ANNUAL REPORT 2019/2020

Creating Synergy

Contents

About Horana Plantations PLC 2 Non Financial Highlights 3 Financial Highlights 4 Chairman’s Message 6 Managing Director’s Review 8 Board of Directors 13 Management Team 15 Statement of Corporate Governance 16 Risk Management 20 Annual Report of the Board of Directors on the Affairs of the Company 21 Statement of Directors’ Responsibilities 25 Report of the Remuneration Committee 26 Related Party Transactions Review Committee Report 27 Audit Committee Report 28

Financial Reports Financial Calendar 30 Independent Auditor’s Report 31 Statement of Profit or Loss and Other Comprehensive Income 36 Statement of Financial Position 37 Statement of Changes in Equity 39 Statement of Cash Flows 40 Significant Accounting Policies 41 Notes to the Financial Statements 55

Annexures Value Added Statement 93 Ten Year Summary 94 Shareholder and Investor Information 96 Our Plantations 99 Quarterly Results 100 Corporate Information 101 Notice of Meeting 102 Form of Proxy 103 2 HORANA PLANTATIONS PLC

About Horana Plantations PLC

Horana Plantations PLC is one of Sri Lanka’s premier Plantation Companies, comprising of sixteen prime estates. Since being incorporated on the 22nd of June 1992, following the privatisation of plantation estates into the hands of the Regional Plantation Companies (RPC), Horana Plantations has grown into a leading producer of the finest Tea, Rubber and other agricultural produce in Sri Lanka.

The Company’s sixteen estates are spread over a total area of 7,534 hectares (18,458 acres); primarily in the Central and Western provinces of Sri Lanka. 29% of the cultivated area has been dedicated to Tea, 26% to Rubber, 7% to Timber, and 16% to other diversified agricultural crops. Horana Plantation has an annual production of 2.4 Mn Kg of Tea and 0.6 Mn Kg of Rubber.

Horana Plantations product range is renowned for its excellent quality and high standards. A significant proportion of the Company’s estates have been internationally certified with quality standards such as HACCP, ISO:22000:2005/2018, Rainforest Alliance, Ethical Tea Partnership, Fair Trade and Forest Stewardship CouncilTM Certification

Horana Plantations PLC is a public quoted limited liability company and its shares are listed on the Colombo Stock Exchange bearing the stock symbol HOPL. The Company is a subsidiary of the Vallibel Plantation Management Ltd., with its ultimate Parent Company being Vallibel One PLC.

Vallibel One PLC spans a widespread of interests in Retailing, Hospitality, Ceramics & Tiles, Finance and Hydro Power Generation. Annual Report 2019 | 2020 3

NON FINANCIAL HIGHLIGHTS

2,441,613Kg Tea Number of Estates Production Kg Rubber 16 Volume 593,507 Total Extent 7,534 Ha

08 Employees by gender Up Country Resident Population 3,058 Female 08 Low Country 29,425 2,341 Male

Existing Revenue New Revenue Streams Streams 304 Ha 516 Ha 2,198 Ha Oil Palm Timber Forestry Tea 1,901 Ha 153 Ha 122 Ha Rubber Fruits and Other Crop Coconut 4 HORANA PLANTATIONS PLC

Financial Highlights

For the Year ended 31st March 2020 2019 Change Rs'000 Rs'000 %

Financial Performance Revenue 1,762,154 2,020,360 (12.8) Gross (Loss)/Profit (217,542) 196,608 (210.6) (Loss)/Profit from Operations (324,002) 136,970 (336.6) Net Finance Expenses (146,373) (129,622) (12.9) (Loss)/Profit before Tax (470,375) 7,348 (6,501.6) Tax Expense (24,493) (2,546) (862.0) (Loss)/Profit after Tax (494,868) 4,802 (10,406.2) Other Comprehensive Income (18,155) (75,184) 75.9 Total Comprehensive Income (513,023) (70,382) (628.9)

Financial Position Shareholders' Funds 811,578 1,337,916 (39.3) Borrowings 1,694,579 1,340,097 (26.5) Total Liabilities (excluding Borrowings) 1,215,237 1,118,112 (8.7) Total Assets 3,721,394 3,796,125 (2.0)

Cash Flows Operating Activities (152,285) 14,217 (1,171.0) Investing Activities (160,954) (170,736) 5.7 Financing Activities 99,219 64,598 53.6 Total Net Cash Outflow for the period (214,020) (91,919) (132.8) Cash & Cash Equivalents at the end (584,620) (370,600) (57.7)

Key Indicators per Ordinary Share Earnings per Share (Rs.) (19.79) 0.19 (10,403.8) Market Value per Share (Rs.) 17.00 17.00 - Dividend per Share (Rs.) - 0.50 (100.0) Net Assets per Share (Rs.) 32.46 53.52 (39.3) Price-Earnings Ratio (times) (0.86) 88.51 (101.0) Earnings Yield (%) (116.44) 1.13 (10,406.3)

Key Ratios Current Ratio (times) 0.27 0.49 (45.3) Interest Cover (times covered) (2.21) 1.06 (309.1) Revenue to Capital Employed (times) 0.70 0.75 (7.2) Property, Plant & Equipment to Shareholders' Funds (times) 3.39 2.05 65.6 Gross Profit Margin (%) (12.35) 8.17 (251.1) Operating Profit Margin (%) (18.39) 6.78 (371.2) Net Profit Margin (%) (28.08) 0.24 (11,916.4) Return on Equity (%) (60.98) 0.36 (17,091.3) Return on Capital Employed (%) (12.93) 5.11 (352.8) Gearing (%) 67.62 50.04 (35.1) Equity to Total Assets Ratio (%) 21.81 35.24 (38.1) Annual Report 2019 | 2020 5

Revenue Total Assets Rs Millions Rs Millions 2500 4,000

2000 3,000

1500 2,000 1000

1,000 500

0 0 2015/16 2016/17 2017/18 2018/19 2019/20 2015/16 2016/17 2017/18 2018/19 2019/20

Gross Profit Shareholders’ Funds Rs Millions Rs Millions 300 1,500

200

100 1,000

0

(100) 500

(200)

(300) 0 2015/16 2016/17 2017/18 2018/19 2019/20 2015/16 2016/17 2017/18 2018/19 2019/20

Profit after Tax Operating Cash Flow Rs Millions Rs Millions 600 300

200 300 100

0 0

(100) 300 (200)

600 (300) 2015/16 2016/17 2017/18 2018/19 2019/20 2015/16 2016/17 2017/18 2018/19 2019/20

Rs.1,762Mn Rs.812Mn Revenue Net Assets 6 HORANA PLANTATIONS PLC

Chairman’s Message

Our Strategic Approach Our strategic drive focuses on long-term profitability and sustainable operations of the Company. As such, we continued to make progress in our crop diversification strategy whilst also working on enhancing the production process to obtain a better yield and increasing labour efficiency. During the financial year under review, the Company continued to invest in Oil palm and timber plantations, in view of the existing macro risk environment.

Moreover, in line with the Company’s market insight driven strategy, we continued to concentrate on quality of production in tea to cater to emerging markets such as China.

Social capital is a key component of sustainable growth in the heavily labour dependent plantation industry. Mindful of this fact, the Company carried out community welfare schemes to uplift the lives of our labour force.

Our growth strategy continues to evolve in tandem It is with pleasure that I present the Annual Report and Financial with market realities, future trends and growing climatic Statements of Horana Plantations PLC for the financial year challenges. 2019/2020. Financial Performance Climate change severely impacted crop production during Faced with numerous economic and climate related the year under review, while the volatile nature in supply and challenges, Horana Plantations PLC ended the financial year demand, as well as the uncertain political climate in importing recording a loss before tax of Rs. 470 Mn. The Company countries, negatively affected the industry as well as the recorded a revenue of Rs. 1.76 Bn, recording a decrease Company. A number of other economic and operational realities of 13 percent vis-à-vis the previous year. The downward negatively impacted the Company’s profitability during the trend in major crops, specifically tea and rubber led to the financial year 2019/20. Higher labour cost led to the increased decrease in revenue generation despite the increase of cost of production while currency depreciation in tea importing revenue from diversified crops by 43 Percent. Revenue from countries resulted in higher prices in local currencies which tea and rubber was Rs. 1.4 Bn and Rs. 265 Mn respectively, in turn led to decreased demand. Moreover, unstable price recording a downward trend in comparison to the previous fluctuations in the world market negatively impacted Colombo financial year. The Company’s total assets and retained profit auction prices. for the year stood at Rs. 3.7 Bn and Rs. 492 Mn respectively as at 31st March 2020. The Company’s tea sector had to reckon with uncertainty arising from the suspension of tea exports to Russia, US sanctions COVID – 19 Impact on Iran; a country that is a key importer of Ceylon Tea and Post COVID – 19, the world is expected to face an internal conflicts in the Middle East. Tea prices experienced a unprecedented economic recession, which will have lower trend during the year under review in comparison to the far-reaching impacts on all businesses. However, we are previous year. Meanwhile, tea production slumped in the face of cautiously optimistic about the future of the plantation El Niño drought during the first three months of 2020. industry. The Ceylon Tea which has a relatively high level of Polyphenol is likely to result in higher demand given The Company vigilantly absorbed worrying economic challenges the current prevalence for healthy beverages which has during the year whilst concentrating on mitigating measures antidotal properties. Rubber prices to are expected to as well as innovation to cater to new market trends to pursue viable growth prospects. Annual Report 2019 | 2020 7

increase given the growing demand for manufacturing competencies and other November 2019 while his alternate health and safety related products. The competitive advantages that Horana Director Mr. N T Bogahalande Oil Palm industry continues to enjoy Plantations PLC acquired in recent years. relinquished his position on the same premiums and we expect the trend We will focus our efforts on capturing a date. The Company appointed Mr. L N to continue. Horana Plantations will segment of the rubber market. de S Wijeyeratne to the Director Board continue to closely monitor the status as an Independent Non-Executive quo and develop necessary mitigating The Company’s tea sector will further Director on 3rd January 2020. measures to ensure operational stability seek to increase the stake of black and profitability of the business. The tea to China and other existing and Mr. Johann Rodrigo assumed duties as Company has already adopted cost prospective markets. The demand for the Director/CEO of Horana Plantaions controlling mechanisms to overcome the black tea, particularly Ceylon Tea is set PLC with effect from 01 April 2020. risk of the rising cost of production. to increase in the near future given Mr. Rodrigo is the former Director rising consumer interest in healthy of Corporate Affairs of Kelani Valley On the human resources front, the beverages post COVID – 19. The Plantations PLC and worked for Kelani Company adopted and will continue Company will also focus on capturing Valley Plantations from the inception. to implement stringent measures to the rising speciality tea segment. Please join me in wishing Mr. Rodrigo all control the spread of COVID -19 within the very best success in his current role. the workplace. The Company will Moreover, Horana Plantations PLC continue its policy of Human Resources will invest further in developing the Acknowledgment development to meet the future diversified crop sector to benefit from The year 2019 tested our capability challenges that will arise in skill and healthy segmental profits. and commitment. The Company competency levels. persevered successfully in the face of The Company’s overall growth strategy challenges thanks to the dedication, Moreover, in line with our sustainability is driven mainly by our diversification as exceptional work ethics and hard work agenda, the Company will continue well as far seeing market insights with a of our people. I would like to express to provide the necessary support to particular focus on managing challenges my sincere gratitude to the Board employees and families impacted by the effectively to seek sustainable progress. of Directors for their cautious yet pandemic and its spillover effects. optimistic guidance. Our management Corporate Governance team, estate managers and employees Exploring Future Growth Prospects of The Company’s Board of Directors continued to support the organisation Strategy steers HPL’s growth strategy to with admirable enthusiasm and loyalty. Mindful of challenges such as the pursue viable growth. HPL’s corporate I am grateful for their support. Last but risk of necessary labour, increasingly governance approach sets the stage to not least, I wish to extend my gratitude competitive nature of the market and maintain accountability, transparency to our shareholders for their unwavering climate change challenges, the Company and monitor effective operational and support and trust in the Company. is focusing on gearing up for sustainable business approaches across all levels of growth and profitability in the long-term. the organisation.

We will continue to explore the use of Directorate modern technology and fresh quality Mr. J. M. Kariapperuma retired from A M Pandithage control methods to improve crop his post as the Director/ CEO after Chairman production and enhance the quality and 06 years of service to the Company. I yield. take this opportunity to thank him for 19th May 2020 his dedicated service and contribution Increasing demand for industrial to the growth of the Company. Mr. K rubber bodes well for the Company’s D H Perera resigned from his position rubber segment in view of diverse as a Non- Executive Director on 8th 8 HORANA PLANTATIONS PLC

Managing Director’s Review

A confluence of factors including the decline of an average of auction prices compared to the previous year and the rising cost of production contributed to the loss.

Mainly driven by adverse weather conditions that prevailed during the year under review, yield per hectare declined by 96Kgs, from 1,273 Kgs to 1,177Kgs, resulting in a decrease of total tea production from 2.72 Mn Kgs to 2.44 Mn. Kgs, recording a decrease of 0. 28 Mn kgs.

Net Sales Average (NSA) declined to Rs. 520/- per Kg during the year under review, recording an 11 percent drop Year on Year. Meanwhile, the cost of production increased by 12 percent in comparison to the previous year, resulting in a gross loss of Rs. 186 Mn during the period.

Yield -Total (Tea) Mean Yield (kg/Ha) 1,500

An eventful 2019/20, signalled changing tides for the plantation 1,000 industry, requiring Horana Plantations PLC to revisit our growth strategy and adopt a more discerning approach to pursue sustainable growth. My review this year focuses on complex 500 challenges that the plantation industry continues to face and our perceptive growth strategy.

0 Company Performance 2015/16 2016/17 2017/18 2018/19 2019/20 Horana Plantations PLC recorded Rs. 1.76 Bn revenue and incurred a loss before tax of Rs. 470 Mn as at the end of the financial year on 31st March 2020. The decrease in revenue Gross Sale Average (GSA) growth at 13 percent was mainly driven by the less than HPL Vs. High Grown desirable performance from major crops. Revenue from tea and GSA (Rs/kg) rubber stood at Rs. 1.4 Bn and Rs. 265 Mn respectively, in the 800 wake of pressure arising from adverse weather conditions and the rising cost of production. Nevertheless, revenue generation 600 from diversified crops rose by 43% Year on Year. As at the end of the financial year, Horana Plantations PLC recorded Loss after tax at Rs. 495 Mn. 400

Tea Sector Performance 200 The Company’s tea sector recorded a revenue loss of Rs. 189 Mn, posting a Year on Year loss of 12 percent. Gross loss for the year in the tea sector was at Rs. 186 Mn in 0

comparison to gross profit of Rs. 194 Mn recorded in the Jul Jan Jun Apr Feb Sep Oct Aug Dec Nov Mar previous year. May HPL High Grown Annual Report 2019 | 2020 9

Tea - COP & NSA Rubber Gross Sale Average (GSA) (Rs./kg) GSA (Rs/kg) 675 340

600 310

525 280

450

250 375

300 220 2015/16 2016/17 2017/18 2018/19 2019/20 Jul Jan Jun Apr Feb Sep Oct Aug Dec Nov Mar COP NSA May Month Todate

Rubber Sector Performance

Horana Plantation PLC’s rubber sector incurred losses during Rubber - COP & NSA the year under review, signaling a continuation of the loss (Rs./kg) recorded during the previous financial year. Gross loss in the 625 rubber sector increased by 35 percent, posting a loss of Rs. 50 Mn for the period under review. Revenue from the rubber 550 sector declined to Rs. 265 Mn, recording an decrease of 13 475 percent. Rubber production dropped by 23 percent during the year under review from 775,241 kgs in 2018/19 to 593,597 400 kgs in 2019/20. Moreover, yield per hectare decreased by 99Kgs during this period. 325

However, Net Sales Average (NSA) during the year increased 250 to Rs. 279/- per Kg recording an increase of 12 percent in 175 comparison to the previous year. While the increase in NSA was 2015/16 2016/17 2017/18 2018/19 2019/20 favourable, the cost of production in the rubber sector rose by COP NSA Rs. 105/- per Kg to (25 percent) to Rs. 531/- per Kg Year on Year, resulting in a significant loss for the sector. Production - Tea & Rubber Yield - (Rubber) (kg’000) Mean Yield (kg/Ha) 3,500 700 3,000 640 2,500

580 2,000

520 1,500

1,000 460

500 2015/16 2016/17 2017/18 2018/19 2019/20 400 2015/16 2016/17 2017/18 2018/19 2019/20 Tea Rubber 10 HORANA PLANTATIONS PLC

Managing Director’s Review

Diversified Sector Performance and Field Development While the inevitable global economic Investment The Company invested Rs. 155 Mn impact Post COVID – 19 will challenge The Company’s investments in on field development during the year market conditions, we believe that diversified crop continued to pay off under review, out of which Rs. 145 Mn demand for Tea, in particular Ceylon Tea, with healthy profit growth recorded was invested in immature plantations in renowned for high quality will increase. during the year under review. At Bearer Biological Assets while Rs. 10 Mn However, the Company will have to present, Horana Plantations PLC has was invested in Consumable Biological closely monitor market conditions, invested in a number of diversified crop Assets. The Company’s investments economic challenges and impact of such as Oil Palm, Cinnamon, Coconut, during the year on Tea, Rubber, Oil climate change to forge an insight Pineapple and Fruits. Palm and Other Diversified Crops were driven, market sensitive strategy to seek respectively Rs. 24 Mn, Rs. 37 Mn, Rs. future growth and viable profitability. The Company invested Rs. 45 Mn to 45 Mn and Rs. 40 Mn. Moreover, the develop the Oil Palm business during Company transferred Rs. 128 Mn worth Adopting a Perceptive Growth the period under review. The Company’s of immature plantations to mature Approach Coconut cultivation recorded a revenue plantations during the year, which will Our drive to keep pace with evolving of Rs. 8.7 Mn, out of which Rs. 4.4 Mn result in increased yield in the near market realities, beckon the Company was net profit for the period. future. to invest in modern technology to improve crop production and ensure The Company extended Cinnamon and External Risk and Pressure from the required high quality standards and Pineapple cultivation to 60.95 Ha and Evolving Markets focus efforts on crop diversification 50.94 Ha respectively. The Cinnamon The plantation industry faced multiple and sustainable growth practices. The segment recorded revenue of threats during the year 2019/20, status quo calls for a multi-pronged Rs. 4 Mn while pineapple segment falling victim to overwhelming impact approach to enhance the Company’s recorded revenue of Rs. 6.1 Mn during from climate change, local and operational processes, human resources the year under review, signalling healthy global economic uncertainties and management, cost management and growth in the Fruits and minor crop geopolitical challenges. The Rising cost pave the way for growth in tandem with sector. of production in the face of erratic changing dynamics. weather patterns, uncertain and Consumable Biological Assets deducing demand from major markets Envisioning a sustainable future for the Horana Plantation PLC’s Consumable and unexpected developments in both Tea and Rubber sectors, the Company Biological Assets was at Rs. 632 Mn as local and global economies challenged continues to ally with Rainforest of March 31st 2020, which makes up 17 the Company’s performance. Erratic Alliance (RA), Forest Stewardship percent of the Company’s total assets. weather conditions negatively impacted Council (FSC) and Fairtrade (FLO) The Company’s Consumable Biological crop production and affected the sustainable guidelines, and adhere to Assets comprise of immature plantations quality of the leaf, posing a specific robust sustainable farm management (Rs. 44.2 Mn) and mature plantations threat to the Company’s Tea sector. practices. Horana Plantations PLC (Rs. 587.9 Mn). Pure crop within the The Increasing cost of production continues to advocate and implement low country cluster spreads across 6 driven by high labour cost and currency Good Agricultural Practices (GAP) and estates, comprising of 10,830 trees. The depreciation in major market posed Good Manufacturing Practices (GMP), Upcot cluster spreads across 5 estates, further challenges. whilst also abiding by the latest ISO comprising of 17,138 trees. There are 22000:2018/HACCP food safety 21, 008 trees spread across 3 estates in The Company also had to absorb management systems. In 2019, the the Lindula cluster. The majority of tree pressure emerging from adhoc policy Company received ISO 9001:2015/ species that makes up the Company’s changes and lack of adherence to QMS once again this year. Adherence to Biological Assets are Eucalyptus Grandis, lease rights granted at the time of these guidelines enables us to ensure a Robusta, Alstonia, Acacia, Mahogony, privatisation curtailed returns from high standard of quality control. Mindful and Albezia while Toraliana, Tuna, and strategic investments. of the fact that sustainable practices Micro trees make up the remaining Biological Assets. Annual Report 2019 | 2020 11

reach above and beyond standardisatio their families. During the year under Clean and tidy homes and work Horana Plantations PLC will continue to review, Adventist Development & environments lead to better health explore more avenues to ensure long- Relief Agency provided latrine facilities and wellbeing of workers and their term growth. to families. The Company conducted families. To this end, the Company periodic medical clinics, eye camps and carried out a series of programmes Human capital development is a key facilitated anti-rabies vaccination. The including awareness building project, contributing factor to operational Company also focused on health and ‘Sharamadana’ programme to clean success in the plantation industry. The nutrition of plantation workers and drains and the work environment. The Company maintains a consistent human their families through forming women’s Company also renovated the muster capital development strategy that looks groups to conduct monthly meetings shed. into community welfare, training and on nutrition and provided families skills development as well as health and with facilities for home gardening and Striving to promote regular attendance safety of workers. Striving to curtail the gardening at the Child Development to work, the Company continued to impact of COVID – 19, the Company Centres. educate workers on the advantages has already adopted and will continue to and benefits of regular attendance and implement additional safety measures to Children and mothers are valuable organised a ‘best plucker’ completion to curtail the spread of the disease. members of the plantation community. motivate them. The Company held an Mindful of this, the Company awarding ceremony to honour ‘the best Managing the economic and social conducted various programmes to pluckers’ who won the competition. impact of COVID -19 will require encourage children to continue their stringent planning, meticulous execution education, encourage healthy eating Training and talent enhancement and above all, an insightful approach habits and provide a secure communal of our employees are key concerns that address emerging realities. The environment for children. The Company of the Company. Accordingly, the Company will closely monitor the maintains a database of school-going Company conducted various training situation and take effective action in children and follows up on those who programmes during the year under tune with changing circumstances. drop out of the education system. We review and offered foreign and local also conducted a number of health training tours to employees. During Community Development and and nutrition programmes, targeted the year under review, the Company Employee Wellbeing specifically at children during the conducted health and safety training On the people front, we conducted a year under review. The Company also sessions, first aid training and fire drill series of programmes to ensure the focuses on minimising/preventing training. The Company also organised wellbeing of our plantation workers. The gender-based violence and ensures a cricket tournament for executives Company’s commitment to maintaining child safety by involving the help of the as well as an inter-division volleyball a healthy workforce resulted in a series police to raise awareness about such tournament. Further, Horana Plantations of awareness programmes on relevant issues. Aiming to provide opportunities PLC provided financial sponsorships to concerns such as anaemia, nutrition, for children to enjoy themselves, the employees who followed diploma and worm infestation, health and hygiene. Company conducted fairs from time work-related academic training. The Company conducted periodical to time. In addition, we also celebrated health screening for plantation workers Children’s Day and organised an art and provided them with anti-worm completion on the subject of clean and medication and anti-leech balm. tidy homes and subsequently held an exhibition of their artwork. Further to the above, the Company organised activities and provided necessary facilities to improve the quality of life of plantation workers and 12 HORANA PLANTATIONS PLC

Managing Director’s Review

Directorate I would like to extend a special note of appreciation to Mr. J. M. Kariapperuma who retired from his post as the Director/ CEO on 31st March 2020 after 06 years of service to the Company. On 8th November 2019, Mr. K D H Perera relinquished his duties as a Non-Executive Director while his alternate Director Mr. N T Bogahalande retired from his post as well. Mr. L N de S Wijeyeratne assumed duties as an Independent Non-Executive Director on 3rd January 2020. Mr. Johann A Rodrigo assumed duties as the Director/CEO of Horana Plantations PLC from 01st April 2020.

Acknowledgement Horana Plantations PLC succeeded in effectively addressing pressure from unfavourable economic and external conditions that prevailed throughout the year. This gargantuan feat would not have been possible were it not for concentrated efforts from our employees and the workforce. I would like to express my sincere gratitude to them for their dedication and exceptional work ethics. The Company’s Chairman and Board of Directors steered Horana Plantations PLC with the foresight to prepare the Company for long-term success. I remain appreciative of their commitment and efforts. I am also grateful to our shareholders, buyers, suppliers and other business partners for rallying around us in these trying times. Let us continue to work together to pursue viable growth.

Dr. Roshan Rajadurai Managing Director

19th May 2020 Annual Report 2019 | 2020 13

Board of Directors

Mr. A M Pandithage Resort PLC, Vallibel Power Erathna the Chairman of the Consultative Executive Chairman PLC, Greener Water Limited, Uni-Dil Committee on Estate and Advisory Joined the Hayleys Group in 1969. Packaging Limited, Delmege Limited, Services, a member of the Experiment Appointed to the Hayleys PLC Board in and LB Microfinance Myanmar and Extension Forum of the Tea 1998. Chairman and Chief Executive of Company Limited. He is the Co- Research Institute, a Member of the Hayleys PLC since July 2009. Chairman of Hayleys PLC, The Consultative Committee on Research Kingsbury PLC and Singer (Sri Lanka) of the TRI. He is also a member of the He was appointed as the Chairman of PLC. Executive Deputy Chairman of LB Standing Committee on Agriculture, Horana Plantations PLC in March 2017. Finance PLC, He is also an Executive Veterinary and Animal Sciences of the Director of Vallibel Finance PLC and University Grant Commission as well Fellow of the Chartered Institute of serves on the Boards of Amaya Leisure as a Member of the Arbitration and Logistics & Transport (UK). Honorary PLC, Haycarb PLC, Hayleys Fabric PLC Mediation Steering Committee of the Consul of the United Mexican States and Dipped Products PLC. Chamber of Commerce. (Mexico) to Sri Lanka. Council Member of the Employers’ Federation of Ceylon. Dr. Roshan Rajadurai Mr. Johann A Rodrigo Member of the Advisory Council of Managing Director Director/Chief Executive Officer the Ceylon Association of Shipping Appointed as Managing Director of Mr. Johann A Rodrigo was appointed Agents. Recipient of the Best Shipping Horana Plantations PLC and as Director as Director/Chief Exeatine Officer of st Personality Award by the Institute of of Vallibel Plantation Management Horana Plantations PLC on 1 April Chartered Shipbrokers; Leadership Limited effective March 2017. 2020. He Counts Over 35 years of Excellence Recognition – Institute of experience in the Plantation Sector Chartered Accountants of Sri Lanka; Dr. Roshan Rajadurai is the Managing having joined as a Planter/Management Honored with Lifetime Achievement Director of Hayleys Plantation Sector Trainee under the Janatha Estates Award at the Seatrade – Sri Lanka Ports, comprising of Talawakelle Tea Estates Development Board. With the Trade and Logistics; Lifetime Award PLC, Kelani Valley Plantations PLC and privatisation of the estates in 1992, he for the Most Outstanding Logistics Horana Plantations PLC. A member joined Kelani Valley Plantations in the and Transport Personality of the Year of the Hayleys Group Management Hayleys Group, and held the position of – Chartered Institute of Logistics & Committee. Since 1993 - 2001 held Director Corporate Affairs. Transport. Senior Plantation Management position in Kelani Valley Plantations PLC and Mr. A N Wickremasinghe Mr. Dhammika Perera from 2002 – 2012 joined Kahawatte Independent Non-Executive Director Deputy Chairman Plantations of Dilmah and was Director/ Mr. Wickremasinghe was appointed to Mr. Dhammika Perera is a quintessential CEO 2008 – 2012. Horana Plantations PLC in December strategist and a business leader with 2013. He was previously a Director interests in a variety of key industries Holds a B.Sc. In Plantation Management, of Udapussellawa Plantations PLC and including manufacturing, banking and an MBA from the Post Graduate Hapugastenne Plantations PLC. He is finance, leisure, plantations and hydro Institute of Agriculture, University of also the Chairman of Virtus Capital (Pvt) power generation. He has over 30 years Peradeniya, a D.Sc. from Wayamba Ltd. of experience in building formidable University and a Ph.D from University of businesses through unmatched strategic Hawaii, USA. Until early 2012, Mr. Wickremasinghe foresight and extensive governance was General Manager of Finaly Tea experience gained through membership He was Chairman of the Planters’ Estates Sri Lanka PLC – an integral of the Boards of quoted and un-quoted Association of Ceylon and was/is a part of a most respected business Companies. member of the Sri Lanka Tea Board, conglomerate in Sri Lanka, which Rubber Research Board, Tea Research commenced operations in 1893. It is Mr. Perera is the Chairman of Royal Institute, Tea Council of Sri Lanka and owned by the global Swire Group, which Ceramics Lanka PLC, Lanka Tiles PLC, the Tea Small Holdings Development has Tea Estate holdings in Kenya and Sri Lanka Walltiles PLC, The Fortress Authority of Sri Lanka. He was Lanka. 14 HORANA PLANTATIONS PLC

Board of Directors

Mr. Wickremasinghe has extensive Previously he has served as Vice He also served as a Director of DFCC senior management experience and Chairman of National Water Supply and Bank PLC and LB Finance PLC. Mr. technical expertise in the plantation Drainage Board. Wijeyeratne was a Member of the sector in Sri Lanka. His specialised Corporate Governance and Quality training includes logging and harvesting Mr. S S Sirisena Assurance Board of the Institute of trees in Germany’s Black Forest; Independent Non-Executive Director Chartered Accountants of Sri Lanka as Plant breeding at the Ravi Shankar Mr. S S Sirisena joined the Sri Lanka well as the Accounting Standards and University in Raipur, India and in Administrative Service (SLAS) in July Monitoring Board of Sri Lanka. Sloping Agriculture Land Technology in 1982. Mindanao Philippines. Mr. S M Liyanage He has held several positions in Non-Executive Director Mr. Sarath Ganegoda the administrative service including Mr. Liyanage is a respected professional Independent Non-Executive Director the positions of Director General with over 8 years’ experience with a Joined the Board of Horana Plantations Telecommunications Regulatory record of exceptional performance. He PLC in September 2017. Appointed Commission of Sri Lanka, Member has demonstrated transformational to the Hayleys Group Management Public Service Commission of Sri Lanka leadership in business transformation Committee in July 2007 after rejoining Former Secretary of the Ministry of for the group. Hayleys in March 2007 and was Education and the Ministry of Internal appointed to the Board of Hayleys PLC Trade and Chairman of National Savings He has a degree in Bachelor of Science in September 2009. Fellow Member of Bank. in Industrial Management & Statistics the Institute of Chartered Accountants from the Wayamba University of of Sri Lanka and a Member of the Mr. L N de S Wijeyeratne Sri Lanka and Master of Business Institute of Certified Management Independent Non-Executive Director Administration from University of Accountants of Australia. Holds an Kelaniya. He holds a Diploma in Mr. L N de S Wijeyeratne was appointed MBA from the Postgraduate Institute Information Technology from University to the Board as an Independent Non of Management, University of Sri of Colombo. Currently he serves as -Executive Director on 3rd January Jayewardenepura. Worked for Hayleys Assistant General Manager Continuous 2020. He is a Fellow of the Institute of Group between 1987 and 2002, Improvement and Research at Vallibel Chartered Accountants in Sri Lanka and ultimately as an Executive Director. One PLC. He is responsible for business counts over 35 years of experience in Subsequently, held several senior strategic planning, supply chain Finance and General Management both management positions in large private development, developing new business in Sri Lanka and overseas. sector entities in Sri Lanka and overseas. and coordinating manufacturing Has responsibility for the Strategic excellence projects at the Vallibel Group He is currently an Independent Non Business Development Unit of Hayleys of Companies. He was certified as Lean -Executive Director of several Listed PLC. Six Sigma Black Belt and trained Lean Companies. He was the Group Finance Six Sigma Master Black Belt. He was also Director of Richard Pieris PLC from declared as a certified TPM practitioner. Mr. K D G Gunaratne January 1997 to June 2008 and also He had done publication in topic of Independent Non-Executive Director held Senior Management positions at Lean Six Sigma 4.0 at OELSS conference Alternate Director Aitken Spence & Company, Brooke at Colombo. Mr. Liyanage is a member Mr. Gunaratne presently serves Bonds Ceylon Ltd, Zambia Consolidated of the alumina association of SSMI Asia as Chairman of Lanka Hotels and Copper Mines Ltd. and Global. He has participated in the Residencies Pvt Ltd (Sheraton Colombo), International Business and Management Board Member of Swisstek Ceylon PLC, at MSU, Malaysia. Regnis Lanka PLC, Singer Industries (Ceylon) PLC, Dipped Products PLC, Lanka Walltiles PLC, Lanka Tiles PLC, Lanka Ceramic PLC and Hayleys PLC. Annual Report 2019 | 2020 15

Management Team

Corporate Management Team

Dr. Roshan Rajadurai Ms. Y. C. Abeyawardena Managing Director Agricultural Economist

J. Manuja Kariapperuma C. J. K. Rupasinghe (Retired w.e.f. 31st March 2020) Manager – Information Technology Executive Director/Chief Executive Officer D. M. C. D. Gunathillake Johann A. Rodrigo Manager – Forestry & Ancillary Crops (Appointed w.e.f. 01st April 2020) Executive Director/Chief Executive Officer Chamika Jeewantha Manager – Accounts and Business Analyst U. K. Nawaratne Deputy Chief Executive Officer Gayal Perera Manager – Special Projects B. C. Gunasekara Director – Plantations Estate Management Team Upcot Cluster N. A. A. K Nissanka Alton Estate – S. Narayanan General Manager – Finance Fairlawn Estate – C. D. W Kirinda Gouravilla Estate – B. L. W. Gunawardene G. N. Ratnayake – A. J. M. L. Mangalaratne Deputy General Manager – Oil Palm, Mahanilu Estate Ancillary Crops & Other Projects Stockholm Estate – C. P. De Arthur

B. L. W. Gunawardene Lindula Cluster Deputy General Manager Bambrakelly Estate – S. Jegathesan Eildon Hall Estate – M. C. Dunusinghe S. Jegathesan Tillicoultry Estate – K. I. Jayarathna Deputy General Manager Low Country Cluster P. S. Samarakoon Millakanda Estate – J. C. Weerasekara Deputy General Manager – Corporate Affairs Halwatura Estate – W. N. M. Wijenayake Hillstream Estate – V. S. Ailapperuma J. R. Gunathilake Kobowella Estate – B. H. M. H. S. Katugaha Manager – Finance Neuchatel Estate – G. N. Ratnayake Mirishena Estate – K. A. I. Silva T. I. Wijekulasooriya Frocester Estate – S. Gunawardane Accountant 16 HORANA PLANTATIONS PLC

STATEMENT OF CORPORATE GOVERNANCE

The Board of Directors of Horana The Board meetings are held on a regular basis and have a formal schedule of Plantations PLC values the guiding matters reserved to it. The Board is supplied with full and timely information to principles of good corporate governance enable it to discharge its responsibilities, effectively. During the past year the Board to adopt best practices and maintain held six (6) scheduled meetings. high standards of business ethics and integrity in all our activities. The Corporate Management Company complies with standards of The management of the business of the Company have been contracted to the sound business and accounting codes, Managing Agent of the Company, Hayleys PLC. The Board has delegated the primary which conform to the best practices authority to Managing Director to implement and adopt policies and the strategic set out by the institute of Chartered objectives of the Company in line with the policies and objectives of the Hayleys Accountants of Sri Lanka and Securities Plantations Sector. He is assisted by Chief Executive Officer, Deputy Chief Executive Exchange Commission of Sri Lanka. Officer , General Manager – Finance, Deputy General Manager - Corporate Affairs and Director Plantations. Management committee meetings are held monthly to Board of Directors ensure that the Company’s strategies and plans are carried out effectively to the The Company’s Board consists of ten satisfaction of the Board. (10) Directors, of whom three (03) are Executive Directors, one (01) Managing Director, Chief Executive Officer and the Management committee are Non – Executive Director and six (06) responsible for the establishment and monitoring financial controls on operations, are Independent Non – Executive annual budgets monthly operational reviews, capital expenditure proposals and Directors. quarterly performance appraisals, prior to recommending to the Board.

An Audit Committee, Remuneration Disclosure of Information and Compliance Committee and Related Party The Financial Statements of the Company are prepared in accordance with the Transactions Review Committee Sri Lanka Accounting Standards and in accordance with the requirements of the function as Board Sub Committees. The Colombo Stock Exchange. composition of the said Committees is as follows: PW Corporate Secretarial (Pvt) Ltd who act as Secretaries to the Company advise the Board on appropriate procedures for the management of its meetings and duties, Audit Committee as well as the compliance of Corporate Governance in the Company. Mr. S C Ganegoda - Chairman Mr. K D G Gunaratne Mr. S S Sirisena Mr. L N de S Wijeyeratne (Appointed w.e.f. 18th February 2020)

Remuneration Committee Mr. K D G Gunaratne - Chairman Mr. S C Ganegoda Mr. S S Sirisena

Related Party Transactions Review Committee Mr. S C Ganegoda - Chairman Mr. K D G Gunaratne Mr. S S Sirisena Annual Report 2019 | 2020 17

Levels of compliance with the CSE’s Listing Rules - Section 7.10 Rules on Corporate Governance are given in the following table: Compliance Section Subject Applicable Rule Status 7.10 (a) Compliance with Publishing a statement in the Annual Report for the financial year Complied Corporate Governance confirming compliance with the Corporate Governance Rules. Rules 7.10 (b) Relevant Affirmative Giving an affirmative statement in the Annual Report with regard to Complied Statements on complying with Corporate Governance Rules or vice versa. complying with Corporate Governance Rules 7.10.1 (a) Non-Executive At least one-third of the total number of Directors should be Non- Complied Directors Executive Directors. 7.10.2 (a) Independent Directors Two or one third of Non-Executive Directors whichever is higher, Complied should be Independent. (b) Independent Director’s Each Non-Executive Director should submit a declaration of Complied Declaration independence / non- independence in the prescribed format. 7.10.3 (a) Disclosure relating to The Board shall annually make a determination as to the Complied Directors independence or otherwise of the Non-Executive Directors and names of Independent Directors should be disclosed in the Annual Report. (b) Disclosure relating to The basis of the Board to determine a Director is Independent, if Complied Directors criteria specified for Independence is not met. (c) Disclosure relating to A brief resume of each Director should be included in the Annual Complied Directors Report and should include the Director’s areas of expertise. (d) Disclosure relating to Forthwith provide a brief resume of new Directors appointed to the Complied Directors Board with details specified in 7.10.3 (a), (b) and (c) to the Exchange. 7.10.4 (a) to (h) Defining Independence Criteria for defining independence. Complied 7.10.5 Remuneration Committee A listed Company shall have a Remuneration Committee. Complied (a) Composition of Shall comprise of Non-Executive Directors a majority of whom will be Complied Remuneration independent. Committee (b) Functions of The Remuneration Committee shall recommend the remuneration of Complied Remuneration the Chief Executive Officer and Executive Directors Committee (c) Disclosure in the The Annual Report should setout; Complied Annual Report relating a) Names of the Directors comprising the Remuneration Committee to Remuneration b) Statement of Remuneration Policy Committee c) Aggregated remuneration paid to Executive and Non-Executive Directors 18 HORANA PLANTATIONS PLC

STATEMENT OF CORPORATE GOVERNANCE

Compliance Section Subject Applicable Rule Status 7.10.6 Audit Committee The Company shall have an Audit Committee Complied (a) Composition of a) Shall comprise of Non-Executive Directors a majority of whom will Complied Audit Committee be Independent. b) One Non-Executive Director shall be appointed as Chairman of the Committee. c) Chief Executive Officer and Chief Financial Officer shall attend Committee meetings. d) The Chairman of the Audit Committee or one member should be a member of a professional accounting body. (b) Audit Committee Functions shall include: Complied Functions a) Overseeing of the preparation, presentation and adequacy of disclosures in the financial statements in accordance with Sri Lanka Accounting Standards. b) Overseeing of the compliance with financial reporting requirements, information requirements of the Company’s Act and other relevant financial reporting related regulations and requirements. c) Overseeing the processes to ensure that the internal controls and risk management are adequate to meet the requirements of the Sri Lanka Auditing Standards. d) Assessment of the independence and performance of the External Auditors. e) Make recommendations to the Board pertaining to appointment, re-appointment and removal of External Auditors and approve the remuneration and terms of engagement of the External Auditors. (c) Disclosure in the Annual a) Names of Directors comprising the Audit Committee. Complied Report relating to Audit b) The Audit Committee shall make a determination of the Committee independence of the Auditors and disclose the basis for such determination. c) The Annual Report shall contain a Report of the Audit Committee setting out of the manner of compliance with their functions. 9.2.1 RPT Review Committee To review in advance all proposed related party transactions of the Complied & group either prior to the transaction being entered into or, if the 9.2.3 transaction is expressed to be conditional on such review, prior to the completion of the transaction.

Seek any information the Committee requires from management, employees or external parties to with regard to any transaction entered into with a related party. Annual Report 2019 | 2020 19

Compliance Section Subject Applicable Rule Status 9.2.1 RPT Review Committee Obtain knowledge or expertise to assess all aspects of proposed related Complied & party transactions where necessary including obtaining appropriate 9.2.3 professional and expert advice from suitably qualified persons.

To recommend, where necessary, to the Board and obtain their approval prior to the execution of any related party transaction.

To monitor that all related party transactions of the entity are transacted on normal commercial terms and are not prejudicial to the interests of the entity and its minority shareholders.

Meet with the management, Internal Auditors/External Auditors as necessary to carry out the assigned duties.

To review the transfer of resources, services or obligations between related parties regardless of whether a price is charged.

To review the economic and commercial substance of both recurrent/ non recurrent related party transactions.

To monitor and recommend the acquisition or disposal of substantial assets between related parties, including obtaining ‘competent independent advice’ from independent professional experts with regard to the value of the substantial asset of the related party transaction.

As per the Listing Rules of the CSE this is mandatory from 1 January 2016. If the parent Company and the subsidiary Company both are listed entities, the Related Party Transactions Review Committee of the parent Company may be permitted to function as such Committee of the subsidiary. 9.2.2 Composition 02 Independent Non-Executive Directors and 01 Executive Director Complied 9.2.4 RPT Review Shall meet once in a calendar Quarter Complied Committee-Meetings 9.3.2 RPT Review a) Non-recurrent Related Party Transactions – If aggregate value Complied Committee-Disclosure exceeds 10% of the equity or 5% Total assets whichever is lower. in the Annual Report b) Recurrent Related Party Transactions – If aggregate value exceeds 10% Gross revenue income as per the latest audited accounts. c) Report by the Related Party Transactions Review Committee. d) A declaration by the Board of Directors.

By Order of the Board Horana Plantations PLC

P W Corporate Secretarial (Pvt) Ltd Secretaries

Colombo 19th May 2019 20 HORANA PLANTATIONS PLC

Risk Management

Risk Management Liquidity Risk Company maintains international The Board of Directors places special Availability of sufficient funds is crucial standardisation accreditations such as emphasis on management of business as the industry is cyclical and the returns HACCP/ IS0 22000:2005/2018, Rain risks together with the management are long term. In order to mitigate the Forest Alliance , Ethical Tea Partnership committee ensures that the sound risk, Company’s borrowings are suitably (ETP), Fair Trade certifications held at system of controls including financial structured to ensure the availability present by our estates. operational and compliance are in place of sufficient liquidity to meet debt to safeguard shareholder investment commitments and other operational Human Resource and assets and reviews regularly the requirements. The Plantation sector employs a effectiveness of such controls. The large workforce and they are highly following are some of the major risk Weather unionised. In order to mitigate the factors and actions implemented The Company’s product portfolio being risk of industrial disputes and work reduced to eliminate risk. Tea and Rubber in equal proportion stoppages a collective agreement is has mitigated the adverse effects on signed between the Trade Unions and Operational Risk climatic changes. The Company adopts the Employers’ Federation of Ceylon, A sound internal control system is a prudent agricultural practices such which our Company is a member. The key factor in safeguarding tangible as TRI recommended clones and also Company considers Human resource and intangible assets. The Company rain guards for Rubber trees in order management is vital for the business has a satisfactory system of internal to minimise the loss on crop due to continuity. Training, Development and control in place and periodic checks are adverse weather conditions. performance management, motivation carried out at estate level and regular and empowerment are practiced to reviews are undertaken to ensure the Legal and Regulatory Risk reduce the impact. Company’s assets are safeguarded Legal risks are those risks resulting and to minimise financial losses. The from legal consequences causing Information Risk Company has designed internal control financial losses. The Company with Accurate and timely information is and training programmes for employees the assistance of its legal advisers and vital for decision-making and control. at all levels. The Company has secretaries ensures compliance of all The Company has a fully integrated implemented a centralised purchasing legislative and regulatory requirements information system with our estates and policy in order to get the best advantage including corporate governance, head office in order to produce accurate of the cost benefit. The Company labour relations and requirements of and reliable information. The system strives to produce high quality Tea and Security and Exchange Commission integrity is reviewed constantly and Rubber products whilst maintaining and Colombo Stock Exchange. The maintained by the software provider and internationally accepted certifications Company also obtains expert advice uses licensed software. to retain competitive positioning in from Auditors, Tax consultants, Actuaries the market. Crop diversification into and advisory services of Tea Reaearch Business Disruption Oil Palm and other ancillary crop has Institute and Rubber Research Institute. Good practices of health and safety, mitigated the risk of dependency on disaster recovery management help Rubber sector. Reputation Risk to minimise the business disruptions Reputation is considered as most due to pandemic, natural disasters and Interest Rate Risk valuable asset of the Company as human involved activities. The adverse effect on fluctuating non-compliance may lead to loss of interest rates needs to be minimised as reputation and financial loss. The it has a significant impact on profitability Company’s systems and procedures and cash flow. The Company cover the areas such as maintenance manages and mitigates interest rate of quality, health and safety and risk by utilising concessionary and environmental issues and ensure advantageous lending rates. that best practices are followed. The Annual Report 2019 | 2020 21

Annual Report of the Board of Directors on the Affairs of the Company

The Directors of Horana Plantations PLC Summarised Financial Results 31st March 2020 31st March 2019 have pleasure in presenting their Annual Rs. ‘000 Rs. ‘000 Report together with the Audited Revenue 1,762,154 2,020,360 Financial Statements of the Company Total Comprehensive Income for the year (513,023) (70,382) for the year ended 31st March 2020. Retained Earnings 491,578 1,017,916

General Auditors’ Report Horana Plantations PLC is a public The Report of the Auditors on the Financial Statements of the Company is given on limited liability Company which was pages 31 to 35. incorporated under the Companies Act No. 17 of 1982 on 22nd June 1992, Accounting Policies and re-registered as per the Companies The Financial Statements of the Company have been prepared in accordance with Act, No.7 of 2007 on 18th March 2008 the revised Sri Lanka Financial Reporting Standards (SLFRS/LKAS) and the policies and bears registration number PQ 126. adopted thereof are given on pages 41 to 54. Accordingly, the name of the Company has changed to Horana Plantations PLC. Directors The names of the Directors who held office as at the end of the accounting period Principal activities of the Company and are given below and their brief profiles appear on pages 13 to 14. review of performance during the year The principal activity of the Company, Executive Directors which is cultivation and processing of Mr. A M Pandithage - Executive Chairman Tea and Rubber, remained unchanged. Dr. Roshan Rajadurai - Managing Director Mr. J M Kariapperuma - Executive Director (Retired w.e.f. 31st March 2020) A review of the business of the Company and its performance Non - Executive Director during the year with comments on Mr. Dhammika Perera - Deputy Chairman* financial results and future strategies and prospects are contained on the Independent Non - Executive Directors Chairman’s review and the Managing Mr. L J A Fernando - Director (Resigned w.e.f. 19th May 2020) Director’s Review (pages 6 to 12). Mr. A N Wickremasinghe - Director Mr. S C Ganegoda - Director This report together with the Financial Mr. S S Sirisena - Director Statements reflect the state of affairs of Mr. K D G Gunaratne - Director the Company. Mr. L N de S Wijeyeratne - Director (Appointed w.e.f. 03rd January 2020)

Financial Statements *Mr. K D G Gunaratne - Alternate Director to Mr. Dhammika Perera The complete Financial Statements of the Company duly signed by two Directors on Mr. K D H Perera resigned from the Board on 8th November 2019 and his Alternate behalf of the Board and the Auditors are Director Mr. N T Bogahalande ceased to be a Director from the same date. given on pages 31 to 92. Mr. L N de S Wijeyeratne was appointed to the Board as an Independent Non- Executive Director on 3rd January 2020.

Mr. J M Kariapperuma retired from the position of Director/CEO on 31st March 2020 and Mr. Johann A Rodrigo was appointed Director/CEO with effect from 1st April 2020. 22 HORANA PLANTATIONS PLC

Annual Report of the Board of Directors on the Affairs of the Company

Mr. L J A Fernando resigned from the Directors’ Remuneration Directors’ responsibility for Board on 19th May 2020. The Directors’ remuneration is disclosed Financial Reporting under key management personnel The Directors are responsible for the Mr. S M Liyanage was appointed to the compensation in Note 35.3 to the preparation of Financial Statements of Board as a Non-Executive Director on Financial Statements on page 82. the Company to reflect a true and fair 19th May 2020. view of the state of its affairs. A further Directors’ Interests in Contracts statement in this regard is included on Mr. A M Pandithage and Mr. Dhammika Directors’ interests in contracts with page 25. Perera retire by rotation at the the Company are stated in Note 35.2 to conclusion of the Annual General the Financial Statements. The Directors Auditors Meeting in terms of Articles 92 of the have no direct or indirect interest in any Messrs KPMG, Chartered Accountants Articles of Association and being eligible other contract or proposed contract served as the Auditors during the year are recommended by the Directors for with the Company. Except for the under review. Based on the written re-election. transactions referred to in Note 35.2 to representations made by the Auditors, the Financial Statements, the Company they do not have any interest in the The Directors have recommended the did not carry out any transaction with Company other than as Auditors. appointment of Mr. A N Wickremasinghe any of the Directors. The Company who is 71 years of age and Mr. L N de carried out transactions during the year The audit fee payable to the Auditors S Wijeyeratne who is 70 years of age, in the ordinary course of its business for the year under review is as Directors of the Company; and at commercial rates with the following Rs. 2,600,000/-. accordingly, a resolution will be placed director related entities; before the shareholders in terms of The Auditors have expressed their Section 211 of the Companies Act in • Vallibel Plantation Management Ltd willingness to continue in office. The regard to the said appointments. • Uni-Dil Packaging Ltd Audit Committee at a meeting held on • Uni-Dil Paper Solutions Ltd 19th May 2020 recommended that Interests Register • Lanka Ceramic PLC they be re-appointed as Auditors. A The Company maintains an Interests • Dipped Products PLC resolution to re-appoint the Auditors Register in terms of the Companies • The Kingsbury PLC and to authorise the Directors to Act, No. 7 of 2007, which is deemed • Hayleys Agriculture Holdings Ltd determine their remuneration will to form part and parcel of this Annual • Hayleys Agro Fertilizer (Pvt) Ltd be proposed at the Annual General Report and available for inspection upon • Hayleys PLC Meeting. request. • Puritas (Pvt) Ltd • Hayleys Business Solutions Independence of Auditors All related party transactions which International (Pvt) Ltd Based on the declaration provided by encompasses the transactions of • Hayleys Aventura (Pvt) Ltd Messrs KPMG, Chartered Accountants Directors who were directly or indirectly • Logiwiz Limited and the extent that to the Directors interested in a contract or a related • NYK Lanka (Pvt) Ltd are aware, the Auditors do not have a party transaction with the Company • Singer Sri Lanka PLC relationship with (other than that of the during the accounting period are • Kelani Valley Plantations PLC Auditor), or interest in, the company, recorded in the Interests Register in due • Talawakelle Tea Estates PLC which in the opinion of the Board, may compliance with the applicable rules and • Delmage Forsyth & Co.,Ltd reasonably be considered to have a regulations of the relevant Regulatory • Diesel & Motor Engineering PLC bearing on their independence within Authorities. the meaning of the Code of Professional Conduct and Ethics issued by The The relevant interests of Directors in Institute of Chartered Accountants of Sri the shares of the Company as at 31st Lanka as at the reporting date. March 2020 as recorded in the Interests Register are given in this Report under Directors’ shareholding. Annual Report 2019 | 2020 23

Stated Capital Capital Expenditure The Stated Capital of the Company is Rs. 250,000,010/- divided into Twenty Five The total capital expenditure during Million (25,000,000) Ordinary Shares and One (01) Golden Share. the year including the capitalisation of borrowing cost amounted to Rs. 169.188 Directors’ Shareholding Million compared to Rs. 179.112 Million The relevant interests of Directors in the shares of the Company are as follows; incurred in the previous year. 31 March 2020 01 April 2019 Dividends Name of Directors No. of No. of No dividends were declared during the Shares % Shares % period under review. 1 Mr. A M Pandithage - - - - 2 Mr. Dhammika Perera - - - - Donations 3 Dr. Roshan Rajadurai 1000 0.004 1000 0.004 The Company has not made any 4 Mr. J Manuja Kariapperuma - - - - donations to approved charities during 5 Mr. L J A Fernando - - - - the year under review. (2019 - Nil) (Resigned w.e.f. 19th May 2020) 6 Mr. A N Wickremasinghe - - - - Risk Management 7 Mr. S C Ganegoda - - - - An ongoing process is in place to 8 Mr. S S Sirisena - - - - identify and manage the risks that 9 Mr. K D G Gunaratne - - - - are associated with the business and (Alternate Director to operations of the Company. The Mr. Dhammika Perera) Directors review this process through 10 Mr. L N de S Wijeyeratne - - - - the Audit Committee.

Major Shareholders, Distribution Schedule and other information Specific steps taken by the Company in Information on the distribution of shareholding, analysis of shareholders, twenty managing the risks are detailed in the largest shareholders of the Company and percentage of shares as per the Listing section on Risk Management on Rules of the Colombo Stock Exchange are given on page 96 to 98 under Share page 20. Information. Market values per share, earrings, dividends and net assets per share are given on page 95. Statutory Payments The Directors confirm that to the best Employment Policy of their knowledge, all taxes, duties The Company’s employment policy is totally non-discriminatory which respects and levies payable by the Company, individuals and provides carrier opportunities irrespective of the gender, race or all contributions, levies and taxes religion. payable on behalf of, and in respect of employees of the Company and all As at 31st March 2020 5,399 persons were in employment (5,769 persons as at other known statutory dues as were 31st March 2019). due and payable by the Company as at the Statements of Financial Reserves Position date have been paid or, where The reserves of the Company with the movements during the year are given in Note relevant provided for, except for certain 21 to 23 to the Financial Statements on pages 68 to 69. assessments where appeals have been lodged. Land holdings The Company does not own any freehold property.

Property, Plant & Equipment Details and movements of property, plant and equipment are given under Notes 13 to 16 to the Financial Statements on pages 59 to 66. 24 HORANA PLANTATIONS PLC

Annual Report of the Board of Directors on the Affairs of the Company

Contingent Liabilities Corporate Social Responsibility Except as disclosed in Note 32 to the Financial Statements on page 78 there were no The Company continued its Corporate material Contingent Liabilities as at the Statements of Financial Position date. Social Responsibility Programme, details of which are set out on page 11 of this Events occurring after the Statements of Financial Position date Report. Except for the matters disclosed in Note 34 to the Financial Statements on page 79 there are no material events as at the date of the Auditor’s report which require Annual General Meeting adjustment to, or disclosure in the Financial Statements. The Notice of the Twenty Seventh (27th) Annual General Meeting appears on Corporate Governance page 102. The Board of Directors confirm that the Company is compliant with section 7.10 and 9 of the Listing Rules of the CSE. This Annual Report is signed for and on behalf of the Board of Directors by An Audit Committee, Remuneration Committee and Related Party Transaction Review Committee function as Board sub committees, with Directors who possess the requisite qualifications and experience. The composition of the said committees is as follows.

Audit Committee A M Pandithage Mr. S C Ganegoda - Chairman Chairman Mr. K D G Gunaratne Mr. S S Sirisena Mr. L N de S Wijeyeratne (Appointed w.e.f. 18th February 2020)

Remuneration Committee Mr. K D G Gunaratne - Chairman Mr. S C Ganegoda Dr. Roshan Rajadurai Mr. S S Sirisena Managing Director

Related Party Transactions Review Committee Mr. S C Ganegoda - Chairman Mr. K D G Gunaratne Mr. S S Sirisena P W Corporate Secretarial (Pvt) Ltd The Corporate Governance of the Company is reflected in its strong belief in Secretaries protecting and enhancing stakeholder value in a sustainable manner, supported by a sound system of policies and practices. Prudent internal controls ensure Colombo professionalism, integrity and commitment of the Board of Directors, Management 19th May 2020 and employees.

The Corporate Governance Statement on pages 16 to 19 explains the measures adopted by the Company during the year. Annual Report 2019 | 2020 25

Statement of Directors’ Responsibilities

The Directors are responsible for preparing the Annual Report and the Consolidated Financial Statements in accordance with the Companies Act, No. 7 of 2007 and Sri Lanka Accounting and Auditing Standards Act No. 15 of 1995 and are required to prepare Financial Statements for each financial year, which give a true and fair view of the state of affairs of the Company and its subsidiaries as at the reporting date and the income and expenditure of the Company for the accounting year ending on that reporting date.

The Directors are also responsible in ensuring that the Financial Statements comply with any regulations made under the Companies Act, which specifies the form and content of Financial Statements and any other requirements which apply to the Company’s Financial Statements under any other law.

The Directors have ensured that the Financial Statements presented in this Annual Report have been prepared using appropriate accounting policies, consistently applied and supported by reasonable and prudent judgments’ and estimates and in compliance with the Sri Lanka Financial Reporting Standards, Companies Act, No. 7 of 2007 and the Sri Lanka Accounting and Auditing Standards Act No. 15 of 1995.

The Directors are responsible for keeping sufficient accounting records, which disclose with reasonable accuracy the financial position of the Company and its subsidiaries, which will enable them to have the Financial Statements prepared and presented as aforesaid.

They are also responsible for taking measures to safeguard the assets of the Company and its subsidiaries and in that context to have proper regard to the establishment of appropriate systems of internal control with a view to prevention and detection of fraud and other irregularities.

The Directors are also confident that the Company and the group have adequate resources to continue in operation and have applied the going concern basis in preparing the financial statements.

The Directors are of the view that they have discharged their responsibilities as set out in this statement.

By Order of the Board Horana Plantations PLC

P W Corporate Secretarial (Pvt) Ltd Secretaries

Colombo 19th May 2020 26 HORANA PLANTATIONS PLC

Report of the Remuneration Committee

The Remuneration Committee appointed by the Board of Directors comprises of three (03) Independent Non-Executive Directors as follows:

Mr. K D G Gunaratne - Chairman Mr. S C Ganegoda Mr. S S Sirisena

The Remuneration Policy on remuneration packages is to attract and retain the best professionals and an experienced workforce and motivate, and encourage high levels of performance in a competitive environment bearing in mind the business performance and stakeholder expectations.

The Committee met once during the year. The meetings were for the purpose of examining the remuneration package of Director/Chief Executive Officer and the Management Staff, their respective performances and deciding on appropriate remuneration packages for them; as well as determining incentives based on Company performance for all management staff. Performance Evaluation method to compensate employees is in place and succession plans have been defined.

The Committee also reviewed data concerning remuneration packages among comparable Companies. The Managing Director/Chief Executive Officer assists the Committee by providing all relevant information with regard to compensation packages.

K D G Gunaratne Chairman – Remuneration Committee

Colombo 19th May 2020 Annual Report 2019 | 2020 27

Related Party Transactions Review Committee Report

Adoption of The Code of Best Practices members attended the meeting and the required to report to the Committee on on Related Party Transactions minutes of the Committee meeting were the approved related party transactions The Board of Directors of Horana tabled at Board meeting, for the review actually entered into by the Company. Plantations PLC (HP-PLC) adopted the of the Board. Code of Best Practices on related party The Committee has approved the transactions issued by the Securities Responsibilities of the Related Party Related Party Transactions Declaration and Exchange Commission of Sri Lanka Transactions Review Committee Form required to be filled by the (SEC) and established the Related The following are key responsibilities Directors and key management Party Transactions Review Committee have been set out in the Charter for personnel of the Company. The (RPTRC) in March 2016. RPTRC; Company uses this form to capture the related party transactions at the end of a) Ensure that the Company complies every quarter. Purpose of the Committee with the rules set out in the Code. The purpose of the RPTRC of HP-PLC b) Subject to the exceptions given is to conduct an independent review Review of Related Party Transactions under Rule 27 of the Code, review, The Committee reviewed all related approval and oversight of all related in advance all proposed related party party transactions of the Company party transactions of HP-PLC and to transactions. for the financial year 2019/20. It ensure that the Company complies was observed that all related party with the rules set out in the Code. The c) Perform other activities related to transactions entered during the year primary objectives of the said rules the Charter as requested by the Board. were of a recurrent, trading nature are to ensure that the interests of the and were necessary for the day-to-day shareholders as a whole are taken into d) Have meetings every fiscal quarter operations of the Company. account when entering into related and report to the Board on the party transactions, and to prevent Committee’s activities. In the opinion of the Committee, the Directors, key management personnel e) Share information with the Audit terms of these transactions were not or substantial shareholders from Committee as necessary and more favorable to the related parties taking advantage of their positions. To appropriate, to permit the Audit than those generally available to the exercise this purpose the Committee Committee to carry out its statutory, public. The details of related party has adopted the related party regulatory and other responsibilities transactions entered into during the transaction Policy which contains the with regard to related party year are given in Note 35 to the company’s Policy governing the review, transactions. Financial Statements, on pages 79 to 82 approval and oversight of related party of this Annual Report. f) Review the Charter and Policy at transactions. least annually and recommend Declaration amendments to the Charter and A declaration by the Board of Directors Composition of the Committee Policy to the Board as and when Mr. S.C Ganegoda - Chairman on compliance with the rules pertaining determined to be appropriate by the Mr. K.D.G Gunaratne to related party transactions appears on Committee. Mr. S.S Sirisena the report of the Board of Directors on pages 21 and 24 of this Annual Report. Procedures for Reporting RPT’s PW Corporate Secretarial (Pvt) Ltd, the The Director/Chief Executive Officer Company Secretary functions as the is responsible for reporting to the Secretary to the Committee. Committee, for its review and approval the information set out under Rule The Director/Chief Executive Officer 30 of the Code at the minimum, in S C Ganegoda and General Manager - Finance attend respect of each related party transaction Chairman - Related Party Transactions meetings by invitation. proposed to be entered into other than Review Committee the exceptions given in Rule 27 of the Meetings code. Moreover, on a quarterly basis, Colombo The Committee held three (03) meetings the Director/Chief Executive Officer is 19th May 2020 during the year under review. All the 28 HORANA PLANTATIONS PLC

Audit Committee Report

In accordance with the Corporate The Charter of the Audit Committee Governance Guidelines, the Board The Audit Committee Charter is periodically reviewed and revised with the of Directors appointed the Audit concurrence of Board of Directors to make sure that new developments relating to Committee. The Audit Committee is the function of the Committee. The terms of reference of the Committee are clearly empowered by the Board of Directors to defined in the Charter of the Audit Committee. oversee the financial reporting, legal and regulatory compliance, internal controls, Rules on Corporate Governance’ under listing rules of the Colombo Stock Exchange risk management and assessment of on corporate governance, ‘Code of Best Practice on Corporate Governance’ issued independence and performance of by CA Sri Lanka and the Securities and Exchange of Sri Lanka , further regulate the external auditors. composition, roles and functions of the Audit Committee.

Composition of the Committee Meetings of the Committee The Audit Committee comprises of The Audit Committee met six (06) times during the year. The attendance of the four (04) Independent Non – Executive members at these meeting is as follows, Directors chaired by a Chartered Accountant. Present Audit Committee is Independent as follows: Non -Executive Director Mr. S.C Ganegoda - Chairman Mr. K.D.G Gunaratne 29.04.2019 27.05.2019 24.07.2019 27.09.2019 08.11.2019 23.01.2020 Total 1 Mr. S C Ganegoda (Chairman)       6/6 Mr. S.S.Sirisena 2 Mr. K D G Gunaratne       6/6 Mr. L. N de S Wijeyeratne 3 Mr. S S Sirisena       3/6 Mr L N de S Wijeyeratne was appointed as a member of the Audit Committee Financial Reporting System with effect from 18th February 2020. The Committee reviewed the financial reporting system adopted by the Company in the preparation of its quarterly and annual Financial Statements to ensure Brief profiles of each member are given reliability of the processes and consistency of the accounting policies and methods on page 14 of this report. Individually adopted and their compliance with the Sri Lanka Financial Reporting Standards. The and collectively financial knowledge, Committee recommended the Financial Statements to the Board for its deliberations business acumen and independence and issuance. The Committee, in its evaluation of the financial reporting system, of the Committee, are brought to bear also recognise the adequacy of the content and quality of routine management on their deliberations and judgments information reports forwarded to its members. on matters that come within the Committee’s preview. Internal Audit The Committee reviewed the process to assess the effectiveness of the Internal The Company Secretary acts as the Financial Controls that have been designed to provide reasonable assurance to the secretary of the Committee. The Directors that assets are safeguarded and that the financial reporting system can be Chairman & Chief Executive, Group relied upon in preparation and presentation of Financial Statements. Chief Financial Officer of Hayleys PLC, Head – Hayleys Group Management The Group Management Audit & Systems Review Department (MA & SRD) reports Audit & System Review, Managing on key control elements and procedures in Company that are selected according to Director, Director/Chief Executive the annual audit plan were reviewed. Internal audits are outsourced to leading audit Officer, General Manager Finance firms in line with an agreed annual audit plan. attend the meeting of the Committee by invitation. During the period under review the internal audit of nine (9) estate locations and three (3) special audits were carried out as required by the senior management. Annual Report 2019 | 2020 29

The Committee evaluated the Internal of the staff. All appropriate procedures Audit Function covering key areas such are in place to conduct independent as scope, quality of internal audits, investigations into incidents reported independence and resources. The through Whistle-Blowing or identified Committee appraised the independence through other means. The whistle of the Group MA & SRD and other blower policy guarantees strict internal auditors, in the conduct of their confidentiality of the identity of the assignments. Whistle-Blowers.

External Audit Sri Lanka Accounting Standards The Committee held meetings with Committee reviewed the revised the External Auditors to review the policy decisions relating to adoption nature, approach, scope of the audit of new and revised Sri Lanka and the Audit Management Letters of Accounting Standards (SLFRS/LKAS) the Company. Actions taken by the applicable to the Company and made management in response to the issues recommendation to the Board of raised, as well as the effectiveness Directors. of the internal controls in place, were discussed with the heads of Audit Committee Report business units. Remedial action was The Committee would continue to recommended wherever necessary. monitor the compliance with relevant Accounting Standards and keep the The Audit Committee has reviewed the Board of Directors informed at regular other services provided by the External intervals. The committee has pursued Auditors to the Company to ensure that the support of Messers KPMG to their independence as Auditors has not assess and review the existing SLFRS been compromised. policies and procedures adopted by the Company. Appointment of External Auditors The Audit Committee has recommended Support to the Committee to the Board of Directors that Messers The Committee received information KPMG, Chartered Accountants: and support from management during continued as Auditor for the financial the year to enable it to carry out its ending 31st March 2021 after duties and responsibilities effectively. evaluating the scope, delivery of audit resources and the quality of the assurance initiatives taken during the year 2019/20.

Ethics and Good Governance S C Ganegoda The committee continuously Chairman emphasised on upholding ethical values Audit Committee of the staff members. In this regard, Code of Ethics and Whistle- Blowers Colombo Policies were put in place and followed 19th May 2020 educating and encouraging all members 30 HORANA PLANTATIONS PLC

FINANCIAL CALENDAR

2019/20 2018/19

Interim Financial Statements: Three months ended 30th June 31-Jul-19 19-Jul-18 Six months ended 30th September 31-Oct-19 6-Nov-18 Nine months ended 31st December 23-Jan-20 14-Jan-19 Tweleve months ended 31st March 19-May-20 27-May-19

Annual Report 06-Jul-20 03-Jun-19 27th Annual General Meeting 27-Jul-20 26th Annual General Meeting 26-Jun-19

Financial Reports Independent Auditor’s Report 31 Statement of Profit or Loss and Other Comprehensive Income 36 Statement of Financial Position 37 Statement of Changes in Equity 39 Statement of Cash Flows 40 Significant Accounting Policies 41 Notes to the Financial Statements 55 Annual Report 2019 | 2020 31

INDEPENDENT AUDITOR’S REPORT

To the Shareholders of Horana Plantation PLC Basis for Opinion Report on the Audit of the Financial Statements We conducted our audit in accordance with Sri Lanka Auditing Standards (SLAuSs). Our responsibilities under those standards are Opinion further described in the Auditors’ Responsibilities for the Audit of We have audited the financial statements of Horana the Financial Statements section of our report. We are independent Plantation PLC (“the Company”), which comprise of the Company in accordance with the Code of Ethics issued by the statement of financial position as at 31st March CA Sri Lanka (“Code of Ethics”) and we have fulfilled our other 2020, and the statement of profit or loss and other ethical responsibilities in accordance with the Code of Ethics. We comprehensive income, statement of changes in equity believe that the audit evidence we have obtained is sufficient and and statement of cash flows for the year then ended, appropriate to provide a basis for our opinion. and notes to the financial statements, including a summary of significant accounting policies set out on Key Audit Matters pages 36 to 92. Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial In our opinion, the accompanying financial statements statements of the current period. These matters were addressed in give a true and fair view of the financial position of the the context of our audit of the financial statements as a whole, and Company as at 31st March 2020, and of its financial in forming our opinion thereon, and we do not provide a separate performance and its cash flows for the year then ended opinion on these matters. in accordance with Sri Lanka Accounting Standards.

Measurement of Biological Assets (Refer to Note 3.3.2 significant accounting policies and explanatory Note 15 to the financial statements).

Description Our response The Company has reported bearer biological assets amounting to Rs. Our audit procedures included among others; 2,208 Million and consumable biological assets amounting to Rs. 632 Consumable Biological Assets Million as at 31st March 2020. The Biological assets represents 76% • Challenging the key assumptions and methodology of the total assets as at 31st March 2020. The Consumer Biological used in the valuation, in particular the discount rate, assets are carried at fair value less cost to sell whereas the bearer average market price and yield per hectare and biological assets are carried at the cost less accumulated depreciation evaluating the appropriateness of those assumptions. and impairment loss. • Assessing the objectivity and independence of the external valuation expert and the competence and The valuation of consumable biological assets requires significant qualification of the external expert engaged by the levels of judgments and technical expertise in selecting appropriate Company. valuation models and assumptions. Changes in the key assumptions • Comparing the average market price and yield per used such as discount rate, value per cubic meter and available hectare to historical data and market available data. timber quantity could have a material impact on the fair value gain or loss for the year and the carrying value of consumable biological • Verifying the mathematical accuracy of the assets as of the reporting date. The Management has used an consumable biological asset valuation. external valuation expert to assist in determining the fair value of the consumable biological assets at the reporting date. 32 HORANA PLANTATIONS PLC

INDEPENDENT AUDITOR’S REPORT

Bearer biological assets mainly include mature and immature tea, • Assessing the adequacy of the related disclosures in rubber and other trees in identified plantation fields. Inappropriate the financial statements including the description and transfer from immature to mature plantations has a significant impact appropriateness of the inherent degree of subjectivity on the carrying value of the bearer plants and the reported losses as and the key assumptions. capitalization of costs will cease from the point of transfer and the mature plantations are depreciated over the useful lives of the plants. Bearer Biological Assets As per the industry practice, transfer of immature plantations fields • Assessed the processes and controls in place to to mature plantation fields happens at the point of commencement ensure; proper capitalisation of the expenses incurred of commercial harvesting. The actual point of which commercial relating to immature plantations, timely transfer of harvesting could start depends on the soil condition, weather matured plants to respective matured plantation patterns and plant breed. categories and triggers of impairment (if any) are on a timely basis. We considered the measurement of biological assets as a key • Obtaining schedules of costs incurred and capitalised audit matter due to the magnitude of the amounts involved and under immature plantations as well as cost transferred the valuation of consumable biological assets involved significant to mature plantations by each estate and reconciling judgment exercised by the management and external valuation those balances to the general ledger on sample expert and were subjected to significant level of estimation basis, verifying the reconciling items and obtaining uncertainty and management bias. Further, immature to mature explanations from management for any significant transfer of bearer biological asset require management to exercise variances identified. their judgment in determining the point at which a plant is deemed ready for commercial harvesting. • Testing immature to mature cost transfer worksheet for selected estates to check whether the amounts transferred during the year was consistent with the company accounting policy and industry norms. • Assessing the adequacy of the related disclosures in the financial statements and consistency with the accounting policies.

Recoverability of deferred tax assets (Refer to Note 3.7.4.2. significant accounting policies and explanatory Note 11.4 to the financial statements). Description Our response The Company has recognised deferred tax asset of Rs. 311 Million on Our audit procedures included among others; temporary differences, which include deferred tax asset recognition • Evaluating the assumptions used by the management of Rs. 231 Million in respect of accumulated tax losses of Rs. 1,651 in the preparation of revised forecast of future taxable Million as at 31st March 2020. The recognition of deferred tax assets profits of the Company with our understanding of relies on the exercise of significant judgment by management in the business and the industry based on internal and respect of assessing the sufficiency of future taxable profits and the external sources of information. probability of such future taxable profit being generated and existing • Assessing the Company’s approach for evaluating the future taxable temporary differences. The Company has considered likelihood of the recoverability of deferred tax assets the availability of qualifying taxable temporary differences and the by comparing the consistency of management profit probable taxable profits for the foreseeable future for the purpose of forecasts with those included in the financial budgets recognising deferred tax assets. approved by the board of directors. • Evaluating the adequacy of the related disclosures We considered this as the key audit matter because of its significance in the financial statements in accordance with the to the financial statements and significant management judgments relevant Accounting Standards. and estimation required in forecasting future taxable profits which could be subject to potential management bias. Annual Report 2019 | 2020 33

Valuation of Retirement benefit obligation (Refer to Note 3.4.1. significant accounting policies and explanatory Note 27 to the financial statements). Description Our response The retirement benefit obligation of the Company as at 31st March Our audit procedures included among others; 2020 amounting to Rs. 542 Million is significant in the context of the • Assessing the competency, objectivity and capabilities total liabilities of the Company as well as the significant judgement of the independent actuary engaged by the Company. and estimation involved. The valuation of the Company’s retirement • Testing the samples of the employees’ details used in benefit obligation requires significant judgment and estimation to the computation to the human resource records. be applied across numerous assumptions, including salary increases • Evaluating the reasonableness of the total annual and discount rate. Small changes in those assumptions could have a salaries used in the computation by comparing to the significant effect on the financial performance and financial position historical data of the Company. The Management has used an independent actuary to assist them in the computation of retirement benefit obligation at • Challenging the other key assumptions used in the the reporting date. valuation, in particular the discount rate, inflation rate, mortality rates and future salary increases We considered the computation of the retirement benefit obligation • Comparing the discount rate, inflation rate, mortality to be a key audit matter due to the magnitude of the amounts rate and future salary increases to market available recognised in the financial statements as well as estimation data. uncertainty involved in determining the liability. • Involving internal valuation specialist to verify the accuracy of the retirement benefit obligation. • Assessing the adequacy of the related disclosures made in the financial statements including sensitivity analysis.

Disclosure of the management assessment on impacts of Covid-19 (Refer to Note 37 to the financial statements). Description Our response Following the spread of global pandemic COVID-19 in Sri Lankan Our audit procedures included; government declared a state of emergency on 18th March 2020. The • Examining the management assessment of impact Company was facing challenges and limitations in carrying in with from Covid-19 and evaluating the sensitivity by the business operations. This unprecedented circumstance leads to considering upside and downside scenarios together many uncertainties which affect the key judgements and assumptions with reasonably plausible changes to the key used by the management in preparation and presentation of these assumptions and considering whether there were any financial statements. Note 37 in the financial statements, describes indicators of management bias in the selection of the the impact of Covid-19 outbreak to the current year financial assumptions. statements and the possible effects of the future implications • Obtaining the Company’s profitability and cash flow of Covid-19 outbreak on Horana Plantations PLC’s prospects, projections for the foreseeable future and challenging performance and cash flows. Management have described how they the key assumptions used in preparing the projections plan to deal with these events and circumstances as the outbreak is and inquiring the management plans and strategies on prevailing at the time of finalising these financial statements. credit risk, liquidity risk and the currency risk including operational risk. 34 HORANA PLANTATIONS PLC

INDEPENDENT AUDITOR’S REPORT

We considered the Disclosure on the impacts of Covid-19 as a • Evaluating the appropriateness of the assumptions key audit matter because the assessment involves consideration used for the estimates and assessing whether the of future events and circumstances which are inherently uncertain estimates reflected the latest economic conditions and poses greater challenges and the effects of those uncertainties pursuant to the Covid-19 outbreak. may significantly impact the resulting accounting estimates and • Inspecting the availability of the credit facility judgements. Therefore, the assessment requires the exercise of arrangements for the Company to manage the significant management judgment in assessing future. liquidity on a short term and long-term basis assessing the implication of these on the Company’s liquidity. • Obtaining management accounts for the subsequent period and evaluating the performance of that period. • Assessing the adequacy of the related disclosures in the financial statements with the available and accessible information as at reporting date.

Other Information Management is responsible for the other information. The other information comprises the information included in the annual report but does not include the financial statements and our auditor’s report thereon.

Our opinion on the financial statements does not cover the other information and we will not express any form of assurance conclusion thereon.

In connection with our audit of the financial statements, our responsibility is to read the other information identified above when it becomes available and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated.

If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.

Responsibilities of Management and Those Charged with Governance for the Financial Statements Management is responsible for the preparation of financial statements that give a true and fair view in accordance with Sri Lanka Accounting Standards, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, management is responsible for assessing the Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so.

Those charged with governance are responsible for overseeing the Company’s financial reporting process.

Auditors’ Responsibilities for the Audit of the Financial Statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with SLAuSs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. Annual Report 2019 | 2020 35

As part of an audit in accordance with SLAuSs, we exercise professional judgment and maintain professional skepticism throughout the audit. We also: • Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. • Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control. • Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. • Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditors’ report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditors’ report. However, future events or conditions may cause the Company to cease to continue as a going concern. • Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

We also provide those charged with governance with a statement that we have complied with ethical requirements in accordance with the Code of Ethics regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.

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

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

CA Sri Lanka membership number of the engagement partner responsible for signing this independent auditor’s report is 3544.

Chartered Accountants Colombo, Sri Lanka 19th May 2020 36 HORANA PLANTATIONS PLC

Statement of Profit or Loss and Other Comprehensive Income

For the Year ended 31st March 2020 2019 Note Rs’000 Rs’000

Revenue 4 1,762,154 2,020,360 Cost of Sales (1,979,696) (1,823,752) Gross (Loss)/Profit 5 (217,542) 196,608 Other Operating Income 6 6,900 20,040 Change in Fair Value of Biological Assets 7 56,693 86,508 Administrative Expenses (170,053) (149,854) Management Fees 8 - (16,333) (Loss)/Profit from Operations (324,002) 136,970 Net Finance Expenses 9 (146,373) (129,622) (Loss)/Profit before Tax 10 (470,375) 7,348 Tax Expense 11.1 (24,493) (2,546) (Loss)/Profit for the year (494,868) 4,802

Other Comprehensive Income: Items that will not be reclassified to Profit or Loss Actuarial Loss on Retirement Benefit Obligations 27.2 (21,110) (87,423) Tax Reversal on Other Comprehensive Income 11.4.1 2,955 12,239 Other Comprehensive Income for the year, net of tax (18,155) (75,184) Total Comprehensive Income for the year (513,023) (70,382) (Loss)/Earnings per Share (Rs.) 12.1 (19.79) 0.19 Dividend Per Share (Rs.) 12.2 - 0.50

The accounting policies and explanatory notes set out on pages 41 to 92 form an integral part of these Financial Statements. Figures in brackets indicate deductions. Annual Report 2019 | 2020 37

Statement of Financial Position

As at 31st March 2020 2019 Note Rs’000 Rs’000

Assets Non-Current Assets Right of use - Land 13 156,261 101,385 Right of use - Immovable Estate Assets 14 32,627 39,926 Bearer Biological Assets 15.1 2,208,942 2,206,930 Consumable Biological Assets 15.2 632,177 585,919 Property, Plant & Equipment 16 354,558 390,309 Total Non-Current Assets 3,384,565 3,324,469

Current Assets Non-harvested Produce on Bearer Biological Assets 15.5 3,361 5,845 Inventories 18 184,678 297,746 Advance Company Tax (ACT) Recoverable 17 27,285 27,285 Trade and Other Receivables 19 84,919 94,830 Holding Company Receivable 35.1.1 14,257 32,257 Other Related Companies Receivables 35.1.1 7,439 10,821 Cash and Cash Equivalents 20 14,890 2,871 Total Current Assets 336,829 471,656 Total Assets 3,721,394 3,796,125

Equity & Liabilities Equity Stated Capital 21 250,000 250,000 Sinking Fund 22 35,000 35,000 Development Reserve 23 35,000 35,000 Retained Profits 491,578 1,017,916 Total Equity 811,578 1,337,916

Non-Current Liabilities Interest bearing Borrowings 24.1 735,490 670,168 Lease Liabilities - Land 25 155,616 80,899 Other Lease Creditors 26 2,926 4,234 Retirement Benefit Obligations 27 542,506 504,717 Deferred Income 28 122,829 125,727 Deferred Tax Liability 29 125,293 116,355 Total Non-Current Liabilities 1,684,660 1,502,100 38 HORANA PLANTATIONS PLC

Statement of Financial Position

As at 31st March 2020 2019 Note Rs’000 Rs’000

Current Liabilities Trade and Other Payables 30 238,382 242,871 Related Companies Payables 35.1.2 25,681 35,005 Interest bearing Borrowings 24.1 295,881 236,457 Lease Liabilities - Land 25 696 7,167 Other Lease Creditors 26 1,308 1,138 Short Term Borrowings 31 663,208 433,471 Total Current Liabilities 1,225,156 956,109 Total Liabilities 2,909,816 2,458,209 Total Equity and Liabilities 3,721,394 3,796,125

The accounting policies and explanatory notes setout on pages 41 to 92 form an integral part of these Financial Statements. Figures in brackets indicate deductions.

These Financial Statements have been prepared in compliance with the requirements of the Companies Act No.7 of 2007.

N A A K Nissanka General Manager - Finance

The Board of Directors are responsible for the preparation and presentation of these Financial Statements. Approved and Signed for and on behalf of the Board of Directors of Horana Plantations PLC.

A M Pandithage Dr. Roshan Rajadurai Chairman Managing Director

Colombo 19th May 2020 Annual Report 2019 | 2020 39

Statement of Changes in Equity

For the Year ended 31st March Stated Sinking Development Retained Total Capital Fund Reserve Earnings Rs’000 Rs’000 Rs’000 Rs’000 Rs’000

Balance as at 1st April 2018 250,000 35,000 35,000 1,100,798 1,420,798

Total Comprehensive Income for the year Profit for the year - - - 4,802 4,802 Other Comprehensive Income - - - (75,184) (75,184) Total Comprehensive Income for the year - - - (70,382) (70,382)

Total transactions with owners of Company Contributions and Distributions Interim Dividend for the year ended 31st March 2019 - - - (12,500) (12,500) Total transactions with owners of Company - - - (12,500) (12,500) Balance as at 31st March 2019 250,000 35,000 35,000 1,017,916 1,337,916

Balance as at 1st April 2019 250,000 35,000 35,000 1,017,916 1,337,916 Adjustments on initial application of SLFRS - 16 - - - (13,315) (13,315) Adjusted Balance as at 1st April 2019 250,000 35,000 35,000 1,004,601 1,324,601

Total Comprehensive Expense for the year Loss for the year - - - (494,868) (494,868) Other Comprehensive Expense - - - (18,155) (18,155) Total Comprehensive Expense for the year - - - (513,023) (513,023) Balance as at 31st March 2020 250,000 35,000 35,000 491,578 811,578

The accounting policies and explanatory notes setout on pages 41 to 92 form an integral part of these Financial Statements. Figures in brackets indicate deductions. 40 HORANA PLANTATIONS PLC

Statement of Cash Flows

For the Year ended 31st March Note 2020 2019 Rs’000 Rs’000

Cash Flows from Operating Activities (Loss)/Profit before Tax (470,375) 7,348

Adjustments for : Change in Fair Value of Consumable Biological Assets 15.2.2 & 15.5 (39,824) (40,916) Depreciation and Amortisation 10 187,691 168,689 Provision for Retiring Gratuity 27.3 91,779 62,830 Provision for Obsolete Inventories 18.1 3,460 - Provision/(Reversal) for impairment of trade & other receivables 19.1 595 (25) Finance Expenses 9 128,642 129,786 Finance Income 9 (241) (168) Lease Interest 9 22,012 3,647 Profit on Disposal of Property, Plant and Equipment and Redundant Materials 6 (100) (6,861) Amortisation of Capital Grants 6 (6,800) (13,179) Field Development Expenditure written-off 15.1 & 15.2 14,877 12,683 Operating (Loss) Profit before Working Capital Changes (68,286) 323,833

Decrease in Trade and Other Receivables 6,412 163 (Increase)/Decrease in Inventories 115,454 (45,777) (Increase)/Decrease in Related Companies Receivables 21,383 (24,138) Decrease in Related Companies Payables (9,324) (19,011) Decrease in Trade and Other Payables (4,879) (26,772) Cash Generated from Operations 60,760 208,298

Interest paid 9 (125,132) (111,482) Payments made for Employee Benefits 27 (78,218) (72,612) Payment of Income Tax (Economic Service Charge & Withholding Tax) (9,695) (9,988) Net Cash (Outflow)/Inflow from Operating Activities (152,285) 14,217

Cash Flows from Investing Activities Purchase/Construction of Property, Plant and Equipment 16 (10,211) (10,080) Expenditure incurred on Biological Assets 15.1.1 & 15.2.1 (154,989) (170,057) Capital Grants and Subsidies received 28 3,904 2,374 Proceeds on Disposal of Property, Plant and Equipment and Redundant Materials 6 100 6,861 Interest Income 9 241 168 Net Cash Outflow from Investing Activities (160,954) (170,736)

Cash Flows from Financing Activities Receipt of Project Loans 24.4 200,000 200,000 Repayment of Project Loans 24 & 31.2 (148,070) (89,700) Receipts of Other Term Loans 24.6 & 31.2 240,000 60,000 Repayment of Other Term Loans 24 & 31.2 (163,486) (67,949) Payment of Lease Rentals 26 (29,225) (25,253) Payment of Dividend 12.2 - (12,500) Net Cash Inflow from Financing Activities 99,219 64,598

Net Decrease in Cash and Cash Equivalents during the Year (214,020) (91,920) At the beginning of the Year (370,600) (278,680) At the End of the Year 20 (584,620) (370,600)

The accounting policies and explanatory notes Set out on Page 41 to 92 form an integral part of these Financial Statements. Figures in brackets indicate deductions. Annual Report 2019 | 2020 41

SIGNIFICANT ACCOUNTING POLICIES

1. Reporting Entity prepared in accordance with Sri Lanka information presented in Sri Lankan 1.1 Domicile and Legal form Accounting Standards (LKASs and Rupees has been given to the nearest Horana Plantations PLC (hereafter SLFRSs) promulgated by the Institute thousand, unless stated otherwise. mentioned as “the Company”), is a of Chartered Accountants of Sri Lanka Public Limited Liability Company, (ICASL) and with requirements of the 2.5 Presentation of Financial incorporated and domiciled in Sri Lanka, Companies Act No.07 of 2007. Statements under the Companies Act No.17 of The assets and liabilities of the 1982 (the Company re-registered under This is the first set of the financial Company presented in the statement of the Companies Act No.07 of 2007), statements in which SLFRS 16 financial position are grouped by nature in terms of the Public Corporation Leases have been applied. Changes and listed in an order that reflects their of Government Owned Business to significant accounting policies are relative liquidity and maturity pattern. Undertakings into Public Companies Act described in Note 3.1 to the Financial No.23 of 1987. The registered office Statements. 2.6 Going Concern of the Company is situated at No 400, The Directors have made an assessment Deans Road, Colombo 10, and the 2.2 Authorisation for Issue of the Company’s ability to continue plantations are situated in the planting The Financial Statements were as a going concern in the foreseeable districts of Nuwara-Eliya, Kalutara and authorised for issue by the Board of future and they do not foresee a need th Ratnapura. Directors on 19 May 2020. for liquidation or cessation of trading. (LKASs and SLFRSs). 1.2 Principal Activities and Nature of 2.3 Basis of Measurement Operations These Financial Statements have 2.7 Materiality and Aggregation During the year, the principle activities been prepared in accordance with the Each material class of similar items is of the Company were the cultivation, historical cost convention basis except presented separately in the financial manufacturing and sale of tea, rubber for the following material items in the statements. Items of dissimilar nature and other agricultural produce. statement of financial position. or function are presented separately • Bearer Biological Assets and Property, unless they are immaterial as permitted 1.3 Immediate and Ultimate Parent Plant and Equipment, which have by LKAS 1- Presentation of Financial Enterprise been measured as more fully Statements. The Company’s immediate parent described in Note 15 & 16. Financial assets and financial liabilities undertaking is Vallibel Plantation • Consumable Mature Biological Assets are offset and the net amount reported Management Limited, which is are measured at fair value less cost to in the statement of financial position, incorporated in Sri Lanka. The sell as per LKAS 41 - Agriculture. Company’s ultimate parent undertaking only when there is a legally enforceable • Liability for retirement benefit is Vallibel One PLC, which is right to offset the recognised amounts obligation is recognised at the present incorporated in Sri Lanka. and there is an intention to settle on net value of the retirement benefit basis, or to realise the assets and settle obligation based on actuarial valuation the liability simultaneously. as per LKAS 19 - Employee benefits. 2. Basis of Preparation • Non harvested produce on bearer 2.8 Use of Estimates and Judgments 2.1 Statement of Compliance biological assets are measured at fair The preparation of the Financial The financial statements of the value as per LKAS 41 – Agriculture Statements in conformity with Sri Company such comprise Statement of Lanka Accounting Standards (LKASs Profit or Loss and Other Comprehensive 2.4 Functional and Presentation and SLFRSs) requires the management Income, Statement of Financial Position, Currency to make judgments, estimates and Statement of Changes in Equity and These Financial Statements are assumptions that effect the application Statement of Cash Flows together presented in Sri Lankan Rupees (Rs.) of accounting policies and the reported with the Significant Accounting which is the Company’s functional and amounts of assets, liabilities, income Policies and Notes to the Financial presentation currency. All financial Statements. These statements are 42 HORANA PLANTATIONS PLC

SIGNIFICANT ACCOUNTING POLICIES

and expenses. Actual results may differ advantageous market to which the Fair values have been determined for from those estimates and judgmental Company has access at that date. The measurement and disclosure purposes decisions. fair value of a liability reflects its non- based on the following methods. Where performance risk. applicable, further information about the Estimates and underlying assumptions assumptions made in determining fair are based on historical experience A number of the Company’s accounting value is disclosed in the notes specific and various other factors that are policies and disclosures require the to that asset or liability. believed to be reasonable under the determination of fair values, for both circumstances, the results which form financial and non-financial assets and Fair value of non-financial assets the basis of making judgments about the liabilities. The fair value used by the Company in carrying amount of assets and liabilities the measurement of non-financial assets that are not readily apparent from other When measuring fair value of an is based on the presumption that the sources. asset or liability, the Company uses transaction to sell the asset or transfer observable market data as far as the liability takes place either in the Estimates and underlying assumptions possible. Fair values are categorised into principal market for the asset or liability, that are reviewed on an ongoing basis. different levels in a fair value hierarchy or, in the absence of a principal market, Revisions to accounting estimates are based on the inputs used in the in the most advantageous market that is recognised in the period in which the valuation techniques. accessible by the Company for the asset estimates are revised and in any future or liability. periods affected. Level 1 inputs are unadjusted quoted prices in active markets for identical The fair value of an asset or a liability is Information about critical estimates assets or liabilities. A market is regarded measured using the assumptions that and judgments in applying accounting as ‘active’ if transactions for the asset market participants would act in their policies that have the most significant or liability take place with sufficient economic best interest when pricing the effect on the amounts recognised in the frequency and volume to provide pricing asset or liability. Financial Statements is included in the information on an ongoing basis. following notes. A fair value measurement of a non- Level 2 inputs are inputs other than financial asset takes into account a Disclosure quoted prices included within Level market participants ability to generate Critical Accounting Reference 1 that are observable for the asset or economic benefits by using the asset in Estimate / Judgment Note Pages liability either directly (i.e. as prices) or its highest and best use or by selling it Biological Assets 15 61 to 64 indirectly (i.e. derived from prices). to another market participant that would Inventories 18 67 use the asset in its highest and best use. inputs are inputs that are not The Company uses valuation Income Tax Expense 11 57 Level 3 based on observable market data techniques that are appropriate in the Deferred Tax Assets/ 11.4 58 (unobservable inputs). circumstances and for which sufficient Liabilities data are available to measure fair Retirement Benefit 27 73 to 75 If inputs used to measure the fair value value, maximising the use of relevant Obligation of an asset or liability fall into different observable inputs and minimising the levels of the fair value hierarchy, use of unobservable inputs. 2.9 Fair Value Measurement then the fair value measurement is ‘Fair value’ is the price that would categorised in its entirety in the same be received to sell an asset or paid level of the fair value hierarchy as the to transfer a liability in an orderly lowest level input that is significant to transaction between market participants the entire measurement. at the measurement date in the principal or, in its absence, the most Annual Report 2019 | 2020 43

3. Significant Accounting Policies Company assesses whether a contract The Company used the following The Accounting policies set out below is or contains a lease based on the practical expedients when applying have been applied consistently to all definition of a lease, as explained in SLFRS 16 to leases previously classified periods presented in these financial Note 3.6.1 as operating leases under LKAS 17. statements. Unless otherwise indicated. • Applied a single discount rate to On transition to SLFRS 16, the a portfolio of leases with similar 3.1 Changes in Accounting Policies Company elected to apply the characteristics. practical expedient to grandfather the The Company has adopted SLFRS 16 • Adjusted the right-of-use assets by assessment of which transactions are Leases using the modified retrospective the amount of LKAS 37 onerous leases. It applied SLFRS 16 only to approach from 1st April 2019. contract provision immediately before contracts that were previously identified the date of initial application, as an as leases. Contracts that were not Due to the transition methods chosen alternative to an impairment review. by the Company in applying this identified as leases under LKAS 17 • Excluded initial direct costs from standard, comparative information and IFRIC 4 were not reassessed for measuring the right-of-use asset at throughout these financial statements whether there is a lease. Therefore, the the date of initial application has not been restated to reflect the definition of a lease under SLFRS 16 requirements of the new standards. was applied only to contracts entered • Used hindsight when determining the into or changed on or after 1st April lease term if the contract contains The effect of initially applying this 2019. options to extend or terminate the standard mainly attributed to the lease. following; b) Accounting treatment by lessee 3.1.3 Leases Classified as Finance • remeasurement of right-of-use assets As a lessee, the Company previously classified leases as operating or Leases Under LKAS 17 • remeasurement of corresponding finance leases based on its assessment For leases that were classified as finance lease liabilities of whether the lease transferred leases under LKAS 17, the carrying significantly all the risks and rewards amount of the right-of use asset and the 3.1.1 SLFRS 16 Leases incidental to ownership of the lease liability as at 1st April 2019 are The Company has adopted SLFRS 16 underlying asset to the Company. Under determined at the carrying amount of from 1st April 2019. As a result, the SLFRS 16, the Company recognises the lease asset and lease liability under Company has changed its accounting right-of-use assets and lease liabilities LKAS 17 immediately before that date. policy for lease contracts as detailed for the leases – i.e. these leases are on- below. balance sheet. The Company applied SLFRS 16 using 3.1.2 Leases Classified as Operating the modified retrospective approach, Leases Under LKAS 17 under which the Right of use asset is At transition, lease liabilities were measured to be equal to lease liability measured at the present value of the as at 1st April 2019 without restating remaining lease payments, discounted at comparative information. The details of the Company’s incremental borrowing the changes in accounting policies are rate as at 1st April 2019. Right-of-use disclosed below. assets are measured at an amount equal to the lease liability, adjusted by the a) Definition of a lease amount of any prepaid or accrued lease Previously, the Company determined payments. at contract inception whether an arrangement is or contains a lease under LKAS 17. Under SLFRS 16, the 44 HORANA PLANTATIONS PLC

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3.1.4 Impacts on Financial Statements When parts of an item of property, plant and equipment have different useful Description Right of use Lease Retained lives, they are accounted for as separate – Land Liability Earnings items (major components) of property, Rs. 000 Rs. 000 Rs. 000 plant and equipment. Balance as at 1st April 2019 101,385 88,066 1,017,916 Impact due to initial application of SLFRS 16 54,342 67,661 (13,315) 3.3.1.2 Subsequent Expenditure The Cost of replacing part of an item Adjusted balance as at 1st April 2019 155,727 155,727 1,004,601 of Property, Plant and Equipment is recognised in the carrying amount of On transition to SLFRS 16, the Company recognised an additional Rs. 54 Million of the item if it is probable that the future right of use of assets and Rs. 67.6 Million of lease liabilities as at 1st April 2019. The economic benefits embodied within the weighted average lessee’s incremental borrowing rate applied to the lease liabilities part will flow to the Company and its on 1st April 2019 was 14.44 %. cost can be measured reliably. The cost of the day-to-day servicing of Property, The change in accounting policy affected the following items in statement of Plant and Equipment are recognised in financial position as at 1st April 2019: Statement of Profit or Loss and Other Right of use of assets – increase by Rs. 54,341,000/- Comprehensive Income as incurred. Lease liabilities – increase by Rs. 67,661,079/- Retained Earnings – decrease by Rs. 13,314,519/- 3.3.1.3 Capital Work in Progress The cost of capital work-in-progress is 3.2 Foreign Currency the cost of purchase or construction 3.2.1 Foreign Currency Transactions together with any related expenses Transactions in foreign currencies are translated to Sri Lankan Rupees at the rates of thereon. Capital work in progress exchange prevailing at the date of the transactions. transferred to the respective asset accounts at the time of first At each reporting date, monetary items denominated in foreign currencies are utilisation or at the time of the asset is translated into local currencies at the rates of exchange prevailing at the reporting commissioned. date while non-monetary items are reported at the rates prevailing at the date of the transactions were affected. 3.3.1.4 De-recognition The carrying amount of an item of The exchange difference arising on the translations are recognised in the Statement Property, Plant and Equipment is de- of Profit or Loss and Other Comprehensive Income. recognised on disposal; or when no future economic benefits are expected 3.3 Assets and Bases of their Valuation from its use or disposal. Gains or losses Assets classified as Current Assets in the Statement of Financial Position are Cash on de-recognition are recognised in and Bank balances and those which are expected to be realised in cash during, the Statement of Profit or Loss and Other normal operating cycle of the Company’s business, or within one year from the Comprehensive Income. reporting date whichever is shorter. Assets other than current assets are those which the Company intends to hold beyond a period of one year from the reporting date. Gains and losses on disposal of an item of property, plant and equipment are 3.3.1 Property, Plant and Equipment determined by comparing the proceeds 3.3.1.1 Recognition and Measurement from disposal with the carrying amount Property, Plant and Equipment are stated at cost less accumulated depreciation and of property, plant and equipment, and accumulated impairment losses. The cost of Property, Plant and Equipment is the are recognised net within other income cost of acquisition or construction together with any incidental expenditure incurred in Statement of Profit or Loss and Other in bringing the asset to its working condition for its intended use. Capital work in Comprehensive Income. progress is transferred to the respective asset accounts when the assets are available for use. Annual Report 2019 | 2020 45

3.3.1.5 Permanent Land The expenditure incurred on bearer assets in the year of occurrence after Development Cost biological asset fields, which are bearing ascertaining the loss. Permanent land development costs during the year, has been transferred incurred in making major infrastructure to mature plantations. Expenditure 3.3.2.3 Infilling cost on Bearer development and building new access incurred on consumable biological Biological Assets roads on leasehold lands. These costs assets is recorded at cost at initial The land development costs incurred have been capitalised and amortised recognition and thereafter at fair value in the form of infilling are capitalised over the remaining lease period. at the end of reporting date. when infilling results in an increase Permanent impairments to land in the economic life of the relevant development costs are charged to the The Bearer Biological assets are field beyond its previously assessed Statement of Profit or Loss in full and measured at cost less accumulated standard of performance and infilling reduced to the net carrying amounts of depreciation and accumulated costs so capitalised are depreciated over such assets in the year of occurrence impairment losses, if any, in terms the newly assessed remaining useful after ascertaining the loss. of LKAS 16 - Property, Plant and economic life of the relevant mature Equipment as per the option provided plantation or unexpired lease period, 3.3.2 Biological Assets by the ruling issued by the Institute of whichever is lower. Biological assets are classified as Bearer Chartered Accountants of Sri Lanka. Biological Assets and Consumable Infilling costs that are not capitalised are Biological Assets. Bearer Biological The managed timber trees are measured charged to the Statement of Profit or Assets include tea, rubber, oil palm and on initial recognition and at the end Loss and Other Comprehensive Income other diversify crops those that are not of each reporting period at fair value in the year in which they are incurred. intended to be sold or harvested but are less cost to sell in terms of LKAS 41 however used to grow for harvesting - Agriculture. The cost is treated as 3.3.2.4 Growing Crop Nurseries agricultural produce from such approximation to fair value of young Nursery cost includes the cost of Biological Assets. Consumable Biological plants (age below 5 years) as the impact direct materials, direct labor and an Assets include managed timber trees on biological transformation of such appropriate proportion of directly those that are to be sold as Biological plants to price during this period is attributable overheads, less provision for Assets. immaterial. overgrown plants.

Biological assets are further classified 3.3.2.2 Bearer Biological Assets 3.3.2.5 Consumer Biological Assets in to Mature Biological Assets and The cost of land preparation, The managed timber trees are measured Immature Biological Assets. Mature rehabilitation, new planting, re-planting, on initial recognition and at the end of Biological Assets are those that have crop diversifying, inter-planting and each reporting period at its fair value attained harvestable specifications or fertilizing, etc., incurred between the less cost to sell in terms of LKAS 41 are able to sustain regular harvests. time of planting and harvesting (when - Agriculture. The cost is treated as Immature biological assets are those the planted area attains maturity), are approximation to fair value of young that have not yet attained harvestable classified as immature plantations. These plants as the impact on biological specifications. immature plantations are shown at transformation of such plants to price direct costs plus attributable overheads, during this period is immaterial. The 3.3.2.1 Recognition and Measurement including interest attributable to long fair value of timber trees are measured The Company recognises the Biological term loans used for financing immature using Discounted Cash Flow (DCF) assets when, and only when, the plantations. method taking in to consideration the entity controls the assets as a result of current market prices of timber, applied past events, it is probable that future Permanent impairments to Bearer to expected timber content of a tree economic benefits associated with the Biological Assets are charged to the at the maturity by an independent assets will flow to the entity and the Statement of Profit or Loss and Other professional valuer. fair value or cost of the assets can be Comprehensive Income in full and measured reliably. reduce the net carrying amounts of such 46 HORANA PLANTATIONS PLC

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The main variables in DCF model concerns on trees, 50% of the estimated crop in that harvesting cycle is considered. Variable Comment Currency valuation Sri Lankan Rupees 3.3.3 Depreciation and Amortisation Timber content Estimate based on physical verification of girth, height and a) Amortisation of Assets on JEDB/ considering the growth of each spices. SLSPC Lease

Factor all the prevailing statutory regulations enforced The leasehold rights to JEDB/SLSPC are against harvesting of timber coupled with forestry plan of the amortised in equal amounts over the Company. following years. (Lower of lease period and economic useful life) Economic useful life Estimated based on the normal life span of each spices by No. of Rate factoring the forestry plan of the Company. Asset Category Selling price Estimated based on prevailing Sri Lankan market price. Years Factor all the conditions to be fulfil in bringing the trees in to Bare Land 53 1.9% saleable condition. Mature Plantations 30 3.3% Discount Rate Discount rate reflects the possible variations in the Cash Permanent Land 30 3.3% flows and the risk related to the biological assets. Development Cost Buildings 25 4.0% The gain or loss arising on initial recognition of Consumable Biological assets at fair Plant and Machinery 15 6.7% value less cost to sell and from a change in fair value less cost to sell of Consumable Biological assets are included in Profit or Loss and Other Comprehensive Income for b) Amortization of Other Mature the period in which it arises. Plantations (Re-planting and New Planting) 3.3.2.6 Borrowing Cost Asset Category No. of Rate Borrowing costs that are directly attributable to acquisition, construction or Years production of a qualifying asset, which takes a substantial period of time to get ready Mature Plantations 33 3% for its intended use or sale, are capitalised as a part of the asset. (Tea) Mature Plantations 20 5.00% Borrowing costs that are not capitalised are recognised as expenses in the period in (Rubber) which they are incurred and charged to the Statement of Profit or Loss. Mature Plantations 20 5.00% (Oil Palm) The amounts of the borrowing costs which are eligible for capitalisation are Mature Plantations 50 2.00% determined in accordance with LKAS 23 - “Borrowing Costs”. (Coconut) Mature Plantations 15 6.67% Borrowing costs incurred in respect of specific loans that are utilised for field (Cinnamon) development activities have been capitalised as a part of the cost of the relevant immature plantation. The capitalisation will cease when the crops are ready for Mature Plantations 4 25.00% commercial harvest. (Coffee & Pepper) Mature Plantations 3 33.33% 3.3.2.7 Non-Harvested Produce on Bearer Biological Asset (Pineapple) The Company recognises its agricultural produce prior to harvest separately from its Mature Plantations 30 3.33% bearer plant. Such agricultural produce prior to harvest continues to be in the scope (Custard Apple) of LKAS 41 and measured at fair value less costs to sell. Changes in the fair value of such agricultural produce is recognised in profit or loss at the end of each reporting Depreciation of an asset begins when period. it is available for use and ceases at the earlier of the date that the asset is When deriving the estimated quantity the Company limits it to one harvesting classified as held for sale and the date cycle and the quantity is ascertained based on the last day of the harvest in the that the asset is de-recognised. immediately preceding cycle. In order to ascertain the fair value of produce growing Annual Report 2019 | 2020 47

Depreciation methods, useful lives and residual values are re-assessed at the a) Software reporting date. Mature plantations are depreciated over their useful lives or All computer software cost incurred, unexpired lease period, whichever is lower. which are not internally related to associate hardware, which can be clearly c) Depreciation identified, reliably measured and its Depreciation is charged on a straight line basis over the estimated useful economic probable that they will lead to future life of such assets based on the cost or re-valued amount of all Property, Plant and economic benefits, are included in the Equipment. Assets are depreciated over the shorter of the lease term or their useful Statement of Financial Position under lives. the category of Intangible Assets. Description No. of Years Rate Buildings 40 2.50% b) Subsequent Expenditure Permanent Land Development Costs 40 2.50% Subsequent expenditure is capitalised Plant and Machinery 13 7.50% only when it increases the future Equipment 10, 8, 5 10%,12.5%, 20% economic benefits embodied in the Furniture and Fittings 10 10.00% specific asset to which it relates. All Motor Vehicles 5, 4 20.00%, 25.00% other expenditure is recognised in profit Computer Hardware and Software 8, 4 12.50%, 25.00% or loss as incurred.

c) Amortisation 3.3.4 Leased Assets Assets obtained under finance lease, which effectively transfer to the Company Amortisation is recognised in the profit substantially all of the risks and benefits incidental to ownership of the leased assets, or loss on a straight line basis over the are treated as if they have been purchased outright and are capitalised at their cash estimated useful lives of intangible price. Assets acquired by way of a finance lease are measured at an amount equal to assets, other than goodwill, from the the lower of their present value and the minimum lease payments. date that they are available for use, since this most closely reflects the Assets held under finance lease are amortised shorter of the lease period or the expected pattern of consumption of the useful lives of equivalent owned assets, unless ownership is not transferred at the future economic benefits embodied in end of the lease period. the asset. The estimated useful life is as follows: The principal/capital elements payable to the lessor is shown as liability/obligation. No. of Rate The lease rentals are treated as consisting of capital and interest elements. The Years capital element in the rental that is applied to reduce the outstanding obligation Computer Software 4 25.00% and interest element is charged against profit, in proportion to the reducing capital elements outstanding. 3.3.6 Inventories Agricultural Produce harvested from The cost of improvements or on leased property is capitalised, disclosed as Biological Assets improvements to leasehold property and depreciated over the unexpired period of the lease, or the estimated useful lives of the improvements, whichever is shorter. Agricultural produce harvested from Biological Assets are measured at their 3.3.5 Intangible assets fair value less cost to sell at the point of An Intangible Assets is recognised if it is probable that economic benefits are harvest. The finished and semi-finished attributable to the assets will flow to the entity and cost of the assets can be inventories from agricultural produce are measured reliably. Such items with finite useful life are carried at cost less valued by adding the cost of conversion accumulated amortisation and accumulated impairment losses. to the fair value of agricultural produce. 48 HORANA PLANTATIONS PLC

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Agricultural Produce after further 3.4 Liabilities and Provisions All the employees of the Company are processing Liabilities classified as current liabilities members of the Employees’ Trust Fund, Further processed output of Agricultural on the Statement of Financial Position to which the Company contributes Produce are valued at the lower of cost are those which fall due for payment 3% on the consolidated salary of such and estimated net realisable value, after on demand or within one year from the employees. making due allowance for obsolete reporting date. and slow moving items. Net realisable 3.4.2 Contingent Liabilities value is the price at which stocks can be All known liabilities have been Contingent Liabilities are possible assets sold in the normal course of business accounted for in preparing these or obligations that arise from a past after allowing for estimated costs of Financial Statements. Provision and event and would be confirmed only conversion and the estimated costs liabilities are recognised when the on the occurrence or non-occurrence necessary to bring them to a saleable Company has a legal or constructive of uncertain future events, which are condition. obligation as a result of past events beyond the Company’s control. and it is probable that an outflow of The cost incurred in bringing the economic benefits will be required to 3.4.3 Trade and Other Payables inventories to its present location and settle the obligation. Trade and other payables are stated at conditions are accounted using the their amortised costs. following cost formulas. 3.4.1 Employee Benefits 3.4.1.1 Defined Benefit Plan 3.4.4 Deferred Income Input Material The retirement benefit plan adopted Grants and Subsidies At actual cost on first-in-first-out basis. is as required under the Payment of Government grants are recognised Gratuity Act No.12 of 1983 and the where there is a reasonable assurance Spares and Consumables Indian Repatriate Act No.34 of 1978 that the grant will be received, and all At actual cost on first-in-first-out basis. to eligible employees. This item is attached conditions will be complied grouped under Employee Benefits in with. Where the grant relates to an Produced Stocks the Statement of Financial Position. asset, it is recognised as deferred Valued at cost or NRV. Provision for Gratuity on the Employees income and released to income in equal of the Company is based on an actuarial amounts over the expected useful 3.3.7 Trade and Other Receivables valuation, using the Projected Unit life of the related assets. When the Trade receivables are stated at the Credit (PUC) method as recommended grants relate to an expense item, it is amounts they are estimated to realise by Sri Lanka Accounting Standards recognised as income over the period inclusive of provisions for bad & No.19 “Employee Benefits”. The necessary to match the grant on a doubtful debts. Other receivables and actuarial valuation was carried out by a systematic basis to the costs that are dues from related parties are recognised professionally qualified firm of actuaries, intended to compensate. at amortised cost less provision for bad Messers Actuarial and Management and doubtful receivables. Consultants (Private) Limited as at Government Grants related to Property, 31st March 2020. The liability is not Plant and Equipment other than grants 3.3.8 Cash and Cash Equivalents externally funded. received for consumer biological assets Cash and Cash Equivalents are defined are initially deferred and allocated to as cash in hand, demand deposits and 3.4.1.2 Defined Contribution Plans - income on a systematic basis over the short-term highly liquid investments Provident Funds and Trust Fund useful life of the related Property, Plant readily convertible to known amounts of The Company contributes 12% on and Equipment, more fully mentioned in cash and subject to insignificant risk of consolidated salary of the employees Note 28 to the Financial Statements. changes in value net of bank overdrafts to Ceylon Planters’ Provident Society that are repayable on demand for the (CPPS)/Estate Staff’s Provident Society Grants related to income are recognised purpose of the Statement of Cash (ESPS)/ Employees’ Provident Fund in the Statement of Profit or Loss and Flows. (EPF). Other Comprehensive Income in the year which it is receivable. Annual Report 2019 | 2020 49

Unconditional grants received for the Company changes its business the requirements to be measured at Consumer Biological Assets measured at model for managing financial assets, in amortised cost or at FVOCI as at FVTPL fair value less cost to sell are recognised which case all affected financial assets if doing so eliminates or significantly in the Statement of Profit or Loss and are reclassified on the first day of the reduces an accounting mismatch that Other Comprehensive Income when, first reporting period following the would otherwise arise. and only when such grants become change in the business model. receivable. a) Business model assessment A financial asset is measured at The Company makes an assessment of 3.4.5 Ordinary Shares amortised cost if it meets both of the objectives of the business model Incremental costs directly attributable the following conditions and is not in which a financial asset is held as a to the issue of ordinary shares are designated as at FVTPL; portfolio level because this best reflects recognised as a deduction from equity. • it is held within a business model the way the business is managed, and Income tax relating to transaction costs whose objective is to hold assets to information is provided to management. of an equity transaction is accounted for collect contractual cash flows; and The information considered includes; in accordance with LKAS 12. • its contractual terms give rise on • The stated policies and objectives specified dates to cash flows that for the portfolio and the operation 3.5 Financial Instruments are solely payments of principal and of those policies in practice. These 3.5.1 Recognition and initial interest on the principal amount include whether management’s measurement outstanding. A debt investment is strategy focuses on earning Trade receivables and debt securities measured at FVOCI if it meets both contractual interest income, issued are initially recognised when of the following conditions and is not maintaining a particular interest rate they are originated. All other financial designated as at FVTPL; profile, matching the duration of assets and financial liabilities are initially the financial assets to the duration recognised when the Company becomes • it is held within a business model of any related liabilities or expected a party to the contractual provisions of whose objective is achieved by both cash outflows or realising cash flows the instrument. collecting contractual cash flows and selling financial assets; and through the sale of the assets; A financial asset (unless it is a trade • its contractual terms give rise on • How the performance of the portfolio receivable without a significant financing specified dates to cash flows that is evaluated and reported to the component) or financial liability is are solely payment of principal and Company’s management. initially measured at fair value plus, interest on the principal amount • The risks that affect the performance for an item not an FVTPL, transaction outstanding. of the business model (and the costs that are directly attributable to its financial assets held within the acquisition or issue. A trade receivable On the initial recognition of an equity business model) and how those risks without a significant financing investment that is not held for trading, are managed; component is initially measured at the the Company may irrevocably elect • The frequency, volume and timing transaction price. to present subsequent changes in the of sales of financial assets in prior investment’s fair value in OCI. This periods, the reason for such sale 3.5.2 Classification and subsequent election is made on an investment-by- and expectation about future sales measurement investment basis. activity. 3.5.2.1 Financial Assets On initial recognition, a financial asset All financial assets not classified as Transfers of financial assets to third is classified as measured at; amortised measured at amortised cost or FVOCI parties in transactions that do not cost; FVOCI – debt investment; FVOCI as described above are measured at qualify for derecognition are not – equity investment; or FVTPL. FVTPL. This includes all derivative considered sales for this purpose, financial assets. On initial recognition, consistent with the Company’s Financial assets are not reclassified the Company may irrevocably designate continuing recognition of the assets. subsequently to their recognition unless a financial asset that otherwise meets 50 HORANA PLANTATIONS PLC

SIGNIFICANT ACCOUNTING POLICIES

Financial assets that are held for trading amount substantially represents unpaid amounts of principal and interest on the or are managed and whose performance principal amount outstanding, which may include reasonable addition compensation is evaluated on a fair value basis are for early termination of the contract. measured at FVTPL. c) Subsequent measurement and gains and losses b) Assessment whether contractual Financial assets These assets are subsequently measured at amortised cash flows are solely payment of at amortised cost cost using the effective interest method. The amortised principal and interest cost is reduced by impairment losses. Interest income and For the purpose of this assessment, impairment are recognised in profit or loss. Any gain or loss on ‘principal’ is defined as the fair value of derecognition is recognised in profit or loss. the financial asset on initial recognition. ‘Interest’ is defined as consideration for 3.5.2.2 Financial Liabilities the time value of money and for the 3.5.2.2.1 Classification, subsequent measurement and gains and losses credit risk associated with the principal Financial liabilities are classified as measured at amortised cost of FVTPL. A financial amount outstanding during a particular liability is classified as at FVTPL if it is classified as held-for-trading, it is a derivative period of time and for other basic or it is designated as such on initial recognition. Financial liabilities at FVTPL are lending risks and costs ( e.g. liquidity measured at fair value and net gains and losses, including any interest expense, are risk and administrative cost), as well as a recognised in profit or loss. Other financial liabilities are subsequently measured profit margin. at amortised cost using effective interest method. Interest expense and foreign exchange gains and losses are recognised in profit or loss. Any gain or loss on In assessing whether the contractual derecognition is also recognised in profit or loss. cash flows are solely payment of principal and interest, the Company 3.5.3 Derecognition considers the contractual terms of the 3.5.3.1 Financial Assets instrument. This includes assessing The Company de-recognises a financial asset when the contractual rights to the whether the financial asset contains a cash flows from the financial asset expire, or it transfers the rights to receive the contractual term that could change the contractual cash flows in a transaction in which substantially all of the risks and timing or amount of contractual cash rewards of ownership of the financial asset are transferred or in which the Company flows such that it would not meet this neither transfers nor retains substantially all of the risks and rewards of ownership condition. In making this assessment, and it does not retain control of the financial asset. the Company considers; • Contingent events that would change The Company enters into transactions whereby it transfers assets recognised in its the amount or timing of cash flows statement of financial position but retains either all or substantially all of the risks • Terms that may adjust the contractual and rewards of the transferred assets. In these cases, the transferred assets. In these coupon rate, including variable rate cases, the transferred assets are not de-recognises. features 3.5.3.2 Financial Liabilities • Prepayment and extension features; The Company de-recognises a financial liability when its contractual obligations and are discharged or cancelled or expire. The Company also de-recognises a financial • Terms that limits the Company’s claim liability when its terms are modified and the cash flows of the modified liability are to cash flows from specific assets (e.g. substantially different, in which case a new financial liability based on the modified non-recourse features) terms is recognised at fair value.

The prepayment feature is consistent On derecognition of a financial liability, the difference between the carrying amount with the solely payment of principal extinguished and the consideration paid (including any non-cash assets transferred and interest criterion if the prepayment or liabilities assumed) is recognised in profit or loss. Annual Report 2019 | 2020 51

3.5.4 Offsetting between the cash flows due to the asset is required, the Company makes Financial assets and financial liabilities entity in accordance with the contract an estimate of the asset’s recoverable are offset, and the net amount and the cash flows that the Company amount. An Asset’s recoverable amount presented in the statement of financial expects to receive). is the higher of an asset’s value in use position when, and only when, the and its fair value less cost to sale and Company currently has a legally 3.5.5.3 Credit-impaired financial assets is determined for an individual asset, enforceable right to set off the amounts At each reporting date, the Company unless the asset does not generate cash and it intends either to settle them on assesses whether financial assets carried inflows that are largely independent a net basis or to realise the asset and at amortised cost are credit-impaired. of those from other assets or group of settle the liability simultaneously. A financial asset is “credit impaired” assets. Where the carrying amount of an when one or more events that have a asset exceeds its recoverable amount, 3.5.5 Impairment – Financial Assets detrimental impact on the estimated the assets is considered impaired and is Non-derivative financial assets future cash flows of the financial asset written down to its’ recoverable amount. occurred. 3.5.5.1 Financial instruments In assessing value in use, the estimated When determining whether the credit Evidence that a financial asset is future cash flows are discounted risk of a financial asset has increased credit-impaired includes the following to their present value using pre-tax significantly since initial recognition and observable data; discount rates that reflect current the financial year end, the Company • Significant financial difficulty of the market assessments of the time value considers reasonable and supportable borrower or issuer; of money and the risk specific to the information that is relevant and asset. In determining fair value less cost • A breach of contract such as a default available without undue cost or effort. to sell, recent market transactions are or being more than 90 days past due; This includes both quantitative and taken into account, if available. If no qualitative information and analysis, • It is probable that the borrower will such transaction can be identified, an based on the Company’s historical enter bankruptcy or other financial appropriate valuation model is used. experience and informed credit reorganisation; or assessment and including forward- • The disappearance of an active Impairment loss of continuing looking information. market for a security because of operations are recognised in the financial difficulties. Statement of Profit or Loss and Other The Company assumes that the credit Comprehensive Income in those risk on a financial asset has increased Loss allowance for financial assets expense categories consistent with the significantly if it is more than 30 days measured at amortised cost are function of the impaired asset. past due. deducted from the gross carrying amount of the assets. A previously recognised impairment The Company considers a financial asset loss is reversed only if there has been to be in default when: 3.5.5.4 Write-off a change in the estimates used to • the borrower is unlikely to pay its The gross carrying amount of financial determine the assets’ recoverable credit obligations to the Company in assets is written-off when the Company amount since the last impairment full, without recourse by the Company has known reasonable expectation of loss was recognised. If that is the to actions such as realising security (if recovering a financial asset in its entirely case, carrying amount of the asset is any is held); or the financial asset is or a portion thereof. increased to its recoverable amount. That more than 90 days past due. increased amount cannot ‘exceed’ the Impairment of Non-Financial Assets carrying amount that would have been The Company assesses at each 3.5.5.2 Measurement of ECLs determined, net of depreciation, had ECLs are a probability-weighted reporting date whether there is no impairment loss been recognised for estimate of credit losses. Credit losses an indication that an asset may be the asset in prior years. Such reversal is are measured as the present value of impaired. If any such indication exists, or recognised in the Statement of Profit or all cash shortfalls (i.e. the difference when annual impairment testing for an Loss and Other Comprehensive Income. 52 HORANA PLANTATIONS PLC

SIGNIFICANT ACCOUNTING POLICIES

3.6 Leases • the Company has the right to operate imputed finance cost on the liability The Company has adopted SLFRS the asset; or is recognised using the Company’s 16 using the modified retrospective • the Company designed the asset in a incremental borrowing rate. approach and therefore the comparative way that predetermines how and for information has not been restated what purpose it will be used. 3.6.2.2 Leased Assets and continues to be reported under Leases of property, plant and equipment LKAS 17 and IFRIC 4. The details of This policy is applied to contracts that transfer to the Company accounting policies under LKAS 17 entered into, or changed, on or after 1st substantially all of the risks and rewards and IFRIC 4 are disclosed separately April 2019. of ownership are classified as finance if they are different from those under leases. The leased assets are measured SLFRS 16 and the impact of changes is At inception or on reassessment initially at an amount equal to the disclosed in Note 3.1 of a contract that contains a lease lower of their fair value and the present component, the Company allocates the value of the minimum lease payments. 3.6.1 Policy applicable from consideration in the contract to each Subsequent to initial recognition, the 1st April 2019 lease component on the basis of their assets are accounted for in accordance At inception of a contract, the Company relative stand-alone prices. with the accounting policy applicable to assesses whether a contract is, or that asset. contains, a lease. A contract is, or Short term leases contains, a lease if the contract conveys The Company has elected not to Assets held under other leases are the right to control the use of an recognise right of use assets and lease classified as operating leases and identified asset for a period of time in liabilities for short term leases. The are not recognised in the Company’s exchange for consideration. To assess Company recognise the lease payments statement of financial position. whether a contract conveys the right to associated with these leases as an control the use of an identified asset, expense on a straight – line basis over 3.6.2.3 Lease payments the Company assesses whether: the lease term. Payments made under operating leases • the contract involves the use of are recognised in profit or loss on a an identified asset – this may be 3.6.2 Policy applicable before straight-line basis over the term of the specified explicitly or implicitly and 1st April 2019 lease. Lease incentives received are should be physically distinct or 3.6.2.1 Determining whether an recognised as an integral part of the represent substantially all of the arrangement contains a lease total lease expense, over the term of the capacity of a physically distinct asset. At inception of an arrangement, the lease. If the supplier has a substantive Company determines whether the substitution right, then the asset is arrangement is or contains a lease. Minimum lease payments made under not identified; finance leases are apportioned between the finance expense and the reduction • the Company has the right to obtain At inception or on reassessment of of the outstanding liability. The finance substantially all of the economic an arrangement that contains a lease, expense is allocated to each period benefits from use of the asset the Company separates payments and during the lease term so as to produce a throughout the period of use; and other consideration required by the arrangement into those for the lease constant periodic rate of interest on the • the Company has the right to direct and those for other elements on the remaining balance of the liability. the use of the asset. The Company basis of their relative fair values. If the has this right when it has the Company concludes for a finance lease 3.7 Statement of Profit or Loss and decision-making rights that are most that it is impracticable to separate the Other Comprehensive Income relevant to changing how and for payments reliably, then an asset and For the purpose of presentation of what purpose the asset is used. In a liability are recognised at an amount the Statement of Profit or Loss and rare cases where the decision about equal to the fair value of the underlying Other Comprehensive income the how and for what purpose the asset is asset; subsequently, the liability is Directors are of the opinion that used is predetermined, the Company reduced as payments are made and an function of expenses method presents has the right to direct the use of the asset if either: Annual Report 2019 | 2020 53

fairly the elements of the Company 3.7.1.2 Interest Income Finance costs comprise interest is performance, and hence such Interest Income is recognised as the expense on borrowings, impairment presentation method is adopted in interest accrued (taking into account losses recognised on financial assets line with the provisions of LKAS 1 in the effective yield on the asset) unless and borrowing costs that are not Presentation of Financial Statements. collectability is in doubt. directly attributable to the acquisition, construction or production of a 3.7.1 Revenue and Income Recognition 3.7.1.3 Other Income qualifying asset. These are recognised in Revenue is measured based on the Other income is recognised on an profit or loss using the effective interest consideration specified in a contract accrual basis. method. with a customer. The Company recognises revenue when it transfers 3.7.1.4. Deferred Income 3.7.4 Income Tax control to a customer Grants related to assets are recognised Income tax expense comprises current as income in the Statement of and deferred tax. Income tax expense The Company generates revenue Comprehensive Income over the related is recognised in Statement of Profit or primarily from the sale of tea, rubber assets’ useful life so as to match them Loss and Other Comprehensive Income and other agricultural produce. The with the related costs which they are except to the extent that it relates to revenue is recorded at invoice value intended to compensate. Other grants items recognised directly in equity or in net of brokerage, sale expenses and are set-off against related expenses Other Comprehensive Income. other levies related to revenue. The and the net amount is reflected in the Company recognises revenue when it Statement of Comprehensive Income. 3.7.4.1 Current Tax transfers control over good or service Grants relating to assets, including Current tax expenses for the current to a customer. The Company considers non-monetary grants at fair value, are and comparative periods are measured sale of tea, rubber and other agricultural presented in the Statement of Financial at the amount paid or expected to be produce as one performance obligation Position by setting up the grant as payable to the Commissioner General and recognises revenue when it deferred income. of Inland Revenue on taxable income transfers control to the customer. for the respective year of assessment 3.7.2 Expenditure Recognition computed in accordance with the Disaggregation of Revenue All expenses incurred in running provisions of the Inland Revenue SLFRS 15 requires an entity to the business and in maintaining the Act. No. 24 of 2017 as amended by disaggregate revenue from contracts Property, Plant and Equipment in a subsequent legislation enacted or with customers into categories that state of efficiency is charged to the substantively enacted by the reporting depict how the nature, amount, timing, Statement of Profit or Loss and Other date. Relevant details are disclosed in and uncertainty of revenue and cash Comprehensive Income. Note 11 to the Financial Statements. flows are affected by economic factors. The Company’s revenue comprises only For the purpose of the presentation The tax rates and tax laws used to service income coming from parent of the Statement of Profit or Loss compute the amount are those that are Company and no disaggregation is and Other Comprehensive Income, enacted or substantively enacted on the required. the Directors are of the opinion that reporting date. function of expenses method presents 3.7.1.1 Gain and Losses on Disposal fairly the elements of the enterprise’s 3.7.4.2 Deferred Tax Gains and losses on disposal of an item performance; hence such presentation Deferred tax is recognised using the of Property, Plant & Equipment are method is adopted. liability method, providing for temporary determined by comparing the net sales differences between the carrying proceeds with the carrying amounts 3.7.3 Net Finance Income / Expense amounts and tax bases used for taxation of Property, Plant & Equipment and Interest income is recognised as it purposes. are recognised within ‘other operating accrues, using the effective interest income’ in the Statement of Profit or method Loss. 54 HORANA PLANTATIONS PLC

SIGNIFICANT ACCOUNTING POLICIES

Deferred tax is measured at the tax 3.9 Related Party Transactions 3.13. New Accounting Standards rates that are expected to be applied to Disclosure has been made in respect issued but not Effective as at the the temporary differences when they of the transaction in which one party Reporting Date reverse, based on the laws that have has the ability to control or exercise The Institute of Chartered Accountants been enacted or substantially enacted significant influence over the financial of Sri Lanka has issued following new Sri by the reporting date. and operating policies/ decisions of the Lanka Accounting Standards (SLFRSs/ other, irrespective of whether a price is LKASs) which will become applicable The principal temporary differences being charged. for financial periods beginning after arise from depreciation on Property, A detailed Related Party Transaction 1st January 2020. Accordingly, the Plant & Equipment, tax losses carried analysis in presented in Note 35 Company has not applied the following forward and provisions for defined new standards in preparing these benefit obligations. 3.10 Statement of Cash Flows Financial Statements. The Statement of Cash Flows has been A deferred tax asset is recognised only prepared using the “indirect method”. The following amended standards and to the extent that it is probable that Interest paid is classified as operating interpretations are not expected to have future taxable profits will be available cash flows, interest and dividends a significant impact on the Company’s against which the asset can be utilised. received and government grants financial statements. Deferred tax assets are reviewed at received are classified as investing cash each reporting date and reduced to the flows while dividends paid is classified Amendments to references to extent that it is no longer probable that as financing cash flows for the purpose conceptual framework in Sri Lanka the related tax benefit will be realised. of presenting the Statement of Cash Financial Reporting Standards Flows. Deferred tax assets and deferred tax These amendments are effective from liabilities are offset, if legally enforceable 3.11 Events Occurring After the 1st January 2020 and include limited right exists to set off current tax assets Reporting Period revisions of definitions of an asset against current tax liabilities and when Events after the reporting period are and a liability, as well as new guidance the deferred taxes relate to the same those events, favorable and unfavorable, on measurement and derecognition, taxable entity and the same taxation occurring between the end of the presentation and disclosure. The authority. reporting period and the date when concept of prudence has been the Financial Statements are authorised reintroduced with the statement that 3.8 Segmental Information for issue. The materiality of the events prudence supports neutrality. An operating segment is a component occurring after the reporting period is of the Company that engages in considered and appropriate adjustments Definition of material (Amendments to business activities from which it may or disclosures are made in the Financial LKAS 1 and LKAS 8) earn revenues and incur expenses, Statements, where necessary. including revenues and expenses that Definition of Material Amendments relate to transactions with any of the 3.12 Commitment and Contingencies to LKAS 1 Presentation of Financial Company’s other components. All Contingencies are possible assets or Statements and LKAS 8 Accounting operating segments’ operating results obligations that arise from a past event Policies, Changes in Accounting are reviewed regularly by the Managing and would be confirmed only on the Estimates and Errors (the amendments) Director the Chief Executive Officer to occurrence or non-occurrence of one to align the definition of “material” make decisions about resources to be or more uncertain future events, which across the standards and to clarify allocated to the segment and assess its are beyond the company’s control. certain aspects of the definition. None performance, and for which discrete Contingent Liabilities are disclosed in of the amendments are expected financial information is available. Note 32 to the Financial Statements. to result in a material impact on the Commitments are disclosed in Note 33 Company’s financial statements. to the Financial Statements. Annual Report 2019 | 2020 55

Notes to the Financial Statements

For the Year ended 31st March 2020 2019 Rs’000 Rs’000

4. Revenue Segmental Analysis of Revenue Main Sectors - Tea 1,407,775 1,596,693 - Rubber 265,120 304,111 1,672,895 1,900,804 Diversified Crops 65,268 45,484 Sale of Timber Trees 19,495 64,570 Other Operating Revenue 4,496 9,502 1,762,154 2,020,360

4.1 Timing of Revenue Recognition Services transferred at point in time 1,762,154 2,020,360 Total Revenue 1,762,154 2,020,360

4.2 Contract Balances The following table provides information about receivables from contracts with customers. Receivables, which are included in “trade and other receivables” 16,044 24,862

For the Year ended 31st March 2020 2019 Rs’000 Rs’000

5. Gross (Loss)/Profit Segmental Analysis of Gross (Loss)/Profit: Main Sectors - Tea (186,252) 193,938 - Rubber (50,037) (37,161) (236,289) 156,777 Diversified Crops 11,625 11,353 Sale of Timber Trees 2,626 18,976 Other Operating Revenue 4,496 9,502 (217,542) 196,608 Segmental Revenue, Expenses, Assets and Liabilities are morefully described in Note 40 to the Financial Statements.

2020 2019 Rs’000 Rs’000

6. Other Operating Income Profit on Disposal of Property, Plant & Equipment 100 5,773 Proceeds on Disposal of Redundant Materials - 1,088 Amortisation of Capital Grants (Refer Note No.28) 6,800 13,179 6,900 20,040 56 HORANA PLANTATIONS PLC

Notes to the Financial Statements

For the Year ended 31st March 2020 2019 Rs’000 Rs’000

7. Change in Fair Value of Biological Assets Change in Fair Value of Consumable Biological Assets (Managed Timber Plantations) (Refer Note No.15.2) 53,332 80,663 Gain on Fair Value of Bearer Biological Assets (Non-harvested Crop) (Refer Note No.15.5) 3,361 5,845 56,693 86,508

For the Year ended 31st March 2020 2019 Rs’000 Rs’000

8. Management Fees Management Fee - 14,205 Value Added Tax on Management Fee (Unclaimed) - 2,128 - 16,333

The Management Agreement signed between the Company and its Holding Company, Vallibel Plantation Management Ltd., on 15th July 2005 has been cancelled with effect from 31st March 2018, and has entered into a new Management Agreement with Hayleys PLC with effect from 1st April 2018. The Terms and conditions as per the previous agreement remain same. Accordingly, the basis of computing management fee is on Earnings Before Interest Received/Paid, Corporate Tax, Depreciation, Amortisation and Management Fees (EBITDA).

The rate applicable for the year under review is 5% of EBITDA or Rs.15 Mn, whichever is lower. However, the management fee for the current year is nil as the EBIDTA is minus for the year ended 31st March 2020.

For the Year ended 31st March 2020 2019 Rs’000 Rs’000

9. Net Finance Expenses Finance Expenses Project Loan Interest 104,015 107,310 Term Loan Interest 22,026 21,990 Bank Overdraft Interest 55,242 35,699 Interest on Short Term Advances 5,440 6,579 Interest on Government Lease & Other Leases 17,972 15,972 Debit Tax, Stamp Duty and Other Finance Charges 1,678 916 206,373 188,466 Capitalisation of Borrowing Costs on Immature Plantations (59,732) (58,723) Total Finance Expense 146,641 129,743

Finance Income Interest Income (241) (168) Foreign Exchange Gain/(Loss) (27) 47 Net Finance Expenses 146,373 129,622 Annual Report 2019 | 2020 57

For the Year ended 31st March 2020 2019 Rs’000 Rs’000

10. (Loss)/Profit before Tax is stated after charging all expenses including the following Auditors Fees -Statutory Audit 2,600 2,376 Secretarial Fees and Expenses 539 547 Legal Fees and Expenses 10,435 6,993 Donations 135 35

Depreciation and Amortisation - Right of use - Land 6,125 3,866 - Right of use - Immovable Estate Assets 7,299 7,180 - Bearer Biological Assets 128,503 112,223 - Other Tangibles 45,764 45,420 Total 187,691 168,689 Personnel Costs include - Provision for Retiring Gratuity - Current Service Cost 36,260 17,489 - Interest Cost 55,519 45,341 - Defined Contribution Plan Costs (Provident Funds & ETF) 149,013 132,717 - Other Staff Costs 1,047,388 940,365

For the Year ended 31st March 2020 2019 Rs’000 Rs’000

11. Tax Expense 11.1 Current Taxes on Continuing Operations Income Tax on Profits for the year (Refer Note No.11.2) - - Deferred Tax Charge/(Reversal) (Refer Note No.11.4.1) 11,893 (8,884) Economic Service Charge (non-claimable) 12,600 11,430 Tax Expense 24,493 2,546

11.2 Reconciliation between (Loss)/Profit before Tax and Current Tax Expense: (Loss)/Profit before Tax (470,375) 7,348 Add: Disallowable expenses 340,521 139,071 Less: Allowable expenses (374,821) (269,993) Taxable Loss for the year (504,675) (123,575) Taxable Loss for the year (504,675) (123,575)

Tax Rates Applicable 14% & 28% 14% & 28%

Current Income Tax Expense - - 58 HORANA PLANTATIONS PLC

Notes to the Financial Statements

For the Year ended 31st March 2020 2019 Rs’000 Rs’000

11.3 Accumulated Tax Losses: Tax Losses Brought Forward (1,715,238) (1,606,392) Loss incurred during the year (504,675) (123,575) Investment Income claimed 241 168 Adjustment with respect of prior year - 14,561 Tax Loss Carried Forward (2,219,672) (1,715,238)

Profit from Agricultural business will be taxed at rate of 14% as per the Inland Revenue Act No. 24 of 2017. Other income will be taxed at the rate of 28%.

For the Year ended 31st March 2020 2019 Temporary Tax Temporary Tax Differences Effect Differences Effect Rs’000 Rs’000 Rs’000 Rs’000

11.4 Deferred Tax On Property, Plant & Equipment 275,454 38,563 289,459 40,524 On Biological Assets 2,841,116 397,756 2,792,849 390,999 On Retirement Benefit Obligation (570,636) (79,889) (535,965) (75,035) On Tax Loss Carried Forward (1,650,984) (231,137) (1,715,238) (240,133) 894,950 125,293 831,105 116,355 Tax Rates Applicable (Refer Note 11.4.2) 14.00% 14.00% Provision/(Reversal) of Deferred Tax (Refer Note 29) 8,938 (21,123)

11.4.1 On Profit or Loss 11,893 (8,884) On Other Comprehensive Income (2,955) (12,239) 8,938 (21,123)

11.4.2 Deferred Tax is provided using the liability method, providing for temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax asset/ (liability) has been computed taking into consideration the effective tax rate, which is 14% (2018/19 - 14%) for the Company.

The deferred tax asset has been recognised in the Financial Statements to the extent that it is probable that future taxable profit will be available against which the accumulated tax losses can be utilised. Therefore, the tax asset arising from accumulated tax losses carried forward was limited only to the extent of existing temporary differences as at 31st March 2020. The unutilised tax losses considered for the deferred tax is based on the probable future taxable profits available against which the Company can utilise therefrom. Hence a deferred tax asset of Rs. 79,616,437/- has not been recognised in respect of unutilised tax losses of Rs. 568,688,836/- as at 31st March 2020. Annual Report 2019 | 2020 59

12.1 (Loss)/Earnings per Share Earnings/(Loss) per Share has been calculated by dividing the profit/(loss) attributable to ordinary shareholders of the Company by the weighted average number of shares outstanding during the year. There were no potentially diluted shares outstanding at any time during the year. Therefore. the diluted (loss)/earnings per share are equal to the Basic (loss)/earnings per share.

2020 2019

(Loss)/Profit for the year - Rs’000 (494,868) 4,802 Weighted Average Number of Ordinary Shares in issue during the year - Numbers (in Thousands) 25,000 25,000 (Loss)/Earnings per Share (Basic & Diluted) (Rs. Cts) (19.79) 0.19

12.2 Dividend Per Share Dividend Declared – Rs.’000 - 12,500 Weighted Average Number of Ordinary Shares in issue during the year - Numbers (in Thousands) 25,000 25,000 Dividend per Share (Rs. Cts) - 0.50

13. Right of use - Land Bare land Total Rs’000 Rs’000

Capitalised Value : As at 22.06.1992 204,931 204,931

Amortisation Balance as at 1st April 2018 99,680 99,680 Charge for the year 3,866 3,866 Balance as at 31st March 2019 103,546 103,546

Carrying Amount as at 31st March 2019 101,385 101,385

Net book value carried forward as at 1st April 2019 101,385 101,385 Remeasurement of leasehold right on initial application of SLFRS 16 54,342 54,342 Adjusted Net book value as at 1st April 2019 155,727 155,727 Remeasurement of leasehold right as at 1st July 2019 6,659 6,659 162,386 162,386

Amortisation Charge for the year 6,125 6,125 Amortisation as at 31st March 2020 6,125 6,125

Carrying Amount as at 31st March 2020 156,261 156,261

The Right of Use Lands consist of the lease rights on Janatha Estates Development Board/Sri Lanka State Plantations Corporation Estates and Land located in Dumbara Estate.

With the application of SLFRS 16 on 1st April 2019, Right of use Asset on JEDB/SLSPC bare lands have been remeasured and recognised the right of use asset on Dumbara land. Accordingly, the Company recognised an additional Rs. 54 Millon of right of use of assets related to the Bare lands obtained on JEDB/SLSPC lease and Dumbara lease. This right to use asset is amortised over the remaining lease period of 26 years. 60 HORANA PLANTATIONS PLC

Notes to the Financial Statements

14. Right of use - Immovable Estate Assets Bearer Permanent Buildings Plant & Total Total Biological Land Machinery as at as at Assets Development 31.03.2020 31.03.2019 (Mature) Costs Rs’000 Rs’000 Rs’000 Rs’000 Rs’000 Rs’000

Capitalised Value As at 22.06.1992 214,810 4,014 47,173 6,818 272,815 272,815

At the end of the year 214,810 4,014 47,173 6,818 272,815 272,815

Amortisation At the begining of the year 175,446 3,451 47,173 6,818 232,889 225,709 Charge for the year 7,165 134 - - 7,299 7,180 At the end of the year 182,611 3,585 47,173 6,818 240,188 232,889

Carrying Amount As at 31.03.2020 32,199 429 - - 32,627 As at 31.03.2019 39,364 562 - - 39,926

With the application of SLFRS 16, right of use immovable estate assets have been remeasured. Since, there is no future lease liabilities for these assets, the carring value as at 1st April 2019 has been cosidered as the remeasured carrying value in accordance with SLFRS 16. Annual Report 2019 | 2020 61

15. Biological Assets 15.1 Bearer Biological Assets

Tea Rubber Oil Palm Diversification Total Total as at as at 31.03.2020 31.03.2019 Rs’000 Rs’000 Rs’000 Rs’000 Rs’000 Rs’000

15.1.1 Immature Plantations Cost At the beginning of the year 121,576 198,386 91,766 108,100 519,828 498,885 Additions 23,653 36,610 44,963 39,949 145,175 155,784 Transfers to Mature (48,019) (42,875) (12,381) (24,849) (128,124) (122,240) Transfers (from)/to - - (871) 871 - - Write off during the year - (11,558) (1,187) (1,078) (13,823) (12,601) At the end of the year 97,210 180,563 122,290 122,993 523,056 519,828

15.1.2 Mature Plantations Cost At the beginning of the year 793,951 1,426,033 104,156 77,603 2,401,743 2,279,929 Transfers from Immature 48,019 42,875 12,381 24,849 128,124 122,240 Charged to Statement of Profit or Loss - (6,437) - - (6,437) - Write off during the year (73) - - (6,829) (6,902) (426) At the end of the year 841,897 1,462,471 116,537 95,623 2,516,528 2,401,743

Amortisation At the beginning of the year 210,901 481,670 9,284 12,786 714,641 602,762 Charge for the year 28,866 79,645 5,208 14,784 128,503 112,223 Charged to Statement of Profit or Loss - (6,313) - - (6,313) - Write off during the year (67) - - (6,122) (6,189) (344) At the end of the year 239,700 555,002 14,492 21,448 830,642 714,641

Carrying Amount 602,197 907,469 102,045 74,175 1,685,886 1,687,102 15.1.3 Total Bearer Biological Assets 699,407 1,088,032 224,335 197,168 2,208,942 2,206,930

These are investments in immature/mature plantations since the formation of the Company. The assets (including plantations) taken over by way of estate leases are set out in Note 13 and 14. Further investments in the immature plantations taken over by way of these leases are also shown in the above. When such plantations become mature, the additional investments since take over to bring them to maturity have been (or will be) moved from immature to mature under this category as and when fields become mature. 62 HORANA PLANTATIONS PLC

Notes to the Financial Statements

15.2 Consumable Biological Assets As at 31st March 2020 2019 Rs’000 Rs’000

15.2.1 Immature Plantations Cost At the beginning of the year 36,212 51,824 Additions during the year 9,814 14,274 Transfers to Mature (1,734) (29,886) Charged to Statement of Profit or Loss (19) - At the end of the year 44,273 36,212

15.2.2 Mature Plantations Cost At the beginning of the year 549,707 484,751 Decrease due to Harvest (16,869) (45,593) Increase due to new plantations 1,734 29,886 Change in Fair Value less costs to sell 53,332 80,663 At the end of the year 587,904 549,707

15.2.3 Total Consumable Biological Assets 632,177 585,919

15.2.4 Basis of Valuation Under LKAS 41 the Company has valued its manged plantations at fair value less cost to sell. Managed timber plantations as at 31st March 2020 comprised approximately 304.52 hectares.

Managed trees which are less than three years old are considered to be immature consumable biological assets, amounting Rs.44.27 Million as at 31st March 2020. The cost of immature trees is treated as approximate fair value, particularly on the ground that little biological transformation has taken place and the impact of the biological transformation on price is not material. When such plantation become mature , the additional investments since taken over to bring them to maturity are transferred from immature to mature.

The mature consumable biological assets were valued by Chartered Valuer Mr.A.A.M.Fathihu- Proprietor of FM Valuers for 2019/20 using Discounted Cash Flow (DCF) method . In ascertaining the fair value of timber, physical verification was carried covering all the estates.

Key assumptions used in valuation are; 15.2.4.1 The prices adopted are net of expenditure 15.2.4.2 Discounted rates used by the Valuer are within the range of 14%-16%.

The valuation, as presented in the external valuation model based on the net present value, takes into accounts the long-term exploitation of the timber plantation. Because of the inherent uncertainty associated with the valuation at fair value of the biological assets due to the volatility of the variables, their carrying value may differ from their realisation value. The Board of Directors retains their view that commodity markets are inherently volatile and their long-term price projection are highly unpredictable. Hence, the sensitivity analysis regarding the selling price and discount rate variation as included in this note allows every investor to reasonably challenge the financial impact of the assumptions used in the valuation against his own assumptions. Annual Report 2019 | 2020 63

The biological assets of the Company are mainly cultivated in leased lands. When measuring the fair value of the biological assets it was assumed that these concession can and will be renewed at normal circumstances. Timber content expects to be realised in future and is included in the calculation of the fair value that takes into account the age of the timber plants.

15.2.5 The Company is exposed to the following risks relating to its timber plantation 15.2.5.1 Regulatory and Environmental Risks The Company is subject to laws and regulations in Sri Lanka. The Company has established environmental policies and procedures aimed at compliance with local environmental and other laws. Management performs regular reviews to identify environmental risks and to ensure that the systems in place are adequate to manage those risks.

15.2.5.2 Supply and Demand Risks The Company is exposed to risks arising from fluctuations in the price and sales volume of timber. When possible the Company manages this risk by aligning its harvest volume to market supply and demand. Management performs regular industry trend analyses to ensure that the Company’s pricing structure is in line with the market and to ensure that projected harvest volumes are consistent with the expected demand.

15.2.5.3 Climate and Other Risks The Company’s timber plantations are exposed to the risk of damage from climatic changes, diseases, forest fires and other natural forces. The Company has extensive processes in place aimed at monitoring and mitigating those risks, including regular forest health inspections and industry pest and disease surveys.

15.3 Sensitivity Analysis 15.3.1 Sensitivity Variation on Sales Price Net Present Value of the Biological Assets as appearing in the Statement of Financial Position are very sensitive to changes in the average sales price applied. Simulations made for timber show that an increase or decrease by 5% of the estimated future selling price has the following effect on the Net Present Value of the Biological assets. -5% 5%

Managed Timber (Rs’000) 580,543 595,265

15.3.2 Sensitivity Variation on Discount Rate Net Present Value of the Biological Assets as appearing in the Statement of Financial Position are very sensitive to changes in the discount rate applied. Simulations made for timber show that an increase or decrease by 1% of the estimated future discount rate has the following effect on the Net Present Value of the Biological assets. -1% 1%

Managed Timber (Rs’000) 606,946 570,853 64 HORANA PLANTATIONS PLC

Notes to the Financial Statements

15.4 Capitalisation of Borrowing Costs Borrowing costs amounting to Rs.59.732 Million (Rs.58.723 Million in 2018/19) directly relating to investment in Biological Assets (Immature Plantations) have been capitalised during the period, at an average borrowing rate of 12.72% (13.59% in 2018/19).

15.5 Non-harvested Produce on Bearer Biological Assets As at 31st March 2020 2019 Rs’000 Rs’000

At the beginning of the year 5,845 6,210 Gain on Fair Value of Non-harvested Produce 3,361 5,845 Charged to Profit or Loss (5,845) (6,210) At the end of the year 3,361 5,845

The volume of produce growing on bearer plants are measured considering the estimated crop of the last harvesting cycle of the year as follows Tea-three days crop (50% of 6 days cycle), Oil Palm -five days crop (50% of 10 days cycle, Rubber-one day crop (50% of 2 days cycle, Coconut -one month crop (50% of 2 month cycle), and Cinnamon -three months crop (50% of 6 months cycle).

Produces that grow on mature bearer plantations are measured at fair value less cost of harvesting and transport. The fair value of the unharvested green leaves is measured using the bought leaf formula recommended by the Sri Lanka Tea Board, the fair value of the unharvested fresh fruit bunches(FFB) of Oil Palm is measured using the Bought Mill Price and the Rubber crop is fair valued using 95% of RSS 1 Price. Coconut and Cinnamon is fair valued using 50% of Farm Gate Price. Annual Report 2019 | 2020 65

16. Property, Plant & Equipment

Infrastructure Plant & Plant & F & F/ Computer Motor Motor Capital Total and Machinery Machinery Equipment Software Vehicles Vehicles Work in Buildings (Freehold) (Leasehold) (Freehold) (Leasehold) Progress Rs’000 Rs’000 Rs’000 Rs’000 Rs’000 Rs’000 Rs’000 Rs’000 Rs’000

Cost Balance as at 1st April 2018 358,095 384,273 9,368 102,666 16,158 143,698 52,061 12,717 1,079,036 Additions 5,006 697 - 2,797 - 554 - 8,722 17,776 On disposals - - - - - (9,149) - - (9,149) Transfers (from)/to - - - - - 36,787 (36,787) (2,084) (2,084) Balance as at 31st March 2019 363,101 384,970 9,368 105,463 16,158 171,890 15,274 19,355 1,085,579

Depreciation Balance as at 1st April 2018 108,091 260,386 7,971 81,790 16,158 135,674 48,929 - 658,999 Charge for the year 11,521 22,339 1,398 5,473 - 2,024 2,665 - 45,420 On disposals - - - - - (9,149) - - (9,149) Transfers (from)/to - - - - - 36,787 (36,787) - - Balance as at 31st March 2019 119,612 282,725 9,369 87,263 16,158 165,336 14,807 - 695,270

Cost Balance as at 1st April 2019 363,101 384,970 9,368 105,463 16,158 171,890 15,274 19,355 1,085,579 Additions 46 4,488 - 2,945 - 750 - 1,982 10,211 On disposals - - - (490) - (8,081) - - (8,571) Transfers (from)/to 358 - 5,612 - - 7,438 (7,438) (5,970) - Balance as at 31st March 2020 363,505 389,458 14,980 107,918 16,158 171,997 7,836 15,367 1,087,219

Depreciation Balance as at 1st April 2019 119,612 282,725 9,369 87,263 16,158 165,336 14,807 - 695,270 Charge for the year 11,702 21,844 1,052 4,769 - 5,930 467 - 45,764 On disposals - - - (292) - (8,081) - - (8,373) Transfers (from)/to - - - - - 7,438 (7,438) - - Balance as at 31st March 2020 131,314 304,569 10,421 91,740 16,158 170,623 7,836 - 732,661

Carrying Amount As at 31.03.2020 232,191 84,889 4,559 16,178 - 1,374 - 15,367 354,558 As at 31.03.2019 243,489 102,245 - 18,200 - 6,554 467 19,355 390,309

(a) These Property, Plant and Equipment are those movable assets vested in the Company by Gazette Notification on the date of formation of the Company (i.e.22nd June 1992), and all investment in tangible assets(both movables and immovables) by the Company since its formation, other than plantation improvements. (b) The cost of fully depreciated Property, Plant & Equipment of the Company which are still in use as at the year end is Rs. 371.304 Million (2019-Rs.311.155 Million). (c) Details of assets pledged as mortgage are morefully described under Note No 24 “Interest Bearing Borrowings”. 66 HORANA PLANTATIONS PLC

Notes to the Financial Statements

16.1 Extents, Locations, Valuations and Number of Buildings of the Company’s Land Holdings Leasehold Lands Buildings Extents Valuation * Numbers Leasehold * Freehold Total Planting Hects. Location District Rs’000 Rs’000 Rs’000 Rs’000

Upcot/Maskeliya Alton Nuwara Eliya 350 12,914 269 4,368 22,393 26,761 Fairlawn Nuwara Eliya 448 17,132 228 3,754 22,550 26,303 Gouravilla Nuwara Eliya 381 13,912 770 7,700 24,005 31,704 Mahanilu Nuwara Eliya 236 9,058 145 4,923 11,280 16,203 Stockholm Nuwara Eliya 305 11,393 521 5,034 26,613 31,647 Regional Total 1,720 64,409 1,933 25,779 106,841 132,618

Lindula Bambrakelly Nuwara Eliya 591 19,728 357 4,347 23,524 27,870 Eildon Hall Nuwara Eliya 162 6,301 303 2,940 18,113 21,054 Tillicoultry Nuwara Eliya 377 13,807 691 3,608 11,787 15,395 Regional Total 1,130 39,836 1,351 10,895 53,424 64,319 Up-Country Total 2,850 104,245 3,284 36,674 160,265 196,937

Ingiriya/Bulathsinghala Millakande Kalutara 387 14,821 177 1,680 17,857 19,537 Dumbara Ratnapura 1,017 - 87 1,253 30,393 31,646 Halwatura Kalutara 612 16,110 80 1,198 12,517 13,716 Hillstream Kalutara 400 12,317 24 561 3,483 4,044 Kobowela Kalutara 217 8,187 38 821 13,476 14,297 Neuchatel Kalutara 902 20,172 105 1,361 32,100 33,461 Mirishena Kalutara 487 12,908 152 1,376 10,161 11,537 Frocester Kalutara 664 16,171 102 2,249 15,276 17,525 Low-Country Total 4,686 100,686 765 10,499 135,263 145,763 Total 7,536 204,931 4,049 47,173 295,528 342,700

* Capitalised Values of the Lands and Buildings as at 22.06.1992.

17. Advance Company Tax (ACT) Recoverable As at 31st March 2020 2019 Rs’000 Rs’000

At the beginning of the year 27,285 27,285 At the end of the year 27,285 27,285 Annual Report 2019 | 2020 67

18. Inventories As at 31st March 2020 2019 Rs’000 Rs’000

Harvested Crops (Tea & Rubber) 153,484 272,592 Input Materials 82 82 Consumables and Spares 34,670 25,133 Shading Tree Nurseries 1 38 188,237 297,845 Less: Provision for obsolete inventories (Refer Note No. 18.1) (3,559) (99) 184,678 297,746

18.1 Provision for Obsolete Inventories Balance as at 1st April 99 99 Provisions made during the Year 3,460 - Balance at the end of the Year 3,559 99

19. Trade and Other Receivables As at 31st March 2020 2019 Rs’000 Rs’000

Trade Receivables 16,044 24,862 Staff Debtors 28,503 29,332 Income/Value Added Tax Recoverable (ESC & VAT) 21,989 24,698 Other Receivables 2,563 9,694 Deposits, Advances and Prepayments 17,828 7,657 86,927 96,243 Less: Impairment of Other Receivables (Refer Note No. 19.1) (2,008) (1,413) 84,919 94,830

19.1 Impairment of Other Receivables Balance as at 1st April 1,413 1,438 Provision/(Reversal) made during the Year 595 (25) Balance at the end of the Year 2,008 1,413 68 HORANA PLANTATIONS PLC

Notes to the Financial Statements

As at 31st March 2020 2019 Rs’000 Rs’000

20. Cash and Cash Equivalents 20.1 Favourable Balances Short Term Monetary Investments 12,185 1,545 Cash at Bank and in Hand 840 731 Cash in Transit 1,865 595 Cash and Cash Equivalents shown in the Statement of Financial Position 14,890 2,871

20.2 Unfavourable Balances Less: Bank Overdrafts (Refer Note No.31.1) (599,510) (373,471) Cash and Cash Equivalents shown in the Statement of Cash Flows (584,620) (370,600)

21. Stated Capital As at 31st March 2020 2019 Rs. Rs.

Issued and Fully Paid 25,000,000 Ordinary Shares 250,000,000 250,000,000 1 Golden Share held by Secretary to the Treasury (Refer Note 21.1) 10 10 250,000,010 250,000,010

21.1 Rights of the Golden Shareholder The concurrence of the Golden Shareholder will be required for the Company to sub-lease any of the estate lands/to be leased to the Company by the Janatha Estate Development Board/Sri Lanka State Plantations Corporation.

The concurrence of the Golden Shareholder will be required to amend any clause in the Articles of Association of the Company which grant specific rights to the Golden Shareholder.

The Golden Shareholder or its nominee, will have the right to examine the books and accounts of the Company at any time with two weeks written notice.

The Company will be required to submit a detailed quarterly report to the Golden Shareholder in a specified format within 60 days of the end of each quarter. Additional information relating to the Company in a specified format must be submitted to the Golden Shareholder within 90 days of the end of each fiscal year.

The Golden Shareholder can request the Board of Directors of the Company to meet with its nominee, once every quarter to discuss issues of interests to the Government relating to the Company’s operations.

The Golden Share must be owned either directly by the Government or by a 100% Government owned public company.

22. Sinking Fund Sinking Fund represents the amount set a side by the Directors for general application. Annual Report 2019 | 2020 69

23. Development Reserve Development Reserve represents the amount set a side by the Directors for capital expenditure.

24. Interest bearing Borrowings As at 31st March 2020 2019 Rs’000 Rs’000

At the beginning of the year 906,625 864,274 Loans obtained during the year 350,000 200,000 Repayment during the year (225,254) (157,649) At the end of the year 1,031,371 906,625

24.1 Payable as follows Amount repayable within one year 295,881 236,457 Amount repayable more than one year 735,490 670,168 Total Payable 1,031,371 906,625

24.2 Project Loans repayable in seventy two (72) /*forty eight (48) monthly installments, after a twenty four (24) months grace period :

Date of Hatton National Bank PLC 2020 2019 Purpose Receipt Capital (Rs’000) Interest Rate (p.a.) Rs’000 Rs’000

Replanting of Main & Minor Crops 23-Jan-13 150,000 AWPLR + 1.00% 21,900 47,100 Replanting of Main & Minor Crops 4-Sep-13 200,000 AWPLR + 1.00% 50,150 83,450 Replanting of Main & Minor Crops 19-May-14 200,000 AWPLR + 0.75% 73,280 105,650 Replanting of Main & Minor Crops 24-Mar-17 250,000 AWPLR + 2.50% 192,800 250,000 Replanting of Main & Minor Crops 30-May-18 200,000 AWPLR + 1.75% 200,000 200,000 1,000,000 538,130 686,200

Security Offered Primary Floating Mortgage for Rs.550 Million, over leasehold rights of Frocester Estate. Primary Floating Mortgage for Rs.400 Million, over leasehold rights of Bambrakelly Estate.

24.3 Project Loans repayable in seventy two (72) monthly installments, after a twenty four (24) months grace period :

Date of Commercial Bank of Ceylon PLC 2020 2019 Purpose Receipt Capital (Rs’000) Interest Rate (p.a.) Rs’000 Rs’000

Replanting of Main Crops 7-Sep-17 100,000 AWPLR + 2.00% 90,270 100,000 100,000 90,270 100,000 70 HORANA PLANTATIONS PLC

Notes to the Financial Statements

Security Offered Primary Floating Mortgage for Rs.120 Million, over the leasehold rights land and buildings of Stockholm Estate.

24.4 Project Loans repayable in seventy two (72) monthly installments, after a twenty four (24) months grace period : Sampath Bank PLC 2020 2019 Purpose Date of Receipt Capital (Rs’000) Interest Rate (p.a.) Rs’000 Rs’000

Replanting of Oil Palm 31-Jul-19 200,000 Monthly AWPLR + 1.80% 200,000 - 200,000 200,000 -

Security Offered Primary Mortgage for Rs.200 Million, over the leasehold rights land and buildings of Gouravilla Estate.

24.5 Other Term Loan repayable in sixty (60) monthly installments : Hatton National Bank PLC 2020 2019 Purpose Date of Receipt Capital (Rs’000) Interest Rate (p.a.) Rs’000 Rs’000

Borrowing Restucture Facility 4-Dec-14 100,000 AWPLR + 0.75% 28,240 44,425

Security Offered Primary mortgage over leasehold rights of Alton, Bambarakelly, Eildon Hall and Gouravilla Estates.

24.6 Other Term Loan repayable in sixty (60) monthly installments : Hatton National Bank PLC 2020 2019 Purpose Date of Receipt Capital (Rs’000) Interest Rate (p.a.) Rs’000 Rs’000

Financing Working Capital 21-Nov-19 150,000 AWPLR + 1.25% 150,000 -

Security Offered Primary mortgage over leasehold rights of Alton, Bambarakelly, Eildon Hall and Gouravilla Estates.

24.7 Other Term Loan repayable in sixty (60) monthly installments : Hatton National Bank PLC 2020 2019 Purpose Date of Receipt Capital (Rs’000) Interest Rate (p.a.) Rs’000 Rs’000

Relief Package Scheme for Tea Sector intoduced by the Government 16-Nov-15 130,114 AWPLR + 1.50% 17,352 43,570

Security Offered Primary mortgage over leasehold rights of Bambarakelly Estate. Annual Report 2019 | 2020 71

24.8 Term Loan, repayable in thirty six (36) monthly installments, after a twenty four (24) months grace period : Sri Lanka Tea Board 2020 2019 Purpose Date of Receipt Capital (Rs’000) Interest Rate (p.a.) Rs’000 Rs’000

To finance payment of Labour Interim Allowance 27-Jul-16 33,000 AWPLR + 1.00% 4,583 14,667 (AWPLR -Review as at 1st of August of every year and fixed for one year)

Security Offered No security has been offered for this loan.

24.9 Term Loan, repayable in thirty six (36) monthly installments : Sri Lanka Tea Board 2020 2019 Purpose Date of Receipt Capital (Rs’000) Interest Rate (p.a.) Rs’000 Rs’000

Industry Distress Financing Facility 28-Apr-17 46,935 5.00% 2,796 17,764

Security Offered No security has been offered for this loan. Total Payable 1,031,371 906,625

24.10 Maturity Analysis Financial Institution Within 1 Year Between 1 Year Between 2 Years Over 5 Years Total & 2 Years & 5 Years Rs’000 Rs’000 Rs’000 Rs’000 Rs’000

Hatton National Bank PLC (Refer Note 24.2) 21,900 - - - 21,900 Hatton National Bank PLC (Refer Note 24.2) 33,300 16,850 - - 50,150 Hatton National Bank PLC (Refer Note 24.2) 34,230 33,300 5,750 - 73,280 Hatton National Bank PLC (Refer Note 24.2) 67,600 62,400 62,800 - 192,800 Hatton National Bank PLC (Refer Note 24.2) 42,000 50,400 107,600 - 200,000 Commercial Bank of Ceylon PLC (Refer Note 24.3) 16,680 16,680 50,040 6,870 90,270 Sampath Bank PLC (Refer Note 24.4) - 12,510 50,040 137,450 200,000 Hatton National Bank PLC (Refer Note 24.5) 17,940 10,300 - - 28,240 Hatton National Bank PLC (Refer Note 24.6) 37,500 37,500 75,000 - 150,000 Hatton National Bank PLC (Refer Note 24.7) 17,352 - - - 17,352 Sri Lanka Tea Board (Refer Note 24.8) 4,583 - - - 4,583 Sri Lanka Tea Board (Refer Note 24.9) 2,796 - - - 2,796 Total 295,881 239,940 351,230 144,320 1,031,371 72 HORANA PLANTATIONS PLC

Notes to the Financial Statements

25. Lease Liabilities - Land As at 31st March 2020 2019 Gross Future Net Gross Future Net Liability Finance Liability Liability Finance Liability Cost Cost Rs’000 Rs’000 Rs’000 Rs’000 Rs’000 Rs’000

25.1 Movement As at 1st April 141,227 (53,161) 88,066 146,053 (56,592) 89,461 Initial remeasurement of lease liability as at 1st April 2019 418,538 (350,877) 67,661 - - - Adjusted balance as at 1st April 2019 559,765 (404,038) 155,727 146,053 (56,592) 89,461 Interim remeasurement of right-of-use asset as at 1st July 2019 23,697 (17,037) 6,660 - - - 583,462 (421,075) 162,387 146,053 (56,592) 89,461

GDP Deflator Due - - - 15,968 - 15,968 Repayments during the year (27,406) - (27,406) (20,794) - (20,794) Interest Expense for the year - 21,331 21,331 - 3,431 3,431 556,056 (399,744) 156,312 141,227 (53,161) 88,066

25.2 Payable as follows Payable within One Year Overdue - - - 5,299 - 5,299 Payable by due dates 22,107 (21,411) 696 5,228 (3,360) 1,868 22,107 (21,411) 696 10,527 (3,360) 7,167

Payable after One Year Payable within Two to Five Years 88,965 (84,585) 4,380 20,912 (12,658) 8,254 Payable after Five Years 444,984 (293,748) 151,236 109,788 (37,143) 72,645 533,949 (378,333) 155,616 130,700 (49,801) 80,899 Total Payable 556,056 (399,744) 156,312 141,227 (53,161) 88,066

25.3 On transition to SLFRS 16, the Company recognised an additional Rs. 67.661 Million of lease liabilities as at 1st April 2019. The weighted average incremental borrowing rate applied to the lease liabilities on 1st April 2019 was 14.44%.

The rental payable under the JEDB/SLSPC lease is Rs. 5.526 Million per annum until 21st July 2045 and this amount to be inflated annually by Gross Domestic Production (GDP) Deflator. The future liability will be remeasured annually based on the inflated annual lease rental.

The expected rental payable under the Dumbara lease is Rs. 134,125/- per annum from 2022 onwards with an increment of 5% in every five years. Annual Report 2019 | 2020 73

26. Other Lease Creditors As at 31st March 2020 2019 Gross Future Net Gross Future Net Liability Finance Liability Liability Finance Liability Cost Cost Rs’000 Rs’000 Rs’000 Rs’000 Rs’000 Rs’000

26.1 Movement As at 1st April 6,973 (1,601) 5,372 4,155 (153) 4,002 Facilities Obtained - - - 7,276 (1,664) 5,612 Repayments (1,819) - (1,819) (4,458) - (4,458) Interest Expense for the year - 681 681 - 216 216 As at 31st March 5,154 (920) 4,234 6,973 (1,601) 5,372

26.2 Payable as follows Payable within One Year 1,819 (511) 1,308 1,819 (681) 1,138

Payable after One Year Payable within Two to Five Years 3,335 (409) 2,926 5,154 (920) 4,234 Payable after Five Years ------3,335 (409) 2,926 5,154 (920) 4,234 Total Payable 5,154 (920) 4,234 6,973 (1,601) 5,372

Following are the Amounts recognised in statement of profit or loss and other comprehensive income and statement of cash flows related to all the leases of the Company as of the reporting date.

2020 2019 Rs’000 Rs’000 Amounts recognised in statement of profit or loss and other comprehensive income - Interest on lease liability (Note 25.1 & 26.1) 22,012 19,614

Amounts recognised in statement of cash flows - Total cash outflows for leases (Note 25.1 & 26.1) 29,225 25,253

27. Retirement Benefit Obligations As at 31st March 2020 2019 Rs’000 Rs’000

Balance as at 1st April 535,965 458,325 Provision made during the Year 112,889 150,253 Payments made during the Year (78,218) (72,613) Balance at the end of the Year 570,636 535,965 Payable for retired employees included under current liabilities (Refer Note 30) (28,130) (31,248) Present Value of Obligation as at 31st March 542,506 504,717

An Acturial Valuation of the retirement benefit obligation was carried out as at 31st March 2020 by Mr. M. Poopalanathan, Actuarial & Management Consultants (Pvt) Ltd. 74 HORANA PLANTATIONS PLC

Notes to the Financial Statements

The valuation method used by the actuaries to value the benefit is the “Project Unit Credit (PUC) Method”, the method recommended by the Sri Lanka Accounting Standards (LKAS) No.19 “Employee Benefits”.

As at 31st March 2020 2019 Rs’000 Rs’000

27.1 The Amount Recognised in the Statement of Financial Position is as follows Present Value of Unfunded Obligation 542,506 504,717 Present Value of Funded Obligation - - Total Present Value of Obligation 542,506 504,717 Fair Value of Plan Assets - - Present Value of Net Obligation 542,506 504,717 Unrecognised Actuarial (Gain)/Losses - - Recognised liability for Defined Benefit Obligation 542,506 504,717

27.2 Movement in the Present Value of Defined Benefit Obligation Liability for Defined Benefit Obligation as at 1st April 504,717 426,461 Actuarial Loss 21,110 87,423 Benefit payable by the Plan (75,100) (71,996) Current Service Cost 36,260 17,489 Interest Cost 55,519 45,341 Liability for Defined Benefit Obligation as at 31st March 542,506 504,717

27.3 Expenses Recognised in Statement of Profit or Loss and Other Comprehensive Income Current Service Cost 36,260 17,489 Interest Cost 55,519 45,341 Actuarial Loss during the year 21,110 87,423 112,889 150,253

27.4 The Key Assumptions used by the actuary include the following 2019/20 2018/19 Rate of Interest 10.00% per annum 11.00% per annum Rate of Salary Increase, -Workers 15.00% for every two years beyond 15.00% for every two years beyond -Estate Staff 12.50% for first three years & 2% per annum 12.50% for first three years & 2% per annum beyond beyond -Head Office Staff 10.00% per annum beyond 10.00% per annum beyond Retirement Age, -Workers 60 Years 60 Years -Estate Staff 60 Years 60 Years -Head Office Staff 55 Years 55 Years Daily Wage Rate -Tea Rs. 700/- Rs. 700/- -Rubber Rs. 700/- Rs. 700/-

The Actuarial Present Value of all benefits accrued to the existing employees of the scheme based on the current labour wage rate as at 31st March 2020, was Rs.542.506 Million (31st March 2019 -Rs.504.717 Million). Annual Report 2019 | 2020 75

27.5 Sensitivity Analysis The following sensitivity analysis shows the significance of the change in liablility of Present Value of the Defined Benefit Obligation due to change in salary/wage escalation rate and discount rate assumed in this valuation, for all employees as at 31st March 2020.

Discount Rate Salary Escalation Rate Present Value of the Defined Benefit Obligation Rs’000

Increase of 1% 501,172 Decrease of 1% 590,227 Increase of 1% 567,908 Decrease of 1% 518,781

27.6 Maturity Profile of the Defined Benefit Obligation Future Working Life Time Present Value of the Defined Benefit Obligation Rs’000

Within the next 12 months 68,622 Between 1 - 5 years 166,432 Between 5 -10 years 124,006 Beyond 10 years 183,446 Total 542,506

28. Deferred Income As at 31st March 2020 2019 Rs’000 Rs’000

28.1 Deferred Capital Grants & Subsidies 28.1.1 Movement Grant Received At the beginning of the year 199,972 197,597 Received during the year 3,904 2,375 At the end of the year 203,876 199,972

Accumulated Amortisation At the beginning of the year 74,245 61,066 Amortisation for the year 6,802 13,179 At the end of the year 81,047 74,245 Net Grants 122,829 125,727

The amounts spent are included under the relevant category of Property, Plant & Equipment and Biological Assets and the grant received for such is reflected under Deferred Income. When the Company complies with the conditions attached to the grants and subsidies, the grants will be credited to the Statement of Profit or Loss over the useful life of the respective assets. 76 HORANA PLANTATIONS PLC

Notes to the Financial Statements

28.1.2 Category wise details on Deferred Capital Grants & Subsidies Amount Balance Received Amortised Balance Purpose of the Received as at During During as at Granted By Basis of Amortisation Grant (todate) 31-Mar-19 the Year the Year 31-Mar-20 Rs’000 Rs’000 Rs’000 Rs’000 Rs’000

Sri Lanka Tea Board Tea Factory 756 Rate of Depreciation 372 - (57) 315 Modernisation applicable to Plant & Machinery (7.50% p.a.) Tea Replanting 2,105 Will be amortised at rate 4,866 900 - 5,766 Subsidy applicable to Tea Mature Plantations, after become mature (3.00% p.a.) Plantation Development Improvement of 31,588 Rate of Depreciation 16,573 - (1,129) 15,444 Project (PDP) -Asian workers living applicable to Buildings Development Bank (ADB) environment (2.50% p.a.) Plantation Human Improvement of 45,143 Rate of Depreciation 27,137 - (1,600) 25,537 Development Trust workers living applicable to Buildings and (PHDT) environment Furniture & Fittings (2.50% and 10.00% p.a.) Estate Infrastructure Improvement of 489 Rate of Depreciation 271 - (18) 253 Development Project workers living applicable to Buildings (EIDP) environment (2.50% p.a.) Plantation Development Improvement of 20,051 Rate of Depreciation 13,899 - (717) 13,182 Project (PDP) -ADB/JBIC workers living applicable to Buildings environment (2.50% p.a.) Internal Road 4,622 Rate of Depreciation 3,299 - (165) 3,134 Development applicable to Permanent and Boundry Land Development Cost Posts (2.50% p.a.) Minor Factory 10,099 Rate of Depreciation 7,291 - (361) 6,930 Development applicable to Buildings (2.50% p.a.) Rubber Development Rubber 51,311 Will be amortised at rate 51,830 3,004 (2,704) 52,130 Department (RDD) Replanting applicable to Rubber Subsidy Mature Plantations, after become mature (5.00% p.a.) Rubber Factory 675 Rate of Depreciation 59 - (51) 8 Development applicable to Plant & Machinery (7.50% p.a.) Export Agricuture Cinnamon 76 Will be amortised at rate 130 - - 130 Department (EAD) Replanting applicable to Cinnamon Subsidy Mature Plantations, after become mature (6.67% p.a.) 166,914 125,727 3,904 (6,802) 122,829 Annual Report 2019 | 2020 77

29. Deferred Tax Liability As at 31st March 2020 2019 Rs’000 Rs’000

At the beginning of the year 116,355 137,478 Charge/(Reversed) during the period (Refer Note 11.4.1) 8,938 (21,123) Balance at the End 125,293 116,355

30. Trade and Other Payables As at 31st March 2020 2019 Rs’000 Rs’000

Trade and Service Creditors 45,220 45,079 Retiring Benefit Obligations (Current) (Refer Note 27) 28,130 31,248 Bank Interest Payable 9,525 6,013 Other Payables and Accrued Charges (Refer Note 30.1) 155,507 160,531 238,382 242,871

30.1 Other Payables and Accrued Charges Staff Creditors 30,255 58,129 Incentives to Staff - 9,474 Government Departments and Statutory Bodies 41,020 25,787 Capital Grant Repayable to Ceylon Electricity Board - 2,641 Others including Provisions and Accrued Charges 84,232 64,500 155,507 160,531

31. Short Term Borrowings 31.1 Bank Overdrafts (Secured) The following facilities were granted to the Company, during the year under review Facility Financial Institution Type of Securities Rate of Interest Available 2020 2019 Rs’000 Rs’000 Rs’000 Seylan Bank PLC Mortgage over leasehold rights of 12.50% p.a. Millennium Branch Mahanilu Estate, including land and Colombo 3 buildings, fixed and floating assets. 100,000 100,971 86,338 Commercial Bank of Ceylon PLC Mortgage over leasehold rights 9.97% p.a. Foreign Branch of Stockholm Estate and Fairlawn [Average Weighted Prime Colombo 1 Estate, including buildings, fixed Lending Rate (AWPLR) plus and floating assets. 0.50% ] 250,000 246,286 186,076 Hatton National Bank PLC Mortgage over leasehold rights 10.22% p.a. Dehiwala of Eildon Hall Estate, including [Average Weighted Prime buildings, fixed and floating assets. Lending Rate (AWPLR) plus 0.75% ] 150,000 151,298 101,057 78 HORANA PLANTATIONS PLC

Notes to the Financial Statements

Facility Financial Institution Type of Securities Rate of Interest Available 2020 2019 Rs’000 Rs’000 Rs’000 Sampath Bank PLC Primary Mortgage Bond for Rs.100 11.31% p.a. Headquarters Branch Million over leasehold rights of [Monthly Average Colombo 2 Gouravilla Estate. Weighted Prime Lending Rate (AWPLR) plus 1.80%] 100,000 100,955 - Total Bank Overdrafts 600,000 599,510 373,471

31.2 Other Short Term Loans (Secured)

Facility Financial Institution Type of Securities Rate of Interest Available 2020 2019 Rs’000 Rs’000 Rs’000 Seylan Bank PLC Mortgage over leasehold rights of 13.26% p.a. Millennium Branch Mahanilu Estate, including land and [Average Weighted Prime Colombo 1 buildings, fixed and floating assets. Lending Rate (AWPLR) plus 1.75%] 60,000 33,698 60,000 12.00% p.a. [Monthlty AWPLR +2.00% with a Floor Rate of 12.00%] 30,000 30,000 - Total Other Short Term Loans (Refer Not 31.2.1) 63,698 60,000 Total Short Term Borrowings 663,208 433,471

31.2.1 Other Short Term Loans Movement At the beginning of the year 60,000 - Loans obtained during the year 90,000 60,000 Less: Repayment during the year (86,302) - At the end of the year 63,698 60,000

32. Contingent Liabilities There were no material contingent liabilities outstanding as at the year end except for the following.

32.1 Legal Proceedings on Labour and Other Disputes

Several Legal cases and disputes are pending against the company in Labour Tribunal and Courts. All these cases are being vigorously contested/prosecuted and our lawyers have advised that an evaluation of the likelihood of an unfavourable outcome and the amount or range of potential loss cannot be quantified or commented upon at this stage.

32.2 Unfulfilled Conditions on Capital Grants Capital Grant received from the Ceylon Electricity Board (CEB) for Stand by Power Generators is subject to a condition of minimum usage of CEB Power as against the Generator Power. A liability will arise only if the above condition is not fulfilled. Annual Report 2019 | 2020 79

33. Commitments 33.1 Financial Commitments There are no material Financial Commitments other than the JEDB/SLSPC. Lease Rentals Payable to the Secretary to the Treasury as explained in Note 25.3, “Lease Liabilities-Land”.

33.2 Capital Commitments There were no capital commitments outstanding as at the year end.

34. Events Occurring After the Reporting Period No material event has occurred subsequent to the Reporting Period, which require adjustments to or disclosures in the Financial Statements.

35. Related Party Transactions and Balances As at 31st March 2020 2019 Rs’000 Rs’000

35.1 The Following Balances were Outstanding as at the Year End 35.1.1 Amounts due from Related Companies Holding Company Vallibel Plantation Management Limited. 14,257 32,257

Other Related Companies Royal Ceramics Lanka PLC 2 2 Lanka Ceramic PLC 4 18 Lanka Tiles PLC 455 - Uni-Dil Pakaging Limited 707 242 Uni-Dil Pakaging Solution Limited 130 - Hayleys Agriculture Holdings Limited 391 130 Hayleys Agro Fertilizer (Private) Limited 76 558 Kelani Valley Plantations PLC 1,500 883 Talawakelle Tea Estates PLC 49 50 Singer Sri Lanka PLC 152 - The Kingsbery PLC 40 - Delmage Forsyth & Co. Limited 3,933 8,938 7,439 10,821 80 HORANA PLANTATIONS PLC

Notes to the Financial Statements

As at 31st March 2020 2019 Rs’000 Rs’000

35.1.2 Related Companies Payables Uni-Dil Pakaging Limited 781 - Uni-Dil Pakaging Solutions Limited 1,703 4,697 Hayleys PLC -Shared Services 3,156 3,949 Hayleys PLC -Management Fee 16,336 16,336 Hayleys Agriculture Holdings Limited 472 6,387 Hayleys Agro Fertilizer (Private) Limited 2,519 944 Hayleys Business Solutions International (Private) Limited - 30 The Kingsbery PLC 16 - Kelani Valley Plantations PLC 652 1,447 Talawakelle Tea Estates PLC - 364 Puritas (Private) Limited 19 19 Logiwiz Limited - 2 NYK Line Lanka (Private) Limited - 746 Delmage Forsyth & Co., Limited - 27 Diesel & Motor Engineering PLC 27 - Singer Sri Lanka PLC - 57 25,681 35,005

35.2 Transactions with Related Companies As per the Para 23 of Sri Lanka Accounting Standard (LKAS) 24 “Related Party Disclosure”, a disclosure shall be made stating that related party transactions weremade on terms equivalent to those that prevail in arm’s length transactions only if such terms can be substantiated.

The transactions carried out in the ordinary course of its business with parties who are defined as related parties as per Sri Lanka Accounting Standard (LKAS) 24 “Related Party Disclosure”. The details of which are reported below.

Name of Company/ Name of Director Nature of Interest Details of Transactions 2020 2019 Relationship Rs’000 Rs’000 Vallibel Plantation Mr. A.M.Pandithage Executive Chairman Reimbursement of (19,000) 21,685 Management Ltd Dr. Roshan Rajadurai Managing Director Expenses Mr.J. Manuja Kariapperuma Director Immediate Parent Mr.N.T.Bogahalanda Director Uni-Dil Packaging Ltd. Mr. A.M.Pandithage Chairman Sale of Tea (525) (450) Affilliate Mr.J. Manuja Kariapperuma Director Purchase of Packing 507 1,763 Materials Uni-Dil Paper Solutions Ltd Mr. A.M.Pandithage Chairman Purchase of Packing 11,630 15,338 Affilliate Dr. Roshan Rajadurai Chairman Materials Mr.J. Manuja Kariapperuma Director Lanka Ceramic PLC Mr. Dhammika Perera Chairman Sale of Tea (52) (75) Affilliate Mr.K.D.G.Gunaratne Director Reimbursement of Expenses - - Annual Report 2019 | 2020 81

Name of Company/ Name of Director Nature of Interest Details of Transactions 2020 2019 Relationship Rs’000 Rs’000 Royal Ceramics Lanka PLC Mr. Dhammika Perera Chairman Sale of Tea - - Affilliate Mr. L. N. De S. Wijeyeratne Director Purchase of Tiles - 126 The Kingsbury PLC Mr. A.M.Pandithage Executive Chairman A.G.M.Expenses 108 116 Affilliate Mr. Dhammika Perera Co-Chairman Sale of Coconuts (76) - Mr. S. C. Ganegoda Director Mr. L. N. De S. Wijeyeratne Director Hayleys PLC Mr. A.M.Pandithage Executive Chairman Management Fees - 16,336 Affilliate Mr. Dhammika Perera Co-Chairman Office Premises Rentals & 4,699 4,641 Mr. S. C. Ganegoda Finance & Group Related Services Executive Director Office Premises 741 1,090 Reimbursement of Expenses Hayleys Business Solutions Mr. A.M.Pandithage Executive Chairman Salary Processing Fee 152 136 International (Pvt) Ltd Mr. Dhammika Perera Co-Chairman Affilliate Mr. S. C. Ganegoda Director Hayleys Aventura(Pvt) Ltd Mr. A.M.Pandithage Executive Chairman Office Premises Related 164 - Affilliate Mr. Dhammika Perera Co-Chairman Services Mr. S. C. Ganegoda Director

Logiwiz Limited Mr. A.M.Pandithage Executive Chairman Document Storage Rental 24 38 Affilliate Mr. Dhammika Perera Co-Chairman Mr. S. C. Ganegoda Director NYK Lanka (Pvt) Ltd Mr. A.M.Pandithage Executive Chairman Office Premises Related 477 746 Affilliate Mr. Dhammika Perera Co-Chairman Services Mr. S. C. Ganegoda Director

Hayleys Agriculture Mr. A.M.Pandithage Executive Chairman Purchase of Chemicals & 3,352 5,432 Holdings Limited Mr. Dhammika Perera Co-Chairman Machinary Affilliate Mr. S. C. Ganegoda Director

Hayleys Agro Fertilizer Mr. A.M.Pandithage Executive Chairman Purchase of Fertilizer 36,139 69,867 (Pvt) Ltd Mr. Dhammika Perera Co-Chairman Affilliate Mr. S. C. Ganegoda Director Singer Sri Lanka PLC Mr. A.M.Pandithage Executive Chairman Purchase of Equipment 23 160 Affilliate Mr. Dhammika Perera Co-Chairman Mr. S. C. Ganegoda Director Puritas (Pvt) Ltd Mr. A.M.Pandithage Executive Chairman Maintenance of Water 73 2 Affilliate Mr. Dhammika Perera Co-Chairman Purification Plant Mr. S. C. Ganegoda Director

Dipped Products PLC Mr. A.M.Pandithage Executive Chairman Sale of Latex (23,619) - Affilliate Mr. Dhammika Perera Co-Chairman Mr. S. C. Ganegoda Director 82 HORANA PLANTATIONS PLC

Notes to the Financial Statements

Name of Company/ Name of Director Nature of Interest Details of Transactions 2020 2019 Relationship Rs’000 Rs’000 Kelani Valley Plantations Mr. A.M.Pandithage Executive Chairman Reimbursement of 141 3,204 PLC Management Expenses Affilliate Mr. Dhammika Perera Co-Chairman (105) (987) Dr. Roshan Rajadurai Managing Director Mr. S. C. Ganegoda Director Mr. L. N. De S. Wijeyeratne Director Talawakelle Tea Estates Mr. A.M.Pandithage Executive Chairman Reimbursement of 261 364 PLC Management Expenses Affilliate Mr. Dhammika Perera Co-Chairman - (50) Dr. Roshan Rajadurai Managing Director Mr. S. C. Ganegoda Director Delmage Forsyth & Mr. Dhammika Perera Chairman Sale of Tea (42,703) (67,139) Co.,Ltd Mr. A.M.Pandithage Director Reimbursement of - - Affilliate Expenses Purchase of - 23 Office Furniture Diesel & Motor Mr. A.M.Pandithage Director Purchase of 151 1,084 Engineering PLC Motor Vehicle Spares Affilliate

35.3 Transactions with Key Management Personnel According to Sri Lanka Accounting Standard (LKAS) 24, “Related Party Disclosure”, Key Management Personnel are those having authority and responsibility for planning, directing and controlling activities of the entity. Accordingly members of the Board of Directors (including Executive and Non-Executive Directors) has been classfied as Key Management Personnel of the Company.

As at 31st March 2020 2019 Rs’000 Rs’000

Fees paid to Directors 14,863 14,164

36. Comparative Figures Certain reclassifications have been made to the comparative figures to improve the comparability and fair presentation of these financial statements. As a result, following balances have been amended in the statement of profit or loss and other comprehensive income as shown below. These reclassifications have not resulted in changes to the profit for the year, total assets, total liabilities or total net assets previously reported as at 31st March 2019.

As previously Reclassified reported Amount Rs.000 Rs.000

Statement of Profit or loss Cost of Sales 1,855,254 1,823,751 Administrative Expenses 118,351 149,854 Annual Report 2019 | 2020 83

37. Disclosure of the management assessment on Impact of Covid-19 Outbreak of COVID -19 in late December 2019 and the Subsequent proclamation made by World Health Organisation declaring Covid-19 outbreak as a pandemic, Sri Lankan government declared a state of emergency on the third week of March 2020. The uncertainty of the impact of the virus, created a total collapse of the economy and with the imposed lockdowns, majority of the businesses were stranded with no clear guidelines dispensed. Many of the Government institutes too ceased, creating a vacuum for the continuity of any business atmosphere in the short term.

The government’s established task force on Covid-19, declared the plantations as an essential service and laid specific preventive safety measures and a code of conduct to follow for the plantations to operate at a reduced scale based on curfew timelines in certain zones. The protocols were monitored by the Health officials and the plantation management resulting with positive outcomes for the Company.

Considerable investments have been directed towards preventive health and safety measures in following all recommended health such as work-place safety and sanitation protocols recommended by the Authorities, labors and Staff have been trained to adhere to very strict precautionary standards including social distancing and implementation of work from home program on a rotational basis for a significant group of administrative employees as well as employees in sales and procurement departments. Several welfare measures such as providing dry rations, cash advances to maintain livelihood of our estate employees during this period were undertaken.

Though the plantations continued to operate, the spread of the virus around the world and within Sri Lanka showcased uncertainty on the buyers and the trades on the Tea “out-cry” auction system as close contact was unavoidable. A mechanism to continue the disposal of the commodity with minimum human interaction for the continuity of the Tea auctions was envisaged. As a result, the Colombo Tea Traders’ Association (CTTA) introduced an e-auction in a short span of two weeks enabling the Tea buyers to continue with their business whilst working from Home.

As Sri Lanka was one of the few countries to continue its business in Tea, when all other major produces were in lock down mode or affected with the virus in some form, the overseas buyers had a continued supply of Tea from Sri Lanka and a price hike was seen in the immediate aftermath on the month of April and May 2020. In addition, with the belief of an anti-viral property in black tea, particularly in Ceylon Tea which has a relatively high level of Polyphenol resulted in higher demand given the current prevalence for healthy beverages which has antidotal properties. As a result, the Company’s Tea prices for the month April 2020 and May 2020 are higher than the average tea prices for the year ended 31st March 2020. The Management expects a continuity in high demand and high price for further months. The Rubber prices continue to remain at the same level as it was before the Covid-19 pandemic, but it is expected that demand will increase because of the increased requirement for health and safety related products.

With the declaration of plantations as an essential service, the management has been able to manage the supply chain and continue the operations without an interruption at estates to furnish the demand during the pandemic. Accordingly, there are no impairment indications identified on bearer biological assets or the inventories as at the reporting date.

The Credit risk of the trade receivables are minimal since majority of sales are made through auctions to reputed international buyers and CTTA ensure the recoverability of the receivables through the produce brokers.

The Company manages its liquidity risk and ensure that it meets the working capital requirement effectively with undrawn credit facilities, daily cash inflow from sales and cost controlling mechanisms to overcome the risk of rising cost of production. The Company has applied for Covid-19 debt moratoriums introduced by the Central Bank of Sri Lanka for existing term loans.

The valuation of consumable biological assets requires key assumptions such as discount rate, value per cubic meter and available timber quantity. Changes in those could have a material impact on the fair value gain or loss for the year and the carrying value 84 HORANA PLANTATIONS PLC

Notes to the Financial Statements

of consumable biological assets as of the reporting date. The Management has assessed the impact on those assumptions with the latest available economic conditions due to the Covid-19 outbreak and has not identified a significant impact on the valuation of consumable biological assets other than a short-term interruption in scheduled trees to be harvested due to the imposed lockdowns.

The Management is closely monitoring and developing mitigating factors for potential downside risks to the business due to Covid-19 pandemic and will continue to invest in the health and safety to ensure the health security of our large work force to continue the business operations without any disruption.

As per the management’s assessment over future business plan after incorporating the potential impact of Covid-19 outbreak and is of the view that the range of possible outcomes considered at arriving this judgment does not give rise to material uncertainties related to events or conditions that may cast significant doubt on the business continuity of the Company.

38. Financial Risk Management 38.1 Overview The Company has exposure to the following risks from its use of financial instruments. • Credit risk • Liquidity risk • Market risks (Including currency risk and interest rate risk)

This note present qualitative and quantitative information about the Company’s exposure to each of the above risks, the Company’s objectives, policies and procedures for measuring and managing those risks.

38.1.1 Risk Management Framework The Company’s board of directors has overall responsibility for the establishment and oversight of the Company’s risk management framework. The board of directors has established the risk management committee, which is responsible for developing and monitoring the Company’s risk management policies. The committee reports regularly to the board of directors on its activities.

The Company’s risk management policies are established on identify and analyses the risk faced by the Company, to set appropriate risk limits and controls and to monitor risks and adherence to limits. Risk management policies and system are reviewed regularly to reflect changes in market conditions and the Group’s activities. The Company, through its training and management standards and procedures, aims to maintain a disciplined and constructive control environment in which all employees understand their roles and obligations.

The Company audit committee oversees how management monitors compliance with the Company’s risk management policies and procedures and reviews the adequacy of the risk management framework in relation to the risk faced by the Company. The Company audit committee is assisted in its oversight role by internal audit. Internal audit undertakes both regular and ad hoc reviews of risk management controls and procedures, the results of which are reported to the audit committee.

38.2 Credit Risk Credit risk is the risk of financial loss to the Company if a customer or counter party to a financial instrument fails to meet it’s contractual obligation, and arises principally from the Company’s receivables from customer, investment securities etc.

The Company is exposed to credit risk from its operating activities (Primarily trade receivables), other advances including loans and advances to staff/workers, and from its financing activities, including deposits with banks and other financial instruments.

The carrying amount of financial assets represents the maximum credit exposure. Annual Report 2019 | 2020 85

Risk Exposure The maximum risk positions of financial assets which are generally subject to credit risk are equal to their carrying amounts. The following figures show maximum risk positions.

As at 31st March 2020 2019 Rs’000 Rs’000

Advance Company Tax Recoverable 27,285 27,285 Trade and Other Receivables 86,927 96,243 Amount Due From Related Companies 21,696 43,079 Cash and Cash Equivalents 14,890 2,871 150,798 169,478

38.2.1 Management of Credit Risk Trade receivables The Company’s exposure to credit risk is influenced by the individual characteristics of each customer. The Company’s credit policy is monitored at the Board level. The new customers are analysed individually for credit worthiness before Company’s standard payment and delivery terms and conditions are offered. Company review includes external ratings when available and in some cases, bank references, purchase limit etc., which also subject to under review on quarterly basis. The past experience of the management is considered when revisions are made to terms and conditions.

The Company has a minimal credit risk of its trade receivables from Produce Brokers, as the repayment is guaranteed within seven days by the Tea and Rubber Auction systems.

Credit quality of financial assets An analysis of the credit quality of trade receivables that were neither past due nor impaired and the aging of trade receivables that were past due but not impaired as at 31st March 2020 is as follows.

Carrying value As at 31st March 2020 2019 Rs’000 Rs’000

Below 30 days 16,044 24,862 30 - 45 days - - 46 - 60 days - - 61 - Over - - Less: provision made - - 16,044 24,862

The movement in the provision for impairment in respect of other receivables during the year was as follows.

Impairment 2020 2019 Rs’000 Rs’000

Balance as 1st April 2019 1,413 1,438 Impairment loss recognised 595 (25) Balance as 31st March 2020 2,008 1,413 86 HORANA PLANTATIONS PLC

Notes to the Financial Statements

Impairment loss recognised The Company believes that the unimpaired amounts that are past due by more than 45 days are still to be collected in full. Based on the Company’s monitoring of customer credit risk, the Company believes that, except as indicated above, no impairment allowance is necessary in respect of trade receivables not past due.

Amounts due from related companies The Company’s exposure to credit risk is influenced mainly by the individual characteristics of each related Company.

The Company does not require a provision for impairment in respect of Amounts Due From Related Companies.

38.2.2 Cash & Cash Equivalents The Company held cash and cash equivalents of Rs. 14.890 Mn at 31st March 2020 (2019: Rs. 2.871 Mn.), which represents its maximum credit exposure on these assets.

38.3 Liquidity Risk Liquidity risk is the risk that the Company will encounter difficulty in meeting the obligations associated with it’s financial liabilities that are settled by delivering cash or another financial asset. The Company’s approach to managing is to ensure, as far as possible, that it will always have sufficient liqudity to meet its liabilities when due, under normal or stressed conditions, without incurring unacceptable losses or damage to the Company’s reputation.

The Company’s policy is to hold cash and undrawn committed facilities at a level sufficient to ensure that the Company has available funds to meet its short-and medium-term capital and funding obligations, including organic growth and acquisition activities, and to meet any unforeseen obligations and opportunities. The Company holds cash and undrawn committed facilities to enable the Company to manage its liquidity risk.

The Company monitors its risk to a shortage of funds using a daily cash management process. This process considers the maturity of both the Group’s financial investments and financial assets (e.g. accounts receivable, other financial assets) and projected capital cash flows from operations.

38.3.1 Liquidity Risk Management The Company’s objective is to maintain a balance between continuity of funding and flexibility through the use of multiple sources of funding including bank loans and overdrafts.

The mixed approach combines elements of the cash-flow-matching approach and the liquid assets approach. The business units attempt to match cash outflows in each time bucket against a combination of contractual cash inflows, plus other inflows that can be generated through the sale of assets or other secured borrowings.

The table below summarises the maturity profile of the financial liabilities based on contractual undiscounted payments.

Current Non Current As at 31 March 2020 Carrying value Up to 1 year Up to 2 years Up to 5 years Above 5 years Rs’000 Rs’000 Rs’000 Rs’000

Bank overdrafts (Note 31.1) 599,510 - - - - Interest bearing borrowings (Note 24.10 & 31.2) 63,698 295,881 239,940 351,230 144,320 Lease liabilities (Note 25 & 26) - 2,004 3,177 4,129 151,236 Total 663,208 297,885 243,117 355,359 295,556 Annual Report 2019 | 2020 87

Current Non Current As at 31st March 2019 Carrying value Up to 1 year Up to 2 years Up to 5 years Above 5 years Rs’000 Rs’000 Rs’000 Rs’000

Bank overdrafts (Note 31.1) 373,471 - - - - Interest bearing borrowings (Note 24 & 31.2) 60,000 236,457 247,178 392,640 30,350 Lease liabilities (Note 25 & 26) - 8,306 3,177 9,310 72,645 Total 433,471 244,763 250,355 401,950 102,995

38.4 Market Risk Market risk is the risk that changes in market prices, such as foreign exchange rates, Interest rates and etc; will affect the Company’s income or the value of its holdings of financial instruments. The objective of the market risk management is to manage and control market risk exposures within acceptable parameters while optimising the returns.

38.4.1 Interest Rate Risk Interest rate risk is the risk that the fair value or future cash flows of a financial instruments fluctuate because of changes in market interest rates. The Company has borrowings with AWPLR interest rate which would affect the Company’s cash flow/ profit as the amount of interest paid would be changed depending on market interest rate.

At the end of the reporting period the interest rate profile of the Company’s interest bearing financial instruments as reported to the management of the company was as follows.

Nominal Amount As at 31st March 2020 2019 Rs’000 Rs’000

Variable Rate Instruments Financial Assets Short term investments (Note 20.1) 12,185 1,545

Financial Liabilities Long Term Bank Borrowings (Note 24.2 to 24.7) 1,023,992 874,194 Long Term Other Borrowings (Note 24.8 & 24.9) 7,379 32,431 Other Short Term Bank Borrowings (Note 31.2) 63,698 60,000 Bank Overdrafts (Note 31.1) 599,510 373,471 Total 1,694,579 1,340,096

A reasonable change of 100 basis points in interest rate at the reporting date would have increased/(decreased) profit or loss by the amounts shown below. The analysis assumes that all other variables, in particular, foreign currency exchange rates, remain constant.

Nominal Amount 2020 2019 Rs’000 Rs’000

Variable Rate Instruments 100 bp increase (16,796) (13,208) 101 bp decrease 16,796 13,208 88 HORANA PLANTATIONS PLC

Notes to the Financial Statements

The above table demonstrates the sensitivity to a reasonable change in interest rates on loans where floating rates are applicable with all other variables held constant.

Constant monitoring of market interest rates is carried out to ensure appropriate steps are taken to maximise the return on financial management and to minimise the cost of borrowings. The Company very strongly negotiates with banks and obtains best possible interest rates for the Company’s borrowings. Listed below are steps adopted by the Company to minimise the effect of interest rate risks; • Entering into loans with interest rate caps and fixed rates. • Renegotiating with banks on interest rates whenever there are favorable fluctuation in the market rates.

38.4.2 Capital Management The Company’s policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence and to sustain future development of the business. The Company monitors the return on capital, which the company defines as result from operating activities divided by total shareholders’ equity. The Company also monitors the level of dividends to ordinary shareholders.

The Company’s liabilities to adjusted capital ratio at the end of the reporting period was as follows.

As at 31st March Nominal amount 2020 2019 Rs’000 Rs’000

Total liabilities 2,909,816 2,458,209 Less: cash and cash equivalents (14,890) (2,871) Net debt 2,894,926 2,455,337 Total equity 811,578 1,337,916 Net debt equity ratio 3.57 1.84

There were no changes in the company’s approach to capital management during the year.

The Company is not subject to externally imposed capital requirements.

39. Financial Instruments 39.1 Fair Value Hierarchy for Financial Assets Carried at Fair Value The Company measures fair values using the following fair value hierarchy that reflects the significance of the inputs used in making the measurements.

Level I: Quoted market price (unadjusted) in an active market for an identical instrument. Level II: Valuation techniques based on observable inputs, either directly – i.e. as prices-or indirectly – i.e. derived from prices. This category includes instruments valued using: quoted market prices in active markets for similar instruments; quoted prices for identical or similar instruments in markets that are considered less than active; or other valuation techniques where all significant inputs are directly or indirectly observable from market data. Level III: Valuation techniques using significant unobservable inputs. This category includes all instruments where the valuation technique includes inputs not based on observable data and the unobservable inputs have a significant effect on the instrument’s valuation. This category includes instruments that are valued based on quoted prices for similar instruments where significant unobservable adjustments or assumptions are required to reflect differences between the instruments. Annual Report 2019 | 2020 89

Fair values of financial assets and financial liabilities that are traded in active markets are based on quoted market prices or dealer price quotations. For all other financial instruments the Company determines fair values using valuation techniques.

Valuation techniques include net present value and discounted cash flow models, and comparison to similar instruments for which market observable prices exist. Assumptions and inputs used in valuation techniques include risk-free and benchmark interest rates, credit spreads and other premia used in estimating discount rates. The objective of the valuation technique is to arrive at a fair value determination that reflects the price of the financial instrument at the reporting date, that would have been determined by the market participants acting at arm’s length.

39.2 Analysis of Financial Instruments by Measurement Basis The fair values of financial assets and liabilities, together with carrying amounts shown in the Statement of Financial Position, are as follows. Financial Other Mandatory FVOCI Assets at FVOCI Financial at FVTPL Equity Amortised Debt Assets & As as 31st March 2020 Note Others Instruments Cost Instruments Liabilities Total Rs’000 Rs’000 Rs’000 Rs’000 Rs’000 Rs’000

Financial Assets Trade and other receivables 19 - - 84,919 - - 84,919 Amounts due from related companies 35.1.1 - - 21,696 - - 21,696 Cash and cash equivalents 20 - - 14,890 - - 14,890 Total - - 121,505 - - 121,505

Financial Liabilities Interest bearing borrowings 24.1 - - - - 1,031,371 1,031,371 Financial lease liabilities 25-26 - - - - 160,546 160,546 Trade and other payables 30. - - - - 238,382 238,382 Amounts due to related companies 35.1.2 - - - - 25,681 25,681 Short term bank borrowings 31.2 - - - - 63,698 63,698 Bank overdraft 31.1 - - - - 599,510 599,510 Total - - - - 2,119,188 2,119,188

Financial Other Mandatory FVOCI Assets at FVOCI Financial at FVTPL Equity Amortised Debt Assets & As as 31st March 2019 Note Others Instruments Cost Instruments Liabilities Total Rs’000 Rs’000 Rs’000 Rs’000 Rs’000 Rs’000

Financial Assets Trade and other receivables 19 - - 94,830 - - 94,830 Amounts due from related companies 35.1.1 - - 43,079 - - 43,079 Cash and cash equivalents 20 - - 2,871 - - 2,871 Total - - 140,780 - - 140,780 90 HORANA PLANTATIONS PLC

Notes to the Financial Statements

Financial Other Mandatory FVOCI Assets at FVOCI Financial at FVTPL Equity Amortised Debt Assets & As as 31st March 2019 Note Others Instruments Cost Instruments Liabilities Total Rs’000 Rs’000 Rs’000 Rs’000 Rs’000 Rs’000 Financial Liabilities Interest bearing borrowings 24.1 - - - - 906,625 906,625 Financial lease liabilities 25-26 - - - - 93,438 93,438 Trade and other payables 30 - - - - 242,871 242,871 Amounts due to related companies 35.1.2 - - - - 35,005 35,005 Short term bank borrowings 31.2 - - - - 60,000 60,000 Bank overdrafts 31.1 - - - - 373,471 373,471 Total - - - - 1,765,410 1,765,410

The company does not anticipate the fair value of the above to be significantly different to their carrying values and considers the impact as not material for the disclosure.

39.3 Fair Value Hierarchy for Assets Carried at Fair Value Note Level 1 Level 2 Level 3 Total

As at 31st March 2020 Consumable biological assets 15.2.2 - - 587,904 587,904

As at 31st March 2019 Consumable biological assets 15.2.2 - - 549,707 549,707

Valuation technique and significant unobservable inputs The following table shows the valuation techniques used in measuring the fair value of consumable biological assets, as well as the significant unobservable inputs used. Valuation Technique Significant unobservable inputs Inter-relationship between key unobservable inputs and fair value measurement Consumable Discounted Cash The interest rates used by the company for The fair value decreases/increases when Biological assets flows discounting the cash flows varied between discount rate is increased/decreased. 14% - 16% which were derived as risk free interest rate plus a risk premium.

An average timber price increment rate of The fair value increased/decreases when 5.6% is used in the valuation based on the price increment rate is increased/decreased. annual inflation rate. The timber price is based on the historical average selling price. Annual Report 2019 | 2020 91

39.4 Financial Assets and Liabilities by fair value hierarchy Fair value As as 31st March 2020 Note Level 1 Level 2 Level 3 Total Rs’000 Rs’000 Rs’000 Rs’000

Financial Assets not measured at fair value Trade and other receivables 19 - - 84,919 84,919 Amounts due from related companies 35.1.1 - - 21,696 21,696 Cash and cash equivalents 20 - 14,890 - 14,890 Total - 14,890 106,615 121,505

Financial Liabilities Interest bearing borrowings 24.1 - - 1,031,371 1,031,371 Lease liabilities 25-26 - - 160,546 160,546 Trade and other payables 30 - - 238,382 238,382 Amounts due to related companies 35.1.2 - - 25,681 25,681 Short term bank borrowings 31.2 - - 63,698 63,698 Bank overdrafts 31.1 - 599,510 - 599,510 Total - 599,510 1,519,678 2,119,188

Fair value As as 31st March 2019 Note Level 1 Level 2 Level 3 Total Rs’000 Rs’000 Rs’000 Rs’000

Financial Assets not measured at fair value Trade and other receivables 19 - - 94,830 94,830 Amounts due from related companies 35.1.1 - - 43,078 43,078 Cash and cash equivalents 20 - 2,871 - 2,871 Total - 2,871 137,908 140,779

Financial Liabilities Inteiest bearing borrowings 24.1 - - 906,625 906,625 Financial lease liabilities 25-26 - - 93,438 93,438 Trade and other payables 30. - - 242,871 242,871 Amounts due to related companies 35.1.2 - - 35,005 35,005 Short term bank borrowings 31.2 - - 60,000 60,000 Bank overdrafts 31.1 - 373,471 - 373,471 Total - 373,471 1,391,939 1,765,410 92 HORANA PLANTATIONS PLC

Notes to the Financial Statements

40. Information on Business Segments

Tea Rubber Unallocated Total 2020 2019 2020 2019 2020 2019 2020 2019 Rs’000 Rs’000 Rs’000 Rs’000 Rs’000 Rs’000 Rs’000 Rs’000

Segmental Revenue Main Sectors 1,407,775 1,596,693 265,120 304,111 1,672,895 1,900,804 Diversified Crops 65,268 45,484 65,268 45,484 Sale of Timber (Live) Trees 19,495 64,570 19,495 64,570 Other Operating Revenue 4,496 9,502 4,496 9,502 1,407,775 1,596,693 265,120 304,111 89,259 119,556 1,762,154 2,020,360

Segmental Gross Profit/(Loss) (186,252) 193,938 (50,037) (37,161) 18,747 39,831 (217,542) 196,608

Other Operating Income 6,900 20,040 6,900 20,041 Change in Fair Value of Biological Assets 56,693 86,508 56,693 86,508 Administrative Overheads (170,053) (149,354) (170,053) (149,854) Management Fees - (16,333) - (16,333) Profit/(Loss) from Operations (324,002) 136,971

Interest and Finance Charges (146,373) (129,622) (146,373) (129,622) Profit before Taxation (470,375) 7,349 Income Tax Expense (24,493) (2,546) (24,493) (2,546) Profit for the year (494,868) 4,802

Other Comprehensive Income: Actuarial Gain/(Loss) on Retiring Gratuity (21,110) (87,423) (21,110) (87,423) Tax Expense on Other Comprehensive Income 2,955 12,239 2,955 12,239 Other Comprehensive Income for the year (18,155) (75,184) Total Comprehensive Income for the year (513,023) (70,382)

Other Information Segmental Assets Non-current Assets 1,058,671 1,047,488 1,245,835 1,286,386 1,107,346 1,017,882 3,411,852 3,351,756 Current Assets 188,720 328,463 37,970 29,976 82,852 85,930 309,542 444,369 Total Assets 1,247,391 1,375,951 1,283,805 1,316,362 1,190,198 1,103,812 3,721,394 3,796,125

Segmental Liabilities Non-current Liabilities 524,884 450,323 157,447 113,575 1,003,637 944,849 1,685,968 1,508,747 Current Liabilities 113,076 143,199 47,159 42,406 1,063,613 763,857 1,223,848 949,462 Total Liabilities 637,960 593,522 204,606 155,981 2,067,250 1,708,706 2,909,816 2,458,209

Capital Expenditure 31,450 31,530 38,308 49,813 95,442 98,795 165,200 180,138

Amortisation and Depreciation 64,756 60,332 92,202 88,650 30,733 19,707 187,691 168,689

Non-Cash Expenditure other than Amortisation and Depreciation 85,932 55,100 23,474 7,069 104,034 72,968 213,440 135,137 Annual Report 2019 | 2020 93

Value Added Statement

For the year ended 31st March 2020 2019 Rs'000 % Rs'000 %

Revenue 1,762,154 2,020,360 Other Income 63,593 106,548 1,825,747 2,126,908 Cost of Materials and Services obtained (695,054) (760,259) Value Addition 1,130,693 1,366,649

Distribution of Value Addition:- To Employees Salaries and Other Benefits 1,288,180 113.9 1,135,912 83.1

To Providers of Funds Interest Cost 128,401 11.4 113,650 8.3

To Government Income Tax 21,538 9,693 Lease Interest 17,972 15,972 39,510 3.5 25,661 1.9

To Shareholders Dividends to Shareholders - - 12,500 0.9

To Expansion and Growth Profit Earned/(Loss incurred) (513,023) (70,382) Depreciation 187,691 168,690 (325,332) (28.8) 98,308 7.2 1,130,759 100.0 1,366,649 100.0

Distribution of Value Addition - 2020 Distribution of Value Addition - 2019 (%) (%) 120 100

80 80

60 40 40

0 20

(40) 0 Employees Employees Government Government Shareholders Shareholders Providers of Funds Providers of Funds Providers Expansion and Growth Expansion and Growth 94 HORANA PLANTATIONS PLC

Ten Year Summary

2010/11 2011/12 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18 2018/19 2019/20 Rs'000 Rs'000 Rs'000 Rs'000 Rs'000 Rs'000 Rs'000 Rs'000 Rs'000 Rs'000 Operating Results Revenue 2,079,720 2,025,043 2,220,225 2,269,092 2,164,859 1,806,106 1,947,278 2,248,463 2,020,360 1,762,154 Gross Profit 464,708 200,814 369,330 271,161 141,575 (1,574) 102,743 265,515 196,608 (217,542) Profit from Operations 392,246 130,585 305,138 212,961 115,827 (35,885) 45,774 191,589 136,970 (324,002) Interest (53,878) (46,195) (61,623) (50,399) (28,848) (39,859) (88,656) (86,915) (129,622) (146,373) Profit/(Loss) before Tax 338,368 84,390 243,515 162,562 86,979 (75,744) (42,882) 104,674 7,348 (470,375) Tax Expenses (8,770) (459) (38,652) (25,325) (25,003) 2,625 1,160 (20,330) (2,546) (24,493) Profit/(Loss) for the year 329,598 83,931 204,863 137,237 61,976 (73,119) (41,722) 84,344 4,802 (494,868) Other Comprehensive Income - 3,389 19,403 (66,451) 14,709 43,847 27,095 (35,196) (75,184) (18,155) Total Comprehensive Income 329,598 87,320 224,266 70,786 76,685 (29,272) (14,627) 49,148 (70,382) (513,023)

Net Assets Employed Property, Plant & Equipments 2,030,023 1,951,043 2,153,381 2,408,538 2,580,951 2,600,692 2,661,463 2,748,445 2,738,550 2,752,388 Consumable Biological Assets 76,901 231,132 246,676 283,928 349,513 453,884 490,535 536,575 585,919 632,177 Current Assets 502,488 356,869 385,338 389,842 420,646 322,531 400,281 408,986 471,656 336,820 Total Assets 2,609,412 2,539,044 2,785,395 3,082,308 3,351,110 3,377,107 3,552,279 3,694,006 3,796,125 3,721,394

Current Liabilities excluding Borrowings (255,186) (247,516) (312,377) (290,354) (248,102) (230,918) (272,611) (332,632) (286,181) (266,067) Non-Current Liabilities excluding Borrowings (673,703) (671,561) (681,612) (774,366) (815,835) (781,233) (744,576) (783,239) (831,932) (949,170) 1,680,523 1,619,967 1,791,406 2,017,588 2,287,173 2,364,956 2,535,092 2,578,135 2,678,013 2,506,157

Capital Employed Stated Capital 250,000 250,000 250,000 250,000 250,000 250,000 250,000 250,000 250,000 250,000 Capital Reserves 70,000 70,000 70,000 70,000 70,000 70,000 70,000 70,000 70,000 70,000 Revenue Reserves 967,505 836,502 1,035,768 1,056,554 1,104,224 1,066,278 1,051,652 1,100,798 1,017,916 491,578 Shareholder's Funds 1,287,505 1,156,502 1,355,768 1,376,554 1,424,224 1,386,278 1,371,652 1,420,798 1,337,916 811,578 Borrowings 393,018 463,465 435,638 641,034 862,950 978,679 1,163,440 1,157,336 1,340,097 1,694,579 1,680,523 1,619,967 1,791,406 2,017,588 2,287,174 2,364,957 2,535,092 2,578,134 2,678,013 2,506,157

Cash Flow Net Cash Generated from Operating Activities 386,992 240,707 358,517 235,388 105,620 111,493 48,366 284,016 14,217 (152,285) Net Cash Used in Investing Activities (253,000) (267,280) (276,282) (361,631) (261,167) (187,868) (202,572) (252,141) (170,736) (160,954) Net Cash Used in Financing Activities 36,652 (186,027) 6,228 8,798 147,154 7,992 109,132 (38,353) 64,598 99,219 Net Increase/(Decrease) in Cash and Cash Equivalents 170,644 (212,600) 88,463 (117,445) (8,393) (68,383) (45,074) (6,478) (91,920) (214,020) Cash and Cash Equivalents at the beginning (79,415) 91,229 (121,371) (32,908) (150,353) (158,746) (227,129) (272,203) (278,680) (370,600) Cash and Cash Equivalents at the end 91,229 (121,371) (32,908) (150,353) (158,746) (227,129) (272,203) (278,680) (370,600) (584,620) Annual Report 2019 | 2020 95

2010/11 2011/12 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18 2018/19 2019/20 Rs’000 Rs’000 Rs’000 Rs’000 Rs’000 Rs’000 Rs’000 Rs’000 Rs’000 Rs’000 Key Indicators Earning per Share (Rs) 13.18 4.42 8.19 5.49 2.48 (2.92) (1.67) 3.37 0.19 (19.79) Market Value per Share (Rs) 72.30 25.10 26.50 22.90 22.50 16.90 16.50 22.00 17.00 17.00 Dividend per Share (Rs) 4.00 1.00 2.00 1.00 0.50 - - - 0.50 - Net Assets per Share (Rs) 51.50 46.26 54.23 55.06 56.97 55.45 54.87 56.83 53.52 32.46 Price Earnings Ratio (times) 5.48 5.68 3.23 4.17 9.08 (5.78) (9.89) 6.52 89.94 (0.86) Earning Yield (%) 18.24 17.61 30.92 23.97 11.02 (17.31) (10.11) 15.34 1.13 (116.44) Interest Cover (times) 7.28 3.50 4.95 4.23 4.02 (0.09) 0.52 2.20 1.06 (2.21) Dividend Cover (times) 3.30 4.42 4.10 5.49 4.96 - - - 0.38 - Dividend Payout (%) 30.34 22.62 24.41 18.22 20.17 - - - 260.33 - Effective Dividend Rate (%) 40.00 10.00 20.00 10.00 5.00 - - - 5.00 - Dividend Yield (%) 5.53 3.98 7.55 4.37 2.22 - - - 2.94 - Current Ratio (times) 1.50 0.76 0.81 0.75 0.84 0.53 0.57 0.52 0.49 0.27 Revenue to Capital Employed (times) 1.24 1.28 1.24 1.12 0.95 0.76 0.77 0.87 0.75 0.70 Property, Plant & Equipments to Shareholders’ Funds (times) 1.58 1.69 1.59 1.75 1.81 1.88 1.94 1.93 2.05 3.39 Equity to Total Assets Ratio (%) 49.34 45.55 48.67 44.66 42.50 41.05 38.61 38.45 35.24 21.81 Return on Equity (%) 25.60 9.56 15.11 9.97 4.35 (5.27) (3.04) 5.94 0.36 (60.98) Return on Capital Employed (%) 23.34 9.54 17.03 10.56 5.06 (1.52) 1.81 7.43 5.11 (12.93) Return on Total Assets (%) 12.63 4.35 7.35 4.45 1.85 (2.17) (1.17) 2.28 0.13 (13.30) Gearing (%) 23.39 28.61 24.32 31.77 37.73 41.38 45.89 44.89 50.04 67.62 96 HORANA PLANTATIONS PLC

Shareholder and Investor Information

Twenty (20) Major Shareholders of the Company 2020 2019 No Name No. of Shares (%) No. of Shares (%)

1 Vallibel Plantation Management Limited 12,750,000 51.000 12,750,000 51.000 2 Naratha Ventures Private Limited 2,153,733 8.615 2,153,733 8.615 3 Sampath Bank PLC / Dr. T Senthilverl 1,981,113 7.924 1,981,113 7.924 4 Associated Electrical Corporation Ltd 1,286,186 5.145 1,286,186 5.145 5 Seylan Bank PLC / Senthilverl Holdings (Pvt) Ltd. 821,614 3.286 - - 6 Bank of Ceylon No. 1 Account 513,000 2.052 513,000 2.052 7 Mr. G M Weerakoon 360,630 1.443 333,556 1.334 8 Mrs. U D D N Perera 275,993 1.104 120,688 0.483 9 Gulf East Finance Limited 196,493 0.786 195,400 0.782 10 Mr. K C Vignarajah 196,205 0.785 196,205 0.785 11 Mr. H A A H Algharabally 131,500 0.526 131,500 0.526 12 Mr. P F Nandasiri 113,320 0.453 113,320 0.453 13 Mr. P H D Waidyatilaka 105,000 0.420 105,000 0.420 14 Alpha Tours Private Limited 100,000 0.400 100,000 0.400 15 Mr. A A Page 100,000 0.400 100,000 0.400 16 Mr. Y L Farook 84,980 0.340 74,529 0.298 17 Merchant Bank of Sri Lanka PLC/J A S Priyantha 77,263 0.309 77,263 0.309 18 East West Properties PLC 71,400 0.286 71,400 0.286 19 Mr. A Sithampalam 50,000 0.200 50,000 0.200 20 Akbar Brothers (Pvt) Ltd., A/C No.1 47,434 0.190 47,434 0.190 Sub Total 21,415,864 85.663 20,400,327 81.601 Others 3,584,137 14.337 4,599,674 18.399 Grand Total 25,000,001 100.000 25,000,001 100.000

Share Distribution Shareholding as at 31st March 2020

From To No of Holders No of Shares % 1 1,000 9,913 1,953,847 7.82 1,001 10,000 239 843,697 3.37 10,001 100,000 45 1,317,670 5.27 100,001 1,000,000 9 2,713,755 10.86 Over 1,000,000 4 18,171,032 72.68 10,210 25,000,001 100.00

Categories of Shareholders Local Individuals 10,109 4,453,665 17.81 Local Institutions 79 20,176,535 80.71 Foreign Individuals 21 173,308 0.69 Foreign Institutions 1 196,493 0.79 10,210 25,000,001 100.00 Annual Report 2019 | 2020 97

Share Prices for the Year As at As at 31/03/2020 31/03/2019

Market price per share Highest during the year Rs. 23.50 (10.12.2019) Rs. 26.80 (21.05.2018) Lowest during the year Rs. 14.10 (02.04.2019) Rs. 13.60 (08.01.2019) As at end of the year Rs. 17.00 Rs. 17.00

Share Trading Statistics Number of Transactions during the year 812 462 Number of Shares traded during the year 1,373,702 330,156 Value of shares traded during the year (Rs.) 24,907,408.10 5,622,601.70

Public Holding 1. Public holding percentage as at 31st March 2020 was 48.996% 2. Number of shareholders representing the above Percentage was 10,208 3. The float adjusted market capitalisation as at 31st March 2020 was Rs. 208,233,017.00 4. The Float adjusted market capitalisation of the Company falls under Option 5 of Rule 7.13.1 (a) of the Listing Rules of the Colombo Stock Exchange and the Company has complied with the minimum public holding requirement applicable under the said option.

Earnings per Share (EPS) Vs. Dividend per Share (DPS) Earnings & Dividend Yield (%) Rs. per Share 30 Rs. per Share (%) 30.00 120 %

20 20.00 60 %

10 10.00 30 %

0 0 0 %

(10) (10.00) -30 %

(20) (20.00) -60 %

(30) (30.00) -120 % 2015/16 2016/17 2017/18 2018/19 2019/20 2015/16 2016/17 2017/18 2018/19 2019/20

Earnings per Share (EPS) Dividend per Share (DPS) EPS (Rs per Share) Earnings Yield (%)

DPS (Rs per Share) Dividend Yield (%)

MVPS (Rs per Share) 98 HORANA PLANTATIONS PLC

Shareholder and Investor Information

Net Assets per Share (NAPS) Vs. Debt/Equity Ratio (%) Market Value per Share (MVPS) Rs Millions (%) Rs per Share 2,500.00 250 % 60.00

2,000.00 200 % 50.00

40.00 1,500.00 150 %

30.00 1000.00 100 %

20.00 500.00 50 % 10.00 0 0 % 2015/16 2016/17 2017/18 2018/19 2019/20 0 2015/16 2016/17 2017/18 2018/19 2019/20 Debt (Rs Millions) Debt/Equity Ratio (%) NAPS MVPS Equity (Rs Millions)

High-Low Market Prices Interest & Dividend Cover(Times) Rs per Share Rs Millions (Times) 40.00 6.00 600.00

4.00 400.00 30.00 2.00 200.00

20.00 0 0

(200.00) (2.00) 10.00 (400.00) (4.00)

0 (600.00) (6.00) 2015/16 2016/17 2017/18 2018/19 2019/20 2015/16 2016/17 2017/18 2018/19 2019/20 High Low As at Profit from Operations (Rs Millions) Interest (Rs Millions)

Net Profit (Rs Millions) Dividend (Rs Millions) Interest Cover (Times) Dividend Cover (Times)

Market Capitalisation and Shareholder’s Funds Return on Equity (%) Rs Millions Rs Millions (%) 1,500.00 1,500.00 60 %

1,250.00 40 %

1,000.00 1,000.00 20 %

750.00 0 %

500.00 500.00 -20 %

250.00 -40 %

0 -60 % 0 2015/16 2016/17 2017/18 2018/19 2019/20 2015/16 2016/17 2017/18 2018/19 2019/20

Shareholders’ Funds (Rs Millions) Market Capitalization (Rs Millions)

Shareholder’s Funds (Rs Millions) Return on Equity (%) Annual Report 2019 | 2020 99

Our Plantations

EXTENTS (Ha) CROP (kg’000) Employee Strength Planting ELEVATION Estate Oil Oil District Tea Rubber Others Total (ft) Tea Rubber Staff Workers Total Palm Palm Upcot/Maskeliya Alton Nuwara Eliya 261 - - 89 350 4,700-5,550 275 26 566 592 Fairlawn Nuwara Eliya 305 - - 143 448 4,500-4,870 271 27 533 560 Gouravilla Nuwara Eliya 285 - - 96 381 3,600-5,300 384 29 676 705 Stockholm Nuwara Eliya 227 - - 78 305 4,800 228 22 510 532 Mahanilu Nuwara Eliya 162 - - 74 236 4,500-5,000 183 14 316 330 Regional - - 480 1,719 1,342 - - 118 2,601 2,719 Total 1,240 Lindula Bambrakelly Nuwara Eliya 374 - - 216 591 4,200-5,400 437 29 653 682 Eildon Hall Nuwara Eliya 128 - - 34 162 4,430 182 12 248 260 Tillicoultry Nuwara Eliya 274 - - 103 377 4,200-5,000 278 21 397 418 Regional Total 776 - - 353 1,129 897 - - 62 1,298 1,360

Up-Country Total - - 832 2,849 2,238 - - 180 3,899 4,079 2,016 Ingiriya/Bulathsinghala Millakande Kalutara 120 - 266 387 100 203 21 202 223 Dumbara Ratnapura 62 381 575 1,017 1,750 - - - Halwatura Kalutara - 267 16 329 612 396-825 - 67 145 16 122 138 Hillstream Kalutara - 180 219 400 429 - 65 11 91 102 Kobowela Kalutara - 127 90 217 310 - 61 14 66 80 Neuchatel Kalutara - 403 130 369 902 172-495 - 169 657 26 328 354 Mirishena Kalutara - 196 107 201 504 246-330 - 86 244 17 125 142 Frocester Kalutara - 346 51 249 647 165-330 - 145 27 197 224 Low-Country Total 182 1,901 304 2,299 4,686 203 594 1,045 132 1,131 1,263

Plantation Total 1,901 304 3,131 7,534 2,442 594 1,045 312 5,030 5,342 2,198 100 HORANA PLANTATIONS PLC

Quarterly Results

Revenue 2019/20 2018/19 Change Rs’000 Rs'000 Rs'000 % 800,000 Revenue

1st Quarter 455,024 472,551 (4%) 600,000

2nd Quarter 396,883 443,948 (11%) 400,000 3rd Quarter 409,108 494,461 (17%)

4th Quarter 501,138 609,400 (18%) 200,000 Year 1,762,154 2,020,360 (13%)

Gross Profit/(Loss) 0 Q1 Q2 Q3 Q4 1st Quarter (82,658) 10,631 (878%) 2019/20 2018/19

2nd Quarter (96,397) (3,848) (2,405%)

3rd Quarter (27,792) 108,628 (126%) Gross Profit 4th Quarter (10,695) 81,197 (113%) Rs’000 200,000 Year (217,542) 196,608 (211%)

Profit/(Loss) after tex : 100,000 1st Quarter (133,114) (35,518) (275%)

2nd Quarter (158,978) (52,993) (200%) 0

3rd Quarter (83,485) 40,937 (304%) (100,000) 4th Quarter (119,291) 52,376 (328%)

Year (494,868) 4,802 (10,405%) (200,000) Q1 Q2 Q3 Q4 Other Comprehensive Income/(Expense) 2019/20 2018/19 1st Quarter (2,494) (8,313) 70%

2nd Quarter (2,494) (8,313) 70% Profit after Tax 3rd Quarter (2,494) (8,313) 70% Rs’000 200,000 4th Quarter (10,673) (50,244) 79%

Year (18,155) (75,184) 76% 100,000 Total Comprehensive Income/(Expense)

1st Quarter (135,608) (43,831) (209%) 0

2nd Quarter (161,472) (61,306) (163%)

3rd Quarter (85,979) 32,624 (364%) (100,000)

4th Quarter (129,964) 2,132 (6,196%) (200,000) Year (513,023) (70,382) (629%) Q1 Q2 Q3 Q4 2019/20 2018/19 Annual Report 2019 | 2020 101

Corporate Information

Company Name Parent Company Horana Plantations PLC Vallibel Plantation Management Ltd No.400 Deans Road, Domicile and Legal Form Colombo 10. Horana Plantations PLC is a Quoted Public Company with limited liability, Incorporated and domiciled in Sri Lanka, under Ultimate Parent Company of the Group the Companies Act No.17 of 1982 in terms of the provisions of Vallibel One PLC the Conversion of Public Corporations of Government Owned Level 29, West Tower, Business Undertakings into Public Companies Act No.23 of 1987 World Trade Centre, Echelon Square, and re-registered under the Companies Act No.7 of 2007. Colombo 1.

Date of Incorporation Managing Agent 22nd June 1992 Hayleys PLC No.400 Deans Road, Registration Number Colombo 10. PQ 126 Secretaries Directors P W Corporate Secretarial (Pvt) Ltd Mr. A. M. Pandithage – Chairman 3/17, Kynsey Road, Colombo - 8 Telephone 011 4640360-3 Mr. Dhammika Perera – Deputy Chairman (Alternate Director Mr.K.D.G.Gunaratne) Independent Auditors Dr. Roshan Rajadurai –Managing Director KPMG Mr. Johann A. Rodrigo – Director/Chief Executive Officer Chartered Accountants (Appointed w.e.f. 01st April 2020) No.32A, Sir Mohamed Macan Markar Mawatha, Mr. A. N. Wickremasinghe Colombo 3. Mr. S. C. Ganegoda Legal Advisors Mr. S. S. Sirisena Nithi Murugesu & Associates Mr. K. D. G. Gunaratne Attorneys-at-Law & Notaries Public Mr. L. N. de S. Wijeyeratne No.28 (Level 2) W.A.D. Ramanayake Mawatha, Colombo 2. Mr. S. M. Liyanage

Tax Advisors Registered Office Address Nanayakkara & Company No.400 Deans Road, Colombo 10. Chartered Accountants Telephone : 011 2627000, 3rd Floor, Yathama Building 011 2627301-7322 No.142 Galle Road, Facsimile : 011 2627323 Colombo 3. E Mail : [email protected] [email protected] Bankers Web : www.horanaplantations.com Commercial Bank of Ceylon PLC Hatton National Bank PLC People’s Bank Seylan Bank PLC Sampath Bank PLC 102 HORANA PLANTATIONS PLC

Notice of Meeting

NOTICE IS HEREBY GIVEN that 5. To pass the ordinary resolution set Notes: the Twenty Seventh Annual General out below to re- appoint Mr. Lalit 1. A Shareholder is entitled to appoint Meeting of Horana Plantations PLC will N de S Wijeyeratne who is over 70 a proxy to attend and vote instead be held at Hayleys PLC, No. 400 Deans years of age, as a Director of the of himself and a proxy need not be Road, Colombo 10 on 27th July 2020 Company; a Shareholder of the Company. A at 2.00 p.m. and the business to be “IT IS HEREBY RESOLVED THAT the Form of Proxy is enclosed for this brought before the Meeting will be: age limit stipulated in Section 210 of purpose. The instrument appointing a the Companies Act, No.07 of 2007 proxy must be deposited at No. 3/17, 1. To receive and consider the Annual shall not apply to Mr. Lalit N de S Kynsey Road, Colombo 08, Sri Lanka; Report of the Board of Directors Wijeyeratne who is over 70 years or must be emailed to hoplagm@ on the affairs of Company and the of age and that he be and is hereby hplnet.com not less than forty eight Financial Statements for the year re-appointed a Director of the (48) hours before the time fixed for ended 31st March 2020 and the Company in terms of Section 211 of the Meeting. Report of the Auditors thereon. the Companies Act No. 07 of 2007” 2. To re-elect as a Director Mr. 6. To elect as a Director Mr. J A 2. Please refer the “Circular to Dhammika Perera who retires by Rodrigo who retires in terms Shareholders” dated 22nd June rotation in terms of Article 92 of of Article 98 of the Articles of 2020 and follow the instructions the Articles of Association of the Association of the Company. to join the meeting physically or Company. 7. To elect as a Director Mr. S M virtually. 3. To re-elect as a Director Mr. A M Liyanage who retires in terms Pandithage who retires by rotation in of Article 98 of the Articles of terms of Article 92 of the Articles of Association of the Company. Association of the Company. 8. To authorise the Directors to 4. To pass the ordinary resolution determine donations for the ensuing set out below to appoint Mr. A N year. Wickremasinghe who is over 70 9. To re-appoint Messrs. KPMG years of age, as a Director of the Chartered Accountants as Auditors Company; of the Company and to authorise “IT IS HEREBY RESOLVED THAT the Directors to determine their the age limit stipulated in Section remuneration. 210 of the Companies Act, No.07 of 2007 shall not apply to Mr. A N By Order of the Board Wickremasinghe who is over 70 Horana Plantations PLC years of age and that he be and is hereby appointed a Director of the Company in terms of Section 211 of the Companies Act No. 07 of 2007” P W Corporate Secretarial (Pvt) Ltd Director/Secretaries

22nd June 2020 Colombo Annual Report 2019 | 2020 103

Form of Proxy

I/We the undersigned ...... NIC No…...... of ...... …. being a member/s* of Horana Plantations PLC hereby appoint: Mr. Abeyakumar Mohan Pandithage of Colombo or failing him * Mr. Dhammika Perera of Colombo or failing him * Mr. Weerakoon Godfrey Roshan Rajadurai of Colombo or failing him * Mr. Johann Arjuna Rodrigo of Colombo or failing him * Mr. Anthony Nishantha Wickremasinghe of Colombo or failing him * Mr. Sarath Clement Ganegoda of Colombo or failing him * Mr. Sunil Shanthakumara Sirisena of Colombo or failing him * Mr. Kalupathiranalage Don Gamini Gunaratne of Colombo or failing him * Mr. Lalit Nihal de Silva Wijeyeratne of Colombo or failing him * Mr. Sameera Madushanka Liyanage of Colombo or failing him *

...... ……………...... of ………………………………………...... ……...... ………………………………………….…………………………………………………………. my/our * Proxy to vote and speak as indicated hereunder for me/us* and on my/our* behalf at the Twenty Seventh Annual General Meeting of the Company to be held on 27th July 2020 and at every poll which may be taken in consequence of the aforesaid Meeting and at any adjournment thereof: For Against Resolution 1 To re-elect as a Director Mr. Dhammika Perera who retires in terms of Article No. 92 of the Articles of Association of the Company. Resolution 2 To re-elect as a Director Mr. A M Pandithage who retires in terms of Article No. 92 of the Articles of Association of the Company. Resolution 3 To pass the ordinary resolution as set out in the Notice of meeting under item 4 to appoint Mr. A N Wickremasinghe who is over 70 years of age, as a Director of the Company. Resolution 4 To pass the ordinary resolution as set out in the Notice of meeting under item 5 to re-appoint Mr. L N de S Wijeyeratne who is over 70 years of age, as a Director of the Company. Resolution 5 To elect as a Director Mr. J A Rodrigo who retires in terms of Article No. 98 of the Articles of Association of the Company. Resolution 6 To elect as a Director Mr. S M Liyanage who retires in terms of Article No. 98 of the Articles of Association of the Company. Resolution 7 To authorise the Directors to determine donations for the ensuing year. Resolution 8 To re-appoint Messrs. KPMG Chartered Accountants as Auditors of the Company and authorise the Directors to determine their remuneration.

In witness my/our* hands this ...... day of ...... Two Thousand and Twenty

...... Signature of Shareholder/s

* Please delete the inappropriate words. Instructions as to completion appear on the reverse. 104 HORANA PLANTATIONS PLC

INSTRUCTIONS AS TO COMPLETION

1. To be valid, the completed Form of Proxy must be deposited with the Company Secretaries, P W Corporate Secretarial (Pvt) Ltd at No. 3/17, Kynsey Road, Colombo 08, Sri Lanka or must be emailed to [email protected] not less than forty eight (48) hours before the start of the Meeting. 2. In perfecting the Form of Proxy please ensure that all details are legible. 3. If you wish to appoint a person other than a Director of the Company as your proxy, please insert the relevant details in the space provided. 4. Please indicate with an ‘X’ in the space provided, how your proxy is to vote on the resolution. If no indication is given, the proxy in his discretion will vote as he thinks fit. 5. In the case of a Company/Corporation, the proxy must be under its Common Seal, which should be affixed and attested in the manner prescribed by its Articles of Association. 6. In the case of a Proxy signed by an Attorney, the Power of Attorney must be deposited at The Secretaries’ Office (i.e. P W Corporate Secretarial (Pvt) Ltd, 3/17, Kynsey Road, Colombo 8) for registration. 7. In the case of joint holders the Form of Proxy must be signed by the first holder.

www.horanaplantations.com

HORANA PLANTATIONS PLC No. 400, Deans Road, Colombo 10. Telephone: 011 2627000, 011 2627301-7322 Facsimile: 011 2627323 E Mail: [email protected] Web: www.horanaplantations.com