Financial Report

A Member of
REINVENTING SPACES Lanka Walltiles PLC Annual Report 2011/12
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Lanka Walltiles PLC Annual Report 2011/12
Contents
Financial Highlights Chairmans Review Managing Directors Review Board of Directors Senior Management - LWPLC 6 8 11 14 17
Management Discussion and Analysis Sustainability Report Corporate Governance Risk Management
20 31 38 50
Annual Report of the Board of Directors on the Affairs of the Company 58 Statement of Directors Responsibilities 63 Chief Executive Officers and Chief Financial Officers Responsibility Statement 64 Remuneration Committee Report 65 Audit Committee Report 66 Independent Auditors Report 67 Balance Sheet 68 Income Statement 69 Statement of Changes in Equity 70 Cash Flow Statement 72 Accounting Policies 74 Notes to the Financial Statements 88 Shareholder Information 132 Statement of Value Added 134 Five Year Summary 135 Notice of Meeting 138 Form of Proxy 139 Corporate Information Inner Back Cover
timber line
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Travertino
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REIN REINVENTING SPAC

To be a leading producer of Wall and Floor coverings and related products for the local and international markets.
Vision
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NVENTING G SPACES CES

REINVENTING SPACES
Set your mind free and redefine space.
Our minds are limited only by our imaginations and here at Lanka Walltiles PLC, we want to set your mind free. With our range of tiles and accessories, we are helping you to redefine the concept of space and atmosphere. Whether its through our range of nature-inspired collections, porcelain tiles or the perfect accessories to bring the whole look together, we provide a total solutions package that creates the ultimate wow-factor.
MISSION
The production and marketing of exceptional quality products at optimum affordability.
Mission Statement
To manufacture and market quality ceramic products for comfortable living.
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Lanka Walltiles PLC Annual Report 2012
Financial Highlights
Group Turnover
Rs. Mn. Rs. Mn.
Group Net Profit After Tax

Rs. Mn.
Group Total Equity

8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 0
12,000 10,000 8,000 6,000 4,000 2,000 0 2008 2009 2010 2011 2012
1,200 1,000 800 600 400 200 0 2008 2009 2010 2011 2012
2008
2009
2010
2011
2012
10,477 mn
1,134 mn
6,711 mn
The domestic market for wall tiles is estimated to be 5.0 Mn Sqmts. and growing at 10% per annum. Lanka Walltiles is the only manufacturer of wall tiles in Sri Lanka and is the market leader.
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Lanka Walltiles PLC Annual Report 2012 2011/12
Earnings Per Share

Rs. Rs.
Dividend per Share

Rs.
Net Assets per Share

80 70 60 50 40 30 20 10 0
16 14 12 10 8 6 4 2 0 2008 2009 2010 2011 2012
4.50 4.00 3.50 3.00 2.50 2.00 1.50 1.00 0.50 2008 2009 2010 2011 2012
2008
2009
2010
2011
2012
Rs.13.77
Net Profit after Tax
Rs. 4.00
Rs. 75.57
1.13 Bn
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Chairmans Review
The turnover of the Group increased from Rs. 8.44 Bn in the previous year to Rs. 10.47 Bn for the year under review, an increase of 24%. The Group profit after tax was Rs. 1.13 Bn compared to Rs. 990 Mn in the previous year, a growth of 14%.
Anthony A. Page Chairman
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I am pleased to present to you the Annual Report and Audited Accounts for the year ended 31st March 2012. Performance The financial year ended 31st March 2012 was a year of many challenges for businesses in Sri Lanka. Although the Sri Lankan economy registered an 8% growth for the second successive year the businesses had to face a challenging economic environment due to domestic economic issues such as rising interest rates, rising inflation and increasing forex rates and international economic issues such as monetary instability in the Eurozone and volatile energy prices. Despite these challenges, your Group has performed very satisfactorily. The turnover of the Group increased from Rs. 8.44 Bn in the previous year to Rs. 10.47 Bn for the year under review, an increase of 24%. The Group profit after tax was Rs. 1.13 Bn compared to Rs. 990 Mn in the previous year, a growth of 14%. The Company registered a turnover of Rs. 2.41 Bn. and a net profit after tax of Rs. 489 Mn during the year. The Company still remains the market leader in wall tiles in Sri Lanka. I am also happy to say that the much awaited capacity expansion program in the Lanka Walltiles Meepe factory was successfully completed. The production capacity increased by 3,000 Sqm/day and the new plant commenced commercial production in August 2011. There are three main segments in the Group, namely Tiles and associated items, Plantation products and Packaging materials. The profit after tax in the tiles segment (which performed very satisfactorily) increased from Rs. 574 Mn. in 2010/11 to Rs. 963 Mn in 2011/12. The profit after tax of the plantation segment decreased from Rs. 328 Mn in 2010/11 to Rs. 78 Mn in 2011/12 and profit after tax of packaging segment increased to Rs. 92 Mn in 2011/12 compared with Rs. 85 Mn. in 2010/11. Fixed Assets The Board last year approved an investment of Rs. 750 Mn to increase production capacity of the Lanka Walltiles Meepe factory. The above investment was successfully commissioned in the year under review and your Company is enjoying the benefits of that investment right now. In addition, as in the past, your Company continued to invest in property, plant and equipment to upgrade production and business needs. In the year under review a further Rs. 500 Mn was spent on acquisition of additional property, plant and equipment to run the business productively. Appropriations Lanka Walltiles PLC will pay a total dividend of Rs. 4.00 per share from the profits of the year under review. It consists of an interim dividend of Rs.1.00 per share which was paid on 03rd February 2012 and a final dividend of Rs. 3.00 per share which has to be declared at the Annual General Meeting and paid thereafter. Corporate Governance The Board of Directors of Lanka Walltiles PLC is committed to uphold the highest standards of integrity and transparency in its governance of the Company and its subsidiaries and is guided by the Code of Best Practice on Corporate Governance jointly issued by The Institute of Chartered Accountants of Sri Lanka, The Securities and Exchange Commission of Sri Lanka and The Colombo Stock Exchange.
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Chairmans Review Contd.
Corporate Sustainability The Board of Directors of Lanka Walltiles PLC and its management are engaged purposefully to create long-term shareholder value whilst looking at business growth on a yearly basis. We are constantly looking at having a sustainable business, with high regard for environmental protection, ethical business management and corporate accountability. In the year under review the Company made a sizeable investment in improving environmental sustainability and improving the lifestyle for the villagers around the factory. These values have led to a sustainable business over the past years and will continue to do so in the years ahead. Outlook The continued financial instability in Europe coupled with the geopolitical turmoil in the Middle East is cause for concern. These along with the volatile world economic outlook and the unpredictable world energy prices will further aggravate the challenges faced by the Group. The economic outlook in the country is expected to be modest, with 7.0% growth predicted for 2012. We expect that with this growth the industrial and the construction sectors will also grow modestly, bringing better business prospects for the Company and the Group. We hope the rupee depreciation and high interest rates will stabilize once the desired effects of the fiscal and monetary policies are achieved. At the time of writing the results of the first quarter of the current year was not very encouraging due to slowing of demand for our products. Therefore we are cautiously optimistic of the results for financial year 2012/13. Acknowledgements On behalf of the Board, I wish to thank all employees of the Lanka Walltiles Group for their loyal and devoted service, without which these results would not have been possible. I also wish to express my sincere appreciation to our valued customers, distributors and dealers, trusted suppliers, bankers and auditors for their continued support. Thanks also to my fellow Directors for their valuable contribution in steering the Group successfully. In conclusion, I thank the Shareholders for their valuable patronage and confidence.
Anthony A Page Chairman 20th August 2012
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Managing Directors Review
I am happy to state that your Company faced these multiple challenges successfully, to post the profits reported. However greater challenges lie ahead in the areas of marketing, product improvement and development.
J A P M Jayasekera Managing Director
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Managing Directors Review Contd.
Performance As you are aware the core operation of your Company is the manufacture and sale of ceramic wall tiles. I will therefore confine my review to the operations of Lanka Walltiles PLC (LWPLC) and exclude reference to the operations of its subsidiaries, namely Lanka Floortiles PLC, Ceytea Plantation Management Ltd. and Swisstek (Ceylon) PLC. The results of the subsidiaries along with the results of LWPLC comprise the Group results in the financial statements. Your Company reported a profit after tax of Rs. 363 Mn (excluding Dividend income of Rs. 126 Mn) in 2011/12, an increase of 157.5% over that of 2010/11. Therefore, profit after tax with the above dividend income was Rs. 489 Mn., up 9% from that of last year. Revenue increased by 20% to Rs. 2.41 Bn while the gross margins showed a 2% improvement. These results were achieved in a year that posed many challenges to the Company. As reported in my review last year, the Company embarked on a production capacity expansion at a cost of Rs. 750 Mn. This was completed after a 3-month delay due to technical problems encountered during the commissioning stage, but is now in full operation. LP Gas prices rose steeply during the year, reaching the highest ever recorded price so far of US$ 1,195 per ton, thereby impacting margins. New sizes of tiles introduced to the market consequent to the expansion programme havent had the desired level of acceptance by customers. The closure of the Balangoda factory left a large volume of tiles, machinery and equipment to be disposed of within a short space of time, to ensure that no write-offs or provisioning became necessary in the financial statements. I am happy to state that your Company faced these multiple challenges successfully, to post the profits reported. However, greater challenges lie ahead in the areas of marketing, product improvement and development. The Company together with its subsidiary Lanka Floortiles PLC opened 05 new franchise showrooms in 2011/12 bringing the total number of showrooms to 19. This helped the Company to increase direct sales to customers at a significantly higher gross margin. The Company, after a lapse of 3 years, participated in the prestigious Coverings 2012 exhibition in Orlando, USA as an exhibitor. For easy reference of shareholders, the breakdown of Group turnover and profits is given below: Tiles and Associated Products Walltiles Rs. Mn. 2,414 363 Floortiles Rs. Mn. 3,567 600 Tile adhesive and aluminium Rs. Mn. 1,094 20 Packaging materials Rs. Mn. 1,573 92 Plantation products Rs. Mn. 2,025 78 Total Rs. Mn. 10,477 1,134
Segment Turnover Net Profit after Tax
Total 6,878 963
Human Resources As reported last year the Company retrenched 451 employees attached to the Balangoda factory consequent to its closure. There still remain a few employees attached to the Balangoda factory, who are engaged in the process of disposing of machinery and stocks. These employees will be either absorbed to other positions or offered participation in a Voluntary Retirement Scheme at the end of their assignment. Employees attached to the Meepe factory signed a Collective Agreement covering a period of 3 years commencing October 2011 on terms acceptable to both parties. This will ensure industrial peace and harmony at the factory level.
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The Company continued to invest in developing its human resources by training cadres in their respective fields both locally and overseas. 12 employees were trained overseas and 61 trained locally during the year. All employees are remunerated on terms no less favourable than those prevailing in the private sector. Future Prospects At the time of writing, the local economic environment is somewhat subdued due to the rapid depreciation of the rupee and rising inflation and interest rates, thus dampening consumer sentiment. Your Companys efforts in the current year will be aimed at strengthening the marketing and distribution of the Companys entire product-range. The Company will also concentrate heavily on improving product designs and quality, making full use of the recently acquired digital printing technology. Expansion of production capacity in the tile manufacturing sector has made the Group the largest producer of ceramic wall and floor tiles in the country. In addition, the development of a wide range of new tiles, an increase in the channels of distribution and investment in building a strong LANKATILES brand image will result in better growth prospects for the tiles segment. Results for the first quarter of the current year is not very encouraging due to a slowing down in the demand for tiles. However, we are cautiously optimistic of surpassing the profits achieved in 2011/12, in the year 2012/13. Acknowledgements In conclusion, I wish to express my grateful thanks to all the employees of the Lanka Walltiles Group for their devoted service, which enabled the Group to achieve satisfactory results in the year under review. I also wish to thank our customers, dealers, distributors, bankers and suppliers for their loyal and continuing support. Last, but not least, I wish to thank the Chairman and fellow Directors for the support, guidance and assistance given to me in the discharge of my duties as Managing Director of your Company.
J A P M Jayasekera Managing Director 20th August 2012
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BOARD OF DIRECTORS
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1. A A Page Chairman Mr. Anthony A Page is the Chairman of CT Holdings PLC, the ultimate parent company of Lanka Walltiles PLC, and counts over 41 years of management experience in a diverse array of business segments and serves on the Boards of many companies. He was formerly on the Board of the Colombo Stock Exchange and a former Council Member of the Employers Federation of Ceylon. Mr. Page is a Fellow Member of the Institute of Chartered Accountants of Sri Lanka. 2. Dr. S Selliah Deputy Chairman Dr. Selliah joined the Board of Lanka Walltiles PLC in 2003 and was appointed as the Deputy Chairman of the Company in 2006. Dr. Selliah is also the Deputy Chairman of Lanka Floortiles PLC, which is the subsidiary company of Lanka Walltiles PLC, and also Deputy Chairman of Asiri Group of Hospitals. He also serves as Director of Swisstek (Ceylon) PLC and Swisstek Aluminium Ltd. He also serves on the Board of many other leading companies. Dr. S Selliah holds a MBBS degree and a Masters Degree. 3. J A P M Jayasekera Managing Director Mr. J A P M Jayasekera joined Lanka Walltiles PLC in June 1998 as a Director. He was appointed as the Managing Director in April 2008 and continues to hold the same position at present. He is also the Managing Director of Lanka Floortiles PLC, Swisstek (Ceylon) PLC, Swisstek Aluminium Limited and a Director of Lanka Ceramic PLC.
Mr. Jayasekera holds a BSc Special (Hons) degree in Business Administration from University of Sri Jayawardenapura and is a Fellow Member of the Institute of Chartered Accountants of Sri Lanka. 4. T de Zoysa Director Mr. T de Zoysa was conferred with the title Deshabandu in recognition of his services to Sri Lanka and was the recipient of a prestigious National Honour from the Emperor of Japan. He is the President of the Associated Motorways Group of Companies, Chairman of Carson Cumberbatch PLC, Amaya Hotels and Resorts, New York, USA, HelpAge International UK, Helpage Sri Lanka, Jetwing Zinc Journeys Lanka Pvt Ltd. and serves on the Boards of other listed companies, which include, John Keells PLC., Taj Lanka Hotels PLC, and Nawaloka Hospitals PLC. Tilak de Zoysa is the Honorary Consul for Croatia in Sri Lanka since 1999 and a Past Chairman of the Ceylon Chamber of Commerce, National Chamber of Commerce of Sri Lanka and the Plastics and Rubber Institute. Mr. De Zoysa also served as a Member of the Monetary Board from 20032009 5. P S R Casie Chitty Director Mr. P S R Casie Chitty was appointed as a Director of Lanka Walltiles PLC on 4th April 2008. He is presently the Managing Director of Horana Plantations PLC. Previously, Mr. Casie Chitty served as Head of Research at CT Smith Brokers (Pvt) Limited during the period from January 1996 to March 2000. He was appointed as Managing Director/CEO of Lanka Ceramic PLC in July 2011 and continues to hold that position at present. Mr. Casie Chitty is also a Director of ACL Cables PLC.
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Board of Directors Contd.
He also acts as the Managing Director of Ceytea Plantation Management PLC and is the Deputy Chairman / Managing Director of Uni-Dil Packaging Limited, which are subsidiaries of Lanka Walltiles PLC. Mr. Casie Chitty who holds a Masters in Economics from the University of Colombo is also a Fellow Member of the Association of Chartered Certified Accountants , UK, an Associate Member of the Chartered Institute of Management Accounts,UK, and a Chartered Financial Analyst, USA. 6. V R Page Director Mr. Ranjit Page is the Managing Director of CT Holdings PLC and the Deputy Chairman and Chief Executive Officer of Cargills (Ceylon) PLC. He counts over 27 years of management experience with expertise in food retailing, food services and manufacturing having introduced the concept of super marketing to the Sri Lankan masses. He also serves on the Boards of several other Group Companies. 7. Deshamanya S Mendis Director Deshamanya Sunil Mendis was formerly the Chairman of the Hayleys Group and the former Governor of the Central Bank of Sri Lanka. He possesses around 45 years of wide and varied commercial experience, mostly in very senior positions.
8. A T P Edirisinghe Director Mr. Priya Edirisinghe is a Fellow Member of the Institute of Chartered Accountants of Sri Lanka, a Fellow Member of the Chartered Institute of Management Accountants (UK) and holds a Diploma in Commercial Arbitration. Having retired from professional practice, he is now the Consultant/ Advisor of HLB Edirisinghe & Co., Chartered Accountants and is the Managing Director of PE Management Consultants (Pvt) Ltd. He counts over 42 years of experience, of which 26 years were in public practice and 16 years in the private sector, having held senior positions. He serves on the Boards of some other quoted companies and on some of them he also serves as Chairman / Member of the Audit Committee and as a member of the Group Remuneration Committee.
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Senior Management
Mr. Mahendra Jayasekera Managing Director 5 4
6 8 2
7 3
2. 3. 4. 5. 6. 7. 8.
Mr. Niranjan Jayawickrama Mr. Shirley Mahendra Mr. Tyrell Roche Mr. Nihal Kumarasinghe Mr. Malsri Fernando Mr. Upul Weerasinghe Mr. Prasad Keerthiratna
- - - - - - -
General Manager Head of Marketing Head of Finance Factory Manager Group Commercial Manager Group Engineering Manager Group IT Manager
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Management Discussion and analysis
Macroeconomic Review The economy grew by 8.3% in 2011, the highest in Sri Lankas post-independence history. This was the first time the economy has maintained a growth of over 8% for two consecutive years. Improved consumer and investor confidence, better macroeconomic conditions, expansion of infrastructure facilities and renewed economic activity in the Northern and Eastern Provinces helped sustain this growth. The industrial sector remained strong in a challenging international economic environment recording an impressive growth of 10.3% in 2011 compared to 8.4% in 2010. The industrial sectors growth was propelled largely by the manufacturing and construction sectors. Strong demand for industrial products was spurred primarily by low inflation and low interest rates in the domestic economy. The construction sub-sector grew at a comparatively high rate of 14.2% in 2011 as against the 9.3% growth in 2010 due to the major infrastructure development projects undertaken by the government. This contributed to the increased construction activities in the private sector too. Inflation remained at single digit levels for the third consecutive year supported by improved domestic supply conditions, liquidity management and low inflation expectation. Annual average inflation was 6.7% in 2011 compared to 6.2% in 2010. The exchange rate policy in 2011 continued to focus controlling fluctuations and reducing pressure in the domestic foreign exchange market. The Central Bank refrained from intervening in the domestic foreign exchange market during the latter part of the year to reign in the demand for foreign exchange. This led to a depreciation of the Rupee against the US Dollar by approximately 20% by 31st March 2012 compared to a year earlier. The global exchange rates were volatile due to the continued economic instability in the Euro zone and the political turmoil in the Middle East and West Asia. Credit growth to the private sector reflected the demand for increased credit including in the Northern and Eastern Provinces. Credit to government institutions and public corporations also expanded significantly during the year, exerting upward pressure on interest rates towards the end of the year. Measured by a 6-month average, AWPR increased from 9.3% in March 2011 to 12.5% in March 2012. Business Review The Group businesses consist of Lanka Walltiles PLC, Lanka Floortiles PLC, Swisstek (Ceylon) PLC, Horana Plantations PLC and Unidil Packaging Ltd. The brief review of each business is given below. Lanka Walltiles PLC Lanka Walltiles PLC (LWPLC) is the pioneer wall tile producer in Sri Lanka and was incorporated in 1974, with the manufacture of Glazed Ceramic wall tiles as its core business. The Companys second factory for manufacturing wall tiles was established in 1995 in Meepe, Padukka. This state-of-the-art factory uses the double fast firing technology. Lanka Walltiles PLC is a financially strong Company with an annual turnover of Rs. 2.0 Bn, and assets worth over Rs. 3.0 Bn. The year under review was one with many challenges for Lanka Walltiles PLC both on the global and domestic fronts, which impacted on its operations. With low economic growth coupled with the decline in consumption in leading markets such as the USA and Europe, exports were adversely affected. Competition from
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low-cost suppliers such as China and India also had a negative impact on exports. However the Company is pursuing new markets and segments where its high quality tiles are in demand. The domestic market for wall tiles is estimated to be 5.0 Mn SqMts. and growing at 10% per annum. Lanka Walltiles is the only manufacturer of wall tiles in Sri Lanka and is the market leader. Lanka Walltiles has an estimated market share of 50% of the domestic wall tiles market. The balance constitutes of importers. In the year under review, the Company commissioned its new modern plant costing Rs. 750 Mn, expanding production capacity by 40% to 7,500 SqMts per day. The Central Bank report for the last year shows that the comparative growth of the construction sector at 14%, was more than the growth of the economy as a whole. Higher investment in infrastructure development and residential housing constructions were the main thrusts that increased construction sector growth. This had a direct impact on the growth of Lanka Walltiles in the year under review. The improved post war sentiment boosted sales and generated higher revenue for the tile industry. Lanka Floortiles PLC Lanka Floortiles PLC (LFPLC) is the leading manufacturer of glazed ceramic floor tiles in Sri Lanka, having been in business since 1984. The market for floor tiles in Sri Lanka is estimated at 15.0 Mn SqMts, growing at 10% annually. LFPLCs share of the market is estimated at 23%. LFPLC has a modern factory in Ranala in the Homagama electorate. It produces approximately 3.3 Mn. SqMts of floor tiles per annum. It exports about 7% of the production. Swisstek (Ceylon) PLC Swisstek (Ceylon) PLC is involved in the business of importing and installing wood flooring and manufacturing Tile Grout and Tile Mortar. It is the leading manufacturer of Tile Grout and Tile Mortar in Sri Lanka. Swisstek (Ceylon) has a subsidiary company, Swisstek Aluminium Limited (SAL) engaged in the manufacturing and marketing of extruded Aluminium sectors. SAL was established in 2009 and presently has the second highest market share of the aluminium extrusion market in Sri Lanka. The company produces about 1,800 MT of aluminium extrusions per annum. Horana Plantations PLC Horana Plantations PLC is one of Sri Lankas premier plantation companies, comprising of 16 prime estates. Since being incorporated on 22nd June 1992, following the privatization of plantation estates, Horana Plantations has grown into a leading producer of the finest tea, rubber and other agricultural produce in Sri Lanka. The Companys estates are spread over a total area of 7,441 hectares, primarily in the Central and Western Provinces of Sri Lanka. 41% of the cultivated land area has been dedicated to tea, 40% to rubber, and 19% to other diversified agricultural crops. Horana Plantations has an annual production of 4.6 Mn Kg of tea and 1.6 Mn Kg of rubber. Uni Dil Packaging Ltd. Uni Dil Packaging Ltd. is a company which specializes in the production of corrugated packaging and accessories. The Company offers a full turnkey packaging service from design to delivery. Unidil custom manufactures, prints and over-labels any type of box or packaging to individual customer requirements using the corrugated board classes.
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Management Discussion and Analysis Contd.
Group Performance Review The Group consists of the holding Company Lanka Walltiles PLC and subsidiaries Lanka Floortiles PLC, Swisstek (Ceylon) PLC and Ceytea Plantations Management Ltd., which holds Horana Plantations PLC and Uni Dil Packaging Ltd. The performance of each company is given below. Lanka Walltiles PLC The Company registered a turnover of Rs. 2.41 Bn and a net profit after tax of Rs. 489 Mn for the year. The Company remains to be the market leader for wall tiles in Sri Lanka. The much awaited capacity expansion program in the Lanka Walltille Meepe factory was successfully completed. The production capacity was increased by 3,000 Sqmt/day. The new plant commenced commercial production in August 2011. More details about the Company is given in the Company performance review, which follows the Group review. Lanka Floortiles PLC Lanka Floortiles PLC recorded a net profit after tax of Rs. 600 Mn in 2011/12, up 19% from the net profit after tax of Rs. 505 Mn recorded in 2010/2011. This growth was achieved in the face of formidable challenges during the year, chief among them being the drop in production amounting to 121,000 sqm caused by having to dismantle a kiln to make way for a new unit with a higher production capacity. The drop in output resulted in a higher unit cost of production and gross margins dropped from 36% in 2010/11 to 32% in 2011/12. The turnover however saw a significant increase of 19% to Rs. 3.57 Bn during the year. The increase in turnover was achieved despite the lower production during the year. Swisstek (Ceylon) PLC The Group recorded a net turnover of Rs. 1.09 Bn, an increase of 251% from Rs. 310 Mn. reported last year. The subsidiary company Swisstek Aluminium Limited contributed significantly to the increase in the turnover. Compared to last year, Swisstek Aluminium Limiteds turnover increased by 218% to 933 Mn. As predicted last year, despite many challenges the Company saw a positive turnaround during the year. If not for increases in global aluminium prices and the unexpected level of depreciation of the Sri Lanka Rupee towards the end of the financial year, even better results would have been possible. Swisstek Aluminium ended with a loss of Rs. 4.9 Mn for the year compared to a loss of Rs. 103.0 Mn in the previous year. The Group recorded a net profit after tax of Rs. 20.0 Mn compared to a loss of Rs. 1.1 Mn last year. Horana Plantations PLC The company has remained competitive and profitable in a challenging environment both locally and internationally. On the local front, the cost of production soared mostly due to increase in labour wages, while internationally some of Sri Lankas key export markets, particularly for plantations products, were severely affected due to the continued financial crisis in Europe and social and political unrest in the Middle East. Despite these numerous challenges, the segment recorded a profit after tax of Rs. 83 Mn. Though this was a decrease of Rs. 245 Mn from the record breaking profit figure of Rs. 329 Mn achieved in the previous year, the performance was still satisfactory, considering the challenges faced by the plantation companies, particularly in the high grown tea sector.
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Uni Dil Packaging Ltd. Turnover increased by 5% to Rs. 1,260 Mn and profit after tax increased by 13% to Rs. 92 Mn from the previous years profit of Rs. 81 Mn. Financial Summary A breakdown of annual achievements and information of the Group is given in the table below. Segment Group Turnover Rs. Mn Group Net Profit After Tax Rs. Mn Group Total Equity Rs. Mn Group Borrowing Rs. Mn Earnings Per Share Rs. Dividend Per Share Rs. Net Assets Per Share Rs. Closing Price Per Share Rs. 2008 6,833 610 3,452 1,335 7.92 4.20 65.22 70.00 2009 6,814 437 3,740 1,897 6.14 1.73 51.42 39.50 2010 7,222 765 4,942 1,361 8.75 2.00 57.90 75.00 2011 8,443 990 5,867 1,851 8.87 2.50 64.14 71.00 2012 10,476 1,134 6,711 3,182 13.77 4.00 75.57 70.00
Company Performance Review Revenue Company revenue increased by 257% to Rs. 2,413 Mn for the year. Export revenue decreased by 7% to Rs. 276.0 Mn, while local revenue increased by 464% to Rs. 2,137 Mn. Sales volume increased by 11% in the year under review. The major channel that contributed to local sales was distributors, which accounted for 41% of local sales. There was a marked shift in the exchange rate policy of the Central Bank towards the end of the financial year, that led to a sharp depreciation of the Rupee against the US Dollar. The Rupee depreciated by almost 20% during February and March 2012. Positive results will accrue only if the current exchange rate policy is observed in the long term, thereby reducing pressure on the balance of payments. Profitability Net profit before tax of continuing operations increased by Rs. 363 Mn to Rs. 586 Mn and Net Profit after Tax increased to Rs. 489 Mn from Rs. (7) Mn last year without the effect of the deemed gain on the merger. The main contributory reasons being the increase in the unit sales price and internal cost savings. Income tax increased to Rs. 93 Mn. The finance cost increased in the year under review and the higher finance cost was due to increased borrowings to finance the expansion program undertaken by the Company. Operating profit increased by 11 % to Rs. 625 Mn due to better sales margins and cost reductions achieved
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in manufacturing. Though the Company expanded production capacity in August 2011 the enhanced effect on profitability could not be achieved due to the increases in energy cost, drop in production at the factory due to implementation delays and the effect of the depreciating Rupee towards the end of the year on foreign borrowings and commitments. The latter contributed to an exchange loss of approximately Rs. 35 Mn. Borrowings Total borrowings of the Company increased by Rs. 740 Mn over the year to Rs. 1,110 Mn. Short-term borrowings of the Company increased by Rs. 252 Mn to Rs. 310 Mn compared to last year and long-term borrowing increased by Rs. 488 Mn to Rs. 800 Mn which consisted of both Rupee and US Dollar borrowings. The tightening monetary policy had a negative effect on our distributors and dealers credit facilities that ultimately affected our cash inflows. The cash position of the Company was a negative Rs. 213 Mn compared to a positive Rs. 5 Mn in the previous year. However the Company has been able to limit debt and cash flow to manageable limits. Investments The Company invested Rs. 1,250 Mn in the year under review to upgrade the manufacturing capabilities. This comprised the expansion project costing Rs. 750 Mn to increase capacity by 40% and Rs. 500 Mn for other projects in the factory and the Head Office to upgrade processes and capabilities. The new capacity expansion project will add 1.1 Mn SqMt of tiles per annum using a high tech tile manufacturing plant at the Meepe factory. It will be used as a source to increase the market share of the Company by countering the imported product. The continuing investment in the manufacturing plant is necessary to improve productivity and deliver consistent production. The investment in this year also included Rs. 10.0 Mn in improving environmental compliance in the factory. Financial Reporting The Company follows best practice in financial reporting. All financials are compliant with the standards of The Institute of Chartered Accountants of Sri Lanka, rules of the Colombo Stock Exchange and the requirements of the Companies Act No. 07 of 2007. The Company strives to give meaningful, transparent and accurate information verified by an independent auditor, enabling shareholders and stakeholders to make informed investment judgments on the performance of the Company. Manufacturing Review of the Company Factory Operations The Company operates an ultra-modern factory at Meepe in the Avissawella electorate in the Colombo District. It occupies a land extent of over 30 acres and is equipped with modern technology and is staffed with highly-skilled engineers and technical personnel. The factory, currently operating at near-capacity, produces over 2.4 Mn SqMts of tiles per year. The Company invested over Rs. 1 Bn in the year under review to modernise and upgrade plant and install new machinery. The sizes of tiles produced in the factory now are 200x200mm, 200x300mm, 250x330mm, 200x400mm, 300x400mm and 300x600mm. With the completion of
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the expansion project there is a wide range of new designs, sizes and varieties of wall tiles produced. This will give the Company more opportunities to grow its market size. Expansion Project The completed expansion project was an entirely new venture using modern technology and an energyefficient manufacturing process to produce new sizes of tiles. The project cost was Rs. 750 Mn. The additional volume of tiles produced will help increase the Companys market share, thus realizing higher business to the Company and reducing foreign currency outflow from the country. Therefore this new project has an economical benefit both to the Company and to the country. The additional production from the factory will be sold in both the domestic and export markets. A large proportion will be sold in the domestic market to satisfy the growing local demand and gain a larger share of the market, at the expense of imported tiles. In the event of export prices being better, the Company will increase export sales with a proportionate reduction in the local sales volume with a view to maximize profitability. The construction of the new project started in April 2010 and was successfully completed in August 2011. New Developments With the new investment in digital printing technology the Company can manufacture digitally printed tiles. Digital printing represents a major breakthrough in the decorating process of ceramic tiles. By using this technology the Company can produce unique high-definition images on tiles, based on customer demand, at comparatively short notice. This will give the customers greater opportunities to acquire the tiles of their choice. With its new investments in technology, the Company can now produce new sizes of tiles. These sizes are currently in good demand due to their aesthetic value for larger wall areas. The Company now produces a variety of trim tiles after installing a new trim tile plant. Trim tiles help to give a better finish to tile installations and are a must to re-enter the lucrative USA market. All of these developments have widened the scope of manufacturing in the organisation and affords it more opportunity to increase its market share.
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Environmental Sustainability Environmental sustainability was a core focus area of the Company in the year under review. LWPLC has always been bound by its duty towards the environment even before obtaining ISO 14001 certification in January 2011. A surveillance audit was conducted by the Sri Lanka Standards Institute (SLSI) in January 2012, where the Companys quality systems and processes were evaluated against the ISO 14001 standards. LWPLC took aggressive steps to address the grave sound and dust pollution issues the Company faced in the factory locations. The key sound pollution issues were identified as originating from the crushing process required for feldspar and calcite. Accordingly, now a major portion of the crushing process is outsourced, largely eliminating the sound issues. In order to tackle the severe case of dust pollution at the factory, an additional dust suction plant was installed. In addition the main dust generating ventricles were sealed off with an appropriate covering mechanism. As a socially responsible Company, it immediately took measures to control and minimize these problems. Working with the Central Environmental Authority (CEA), Industrial Technology Institute (ITI) and renowned energy consultants, it has conducted many projects to reduce dust, effluent and sound. The Company spent Rs. 50 Mn in upgrading its environmental compliance system. All the business units engage in ensuring a sustainable environment management system in the Company. Energy Efficiency As stated in the earlier reports, the energy cost of the Company is approximately 40% of the manufacturing cost. Hence efficient energy usage is a key management control area to reduce cost. The Company uses three types of energy resources. In order of usage Liquid Petroleum Gas (LPG) is the highest used energy type accounting for 85% of energy cost. LPG prices in the year under review increased by 17%. This is a drastic increase which trend the Company cannot sustain if continued in the future. The next most-used energy source is electricity which accounts for 14% of the energy cost. Electricity prices were increased in the last quarter of the financial year. The approximately 20% increase in tariff cost will have an adverse impact on the bottom line of the Company. The Sri Lanka Ceramic Council, of which LWPLC is a member, played an important role in taking up with the Government the repercussions of such energy cost increases on the industry.
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Diesel is the third type of energy used, which accounts for about 2% of energy cost and is used mainly for generators and for transport of finished goods. The Company will continue with its projects to improve energy efficiency while looking for viable alternatives. It is expected that this will result in more sustainable energy costs in future. Health and Safety The Company invested in maintaining safety standards and initiatives at the factory during the year and adhered to best practices in the industry. The Company provides its workers with safety shoes, safety goggles, dusk masks and other equipment. During the year, a project was implemented to upgrade safety equipment, machine guards and safety mechanisms on an on-going basis, creating a safe and pleasant working environment. Extensive training was also provided in the area of good safety practices, making workers aware of how best to ensure their safety in the factory at all times. Marketing Review of the Company In the year under review the Company, as a matter of policy, aggressively pursued challenging its own distribution channels. It continued on its strategy of working with Lanka Floortiles PLC in a combined marketing platform to achieve synergy and cost saving while increasing its focus on customer service. This was achieved by posting more resources to reduce the channel length. By decreasing channel length the Company gets feedback from customers more quickly and is able to respond faster and service customers much better. This results in greatly improved customer care. To improve its channel length in the year under review it opened five more franchise outlets in Kegalle, Panadura, Kaduwela, Peradeniya and Warakapola. The Company also relocated the Jaffna showroom and opened a more spacious showroom to service customers better. The Company also continued to expand its traditional channels of distributors, dealers and consignment agents by establishing 11 new outlets. Distributors still remain the main source of business contributing 36% of revenue. The franchise operations contribution to revenue was 7%. The other channels of direct sales ie. showrooms, consignment agents and regional sales also contributed 31% of revenue which was similar to the previous year. The Company together with Lanka Floortiles PLC offers products under the common brand LANKATILES. This brand was heavily promoted during the year. All Company branding has been changed in line with this policy. The Company expects to increase its brand image and thereby increase its market share.
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The Company also focused on reducing its working capital by selling non-moving stocks by promoting them via special channels and offering discounts. This assisted the Company to reduce its cash tied up in stocks and increase its cash inflow. This concept will be continued this year too to manage the working capital effectively. The Company introduced many attractive new designs and tile series to the market. This is a significant achievement by the designs department. In addition the Company also introduced digitally-printed tiles to the market. As stated earlier this new technology makes available to customers unique and distinct images of their choice in a far quicker period than was possible earlier. This is expected to provide customers more design options and greater level of satisfaction. With the availability of the advanced software and mockup displays, the customer can select tiles to match their designed colour, thus satisfying and adding value to their purchasing decision. Exports The Company experienced a decline in its export revenue from Rs. 297 Mn to Rs. 276 Mn this year. Core export markets such as Australia, Canada, the Maldives and Sweden performed below expectations amid volatile global market conditions. Distribution The Company added value in its operation with its ultra-modern warehouse complex in Biyagama which has a new customer centre and infrastructure to serve customers and dealers more conveniently even during inclement weather. The 40,000 Sqft warehouse will serve dealers and distributors better by providing a convenient location, more space, efficient service and a variety of products. The operations at the Head Office was also upgraded to serve customers better. The showroom was modernized and the warehouse was also upgraded. The combined modern dealer centre located in the head office is equipped to serve the channels more productively. Complementary Products The Company is looking at further increasing its market share through selling complementary products, tile grout and tile mortar. These complementary products, which showed promising growth last year, will add value to the users of floor and wall tiles. Both products were marketed under the new brand name of SWISSTEK. Additional products such as SWISSTEK pebbles, SWISSTEK tile beadings and SWISSTEK tile cleaners were introduced to the market. These complementary products will enhance the Companys main line of business.
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Export Markets
Sweden
Vancouver Toronto
Montreal
Dubai
Karachi
Male
Singapore
Fremantle Melbourne
Brisbane Sydney Auckland
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Future Outlook With the commissioning of the expansion project the Company has introduced many new technologies to its manufacturing process such as digital printing, laser guided vehicles, automated packing and energy-efficient production systems. The Company will continue to invest in delivering superior products to its customers via these technologies. In addition the Company will invest in further energy-efficient, low-cost manufacturing technology and sustainable environmental protecting technology. This will provide a better working environment to the employees and communities living in the neighbourhood of the factory while sustaining the business. The strategy for the coming year will focus on further strengthening and expanding the Companys franchise operations to sell direct to the customer, while maintaining an optimum number of dealers and sub dealers. The showroom in Colombo is being upgraded. The subsidiary Swisstek (Ceylon) PLC is expected to make further technical improvements in Tile Mortar, Tile Grout, Tile Cleaners and Tile Beadings to enhance the performance of these complementary products and thereby improve marketability of tiles as well. The distribution network will also be strengthened further and several complementary products will be added to the Companys product range to improve its market share. Several direct marketing campaigns have been lined up in export markets such as Australia, Canada and USA while locally, the Company is exploring options to capture an increased market share in less price sensitive segments. The Company in association with LFPLC is sourcing high quality tiles from Spain and Italy and marble from Greece, to offer a wide choice of sophisticated designs and products to its customers. These are expected to drive the growth of the Company significantly in the future. The Company will make further investments in promoting the brands LANKATILES and SWISSTEK, to enhance the brand value and image. The Company will face several challenges in the year ahead, including a volatile macro economic situation, competition from imports and substitute products, increased borrowing costs and rising inflation. The country is looking at a 7% GDP growth in 2012. It is also expected that the manufacturing industry and construction industry will grow in line with the economy. This will help the Company to sell its expanded volume in the market and increase its market share. In addition the volatile exchange rates, depreciating rupee value and increasing energy prices are expected to cut in to profits by increasing manufacturing costs. The Company will strive to be an increasingly socially responsible corporate citizen by following sustainable business practices and serving society at all possible levels. The Company has made steady progress in the last 30 years and has been able to deliver even under trying circumstances. This is due to its effective and efficient management system, adherence to; good business practices, good corporate governance and good code of conduct. With its resilience, ability to meet challenges and making sound business decisions, the Company is expected to perform successfully and post optimistic results in the next financial year.
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SUSTAINABILITY REPORT
We at Lanka Walltiles PLC (LWPLC) view sustainability as a continuously evolving process and not merely as a theoretical concept. It is an all embracing functional business tool providing insights into a broader corporate perspective. We reiterate our sustainability pledge to all stakeholders by maintaining corporate ethics and transparent reporting practices. Our integrated business model is energized by corporate self-regulation that encapsulates all accepted sustainability parameters. LWPLC firmly believes in compliance and adherence to international standards while upholding the corporate value system. The nucleus of LWPLCs strategic sustainability mapping revolves around five core areas of activity namely workplace, market place, supply chain, environment and the community. These five elements are similar to the five fingers on a hand. Each one unique in its own right, but requiring a collective coordinated effort to derive full functional value. We recognize the importance of each element individually and their collective impact on our business now and in the future. Hence, we formulate practical strategies to address all issues and attempt to fulfill our obligations to each interest party to the best of our ability. Workplace Management Employee Engagement Measures We define the workplace as consisting of a collection of tangible and intangible assets. We strive to develop an atmosphere in which employees are inspired to discover their full potential. Our endeavour is to create a dynamic, loyal workforce with a positive mindset. This objective is spearheaded by our leadership training programme. The programme highlights the critical success factors of the modern corporate world while highlighting a range of issues pertaining to current lifestyles and social behavioural patterns that impact on the employee psyche. The programmes instill confidence and inculcate social responsibility in employees. They are conducted regularly and create a suitable platform for the exchange of ideas. A range of positive initiatives have been formulated stemming from these leadership programmes. They have been a tremendous success amongst our employees, so much so, that these programmes are now conducted regularly not only foremployees but their families as well. The programme conducted for the families, titled Abiyoga Jayamaga Punchi Happannu would act as a catalyst in creating the next generation of exemplary Sri Lankans. The Company and the management affirm their commitment to the employees through a quarterly interactive meeting. At this forum a representation of floor level employees are provided the opportunity to meet directly with the senior management of LWPLC and address any new or unresolved issues. The monthly meetings with representatives from the labour unions are a channel for employees to air their grievances for which solutions are provided where possible or addressed later as appropriate. The excellent relationship LWPLC has maintained with all labour unions and interest parties is a testament to the Companys
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Sustainability Report Contd.
commitment to their employees. LWPLC believes that by developing employee relations on a social platform, it would strengthen the bond of loyalty to the organization. As such an active social calendar is planned annually, which includes a number of sporting activities, religious observances and the annual trip. Employees families are included in some these activities. All employees have access to LWPLC structured career progression and succession plan. The Company acts as a mentor to its employees by offering comprehensive career guidance that would enable employees to map out their future within the organization. The plan is further supported by way of a performance based assessment scheme to evaluate employee performance. This tool is used across the board and is applicable to all employee grades and is done through annual performance appraisals. Exceptional performers identified through this process are rewarded. The appraisals scheme also enables employees to determine their succession plan within the organization and allow the Company to identify the potential education and training needs of employees. The Company endorses the importance of education by defining it as the foundation for long-term human sustainability. Accordingly all employees are encouraged to attain a greater degree of academic proficiency in their chosen field, not only as a means of enhancing career opportunities but also to promote future stability and security. LWPLC takes its mentoring role very seriously and has developed a scheme that provides financial assistance to employees seeking to broaden their educational background. LWPLC rationale for employee training originates from the need to develop responsible citizens who make effective contributions to the organization and to society at large. To reinforce its commitment to this premise, the Company has taken aggressive steps to ensure their employees develop and mature through an integrated training module as part of their strategic direction. Accordingly, a number of external trainers were sourced during the year to conduct a host of programmes to compliment the regular in-house training agenda. The streamlined training schedule broadly targets four diverse disciplines, namely operational safety, IT, quality systems and leadership. The Companys recruitment plan is one that has evolved over the years and is structured to pinpoint the needs of the organization. New vacancies are identified by evaluating the corporate succession plan in place. Potential candidates are assessed and thoroughly evaluated to ascertain if their personal goals mirror the organizations social values and long-term sustainability objectives. All new recruits are offered with an attractive remuneration package in line with their skills and training. The Companys concern for employee welfare and sustenance has prompted a number of initiatives that result in a pleasant, convenient work environment. All employees attached to the factory are provided meals at a subsidized cost on a daily basis. Furthermore, all meals are supplied free of charge to employees working overtime or double shifts in the factory. A comprehensive medical insurance scheme is in place for the entire workforce, covering not only the employee but the family as well. Health and Safety Mechanisms The Company understands the primal human need for safety and is fully committed to ensuring the safety and security of its entire workforce. In addition to the comprehensive medical insurance cover for all employees and their families the Company has a well thought out safety plan in operation.
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The safety procedures encompass a gamut of measures ranging from simple precautions to situations that demand more complex applications. All premises have clearly defined demarcation lines and evacuations paths. Basic safety instructions are prominently displayed at all locations. The Company provides all factory personnel with the mandatory protective equipment, including safety shoes, goggles, gloves, masks, etc. A select Group of employees have been identified and trained as the in-house fire fighting unit. The unit has received comprehensive training in the proper fire fighting techniques, first aid and emergency evacuation procedures. Furthermore, regular fire drills using mockfires are carried out at all Company premises on a regular basis. The Company conducts regular safety awareness programmes to impress critical safety aspects upon employees. Frequent refresher sessions are conducted for all existing employees and the safety procedure is inculcated to new employees as a part of their orientation process. It is Company policy that all key resource personnel in charge of safety follow refresher courses to update their knowledge and skills in the area. The following programmes were conducted during the year. In-house Fire Safety Awareness Program Scientific, Efficient & Safety Driving For Factory Drivers Fire & Safety Awareness Program Workshop on LPG Product Handling & Health, Safety & Environment Seminar on Mobilizing of HR at Factory Floor level to achieve Productivity, Quality and Safety
Number of Accidents
Nos.
14 12 10 8 6 4 2 0 2008 2009 2010 2011
An essential component of LWPLCs safety procedure is the annual hazard identification and risk assessment mechanism which is a detailed record of all incidents, including the near misses. Remedial action is initiated by identifying incidence of risk and determining the action plan to minimize / prevent the possibility of future accidents.This has resulted in a declining trend of number of the accidents during the last six years as given aside. Marketplace Management Customer Initiatives LWPLCs business model is largely market driven. As such we hold our customers in high esteem and make every effort to ensure that our products maximize customer value through sustainable long term solutions. Our work practices are based on a strict ethical code of conduct and we continuously re-evaluate our products
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and processes to assess our quality systems. Our quality systems are ISO 9000 certified and guide us to meet the needs of customers and all other stakeholders. We are committed to produce tiles that are in vogue. In the hope of enhancing the aesthetic value of our products, in February 2012 LWPLC introduced the high resolution digital printing technology for designs of tiles. This sophisticated technology provides enhanced imagery and promotes colour durability. The Company also launched a revolutionary new technique for manufacturing special trim tiles. A dedicated production line was installed for this purpose. Tiles produced under this system would generate considerable value additions to complement the normal basic tiles. Initially the tiles produced using this technology would be exclusively for exports to the North American market. Further product improvement measures are being planned for the forthcoming year. We also wish to state that our tiles do not contain any toxic materials. The Company maintains a strong customer services and support arm that deals with complaints, if any. An efficient feedback mechanism has been installed throughout the island wide dealer network as well, to address any customer complaints that may arise from these locations. Dealer Support We have always maintained excellent relationships with our island wide dealer network. The Company provides regular orientation sessions to update the existing dealer base of LWPLCs progress and future direction. LWPLCs Annual Dealer Convention is a much looked forward to event in the annual social calendar. Dealers are rated according to their performance during the year and rewarded accordingly. The Company maintains a special policy for new dealers joining the Company. LWPLC provides new dealers with the necessary display equipment and publicity material. In addition the Company advises the dealer on interior design and client relations aspects in order to maintain uniformity and promote the LWPLC brand identity. An aggressive induction programme is conducted for all new dealers. The programme serves to educate new entrants on LWPLCs product portfolio, brand identity and marketing focus in addition to providing technical guidance on the product. Supply Chain Management Locally mined clay is our primary source of raw material, which we obtain from an extensive supplier network scattered around the country. We recognize the vital importance of our suppliers towards ensuring the long term survival of the industry. The Company ensures that quality and consistency of raw materials are always maintained. Strict quality assessment techniques are followed to ascertain the quality of the mine, prior to
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extraction, thereby minimizing unnecessary mining and eliminating substandard raw materials from being used in the production process. Furthermore LWPLC makes certain that best practices are followed during the extraction process. The Company offers regular technical training and guidance to miners to enable correct mining technique to be followed throughout the process. It is believed that clay mining activities would eventually exhaust existing raw material sources. LWPLC has spearheaded a campaign to assist the government in exploring alternative locations for mining within the country. We take our responsibility towards nature very seriously and reiterate our commitment to replenish natural resources extracted for our business purposes. As such we have taken steps to ensure reciprocal benefits by sustaining the supply cycle. Once clay has been extracted we ensure the mine is immediately refilled with suitable soil in order to minimize any negative impact on the eco system in the area. During the year a scheme was launched in Mahayanganaya, where the mine was replenished with soil suitable for crop cultivation thereby facilitating a livelihood option for neighbouring communities. Environmental Management Simply put, the environment is made up of conditions or circumstances that surround us. As a progressive organization, our perception of environmental obligations embrace a much broader scope of activities. There are certain environmental implications that arise from our business that affects the workplace, the marketplace and the supply chain. However, for purposes of clarity, they are collectively addressed through an integrated environmental policy. LWPLC has always been bound by its duty towards the environment even before obtaining ISO 14001 certification in January 2011. A surveillance audit was conducted by the Sri Lanka Standards Institute (SLSI) in January 2012, where the Companys quality systems and processes were evaluated against the ISO 14001 standards. Subsequently, LWPLC was given the green light to commence five new projects with the objective of safeguarding the internal and external environment. During the year under review, four of our executive grade employees and six supervisory grade personnel have undergone the stringent training required to ensure compliance of ISO 14001 Environmental Management Systems (EMS). Another member of our team was identified and trained in the Evaluation of environmental aspects and impacts on legal requirements under the ISO 14001 EMS. We are thus able to minimize the negative effects of our business on the environment in compliance with the required laws and regulations.
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During the year we took steps to reduce waste and the discharge of effluent material to the surroundings. The in-house water treatment plant was channelled towards more productive uses during the year. The edge cleaning process in all three glazing lines now use 100% treated water generated by the in-house water treatment plant. In addition, two new initiatives were also taken to revamp the cleaning of the spray dryer and glaze making ball mills by reducing the use of fresh water and introducing treated water instead. These initiatives resulted in a saving in the Companys monthly freshwater consumption. Stemming from the ISO 14000 EMS guidelines, a project was initiated to reduce glaze waste in the glazing lines. Under this project the existing glaze storage containers were replaced by new storage units. The structure of the new units supported a competent discharge of glaze to the line, thereby minimizing waste and improving overall efficiency of the function. LWPLC took aggressive steps to address the grave sound and dust pollution issues the Company faced in the factory locations. The key sound pollution issues were identified as originating from the crushing process required for feldspar and calcite. Accordingly, now a major portion of the crushing process is outsourced, largely eliminating any sound issues. In order to tackle the severe case of dust pollution at the factory, an additional dust suction plant was installed. In addition the main dust generating ventricles were sealed off with an appropriate covering mechanism. The key project earmarked for energy conservation is the introduction of renewable energy through the operation of LPG vaporizers. This was introduced as a pilot project during the year. The project was initiated to address the long felt need to reduce the dependence on electricity and ease the burden on the national grid. The project would bring about a solar powered heating mechanism for the vaporizers and move away from dependency on electricity. The pilot project is expected to generate an initial saving of approximately 46,000 KWH. Upon commissioning of the entire project it is anticipated the Company would benefit from an energy saving of approximately 92,000KWH per annum. Two Laser Guided Vehicles (LGV) were introduced in the factory floor during the year to replace the fuel powered transport machines that were being used. The new vehicles proved to be a much more efficient alternative and a huge boost to LWPLCs energy conservation drive. The Company has always asserted the importance of accurate environmental safety information and data in the interest of maintaining employee and workplace safety. The Company believes in creating awareness among staff regarding the content of the Material Safety Data Sheets that accompany various imported raw materials. The Company has made a conscious effort to increase staff awareness through the prominently display of the salient features of these Material Safety Data Sheets, thereby reducing the likelihood of accidents caused by mishandling.
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Community Service LWPLCs broader corporate vision is to create a healthy enabled society that is nurtured by education. The Companys main focus is to build sustainable communities by empowering them with the right tools to engineer the success of their own future. Accordingly during the year the Company identified certain rural communities that would benefit from their vision and a number of initiatives were launched to achieve these goals. LWPLCs main CSR project was the School Nutritional Development programme. The first phase of this initiative was launched during FY 2011/12 at Sri Somanada Dhamma School in Padukka, to supplement the nutritional requirements of the students. Each Sunday the Company provides the entire student body of around 300 students with milk and kolakenda. This is an ongoing project and is expected to continue in the future as well. Additionally, the Company also donated the equipment needed to facilitate this project, and refreshments to be served at the annual prize giving of the Dhamma School. During the year, LWPLC provided furniture and equipment to the Buddhist Junior Vidyalaya in Meegoda. The Companys objective to improve the medical and health sector was channelled to renovate the Divisional Hospital in Padukka. The hospital OPD ward and the Bhikku ward were in a dilapidated state and the Company undertook to completely renovate them at a cost of Rs. 1.6 Mn. The renovation project included tiling of 3,300sqft of wall space plus 1,500sqft of floor space and the repainting of walls. The project was completed in end March 2012 and opened in April 2012. During the handover ceremony the Company in conjunction with the Lions Club District 306 A2 also donated 500 pairs of spectacles to needy residents of the Padukka area. In addition a wheelchair was donated to the hospital by the operative staff. The Company continued its efforts towards strengthening the tiling industry by continuing its tiler training programmes during this year as well. The potential candidates are recommended through the area dealers and vocational training institutions. LWPLC then provides the identified candidates with comprehensive training to fine tune their tiling skills and expertise. The entire cost of the exercise including trainer fees and study materials is borne by the Company. Upon completion of the programme each participant is provided with a certificate. During the year approximately 500 tilers benefited from this scheme, adding to the total of 1,000 beneficiaries since the launch of the scheme.
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Corporate Governance
The Board of Directors of Lanka Walltiles PLC is committed to upholding the highest standards of integrity and transparency in its governance of the Company and its subsidiaries. It is guided by the Code of Best Practice of the Institute of Chartered Accountants of Sri Lanka, the requirements of the Securities and Exchange Commission of Sri Lanka and the Colombo Stock Exchange. The Directors are responsible for protecting the rights and interests of shareholders and are accountable to them for the overall management of the Company. Corporate Governance Framework The Corporate Governance framework to accomplish the corporate governance objective of Lanka Walltiles PLC is given below:
Shareholders
Protects rights
Elects the Board
Nominations Policy
Ensures good Board composition
The Board
Risk Management Framework
Reviews integrity of financial statements
Audit Committee
Ensures good risk management Delegates day-to-day management
Remuneration Committee Ensures remuneration is appropriate Provides transparent information
The Chief Executive and Management Team
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Compliancy to Corporate Governance Code The compliance of Lanka Walltiles PLC to the Code of Best Practice on Corporate Governance issued by the Institute of Chartered Accountants of Sri Lanka and the Securities and Exchange Commission of Sri Lanka is as follows: Compliance Status
Governance Principle A. Directors A.1 - The Board Frequency of Board Meetings
Lanka Walltiles Adherence
The Board met on a monthly basis in the year under review. The Boards Audit and Remuneration sub committees met on 6 occasions. Board meeting attendance: A A Page (Chairman) - 10/12 Dr. S Selliah (Deputy Chairman) -11/12 J A P M Jayasekera (Managing Director) -12/12 T de Zoysa (Director) - 10/12 P S R Casie Chitty (Director) - 10/12 V R Page (Director) - 9/12 S Mendis (Director) - 6/12 A T P Edirisinghe (Director) - 9/12
Compliant
Responsibility of the Board
The Board is responsible for: a. The formulation and implementation of a sound business strategy. b. Monitoring compliance of governance, laws and regulations. c. Overseeing systems of internal control and risk management. d. Approving annual budgets and strategic plans. e. Appointing and reviewing the performance of the Managing Director. f. Approving any change in the Companys business portfolio and sanction major investments and disinvestments in accordance with parameters set. g. Ensuring that effective remuneration, reward and recognition policies are in place to assist employees in giving their best. h. Submitting themselves for re-election at regular intervals and at least once in every three years.
Compliant
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Corporate Governance Contd.
Governance Principle A.1 - The Board Compliance with applicable law Company Secretary
Lanka Walltiles Adherence The Board ensured in the year under review that the Company adhered to all applicable laws, rules and regulations. The services and advice of the Company Secretary M/s. P W Corporate Secretarial (Pvt.) Ltd. is made available to Directors as necessary. The Company Secretary keeps the Board informed of new laws, regulations and requirements coming into effect which are relevant individually as Directors and collectively to the Board. The Board members are required to divulge all functions with the Company, refrain from matters of self interest and to bring independent judgment to the decision making process. Board members attend all Board meetings in person and need to be prepared to engage in decision making matters which may entail an adequate amount of time and effort spent. All Directors have considerable experience in managing companies in the ceramic industry. Relevant training opportunities are made available to all Directors locally and internationally to further their knowledge and expertise.
Compliance Status
Compliant
Compliant
Independent judgment Dedication of adequate time and effort Appropriate training for Directors A.2 - Chairman and CEO Division of responsibilities between the Chairman and CEO A.3 - Role of the Chairman Prepare good corporate governance and facilitate effective discharge of Board functions A.4 - Financial Acumen
Compliant Compliant
Compliant
There is a clear division of responsibility at the head of the Company. This is between the running of the Board (Chairman) and the executive responsibility of overseeing the Companys business (Managing Director). No single individual has liberal powers with regard to decision making. The Chairman is responsible for the efficient conduct of Board meetings. The Chairman maintains close contact with all Directors and holds informal meetings with Non-Executive Directors whenever necessary.
Compliant
Compliant
Availability of sufficient financial The Board includes three senior Chartered Accountants, who possess the necessary knowledge and acumen and knowledge. competence to offer the Board guidance on financial matters. One of them serves as the Chairman and the others serve as the Managing Director and a Non Executive Independent Director.
Compliant
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Governance Principle A.5 - Board Balance The Board should have an adequate number of Directors with a balance of executive and non-executive Directors of sufficient calibre along with independent Directors.
Lanka Walltiles Adherence The Board comprises eight members, seven of whom including the Chairman are Non Executive Directors. The Board has determined that four of such Non Executive Directors are independent as per the Listing Rules of the Colombo Stock Exchange Directors status is as follows: A A Page (Chairman) - Non-executive Dr. S Selliah (Deputy Chairman) - Non-executive - Independent J A P M Jayasekera (Managing Director) - Executive T de Zoysa (Director) - Non-executive - Independent P S R Casie Chitty (Director) - Non-executive V R Page (Director) - Non-executive S Mendis (Director) - Non-executive - Independent A T P Edirisinghe (Director) - Non-executive - Independent The Board papers are circulated a week prior to Board meetings with an adequate briefing on relevant information.
Compliance Status
Compliant
A.6 - Supply of Information Relevant information and agenda to be circulated in a timely manner to the Board. Compliant
A.7 - Appointments to the Board Procedure for the appointment The appointment to the Board is undertaken by the Board itself, taking into consideration the Board composition required and the strategic input required. All Board appointments are informed to the SEC as per and disclosure of new the existing regulations. Directors / Assessment of Board composition A.8 - Re-election Re-election of Directors at regular intervals. As per the Articles of Association one-third of the Directors for the time being shall retire from office and shall offer themselves for re-election each year by the Shareholders.
Compliant
Compliant
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Governance Principle
Compliance Status
A.9 - Appraisal of Board Performance Boards should periodically appraise their own performance in order to ensure that responsibilities are discharged in a satisfactory manner. The Board regularly evaluates its performance based on achievement of results, implementation of strategy, risk management, internal controls, compliance with laws and stakeholder requirements. Compliant
A.10 - Disclosure of information with respect to Directors Shareholders at all times should be aware of relevant details with respect to Directors. All Directors have declared their details in page 14 as Director profiles. Compliant
A.11 - Appraisal of Chief Executive Officer The Board should be required to assess the performance of the CEO annually. B. Directors remuneration B.1 - Remuneration Procedure Formal and transparent procedure for developing policies on remuneration. Composition and disclosure of the members of the Remuneration Committee The Board has implemented a formal and transparent procedure for developing policies on remuneration by setting up a Remuneration Committee. Its purpose is to assist the Board of Directors in matters relating to compensation of the Companys Directors, Executive Officers and such other employees as determined by the Committee. The Remuneration Report which is in Page 65 of the report addresses all related matters. Compliant The CEO is evaluated each year as per the yearly targets that has been agreed with the annual budget Compliant
Compliant
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Governance Principle Levels of Remuneration
Lanka Walltiles Adherence Remuneration levels have been designed to attract, retain and motivate Directors and Senior Management required to run the Company successfully, while remaining within the industrys remuneration standards.
Compliance Status
B.2 - The level and make up of Remuneration Compliant
B.3 - Disclosure of Remuneration Disclosure of Remuneration in the Annual Report Details of the Remuneration Committee and the statement of remuneration policy are provided in the Annual Report. The aggregate remuneration paid to Executive and Non Executive Directors are disclosed on Page 127 of this Report. C. Relations with Shareholders C.1 - Constructive use of the Annual General Meeting Boards should use the Annual General Meeting to communicate with shareholders and encourage their participation. C.2 - Major Transactions Disclosure of major corporate transactions that will materially effect the net asset base. There have been no transactions during the year under review, which fall within the definition of Major Transactions in terms of the Companies Act. The active participation of shareholders at the AGM is encouraged. The Board believes the AGM is a means of continuing effective dialogue with Shareholders. Compliant Compliant
Compliant
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Governance Principle D. Accountability and Audit D.1 - Financial Reporting The Board should present a balanced and understandable assessment of the Companys financial position, performance and prospects. D.2 - Internal Control The Board should maintain a sound system of internal control to safeguard shareholders investments and the Companys assets. D.3 - Audit Committee The Board should establish formal and transparent arrangements in the manner in which they select and apply accounting policies, financial reporting, internal control principles and maintaining an appropriate relationship with the Companys Auditors. Companies must adopt a Code of Business Conduct and Ethics for Directors and members of the Senior Management team and promptly disclose any waivers of the Code for Directors or others.
Compliance Status
The Annual Report of the Company provides a balanced and understandable assessment of the Company which is in addition to the accounts of the management and financial reviews, Directors report and responsibility structures.
Compliant
Your Board has taken necessary steps to ensure the integrity of the Companys accounting, financial reporting and internal control systems and also their review and monitoring on a periodic basis. Our systems covering risk management, financial and operational control, ethical conduct, compliance with legal and regulatory requirements and corporate social responsibility are detailed below.
Compliant
The Audit Committee consists of three (3) Non Executive Independent Directors. The Audit Committee is chaired by Mr. A T P Edirisinghe who is a member of a recognised professional accounting body. The Audit Committee Report on page 66 of the report and the CSE adherence note 7.10.6 addresses this section in full.
Compliant
D.4 - Code of Business Conduct and Ethics The Code of Best Practice issued by the Institute of Chartered Accountants of Sri Lanka and the Securities Exchange Commission is adopted by the Directors, who then ensure that the Company and the employees behave ethically. Compliant
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Governance Principle Directors should be required to disclose the extent to which the Company adheres to established principles and practices of good Corporate Governance. E. Shareholders E.1 - Shareholder Voting Institutional shareholders should be encouraged to ensure their voting intentions are translated into practice. Institutional investors should be encouraged to give due weight to all relevant factors drawn to their attention. F. Other Investors
Lanka Walltiles Adherence Adhered to as per the Corporate Governance report in the Annual Report Page 38.
Compliance Status
D.5 - Corporate Governance Disclosures
Compliant
All institutional shareholders are encouraged to participate and their views are communicated to all concerned. Compliant
E.2 - Evaluation of Governance Disclosures The Report contains the Companys Corporate Governance process and structure for investors attention. Compliant
F.1 - Investing / Divesting Decision Individual shareholders, should The Annual Report contains sufficient information to make an informed decision. The report is hosted in be encouraged to carry out Colombo Stock Exchange website with the quarterly reports to facilitate investors and shareholders to make adequate analysis in investing internal decisions. or divesting decisions. F.2 - Shareholder Voting Individual shareholders should be encouraged to participate in the General Meeting of Companies and exercise their voting rights. All shareholders are encouraged to participate at the Annual General Meeting/ Extraordinary General Meeting and cast their votes. AGMs are noticed in advance as per the Companies Act and held in an accessible area to ensure shareholders can participate effectively.
Compliant
Compliant
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CSE Listing Rules Compliance Lanka Walltiles PLCs extent of adherence to corporate governance rules under Section 7.10 of continuous listing requirements of the Colombo Stock Exchange is given below. Corporate Governance Principles 7.10.1 Non-Executive Directors The Board of Directors should include at least two non-executive directors or such number of non-executive Directors equivalent to one third of the total number of Directors, whichever is higher. 7.10.2 Independent Directors The Board of Directors should include two or 1/3 of non-executive Directors appointed to the Board of Directors, whichever is higher shall be independent. 7.10.3 Disclosure Relating to Directors The Board shall make a determination annually The Board has determined the independence of each Independent Director and set out and as to the independence or non-independence declared the independence in the Annual Report. of each non-executive Director based on such Please refer Note 7.10.4 below declaration and other information available to the Board and shall set out in the annual report the names of Directors determined to be independent. The Company has four independent Directors out of eight as given in item A5 in ICASL adherence table, which is above the minimum level. Lanka Walltiles PLC has seven non- executive Directors out of eight as given in item A5 in the ICASL adherence table, which is above the minimum requirement. Compliant Compliance Status
Compliant
Compliant
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Corporate Governance Principles 7.10.4 Criteria for Defining Independence The Colombo Stock Exchange identified criteria of independence should be met by the independent directors of the Company
Compliance Status
All directors meet the above criteria and the Board of Directors is of the view that the period of service as a Board member exceeding in nine years rendered by Dr. S Selliah and Mr. T de Zoysa do not compromise their independence and objectivity in discharging their functions as Directors. Mr. A T P Edirisinghe is also a Director at Lanka Ceramic PLC the holding company of Lanka Walltiles PLC. However, the Board is of the opinion that taking into consideration the fact that Mr. Edirisinghe is not actively involved in the management of Lanka Ceramic PLC, he is independent as per the listing rules. Accordingly, the Board has determined that Dr. S Selliah, Mr. T de Zoysa, Mr. S Mendis and Mr. A T P Edirisinghe are independent Directors as per the criteria set out in the listing rules of the Colombo Stock Exchange. Compliant
7.10.5 Remuneration Committee a. Composition of Remuneration Committee The remuneration committee shall comprise of at least two non-executive Directors in which a majority shall be Independent. b. Functions of Remuneration Committee The Remuneration Committee shall recommend the remuneration payable to the executive directors and Chief Executive Officer of the Listed Entity to the board of the Listed Entity among other defined functions. The remuneration committee met two times during the year and have recommended the remuneration of the MD and the Senior Management of the Company to the Board and their report is published on page 127. The remuneration committee consists of three (3) non executive independent Directors. Mr. S Mendis is the Chairman of the remuneration committee. As per the remuneration committee report given in page 65.
Compliant
Compliant
48
Corporate Governance Principles c. Disclosure in the Annual Report The annual report should set out the names of Directors in comprising the remuneration committee and contain a statement of the remuneration policy and set out the aggregate remuneration paid to executive and nonexecutive directors 7.10.6 Audit Committee a. Composition of the Audit Committee The audit committee shall comprise of at least two non-executive directors a majority of whom shall be independent.
Compliance Status
The remuneration committee report in page 65 as set out the names of the Directors in the remuneration committee report and aggregate remuneration paid to all Directors is given in page 127.
Compliant
The Audit Committee consists of three (3) non executive independent Directors. The Audit Committee is chaired by Mr. A T P Edirisinghe, who is a member of a recognised professional accounting body. The Head of Finance attends meetings of the audit committee by invitation.
Compliant
b. Functions Audit Committee Overseeing of the preparation, presentation and adequacy of disclosures in the financial statements of a Listed Entity, in accordance with Sri Lanka Accounting Standards. The audit committee report in page 66 of the annual report explains the function of the audit committee which has executed the above function. Compliant
c. Disclosure in the Annual Report relating to Remuneration Committee The names of the Directors comprising the Audit Committee should be disclosed in the annual report. The audit committee report in page 66 has addressed this requirement. Compliant
49
Statement of Compliance The Company is fully compliant with the requirements of the Code of Best Practice on Corporate Governance issued jointly by the Institute of Chartered Accountants of Sri Lanka and the Securities and Exchange Commission of Sri Lanka. Please refer the tables appearing on pages 39 to 45 for the requirements of Corporate Governance Principles and the response of the company on its adherence to the said requirements. In addition, tables appearing on pages 46 to 48 Demonstrate the Companys adherence to Corporate Governance Rules under Section 7.10 of the continuous listing requirements of the Colombo Stock Exchange. Further, the Board of Directors to the best of their knowledge and belief and is also satisfied that all statutory payments due to the Government, other regulatory institutions and those payments related to employees, have been made on time. Therefore the Board has concluded and declared that the Company is fully compliant with the Corporate Governance Rules of the Colombo Stock Exchange.
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Risk Management
The risk management process will enable administration to evaluate strategies existing within the organization to mitigate the risk factors identified, gain comfort over the continuation of the business and ensure the required returns to the stakeholders.
Organization Strategy
Risk Management Strategy
Risk Management Policies & Procedures
Risk Management Roles & Responsibilities
Introduction Risk Management is a essential requirement for any company operating in a competitive market and a changing economy. Lanka Walltiles PLC henceforth has taken a strategic initiative to identify the areas relevant to the organization and respond to potential risks the Company may be exposed to. The risk management process will enable administration to evaluate strategies existing within the organization to mitigate the risk factors identified, gain comfort over the continuation of the business and ensure the required returns to the stakeholders. This process additionally assists the Company in managing sustainability of growth and profitability. The objective is to improve performance and decision making through identification, evaluation and management of key risks. The process is supervised by the Companys Executive Committee and Board of Directors and reviewed by the Audit Committee. A review of the risk management framework and the process of Lanka Walltiles PLC are described below. Risk Management Framework The Committee of Sponsoring Organizations of the Tradeway Commission (COSO)s Enterprise Risk Management (ERM) integrated framework defines ERM as a process, effected by the entitys Board of Directors and management and applied in strategy setting and across the enterprise, designed to identify potential events that may affect the entity, and manage risk to be within the risk appetite, to provide reasonable assurance regarding the achievement of entity objectives. A graphical overview of the Companys risk management framework is given aside.
Risk Identification & Assessment
Risk Response & Reporting
Governance
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Lanka Walltiles PLC risk management frame work compared to COSOs integrated framework for enterprise risk management can be detailed as follows; Risk culture A Company has to cultivate an appropriate risk aware culture for effective ERM practice. A strong endorsement by the Board of Directors and Senior Management of the value of investing time and infrastructure into better understanding the organizations most significant risk exposures is an important and necessary condition that must be in place. Risk identification Robust processes have to be in place in the organization to identify risks, particularly those risks that may be currently unknown, but emerging and should encourage the management to regularly think about risk. In this regard, the organization has defined and widely communicated to members of Management and the Board what it means by the term risk. The organization has identified a broad range of risks that may arise both internally and externally, including risks that can be controlled or prevented, as well as those over which the organization has no control. The organization engages in identifiable processes to regularly scan the environment in an effort to identify unknown, but potentially emerging risks such as competitor moves, new regulations, changing consumer preferences, etc. Each member of the Board of Directors has provided input into the risk identification process. In this regard the senior management and the Board of Directors have a clear understanding of the objectives of ERM relative to traditional approaches to risk management and the CEO embraces the need and provides adequate endorsement of an enterprise wide approach to risk oversight that seeks to obtain a top-down view of major risk exposures. The Board of Directors is also supportive of managements efforts to implement an enterprise wide approach to risk oversight and the Board of Directors sets aside agenda time at each of its meetings to discuss the most significant risks facing the organization. The Senior Management has effective risk management capabilities and competencies.
Risk assessment Organization needs methods to prioritise risks that encourages a consistent consideration of both the likelihood of the risk occurring and the impact of the event to the organization, if the risk occurs. Articulation of risk appetite While determining the organizations appetite for risk taking can be challenging, it is important that the board and senior Management make some attempt to articulate its overall appetite for risk taking. The Board and Management have engaged in discussions to articulate the organizations overall appetite for risk taking. The Board of Directors has concurred with the organizations risk appetite. The organization defines a five year the time period over which risks should be assessed to ensure consistency in managements evaluations. The organization strives to assess inherent risk of the Company and industry and the organization assesses not only the likelihood of a risk event occurring but also the impact of the risk to the organization. The Board of Directors has concurred with the assessment of the risks completed by management.
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Risk Management Contd.
Risk response It is very important to ensure that an appropriate risk response method is implemented, and then to ensure that the response is working as intended. Periodic evaluation of whether identified risk responses are effectively being carried out will ensure an effective ongoing ERM process. Risk reporting As risks are identified and assessed across the organization, processes are needed to facilitate the communication of riskrelated information so that an aggregate view of important risks and their related risk responses are provided to Senior Management, the Board, and to critical stakeholders. Integration with strategic planning Effective ERM can be an important input and consideration into the determination and execution of any organizations strategy. ERM provides critical insights into the portfolio of existing and emerging risk exposures that can contribute to the strategic success of the organization. The organization has a formal strategic planning process and the strategic plan is updated at least annually. The organizations existing risk profile is an important input for the strategic planning process. Senior Management links the top risk exposures to strategic objectives to determine which objectives face the greatest number of risks and to determine which risks impact the greatest number of objectives. The organization has developed and monitors critical risk indicators that are leading in nature in that they provide some indication that a risk event is more likely to occur in the future. Senior management regularly review management reports that provides the status of critical risks and risk response plans. The Board monthly receives and reviews above reports that provides the status of critical risks and risk response plans. The organization has identified risk owners with responsibility for each of its most significant risks. The organization has evaluated whether the existing response is sufficient to manage the risks to be within the organizations risk appetite. The organization has separately evaluated the potential cost of the risk response relative to the benefit provided by the response towards either reducing the impact or reducing the probability of occurrence of the risk event. The organizations ERM process helps identify potential overlaps or duplications in risk responses across the enterprise.
Assessment of ERM effectiveness of the risk management process: Senior Management and the Board of Directors need to view ERM as an evolution, not a point-in-time project to be implemented. In the organization the Senior Management regards ERM as an ongoing process rather than just a project and Senior Management seeks to understand and monitor emerging ERM best practices and adequate resources have been dedicated to support and complete the ERM function successfully.
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Risk Management Process The risk management process has been designed to ensure identification of any situation or circumstance that would adversely effect the achievement of Company activities and to accept and manage unavoidable risks and to ensure surprise events or situations are minimized. This process is aligned directly to the Company strategy, annual plans and monitored by the Board and reviewed by the Audit Committee. To facilitate a professional ERM process a facilitative management structure and a robust management process needs to be in place in the organization. Lanka Walltiles PLC has the following management structure and management process to facilitate risk management:
Board of Directors
Audit Committee
Risk Identification This part of the process will identify the events or scenarios that could prevent the Company from achieving its set objectives.
Risk Assessment and Evaluation The management will determine whether the risk will have an ultra, high, moderate, low or insignificant impact on the operations of the Company and also the likelihood of risk occurrence based on past experience as well as future projections are evaluated.
CEO
Company Executive Committee Monitoring On a monthly basis the risk mitigation action plans will be monitored and reported to the Company Executive Committee and Board Meetings and on a quarterly basis these will be monitored and reported to the Audit Committee. Risk Mitigation Action Plans Identified and evaluated risks are assigned to risk owners. Risk mitigation action plans will be developed with time lines for implementation by the risk owners along with the management of the Company.
Functional Managers
Risk Exposures
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Risk Management Contd.
Some of the key risks that may hinder the achievement of the companys strategic business objectives are set out below: Business Environment Risk Environment risk arises when there are external forces that may affect the viability of the enterprises business model, including the fundamentals that drive the overall objectives and strategies that define it. Adverse political actions and changing laws may be harmful to the firms resources and future cash flows in a country in which the firm has invested significantly and is dependent on a significant volume of business. To counter political and regulation risk the Company brings the relevant issues to the notice of government institutions, persistently monitors them and maintains a close relationship with relevant government institutions and industry associations and chambers. The Company also assists government institutions in formulating new laws and regulations pertaining to the industry and provides information on relevant issues to government institutions. In addition, a legal feasibility evaluation has been made a standard process in order to approve capital projects. Operations Risk Operations risk is the risk that the firm is inefficient in executing, the firms business model and/or satisfying customers and/or achieving the Companys quality, cost and time performance objectives. Unproductive operations threaten the Companys capacity to produce goods at or below cost levels incurred by competitors. To counter operations risk the Company has a strong operational control mechanism where production, quality, cost and efficiency are monitored on a daily basis and improvement projects are undertaken to increase efficiency. Plant upgrades with new plants and machinery are done annually to be on par with world class manufacturers. In addition, a five year strategic plan has been implemented to enhance capacity and ensure operations run smoothly. Capacity Risk Insufficient capacity will pose a hindrance to the Companys ability to meet customer demands or excess capacity threatens the firms ability to generate competitive profit margins. Capacity Management Program has been planned for the next five years and reviewed monthly. This includes installation of the new machines/lines, importing tiles to meet specific demands and implementing the five year plan to monitor financial and resources requirements. Integrity Risk Integrity risk is the risk of management fraud, employee fraud, illegal acts, unauthorized acts and any or all of which could lead to loss of reputation in the marketplace.
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To mitigate this risk the Company conducts a monthly internal audit of transactions undertaken by an independent firm of chartered accountants, to detect and reduce fraud and detail approval processes for official transactions which mitigate the above risk. In addition quarterly audit committee meeting to monitor the reporting status coupled with monthly Board meetings which supervise the financial status of the Company and the integrity of employees. Financial Risk Exposure to lower returns or the necessity to borrow due to shortfalls in cash or expected cash flows or variances in timing or significant movements in interest rates expose the firm to a number of negative factors. Those include higher borrowing costs, lower investment yields or decreased asset values and result in financial helping risk. Movements in prices, rates, indices and such, affect the value of the Companys financial assets and stock price, which may additionally impact its cost of capital and / or the ability to raise capital. Credit limits and given credit is reviewed through a detailed approval process reducing risk of debt, exports under DA terms are insured using SLECIC and monthly overdue debtors are reported to the Board for necessary action. These actions reduce cash flow risk and all capital projects are financially evaluated to ensure that inflows match with borrowings. Both floating and fixed rate debt is maintained and is structured using loans, share capital and internal fund management to reduce borrowings. Conclusion Hence the Board and Management is of the view that an effective risk management framework and an adequate risk management process is in place to minimise all potential risks and their probability of impact to the Company.
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timber line
57
Financial Report
Independent Auditors Report Balance Sheet Income Statement Statement of Changes in Equity Cash Flow Statement Accounting Policies Notes to the Financial Statements 67 68 69 70 72 74 88
58
ANNUAL REPORT OF THE BOARD OF DIRECTORS ON THE AFFAIRS OF THE COMPANY
The Directors of Lanka Walltiles PLC have pleasure in presenting their Annual Report together with the Audited Financial Statements of the Company for the year ended 31st March 2012. 1. GENERAL Lanka Walltiles PLC is a public limited liability company which was incorporated under the Companies Ordinance No.51 of 1938 as a public company on the 24th day of September 1975. Pursuant to the requirements of the new Companies Act No. 7 of 2007, the Company was re-registered on 24th July 2007 and bears registration number PQ55. 2. PRINCIPAL ACTIVITIES OF THE COMPANY AND REVIEW OF PERFORMANCE DURING THE YEAR The main activity of Lanka Walltiles PLC is the manufacture of glazed ceramic walltiles for export and for sale in the local market. This report together with the Financial Statements reflect the state of affairs of the Company. 3. FINANCIAL STATEMENTS The Financial Statements of the Company are given on pages 68 to 131. Summarized Financial Results Year ended 31st March Revenue Net Income / (Loss) for the year 4. AUDITORS REPORT The Report of the Auditors on the financial statements of the Company is given on page 67. 5. ACCOUNTING POLICIES The accounting policies adopted by the Company in the preparation of financial statements are given on pages 74 to 87 which are consistent with those of the previous period.
2012 Rs. 000 10,476,715 1,134,531
2011 Rs. 000 8,443,481 990,021
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6. STATEMENT OF DIRECTORS RESPONSIBILITY The Directors are responsible for preparing and presenting the financial statements of the Company and the Group to reflect a true and fair view of their state of affairs. The Directors are of the view that these financial statements have been prepared in conformity with the requirements of the Sri Lanka Accounting Standards, the Companies Act No.7 of 2007 and the Listing Rules of the Colombo Stock Exchange. 7. DIRECTORS The names of the Directors who held office as at the end of the accounting period are given below and their brief profiles appear on page 15. Executive Director Mr. J A P M Jayasekera (Managing Director) Non-Executive Directors Mr. A A Page (Chairman) Mr. P S R Casie Chitty Mr. V R Page Independent Non-Executive Directors Dr. S Selliah (Deputy Chairman) Mr. T de Zoysa Mr. Sunil Mendis Mr. A T P Edirisinghe In accordance with Article No. 103 and 104 of the Articles of Association of the Company, Mr. A A Page and Dr. S Selliah retire by rotation and, being eligible, are recommended for re-election. 8. INTERESTS REGISTER The Company maintains an Interests Register in terms of the Companies Act No.7 of 2007 and the names of Directors who were directly or indirectly interested in a contract or a related party transaction with the Company during the accounting period under review are given in Note 31 to the Financial Statements on page 125. 9. DIRECTORS REMUNERATION The Directors remuneration is disclosed in Note 31.3 to the Financial Statements on page 127.
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Annual Report of the Board of Directors on the Affairs of the Company Contd.
10. AUDITORS Messrs Ernst & Young, Chartered Accountants served as the Auditors during the year under review. Based on the written representation made by the Auditors, they do not have any interest in the Company other than as Auditors and Tax Consultants. The audit fee payable to the Auditors for the year under review is Rs. 1,018,829/- (2011 Rs. 949,590/-) The Auditors have also provided tax compliance services during the year and the fee payable therefor amounts to Rs. 190,366/- (2011 Rs.184,112/-) The Auditors have expressed their willingness to continue in office. A resolution to re-appoint the Auditors and to authorise the Directors to determine their remuneration will be proposed at the Annual General Meeting. 11. STATED CAPITAL The Stated Capital of the Company is Rs. 787,765,736/- divided into 54.6 Mn Ordinary Shares. 12. DIRECTORS SHAREHOLDING The shareholdings of the Directors of the Company are as follows. As at 31st March Mr. A A Page Dr. S Selliah Mr. J A P M Jayasekera Mr. T de Zoysa Mr. P S R Casie Chitty Mr. V R Page Mr. Sunil Mendis Mr. A T P Edirisinghe 2012 878,760 - 13,440 2,520 - 10,500 - 3,360 2011 878,760 13,440 2,250 10,500 3,360
13. MAJOR SHAREHOLDERS, DISTRIBUTION SCHEDULE AND OTHER INFORMATION Information on the twenty largest shareholders of the Company, distribution schedule of the number of shareholders, percentage of shares held by the public, market values per share as per the Listing Rules of the Colombo Stock Exchange are given on page 132 under Investor Information. 14. PUBLIC HOLDING 32.71% of the issued shares of the Company are in the hands of the public.
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15. RESERVES The movements of reserves during the year are given under the Statement of Changes in Equity on page 70. 16. CAPITAL EXPENDITURE The total capital expenditure during the year including the capitalization of borrowing cost amounted to Rs. 1,709 Mn compared to Rs. 1,142 Mn incurred in the previous year. Details of movements in property, plant and equipment are given under note 1.0 in the Financial Statements. 17. LAND HOLDINGS Lands in Extent Location Balangoda Factory Head Office Meepe Factory Waskaduwa - Clay Mining Land Total No. of Buildings 1 17 18 A 30 1 23 11 65 R 1 1 2 4 P 5 5 35 22 67 Valuation Rs. 000 50,920 294,505 235,421 14,485 595,331
18. DIVIDEND An Interim Dividend of Rs. 1/- per share for the year ending 31st March 2012 was paid on 3rd February 2012. A Final Dividend of Rs. 3/- per share as recommended by the Directors will be declared at the forthcoming Annual General Meeting. 19. STATUTORY PAYMENTS The Directors confirm that to the best of their knowledge, all taxes, duties and levies payable by the Company, all contributions, levies and taxes payable on behalf of, and in respect of employees of the Company and all other known statutory dues as were due and payable by the Company as at the Balance Sheet date have been paid or, where relevant provided for. 20. DONATIONS The Company has made contributions totalling Rs. 2,470,000/- (2011 Rs. 176,000/-) during the year ended 31st March 2012 for charitable purposes.
62
Annual Report of the Board of Directors on the Affairs of the Company Contd.
21. EVENTS OCCURRING AFTER THE BALANCE SHEET DATE No circumstances have arisen since the balance sheet date, which would require adjustment to, or disclosure in the financial statements. 22. CORPORATE GOVERNANCE Corporate Governance practices and principles with respect to the management and operations of the Company is set out on pages 38 to 49 of this report. The Directors confirm that the Company is in compliance with the Rules on Corporate Governance contained in the listing rules of the Colombo Stock Exchange. An Audit Committee and Remuneration 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 Mr. A T P Edirisinghe - Chairman Mr. T de Zoysa Mr. Sunil Mendis Remuneration Committee Mr. Sunil Mendis - Chairman Dr. S Selliah Mr. A T P Edirisinghe 23. ANNUAL GENERAL MEETING The Annual General Meeting will be held at 9.00 a.m. on Wednesday, 19th September 2012 at Sri Lanka Foundation Institute, 100, Independence Square, Colombo 07. The Notice of the Annual General Meeting appears on page 138. By order of the Board Lanka Walltiles PLC
Anthony A Page Chairman
P W Corporate Secretarial (Pvt) Ltd. Secretaries Colombo 20th August 2012
63
Statement of Directors Responsibilities
The Directors are required by the Companies Act No. 7 of 2007 to prepare financial statements for each financial year, which give a true and fair view of the statement of affairs of the Company as at the end of the financial year and the income and expenditure of the Company for the financial year. The Directors are also responsible to ensure 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 Companys financial statements under any other law. The Directors consider 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 Accounting Standards, Companies Act No. 7 of 2007, Sri Lanka Accounting and Auditing Standards Act No. 15 of 1995. The Directors are responsible for ensuring that the Company keeps sufficient accounting records, which disclose the financial position of the Company with reasonable accuracy and enable them to ensure that the financial statements have been prepared and presented as aforesaid. They are also responsible for taking measures to safeguard the assets of the Company 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 continue to adopt the going concern basis in preparing the financial statements. The Directors, after making inquiries and review of the Companys Business Plan for the financial year 2012/2013, including cash flows and borrowing facilities, consider that the Company has adequate resources to continue in operation. By Order of the Board Lanka Walltiles PLC
P W Corporate Secretarial (Pvt) Ltd. Secretaries 20th August 2012
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Chief Executive Officers and Chief Financial Officers Responsibility Statement

The financial statements are prepared in compliance with the Sri Lanka Accounting Standards issued by the Institute of Chartered Accountants of Sri Lanka and the requirements of the Companies Act No. 7 of 2007 and any other applicable statues to the extent applicable to the Company. There are no departures from the prescribed accounting standards in their adoption. The accounting policies used in the preparation of the financial statements are appropriate and are consistently applied, except where otherwise stated in the notes accompanying the financial statements. The Board of Directors and the management of your Company accept responsibility for the integrity and objectivity of these financial statements. The estimates and judgments relating to the financial statements were made on a prudent and reasonable basis, in order that the financial statements reflect in a true and fair manner, the form and substance of transactions, and reasonably present the Companys state of affairs. To ensure this, the Company has taken proper and sufficient care in installing a system of internal control and accounting records, for safeguarding assets, and for preventing and detecting frauds as well as other irregularities, which is reviewed, evaluated and updated on an ongoing basis. Our internal auditors have conducted periodic audits to provide reasonable assurance that the established policies and procedures of the Company were consistently followed. However, there are inherent limitations that should be recognized in weighing the assurances provided by any system of internal controls and accounting. The financial statements were audited by M/s. Ernst & Young, Chartered Accountants, the independent auditors. The Audit Committee of your Company meets periodically with the internal auditors and the independent auditors to review the manner in which these auditors are performing their responsibilities, and to discuss auditing, internal control and financial reporting issues. To ensure complete independence, the independent auditors and the internal auditors have full and free access to the members of the Audit Committee to discuss any matter of substance. It is also declared and confirmed that the Company has complied with and ensured compliance by the auditors with the guidelines for the audit of Listed Companies where mandatory compliance is required.
J A P M Jayasekera Managing Director 20th August 2012
B T T ROCHE Head of Finance
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Remuneration Committee Report
ROLE OF THE REMUNERATION COMMITTEE The Committee reviews the performance of the executive staff against the set objectives and goals, and determines the compensation policy of the Company for all levels of employees. The Committee supports and advises the Board on remuneration and remuneration related matters and makes decisions under delegated authority with a view to aligning the interests of employees and shareholders. COMPOSITION OF THE REMUNERATION COMMITTEE The Remuneration Committee is a sub - committee of the main Board, to which it is accountable. The Remuneration Committee comprised the following Directors. Mr. Sunil Mendis - Chairman Dr. S Selliah Mr. A T P Edirisinghe The Managing Director attends the Committee meeting by invitation and serves as the Secretary of the Committee. The Committee members possessed vast experience in the fields of business management, human resources management, labour relations and labour law. Hence the Committee has adequate expertise in remuneration policy and management to deliberate and propose necessary changes, improvements to meet the roles and responsibility of the Committee. MEETINGS The Remuneration Committee met 2 times during the year. The attendance of the members at the meeting is as follows: Mr. Sunil Mendis - Chairman of the Committee (Appointed w.e.f. 1st June 2011, Attendance 1/1) Dr. S Selliah - Member of the Committee - 2/2 Mr. A T P Edirisinghe - Member of the Committee (Appointed w.e.f. 1st June 2011, Attendance 1/1) Mr. T de Zoysa - Member of the Committee (Resigned w.e.f. 31st May 2011, Attendance 1/1) TASKS OF THE REMUNERATION COMMITTEE a. Ensuring that the Board complies with the Companies Act in relation to Director remunerations, especially the requirements of Section 216. And it also ensures that employees are adequately compensated based on their performance and contribution for the period under review and future potential. b. Constructing a specific cost of employment structure that enables Company to attract and retain a quality and representative staff in its operations and do this inter alia with reference to appropriate market rates where these are relevant, and benchmarking specific categories where required. c. Ensuring internal equity and fairness in and between the various pay categories d. Building incentives in the cost of employment structure to encourage and reward excellent performance, on objectively defined criteria. e. Recognising basic needs of staff, and ensuring that compensation addresses those. f. Ensuring that staff costs are within the budget set by the Board, and are sustainable over time. CONCLUSION The Committee is satisfied that it has completed the responsibilities that were delegated to it by the Board for the year under review and the necessary objectives were achieved for the year under review.
Sunil Mendis Chairman - Remuneration Committee 20th August 2012
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Audit Committee Report
ROLE OF THE AUDIT COMMITTEE The Audit Committee is a sub committee of the main Board to which it is accountable. The primary function of the Audit Committee is to assist the Board in its oversight of the integrity of the financial statements of the Company, the qualifications, independence and performance of the Companys independent auditor, the performance of the Companys internal audit function, and compliance by the Company with legal and regulatory requirements. COMPOSITION OF THE AUDIT COMMITTEE The Audit Committee comprises of the following three non - executive Directors. Mr. A T P Edirisinghe - Chairman Mr. T de Zoysa Mr. Sunil Mendis The Managing Director and the Head of Finance attend meetings at the invitation of the Audit Committee. The Managing Director functions as the Secretary of the Audit Committee. Representatives of external auditors and internal auditors also attend Audit Committee meetings by invitation. The Audit Committee, whose Chairman is a Senior Chartered Accountant has the required expertise in finance and business management to deliberate Audit Committee matters and recommend necessary action to be taken. MEETINGS The Audit Committee met 4 times during the year. The attendance of the members at the meeting is as follows. Mr. A T P Edirisinghe - Chairman - 4/4 Mr. T de Zoysa - 3/4 Mr. Sunil Mendis - 4/4 TASKS OF THE AUDIT COMMITTEE a. The Committee reviewed the provisional financial statements for the four quarters that were published for financial year 2011/12 and the Annual Report of 2010/11, which was published in August 2011. b. The Committee reviewed the monthly internal audit reports. The internal audit function is carried out by M/s. KPMG Ford Rhodes Thornton & Co. The Internal audits are done on a monthly process based audits to improve process performance and control. The Monthly Internal Audit reports are reviewed thoroughly and all high risk observations are deliberated and recommendations are made for rectification. c. The Committee holds meeting with the external auditors to review the management letter sent by the external auditors to the Company. Based on the report of the External Auditors, the Audit Committee takes necessary action after discussing with the Management. d. The Committee reviews internal controls and other issues relating to the management control and risk minimization function of the company. CONCLUSION The Audit Committee is satisfied that the accounting policies and risk management are adequate for the Company and the accomplishment of details and functions that is delegated to the Audit Committee by the Board.
A T P Edirisinghe Chairman - Audit Committee 20th August 2012
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INDEPENDENT AUDITORS REPORT
TO THE SHAREHOLDERS OF LANKA WALLTILES PLC Report on the Financial Statements We have audited the accompanying Financial Statements of Lanka Walltiles PLC and the Consolidated Financial Statements of the Company and its subsidiaries which comprise the Balance Sheets as at 31 March 2012 and the Income Statements, Statements of Changes in Equity and Cash Flow Statements for the year then ended, and a summary of significant Accounting Policies and other explanatory notes. Managements Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with Sri Lanka Accounting Standards. This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of Financial Statements that are free from material misstatements, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. Scope of Audit and Basis of Opinion Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with the Sri Lanka Auditing Standards. Those standards require that we plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatements. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by the management, as well as evaluating the overall financial statement presentation. We have obtained all the information and explanations, which to the best of our knowledge and belief were necessary for the purposes of our audit. We therefore believe that our audit provides a reasonable basis for our opinion.
Opinion
In our opinion, so far as appears from our examination, the Company maintained proper accounting records for the year ended 31 March 2012, and the financial statements give a true and fair view of the Companys state of affairs as at 31 March 2012 and its profit and cash flows for the year then ended in accordance with Sri Lanka Accounting Standards. In our opinion, the consolidated financial statements give a true and fair view of the state of affairs as at 31 March 2012, and the profit and cash flows for the year then ended, in accordance with Sri Lanka Accounting Standards, of the Company and its subsidiaries dealt with thereby, so far as concerns the shareholders of the Company.
Report on Other Legal and Regulatory Requirements
In our opinion, these financial statements also comply with the requirements of sections 151(2) and 153(2) to 153(7) of the Companies Act No.07 of 2007.
Ernst & Young 20th August 2012 Colombo
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BALANCE SHEET
As at 31st March Note
GROUP 2012 2011 Rs.000 Rs.000
COMPANY 2012 2011 Rs.000 Rs.000
As at 31st March Note
GROUP 2012 2011 Rs.000 Rs.000
COMPANY 2012 2011 Rs.000 Rs.000
ASSETS Non-current assets Property, plant & equipment 1 7,872,464 Investment property 2 19,505 Intangible assets - goodwill 24,519 Investments in subsidiaries 3 - Investments in associates 4 - Long term receivables 5 27,285 Deferred tax asset 6 22,369 7,966,142 Current assets Inventories 7 2,493,386 Trade and other receivables 8 1,910,060 Amounts due from related parties 9 - Income tax receivable 24,490 Short term investments 10 8,030 Cash and cash equivalents 92,071 Assets classified as held for sale 26 - 4,528,037 Total assets 12,494,179 EQUITY AND LIABILITIES Equity attributable to equity holders of the parent Stated capital 11 Reserves 12 Retained earnings Shareholders funds Minority interest Total equity Non-current liabilities Interest bearing liabilities 13 Deferred tax liabilities 14 Retirement benefit liability 15 Capital grants 16
6,430,405 - 24,519 - - 27,285 6,275 6,488,484 1,831,874 1,161,743 2,587 - 96,847 276,654 21,339 3,391,044 9,879,528
2,075,064 - - 508,642 41,247 - - 2,624,953 914,138 609,931 20,870 24,490 3,862 23,229 - 1,596,520 4,221,473
1,561,340 508,642 41,247 6,275 2,117,504 474,043 309,200 5,308 67,616 14,478 21,339 891,984 3,009,488
Current liabilities Trade and other payables 17 1,660,542 Income tax liabilities 10,893 Amounts due to related parties 18 - Current portion of interest bearing liabilities 13 1,344,714 3,016,149 Total equity and liabilities 12,494,179
1,240,386 158,381 - 659,223 2,057,990 9,879,528
539,079 - 48 309,986 849,113 4,221,473
451,209 58,138 127 57,359 566,833 3,009,488
I certify that, these Financial Statements are in compliance with the requirements of the Companies Act No.07 of 2007.
B T T Roche Head of Finance The Board of Directors is responsible for the preparation & presentation of these financial statements. Signed for and on behalf of the Board,
787,765 470,507 2,868,256 4,126,528 2,585,292 6,711,820
787,765 477,466 2,236,763 3,501,994 2,365,555 5,867,549
787,765 170,296 1,502,378 2,460,439 - 2,460,439
787,765 176,296 1,136,690 2,100,751 2,100,751
A A Page Chairman
The accounting policies and notes on pages 74 to 131 form an integral part of the financial statements. 20th August 2012
1,838,186 299,030 508,055 120,939 2,766,210
1,192,960 170,882 467,393 122,754 1,953,989
799,406 82,971 29,544 - 911,921
312,321 29,583 341,904
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Income Statement
Year ended 31st March Note CONTINUING OPERATIONS REVENUE 19 Cost of sales Gross profit Other income 20 Distribution cost Administrative expenses Finance income 21 Finance cost 22 Release of negative goodwill 3.4 Deemed gain on legal merger 23 Profit before tax from continuing operations 24 Income tax (expense) / reversal 25 Profit for the year from continuing operations DISCONTINUING OPERATIONS Profit / (Loss) after tax for the year from discontinuing operations 26 Profit for the year Attributable to : Equity holders Minority interest Profit for the year
GROUP 2012 Rs.000 2011 Rs.000
COMPANY 2012 2011 Rs.000 Rs.000
10,476,715 (7,837,794) 2,638,921 71,513 (471,572) (624,411) 6,839 (234,491) - - 1,386,799 (248,166) 1,138,633
8,443,481 (5,939,049) 2,504,432 58,388 (307,850) (569,526) 11,983 (180,312) 42,467 - 1,559,582 (268,924) 1,290,658
2,413,704 (1,505,591) 908,113 133,928 (204,461) (211,016) 2,568 (42,515) - - 586,617 (93,024) 493,593
676,383 (477,516) 198,867 193,005 (42,435) (129,214) 4,576 (2,730) 874,987 1,097,056 71,429 1,168,485
(4,102) 1,134,531
(300,637) 990,021
(4,102) 489,490
(300,637) 867,848
751,729 382,802 1,134,531
484,467 505,554 990,021
489,490 - 489,490
867,848 867,848
Basic earnings per share (Rs.) Profit attributable to equity holders Diluted earnings per share (Rs.) Dividends per share (Rs.)
27 13.77 8.87 27 13.77 8.87 28 2.50
2.50
The accounting policies and notes on pages 74 to 131 form an integral part of the financial statements.
70
STATEMENT OF CHANGES IN EQUITY

Note GROUP Balance as at 01st April 2010 Profit for the year Capitalisation of reserves Dividends Interim 2009/2010 (Rs. 1.00 per share) 28 2nd Interim 2009/2010 (Rs. 1.00 per share) 28 Interim 2010/2011 (Rs. 1.00 per share) 28 Minority on subsidiary share issue Subsidiary dividend to minority shareholders Minority on acquisition of subsidiary Direct cost on capitalisation of reserves Balance as at 31st March 2011 Profit for the year Write back of unclaimed dividends Dividends Interim 2011/2012 (Rs. 1.00 per share) 28 Final 2010/2011 (Rs. 1.50 per share) 28 Disposal of revalued fixed assets Subsidiary dividend to minority shareholders Loss on investment property transfer Profit net of adjustments of amalgamated companies Balance as at 31st March 2012 Stated capital Rs.000 Attributable to equity holders of the parent General Revaluation Retained Total reserve reserve earnings Rs.000 Rs.000 Rs.000 Rs.000 Minority interest Rs.000 Total equity Rs.000
576,822 - 210,943 - - - - - - - 787,765 - - - - - - - - 787,765
99,636 - (99,636) - - - - - - - - - - - - - - - - -
477,466 - - - - - - - - - 477,466 - - - - (6,000) - (959) - 470,507
2,007,560 484,467 (118,764) (45,500) (45,500) (45,500) - - - - 2,236,763 751,729 6,698 (54,600) (81,900) 6,000 - - 3,566 2,868,256
3,161,484 484,467 (7,457) (45,500) (45,500) (45,500) - - - - 3,501,994 751,729 6,698 (54,600) (81,900) - - (959) 3,566 4,126,528
1,780,940 505,554 - - - - 99,415 (100,332) 83,911 (3,933) 2,365,555 382,802 - - - - (164,445) (1,596) 2,977 2,585,292
4,942,424 990,021 (7,457) (45,500) (45,500) (45,500) 99,415 (100,332) 83,911 (3,933) 5,867,549 1,134,531 6,698 (54,600) (81,900) (164,445) (2,555) 6,543 6,711,820
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Note COMPANY Balance as at 1st April 2010 Profit for the year Capitalisation of reserves Dividends Interim 2009/2010 (Rs. 1.00 per share) 28 2nd Interim 2009/2010 (Rs. 1.00 per share) 28 Interim 2010/2011 (Rs. 1.00 per share) 28 Balance as at 31st March 2011 Profit for the year Write back of unclaimed dividends Dividends Interim 2011/2012 (Rs. 1.00 per share) 28 Final 2010/2011 (Rs. 1.50 per share) 28 Disposal of revalued fixed assets Balance as at 31st March 2012
Stated capital Rs.000
General Revaluation reserve reserve Rs.000 Rs.000
Retained earnings Rs.000
Total Rs.000
576,822 - 210,943 - - - 787,765 - - - - - 787,765
101,878 - (101,878) - - - - - - - - - -
176,296 - - - - - 176,296 - - - - (6,000) 170,296
521,864 867,848 (116,522) (45,500) (45,500) (45,500) 1,136,690 489,490 6,698 (54,600) (81,900) 6,000 1,502,378
1,376,860 867,848 (7,457) (45,500) (45,500) (45,500) 2,100,751 489,490 6,698 (54,600) (81,900) 2,460,439
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CASH FLOW STATEMENT
For the year ended 31st March Note CASH FLOW FROM OPERATING ACTIVITIES Profit before income tax - Continuing operations Discontinuing operations Adjustments for Depreciation Amortisation of plantation assets Release of negative goodwill Income from investments Profit on sale of property, plant & equipment 24 Finance costs 22 Provision for retirement benefit obligations 15 Capital expenditure written off Allowance for obsolete and slow moving inventories Allowance for doubtful debts Deferred income / capital grants amortisation 16.1 Deemed gain on legal merger Foreign exchange loss Operating profit/(loss) before working capital changes (Increase)/ decrease in inventories (Increase)/ decrease in trade and other receivables (Increase) /decrease in due from related parties (Increase) /decrease in investments Increase/ (decrease) in due to related parties Increase /(decrease) in trade and other payables Cash generated from operations
GROUP 2012 Rs.000 2011 Rs.000
COMPANY 2012 2011 Rs.000 Rs.000
1,386,799 (4,102)
1,559,582 (300,637)
586,617 (4,102)
1,097,056 (300,637)
384,999 43,689 - (6,839) (45,558) 234,491 117,106 6,641 (30,380) (3,095) (4,130) - 56,150 2,135,771 (642,983) (703,503) 2,587 - - 176,308 968,179
346,645 41,409 (42,467) - (10,075) 180,312 117,021 211 13,233 1,589 (4,729) - - 1,902,094 (107,326) 57,134 (2,587) 3,942 - 272,034 2,125,291
118,093 - - (128,501) (30,460) 42,515 6,979 6,641 - - - - 35,370 633,152 (440,096) (300,732) (15,561) - (79) (105,659) (228,974)
49,931 (130,994) (12,151) 10,919 22,869 2,534 (874,987) (135,459) 251,409 102,123 438,965 26,507 (270,400) (45,819) 367,326
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For the year ended 31st March Note Finance costs paid Retirement benefit costs paid 15 Income tax paid Net cash from/(used in) operating activities CASH FLOWS FROM / (USED IN) INVESTING ACTIVITIES Acquisition of property, plant & equipment 1.1(i) Acquisition of plantation assets 1.1(f) (Acquisition) / disposal of investments Proceeds from sale of property, plant & equipment (Increase) /decrease in short term investments Income from investments Net cash flows from/(used in) investing activities CASH FLOWS FROM / (USED IN) FINANCING ACTIVITIES Interest bearing borrowings obtained Repayment of interest bearing borrowings Dividends paid - on ordinary shares 28 Dividend paid to minority Capital grants received 16 Proceeds on issue of shares Direct cost on capitalisation of reserves Net cash flows from/(used in) financing activities Net increase/(decrease) in cash and cash equivalents Cash and cash equivalents at the beginning of the year 29 Cash & bank balance transferred due to merger Cash and cash equivalents at the end of the year 29
GROUP 2012 Rs.000 (197,608) (73,275) (294,101) 403,196 2011 Rs.000 (181,487) (130,496) (272,701) 1,540,607
COMPANY 2012 2011 Rs.000 Rs.000 (42,515) (7,018) (86,407) (364,914) (16,191) (75,711) (37,746) 237,678
(1,505,514) (212,381) 26,208 93,183 - 6,839 (1,591,665)
(1,122,978) (173,338) (104,105) 39,368 470 - (1,360,583)
(427,710) - 26,208 41,276 - 128,501 (231,725)
(316,974) (28,271) 16,098 95,714 (233,433)
1,336,525 (481,731) (136,500) (171,745) 2,315 - - 548,864 (639,606) 242,445 (2,343) (399,504)
790,859 (525,419) (136,500) (100,332) 4,284 99,415 (11,390) 120,917 300,941 (58,496) - 242,445
548,270 (34,386) (136,500) - - - - 377,384 (219,255) 5,654 - (213,601)
210,880 (136,500) (7,457) 66,923 71,168 (69,580) 4,066 5,654
The accounting policies and the notes on pages 74 to 131 form an integral part of these financial statements.
74
Accounting Policies
1. CORPORATE INFORMATION 1.1 General Lanka Walltiles PLC is a limited liability company incorporated and domiciled in Sri Lanka and listed on the Colombo Stock Exchange. The registered office and the principal place of business of the Company is located at No. 215, Nawala Road, Narahenpita, Colombo 05. 1.2 Principal activities and nature of operations During the year, the principal activities of the Company were the manufacture and sale of glazed ceramic wall tiles for export and local markets and holding investments. Principal activities of the other companies of the group are stated in Note 3.2 to the financial statements. 1.3 Parent enterprise and ultimate parent enterprise The Companys parent entity is Lanka Ceramic PLC. In the opinion of the Directors, the Companys ultimate parent undertaking and controlling party is CT Holdings PLC, which is incorporated in Sri Lanka. 1.4 Date of authorization for issue The Financial Statements of Lanka Walltiles PLC for the year ended 31st March 2012 was authorized for issue in accordance with a resolution of the Board of Directors on 20th August 2012. 2. BASIS OF PREPARATION 2.1 General The financial statements have been prepared on a historical cost basis unless otherwise indicated. The financial statements are presented in Sri Lankan Rupees and all values are rounded to the nearest thousands (Rs.000) unless otherwise stated. The preparation and presentation of the financial statements is in compliance with the Companies Act No. 07 of 2007. 2.2 Statement of compliance The financial statements of Lanka Walltiles PLC and its subsidiaries have been prepared in accordance with Sri Lanka Accounting Standards (SLAS). 2.3 Comparative information The accounting policies have been consistently applied by the Group and are consistent with those used in the previous year. 2.4 Going concern When preparing financial statements, management has made assessment of the ability of the constituents of the Group to continue as going concern, taking into account all available information about the future, including intentions of curtailment of businesses, as decided by the Board.
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Swisstek (Ceylon) PLC, (formerly known as Parquet (Ceylon) PLC) a subsidiary of Lanka Walltiles PLC has earned a profit before tax of Rs. 2.6 Mn for the year ended 31st March 2012 (2010/11 loss before tax of Rs. 8 Mn) and the company has recorded an accumulated loss of Rs. 197 Mn (2010/11 Rs. 222 Mn) as at the balance sheet date. However, the Directors are of the opinion that the going concern assumption is valid in the preparation of Financial Statements due to the continued financial support from its financial institutions. Therefore, the financial statements of the Company do not include any adjustment relevant to the recoverability and classification of recorded asset amounts and classification of liabilities that may be necessary, if the Company is unable to continue as a going concern. 2.5 Basis of consolidation The consolidated financial statements comprise the financial statements of Lanka Walltiles PLC and its subsidiaries as at 31st March each year. The financial statements of the subsidiaries are prepared for the same reporting year as the parent company using consistent accounting policies. Subsidiaries Subsidiaries are all entities over which the Group has the power to govern the financial and operating policies generally accompanying a shareholding of more than one half of the voting rights. Subsidiaries are fully consolidated from the date on which control is transferred to the Group, and ceases consolidation from the date of disposal. The purchase method of accounting is used to account for the acquisition of subsidiaries by the Group. The cost of an acquisition is measured as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange, plus costs directly attributable to the acquisition. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date, irrespective of the extent of any minority interest. The excess of the cost of acquisition over the fair value of the Groups share of the identifiable net assets acquired is recorded as goodwill. If the cost of acquisition is less than the fair value of the net assets of the subsidiary acquired, the difference is recognized directly in the income statement. Inter-company transactions, balances and unrealized gains on transactions between group companies are eliminated. Companies in the Group, the Group holdings in its subsidiary and associate companies are given in Note 3.2 to the financial statements. Goodwill Goodwill acquired in a business combination is initially measured at cost being the excess of the cost of the business combination over the groups interest in the net fair value of the identifiable assets, liabilities and contingent liabilities. Following initial recognition, goodwill is measured at cost less any accumulated impairment losses. Goodwill is reviewed for impairment, annually or more frequently if events or changes in circumstances indicate that the carrying value may be impaired. For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to groups of cash-generating units that are expected to benefit from the synergies of the combination. Impairment is determined by assessing the recoverable amount of the cash generating
76
Accounting Policies Contd.
unit to which the goodwill relates. Where the recoverable amount of the cash generating unit is less than the carrying amount, an impairment loss is recognized. The impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets pro-rata to the carrying amount of each asset in the unit. 3. SIGNIFICANT ACCOUNTING JUDGMENTS, ESTIMATES AND ASSUMPTIONS 3.1 Judgments In the process of applying the Groups accounting policies, management has made the following judgments, apart from those involving estimations, which has the most significant effect on the amounts recognized in the financial statements. a) Deferred tax assets Deferred tax assets are recognized for all unused tax losses to the extent that it is probable that taxable profit will be available against which the losses can be utilized. Significant management judgment is required to determine the amount of deferred tax assets that can be recognized, based upon the likely timing and level of future taxable profits together with future tax planning strategies. b) Allowance for doubtful debts The Group reviews at each balance sheet date all receivables to assess whether an allowance should be recorded in the income statement. The management uses judgment in estimating such amounts in the light of the duration of outstanding and any other factors management is aware of, that indicates uncertainty in recovery. 3.2 Estimates and assumptions The key assumptions concerning the future and other key sources of estimation uncertainty at the balance sheet date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below. The respective carrying amounts of assets and liabilities are given in related notes to the financial statements. a) Defined benefit plans The cost of defined benefit plans - gratuity is determined using actuarial valuations. The actuarial valuation involves making assumptions about discount rates, expected rates of return on assets, future salary increases, morality rates and future pension increases. Due to the long term nature of these plans, such estimates are subject to significant uncertainty. Retirement benefit liability of the Group is disclosed in Note 15. b) Intangible assets For the purposes of impairment testing, goodwill is allocated to cash generating units and are tested for impairment annually.
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c) Depreciation Management assesses useful lives of property, plant and equipment based on the intended use of assets and the economic lives of the assets. Subsequent changes in circumstances such as technological advances or utilization of the assets concerned could result in the actual useful lives differing from initial estimates. Management reviews annually the useful lives of major items of property, plant and equipment as given in Note 1.6. d) Fair value of freehold land The fair value of freehold land was determined by means of a revaluation by independent valuers in reference to market based evidence as detailed in Note 1.1 (l) and 1.4 e) Assets classified as held for sale Assets classified as held for sale are measured at the lower of their carrying amount and fair value less costs to sell. The fair value of such assets has been determined based on an independent professional valuation. f) Allowance for non-moving, slow moving and obsolete inventories The required provision is made based on management assessment of future sales or use of such identified inventories. g) Impairment of non financial assets, investments in subsidiaries and associate Based on Management assessment, the carrying amounts of the above assets are reviewed at each reporting date to determine whether there are any indications of impairment. 4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 4.1 Foreign currency translation The financial statements are presented in Sri Lanka Rupees, which is the Groups functional and presentation currency. Transactions in foreign currencies are initially recorded at the functional currency rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the functional currency rate of exchange ruling at the balance sheet date. All differences are taken to profit or loss. Non monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates as at the dates of the initial transactions. Non monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined. 4.2 Taxation Current taxes Current income tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted by the balance sheet date.
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The provision for income tax is based on the elements of income and expenditure as reported in the financial statements and computed in accordance with the provisions of the relevant tax legislations. Current income tax relating to items recognized directly in equity statement is recognized in equity and not in the income statement. Deferred taxation Deferred income tax is provided, using the liability method, on temporary differences at the balance sheet date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. Deferred income tax liabilities are recognized for all taxable temporary differences except where the deferred income tax liability arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss. Deferred income tax assets are recognized for all deductible temporary differences, carry-forward of unused tax assets and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carry-forward of unused tax assets and unused tax losses can be utilised except where the deferred income tax asset relating to the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and the carrying amount of deferred income tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilised. Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the balance sheet date. Deferred income tax relating to items recognized directly in equity statement is recognized in equity statement and not in the income statement. Sales tax Revenues, expenses and assets are recognized net of the amount of sales tax except where the sales tax incurred on a purchase of assets or services is not recoverable from the taxation authorities in which case the sales tax is recognized as a part of the cost of the asset or part of the expense items as applicable and receivable and payable are stated with the amount of sales tax included. The amount of sales tax recoverable and payable in respect of taxation authorities is included as a part of receivables and payables in the Balance Sheet. 4.3 Borrowing costs Borrowing costs are recognized as an expense in the period in which they are incurred, except to the extent where borrowing costs that are directly attributable to the acquisition, construction, or production of an asset that takes a substantial period of time to get ready for its intended use or sale, are capitalised as part of that asset.
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4.4 Inventories Inventories are valued at the lower of cost and net realizable value, after making due allowances for obsolete and slow moving items. Net realizable value is the price at which inventories can be sold in the ordinary course of business less the estimated cost of completion and the estimated cost necessary to make the sale. The cost incurred in bringing inventories to its present location and condition is accounted using the following cost formulae: Finished goods and work-in-progress Manufacturing goods At the cost of direct materials, direct labour and an appropriate proportion of fixed production overheads based on normal operating capacity, but excluding borrowing cost. Trading goods At purchase cost on first in first out basis Consumable and spares At purchase cost on weighted average basis Raw materials At purchase cost on weighted average cost basis, except for Ceytea Plantation Management Limited and Swisstek (Ceylon) PLC, which is on a first-in-first-out basis. Goods in transit - At purchase cost 4.5 Trade and other receivables Trade receivables are stated at the amounts they are estimated to realise, net of provisions for bad and doubtful receivables. Other receivables and dues from related parties are recognized at cost less provision for bad and doubtful receivables. 4.6 Cash and cash equivalents Cash and cash equivalents are defined as cash in hand, demand deposits and short term highly liquid investments, readily convertible to known amounts of cash and subject to insignificant risk of changes in value.
80
For the purpose of the cash flow statements, cash and cash equivalents consist of cash in hand and deposits in banks net of outstanding bank overdrafts. Investments with short maturities i.e. three months or less from the date of acquisition are also treated as cash equivalents. 4.7 Property, plant and equipment Property, plant and equipment is stated at cost or valuation, excluding the costs of day-to-day servicing, less accumulated depreciation and accumulated impairment in value. Such cost includes the cost of replacing part of the plant and equipment when that cost is incurred, if the recognition criteria are met. Depreciation is calculated on a straight line basis over the useful life of the assets. Freehold land is initially measured at cost and thereafter at fair value. Valuations are performed every 3-5 years (or frequently enough) to ensure that the fair values of a revalued asset does not differ materially from its carrying amount. Any revaluation surplus is credited to the revaluation reserve included in the equity section of the balance sheet, except to the extent that it reverses a revaluation decrease of the same asset previously recognized in profit or loss, in which case the increase is recognized in profit or loss. A revaluation deficit is recognized in profit or loss, except that a deficit directly offsetting a previous surplus on the same asset is directly offset against the surplus in the asset revaluation reserve. When each major inspection is performed, its cost is recognized in the carrying amount of the plant and equipment as a replacement if the recognition criteria are satisfied. An item of property, plant and equipment is derecognized upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on de-recognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the income statement in the year the asset is derecognized. The assets residual values, useful lives and methods of depreciation are reviewed, and adjusted if appropriate, at each financial year end. 4.8 Leases Finance leases Assets obtained under finance lease, which effectively transfer to the Group substantially all of the risks and benefits incidental to ownership of the leased assets, are treated as if they have been purchased outright and are capitalised at their cash price. Assets acquired by way of a finance lease are measured at an amount equal to the lower of the present value of the minimum lease payments and fair value of the leased property. Assets held under finance lease are amortised shorter of the lease period or the useful lives of equivalent owned assets.
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The principal/capital element payable to the lessor is shown as liability/obligation. The lease rentals are treated as consisting of capital and interest elements. The capital element in the rental is applied to reduce the outstanding obligation and interest element is charged against profit, in proportion to the reducing capital outstanding. The cost of improvements on leased property is capitalised, disclosed as improvements to leasehold property and depreciated over the unexpired period of the lease, or the estimated useful lives of the improvements, whichever is shorter. Operating leases Leases where the lessor effectively retains substantially all the risks and benefits of ownership over the leased term are classified as operating leases. Rentals paid under operating leases are recognized as an expense in the income statement on a straight-line basis over the lease term. When an operating lease is terminated before the lease period has expired, any payment required to be made to the lessor by way of penalty is recognized as an expense in the period in which termination takes place. 4.9 Investment property Investment property is property held either to earn rental income or for capital appreciation or both, but not for sale in the ordinary course of business, use in the production or supply of goods or services or for administrative purposes. Investment property is initially measured of its cost including related transaction cost and is thereafter carried at its cost less any accumulated depreciation and any accumulated impairment losses. 4.10 Investments Initial recognition Cost of investment includes purchase cost and acquisition charges such as brokerages, fees, duties and bank regulatory fees. The company distinguishes and presents current and non current investment in the balance sheet. Measurement Current investments Current investments are carried at the lower of cost and market value, determined on the basis of individual investment. Unrealized losses arising from reduction to market value and reversals of such reduction required to state current investments at lower of cost and market value are included in income statement. Long term investments Long term investments are stated at cost. Carrying amounts are reduced to recognize a decline other than temporary, determined for each investment individually. These reductions for other than temporary declines in carrying amounts are charged to income statement. In the case of marketable equity securities, the lower of cost and market value determined on a portfolio basis.
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Investments in subsidiaries Investments in shares held on long term basis are stated at cost less provisions for permanent diminution in value of investment. Disposal of investments On disposal of an investment, the difference between net disposal proceeds and the carrying amounts are recognized as income or expense. 4.11 Investment in an associate The Companys investment in its associate is accounted for using the equity method of accounting. An associate is an entity in which the Company has significant influence and which is neither a subsidiary nor a joint venture. Under the equity method, the investment in the associate is carried in the balance sheet at cost plus post acquisition changes in the Companys share of net assets of the associate net of any accumulated impairment loss. Goodwill relating to an associate is included in the carrying amount of the investment and is not amortized. The income statement reflects the share of the results of operations of the associate. Where there has been a change recognized directly in the equity of the associate, the Company recognizes its share of any changes and discloses this, when applicable, in the statement of changes in equity. Profits and losses resulting from transactions between the Company and the associate are eliminated to the extent of the interest in the associate. 4.12 Provisions Provisions are recognized when the Group has a present obligation (legal or constructive) as a result of past events, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation. When the Group expects some or all of a provision to be reimbursed, the reimbursement is recognized as a separate asset but only when the reimbursement is virtually certain. The expense relating to any provision is presented in the income statement net of any reimbursement. 4.13 Retirement benefit obligations Defined benefit plan The group measures the present value of the promised retirement benefits of gratuity, which is a defined benefit plan using the Projected Unit Credit method (PUC). The services of a qualified actuary is obtained annually to determine the valuation. Actuarial gains and losses are recognized as income or expense when the net cumulative unrecognized actual gains or losses at the end of the previous reporting period exceed 10% of the defined benefit obligation at that date and recognized over the expected average working lives of employees participating in the plan of the defined benefit obligation at that date. The gratuity liability is not externally funded. Past service costs are recognized as an expense on a straight line basis over the average period until the benefits become vested. If the benefits have been already vested, immediately following the introduction of, or changes to a defined benefit plan, past service costs are recognized immediately. The gratuity liability comprises the present value of the gratuity benefit obligation, less past service cost not yet recognized.
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Defined contribution plans - Employees Provident Fund and Employees Trust Fund Employees are eligible for Employees Provident Fund contributions and Employees Trust Fund contributions in line with the respective statutes and regulations. The Group contributes 12% and 3% of gross emoluments of employees to Employees Provident Fund and Employees Trust Fund respectively. 4.14 Grants & Subsidies Grants are recognized where there is reasonable assurance that the grant will be received and all attached conditions will be complied with. When the grant relates to an expense item, it is recognized as income over the period necessary to match the grant on a systematic basis to the costs that it is intended to compensate. Where the grant relates to an asset, it is set up as deferred income. Where the Group receives non-monetary grants, the asset and that grant are recorded at nominal amounts and are released to the income statement over the expected useful life of the relevant asset by equal annual instalments. 4.15 Trade and Other Payables Liabilities classified as trade and other payables in the balance sheet are those which falls due for payment on demand or within one year from the balance sheet date. 4.16 Impairment of non-financial assets The Group assesses at each reporting date whether there is an indication that an asset may be impaired. If any such indication exists, the Group makes an estimate of the assets recoverable amount. An assets recoverable amount is the higher of an assets or cash-generating units fair value less costs to sell and its value in use and is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets. Where the carrying amount of an asset exceeds its recoverable amount an asset is considered impaired and is written down to its recoverable amount. 4.17 Non-current assets held for sale Non-current assets classified as held for sale are measured at the lower of their carrying amount and fair value less costs to sell. Non-current assets are classified as held for sale if their carrying amounts will be recovered principally through a sale transaction rather than through continuing use. This condition is regarded as met only when the sale is highly probable and the asset is available for immediate sale in its present condition. Management must be committed to the sale, which should be expected to qualify for recognition as a completed sale within one year from the date of classification. Property, plant and equipment once classified as held for sale are not depreciated. 4.18 Revenue recognition Revenue is recognized to the extent that it is probable that the economic benefits will flow to the Group and that the revenue and associated costs incurred or to be incurred can be reliably measured. Revenue is measured at the fair value of the consideration received or receivable net of trade discounts and sales taxes, net of sales within the group. The following specific criteria have been used for the purpose of recognition of revenue.
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a) Sale of goods Revenue from sale of goods is recognized when the significant risks and rewards of ownership of the goods have passed to buyer when it is probabale that delivery will be made, the item is on hand, identified and ready for delivery to the buyer at the time the sale is recognized. b) Interest Interest income is recognized as the interest accrues (taking into account the effective yield on the asset) unless collectability is in doubt. c) Dividends Dividend income is recognized when the shareholders right to receive the payment is established based on the public announcement date. d) Rental income Rental income is recognized on an accrual basis. e) Other income Other income is recognized on an accrual basis. Net gains and losses of a revenue nature on the disposal of property, plant & equipment and other non-current assets including investments have been accounted for in the income statement, having deducted from proceeds on disposal, the carrying amount of the assets and related selling expenses. On disposal of re-valued property, plant & equipment, amount remaining in revaluation reserve relating to that asset is transferred directly to accumulated profits. Gains and losses arising from incidental activities to main revenue generating activities and those arising from a group of similar transactions which are not material, are aggregated, reported and presented on a net basis. 4.19 Segmental reporting A segment is a distinguishable component of the Group that is engaged either in providing products or services (business segment) or in providing products or services within a particular economic environment (geographical segment), which is subject to risks and rewards that are different from those of other segments. Segment information is presented in respect of the groups business and has been prepared in conformation with the accounting policies adopted for preparing and presenting the consolidated financial statements of the Group. The business segments are reported based on Group management and internal reporting structure. Inter segment pricing is determined at prices mutually agreed by the companies. Segment result, assets and liabilities include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. Unallocated items mainly comprise of goodwill on consolidation.
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The group comprises the following main business segments: Tiles & associated items The manufacture and distribution of wall tiles, floor tiles and trading of home improvement products. Plantation products Cultivation, processing and sale of tea and rubber Packing materials The manufacture and distribution of packing materials Management considers that there is no suitable basis for allocating such assets and related liabilities to geographical segments. Accordingly, segment assets, segment liabilities and other segment information by geographical segment is not disclosed. 5. SIGNIFICANT ACCOUNTING POLICIES THAT ARE SPECIFIC TO THE BUSINESS OF PLANTATION 5.1 Basis of Preparation The Financial Statements are in compliance with the Specific Accounting Standard for Plantations, SLAS - 32 and accepted trade practices in the industry, and are prepared on the historical cost conversion other than the bare land and the leased assets of JEDB / SLSPC, which have been revalued as more fully described in Notes 1.1 (d) and 1.1 (e). 5.2 Inventories Nurseries At cost of direct materials, direct labour and an appropriate proportion of directly attributable overheads less provision for overgrown plants. Produce stocks Manufactured up to the Balance Sheet date and sold since then, until the time of preparation of the financial statements are valued at since realised price. The balance stocks are valued at estimated selling price. The prices are net of all attributable expenses relating to the public auction. 5.3 Property, plant and equipment a) Permanent land development cost Permanent land development costs incurred in making major infrastructure development and building new access roads on leasehold lands. These costs have been capitalized and amortized over the remaining lease period. Permanent impairment of land development costs are charged to the income statement in full or reduced to the net carrying amounts of such assets in the year of occurrence after ascertaining the loss.
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b) Limited life land development cost (immature and mature plantations) The cost of land preparation, rehabilitation, new planting, re-planting, crop diversifying, inter-planting and fertilizing, etc., incurred between the time of planting and harvesting (when the planted area attains maturity), are classified as immature plantations. These immature plantations are shown at direct costs plus attributable overheads, including interest attributable to long term loans used for financing immature plantations. Permanent impairment of land development costs are charged to the income statement in full or reduced to the net carrying amounts of such asset in the year of occurrence after ascertaining the loss. The expenditure incurred on perennial crop (tea and/or rubber) fields, which come in to bearing during the year, has been transferred to mature plantations. c) Infilling cost The land development costs incurred in the form of infilling have been capitalized to the relevant mature field, only where the number of plants per hectare exceeded 3,000 plants and, also if it increases the expected future benefits from that field, beyond its pre-infilling performance assessment. Infilling costs so capitalized are depreciated over the newly assessed remaining useful economic life of the relevant mature plantation, or the unexpired lease period, whichever is lower. Infilling costs that are not capitalized have been charged to the income statement in the year in which they were incurred. d) Borrowing cost Borrowing costs incurred in respect of specific loans that are utilised for field 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 commercial harvest. 5.4 Retirement benefit obligations Defined benefit plans The retirement benefit plan adopted is as required under the payment of Gratuity Act No.12 of 1983 and the Indian Repatriate Act No. 34 of 1978 to eligible employees. Provision for Gratuity on the Employees of the company is measured using the Project Unit Credit (PUC) method as once in two years, using the service of qualified actuary. The liability is not externally funded. Defined benefit plan The Company contributes 12% on consolidated salary of the employees as appropriate to Ceylon Planters Provident Society (CPPS)/Estate Staffs Provident Society (ESPS)/Employees Provident Fund (EPF). All the employees of the Company are members of the Employees Trust Fund, to which the Company contributes 3% on the consolidated salary of such employees.
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5.5 Revenue recognition In keeping with the practices in the plantation industry, revenue and profit or loss on sale of perennial crops are recognized in the financial period of harvesting. Revenue is recorded at invoice value net of brokerage, sale expenses and other levies related to revenue. 6. EFFECT OF SRI LANKA ACCOUNTING STANDARDS (SLAS) ISSUED BUT NOT YET EFFECTIVE The Company and the Group will be adopting the new Sri Lanka Accounting Standards (new SLAS) comprising LKAS and SLFRS applicable for financial periods commencing from 01st January 2012 as issued by the Institute of Chartered Accountants of Sri Lanka. The Company and the Group have commenced reviewing its accounting policies and financial reporting in readiness for the transition. As the Company has a 31st March year end, priority has been given to considering the preparation of an opening balance sheet in accordance with the new SLASs as at 01st April 2011. This will form the basis of accounting for the new SLASs in the future, and is required when the Company prepares its first new SLAS compliant financial statements for the year ending 31st March 2013. The Company and the Group are in the process of quantifying the impact on the financial statements arising from such changes in accounting policies. The Institute of Chartered Accountants of Sri Lanka has resolved an amendment to Sri Lanka Accounting Standard 10, whereby the provision contained in paragraphs 30 and 31 of SLAS 10 Accounting Policies, Changes in Accounting Estimates and Errors, would no be applicable for financial statements prepared in respect of financial periods commencing before 1st January 2012 and hence the impact of this transition is not required to be disclosed in these financial statements.
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Notes to the FinanciaL Statements
1.0 PROPERTY, PLANT & EQUIPMENT 1.1 GROUP (a) Gross carrying amounts At cost or valuation Freehold land & clay mining land Buildings on freehold land and roadway Plant and machinery Water supply and electricity distribution scheme Tools, implements and furniture and fittings Transport and communication equipment Total Assets on finance leases Plant and machinery Transport and communication equipment Total In the course of construction Capital work in progress Total
Balance Additions Disposals/ as at Transfers 01.04.2011 Rs.000 Rs.000 Rs.000
Balance as at 31.03.2012 Rs.000
979,956 1,501,874 3,480,119 234,196 438,629 336,486 6,971,260
274,835 220,274 1,511,251 87,518 78,061 41,177 2,213,116
- (24,601) (147,974) (2,569) (13,984) (22,672) (211,800)
1,254,791 1,697,547 4,843,396 319,145 502,706 354,991 8,972,576
172,230 55,349 227,579
35,915 14,480 50,395
- (8,282) (8,282)
208,144 61,547 269,692
690,158 7,888,997
524,637 2,788,148
(1,037,340) (1,257,422)
177,455 9,419,723
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(b) Depreciation At cost or valuation Freehold land & clay mining land Buildings on freehold land and roadway Plant and machinery Water supply and electricity distribution scheme Tools, implements, furniture and fittings Transport and communication equipment Total Assets on finance leases Plant and machinery Transport and communication equipment Total Total
Charge for Disposals the year/ Transfers Rs.000 Rs.000
3,730 266,601 1,804,658 146,693 305,989 206,465 2,734,136
- 35,535 242,051 21,870 47,048 36,324 382,828
- (2,267) (95,789) (2,479) (12,743) (18,474) (131,752) Disposals/ Transfers Rs.000
3,730 299,868 1,950,920 166,084 340,294 224,315 2,985,212 Balance as at 31.03.2012 Rs.000
Balance Additions as at 01.04.2011 Rs.000 Rs.000
32,127 25,457 57,584 2,791,720
1,734 12,830 14,564 397,392
(1,056) (7,225) (8,281) (140,033)
32,805 31,062 63,867 3,049,079
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Notes to the Financial Statements Contd.
As at 31st March (c) Net book value of assets At cost or valuation Freehold land & clay mining land Buildings on freehold land and roadway Plant and machinery Water supply and electricity distribution scheme Tools, implements and furniture and fittings Transport and communication equipment Total Assets on finance leases Plant and machinery Transport and communication equipment Total In the course of construction Capital work in progress Net Value [ 1.1(g)] As at 31st March (d) Leasehold right to bare land of JEDB/SLSPC estates Revaluation As at 22.06.1992 Amortisation At the beginning During the period At the end Written down value At the end [1.1 (g)]
2012 Rs.000
2011 Rs.000
1,251,061 1,397,678 2,892,476 153,061 162,412 130,676 5,987,364
976,226 1,235,273 1,675,461 87,503 132,640 130,021 4,237,124
175,340 30,485 205,825
140,103 29,892 169,995
177,455 6,370,644 2012 Rs.000
690,158 5,097,277 2011 Rs.000
204,931
204,931
72,611 3,867 76,478
68,744 3,867 72,611
128,453
132,320
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The leasehold rights to the bare land on all estates (except for Dumbara Estate which is under an operating lease) have been taken into the books of Horana Plantations PLC (HPPLC), as at 22nd June 1992, immediately after the formation of HPPLC, in terms of the opinion obtained from the Urgent Issue Task Force (UITF) of The Institute of Chartered Accountant of Sri Lanka. For this purpose lands have been revalued at Rs. 204.931 Mn being the value established for these lands by valuation specialist, D.R. Wickramasinghe just prior to the formation of HPPLC. Immature Mature plantations plantations Rs.000 Rs.000 (e) Immovable JEDB/SLSPC estate assets on finance leases (other than right to bare land) Revaluation As at 22.06.1992 Transfers to mature At the end Amortisation At the beginning During the period At the end Written Down Value At the beginning At the end [1.1 (g)] Permanent Buildings land development cost Rs.000 Rs.000 Plant and machinery Total
Rs.000
Rs.000
145,993 (145,993) -
68,817 145,993 214,810
4,014 - 4,014
47,173 - 47,173
6,818 - 6,818
272,815 272,815
- - -
118,164 7,160 125,324
2,513 134 2,647
35,435 1,887 37,322
6,818 - 6,818
162,930 9,181 172,111
- -
96,646 89,486
1,501 1,367
11,738 9,851
- -
109,885 100,704
In terms of the opinion obtained from the UITF all immovable estate property, plant and equipment under finance leases have been taken into the books of HPPLC retrospective to 22nd June 1992. For this purpose all estate immovables have been revalued at their book value as they appear in the books of the lessor (JEDB/SLSPC), as the case may be on the day immediately preceding the date of formation of HPPLC. Investments in plantations which were immature, at the time of hand over to the HPPLC by way of estate leases, are shown under immature plantations (revalued as at 22.06.92). Further, investments in such immature plantations to bring them to maturity are shown under Note 1.1 (f) - Limited life land development costs
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after take over. When these plantations become mature the additional investment to bring them to maturity will be moved from the category immature plantations to mature plantations shown under Note 1.1 (f), and a corresponding move from immature plantations to mature plantation will be made in the above category, namely cost incurred before take over. Tea Rubber Diversification Reforestation As at 31st March Rs.000 Rs.000 Rs.000 Rs.000 (f) Limited life land development cost after take over Immature plantations Cost At the beginning Additions during the period Transfers to mature Transferred to Income Statement At the end Mature plantations Cost At the beginning Transfers from immature Transferred to Income Statement At the end Amortisation At the beginning Charge for the period Transferred to Income Statement At the end Written Down Value Total immature and mature plantations Total 2012 Rs.000 Total 2011 Rs.000
129,563 70,451 (54,832) - 145,182
319,376 132,009 (60,149) - 391,236
2,285 1,276 (2,927) - 634
76,901 8,645 (10,628) - 74,918
528,125 212,381 (128,536) - 611,970
407,118 173,338 (52,120) (211) 528,125
310,094 54,832 - 364,926
413,698 70,777 - 484,475
16,768 2,927 - 19,695
- - - -
740,560 128,536 - 869,096
688,694 52,120 (254) 740,560
58,133 9,303 - 67,436 297,490 442,672
116,786 20,685 - 137,471 347,004 738,240
2,843 653 - 3,496 16,199 16,833
- - - - - 74,918
177,762 30,641 - 208,403 660,693 1,272,663
149,655 28,361 (254) 177,762 562,798 1,090,923
These are investments in immature/mature plantations since the formation of HPPLC. The assets (including plantations) taken over by way of estate leases are set out in Note 1.1 (d) and 1.1 (e). 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
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this category as and when field become mature. Borrowing costs amounting to Rs. 13.69 Mn (2011 - Rs. 18.76 Mn) directly relating to investment in immature plantations of tea, rubber, diversification and reforestation have been capitalised during the period, at an average borrowing rate of 11.92% (2011 - 13.41%). As at 31st March (g) Net book value of assets Property, plant and equipment [1.1 (c)] Leasehold right to bare land of JEDB/SLSPC Estates [1.1 (d)] Immovable JEDB/SLSPC estate assets on finance leases (other than right to bare land) [1.1 (e)] Limited life land development cost after take over [1.1 (f)] Total 2012 Rs.000 2011 Rs.000
6,370,644 128,453 100,704 1,272,663 7,872,464
5,097,277 132,320 109,885 1,090,923 6,430,405
(h) Fixed assets include fully depreciated assets, the cost of which at the Balance Sheet date amounted to Rs. 731.349 Mn. (2011- Rs. 681.01 Mn). (i) During the financial year, the Group acquired property, plant & equipment to the aggregate value of Rs. 1,709.34 Mn (2011 - Rs. 1,141.74 Mn). Cash payments amounting to Rs. 1505.01 Mn (2011 - 1,122.98 Mn) were made during the year for purchases of property plant & equipments. (j) In Lanka Floortiles PLC, the market value of freehold and clay mining land is Rs. 568,114,651, as per the valuation carried out by the independent professional valuer, Ranjan J Samarakone, as at 31st March 2010. Management is of the view that no significant change in the market value of land has taken place as at 31st March 2012. The market value of freehold land purchased during the year has a valuation of Rs. 88,425,000 as per the valuation carried out by the same valuer, as at 16 June 2011. (k) Plant and equipment includes assets worth net book value of Rs. 504.57 Mn ( 2011 - Rs. 480.32 Mn) movable assets vested in Horana Plantations PLC by Gazette Notification on the date of formation of the Horana Plantation PLC (i.e. 22.06.1992) and all investment in tangible assets (both movable & immovables) by the Horana Plantations PLC since its formation other than plantation improvements. (i) The following properties have been revalued and recorded under note 1.1 (a), freehold land and clay mining land. Uni Dil Packaging Ltd. has revalued the land situated at Narampola Road, Moragala, Dekatana initially on 15th August 2007 by Mr. Anton Rich, an independent professional valuer, and the resulted revaluation reserve amouting to Rs. 35.163 Mn has been recognised under revaluation reserve. The land has been gain revalued by the same valuer on 29th April 2010 on reassessment of fair value of the land, and it has been identified that there is no permanent impairement of land which requires provision. (ii) Uni Dil Paper Sacks (Private) Limited has revalued the land situated at Narampola Road, Moragala, Dekatana on 29th April 2010 by Mr. C. Anton Rich, an independent professional valuer. On reassessment of fair value of the Companys land it has been identified that there is no permanent impairment of land which requires provision in the financial statements.
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(iii) Swisstek (Ceylon) PLCs land & building at Balummahara, Imbulgoda were revalued in the year ended 1997 by an independent chartered valuer Mr. K J T D Tissera. 80% of such valuation was incorporated in the financial statements with effect from 1 April 1997. The same property was subsequently revalued during the year ended 31st March 2008 by an independent chartered valuer, Mr. R J Samarakoon, on 5th July 2007. 60% of such valuation was incorporated in the financial statements with effect from 5th July 2007. Further same property was revalued by an independent chartered valuer, R J Samarakoon, on 31 March 2010,on an open market value basis.The said valuation have been incorporated in the financial statements (iv) Refer Note 1.4 for revaluation of land of Lanka Walltiles PLC. 1.2 The useful lives of the assets are estimated as follows: Non plantation assets Buildings on free hold land and roadway Plant and machinery Water supply and electricity distribution scheme Tools, implements and furniture and fittings Transport and communication equipment Plantation assets The leasehold rights to JEDB/ SLSPC are amortised in equal amounts over the following years Bare land Mature plantations Permanent land development costs Buildings Plant and machinery Mature Plantation (re-planting and new planting) Mature plantations (Tea) Mature plantations (Rubber) Mature plantations (Coconut) Mature plantations (Cinnamon) Mature plantations (Coffee and pepper) Mature plantations (Pineapple)
2012 Years
2011 Years
25,40 & 50 5-20 5-25 2,4,5 & 10 4 to 12
25,40 & 50 5-20 5-25 2,4,5 & 10 4 to 12
53 30 30 25 15
53 30 30 25 15
33 1/3 20 50 15 4 3
33 1/3 20 20 15 4 3
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1.3 COMPANY Gross Carrying Amounts (a) At cost Freehold land Buildings Plant and machinery Water supply, electricity distribution scheme and computer equipment Tools, implements, furniture and fittings, electrical appliances, communication equipments Transport equipment Total (b) At valuation Freehold land Total (c) In the course of construction Capital work in progress - building & others Capital work in progress - plant & machinery Total
Balance Additions as at 01.04.2011 Rs.000 Rs.000
Disposals/ Transfers Rs.000
21,701 331,887 856,898 71,598 163,266 117,573 1,562,923
173,536 108,725 774,415 55,377 18,482 24,498 1,155,033
- (2,113) (88,898) (2,569) (9,161) (17,313) (120,054) Disposals/ Transfers Rs.000
195,237 438,499 1,542,415 124,406 172,587 124,758 2,597,901 Balance as at 31.03.2012 Rs.000
Balance Revaluation as at 01.04.2011 Rs.000 Rs.000
400,094 400,094 Balance as at 01.04.2011 Rs.000
- - Incurred during the year Rs.000
- - Disposals/ Transfers Rs.000
400,094 400,094 Balance as at 31.03.2012 Rs.000
14,395 561,126 575,521 2,538,538
52,505 226,555 279,060 1,434,093
(1,099) (787,681) (788,780) (908,834)
65,801 65,801 3,063,796
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(d) Depreciation At cost Buildings Plant and machinery Water supply, electricity distribution scheme and computer equipment Tools, implements, furniture and fittings, electrical appliances, communication equipment Transport equipment Total
Charged during the year Rs.000
Disposals Transfers Rs.000
112,235 632,254 61,568 115,083 56,059 977,199
11,281 77,102 6,846 17,975 13,046 126,250
(1,838) (90,142) (2,479) (8,671) (11,586) (114,716) Balance as at 31.03.2012 Rs.000
121,678 619,214 65,935 124,387 57,519 988,733 Balance as at 31.03.2011 Rs.000
(e) Net book value of assets At cost Freehold land Buildings Plant and machinery Water supply, electricity distribution scheme and computer equipment Tools, implements, furniture and fittings, electrical appliances, communication equipment Transport equipment At valuation Freehold land Capital work in progress Net book value
195,237 316,821 923,201 58,471 48,200 67,239 1,609,169
21,701 219,652 224,644 10,030 48,183 61,514 585,724
400,094 2,009,263 65,801 2,075,064
400,094 985,818 575,521 1,561,340
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1.4 Assets At Valuation The fair value of freehold lands were determined by means of a revaluation during the financial year 2009 / 2010 by Messrs. Sunil Fernando and Associates (Pvt) Ltd. an independent firm of chartered valuation surveyors; in reference to market based evidence by using following methods. a) Property bearing assets No. 215, Nawala Road, Narahenpita, Colombo 05, which is revalued at Rs. 123,000,000/- estimating the worth of the property to its owner, the value in use. Property depicted as continguous lot Nos, 1,2,3,4,5,6,&7 in plan No. 801, Kirimetitenna, Balangoda, which is revaluated at Rs. 50,920,000/-. Estimating its alternative use for middle class residential purposes. Property depicted as contiguous lot Nos. 3 & 4 in Plan No. 12/94, Mawathgama, Galagedara which is revalued at Rs. 226,174,000/-.
b)
c)
The results of such revaluations were incorporated in these financial statements as of the effective date. The surplus arising from the revaluation was transferred to a revaluation reserve as of the said date (Note 12). Cost of revalued aforesaid freehold land as at end of financial year is Rs. 29.55 Mn (2011- Rs. 31.05 Mn). 1.5 During the financial year, the Company acquired property, plant and equipment to the aggregate value of Rs. 627.94 Mn (2011 - Rs. 495.84 Mn). Cash payments amounting to Rs. 427.71 Mn (2011- Rs. 316.97 Mn) were made during the year for purchase of Property, Plant and Equipment. 1.6 The useful lives of the assets are estimated as follows: Buildings Plant and machinery Water supply and electricity distribution scheme Tools, implements, furniture and fittings Transport and communication equipment
2012 Years 25-50 5 - 20 5 - 15 2 - 5 7 - 10
2011 Years 25-50 5 - 20 5 - 15 2-5 7 - 10
1.7 Fixed assets include fully depreciated assets the cost of which at the Balance Sheet date amounted to Rs. 499.6 Mn (2010 /2011 - Rs. 277.6 Mn).
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2.0 INVESTMENT PROPERTY Cost / Revaluation As at 01st April Transfer from property plant & equipment Revaluation surplus / (deficit) As at 31st March Accumulated depreciation As at 01st April Transfer from property plant & equipment As at 31st March Net book value
GROUP 2012 2011 Rs.000 Rs.000
- 22,488 (2,555) 19,933 - 428 428 19,505
No of Shares Holding 2012 2011 2012 2011 000 000 % % 3.0 INVESTMENTS IN SUBSIDIARIES 3.1 Long term investments of Company a) Quoted companies Lanka Floortiles PLC 28,917 Total quoted investments in subsidiaries
Cost 2012 Rs.000
Market value Cost 2012 2011 Rs.000 Rs.000
Market value 2011 Rs.000
28,917
54.51 54.51
350,642 1,882,480 350,642 1,882,480
350,642 3,790,985 350,642 3,790,985
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No of Shares Holding 2012 2011 2012 2011 000 000 % % b) Non-quoted companies Ceytea Plantation Management Ltd. 7,199 Total non-quoted investments in subsidiaries Total net carrying value of investments in subsidiaries
Directors Directors Cost valuation Cost valuation 2012 2012 2011 2011 Rs.000 Rs.000 Rs.000 Rs.000
7,199
52.94 52.94
158,000 158,000 158,000 158,000 508,642
158,000 158,000 508,642
158,000 158,000
3.2 Details of those companies in which Lanka Walltiles PLC, held a controlling interest, as at 31 March 2012 directly or indirectly (Group) are set out below: Percentage of share holding in subsidiaries Name of Company 1) Lanka Floortiles PLC* 2) Ceytea Plantation Management Ltd. 3) Horana Plantations PLC 4) Fairlawn Power (Pvt) Ltd. 5) Uni-Dil Packaging Ltd. 6) Uni-Dil Paper Sacks (Pvt) Ltd. 7) Swisstek (Ceylon) PLC 8) Swisstek Aluminium Ltd. Group 2012 54.51 52.94 27.00 14.28 52.94 52.94 59.28 51.81 2011 54.51 52.94 27.00 14.28 52.94 52.94 59.28 36.75 Company 2012 54.51 52.94 11.48 Principal activities of the 2011 company 54.51 Manufacture of floor tiles
Auditors M/s PricewaterhouseCoopers
52.94 Providing management M/s KPMG Ford, Rhodes, Thornton & Co. services to plantation industry - Agricultural production - Mini hydro power project - Manufacture and sale of cartons for packing - Manufacture and sale of paper sacks for packing 11.48 Manufacture and sale of tile grout and tile mortar. - Manufacture and sale of aluminium extrusions M/s KPMG Ford, Rhodes, Thornton & Co. M/s KPMG Ford, Rhodes, Thornton & Co. M/s KPMG Ford, Rhodes, Thornton & Co. M/s KPMG Ford, Rhodes, Thornton & Co. M/s KPMG Ford, Rhodes, Thornton & Co. M/s PricewaterhouseCoopers
Lanka Floortiles PLC As a part of the Group restructuring process, the Board of Directors approved to amalgamate wholly owned subsidiaries, Lanka Tiles Trading (Private) Limited and Ceradec (Private) Limited (amalgamating companies) with Lanka Floortiles PLC (amalgamated company) through the Board resolution dated 28th April 2011.
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The approval to execute the amalgamation (Certificate of Amalgamation) was received from Registrar of Companies on 19th December 2011. Accordingly, in terms of Section 242 (1) of the Companies Act No. 07 of 2007, the assets and liabilities of the two subsidiaries were amalgamated with the Company on 19th December 2011. In terms of Section 245 (c) of the Companies Act, names of the two subsidiaries, Lanka Tiles Trading (Private) Limited and Ceradec (Private) Limited were removed from the register of Companies by the Registrar on 19th December 2011 and ceased to exist thereafter.
This amalgamation has had no impact to the Financial Statements. 3.3 The financial statements of Fairlawn Power (Pvt) Ltd. has not been consolidated as at the Balance Sheet date, since the company is still in the pre operational stage and no real value to share holders of the Horana Plantations PLC, under Section 153 (6)a of the Companies Act No. 07 of 2007. Further Horana Plantations PLC has fully provided for this investment.The shares of Fairlawn Power (Pvt) Ltd. were alloted on 29th July 1997. 3.4 On the 30th October 2010 Swisstek (Ceylon) PLC (formerly Parquet (Ceylon) PLC) obtained control of Swisstek Aluminium Limited (formerly known as Ceykor Aluminium Industries Limited) by acquiring 62% of shares and voting interest of the Company. Please refer Note 3.2 for precentage in shareholding in subsidiaries. Acquisition of Subsidiaries Identifiable assets acquired and liabilities assumed Property, Plant & Equipment Inventories Trade and other receivables Cash and cash equivalents Retirement benefit obligation Long term loans Trade and other payables Finance lease creditors Amounts due to related parties Bank overdrafts Total
2011 Rs.000
635,005 38,077 11,506 6,560 (625) (356,813) (52,348) (12,126) (32,194) (16,225) 220,817
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Acquisition of Subsidiaries Contd. Net assets acquired 62% Excess on acquisition Satisfied by cash consideration Analysis of net outflow of cash and cash equivalents in respect of the acquisition of subsidiaries Cash consideration Cash and bank balances acquired Total
2011 Rs.000 136,906 (42,467) 94,439
94,440 9,665 104,105
4.0 INVESTMENTS IN ASSOCIATES Quoted company Swisstek (Ceylon) PLC Carrying value at the beginning Acquisition of shares Carrying value at the end No of shares Market value Percentage of share holding in associate
COMPANY 2012 2011 Rs.000 Rs.000 41,247 - 41,247 3,141 46,647 11.48% 12,976 28,271 41,247 3,141 66,280 11.48%
4.1 Sumarized financial information of associates Current assets Non current assets Current liabilities Non current liabiilties Equity
COMPANY 2012 2011 Rs.000 Rs.000 474,576 1,064,509 (637,966) (265,785) 635,334 274,308 995,976 (337,251) (315,194) 617,839
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4.1 Sumarized financial information of associates Contd. Revenue Profit/(Loss) after tax
COMPANY 2012 2011 Rs.000 Rs.000 1,094,584 20,050 310,154 (1,130)
5.0 LONG TERM RECEIVABLES As at 31st March Advance company tax receivable Total
GROUP 2012 2011 Rs.000 Rs.000 27,285 27,285 27,285 27,285
6.0 DEFERRED TAX ASSET As at 31st March Deferred tax assets at the beginning of the year Deferred tax (charge) / reversal (6.1) Transfer due to amalgamation Deferred tax assets transfer to liabilities Deferred tax assets at the end of the year (6.2) 6.1 Deferred tax (charge) / reversal Capital allowances for tax purpose Retirement benefit obligation Transfer due to amalgamation Carried forward tax losses
GROUP 2012 Rs.000 6,275 (66,877) - 82,971 22,369 2011 Rs.000 9,805 65,760 (69,290) - 6,275
COMPANY 2012 2011 Rs.000 Rs.000 6,275 (89,246) - 82,971 - 9,805 65,760 (69,290) 6,275
(60,516) 336 - (6,697) (66,877)
(56,147) (16,774) 69,290 69,391 65,760
(49,580) (557) - (39,109) (89,246)
(56,147) (16,774) 69,290 69,391 65,760
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6.2 Deferred tax asset as at end of the year As at 31st March Capital allowances for tax purpose Retirement benefit obligation Carried forward tax losses Deferred tax assets transferred to liabilities
2012 Rs.000
GROUP COMPANY 2011 2012 2011 Rs.000 Rs.000 Rs.000 (71,399) 8,283 69,391 - 6,275 (120,979) 7,726 30,282 82,971 - (71,399) 8,283 69,391 6,275
(131,915) 8,619 62,694 82,971 22,369
6.3 Uni Dil Paper Sacks (Pvt) Ltd. has not recognised the deferred tax asset of Rs. 55.082 Mn as Directors of the company are of the opinion that the reversal of the deferred tax asset will not be crystallizing in the foreseeable future.
7.0 INVENTORIES As at 31st March Raw materials Work in progress Finished goods Goods in transit Consumables and spares Harvested crops Growing nurseries Allowances for obsolete and slow moving spares Total
GROUP 2012 Rs.000 866,943 114,619 846,303 79,565 433,965 214,010 20,049 (82,068) 2,493,386 2011 Rs.000 719,700 95,054 475,406 4,272 413,034 240,429 16,201 (132,222) 1,831,874
COMPANY 2012 2011 Rs.000 Rs.000 195,358 26,498 480,798 36,091 192,006 - - (16,613) 914,138 163,139 12,896 186,597 4,125 138,023 (30,737) 474,043
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8.0 TRADE AND OTHER RECEIVABLES As at 31st March Trade debtors - related parties (8.1) - others Other debtors Advance and prepayments Loans to company officers Less: Allowances for doubtful debts Total 8.1 Trade debtors - related parties As at 31st March Company Relationship Lanka Ceramic PLC Holding Company Cargills (Ceylon) PLC Group Company Lanka Floortiles PLC Subsidiary Company CT Land Development PLC Affiliate Company Bandarawela Hotel Affiliate Company Total
GROUP 2012 Rs.000 2,366 1,584,916 1,587,282 188,629 129,666 26,798 (22,315) 1,910,060 2011 Rs.000 294 845,081 845,375 163,723 134,067 27,059 (8,481) 1,161,743
COMPANY 2012 2011 Rs.000 Rs.000 28,855 464,936 493,791 108,827 12,497 2,520 (7,704) 609,931 2,638 240,335 242,973 61,355 10,177 2,399 (7,704) 309,200
GROUP 2012 Rs.000 10 2,302 - 8 46 2,366 2011 Rs.000 5 254 - 12 23 294
COMPANY 2012 2011 Rs.000 Rs.000 - 2,302 26,553 - - 28,855 254 2,384 2,638
9.0 AMOUNTS DUE FROM RELATED PARTIES Lanka Ceramic PLC Holding Company Swisstek (Ceylon) PLC Subsidiary Company Swisstek Aluminium Ltd. Group Company Total
- - - -
2,587 - - 2,587
- 8,171 12,699 20,870
2,587 164 2,557 5,308
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10.0 SHORT TERM INVESTMENTS As at 31st March Fixed deposits with maturity less than 12 months Deposit of tsunami donations Short term deposits Total
GROUP 2012 Rs.000 - 3,810 4,220 8,030 2011 Rs.000 25,731 4,286 66,830 96,847
COMPANY 2012 2011 Rs.000 Rs.000 - 3,810 52 3,862 25,731 4,286 37,599 67,616
11.0 STATED CAPITAL Balance at the beginning of the year Transferred from general reserves Transferred from retained earnings Direct cost on capitalisation of reserves Balance at the end of the year (11.3) 11.1 Issued and fully paid Balance at the beginning of the year Additions due to capitalisation of reserves Balance at the end of the year (11.3)
787,765 - - - 787,765
576,822 99,636 118,764 (7,457) 787,765
787,765 - - - 787,765
576,822 101,878 116,522 (7,457) 787,765
54,600 - 54,600
45,500 9,100 54,600
54,600 - 54,600
45,500 9,100 54,600
11.2 At an Extraordinary General Meeting held on 8th February 2011 it was resolved that balances carrying in the general reserve and retained earnings of Rs. 101,878,000/- and Rs. 116,522,000/- respectively be transferred to Stated Capital, thereby increasing the ordinary shares in issue to a maximum of 54,600,000. Expenses relating to the issue of shares amounting to Rs. 7,457,000/- have been deducted from such amount. 11.3 The holders of ordinary shares confer their right to receive dividends as declared from time to time and are entitled to one vote per share at a meeting of the Company. All shares rank equally with regard to the Companys residual assets.
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12.0 RESERVES As at 31st March Revaluation reserve (12.1) Total 12.1 Revaluation reserve On: Property Plant & Equipment As at 01st April Revaluation surplus with regard to disposed items during the year Loss on investment property transfer As at 31st March
GROUP 2012 Rs.000 470,507 470,507 2011 Rs.000 477,466 477,466
COMPANY 2012 2011 Rs.000 Rs.000 170,296 170,296 176,296 176,296
477,466 (6,000) (959) 470,507
477,466 - - 477,466
176,296 (6,000) - 170,296
176,296 176,296
13.0 INTEREST BEARING LIABILITIES Non Current Long term loans (13.1) Finance leases (13.2) Total Current Long term loans (13.1) Finance leases (13.2) Short term loans Bank overdrafts (29) Total Total
1,686,053 152,133 1,838,186
1,001,609 191,351 1,192,960
799,406 - 799,406
312,321 312,321
279,215 65,359 504,347 495,793 1,344,714 3,182,900
170,087 64,656 323,441 101,039 659,223 1,852,183
73,105 - - 236,881 309,986 1,109,392
10,936 46,423 57,359 369,680
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As at 31st March 13.1 Long term loans At the beginning Acquisition of subsidiary / Transfer Loans obtained Exchange loss Repayments At the end (13.4) Amount payable within 12 months Amount payable after 12 months Total 13.2 Finance leases JEDB / SLSPC estates (13.3) Other finance lease creditors Gross liability Finance charges allocated to future period Net liability Amount payable within one year Amount payable after one year Total
GROUP 2012 Rs.000 2011 Rs.000
COMPANY 2012 2011 Rs.000 Rs.000
1,171,696 - 997,694 38,925 (243,047) 1,965,268 279,215 1,686,053 1,965,268
694,101 333,622 566,000 (189) (421,838) 1,171,696 170,087 1,001,609 1,171,696
323,257 - 548,270 35,370 (34,386) 872,511 73,105 799,406 872,511
2,653 321,665 (1,061) 323,257 10,936 312,321 323,257
As at 01/04/2011 Rs.000 185,048 177,239 362,287 (106,280) 256,007 64,656 191,351 256,007
New leases Repayments obtained Rs.000 Rs.000 8,840 39,480 48,320 - - - - - (21,364) (76,456) (97,820) - - - - -
As at 31/03/2012 Rs.000 172,524 140,263 312,787 (95,295) 217,492 65,359 152,133 217,492
13.3 The lease rentals have been amended with effect from 22nd June 1996 to an amount substantially higher than the previous nominal lease rental of Rs. 500/per estate per annum. The basic rental payable under the revised basis is Rs. 5.228 Mn per annum. This amount is to be inflated annually by the Gross Domestic Product (GDP) deflator in the form of contingent rent.
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This lease agreement was further amended on 10th June 2005, freezing the annual lease rental at Rs. 7.472 Mn for a period of six years commencing from 22nd June 2002. Hence, the GDP Deflator adjustment will be frozen at Rs. 2.244 Mn per annum until 21st June 2008. Accordingly, the Financial Statements of Ceytea Plantation Management Limited have been adjusted in order to reflect the future net liability in the following manner: Future liability on the revised annual lease payment of Rs. 7.472 Mn will continue until 21st June 2008, and thereafter from 22nd June 2008, annual lease payment will remain at Rs. 5.228 Mn, until 21st June 2045. The Net Present Value of this liability at a 4% discounting rate would result in a liability of Rs. 102.646 Mn. The net present value as at date is represented by: Gross Liability - Overdue - 36 years @ Rs. 5.228 Mn per annum Less: Interest in suspense Net Present Value 13.4 Details of long term loans of the Group Balance as at 31/03/2012 Rs.000 443 88 2,040 9,750 300,000 Rs. Mn 172,524 172,524 (78,540) 93,984
Financial Institution National Development Bank PLC
Repayment terms 54 monthly installments 48 monthly installments 54 monthly installments 54 monthly installments 60 monthly installments
Hatton National Bank
60 monthly installments
Principal Interest rate per Rs.000 annum Security Lanka Walltiles PLC 3,914 6.50% Primary mortgage over plant & machinery with a net 691 AWPLR +2% carrying value of Rs. 3.7 Mn Primary mortgage over 4,960 8.50% plant & machinery worth Rs. 3.6 Mn 40,500 8.50% Primary mortgage for 40.5 Mn over the machines & gassifier plant 300,000 AWPLR +1% Primary mortgage bond for Rs. 390 Mn over the project assets comprising land, building and machinery at Meepe 233,640 LIBOR+3.75% Secondary mortgage bond for USD 1.8 Mn over (USD with floor rate the project assets comprising land, building and 1,800,000) of 4% machinery at Meepe
233,640
109
Financial Institution Commercial Bank of Ceylon PLC DFCC Bank Company Total DFCC Bank
Repayment terms 56 monthly installments 60 monthly installments
Principal Interest rate per Rs.000 annum Security Lanka Walltiles PLC Contd. 200,000 AWPLR+0.5% Primary mortgage bond for Rs. 200 Mn over the property situated at 215, Nawala Road, Colombo 5 150,000 AWPLR+1% Primary mortgage over movable machinery at Meepe Lanka Floortiles PLC 175,000 AWPLR+3% A primary mortgage over land, building 165,000 AWPLR+3% and plant and machinery of Lanka Floortiles PLC at 336,000 LIBOR+7.5% Ranala amounting to Rs. 300 Mn 22,243 AWPLR+1% A primary mortgage over land, building and immovable assets of Lanka Floortiles PLC at Ranala amounting to Rs. 100 Mn 38,000 AWPLR -0.75% A primary mortgage bond for Rs. 27 Mn over the sorting line imported. Uni-Dil Packaging Limited 19,030 LIBOR+3% Mortgage bond for USD 175,000 over machinery (USD Concurrent mortgage bond over stocks & debtors 140,795) for USD 2.55 Mn with HNB, HSBC & Deutsche Bank Securing Sampath Bank for USD 575,000. Horana Plantations PLC 244,988 11% -14% Primary mortgage over leasehold rights of Alton Bambarakelle, Eldon Hall and Gouravilla Estates, to the value of Rs. 244.99 Mn. 12,520 8.5% Primary mortgage for Rs. 3.50 Mn. Secondary mortgage for Rs. 2.45 Mn. Tertiary mortgage for Rs. 30.00 Mn. over the leasehold rights of Mahanilu Estate 52,214 10.86% Secondary mortgage over the leasehold rights of 21,079 11.63% Millakanda Estate and Mirishena Estate
Balance as at 31/03/2012 Rs.000 176,550 150,000 872,511 25,521 165,000 199,237 14,081
Commercial Bank of Ceylon PLC Hatton National Bank Company Total Sampath Bank PLC
48 monthly installments 84 monthly installments 84 monthly installments 59 monthly installments
28,491 432,330
US$ 3,000 monthly installments
19,868
Company Total Bank of Ceylon 120 monthly installments (75% of project cost out of ADB Line of credit) Seylan Bank PLC 107 monthly installments Out of NDB e-Friends
19,868 34,348
297
84 monthly installments Lanka Orix Leasing Co., PLC out of ADB Plantation 84 monthly installments development project line of credit
31,143 13,861
110
Financial Institution Sampath Bank PLC Out of DFCC e-Friends line of credit People's Leasing Co., Ltd. Out of DFCC e-Friends line of credit National Development Bank PLC Indian Bank
Repayment terms 60 monthly installments
38 monthly installments 54 monthly installments
Principal Interest rate per Rs.000 annum Security Horana Plantations PLC Contd. 20,000 6.50% Primary mortgage for Rs. 20.0 Mn over the leasehold rights of Frocester Estate of Horana Plantations PLC 12,001 6.50% Promissory note and Primary mortgage over the leasehold rights of Hillstream Estate of Horana Plantations PLC to the value of 12.00 Mn. 200,000 AWPLR+1.19% Undertaking from tea brokers to recover and remit to AWPLR+1.44 from sales 75,000 AWPLR+0.65% Undertaking from tea brokers to recover and remit from sales. Primary mortgage over leasehold rights of Tillicoultry Estate.
Balance as at 31/03/2012 Rs.000 1,685
10,979
168,000 75,000
Company Total Bank of Ceylon 58 monthly installments 29 monthly installments 37 monthly installments Swisstek (Ceylon) PLC 25,817 12.00% Mortgage over immovable property at Balummahara, Imbulgoda 33,871 5.00% 4,453 12.00% Mortgage over machinery Swisstek Aluminium Limited 290,000 AWPR+2% Mortgage over land, building, plant & machinery amounting to Rs. 450 Mn, stocks & book debts Rs. 160 Mn together with an insurance policy over inventory pledged as collateral
335,313 13,327 1,061 858 15,246 290,000
People's Bank Company Total DFCC Bank
Company Total Group Total
290,000 1,965,268
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14.0 DEFERRED TAX LIABILITIES As at 31st March At the beginning Provision made during the year Deferred tax transferred from assets At the end
GROUP 2012 Rs.000 170,882 45,177 82,971 299,030 2011 Rs.000 151,541 19,341 - 170,882
COMPANY 2012 2011 Rs.000 Rs.000 - - 82,971 82,971 -
15.0 RETIREMENT BENEFIT LIABILITY Retirement benefit obligation - gratuity At the beginning Acquisition of subsidiary Charge for the year Payments At the end Amount payable within 12 months Amount payable after 12 months
482,800 - 117,105 (73,275) 526,630 (18,575) 508,055
495,026 625 117,644 (130,496) 482,799 (15,406) 467,393
29,583 - 6,979 (7,018) 29,544 - 29,544
69,938 35,356 (75,711) 29,583 29,583
Lanka Walltiles PLC The defined benefit liability as of 31st March 2012 was actuarially valued by M/s Piyal S. Goonetilleke and Associates qualified actuary. The principal assumptions underlying the valuation are as follows: Discount rate (per annum) Salary scale (per annum) - Executives - Non Executives Retirement age COMPANY 2012 2011 11.0% 11.4% 13% 55 years 9.5% 12% 7% 55 years
112
Rates of turnover at selected ages as follows; Executive and staff Age Turnover
20 10%
25 10%
30 10%
35 5%
40 3%
45 1%
50 1%
the movement in the retirement benefit liability of the Company is given below: Present value of defined benefit obligation Unrecognised actuarial loss based on corridor method (*) COMPANY 2012 2011 Rs.000 Rs.000 49,081 (19,536) 29,545 36,582 (6,999) 29,583
* As of 31st March 2012, the unrecognized actuarial loss is amortized over the expected average working lives estimated at 8 years and 10 years for executive and non executive staff respectively. Lanka Floortiles PLC The defined benefit liability of Lanka Floortiles PLC is based on the actuarial valuation (including estimate for the year 2011 and 2012) carried out by Messrs Piyal Goonetilleke & Associates, on 27th March 2010. The principal actuarial valuation assumptions used were as follows. Discount rate Future salary increases 2012 11% 8% 2011 11% 8%
In addition to above, demographic assumptions such as mortality, withdrawal disability and retirement age were considered for the acturial valuation. GA 1983 mortality table issued by the Society of Actuaries USA was taken as the base for the valuation. Horana Plantations PLC An acturial valuation of the retirement benefit obligation was carried out as at 31st March 2012 by Mr. M. Poopalanathan, Acturial and Management Consultant (Pvt) Ltd. The valuation method used by the actuaries to value the benefit is the Projected Unit Credit Method, the method recommended by the Sri Lanka Accounting Standards No. 16 (Revised 2006) Employees benefits.
113
The key assumption used by the actuary included the following, Rate of interest Rate of salary increase Workers Staff Staff COL allowances Retirement age 2012 11.00% per annum 15.00% every two years 12.50% every two years 2.00% per annum 2011 10.5% per annum 16.5% every two years 12.50% per annum 2.00% per annum
Workers Estate staff Head office staff
60 years 60 years 55 years
60 years 60 years 60 years
Daily wage rate Tea Rubber The company will continue as a going concern
Rs. 380 Rs. 380
Rs. 285.00 Rs. 285.00
Uni Dil Packaging Ltd. and Uni Dil Paper Sacks (Pvt) Ltd. An acturial valuation of the retirement benefit obligation was carried as at 31st March 2010 by Mr. M. Poopalanthan, Acturial & Management Consultant (Pvt) Limited. The valuation method used by the actuaries to value the benefit is the Project Unit Credit Method, the method recommended by the Sri Lanka Accounting Standards No. 16 (Revised 2006), Employees benefit. Actuarial assumptions are as follows, Discount Rate Rate of Salary Increment Staff Turnover Factor Retiring Age (Years) Assumptions regarding future mortality are based on published articles and mortality tables. 2012 2011 10.5% per annum 10% per annum 55
10.5% per annum 10% per annum 55
114
Swisstek (Ceylon) PLC The net cumulative unrecognized actuarial gain or loss at the beginning of the period in excess of the corridor is amortized on straight line basis over the expected remaining lives of the employees. This represents the minimum amount of cumulative actuarial gain and losses that must be recognized. Gratuity liability is recognized based on the actuarial valuation carried out by Messrs. Piyal S. Gunathilake and Associates on 31st March 2012. The Principal assumptions used in the actuarial valuation as at 31st March 2012 are as follows: 1. 2. 2012 11.0% per annum 10.0% per annum 2011 9.5% per annum 8.0% per annum
Discount rate (the rate used to discount the future cash flows in order to determine the present value) Future salary increse
In addition to above, demographic assumptions such as mortaility, withdrawal, disability and retirement age were considered for the actuarial valuation.
16.0 CAPITAL GRANTS As at 31st March Capital grants (16.1) Total 16.1 Capital grants Capital grants received on plantations Granted by Purpose of the grant Basis of amortisation Amount received Rs.000 419 1,170 Balance at the beginning Rs.000 324 1,170
GROUP 2012 2011 Rs.000 Rs.000 120,939 120,939 122,754 122,754
Sri Lanka Tea Board
Tea factory modernization Rate of depreciation applicable to plant & machinery (7.5% p.a.) Tea replanting subsidy Will be amortised at rate applicable to mature tea plantations, after becoming mature (3.00%)
Received during the period Rs.000 -
Amortised Balance at the end during the Rs.000 period Rs.000 (31) 293 1,170
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Granted by
Purpose of the grant
Basis of amortisation
Amount received Rs.000 31,587 6,013 4,786 45,143
Plantation development Improvement of workers living environment project / Asian Development Bank Forestry programme Plantation human development trust
Estate infrastructure development project Plantation development project
Rubber Development Department
Rate of depreciation applicable to buildings (2.5% p.a.) Will be matched with the cost at the time of disposal of plantations Motor ambulance Rate of depreciation applicable to motor vehicle (20% p.a) Improvement of workers Rate of depreciation applicable to living environment buildings and furniture and fittings (2.5% & 10% p.a.) Improvement of workers Rate of depreciation applicable to living environment buildings (2.5% p.a.) Improvement of workers Rate of depreciation applicable to living environment buildings (2.5% p.a.) Ergonomic equipment Rate of depreciation applicable to equipment (12.5% p.a.) Rate of depreciation applicable to Internal road permanent land development cost development and (2.5% p.a.) boundry posts Earth moving vehicle Rate of depreciation applicable to motor vehicles (20% p.a.) Other agricultural Rate of depreciation applicable to motor vehicles vehicles (20% p.a.) Minor factory Rate of depreciation applicable to development buildings (2.5% p.a.) Rubber replanting Rate applicable to rubber mature subsidy plantations (5% p.a.) Rubber factory Rate of depreciation applicable to development plant & machinery (7.5% p.a.)
Balance at the beginning Rs.000 23,568 6,013 37,099
Received during the period Rs.000 -
Amortised Balance at the end during the Rs.000 period Rs.000 (790) 22,778 (1,154) 6,013 35,945
489 20,051 5,853 4,622
379 18,339 3,482 4,323
(12) (501) (732) (116)
367 17,838 2,750 4,207
2,100 354 10,099 19,712 675 153,073
527 140 9,528 17,397 465 122,754
2,315 2,315
(420) (71) (252) (51) (4,130)
107 69 9,276 19,712 414 120,939
Total
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17.0 TRADE AND OTHER PAYABLES Trade creditors - other - related parties [17.1] Sundry creditors including accrued expenses Provision for terminal benefits (current) [15.0] Donations in respect of tsunami fund Unclaimed dividends Total 17.1 Trade creditors - related parties Company
GROUP 2012 Rs.000 955,241 13,812 969,053 651,978 18,575 3,073 17,863 1,660,542 2011 Rs.000 652,965 10,566 663,531 536,150 15,406 3,589 21,710 1,240,386
COMPANY 2012 2011 Rs.000 Rs.000 279,927 43,923 323,850 194,293 - 3,073 17,863 539,079 267,398 45,809 313,207 112,703 3,589 21,710 451,209
Relationship 13,271 - - 541 13,812 10,043 - - 523 10,566 5,353 351 38,219 - 43,923 6,011 1,579 38,219 45,809
Lanka Ceramic PLC Parent Company Uni - Dil Packaging (Pvt) Ltd. Group Company Lanka Floortiles PLC Subsidiary Company CT Holdings PLC Ultimate Parent Company
18.0 AMOUNTS DUE TO RELATED PARTIES Company
Relationship 48 48 127 127
Horana Plantations PLC Group Company
117
19.0 REVENUE Year ended 31st March Sale of tiles & associated items Export sales Local sales Sale of plantation products Sale of packing materials Gross turnover Direct taxes: Turnover tax on local sales of tiles & associated items Turnover net of tax
2012 Rs.000 427,306 6,451,167 6,878,473 2,024,862 1,573,380 10,476,715 - 10,476,715
GROUP
2011 Rs.000
COMPANY 2012 2011 Rs.000 Rs.000 276,713 2,136,991 2,413,704 - - 2,413,704 - 2,413,704 297,675 378,708 676,383 676,383 676,383
459,160 4,334,893 4,794,053 2,079,720 1,570,996 8,444,769 (1,288) 8,443,481
20.0 OTHER INCOME Income from investments from related Parties - Quoted - Non quoted Rent income - Related parties - Others Amortisation of capital and revenue grants Sales commission - Related parties Profit on sale of redundant scrap materials Sundry income
- - - 7,905 4,130 - 40,607 18,871 71,513
- - - 7,746 4,823 - 31,343 14,476 58,388
91,088 34,846 2,318 2 - - 1,284 4,390 133,928
78,075 52,919 186 6 61,765 54 193,005
21.0 FINANCE INCOME Interest income
6,839 6,839
11,983 11,983
2,568 2,568
4,576 4,576
22.0 FINANCE COST Interest expense on overdrafts Interest expense on bank loans Finance charges on lease liabilities Less: Capitalisation of borrowing costs on immature plantations [1.1(f)]
23,886 196,453 27,838 (13,686) 234,491
29,589 83,412 86,069 (18,758) 180,312
5,811 36,704 - - 42,515
1,389 1,341 2,730
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23.0 LEGAL MERGER OF SUBSIDIARY DURING THE YEAR 2010 /2011 Legal merger of the wholly-owned subsidiary Lanka Walltile Meepe (Pvt) Ltd. (LWMPL) with Lanka Walltiles PLC (LWPLC, Parent Company) was approved by the Directors by way of a circular resolution as at 12th October 2010. The legal merger of companies was effected in accordance with Section 242 (1) (b) (i) of the Companies Act No. 07 of 2007, whereby the whole of the assets, undertakings, property, business and liabilities of Lanka Walltile Meepe (Pvt) Ltd. was vested in Lanka Walltiles PLC, without payment or other consideration. The Registrar of Companies issued the Merger Certificate stating the date of merger as 31st December 2010. Accordingly the legal merger has taken effect on 31st December 2010. Lanka Walltile Meepe (Pvt) Ltd., in terms of Section 245 (c) of the Companies Act has been removed from the Register of Companies by the Registrar of Companies on 31st December 2010 and ceases to exist thereafter. The legal merger is not a business combination within the scope of Sri Lanka Accounting Standard No. 25- Business Combinations. Accordingly, the said merger has been accounted for in the books of LWPLC, the continuing entity as follows: 1) All assets and liabilities of LWMPL as at 31st December 2010 has been taken over at their respective carrying values; 2) The difference between the net assets taken over and the carrying amount of the investment in LWMPL before the legal merger is recognized in the Income Statement of LWPLC. The effect of the legal merger is reflected only from the date on which the legal transfer took place, which is 31st December 2010. 23.1 Summary of assets and liabilities of LWMPL as of 31st December 2010 and their respective carrying values on the said date as taken over and the effect on the income statement of LWPLC are as follows: Assets Property, plant and equipment Amounts due from related parties Inventories Trade and other receivables Short term investments Cash and bank balances Total assets Less: Liabilities Interest bearing loans and borrowings Retirement benefit liability Deferred tax liabilities Trade and other payables Income tax liabilities Dividend payable Net assets Less: Carrying value of investment in LWMPL Deem gain on legal merger 109,726 12,487 69,289 237,365 72,005 39,200 01.01.2011 Rs.000 789,281 784,345 330,519 184,752 22,096 4,066 2,115,059
(540,072) 1,574,987 (700,000) 874,987
119
24.0 PROFIT BEFORE TAX FROM CONTINUING OPERATIONS stated after Charging / (Crediting) Year ended 31st March Included in cost of sales Depreciation Defined benefit plan costs - gratuity Defined contribution plan costs - EPF & ETF Other staff cost Operating lease rentals Amortisation of leasehold rights on bare land Amortisation of immovable estate assets on finance lease Amortisation of limited life land development cost after take-over Inventory written off and allowances Included in administration expenses Depreciation Defined benefit plan costs - gratuity Defined contribution plan costs - EPF & ETF Other staff cost Exchange (gain)/Loss Profit on disposal of property, plant and equipment Included in distribution cost Depreciation Defined contribution plan costs - EPF & ETF Other staff cost Allowance for doubtful debts
GROUP 2012 Rs.000 2011 Rs.000
COMPANY 2012 2011 Rs.000 Rs.000
359,516 100,251 156,990 1,430,084 698 3,867 9,181 30,641 687
304,336 86,889 131,230 1,250,043 698 3,867 9,181 28,361 3,976
101,558 - 6,517 72,931 - - - - -
16,174 2,085 22,086 -
20,506 18,784 10,964 118,596 74,665 (45,558)
12,977 30,111 12,453 150,150 2,636 (10,075)
10,520 6,679 4,114 53,021 41,045 -
4,420 22,868 2,498 48,025 2,426 -
6,015 1,384 28,962 3,145
1,473 998 14,572 3,149
6,015 1,384 23,436 -
1,473 140 2,268 -
120
25.0 INCOME TAX EXPENSES 25.1 The major components of income tax expense are as follows: Year ended 31st March (a) Current income tax Current income tax charge - continuing operations [25.2] Under/(over) provision of current taxes in respect of prior years Write-off of unclaimable Economic Service Charge (ESC) Tax effect on inter company dividends (b) Deferred income tax Deferred taxation charge/(reversal) Income tax expense reported in the income statement (c) Reconciliation between current tax expense and the product of accounting profit. Accounting profit before income tax - continuing operations - deemed gain on legal merger - discontinuing operations Income exempt from tax Non deductible expenses Deductible expenses Taxable profit Current income tax expense - Continuing operations - Discontinuing operations
GROUP 2012 Rs.000 2011 Rs.000
COMPANY 2012 2011 Rs.000 Rs.000
123,636 (97) - 10,121 133,660
320,780 3,855 4,415 12,595 341,645
3,777 - - - 3,777
1,626 (7,295) (5,669)
114,506 248,166
(72,721) 268,924
89,247 93,024
(65,760) (71,429)
1,386,799 1,386,799 (4,102) 1,382,697 - 982,974 (1,762,858) 602,813 123,636 - 9%
1,559,582 - 1,559,582 (300,637) 1,258,945 (521,070) 627,280 (553,131) 812,024 320,780 - 21%
586,617 - 586,617 (4,102) 582,515 - 264,787 (815,828) 31,474 3,777 - 1% 115,801
1,097,056 (874,987) 222,069 (300,637) (78,568) (135,570) 94,780 (128,470) (247,828) 1,626 0% 247,828
Effective income tax rate Tax loss carried forward
121
25.2 Notes on income tax of Group companies Lanka Walltiles PLC, Ceytea Plantation Management Ltd. and Swisstek (Ceylon) PLC The statutory tax rate of above companies are as follows: Local sales and other profits Qualified export profit Social responsibility levy Agricultural profit Specified profits
2012 28% 12% 0% 10% 15%
2011 35% 15% 1.5% Exempted 10%
Swisstek Aluminium Ltd. Swisstek Aluminium Ltd. is exempted from income tax for a period of five years, commencing from the year of assessment 2011/2012. Lanka Floortiles PLC The Company commenced the operation of its expansion unit with effect from 01st October 2003 under this Section 21 A of the Inland Revenue Act No 38 of 2000. The profits and income of the expansion unit is exempt for 5 years. Since the expansion unit incurred losses during the year of assessment 2003/2004 the exemption of profits of such unit commenced from the year of assessment 2004/2005. Accordingly profits of the expansion unit are exempt for 5 years commencing from year of assessment 2004/2005 to the year of assessment 2008/2009. As per the Section 48 of the Inland Revenue Act No. 10 of 2006 profits of the expansion unit which enjoyed the tax exemptions under Section 17 of this act will be taxed as follows. Year of assessment 2009/2010 Year of assessment 2010/2011 Year of assessment 2011/2012 Tax Rate 5% 10% 15%
Horana Plantations PLC In terms of Section 16 of the Inland Revenue Act No.10 of 2006, and subsequent amendments there to, Profits from any Agricultural Undertaking is liable for income tax at 10%, commencing from 01st April 2011. Manufacturing profits and other income are liable for income tax at 28%.
26.0 DISCONTINUED OPERATIONS On 07th September 2010, the Company publicly announced the decision of its Board of Directors to discontinue operations of the Balangoda factory employees who were offered the Voluntary Retirement Scheme (VRS) accepting the same.
122
The Balangoda factory was largely dependent on outdated technology and involved a highly labour intensive operation. As the said operation was neither profitable and/or wholly compatible with the production of the subsidiary Lanka Walltile Meepe (Pvt) Ltd., management had made a strategic decision to close down the Balangoda factory. The effect of the Board decision to discontinue the operation resulted in the following noncurrent asset detailed under note 26.2 being classified as asset held for sale as of balance sheet date. 26.1 The results of the Balangoda factory for the year are presented below: Revenue Cost of sales Gross Profit/(Loss) Other income Distribution costs Administrative expenses Finance cost Profit before tax from continuing operations Income tax (expense) Profit/(loss) from discontinuing operations GROUP / COMPANY 2012 2011 Rs.000 Rs.000 63,935 (62,494) 1,441 29,175 (5,395) (29,323) - (4,102) - (4,102) 311,105 (323,144) (12,039) 13,185 (19,519) (274,075) (8,189) (300,637) (300,637)
26.2 The major class of assets of the factory at Balangoda classified as held for sale as at 31st March is as follows: Assets Land Building Plant and Machinery
GROUP / COMPANY 2011 Rs.000 7,500 1,690 12,149 21,339
26.3 Fair Value of Property, Plant & Equipment The fair value of machinery has been identified based on an independent professional valuation performed by Messrs Ranjan J Samarakone, Corporate Valuer. Such professional valuation of machinery was carried out taking into account the original cost, the escalation of prices, the devaluation of the rupee and the current prices of similar items with depreciation allowed for age and condition.
123
The fair value of land and building has been identified based on subsequent sales value. Based on such valuation and sales value it was determined that there was no impairment and accordingly the said assets are stated at the carrying value as of 31st March 2011. 26.4 The net cash flows incurred by Balangoda factory are as follows: Operating Investing Financing Net cash (Outflow) / Inflow 26.5 Earnings per share Basic from discontinued operations
GROUP / COMPANY 2011 Rs.000 148,783 15,498 (1,061) 163,220
(5.51)
27.0 EARNINGS PER SHARE 27.1 Earnings per share - basic Basic earnings per share is calculated by dividing the net profit for the year attributable to ordinary shareholders of Lanka Walltiles PLC by the weighted average number of ordinary shares outstanding during the year. The weighted average number of ordinary shares outstanding during the year and the previous year are adjusted for events that have changed the number of ordinary shares outstanding without a corresponding change in the resources such as a bonus issue. The following reflects the income and share data used in the basic earnings per share computations. Amounts used as the numerator: Profit attributable to equity holders for basic earnings per share Profit attributable to equity shareholders for diluted earnings per share Number of ordinary shares used as the denominator: Weighted average number of ordinary shares in issue applicable to basic earnings GROUP 2012 2011 Rs.000 Rs.000 751,729 751,729 484,467 484,467
54,600
54,600
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28.0 DIVIDENDS PAID Declared and paid during the year Equity dividends on ordinary shares : Interim dividend for 2009/2010 (Rs. 1/- per share ) 2nd Interim dividend for 2009/2010 (Rs. 1/- per share ) Interim dividend for 2011/2012 (Rs. 1/- per share and 2010/2011 Rs. 1/- per share) Final dividend for 2010/2011 (Rs. 1.50 per share)
GROUP 2012 Rs.000 2011 Rs.000
COMPANY 2012 2011 Rs.000 Rs.000
- - 54,600 81,900 136,500
45,500 45,500 45,500 - 136,500
- - 54,600 81,900 136,500
45,500 45,500 45,000 136,500
29.0 CASH AND CASH EQUIVALENTS Components of cash and cash equivalents Favourable cash & cash equivalents balance Cash & bank balances Short term bank deposits Unfavourable cash & cash equivalent balances Bank overdrafts (13) Total cash and cash equivalents for the purpose of cash flow statement
92,071 4,218 96,289 (495,793) (399,504)
276,654 66,830 343,484 (101,039) 242,445
23,229 50 23,279 (236,881) (213,602)
14,478 37,599 52,077 (46,423) 5,654
30.0 ASSETS PLEDGED Following assets have been pledged as security for liabilities, in addition to the items disclosed in Note 13.4 to these financial statements. Lanka Floortiles PLC Glaze material amounting to Rs. 50 Mn and body material amounting to Rs. 25 Mn have been pledged as security for bank overdraft. Uni Dil Packaging Ltd. Immovable property for value of Rs. 100 Mn and stock and debtors for the value Rs. 50 Mn for the banking facilities of Hatton National Bank PLC Land and building, immovable machinery and debtors for Rs. 70 Mn and stock, movable machinery and debtors for Rs. 40 Mn for the banking facilities of Standard Chartered Bank Uni Dil Paper Sacks (Pvt) Ltd. Primary mortgage bond over land and building for Rs. 30 Mn at Naranpola, Dekatana and registered primary floating mortgage bond over stock and book debts for Rs. 60 Mn for the banking facilities of Hatton National Bank PLC
125
Horana Plantations PLC Mortgage over leasehold rights of Stockholm Estate and Fairlawn Estate including buildings, fixed and floating assets for short term borrowings from Peoples Bank
31.0 RELATED PARTY DISCLOSURES Details of significant related party disclosures are as follows
31.1 Transactions with the parent and related entities GROUP Sale of goods Purchase of goods Purchase of raw materials & others Sale of raw materials & others Settlements / (recoveries) by the Company Rent received / (paid) Allocation of common cost Advances received/(paid) Commission on sales Expenses incurred and transferred Other Balance as at 31 March Group companies include; - Cargills (Ceylon) PLC - CT Land Development PLC - Cargills Food Processors (Private) Limited - Ceylon Printers PLC - Bandarawella Hotel Ltd. - Cargills Quality Dairies (Pvt) Ltd. - Cargills Quality Confectioneries (Pvt) Ltd.
Transactions with the parent & ultimate parent company 2012 2011 Rs. 000 Rs. 000 301 (108,512) (62) - 26,338 (3,170) - (1,286) (1,433) 20 - (13,802) 10,523 (54,819) (4,640) 366 - (3,078) 18 (1,500) (996) - 967 (7,974)
Transactions with group companies 2012 2011 Rs. 000 Rs. 000 38,097 - (615) - (20,167) - - - - - - 2,356 19,277 (168) (4,904) 10,807 289
126
31.2 Transactions with the parent and related entities COMPANY Balance as at 01st April Purchase of tiles Sale of tiles / (Sales returns) Purchase of raw materials Purchase of other items Sale of raw materials Settlements / (Recoveries) by the Company Rent received
Transactions with the parent company 2012 2011 Rs. 000 Rs. 000 (3,424) - - (25,486) (62) - 26,338 - 2,634 - (255) (4,640) - 366 - -
Transactions with subsidiaries and affiliated companies 2012 2011 Rs. 000 Rs. 000 (34,565) - (4,720) (26,112) (32) 16,322 100,184 10,991 (615,935) (257,461) 3,359 (23,736) 8,793 (71,731) 1,673
31.2 Transactions with the parent and related entities 2012 Rs. 000 Allocation of common cost Advances received / (paid) Commission on sales Expenses incurred and transferred Elimination of Net Inter Company Balance due to Legal Merger ( Note 23) Sale of fixed assets Sale of other items Balance as at 31st March The above subsidiaries and affiliate include following companies; - Lanka Floortiles PLC - Unidil Packaging (Pvt) Ltd. - Ceytea Plantation Management (Pvt) Ltd. - Horana Plantations PLC - Swisstek Aluminum Limited - Swisstek (Ceylon) PLC - Cargills (Ceylon) Ltd. - (1,286) (1,433) - - - - (5,353)
2011 Rs. 000 - (1,500) (996) - 967 - - (3,424)
COMPANY 2012 2011 Rs. 000 Rs. 000 12,212 4,499 (675) (79,072) - 11,696 376 11,106 116,742 57,740 745,991 (34,565)
127
31.3 Transactions with key management personnel of the company The key management personnel of the company are the members of its Board of Directors and that of its parent. Key management personnel compensation GROUP 2012 2011 Rs000 Rs000 Total benefits 43,752 43,752 37,835 37,835
COMPANY 2012 2011 Rs000 Rs000 13,165 13,165 10,250 10,250
The key management personnel of the Company are the members of its Board of Directors. The total benefits paid by the Group in the current year include Rs. 15.8 Mn paid as Directors fees (2011 Rs. 9.9 Mn) The total benefits paid by the Company in the current year include Rs. 5.7 Mn paid as Directors fees (2011 Rs. 5.0 Mn) 32.0 COMMITMENT AND CONTINGENCIES 32.1 Contingent Liabilities a) Lanka Walltiles PLC purchased a land from Collettes Limited. A shareholder of Collettes Limited has instituted an action in the District Court of Colombo seeking to have the said sale null & void and to have Collettes Limited declared as owners of the said property, on the basis that at the time said property was sold, an action to wind up Collettes Limited was pending. The case was concluded with the decision in favour of the Company. However the other party appealed against the Court order and the hearing of the appeal is pending. On 07/08/2000, the above-mentioned land was sold to Associated Motorways PLC for Rs. 47.5 Mn subject to the condition that in the event of the said appeal pending before the Court of Appeal and or any appeal there from decided against the Lanka Walltiles PLC and the said deed on the transfer of land to Lanka Walltiles PLC being declared null and void then Lanka Walltiles PLC will refund the purchase consideration of Rs. 47.5 Mn with the interest rate at 4% p.a. (from the date of execution of this transfer until the said sum of Rs. 47.5 Mn and interest thereupon paid) plus the reimbursement of stamp duty charge of Rs. 1,889,000/- on the deed of the transfer. The case will be mentioned again in court on 03rd October 2012. Although there can be no assurance, the directors believe, based on the information currently available that the ultimate resolution of such legal procedures is not likely to have a material adverse effect on the results of operations, financial position or liquidity. Accordingly, no provision for any liability has been made in these financial statements. Lanka Floortiles PLC has issued bank guarantees amounting to Rs. 16,550,000/- as at Balance Sheet date.
b)
c) i ) Legal Proceedings on Labour and Other Disputes: Several cases and other disputes are pending against the Horana Plantations PLC in Labour Tribunal and Courts. All these cases are being vigorously contested / prosecuted and the lawyers have advised that an evaluation of the likelihood of an unfavorable outcome and the amount or range or potential loss cannot be quantified or commented upon at this stage.
128
ii) GDP Deflator on Annual Lease Rental: The lease rentals have been amended with effect from 22nd June 1996 to an amount substantially higher than the previous nominal lease rental of Rs. 500/- per estate per annum. The basic rental payable under the revised basis is Rs. 5.228 Mn per annum. This amount is to be inflated annually by the Gross Domestic Product (GDP) deflator in the form of contingent rent. This lease agreement was further amended on 10 June 2005, freezing the annual lease rental at Rs. 7.472 Mn for a period of six years commencing from 22nd July 2002. Hence the GDP deflator adjustment will be frozen at Rs. 2.244 Mn per annum until 21st June 2008. Accordingly financial statement has been adjusted, in order to reflect the future net liability in the following manner. Future liability on the revised annual lease payment of Rs. 7.472 Mn will continue until 22nd June 2008, and thereafter from 22nd June 2008, annual lease payment will remind at Rs. 5.228 Mn, until 22nd June 2045. The net present value of this liability at a 4% discounting rate would result in a liability of Rs, 102,646 Mn.
The Net Present Value as at date is represented by: Gross Liability - Overdue - 36 year @ Rs. 5.228 Mn per annum Less: interest in suspense Net Present Value Rs. Mn 172,524 172,524 (78,540) 93,984
iii) Unfulfilled Conditions on Capital Grants: Capital Grant received from the Ceylon Electricity Board (CEB) for Standby 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. d) Ceytea Plantation Management Limited: i) Corporate Guarantee: The company has given a Corporate Guarantee for Rs. 100 Mn. to Uni Dill Paper Sacks (Pvt) Ltd. during 2007/2008. Swisstek Aluminium Limited Bank Guarantees amounting to Rs. 15,015,960/- have been given to the suppliers as at balance sheet date.
e)
32.2 Capital Commitments a) Lanka Walltiles PLC There were no significant capital commitments as at the Balance Sheet date.
129
b) Lanka Floortiles PLC i) Capital commitments There were no material capital commitments outstanding at the balance sheet date. ii) Financial commitments Operating lease commitments where the Company is the lessee. The future minimum lease payments under non cancellable operating leases are as follows: As at 31st March Not later than one year Later than one year not later than five years 2012 Rs.000 6,942 11,355 18,297 2011 Rs.000 8,704 16,077 24,781
The Company is committed to pay Rs. 275,000/- Rs 100,000/- and Rs. 185,000/- as rent per month for the use of buildings situated at Rajagiriya, Kandy and Nawala respectively. Lanka Floortiles PLC is also committed to pay vehicle hire rentals of Rs. 72,937/- per month to Peoples Leasing PLC. c) Horana Plantations PLC i) Financial Commitments: Operating Lease Rentals on Dumbara Estate: 1 - 10 Years (per annum) Rs. 0.552 Mn 11 - 20 Years (per annum) Rs. 0.698 Mn 21 - 30 Years (per annum) Rs. 0.838 Mn Finance Lease Rentals Payable to the Secretary to the Treasury: 22.06.2011 to 21.06.2045 (per annum) Rs. 5.228 Mn. ii) Capital Commitments: There were no capital commitments outstanding as at the Balance Sheet date.
130
d) Swisstek Aluminium Limited The Company has a commitment on letter of credits amounting to Rs. 56 Mn as at the Balance sheet date.
33.0 POST BALANCE SHEET EVENTS There have been no material events occurring after the balance sheet date that require adjustments or disclosure to these Financial Statements, in the Company or Group except for following: Lanka Floortiles PLC paid a second interim dividend of Rs. 3.00 per share on 2nd July 2012 for the year ended 31st March 2012. Directors of Horana Plantations PLC recommended a final dividend of Rs. 1.00 per share for the year ended 31st March 2012 at the Directors meeting held on 31st May 2012. 34.0 SEGMENTAL INFORMATION Segmental Assets Tiles & associated items Plantation products Packing materials Total segment assets Unallocated assets Consolidated assets Segmental liabilities Tiles & associated items Plantation products Packing materials Consolidated liabilities Segmental gross profit Gross Profit on Sale of tiles & associated items Sale of plantation products Sale of packing materials Total
GROUP 2012 2011 Rs.000 Rs.000 8,960,454 2,021,584 1,492,571 12,474,609 19,570 12,494,179 3,911,095 1,078,450 792,814 5,782,359 6,435,917 2,361,054 1,063,288 9,860,259 19,269 9,879,528 2,174,862 1,281,185 555,932 4,011,979
2,199,746 200,814 238,361 2,638,921
1,811,057 464,708 228,667 2,504,432
131
34.0 SEGMENTAL INFORMATION Contd. Segmental Assets Segmental profit before tax Tiles & associated items Plantation products Packing materials Total segmental profit before tax Segmental information relating to turnover is given in Note 19. Segmental profit after tax Tiles & associated items Plantation products Packing materials Total segmental after tax
GROUP 2012 2011 Rs.000 Rs.000 1,190,936 116,456 79,105 1,386,497 1,116,742 343,048 99,792 1,559,582
963,588 78,490 91,998 1,134,076
573,992 330,312 85,717 990,021
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Shareholder Information
Distribution of Shareholdings as at 31st March 2012 Size of shareholdings Number 1 - 1,000 1,001 - 10,000 10,001 - 100,000 100,001 - 1,000,000 Over 1,000,000 Categories of Shareholders as at 31st March 2012 Category Local Individuals Local Institutions Foreign Individuals Foreign Institutions Other Information Year ended 31st March Net assets per ordinary share Interest cover per rupee of interest Share price - Highest - Lowest - Closing
Shareholders Number % 10,633 609 84 22 6 11,354 93.65 5.36 0.74 0.19 0.05 100.00
Shareholding Number 2,313,564 1,537,369 2,219,537 8,340,758 40,188,772 54,600,000
4.24 2.82 4.07 15.28 73.61 100.00
Shareholders Number % 11,023 249 75 7 11,354 97.08 2.19 0.66 0.06 100.00
Shareholding Number 8,017,864 45,747,600 208,616 625,920 54,600,000
14.68 83.79 0.38 1.146 100.00
GROUP 2012 Rs. 2011 Rs.
COMPANY 2012 2011 Rs. Rs. 45.06 14.80 175.00 67.60 70.00 38.48 10.40 187.00 72.00 171.00
75.57 64.14 6.91 7.98
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20 Major Shareholders As At 31st March 2012 Shareholders name 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Lanka Ceramic PLC CT Holdings PLC Employees Provident Fund Arunodhaya Industries (Pvt) Ltd. Arunodhaya (Pvt) Ltd. Arunodhaya Investments (Pvt) Ltd. Mr. A A Page Sri Lanka Insurance Corporation Ltd. - Life Fund Bank of Ceylon A/C Ceybank Unit Trust National Savings Bank Fast Gain International Ltd. Dr. T Senthilverl Andysel Private Limited Bank of Ceylon A/C Ceybank Century Growth Fund Mrs. A Selliah Mrs. A Kailasapillai Mr. V Kailasapillai Mr. K Aravinthan Ms. S Subramaniam Pan Asia Banking Corporation PLC / Asia Capital PLC Sub Total Other 11,334 Shareholders Grand Total
Shareholding Number % 33,957,014 1,499,628 1,204,130 1,176,000 1,176,000 1,176,000 878,760 807,600 769,347 619,700 552,420 529,383 420,000 411,458 378,000 378,000 378,000 336,000 336,000 300,000 47,283,440 7,316,560 54,600,000 62.192 2.747 2.205 2.154 2.154 2.154 1.609 1.479 1.409 1.135 1.012 0.970 0.769 0.754 0.692 0.692 0.692 0.615 0.615 0.549 86.600 13.400 100.00
Cumulative Shareholding % 31.03.2011 62.192 64.939 67.144 69.298 71.452 73.606 75.215 76.694 78.103 79.238 80.250 81.220 81.989 82.743 83.435 84.127 84.819 85.435 86.050 86.600 28,322,634 1,499,628 1,002,870 1,176,000 1,176,000 1,176,000 878,760 807,600 804,854 264,000 1,644,320 420,000 377,858 378,000 378,000 378,000 336,000 336,000 -
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Statement of Value Added
Year ended 31st March GROUP Turnover Other income Cost of material and services purchased Value added Distributed as follows To employees as remuneration To providers of funds as interest To state as taxes To shareholders as dividends Retained in the business Depreciation Reserves Total
2012 Rs. 000 %
2011 Rs. 000 %
2010 Rs. 000 %
2009 Rs. 000 %
2008 Rs. 000
10,476,715 71,513 (7,009,835) 3,538,393
8,443,481 58,388 (5,511,124) 2,990,745
7,222,866 6,814,311 51,653 54,790 (3,856,564) (4,439,852) 3,417,955 2,429,249
6,833,031 38,690 (4,493,066) 2,378,655
1,866,014 234,491 248,166 136,500
52.7 6.6 7.0 3.9
1,676,445 180,312 268,924 136,500
56.1 6.0 9.0 4.6
1,705,905 230,915 242,254 100,100
49.9 6.8 7.1 2.9
1,365,566 249,379 231,913 78,325
56.2 10.3 9.5 3.2
1,380,674 154,948 227,607 136,500
58.0 6.5 9.6 5.7
428,688 624,534 3,538,393
12.1 17.7 100.0
388,054 340,510 2,990,745
13.0 11.4 100.0
316,579 822,202 3,417,955
9.3 24.1 100.0
284,316 219,750 2,429,249
11.7 9.0 100.0
207,001 271,925 2,378,655
8.7 11.4 100.0
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FIVE YEAR SUMMARY
INCOME STATEMENTS - 5 YEARS Year ended 31st March CONTINUING OPERATIONS REVENUE Cost of sales Gross profit Other income
2012 Rs.000
2011 Rs.000
Group 2010 Rs.000
2009 Rs.000
2008 Rs.000
2012 Rs.000
2011 Rs.000
Company 2010 Rs.000
2009 Rs.000
2008 Rs.000
10,476,715 (7,837,794) 2,638,921 71,513
8,443,481 (5,939,049) 2,504,432 58,388
7,222,866 6,814,311 (5,446,193) (5,276,548) 1,776,673 1,537,763 51,653 54,790
6,833,031 (5,242,968) 1,590,063 38,690
2,413,704 (1,505,591) 908,113 133,928
676,383 (477,516) 198,867 193,005 (42,435) (129,214) 220,223 4,576 (2,730)
210,148 (210,148) - 178,334 (12,183) (57,000) 109,151 3,960 -
920,034 (820,113) 99,921 174,872 (49,450) (67,916) 157,427 3,327 (22,165)
962,016 (853,660) 108,356 120,182 (56,778) (43,324) 128,436 3,744 (1,611)
Distribution cost (471,572) (307,850) (275,385) (265,746) (226,147) (204,461) Administrative expenses (624,411) (569,526) (416,603) (408,765) (414,532) (211,016) Profit from operating activities before charging following 1,614,451 1,685,444 1,136,338 918,042 988,074 626,564 Finance income 6,839 11,983 14,250 9,184 9,944 2,568 Finance cost (234,491) (180,312) (209,585) (249,379) (154,948) (42,515) Share of associate results (5,337) (8,614) (3,272) Preliminary expenses written off (2,102) Investment written off (132) Release of negative goodwill 42,467 25,848 Deemed gain on legal merger Profit before tax 1,386,799 1,559,582 961,514 669,233 837,565 586,617 Income tax expenses (248,166) (268,924) (235,676) (231,913) (227,607) (93,024) Profit after tax 1,138,633 1,290,658 725,838 437,320 609,958 493,592 DISCONTINUING OPERATIONS Profit after tax from discontinuing operations Profit for the year Attributable to : Equity holders of the Company Minority interest Profit for the year Basic earnings per share (Rs.) Dividends per share (Rs.)
874,987 1,097,056 71,429 1,168,485
113,111 (14,797) 98,314
138,589 (6,012) 132,577
130,569 (1,503) 129,066
(4,102) 1,134,531
(300,637) 990,021
39,944 765,782
- 437,320
- 609,958
(4,102) 489,490
(300,637) 867,848
39,944 138,258
- 132,577
129,066
751,729 382,802 1,134,531 13.77 2.50
484,467 505,554 990,021 8.87 2.50
477,876 287,906 765,782 8.75 2.00
279,354 157,966 437,320 6.14 1.73
360,566 249,391 609,958 7.92 4.20
136
Five Year Summary Contd.
BALANCE SHEETS - 5 YEARS

As at 31st March ASSETS Non-current assets Property, plant & equipment Investment property Intangible assets Investments in subsidiaries Investments in associates Non-current receivables Deferred tax asset Current assets Inventories Trade and other receivables Amounts due from related parties Income tax receivable Short term investments Cash and cash equivalents Assets classified as held for sale Total assets 2012 Rs.000 2011 Rs.000 Group 2010 Rs.000 2009 Rs.000 2008 Rs.000 2012 Rs.000 2011 Rs.000 Company 2010 Rs.000 2009 Rs.000 2008 Rs.000
7,872,464 19,505 24,519 - - 27,285 22,369 7,966,142
6,430,405 - 24,519 - - 27,285 6,275 6,488,484
4,919,223 4,039,084 - - 24,519 24,519 - - - 43,478 27,285 27,285 9,805 4,060 4,980,832 4,138,426
3,629,774 - 24,519 - 44,623 27,285 14,471 3,740,672
2,075,064 - - 508,642 41,247 - - 2,624,953
1,561,340 - - 508,642 41,247 - 6,275 2,117,504
349,906 - - 1,208,642 12,976 - 9,805 1,581,329
174,313 - - 1,212,649 13,065 - 4,060 1,404,087
117,130 1,204,649 12,000 14,471 1,348,250
2,493,386 1,910,060 - 24,490 8,030 92,071 - 4,528,037 12,494,179
1,831,874 1,161,743 2,587 - 96,847 276,654 21,339 3,391,044 9,879,528
1,699,705 1,208,960 - - 34,639 186,635 - 3,129,939 8,110,771
1,825,684 1,063,352 366 - 31,580 45,043 - 2,966,025 7,104,451
1,333,403 1,008,906 3,548 - 50,042 73,955 - 2,469,854 6,210,526
914,138 609,931 20,870 24,490 3,862 23,229 - 1,596,520 4,221,473
474,043 309,200 5,308 - 67,616 14,478 21,339 891,984 3,009,488
397,466 232,883 320 - 34,471 16,705 - 681,845 2,263,174
386,384 232,160 16,690 - 31,412 1,459 - 668,105 2,072,192
181,619 338,439 25,655 29,535 39,492 614,740 1,962,990
137
BALANCE SHEETS - 5 YEARS Contd.

As at 31st March EQUITY AND LIABILITIES Equity attributable to equity holders of the parent Stated capital / Share capital Reserves Accumulated profits Shareholders funds Minority interest Total equity Non-current liabilities Amounts due to related parties Interest bearing liabilities Deferred tax liabilities Retirement benefit liability Capital grants & deferred income Current liabilities Trade and other payables Dividends payable Income tax liabilities Current portion of amounts due to related parties Current portion of interest bearing liabilities Total equity and liabilities Net assets per ordinary share 2012 Rs.000 2011 Rs.000 Group 2010 Rs.000 2009 Rs.000 2008 Rs.000 2012 Rs.000 2011 Rs.000 Company 2010 Rs.000 2009 Rs.000 2008 Rs.000
787,765 470,507 2,868,256 4,126,528 2,585,292 6,711,820
787,765 477,466 2,236,763 3,501,994 2,365,555 5,867,549
576,822 577,102 2,007,560 3,161,484 1,780,940 4,942,424
576,822 132,676 1,629,784 2,339,282 1,401,486 3,740,768
576,822 143,343 1,399,367 2,119,532 1,332,872 3,452,404
787,765 170,296 1,502,378 2,460,439 - 2,460,439
787,765 176,296 1,136,690 2,100,751 - 2,100,751
576,822 278,174 521,864 1,376,860 - 1,376,860
576,822 101,878 483,706 1,162,406 - 1,162,406
576,822 101,878 401,564 1,080,264 1,080,264
- 1,838,186 299,030 508,055 120,939 2,766,210
- 1,192,960 170,882 467,393 122,754 1,953,989
- - 655,313 719,281 247,133 240,459 493,500 375,917 123,199 117,583 1,519,145 1,453,240
- 755,889 214,391 455,240 96,131 1,521,651
- 799,406 82,971 29,544 - 911,921
- 312,321 - 29,583 - 341,904
344,000 1,592 - 69,938 - 415,530
144,000 2,654 - 70,182 - 216,836
144,000 2,430 106,778 253,208
1,642,679 17,863 10,893 - 1,344,714 3,016,149 12,494,179 75.58
1,218,676 21,710 158,381 - 659,223 2,057,990 9,879,528 64.14
838,321 14,650 89,437 -
639,917 12,683 79,445 -
542,608 11,972 101,196 - 580,695 1,236,471 6,210,526 38.82
539,079 - - 48 309,986 849,113 4,221,473 45.06
429,498 21,710 58,138 127 57,359 566,833 3,009,488 38.48
66,217 14,650 32,002 270,527 87,388 470,784 2,263,174 25.22
62,727 12,683 8,116 424,506 184,918 692,950 2,072,192 21.29
54,677 11,972 8,663 514,419 39,787 629,518 1,962,990 19.79
706,794 1,178,398 1,649,202 1,910,443 8,110,771 7,104,451 57.90 42.84
138
Notice of meeting
NOTICE IS HEREBY GIVEN that the thirty fifth Annual General Meeting of Lanka Walltiles PLC will be held at the Sri Lanka Foundation Institute, 100, Independence Square, Colombo 07 on Wednesday, 19th September 2012 at 9.00 a.m. and the business to be brought before the Meeting will be:
1. To receive and consider the Annual Report of the Board of Directors on the affairs of Company and the Financial Statements for the year ended 31st March 2012 and the Report of the Auditors thereon. 2. To declare a dividend as recommended by the Directors. 3. To re-elect as a Director Mr. A A Page who retires by rotation in terms of Article 103 & 104 of the Articles of Association of the Company. 4. To re-elect as a Director Dr. S Selliah who retires by rotation in terms of Article 103 & 104 of the Articles of Association of the Company. 5. To re-appoint Messrs. Ernst & Young, Chartered Accountants as Auditors of the Company and to authorise the Directors to determine their remuneration. 6. To authorise the Directors to determine donations for the ensuing year. By order of the Board LANKA WALLTILES PLC
P W CORPORATE SECRETARIAL (PVT) LTD. Secretaries Colombo 20th August 2012
Notes: A member entitled to attend and vote at the meeting is entitled to appoint a Proxy to attend and vote instead of him/her. A Proxy need not be a member of the Company. A Form of Proxy is enclosed for this purpose. The completed form of Proxy should be deposited at the Registered Office of the Company, No. 215, Nawala Road, Narahenpita, Colombo 5, not less than forty-eight (48) hours before the time fixed for the commencement of the Meeting.
139
Form of Proxy
I/We the undersigned ..................................................................................................... NIC No ......................................................... of .....................................................................................................being a member/s* of Lanka Walltiles PLC hereby appoint ..................................................................of ........................................................................................................................................ of Colombo or failing him* Mr. Anthony Asokumar Page Dr. Sivakumar Selliah Mr.Jayasekera Arachchige Panduka Mahendra Jayasekera Mr. Tilak De Zoysa Mr. Prasanna Senani Rajiv Casie Chitty Mr. Valentine Ranjitkumar Page Mr. Sunil Mendis Mr. Antoine Theodore Priyalal Edirisinghe of Colombo or failing him* of Colombo or failing him* of Colombo or failing him* of Colombo or failing him* of Colombo or failing him* of Colombo or failing him* of Colombo or failing him* of Colombo or failing him*
my/our * Proxy to vote as indicated hereunder for me/us* and on my/our* behalf at the 35th Annual General Meeting of the Company to be held on Wednesday, 19th September 2012 at 9.00 a.m. and at every poll which may be taken in consequence of the aforesaid Meeting and at any adjournment thereof: For Resolution 1 To receive and consider the Report of the Directors and the Statement of Accounts for the year ended 31st March 2012 with the Report of the Auditors thereon. Resolution 2 To declare a dividend as recommended by the Directors. Resolution 3 To re-elect Mr. A A Page who retires in terms of Article No. 103 & 104 of the Articles of Association of the Company, as a Director. Resolution 4 To re-elect Dr. S Selliah who retires in terms of Article No. 103 & 104 of the Articles of Association of the Company, as a Director. Resolution 5 To re-appoint Messrs. Ernst & Young, Chartered Accountants as Auditors of the Company and authorise the Directors to determine their remuneration. Resolution 6 To authorise the Directors to determine donations for the ensuing year. In witness my/our* hands this .................. day of .......................... Two Thousand and Twelve. Against
Signature of Shareholder/s * Please delete the inappropriate words. Instructions as to completion appear on the reverse.
140
Form of Proxy Contd.
INSTRUCTIONS AS TO COMPLETION 1. This Form of Proxy must be deposited at No. 215, Nawala Road, Narahenpita, Colombo 5 not less than forty eight (48) hours before the time fixed for the Meeting. 2. 3. In perfecting the Form of Proxy please ensure that all details are legible. 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. 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. 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. 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.
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REINVENTING SPACES Lanka Walltiles PLC Annual Report 2011/12

REIN REINVENTING SPAC

NVENTING G SPACES CES

The production and marketing of exceptional quality products at optimum affordability.

To manufacture and market quality ceramic products for comfortable living.

Group Net Profit After Tax

Group Total Equity

Earnings Per Share

Dividend per Share

Net Assets per Share

16 14 12 10 8 6 4 2 0 2008 2009 2010 2011 2012

Anthony A. Page Chairman

Chairmans Review Contd.

Anthony A Page Chairman 20th August 2012

Managing Directors Review

J A P M Jayasekera Managing Director

Managing Directors Review Contd.

Segment Turnover Net Profit after Tax

Total 6,878 963

J A P M Jayasekera Managing Director 20th August 2012

Board of Directors Contd.

Mr. Mahendra Jayasekera Managing Director 5 4

Management Discussion and analysis

Management Discussion and Analysis Contd.

Management Discussion and Analysis Contd.

Management Discussion and Analysis Contd.

Management Discussion and Analysis Contd.

Brisbane Sydney Auckland

Management Discussion and Analysis Contd.

Sustainability Report Contd.

14 12 10 8 6 4 2 0 2008 2009 2010 2011

Sustainability Report Contd.

Sustainability Report Contd.

Elects the Board

Ensures good Board composition

Reviews integrity of financial statements

Ensures good risk management Delegates day-to-day management

Remuneration Committee Ensures remuneration is appropriate Provides transparent information

The Chief Executive and Management Team

Governance Principle A. Directors A.1 - The Board Frequency of Board Meetings

Lanka Walltiles Adherence

Responsibility of the Board

Corporate Governance Contd.

Corporate Governance Contd.

Lanka Walltiles Adherence

Governance Principle Levels of Remuneration

B.2 - The level and make up of Remuneration Compliant

Corporate Governance Contd.

Lanka Walltiles Adherence

D.5 - Corporate Governance Disclosures

Corporate Governance Contd.

Lanka Walltiles Adherence

Lanka Walltiles Adherence

Corporate Governance Contd.

Lanka Walltiles Adherence

Risk Management Strategy

Risk Management Policies & Procedures

Risk Management Roles & Responsibilities

Risk Identification & Assessment

Risk Response & Reporting

Risk Management Contd.

Risk Management Contd.