Rs.

Group Buildings on Freehold Land 804,252,335 77,694,862 726,557,473 739,691,678 739,065,950 Buildings on Leasehold Land 654,774,609 109,487,460 545,287,149 566,522,154 83,880,459

Company Buildings on Leasehold Land 550,777,483 55,124,235 495,653,248 504,832,873 58,708,485

11. LEASEHOLD PROPERTY Group Company As at As at 1 April 1 April 2013 2012 2011 2013 2012 2011 Rs. Rs. Rs. Rs. Rs. Rs.

As at 1 April 38,380,081 40,207,704 42,035,327 35,735,645 37,437,342 39,139,039 Amortisation for the year (1,830,991) (1,827,623) (1,827,623) (1,701,697) (1,701,697) (1,701,697) As at 31 March 36,549,090 38,380,081 40,207,704 34,033,948 35,735,645 37,437,342

The Company has obtained leasehold rights to two lots of land situated in Bentota from the Sri Lanka Tourist Board by the agreement dated 19/02/1969 and 28/02/1973 respectively (the lease expires on 01/02/2019 and 28/02/2033 respectively).

The revised UITF ruling does not permit further revaluation of Leasehold Property. An amount of Rs. 42,548,432/- and Rs. 3,148,141/- in Serendib Hotels PLC and Hotel Sigiriya PLC respectively is remaining in equity under Revaluation Surplus relating to previous revaluation of Leasehold rights to land.

102 Serendib Hotels PLC I Annual Report 2012/13 12. INTANGIBLE ASSETS

At Cost Group Company As at As at 2013 2012 1 April 2011 2013 2012 1 April 2011 Rs. Rs. Rs. Rs. Rs. Rs.

Computer Softwares At the Beginning of the Year 5,094,136 6,687,498 6,687,498 1,908,205 1,868,205 1,868,205 Additions 1,572,500 40,000 - - 40,000 Transfers/Disposals During the Year - (1,633,362) - - - At the End of the Year 6,666,636 5,094,136 6,687,498 1,908,205 1,908,205 1,868,205

Amortisation and Impairment At the Beginning of the Year 1,373,130 1,871,199 1,447,059 106,216 41,216 - Amortisation 941,851 664,196 424,140 368,641 65,000 41,216 Transfers/Disposals - (1,162,265) - - - - At the End of the Year 2,314,981 1,373,131 1,871,199 474,857 106,216 41,216

Carrying Value 4,351,655 3,721,005 4,816,300 1,433,348 1,801,989 1,826,989

12.1 Goodwill

At Cost Group Company As at As at 2013 2012 1 April 2011 2013 2012 1 April 2011 Rs. Rs. Rs. Rs. Rs. Rs.

Balance as at the Beginning of the Year 174,124,906 174,124,906 22,252,564 - - - Acquired Goodwill during the Year - - 151,872,342 - - - Balance as at End of the Year 174,124,906 174,124,906 174,124,905 - - -

178,476,561 177,845,911 178,941,205 1,433,348 1,801,989 1,826,989

12.2 Intangible assets are amortised over there useful economic life and useful economic life is estimated as 5-10 years.

13. INVESTMENTS IN SUBSIDIARIES - Company

Market Market Market Cost Value Country of Holding% As at Cost Value Cost Value As at As at Incorporation 2013 2012 1 April 2011 2013 2013 2012 2012 1 April 2011 1 April 2011 Rs. Rs. Rs. Rs. Rs. Rs.

a) quoted Investments Dolphin Hotels PLC Sri Lanka 64.85% 64.85% 64.85% 203,692,502 676,750,074 203,692,502 648,039,465 203,692,502 1,058,191,025 Hotel Sigiriya PLC Sri Lanka 61.97% 61.97% 61.97% 56,704,833 286,841,969 56,704,833 259,973,228 56,704,833 337,458,677 Total Quoted Investments in Subsidiaries 260,397,335 963,592,043 260,397,335 908,012,693 260,397,335 1,395,649,702

b) Non-Quoted Serendib Leisure Management Ltd Sri Lanka 100% 100% 100% 100,000 - 100,000 - 100,000 - Total Non-Quoted Investments in Subsidiaries 100,000 - 100,000 - 100,000 - Total Net Carrying Value of Investments in Subsidiaries 260,497,335 963,592,043 260,497,335 908,012,693 260,497,335 1,395,649,702

Serendib Hotels PLC I Annual Report 2012/13 103 NOTES TO THE FINANCIAL STATEMENTS Contd. Year ended 31 March 2013

14. INVESTMENTS IN ASSOCIATES - Group/Company The Group has a 19.90% interest in Jada Resorts & Spa (Pvt) Ltd., which is involved in the hotel operation, Jada Resort & Spa is a private entity that is not listed on any public exchange. The following table illustrates summarised financial information of the Group’s investments in Jada Resorts & Spa (Pvt) Ltd.

Jada Resorts & Spa (Pvt) Ltd 2013 2012 As at 1 April 2011 No. of No. of No. of Shares Rs. Shares Rs. Shares Rs.

Balance as at Beginning of the Year 20,374,567 179,398,523 20,374,567 168,001,629 20,374,567 168,001,629 Investment of shares under Right Issue 4,074,913 40,749,130 - - - - Share of Results of Associate - 588,572 - 11,396,895 - - Balance as at End of the Year 24,449,480 220,736,225 20,374,567 179,398,523 20,374,567 168,001,629

As 1 at 2013 2012 April 2011 Rs. Rs. Rs.

Share of the associate’s statement of financial position: 19.90% 19.90% 19.90% Current assets 81,807,196 38,686,524 21,199,747 Non-current assets 315,108,197 157,460,644 165,237,735 Current liabilities (71,578,810) (15,194,799) (17,657,934) Non-current liabilities (104,600,358) (1,553,847) (777,918) Equity 220,736,224 179,398,522 168,001,628 Share of the associate Revenue 48,008,787 75,037,010 - Profit 588,572 11,396,894 - Carrying amount of the investment 220,736,225 179,398,523 168,001,628

As at 1 April Company 2013 2012 2011 Rs. Rs. Rs.

Jada Resorts & Spa (Pvt) Ltd. 360,623,100 319,873,970 319,873,970 360,623,100 319,873,970 319,873,970

104 Serendib Hotels PLC I Annual Report 2012/13 15. OTHER FINANCIAL ASSETS Group Company As at As at 2013 2012 1 April 2011 2013 2012 1 April 2011 Rs. Rs. Rs. Rs. Rs. Rs.

Non Current Investments in Equity Securities 12,000,010 10,000,000 10,000,000 4,000,010 3,333,340 3,333,340 12,000,010 10,000,000 10,000,000 4,000,010 3,333,340 3,333,340

Current Loans Due from Related Parties 747,663,420 - - 23,463,420 - - 747,663,420 - - 23,463,420 - - Total Other Financial Assets 759,663,430 10,000,000 10,000,000 27,463,430 3,333,340 3,333,340

15.1 Non Current Group Company As at As at 2013 2012 1 April 2011 2013 2012 1 April 2011 Rs. Rs. Rs. Rs. Rs. Rs.

Investment in Equity Securities - Non Current (Note 15.1.1) 12,000,010 10,000,000 10,000,000 4,000,010 3,333,340 3,333,340 12,000,010 10,000,000 10,000,000 4,000,010 3,333,340 3,333,340

15.1.1 Investment in Equity Securities - Non Current Group Company No. of Carrying No. of Carrying Shares Value Shares Value Rs. Rs. Rs. Rs.

Non-quoted Rainforest Ecolodge (Pvt) Ltd. 1,200,000 12,000,010 400,000 4,000,010 1,200,000 12,000,010 400,000 4,000,010

15.1.2 Investment in Rainforest Ecolodge (Pvt) Ltd. is carries at cost due to impracticability of assessing the fair value of the investment.

Serendib Hotels PLC I Annual Report 2012/13 105 NOTES TO THE FINANCIAL STATEMENTS Contd. Year ended 31 March 2013

15. OTHER FINANCIAL ASSETS Contd.

Group Company As at As at 2013 2012 1 April 2011 2013 2012 1 April 2011 Rs. Rs. Rs. Rs. Rs. Rs.

15.2 Current Loans due from Related parties (Note 15.2.1) 747,663,420 - - 23,463,420 - - Total Current Financial assets 747,663,420 - - 23,463,420 - -

15.2.1 Loans due from Related parties Group Company As at As at 2013 2012 1 April 2011 2013 2012 1 April 2011 Relationship Rs. Rs. Rs. Rs. Rs. Rs.

Current Hemas Holdings PLC Ultimate Parent 747,663,420 - - 23,463,420 - - Company 747,663,420 - - 23,463,420 - -

Re payment Term - On Demand Interest Rate - Prevailing Market Rate

16. INVENTORIES Group Company As at As at 2013 2012 1 April 2011 2013 2012 1 April 2011 Rs. Rs. Rs. Rs. Rs. Rs.

Food Stuff 3,478,097 4,245,798 5,284,903 1,472,996 1,637,947 1,254,084 Beverage 4,882,803 5,937,370 5,293,443 2,064,761 2,245,632 961,276 House Keeping and Maintenance 5,439,731 6,128,785 5,833,878 1,508,138 1,377,513 1,081,771 Printing and Stationery 816,416 923,877 772,035 343,832 318,102 399,108 Linen and Cutlery 2,400,368 555,593 488,701 70,588 198,296 335,516 17,017,415 17,791,423 17,672,960 5,460,315 5,777,490 4,031,755

106 Serendib Hotels PLC I Annual Report 2012/13 17. TRADE AND OTHER RECEIVABLES

Group Company As at As at 2013 2012 1 April 2011 2013 2012 1 April 2011 Rs. Rs. Rs. Rs. Rs. Rs.

Trade Receivable - Related Parties (17.2) 8,887,548 18,553,563 18,553,557 1,383,234 498,826 848,567 - Other 153,440,398 166,204,542 212,880,053 39,864,233 32,327,903 70,628,542 Less: Debtors’ Collective Impairment (17,314,795) (16,171,622) (10,385,453) (7,789,215) (6,377,513) (3,855,381) 145,013,151 168,586,483 221,048,157 33,458,252 26,449,216 67,621,728

Other Debtors 34,397,009 84,548,359 41,981,074 22,003,549 57,303,092 2,434,798 Advances and Prepayments 18,623,625 15,453,867 13,253,991 5,591,427 4,393,299 4,355,103 Less: Debtors’ Impairment (587,412) (479,819) (479,819) - - - 52,433,222 99,522,407 54,755,246 27,594,976 61,696,391 6,789,901

Festival Advances (17.3) 1,251,505 970,138 1,295,442 354,552 277,867 144,092 Non Trade Dues from Related Parties (17.4) 8,689,384 1,968,250 893,321 4,012,130 5,860,464 17,401,812 207,387,262 271,047,278 277,992,166 65,419,910 94,283,938 91,957,533

17.1 Trade Debtors Age Analysis

Total Current 30-90 days 91-120 days >120 days

Group 2013 145,013,151 109,554,544 34,418,392 1,039,111 1,104 2012 168,586,483 121,756,753 45,446,254 1,096,620 286,856 As at 1 April 2011 221,048,157 118,215,630 88,486,649 10,564,190 3,781,688

Total Current 30-90 days 91-120 days >120 days

Company 2013 33,458,252 25,215,235 7,691,342 550,570 1,105 2012 26,449,216 17,189,860 9,067,455 191,901 - As at 1 April 2011 67,621,728 24,234,552 40,414,901 1,650,359 1,321,917

Serendib Hotels PLC I Annual Report 2012/13 107 NOTES TO THE FINANCIAL STATEMENTS Contd. Year ended 31 March 2013

17. TRADE AND OTHER RECEIVABLES Contd.

17.2 Trade Dues Receivables from Related Parties Group Company As at As at 2013 2012 1 April 2011 2013 2012 1 April 2011 Rs. Rs. Rs. Rs. Rs. Rs.

Relationship

Hemas Holdings PLC Ultimate Parent Company 918,545 - - - - - Hemtours (Pvt) Ltd. Group Company 115,041 212,594 97,553 - 97,553 97,553 Diethlem Travel Lanka (Pvt) Ltd. Group Company 4,246,165 5,309,362 6,962,886 811,241 401,273 751,014 Peace Haven Resorts Ltd. Affiliate Company - 78,065 115,041 - - - Jada Resorts & Spa (Pvt) Ltd. Associate Company 3,607,797 12,953,542 11,378,077 463,893 - - Serendib Leisure Management Ltd. Subsidiary - - - 108,100 - - 8,887,548 18,553,563 18,553,557 1,383,234 498,826 848,567

17.3 Festival Advances Group Company As at As at 2013 2012 1 April 2011 2013 2012 1 April 2011 Rs. Rs. Rs. Rs. Rs. Rs.

Summary Balance as at Beginning of the Year 970,138 1,295,442 1,120,856 277,867 144,092 102,570 Loans Granted During the Year 3,370,223 3,717,740 3,562,446 1,007,034 1,007,034 1,007,034 Less: Repayments During the Year (3,088,856) (4,043,044) (3,387,860) (930,349) (873,259) (965,512) Balance as at End of the Year 1,251,505 970,138 1,295,442 354,552 277,867 144,092

108 Serendib Hotels PLC I Annual Report 2012/13 17. TRADE AND OTHER RECEIVABLES Contd.

17.4. Amounts Due from Related Parties Group Company As at As at 2013 2012 1 April 2011 2013 2012 1 April 2011 Rs. Rs. Rs. Rs. Rs. Rs.

Relationship Hemas Ultimate Parent Holdings PLC Company 7,155,843 228,571 - - 228,571 - Hotel Sigiriya PLC Subsidiary - - - 234,315 776,072 2,285,264 Dolphin Hotels PLC Subsidiary - - - - 927,810 584,386 Serendib Leisure Management Ltd. Subsidiary - - - - 2,561,514 14,532,162 Hemtours (Pvt) Ltd. Affiliate Company 27,003 27,003 49,082 - - - Peace Heaven Resorts Ltd. Affiliate Company ------Jada Resorts & Spa (Pvt) Ltd. Associate Company 1,255,138 1,461,276 844,239 3,777,815 1,366,497 - Kammala Hoteliers (Pvt) Ltd. Affiliate Company 251,400 251,400 - - - - 8,689,384 1,968,250 893,321 4,012,130 5,860,464 17,401,812

18. CASH AND CASH EQUIVALENTS IN THE CASH FLOW STATEMENT Components of Cash and Cash Equivalents

18.1 Favourable Cash and Cash Equivalent Balances Group Company As at As at 2013 2012 1 April 2011 2013 2012 1 April 2011 Rs. Rs. Rs. Rs. Rs. Rs.

Cash and Bank Balances 219,134,252 108,023,965 85,696,538 74,899,965 25,073,194 26,278,166 Fixed Deposit 39,746 30,034,077 34,077 - 10,000,000 - Treasury Bills - - 4,000,000 - - 219,173,998 138,058,042 89,730,615 74,899,965 35,073,194 26,278,166

18.2 Unfavourable Cash and Cash Equivalent Balances Bank Overdraft (57,929,368) (53,209,945) (162,545,128) (17,062,997) (22,787,420) (30,682,731) Total Cash and Cash Equivalents for the Purpose of Cash Flow Statement 161,244,630 84,848,097 (72,814,513) 57,836,968 12,285,774 (4,404,565)

Serendib Hotels PLC I Annual Report 2012/13 109 NOTES TO THE FINANCIAL STATEMENTS Contd. Year ended 31 March 2013

19. ISSUED CAPITAL - Group and Company 2013 2012 As at 1 April 2011 No. of No. of Shares Rs. Shares Rs. Number Rs.

19.1 Fully Paid Ordinary Shares (19.1.1) 75,514,738 614,282,951 75,514,738 614,282,951 12,082,358 244,260,725 Fully Paid Non-Voting Ordinary Shares (19.1.2) 36,011,056 298,838,743 36,011,056 298,838,743 5,761,769 167,398,392 111,525,794 913,121,694 111,525,794 913,121,694 17,844,127 411,659,117

19.1.1 Fully Paid Ordinary Shares 2013 2012 As at 1 April 2011 No. of No. of No. of Shares Rs. Shares Rs. Shares Rs.

Balance as at Beginning of the Year 75,514,738 614,282,951 12,082,358 244,260,725 12,082,358 244,260,725 Issue of Shares Under Right Issue (Note 19.2) - - 15,102,948 370,022,226 - Sub-Division of Shares (Note 19.2) - - 48,329,432 - - Balance as at End of the Year 75,514,738 614,282,951 75,514,738 614,282,951 12,082,358 244,260,725

19.1.2 Fully Paid Non-Voting Ordinary Shares 2013 2012 As at 1 April 2011 No. of No. of No. of Shares Rs. Shares Rs. Shares Rs.

Balance as at Beginning of the Year 36,011,056 298,838,743 5,761,769 167,398,392 5,761,769 167,398,392 Issue of shares under Right Issue (Note 19.2) - - 7,202,211 131,440,351 - - Sub-Division of Shares (Note 19.2) - - 23,047,076 - - - Balance as at End of the Year 36,011,056 298,838,743 36,011,056 298,838,743 5,761,769 167,398,392

19.2 Sub Division of Shares and Right Issue The ordinary shares of the Company were subdivided on 29 April 2011 on the basis of 5 for every one share held and Right Issue on 29 May 2011 on the basis of 1 for every four shares held. The number of shares of the Company increased from 17,844,127 to 111,525,794 with a change in stated capital from Rs. 411,659,117/- to Rs. 913,121,694/-.

19.3 Rights, Preference and Restrictions of Classes of Capital The Holders of Ordinary Shares confer their right to receive dividends as declared from time to time. The holders of Voting Ordinary Shares are entitled to one vote per share at a meeting of the Company.

110 Serendib Hotels PLC I Annual Report 2012/13 20. RESERVES Group Company As at As at 2013 2012 1 April 2011 2013 2012 1 April 2011 Rs. Rs. Rs. Rs. Rs. Rs.

Summary (a) Capital Reserves Asset Revaluation Reserve (20.1) 180,198,392 185,685,931 99,892,912 44,016,582 46,710,556 49,392,406

(b) Revenue Reserves General Reserve (20.2) 19,940,000 19,940,000 19,940,000 14,500,000 14,500,000 14,500,000 200,138,392 205,625,931 119,832,912 58,516,582 61,210,556 63,892,406

20.1 Revaluation Reserve On: Property, Plant and Equipments Group Company As at As at 2013 2012 1 April 2011 2013 2012 1 April 2011 Rs. Rs. Rs. Rs. Rs. Rs.

Balance as at the Beginning of the Year 185,685,931 99,892,912 102,507,254 46,710,556 49,392,406 51,682,284 Revaluation Surplus During the Year - 90,326,240 1,946,027 - (765,472) - Depreciation Transfer on Revaluation Surplus (5,666,651) (5,365,140) (5,365,140) (2,693,974) (2,693,974) (2,693,974) Deferred Tax attributable to Revaluation Surplus 179,112 831,919 804,771 - 777,596 404,096 Balance as at the End of the Year 180,198,392 185,685,931 99,892,912 44,016,582 46,710,556 49,392,406

20.2 General Reserve which is a Revenue Reserve represents the amounts set aside by the Directors for general application.

Serendib Hotels PLC I Annual Report 2012/13 111 NOTES TO THE FINANCIAL STATEMENTS Contd. Year ended 31 March 2013

0.5% 0.5% 0.5% Total As at AWPLR AWPLR AWPLR Monthly Monthly Monthly Rewised Rewised Rewised Rate of Interest 53,510,304 31.03.2013 560,231,885 753,973,469 753,973,469 162,545,128 776,287,317

- - Term After (Gain) Source Source Source Loss/ 1 Year Payable Payable Payable Demand Demand Demand Funding, Funding, Related Party Loans Terms of Terms Short Term Short Term Short of of of Funding, on on on Exchange (42,305,279) (42,305,279) 462,061,828 462,061,828 Repayment As at 1 April 2011

- - - - Rs. As at 1 Year 98,170,057 53,510,304 31.03.2013 (54,280,357) (54,280,357) 162,545,128 314,225,489 Repayment

- - Rs. Amount Total Loans Obtained 5,000,000 (5,000,000) (5,000,000) 53,209,945 742,979,105 107,580,000 107,580,000 801,189,050 Repayment ------Rs. After Within 2012 As at 1 Year Loans Obtained 31.03.2012 666,987,520 742,979,105 742,979,105 666,987,520

- - Rs. As at (Gain) Loss/ 1 Year 5,000,000 5,000,000 5,000,000 Exchange 75,991,586 68,904,811 68,904,811 53,209,945 31.03.2012 134,201,531

- - Rs. Amount Total 57,929,368 (65,306,554) (229,906,554) 753,973,469 811,902,837 Repayment (559,765,384) (559,765,384) (164,600,000) Repayment - - Rs. After Within 2013 Loans 1 Year Loans Obtained 5,000,000 Obtained 11,796,250 181,396,250 605,438,365 673,607,793 673,607,793 164,600,000 605,438,365

- - - Rs. Rs. Rs. As at As at 1 Year Within Amount 53,510,304 53,510,304 57,929,368 Repayable Repayable Repayable 01.04.2011 01.04.2011 206,464,472 148,535,104 560,231,885 560,231,885

Group Ultimate Associate Company Company Relationship Parent Company Parent Ltd. Bank Loans INTEREST BEARING LOANS AND BORROWINGS

(Pvt) Spa Market Rate

21.1.1

21. 21.1 Group Bank Loans (21.1.1) Bank Loans (21.3) 21.1.2 Jada Resorts &

Loans from Related Parties Loans from Holdings PLC Hemas Bank Overdrafts (18.2) Bank Overdrafts

(Pvt) Ltd.

Hemas Pharmaceuticales

112 Serendib Hotels PLC I Annual Report 2012/13 Total 0.5% 0.5% 0.5% 0.5% 0.5% As at - - - - 0.5% Rate of AWPLR AWPLR AWPLR AWPLR Monthly Monthly Monthly Monthly Monthly Monthly Interest Rewised Rewised Rewised Rewised Rewised Rewised AWPLR - AWPLR AWPLR - AWPLR 31.03.2013 30,682,731 53,510,304 272,854,746 188,661,711 402,841,890 402,841,890

- - Term Loss Source Source Source Source Source Source Payable Payable Payable Payable Payable Payable Demand Demand Demand Demand Demand Demand

Funding, Funding, Funding, Funding, Funding, Funding, charged Terms of Terms Exchange Short Term Short Term Short Term Short Term Short Term Short Term Short Short Term Short Term of of of of of of on on on on on on Repayment After 1 Year (20,497,910) (20,497,910) 143,420,167 143,420,167 As at 1 April 2011

------Rs. As at 31.03.2013 Repayment 30,682,731 45,241,544 53,510,304 (26,677,650) (26,677,650) 129,434,579 Within 1 Year

- - Rs. Amount Total Loans Obtained (5,000,000) 22,787,420 69,787,450 Repayment (26,000,000) (86,287,450) (12,500,000) 435,012,320 342,437,450 107,580,000 107,580,000 (129,787,450) - - - - - Rs. 2012 As at Loans Obtained 31.03.2012 60,000,000 26,000,000 24,000,000 10,000,000 After 1 Year 307,787,285 307,787,285 342,437,450 342,437,450

- - - Rs. As at Loss charged Exchange 5,000,000 2,500,000 31.03.2012 69,787,450 62,287,450 22,787,420 34,650,165 69,787,450 29,399,163 29,399,163 127,225,035 Within 1 Year

- - - - - Rs. Amount Total (65,306,554) Repayment 17,062,997 Repayment (229,906,554) 419,904,888 402,841,890 (164,600,000) (188,661,711) (188,661,711) - - - Rs. 2013 Loans Loans Obtained Obtained 5,000,000 2,500,000 62,287,450 11,796,250 After 1 Year 246,183,700 164,600,000 321,834,272 321,834,272 313,038,287 313,038,287

------Rs. Rs. Rs. As at As at Amount Repayable Repayable Repayable 53,510,304 98,070,616 01.04.2011 01.04.2011 17,062,997 81,007,618 53,510,304 188,661,711 188,661,711 Within 1 Year

Group Parent Ultimate Company Company Associate Company Subsidiary Subsidiary Subsidiary Relationship

& Ltd. Bank Loans - Company Related Party Loans INTEREST BEARING LOANS AND BORROWINGS C ontd . Ltd. Resorts (Pvt) Pharmaceuticals Spa (Pvt) Ltd. Market Rate

Management

Leisure Serendib

Hemas

Dolphin Hotels PLC

Bank Overdrafts (18.2) Bank Overdrafts Hotel Sigiriya PLC Jada 21. 21.2 Company Bank Loans (22.2.1) 21.2.1 21.2.2 Loans from Related Parties Loans from Bank Loans (21.3) Hemas Holdings PLC

Serendib Hotels PLC I Annual Report 2012/13 113 NOTES TO THE FINANCIAL STATEMENTS Contd. Year ended 31 March 2013

21. INTEREST BEARING LOANS AND BORROWINGS Contd.

21.3 Bank Loans Balance Loans Repayment Exchange Balance Repayment Rates of As At Obtained (Gain)/ As At Terms Interest 01.04.2012 Loss 31.03.2013 Rs. Rs. Rs. Rs Rs.

Serenib Hotels PLC Hatton National Bank PLC 116,837,000 - (11,445,598) (5,533,272) 99,858,130 60 Instalments 3 Months - Foreign Currency from Oct '12 EURIBOR EUR 700,000 +3.5%p.a Hatton National Bank PLC 64,974,000 - (6,417,063) (3,629,193) 54,927,744 60 Instalments 3 Months - Foreign Currency from Oct '12 LIIBOR GBP 325,000 +3.5%p.a Hatton National Bank PLC 57,976,800 - (3,820,066) (3,326,786) 50,829,948 60 Instalments 3 Months - Foreign Cuurency from Jan '13 EURIBOR EUR 615,000 - Non Current +3.5%p.a Hatton National Bank PLC 102,649,650 - (5,027,023) (5,013,159) 92,609,468 60 Instalments 3 Months - Foreign Currency from Dec '12 LIIBOR GBP 290,000 - Non Current +3.5%p.a Hatton National Bank PLC - 107,580,000 - (2,963,400) 104,616,600 60 Instalments 3 Months - Foreign Currency from Sep '13 EURIBOR EUR 660,000 - Non Current +3.5%p.a Dolphin Hotels PLC At 3.75 Commercial Bank of 135,580,994 - (9,253,736) (6,517,474) 119,809,784 72 Instalments Over Ceylon PLC - Foreign from Nov '12 1 month Currency (EUR) Loan Euro LIBOR p.a Miami Beach Hotels Ltd. At 3.75 Commercial Bank of 264,494,160 - (17,966,890) (15,321,996) 231,205,274 72 Instalments Over 1 Ceylon PLC - Foreign from Nov '12 month Currency GBP Loan GBP LIBOR p.a Hotel Sigiriya PLC Commercial Bank of 466,501 - (349,981) - 116,520 60 Instalments 6.5% p.a Ceylon PLC - from Aug '09 E-Friends II Loan 742,979,105 107,580,000 (54,280,357) (42,305,279) 753,973,469

114 Serendib Hotels PLC I Annual Report 2012/13 22. RETIREMENT BENEFIT OBLIGATION Group Company As at As at 1 April 1 April 2013 2012 2011 2013 2012 2011 Rs. Rs. Rs. Rs. Rs. Rs.

Gratuity Balance as at Beginning of the Year 26,112,590 26,483,472 18,690,932 7,912,132 8,406,500 5,950,127 Interest Cost 3,177,836 2,992,180 2,056,003 870,335 856,830 742,242 Current Service Cost 3,356,736 4,620,514 3,254,779 781,504 1,191,714 691,771 Benefits Paid (3,064,727) (4,556,200) (1,626,060) (613,850) (665,900) (161,800) Actuarial (Gain)/Loss 1,568,171 (3,427,376) 4,107,818 346,830 (1,877,012) 386,637 Transfers - - - - 797,523 Balance as at End of the Year 31,150,606 26,112,590 26,483,472 9,296,951 7,912,132 8,406,500

Messers K.A. Pandith Actuaries, Consultants and Actuaries, carried out an actuarial valuation of the defined benefit plan gratuity on 31.03.2013. Appropriate and compatible assumptions were used in determining the cost of retirement benefits. The principle assumptions used as follows:

The Principal Assumptions Used were as Follows: Group Company As at As at 1 April 1 April 2013 2012 2011 2013 2012 2011

Discount Rate 11% 11% 11% 11% 11% 11% Future Salary Increment Rate 9% 9% 9% 9% 9% 9% Retirement Age 50-60 Years 50-60 Years 50-60 Years 50-60 Years 50-60 Years 50-60 Years

23. DEFERRED INCOME Group As at 2013 2012 1 April 2011

As at Beginning of the Year 1,333,836 1,452,740 1,571,644 Less: Amortization During the Year (118,904) (118,904) (118,904) As at End of the Year 1,214,932 1,333,836 1,452,740

The Hotel Sigiriya introduced a gasifier system for the steam boiler to replace the existing diesel burner with a wood burner. This has been considered as an environment friendly project and The Ceylon Chamber of Commerce has granted facility for such projects under promotion of Eco Efficient Productivity (PEP) projects. The Hotel Sigiriya PLC received 50% of the total project cost as a grant (Rs. 1.75 Mn). The gasifier started generating steam from 1 October 2008 and the grant is amortised to the income statement on a straight-line basis over the expected useful life of the gasifier of 15 years.

Serendib Hotels PLC I Annual Report 2012/13 115 NOTES TO THE FINANCIAL STATEMENTS Contd. Year ended 31 March 2013

24. TRADE AND OTHER PAYABLES Group Company As at As at 1 April 1 April 2013 2012 2011 2013 2012 2011 Rs. Rs. Rs. Rs. Rs. Rs.

Trade Payable - Related Parties (24.1) - - - 36,366 - - Trade Payable - Other 31,284,768 41,498,475 41,620,211 9,139,227 9,826,636 7,845,043 Other Payables Sundry Creditors Including Accrued Expenses 229,616,595 255,060,738 170,552,934 76,162,934 127,170,590 40,586,447 Non Trade Payables to Related Parties (24.2) 20,978,270 12,993,684 460,322 12,577,003 13,252,480 10,848,072 281,879,633 309,552,897 212,633,467 97,915,530 150,249,706 59,279,562

24.1 Trade Payable - Related Parties Relationship Company Hemas Phamacuiticals (Pvt) Ltd. Group Company 3,885 - - Hemas Manufacturing (Pvt) Ltd. Group Company 32,481 - - 36,366 - -

24.2 AMOUNTS DUE TO RELATED PARTIES Group Company As at As at 2013 2012 1 April 2011 2013 2012 1 April 2011 Relationship Rs. Rs. Rs. Rs. Rs. Rs.

Hotel Sigiriya PLC Subsidiary - - - - 67,840 2,147,408 Dolphin Hotels PLC Subsidiary - - - 2,627,391 3,987,630 2,970,194 Serendib Leisure Management Ltd. Subsidiary - - - 2,154,857 7,386,842 5,354,891 Peace Haven Affiliate Resorts Ltd. Company 227,444 396,195 - 227,445 396,195 297,172 Hemas Holdings PLC Ultimate Parent Company 5,584,227 10,007,700 - 4,748,330 1,380,000 78,407 Diethlm Travels Lanka (Pvt) Ltd. Group Company 267,014 158,486 139,737 - - - Jada Resorts and Associate Spa (Pvt) Ltd. Company 4,548,303 190,466 297,172 - 33,973 - Hemas Corporate Group Services Ltd. Company 4,814,365 - 23,413 2,806,495 - - Hemas Developments Group (Pvt) Ltd. Company 5,251,205 1,984,711 - - - -

Hemas Travels (Pvt) Ltd. Group Company 259,632 256,126 - - - - Vishwa BPO (Pvt) Ltd. Affiliate Company 26,080 - - 12,485 - - 20,978,270 12,993,684 460,322 12,577,003 13,252,480 10,848,072

116 Serendib Hotels PLC I Annual Report 2012/13 25. NON INTEREST BEARING LOANS AND BORROWINGS Group As at 2013 2012 1 April 2011 Rs. Rs. Rs.

Ministry of Tourism 1,207,000 1,207,000 1,207,000 1,207,000 1,207,000 1,207,000

26. DIVIDENDS PAYABLE Group Company As at As at 2013 2012 1 April 2011 2013 2012 1 April 2011 Rs. Rs. Rs. Rs. Rs. Rs.

Unclaimed Dividends 3,619,070 3,519,125 10,866,246 1,385,354 1,385,354 1,395,786 3,619,070 3,519,125 10,866,246 1,385,354 1,385,354 1,395,786

27. Other Financial Liabilities

27.1 Other Financial Liabilities - Group As At Loans Repayment As At Loans Repayment As At 01.04.2011 Obtained/ 01.04.2012 Obtained/ 31.03.2013 Int.Cap. Int.Cap. Relationship Rs. Rs. Rs. Rs. Rs. Rs. Rs.

Loans Due to Related Parties Jada Resorts & Associate Spa (Pvt) Ltd. Company - - - - 400,000,000 - 400,000,000 - - - - 400,000,000 - 400,000,000

Repayment Term - On Demand Interest Rate - Prevailing Market Rate

28. COMMITMENTS AND CONTINGENCIES There are no significant commitment and/or contingencies as at the reporting date.

29. EVENTS OCCURRING AFTER THE DATE of statement of financial position There have been no material events occurring after the balance sheet date that require adjustments to or disclosure in the financial statements.

Serendib Hotels PLC I Annual Report 2012/13 117 NOTES TO THE FINANCIAL STATEMENTS Contd. Year ended 31 March 2013

30. ASSETS PLEDGED The following assets have been pledged as security for liabilities. Carrying Amount Pledged Included Nature of assets Nature of Liability As at under 2013 2012 1 April 2011 Rs. Rs. Rs.

Dolphin Hotels PLC Primery Mortgage Bond No. 3120 dated 12/07/2010 for Rs. 146.3 Mn executed over Club Hotel Dolphin’s Hotel premises at Waikkala owned by the company. Property, Plant Freehold Land and Building Extent 5A-3R-2.6P 630,985,609 639,951,450 565,125,901 and Equipment (Lot 1 in plane No. 3105) to Commercial Bank of Ceylon PLC (EIB Loan of Rs. 126.6 Mn and overdraft facility of Rs. 20 Mn) A supplementary Mortgage Bond in Euro executed in connection with Property, Plant Freehold Land and Building Primary Mortgage Bond No. 3120 630,985,609 639,951,450 565,125,901 and Equipment dated 13/07/2010 linking the Rupee exposure in foreign currency.

Miami Beach Hotels Ltd Primary Mortgage Bond No. 1425 dated 13/07/2010 for Rs. 244.6 Mn executed over Miami Beach Hotels premises at Waikkala owned by the Property, Plant Freehold Land and Building Company. (Extent 7A-3R-31P) to 493,398,383 500,010,750 464,775,856 and Equipment Commercial Bank of Ceylon PLC (EIB Loan of Rs. 234.6 Mn and overdraft facility of Rs. 10 Mn)

118 Serendib Hotels PLC I Annual Report 2012/13 30. ASSETS PLEDGED Contd. The following assets have been pledged as security for liabilities. Carrying Amount Pledged Included Nature of assets Nature of Liability As at under 2013 2012 1 April 2011 Rs. Rs. Rs.

A supplementary Mortgage Bond in GBP executed in connection with Primary Mortgage Property, Plant Freehold Land and Buildings Bond No.1425 dated 13/07/2010 493,398,383 500,010,750 464,775,856 and Equipment linking the Rupee exposure in foreign currency.

Hotel Sigiriya PLC Primary Mortgage up to the value Property, Plant Gasifire Equipments of Rs.1.75 Mn to Commercial Bank 2,457,646 2,691,708 2,925,770 and Equipment of Ceylon PLC

Corporate Guarantee from Hemas Holdings PLC for Euro.1.315 Mn (Equivalent to LKR. 208.5 Mn) in favor of Hatton National Bank PLC

Corporate Guarantee from Hemas Serendib Hotels PLC Holdings PLC for GBP 0.615 Mn Equivalent to LKR. 110.3 Mn) in favor of Hatton National Bank PLC

Corporate Guarantee from Hemas Holdings PLC for Euro 660,000 in favour of Hatton National Bank PLC

Serendib Hotels PLC I Annual Report 2012/13 119 NOTES TO THE FINANCIAL STATEMENTS Contd. Year ended 31 March 2013

31. RELATED PARTY DISCLOSURES Details of significant related party disclosures are as follows:

31.1 Transaction with the parent and related entities

Subsidiaries Affiliates Ultimate Parent Dolphin Hotel Serendib Diethelm Travels Hemtours Jada Hemas Corp. Peace Haven Vishwa BPO Hemas Holdings PLC Total Hotels PLC Sigiriya PLC Leisure Mgt. Ltd. Lanka (Pvt) Ltd. (Pvt) Ltd. Resorts & Spa Ltd. Services Ltd. Resorts Ltd. (Pvt) Ltd. YEAR ENDED 31ST MARCH 2013

Nature of Transaction 2013 2012 2013 2012 2013 2012 2,013 2,012 2013 2012 2013 2012 2013 2012 2013 2012 2013 2012 2013 2012 2013 2012 Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs.

Balance as at 1 April 2012 Trade and Other Receivable ------751,014 97,553 97,553 734,989 - - - - 498,826 1,583,556 Amounts Due From Related Parties 927,810 584,386 776,072 2,285,263 2,561,514 14,532,162 401,273 - - 1,366,497 - - - - - 228,571 5,860,464 17,401,811 Amounts Due To Related Parties (3,987,630) (2,970,194) (67,840) (2,147,408) (7,386,842) (5,354,891) - - (33,973) - - - (396,195) (297,172) - - (1,380,000) (78,407) (13,252,480) (10,848,072) Interest Bearing Loans and Borrowings (62,287,450) - (2,500,000) ------(53,510,304) (64,787,450) (53,510,304) Finance Charges Payable ------(201,950) - (201,950) (65,347,270) (2,385,808) (1,791,768) 137,855 (4,825,328) 9,177,271 401,273 751,014 97,553 97,553 1,332,524 734,989 - - (396,195) (297,172) - - (1,151,429) (53,790,661) (71,680,640) (45,574,959) - Sale of Goods / Services ------4,088,956 ------4,088,956 Purchase of Goods / Services (93,022) ------(12,485) - - - (105,507) - Sale of property and other assets - 317,831 - - - 85,486 - - - - - 265,143 ------228,571 - 897,031 Management Fees Payable - - - - - (10,645,315) ------(10,645,315) Finance Charges Payable (4,492,447) - (445,933) ------(47,342) (168,580) ------(4,730,576) (4,985,722) (4,899,156) Interest income receivable - (648,772) - (98,308) - (310,227) ------(1,057,307) Accounting Fee Payable ------(232,704) ------(232,704) Expenses Incurred on Behalf of the Company 2,647,998 (643,760) 1,429,968 (32,435) 1,881,692 (8,629,762) 9,475,251 - - - 7,154,342 - - - 208,750 365,975 - - 115,674,101 (1,380,000) 138,472,102 (10,319,982) Income Received on Behalf of the Company ------(40,000) (464,998) - - - - (40,000) (464,998) Settlement of Dues from Related Parties (1,670,279) (2,179,545) (1,971,725) (2,306,494) (3,186,059) (13,920,054) (9,065,283) (4,438,697) (97,553) - (5,594,242) (811,676) ------(119,271,002) - (140,856,143) (23,656,466) Settlements of Dues to Related Parties 5,892,914 - 2,272,307 2,128,990 39,976,727 10,839,246 - - - - (15,405,705) 134,606 410,235 - - - - - 78,407 33,146,480 13,181,249 Finance income received ------4,932,526 - 4,932,526 Management fees paid - - - - - 6,714,108 ------6,714,108 Expenses Incurred on Behalf of Others (6,718,858) 2,205,138 (2,221,454) 797,301 (35,893,789) 1,863,919 - - - - 16,720,815 1,178,042 (3,216,731) ------(31,330,016) 6,044,400 Accounting Fee paid ------232,704 ------232,704 Finance charged paid 4,866,124 275,096 462,919 81,323 ------81,315 ------5,410,358 356,419 Loan Capital Paid/Granted 62,287,450 (62,287,450) 2,500,000 (2,500,000) ------(11,796,250) 64,787,450 (76,583,700) Loans Settlements ------65,306,554 - 65,306,554 62,719,879 (62,961,462) 2,026,083 (1,929,623) 2,778,571 (14,002,599) 409,968 (349,741) (97,553) - 2,909,184 597,535 (2,806,495) - 168,750 (99,023) (12,485) - (3,596,901) 52,639,232 64,499,000 (26,105,681) Balance as at 31 March 2013 (2,627,391) (65,347,270) 234,315 (1,791,768) (2,046,757) (4,825,328) 811,241 401,273 - 97,553 4,241,708 1,332,524 (2,806,495) - (227,445) (396,195) (12,485) - (4,748,330) (1,151,429) (7,181,640) (71,680,640)

Included In as at 31 March 2013 Trade and Other Receivable - - - - 108,100 - 811,241 401,273 - 97,553 463,893 ------1,383,234 498,826 Amounts Due From Related Parties - 927,810 234,315 776,072 - 2,561,514 - - - - 3,777,815 1,366,497 ------228,571 4,012,130 5,860,464 Amounts Due To Related Parties (2,627,391) (3,987,630) - (67,840) (2,154,857) (7,386,842) - - - - - (33,973) (2,806,495) - (227,445) (396,195) (12,485) - (4,748,330) (1,380,000) (12,577,003) (13,252,480) Interest Bearing Loans and Borrowings - (62,287,450) - (2,500,000) ------(64,787,450) Total (2,627,391) (65,347,270) 234,315 (1,791,768) (2,046,757) (4,825,328) 811,241 401,273 - 97,553 4,241,708 1,332,524 (2,806,495) - (227,445) (396,195) (12,485) - (4,748,330) (1,151,429) (7,181,639) (71,680,640)

Terms and Conditions: Sales and purchase of goods and/or services to related parties were made at on the basis of the price lists in force with non related parties, but subject to approved discounts. Property, plant and equipment purchases and sales are made at Net book values.

120 Serendib Hotels PLC I Annual Report 2012/13 31. RELATED PARTY DISCLOSURES Details of significant related party disclosures are as follows:

31.1 Transaction with the parent and related entities

Subsidiaries Affiliates Ultimate Parent Dolphin Hotel Serendib Diethelm Travels Hemtours Jada Hemas Corp. Peace Haven Vishwa BPO Hemas Holdings PLC Total Hotels PLC Sigiriya PLC Leisure Mgt. Ltd. Lanka (Pvt) Ltd. (Pvt) Ltd. Resorts & Spa Ltd. Services Ltd. Resorts Ltd. (Pvt) Ltd. YEAR ENDED 31ST MARCH 2013

Nature of Transaction 2013 2012 2013 2012 2013 2012 2,013 2,012 2013 2012 2013 2012 2013 2012 2013 2012 2013 2012 2013 2012 2013 2012 Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs.

Balance as at 1 April 2012 Trade and Other Receivable ------751,014 97,553 97,553 734,989 - - - - 498,826 1,583,556 Amounts Due From Related Parties 927,810 584,386 776,072 2,285,263 2,561,514 14,532,162 401,273 - - 1,366,497 - - - - - 228,571 5,860,464 17,401,811 Amounts Due To Related Parties (3,987,630) (2,970,194) (67,840) (2,147,408) (7,386,842) (5,354,891) - - (33,973) - - - (396,195) (297,172) - - (1,380,000) (78,407) (13,252,480) (10,848,072) Interest Bearing Loans and Borrowings (62,287,450) - (2,500,000) ------(53,510,304) (64,787,450) (53,510,304) Finance Charges Payable ------(201,950) - (201,950) (65,347,270) (2,385,808) (1,791,768) 137,855 (4,825,328) 9,177,271 401,273 751,014 97,553 97,553 1,332,524 734,989 - - (396,195) (297,172) - - (1,151,429) (53,790,661) (71,680,640) (45,574,959) - Sale of Goods / Services ------4,088,956 ------4,088,956 Purchase of Goods / Services (93,022) ------(12,485) - - - (105,507) - Sale of property and other assets - 317,831 - - - 85,486 - - - - - 265,143 ------228,571 - 897,031 Management Fees Payable - - - - - (10,645,315) ------(10,645,315) Finance Charges Payable (4,492,447) - (445,933) ------(47,342) (168,580) ------(4,730,576) (4,985,722) (4,899,156) Interest income receivable - (648,772) - (98,308) - (310,227) ------(1,057,307) Accounting Fee Payable ------(232,704) ------(232,704) Expenses Incurred on Behalf of the Company 2,647,998 (643,760) 1,429,968 (32,435) 1,881,692 (8,629,762) 9,475,251 - - - 7,154,342 - - - 208,750 365,975 - - 115,674,101 (1,380,000) 138,472,102 (10,319,982) Income Received on Behalf of the Company ------(40,000) (464,998) - - - - (40,000) (464,998) Settlement of Dues from Related Parties (1,670,279) (2,179,545) (1,971,725) (2,306,494) (3,186,059) (13,920,054) (9,065,283) (4,438,697) (97,553) - (5,594,242) (811,676) ------(119,271,002) - (140,856,143) (23,656,466) Settlements of Dues to Related Parties 5,892,914 - 2,272,307 2,128,990 39,976,727 10,839,246 - - - - (15,405,705) 134,606 410,235 - - - - - 78,407 33,146,480 13,181,249 Finance income received ------4,932,526 - 4,932,526 Management fees paid - - - - - 6,714,108 ------6,714,108 Expenses Incurred on Behalf of Others (6,718,858) 2,205,138 (2,221,454) 797,301 (35,893,789) 1,863,919 - - - - 16,720,815 1,178,042 (3,216,731) ------(31,330,016) 6,044,400 Accounting Fee paid ------232,704 ------232,704 Finance charged paid 4,866,124 275,096 462,919 81,323 ------81,315 ------5,410,358 356,419 Loan Capital Paid/Granted 62,287,450 (62,287,450) 2,500,000 (2,500,000) ------(11,796,250) 64,787,450 (76,583,700) Loans Settlements ------65,306,554 - 65,306,554 62,719,879 (62,961,462) 2,026,083 (1,929,623) 2,778,571 (14,002,599) 409,968 (349,741) (97,553) - 2,909,184 597,535 (2,806,495) - 168,750 (99,023) (12,485) - (3,596,901) 52,639,232 64,499,000 (26,105,681) Balance as at 31 March 2013 (2,627,391) (65,347,270) 234,315 (1,791,768) (2,046,757) (4,825,328) 811,241 401,273 - 97,553 4,241,708 1,332,524 (2,806,495) - (227,445) (396,195) (12,485) - (4,748,330) (1,151,429) (7,181,640) (71,680,640)

Included In as at 31 March 2013 Trade and Other Receivable - - - - 108,100 - 811,241 401,273 - 97,553 463,893 ------1,383,234 498,826 Amounts Due From Related Parties - 927,810 234,315 776,072 - 2,561,514 - - - - 3,777,815 1,366,497 ------228,571 4,012,130 5,860,464 Amounts Due To Related Parties (2,627,391) (3,987,630) - (67,840) (2,154,857) (7,386,842) - - - - - (33,973) (2,806,495) - (227,445) (396,195) (12,485) - (4,748,330) (1,380,000) (12,577,003) (13,252,480) Interest Bearing Loans and Borrowings - (62,287,450) - (2,500,000) ------(64,787,450) Total (2,627,391) (65,347,270) 234,315 (1,791,768) (2,046,757) (4,825,328) 811,241 401,273 - 97,553 4,241,708 1,332,524 (2,806,495) - (227,445) (396,195) (12,485) - (4,748,330) (1,151,429) (7,181,639) (71,680,640)

Terms and Conditions: Sales and purchase of goods and/or services to related parties were made at on the basis of the price lists in force with non related parties, but subject to approved discounts. Property, plant and equipment purchases and sales are made at Net book values.

Serendib Hotels PLC I Annual Report 2012/13 121 NOTES TO THE FINANCIAL STATEMENTS Contd. Year ended 31 March 2013

31. RELATED PARTY DISCLOSURES Contd.

31.2 Transactions With Key Management Personnel of the Company or its Parent

The key management personnel of the Company are the members of its Board of Directors and that of its parent.

Key Management Personnel Compensation - Group 2013 2012 2011 Rs. Rs. Rs.

Short Term Employee Benefits 28,407,014 22,220,667 19,155,896 Non Cash Benefits 233,273 180,630 - 28,640,287 22,401,297 19,155,896

No other significant transactions had taken place involving key management personnel and their close family members.

32. FAIR VALUE Set out below is a comparison by class of the carrying amounts and fair values of the Company’s financial instruments that are carried in the financial statements. Carrying amount Fair value 1 April 1 April Group 2013 2012 2011 2013 2012 2011 Rs. Rs. Rs. Rs. Rs. Rs.

Financial assets Trade and Other Receivables 207,387,262 271,047,278 277,992,166 207,387,262 271,047,278 277,992,166 Other Financial Assets 747,663,420 - - 747,663,420 - - Available for Sale Investments 12,000,010 10,000,000 10,000,000 12,000,010 10,000,000 10,000,000 Cash and Short Term Deposits 219,173,998 138,058,042 89,730,615 219,173,998 138,058,042 89,730,615 Total 1,186,224,690 419,105,320 377,722,781 1,186,224,690 419,105,320 377,722,781

Financial liabilities Interest Bearing Loans and Borrowings Other Current Financial Liabilities 400,000,000 - - 400,000,000 - - Bank Loans 753,973,469 742,979,105 560,231,885 753,973,469 742,979,105 560,231,885 Trade and other Payables 281,879,633 309,552,897 212,633,467 281,879,633 309,552,897 212,633,467 Loans Due to Related Party - 5,000,000 53,510,304 - 5,000,000 53,510,304 Bank Overdraft 57,929,368 53,209,945 162,545,128 57,929,368 53,209,945 162,545,128 Total 1,493,782,470 1,110,741,947 988,920,784 1,493,782,470 1,110,741,947 988,920,784

122 Serendib Hotels PLC I Annual Report 2012/13 32. FAIR VALUE Contd.

Carrying amount Fair value 1 April 1 April Company 2013 2012 2011 2013 2012 2011 Rs. Rs. Rs. Rs. Rs. Rs.

Financial assets Trade and Other Receivables 65,419,910 94,283,938 91,957,533 65,419,910 94,283,938 91,957,533 Available for Sale Investments 4,000,010 3,333,340 3,333,340 4,000,010 3,333,340 3,333,340 Cash and Short Term Deposits 74,899,965 35,073,194 26,278,166 74,899,965 35,073,194 26,278,166 Total 144,319,885 132,690,472 121,569,039 144,319,885 132,690,472 121,569,039

Financial liabilities Bank Loans 402,841,890 342,437,450 188,661,711 402,841,890 342,437,450 188,661,711 Trade and Other Payables 97,915,530 150,249,706 59,279,562 97,915,530 150,249,706 59,279,562 Loans Due to Related Party - 69,787,450 53,510,304 - 69,787,450 53,510,304 Bank Overdraft 17,062,997 22,787,420 30,682,731 17,062,997 22,787,420 30,682,731 Total 517,820,418 585,262,026 332,134,308 517,820,418 585,262,026 332,134,308

The fair values of the financial assets and liabilities are included at the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale.

The following methods and assumptions were used to estimate the fair values:

Cash and short-term deposits, trade receivables and trade payables approximate their carrying amounts largely due to the short- term maturities of these instruments.

Long-term fixed-rate and variable-rate receivables/borrowings are evaluated by the Group/Company based on parameters such as interest rates, specific country risk factors, individual creditworthiness of the customer and the risk characteristics of the financed project. Based on this evaluation, allowances are taken to account for the expected losses of these receivables. As at 31 March 2013, the carrying amounts of such receivables, net of allowances, are not materially different from their calculated fair values.

33. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES The company’s principal financial liabilities, other than derivatives, comprise loans and borrowings and trade and other payables. The main purpose of these financial liabilities is to finance the company’s operations and to provide guarantees to support its operations. The company has loan and other receivables, trade and other receivables, and cash and short-term deposits that arrive directly from its operations.

The company is exposed to market risk, credit risk and liquidity risk.

Serendib Hotels PLC I Annual Report 2012/13 123 NOTES TO THE FINANCIAL STATEMENTS Contd. Year ended 31 March 2013

33. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES Contd. The Group's/Company’s principal financial liabilities, other than derivatives, comprise loans and borrowings and trade and other payables. The main purpose of these financial liabilities is to finance the Group's/Company’s operations and to provide guarantees to support its operations. The Group/Company have loan and other receivables, trade and other receivables, and cash and short-term deposits that arrive directly from its operations.

The Group/Company are exposed to market risk, credit risk and liquidity risk.

The Group's/Company’s senior management oversees the management of these risks. The Group's/Company’s senior management is supported by the Board of Directors (BOD) that advises on financial risks and the appropriate financial risk governance framework for the Company. BOD provides assurance to the Group's/Company’s senior management that the Group's/Company’s financial risk-taking activities are governed by appropriate policies and procedures and that financial risks are identified, measured and managed in accordance with group policies and group risk appetite. It is the Group’s policy that all derivative activities for risk management purposes are required to be approved by Board of Directors of Hemas Holdings PLC.

Market Risk Market risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market prices. Market prices comprise four types of risk: interest rate risk, currency risk, commodity price risk and other price risk, such as equity price risk. Financial instruments affected by market risk include loans and borrowings and deposits.

The overall risk management program focuses on the unpredictability of financial markets and seeks to minimize potential adverse effects on the entity’s financial performance.

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.

Foreign Currency Risk Foreign currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. The Group's/Company’s exposure to the risk of changes in foreign exchange rates relates primarily to the Group's/Company’s operating activities (when revenue or expense is denominated in a different currency from the Group's/ Company’s functional currency).

Equity Price Risk The Group's/Company’s listed and unlisted equity securities are susceptible to market price risk arising from uncertainties about future values of the investment securities. The Group's/Company’s Board of Directors reviews and approves all equity investment decisions.

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/Company is exposed to credit risk from its operating activities (primarily for trade receivables).

124 Serendib Hotels PLC I Annual Report 2012/13 33. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES Contd.

Trade Receivables Customer credit risk is managed by each company subject to the Group’s established policy, procedures and control relating to customer credit risk management. Credit quality of the customer is assessed based on the credit risk evaluation model and individual credit limits are defined in accordance with this assessment.

Outstanding customer receivables are regularly monitored and contracts are signed and agreed with all credit customers. Additionally, a large number of minor receivables are grouped into homogenous groups and assessed for Impairment collectively. The calculation is based on actual incurred historical data. The maximum exposure to credit risk at the reporting date is the carrying value of each class of financial assets disclosed in Note 13. The company does not hold collateral as security.

Financial Instruments and Cash Deposits Credit risk from balances with banks is managed by the Group’s treasury department in accordance with the Group’s policy. Investments of surplus funds are made only with approved counterparties as per the Treasury Policy and within credit limits assigned to each counterparty. Counterparty credit limits are reviewed by the Group’s Board of Directors on an annual basis, and may be updated throughout the year subject to approval of the Group’s Treasury Committee. The limits are set to minimize the concentration of risks and therefore mitigate financial loss through potential counterparty’s failure. The company’s maximum exposure to credit risk for the components of the statement of financial position is the carrying amounts as illustrated in Note 21 except for financial guarantees and derivative financial instruments.

Liquidity Risk The Group/Company monitors its risk to a shortage of funds by setting up a minimum liquidity level. The Group's/Company’s objective is to maintain a balance between continuity of funding and flexibility through the use of bank overdrafts and bank loans. The Group/Company assessed the concentration of risk with respect to refinancing its debt and concluded it to be low. Access to sources of funding is sufficiently available and debt maturing within 12 months can be rolled over with existing lenders.

Serendib Hotels PLC I Annual Report 2012/13 125 NOTES TO THE FINANCIAL STATEMENTS Contd. Year ended 31 March 2013

33. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES Contd.

The table below summarizes the maturity profile of the Group's financial liabilities based on contractual undiscounted payments.

Group As at 31 March 2013 On Demand Less Than 3 to 12 1 to 5 3 Months Months Years > 5 Years Total Rs. Rs. Rs. Rs. Rs. Rs.

Interest-Bearing Loans and Borrowings 457,929,368 37,221,269 111,313,835 605,438,365 - 1,211,902,837 Trade and Other Payable - 281,879,633 - - - 281,879,633 457,929,368 319,100,902 111,313,835 605,438,365 - 1,493,782,470

As at 31 March 2012 On Demand Less Than 3 to 12 1 to 5 3 Months Months Years > 5 Years Total Rs. Rs. Rs. Rs. Rs. Rs.

Interest-Bearing Loans and Borrowings 53,209,945 13,749,935 67,241,650 666,987,520 - 801,189,050 Trade and Other Payable - 309,552,897 - - - 309,552,897 53,209,945 323,302,832 67,241,650 666,987,520 - 1,110,741,947

As at 01 April 2011 On Demand Less Than 3 3 to 12 1 to 5 Months Months Years > 5 Years Total Rs. Rs. Rs. Rs. Rs. Rs.

Interest-Bearing Loans and Borrowings 162,545,128 78,052,817 73,627,544 462,061,828 - 776,287,317 Trade and Other Payable - 212,633,467 - - - 212,633,467 162,545,128 290,686,284 73,627,544 462,061,828 - 988,920,784

126 Serendib Hotels PLC I Annual Report 2012/13 33. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES Contd.

The table below summarizes the maturity profile of the Company’s financial liabilities based on contractual undiscounted payments.

Company As at 31 March 2013 On Demand Less than 3 to 12 1 to 5 3 Months Months Years > 5 Years Total Rs. Rs. Rs. Rs. Rs. Rs.

Interest-Bearing Loans and Borrowings 17,062,997 20,251,904 60,755,715 321,834,272 - 419,904,888 Trade and Other Payable - 97,915,530 - - - 97,915,530 17,062,997 118,167,434 60,755,715 321,834,272 - 517,820,418

As at 31 March 2012 On Demand Less than 3 to 12 1 to 5 3 Months Months Years > 5 Years Total Rs. Rs. Rs. Rs. Rs. Rs.

Interest-Bearing Loans and Borrowings 22,787,420 78,449,991 25,987,624 307,787,285 - 435,012,320 Trade and Other Payable - 150,249,706 - - - 150,249,706 22,787,420 228,699,697 25,987,624 307,787,285 - 585,262,026

As at 01 April 2011 On Demand Less than 3 to 12 1 to 5 3 Months Months Years > 5 Years Total Rs. Rs. Rs. Rs. Rs. Rs.

Interest-Bearing Loans and Borrowings 30,682,731 64,820,690 33,931,158 143,420,167 - 272,854,746 Trade and Other Payable - 59,279,562 - - - 59,279,562 30,682,731 124,100,252 33,931,158 143,420,167 - 332,134,308

Capital Management Capital includes ordinary shares. The primary objective of the Group's/Company’s capital management is to ensure that it maintains a strong credit rating and healthy capital ratios in order to support its business and maximise shareholder value.

The Group/Company manages its capital structure and makes adjustments to it in light of changes in economic conditions. To maintain or adjust the capital structure, the Group/Company may adjust the dividend payment to shareholders, return capital to shareholders or issue new shares. No changes were made in the objectives, policies or processes managing capital during the years ended 31 March 2013 and 31 March 2012. The Group/Company monitors capital using a gearing ratio, which is debt divided by total capital plus debt. The Group’s policy is to keep the gearing ratio below 40%.

Serendib Hotels PLC I Annual Report 2012/13 127 INVESTOR INFORMATION

ANALYSIS OF SHAREHOLDERS

Ordinary Voting Shares

2013 2012 No. of Total % No. of Total % Shareholders Holding Shareholders Holding

1 - 1,000 819 234,063 0.31 763 236,442 0.31 1,001 - 10,000 343 1,383,365 1.83 367 1,461,922 1.94 10,001 - 100,000 162 5,658,269 7.49 167 5,682,058 7.52 100,001 - 1,000,000 35 9,274,811 12.28 33 7,609,949 10.08 Over 1,000,000 5 58,964,230 78.09 6 60,524,367 80.15 1,364 75,514,738 100.00 1,336 75,514,738 100.00

Institutions 79 57,670,101 76.37 77 62,735,013 83.07 Individuals 1,285 17,844,637 23.63 1,259 12,779,725 16.93 1,364 75,514,738 100.00 1,336 75,514,738 100.00

Ordinary Non-Voting Shares 2013 2012 No. of Total % No. of Total % Shareholders Holding Shareholders Holding

1 - 1,000 509 155,046 0.43 550 182,557 0.51 1,001 - 10,000 227 818,737 2.27 262 922,220 2.56 10,001 - 100,000 91 2,552,245 7.09 96 2,726,518 7.57 100,001 - 1,000,000 13 3,472,313 9.64 12 3,177,724 8.82 Over 1,000,000 4 29,012,715 80.57 4 29,002,037 80.54 844 36,011,056 100.00 924 36,011,056 100.00

Institutions 67 31,643,455 87.87 64 31,318,535 86.97 Individuals 777 4,367,601 12.13 860 4,692,521 13.03 844 36,011,056 100.00 924 36,011,056 100.00

128 Serendib Hotels PLC I Annual Report 2012/13 SHARE TRADING INFORMATION

Ordinary Voting Shares

2013 2012

Highest Market Price (Rs.) 26.90 (09.10.12) 37.90 (12.10.11) Lowest Market Price (Rs.) 18.10 (29.05.12) 18.00 (14.02.12) Last Traded Price (Rs.) 23.70 (28.03.13) 24.80 (30.03.12) No. of Shares Traded 12,048,020 24,865,686 No. of Trades 3,351 9,573 Turnover (Rs.) 287,714,609 822,316,841

Ordinary Non-Voting Shares 2013 2012

Highest Market Price (Rs.) 21.90 (01.10.12) 26.80 (27.04.11) Lowest Market Price (Rs.) 11.80 (07.06.12) 13.50 (15.02.12) Last Traded Price (Rs.) 17.30 (28.03.13) 15.70 (30.03.12) No. of Shares Traded 2,231,064 6,696,371 No. of Trades 1,456 3,665 Turnover (Rs.) 38,789,711 154,614,096

PUBLIC HOLDING 2013 2012

Ordinary Voting Shares 28.67% 28.67% Ordinary Non-Voting Shares 26.64% 26.64%

Serendib Hotels PLC I Annual Report 2012/13 129 INVESTOR INFORMATION Contd.

MAJOR SHAREHOLDINGS

20 Major shareholders - Voting Ordinary Shares 31.03.2013 31.03.2012 No. of % No. of % Shares Shares

Leisure Asia Investments Ltd. 21,251,037 28.14 21,251,037 28.14 Hemas Holdings PLC 16,521,918 21.88 16,521,918 21.88 Lodging Investment (Labuan) Ltd. 14,972,006 19.83 14,972,006 19.83 Mr. F.G.N. Mendis 4,924,717 6.52 - - / B.S.M. De Silva 1,294,552 1.71 1,294,552 1.71 Mr. D.P. Pieris 862,901 1.14 - - Mr. E.J. De Soysa 800,000 1.06 800,000 1.06 Employees Trust Fund Board 723,455 0.96 - - Mr. J.C.L. De Mel 661,925 0.88 661,925 0.88 Ms. B.C.R. Wickramaratne 512,305 0.68 510,000 0.68 Acuity Partners (Pvt) Ltd./B.S.M. De Silva 490,000 0.65 490,000 0.65 Ms. M.V. Fernando 375,000 0.50 375,000 0.50 Deutsche Bank AG – Comtrust Equity Fund 330,000 0.44 - - Dr. B.G.S. De Silva 319,912 0.42 319,912 0.42 Ms. C.A. Wenceslaus 286,337 0.38 285,870 0.38 Ms. A.R. Gamage 248,838 0.33 248,838 0.33 Ms. H.L. Ratnayake 239,715 0.32 239,715 0.32 Dr. R.S. 225,662 0.30 225,662 0.30 Ms. H.G.S. Ansell 216,825 0.29 216,825 0.29 Ms. J.C. Wickramaratne 203,145 0.27 203,145 0.26 65,460,250 86.69 Shares held by the balance shareholders 10,054,488 13.31 75,514,738 100.00

130 Serendib Hotels PLC I Annual Report 2012/13 20 Major Shareholders -Non -Voting Ordinary Shares

31.03.2013 31.03.2012 No. of % No. of % Shares Shares

Leisure Asia Investments Ltd 10,165,975 28.24 10,165,975 28.24 Hemas Holdings PLC 9,094,512 25.25 9,094,512 25.25 Lodging Investment (Labuan) Ltd. 7,156,750 19.87 7,156,750 19.87 Rosewood (Pvt) Ltd. – Account No.1 2,595,478 7.21 2,584,800 7.18 Mr. J.R. De Silva 869,999 2.42 864,799 2.40 Waldock Mackenzie/ Mrs. G. Soysa 356,856 0.99 356,856 0.99 Shalsri Investments Ltd. 341,825 0.95 341,825 0.95 Intercom Ltd. 320,000 0.89 320,000 0.89 Acuity Partners (Pvt) Ltd./B.S.M. De Silva 309,570 0.86 309,570 0.86 Waldock Mackenzie Ltd./L. Hapangama 278,889 0.77 - - Seylan Bank PLC/ R.K.E.P. De Silva 187,000 0.52 187,000 0.52 Mr. H.W.M. Woodward 184,723 0.51 184,723 0.51 Ms. H.G.S. Ansell 136,300 0.38 136,300 0.38 Mr. D.M.P. Disanayake 135,000 0.37 60,000 0.16 Mr. M.K. Katubdeen 134,000 0.37 134,000 0.37 Dr. H.S.D. Soysa 112,781 0.31 112,781 0.31 Ms. B.Y. La Brooy 105,370 0.29 105,370 0.29 Northstar Holdings (Pvt) Ltd. 87,500 0.24 87,500 0.24 Mr. N.A. Jayawickrama 85,420 0.24 85,420 0.24 Mr. M.R.M. Harees 75,000 0.21 75,000 0.21 32,732,948 90.89 Shares held by the balance shareholders 3,278,108 9.11 36,011,056 100.00

Serendib Hotels PLC I Annual Report 2012/13 131 TEN YEAR FINANCIAL REVIEW (GROUP)

Year ended 31 March 2013 2012 2011 2010 2009 2008 2007 2006 2005 2004 Restated Restated

(Figures in Rs.’000 Unless Otherwise Stated)

Trading Results Revenue 1,447,478 1,047,460 895,775 675,422 583,661 483,742 478,898 393,570 334,099 335,179 Profit / (Loss) Before Tax 431,422 111,846 153,496 81,789 8,844 14,165 28,744 6,803 (4,914) 62,312 Income Tax Expense (65,614) (20,585) (24,217) (16,904) (9,374) 796 (9,947) (1,550) (5,932) (9,541) Profit / (Loss) for the year 365,809 91,261 129,278 64,885 (530) 14,961 18,797 5,253 (10,846) 52,771 Minority Interest 95,686 50,388 12,781 20,917 (12,422) (19,963) (12,365) (4,649) 1,182 (16,780) Profit / (Loss) Attributable to Equity Holders of the Parent 270,123 40,874 116,497 43,968 (12,952) (5,002) 6,432 604 (9,664) 35,991 Earnings / (Loss) per Share* (Rs.) 2.4 0.4 1.3 0.5 (0.1) (0.1) 0.1 0.0 (0.2) 0.7 Interest Cover (Times) 11.5 3.3 5.1 5.9 1.3 1.5 2.2 1.2 0.6 9.9 Return on Equity (%) 16.1 4.7 10.7 6.1 (0.1) 1.4 2.1 0.6 (1.3) 8.1

Hotel Operations Annual Sales Growth (%) 38.2 16.9 32.6 15.7 20.7 1.0 21.7 17.8 (0.3) 36.8 Room Occupancy (%) 77 80 79 65 55 27 59 58 73 71

Current Ratio (Times) 1.3 1.0 0.7 1.4 1.6 1.4 0.9 0.9 1.1 1.1 Net assets per Share* (Rs.) 20.3 17.3 10.3 8.9 8.4 8.7 9.1 8.9 1.0 8.4 Debt / Total Equity Ratio (%) 53.5 41.4 64.3 7.2 12.6 16.8 18.3 33.6 32.3 16.6

Market / Shareholder Information Market value per share (Rs.) 23.7 24.8 32.0 19.0 5.7 4.8 7.4 9.3 7.8 6.9 Price Earnings Ratio (Times) 9.8 65.3 24.5 38.5 N/A N/A 80.4 972.1 N/A 10.5

Hotel Serendib was closed from May to Aug ’03 for refurbishment & was closed from Mar ’07 to Sep ‘07.

Hotel Sigiriya was closed during May & Jun ‘05 for refurbishment.

Hotel Dolphin was closed from May to Aug 2004 for refurbishment of existing rooms and construction of new rooms.

Hotel Dolphin was partially closed from May to Sep ‘10 for refurbishment

Hotel Serendib was closed for refurbishment from Apr to Nov ‘11, and was launched in Dec ‘11 as Avani Bentota Resort & Spa

* Earnings / (Loss) Per Share and Net Assets Per Share: Comparative figures adjusted for rights issue and sub-division of ordinary shares in the proportion of 5:1

132 Serendib Hotels PLC I Annual Report 2012/13 NOTICE OF MEETING

NOTICE IS HEREBY GIVEN that the FORTY FIFTH (45TH) ANNUAL GENERAL MEETING of SERENDIB HOTELS PLC will be held at the Auditorium of the Sri Lanka Foundation, No. 100, Independence Square, Colombo 07 on Tuesday, 9 July 2013 at 3.00 p.m. for the following purpose:

AGENDA

1. To receive and consider the Statement of Accounts of the Company and Group for the year ended 31 March 2013 together with the Report of the Directors and Auditors thereon. 2. To re-elect as a Director Mr. A.N. Esufally who retires by rotation in terms of Article 85 of the Articles of Association of the Company. 3. To re-elect as a Director Prof. L.D.K.B. Gamage, who retires by rotation in terms of Article 85 of the Articles of Association of the Company. 4. To pass the ordinary resolution set out below to re-appoint as a Director Mr. J.C.L. De Mel who has reached the age of 76 years on 6 May 2013 and vacates office as a Director of the Company in terms of Section 210 (2) (b) of the Companies Act No. 7 of 2007. RESOLVED that Mr. J.C.L. De Mel who has reached the age of 76 years on 6 May 2013 be and is hereby re-appointed a Director of the Company and it is hereby declared that as provided for in Section 211 (1) of the Companies Act No. 7 of 2007 that the age limit of 70 years referred to in Section 210 of the said Companies Act shall not apply to Mr. J.C.L. De Mel. 5. To re-appoint Messrs Ernst & Young, Chartered Accountants as the Auditors of the Company for the ensuing year and authorise the Directors to determine their remuneration. 6. To authorise Directors to determine and make contributions to charity. 7. To consider any other business of which due notice has been given.

By Order of the Board of SERENDIB HOTELS PLC

HEMAS CORPORATE SERVICES (PVT) LTD. Secretaries

Colombo 14 June 2013

Notes: (i) A member unable to attend is entitled to appoint a Proxy to attend and vote on his/her behalf. (ii) A Proxy need not be a member of the Company. (iii) A Form of Proxy accompanies this Notice.

Serendib Hotels PLC I Annual Report 2012/13 133 NOTES

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134 Serendib Hotels PLC I Annual Report 2012/13 FORM OF PROXY

I/We …………………………………………………………………………………………………………………………………………...... of …………………………………………………………………………………………………………………………………………..……...... being a Member/s of SERENDIB HOTELS PLC do hereby appoint …………………….…………………….……………...... …………………………………………………………………………………………………………………………………………………….... of………………………………………………………………….……………………………………………………or failing him/her

Mr. A.N. Esufally or failing him Mr. D.T.R. De Silva or failing him Mr. J.C.L. De Mel or failing him Mr. H.N. Esufally or failing him Mr. W.M. De F. Arsakularatne or failing him Prof. L.D.K.B. Gamage or failing him Mr. E.J.D. Rajakarier or failing him Mr. M.A. Jafferjee or failing him Mr. R.N.A. Athukorala as*my/our Proxy to represent *me/us and to vote on *my/our behalf at the Forty Fifth (45th) Annual General Meeting of the Company to be held on Tuesday, 9 July 2013 at 3.00 p.m. at the Auditorium of the Sri Lanka Foundation, No. 100, Independence Square, Colombo 07 and any adjournment thereof and at every poll which may be taken in consequence thereof.

For Against

1. To receive and consider the Statement of Accounts of the Company and Group for the year ended 31st March 2013 together with the Report of the Directors and Auditors thereon. 2. To re-elect Mr. A.N. Esufally who retires by rotation in terms of the Articles of Association of the Company. 3. To re-elect Prof. L.D.K.B. Gamage, who retires by rotation in terms of the Articles of Association of the Company. 4. To re-appoint Mr. J.C.L. De Mel, as Director, in terms of Section 211 (1) of the Companies Act No. 7 of 2007. 5. To re-appoint Messrs Ernst & Young as Auditors and authorise the Directors to determine their remuneration.

6. To authorise Directors to determine and make Contributions to charity.

Signature of Shareholder/s …………………….…………………...... NIC/Passport No……………………………......

Dated this ……………… day of ………………………. 2013.

(i) *Please delete the inappropriate words. (ii) Instructions regarding completion appear on the reverse hereof.

Serendib Hotels PLC I Annual Report 2012/13 135 INSTRUCTIONS FOR COMPLETION

1. Kindly perfect the Form of Proxy after filling in legibly your name in full and address and by signing in the space provided. Please fill in the date of signature.

2. 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.

3. In the case of Corporate Members, the Form of Proxy must be completed under the Common Seal, which should be affixed and attested in the manner prescribed by the Articles of Association.

4 If the Form of Proxy is signed by an Attorney, the relevant Power of Attorney should also accompany the completed Form of Proxy.

5. In case of joint holders the Form of Proxy must be signed by the first holder.

6. The completed Form of Proxy should be deposited at the office of the Secretaries, Hemas Corporate Services (Pvt) Ltd. at Level 9, Hemas House, 75, Braybrooke Place, Colombo 02 not less than forty eight (48) hours before the appointed time for the meeting.

136 Serendib Hotels PLC I Annual Report 2012/13 CORPORATE INFORMATION

NAME OF THE COMPANY MANAGING AGENT Serendib Hotels PLC Serendib Leisure Management Ltd. Contents LEGAL FORM AUDITORS 3 Our Vision, Mission and Core Values A Public Quoted Company with Limited Ernst & Young 4 Financial Highlights (Group) Liability incorporated on 9 September Chartered Accountants 6 Serendib Leisure Properties 1966 under the Companies Ordinance 201, De Saram Place, No. 51 of 1938 (Cap 145) and Colombo 10. 10 Chairman’s Message re-registered under the Companies 12 Managing Director’s Review Act No. 7 of 2007. BANKERS 15 Board of Directors Commercial Bank of Ceylon PLC 20 Senior Management COMPANY REGISTRATION NO Hatton National Bank PLC 24 Management Discussion and Analysis PQ 223 30 Hotel Management HOTEL 36 Sustainability Report BOARD OF DIRECTORS Avani Bentota Resort & Spa 41 Risk Management A.N. Esufally – Chairman Bentota (Alt V.H.A. Perera) Tel : + 94 (34) 2275353 46 Corporate Governance D.T.R. De Silva – Managing Director Fax : + 94 (34) 2275313 57 Report of the Remuneration Committee J.C.L. De Mel 58 Annual Report of the Board of Directors H.N. Esufally - (Alt. Ms. K.A.C. Wilson) 62 Directors’ Interest in Contracts with the Company W.M. De F. Arsakularatne 65 Report of the Audit Committee Prof. L.D.K.B. Gamage E.J.D. Rajakariar Financial Reports M.A. Jafferjee 68 Statement of Directors’ Responsibility in Relation to R.N. Athukorala Preparing Financial Statements REGISTERED OFFICE 69 Independent Auditor’s Report Level 5, Hemas House, 70 Statement of Financial Position 75, Braybrooke Place, Colombo 02. 71 Income Statement Tel : +94 (11) 4790500-6 72 Statement of Comprehensive Income Fax : +94 (11) 2438933 73 Statement of Changes in Equity (Group) E-mail: [email protected] 74 Statement of Changes in Equity (Company) Website: www.serendibleisure.com 75 Cash Flow Statement 76 Notes to the Financial Statements SECRETARIES & REGISTRARS Hemas Corporate Services (Pvt) Ltd. Level 9, Hemas House, Supplementary Information 75, Braybrooke Place, Colombo 02 128 Investor Information Tel : + 94 (11) 4731731 132 Ten Year Financial Review (Group) Fax : +94 (11) 4731777 133 Notice of Meeting 135 Form of Proxy IBC Corporate Information

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