The Legacy to Inspire

The Legacy to Inspire

A pioneering legacy has inspired us through the decades and illuminated our path towards achieving a pioneering presence as a leading blue chip company. Our success story has been inspired by our rich past, successful present and an even brighter future. Our journey of excellence continues as we move forward with our people and the nation, living our legacy to inspire. Highlights of the Year

2 1 Moving from Strength to Strength Acquired a 47% stake of Pelwatte Group for Rs. 884 million

2

1 Opening Doors to New Horizons Strengthened our 3 Striving towards presence in the Hotel the Pinnacle of Success and Travel Industry by DCSL was ranked amongst the increasing the holding in “Business Today Top 10” Browns Beach Hotels for the 12th consecutive year PLC to 48% 4 A Revolution in Taste 3 Periceyl (Pvt) Ltd. launched a line of Arrak products in Apple, Lemon and Mango flavours which are well received by discerning customers

Distilleries Company of PLC 4 Annual Report 2010/11 Financial Highlights

2011 2010 2011 2010 Group Group Company Company Summary of Results Gross Turnover Rs. Mn 46,752 39,810 38,987 29,964 Excise Duty Rs. Mn 26,579 19,762 25,464 18,979 Net Turnover Rs. Mn 20,173 20,048 13,522 10,985 Profit After Tax Rs. Mn 8,337 2,152 7,769 2,815 Shareholders’ Funds Rs. Mn 31,636 20,762 24,942 15,257 Working Capital Rs. Mn 6,942 591 4,999 1,344 Total Assets Rs. Mn 52,120 35,322 32,327 20,605 Staff Cost Rs. Mn 3,031 2,503 715 925 No. of Employees 19,954 14,400 1,340 1,324

Per Share Basic Earnings Rs. 27.08 7.12 25.90 9.38 Net Assets Rs. 105.45 69.21 83.14 50.86 Market Price - High Rs. 197.00 122.00 197.00 122.00 - Low Rs. 117.00 65.25 117.00 65.25 - Year End Rs. 180.00 118.00 180.00 118.00 Dividends Rs. 3.00 2.50 3.00 2.50

Ratios Price Earnings times 6.65 16.57 6.95 12.58 Return on Shareholders' Funds % 25.68 10.37 31.15 18.45 Current Ratio times 1.47 1.05 1.70 1.26 Dividend Yield % 1.67 2.12 1.67 2.12

Share Price Performance 2010/11

Share Price Rs. Index Level

200.00 9,000.00

180.00 8,000.00

160.00 7,000.00

140.00 6,000.00

120.00 5,000.00

100.00 4,000.00

80.00 3,000.00 April May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar

DCSL ASPI

Distilleries Company of Sri Lanka PLC Annual Report 2010/11 5 Story of Arrack

Discovered as far back as the 5th Century A.D. in Sri Lanka, Coconut Arrack is a unique alcoholic beverage obtained by tapping the Cocos Nucifera or coconut palm. Lush coconut in the island, spanning thousands of acres, were the inspiration for the tapping of toddy or coconut sap and its subsequent distillation to produce the much relished Coconut Arrack.

Today, arrack is the most popular alcoholic beverage in Sri Lanka. Indeed, the transformation of coconut sap into an ambrosial beverage makes for a fascinating tale.

The first step involves Tapping or extracting coconut sap or toddy, as it is popularly known, from the unopened flower of the coconut tree. Silhouetted against the early morning sun, toddy tappers manually extract toddy whilst rappelling from tree to tree adeptly.

Distilleries Company of Sri Lanka PLC 6 Annual Report 2010/11 Once the toddy is collected in the earthenware pot, it undergoes rapid fermentation due to the natural variety of wild yeasts and bacteria. It is then poured into large wooden casks made out of Halmilla wood after a minute filtration process. These wooden casks are then gently transported to factories for distillation. There are essentially two processes of distilling; continuous distillation and the batch process, also called ‘pot distillation’.

The distillation process is completed within 24 hours. Spirits obtained are purest and without impurities but leaves behind the authentic flavours with the spirits so that enhancing and smoothening will be done by the magical maturation process that takes place inside the Halmilla wooden vats. Here, the contents of the wooden vats/casks are mixed thoroughly every fortnight for better aeration and enhanced contact with the wooden surface. Herbs & spices from ancient recipes are also added to enhance the flavour and mellow the beverage at the appropriate times during this all-important maturation process. Coconut Arrack is a pure spirit, in that it contains not a trace of methanol. The fact that it is distilled from naturally fermented coconut toddy, makes it one of the most natural alcoholic beverages available in the world.

Finally, spirits of different age groups are selected with different flavours and blended to manufacture the DCSL brands under the careful supervision of the well experienced connoisseur and Master Blender for bottling. As the first and largest coconut arrack distillery in Sri Lanka and perhaps the rest of the world, this golden brew is our flagship product.

Distilleries Company of Sri Lanka PLC Annual Report 2010/11 7 Tradition Served with Pride

A 100% coconut A blend of spirit, refined, aged coconut spirits and matured in and imported Halmilla vats - giving neutral spirits a woody & natural bringing herbal vanilla flavour Twice distilled flavours with a in pot stills and distinctively rich matured slowly taste and smooth in Halmilla aroma vats giving a remarkable taste and aroma

Superior blend of mellow 100% A blend of coconut arrack full coconut and of character and a imported distinctive flavour neutral spirits stemming from the bringing a traditional process distinctively of maturing rich and smooth flavour

Distilleries Company of Sri Lanka PLC 8 Annual Report 2010/11 A 100% pure coconut spirit, A blend of which brings out 100% aged the full-bodied coconut taste and aroma spirits, well- of desiccated matured in coconut with a Halmilla vats subtle sweetness. to give a taste Best served as a of oak A 100% coconut cocktail mixer spirit, matured in Halmilla vats, producing a woody character and exceptional smoothness Crystal clear and Finest blend an absolutely of matured pure blend of coconut arrack coconut arrack and neutral and neutral spirits spirits giving giving a tint of a rich and fresh lime with smooth flavour a slight burning sensation on your tongue

Distilleries Company of Sri Lanka PLC Annual Report 2010/11 Drink Responsibly 9 World Class Blends, distinctly Sri Lankan

A combination Unique premium of scotch and blended arrack, fine spirits to smooth on the produce a palate with rich blend of pleasant aromas whisky

Unique variety of imported spirits that combines together to produce an international standard Vodka

Fine spirits Exceptional blended with selection a rich recipe of spirits flavoured blended to with lemon establish a nice character rounded with perfect balance

Distilleries Company of Sri Lanka PLC 10 Annual Report 2010/11 Premium aged fine French brandy matured in vats to enhance Exceptional the smooth Premium aged selection of characters of a finest French spirits blended superior brandy brandy coupled to create a great with fine spirits to rum, matching enhance and give international its elegance standards

Premium blend A blend of finest of malts and fine French brandy spirits to produce merged with fine this classic whisky spirits to bring out a unique flavour that is incomparable

Fine spirits blended with a rich recipe to international standards

Distilleries Company of Sri Lanka PLC Annual Report 2010/11 Drink Responsibly 11 Premium Brands from around the World

Distilleries Company of Sri Lanka PLC 12 Annual Report 2010/11 Distilleries Company of Sri Lanka PLC Annual Report 2010/11 Drink Responsibly 13 Premium Brands from around the World

Distilleries Company of Sri Lanka PLC 14 Annual Report 2010/11 Distilleries Company of Sri Lanka PLC Annual Report 2010/11 Drink Responsibly 15 Introducing ...... our new range of Arrak Chairman’s Message

It gives me great pleasure to present the Distilleries growth of key sectors such as , construction, Company of Sri Lanka PLC Annual Report and small and medium scale industries, agriculture, and the Financial Statements for FY 2010/11 on behalf of the development of the North & East, in tandem with rapid Board of Directors. The year under review was marked infrastructure development are expected to accelerate by consolidation of profits, increase in market share in Sri Lanka’s growth through the next few years. In this most of our sectors and expansion of brand presence backdrop an increase in consumer expenditure has across the country, all of which helped strengthen our significantly helped DCSL in its core business . brand equity further.

"DCSL Group posted a turnover of Rs. 47 billion in FY 2010/11 an increase of 17% over the previous year."

Local Economy Bounces Back Exceptional Performance by DCSL Group

DCSL has done exceptionally well this year, and it is Responding to this vibrant economic backdrop in fair to say that the Company has performed beyond 2010/11, the DCSL Group posted a turnover of Rs. expectations. Sri Lanka is poised to take off. The latent 47 Bn in FY 2010/11, which marks an increase of potential of our people long hampered by war, has 17% over last year. The Group’s Net Profit after Tax of now been unleashed and we are on the brink of a fast Rs. 8.3 Bn represents a 3 fold increase over the growth trajectory and economic development. corresponding period last year. However this includes a capital gain on disposal of shares of Rs. 3.9 Bn. The economies of the East which have long been in Thus, profit earned from core business amounts to Rs. the shadow of the West, have now become the engine 4.4 Bn which is an increase of 105%. of growth for the global economy. While the West struggles with its debt burden, the East has become The performance of DCSL is commendable given the source of funds. Following this trend, Sri Lanka’s the fact that the industry faced several challenges economy had a GDP growth of 8% in 2010 thus through FY 2010/11. During the year under review the providing the right catalyst to energise investors and government took a decision to increase Excise Duty enable businesses to roll out expansion plans hitherto twice over, while the corporate income tax for the kept on the back burner. alcohol sector was increased from 35% to 40% with effect from 1 April 2011. Post-war reconstruction is continuing apace and governmental policies are providing the right fillip The policy of increasing excise duty on hard spirits to generate further economic growth. The strong (Locally Manufactured Foreign Liquor, Arrack, Arrak), performance of the country’s capital markets reflects and not increasing excise duty on soft spirits (beer, this optimism, and by all accounts Sri Lanka is gearing toddy), has created a market shift from premium high- up to realise the economic potential it was denied over priced to low-priced products in the spirits segment, the years by the war. along with a consumer shift to the cheaper substitutes. These unprecedented changes contributed to a sharp Furthermore, the drop in interest rates in FY 2010 increase in our product prices. opened up new channels for companies to access capital and this was perceived as an extremely favourable move by the corporate sector in the country. Increases in foreign direct investment and the

Distilleries Company of Sri Lanka PLC 18 Annual Report 2010/11 Distilleries Company of Sri Lanka PLC Annual Report 2010/11 19 Chairman’s Message Contd.,

"Whilst the Government is losing millions in revenue, unscrupulous contractors are reaping billions by making coconut spirits available to unsuspecting consumers."

This must stop; not only to establish the rule of the law, Group Sectors Rise to the Challenge but also to give a signal to foreign investors that the rule of law prevails in the country. To date non-invoiced Beverage Sector arrack, made out of artificial toddy and spirits imported illegally, are sold in massive quantities in the North & The beverage arm of the Group which is the core East depriving the State of revenue. The Department of business contributed a significant proportion of the Excise is aiding and abetting such sales. When the war total Group’s turnover in the year under review. DCSL’s ended, all the licenses that were suspended during the volumes grew by 15.3% over the corresponding year, war were reopened and the business that was carried whilst Periceyl's grew by 31%. The overall turnover out by the LTTE during the war has now been taken from the Beverage Sector increased from Rs. 31.4 Bn over by the new licensees who have started business to Rs. 38.2 Bn, a 21.6% increase over the previous in the North & East with non-invoiced arrack made out year. DCSL products continue to dominate the market of artificial toddy. in the Locally Manufactured spirits market. Periceyl’s range of Apple, Lemon and Mango Arrak launched in Despite these challenges, DCSL continued to invest the market received an encouraging response. in state-of-the-art technology to upgrade and improve its production facilities. With our improved range of The most important ingredient in the manufacture of products we have managed to maintain our market coconut arrack is the supply of toddy as a raw material share in spite of a direct price war, as the non-invoiced which has declined drastically due to the shortage of sector can discount heavily since no taxes are paid. tappers plus the felling of a large number of trees in This is a sound testament given by the consumers of the Southern Region due to a disease. This resulted DCSL products to the superior quality of our products. in a lesser number of trees being available for tapping We must pay a glowing tribute to our customers who rather than in previous years. There was a significant have differentiated between the genuine and artificial effect during the tsunami in 2004. A large number labels. If not for their valuable brand loyalty, we would of coconut trees were destroyed during this period not have been able to achieve these results. leaving a dent in the toddy industry. Unfortunately, some distilleries are illegally producing coconut spirits Sector made out of artificial toddy, which has become a massive undercover business for unlicensed toddy Tea production during the year 2010 reached a record contractors and the relevant department is turning high, and sale prices also substantially appreciated. The a Nelsonian eye on this operation. The toddy is rubber sector enjoyed a buoyant market throughout transported from the Western Province to the South the year. Our Plantation Sector Company recorded a passing many checkpoints in broad daylight. This Profit before Tax of Rs. 220 Mn, a remarkable growth leaves room for consumers to drink poisonous arrack of 124% over 2009. This achievement is commendable made out of artificial toddy. Whilst the Government is given the increases in cost of input material and wages. losing millions in revenue, unscrupulous contractors are making billions by making coconut spirits available to unsuspecting consumers.

Distilleries Company of Sri Lanka PLC 20 Annual Report 2010/11 Telecommunication Sector Within one short year of operations, our insurance arm recorded a Gross Written Premium (GWP) of Rs. 441 The year 2010/2011 saw a significant turnaround in Mn signifying the future prospects for the Company. the overall performance of the telecommunications The Collision Repair Centre for motor insurance policy- business, which rebounded to post a Cumulative Net holders is fast gaining a reputation of being one of the Profit of Rs.113 Mn during the last financial year. While most sophisticated and advanced in the country. there has been an overall reduction in voice revenues during the year ended 31 March 2011, earnings from Investments and Divestments Broadband, Base Station sharing and the introduction of the interconnection regime have made up for the In a significant move, the Group divested its interest loss. Substantial revenue growth is expected from the in Subsidiary, National Asset Management Limited Broadband business with network expansion to the (NAMAL) in February 2011. In addition to this, the North & East. DCSL Group also divested its shares in Lanka Hospitals Corporation PLC in March 2011. Diversified Businesses I am happy to report that the Group acquired a 47.02% Although it comprises a small percentage of our stake in Pelwatte Sugar Industries PLC in March 2011, current revenue, the diversified portfolio of businesses for a consideration of Rs. 884 Mn. As a result of this has been making steady gains through 2010. The acquisition, Pelwatte Sugar Industries PLC and its

Pelwatte acquisition was a strategic investment as spirits produced is an essential input for the DCSL business of manufacturing alcohol.

Diversified Businesses recorded a remarkable subsidiaries: Pelwatte Sugar Distilleries (Pvt) Limited; turnaround to show a profit of Rs. 237 Mn. Our textiles Pelwatte Agriculture & Engineering Services (Pvt) arm recorded a 14.8% increase in turnover compared Limited; and Pelwatte Dairy Industries (Pvt) Limited, to the previous year. The garment industry seems were ushered into the fold of the DCSL Group. poised for a turnaround in the months ahead, given the post-war political stability and a resurgent economy. This acquisition was a strategic investment in terms of We are optimistic that the textile industry should benefit reverse discovery as Spirits produced is an essential from this trend. input for the DCSL business of manufacturing alcohol. The ethanol market is now in a very volatile state as Looking at the power sector, construction work on the more and more producers are switching to the relatively mini hydropower plant should be completed in early less sophisticated but more lucrative bio-fuel industry. 2012. In the meantime, we have acquired a renewable Therefore, it was essential for the Company to think energy permit from the Sustainable Energy Authority in terms of producing its own ethanol and reduce its of Sri Lanka and an Electricity Generation License has dependence on imported ethanol. With this acquisition been obtained from the Public Utilities Commission of Sri 1/3 of our requirement of ethanol can now be sourced Lanka. Further, we have entered into a power purchase from Pelwatte, thus enabling the Company to make long agreement with the for the sale -term strategies without the need for price adjustments. of electricity generated for a period of 20 years.

Distilleries Company of Sri Lanka PLC Annual Report 2010/11 21 Chairman’s Message Contd.,

In January 2011, the Group increased its holding in future, as the country prepares to build a maritime and Browns Beach Hotels PLC to 48.15%, which is being warehousing hub status for itself. accounted as a subsidiary from the said date. Since the tourism sector is now open to new growth vistas Our divestments in FY 2010/11 have accorded with the ending of hostilities, this is another strategic significant capital gains which will be channelled into investment for the Group. expansion and consolidation activities. The Group’s entry and exit strategy continues to boost our bottom With regard to Sri Lanka Insurance Corporation Ltd. line and enables us to remain in business sectors (SLIC), we still await the payment of profits earned where we have clear control over the management. Our during DCSL Group’s tenure at the helm of SLIC. diverse portfolio of businesses and the dynamism of During the year, GOSL returned Rs. 5,716 Mn that the Company ensured that the DCSL share remained had been paid by Group Subsidiary Milford Holdings an investor’s key choice through 2010. (Pvt) Limited (MHL) to purchase shares in SLIC. We are hopeful that the profits earned to be paid as per the In Appreciation Supreme Court directive will be reimbursed to us as soon as possible. The Board of Directors has been an immense strength through the year and I take this opportunity to thank Share Performance them for their unstinted support and cooperation.

The market price of the DCSL share ranged from Rs. I would like to thank the staff for their untold continuous 117 to Rs. 197 over the financial period under review. support and the help extended to the Company to The dividend payment to shareholders was increased maintain its brands at all levels with their dedicated from Rs. 2.50 last year to Rs. 3 per share this year. hard work and commitment.

Awards Our shareholders have been the strength beneath our wings, ensuring that the true value of DCSL has been Accolades have been many over the years and FY maintained. I greatly value their trust. 2010/11 was no different. DCSL was placed amongst the Top 10 by "Business Today" for the 12th consecutive Last but not least, my thanks go out to our customers year. It is quite a feat for any company to sustain its without whose continuous patronage of our products, presence amongst the Top 10 leading listed corporates we would not have been able to achieve these results. in the country and this is an achievement we are proud of. I look forward to their continuous patronage in the  years ahead and would like to assure them that we Future Prospects would continue to provide products of the highest quality and standards. Consolidation remains a key focus of the Group and our acquisition of Pelwatte Sugar reflects this commitment. The backward integration achieved with Pelwatte Sugar gives us control over the production of ethanol, vital for the production of alcohol, whilst contributing to the growth of the indigenous sugar industry and thereby reducing dependence on sugar imports. D. H. S. Jayawardena Chairman / Managing Director The DCSL Group’s growth areas are aligned with 04 August 2011 the nation’s needs and we will continue to explore opportunities in sectors that need to be developed further for national growth and nation building. Logistics has been identified as a key thrust area in the

Distilleries Company of Sri Lanka PLC 22 Annual Report 2010/11 1913  Harking back to the times of colonial rule in former Ceylon, traditional taverns were watering holes for tired and overworked manual labourers, occasionally attracting the pukka sahibs as well. Since time immemorial, our delicious brews have enticed generations and created a living legacy.

Distilleries Company of Sri Lanka PLC Annual Report 2010/11 23  2011 Inspiring Flavours Today, our delectably flavoured ofspirits the are the preferredSoul choice for a modern and free Sri Lanka. No corporate event or personal celebration is complete without our brands leading the festivities. No dark lit taverns for our products! Ours is a taste that proudly inspires the new generations and connects them with a rich cultural past. Inspiring Flavours of the Soul Board of Directors

D. H. S. Jayawardena Chairman / Managing Director

One of the most successful and prominent business persons in Sri Lanka, Mr. was elected Chairman of the DCSL Group in 2006 after serving as its Managing Director for almost two decades. He heads many blue chip ventures in diversified fields of business and is a Founder Director and the present Chairman/Managing Director of the Stassen Group of Companies. He is also currently the Chairman of PLC, Aitken Spence Hotel Holdings PLC, Lanka Milk Foods (CWE) PLC, Balangoda Plantations PLC, Madulsima Plantations PLC, Browns Beach Hotels PLC, Ltd., Periceyl (Pvt) Ltd., Continental Insurance Lanka Ltd., Texpro Industries Ltd., Milford Holdings (Pvt) Ltd., Danish Dairy Products Lanka (Pvt) Ltd., Lanka Dairies (Pvt) Ltd., Milford Exports (Ceylon) (Pvt) Ltd., (Pvt) Ltd., Ceylon Garden (Pvt) Ltd., Products (Pvt) Ltd., Ambewela Livestock Co. Ltd, and the state-owned Ceylon Petroleum Corporation. He also serves on the Board of PLC. In 2010 Mr. Jayawardena was honoured with the prestigious ‘Knight’s Cross of Dannebrog’ by Her Majesty Queen Margrethe II of Denmark, for his significant contribution to the Danish arts/sciences/business life. He is the only Sri Lankan to be honoured with the title of ‘Knight of the Order of Dannebrog’.

R. K. Obeyesekere Non-Independent Non-Executive Director

A Director of the Group since 1992, he counts over 35 years of experience in tea and the export trade. He is a Founder Director of the Stassen Group of Companies and the Managing Director of CBD Exports Ltd. He is also a Director of Lanka Milk Foods (CWE) PLC, Balangoda Plantations PLC, Madulsima Plantations PLC, Hatton National Bank PLC, Periceyl (Pvt) Ltd., Melstacorp (Pvt) Ltd., Milford Holdings (Pvt) Ltd., Zahara Exports (Pvt) Ltd., Lanka Power Projects (Pvt) Ltd., Milford Exports (Ceylon) (Pvt) Ltd., Lanka Dairies (Pvt) Ltd., Danish Dairy Products Lanka (Pvt) Ltd., Ceylon Garden Coir (Pvt) Ltd., Milford Developers (Pvt) Ltd., Ambewela Livestock Co. Ltd. and Pattipola Livestock Co. Ltd.

Distilleries Company of Sri Lanka PLC 26 Annual Report 2010/11 C. R. Jansz Executive Director

He has held the position of Director since 1993 and counts over 35 years of experience in logistics pertaining to the import/export trade and in documentation, insurance, banking and finance relating to international trade. He is the former Chairman of Sri Lanka Shippers Council and a former member of the National Trade Facilitation Committee of Sri Lanka. Mr. Jansz is a Chevening Scholar and a UN-ESCAP Certified Training Manager on Maritime Transport for Shippers. He is also a Director of Balangoda Plantations PLC, Lanka Milk Foods (CWE) PLC, DFCC Bank, Periceyl (Pvt) Ltd., Melstacorp (Pvt) Ltd., Lanka Bell Ltd., Timpex (Pvt) Ltd., Texpro Industries Ltd., Milford Holdings (Pvt) Ltd., Ambewela Products (Pvt) Ltd., Pattipola Livestock Co. Ltd., Ambewela Livestock Co. Ltd., Lanka Power Projects (Pvt) Ltd., Indo Lanka Exports (Pvt) Ltd. and Lanka Dairies (Pvt) Ltd.

N. de S. Deva Aditya DL, FRSA Independent Non-Executive Director

Mr. Niranjan Deva Aditya, an aeronautical engineer, scientist and economist, is a Conservative Member of the European Parliament elected from SE England. He is Vice-President of the Development Committee and ECR Coordinator and Conservative Spokesman for Overseas Development and Co-operation. He was the first Asian to be elected as a Conservative Member of British Parliament; the first Asian MP to serve in the British Government as PPS in the Scottish Office and the first Asian-born MP to be elected to the European Parliament. He is an Honorary Ambassador without portfolio for Sri Lanka and the first Asian to be appointed as Her Majesty’s Deputy Lord Lieutenant for Greater London, representing The Queen on official occasions since 1985. He was awarded the ‘Viswa Kirthi Sri Lanka Abhimani’ award by the Buddhist Clergy for his services to Sri Lanka and bestowed with the Knighthood with Merit of the Sacred Constantinian Military Order of St. George for his global work on poverty eradication. He is also a Director of Aitken Spence PLC and Melstacorp (Pvt) Ltd.

Distilleries Company of Sri Lanka PLC Annual Report 2010/11 27 Board of Directors Contd.,

Capt. K. J. Kahanda (Retd.) Executive Director

He joined the Company in 1993 as Regional Manager (Central Region) and was appointed a Director in December 2006. Being a former officer of the Sri Lanka Army, he spearheaded the re-organisation of the operations of the Central Region since the privatisation. He specialises in logistics, distribution and security matters and is also a Director of G4S Security Services (Pvt) Ltd. He also serves as Managing Director of Pelwatte Sugar Distilleries (Pvt) Ltd. and is a Director of Pelwatte Sugar Industries PLC and Melstacorp (Pvt) Ltd.

C. F. Fernando FCA (SL), FCA (Eng. & Wales) Independent Non-Executive Director

He served as the Managing Director followed by a period as Chief Executive Officer of the Distilleries Company of Sri Lanka PLC and rejoined the company as an Independent Non-Executive Director in 2008. Qualified as a Chartered Accountant from the Institute of Chartered Accountants in England and Wales, he is presently a Fellow of the Institute of Chartered Accountants in Sri Lanka. He is also a Director of DCSL Subsidiary, Melstacorp (Pvt) Ltd. He is the Chairman of the Audit Committee and also serves on the Remuneration Committee. He counts over 18 years of experience in financial and general management areas as Senior Accountant at Carson Cumberbatch & Co. Ltd. and is presently Director of Selinsing PLC and Equity Three (Pvt) Ltd. in the Carsons Group. He was also the Finance Director of the National Lotteries Board, a Director of the Coconut Cultivation Board and the former Chairman of Low Country Products Association (LCPA). Presently, he is a Senior Trustee of Ceylonese Rugby and Football Club.

Distilleries Company of Sri Lanka PLC 28 Annual Report 2010/11 Dr. Naomal Balasuriya MBBS (SL), MBA (Sri J), CIM (UK), MCGP (SL), MSLIM Independent Non-Executive Director

Dr. Naomal Balasuriya, a medical doctor turned entrepreneur is internationally sought after for his totally unorthodox style of life changing motivational speaking.

Undoubtedly one of the most academically and professionally diversified life changing motivational speakers in the world, his professional fields range from medicine, military, management, marketing and mentoring to motivational speaking.

Given his “nothing is impossible” mentality, he holds the unique distinction of being the first Doctor of Medicine in Sri Lanka to hold the degrees of Master of Business Administration (MBA) and the CIM (UK). He has been a Director since 2008 and is also a Director of Melstacorp (Pvt) Ltd.

Ms. V. J. Senaratne Attorney-At-Law, Notary Public, Solicitor (Eng. & Wales) Alternate Director to N. de S. Deva Aditya / Company Secretary and Chief Legal Officer

She was appointed as the Company Secretary in 1993. She was admitted to the Bar in 1977 and was enrolled as a Solicitor (England & Wales) in June 1990. She also holds the position of Company Secretary of Periceyl (Pvt) Ltd.

Distilleries Company of Sri Lanka PLC Annual Report 2010/11 29 Group Management Team

1. Ms. Roshani Cooray 4. Dinal Peiris Group Head of Marketing Managing Director - Texpro Industries Ltd.

2. Prasad Samarasinghe 5. Suren Galagoda Managing Director - Lanka Bell Ltd. Director - Melsta Logistics (Pvt) Ltd. Executive Director - Continental Insurance Lanka Ltd. 3. Senaka Amarathunga Director / General Manager - Periceyl (Pvt) Ltd. 6. Maximus R. Peries CEO - Distilleries Company of Sri Lanka PLC Director – Pelwatte Sugar Industries PLC Director – Pelwatte Sugar Distilleries (Pvt) Ltd.

7. Capt. Ranjith Wettewa SLN (Retd.) Director – Pelwatte Sugar Industries PLC

1 3 7 5

6 2 4

Distilleries Company of Sri Lanka PLC 30 Annual Report 2010/11 8. Cleetus Mallawaarachchi 12. Janaka Abeysinghe Group Financial Controller Director - Melsta Logistics (Pvt) Ltd.

9. Capt. K.J. Kahanda (Retd.) 13. Sqn. Ldr. Wimal Karunaratne (Retd.) Managing Director - Pelwatte Sugar Distilleries (Pvt) Ltd. Managing Director - Pelwatte Sugar Industries PLC Director - Pelwatte Sugar Industries PLC 14. Ms. Gayathri Chakravarthy 10. Chaminda De Silva Director - Splendor Media (Pvt) Ltd Executive Director - Continental Insurance Lanka Ltd.

11. Lalith Obeyesekere Director/CEO - Balangoda Plantations PLC Madulsima Plantations PLC

14 12

10 11 9 13 8

Distilleries Company of Sri Lanka PLC Annual Report 2010/11 31 DCSL Management Team

1. Rear Admiral Wasantha Tennekoon SLN (Retd.) 4. Nimal Nagahawatte Regional Manager - Central Region Head of Finance

2. Lalith Ratnayake 5. Maj. Gen. Siri Peiris (Retd.) Manager - Stock Control Regional Manager - Southern Region

3. Ms. V. J. Senaratne 6. S. Rajanathan Company Secretary & Chief Legal Officer Supplies Manager

4 6

2

5

1

3

Distilleries Company of Sri Lanka PLC 32 Annual Report 2010/11 7. Maximus R. Peries 10. Ms. Gayathri Chakravarthy Chief Executive Officer Human Resources Manager

8. L. P. Liyanaarachchi 11. Roshanth Kumar Perera Chief Internal Auditor Transport Manager

9. Sqn. Ldr. Wimal Karunaratne (Retd.) 12. Capt. Ranjith Wettewa SLN (Retd.) Regional Manager - Northern Region Regional Manager - Uva Region

11

8

10 12

9

7

Distilleries Company of Sri Lanka PLC Annual Report 2010/11 33 Management Discussion & Analysis

Group Performance Beverage Sector

The DCSL Group has been well positioned to leverage on business opportunities arising out of the first full year of peace in the country, after almost three decades of war. All its sectors performed well during the period under review, with Group Turnover increasing by 17% from 2009/10 to reach Rs. 47 Bn in 2010/11.

2010/11

Gross Turnover (Rs. Mn) Profit Before Tax (Rs. Mn)

38,163 9,489

31,390 2009/10

3,910

Gross Turnover (Rs. Mn) 2009/10 2010/11  Beverage Sector 31,390 38,163  Plantation Sector 2,510 2,797  Telecommunication Sector 4,914 4,593  Diversified Businesses 995 1,199 2010 2011 2010 2011 39,809 46,752

The core business - beverage arm of the Group, Profit Before Tax (Rs. Mn) 2010/11 Distilleries Company of Sri Lanka PLC (DCSL) and Periceyl (Pvt) Ltd., contributed 82% of the total Group’s turnover in the year under review. This can be attributed to economic growth and expansion of infrastructure development in the country experienced during the year under review. During FY 2010/11, DCSL’s volumes grew by 15.3% over the previous year, whilst Periceyl's grew by 31% during the same period.

 Beverage Sector 9,489 In a positive development, the Group’s products  Plantation Sector 220 continue to dominate the market in the Locally  Telecommunication Sector 113  Diversified Businesses 237 Manufactured Foreign Liquor sector. The increase in 10,059 turnover and volume is a clear indication of the fact

Distilleries Company of Sri Lanka PLC 34 Annual Report 2010/11 that DCSL brands are widely accepted in the market. Gross Turnover (Rs. Mn) Profit Before Tax (Rs. Mn) The Company’s state-of-the-art manufacturing 2,797 process in conjunction with its experienced sales & 220 marketing teams have succeeded in consolidating 2,510 the organisation’s leadership position in the Beverage Sector. Our efforts were further boosted by the opening of new distribution channels in the Island, particularly in the North & East of the Island. The free movement of 99 people coupled with a rise in disposable income has enhanced the purchasing power of consumers. The Company is also poised to leverage on the proliferation of tourism in the Island. 2010 2011 2010 2011

In harmony with the evolving needs of consumers, the Group launched a range of new flavoured spirits; Apple, The Plantation Sector represented by our Subsidiary, Lemon and Mango Arrak through our Subsidiary, Balangoda Plantations PLC, manages 14 tea estates, Periceyl. The product, ‘Narikela’, has found a niche 7 tea cum rubber estates and 1 rubber estate in in the export market to and many European Badulla, Balangoda and Ratnapura districts covering a destinations, whilst also being popular amongst the total extent of cultivated land of 4,900 hectares of tea hospitality industry in Sri Lanka. and 1,500 hectares of rubber.

However, the year under review witnessed stiff The year under review has been satisfactory for the competition in the Locally Manufactured Foreign Plantation Sector, recording a Profit before Tax of Liquor, Arrack and Arrak segments, with competitors Rs. 220 Mn despite increased cost of input material and adopting a strategy of offering quantity discounts to the wages. The turnover of the Plantation Sector at Rs. 2.8 proprietor; trade incentives to counter sales personnel, Bn in 2010 reflects an increase of 11% compared with whilst introducing new products and packaging 2009 and this could be attributed to the remunerative changes in these segments. prices during the year.

Plantation Sector

Sri Lanka’s total tea production during the year 2010 reached an all-time high record of 330 million kg with all the elevations reaching record output levels. The significant increase is mainly attributed to the favourable weather conditions that prevailed during the year. World tea prices held firm in all major end-user countries in 2010.

However, due to weather conditions that prevailed during the latter part of the year and labour factors, the The replanting of 321.5 hectares of rubber is planned budgeted estate crop target could not be achieved. in Ratnapura, Balangoda and Badulla Regions in Nevertheless, the purchase of Bought Leaf increased 2011. Moreover, ISO Quality Certification has also when compared to the previous year. been obtained for our factories. The rubber sector too

Distilleries Company of Sri Lanka PLC Annual Report 2010/11 35 Management Discussion & Analysis Contd.,

enjoyed a buoyant market throughout the year and the Broadband business - with network expansion to prices increased to all-time record levels. the North & East. The Company is poised to seize opportunities in non-traditional revenue streams, while During the year all-island top prices were obtained also expanding its portfolio in the near future. Lanka Bell for various grades of teas from our estates at the is also poised to excel in this area of data connectivity Auction on 144 occasions and of rubber on with Telecommunication Regulatory Commission of Sri 67 occasions. Lanka conducted tests showing Lanka Bell with the country’s fastest fixed Broadband download speed.

Gross Turnover (Rs. Mn) Profit Before Tax (Rs. Mn)

4,914 4,593

113 2010 Telecommunications Sector 2010 2011 2011

The year 2010/2011 saw a significant turnaround in overall performance as Lanka Bell rebounded and the Telecommunication Sector posted a cumulative net profit of Rs. 113 Mn overturning a loss of Rs. 798 Mn.

The recovery in performance could be attributed to -798 regulatory measures such as the introduction of the interconnection regime, various cost control measures, Lanka Bell is well positioned to capitalise on the trend improved revenues through FLAG and use of cash of diversifying into BPO operations via its established generated through operations being used to settle long Subsidiary BellVantage (Pvt) Ltd. During the year term liabilities, which in turn drove down financial cost Lanka Bell earned the coveted ISO 9001:2008 Quality such as the reduction in amounts payable as interest. Management System Certification.

During this year a greater emphasis was placed on Diversified Businesses retention of existing customers with strategies focused in this area. While there has been an overall reduction Continental Insurance Lanka Ltd. (CILL) has shown great in voice revenues during the year ended 31 March potential in its first year of operations. The Company 2010, earnings from Broadband, Base station sharing, recorded a Gross Written Premium (GWP) of Rs. 441 Mn and the introduction of the interconnection regime during the first year of operations (commercial operations made up for this. commenced on 15 March 2010). The amount recorded for the nine-and-a-half months of operations is an Substantial revenue growth is expected from the indicator of the future trajectory of the Company.

Distilleries Company of Sri Lanka PLC 36 Annual Report 2010/11 Gross Turnover (Rs. Mn) Profit Before Tax (Rs. Mn) of the withdrawal of the GSP+ concession. However, Texpro was able to mitigate the extent of negative 1,199 performance by canvassing orders from new clients 995 237 and selling textiles at higher prices due to a sharp increase in world cotton yarn prices. As a result, the company recorded a 14.8% increase in turnover compared to the previous year.

The garment industry seems poised for growth in the months ahead, given the post-war political stability 2010 and a resurgent economy. Texpro Industries is already 2010 2011 2011 experiencing an upsurge in orders for its woven cotton -54 fabrics and is optimistic that this trend will continue into the future. High quality, top-end garment manufacturers CILL plans to implement a state of the art, fully require short lead times for deliveries and Texpro is in integrated insurance solution to support all the the ideal position to meet this requirement. Considering operational requirements of the organisation. Moreover, these favourable emerging trends, the year 2011/2012 the insurance company will partner with preferred looks promising and the Company should consolidate service providers for data centre facilities as well as for its profit base in the months ahead. disaster recovery services to ensure that stringent risk management controls are in place. Ambitious targets Construction work on the mini hydro plant managed have been set for the future and CILL is in the process by Bogo Power (Pvt) Ltd. is continuing steadily and of implementing ISO standards for quality management the plant should be commissioned in early 2012. The to ensure professional linear and efficient processes capital cost of the project is estimated at Rs. 755.5 Mn, and customer service standards. while the power capacity of the project is 4 MW. Meanwhile, a renewable energy permit has been obtained from the Sustainable Energy Authority of Sri Lanka and the Electricity Generation License has been obtained from the Public Utilities Commission of Sri Lanka. Further, a power purchase agreement has been entered into between Bogo Power and the Ceylon Electricity Board for the sale of electricity generated for a period of 20 years at an estimated 15.2 GWH per annum on average.

Purpose-built to service the comprehensive motor insurance policy-holders, Collision Repair Center has its facilities at Seeduwa and and are fulfilling The year under review posed many challenges for their role as state-of-the-art repair centres. This Texpro Industries due to trickle down effects of a global Company supports the newly-established Group recession. The withdrawal of GSP+ concessions by insurance company, Continental Insurance, to facilitate the EU in 2010 and the Company’s dependence on their client motor vehicle repairs. Moreover, the fabric imports were key issues. Texpro experienced a Company embarked on a successful cost reduction sharp erosion of its customer base as a direct result exercise which enabled it to tide over a difficult period.

Distilleries Company of Sri Lanka PLC Annual Report 2010/11 37 Management Discussion & Analysis Contd.,

The Group's new hotel Subsidiary, Browns Beach Hotels PLC (BBH) saw an increased demand from the traditional and new markets which contributed to a 27% increase in revenue over the previous year. However, the bottom-line was affected by an employee

termination cost and an impairment loss on buildings due to the proposed demolition of the Hotel.

BBH became part of the Group on 31 January 2011, hence the results have been consolidated from this date. The Hotel seized operations on 31 March 2011 to facilitate the construction of a new 180 room 4 star Subsequent to the period under review, Collision plus luxury under Beach Repair Center (Pvt) Ltd. has been re-named to Melsta (Pvt) Ltd., a 100% owned Subsidiary of BBH at an Logistics (Pvt) Ltd. estimated cost of Rs. 3 Bn. The new resort is expected to be operational for the 2013 winter season. The Group acquired a 47% stake of Pelwatte Group thereby, Pelwatte Sugar Industries PLC (PSIPLC), Pelwatte Sugar Distilleries (Pvt) Ltd. and Pelwatte Agriculture and Engineering Services (Pvt) Ltd. became Subsidiaries of the Group.

PSIPLC is in the business of cultivation and production of sugar and other by-products from the raw sugar cane. The Company manages 2,700 hectare Nucleus estate and a Settlement estate of 3,500 hectares situated in the Moneragala District of the Uva Province.

Pelwatte Sugar Distilleries (Pvt) Ltd., produces potable Associates  and technical alcohol utilising molasses, a by-product of the sugar factory. Since Pelwatte Group was The Associate Companies of the Group comprise acquired on 27 March 2011, the results of the same Aitken Spence PLC, Madulsima Plantations PLC, has not been consolidated into the Group Income Splendor Media (Pvt) Ltd. and Pelwatte Dairy Industries Statement. (Pvt) Ltd. (PDIL).

The share of profits from the former three companies amounted to Rs. 702 Mn, an increase of 130% over the previous year. This increase is primarily attributed to the increase in the share of profit of Aitken Spence PLC from Rs. 357 Mn to Rs. 709 Mn and the reduction in the loss incurred by Madulsima Plantations PLC. The share of profit/loss of PDIL was not consolidated in the Group Income Statement as the Company became an Associate on 27 March 2011.

Distilleries Company of Sri Lanka PLC 38 Annual Report 2010/11 1913  In the bygone days, the production of arrack was a cumbersome process and labourers were collared into exhaustive work for which they enjoyed few if any benefits. The exclusive domain of a few government officials and crafty middlemen, control over the liquor trade was zealously guarded.

Distilleries Company of Sri Lanka PLC Annual Report 2010/11 39  2011 Inspiring Generations Our Company has reversed these beyondinequalities, opening our Time factory gates to a legion of workers who are trained and their skills upgraded for rapid movement up the ladder of success. Our Company has become a treasure trove of experience, with generations of fathers and sons passing through our portals. Truly, we are rich in tradition… Inspiring Generations beyond Time Report

Sustainability at DCSL

As a Group, DCSL is mindful of its position as a leading diversified group and strives to fulfil its role as a responsible corporate entity at all times and in all aspects of its operations. We are cognizant of the fact that our operations could have a potential impact on the environment and on communities, as our businesses generate direct and indirect employment for thousands of people. In alignment with this realisation, the Group has launched several initiatives to preserve the environment through sustainable methods, whilst The newest Rs. 300 Mn bottling plant at Seeduwa also embarking on social welfare projects that raise ensures the elimination of negative industrial awareness and benefit communities. impacts on the environment

Our Environment minimum impact on all stakeholders. A dedicated team Several of our businesses, such as tea and rubber looks into every aspect of our operations to ensure that plantations, take us to the heart of nature. As a there is no negative impact on the environment. group that derives tremendous benefit from the nation’s natural resources, we make an even greater The harmful effects of green-house gas emissions is effort to give back to nature and community, whilst monitored and at DCSL, we are well aware of what ensuring at all times that our operations do not have this portends for the environment. Therefore, we have any form of a negative impact on the surrounding invested heavily in state-of-the-art machinery and environment. Apart from taking stringent precautions equipment from France and in order to maintain to ensure sustainable operations, the DCSL Group is low emission levels. compliant with Central Environmental Authority (CEA) standards and is subject to regular audits to ensure Water resource management and waste management full transparency is maintained with regards to its remain our topmost priority. As a Group we have drawn sustainability commitment. The following is an outline up a comprehensive and fool-proof system for the of our key initiatives in each industry sector. discharge of effluents, waste and disposal methods. In this system, washed water is directed to a water Beverage Sector tank where acidity is neutralised and this spent wash is treated and then released as 100% safe after being We continue to ensure energy savings having tested in our hi-tech laboratories. The methane which installed a sophisticated distillation system which is is discharged during this purification process is used environmentally-friendly using French technology. for factory consumption. Low evaporation levels during distillation help save energy. Our newest bottling plant was installed with an The Group devises innovative ways and means to investment of Rs. 300 Mn and boasts advanced Italian mitigate any environmental impact, even through its technology. product and packaging methods. Almost 50% of our liquor bottles are re-bottled and plastic crates are re- Material savings were achieved during the year, with used. All cellophane, glass, aluminium and plastics significant savings in Furnace oil. generated at the factory are being sent for re-cycling by third parties, while labels of used bottles are turned The impact of our Company activities on bio-diversity into bricks of pulp and sold for paper pulp, to help are constantly monitored and assessed to ensure reduce the number of trees being cut for paper.

Distilleries Company of Sri Lanka PLC 42 Annual Report 2010/11 To demonstrate our commitment towards conserving benefits provide to employees that are well above the the planet and the people, the Group has opted to industry standards. Meals are also provided for factory maintain its own fleet of vehicles so as to retain control workers working over-time. of emissions and control the use of fossil fuels thereby reducing irregularities arising from products handled by Occupational health and safety remains a prime third parties. concern and all possible and expected measures have been taken to ensure that our employees remain free Plantation Sector from occupational hazards.

The Group has achieved many milestones and set Average levels of injury recorded are on par with industry several benchmarks along its journey to achieve energy standards, mainly due to non-adherence to safety savings. Having commenced in 2008, an extensive guidelines or minor occupational hitches such as lost days initiative was carried out in all 15 tea factories which and absenteeism. There were no work-related fatalities. resulted in 60% of the withering capacity of each factory to be carried out utilising energy saving fans. On an average the approximate saving in terms of power consumption is 35%.

Additionally, Power Factor Capacitor Banks have been installed in all our tea and rubber factories, thus reducing the consumption of total power drawn from the grid by 35%- an initiative that was ahead of its time when it was launched a decade ago.

Contribution towards Climate Change remains an ongoing endeavour. We planted 130,528 Eucalyptus Grandis plants on 6 Estates in the Badulla and 7 DCSL provides the best facilities for their staff with the intention of creating an excellent work Estates in the Balangoda regions, comprising of a total environment. of 81.58 Hectares.

Our Employees Training and upgrading the skills of our workers remains the secret of our success, Education, training, Over the years, the DCSL Group has earned for itself the counselling and risk control programmes for workers, reputation of being a preferred employer, attracting the softskills development, opportunities for employment for brightest and the best talent across multi disciplines. family members within the Group, regular work-related Our professional work atmosphere, abundant career training programmes for skilled and unskilled labour are progression opportunities and merit-based reward initiatives that are pursued throughout the year. systems has gone far in retaining a professional and committed workforce. Employees are encouraged to avail themselves of career development programmes that are offered through the Our organisation boasts high retention rates. Many Company’s in-house and external training development employees have been with the Company since the programmes. There are many examples of workers who date of inception (or privatisation). The turnover of have progressed in their careers (casual workers to officer casual, unskilled labour remains high, the norm in any level, unskilled to skilled labour). industry. We are an equal opportunities employer and ensure We offer generous performance-based incentives and a culturally diverse employee base. However, due

Distilleries Company of Sri Lanka PLC Annual Report 2010/11 43 Sustainability Report Contd.,

to the nature of the work, factory workers are predominantly male. Female staff are employed in all other departments.

As a Company we are fully compliant with accepted labour laws of the country.

Our Society

Beverage Sector

Over the years, we have been gratified to note the Our Plantation Sector strengthens rural positive impact we have had on communities, by economies by providing employment extending livelihoods and uplifting them from the opportunities to youth in the area. grassroots levels. Although the Company does not employ toddy tappers directly, it ensures fair wages, worker safety and personal well-being, by subjecting most developing countries, and we implemented our the suppliers to certain conditions and through regular own water supply schemes, upgrading of crèches, interaction with them. Tappers earn a good income and recreational facilities along with ensuring amenities such our bonds with the suppliers too have strengthened as electricity during the period under review. into long-standing relationships. We support the initiative of the ‘Plantation Management Plantation Sector Programme’ Degree by the Government and the Uva Wellassa University titled ‘Tea Technology and Value In the Plantation Sector, we focus our environmental Addition’, a practical training programme for third responsibility on land, water, energy and habitat. In year university undergraduates. The programme was our endeavour to ensure greater productivity, we have conducted on our Glen Alpin, Telbedde, Ury and proactively explored ways by which we can achieve Wewesse Estates in November/December 2010 over our efficiency goals whilst minimising any harm to the a period of 48 days. Our managers worked closely with surrounding bio-diversity and forests. Our focus is on the academic staff of the Uva Wellassa University in enhancing the dignity of our employees whilst inspiring providing grassroots level training in Operational Skills them to overcome challenges and assisting them and offered insights into the industry with a view to to work towards a better tomorrow. In addressing developing practical capabilities within their specialised the needs of the community, the Company pursues fields by sharing our knowledge and productivity upliftment projects with people at their core and experience. conducts campaigns that have been highly effective and a significant contributory factor in boosting sustainable Diversified Businesses lifestyles. Continental Insurance Lanka Limited recently Community health and sanitation are also key areas on spearheaded an initiative to support visually impaired which much attention has been focused. In keeping with students as part of a CSR activity. As an emerging our commitment, many health and social development force in the insurance sector, the Company is keenly programmes were undertaken under the supervision aware of its responsibility to manage its core business and guidance of the Estate Managers and the Plantation by making a real contribution to social and economic Human Development Trust, which is the apex body development and by protecting and caring for the monitoring social development activities. Water supply society and the environment in which it operates. and sanitation are vital socio-economic indicators in

Distilleries Company of Sri Lanka PLC 44 Annual Report 2010/11 The Company donated books in large print in English and Sinhala for The School for the Deaf and Blind in Ratmalana. The books would be used by children with reduced vision and are also to be translated into Braille for the visually impaired.

Continental Insurance is also collaborating with the Sri Lanka Cancer Society to support and create community awareness, nurture courage, encouragement and respect towards cancer and its patients as one of its key sustainability initiatives. The Company partnered with the Sri Lanka Cancer Society's walk for cancer on Continental Insurance initiated the donation of 6 March 2011 through a co-sponsorship. People from large-print books and Braille translations for all walks of life participated including from corporations, children at the Deaf and Blind School, Ratmalana. schools and other institutions. Continental Insurance staff members showcased their support by walking under a banner - “Cancer can be cured - Cancer can Our labeling methods are compliant with official be prevented". regulations.

Taking up the cause of road safety, the Company No legal action was taken for anti-trust or monopoly launched an innovative CSR initiative to reduce road practices against the Group during the year under accidents in Sri Lanka, by introducing ‘Continental review. Neither were there any instances of monetary Insurance - Good Driver Plan’. This one-of-a-kind fines or non-monetary sanctions for non-compliance motor insurance aims to encourage safe driving with laws and regulations brought against the practices and reward responsible motorists throughout Company. As such, no incidents of corruption were the country; thereby, enabling every one of us to feel recorded during the year. safe on the roads. Our Nation Our Customers As one of the largest diversified conglomerates in the Our loyal customer base is the reason for our enduring country, the DCSL Group is a key player in the country’s success. In return for the loyalty they extend, the DCSL private sector and is the market leader in the Beverage Group strives to offer products that not only meets but Sector. As a result, the Company makes a substantial also exceeds their expectations every single time they contribution to the national exchequer. During the interact with our products. period under review, the Group made a contribution of Rs. 29 Bn to boost government revenue, up from The health and safety effects of our products are tested Rs. 21 Bn in the previous year. Meanwhile, the Company regularly. Our products are monitored for superior remains committed to ensuring that it sets benchmarks quality and for being to be on par with international in the corporate world and that it sets the pace for standards. In fact, our coconut products are 100% greater economic activity in the post-war climate, pure and contain no methanol, offering many health ideally poised to leverage on emerging economic benefits attested by scientists. We employ the latest opportunities. technology to curb counterfeits in the market; thereby ensuring consumer safety.

No incidents of non-compliance with regulations and voluntary codes concerning health and safety impacts of products were recorded through the year.

Distilleries Company of Sri Lanka PLC Annual Report 2010/11 45 Corporate Governance

Corporate Governance refers to the way that the Board The DCSL Group is committed to the highest standards of Directors oversees the Company operations by of Corporate Governance and has complied with the employees and to what extent Board members are held Corporate Governance practices recommended by accountable to shareholders and the Company. Due the (CSE), the Securities diligence in this regard has far-reaching implications for and Exchange Commission of Sri Lanka (SEC) and the Company, shareholders, employees, customers, The Institute of Chartered Accountants of Sri Lanka partners and the community at large. A responsible (ICASL). and balanced Corporate Governance structure earns integrity & respect for the Company to stabilise its This Corporate Governance statement defines in position in the market. detail the structures and processes that we use in our organisation to balance the interests of our Our Corporate Governance practices have reinforced stakeholders. These processes are reviewed at regular our credentials amongst peers and stakeholders. We intervals to ensure that they meet the expectations of are known as a Group that is truly accountable to the Group in line with evolving growth strategies. our shareholders. Our Board practices adhere to the highest standard of corporate behaviour and ethics at The Board of Directors all times. Role of the Board of Directors

More importantly, we realise that for the DCSL Group The Board of Directors is responsible to the Company’s to continue to remain at the forefront of Sri Lanka’s shareholders to ensure at all times that the activities of corporate landscape, the Company must incorporate the Company are conducted with the highest ethical new dimensions into our core decision-making standards and in the best interest of all stakeholders. processes and practice due diligence to protect the interests of our shareholders. The key responsibilities of the Board are:

The DCSL Group’s governance structure is designed  To safeguard & enhance shareholder value to facilitate the Group companies' advance towards  To provide direction and guidance in achieving their goals and objectives. Our governance formulating corporate strategies framework supports our Group companies’ progress  Monitoring systems and procedures and provides the seal of security for shareholders as especially with regard to internal controls well. and risk management  Approving major investments The Board ensures that the Company’s operating mechanisms and business strategies meet the needs Composition of the Board and Independence of the Group and that they are aligned with the overall Group objectives. The Board of Directors of Distilleries Company of Sri Lanka PLC consists of the Chairman / Managing Sound Corporate Governance policies have helped us Director, two Executive Directors, one Non-Executive to sustain long term business values and this remains Director and three Independent Non-Executive our key objective in incorporating best practices along Directors as given in the table below. Brief profiles of all decision points - to ensure profitability along with the Directors are given on pages 24 to 27. environmental, social and economic value for the society in which we operate.

Distilleries Company of Sri Lanka PLC 46 Annual Report 2010/11 The Board considers that 3 of the 4 Non-Executive Audit Committee Directors are independent in accordance with the criteria given in the Listing Rules of the CSE and has The Audit Committee was reconstituted during the submitted signed confirmations in this regard. The year due to changes in the Board. The Committee Board believes that the independence of Mr. N. de S. consists of 3 Independent Non-Executive Directors as Deva Aditya is not compromised by virtue of being a named below. Director of Aitken Spence PLC, an Associate of the Company. C. F. Fernando – Chairman N. de S. Deva Aditya Meetings and Attendance Naomal Balasuriya

The attendance of the meetings of the Board during The detailed report of the Audit Committee is given on the year are given below: pages 60 to 61.

Name of Remuneration Committee Status Attendance Director D. H. S. Chairman / 5/5 The Remuneration Committee comprises 3 Jayawardena Managing Independent Non-Executive Directors as given below. Director

R. K. Non-Executive 3/5 Naomal Balasuriya– Chairman Obeyesekere Director N. de S. Deva Aditya C. R. Jansz Executive 5/5 C. F. Fernando Director K. J. Kahanda Executive 5/5 Investor Relations Director N. de S. Deva Independent 5/5* Aditya Non-Executive One of the prime causes of the Group’s success Director and longevity has been its close rapport with its C. F. Fernando Independent 5/5 shareholders, which has led the Group to cement this Non-Executive relationship by putting in place a strong foundation Director for our investor relations. We consider it our duty to Naomal Independent 5/5 safeguard shareholder wealth and are duty-bound to Balasuriya Non-Executive share all Company information with all our shareholders Director at all times. To meet this objective and to enable *In person or by Alternate effective dialogue with relevant shareholders and the financial community, we believe it is our responsibility Board Committees to maintain an open line of communication with shareholders and address any concerns they may Certain responsibilities of the Board have been harbour. Therefore, the Group Financial Controller delegated to the following sub-committees. meets shareholders and fund managers regularly to provide information and answer any queries. Further, the Group possesses performance measurement tools to ensure that these objectives are met.

Distilleries Company of Sri Lanka PLC Annual Report 2010/11 47 Corporate Governance Contd.,

Apart from personal interaction with shareholders, timely information for informed decision making. The our Quarterly Financial Statements and the Annual responsibility of the Board covers financial, operational Report offer a comprehensive picture of the Group’s and compliance related activities and risk management. performance and constitutes the principal mean of The main companies in the Group have put in place communication with the shareholders. internal audit divisions that are controlled by the annual internal audit plans approved by the respective Business Conduct and Ethics Boards. The Audit Committee and the Group Management Division review and monitor the activities In a bid to maintain the highest levels of business ethics and the findings of the internal audit divisions at regular in the industry and the corporate sector as a whole, the intervals. Company has set out a Code of Business and Ethics after extensive discussion with all stakeholders. The Going Concern Compliance Committee supervises the rollout of this code and maintains control to see that all regulatory After an extensive review of the Group’s corporate strictures are followed by the Board and the Company plan, budgets, capital expenditure requirements and in dispensing of their duties in alignment with the code. future cash flows, the Board has taken a decision to apply Going Concern principle in the preparation of Internal Controls the Financial Statements for 2010/11. Further, the Board is satisfied that the Group possesses adequate The Code necessitates that the Board instill and funds for liquidity and to sustain its operations for the maintain a strong set of internal controls to safeguard foreseeable future. shareholder wealth. The responsibility of the Board has been clearly stated as one where it is in charge of The Company’s compliance with the CSE Listing the Group’s internal control systems and will regularly Rules and the best practices set out in the Code of review if they are adequately safeguarding Company Best Practice on Corporate Governance issued jointly and shareholder assets while supplying precise and by ICASL and SEC are set out in the following table.

Section Applicable Rule Compliance Details Status

7.10.1 (a) Non-Executive Directors At least one third of the total number of Directors should be Non-Executive Four of the seven Directors are Directors. Complied Non-Executive Directors

7.10.2 (a) Independent Directors Two or one third of Non-Executive Directors, whichever is higher, should Three of the four Non-Executive be Independent. Complied Directors are Independent

7.10.2 (b) Independent Director’s Declaration Each Non-Executive Director should submit a declaration of independence / non-independence in the prescribed format. Complied

Distilleries Company of Sri Lanka PLC 48 Annual Report 2010/11 Section Applicable Rule Compliance Details Status

7.10.3 (a) Disclosure relating to Directors The Board shall annually make a determination as to the independence or otherwise of the Non-Executive Directors and names of Independent Directors should be disclosed in the Annual Report. Complied Please refer page 44.

7.10.3 (b) Disclosure relating to Directors The basis for the Board to determine a Director is Independent, if criteria specified for Independence is not met. Complied Please refer page 44.

7.10.3 (c) Disclosure relating to Directors A brief résumé of each Director should be included in the Annual Report and should include the Director’s areas of expertise. Complied Please refer pages 24 to 27.

7.10.3 (d) Disclosure relating to Directors Forthwith provide a brief résumé of new Directors appointed to the Board with details specified in 7.10.3(a), (b) No new Directors were appointed and (c) to the Exchange. Not Applicable during the year

7.10.5 Remuneration Committee A listed Company shall have a Remuneration Committee. Complied Please refer page 62.

7.10.5 (a) Composition of Remuneration Committee Shall comprise of Non-Executive Directors a majority of whom will be All three are Independent Non- Independent. Complied Executive Directors.

7.10.5 (b) Functions of Remuneration Committee The Remuneration Committee shall recommend the remuneration of the Chief Executive Officer and Executive Directors. Complied Please refer page 62.

Distilleries Company of Sri Lanka PLC Annual Report 2010/11 49 Corporate Governance Contd.,

Section Applicable Rule Compliance Details Status

7.10.5 (c) Disclosure in the Annual Report The Annual Report should set out:

a. Names of the Directors comprising the Remuneration Committee Complied Please refer page 62. b. Statement of Remuneration Policy Complied Please refer page 62. c. Aggregated remuneration paid to Executive and Non-Executive Directors. Complied Please refer page 62.

7.10.6 Audit Committee The Company shall have an Audit Please refer Audit Committee Report on Committee Complied pages 60 to 61

7.10.6 (a) Composition  Shall comprise of Non-Executive Directors a majority of whom will be Independent. Complied Please refer page 60.  One Non-Executive Director shall be appointed as Chairman of the Committee Complied Please refer page 60.  Chief Executive Officer and Chief Financial Officer shall attend Committee meetings Complied  The Chairman or one Please refer page 60. member of the Committee should be a Member of a professional accounting body Complied Please refer page 60.

7.10.6 (b) Functions a. Overseeing the preparation, presentation and adequacy of disclosures in the Financial Statements in accordance with Sri Lanka Accounting Standards Complied b. Overseeing the compliance with financial reporting requirements, information requirements of the Companies Act and other relevant financial reporting related regulations and Please refer Audit Committee Report on requirements Complied pages 60 to 61.

Distilleries Company of Sri Lanka PLC 50 Annual Report 2010/11 Section Applicable Rule Compliance Details Status

c. Overseeing the process to ensure that the Entity’s internal controls and risk management, are adequate to meet the requirements of the Sri Lanka Accounting Standards Complied d. Assessment of the independence and performance of the Entity’s external auditors Complied e. Make recommendations to the Board pertaining to appointment, re-appointment and removal of external auditors and to approve the remuneration and terms of engagement of the external auditors Complied

7.10.6 (c) Disclosure in Annual Report  The names of the Directors comprising the Audit Committee  Basis of the determination of the Independence of the Auditors  Report by the Audit Committee setting out the manner of compliance by the Please refer Audit Committee Report on Company Complied pages 60 to 61.

Distilleries Company of Sri Lanka PLC Annual Report 2010/11 51 Enterprise Risk Management

The DCSL Board considers risk assessment and updated on the progress and its opinion sought for identification of mitigating action to be pivotal in mitigating any challenges that might emerge. achieving the Group’s strategic objectives. The Board has an overall responsibility for monitoring the risks for Risk Management Framework assuring itself that they are managed at an acceptable level. The Group remains committed to increasing DCSL Group’s risk management framework takes into shareholder value within a carefully designed risk account the range of risks to be managed, the systems management framework. and processes in place to deal with these risks, and the chain of responsibility within the organisation to An effective risk management framework enables monitor the effectiveness of our mitigation measures. us to prioritise and allocate resources against those The risks that we take into account in the pursuit of our risks that underscore the ongoing sustainability of the business goals are detailed below. organisation. Our systematic policies help us to identify and uncover risks and help us to be cognizant of the Credit Default Risk same. This preparedness builds the resilience of the organisation and allows us to put in place procedures Credit risk is where the customer of the Group is for risk mitigation. unable to meet his financial obligations. This is a strong possibility in the conduct of business for any The principal risks in achieving the Group objective organisation and in order to mitigate this, we measure, of enhancing shareholder value and safeguarding monitor and manage credit risk for each borrower, the Group’s assets have been identified as set out having put into place clear credit approval procedures. below. The nature and the scope of risks are subject We regularly review credit ratings of customers, to change and not all of the factors listed are within constantly updating our records to ensure complete the control of your Company. It should be noted that awareness of the credit status of borrowers, in order to the other factors besides those listed may affect the mitigate any ill-effects from this type of risk. performance of the business. Legal and Regulatory Risk Strategic Action Plan Risks arising from non-conformance to statutory and The Board is cognizant of the fact that to generate regulatory requirements is a real possibility keeping in business value it must manage and oversee all the mind the sudden and regular changes to compliance possible risks that the business or external factors requirements. Apart from increasing costs and liabilities could impose on the profitability of the Company whilst by changing regulations periodically, the Group has set simultaneously protecting and enhancing shareholder up a unit to keep abreast of all policy changes so as wealth. The DCSL Board is committed to deploy the to ensure the Group manages this risk diligently and highest standards of risk management to support adheres to all regulations. The nature of our liquor a strong governance framework, to ensure that and telecommunications business is such that it has shareholder wealth is safeguarded from all the possible ensured a steady stream of changes in regulations risk elements. and is subject to extensive monitoring. The authorities have severely restricted liquor advertising and limited A dedicated team is demarcated to assist the Board in other forms of communication with consumers via reviewing risk factors at regular intervals and monthly promotional and distribution activities. However, risk evaluation meetings ensure that the focus from despite the constraints this imposes on our profitability, effective risk coverage never shifts. The Board is kept we have complied fully with the stated restrictions.

Distilleries Company of Sri Lanka PLC 52 Annual Report 2010/11 Investment Risk are implemented. The nature of our business renders us vulnerable to several common operational risks that The Group handles a significant amount of investments include fraud, human errors, natural disasters, loss of and to ensure their smooth processing, the Board of data and unrequited disclosure of sensitive information. Directors ensures that the Company practices due diligence. The Chairman/Managing Director is tasked Socio-Economic Risk with tracking returns of the Group’s investments with the assistance of the Head of Finance and Group The current government is strictly enforcing the Financial Controller. curtailment of alcohol and tobacco consumption in the country and this reality poses a risk to the profitability Moreover, the Board develops policies and procedures and perception of our Company. Despite the ban, to ensure that new investments and acquisitions spurious liquor manufacturers are thriving, further undergo mandatory compliance procedures. Clearly eroding our profit base. The Group has set up an formulated governance structures are in place to give Investigations Unit to closely monitor and report illegal robust support and guidance on principles related activities that challenge our business. to capital expenditures, also reviewed by an Audit Committee as well as the Internal Audit Division. A resurgent economy however, is likely to boost alcohol consumption and although we were impacted Human Risk adversely by the decline in disposable incomes during the last few years, we expect this year to bring about This is risk arising from the inability to attract and increased spending in this category. retain skilled staff at middle to senior management. The migration of skilled workers has created a brain- Socio-Political Risk drain situation and the Group remains at risk of losing key personnel to better job prospects overseas. To Socio-Political risk is the possibility of instability in the mitigate this risk, the Group retains its skills and main country or the world that could impact investment personnel via above industry remuneration schemes, markets adversely. Unrest of any kind could affect skills upgrading, room for professional growth, investor attitudes towards the market in general, performance-based reward systems and other best leading to disruption of financial markets and consumer practices, in training, motivation and recognition. behaviour.

Operational Risk Our asset allocation takes these factors into account, while our diversified portfolio of business segments Operational risk is the risk of loss resulting from encompass investments that will not be impacted inadequate or failed internal processes, people and similarly by the same economic factors. systems or from external events. The Group has put in place a structured internal control framework in place Technology Risk to mitigate this risk, comprising of a sophisticated MIS system, internal audit mechanism and insurance This type of risk stems largely from the failure of the policies. Moreover, a clear system is followed whereby Group’s ICT systems, for example, hardware, software, any loss is communicated to all related parties and and communications systems. As a business that across the Company to prevent a similar incident in leverages strategically on its ICT systems, this type of the future. Regular meetings are conducted to assess risk could potentially bring business to a standstill and these risks. Back-up as well as disaster recovery plans affect profitability seriously. The Group has identified

Distilleries Company of Sri Lanka PLC Annual Report 2010/11 53 Enterprise Risk Management Contd.,

system failures and theft of information as factors that trends in local monetary policy to determine where the can cause significant levels of operational, reputational company’s exposures stand vis-à-vis market forecasts. and financial loss to the Group. In principal the Group At all times, suitable hedging strategies are adopted. has identified these risks and implemented strict barriers, such as password protection and restricted Risk from Cheaper Competition access, stringent user guidelines, contingency plans and physical security measures all of which are closely An increase in the import of cheaper products that monitored by the Central IT Unit. directly compete with our product portfolio could create an impact on our locally manufactured products, To a certain extent, our core business and certain leaving room for our products to be out-priced in the Subsidiary operations face an innovation risk that will market. divert customers to competitor products. The Group constantly & consistently has invested in R&D to This risk is mitigated by ensuring our products are outperform threat of innovating obsolescence. competitively priced and that the highest standards of quality are maintained in order to drive a loyal consumer Product Risk base that disregards alternate options.

Product risk implies any negative effect of perceived Counterfeiting impact of our products on stakeholders in general which could bring down our market share. The DCSL The nature of the liquor business gives rise to the team employs established operating procedures to incidence of counterfeiting and the success of our review and approve all raw materials prior to use to brands means counterfeiters indeed find it lucrative ensure that quality control is maintained. We take into to indulge in this illegal activity. However, the purity, account safety, health and environmental hazards to safety and high quality of our brands have given us the cover all avenues of possible negative publicity. Our positive brand image that our consumers hold and any research and development team is equipped to field deliberate attempt to besmirch our integrity and brand any technical questions about our products, whilst image will have an adverse impact on the maintenance our marketing and distribution procedures ensure of our brand loyalty. Our Investigations Unit keeps a complete control of the supply chain. close watch to detect any counterfeit DCSL products  in the market and as a Company, we do our best to Foreign Exchange Risk demonstrate to consumers how and where they can purchase original DCSL brands and in addition to this The risk of an investment’s value changing due to we also ensure that our bottles are tamper proof. The changes in currency exchange rates could impact the Company makes every effort to sustain and enhance import of foreign brands in our distilleries portfolio. brand equity and ensure that consumers are not This currency risk or exchange rate risk is mitigated cheated in any manner due to third party actions. by the close monitoring of the forex movements and

Distilleries Company of Sri Lanka PLC 54 Annual Report 2010/11 1913  Early distillers were small investors who used primitive technology and had limited financial capacity. As the demand for liquor increased due to heightened commercial activity which allured more workers to the cities, the industry showed profits to breed a class of indigenous capitalists with wealth.  2011 Inspiring the Skyline Today, DCSL is one of the largest revenue generators of for the nationalSuccess exchequer, contributing billions in taxes as a responsible corporate citizen. Poised as a multi-faceted diversified group, DCSL remains committed to supporting national growth in every way as our horizons widen amidst an era of peace and prosperity. Inspiring the Skyline of Success Annual Report of the Board of Directors

The Board of Directors of Distilleries Company of Sri Acquisitions and Disposals Lanka PLC has pleasure in presenting the 21st Annual On 31 January 2011 the Group increased its Report and the Audited Financial Statements of the investment in Browns Beach Hotels PLC to 48.15% Company and the Group for the financial year ended (Value Rs.1,221 Mn) and has been accounted as a 31 March 2011. Subsidiary from the same date.

Principal Activities On 27 March 2011 the Group acquired 47.02% (Value The principal activities of Distilleries Company of Sri Rs. 884 Mn) of Pelwatte Sugar Industries PLC. As Lanka PLC are distillation, manufacture and distribution a result the Pelwatte Sugar Industries PLC and its of liquor products. The Company has also invested in a Subsidiaries Pelwatte Sugar Distilleries (Pvt) Limited, portfolio of diverse business enterprises that comprise Pelwatte Agriculture & Engineering Services (Pvt) the DCSL Group. Limited and Pelwatte Dairy Industries (Pvt) Limited became part of the Group. Business Review A review of the Group’s business, providing a The Company increased its holding in Aitken Spence comprehensive analysis of the financial and operational PLC from 18.07% to 27.97% by investing a further Rs. performance along with future trends and business 7,326 Mn. development activities are described in the ‘Chairman’s Message’ and ‘Management Discussion and Analysis’ On 25 February 2011 the Group divested its interest sections of the Annual Report. in Subsidiary, National Asset Management Limited for a value of Rs. 455 Mn resulting in a capital gain of As discussed in detail in the Annual Report of 2009, the Rs. 367 Mn. Share Sale and Purchase Agreement (SSPA) regarding the privatisation of the Sri Lanka Insurance Corporation On 9 March 2011 the Group divested its shares in Limited (SLIC) signed between the Government of Sri Lanka Hospitals Corporation PLC for a value of Rs. Lanka and the Distilleries led consortium in April 2003 3,966 Mn resulting in a capital gain of Rs. 2,883 Mn. was declared null and void ab-initio by the Supreme Court of Sri Lanka and accordingly the company was During the year the Company received Rs. 6,380 Mn vested in the State as of 4 June 2009. In December in respect to the share buy back arrangement with its 2010, the Government of Sri Lanka returned Subsidiary, Milford Holdings (Pvt) Limited. Rs. 5,716 Mn that was paid by Group Subsidiary, Milford Holdings (Pvt) Limited (MHL) to purchase Results and Appropriations shares in SLIC. Furthermore, MHL was entitled to retain The Gross Turnover of the Group in the year under the profits of SLIC derived by MHL from 11 April 2003 review amounted to Rs. 46,752 Mn. The Group Profit to 4 June 2009 in lieu of the interest for the aforesaid after Tax amounted to Rs. 8,338 Mn. investment. However, the Government of Sri Lanka has not yet determined the value of profits to be The segmental analysis of the revenue and income is retained by MHL, hence no adjustments were made to provided in Note 35 to the Financial Statements. the Financial Statements in this regard. The Board has recommended a final dividend of The Group Subsidiary company Distillery Rs. 2.50 per share for the financial year ended 31 March (Pvt) Limited was renamed as Melstacorp (Pvt) Limited 2011. An interim dividend of Rs. 0.50 per share was on 20 January 2011 and Collision Repair Centre (Pvt) paid on 28 March 2011. This results in a total dividend Limited was renamed as Melsta Logistics (Pvt) Limited payout of Rs. 3.00 per share (2009/10 - Rs. 2.50 per on 19 July 2011.

Distilleries Company of Sri Lanka PLC 58 Annual Report 2010/11 share) amounting to Rs. 900 Mn (2009/10 - Rs. 750 of the Company and the Group as at 31 March 2011 Mn). The dividend payout for the year under review has was Rs. 4,590 Mn (2009/10 – Rs. 1,518 Mn) and been formulated in accordance with the Company’s Rs. 14,494 Mn (2009/10 – Rs. 8,270 Mn). policy to pay sustainable dividends linked to long term performance, keeping in view the Company’s need for Total capital expenditure during the year for acquisition capital for its growth plans and the intent to finance of Property, Plant and Equipment by the Company and such plans through internally generated funds. the Group amounted to Rs. 181 Mn (2009/10 – Rs. 610 Mn) and Rs. 5,775 Mn (2009/10 – Rs. 2,669 Mn) The Directors confirm that the Company satisfies the respectively. requirements of the Solvency Test in accordance with Section 56 (2) of the Companies Act No. 07 of 2007 A valuation of freehold Land and Buildings of Distilleries on the payment of the interim and the proposed final Company of Sri Lanka PLC was carried out by dividend. Solvency Certificate in respect of the interim Incorporated Valuers Mr. A. R. M. M. Kaleel and Mr. S. dividends has been received and the same has been Sivaskantha and was incorporated in the Company’s sought for the final proposed dividend. books as at 1 March 2011. A valuation of Freehold Land of Melstacorp (Pvt) Limited carried out by an Financial Statements Incorporated Valuer, Mr. S. Sivaskantha was also The Financial Statements of the Company and the incorporated in the Melstacorp (Pvt) Limited’s books Group for the year ended 31 March 2011 as approved as at 21 January 2011. by the Board of Directors on 04 August 2011 are given on pages 70 to 113. The details of Property, Plant and Equipment are given in Note 12 to the Financial Statements. Audit Report The Auditor’s Report on the Financial Statements of Stated Capital and Reserves the Company and the Group is given on page 69. The Stated Capital of the Company as at 31 March 2011 was Rs. 300 Mn consisting of an equal number Accounting Policies of ordinary shares. There was no change in the Stated The Accounting Policies adopted in the preparation Capital during the year. The total Group Reserves and presentation of the Financial Statements are given as at 31 March 2011 amounted to Rs. 31,636 Mn on pages 75 to 82. There were no material changes in comprising of Capital Reserves of Rs. 6,035 Mn and the Accounting Policies adopted by the Group during Revenue Reserves of Rs. 25,301 Mn, the movement the year under review except for that the Group has of which is disclosed in the Statement of Changes in changed its Accounting Policy in respect of Land and Equity. Buildings from Cost Model to Revaluation Model. Internal Controls and Risk Management Investments The Directors acknowledge their responsibility for the Total investments of the Company in Subsidiaries, Groups’ system of internal control. The systems are Associates and other equity investments amounted to designed to provide reasonable assurance that the Rs. 15,619 Mn (2009/10 – Rs. 12,476 Mn). The details assets of the Group are safeguarded and to ensure of the investments are given in Notes 15, 16 and 17 to that proper accounting records are maintained. the Financial Statements. The Board, having reviewed the system of internal Property, Plant and Equipment control is satisfied with the systems and measures in The net book value of Property, Plant and Equipment

Distilleries Company of Sri Lanka PLC Annual Report 2010/11 59 Annual Report of the Board of Directors Contd.,

and Ethics along with other controls are in place effect at the date of signing this Report. The detailed to ensure that related party transactions involving Enterprise Risk Management Report is given on pages Directors, Senior Managers or their connected parties, 50 to 52. are conducted on an arm’s length basis. The Directors to the best of their knowledge and belief hereby confirm Post Balance Sheet Events compliance with this code. There are no material events or circumstances that have arisen since the Balance Sheet date that would Directors’ Shareholdings require adjustment, other than those disclosed in Note The shareholdings of Directors of the Company as 39 to the Financial Statements. defined under the Colombo Stock Exchange Rules are as follows. Employees As at 31 As at 31 The number of persons employed by the Company March 2011 March 2010 and Group as at 31 March 2011 was 1,340 (2009/10 – 1,324) and 19,954 (2009/10 -14,400) respectively. D. H. S. Jayawardena Nil Nil R. K. Obeyesekere Nil Nil Board of Directors C. R. Jansz Nil Nil The Board of Directors of the Company as at 31 March N. de S. Deva Aditya Nil Nil 2011 and their brief profiles are given on pages 24 to 27. K. J. Kahanda Nil Nil C. F. Fernando 2,062 2,062 There were no changes to the Directorate during the A. N. Balasuriya Nil Nil year under review. M/s. D. H. S. Jayawardena and R. K. Obeyesekere are Directors Standing for Re-election shareholders of Milford Exports (Ceylon) Limited. and In terms of Article 92 of the Articles of Association of Stassen Exports Limited, who hold significant stakes the Company, Mr. R. K. Obeyesekere and Mr. C. R. in the Company indirectly. The shareholdings of these Jansz retire by rotation and being eligible are being entities in the Company are available on page 117 of recommended by the Board for re-election. the Annual Report.

Further, in terms of section 210 of the Companies Act, Directors’ Meetings Mr. C. F. Fernando who is over the age of 70 years Details of the meetings which comprise Board has to be reappointed by the membership annually. Meetings in respect of the Company for the year is Accordingly, notice has been given of a resolution in given in Corporate Governance Report on page 45. terms of section 211 of the Companies Act No. 07 of 2007 to propose the re-appointment of Mr. C. F. Directors’ Remuneration Fernando, not withstanding the age limit of 70 years. Directors’ remuneration in respect of the Company for the year is given in Note 8 to the Financial Statements. Interest Register The Company maintains an Interest Register in Share Information compliance with the Companies Act No. 07 of 2007. Information relating to earnings, dividends, net assets This Annual Report also contains particulars of entries and market value per share is given on page 03. There made in the Interest Register. were 12,674 registered shareholders holding ordinary voting shares as at 31 March 2011. Directors’ Interests in Contracts The distribution and the composition of shareholdings Directors’ interests in contracts are disclosed in the are given on page 116 of this report. Related Party Transactions under Note 36 to the Financial Statements. A Code of Business Conduct

Distilleries Company of Sri Lanka PLC 60 Annual Report 2010/11 Major Shareholdings Auditors The details of the twenty major shareholders of the Messrs. KPMG Ford, Rhodes, Thornton & Co, Company including the number of shares held by them Chartered Accountants are deemed re-appointed, in are given on page 117 of the Annual Report. terms of section 158 of the Companies Act No. 07 of 2007, as Auditors of the Company. A resolution to Corporate Governance authorise the Directors to determine their remuneration The Board has ensured that the Company has will be proposed at the Annual General Meeting. complied with the Listing Rules of the Colombo Stock Exchange and the Code of Best Practices on Total audit fees paid to Messrs. KPMG Ford, Rhodes, Corporate Governance issued by the Securities and Thornton & Co, and other Auditors of Group companies Exchange Commission and the Institute of Chartered are disclosed in Note 8 to the Financial Statements. Accountants of Sri Lanka. The Board is committed towards the furtherance of Corporate Governance The Auditors of the Company and its Subsidiaries principles of the Company. The measures taken in have confirmed that they do not have any relationship this regard are set out in the Corporate Governance with the Company or its Subsidiaries (other than Report. that of Auditor) that would have an impact on their independence. Environment The Company has not engaged in any activity that was Annual General Meeting detrimental to the environment and has been in due compliance with all applicable laws and regulations of The 21st Annual General Meeting of the Company the country to the best of its ability. The Group’s effort will be held at the “Sapphire Ballroom” of Ceylon to conserve scarce and non-renewable resources are Continental Hotel, Colombo 01 on Monday, 12 briefly described in the Sustainability Report. September 2011 at 10.00 a.m. The Notice of Meeting appears on page 124 of the Annual Report. Board Committees The Board has appointed two Sub-Committees i.e. the For and on behalf of the Board of Directors, Audit Committee and the Remuneration Committee. The composition and responsibilities of the said Committees are detailed in the respective reports given on pages 60 to 62. D. H. S. Jayawardena Statutory Payments Chairman/ Managing Director The Directors, to the best of their knowledge and belief are satisfied that all statutory obligations due to the government and its employees have been duly paid or adequately provided for in the Financial Statements as confirmed by the Statement of Directors’ Responsibility. C. R. Jansz Director Going Concern The Directors having reviewed the business plans, capital expenditure commitments and expected cash flows are satisfied that the Company and the Group V. J. Senaratne have adequate resources to continue operations for Company Secretary the foreseeable future and therefore continue to adopt the going concern basis in preparing these Financial 04 August 2011 Statements. Colombo

Distilleries Company of Sri Lanka PLC Annual Report 2010/11 61 Audit Committee Report

Composition As allowed by the Listing Rules of the Colombo Stock Exchange, the Audit Committee of the Company, The Audit Committee, appointed by and responsible functions as the Audit Committee of each of the to the Board of Directors comprise three Independent subsidiary companies which have not appointed a Non-Executive Directors. The Chairman of the separate Audit Committee. All matters are dealt with Committee is Mr. C .F. Fernando, a Senior Chartered through the Agenda of the Parent Company Audit Accountant and a former Managing Director of the Committee. Company. The other members of the Audit Committee comprise Mr. N. de S. Deva Aditya, Member of the Activities and Responsibilities European Parliament and Dr. Naomal Balasuriya, a Financial Reporting renowned Motivational Speaker and Corporate Trainer. A brief profile of each member is given on pages 24 to The Committee reviewed and discussed the financial 27. reporting system adopted by the Group in the preparation of its quarterly and annual financial The Company Secretary functions as the Secretary to statements with the Management and the External the Audit Committee. Auditors. Purpose being to ensure reliability of the processes and the consistency of the Accounting Meetings Policies adopted and its compliance with the Sri Lanka Accounting Standards and the provisions of the The Audit Committee met seven times during the year. Companies Act No. 07 of 2007. Mr. N. de S. Deva Aditya could not attend any meetings during the year due to his engagements abroad. Internal Audit Nevertheless, Mr. Deva Aditya was kept informed of all the proceedings of the Audit Committee and his The internal audit function of the Company was carried opinion was sought on important matters through his out by the Internal Audit Division. The Committee alternate on the Board. The attendance of the other reviewed the effectiveness of the internal audit plan to members at these meetings are as follows: ensure that it has been designed to provide reasonable assurance that the financial reporting system adopted Mr. C. F. Fernando 7/7 by the Group can be relied upon in the preparation Dr. Naomal Balasuriya 7/7 and presentation of the Financial Statements. The Committee also reviewed the findings of the Internal The Group Financial Controller, Head of Finance and Auditors and their recommendations together with Chief Internal Auditor also attended these meetings by the management responses and regularly followed invitation when needed. up the progress of the implementation of such recommendations in order to enhance the overall Terms of Reference control environment.

The Audit Committee Charter approved and adopted External Audit by the Board clearly sets out the terms of reference governing the Audit Committee ensuring highest The Audit Committee met with the External Auditors to compliance with the Corporate Governance Rules discuss the scope and the audit strategy including the applicable to Listed Companies in accordance with the coordination of the Group Audit. The Committee also Rules of the CSE and the Code of Best Practice on reviewed the Report of the Auditors & Management Corporate Governance. Letters issued by them with and without the

Distilleries Company of Sri Lanka PLC 62 Annual Report 2010/11 Management on separate occasions to ensure that no Conclusion limitations have been placed on their independency of work and conduct of the audit. The Audit Committee is satisfied that the Group’s accounting policies, operational controls and The Committee carried out an annual evaluation of risk management processes provide reasonable the External Auditors to establish their independence assurance that the affairs of the Group are managed and objectivity and also obtained a written declaration in accordance with Group policies. Group assets are from the Auditors in this regard. The Committee has properly accounted for and adequately safeguarded. stipulated that the Lead Audit Partner is rotated every five years.

The Audit Committee has recommended to the Board of Directors that Messrs. KPMG Ford, Rhodes, Thornton & Co. be reappointed as Auditors for the C. F. Fernando financial year ending 31 March 2012. Chairman Audit Committee Compliance with Laws and Regulations 04 August 2011 The Committee reviewed the quarterly compliance reports submitted by the relevant officers to ensure that the Group has complied with all statutory requirements.

Distilleries Company of Sri Lanka PLC Annual Report 2010/11 63 Remuneration Committee Report

The Remuneration Committee of the Distilleries This Committee strongly believes that it must Company of Sri Lanka comprises of the three formulate policies so as to ensure that the objectives independent Non-Executive Directors namely, Mr. C.F. of the Remuneration Committee Charter are met. It Fernando, Mr. N. de S. Deva Aditya and Dr. Naomal is also committed to attract, retain and motivate the Balasuriya, Chairman of the said Committee. key Management Personnel including the Executive Directors. It is responsible for determining the remuneration packages of the Chairman/Managing Director, Directors and the key Management Personnel of the Company.

All three Directors of this Committee are totally independent of the Management of the Company. Dr. Naomal Balasuriya Moreover, they are free from all business and other Chairman relationships which could hamper their duties as Remuneration Committee members of this Committee. 04 August 2011 The Committee formally met once during the year with the Chairman/Managing Director attending it by invitation.

Distilleries Company of Sri Lanka PLC 64 Annual Report 2010/11 1913  Due to the handsome revenues it generated, the liquor trade of yore was the private domain of a few influential families. However, the profits eluded other stakeholders in the business, such as suppliers of raw materials and labourers.

Distilleries Company of Sri Lanka PLC Annual Report 2010/11 65  2011 Inspiring the Infinite Today, we have invited every citizen Legacy of the country to be part of our success as a public quoted entity. The diverse staff across all our group companies represent the best and the brightest talent all of whom are encouraged to aspire ahead. People are at the heart of our success, be it our employees, partners, suppliers, customers or the society at large.

Distilleries Company of Sri Lanka PLC 66 Annual Report 2010/11 Inspiring the Infinite Legacy

Distilleries Company of Sri Lanka PLC Annual Report 2010/11 67 zz ‘‘The noblest search zz is the search for excellence" zz - Lyndon B. Johnson

Distilleries Company of Sri Lanka PLC 68 Annual Report 2010/11 Financial Information Statement of Directors’ Responsibility 68 Independent Auditors’ Report 69 Income Statements 70 Balance Sheets 71 Statements of Changes in Equity 72 Cash Flow Statements 74 Notes to the Financial Statements 75

67 Statement of Directors’ Responsibility

The Directors are responsible under the Companies Act No. The External Auditors were provided with all information and 07 of 2007, to ensure compliance of the requirements set explanations necessary to enable them to form their opinion out therein to prepare Financial Statements for each financial on the Financial Statements. year giving a true and fair view of the state of the affairs of the Company and its Subsidiaries as at the Balance Sheet date The Directors are confident that the Company would satisfy and the profit of the Company and its Subsidiaries for the the solvency test as mandated under Section 56 (2) of the financial year. Companies Act No. 07 of 2007 regarding the payment of the proposed dividend and have sought a Certificate of Solvency The Board accepts the responsibility for the integrity and from its Auditors. objectivity of the Financial Statements presented. The Directors confirm that proper accounting records have Compliance Report been maintained and appropriate accounting policies have been selected and applied consistently in the preparation The Directors confirm that to the best of their knowledge and of such Financial Statements which have been prepared belief that all statutory payments in relation to regulatory and and presented in accordance with the Sri Lanka Accounting statutory authorities that were due in respect of the Company Standards and provide information required by the Companies and its Subsidiaries as at the Balance Sheet date have been Act and the Listing Rules of the Colombo Stock Exchange. paid or where relevant, provided for.

Further, the Directors confirm that the Financial Statements have been prepared on a going concern basis and are of the By Order of the Board, view that sufficient funds and other resources are available within the Group to continue its operations and to facilitate planned future expansions and capital commitments. V. J. Senaratne The Directors have taken adequate measures to safeguard Company Secretary the assets of the Group and in this regard have established appropriate systems of internal control with a view to 04 August 2011 preventing and detecting fraud and other irregularities.

Distilleries Company of Sri Lanka PLC 68 Annual Report 2010/11 Independent Auditors’ Report

KPMG Ford, Rhodes, Thornton & Co. Tel : + 94 - 11 242 6426 (Chartered Accountants) + 94 - 11 542 6426 32A, Sir Mohamed Macan Marker Mawatha, Fax : + 94 - 11 244 5872 P. O. Box 186, + 94 - 11 244 6058 Colombo 00300, + 94 - 11 254 1249 Sri Lanka. + 94 - 11 230 7345 Internet : www.lk.kpmg.com

TO THE SHAREHOLDERS OF DISTILLERIES COMPANY OF SRI LANKA PLC

Report on the Financial Statements We have obtained all the information and explanations which to the best of our knowledge and belief were necessary for We have audited the accompanying financial statements the purposes of our audit. We therefore believe that our audit of Distilleries Company of Sri Lanka PLC (“Company”), the provides a reasonable basis for our opinion. consolidated financial statements of the Company and its subsidiaries as at 31 March 2011 which comprise the balance Opinion sheet as at 31 March 2011, and the income statement, statement of changes in equity and cash flow statement for Company the year then ended, and a summary of significant accounting policies and other explanatory notes as set out on pages 70 In our opinion, so far as appears from our examination, the to 113 of this annual report. Company maintained proper accounting records for the year ended 31 March 2011 and the financial statements give a true Management’s Responsibility for the Financial and fair view of the Company’s state of affairs as at 31 March Statements 2011 and its profit and cash flows for the year then ended in accordance with Sri Lanka Accounting Standards. Management is responsible for the preparation and fair presentation of these financial statements in accordance with Group Sri Lanka Accounting Standards. This responsibility includes: designing, implementing and maintaining internal control In our opinion, the consolidated financial statements give a relevant to the preparation and fair presentation of financial true and fair view of the state of affairs as at 31 March 2011 statements that are free from material misstatement, whether and the profit and cash flows for the year then ended, in due to fraud or error; selecting and applying appropriate accordance with Sri Lanka Accounting Standards, of the accounting policies; and making accounting estimates that Company and its subsidiaries dealt with thereby, so far as are reasonable in the circumstances. concerns the shareholders of the Company.

Scope of Audit and Basis of Opinion Report on Other Legal and Regulatory Requirements

Our responsibility is to express an opinion on these financial These financial statements also comply with the requirements statements based on our audit. We conducted our audit of Sections 153(2) to 153(7) of the Companies Act No. 07 of in accordance with Sri Lanka Auditing Standards. Those 2007. standards require that we plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement. Chartered Accountants An audit includes examining, on a test basis, evidence 04 August 2011, supporting the amounts and disclosures in the financial Colombo. statements. An audit also includes assessing the accounting policies used and significant estimates made by management, as well as evaluating the overall financial statement presentation.

KPMG Ford, Rhodes, Thornton & Co., a Sri Lankan Partnership A. N. Fernando FCA M.R. Mihular FCA Ms. M.P. Perera FCA and a member firm of the KPMG network of independent P.Y.S. Perera FCA C.P. Jayatilake FCA T.J.S. Rajakarier FCA member firms affiliated with KPMG International cooperative W.W.J.C. Perera FCA Ms. S. Joseph FCA Ms. S.M.B. Jayasekara ACA (“KPMG International”) a Swiss entity. W.K.D.C. Abeyrathne ACA S.T.D.L. Perera FCA G.A.U. Karunaratne ACA Principals - S.R.I. Perera ACMA, LLB, Attorney-at-Law, H.S. Goonewardene ACA

Distilleries Company of Sri Lanka PLC Annual Report 2010/11 69 Income Statements

CONSOLIDATED COMPANY For the Year Ended 31 March 2011 2010 2011 2010 Notes Rs.‘000 Rs.‘000 Rs.‘000 Rs.‘000

Gross Turnover 4 46,751,939 39,809,611 38,987,124 29,964,050 Net Turnover 20,172,641 20,047,956 13,522,778 10,985,031 Cost of Sales, Benefits & Losses (9,498,287) (11,694,048) (7,401,422) (6,832,908) Gross Profit 10,674,354 8,353,908 6,121,356 4,152,123 Investment & Other Income 5 4,545,497 520,486 4,673,047 617,198 Distribution Expenses (1,865,805) (2,007,373) (164,063) (171,362) Administrative Expenses (2,897,450) (3,184,093) (578,144) (627,430) Other Operating Gain / (Loss) 6 (2,866) 40,044 (2,866) 40,044 Profit from Operations 10,453,730 3,722,973 10,049,330 4,010,573

Finance Expenses 7 (394,156) (565,843) (77,311) (6,098) Share of Profit of Equity Accounted Investees 16.1 702,292 305,204 - - Profit Before Taxation 8 10,761,866 3,462,334 9,972,019 4,004,475 Tax Expense 9 (2,424,356) (1,310,692) (2,203,265) ( 1 , 1 8 9 , 4 8 9 ) Profit for the year 8,337,510 2,151,642 7,768,754 2,814,986

Attributable to Equity Holders of the Company 8,124,035 2,135,664 7,768,754 2,814,986 Minority Interest 213,475 15,979 - - Profit for the Year 8,337,510 2,151,642 7,768,754 2,814,986

Earnings per Share (Rs.) 10 27.08 7.12 25.90 9.38

Dividend per Share (Rs.) 11 3.00 2.50 3.00 2.50

Notes from Pages 75 to 113 form an integral part of these Financial Statements. Figures in brackets indicate deduction.

Distilleries Company of Sri Lanka PLC 70 Annual Report 2010/11 Balance Sheets

CONSOLIDATED COMPANY As at 31 March 2011 2010 2011 2010 Restated Notes Rs.‘000 Rs.‘000 Rs.‘000 Rs.‘000 Assets Non-Current Assets Property, Plant and Equipment 12 14,140,635 7,897,803 4,590,446 1,518,257 Leasehold Properties 13 353,325 371,716 – – Intangible Assets 14 2,384,812 2,583,896 – – Investments in Subsidiaries 15 – – 7,346,923 10,077,660 Investments in Equity Accounted Investees 16 12,196,832 3,994,252 8,272,307 939,057 Long Term Investments 17 44,150 1,504,647 3,000 1,476,110 Goodwill on Acquisition 18 1,032,012 255,446 – – Deferred Tax Assets 27.2 154,001 109,616 – 13,461 Advance Lease Premium 1,400 2,600 – – 30,307,167 16,719,976 20,212,676 14,024,545 Current Assets Short Term Investments 17 2,453,111 1,844,670 1,413,155 1,304,958 Inventories 19 4,665,580 3,745,665 2,006,559 1,892,306 Trade & Other Receivables 20 5,940,480 4,031,004 2,684,718 2,130,877 Amounts Due from Subsidiaries 21 – – 72,059 1 0 0 , 6 8 7 Amounts Due from Associate and Related Companies 22 93,143 74,758 231,111 269,259 Short Term Deposits 2 3 8,012,193 395,472 5,392,789 51,780 Cash & Cash Equivalents 24 621,639 1,794,325 314,032 830,332 21,786,146 11,885,894 12,114,423 6,580,199 Receivable from Secretary to the Treasury o/a of SLIC Shares 37 (a) – 6,715,864 – – Assets held for Sale 38 26,895 – – – Total Assets 52,120,208 35,321,734 32,327,099 20,604,744 Equity and Liabilities Equity Stated Capital 25 300,000 300,000 300,000 300,000 Capital Reserves 6,035,128 2,719,791 2,923,650 107,882 Revenue Reserves 25,300,673 17,742,678 21,718,069 14,849,315 Total Equity Attributable to Equity Holders of the Company 31,635,801 20,762,469 24,941,719 15,257,197 Minority Interest 3,160,059 1,209,799 – – Total Equity 34,795,860 21,972,268 24,941,719 15,257,197 Non-Current Liabilities Interest Bearing Loans & Borrowings 26 705,418 1,025,447 – – Deferred Tax Liabilities 27.1 480,486 113,384 160,132 – Retirement Benefit Obligations 2 8 1,038,779 676,629 109,991 111,414 Deferred Income 29 255,633 239,302 – – 2,480,316 2,054,762 270,123 111,414 Current Liabilities Trade and Other Payables 30 9,524,238 6,766,548 5,756,827 4,501,405 Amount Due to Greenfield Pacific Holdings 37 ( a) – 999,965 – – Amount Due to Related Companies and Subsidiaries 31 163,003 77,562 30,650 216,814 Income Tax Payable 1,262,471 509,707 1,073,202 441,693 Interest Bearing Loans & Borrowings 26 3,894,320 2,940,922 254,578 76,221 14,844,032 11,294,704 7,115,257 5,236,133 Total Equity and Liabilities 52,120,208 35,321,734 32,327,099 20,604,744 Net Assets per Share (Rs.) 105.45 69.21 83.14 50.86 Notes on pages 75 to 113 form an integral part of these Financial Statements. Figures in brackets indicate deductions. I certify that the Financial Statements have been prepared in compliance with The Directors are responsible for the preparation and presentation of these the requirements of Companies Act No. 07 of 2007. Financial Statements. Signed for and on behalf of the Board.

N. N. Nagahawatte D.H.S. Jayawardena C.F. Fernando Head of Finance Chairman / Managing Director Director

04 August 2011

Distilleries Company of Sri Lanka PLC Annual Report 2010/11 71 Statement of Changes in Equity

Consolidated Attributable to Equity Holders of the Company Capital Exchange Stated Capital Reserve on General Fluctuation Retained Minority Capital Reserves Scrip Issue Reserves Reserve Earnings Total Interest Total Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000 Rs ‘000 Rs ‘000

Balance as at 1 April 2009 300,000 1,404,354 1,095,538 7,567,255 89,603 11,976,144 22,432,894 2,157,591 24,590,485 Dividend paid to Minority Shareholders – – – – – – – (16,493) (16,493) Deconsolidation of SLIC and Related Entities – 115,882 – – – (4,173,804) (4,057,922) (830,453) (4,888,375) Adjustment in respect of Revaluation of Texpro Industries Ltd. – – – – – (83,889) (83,889) (117,062) (200,951) Realised Profits - Aitken Spence PLC – – – – – 475,612 475,612 – 475,612 Deconsolidation of AION SG Residencies (Pvt) Ltd – – – – – (13,750) (13,750) – (13,750) Deconsolidation of Lanka Hospitals Corporation PLC – – – – – (13,137) (13,137) – (13,137) Currency Translation Reserve – Associate – – – – – 8,261 8,261 – 8,261 Surplus on Revaluation – Associate – 104,017 – – – – 104,017 – 104,017 Effect of Change in Percentage – – – 717 – – 717 – 717 Adjustments on Negative Minority Interest – – – – – ( 237) ( 237) 237 – Dividend Paid (2008/09) – – – – – (675,000) (675,000) – (675,000) Profit for the Year – – – – – 2,135,663 2,135,663 15,979 2,151,642 Balance as at 31 March 2010 300,000 1,624,253 1,095,538 7,567,972 89,603 9,635,864 20,313,229 1,209,799 21,523,028 Adjustment due to Revaluation of Biological Assets* _ _ _ _ _ 449,240 449,240 _ 449,240 Balance as at 31 March 2010 as restated 300,000 1,624,253 1,095,538 7,567,972 89,603 10,085,104 20,762,469 1,209,799 21,972,268

Balance as at 1 April 2010 as restated 300,000 1,624,253 1,095,538 7,567,972 89,603 10,085,104 20,762,469 1,209,799 21,972,268 Dividend paid to Minority Shareholders – – – – – – – (16,795) (16,795) Effect of acquisitions, disposals & change in percentage holding in Subsidiaries – 282,417 – – – 352,420 634,737 1,753,580 2,388,417 Surplus on Revaluation – 3,082,590 – – – – 3,082,590 – 3,082,590 Deferred Tax on Revaluation (171,322) – – – – (171,322) – (171,322) Currency Translation Reserve - Associate – – – – – (18,460) (18,460) – (18,460) Surplus on Revaluation - Associate – 121,652 – – – – 121,652 – 121,652 Dividend Paid (2009/10) – – – – – (750,000) (750,000) – (750,000) Dividend Paid (2010/11) – – – – – (150,000) (150,000) – (150,000) Profit for the Year – – – – – 8,124,035 8,124,035 213,475 8,337,510 Balance as at 31 March 2011 300,000 4,939,590 1,095,538 7,567,972 89,603 17,643,098 31,635,801 3,160,059 34,795,860

* Adjustment due to Revaluation of Biological Assets The Associate Company Madulsima Plantations PLC has changed the accounting policy for recognition of timber plantations from cost basis to fair value basis during the year.

The Associate was unable to apply the change in accounting policy retrospectively from earliest period presented which is 1 January 2009, due to the limitations of retrospective application. Accordingly, the fair value of timber plantations as at 31 December 2009 has been adjusted to the retained earnings as at the same date.

Notes from Pages 75 to 113 form an integral part of these Financial Statements. Figures in brackets indicate deduction.

Distilleries Company of Sri Lanka PLC 72 Annual Report 2010/11 Statement of Changes in Equity

Stated Capital General Retained Capital Reserves Reserves Earnings Total Company Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000

Balance as at 1 April 2009 300,000 107,882 8,210,000 4,499,329 13,117,211 Dividend Paid – – – (675,000) (675,000) Net Profit – – – 2,814,986 2,814,986 Balance as at 31 March 2010 300,000 107,882 8,210,000 6,639,315 15,257,197

Balance as at 1 April 2010 300,000 107,882 8,210,000 6,639,315 15,257,197 Dividend Paid – – – (900,000) (900,000) Revaluation Reserve – 2,987,090 – – 2,987,090 Deferred Tax – (171,322) – – (171,322) Net Profit – – – 7,768,754 7,768,754 Balance as at 31 March 2011 300,000 2,923,650 8,210,000 13,508,069 24,941,719

Notes from Pages 75 to 113 form an integral part of these Financial Statements. Figures in brackets indicate deduction.

Distilleries Company of Sri Lanka PLC Annual Report 2010/11 73 Cash Flow Statements

CONSOLIDATED COMPANY For the Year Ended 31 March 2011 2010 2011 2010 Rs.‘000 Rs.‘000 Rs.‘000 Rs.‘000 Cash flows from Operating Activities Profit before Taxation 10,761,866 3,462,334 9,972,019 4,004,475 Adjustment for Depreciation/Amortisation of Property, Plant & Equipment 2,882,169 1,705,892 153,440 142,077 Provision for Retirement Gratuity 457,814 167,417 7,716 28,087 Interest Expenses 394,156 565,843 77,311 6,098 Interest Income (232,522) (261,502) (152,077) (179,146) Dividend Income (152,075) (118,836) (274,790) (419,106) Gain on disposal of Property, Plant & Equipment (36,829) (5,710) (28,833) (5,705) Amortisation of Deferred Income (14,689) (12,057) – – Provision for Inventories 41,243 205,241 – – Reversal of Provision for Inventories (67,450) – – – Provision for Bad & Doubtful Debts 32,954 (410,917) 6,327 77,334 Reversal of Provision for Bad and Doubtful Debts (166,968) – – – Gain on Disposal of Shares (3,871,371) 13,725 (4,162,730) 13,725 Share of Profit of Equity Accounted Investees (702,292) (305,204) – – Reversal of Provision for Fall in Value of Investments 2,866 (37,879) 2,866 (40,044) Operating Profit before Working Capital Changes 9,328,872 4,968,347 5,601,249 3,627,795 (Increase) / Decrease in Inventories (893,708) 320,851 (114,253) (40,648) (Increase) / Decrease in Receivables 5,056,032 207,678 (601,078) 28,043 Increase / (Decrease) in Payables 1,843,165 1,531,504 1,045,097 794,213 Cash Generated from Operations 15,334,361 7,028,380 5,931,015 4,409,403 Interest Paid (394,156) (565,843) (77,311) (6,098) Income Tax Paid (1,362,459) (1,807,634) (1,569,488) (1,695,526) Retiring Gratuity Paid (95,664) (61,772) (9,139) (15,102) Net Cash Flow from Operating Activities 13,482,082 4,593,131 4,275,077 2,692,677

Cash Flow from Investing Activities Acquisition of Shares and Other Investments (13,161,712) (839,373) (9,964,305) (853,327) Acquisition of Property, Plant & Equipment (6,114,266) (1,531,879) (238,540) (469,466) Grants Received 31,020 47,462 – – Dividends Received 152,075 118,836 274,790 419,106 Proceeds from Disposal of Property, Plant & Equipment 299,264 60,805 28,833 5,705 Proceeds from Disposal of Shares and Other Investments 11,806,477 161,401 10,994,195 57,674 Interest Received 232,522 261,502 152,077 179,146 Net Cash Flow Used in Investing Activities (6,754,620) (1,721,246) 1,247,050 (661,162)

Cash Flow from Financing Activities Dividend Paid / (Investment made by) Minority (16,795) (16,493) – – Term Loan Received 520,540 1,967,762 – – Repayment of Loans (1,597,131) (2,092,818) – – Dividend Paid (900,000) (675,000) (875,775) (675,000) Net Cash Flow from Financing Activities (1,993,386) (816,549) (875,775) (675,000) Net Increase/Decrease in Cash & Cash Equivalents during the year 4,734,075 2,055,336 4,646,352 1,356,515

Cash & Cash Equivalents At the beginning of the year 1,039,140 (1,016,196) 805,891 (550,624) Net movement during the year 4,734,075 2,055,336 4,646,352 1,356,515 At the end of the year (Note A) 5,773,215 1,039,140 5,452,243 805,891

Note A - Cash and Equivalents are as follows Short Term Deposits 8,012,193 395,472 5,392,789 51,780 Cash in Transit 139,579 252,041 139,579 252,041 Cash in Hand & Bank 482,060 1,542,284 174,453 578,291 Bank & Other Borrowings (2,860,617) (1,150,657) (254,578) (76,221) 5,773,215 1,039,140 5,452,243 805,891 Notes from Pages 75 to 113 form an integral part of these Financial Statements. Figures in brackets indicate deduction.

Distilleries Company of Sri Lanka PLC 74 Annual Report 2010/11 Notes to the Financial Statements

1. Reporting Entity time shall be deemed to be an adoption of SLFRSs.

Distilleries Company of Sri Lanka PLC (Company), is a quoted The Company is currently in the process of evaluating the Public Limited Company incorporated and domiciled in Sri potential effects of these Standards on its Financial Statements Lanka. The registered office and principal place of business of and the impact on the adoption of these Standards have not the Company is located at 110, Norris Canal Road, Colombo been quantified as at Balance Sheet date. 10. 2.3 Basis of Measurement The consolidated Financial Statements of Distilleries Company of Sri Lanka PLC., as at and for the year ended The Financial Statements have been prepared on the 31 March 2011 comprise the Company and its subsidiaries historical cost basis except land and buildings and short-term (together referred to as the “Group”) and the Group’s interests in investments are measured / stated at fair value as explained in Associates. The principal activity of the Company is distillation, the relevant Notes to the Financial Statements. manufacture and distribution of liquor products. Description of the nature of the operations and principal activities of the 2.4 Functional and Presentation Currency Subsidiaries and Associates are given in Note 16. The Financial Statements are presented in Sri Lankan Rupees, The immediate and ultimate parent entity of Distilleries which is the Company’s functional currency. All financial Company of Sri Lanka PLC is Milford Exports (Ceylon) Limited. information presented in Sri Lankan Rupees has been given to the nearest thousand, unless stated otherwise. The Financial Statements of all the companies in the Group other than those mentioned in Note 16 to the Financial 2.5 Use of Estimates and Judgements Statements are prepared for a common financial year, which ends on 31 March. The preparation of Financial Statements in conformity with SLAS requires management to make judgements, estimates and assumptions that affect the application of accounting 2. Basis of Preparation policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from those estimates 2.1 Statement of Compliance and judgemental decisions. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to The Financial Statements of the Company and the Group accounting estimates are recognised in the period in which comprise the Balance Sheet, Income Statement, Cash Flow the estimate is revised if the revision affects only that period or Statement, Statement of Changes in Equity and Notes to the in the period of the revision and future periods if the revision Financial Statements. These Financial Statements are prepared affects both current and future periods. in accordance with the Sri Lanka Accounting Standards laid down by the Institute of Chartered Accountants of Sri Lanka and the Companies Act No. 07 of 2007. 3. Significant Accounting Policies

The Financial Statements were authorised for issue by the Accounting Policies set out below have been applied Directors on 04 August 2011. consistently to all periods presented in these consolidated Financial Statements. 2.2 New Accounting Standards Issued but Not Effective as at Balance Sheet Date The Accounting Policies have been applied consistently by the entities in the Group. Where applicable and deviations if The Institute of Chartered Accountants of Sri Lanka has issued any, have been disclosed accordingly. a new volume of Sri Lanka Accounting Standards which will become effective for financial periods beginning on or after 1 3.1 Basis of Consolidation January 2012. Accordingly, these Standards have not been applied in preparing these Financial Statements as they were 3.1.1 Subsidiaries not effective for the year ended 31 March 2011. Subsidiaries are those entities controlled by the Group. Control These Sri Lanka Accounting Standards comprise Accounting exists when the Group has the power directly or indirectly to Standards prefixed both SLFRS (corresponding to IFRS) govern the financial and operating policies of an entity so as and LKAS (corresponding to IAS). Application of Sri Lanka to obtain benefits from its activities which is evident when the Accounting Standards prefixed SLFRS and LKAS for the first Group controls the composition of the Board of Directors of

Distilleries Company of Sri Lanka PLC Annual Report 2010/11 75 Notes to the Financial Statements

the entity or hold more than 50% of issued shares of the entity 3.1.4 Reporting Date or hold more than 50% of voting rights of the entity and is All the Group’s Subsidiaries and Associate Companies have a entitled to receive more than half of every dividend from shares common financial year end other than Periceyl (Pvt) Limited, carrying unlimited right to participate in distribution of profit or Continental Insurance Lanka Limited, Balangoda Plantations capital. PLC and Madulsima Plantations PLC, whose financial year ends on 31 December. The difference between the reporting The Financial Statements of Subsidiaries are included in the date of the above companies and that of the parent does not consolidated Financial Statements when control effectively exceed three months. commences and until control effectively ceases. 3.1.5 Transactions Eliminated on Consolidation Further, the AION SG Residencies (Pvt) Ltd has not been considered as a Subsidiary of DCSL, as its operations were Intra-group balances and transactions and any unrealised suspended in March 2009. Therefore, it was decided to provide gains arising from intra-group transactions, are eliminated in for this investment in full and has been de-consolidated since preparing the consolidated Financial Statements. Unrealised it does not generate a real value to the shareholders of the gains arising from transactions with Associates are eliminated Company under section 153(6) of the Companies Act No. 7 against the investment in the Associate, to the extent of the of 2007. Group’s interest in the enterprise.

3.1.2 Minority Interests 3.1.6 Loss of Control

Minority interest is measured at the minorities’ share of Upon the loss of control, the Group de-recognises the assets the post acquisition fair value of the identifiable assets and and liabilities of the Subsidiary, any minority interests and the liabilities of the acquired entity. Separate disclosure is made of other components of equity related to the Subsidiary. Any minority interests. surplus or deficit arising on the loss of control is recognised in profit or loss. If the Group retains any interest in the previous The Group applies a policy of treating transactions with Subsidiary, then such interest is measured at carrying amount minority interests as transactions with parties external to at the date that control is lost. Subsequently it is accounted the Group. Disposals of minority interests result in gains for as an equity-accounted investee or as an available-for-sale and losses for the Group and are recorded in the Income financial asset depending on the level of influence retained. Statement. Purchases from minority interests result in goodwill being the difference between any consideration paid and the 3.1.7 Foreign Currency Translation relevant share acquired of the carrying value of net assets of the Subsidiary. Transactions in foreign currencies are translated into Rupees at the rate of exchange prevailing on the dates of the 3.1.3 Associates (Equity Accounted Investees) transactions. Monetary assets and liabilities denominated in foreign currencies are translated into Rupees at the rate of Associates are those entities in which the Group has exchange prevailing at the date of the Balance Sheet. Gains significant influence, but no control, over financial and and losses resulting from the settlement of such transactions operating policies generally accompanying a shareholding and translation of monetary assets and liabilities denominated of between 20% and 50% of voting rights except as stated in foreign currencies are included in the Income Statement. in Note 16.1 to the Financial Statements. Investments in Associates are accounted for using the equity method. The 3.2 Property, Plant & Equipment consolidated Financial Statements include the Group’s share of income and expenses of equity accounted investees, from 3.2.1 Freehold Assets the date that significant influence commences until the date that significant influence ceases. When the Group’s share of Items of Property, Plant & Equipment are measured at cost or losses exceed its investment in an equity accounted investee, at fair value in the case of land and buildings less accumulated the carrying amount of that interest is reduced to nil and the depreciation and accumulated impairment losses. recognition of further losses is discontinued except to the extent that the Group has incurred obligations or has made The cost of Property, Plant & Equipment includes expenditures payments on behalf of the investee. that are directly attributable to the acquisition of the asset. The cost of self-constructed assets includes the cost of materials and direct labour, any other costs directly attributable to

Distilleries Company of Sri Lanka PLC 76 Annual Report 2010/11 Notes to the Financial Statements bringing the asset to a working condition for its intended use, 3.2.3 Depreciation and the costs of dismantling and removing the items and restoring the site on which they are located. Depreciation is recognised in profit and loss on a straight-line basis over the estimated useful lives of each part of an item of When parts of an item of Property, Plant & Equipment have Property, Plant & Equipment. Freehold land is not depreciated. different useful lives, they are accounted for as separate items Assets held under finance lease are depreciated over the (major components) of Property, Plant & Equipment. shorter of the lease term or the useful lives of equivalent owned assets. Carrying amount of Property, Plant & Equipment are reviewed for impairment whenever events or changes in circumstances Depreciation is based on the cost/revalued amount of an asset indicate that the carrying amount may not be recoverable. An less its residual value. Significant components of individual asset’s carrying amount is written down immediately to its assets are assessed and if a component has a useful life that recoverable amount if the asset’s carrying amount is greater is different from the remainder of that asset, that component is than its estimated recoverable amount. depreciated separately.

Subsequent costs are included in the asset’s carrying amount or The principal annual rates used for this purpose, which are recognised as a separate asset, as appropriate, only when it is consistent with that of the preceding years are: probable that future economic benefit associated with the item will flow to the Group and the cost of the item can be measured reliably. Freehold Buildings 5% Plant, Machinery & Equipment 10% An item of Property, Plant & Equipment is derecognised Furniture, Fittings, Office Equipment upon disposal or when no future economic benefits are & Fire Fighting Equipment 10% expected from its use or disposal. Any gain or loss arising Vats & Casks 10% on derecognising of the asset (calculated as the difference Oil Storage Tanks 10% between the net disposal proceeds and the carrying amount Computers 33 1/3% of the asset) is included in the Income Statement in the year Motor Vehicles 25% the asset is derecognised. Empty Drums 50% Kitchen Equipment 10% The assets’ residual values, useful lives and methods of Soft Furnishing, Crockery, Cutlery and Glassware 20% depreciation are reviewed, and adjusted if appropriate, at each financial year end. Depreciation of an asset begins when it is available for use and ceases at the earlier of the date that the asset is classified The Group revalues its land and buildings at least once in as held for sale and the date that the asset is derecognised. every five years which is measured at its fair value at the date of revaluation less any subsequent accumulated depreciation 3.2.4 Operating Leases and accumulated impairment losses. On revaluation of land, any increase in the revaluation amount is credited to the When the lessor effectively retains substantially all the risks and revaluation reserve in shareholder’s equity unless it off sets rewards of an asset under the lease agreement, such leases a previous decrease in value of the same asset that was are classified as operating leases. Payments under operating recognised in the Income Statement. A decrease in value is leases are recognised as expense in the Income Statement recognised in the Income Statement where it exceeds the over the period of lease on a straight line basis. increase previously recognised in the revaluation reserve. Upon disposal, any related revaluation reserve is transferred 3.2.5 Goodwill from the revaluation reserve to retained earnings and is not taken into account in arriving at the gain or loss on disposal. Goodwill represents the excess of the cost of acquisition over the fair value of Group’s share of the net identifiable assets of 3.2.2 Leased Assets the acquired Subsidiary at the date of acquisition. Goodwill acquired in a business combination is tested annually Leases in terms of which the Group assumes that substantially for impairment or more frequently if events or changes in of all the risks and rewards of ownership are classified as circumstance indicate that it might be impaired; and carried at finance leases. Assets acquired by way of a finance lease cost less accumulated impairment losses. Impairment losses are measured at an amount equal to the lower of their fair on goodwill are not reversed. value or the present value of minimum lease payments at the inception less accumulated depreciation and accumulated Goodwill is allocated to cash generating units for the purpose impairment losses. Other leases are operating leases and are of impairment testing. The allocation is made to those cash not recognised in the Group’s Balance Sheet. generating units or groups of loan generating units that are

Distilleries Company of Sri Lanka PLC Annual Report 2010/11 77 Notes to the Financial Statements

expected to benefit from the business combination in which when there is objective evidence that the Group will not be able goodwill arose. to collect all amounts due in accordance with the original term of receivables. Significant financial difficulties of the debtor, 3.2.6 Investments probability that the debtors will enter bankruptcy or financial reorganisation and default or delinquency in payment are Cost of investment includes purchase cost and acquisition considered as indicators that trade receivable is doubtful. The charges such as brokerages, fees, duties and bank regulatory amount of the provision is the difference between the asset’s fees. carrying amount and the estimated realisable value. The amount of the provision is recognised in the Income Statement (a) Short Term Investments within selling and distribution cost when a trade receivable is Quoted Shares, Quoted Debt Instruments and Unit Trust uncollectible, it is written off against the allowance account Investments for trade receivables. Subsequent recoveries of amounts Quoted shares, quoted debt instruments and unit trust previously written off are credited in the Income Statement. investments are stated at lower of cost or market value determined on an individual investment basis in total. 3.2.9 Cash and Cash Equivalents

Investments in Government Securities Cash and cash equivalents comprise cash balances and call Investments in treasury bills, treasury bonds, loans to the deposits. Bank overdrafts that are repayable on demand and government and repurchase agreements are stated at cost form an integral part of the Group’s cash management are and interest is accrued up to year-end. included as a component of cash and cash equivalents for the purpose of the Statement of Cash Flows. Marketable securities which have been classified under short term investments are valued at lower of cost or market value, 3.2.10 Impairment on an aggregate portfolio basis. Market value is calculated by reference to closing share value as at the Balance Sheet date The carrying amounts of the Group’s assets, are reviewed published by the Colombo Stock Exchange. at each reporting date to determine whether there is any indication of impairment. If any such indication exists then the (b) Long Term Investments asset’s recoverable amount is estimated. For goodwill that Quoted and unquoted investments held on long term basis are has indefinite life, recoverable amount is estimated at each classified as non-current investments and are measured at cost reporting date or more frequently, if events or changes in less impairment losses. The cost of the investment is the cost circumstances indicate that it might be impaired. of acquisition inclusive of brokerage and cost of transaction. Provision for impairment is made in the Income Statement, An impairment loss is recognised if the carrying amount of when there has been a decline other than temporary in the an asset or its cash-generating unit exceeds its recoverable value of investments, determined on individual basis. amount. A cash-generating unit is the smallest identifiable asset group that generates cash flows that are largely 3.2.7 Inventories independent from other assets and groups.

Inventories are measured at the lower of cost or net realisable The recoverable amount of an asset or cash-generating unit value. Net realisable value is the estimated selling price in is the greater of its value in use and its fair value less costs to the ordinary course of business less the estimated cost of sell. In assessing value in use, the estimated future cash flows completion and selling expenses. The general basis on which are discounted to their present value using a pre-tax discount cost is determined is: all inventory items, except manufactured rate that reflects current market assessments of the time value inventories and work-in-progress are measured at weighted of money and the risks specific to the asset. An impairment average directly attributable cost. loss in respect of goodwill is not reversed.

Manufactured inventories and work-in-progress are measured 3.3 Liabilities and Provisions at weighted average factory cost which includes all direct expenditure and appropriate shares of production overhead Liabilities classified as current liabilities on the Balance Sheet based on normal operating capacity. are those which fall due for payment on demand or within one year from the Balance Sheet date. Non-current liabilities are 3.2.8 Trade and Other Receivables those balances that fall due for payment later than one year from the Balance Sheet date. Trade receivables are recognised at the amounts that they All known liabilities have been accounted for in preparing the are estimated to realise less provision for doubtful debts. A Financial Statements. provision for doubtful debts of trade receivable is established

Distilleries Company of Sri Lanka PLC 78 Annual Report 2010/11 Notes to the Financial Statements

3.3.1 Employee Benefits 3.3.4 Trade and Other Payables 3.3.1.1 Defined Benefit Plan - Gratuity Trade and other payables are stated at their cost. Provision has been made for retirement gratuities using “Project Unit Credit” (PUC) method as recommended by SLAS 3.4 Income Statements (Revised 2006) “Employee Benefits”. The present value of the defined benefit obligation is determined by discounting the For the purpose of presentation of the Income Statement, the estimated future cash flows based on the actuarial valuation function of expenses method is adopted, as it represents fairly carried out. The actuarial gains and losses are charged or the elements of Company performance. credited to the Income Statement in the period in which they arise. The assumptions based on which the results of actuarial 3.4.1 Revenue valuation was determined are included in Note 28.3 to the Financial Statements. Revenue from the sale of goods is measured at the fair value of the consideration received or receivable, net of returns and The Company expects to carry out actuarial valuation once in allowances, trade discounts and volume rebates. Revenue every three years. The liability is not externally funded. is recognised when the significant risks and rewards of ownership have been transferred to the buyer, recovery of the However, according to the payment of Gratuity Act No. 12 consideration is probable, the associated costs and possible of 1983, the liability for the gratuity payment to an employee return of goods can be estimated reliably, and there is no arise only on the completion of 5 years of continued service continuing management involvement with the goods. with the Company. Interest income is recognised in profit and loss as it accrues. 3.3.1.2 Defined Contribution Plan - Employees’ Provident Fund and Employees’ Trust Fund Gains and losses on the disposal of investments held by the Group has been accounted for in the Income Statement. A defined contribution plan is a post employment benefit plan under which an entity pays a fixed contribution into a separate Gains and losses on the disposal of Property, Plant & entity and will have no legal or constructive obligation to pay Equipment are determined by comparing the net sales further amounts. proceeds with carrying amount. These are included in profit and loss. All the employees who are eligible for Employees’ Provident Fund and Employees’ Trust Fund are covered by relevant 3.4.2 Expenses contribution funds in line with the respective statutes. Employers’ contribution to defined contribution plans are All expenditure incurred in the running of the business has recognised as an expense in the Income Statement when been charged to income in arriving at the profit for the year. incurred. Repairs and renewals are charged to the profit and loss in the 3.3.2 Provisions, Contingent Assets and year in which the expenditure is incurred. Contingent Liabilities Expenditure incurred for the purpose of acquiring, extending A provision is recognised if, as a result of a past event, the or improving assets of a permanent nature by means of which Group has a present legal or constructive obligation that to carry on the business or for the purpose of increasing the can be estimated reliably, and it is probable that an outflow earning capacity of the business has been treated as capital of economic benefits will be required to settle the obligation. expenditure. All the contingent liabilities are disclosed, as Notes to the Financial Statements unless the outflow of resources is 3.4.2.1 Borrowing Costs made contingent assets if exits are disclosed when inflow of economic benefit is probable. Borrowing costs are recognised as an expense in the period in which they are incurred, except to the extent where 3.3.3 Commitments borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset that takes a All material commitments as at the balance sheet date have substantial period of time to get ready for its intended use or been identified and disclosed in the Notes to the Financial sale is capitalised as part of that asset. The amount of borrowing Statements. costs eligible for capitalisation is determined in accordance with SLAS 20 – Borrowing Costs – Allowed Alternative Treatment.

Distilleries Company of Sri Lanka PLC Annual Report 2010/11 79 Notes to the Financial Statements

3.4.2.2 Finance Income and Expenses 3.5 General

Finance income comprises gains on translation of foreign 3.5.1 Events Occurring after the Balance Sheet currency. A finance cost comprises interest payable on Date borrowings and losses on translation of foreign currency. The interest expense component of finance lease payments is All material post Balance Sheet events have been considered recognised in the Income Statement. and where appropriate adjustments or disclosures have been made in the respective Notes to the Financial Statements. 3.4.2.3 Income Tax Expense 3.5.2 Earnings Per Share Income tax expense comprises current and deferred tax. Income tax expense is recognised in profit or loss except to The Group presents basic and diluted Earnings Per Share the extent that it relates to items recognised directly in equity, (EPS) for its ordinary shares. Basic EPS is calculated by in which case it is recognised in equity. dividing the profit or loss attributable to ordinary shareholders of the Company by the weighted average number of Income Tax ordinary shares outstanding during the period. Diluted EPS Provision for taxation is based on the profit for the year adjusted is determined by adjusting the profit or loss attributable to for taxation purposes in accordance with the provisions of the ordinary shareholders and the weighted average number Inland Revenue Act, No.10 of 2006 and amendments made of ordinary shares outstanding for the effects of all dilutive thereto. potential ordinary shares.

Current tax is the expected tax payable on the taxable income 3.5.3 Segment Reporting for the year, using tax rates enacted at the reporting date and any adjustments to tax payable in respect of previous years. A segment is a distinguishable component of the Group that is engaged either in providing related products or services Deferred Tax (Business Segment) or in providing products or services within Deferred tax is recognised using the Balance Sheet method, a particular economic environment (Geographical Segment), providing for temporary differences between the carrying which is subject to risks and rewards that are different from amounts of assets and liabilities for financial reporting purposes those of other segments. and the amounts used for taxation purposes. Deferred tax is not recognised for the following temporary differences: the The activities of the segments are described in Note 35 to the initial recognition of goodwill, the initial recognition of assets Financial Statements. or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit, and 3.5.4 Comparative Figures differences relating to investments in subsidiaries to the extent that they probably will not reverse in the foreseeable future. Where necessary comparative figures have been reclassified Deferred tax is measured at the tax rates that are expected to conform to the current year’s presentation. to be applied to the temporary differences when they reverse, based on the laws that have been enacted or substantively 3.5.5 Grants and Subsidies enacted by the reporting date. Grants and subsidies are credited to the Income Statement A deferred tax asset is recognised only to the extent that it is over the periods necessary to match them with the related probable that future taxable profits will be available against which costs which they are intended to compensate, on a systematic the asset can be utilised. Deferred tax assets are reviewed at basis. Grants related to assets, including non-monetary grants each reporting date and are reduced to the extent that it is no at fair value, are deferred in the Balance Sheet and credited to longer probable that the related tax benefit will be realised. the Income Statement over the useful life of the related asset.

Tax withheld on dividend income from Subsidiaries and Grants related to income are recognised in the Income Associates is recognised as an expense in the Consolidated Statement in the period in which it is receivable. Income Statement at the same time as the liability to pay the related dividend is recognised. 3.5.6 Pricing

The Group transfers products from one industry segment for use in another. These transfers are based on cost / fair market prices.

Distilleries Company of Sri Lanka PLC 80 Annual Report 2010/11 Notes to the Financial Statements

3.6 Policies Specific to The Plantation Sector as at the effective date of SLAS 19 - “Leases”, in line with ruling of Urgent Issue Task Force of the Institute of Chartered The significant accounting policies of Balangoda Plantations Accountants of Sri Lanka. Such carrying amounts are PLC are given below. No adjustments have been made in amortised over the remaining lease term or useful life of the respect of accounting policies, which differ, from that of the leased property whichever is shorter. No further revaluation of Group, since the nature of operations of this Company is these leasehold properties will be carried out. significantly different from that of the rest of the Group. Leasehold rights are being amortised / depreciated in equal 3.6.1 Immature & Mature Plantations annual amounts over the following periods:

The cost of replanting and new planting are classified as Bare Land 53 years immature plantations up to the time of harvesting the crop. Buildings 25 years Machinery 15 years Further the general charges incurred on the plantations are Mature Plantations 30 years apportioned based on the labour days spent on respective replanting and new planting and capitalised on the immature 3.6.5 Inventories areas. The remaining portion of general charges is expensed in the accounting period in which it is incurred. Inventories other than produced stocks are valued at the lower of cost or estimated net realisable value, after making The cost of areas coming into bearing are transferred to mature due allowances for obsolete and slow moving items. Net plantations and depreciated over their estimated useful life. realisable value is the price at which stocks can be sold in the normal course of business after allowing for cost of realisation 3.6.2 Infilling Cost and/or cost of conversion from their existing state to saleable condition. Where infilling results in an increase in the economic life of the relevant field beyond its previously assessed standard of Input Material At average cost performance, the costs are capitalised in accordance with Growing Crop At the cost of direct materials, SLAS No 32 - “Plantations” and depreciated over the useful Nurseries Direct labour and an appropriate life at rates applicable to mature plantations. proportion of directly attributable overheads. Infilling costs that are not capitalised have been charged to Harvested Crop Valued at estimated selling price the Income Statement in the year in which they are incurred. or since realised price. Spares & 3.6.3 Depreciation Consumables At actual cost

Depreciation is provided on a straight line basis over the estimated useful lives of Property, Plant & Equipment other 3.7 Policies Specific to the Telecommunication than freehold land as follows: Sector Buildings 2.5% Plant & Machinery 7.5% 3.7.1 Revenue Recognition Furniture & Fittings 10.0% Motor Vehicles 20.0% Revenue is recognised on an accrual basis when it is probable Sanitation, Water & Electricity Supply 5.0% that the economic benefits will flow to the Company and the Equipment 12.5% revenue and associated costs can be reliably measured. Replanting & New Planting – Tea 3.0% Revenue is measured at the amount of consideration net Replanting & New Planting – Rubber 5.0% of discounts and taxes. The criteria used for recognition of revenue are as follows: Depreciation of an asset begins when it is available for use and ceases at the earlier of the date that the asset is classified (a) Domestic and International Call Revenue as held for sale and the date that the asset is derecognised. and Rental Income The customers are billed for calls and rental on a billing cycle. 3.6.4 Leased Assets Customers are charged government taxes at the applicable rates but accounted for as a liability. Revenue is recognised Leasehold property comprising of land use rights obtained net of such taxes based on the amounts billed. on a long term basis is stated at recorded carrying values

Distilleries Company of Sri Lanka PLC Annual Report 2010/11 81 Notes to the Financial Statements

(b) Connection Fees and conditions are accounted using the following cost This income is recognised in the period in which it is received, formula:- as there is no continuing performance obligation attached to such connection fee. Produce Stock At since realised price Standing Cane At direct cost including nursery 3.7.2 Property, Plant and Equipment cost and part of overheads incurred thereon, up to the Balance Depreciation Sheet date Depreciation is charged to the Income Statement on a straight Other Stocks At actual cost line basis over the estimated useful life of items of Property, Goods in Transit At actual cost Plant & Equipment from the month of purchase and no depreciation or since realised prices in the month of disposal. Depreciation Land is not depreciated. The depreciation rates used are as The provision for depreciation is calculated using a follows, straight-line method on the cost of all Property, Plant and Equipment other than freehold land, in order to write off such Customer Premise Equipment 10% amounts over the estimated useful lives. Customer Premise Equipment (CDMA) 100% Network Equipment 10% Depreciation is charged to the Income Statement when assets Shelters and Other Equipment 20% are available or use over their estimated useful lives. Buildings 10% Vehicles 20% Field Machinery 15% Computer Software 33 1/3% Irrigation Equipment 6% Office/Other Equipment 20% Roads & Bridges 5% Furniture & Fittings 20% Agriculture Tools 20% Settler Zone Infrastructure 2% - 33% 3.7.3 Intangible Assets 3.9 Policies Specific to the Hotel Sector (a) License Fee Expenditure on operator license fee and external gateway Revenue license fees that are deemed to benefit or relate to more than Revenue is recognised when the significant risks and rewards one financial year is classified as license fee and isbeing of ownership have been transferred to the buyer, recovery amortised over the license period on a straight line basis. of the consideration is probable, the associated costs and possible return of goods can be estimated reliably, there is no (b) FLAG Cable Access Right continuing management involvement with the goods, and the Expenditure on FLAG cable access rights is deemed to benefit amount of revenue can be measured reliably. beyond one financial year and is classified as intangible assets and is being amortised over the license period on a straight The Company’s revenue represents apartment and other line basis. sales to customers and excluded value added tax. Apartment revenue is recognised for the room occupied on a daily basis, 3.8 Policies Specific to the Agriculture Sector whilst food and beverage sales are accounted for at the time of sale. All revenues are recognised on an accrual basis and Inventories matched with the related expenditure. Inventories are valued at the lower of cost and net realisable value, after making due allowances for obsolete and slow moving items. Net realisable value is the price at which inventories can be sold in the ordinary course of business less the estimated cost of completion and the estimated cost necessary to make the sale. The cost incurred in bringing inventories to its present location

Distilleries Company of Sri Lanka PLC 82 Annual Report 2010/11 Notes To the Financial Statements

CONSOLIDATED COMPANY 2011 2010 2011 2010 Notes Rs.‘000 Rs.‘000 Rs.‘000 Rs.‘000

4. Turnover Gross Turnover* (Note 35) 46,751,939 39,809,611 38,987,124 29,964,050 Less: Excise Duty (26,579,298) (19,761,655) (25,464,346) (18,979,019) Net Turnover 20,172,641 20,047,956 13,522,778 10,985,031

* Gross Turnover is stated Net of Nation Building Tax (NBT).

5. Investment Income & Other Income Interest Income (Note 5.1) 232,522 261,502 152,077 179,146 Dividend Income from Quoted Investments 152,075 2,876 149,482 116,234 Dividend Income from Un Quoted Investments – 115,960 76,399 258,598 Dividend Income from Associate - Quoted – – 48,909 44,274 Sale of Timber 30,468 – – – Gain/(Loss) on Disposal of Shares (Note 5.2) 3,871,371 (13,725) 4,162,730 (13,725) Gain on Disposal of Property, Plant & Equipment 36,829 5,710 28,833 5,705 Amortisation of Capital Grants 14,689 12,237 – – Rent Income 34,768 8,802 32,968 7,002 Fee and Commission Income 61,000 46,544 – 8,809 Sundry Income 111,775 80,580 21,649 11,155 4,545,497 520,486 4,673,047 617,198

5.1 Interest Income Interest income includes income earned from secondary market transaction in Government Securities for the year by National Asset Management Limited, a subsidiary of the Company and has been grossed up in the Financial Statements and the resulting notional tax credit amounting to Rs. 1,002,319 (2010 Rs. 1,757,786).

5.2 Gain/(Loss) on Disposal of Shares This amount includes the gain from disposal of Lanka Hospitals Corporation PLC shares amounting to Rs. 2,883 Mn and disposal of National Asset Management Limited shares amounting to Rs. 367 Mn.

6. Other Operating Gain / (Loss) Reversal of Provision for Fall in Value of Investments (2,866) 40,044 (2,866) 40,044 (2,866) 40,044 (2,866) 40,044

7. Finance Expenses Interest on Long Term Loans and Borrowings 265,283 383,551 – – Interest on Short Term Loans and Borrowings 131,667 141,180 77,311 6,098 Interest on Finance Leases 19,466 17,687 – – Gain/(Loss) on Translation of Foreign Currency (10,363) 39,268 – – 406,053 581,686 77,311 6,098 Less: Borrowing Cost Capitalised (Note 7.1) (11,897) (15,843) – – 394,156 565,843 77,311 6,098

Note 7.1- Borrowing Cost Capitalised During the year Balangoda Plantation PLC, a Subsidiary of the Company, capitalised borrowing cost amounting to Rs.11,897,993 (2009 - Rs.15,842,789) incurred on borrowings obtained to meet expenses relating to immature plantations being part of the cost of the immature plantations. The amount of borrowing cost eligible for capitalisation is determined in accordance with SLAS 20 (Borrowing Costs) - Allowed Alternative Treatment. A capitalisation rate of 11.73% ( 2009 - 11.77%) was used.

Distilleries Company of Sri Lanka PLC Annual Report 2010/11 83 Notes To the Financial Statements

CONSOLIDATED COMPANY 2011 2010 2011 2010 Notes Rs.‘000 Rs.‘000 Rs.‘000 Rs.‘000

8. Profit Before Tax Profit before tax is stated after charging all expenses including following:

Depreciation/Amortisation 2,882,169 1,705,893 153,440 142,077 Auditors’ Remuneration – KPMG Ford, Rhodes, Thornton & Co., 6,241 5,539 3,725 3,400 Other Auditors’ Remuneration 2,935 2,813 – – Audit Related Services – KPMG Ford, Rhodes, Thornton & Co., 1,357 1,128 1,357 1,128 Other Auditors – 370 – – Non Audit Services – KPMG Ford, Rhodes, Thornton & Co., 1,180 938 1,149 690 Other Auditors 2,523 849 548 347 Directors’ Emoluments 15,699 28,219 15,699 13,979 Managing Agent Fees 154,440 91,558 – – Provision for Doubtful Debts 53,888 316,371 6,327 77,334 Provision for Inventory 41,112 206,645 – – Defined Benefit Plan Cost - Retiring Gratuity 103,378 162,393 7,715 28,087 Defined Contribution Plan Cost - EPF/ETF 278,301 238,211 66,998 65,503 Other Staff Cost 2,649,495 2,102,917 640,769 831,162 Number of Staff 19,954 14,400 1,340 1,324

9. Taxation (a) Income Tax Expense Income Tax on Current Year (Note b) 2,383,542 1,629,745 2,206,300 1,506,030 Deemed Dividend Tax 2,699 – – – Over/(Under) Provision in respect of Previous Year (4,485) (232,431) (5,307) (229,985) 2,381,756 1,397,314 2,200,993 1,276,045 Deferred Tax Charge/(Credit) 42,600 (86,622) 2,272 (86,556) Charge to the Income Statement 2,424,356 1,310,692 2,203,265 1,189,489

(b) Reconciliation of Accounting Profit to Income Tax Expense Profit Before Tax 10,761,866 3,462,334 9,972,019 4,004,475 Income not Subject to Tax (4,894,779) (254,984) (4,463,487) (380,891) Disallowable Expenses 1,158,535 1,664,828 835,873 741,591 Allowable Expenses (270,627) (251,954) (133,849) (125,823) Tax Loss Absorbed (36,736) (28,646) – – Taxable Profit 6,718,259 4,591,578 6,210,556 4,239,352 Income Tax @ 35% 2,346,829 1,604,616 2,173,695 1,483,773 Income Tax @ 15% 1,955 1,044 – – 2,348,784 1,605,660 2,173,695 1,483,773 Social Responsibility Levy Liability 34,758 24,085 32,605 22,257 Taxation on Profit for the Year 2,383,542 1,629,745 2,206,300 1,506,030

Distilleries Company of Sri Lanka PLC 84 Annual Report 2010/11 Notes To the Financial Statements

CONSOLIDATED COMPANY 2011 2010 2011 2010 Rs.‘000 Rs.‘000 Rs.‘000 Rs.‘000

Tax Loss Brought Forward (18,465) (18,824) – – Acquisition of Subsidiary (5,603) – – – Tax Loss Incurred (31,465) – – – Tax Loss Absorbed 36,736 359 – – Tax Loss Carried Forward (18,797) (18,465) – –

(c) The corporate income tax applicable to Companies within the Group, excluding those that are enjoying a tax holiday or a concessionary rate of tax as referred to below is 35%. The operating profit of Lanka Bell Ltd is exempted from Income tax in accordance with the agreement entered in to under Section 17 of the BOI Law No. 04 of 1978. As per the agreement, the Company enjoys a 20 year tax holiday from the commencement of business operations (ie. 1997). However Taxation is payable on local interest income at 35%.

(d) Pelwatte Sugar Industries PLC Section 17 of the Inland Revenue Act No. 10 of 2006 provides exemptions from income tax of the profits and income from any “specified undertaking” for a period of five years. The Company falls within the definition of the “specified undertaking”, if the Company has incorporated before 1 April 2002 with a minimum investment of Rs. 50 million in such undertaking and engaged in agriculture or agro processing. The management is of the view that Pelwatte Sugar Industries PLC falls within the definition of “specified undertaking’. Hence, the company is exempted from income tax for a period of 5 years commencing from the year of assessment 2006/2007. The concessionary tax rate of 10% is applicable on profits and income for two years immediately succeeding the last date of the tax exemption period. Thereafter, 20% tax is charged on profits and income. However, any income from other source is liable for income tax at the rate of 35%.

10. Earnings Per Share

10.1 Basic Earning Per Share The calculation of basic Earnings Per Share is based on the profit attributable to ordinary shareholders and the weighted average number of ordinary shares outstanding during the year.

CONSOLIDATED COMPANY 2011 2010 2011 2010 Rs.‘000 Rs.‘000 Rs.‘000 Rs.‘000 Profit attributable to ordinary shareholders Profit attributable to the parent entity 8,124,035 2,135,664 7,768,754 2,814,986 Weighted average number of ordinary shares 300,000 300,000 300,000 300,000 Basic Earnings per Share (Rs.) 27.08 7.12 25.90 9.38

10.2 Diluted Earnings per Share There were no potential dilutive ordinary shares outstanding at any time during the year. Therefore, diluted Earnings Per Share is same as Basic Earnings Per Share shown above.

11. Dividend Per Share Interim Dividend Paid Rs. 0.50 per share (2009/10 - nill per share) 150,000 - Final Dividend Proposed Rs. 2.50 per share (2009/10 - Rs. 2.50 per share) 750,000 750,000 Dividend per Ordinary Share (Rs.) 3.00 2.50 The Directors recommended a final dividend of Rs. 2.50 per share for the year ended 31 March 2011, for approval by the shareholders at the Annual General meeting to be held on 12 September 2011. An interim dividend of Rs. 0.50 per share was paid on 28 March 2011. As stipulated by Sri Lanka Accounting Standards No.12 (Revised) - Events Occurring After the Balance Sheet date, proposed dividend has not been recognised as a liability as at 31 March 2011. As required by Section 56 of the Companies Act No 7 of 2007, the Board of Directors satisfied that the solvency test in accordance with Section 57, prior to recommending final dividend. A statement of solvency was completed and duly signed by the Directors and the opinion has been sought from the auditors, Messrs. KPMG Ford, Rhodes, Thornton & Co. However for the purpose of computing dividend per share, the final dividend to be approved has been taken in to consideration. Distilleries Company of Sri Lanka PLC Annual Report 2010/11 85 Notes to the Financial Statements

12. Property, Plant & Equipment (a) Consolidated - Cost / Valuation

Additions Revaluation As at During the During the As at 01.04.2010 Year Year Disposals 31.03.2011 Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000

Freehold Freehold Land 575,861 479,515 2,558,783 (19,937) 3,594,222 Improvement to Land 87,285 323,603 – – 410,888 Freehold Buildings 761,087 948,825 523,807 (164,020) 2,069,699 Plant, Machinery & Water Sanitation 1,421,431 2,718,572 – (36,506) 4,103,497 Fire Fighting Equipment 3,805 – – (25) 3,780 Furniture, Fittings & Office Equipment 987,396 152,008 – (35,340) 1,104,064 Computer Equipment 47,157 9,084 – – 56,241 Vats & Casks 56,605 10,629 – – 67,234 Motor Vehicles 993,086 274,203 – (57,940) 1,209,349 Oil Storage Tanks 315 63,398 – – 63,713 Drums 80 – – – 80 FLAG Projects 38,078 283 – – 38,361 Wi-Max 161,759 12,075 – (938) 172,896 Electrical Fixtures and Fittings 1,047 – – (1) 1,046 Shelters and Other Equipment 524,631 9,984 – (9,841) 524,774 Computer Software 122,853 1,019 – (67) 123,805 Other Equipment 261,715 178,191 – (16,308) 423,598 Network Equipment 3,826,563 174,247 – (38,257) 3,962,553 Customer Premise Equipment 2,363,912 250,981 – (49,518) 2,565,375 12,234,664 5,606,617 3,082,590 (428,698) 20,495,175

Leasehold Cost / Valuation

Buildings on Leasehold Land 352,329 1,616 – – 353,945 Plant & Machinery 333,733 22,378 – (15,612) 340,499 Improvements to Land 1,092,523 121,230 – – 1,213,753 Leasehold Land 1,734 – – (1,734) – Equipment 14,028 8,321 – (640) 21,709 Motor Vehicle – 14,828 – – 14,828 1,794,347 168,373 – (17,986) 1,944,734 Total 14,029,011 5,774,990 3,082,590 (446,684) 22,439,909

Distilleries Company of Sri Lanka PLC 86 Annual Report 2010/11 Notes to the Financial Statements

12. Property, Plant & Equipment Contd., (a) Consolidated - Depreciation / Amortisation

As at Charge for On As at 01.04.2010 the Year Dispoals 31.03.2011 Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000

Freehold Improvements to Land 5,771 53,968 – 59,739 Freehold Buildings 245,003 448,442 (80,734) 612,711 Plant, Machinery & Water Sanitation 747,046 841,982 (16,899) 1,572,129 Fire Fighting Equipment 3,062 99 – 3,161 Furniture, Machinery & Office Equipment 650,616 214,593 (28,068) 837,141 Computer Equipment 29,871 10,302 – 40,173 Vats & Casks 41,608 2,859 (136) 44,331 Motor Vehicles 750,151 159,175 (16,482) 892,844 Oil Storage Tanks 315 5,936 – 6,251 Drums 80 – – 80 FLAG Projects 10,184 7,118 – 17,302 Wi-Max 40,476 36,086 – 76,562 Shelters and Other Equipment 300,902 71,998 (5,169) 367,731 Computer Software 110,574 4,433 (24) 114,983 Other Equipment 138,346 70,412 (10,934) 197,824 Network Equipment 1,287,004 358,968 (10,173) 1,635,799 Customer Premises Equipment 1,638,224 257,209 (4,976) 1,890,457 5,999,233 2,543,580 (173,595) 8,396,218

Leasehold Cost / Valuation

Buildings 55,841 17,664 – 73,505 Plant & Machinery 165,016 54,291 (10,335) 208,972 Improvements to Land 175,148 26,750 – 201,898 Leasehold Land 1,734 – (1,734) – Equipment 14,028 4,190 – 18,218 Motor Vehicle 11,741 – 11,741 411,767 114,636 (12,069) 514,334 Total 6,410,998 2,658,216 (185,664) 8,883,552

Net Book Value 7,618,013 13,556,357

As at Additions 01.04.2010 During As at the Year Capitalisation 31.03.2011 Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000

Capital Work-in-Progress 279,790 370,392 (65,904) 584,278

7,897,803 14,140,635

Distilleries Company of Sri Lanka PLC Annual Report 2010/11 87 Notes to the Financial Statements

12.1.1 Immature / Mature Plantations Immature/mature plantations are improvement to leasehold properties by Balangoda Plantations PLC (BPP) a Subsidiary of the Company since the formation of BPP. The assets (including plantations assets) taken over by way of estate leases are set out in Notes 13.1 and 13.2. Further, investments made in immature plantations taken over by way of these leases are shown in the said note. When such plantations become mature, the additional investment made since take over to bring them to maturity will be moved from immature to mature and corresponding movement from immature to mature of the investment undertaken by JEDB/SLSPC on the same plantation prior to the lease will be carried out under Note 13.2. Additions include Rs.11,897,993/- (Rs.15,842,789/- 2009) of borrowing costs capitalised during the year.

12.1.2 The assets shown above also include movable assets vested in the Balangoda Plantations PLC (BPP), by gazette notification on the date of formation of the company (11 June 1992) and all investments in tangible assets by BPP since its formation. The assets taken over by way of estate leases are set out in Notes 13.2. Further, the valuation of immovable JEDB/SLSPC estate assets on finance lease (other than bare land) and tangible assets other than immature/mature plantations taken over as at 11 June 1992 is based on net book value obtained from the State Plantations Corporation as at such date. These values were not available by individual asset.

Melstacorp (Pvt) Limited {Formerly known as Beruwela Distillery (Pvt) Ltd} A valuation of land of Melstacorp (Pvt) Limited carried out by an Incorporated Valuer Mr. S. Sivaskantha was also incorporated in the Melstacorp (Pvt) Limited’s books as at 21 January 2011.

Distilleries Company of Sri Lanka PLC 88 Annual Report 2010/11 Notes to the Financial Statements

12. Property, Plant & Equipment Contd., (b) Company

As at Additions Revaluation 01.04.2010 During During As at the Year the Year Disposals 31.03.2011 Cost / Valuation Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000

Freehold Land 571,226 – 2,558,783 (19,937) 3,110,072 Leasehold Land 1,734 – – (1,734) – Freehold Buildings 347,865 1,000 428,307 (4,370) 772,802 Plant, Machinery & Water Sanitation 628,643 2,185 – – 630,828 Fire Fighting Equipment 3,798 – – (18) 3,780 Furniture, Fittings & Office Equipment 56,488 2,691 – – 59,179 Computer Equipment 31,046 1,327 – – 32,373 Vats & Casks 56,605 10,629 – – 67,234 Motor Vehicles 689,948 163,374 – (49,345) 803,977 Oil Storage Tanks 315 – – – 315 Drums 80 – – – 80 2,387,748 181,206 2,987,090 (75,404) 5,480,640

As at Additions Revaluation 01.04.2010 During During As at the Year the Year Dispoals 31.03.2011 Accumulated Depreciation Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000

Leasehold Land 1,734 – – (1,734) – Freehold Buildings 164,439 18,829 – (4,151) 179,117 Plant, Machinery & Water Sanitation 220,827 48,515 – – 269,342 Fire Fighting Equipment 3,062 99 – – 3,161 Furniture, Fittings & Office Equipment 36,577 6,173 – – 42,750 Computer Equipment 18,405 7,303 – – 25,708 Vats & Casks 41,608 2,859 – (136) 44,331 Motor Vehicles 527,510 69,662 – (42,470) 554,702 Oil Storage Tanks 315 – – – 315 Drums 80 – – – 80 1,014,557 153,440 – (48,491) 1,119,506

Written Down Value 1,373,191 – – – 4,361,134

As at Additions As at 01.04.2010 during the Year Capitalisation 31.03.2011 Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000

Capital Work-In-Progress 145,066 84,246 – 229,312 1,518,257 – – 4,590,446

A valuation of freehold Land and Buildings of Distilleries Company of Sri Lanka PLC as carried out by Incorporated Valuers Mr. A. R. M. M. Kaleel and Mr. S. Sivaskantha and was incorporated in the Company’s books as at 01 March 2011.

Distilleries Company of Sri Lanka PLC Annual Report 2010/11 89 Notes to the Financial Statements

CONSOLIDATED 2011 2010 As at 31 March Rs. ‘000 Rs. ‘000

13. Leasehold Property, Plant & Equipment Leasehold right to bare land (Note 13.1) 215,229 221,478 Immovable lease assets (Note 13.2) 138,096 150,238 353,325 371,716

13.1 Leasehold Right to Bare land

Leases have been executed for all estates except Rye Estate of Balangoda Plantations PLC (BPP) for a period of 53 years. All of these leases are retroactive to 22 June 1992 the date of formation of the Company. The leasehold right to the land on all of these estates have been taken into the books of the Company on 22 June 1992 immediately after formation of the Company, in terms of the ruling obtained from the Urgent Issues Task Force (UITF) of the Institute of Chartered Accountants of Sri Lanka. For this purpose the Board of Directors of BPP decided at its meeting on 8 March 1995 that this bare land would be revalued at the value established for this land by valuation specialist, Mr. D.R. Wickramasinghe just prior to the formation of the Company.

The above mentioned leasehold right to bare land comprising of land use rights obtained on a long term basis is re-classified as leasehold property and stated at the recorded carrying values as at the effective date of Sri Lanka Accounting Standard 19 - “Leases”, in line with revised Ruling of the Urgent Issues Task Force of the Institute of Chartered Accountants of Sri Lanka. Such carrying amounts are amortised over the remaining lease term or useful life of the leased property whichever is shorter. The leasehold right to land is disclosed under non current assets under Leasehold Property. The revised UITF ruling does not permit further revaluation of Leasehold Property. The values taken into the 22 June 1992 Balance Sheet and amortisation of the leasehold property up to 31 December 2010 are as follows.

Accumulated Accumulated Revaluation Amortisation Amortisation W.D.V. W.D.V. As at As at As at As at As at 11/06/1992 01/01/2010 Amortisation 31/12/2010 31/12/2011 31/12/2010 Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000

Leasehold Property 331,201 109,273 6,249 115,972 215,229 221,478

Estates on which leases have been executed Cullen, Ury, Wewessa, Wikiliya, Mahawela, Gowerakelle, Millawitiya, Palmgarden, Walaboda, Rambukkande, Cecilton, Galatura, Spring Valley, Mutuwagalla, Rasagalla, Pettiyagala, Maddekande, Agrasland, Telbedde, Non Peril, Glen Aplin and Wewila.

Distilleries Company of Sri Lanka PLC 90 Annual Report 2010/11 Notes to the Financial Statements

13.2 Immovable Lease Assets

As morefully explained in Note 13.1 although all JEDB/SLSPC estate leases have not been executed as at the Balance Sheet date, in terms of the ruling of the UITF of the Institute of Chartered Accountants of Sri Lanka all immovable assets in these estates under finance leases have been taken into the books of the Company retroactive to 11 June 1992. For this purpose the Board of Directors of BPP decided at its meeting on 8 March 1995 that these assets would be taken at their book values as they appear in the books of the JEDB/SLSPC, on the day immediately preceding the date of formation of the Company. These assets are taken into the 11 June 1992 Balance Sheet and depreciated as follows :

Accumulated Accumulated Revaluation Transfer Revaluation Depreciation Depreciation W.D.V. W.D.V. As at Immature to As at As at Depreciation As at As at As at 11/06/1992 Mature 31/12/20 01/01/2009 31/12/2010 31/12/2011 31/12/2011 31/12/2010 Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000

Unimproved Lease Land 899 – 899 298 17 315 584 601 Improvements to Land 15,701 – 15,701 9,190 523 9,713 5,988 6,511 Other Vested Assets 152 – 152 152 – 152 – – Mature Plantations 69,939 201,286 271,225 147,157 9,041 156,199 115,027 124,068 Immature Plantations 201,286 ( 201,286) – – – – – – Buildings 64,024 – 64,024 44,966 2,561 47,526 16,497 19,058 Machinery 26,164 – 26,164 26,164 – 26,164 – – 378,165 – 378,165 227,927 12,142 240,069 138,096 150,238

Note: Investment in plantation assets which were immature at the time of handing over to the Company by way of estate leases are shown under immature plantation (revalued as at 22 June 1992). When these plantations become mature, the additional investment to bring them to maturity will be moved from the category immature plantations to mature plantations.

Distilleries Company of Sri Lanka PLC Annual Report 2010/11 91 Notes to the Financial Statements

CONSOLIDATED 2011 2010 As at 31 March Rs. ‘000 Rs.’ 000

14. Intangible Assets License Fees (Note - 14.1) 79,248 95,662 FLAG Cable (Note - 14.2) 2,300,302 2,486,819 Software Cost & Implementation (Note - 14.3) 5,262 1,415 2,384,812 2,583,896

14.1 License Fees Balance at the beginning of the year 95,662 112,077 Amortised during the year (16,414) (16,415) Balance at the end of the year 79,248 95,662

License fee represents the operator license fee of Rs. 300 Mn which was paid in 1996 by Lanka Bell Limited and amortised over 226 months on straight line basis commencing from that year. The External Gateway License Fee of Rs. 4.85 Mn which was paid in 2003 is amortised over a period of 10 years, commencing from 01 March 2003.

14.2 Flag Cable Cost Balance at the beginning of the year 2,797,761 2,797,761 Additions during the year – – Balance at the end of the year 2,797,761 2,797,761

Accumulated Amortisation Balance at the beginning of the year 310,942 124,426 Amortised during the year 186,517 186,516 Balance at the end of the year 497,459 310,942 Net book value 2,300,302 2,486,819

FLAG expenditure represents the expenditure incurred on under sea fibre optic cable and landing station, which enables Lanka Bell Ltd. to offer direct global connectivity and a complete end to end data connectivity solution, with guaranteed reliability. The total expenditure will be amortised over the license period of 15 years based on straight line basis from August 2008.

14.3 Software Cost & Implementation Cost Balance at the beginning of the year 11,604 11,333 Additions during the year 7,893 650 Disposal during the year (11,604) – Balance at the end of the year 7,893 11,604

Accumulated Amortisation Balance at the beginning of the year 10,189 9,737 Amortised during the year 2,631 435 Disposal during the year (10,189) – Balance at the end of the year 2,631 10,189 Net book value 5,262 1,415

Distilleries Company of Sri Lanka PLC 92 Annual Report 2010/11 Notes to Financial Statements

Company Investee % Holding No. of Shares Market Value Company As at 31 March 2011 2010 2011 2010 2011 2010 2011 2010 Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000

15. Investments In Subsidiaries Quoted Investments Balangoda Plantations PLC 43 43 10,200,000 10,200,000 572,220 295,800 430,007 430,007 Browns Beach PLC (Note 15.1) 42 – 53,192,632 – 1,220,970 – 1,220,970 – Total Quoted Investments 1,793,190 295,800 1,650,977 430,007

Unquoted Investments Melstacorp (Pvt) Ltd* 100 100 2,600,000 2,600,000 – – 26,000 26,000 Melstacorp (Pvt) Ltd - Pending allotment – – – – – – 914,450 – Timpex (Pvt) Ltd. 51 51 15,611,661 15,611,661 – – 156,117 156,117 Milford Holdings (Pvt) Ltd.** 98 98 333,067,925 900,178,578 – – 3,330,679 9,001,836 AION SG Residencies (Pvt) Ltd. 100 100 2,500,000 2,500,000 – – 25,000 25,000 Periceyl (Pvt) Ltd. 100 100 40,000 40,000 – – 113,700 113,700 Collision Repair Centre (Pvt) Limited*** 100 100 41,000,002 31,000,000 – – 410,000 310,000 Bogo Power (Pvt) Ltd. 87 100 245,000,000 40,000,000 – – 245,000 40,000 Continental Insurance Lanka Ltd. 100 – 50,000,000 – – – 500,000 – – 5,720,946 9,672,653 Provision for fall in value of Investment **** (25,000) (25,000) Total Unquoted Investments 5,695,946 9,647,653 7,346,923 10,077,660 * Formerly known as Beruwela Distillery (Pvt) Limited. ** The Company partially disposed its investment in Milford Holdings (Pvt) Limited for a consideration of Rs. 6,380 Mn in respect to the share buy back arrangement of its shares by Milford Holdings (Pvt) Limited. *** Collision Repair Centre (Pvt) Limited was renamed as Melsta Logistics (Pvt) Limited on 19 July 2011. **** The provision is in respect of the full investment in AION SG Residencies (Pvt) Limited.

15.1 The financial results of Browns Beach Hotels PLC was consolidated from 31 January 2011, the date it became part of the Group.

15.2 The financial results of Pelwatte Group have not been incorporated to the Group Consolidated Income Statement since it was acquired on 27 March 2011. CONSOLIDATED COMPANY Restated 2011 2010 2011 2010 As at 31 March Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000

16. Investments in Equity Accounted Investees At the Beginning of the year Aitken Spence PLC 8,174,432 848,807 8,174,432 848,807 Madulsima Plantations PLC 90,000 90,000 90,000 90,000 Splendor Media (Pvt) Ltd. 7,875 250 7,875 250 Company investment in Associate (at cost) 8,272,307 939,057 8,272,307 939,057 Restatement due to the Valuation of Biological Assets – 449,240 – – Investment by Subsidiaries 100,000 250 – – Reclassification of investment in Lanka Hospitals Corporation PLC – (13,137) – – Negative Goodwill on Acquisition 89,186 89,186 – – Group Share of Associate Company Retained Profits 3,735,339 2,529,656 – – Group investment in Associate (Equity Basis) 12,196,832 3,994,252 8,272,307 939,057

Distilleries Company of Sri Lanka PLC Annual Report 2010/11 93 Notes to the Financial Statements

(Net of Income Tax) CONSOLIDATED 2011 2010 As at 31 March Rs. ’000 Rs. ’000

16.1 Share of Profits from Equity Accounted Investees Splendor Media (Pvt) Ltd. 5,998 2,321 Aitken Spence PLC 709,307 357,415 Madulsima Plantations PLC (13,013) (54,532) Pelwatte Dairy Industries Ltd. – – 702,292 305,204

Name of the Subsidiary/Associate Principal Activity Company Group Financial Holding % Holding % Year End

Subsidiaries Balangoda Plantations PLC Cultivation and Processing of Tea & Rubber 43.15 43.15 31 December Melstacorp (Pvt) Ltd.* Investment 100.00 100.00 31 March Timpex (Pvt) Ltd. Investment Holding Company 51.03 51.03 31 March Texpro Industries Ltd.**(a) Dyeing and Printing Woven Fabrics – 43.35 31 March Periceyl (Pvt) Ltd. Distribution of Locally manufactured Foreign Liquor 100.00 100.00 31 December Milford Holdings (Pvt) Ltd. Investment Holding Company 98.08 98.08 31 March Lanka Bell Ltd.**(b) Telecommunication Services – 97.81 31 March National Asset Management Ltd.**(b) Fund / Unit Trust Management – 68.66 31 March Collision Repair Centre (Pvt) Limited*** Repairing of Vehicles 100.00 100.00 31 March BellVantage (Pvt) Ltd.**(c) BPO, KPO & Software Development – 97.81 31 March Bell Solutions (Pvt) Ltd.**(c) Information & Communication Technology – 97.81 31 March Lanka Bell Services (Pvt) Ltd.**(c) Telecommunication Services – 97.81 31 March Bogo Power (Pvt) Ltd. Generation and Sale of Hydro Electric Energy 100.00 100.00 31 March Continental Insurance Lanka Ltd. General Insurance Services 100.00 100.00 31 December Browns Beach Hotels PLC Leisure 42.55 48.15 31 March Pelwatte Sugar Industries PLC**(d) Manufacturing and Selling of Sugar and Molasses – 47.02 31 March Pelwatte Sugar Distilleries (Pvt) Ltd**(e) Manufacturing and Selling Spirits – 39.19 31 March Pelwatte Agriculture & Engineering Services (Pvt) Ltd.**(e) Land Preparation, Repairing Vehicles and Machineries – 47.02 31 March

Associate Splendor Media (Pvt) Ltd. Media Buying & Creative Services 25.00 49.48 31 March Aitken Spence PLC Diversified 18.07 27.97 31 March Madulsima Plantations PLC Cultivation and Processing of Tea 31.00 31.00 31 December Pelwatte Dairy Industries Ltd. **(e) Producing and Selling Milk and Milk Based Products – 23.51 31 March

* Formerly known as Beruwala Distillery (Pvt) Ltd. ** Indirect holding through Subsidiaries. (a) Timpex (Pvt) Ltd. (b) Milford Holdings (Pvt) Ltd. (c) Lanka Bell Ltd. (d) Melstacorp (Pvt) Ltd. (e) Pelwatte Sugar Industries PLC

*** Collision Repair Centre (Pvt) Limited was renamed as Melsta Logistics (Pvt) Limited on 19 July 2011.

Distilleries Company of Sri Lanka PLC 94 Annual Report 2010/11 Notes to the Financial Statements

16. 2 Summary Financial Information of Equity - Accounted Investees, not adjusted for the percentage of Ownership held by the Group;

Current Non Current Total Current Non Current Total Revenue Expenses Profit Assets Assets Assets Liabilities Liabilities Liabilities Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000

2010 Splendor Media (Pvt) Ltd 91,705 1,658 93,363 62,488 407 62,895 59,032 54,339 4,693 Aitken Spence PLC 11,255,111 26,288,367 37,543,478 8,352,184 5,730,436 14,082,620 24,626,738 21,639,762 2,986,976 Madulsima Plantations PLC 425,997 2,770,432 3,196,429 1,403,929 801,315 2,205,244 1,628,816 1,804,499 (175,683) 11,772,813 29,060,457 40,833,270 9,818,601 6,532,158 16,350,759 26,314,586 23,498,600 2,815,986 2011 Splendor Media (Pvt) Ltd 116,848 2,078 118,926 76,014 457 76,471 84,000 72,005 11,995 Aitken Spence PLC 12,675,603 27,469,222 40,144,825 8,752,588 4,746,363 13,498,951 26,008,685 22,580,465 3,428,220 Madulsima Plantations PLC 438,645 2,953,928 3,392,573 1,642,049 835,038 2,477,087 1,973,547 2,015,523 (41,976) Pelwatte Dairy Industries Ltd 10,413 915,098 925,511 446,568 410,933 857,501 18,253 71,465 (53,212) 13,241,509 31,340,326 44,581,835 10,917,219 5,992,791 16,910,010 28,084,485 24,739,458 3,345,027

CONSOLIDATED COMPANY 2011 2010 2011 2010 As at 31 March Note Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000

17. Other Investments Non Current Investments in Unit Trust and Other Investments 17.1 3,000 44,887 3,000 16,500 Other Long Term Investments 17.2 41,150 1,459,760 – 1,459,610 Long Term Investments 44,150 1,504,647 3,000 1,476,110

Current Investments in Equity Securities 17.3 1,592,383 1,304,958 1,413,155 1,304,958 Investments in Fixed Deposits 602,534 273,500 – – Investment in Treasury Bills 258,194 266,212 – – Short Term Investments 2,453,111 1,844,670 1,413,155 1,304,958

2011 2010 No. of Carrying Market No. of Carrying Units Value Value Units Value As at 31 March Rs. ’000 Rs. ’000 Rs. ’000 17.1 Investments in Unit Trust and Other Investments 17.1.1 Company Equity Investments Lanka Ltd. – - – 1,125,000 13,500 Unit Trust Mgt. Co. Ltd. 300,000 3,000 – 300,000 3,000 3,000 – – 16,500 Provision for decline in value other than temporary – – – – 3,000 16,500

17.1.2 Subsidiaries Lanka Ventures Ltd. – – – 50,500 1,010 Samson Reclaim Rubbers Ltd. – – – 100.000 2,500 NAMAL Money Market Fund – – – 1,222,129 12,729 NAMAL Gilt Edge Fund – – – 1,250,337 12,500 Total Value of investment in Unit Trust & Other investments – – 28,739 Provision for fall in Value in Investments – – (352) Net Carrying Value of Investment in Unit Trust – – 28,387 3,000 44,887

Distilleries Company of Sri Lanka PLC Annual Report 2010/11 95 Notes to the Financial Statements

2011 2010 As at 31 March No. of Carrying Market No. of Carrying Shares Value Value Shares Value Rs. ’000 Rs. ’000 Rs. ’000

17.2 Other Long Term Investments Bank, Finance & Insurance Lanka Hospitals Corporation PLC – – – 63,974,015 959,610 Continental Insurance Lanka Ltd. – – – 50,000 500,000 Bank of Ceylon – 10,000 – – – Hatton National Bank PLC – 1,000 – – – National Development Bank – 150 – – 150 – 11,150 1,459,760

Agriculture Northern Green Agro (Pvt) Ltd – 15,000 – – – Southern Green Agro (Pvt) Ltd – 15,000 – – – – 30,000 – – – 41,150 – – 1,459,760

17.3 Investments in Equity Securities 17.3.1 Investments in Equity Securities - Quoted Company Bank, Finance and Insurance Capital PLC 50 1 4 80 2 Commercial Bank of Ceylon PLC 7,811,360 262,027 2,076,259 5,182,614 255,779 Commercial Bank of Ceylon PLC – (Non-voting) 60,000 8,503 9,936 - - DFCC Bank PLC 17,042,856 599,951 2,927,963 8,521,428 599,951 Hatton National Bank PLC 5,961,708 272,013 2,265,449 5,961,708 272,013 Hatton National Bank PLC – (Non-voting) 106,384 20,351 22,692 675,132 19,950 Union Bank PLC 6,600 165 256 - - Merchant Bank of Sri Lanka PLC – – – 175,111 9,275 Lanka Orix Leasing Company PLC 15,000 2,093 1,794 - - Central Finance PLC 20,700 12,433 26,366 - - LB Finance PLC 30,000 2,533 5,253 - - 112,120 19,729 32,324 - - 1,199,799 7,368,296 1,156,970

Beverages, Foods and Tobacco Lanka Milk Foods (CWE) PLC 763,733 16,610 89,280 572,800 3,244 Ceylon Tobacco PLC 76,500 24,604 27,387 - - The Lion Brewery Ceylon PLC 30,000 4,607 6,000 - - 45,821 122,667 3,244

Hotel and Travels Browns Beach Hotels PLC – – – 329,921 6,510 Hotel Services PLC 618,600 18,590 14,290 – – Aitken Spence Hotel Holdings PLC 111,300 6,740 10,907 – – Asian Hotels & Properties PLC 37,000 5,769 6,952 – – John Keels Hotels PLC 299,500 5,972 5,151 – – 37,071 37,300 6,510

Distilleries Company of Sri Lanka PLC 96 Annual Report 2010/11 Notes to the Financial Statements

2011 2010 As at 31 March No. of Carrying Market No. of Carrying Shares Value Value Shares Value Rs. ’000 Rs. ’000 Rs. ’000

Manufacturing Dankotuwa Porcelain PLC – – – 33 1 ACL Cables PLC 136,000 11,261 12,784 – – Royal Ceramics Lanka PLC 50,000 3,777 7,850 – – Piramal Glass Ceylon PLC 135,000 1,134 1,499 – – Bukit Darah PLC 2,700 3,522 3,168 – – Lanka Walltile PLC 40,800 6,567 6,936 – – ACME Printing & Packaging PLC 181,063 3,999 3,857 – – 30,260 36,094 1

Telecommunication Sri Lanka Telecom PLC 44,100 1,736 2,514 – – PLC 604,200 5,863 6,344 – – 7,599 8,858 – –

Automobile United Motors PLC 15,000 2,427 2,288 – – 2,427 2,288 – –

Land & Property Overseas Reality PLC 187,500 3,676 2,813 – – 3,676 2,813 – –

Power & Energy Hemas Power PLC 195,000 6,707 6,981 – – Laugfs Gas PLC 20,000 460 – – – 7,167 6,981 – –

Diversified Investments PLC 13,500 4,125 5,158 139 8 John Keels Holdings PLC 76,000 19,430 21,706 2,000,000 128,000 CT Holding PLC 89,400 19,250 17,880 – – PLC 28,500 819 1,311 – – Carson Cumberbatch PLC 9,900 5,531 6,285 – – 49,155 52,340 128,008

Hospitals Asiri Hospitals Holdings PLC 3,432,370 16,214 28,832 3,432,370 16,214 Lanka Hospitals Corporation PLC 227,800 12,143 10,205 – – Durdans Hospitals PLC 100,080 6,528 8,016 – – 34,885 47,053 16,214

Plantations Kegalle Plantation PLC 50,000 4,151 – – – 4,151 – – –

Distilleries Company of Sri Lanka PLC Annual Report 2010/11 97 Notes to the Financial Statements

2011 2010 No. of Carrying Market No. of Carrying Shares Value Value Shares Value As at 31 March Rs. ’000 Rs. ’000 Rs. ’000

17.3.2 Investments in Equity Securities - Un Quoted W. M. Mendis & Co. Ltd. 200 4 – 200 4 International Distilleries Lanka Ltd. 100 3 – 100 3 7 – 7

Total Non-Current Investments in Equity Securities – 1,422,018 7,684,690 1,310,954 Provision for Fall in Value of Investments – (8,863) – (5,996) Company Total 1,413,155 7,684,690 1,304,958

2011 2010 No. of Carrying Market No. of Carrying Shares Value Value Shares Value As at 31 March Rs. ’000 Rs. ’000 Rs. ’000

17.3.3 Investments in Equity Securities - Quoted Consolidated Bank, Finance and Insurance Asia Capital PLC 50 1 4 80 2 Commercial Bank of Ceylon PLC 7,898,360 271,109 2,091,528 5,182,614 255,779 Commercial Bank of Ceylon PLC – (Non-voting) 91,800 13,008 15,088 - - DFCC Bank PLC 17,042,856 599,951 2,927,963 8,521,428 599,951 Hatton National Bank PLC 5,961,708 272,013 2,265,449 5,961,708 272,013 Hatton National Bank PLC – (Non-voting) 147,787 28,316 31,576 675,132 19,950 Union Bank PLC 306,600 3,165 10,996 - - Merchant Bank of Sri Lanka PLC – – – 175,111 9,275 Lanka Orix Leasing Company PLC 15,000 2,093 1,794 - - Central Finance PLC 49,300 23,657 49,775 - - LB Finance PLC 34,800 3,346 6,510 - - Sampath Bank 149,424 26,206 42,467 - - 1,242,865 7,443,150 1,156,970

Beverages, Foods and Tobacco Lanka Milk Foods (CWE) PLC 763,733 16,610 89,280 572,800 3,244 Ceylon Tobacco PLC 130,500 39,888 46,557 - - The Lion Brewery Ceylon PLC 40,000 6,143 7,851 - - 62,641 143,688 3,244

Hotel and Travels Browns Beach Hotels PLC – – – 329,921 6,510 Hotel Services PLC 1,323,600 40,458 32,620 – – Aitken Spence Hotel Holdings PLC 137,900 8,376 13,719 – – Asian Hotels & Properties PLC 49,500 7,715 9,377 – – John Keels Hotels PLC 399,500 7,964 7,151 – – 64,513 62,867 6,510

Distilleries Company of Sri Lanka PLC 98 Annual Report 2010/11 Notes to the Financial Statements

2011 2010 No. of Carrying Market No. of Carrying Shares Value Value Shares Value As at 31 March Rs. ’000 Rs. ’000 Rs. ’000

17.3.3 Investments in Equity Securities - Quoted Consolidated Contd., Manufacturing Dankotuwa Porcelain PLC – – – 33 1 ACL Cables PLC 299,000 24,390 26,655 – – Royal Ceramics Lanka PLC 58,300 5,052 10,381 – – Piramal Glass Ceylon PLC 135,000 1,134 1,499 – – Bukit Darah PLC 2,700 3,522 3,168 – – Lanka Floor Tiles PLC 125,000 9,920 16,788 – – Lanka Walltile PLC 40,800 6,567 6,936 – – ACME Printing & Packaging PLC 519,353 11,714 10,759 – – 62,299 76,186 1

Telecommunication Sri Lanka Telecom PLC 58,800 2,316 3,234 – – Dialog Axiata PLC 805,600 7,820 8,721 – – 10,136 11,955 – –

Automobile United Motors PLC 15,000 2,427 2,288 – – 2,427 2,288 – –

Land & Property Overseas Reality PLC 250,000 4,900 3,769 – – 4,900 3,769 – –

Power & Energy Hemas Power PLC 260,000 8,943 8,899 – – Laugfs Gas PLC 44,300 1,019 630 – – 9,962 9,529 – –

Diversified Investments Hayleys PLC 18,000 5,502 6,711 139 8 John Keels Holdings PLC 101,300 25,921 29,256 2,000,000 128,000 CT Holding PLC 99,600 20,235 19,744 – – Hemas Holdings PLC 63,500 1,825 2,869 – – Aitken Spence PLC 60,000 7,186 10,194 – – Aitken Spence Holdings PLC 7,000 406 740 – – Cargills (Ceylon) PLC 22,200 2,648 4,338 – – Carson Cumberbatch PLC 9,900 5,531 6,285 – – 69,254 80,137 128,008

Hospitals Asiri Hospitals Holdings PLC 3,432,370 16,214 28,832 3,432,370 16,214 Lanka Hospitals Corporation PLC 227,800 12,143 10,205 – – Ceylon Hospitals PLC (Durdans)-Non Voting 50,040 3,259 4,148 – – Ceylon Hospitals PLC (Durdans) 190,080 11,891 15,477 – – 43,507 58,662 16,214

Distilleries Company of Sri Lanka PLC Annual Report 2010/11 99 Notes to the Financial Statements

2011 2010 No. of Carrying Market No. of Carrying Shares Value Value Shares Value As at 31 March Rs. ’000 Rs. ’000 Rs. ’000

17.3.3 Investments in Equity Securities - Quoted Consolidated Contd.,

Plantations Kegalle Plantation PLC 150,800 13,016 16,309 – – 13,016 16,309 – –

Chemicals & Pharmaceuticals Chemanex PLC 75,000 10,253 9,173 – – 10,253 9,173 – –

Others Ceylon Theatres PLC 100,000 5,466 18,270 – – 5,466 18,270 – –

2011 2010 No. of Carrying Market No. of Carrying Shares Value Value Shares Value As at 31 March Rs. ’000 Rs. ’000 Rs. ’000

17.3.4 Investments in Equity Securities - Unquoted W. M. Mendis & Co., Ltd. 200 4 – 200 4 International Distilleries Lanka Ltd. 100 3 – 100 3 7 – 7

Total Non-Current Investments in Equity Securities – 1,601,246 7,917,713 1,310,954 Provision for Fall in Value of Investments – (8,863) – (5,996) Company Total 1,592,383 7,917,713 1,304,958

CONSOLIDATED 2011 2010 As at 31 March Rs. ’000 Rs. ’000

18. Goodwill On Acquisition Cost At the Beginning of the Year 446,431 446,431 Acquisition of Subsidiaries 776,566 - At the End of the Year 1,222,997 446,431

Amortisation At the Beginning of the Year 190,985 190,985 Amortisation Charge for the Year – – At the End of the Year 190,985 190,985 Carrying Amount 1,032,012 255,446

Goodwill on acquisition represents the excess of purchase price over the net tangible assets acquired, in respect of the acquisition of Milford Holdings (Pvt) Limited and Lanka Bell Limited amounting to Rs. 446 Mn and Rs. 777 Mn in respect of Browns Beach Hotels PLC and Pelwatte Sugar Industries PLC and its Subsidiaries acquired during the year.

Goodwill as at the Balance Sheet date has been tested for impairment and found no impairment for the carrying value. Recoverable values have been estimated based on the fair value less cost to sell for the purpose of the above test.

Distilleries Company of Sri Lanka PLC 100 Annual Report 2010/11 Notes to the Financial Statements

CONSOLIDATED COMPANY 2011 2010 2011 2010 As at 31 March Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000

19. Inventories Raw Materials 1,718,982 2,691,192 1,051,514 971,193 Harvested Crop 317,879 269,848 – - Nurseries 11,413 10,354 – - Packing & Other Materials 2,333,427 568,501 577,987 545,653 Work-in-Progress 230,332 239,037 117,677 124,759 Finished Goods 514,858 411,952 264,824 256,144 Stationery & Miscellaneous 32 51,688 – - Goods in Transit 10,835 1,477 – - 5,137,758 4,244,050 2,012,002 1,897,749 Provision for Obsolete Inventories (472,178) (498,335) (5,443) (5,443) 4,665,580 3,745,665 2,006,559 1,892,306

20. Trade & Other Receivables Trade Receivables 3,915,826 3,169,410 1,690,589 1,455,623 Other Receivables 1,650,697 1,058,973 314,940 189,578 Deposits, Advances and Prepayments 1,211,318 783,933 809,974 604,882 Accrued Income 6,883 23,299 – - Loans to Company Officers 7,169 4,919 – - Tax Recoverable (Note 20.1) 150,749 126,646 – - 6,942,642 5,167,180 2,815,503 2,250,083 Provision for Bad and Doubtful Debts (1,002,162) (1,136,176) (130,785) (119,206) Total Trade and Other Receivables 5,940,480 4,031,004 2,684,718 2,130,877

20.1 Tax recoverable includes, GST receivable of Rs. 3,170,080, Tax (ESC & WHT) recoverable of Rs. 19,827,740 and VAT recoverable of Rs. 118,796,000, NBT recoverable of 3,984,270 relating to Texpro Industries Ltd. The Management of Texpro Industries Limited is of the view that these amounts are recoverable and accordingly no provision has been made for the said balance.

21. Amounts Due from Subsidiaries AION SG Residencies (Pvt) Ltd - - 9,782 9,809 Collision Repair Centre (Pvt) Limited (Note 21.1) - - 8,354 99,424 Texpro Industries Ltd. - - – 1,263 Continental Insurance Lanka Ltd. - - 647 - Pelwatte Sugar Industries PLC - - 63,085 - - - 81,868 110,496 Provision for doubtful debts - - (9,809) (9,809) - - 72,059 100,687

21.1 This amount includes a temporary loan given to Collision Repair Centre (Pvt) Limited with interest calculated at 1% above the 3 months fixed deposit rate.

Distilleries Company of Sri Lanka PLC Annual Report 2010/11 101 Notes to Financial Statements

CONSOLIDATED COMPANY 2011 2010 2011 2010 As at 31 March Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000

22. Amounts Due from Associates and Related Companies Stassen Exports Limited 37 20 – – Stassen Natural Foods (Pvt) Ltd 6 50 – – Lanka Milk Foods (CWE) PLC 3,156 2,719 2,886 2,629 Ace Cargo (Pvt) Ltd – 42 – – Ace Distriparks (Pvt) Ltd – 45 – – Browns Beach Hotels PLC 99 1,323 – 1,136 Ace Power Generation Matara Ltd 2 2 – – Ace International Express (Pvt) Ltd – 495 – – Aitken Spence PLC 1,559 992 – – Aitken Spence Hotel Holdings PLC 169 56 – – Splendor Media (Pvt) Ltd 14 40 – – DFCC Bank PLC – 86 – – Hatton National Bank PLC 4,486 6,249 – – Madulsima Plantation PLC (Note 22.1) 53,950 62,098 52,547 59,934 Aitken Spence Overseas Travel Services – 22 – – Ambewela Livestock Co. Ltd 2 30 – – Lanka Stassens Distributors (Pvt) Ltd – 121 – – Neptune Ayurvedic Village (Pvt) Ltd – 5 – – Milford Exports (Ceylon) Ltd 1 – – – Heritance Ahungalla – 191 – – Heritance Kandalama – 172 – – Lanka Bell Ltd (Note 22.2) – – 175,678 205,560 Aitken Spence Travels (Pvt) Ltd 1,463 – – – Aitken Spence Hotel Management (Pvt) Ltd 17 – – – Negombo Beach Resorts 28,145 – – – Ambewela Products (Pvt) Ltd 35 – – – National Asset Management Company Ltd 2 – – – 93,143 74,758 231,111 269,259

22.1 This amount represents the balance remaining on a short term loan granted to Madulsima Plantation PLC along with the interest approved at 16% per annum.

22.2 This represents a short term loan of Rs. 200 Mn granted at the rate of AWPR plus 1% adjusted on a quarterly basis.

23. Short Term Deposits Call and Fixed Deposits 8,012,193 395,472 5,392,789 51,780 8,012,193 395,472 5,392,789 51,780

24. Cash & Cash Equivalents Cash at Bank and in Hand 482,060 1,542,284 174,453 578,291 Cash in Transit 139,579 252,041 139,579 252,041 621,639 1,794,325 314,032 830,332

Distilleries Company of Sri Lanka PLC 102 Annual Report 2010/11 Notes to the Financial Statements

CONSOLIDATED COMPANY 2011 2010 2011 2010 As at 31 March Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000

25. Stated Capital 300,000,000 Ordinary Shares 300,000 300,000 300,000 300,000

The holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share at meetings of the shareholders.

26. Interest Bearing Loans & Borrowing Repayable after one year Term Loan 26 (a) 600,703 920,355 – _ Lease Creditors JEDB/SLPC Estates 26 (b) 104,715 105,092 – – 705,418 1,025,447 – –

Repayable within one year Term Loan 26 (a) 1,026,454 1,788,852 – – Finance Lease Obligations JEDB/SLPA Estates 26 (b) 7,249 1,413 – – Bank & Other Borrowings 2,860,617 1,150,657 254,578 76,221 3,894,320 2,940,922 254,578 76,221

26. (a) Term Loans

Balangoda Pelwatte Total Total Plantations Sugar Lanka Bell Texpro 2011 2010 Industries As at 31 March Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000

At the beginning of the year Payable after one year 84,573 – 677,424 158,359 920,356 973,159 Payable within one year 34,798 – 1,574,437 379,618 1,788,853 1,351,380 119,371 – 2,251,861 537,977 2,709,209 2,324,539 Add: Loans obtained during the year – 300,000 207,716 – 507,715 1,967,762 Less: Repayments during the year (34,798) – (1,170,312) (380,257) (1,589,767) (1,583,093) Balance at the end of the year 26(a)( i) 84,573 300,000 1,089,264 157,720 1,627,157 2,709,208 Less: Payable within one year (33,799) (300,000) (678,978) (13,677) (1,026,454) (1,788,853) Payable after one year 50,774 – 410,286 144,043 600,703 920,355

26. (a) (1) Texpro Industries Ltd.

2011 2010 As at 31 March Rs. ’000 Rs. ’000

Long Term Loans Bank borrowings (Note 26. (a) 1.1) 19,443 38,268 Long Term Loan - Stassen Exports Ltd. (Interest Free) 138,277 138,277 Current portion of Non-Current Borrowings (13,677) (18,186) Loans due after one year 144,043 158,359

Loans due within one year 13,677 18,186 Short Term Borrowings 418,922 361,432 Total Borrowings 576,642 536,097

Distilleries Company of Sri Lanka PLC Annual Report 2010/11 103 Notes to the Financial Statements

Note 26 (a) 1.1 Details of bank borrowings outstanding as at the balance sheet date are given below:

Bank Loan Principal Amount Amount Interest Rates Repayment Monthly Loan outstanding as outstanding as Basis Repayment at 31/03/2011 at 31/03/2010 Rs.’000 Rs.’000 Rs.’000 Rs.’000

Hatton National Bank PLC 15,098 1,973 6,254 3 mths LIBOR+1.5% 53 monthly instalments 300 from September 2006. Peoples Bank 57,934 17,470 30,134 LIBOR+6.5% 60 monthly instalments 965 19,443 36,388 from August 2007

These loans were utilised to purchase plant and machinery and secured by a primary mortgage over land, buildings and immovable assets.

Balangoda Plantations PLC

Lender / Loan No. Repayable Repayable Balance as Balance as Nominal rate Asian Development Bank within 1 year after 1 year at 31/12/10 at 31/12/09 of interest Terms of Repayment (Through the DFCC Bank PLC) Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000 %

0000029143 1,983 1,983 3,966 5,949 15.71 120 equal monthly instalments at Rs. 165,236 commencing from 30 November 2002. 0000029144 5,272 5,272 10,544 15,815 13.60 120 equal monthly instalments at Rs. 439,314 commencing from 30 November 2002. 0000029671 8,834 14,723 23,557 32,391 11.75 120 equal monthly instalments after a grace period of 60 months from the date of first disbursement Rs. 165,236 commencing from 30 November 2002. 0000030320 8,155 22,425 30,580 38,735 13.10 120 equal monthly instalments after a grace period of 60 months from the date of first disbursement Rs. 165,236 commencing from 30 November 2002. 0000030714 9,557 6,371 15,928 25,483 12.44 96 equal monthly instalments after a grace period 48 months from the date of first disbursement Rs. 165,236 commencing from 30 November 2002. HNB Bank 03-4366201-01 – – – 998 – 59 equal monthly instalments at Rs. 335,000 after a grace period of 12 months from the date of disbursement and a final instalment of Rs. 235,000. 33,801 50,774 84,575 119,371 –

Securities Pledged DFCC Bank PLC Primary mortgage over the Leasehold rights to the land and building of Palmgarden, Pettiagalla and Balangoda Estates. Further mortgage over the Leasehold rights to the land and building of Palmgarden, Pettiagalla and Balangoda Estates. Primary mortgage over the Leasehold rights to the land and buildings of Balangoda, Meddekande and Rasagalla Estates.

Hatton National Bank PLC Primary floating mortgage bond over the immovable property of Walaboda Estate.

People’s Leasing Co Ltd. Mortgage over Glen Alpine Estate.

Distilleries Company of Sri Lanka PLC 104 Annual Report 2010/11 Notes to the Financial Statements

26. (b) Finance Lease JEBD/SLPC Estates

Balangoda Plantations PLC 2011 2010 Repayable Repayable Repayable Repayable Total Total within 1 after 1 after 5 within 2-5 year year years years Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000

Gross Liability 12,078 190,857 167,039 22,692 202,935 201,077 Finance charges allowed to future periods (4,830) (86,142) (69,907) (16,202) (90,972) (94,572) Net Liability to lessor 7,248 104,715 97,132 6,490 111,963 106,505 The leases of the estates have been amended, with effect from 11 June 1996 to an amount substantially higher than the previous lease rental of Rs. 500/- per estate per annum. The first rental payable under the revised basis is Rs.5.673 Million for Balangoda Plantations PLC from 11 June 1996 to 10 June 1997. This amount is inflated annually by the Gross Domestic Product (GDP) deflator, and is in the form of a contingent rental. The contingent rental charge to the Income Statement amounted to Rs. 15,206,140/- which is based on the GDP deflator of 5.7% (2009).

27. Deferred Taxation

CONSOLIDATED COMPANY As at 31 March 2011 2010 2011 2010 Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000

27.1 Deferred Tax Liabilities Balance as at the beginning of the year 113,384 97,734 – 73,095 Acquisition/Disposal of subsidiaries 151,587 91,836 – – Adjustment due to rate change (7,937) – 3,648 – Transferred from/(to) Income Statement/Equity 223,452 (76,186) 156,484 (73,095) Balance as at the end of the year 480,486 113,384 160,132 –

27.2 Deferred Tax Assets Balance as at the beginning of the year 109,616 12,902 13,461 – Acquisition/Disposal of subsidiaries 42,792 88,158 – – Adjustment due to rate change (8,554) – 5,571 – Transferred from/(to) Income Statement 10,147 8,556 (19,032) 13,461 Balance as at the end of the year 154,001 109,616 – 13,461

Net Deferred Tax Liability / (Asset) as at the end of the year 326,485 3,767 160,132 (13,461)

27.3 Texpro Industries Limited The tax losses as at the Balance Sheet date was Rs. 536,778,679/- resulting in a deferred tax assets as at 31 March 2011 amounted to Rs. 187,872,538/-. However, deferred tax asset has been recognised only up to the amount of Rs. 118,165,294 as at the Balance Sheet date due to the uncertainty regarding the availability of future taxable profits against which the deferred tax asset would be utilised. Accordingly, the unrecognised deferred tax assets as at 31 March 2011 was Rs. 69,707,244/-.

27.4 Lanka Bell Limited No deferred taxation has been provided for Lanka Bell Limited, a Subsidiary of the company, since a majority of assets will be fully depreciated before the expiration of the tax holiday period of 20 years.

27.5 Impact Due to Corporate Income Tax Rate Change The corporate income tax rate has been changed to 40% and 28% from 35% commencing from year of assessment 2011/12 as per the budget proposals for 2011 announced by the Finance Minister, which was enacted in 2011. Accordingly, deferred tax asset and liability have been computed based on 40% and 28% and Rs. 0.617 Mn of the group and Rs. 1.923 Mn of the company have been charged to Income Statement.

Distilleries Company of Sri Lanka PLC Annual Report 2010/11 105 Notes to the Financial Statements

27.6 Deferred Tax Liability Charged Directly to Equity According to Sri Lanka Accounting Standard No 14 (Revised 2005) “Income Taxes”, deferred tax shall be charged or credited directly to equity if the tax relates to items that are credited or charged, in the same or in a different period, directly to equity. Accordingly, the deferred tax liability arising on revaluation of Property, Plant & Equipment of Rs. 171.322 Mn.of the Company and Rs. 171.322 Mn of the Group was charged directly to revaluation reserve in the Statement of Changes in Equity in 2011.

Provision for Retiring Gratuity CONSOLIDATED COMPANY 2011 2010 2011 2010 As at 31 March Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000

28. Retirement Benefit Obligations At the beginning of the year 676,629 570,984 111,414 98,429 Interest Charge for the Year 34,684 5,617 – – Actuarial (Gains)/Losses 72,232 (593) – – Provision for the year 350,898 162,393 7,716 28,087 1,134,443 738,401 119,130 126,516 Payments during the year (95,664) (61,772) (9,139) ( 15,102) At the end of the year 1,038,779 676,629 109,991 111,414

28.1 The amounts recognised in the Balance Sheet are as follows Present Value of Unfunded Obligations 1,038,779 676,629 109,991 111,414 Total Present Value of Obligations 1,038,779 676,629 109,991 111,414

Recognised Liability for Defined Benefit Obligations 1,038,779 676,629 109,991 111,414

28.2 The Group has adopted SLAS 16 Employee benefits (Revised 2006) in determining the liability in respect of Retiring Gratuity. The present value of the said liability is estimated using either the actuarial valuation or gratuity formula method as recommended by SLAS 16. The Parent Company has estimated its gratuity liability as at 31 March 2011 based on an actuarial valuation, which is performed once in every three years in accordance with SLAS 16. The Company’s actuarial valuation was carried out by Messrs. Actuarial & Management Consultants (Pvt) Ltd. The estimated value of the liability in respect of other Subsidiaries in the Group has been made under the ‘Formula Method’ except for Balangoda Plantations PLC and Pelwatte Sugar Industries PLC, which had used actuarial valuation carried out by Messrs. Actuarial & Management Consultants (Pvt) Ltd as at 31 December 2010.

28.3 The principal actuarial assumptions used in determining this obligation were; a) Discount rate 10 – 11.50% b) Salary increment 10 – 11% c) Retirement age 55-60 years

It is proposed to obtain a valuation once in every three years.

CONSOLIDATED 2011 2010 As at 31 March Rs. ’000 Rs. ’000

29. Deferred Income At the beginning of the year 239,302 205,097 Disposal of National Assets Management Ltd (956) – Grants Received during the year 31,976 47,462 270,322 252,559 Amortised during the year (14,689) (13,257) At the end of the year 255,633 239,302

The above amount represents funding received by Balangoda Plantations PLC from various governmental and Non- governmental Institutions for social and infrastructure development of estates.

Distilleries Company of Sri Lanka PLC 106 Annual Report 2010/11 Notes to the Financial Statements

CONSOLIDATED COMPANY 2011 2010 2011 2010 As at 31 March Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000

30. Trade and Other Payables Trade Payables 1,257,617 926,738 63,968 69,663 Other Payables and Accruals 4,210,527 2,926,819 1,858,820 1,654,521 Direct & Indirect Taxes Payable Note. 30 (a) 3,909,806 2,791,724 3,691,662 2,659,069 Dividend Payables 146,288 121,267 142,377 118,152 9,524,238 6,766,548 5,756,827 4,501,405

30. (a) Direct & Indirect Taxes Payable Excise Duty 3,295,186 2,051,848 3,123,850 1,961,589 Value Added Tax 523,612 624,463 484,846 586,692 Social Responsibility Levy 8 29,730 – 29,424 Turnover Tax – 2,328 – 2,328 Nation Building Tax 91,000 83,355 82,966 79,036 3,909,806 2,791,724 3,691,662 2,659,069

31. Amounts Due to Related Companies and Subsidiaries Stassen Exports Ltd. 130,597 49,611 1,418 62 Madulsima Plantations PLC 2,191 468 – – Splendor Media (Pvt) Ltd. 25,530 26,858 25,530 25,485 Melstacorp Pvt Ltd. – – 1,788 14,149 Periceyl (Pvt) Ltd. – – 994 177,118 Ace International Express (Pvt) Ltd. – 2 – – Ace Distriparks (Pvt) Ltd. – 52 – – Aitken Spence Cargo (Pvt) Ltd. – 571 – – Aitken Spence Hotel Managements (Pvt) Ltd 1,945 – – – Aitken Spence PLC 2,494 – – – Aitken Spence Exports (Pvt) Ltd 89 – – – Lanka Milk Foods (CWE) PLC 50 – – – Lanka Dairies Pvt Ltd 107 – – – Texpro Industries Ltd. – – 920 – 163,003 77,562 30,650 216,814

Distilleries Company of Sri Lanka PLC Annual Report 2010/11 107 Notes to the Financial Statements

32. Contingent Liabilities

32.1 Pending Litigation The Group has contingent liabilities in respect of legal claims arising in the ordinary course of business. It is not anticipated that any material liabilities will arise from such legal cases, nor are additional payments anticipated as of date. Accordingly no provision has been made for legal claims in the Financial Statements.

32.2 Distilleries Company of Sri Lanka PLC

This is an action filed in the District court by A. P. Agencies of for alleged breach of written contract by the Company. The District Court in its Judgement directed the Company to pay Indian Rs. 1,071,210.14 to the Plaintiff. The Company being aggrieved by the District Court Judgement appealed to the Court of Appeal. The Judgement of the Court of Appeal was delivered on 27/07/2011 in favour of the Company dismissing the Plaintiff’s action. The appealable period for the Plaintiff however is Six (06) weeks from 27/07/2011.

32.3 Lanka Bell Limited

(a) Sri Lanka Customs has issued a show cause notice to Lanka Bell Limited claiming that the Company is required to pay duty on the FLAG fiber optic submarine cable network which spans the globe connecting over 86 locations around the world. The Company is confident that no such duties are payable since Lanka Bell does not own this global network and also has already obtained BOI approval for the FLAG project. The Company has also filed a writ application with the Court of Appeal citing irregularities in the procedure adopted by the Sri Lanka Customs in issuing such a notice.

32.4 Balangoda Plantations PLC

According to the actuarial valuation carried out for retiring gratuity for all employees as at 31 December 2010, the actuarial present value of promised retirement benefits amounted to Rs. 525,975,427/= if the Company had provided for gratuity for all employees on the basis of 14 days wages for workers and a half month salary for each completed year of service for the year ended 31 December 2010, the liability would have been Rs. 651,133,990/=. Hence, there is a contingent liability of Rs. 125,158,563/= which would crystalise only if the Company ceases to be a going concern.

32.5 Pelwatte Sugar Industries PLC

As per the assessment received by the Company the Department of Inland Revenue has assessed that Pelwatte Sugar Industries PLC is liable to pay outstanding taxes of Rs. 249,205,318 and penalty amounting to Rs. 140,837,793. However, no conclusion has been reached in respect of these assessments as at the Balance Sheet date and no provision has been made in these Financial Statements as the Directors do not expect to incur a material loss in respect of the same.

Further, Company is a defendant in lawsuits filed in respect of cases amounting to Rs. 54 million.

33. Comparative Figures

To facilitate comparison balances pertaining to the previous year have been re-classified to conform to current year classifications and presentation.

Distilleries Company of Sri Lanka PLC 108 Annual Report 2010/11 Notes to the Financial Statements

34. Capital and Other Commitments There were no material capital expenditure approved by the Board of Directors as at 31 March 2011.

35. Segment Information

A segment is a distinguishable component of the Group that is engaged either in providing related products or services (business segment), which is subject to risks and rewards that are different from those of other segments.

Segmental information is presented in respect of the Group’s business segments. The business segments are determined based on the Group’s management and internal reporting structure. Inter-segment transfers are based on fair market prices. Segment results, assets and liabilities include items directly attributable to a segment as well as those that can be allocated on a reasonable basis.

CONSOLIDATED 2011 2010 For the year ended 31 March Rs. ’000 Rs. ’000

(a) Turnover Beverages 38,162,772 31,389,890 Plantations 2,797,266 2,509,827 Telecommunication 4,592,905 4,914,441 Diversified 1,198,996 995,453 Gross Turnover 46,751,939 39,809,611 Turnover based Taxes (26,579,298) (19,761,655) Net Turnover 20,172,641 20,047,956

(b) Industry Segment Profit Beverages 9,489,263 3,910,165 Plantations 220,479 98,595 Telecommunications 113,268 (798,064) Diversified 236,564 (53,566) 10,059,574 3,157,130 Share of Associate Company Profits 702,292 305,204 Net Profit Before Tax 10,761,866 3,462,334 Taxation (2,424,356) (1,310,692) Net Profit After Tax 8,337,510 2,151,642

Distilleries Company of Sri Lanka PLC Annual Report 2010/11 109 Notes to the Financial Statements 676,629 – 6,715,864 2011 2010 Rs. ’000 Rs. ’000 326,485 3,768 4,599,738 3,966,369 1,038,779 9,524,238 6,766,548 (8,388,529) (11,745,873) 60,508,737 39,902,503 52,120,208 34,872,494 (1,540) – 6,715,864 2011 2010 2011 2010 (79,037) 147,060 108,525 351,866 14,885 Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000 (121,346) (40,478) (103,950) 63,506 (758,906) (3,829,351) 2,032,794 579,498 1,544,509 85,822 13,980,592 8,467,738 – 152,557 – 2011 2010 2011 2010 (2,431) (4,427) 48,602 64,036 962,531 994,048 96,433 (43,076) Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000 (280,277) (412,948) (420,766) (785,215) (986,918) (445,153) 361,390 9,446,006 10,267,183 14,739,498 5,581,225 9,165,729 9,854,235 2,121,011 3,079,368 1,457,729 1,570,811 – – 2010 87,383 465,609 – – Plantation Telecommunication Diversified Total Diversified Telecommunication Plantation 2011 2011 2010 61,072 24,250 (85,447) 191,332 230,869 525,975 483,890 311,255 360,845 290,391 271,149 Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000 (133,318) 107,077 Plantation Telecommunication Diversified Holding Telecommunication Plantation 2,886,074 2,652,186 2,886,074 2,652,186 – (14,515) – 2011 2010 2011 2010 254,601 76,365 159,319 112,336 113,818 Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000 (950,775) (775,000) 6,210,745 4,749,070 4,511,347 2,975,909 1,154,400 (661,465) 4,714,972 1,539,444 71,626 (7,349,346) (7,503,574) 33,437,159 21,401,909 26,087,813 13,898,335

35. Segmental Information Contd., c. Segmental Assets and Liabilities Beverage

Total Assets Due from Secretary to Treasury Consolidation Adjustments Interest Bearing Liabilities Non-Interest Bearing Liabilities Deferred Taxation Benefit Obligation Retirement Trade & Other Payables d. Segmental Cash Flows Beverage

Operating Cash Flow Investing Cash Flow Financing Cash Flow

Distilleries Company of Sri Lanka PLC 110 Annual Report 2010/11 Notes to the Financial Statements

36. Related Party Transactions The Company carries out transactions in the ordinary course of its business with parties who are defined as related parties in Sri Lanka Accounting Standard 30 “Related Party Disclosures (Revised 2005)”, the details of which are reported below. The Pricing applicable to such transactions is based on the assessment of risk and pricing model of the Company and is comparable with what is applied to transactions between the Company and its unrelated Customers.

36.1 Details of significant related party transactions are given below

Name of Company Name of Directors Nature of Interest Nature of Transaction Transaction Balance (due to) Value / due from as at 31.03.2011 (Rs.) (Rs.) Milford Exports (Ceylon) Ltd. Mr. D. H. S. Jayawardena Parent Co. Dividend Paid 373,411,500 Mr. R. K. Obeyesekere Periceyl (Pvt) Limited Mr. D. H. S. Jayawardena Subsidiary Co. Dividend Received 67,500,000 994,232 Mr. R. K. Obeyesekere Debtor Collections & Transfers 2,703,174,529 Mr. C. R. Jansz Supply of Goods & Services 215,155,844 Trading Account Profit 60,858,032 Balangoda Plantations PLC Mr. D. H. S. Jayawardena Subsidiary Co. Dividend Received 11,475,000 Mr. R. K. Obeyesekere Rent Paid 155,690 Mr. C. R. Jansz Purchase of Tea 49,803 Browns Beach Hotels PLC Mr. D. H. S. Jayawardena Subsidiary Co. Sales 560,049 Hotel Bills 46,565 Melstacorp (Pvt) Ltd. Mr. D. H. S. Jayawardena Subsidiary Co. Rent 2,810,735 (1,788,344) Mr. R. K. Obeyesekere Staff Cost 4,460,809 Mr. C. R. Jansz Loan Interest 4,195,071 Mr. N. de S. Deva Aditya Dividend Received 140,400 Capt. K. J. Kahanda Settlement of Current A/c 15,000,000 Mr. C. F. Fernando Funds Advanced 914,449,273 Dr. Naomal Balasuriya Milford Holdings (Pvt) Limited Mr. D. H. S. Jayawardena Subsidiary Co. Dividend Received 8,758,688 Mr. R. K. Obeyesekere Disposal of Shares 6,380,051,118 Mr. C. R. Jansz Texpro Industries Limited Mr. D. H. S. Jayawardena Subsidiary Co. Loan Interest 51,892 (919,632) Mr. C. R. Jansz Security & Electricity Charges 2,234,870 Collision Repair Centre (Pvt) Ltd Subsidiary Co. Loan Interest 2,424,181 8,353,815 Loan Granted 1,595,172 Supply of Goods & Services 1,156,852 Repair Charges 2,893,094 Rent 5,403,181 Purchase of Shares 100,000,020 Bogo Power (Pvt) Ltd. Mr. D. H. S. Jayawardena Subsidiary Co. Purchase of Shares 205,000,000 Continental Insurance Lanka Ltd. Mr. D. H. S. Jayawardena Subsidiary Co. Insurance Premium 26,199,936 647,933 Insurance Claim Received 1,107,267 Supply of Goods & Services 1,026,971 Pelwatte Sugar Industries PLC Mr. D. H. S. Jayawardena Subsidiary Co. Fund trf to current account 63,085,000 63,085,000 Capt. K. J. Kahanda Madulsima Plantations PLC Mr. D. H. S. Jayawardena Associate Co. Loan Interest 801,563 52,546,808 Mr. R. K. Obeyesekere Loan Principal Settled 8,298,437 Aitken Spence PLC Mr. D. H. S. Jayawardena Associate Co. Dividend Received 48,909,550 Mr. N. de S. Deva Aditya

Distilleries Company of Sri Lanka PLC Annual Report 2010/11 111 Notes to the Financial Statements

36. Related Party Transactions Contd.,

36.1 Details of significant related party transactions are given below,

Name of Company Name of Directors Nature of Interest Nature of Transaction Transaction Balance (due to) Balance (due to) Value / due from as at 31.03.2011 (Rs.) (Rs.)

Splendor Media (Pvt) Ltd. Associate Co. Loan Interest 2,375,000 (25,529,670) Supply of Goods & Services 1,589,003 Advertisement 2,186,316 Stassen Exports Limited Mr. D. H. S. Jayawardena Related Co. Dividend Paid 6,342,600 (1,418,610) Mr. R. K. Obeyesekere Purchases, Repairs & Maintenance & Transport Charges 48,266,191 Supply of Goods & Services 1,841,223 Lanka Dairies (Pvt) Ltd. Mr. D. H. S. Jayawardena Related Co. Purchase of Milk Foods 107,993 Mr. R. K. Obeyesekere Mr. C. R. Jansz Ambewela Products (Pvt) Ltd. Mr. D. H. S. Jayawardena Related Co. Purchase of Milk Foods 4,889 Mr. R. K. Obeyesekere Mr. C. R. Jansz Lanka Bell Limited Mr. D. H. S.Jayawardena Related Co. Loan Interest Received 23,996,080 175,678,163 Mr. C. R. Jansz Loan Repayment 27,625,000 Telephone Bills Paid 3,806,658 Lanka Milk Foods (C.W.E.) PLC Mr. D. H. S. Jayawardena Related Co. Dividend Paid 113,884,500 2,885,754 Mr. R. K. Obeyesekere Purchase of Milk Foods 3,435,231 Mr. C. R. Jansz Supply of Goods & Services 15,430,125 Dividend Received 1,145,599 Hatton National Bank PLC Mr. D. H. S. Jayawardena Related Co. Dividend Received 38,518,467 Mr. R. K. Obeyesekere Dividend Paid 1,417,250 Interest & Charges Paid 15,288,214 Interest Received 25,854,799 Stand by Overdraft 1,220,000,000 Letters of Credit 400,000,000 Letters of Guarantee 3,180,000 Aitken Spence Hotel Holdings PLC Mr. D. H. S. Jayawardena Related Co. Sales 728,733

BellVantage (Pvt) Ltd. Mr. D. H. S. Jayawardena Related Co. Maintenance Charges 3,102,912

This Note should be read in conjunction with Note 21, 22 and 31 amount due to/due from Subsidiaries, Associates & Re- lated Companies.

36.2 Transactions with Key Management Personnel

According to Sri Lanka Accounting Standard 30 (Revised 2005) “Related Party Disclosures”, Key Management Personnel, are those having authority and responsibility for planning, directing and controlling the activities of the entity. Accordingly, the Board of Directors (including executive and non-executive Directors) and their immediate family members have been classified as Key Management Personnel of the Company.

The immediate family member is defined as spouse or dependent. Dependent is defined as anyone who depends on the respective Director for more than 50% of his/her financial needs.

Details of their compensation are given bellow.

Distilleries Company of Sri Lanka PLC 112 Annual Report 2010/11 Notes to the Financial Statements

CONSOLIDATED COMPANY 2011 2010 2011 2010 For the year ended 31 March Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000

Short-term employee benefits 15,699 28,219 15,699 13,979 Post-employment benefits – – – – Other long-term benefits – – – – Termination benefits – – – – Share-based payments – – – –

37. Amount Due from the Secretary to the Treasury on Account of SLIC a) In respect of Shares As per the Judgement delivered by The Supreme Court of the Democratic Socialist Republic of Sri Lanka on 4 June 2009 it was declared and directed that the shares of SLIC purported to have been sold to Distilleries Consortium on 11 April 2003 along with any shares purchased from the employees as per the SSPA shall be deemed to have been held for and on behalf of the Secretary to the Treasury.

As directed by the said judgement, the Secretary to the Treasury returned Rs. 5,716 Mn that was paid by Group Subsidiary, Milford Holdings (Pvt) Limited (MHL) to purchase shares from SLIC. b) In respect of Profits Earned Furthermore, MHL was entitled to retain the profits of SLIC derived by MHL from 11 April 2003 to 04 June 2009 in lieu of the interest for the aforesaid investment. The Secretary to the Treasury was directed to cause profits of SLIC to be computed and audited from the date of the last audited Balance Sheet of SLIC to 04 June 2009 to enable MHL to obtain such profits.

However, Secretary to the Treasury has not yet determined the value of profits to be retained by MHL; hence no adjustments were made to the Financial Statements in this regard.

38 Assets held for Sale

CONSOLIDATED 2011 2010 As at 31 March Rs. ’000 Rs. ’000

Property, Plant & equipment classified as held for sale 26,895 -

Consequent to the decision taken to demolish and reconstruct the new hotel the carrying amount of assets held by Browns Beach Hotels PLC is recognised under assets held for sale.

39. Events Occurring after the Balance Sheet Date

The Company’s Subsidiary, Browns Beach Hotel PLC ceased its operation on 31 March 2011 to facilitate the construction of a new luxury resort. The new resort is to be constructed under Negombo Beach Resorts (Pvt) Limited which is a 100% owned subsidiary of Browns Beach Hotel PLC.

There were no other material events occurring after the Balance Sheet Date that requires adjustments to or disclosure in the Financial Statements other than the proposed final dividend disclosed in Note 11.

Distilleries Company of Sri Lanka PLC Annual Report 2010/11 113 Statement of Value Added

CONSOLIDATED COMPANY 2011 2010 2011 2010 For the Year ended 31 March Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000

Gross Turnover 46,751,939 39,809,611 38,987,124 29,964,050 Cost of Materials & Services purchased from External sources (9,498,287) (11,383,682) (7,401,422) (5,883,773) 37,253,652 28,425,929 31,585,702 24,080,277 Other Operating Income 4,160,900 180,192 4,246,180 58,990 Interest/Dividend Income 384,597 380,338 426,867 598,252 Interest Expenses (394,156) (565,843) (77,311) (6,098)

Share from Profit of Equity Accounted Investees 702,292 305,204 – – Minority Interest (213,475) (15,979) – –

Value Added 41,893,810 28,709,841 36,181,438 24,731,421

Distributed as follows 2011 As a % 2010 As a % Rs. ’000 of Total Rs. ’000 of Total

Consolidated To the State as Taxes 29,003,654 65.1 21,072,347 73.6 To Employees 3,278,694 7.4 2,503,521 8.7 To Providers of Capital 395,690 0.9 542,417 1.9 To Shareholders 900,000 2.0 750,000 2.4 Retained within the Business As Depreciation 2,882,169 6.5 1,705,892 6.0 As Retained Profit 8,124,035 18.2 2,135,664 7.5 44,584,242 100.0 28,709,841 100.0

Company To the State as Taxes 27,667,611 74.2 20,168,508 81.3 To Employees 715,482 1.9 924,753 3.7 To Providers of Capital 77,311 0.2 6,098 0.0 To Shareholders 900,000 2.4 750,000 3.0 Retained within the Business As Depreciation 153,440 0.4 142,077 0.6 As Retained Profit 7,768,754 20.8 2,814,986 11.4 37,282,598 100.0 24,806,422 100.0

2010/11 2009/10

 To the State as Taxes  To Employees  To Providers of Capital  To Shareholders  Retained within the Business

Distilleries Company of Sri Lanka PLC 114 Annual Report 2010/11 Details of Real Estate

EXTENT VALUE LOCATION A R P Cost/Revaluation Rs.

Distilleries Company of Sri Lanka PLC Colombo 10 Head Office 1 1 13.7 647,765,000 Colombo 14 2 1 14.10 395,000,000 Ranala - Nawagamuwa 10 - - 222,900,000 Negombo Wholesale Outlet - 1 28.75 75,280,000 Dankotuwa Carrington Group Estate 2 2 5 22,045,000 Marawila Toddy Collecting Centre 2 - - 13,025,000 Anuradhapura Proposed Wholesale Outlet - 3 21.46 33,000,000 Kurunegala Wholesale Outlet - 2 29 47,000,000 Seeduwa No. 3 Warehouse & Housing Complex 15 2 16.08 886,686,000 Seeduwa New W/H, Old W/H & Distillery 5 2 14.74 319,562,000 Seeduwa Factory Complex - - 19.75 1,500,000 Seeduwa Factory Complex - 1 2.55 59,700,000 Seeduwa Factory Complex - 1 20.5 14,500,000 Seeduwa Factory Complex - 3 22.6 18,300,000 Seeduwa Factory Complex - - 36.25 7,250,000 Ambalantota Wholesale Outlet - 1 29.02 28,710,050 Wholesale Outlet - 1 37 35,300,000 Ratmalana Wholesale Outlet 1 - 28.2 171,700,000 No. 1 Warehouse 4 - 33.38 151,067,000 Kalutara No. 2 Warehouse / Premises No. 14 & 16 1 3 8.41 60,950,000 Kalutara Teak Stores / Warehouse 1 - 32.82 20,945,000 Kalutara 1 - 23.0 14,000,000 Mirishena Warehouse - 3 28.32 19,912,000 Gampola Wholesale Outlet - 3 38.8 27,742,000 Dickoya Wholesale Outlet - 3 9.6 7,155,000 Kandy Mawilmada Land 2 - - 22,200,000 Katugastota Warehouse - 2 27.5 36,700,000 Katugastota Wholesale Outlet 5 - 3.84 118,400,000 Vavuniya Wholesale Outlet - 3 33.69 38,000,000 Jaffna 1 - 21.6 11,000,000 Kaithadi 2 - 11.57 13,000,000 Batticaloa Wholesale Outlet 3 - 10.84 44,000,000 Wholesale Outlet - 1 38.64 35,000,000 Badulla Warehouse - 2 8.64 12,120,000 Badulla - 2 16 2,900,000 Badulla - 1 21.2 2,900,000

Lanka Bell Limited Minuwangoda Warehouse & Switch 1 3 35.35 93,490,000

Texpro Industries Limited Ranala Factory 6 - 6.05 173,889,000 Embulgama Factory - 2 - 4,000,000

Browns Beach Hotels PLC Negombo Hotel Complex 6 - 37.52 364,307,000

Pelwatte Sugar Industries PLC Colombo 04 Head Office - - 32.3 121,125,000 Monaragala Stores 1 2 - 15,749,000

Melstacorp (Pvt) Ltd Beruwala Warehouse 2 1 19.08 114,000,000

Distilleries Company of Sri Lanka PLC Annual Report 2010/11 115 Shareholder Information

1. Stock Exchange Listing

The Issued Ordinary Shares of the Company are listed with the Colombo Stock Exchange. Ticker Symbol - DIST.N0000 Market Sector - Beverage, Food & Tobacco

2. Distribution of Shareholding

31 March 2011 31 March 2010 No. of Total % No. of Total % Holding Shareholders Holding Holding Shareholders Holding Holding

Up to 10,000 12,181 11,557,162 3.85 11,504 9,930,587 3.31 10,001 to 50,000 341 7,451,008 2.48 230 4,941,073 1.65 50,001 to 100,000 59 4,557,375 1.52 29 2,024,475 0.67 100,001 to 1,000,000 71 19,282,127 6.43 37 8,759,465 2.92 1,000,001 to 5,000,000 18 43,584,728 14.53 11 32,951,600 10.98 Over 5,000,001 4 213,567,600 71.19 6 241,392,800 80.47 12,674 300,000,000 100.00 11,817 300,000,000 100.00

3. Analysis of Shareholding

No. of Shareholders Holding % of Holding

Individuals 12,277 81,288,909 27.10 Institutions 397 218,711,091 72.90 12,674 300,000,000 100.00

Resident 12,510 238,664,223 79.55 Non-Resident 164 61,335,777 20.45 12,674 300,000,000 100.00

4. Market Price

31 March 2011 31 March 2010 (Rs. Per Share) (Rs. Per Share) Last Traded 180.00 118.00 Highest 197.00 122.00 Lowest 117.00 65.25

Distilleries Company of Sri Lanka PLC 116 Annual Report 2010/11 Shareholder Information

2011 2010 20 Major Shareholders as at 31 March No. of Shares % of Issued Capital No. of Shares % of Issued Capital

1. Milford Exports (Ceylon) Limited 124,470,500 41.49 124,470,500 41.49 2. Lanka Milk Foods (C.W.E.) PLC 37,961,500 12.65 37,961,500 12.65 3. Mr. Muzaffar Ali Yaseen 30,048,000 10.02 27,677,900 9.23 4. Mrs. Lorraine Estelle Marlene Yaseen 21,087,600 7.03 24,800,000 8.27 5. Goldman Sachs & Co. S/A Artha Master Fund Ltd. 4,978,495 1.66 4,273,700 1.42 6. Commercial Bank of Ceylon PLC / L. E. M. Yaseen 4,750,000 1.58 4,750,000 1.58 7. HSBC Intl Nom Ltd - MSNY - Bay Pond Partners L. P. 4,384,900 1.46 – – 8. FI-CIBLUX S/A Batterymarch Global Emerging Market Fund 3,277,500 1.09 – – 9. Mrs. Shantha Marie Chrysostom 3,047,000 1.02 3,047,000 1.02 10. Northern Trust Co. S/A the Royal Bank of Scotland 2,800,000 0.93 – – as Trustee 11. Caceis Bank Luxembourg S/A Barca Global 2,778,000 0.93 2,778,000 0.93 Master Fund 12. Sri Lanka Insurance Corporation Ltd. - Life Fund 2,320,200 0.77 19,197,400 6.40 13. HSBC Intl Nom Ltd - MSNY - Bay Pond Partners 2,120,000 0.71 – – 14. Stassen Exports Limited 2,114,200 0.70 2,114,200 0.70 15. Mr. Don Hasitha Stassen Jayawardena 1,882,833 0.63 – – 16 Aitken Spence Aviation (Pvt) Ltd 1,500,000 0.50 – – 17. Standard Chartered Bank Singapore S/A HL Bank Singapore Branch 1,500,000 0.50 – – 18. Mr. Kenneth Rudy Kamon 1,404,400 0.47 2,731,700 0.91 19. Mcbridge Blue (Pvt) Ltd 1,300,000 0.43 – – 20. Employees Trust Fund Board 1,216,000 0.41 436,600 0.15 Total 254,941,128 84.98 254,238,500 84.75

Percentage of Shares held by the public: 33.55%

Distilleries Company of Sri Lanka PLC Annual Report 2010/11 117 Ten Year Summary

In Rupees Million - Company 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002

Results Gross Turnover 38,987.1 29,964.1 29,569.8 27,416.0 22,653.1 18,399.7 14,391.8 12,257.6 10,778.8 10,238.1 Excise Duty 25,464.4 18,979.0 18,339.2 16,458.0 14,020.3 11,263.9 9,235.4 8,059.8 7,214.3 7,378.5 Net Turnover 13,522.7 10,985.0 11,230.5 10,958.0 8,632.8 7,135.8 5,156.4 4,197.8 3,564.5 2,859.6 Profit / (Loss) before tax 9,972.0 4,004.5 3,977.9 3,014.9 2,826.6 2,480.7 1,762.1 1,938.6 930.7 903.0 Profit / (Loss) after tax 7,768.7 2,815.0 2,682.4 1,981.6 1,868.9 1,807.6 1,247.8 1,625.6 609.0 517.8

Funds Employed Stated Capital 300.00 300.00 300.0 300.0 300.0 300.0 300.0 300.0 300.0 300.0 Capital Reserves 2,923.6 107.9 107.9 107.9 107.9 107.9 107.9 107.9 107.9 107.9 Revenue Reserves 21,718.0 14,849.3 12,709.3 10,551.8 8,708.1 7,019.2 5,361.6 4,263.9 2,773.0 2,164.3 Shareholders’ Funds 24,941.7 15,257.2 13,117.2 10,959.7 9,116.0 7,427.1 5,769.5 4,671.8 3,180.9 2,572.2 Total Borrowings 254.6 76.2 920.1 2,648.1 1,634.0 2,221.2 1,500.6 3,026.1 915.9 404.9 Non-current Liabilities net of Borrowings 270.1 111.4 171.5 109.6 88.0 99.2 90.7 92.5 101.8 102.3 Current Liabilities net of Borrowings 6,590.6 5,159.9 4,785.2 4,662.9 4,279.9 3,390.6 2,135.3 1,779.7 1,517.1 1,864.8 7,115.3 20,604.7 18,994.0 18,380.1 15,118.0 13,138.1 9,495.1 9,570.1 5,716.8 4,944.2 Assets Employed Non-Current Assets 20,212.7 14,024.6 12,840.9 12,302.9 10,383.5 10,398.5 7,619.1 7,594.3 2,888.3 2,718.5 Current Assets 12,114.4 6,580.1 6,153.1 6,007.5 4,734.4 2,739.6 1,876.0 1,975.8 2,828.5 2,225.7 32,327.1 20,604.7 18,994.0 18,380.4 15,118.0 13,138.1 9,495.1 9,570.1 5,716.8 4,944.2 Cash Flow Net Cash Flow from Operating Activities 4,275.1 2,692.7 1,881.7 2,509.3 1,118.2 1,974.1 1,774.3 667.8 234.8 295.0 Net Cash Flow from Investing Activities 1,247.0 (661.2) (35.6) (3,041.8) (48.4) (2,662.4) (12.2) (3,943.7) (172.5) (168.9) Net Cash Flow from Financing Activities (875.8) (675.0) (525.0) (465.0) (169.7) (149.7) (146.4) (134.1) (140.6) (124.2)

Net Increase/(Decrease) in Cash and Cash Equivalents 4,646.3 1,356.5 1,321.1 (997.5) 1,079.5 (838.0) 1,615.7 (3,410.0) (78.3) 2.0

Key Indicators Earnings per Share (Rs.) 25.90 9.38 8.9 6.6 6.2 6.0 4.2 5.4 2.0 1.7 Net Assets per Share (Rs.) 83.14 50.86 43.7 36.5 30.4 24.8 19.2 15.6 10.6 8.6 Market Value per Share (year end) 180.0 118.0 65.0 98.0 105.0 35.0 32.0 22.0 9.3 8.0 Return on Shareholders’ Funds (%) 31.15 18.45 20.5 18.1 20.5 24.3 21.6 34.8 19.2 20.1

Distilleries Company of Sri Lanka PLC 118 Annual Report 2010/11 DCSL Management Team

Head Office Regional Offices

Chief Executive Officer Maximus R. Peries Northern Region - Seeduwa B.Sc. (Eng), MBA (Merit), LLB (Hons) London, C. Eng. MIEE (London) Regional Manager Sqn. Ldr. Wimal Karunaratne (Retd.) Deputy Regional Manager Major R. M. Cabraal (Retd.) Finance Division Chief Production Manager D. C. F. Abeysekere B.Sc. Head of Analytical Division T. D. Ekmon B.Sc. Head of Finance Nimal Nagahawatte B.Sc. Chief Engineer M. N. Perera Asst. Finance Manager Suranjan Lakmanaratchi Consultant K. Sivarajah Accountant Justin Algama B.Sc., Dip. Acc. B.Sc. (Cey), M.Sc. (UK), F.I Chem.C, Asst. Manager (IT) Ms. P. Gamagedara Dip. (NIBM), AACS Chartered Chemist (Retd. Govt. Analyst) Senior Chemist W. G. J. S. Kumara B.Sc. Supplies Division Accountant K. W. N. V. Fernando B.Com. Distillery Seeduwa Supplies Manager S. Rajanathan Warehouses New Warehouse, No. 3 Warehouse, Old Warehouse Internal Audit Division Wholesale Outlets Peliyagoda (W), Peliyagoda (S), Rajakadaluwa, Negombo, Anuradhapura, Kurunegala Chief Internal Auditor L. P. Liyanaarachchi FCA, FCMA, Dip.Acc. Southern Region - Kalutara Investigation Unit Regional Manager Maj. Gen. Siri Peiris (Retd.) RSP, VSV, USP, IG Director Alfred Wijewardene DIG (Retd.) Deputy Regional Manager Colonel D. J. R. Rupasingha (Retd.) RSP Deputy Director A. X. Clarence Motha ASP (Retd.) Production Manager A. D. Amaradeva Asst. Accountant Ms. Amali Bandara Company Secretarial & Legal Division Asst. Engineer H. P. D. P. Mangala Gunasekara Company Secretary Ms. V. J. Senaratne Attorney-At-Law & Distillery Beruwala & Chief Legal Officer N.P., Solicitor (Eng. & Wales) Warehouses Kalutara No 01& Kalutara No 02, Teak Store, Mirishena Human Resources Division Wholesale Outlets Kalutara, Ratmalana, Ambalantota, Galle, Kuruwita Human Resources Manager Ms. G. Chakravarthy LLB, Attorney-at-Law Central Region - Kandy Asst. Human Resources Ms. U.R. Edirisinghe Manager MBA (Sri J.), B.Sc. HRM (Sri J.) Regional Manager Rear Admiral Wasantha Tennekoon Asst. Administration L. S. R. Nishantha MBA (Col), B.Sc. SLN (Retd.) RSP, VSV, USP, ndc, & Personnel Manager (B.Ad) Sp., NDHRM (IPM) psn, MSc. (D&SS), DISS (USA), MRIN (Lond) Deputy Regional Manager D. V. R. Mallawarachchi BBA (US), BA (DS) Consultant J. R. de Crusz Snr. Production Manager V. Jeiyachandiran B.Sc. (Hons) (Retd. Dy. Commissioner of Excise) Production Manager N. Thiranagama B.Sc. Consultant W. W. M. S. U. Wijayarathna B.Sc.(Hons), M.Phil, C.Chem Transport Division Civil Engineer A. M. A. J. B. Abeykoon Asst. Accountant Mrs. W. M. P. Perera Transport Manager Roshanth Kumar Perera Warehouse Nawayalatenna Wholesale Outlets Katugastota, Gampola, Vavuniya, Stock Control Division Batticaloa, Minneriya, Dickoya, Trincomalee, Jaffna

Manager - Stock Control Lalith Ratnayake B.Sc. (B.Ad) Sp Uva Region - Badulla Group Management Division Regional Manager Capt. Ranjith Wettewa SLN (Retd.) RSP, P.S.N Group Financial Controller Cleetus Mallawaarachchi Warehouse Badulla MBA (UoC), FCA, FCMA Wholesale Outlet Badulla Group Head of Marketing Ms. Roshani Cooray MBA (Bath), B.Sc.(Cornell), DipM, FCIM Brand Manager Sanjeev Goonewardene B.Sc. (UK), PCM (SLIM) Asst. Brand Development Ms. Rajeevi Mapalagama Manager BBA (UK), PGDipM, ACIM Project Manager Ms. Maya Fernando

Distilleries Company of Sri Lanka PLC Annual Report 2010/11 119 Group Directory

Beverage

Periceyl (Pvt) Limited Secretary Ms. V. J. Senaratne

Board of Directors Registered Office D. H. S. Jayawardena – Chairman 110, Norris Canal Road, Colombo 10 R. K. Obeyesekere Tel: (94-11) 2808565 Fax: (94-11) 5551777 C. R. Jansz R. K. Obeyesekere Co. Reg. No. PV 5529 L. U. D. Fernando S. K. S. D. Amarathunga Auditors Ernst & Young (Chartered Accountants)

Plantation

Balangoda Plantations PLC Secretary P. A. Jayatunga

Board of Directors Registered Office D. H. S. Jayawardena – Chairman/Managing Director 110, Norris Canal Road, Colombo 10 R. K. Obeyesekere Tel: (94-11) 2522871-2 Fax: (94-11) 2522913 C. R. Jansz S. K. L. Obeyesekere Co. Reg. No. PQ 165 A. Shakthevale (Appointed w. e. f. 16/07/2010) D. S. K. Amarasekera (Appointed w. e. f. 16/07/2010) Auditors Ernst & Young (Chartered Accountants)

Telecommunication

Lanka Bell Limited Secretary Ms. S. S. Jayaratne (Resigned w.e.f. 31/03/2011) Ms. C.M.Chandrapala (Appointed. w.e f. 31/03/2011) Board of Directors D. H. S. Jayawardena – Chairman Registered Office T. K. D. A. P. Samarasinghe – Managing Director Level 10, West Tower, World Trade Centre, Echelon Square, Colombo 01 C. R. Jansz Tel: (94-11) 5335000 Fax: (94-11) 5545988 L. U. D. Fernando Co. Reg. No. PB 306

Auditors KPMG Ford, Rhodes, Thornton & Co. (Chartered Accountants)

Lanka Bell Services (Pvt) Limited Secretary Ms. S. S. Jayaratne (Resigned w.e.f. 31/03/2011) Bell Solutions (Pvt) Limited Ms. C.M.Chandrapala (Appointed. w.e f. 31/03/2011) Bellvantage (Pvt) Limited Registered Office Board of Directors Level 10, West Tower, World Trade Centre, Echelon Square, Colombo 01 D. H. S. Jayawardena – Chairman Tel: ( 94-11) 5335000 T. K. D. A. P. Samarasinghe – Managing Director C. R. Jansz (Resigned w.e.f. 15/06/2010) Co. Reg. No. PV 61396 / PV 61398 / PV 65022 L. U. D. Fernando Auditors Amarasekara & Co., (Chartered Accountants)

Diversified Holdings

Melstacorp (Pvt) Limited Secretaries P. W. Corporate Secretarial (Pvt) Limited (Formerly known as Beruwala Distilleries (Pvt) Ltd.) Registered Office Board of Directors 110, Norris Canal Road, Colombo 10 D. H. S. Jayawardena – Chairman Tel: (94-11) 5696794 R. K. Obeyesekere C. R. Jansz Co. Reg. No. PV 11755 N. de S. Deva Aditya (Appointed w.e.f. 11/01/2011) K. J. Kahanda (Appointed w.e.f. 11/01/2011) Auditors KPMG Ford, Rhodes, Thornton & Co. C. F. Fernando (Appointed w.e.f. 11/01/2011) (Chartered Accountants) Dr. Naomal Balasuriya (Appointed w.e.f. 11/01/2011) L. U. D. Fernando (Appointed w.e.f. 11/01/2011) Ms. V. J. Senaratne - Alternate Director to N. de S. Deva Aditya (Appointed w.e.f. 11/01/2011)

Distilleries Company of Sri Lanka PLC 120 Annual Report 2010/11 Group Directory

Diversified Holdings - Contd.,

Milford Holdings (Pvt) Limited Secretaries Secretaries & Registrars Limited

Board of Directors Registered Office D. H. S. Jayawardena – Chairman 110, Norris Canal Road, Colombo 10 R. K. Obeyesekere Tel: (94-11) 2695295-7 Fax: (94-11) 2696360 C. R. Jansz L. U. D. Fernando Co. Reg. No. PV 5944

Auditors KPMG Ford, Rhodes, Thornton & Co. (Chartered Accountants)

Browns Beach Hotels PLC Secretaries Aitken Spence Corporate Finance (Private) Limited

Board of Directors Registered Office D. H. S. Jayawardena – Chairman 315, Vauxhall Street, Colombo 02 M. V. Theagarajah J. M. S. Brito Co. Reg. No. PQ 202 S. M. Hapugoda T. D. U. D. Peiris Auditors KPMG Ford, Rhodes, Thornton & Co. (Chartered Accountants) R. N. Asirwatham

Texpro Industries Limited Secretaries SSP Corporate Services (Pvt) Limited Timpex (Pvt) Limited

Board of Directors Registered Office D. H. S. Jayawardena – Chairman 1st Floor, Lakshman’s Building, J. D. Peries – Managing Director 321, Galle Road, Colombo 03 C. R. Jansz Tel: (94-11) 2565955/ 5503300 Fax: (94-11) 4734248 L. U. D. Fernando H. I. Munasingha Co. Reg. No. PB 748 / PV 17863

Auditors KPMG Ford, Rhodes, Thornton & Co. (Chartered Accountants)

Melsta Logistics (Pvt) Limited Secretaries Financial Services & Commercial Agencies (Pvt) Limited (Formerly known as Collision Repair Center (Pvt) Ltd.)

Board of Directors Registered Office L. U. D. Fernando – Chairman (Appointed w.e.f. 23/06/2010) 160, Negombo Road, Seeduwa C. R. Jansz (Resigned w.e.f. 15/06/2010) Tel: (94-11) 5223300 Fax: (94-11) 5223322 S. U. K. M. B. Galagoda D. T. R. de Silva (Resigned w.e.f. 30/09/2010) Co. Reg. No. PV 14051 A. M. J. Abeysinghe Auditors Amarasekara & Company (Chartered Accountants)

Bogo Power (Pvt) Limited Secretaries P. A. Jayatunga

Board of Directors Registered Office D. H. S. Jayawardena – Chairman 833, Mawatha, Colombo 14 N. M. A. Gaffar Tel: (94-11) 2522871-2 Fax: (94-11) 2522913 S. K. L. Obeyesekere Co. Reg. No. PV 64901

Auditors Ernst & Young (Chartered Accountants)

Distilleries Company of Sri Lanka PLC Annual Report 2010/11 121 Group Directory

Diversified Holdings - Contd.,

Continental Insurance Lanka Limited Secretary Mrs. G. P. Ranasinghe

Board of Directors Registered Office D. H. S. Jayawardena – Chairman 79, Dr. C. W. W. Kannangara Mawatha, Colombo 07 G. D. C. de Silva Tel: (94-11) 5200300 S. U. K. M. B. Galagoda A. S. Abeyewardene Co. Reg. No. PB 3784 L. U. D. Fernando (Resigned w.e.f. 29/06/2011) Auditors KPMG Ford, Rhodes, Thornton & Co. (Chartered Accountants)

Pelwatte Sugar Industries PLC Secretaries Managers & Secretaries (Pvt) Limited

Board of Directors Registered Office D. H. S. Jayawardena (Appointed w.e.f. 08/07/2011) 27, Melbourne Avenue, Colombo 04 M. J. C. Amarasuriya - Chairman (Resigned w.e.f. 28/06/2011) Tel: (94-11) 2589390 Fax: (94-11) 2500674 P. H. A. W. Karunaratna - Managing Director (Appointed w.e.f. 08/07/2011) Co. Reg. No. PQ 30 K. J. Kahanda (Appointed w.e.f. 08/07/2011) M. R. Peries (Appointed w.e.f. 08/07/2011) Auditors Ernst & Young (Chartered Accountants) R. Wettewa (Appointed w.e.f. 08/07/2011) L. U. D. Fernando (Appointed w.e.f. 08/07/2011) D. A. de S. Wickramanayake D. H. J. Gunawardena C. S. Weeraratne D. A. E. de S. Wickramanayake Y. Thilakasena (Resigned w.e.f. 05/07/2011)

Pelwatte Sugar Distilleries (Pvt) Limited Secretaries Managers & Secretaries (Pvt) Limited

Board of Directors Registered Office K. J. Kahanda - Managing Director (Appointed w.e.f. 25/07/2011) 27, Melbourne Avenue, Colombo 04 L. U. D. Fernando (Appointed w.e.f. 25/07/2011) Tel: (94-11) 2589390 Fax: (94-11) 2500674 M. R. Peries (Appointed w.e.f. 25/07/2011) D. A. de S. Wickramanayake Co. Reg. No. PV 10221 D. A. E. de S. Wickramanayake D. H. J. Gunawardena (Resigned w.e.f. 25/07/2011) Auditors Ernst & Young (Chartered Accountants) C. S. Weeraratne (Resigned w.e.f. 25/07/2011) Y. Thilakasena (Resigned w.e.f. 08/07/2011)

Pelwatte Agriculture & Engineering Services Secretaries Managers & Secretaries (Pvt) Limited (Pvt) Limited

Board of Directors Registered Office M. J. C. Amarasuriya 27, Melbourne Avenue, Colombo 04 D. A. de S. Wickramanayake Tel: (94-11) 2589390 Fax: (94-11) 2500674 C. S. Weeraratne Y. Thilakasena Co. Reg. No. PV 66850

Auditors Ernst & Young (Chartered Accountants)

Distilleries Company of Sri Lanka PLC 122 Annual Report 2010/11 Group Directory

Associates - Contd.,

Aitken Spence PLC Secretary R. E. V. Casie Chetty

Board of Directors Registered Office D. H. S. Jayawardena – Chairman 315, Vauxhall Street, Colombo 02 J. M. S. Brito – Deputy Chairman/Managing Director Tel: (94-11) 2308308 Fax: (94-11) 2445406 R. M. Fernando G. C. Wickremasinghe Co. Reg. No. PQ 120 G. M. Perera C. H. Gomez Auditors KPMG Ford, Rhodes, Thornton & Co. N. de S. Deva Aditya (Chartered Accountants) V. M. Fernando M. P. Dissanayake R. N. Asiriwatham

Madulsima Plantations PLC Secretary P. A. Jayatunga

Board of Directors Registered Office D. H. S. Jayawardena – Chairman/Managing Director 833, Sirimavo Bandaranaike Mawatha, Colombo 14 R. K. Obeyesekere Tel: (94-11) 2522871-2 Fax: (94-11) 2522913 Z. Alif N. M. Abdul Gaffar Co. Reg. No. PQ 184 S. K. L. Obeyesekere A. Shakthevale Auditors KPMG Ford, Rhodes, Thornton & Co. D. S. K. Amarasekera (Chartered Accountants)

Splendor Media (Pvt) Limited Secretary Financial Services & Commercial Agencies (Pvt) Limited

Board of Directors Registered Office C. P. Abeywickrema– Chairman 110, Norris Canal Road, Colombo 10 L. U. D. Fernando Tel: (94-11) 5655151 Ms. G. Chakravarthy D. T. R. de Silva (Resigned w.e.f. 30/09/2010) Co. Reg. No. PV 1230 Ms. M. S. R. Cooray D. A. De Vas Gunasekara (Appointed w.e.f. 04/01/2010) Auditors KPMG Ford, Rhodes, Thornton & Co. (Chartered Accountants)

Pelwatte Dairy Industries Limited Secretaries Maidas Secretarial Services (Pvt) Limited

Board of Directors Registered Office D. A. de S. Wickramanayake A/4, Perahera Mawatha, Colombo 03 D. A. E. de S. Wickramanayake D. H. J. Gunawardena Co. Reg. No. PV 16876 A. N. Felix Perera Auditors Ernst & Young (Chartered Accountants)

Distilleries Company of Sri Lanka PLC Annual Report 2010/11 123 Notice of Meeting

NOTICE IS HEREBY GIVEN that the TWENTY FIRST ANNUAL GENERAL MEETING of DISTILLERIES COMPANY OF SRI LANKA PLC will be held at the “Sapphire Ballroom” of Ceylon Continental Hotel, 48, Janadhipathi Mawatha, Colombo 01 on Monday 12th September 2011 at 10.00 a.m. for the following purposes:

1. To receive and consider the Annual Report of the Directors and the Financial Statements of the Company for the year ended 31st March 2011.

2. To approve a Final Dividend as recommended by the Board of Directors.

3. To re-elect Mr. R. K. Obeyesekere who retires by rotation at the Annual General Meeting in terms of Article 92 of the Articles of Association, as a Director of the Company.

4. To re-elect Mr. C. R. Jansz who retires by rotation at the Annual General Meeting in terms of Article 92 of the Articles of Association, as a Director of the Company

5. To re-elect as a Director, Mr. C. F. Fernando, who is over the age of 70 years and who retires in terms of Section 210 of the Companies Act No. 07 of 2007, by passing the following resolution. “RESOLVED that Mr. C. F. Fernando, who attained the age of 70 on 01st March, 2005, be and is hereby re-elected as a Director of the Company, and it is hereby declared that the age limit of 70 years referred to in Section 210 of the Companies Act No. 7 of 2007 shall not apply to the said Director”.

6. To authorize the Directors to determine contributions to charities.

7. To authorize the Directors to determine the remuneration of the Auditors, Messrs. KPMG Ford, Rhodes, Thornton & Company who are deemed to have been reappointed as Auditors in terms of section 158 of the Companies Act No. 7 of 2007.

By Order of the Board

Ms. V. J. Senaratne Company Secretary

04 August 2011 Colombo

Notes: 1. A member is entitled to attend and vote at the meeting or to appoint a proxy to attend and vote on behalf of him/her by completing the Form of Proxy enclosed herewith.

2. A proxy need not be a member of the Company.

3. The completed Form of Proxy should be deposited at the Registered Office of the Company at 110, Norris Canal Road, Colombo 10, before 10.00 a.m. on 10th September 2011.

The dividend warrants will be posted within seven market days, if the dividend proposed is approved at the Annual General Meeting. In accordance with the rules of the Colombo Stock Exchange, the shares of the Company will be quoted ex-dividend with effect from 13th September 2011.

THE SHAREHOLDERS AND THE PROXY HOLDERS ATTENDING THE MEETING ARE KINDLY REQUESTED TO BE IN THEIR SEATS BY 9.45 A.M. THEY ARE ALSO REQUESTED TO BRING THIS ANNUAL REPORT, ALONG WITH AN ACCEPTABLE FORM OF IDENTITY.

Distilleries Company of Sri Lanka PLC 124 Annual Report 2010/11 Attendance Slip

Distilleries Company of Sri Lanka PLC PQ 112

110, Norris Canal Road, Colombo 10, Sri Lanka.

I / We hereby record my / our presence at the Twenty First Annual General Meeting of the Distilleries Company of Sri Lanka PLC at the “Sapphire Ballroom” of Ceylon Continental Hotel, 48, Janadhipathi Mawatha, Colombo 01 at 10.00 a.m on Monday 12th September 2011.

1. Full Name of Shareholder : ...... (In Capital Letters please)

2. Shareholder’s NIC No./Passport No. : ......

3. Number of Shares held and Folio No. : ......

4. Name of Proxy Holder : ......

5. Proxy Holder’s NIC No./Passport No. : ......

6. Signature of Attendee : ......

Notes 1. Shareholders / Proxy Holders are requested to bring this Attendance Slip with them when attending the meeting and hand it over at the entrance to the meeting hall after signing it.

2. Shareholders are also kindly requested to indicate any changes in their addresses / names by completing the following and forward same to the registered office 110, Norris Canal Road, Colombo 10, if not attending the meeting.

Name of the Shareholder: : ......

Certificate No. : ......

Previous Address : ......

Present Address : ......

Any changes to the Name : ......

Distilleries Company of Sri Lanka PLC Annual Report 2010/11 125 Form of Proxy

Folio No.

I/We ......

of ...... being a member/members of the Distilleries Company of Sri Lanka PLC hereby appoint Don Harold Stassen Jayawardena* or failing him Rajpal Kumar Obeyesekere* or failing him Cedric Royle Jansz* or failing him Niranjan de Silva Deva Aditya* or failing him Kolitha Jagath Kahanda* or failing him Chrisantha Francis Fernando* or failing him Adrian Naomal Balasruriya*

or ...... of ......

as my/our* Proxy to represent me/us* and vote for me/us* on my/our* behalf at the Twenty First Annual General Meeting of the Company to be held on the 12th September 2011 and at any adjournment thereof and at every poll which may be taken in consequent thereof.

* Please delete the inappropriate words. ** Please write your Folio Number which is given on the top left of the address sticker.

...... Signature of Shareholder Dated this ...... day of ...... 2011

Notes: 1. Proxy need not be a member of the Company.

2. In terms of the Article 71 of the Articles of Association of the Company;

The instrument appointing a Proxy shall be in writing under the hand of the appointer or his attorney duly authorized in writing, or where the appointer is a corporation, either under seal, or under the hand of an officer or attorney duly authorized. A Proxy need not be a member of the Company.

3. In terms of Article 72 of the Articles of Association of the Company;

The instrument appointing a Proxy and the Power of Attorney or other authority, if any, under which it is signed or notarially certified copy of that power of attorney shall be deposited at the registered office of the Company or at such other place within Sri Lanka as is specified for the purpose in the notice convening the meeting not later than 48 hours before the time of the holding of the meeting or adjourned meeting at which the person named in the instrument proposes to vote or in the case of the poll, not later than 24 hours before the time appointed for the taking of the poll and in default the instrument of Proxy shall not be treated as valid.

4. In terms of Article 66 of the Articles of Association of the Company;

In case of the joint holders the votes of the senior who tenders a vote, whether in person or by Proxy, shall be accepted to the exclusion of the votes of the other joint holders; and for this purpose seniority shall be determined by the order in which the names stand in the register of members.

The first joint-holder thereby has power to sign the Proxy without the consent of the other joint holder.

5. Instructions as to completion are noted overleaf.

Distilleries Company of Sri Lanka PLC 126 Annual Report 2010/11 Instructions as to Completion

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

2. Kindly return the completed Form of Proxy to the Company after deleting one or other of the alternate words indicated by an asterisk.

3. To be valid the completed Form of Proxy should be deposited at the Registered Office of the Company at No. 110, Norris Canal Road, Colombo 10, not later than 48 hours before the time appointed for the holding of the meeting.

4. Every alteration or addition to the Form of Proxy must be duly authenticated by the full signature of the shareholder signing the Form of Proxy. Such signature should as far as possible be placed in proximity to the alteration or addition intended to be authenticated.

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This report is entirely in English. If you require a translated copy of The Chairman’s Message, Annual Report of the Board of Directors and The Auditor’s Report in Sinhala or Tamil, please make a request by letter addressed to the Secretary, Distilleries Company of Sri Lanka PLC, No. 110, Norris Canal Road, Colombo 10 on or before 03rd day of September 2011.

Distilleries Company of Sri Lanka PLC 128 Annual Report 2010/11 Distilleries Company of Sri Lanka PLC Annual Report 2010/11 129 The Legacy to Inspire