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Contents Financial Highlights 2 Chairman's Statement 3 Managing Director’s Report 5 Board of Directors 7 Our Vision Annual Report of the Board of Directors 9 “We will strive to be No. 01 Plantation Company. Audit Committee Report 12 A Model for Sri Lanka.” Remuneration Committee Report 13 Related Party Transactions Review Committee Report 14 The Board of Directors’ Statement on Internal Controls 15 Corporate Governance 16 Corporate Sustainability Report 27 Risk Management 34 Management Team 38 No. 1 in … Statement of Directors’ Responsibility 40 Protability growth per hectare of Tea, Rubber & Oil Palm. Auditors’ Report 41 Growth in process productivity per unit of Tea & Rubber. Number of approved projects for value addition per annum. Statements of Profit or Loss 42 Statements of Comprehensive Income 43 Statements of Financial Position 44 Statements of Changes in Equity 45 Statements of Cash Flows 46 Notes to the Financial Statements 47 Value Added Statement 99 Our Credo Information on Estates 100 We will enhance continuously our shareholder value. Ten Year Summary 101 We are committed to continuous strategic H R D initiatives. Shareholders and Investor Information 102 We will continuously explore opportunities for value addition to our resource base. Definitions 104 We are committed to enhancing employees quality of life. Financial Calendar 2015/ 2016 105 We encourage positive and innovative initiatives to improve the competitive advantage of the company. Corporate Information 106 We strive to bring high quality in all aspects of our activities. Notice of Meeting 107 We will always pursue environmentally-friendly operations. Notes 108 Form of Proxy and Instructions as to Completion 109 ELPITIYA PLANTATIONS PLC Annual Report 2016/17 1 Financial Highlights Chairman's Statement Group Turnover (Rs. Mn) Overall Performance At the same time, other plantation commodities such as REVENUE GROSS PROFIT PROFIT AFTER TAX The year under review turned out to be one of the best for rubber and palm oil that we are engaged in offer mixed 4,000 Elpitiya Plantations PLC recording a profit of 501 Mn before opportunities. The international palm oil market has been 2,000 attractive and Sri Lankan producers have been at a tremendous 3,010 607 420 management fees and emerging as the second highest in - profitability amongst the Regional Plantation Companies advantage by the import duties that the government has LKR Millions LKR Millions LKR Millions 2013 2014 2015 2016 2017 imposed for imported edible oils which has benefitted palm Tea Rubber Oil palm Other (RPCs) in Sri Lanka. This performance is despite having to absorb a substantial wage increase which came into force during the oil producers in Sri Lanka including ourselves. On the contrary rubber continues to be a loss-making industry, particularly GROSS PROFIT RETURN ON CAPITAL financial year. The year’s performance was once again a result RETURN ON EQUITY for the producers who have been affected by both global MARGIN EMPLOYED Prot after Tax (Rs. Mn) of good management and strategic diversification which has sustained the company in the last several years. rubber prices, inclement weather and a stagnant automobile 500 400 industry. Amidst these challenges the slowing down of the 300 Chinese economy has also affected this company in particular. 20% 15% 16% 200 Macro-Economic Environment 100 However, China is an important economy and provides ample - Sri Lanka’s economy in the recent past has gone through a 2013 2014 2015 2016 2017 opportunities for tea and other products in the long term and very uncertain period, coupled with the depreciation of the we are confident that our efforts will be fruitful in the medium MARKET PRICE PER NET ASSETS PER rupee, rising interest rates, and a challenging investment EARNING PER SHARE term. SHARE SHARE climate. Weather has also been negative for agriculture, with prolong droughts, floods and other environmental issues Earnings per Share (Rs.) Major Challenges facing the country in general and also the plantations in 7 5.77 19.00 53.70 6 particular. Global warming and climate change has currently Controlling cost of production particularly in tea continues 5 4 emerged as one of the biggest threats to the plantation sector, to be a major challenge. Productivity of lands and workers 3 2 continues to be a major issue to all plantation companies 1 and strategies will have to be developed to mitigate its impact 2013 2014 2015 2016 2017 and we are no exception. All stakeholders need to work on TOTAL ASSETS NON CURRENT TOTAL EQUITY to the sector. ASSETS a sustainable model that will be a win-win for all parties, According to the International Monetary Fund (IMF) reports, considering that commodity prices are cyclical and that 5,802 5,163 3,909 global growth has declined to 3.1% in 2016, affected by erratic producers have little or no control over this area. The tea LKR Millions LKR Millions LKR Millions Net Assets per Share (Rs.) commodity prices, the slowing down of major economies industry in particular is still very fragmented unlike the apparel 60 industry and the need of the hour is for all stakeholders to get 50 particularly China, and the issues of Brexit and other 40 together and speak in one voice with one objective in mind i.e. 30 Geopolitical tensions across some of the developed countries 20 the sustainable development of Ceylon tea. 10 and which has also had an impact in Sri Lanka. Oil prices also 2017 2016 Increase/ 0 2013 2014 2015 2016 2017 declined at the beginning of 2016 which has had an effect Year ended 31 March Rs.000 Rs.000 (Decrease) % on several global economies, mainly Middle east and Russia. The Minister of Plantation Industries has had discussions Fortunately, Russia appears to be coming out of its own crisis with the RPC managements with a view to extending the Turnover 3,009,791 2,444,426 23% with the strengthening of the Ruble which has helped tea land leases. This will without doubt give more confidence Gross profit 607,401 175,312 246% to companies like ours to invest further in the business and Assets Vs Equity prices. Sri Lankas economy too recorded a growth of 4.4% Profit before tax 463,289 219,812 111% affected by some of these global developments. bring new investors and new technologies that will sustain the Income tax expense (43,452) (24,270) 79% Total Assets 5.54 5.80 company and bring long term benefits. It is important that this Profit after tax 419,837 195,541 115% Total Non-current 5.05 5.16 2016 The government of Sri Lanka was also successful in requesting decision be made without any further delay as we are on the Non-current assets 5,162,864 5,054,251 2% Assets 2017 the European Union (EU) to restore the Generalized System of brink of strategic investments that will take this company to Current assets 639,454 480,868 33% Total Equity 3.39 3.91 Rs Bn Preferences (GSP) plus concessions which will benefit mainly new heights. Share holder's funds 3,912,787 3,393,732 15% the apparel industry and other export products including tea. Capital expenditures 342,958 339,425 1% On the contrary the plantation sector has been badly affected Estate achievements Earning per share 5.77 2.69 114% by several issues one of which has been the Glyphosate issue One of the significant features of this season’s performance was Dividend per share 1.00 0.50 100% Debt to Equity which has placed plantations in a very challenging situation. the profitability of the high grown estates and the continuing Dividend payout ratio 17% 19% 7% At the same time there appears to be significant opportunities profitability of the mid grown tea estates. This was made Net assets per share 53.70 46.57 15% 2017 91.50% 8.50% Equity for tea amongst global beverages and which has been possible mainly by an improvement in the global tea market Stated capital 694,236 694,236 0% Debt underlined at the recently concluded Colombo International towards the latter part of the financial year. However, the Net assets 3,912,787 3,393,732 15% 2016 83.20% 16.80% Tea Convention 2017 that was held in Colombo. This performance of the low country tea estates was disappointing Return on equity 15.21 8.41 81% convention underlined the enormous opportunities available and we are taking all possible steps to improve this trend. The for the future of Ceylon tea amongst global beverages. palm oil estates continued to perform well whilst the losses in rubber was a big drain on the company’s overall results. 2 ELPITIYA PLANTATIONS PLC Annual Report 2016/17 ELPITIYA PLANTATIONS PLC Annual Report 2016/17 3 Chairman's Statement (Contd.) Managing Director’s Report Joint Ventures & New Developments Monitoring Division of the Ministry of Plantation Industries for I am pleased to present you the Managing Director’s report at are turning this challenge into an opportunity and I am The Joint Venture palm oil mill AEN Palm Oil Processing (Pvt) their continuous support and assistance to our company. a time when Elpitiya Plantations PLC (EPP) is progressing each pleased to state that EPP has already developed a cohesive Ltd continues to perform extremely well and has been a major year and has reached a milestone of 20 years of management sustainability strategy covering several areas including rain contributor to EPP profits. The palm oil mill maintains very Employee Development by the Aitken Spence Plantation Managements PLC being water harvesting and water retention, renewable energy, celebrated in August 2017. For a company that was one of the employee empowerment, mechanization and intelligent high standards of quality and productivity and is continuously We have trained and developed our employees throughout last to be privatized and found to be in a rundown condition, agriculture and built a differentiated strategy for the company.