contentscompany of sri lanka limited (dcsl). the convertible debentures held by milford exports...

Annual Report 2014 Balangoda Plantations PLC

1

Notice of Meeting 1

Our Vision/Our Mission 2

Historical Background 2

Corporate Information 3

Senior Management & Estate Managers 4

Chairman's Review 5 - 10

Sustainability Report 11 - 12

Report of the Board of Directors on the affairs of the Company 13 - 16

Board of Directors 17 - 18

Audit Committee Report 19

Remuneration Committee Report 20

Corporate Governance Statement 21

Statement of Directors' Responsibilities 21

Risk Management 22 - 25

Auditors' Report 26

Statement of Financial Position 27

Income Statement 28

Statement of Comprehensive Income 29

Statement of Changes in Equity 30

Statement of Cash Flows 31 - 32

Notes to the Financial Statements 33 - 59

Shareholder and Investor Information 60 -61

Financial Information 62

Statement of Value Addition 63

Performance of Estates 2014 & 2013 64 - 65

Form of Proxy Enclosed

Instructions for Completion of Form of Proxy Enclosed

Contents

Balangoda Plantations PLC Annual Report 2014

2


1

Notice of Meeting

Notice is hereby given that the Twenty Second Annual General Meeting of Balangoda Plantations PLC will be held at the Auditorium, Sri Lanka Foundation Institute, 100, Independence Square, Colombo 07 on 24th June 2015 at 10.00 a.m. for the following purposes :-

1. To receive and consider the Report of the Directors and the Financial Statements of the Company for the year ended 31st December 2014 together with the Auditors’ Report thereon.

2. To re-elect Mr. D H S Jayawardena who has reached the age of 72 years on 17th August, 2014 in terms of Sections 210 and 211 of the Companies Act No. 7 of 2007, as a Director of the Company.

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

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

5. To re-appoint Messrs. Ernst & Young as Auditors and to authorize the Directors to determine their remuneration.

By order of the BoardPradeep A. JayatungaSecretary

Colombo27-04-2015

Note :a) A member entitled to attend and vote at the above Meeting is entitled to appoint a Proxy to attend and vote instead

of him. A proxy need not be a member of the Company. The Form of Proxy will be found at the end of this Annual Report.

b) The Shareholders and the proxy holders are kindly requested to bring this report along with an acceptable form of Identity.

c) A Proxy may not speak at the Meeting unless expressly authorized by the instrument appointing him. The Proxy may vote on a poll (and join in demanding a poll) but not on a show of hands.

d) The completed form of proxy should be deposited at the Registered Office of the Company at 110, Norris Canal Road, Colombo 10, not less than 48 hours before the time for holding the meeting


2

Historical BackgroundBalangoda Plantations PLC was incorporated on June 11, 1992, by virtue of the Government Gazette issued in terms of Section 2 (2) of the Conversion of Public Corporations & Government Owned Business Undertakings into Public Companies Act No.23 of 1987, to take over the assets and liabilities of various estates owned and managed by the Janatha Estates Development Board and the Sri Lanka State Plantations Corporation as a Public Limited Company.

The first tranche of 51% of the issued share capital of the Company was sold by the Secretary to the Treasury through the Colombo Stock Exchange on an “all or nothing” basis and was purchased by Distilleries Company of Sri Lanka Limited (DCSL). The convertible Debentures held by Milford Exports (Ceylon) Limited were converted into 3,636,363 shares.

As per decision of the Government 10% of the Shares of the Company belonging to the Secretary to the Treasury on behalf of the Government were distributed among the eligible employees of the Company.

20% of the Shares of the Company belonging to the Secretary to the Treasury on behalf of the Government were sold to the public through the Colombo Stock Exchange and the balance 19% of the shares belonging to the Secretary to the Treasury were also sold on an “all or nothing” basis through the Colombo Stock Exchange.

Our VisionTo achieve excellence in the production & marketing of tea and rubber both locally

and internationally

Our Mission

• To increase productivity.

• To encourage team work and moti-vation amongst the employees and provide for career development.

• To generate adequate return on capital.

• To achieve excellence in every sphere of activity towards becoming a model in the Private Sector corporate entity.


3

Company Balangoda Plantations PLC

Legal Form Quoted Public Company

Date of Incorporation 11th June 1992

Company Registration No. P Q 165

Registered Office 110, Norris Canal Road,Colombo 10

Board of Directors

Secretary Mr. P A Jayatunga,833, Sirimavo Bandaranaike Mawatha,Colombo 14.Telephone : 2524734/2522871

Registrars P W Corporate Secretarial (Pvt) Ltd,3/17 Kynsey Road,Colombo 8.Telephone : 4640360-3

Auditors Messrs. Ernst & Young,Chartered Accountants,201 De Saram Place.Colombo 10

Bankers Hatton National Bank PLCHead Office Branch481, Darley RoadColombo 10

Managing Agents Stassen Exports (Pvt) Limited833, Sirimavo Bandaranayaike MawataColombo 14

Corporate Information

Mr. D H S Jayawardena - Chairman/MDMr. R K Obeyesekere - Non Executive DirectorMr. S K L Obeyesekere - Director /CEO Mr. C R Jansz - Non Executive DirectorMr. A L Gooneratne - Non Executive DirectorDr. A Shakthevale - Ind. DirectorMr. D S K Amarasekera - Ind. Director


4

Senior Management Teamas at 31st December 2014

Mr. S K L Obeyesekere Director/Chief Executive Officer

Mr. T A G de Mel General Manager

Mr. D P A Perera Deputy General Manager

Mr. A E G Jayawardena Asst General Manager

Mr. M I A Ansar Chief Accountant

Mr. P A Jayatunge Legal Officer

Estate Managersas at 31st December 2014

Mr. S B Ranawaka (Overlooking) Agarsland Estate, Balangoda

Mr. R W N Liyanage Balangoda Estate, Balangoda

Mr. N M P C Nawaratne (Acting) Cecilton Estate, Balangodaa

Mr. M A Ratnadason Meddakande Estate, Balangoda

Mr. P A P R de Silva Non Pareil Estate, Belihuloya

Mr. C P de Arthur Pettiagalla Estate, Balangoda

Mr. S B Ranawaka Rasagalla Estate , Balangoda

Mr. P M A Pathirana Rye/Wikiliya Estate, Balangoda

Mr. V P D P Kularatne Walaboda Estate, Balangoda

Mr. A I B Rajasinghe (Overlooking) Galatura Estate, Kiriella

Mr. R M D T J Ratnayake Mahawela Estate, Ratnapura

Mr. D L D S Kandegama (Acting) Millawitiya Estate, Ratnapura

Mr. B L L Prematilake Mutwagalla Estate, Kiriella

Mr. A I B Rajasinghe Palmgarden Estate, Ratnapura

Mr. D K Wijeratne Rambukkande Estate, Ratnapura

Mr. K A R Gunaratne Cullen Estate, Badulla

Mr. H S C Nanayakkara Glen Alpin Estate, Badulla

Mr. S P Ariyaratne Gowerakelle Estate, Badulla

Mr. Christopher F Stork Spring Valley Estate, Badulla

Mr. N P Liyanage Telbedde Estate, Badulla

Mr. J U Hulangamuwa Ury Estate, Badulla

Mr. P K Senanayake Wewesse Estate, Badulla


5

Chairman's Review

On behalf of the Board of Directors I am pleased to present a detailed review of operations and the performance of Balangoda Plantations PLC as reflected in the Audited Financial Statements for the year ended 31st December 2014.

2014 was a challenging year for the Company. The positive outlook demonstrated in the first half of 2014 did not continue throughout the year. The combined effect of the drop in revenue and increased cost of production mainly due to the wage increase granted in 2013 and other input and utility cost increases had an adverse effect on profitability contributing to a pre-tax loss of Rs.106.44 Million.

The turnover of the Company decreased from Rs.3.2 billion in 2013 to Rs.3.0 billion in 2014 reflecting a drop of 6.25% .

YearProduction

Mn kg

Annual Increase Mn kg

Annual Increase

%

2010 329.38 39.60 13.66

2011 328.37 (1.01) (0.31)

2012 326.3 (2.07) (0.63)

2013 340.23 13.93 4.27

2014 338.03 (2.20) (0.65)

Tea Industry

Sri Lanka’s Tea Production

Sri Lanka’s Tea Production which grew to 340.23 Mn kg in 2013 shows a decline of approximately 2.20 Mn kgs in 2014. This shortfall is primarily due to the 6.92 Mn kgs deficit shown by the Medium grown sector notwithstanding the positive crops recorded from both High and Low growns.

Year High Medium LowAll

Eleva-tions

2010 337.82 330.88 393.40 370.61

2011 329.95 319.77 381.27 359.89

2012 375.53 351.08 407.14 391.64

2013 407.91 396.96 469.67 444.75

2014 430.59 414.41 488.61 465.06

The prices at the Colombo Tea Auction remained buoyant during the 1st, 2nd & 3rd Quarters of 2014 and was above the corresponding prices recorded in 2013. However this optimistic market scenario was not prevalent in the 4th quarter and the average price declined to Rs. 443.04 in December 2014, a decrease of 11.07% compared to December 2013 due to many national and global macro issues. Though the average price at the Colombo Tea Auction have picked up by 4.56% to Rs.465.05, the cost of production increased relatively by a higher percentage which resulted in erosion of margins of local tea manufacturers.

Tea - Colombo Auction Average Prices Rs/kg

Production - Low, Medium, High Elevations - Mn Kgs

Low

Medium

High

+/-

1.83

6.92)

3.09

56.1349.21

208.12209.95

Jan-Dec 2013 Jan-Dec 2014

2010

Rs./k

g

2011 2012 2013 2014

0

200

400

600

100

300

500

Average Prices Rs/Kg

High

Medium

Low

All Elevations


6

Performance of the Company's

Tea Sector

2014 2013 2012 2011 2010

Production (‘ooo kg) 6,822 7,298 6,852 6,713 7,265

Yield kg/ha 940 936 921 904 1,046

Turnover (Rs.Mn) 2,816 2,880 2,396 2,080 2,304

NSA (Rs/kg) 412.77 394.64 349.66 309.91 316.37

COP (Rs./kg) 455.65 407.83 373.72 362.73 334.69

Profit/(Loss) (Rs./kg) (42.88) (13.19) (24.06) (52.82) (18.32)

Chairman's Review

Tea - Production - ‘000 kgs

6,000 6,500 7,000 7,5000

2011

2013

2010

2012

2014

Turnover - Rs. Mn

0 500 1,000 1,500 2,000 2,500 3,000

2011

2013

2010

2012

2014

NSA/COP - Rs/kg

0

500

400

200

300

100

2010 2011 2012 2013 2014

NSA

COP

The Rubber Sector has shown a steady decline during year 2014 and Sri Lanka Rubber Production decreased to 98 Mn kgs in 2014 from 130.4 Mn kgs in 2013 due to adverse weather which prevailed during most part of the year. Rubber prices continued to fall in 2014 as well due to build up of stocks and slow growth in emerging economies.

Rubber Industry

2010

Mn

kg

2011

Average Prices Rs/Kg

2012 2013 20140

40

80

120

140

180

160

20

60

100

Production 152.9 157.9 152 130.4 98

Latex Crepes Scrap Crepes RSS

2013 366.71 284.32 357.11

2014 270.08 199.73 272.16

National Average Prices - Rubber Rs Kg

RSS

Scrap Crepes

Latex Crepes

0 50 100 150 200 250 300 350 400

2010 2011 2012 2013 2014

-60

-40

-20

0

-50

-30

-10


7

The Company has achieved a turnover of Rs.2.82 billion in the year under review compared to Rs.2.88 billion last year. The decline of 2.08% is mainly due to the drop in prices and reduction in Tea production by 476,000 kgs compared to last year.

Cost of Production (COP) reflects an increase of 11.72% mainly due to the increase in wages and input costs, siginificantly impacting the overall viability of the Company. The cost of production of Rs.455.65 per kg is the single largest increase in COP for the last five years which is undoutedely a challenge faced by the Company as well as the Plantation sector in the Country. To offset the impact of the rising cost of production the Company has been able to achieve a maginal increase in the NSA by 4.59% during the year under review, but however insufficient to offset the impact of the rising COP.

Noteworthy Performance - Tea

Various grades of Tea manufactured by Balangoda, Cecilton, Meddakande, Non Pareil, Pettiagalla, Rasagalla, Walaboda, Palmgarden, Glen Alpin, Spring Valley, Telbedde, Ury & Wewesse Estates obtained all island top prices on 187 occasions at the Colombo Auctions.

Chairman's Review

Performance of Company'sRubber Sector2014 2013 2012 2011 2010

Production ('ooo kg) 671 816 993 1,138 1,194

Yield kg/ha 577 643 766 825 812

Turnover (Rs.Mn) 186 292 384 579 492

NSA (Rs/kg) 277.32 357.20 386.60 508.52 417.55

COP (Rs./kg) 400.51 332.09 310.85 255.95 237.35

Profit/(Loss) (Rs./kg) (123.19) 25.11 75.75 252.57 180.20

Turnover - Rs. Mn

0 200 400 600 800

2011

2013

2010

2012

2014

NSA

COP

Rubber- Production - ‘000 kgs

0 500 1,000 1,5000

2011

2013

2010

2012

2014

NSA/COP - Rs/kg

0

600

500

400

200

300

100

2010 2011 2012 2013 2014

2010 2011 2012 2013 2014

-200

-0

200

-100

100

300


8

Noteworthy Performance - Rubber

Various grades of Rubber obtained top prices on 59 occasions from Galatura, Mahawela, Rambukkande & Mutwagalla Estates.

Chairman's Review

The Rubber segment, the largest revenue contributor during the past years shows a drastic decline in terms of production, turnover, NSA and significantly impacting on the profitability of the Company.

The Company's Rubber Production was 671,000 kgs in 2014 recording a decline of 17.77% compared with 2013 due to adverse weather which disrupted harvesting.

After reaching record levels in 2011 where a kilogram of Rubber was sold at over Rs.500/- per kg, prices have been steadily declining due to the economic slowdown in China, US and Europe, the largest consumers of the product. This was further exacerbated by the resulting high stocks with major manufacturers and high level of production in other Rubber Producing Countries. In 2014 the average price of Rubber of the Company dwindled to Rs.277.32 which is a 22.36% decrease from the 2013 price of Rs.357.20.

Performance of Rubber Sector was further affected by the sharp increase in the cost of production which shows a year on year increase and the overall COP of the Company escalated by 20.6% over the previous year. This was mainly due to the wage revision that takes place biennially and the other input and utility costs which adversely affected the profitability of the Rubber Sector.

Effect of the Weather on Performance

As a Plantation Company our performance is dependent on the weather patterns besides the vagaries of the commodity market. The adverse weather experienced during 2014 resulted in a considerable decrease in crop intakes both Tea and Rubber. Floods, lanslides and severe droughts caused extensive damage to these agricultural outputs and a substantial cost was incurred in resettling several families displaced due to landslides.

Amount Mn Rs %

Tea Replanting 15.83 4.36

Rubber Replanting 295.84 81.57

Diversification (Fuel wood & Timber) 11.02 3.04

Land Improvement 9.72 2.68

Machinery 25.71 7.09

Equipment 1.32 0.36

Furniture & Fittings 0.03 0.01

Buildings 1.56 0.43

Motor Vehicles 1.67 0.46

Total 362.70 100.00

Jan-Dec 2013 Jan-Dec 2014 Jan-Dec Decinnial Avg

Capital InvestmentsOverall capital expenditure for the year under review was Rs.362.70 the composition of which is shown in the statement. Replanting Programmes both in Tea and Rubber Sectors have been continued without any disruption in order to place the Company in a strategically strong position to absorb future escalation of costs. The Company has also made strategic investments in selected Factories to minimize the impact of the cost of production due to high energy and labour costs while improving the quality of the end product which will no doubt assist the Company to be highly productive in the years to come.

Rain

fall

(mm

)

Ratnapura Region

0

2,000

1,000

4,000

5,0004404

1488

3,000

3351

Balangoda Region

0

1,000

2,000

3,000

500

1,500

2,500

3,500

2488 2549

3128

Badulla Region

0

1,000

2,000

3,000

500

1,500

2,5002683

23982188


9

Chairman's Review

Diversification undertaken in 2014The Company continued its forestry/crop diversification activities in the year 2014 as prescribed for the year in the Forestry Management Plan. The thinning out programme of the young timber plants was undertaken as required in the Management Plan resulting in availability of a significant quantity of fuelwood for the Factories. An extent of 405.55 Hects. is currently being maintained under capital expenditure inclusive of 15.14 Hects. planted with Eucalyptus Torrelliana during the year.

Marginal unproductive Tea areas were diversified into Rubber. New planting was done in 67 Hects. in Balangoda & Badulla Region.

Loans taken in 2014

Institution TypeLoan Amount

(Rs.)Interest Rate Purpose

Hatton National Bank PLCTerm Loan

500,000,000.00 AWPLR +1% with a cap of 13.5% p.a.Replanting & Factory Development

Hatton National Bank PLCTerm Loan

17,800,000.00 AWPLR (Monthly Review)To purchase a Colour Sorter to Telbedde Estate.

Social Development Work - 2014

Activity EstateTotal Cost

(Rs.)

New Life Housing Projects*(Ministry of Livestock & Rural Community Development)

Meddakande -10 Units 5,150,000.00

Re-roofing Programme (Ministry of Livestock & Rural Community Development)

Glen Alpin - 09 UnitsTelbedde - 14 Units

1,035,000.00

Concrete Road (Ministry of Livestock & Rural Community Development) Gowerakelle**Spring Valley

1,000,095.38

Wire Fence for Volley Ball Court WewesseUry

600,317.80

E-Kiosk Centre - Road way Ury 733,014.11

* Preliminary work commenced in 2014 and carried over to 2015** 30% completed

Strikes and their effect - 2014During 2014 there were strikes/minor disputes on Agarsland, Cecilton, Rye/Wikiliya, Walaboda, Galatura & Mutwagalla Estates due to an incident in Rakwana area in July 2014. This resulted in a loss of 1269 man days and an estimated loss of crop valued at Rs.1,735,885.88/-.

Prospects for 2015The decline in overall profits in 2014 is a clear indication of the unprecedented challenges faced by the Plantation Industry the survival of which is critical in the light of the sharp decline in prices of both major crops; Tea due to crisis in its main export markets and Rubber due to a slump in the world market. The Global economic growth is slower than projected as most developed economies continue to struggle with stringent financial conditions and geopolitical uncertainties which has restricted the exports of the Country. Besides these external factors the industry is also dependent on vagaries of weather patterns which will play an important role in plantation crop outputs.

The rising cost of production, particularly labour costs, declining productivity etc hinder the sustainability of the Industry. Plantation Workers Wages are revised upwards biennially and the next revision is due in April 2015. The increase in wages directly impacts the increase in cost of production posing a challenge to the viability of the Industry as it is neither matched with comparable increases in productivity nor affordability. The need of the hour is to change the wage system in the Plantation Sector which is a labour intensive industry and introduce a new model which is linked to productivity. An increase if granted once again will undoubtedly place the Plantations in dire straits not only in terms of profitability, but also impact on strategic investments to be adopted by the Company. Another critical factor to be considered is the diminishing worker availability and skilled employees in the Plantation Sector which will have a negative impact on the long-term sustainability of the Industry while having a direct impact on the labour productivity and the Company's profitability. The Company has taken strategic measures to reduce the impact of these challenges in 2015 with a view to move our Company to a higher position.


10

• Adoption of sustainable agricultural practices

• Diversify unproductive estate lands to other high value lucrative crops

• Improve factories to ensure standards thereby maintaining consistency in quality.

• Develop a model for Out grower System converting low productivity areas to more productive levels with the participation of the workers.

• Empower the employees to reach their full potential

• Cost management and minimize waste

• Mechanization of field operations.

Chairman's Review

TeaThe ensuing year will once again be a challenging year for our Company. The present uncertainties experienced in the global tea market offer no signs of recovery in the near future and the severe financial crisis the Tea Industry is faced with consequent to the cyclical ups and downs in the Tea prices will aggravate further if a revolutionary viable transformation is not implemented. Therefore it is imperative for the policy makers and the stakeholders to establish a proper development plan to respond to the emerging difficulties faced by the Industry and in doing so a concerted effort must be made by the Sri Lanka Tea Board to explore new markets by promoting Tea in populous countries. The Tea Promotion Fund created in 2011/2012 should be utilized to aggressively pursue this objective.

RubberThe outlook for Rubber will not be positive with the current global stagnation and the weakened demand for this commodity in China and the EU and aggravated further by excessive supply. One of the main reasons for the decline in prices is the expansion of Rubber production in Thailand, Malaysia and Indonesia which accounts for almost 70% of world supply with the ever increasing output from Vietnam and the new comer, Cambodia creating a significant surplus. The situation will aggravate further with the drastic drop in crude oil prices which are today at almost 60% lower than what they were in or around the beginning of 2014 causing synthetic Rubber to be much cheaper.

DividendsI regret very much to inform you that your Directors are not recommending a dividend for the year ended 31st December 2014.

AcknowledgementsOn behalf of the Board of Directors I wish to thank our Buyers, Brokers and Suppliers for their patronage. I would also like to place on record the dedication, commitment and loyalty of the Management team, Executives, Staff and Workers of the Company and take this opportunity to thank each and every one of them. I also express my deep gratitude to all our shareholders who have continued to place their trust and confidence.

Sgd. D. H. S. JayawardenaChairman/Managing Director

27-04-2015


11

Sustainability Report

ENVIRONMENTALEnergy Efficiency

Land ManagementWater Management

Bio Diversity

SOCIAL Engaging with community & exemplifying Corporate

Responsibility

ECONOMIC Increase productivity and

innovation

Moving towards sustainability is a social challenge and our Company as a corporate entity endeavoured to maintain its responsibility for the sake of wellbeing of the community and the environment together with our stakeholders. The Company is firmly of the view that sustainability is not only improving the quality of human life, but also living within the carrying capacity of supporting eco-systems. Over the years we have invested in material resources, time and capacity to improve the living standards of our workforce and the report reveals the constructive measures taken by Balangoda Plantations PLC in its endeavour to achieve a sustainable business model with all aspects of sustainability in our business practices.

Health related activitiesThe Company continued to undertake series of health related activities during 2014 paying much attention to health of the workers. The Health Staff in the Estates with the assistance of the Plantation Human Development Trust made a concerted effort in conducting medical camps, awareness programmes, mobile clinics, training programmes, review meetings etc on our Plantations with a view to providing a healthy and safe working environment for the Estate Community.

Welfare ActivitiesThe Company's commitment towards improving the quality of life and social wellbeing of the Plantation Community continued during the year under review as well creating a conducive work environment where workers of all levels are benefited by the activities undertaken.

With the assistance of the Plantation Human Development Trust and the Ministry of Live Stock & Rural Community Development the Company initiated several projects in order to uplift the living standards of the Plantation community. Construction of Child Development centres with improvement to those existing are some of the important initiatives undertaken by the Company to provide a safe environment ensuring the growth and development of children.

Community DevelopmentThe Company encourage a happy work culture and foster relationship with our employees to bring about improvements in the organization towards the achievement of the common goals described in our vision and mission statements. Believing that our employees are our most valuable asset we always make an effort to develop the ability and productivity of our worker community at all levels. Easy payment schemes for facilities such as obtaining goods and equipment , distress loans, death benefit welfare scheme, medical insurance, sports and recreational activities, religious programmes are some of the welfare measures the Company undertakes.

Employment OpportunitiesWhenever an employment opportunity arises on our Estates it is the policy of the Company to give priority to the children of the existing employees before outside recruitments are made.

AWARENESS PROGRAMMES/CLINICS

• HIV/AIDS Prevention

• Cancer Prevention

• Dengue Prevention

• Alcohol Abuse Prevention• Dental Clinics• Eye Clinics

OTHER PROGRAMMES

• Women/Childcare Programmes

• Occupational Health & Safety Programmes

• Distribution of 'Thriposha'

• Introducing Personal Protection Programmes

• Elimination of Domestic Violence

New Life Housing ProjectMeddakande Estate - 10 Units

Re-roofing ProgrammeGlen Alpin Estate - 09 UnitsTelbedde Estate - 14 Units


12

Sustainability Report

ESTATES CERTIFIED

RAIN FOREST ALLIANCE CERTIFICATION (RAC)This certification works to conserve biodiversity and improve livelihoods by promoting and evaluating the implementation of the most globally respected sustainability standards which are designed to generate ecological, social and economic benefits.

Agarsland EstateBalangoda EstateCecilton EstateMeddakande EstateNon Pareil EstatePettiagalla EstateRasagalla EstateRye/Wikiliya EstateWalaboda Estate

ISO 22000Food Safety Management risks are addressed by this certification

Cecilton EstateBalangoda EstateMeddakande EstatePettiagalla EstateRasagalla EstateRye/Wikiliya EstateWalaboda EstatePalmgarden Estate

ISO 9001-2008Quality Management risks are addressed by this certification

Rambukkande EstateGalatura Estate

Employee Skill Development on EstatesDuring the period under review the Company conducted series of training sessions for our employees on quality manufacture & agricultural practices, teamwork, career growth and development, health and safety instructions etc.

Value AdditionInternational Certifications and AccreditationsCertifications awarded confirm our commitment to preservation of the environment and our processes pertaining to the quality of the end product. These certifications benchmark our policies, agricultural practices, rejuvenation and protection of the environment with international best standards.


13

Report of the Board of Directors on the affairs of the Company

The Directors of Balangoda Plantations PLC have pleasure in presenting their Annual Report together with the Audited Financial Statements of the Company for the year ended 31st December 2014.

Principal ActivitiesThe principal activity of the Company is the cultivation and processing of Tea and Rubber. The Company has 16 Tea Estates, 7 Tea cum Rubber Estates and 1 Rubber Estate in two Districts - Badulla and Ratnapura. The cultivated land consists of 5,400 ha under Tea and 1900 ha under Rubber.

Managing AgentsThe Company is managed since 1st November 1996 by Stassen Exports (Pvt) Limited.

Management FeeManagement Fee is paid on the following basis :

Rs.1.0 million per estate per year

From Profit

• Up to 50.0 million - 10%

• 50.0 million to 100.0 million - 20%

• 100.0 million to 200.0 million - 30%

• Over 200.0 million - 40%

Parent CompanyThe Company's parent undertaking and controlling party is Melstacorp Limited, which is incorporated in Sri Lanka as a limited liability company.

Review of PerformanceThe review of the Company's performance during the year is given in the Chairman's Review in this Annual Report.

Development and DiversificationDevelopment and Diversification are covered in the Chairman's Review in this Annual Report.

Financial StatementsThe Financial Statements of the Company are given on pages 27 to 59 of this Annual Report.

Auditors' ReportThe Auditors' Report on the financial statements is given on page 26 of this Annual Report.

Accounting PoliciesThe Accounting Policies adopted in the preparation of the Financial Statements are given on pages 27 to 59 of this Annual Report.

Financial Results

2014Rs.'000

2013Rs.'000

Revenue 3,002,156 3,171,983

Profit/(Loss) before Tax (106,445) 129,715

Income Tax (Expense)/Reversal 11,213 2,939

Profit after Tax (95,232) 132,654

Net Comprehensive Income (16,049) 21,147

Profit/(Loss) B.F. 1,023,318 967,557

Transferred to Timber Reserve (92,376) (74,293)

Available for Sale Reserves (552) (111)

Available for Appropriation 819,109 1,046,954

Dividends paid (2013= Rs.1/-), 2012 = 1/-) (23,636) (23,636)

Proposed DividendFinal (2014 = -, 2013 = Rs.1/-)

- -

Retained Profit 795,473 1023,318


14

Number of Buildings, Hectarage & Value

Estates Hect. Number of Building Value Rs.

Agarsland 3.70 151 4,836,915.38

Balangoda 45.13 667 15,920,335.09

Cecilton 11.43 352 10,463,317.58

Meddakande 14.01 409 12,436,376.19

Non Pareil 28.68 317 11,047,529.43

Pettiagalla 12.05 343 9,879,064.47

Rasagalla 39.41 488 9,193,984.98

Rye/Wikiliya 28.25 517 11,845,365.62

Walaboda 16.77 261 4,102,172.01

Galatura 28.31 375 18,038,900.18

Mahawale 16.78 487 17,200,443.93

Millawitiya 12.94 221 6,441,536.14

Mutwagalla 19.21 430 9,523,690.12

Palmgarden 36.67 667 22,275,264.16

Rambukkande 18.77 203 16,887,899.10

Cullen 3.03 308 4,816,025.99

Glen Alpin 41.05 1349 20,067,541.41

Gowerakelle 13.51 322 54,154,614.51

Spring Valley 42.49 928 18,029,438.59

Telbedde 69.79 906 19,561,456.00

Ury 36.12 703 12,634,912.72

Wewesse 9.89 561 12,865,652.18

Head Office 4.00 2 11,904,919.13

Total 552.00 10,967 334,127,354.91


Financial Ratio Analysis

2014 2013

Profitability RatiosGross Profit RatioNet Profit Ratio

(5.55%)(3.55%)

3.17%4.09%

Asset RatiosCurrent RatioAcid Ratio

0.910.53

0.880.42

Performance RatiosReturn on InvestmentReturn on Share Capital

(4.06%)(30.41%)

4.71% 37.06%

Leverage RatiosDebt/Equity RatioInterest coverage

33.58%(2.52)

15.65%5.80

Investor RatiosPrice Earnings Ratio (6.58) 5.53


15

DividendThe Directors are not recommending a dividend for the year ended 31st December 2014.

Remuneration and Other Benefits of the DirectorsThe Directors did not receive any remuneration or other benefit during the accounting period.

DonationsThe Company did not make any donation during the year.

TaxationDeferred tax liability of Rs.23,382 million has been reversed in the financial statements.

Capital ExpenditureThe Company incurred a capital expenditure of Rs.362.70 million, of which Rs.322.69 million has been spent on field development.

Commitments & ContingenciesCapital commitments and Contingent liabilities are disclosed in the Notes to Accounts Nos. 16 & 30.

DirectorateThe following Directors held office during the year under review :

Mr. D H S Jayawardena - Chairman/Managing DirectorMr. R K Obeyesekere - Non Executive DirectorMr. C R Jansz - Non Executive DirectorMr. S K L Obeyesekere - Director/CEOMr. A L Gooneratne - Non Executive DirectorDr. A Shakthevale - Independent DirectorMr. D S K Amarasekera - Independent Director

In terms of Article 92 of the Articles of Association Mr. C R Jansz and Mr. A L Gooneratne retire by rotation and being eligible offer themselves for re-election.

Directors' Interest in SharesNone of the Directors of the Company, their spouses or dependants held any shares in the Company during the year ended 31st December 2014.

Directors' Interest in Contracts with the CompanyDirectors interests in contracts with the Company are disclosed in Note 32 to the Accounts and have been declared at a Meeting of the Directors. The Directors have no direct or indirect interest in any other contracts or proposed contracts of the Company.

Shareholder and Investor InformationDistribution of Shareholdings as at 31st December 2014, Analysis Report of Shareholders, Market Statistics of Company's shares and the list of 25 major shareholders are given on pages 60 and 61 of this Annual Report.

Matters pertaining to the Golden Share1. The Golden Share shall only be held by the Secretary to the Treasury in his official capacity and not in his own

name, for and on behalf of the State of the Democratic Socialist Republic of Sri Lanka, or by a company in which the State of the Democratic Socialist Republic of Sri Lanka owns 99% or more of the issued share capital.

2. The Company shall obtain the written consent of the golden Shareholder prior to sub-leasing, ceding or assigning its rights in part or all of the lands set out in Section 3A(1) of the Memorandum of Association.

3. The Articles of the Company as originally framed may from time to time be altered by special resolution, provided that the concurrence of the Golden Shareholder in writing shall be first obtained to amend the definition of the words Golden Share and Golden Shareholder and Articles 2A, 2B, 3(c), 3(c)(i), 3(c)(ii), 25A, 127A, 127B, 127C and 128.



16


4. The Golden Share may be converted into an ordinary share with the concurrence of the Golden Shareholder and the concurrence of a majority of the shareholders.

5. The Golden Shareholder shall be entitled to call upon the Board of Directors of the Company once in every three month period if desired to meet with the Golden Shareholder and or his nominees, and the Directors if so called upon shall meet with the Golden Shareholder and or his nominees to discuss matters of the Company of interest to the State of the Democratic Socialist Republic of Sri Lanka.

6. The Golden Shareholder and or his nominee shall be entitled to inspect the books of accounts of the Company after giving two weeks written notice to the Company.

7. The Company shall submit to the Golden Shareholder, within 60 days of the end of each quarter, a quarterly report relating to the performance of the Company during the said quarter in a pre-specified format agreed to by the Golden Shareholder and the Company.

8. The Company shall submit to the Golden Shareholder, within 90 days of the end of each fiscal year, information relating to the Company in a pre-specified format agreed to by the Golden Shareholder and the Company.

Post Balance Sheet Events.Details of post Balance Sheet events have been disclosed in Note 31 to the Accounts.

AuditorsThe accounts of the year have been audited by M/s Ernst & Young, Chartered Accountants who offer themselves for re-appointment.

Fees paid to the Auditors are disclosed on Page 57 in the Financial Statements.

As far as the Directors are aware, the Auditors do not have any relationship (other than as Auditors) with the Company other than those disclosed above. The Auditors do not have any interest in the Company.

Sgd. D.H.S. Jayawardena Sgd. S.K.L. ObeyesekereChairman/Managing Director Director/CEO

Sgd. Pradeep A. JayatungaSecretary

27-04-2015


17

MR. D.H.S.JAYAWARDENA - CHAIRMAN/MANAGING DIRECTOR

ChairmanAitken Spence PLC, Browns Beach Hotels PLC, Aitken Spence Hotel Holdings PLC, Aitken Spence Hotel Managements Asia (Pvt) Ltd., Negombo Beach Resorts (Pvt) Ltd., Lanka Power Projects (Pvt) Ltd., Stassen Exports (Pvt) Ltd., Milford Holdings (Pvt) Ltd., C B D Exports (Pvt) Ltd., Stassen International (Pvt) Ltd., Stassen Natural Foods (Pvt) Ltd., Stassen Foods (Pvt) Ltd., Milford Exports (Ceylon) (Pvt) Ltd., Ceylon Garden Coir (Pvt) Ltd., Milford Developers (Pvt) Ltd., Lanka Milk Foods (CWE) PLC, Lanka Dairies (Pvt) Ltd., Ambewela Livestock Company Ltd., Ambewela Products (Pvt) Ltd., Pattipola Livestock Company Ltd., Timpex (Pvt) Ltd., Texpro Industries Ltd., Distilleries Company of Sri Lanka PLC, Periceyl (Pvt) Ltd., Melstacorp Limited, Bellvantage (Pvt) Ltd., Madulsima Plantations PLC, Balangoda Plantations PLC, Indo Lanka Exports (Pvt) Ltd., Bogo Power (Pvt) Ltd., Telecom Frontier (Pvt) Ltd., Lanka Bell Ltd., Bell Solutions (Pvt) Ltd.

Managing DirectorStassen Real Estate Developers (Pvt) Ltd.

DirectorStassen Plantation Management Services (Pvt) Ltd.

OthersConsul General for Denmark in Sri Lanka

MR. R K OBEYESEKERE - NON-EXECUTIVE DIRECTOR

DirectorBalangoda Plantations PLC, Madulsima Plantations PLC, Zahara Exports (Pvt) Limited, Lanka Dairies (Pvt) Limited, Ambewela Livestock Co. Limited, Ambewela Products (Pvt) Limited, Pattipola Livestock Co. Limited, Lanka Milk Foods (CWE) PLC, Danish Dairy Products Lanka Ltd and Stassen Plantation Management Services (Pvt) Ltd.

MR. C.R. JANSZ - NON-EXECUTIVE DIRECTOR

DirectorAmbewela Livestock Company Limited, Ambewela Products (Pvt) Ltd., Melstacorp Ltd., Lanka Bell Ltd., Lanka Dairies (Pvt) Ltd., Lanka Power Projects (Pvt) Ltd., Milford Holdings (Pvt) Ltd., Pattipola Livestock Company Ltd., Periceyl (Pvt) Ltd., Indo Lanka Exports (Pvt) Ltd., Balangoda Plantations PLC, Distilleries Company of Sri Lanka PLC, Lanka Milk Foods (CWE) PLC.

ChairmanDFCC Bank PLC, DFCC Vardhana Bank PLC.

MR. S K L OBEYESEKERE - DIRECTOR/CHIEF EXECUTIVE OFFICER

Mr. Lalith Obeyesekere who counts over 40 years experience in the Industry having commenced his career as a Management Trainee and then rising to the position of CEO is a fellow of the National Institute of Plantation Management in Sri Lanka. Mr. Obeyesekere serves as an elected Committee Member of the Ceylon Tea Traders' Association and the CRTA, the National Labour Advisory Council (NLAC) and the Consultative Committee on Research of the Tea Research Institute of Sri Lanka and a Council Member of the Employers' Federation of Ceylon. He serves on the Board of the Plantation Human Development Trust. He is the Director/CEO of Madulsima & Balangoda Plantations PLC and a Director of Bogo Power (Pvt) Ltd.

MR. A.L. GOONERATNE - FCA(SL),FCA(Eng.& Wales) - NON-EXECUTIVE DIRECTOR

Mr. Amitha Gooneratne has held several senior positions at Commercial Bank of Ceylon PLC and served as the Managing Director from 1996 to April 2012. He is a Fellow member of The Institute of Chartered Accountants, United Kingdom and Wales and a Fellow Member of The Institute of Chartered Accountants, Sri Lanka. He was the Founder Chairman of the Financial Ombudsman Sri Lanka (Guarantee) Ltd. and former Chairman of the Sri Lanka Banks' Association (Guarantee) Ltd. He was also the Managing Director of Commercial Development Company PLC, a Public Quoted Company listed in the CSE and was the Chairman of Commercial Insurance Brokers (Pvt) Limited. He was also nominated to the Board of Sri Lankan Air Lines during 2002-2004 by the Government of Sri Lanka.

Board of Directors


18

On his retirement, Mr. Gooneratne, assumed duties as Managing Director of Melstacorp Limited, which is the strategic investment arm of the Distilleries Company of Sri Lanka PLC. He is the Chairman of Melsta Regal Finance Limited and Melsta Logistics (Pvt) Limited; Board Member of Periceyl (Pvt) Limited, Balangoda Plantations PLC, Lanka Bell Limited, Telecom Frontier (Pvt) Limited, Bell Solutions (Pvt) Limited, Bellvantage (Pvt) Limited, Timpex (Pvt) Limited, Texpro Industries Limited, Continental Insurance Limited and Browns Beach Hotel, Bogo Power (Pvt) Ltd. and Melsta Towers, which are subsidiary Companies of Melstacorp Limited.

He is an Independent Director of Textured Jersey and Lanka IOC and Commercial Development Company Limited.

He is also the Alternate Director to Mr. N. de S. Deva Aditiya on the Board of Distilleries Company of Sri Lanka and Aitken Spence PLC.

MR. D.S.K. AMARASEKERA - INDEPENDENT NON - EXECUTIVE DIRECTOR

DirectorBalangoda Plantations PLC, Browns Investments PLC, Eden Hotel Lanka PLC, Free Lanka Capital Holdings PLC, Hydro Power Free Lanka PLC, Kelani Tyres PLC, Lanka Milk Foods (CWE) PLC, Madulsima Plantations PLC, Palm Garden Hotels PLC, Environmental Resource PLC, Central Services (Pvt) Ltd., Ceylon Cineman Holding (Pvt) Ltd., Excel Global Holding (Pvt) Ltd., Excel Restaurants (Pvt) Ltd., Finco Holdings Ltd., Foton Lanka (Pvt) Ltd., Free Lanka Capital Properties (Pvt) Ltd., Free Lanka Management Co. (Pvt) Ltd., Free Lanka Plantations Co. (Pvt) Ltd., Free Lanka Power 2 (Pvt) Ltd., Free Lanka Power 3 (Pvt) Ltd., Free Lanka Power Gikdubgs (Pvt) Ltd., Millennium Development (Pvt) Ltd., Samudra Beach Resorts (Pvt) Ltd., Sierra Holdings Ltd., Sierra Piling (Pvt) Ltd., Southern Cleaners (Pvt) Ltd., Sunsun Boutique Hotels Ltd., The Tea Leaf Resort Holdings (Pvt) Ltd., Tropical Villas (Pvt) Ltd., Business Process Outsourcing (Pvt) Ltd., The Colombo Land Exchange Ltd., Morningside Estate (Pvt) Ltd., Ceylon Hotel Holdings (Pvt) Ltd., Suisse Hotel Kandy (Pvt) Ltd., Ceylon Roots (Pvt) Ltd., Green Paradise (Pvt) Ltd., BG Air Services (Pvt) Ltd., Browns Tours (Pvt) Ltd., Sun & Fun Resorts Ltd.

Mr. D.S.K. Amarasekera is an eminent Tax Consultant and the Senior Tax and Legal Partner of Amerasekera & Company, a leading tax consultancy firm in the country. He is a Member of the Institute of Chartered Accountants of Sri Lanka, and is an Attorney-at-Law of the Supreme Court of Sri Lanka.

DR. A. SHAKTHEVALE - INDEPENDENT NON-EXECUTIVE DIRECTOR

DirectorLanka Milk Foods (CWE) PLC, Maldulsima Plantations PLC and Balangoda Plantations PLC.

Retired as Additional Secretary (Livestock), Ministry of Agriculture and Livestock in 2002, served as the Secretary, Ministry of Rehabilitation and Social Services in the Northeast Provincial Council. He works as a freelance Consultant in the field of livestock and presently working as a Consultant at Faculty of Agriculture, University of Jaffna. He has also worked for FAO, UNDP, GTZ, UNHABITAT, Land O'Lake, Oxfarm GB and several local livestock organizations.

Board of Directors


19

CompositionThe Chairman of the Committee is Mr. D.S.K.Amarasekera, an Attorney-At-Law and Chartered Accountant. The other Member of the Audit Committee is the Independent Non Executive Director, Dr. A. Shakthevale. The Company Secretary functions as the Secretary to the Audit Committee.

MeetingsThe Committee had three meetings during the year. The Director/CEO and the Financial Officers attended the Meetings. The Executive Senior Management Team was present at discussions, as required.

Terms of ReferenceThe Audit Committee Charter approved and adopted by the Board clearly sets out the terms of reference governing the Audit Committee ensuring highest compliance with the Corporate Governance rules applicable to listed companies in accordance with the Rules of the CSE and the Code of Best practice on Corporate Governance.

Activities and ResponsibilitiesFinancial ReportingThe Committee reviewed and discussed the financial reporting system adopted by the Company in the preparation of its quarterly and annual Financial Statements with the Management and the External Auditors to ensure reliability of the process and the consistency of the Accounting Policies adopted and its compliance with the Sri Lanka Accounting Standards and the provisions of the Companies Act No. 7 of 2007.

Risks and ControlsThe Committee obtained and reviewed the major business risks and mitigatory action taken or contemplated for each business sector of the Company. In particular, the Committee deliberated on the financial implications to the Company arising from the world market prices for Tea and Rubber, labour issues, wage increases etc., and appraised the Board as appropriate.

Internal AuditThe internal audit function of the company was carried out by the Internal Audit Division. The Committee reviewed the effectiveness of the internal audit plan to ensure that it has been designed to provide reasonable assurance that the financial reporting system adopted by the Company can be relied on in the preparation and presentation of the financial statements. The Committee also reviewed the findings of the Internal Auditors and their recommendations together with the management responses and regularly followed up the progress of the implementation of such recommendations in order to enhance the overall control environment.

External AuditThe Audit Committee met with the External Auditors to discuss the scope and the audit strategy. The Committee also reviewed and discussed the Report of the Auditors and Management Letters issued by them to ensure that no limitations have been placed on their scope of work and conduct of the audit.

The Committee carried out an annual evaluation of the External Auditors to establish their independence and objectivity and also obtained a written declaration from the Auditors in this regard.

The Audit Committee has recommended to the Board of Directors that Messrs Ernst & Young be reappointed as the External Auditors for the financial year ending 31st December 2015.

Compliance with Laws and RegulationsThe Committee reviews the quarterly compliance reports submitted by the compliance officer to ensure that the Company has complied with all statutory requirements.

ConclusionThe Audit Committee is satisfied that the Group's accounting policies, operational controls and risk management processes provide reasonable assurance that the affairs of the Company is managed in accordance with stated policies and that the Company's assets are properly accounted for an adequately safeguarded.

Sgd D.S.K. AmarasekaraChairmanAudit Committee

15-04-2015

Audit Committee Report


20

Remuneration Committee Report

The Remuneration Committee BP PLC which consists of the two Independent Non-Executive Directors namely Dr. A. Shakthevale and Mr. D.S.K.Amarasekera as Chairman is responsible for determining the remuneration policy relating to the Key Management Personnel of BP PLC.

It is the firm belief of this committee that it should formulate policies to attract, motivate and retain Key Management Personnel. The Chairman/Managing Director assists this Committee in its deliberations.

Sgd. D.S.K. AmarasekeraChairmanRemuneration Committee

15-04-2015


21

Corporate Governance Statement

Corporate Governance is the system by which companies are managed and controlled. The Company is committed to maintain a high standard of Corporate Governance practices and given below is a brief description of the measures adopted by the Company.

The Board of Directors and its Functions

There are four Directors of the Company consisting of the Chairman/Managing Director, Chief Executive Officer and two other Directors. The Chairman also functions as the Managing Director. The key functions of the Chairman and the Managing Director are clearly defined in the Memorandum of Articles of Association of the Company. The Board meets as and when required to take all major decisions.

Although the two Independent Non Executive Directors do not qualify under Rule 7.10.4 (g) of the Colombo Securities Exchange Listing Rules, the Board of Directors, taking account of all the circumstances, has determined that the two Directors are nevertheless independent as per the Rule 7.10.3 (b).

The Executive Committee, which consists of the Chairman/Managing Director and the Chief Executive Officer is delegated with the responsibility of monitoring the progress and implementing the policies of the Company. The Chief Executive Officer reports monthly on the progress of every estate and that of the Company to the Executive Committee.

The Company has an Internal Audit Division, which submits its reports on a regular basis to the Audit Committee. The guidelines for the Internal Audit Policy ensure that the assets of the Company are protected against any unauthorized use or misappropriation, proper records are maintained and reliable information is received.

Statement of Director's Responsibilities

The Directors in consultation with the External Auditors select the appropriate accounting policies and apply them consistently, subject to any material departures being disclosed and explained. Further, the Directors are responsible for ensuring that the Company keeps sufficient accounting records to present, with reasonable accuracy, the financial position of the Company, in a manner that is easily understood by the shareholders. They also ensure that the Financial Statements comply with the Company's Act and the Sri Lanka Accounting Standards (SLFRS/LKAS). In addition, they are also responsible for taking reasonable steps to safeguard the assets of the Company by the establishment of appropriate systems of internal controls with a view to the prevention and detection of fraud and other irregularities.

The Directors prepare the Financial Statements and provide the External Auditors with every assistance to undertake that ever inspections; they consider being appropriate for the purpose of enabling them to give their Audit Report in accordance with the Sri Lanka Auditing Standards. The Report of the External Auditors sets out their responsibility in respect of the Financial Statements.

The Directors confirm that, to the best of their knowledge and belief, they have discharged their responsibilities as set out in this statement.

By order of the BoardSgd. Pradeep A. JayatungaSecretary

27-04-2015


22

Risk Management

Risk is defined as the possibility that an event will occur, which will impact an organization's achievement of objectives. Having a risk management plan is an important part of maintaining a successful, stable and reputed organization. While a variety of different strategies can mitigate or eliminate risk, the process for identifying and managing the risk is fairly standard and consists of five basic steps as follows:

Our Company which is cultivating and manufacturing Tea and Rubber has been developing a range of informal and formal approaches to manage risks before they become a threat to companywide performance and processes. In our endeavour to mitigate the negative effect of risk or evade risk altogether a structural risk management approach is in place.

The Board of Directors sets goals and objectives annually after reviewing the overall risk profile and the Senior Management Team is responsible to implement the task with greater emphasis on managing risks with prudence. Our approach on risk management relies on individual responsibility and major risks are conveyed to the Board by comprehensive reporting and quarterly reports with key economic and performance indicators presented to the Board and the Audit Committee to alert on possible risks. In addition internal & external auditors assist the Company to evaluate risks and also to determine whether adequate controls are in place to effectively mitigate risks.

A prioritized process is followed by the Company in dealing with risks whereby identifying the nature and extent of the risk and assess the severity of same in order to reduce the negative effect of the risks judiciously.

The key risks Balangoda Plantations PLC is exposed to, their effects and mitigating strategies adopted are illustrated below.

Risk Risk Assessment Mitigating Strategies Threat Probability

BUSINESS RISK Our Principal line of business is cultivation and manufacture of Tea and Rubber. The Company is susceptible to all risks associated with agriculture such as ;

Identify Risk

Analyze Plan Monitor Respond

HIGH

• erratic weather

• commodity cycle

• fluctuations in global supply & demand

• inability to recover the actual costs of sales in a regulated system at the auction.

• political and trade union influence on worker productivity

• Close monitoring

• Undertake sustainable agricultural practices, adopting prudent policies in infilling and replanting

• crop diversification

• value addition

• focus on producing quality tea.


23

• Implement a sound internal control system

• Preparation and execution of check-lists, monthly & annual budgets reviewing actual results.

• A monthly re-evaluation process where performance of each plantation is reviewed by Senior Executives of the Head Office.

• Appropriate advices conveyed to enforce a high degree of situational awareness among the Planting Executives.

• Compliance audits and standardization procedures

Obtain comprehensive insurance policies to cover operational risks.

MODERATE

Risk Risk Assessment Mitigating Strategies Threat ProbabilityOPERATIONAL RISK Inadequate or failed internal

processes and systems, human error, frauds, accidents, natural disasters etc can interfere with achieving business objectives.

ENVIRONMENTAL RISK

An agricultural based business face enormous challenges due to the variations in atmospheric temperatures, duration of sunshine hours, wind pattern etc which have a direct impact of production and liquidity of the Company often resulting in loss of crop, quality of the harvest and in turn affecting the market share, earnings and profitability.

HUMAN RESOURCE Low productivity, reduction in resident manpower, disruption in work due to highly unionized large working community expose the Company to difficulties in achieving the targeted objectives.

Risk Management

• Improve skill levels of workers, staff and executives to meet the challenging demand of agriculture.

• Adoption of sustainable agricultural practices.

• Constant examination and review of soil nutrient contents

• Undertake effective soil conservation measures.

• Reservation of forests and watersheds

• Increase productivity

• Train and encourage Plantation Executives to acquire communication skills in resolving labour disputes.

• Improve employee motivation, commitment, welfare, recognition and appreciation.

• Abide by the Collective Agreement entered into with the Trade Unions in the Company's capacity

MODERATE

HIGH


24

Risk Management

Risk Risk Assessment Mitigating Strategies Threat ProbabilityPRODUCT QUALITY RISK

Inability to maintain consistency of the quality production will result in lessening demand thereby eroding the market share and fall in prices.

POLITICAL RISK The impact of the political intervention, major industrial relations issues, regulatory changes, ad hoc acquisitions of land etc are constraints faced by the Industry.

INTEREST RATE RISK Fiscal and monitory policy changes have a direct impact on liquidity and production costs with raising the working capital.

TECHNICAL & IT RISK Lack of accurate and timely information due to ineffective IT systems can cause disruption in taking management decisions and even lead to financial losses.

INVESTMENT RISK Adequate return on investment heavily depends on global economic trends. The advent of the competitors with high productivity and lower production costs has a considerable impact on future profitability and sustainability.The long gestation period of replanting makes high risks for the Company since the capital invested for same is unaffordable.

• Strengthen software development with internal controls including IT security and confidentiality

• Implement a sound backup system in case of system failure

• Use Licensed Software

• Undertake proper evaluation and feasibility process

• Continue replanting and infilling with a prudent policy and environmentally viable clones

• Work closely with the TRI in developing an economic model to make replanting a viable investment.

MODERATE

MODERATE

• Conform to well-established ethical and safety standards in providing a consumable product in terms of purity and food safety.

• Upgrade manufacturing process and factories to cater to the fluctuating market demand.

• Monitor quality assurance measures

MODERATE

• Negotiating Collective Agreements with major Plantation Trade Unions.

• Maintain a closer dialogue with the Trade Union Leaders

• Implement human development policies

HIGH

• Maintain cash flow and budgetary control systems

• Diversification

• Capital development

• Upgrading plant and machinery

• Maintenance of biological assets in optimum condition to enhance productivity and turnover

MODERATE


25

Risk Management

• Produce stocks are monitored closely for speedy disposal.

• Input stock levels are controlled to avoid obsolescence and theft.

• Purchase high cost input stocks such as fertilizer, firewood and packing materials on a need basis.

• Closely monitor market trends

• Examine tea samples regularly to maximize market gains,

• Take remedial measures to ensure quality marks keep up their market leadership.

• Rationalize manufacture during lean cropping months.

• Close executive supervision on harvesting leaf with the required quality.

• Educate the workforce on the importance of their services.

• Compliance of statutory legal requirements

• Adoption of the code of corporate governance by all employees, senior management and Board of Directors.

• Undertake sustainability initiatives, health & food safety procedures and protection of environment.

MODERATE

LOW

MODERATE

Risk Risk Assessment Mitigating Strategies Threat ProbabilityINVENTORY Liquidity is a major concern

as the industry is cyclical with long gestation periods for returns.

RISK OF COMPETITION

Competition from other major low cost producers such as India, China, Kenya, Vietnam affects demand and prices

COMPANY REPUTATION RISK

Maintenance the loyalty, trustworthiness among stakeholders, compliance of legal and statutory requirements as a highly respected corporate body is considered a major objective of the Company.


26

Independent Auditors' Report

INDEPENDENT AUDITORS' REPORTTO THE SHAREHOLDERS OF BALANGODA PLANTATIONS PLC

Report on the Financial Statements.We have audited the accompanying Financial Statements of Balangoda Plantations PLC which comprise the Statement of Financial Position as at 31 December 2014 and the Income Statement, Statement of Comprehensive Income, Statement of Changes in Equity and Cash Flow Statement for the year then ended, and a summary of significant Accounting Policies and other explanatory notes.

Management's Responsibility for the Financial StatementsManagement 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 controls relevant to the preparation and fair presentation of financial statements that are free from material misstatement, 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 OpinionOur responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with Sri Lanka Auditing Standards.Those standards require that we plan and perform the audit to obtain reasonable assurance about 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 policies used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

We have obtained all the information and explanations which to the best of our Knowledge and belief were necessary for the purpose of our audit. We therefore believe that our audit provides a reasonable basis for our opinion.

OpinionIn our opinion, so far as appears from our examination, the Company maintained proper accounting records for the year ended 31 December 2014and the financial statements give a true and fair view of the Company's financial position as at 31 December 2014, and of its financial performance and cash flows for the year then ended in accordance with Sri Lanka Accounting Standards.

Report on Other Legal and Regulatory RequirementsThese financial statements also comply with the requirements of Sections 151(2) of the Companies Act No. 07 of 2007.

Sgd. Ernst & Young(Chartered Accountants)

20 April 2015Colombo


27

ASSETS Notes 2014 2013Non Current Assets Rs. Rs.Lease hold Property ,Plant and Equipment 6 279,760,321 298,151,508Property, plant & equipment 7 595,349,159 611,363,432Bearer Biological Assets 8.A 1,810,631,291 1,528,366,956Consumable Biological Assets 8.B 1,662,375,598 1,559,765,222Available for Sale financial Assets 9 813,000 260,973 4,348,929,369 3,997,908,091Current AssetsInventories 10 333,546,297 433,112,548Trade and Other Receivables 11 143,168,087 126,742,546Amounts due from Related Companies 12 4,840,292 5,100,945ACT Recoverable 29,468,572 29,468,572VAT Receivable 10,453,452 9,082,828ESC Receivable 5,712,988 4,726,652Short Term Investments 13 234,324,596 211,629,286Saving Account 14,480,622 3,060,597Cash and Bank Balances 19,352,985 12,222,951 795,347,892 835,146,925TOTAL ASSETS 5,144,277,261 4,833,055,016EQUITY AND LIABILITIESEquityStated Capital 14 350,000,010 350,000,010Timber Reserves 1,475,496,538 1,383,119,847Available for Sale Reserves 663,000 110,973Retained Earnings 795,472,840 1,023,318,194Total Equity 2,621,632,388 2,756,549,024

Non Current Liabilities & Deferred IncomeInterest Bearing Loans & Borrowings 15 521,232,826 22,715,465Retiring Benefit Obligations 16 684,325,565 626,818,678Deferred Tax Liability 17 140,359,796 166,848,021Deferred Income 18 202,696,028 214,139,196Liability to make Lease Payment after one year 19 97,133,000 98,852,000 1,645,747,215 1,129,373,360Current LiabilitiesTrade and Other Payables 20 388,633,659 410,305,940Interest Bearing Loans & Borrowings 15 359,176,843 408,677,137Liability to make Lease Payment within one year 19 1,719,000 1,653,000Amounts due to Related Companies 21 104,471,439 102,349,039Income Tax Liabilities 16,288,580 18,385,305Dividends Payable 22 6,608,137 5,762,211 876,897,658 947,132,632TOTAL LIABILITIES 2,522,644,873 2,076,505,992TOTAL EQUITY AND LIABILITIES 5,144,277,261 4,833,055,016

Net assets per share (Rs.) 110.92 116.62

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

Sgd. M I A Ansar Chief Accountant

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

Sgd. D H S Jayawardena Sgd. S K L Obeyesekere Chairman/Managing Director Director/CEO

The Accounting Policies and Notes on pages 33 to 59 form an integral part of the Financial Statements.

20 April 2015Colombo.

Statement of Financial PositionAs at 31 December 2014


28

Income StatementYear ended 31 December 2014

Notes 2014 2013 Rs. Rs.

REVENUE 23 3,002,155,618 3,171,982,881

COST OF SALES (3,168,740,574) (3,071,484,301)

GROSS PROFIT / (LOSS) (166,584,956) (100,498,580)

GAIN/(LOSS) ON FAIR VALUE OF BIOLOGICAL ASSETS 8 B 92,376,691 74,293,503

OTHER INCOME AND GAINS 24 157,260,549 156,153,063

ADMINISTRATIVE EXPENSES (134,164,525) (131,020,105)

MANAGEMENT FEE (25,132,800) (43,186,640)

FINANCE COST 25 (30,199,786) (27,023,153)

PROFIT/ (LOSS) BEFORE TAX 26 (106,444,827) 129,715,248

INCOME TAX EXPENSE 27 11,213,505 2,939,187

PROFIT/ (LOSS) FOR THE YEAR (95,231,322) 132,654,435

BASIC EARNINGS/ (LOSS) PER SHARE 28 (4.03) 5.61



29

2014 2013 Rs. Rs.

Profit/ (Loss) for the year (95,231,322) 132,654,435

Other Comprehensive Income

Net change in fair value of available-for-sale financial assets 552,027 110,973

Actuarial gains/ (losses) on defined benefit plans (19,706,762) 24,971,308

Income tax effect 3,105,785 (3,935,478)

Total Other comprehensive income for the year, net of tax (16,600,977) 21,146,803

Total comprehensive income for the year, net of tax (111,832,299) 153,801,238

Actuarial gain on defined benefit plan has been recognized in Other Comprehensive Income in terms of provisions in LKAS 19. Where necessary, comparative figures have been reclassified to conform with the current year presentation.


Statment of Comprehensive IncomeYear ended 31 December 2014


30

Stated Capital Timber Available for Retained Total Reserve Sale Reserves Earnings Equity Rs. Rs. Rs. Rs. Rs. As at 01 January 2013 350,000,010 1,308,826,344 - 967,557,796 2,626,384,150 Profit/ (Loss) for the year - - - 153,801,238 153,801,238 Transferred to Timber Reserve - 74,293,503 - (74,293,503) - Transferred available for Sale Reserves - - 110,973 (110,973) - Dividend - - - (23,636,364) (23,636,364) Balance as at 31 December 2013 350,000,010 1,383,119,847 110,973 1,023,318,194 2,756,549,024 Profit/ (Loss) for the year - - - (95,231,322) (95,231,322) Transferred to Timber Reserve - 92,376,691 - (92,376,691) - Total other Comprehensive income for the year - - 552,027 (16,600,977) (16,048,950) net of tax Dividends - - - (23,636,364) (23,636,364) Balance as at 31 December 2014 350,000,010 1,475,496,538 663,000 795,472,840 2,621,632,388 The Accounting Policies and Notes on pages 33 to 59 form an integral part of the Financial Statements.

Statement of Changes in EquityYear ended 31 December 2014


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Notes 2014 2013 Rs. Rs.CASH FLOWS FROM OPERATING ACTIVITIES Net Profit/ (Loss) before Taxation (106,444,827) 129,715,248 ADJUSTMENTS FORDepreciation/Amortisation 100,159,031 107,718,952Profit on disposal of Property Plant & Equipment 24 (3,571,500) -Retirement Benefit Obligation -Provision 16 111,897,397 106,914,468Amortisation of Grants 18 (11,443,168) (13,226,210)Interest Income 24 (19,198,601) (28,330,800)Provision for Obsolete Stocks 10 (2,290) 7,302Provision for doubtful debts 11 (4,833) (295,322)Interest Expenses 25 30,199,786 27,023,153(Gains) / Losses on Biological Assets 8.B (92,376,691) (74,293,503)Operating Profit before Working Capital Changes 9,214,304 255,233,288

(Increase)/Decrease in Inventories 99,568,541 (54,931,409)(Increase)/Decrease in Trade and Other Receivables (23,333,800) (52,915,543)Increase/(Decrease) in Trade and Other Payables (3,757,880) 57,842,857(Increase)/Decrease in amounts due from Related Companies 2,122,400 (1,613,588)Increase/(Decrease) in amounts due to Related Companies 260,653 15,913,903Cash Generated from Operations 84,074,218 219,529,508

Payment of Economic Service Charges (8,295,523) (7,226,256)Retirement Benefit Obligations - Payments 16 (74,097,272) (75,694,104)Interest Paid (26,591,329) (25,283,120)

Net Cash from Operating Activities (24,909,906) 111,326,028

CASH FLOWS FROM INVESTING ACTIVITIES

Interest Received 23,754,733 29,861,796Purchase of Property, Plant & Equipment 7 (35,549,280) (53,855,774)Investment in Immature Plantations -Note A 8.A (322,702,311) (334,723,825)Proceeds from Disposal of Property, Plant & Equipment 3,571,500 -

Net Cash used in Investing Activities (330,925,358) (358,717,803)

CASH FLOWS FROM FINANCING ACTIVITIES

Receipts of loans 517,736,700 30,794,894Repayment of Loan (14,646,977) (17,061,226)Payment to Lessor on Lease rights (28,300,066) (26,395,481)Dividend Paid (23,636,364) (23,636,364)

Net Cash from Financing Activities 451,153,293 (36,298,177)

Net Increase / (Decrease) in Cash & Cash Equivalents 95,318,029 (283,689,952)

C. Cash & Cash Equivalents at the beginning of the year (170,586,377) 113,103,575

D. Cash & Cash Equivalents at the end of the year (75,268,348) (170,586,377)


Statement of Cash FlowsYear ended 31 December 2014


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Tea Rubber Fuel Wood TotalNOTE A: Investment in Immature Plantations Rs. Rs. Rs. Rs.

Investment in Immature Plantations -2014 15,834,860 295,843,584 11,023,867 322,702,311

Investment in Immature Plantations -2013 17,848,715 304,813,746 12,061,364 334,723,825 2014 2013NOTE C Rs. Rs.Cash & Cash Equivalents at the beginning of the yearCash & Bank Balances 12,222,951 8,404,487Short term Investments 211,629,286 230,187,842Bank Overdrafts (397,499,211) (132,722,999)Call Deposits 3,060,597 7,234,245 (170,586,377) 113,103,575NOTE DCash & Cash Equivalents at the end of the yearCash & Bank Balances 19,352,985 12,222,951Short term Investments 234,324,596 211,629,286Bank Overdrafts (343,426,551) (397,499,211)Call Deposits 14,480,622 3,060,597 (75,268,348) (170,586,377)


Statement of Cash FlowsYear ended 31 December 2014


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Notes to the Financial StatementsYear ended 31 December 2014

1. REPORTING ENTITY Balangoda Plantations PLC was incorporated and domiciled in Sri Lanka, under the Companies Act No. 17 of

1982 (The Company was re-registered under the Companies Act No. 07 of 2007) in terms of the provisions of the Conversion of Public Corporation and Government-Owned Business Undertakings into Public Companies under Public Companies Act No. 23 of 1987. The registered office of the Company is located at No 110 Norris Canal Road, Colombo 10, and Plantations are situated in the planting districts of Rathnapura, Balangoda & Badulla.

The Financial Statements of company comprise with the Income Statement, Statement of Comprehensive Income, Statement of Financial Position, Statement of Changes in Equity, Statement of Cash Flows together with Accounting Policies and Notes to Financial Statements.

1.1.1 Principal activities and the nature of the operations During the year, the principal activities of the company were cultivation and manufacture and sale of Tea and

Rubber.

1.1.2 Parent enterprise and ultimate part enterprise The Company's parent undertaking and controlling party is Melstacorp Limited which is incorporated in

Sri Lanka as a limited liability Company.

1.3 Date of Authorization for issue. The financial statements of Balangoda Plantations PLC for the year ended 31 December 2014 were authorized

for issue in accordance with a resolution of the board of directors on 20th April 2015.

2. BASIS OF PREPARATION

2.1 Statement of Compliance The Financial Statements of Balangoda Plantations PLC have been prepared in accordance with Sri Lanka

Accounting and Auditing Standards Act No. 15 of 1995, which requires compliance with the Sri Lanka Accounting Standards (SLFRS/ LKAS) promulgated by the Institute of Chartered Accountants of Sri Lanka (CASL) and with the requirements of the Companies Act No. 07 of 2007.

2.2 Basis of Measurement These Financial Statements have been prepared in accordance with the historical cost convention other than

the following material items in the Financial Statements.

• Managed biological assets are measured at fair value

• Financial instruments - Fair Value through Profit or Loss are measured at fair value.

• Financial instruments - Available-for-sale financial assets are measured at fair value. Where appropriate, the specific policies are explained in the succeeding Notes No adjustments have been made for inflationary factors in the Financial Statements.

2.3 Functional and Presentation Currency The Financial Statements are presented in Sri Lankan Rupees (Rs.) which is the Company's functional and

presentation currency.

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The accounting policies except the policies given under note 3.1 set out below are consistent with those used in

the previous year.

3.1 Comparative information Comparative information has where necessary been reclassified to conform with the current year's presentation.

3.2 Going Concern The financial statements have been prepared on the assumption that the company is a going concern. The

company has made a gross loss and net loss as evident of the financial statements.The Directors have made an assessment of the company ability to continue as a going concern in the foreseeable future, and they do not foresee a need for liquidation or cessation of trading, to justify adopting the going concern basis in preparing these financial statements.


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3.2.1 Property, Plant & Equipment

3.2.1.1 Recognition and Measurement Items of Property, Plant & Equipment are measured at cost (or at fair value in the case of land and consumable

biological assets); less accumulated depreciation and accumulated impairment losses, if any.3.2.1.2 Owned Assets The cost of Property, Plant & Equipment includes expenditures that are directly attributable to the acquisition

of the asset. Such costs includes the cost of replacing part of the property, plant and equipment and borrowing costs for long terms construction projects if the recognition criteria are met. The cost of self-constructed assets includes the cost of materials and direct labour, any other cost directly attributable to bringing the asset to a working condition for its intended use, and the costs of dismantling and removing the items and restoring the site on which they are located.

When significant parts of property, plant and equipment are required to be replaced at intervals, the entity recognises such parts as individual assets with specific useful lives and depreciation, respectively. Likewise, when a major inspection is performed, its cost is recognised in the carrying amount of the plant and equipment as a replacement if the recognition criteria are satisfied. All other repair and maintenance costs are recognised in the income statement as incurred. The present value of the expected cost for the decommissioning of the asset after its use is included in the cost of the respective asset if the recognition criteria for a provision are met.

Capital work-in-progress is transferred to the respective asset accounts at the time of first utilisation or at the time the asset is commissioned.

3.2.1.3 Leased Assets Assets obtained under the finance lease, which effectively transfer to the Company 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 their fair value and the present value of minimum lease payments at the inception, less accumulated depreciation and accumulated impairment losses.

Assets held under finance lease are amortised over the shorter of the lease period or the useful lives of equivalent-owned assets, unless ownership is not transferred at the end of the lease period. The principal/capital elements payable to the lessor are shown as liability/obligation. The lease rentals are treated as consisting of capital and interest elements. The capital element in the rental that is applied to reduce the outstanding obligation and interest element is charged against profit, in proportion to the reducing capital element outstanding.

The cost of improvements to or 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.

3.2.1.4 Subsequent Cost The cost of replacing part of an item of Property, Plant & Equipment is recognised in the carrying amount of the

item, if it is probable that the future economic benefits embodied within the part will flow to the BPL and its cost can be measured reliably. The carrying amount of those parts that are replaced is derecognised in accordance with the derecognition policy given below. The costs of the day-to-day servicing of Property, Plant & Equipment are recognised in profit or loss as incurred.

3.2.1.5 Derecognition The carrying amount of an item of Property, Plant & Equipment is derecognised on disposal; or when no future

economic benefits are expected from its use or disposal. Gains or losses on derecognition are recognised in profit or loss and gains are not classified as revenue.

3.2.1.6 Land Development Cost Permanent land development costs are those costs incurred in making major infrastructure development and

building new access roads on leasehold lands.

These costs have been capitalised and amortised over the remaining lease period.

Permanent impairments to 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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3.2.1.7 Biological Asset Immature and Mature Plantations Biological assets are classified in to mature biological assets and immature biological assets. Mature biological

assets are those that have attained harvestable specifications or are able to sustain regular harvests. Immature biological assets are those that have not yet attained harvestable specification. Tea, rubber, other plantations and nurseries are classified as biological assets.

Biological assets are further classified as bearer biological assets and consumable biological assets. Bearer biological asset includes tea plants, those that are not intended to be sold or harvested, however used to grow for harvesting agriculture produce. Consumable biological assets includes managed timber trees those that are to be harvested as agricultural produce from biological assets or sold as biological assets.

The entity recognize the biological assets when, and only when, the entity controls the assets as a result of past event, it is probable that future economic benefits associated with the assets will flow to the entity and the fair value or cost of the assets can be measured reliably.

The bearer biological assets are measured at cost less accumulated depreciation and accumulated impairment

losses, if any, in terms of LKAS 16 - Property Plant & Equipment as per the ruling issued by CASL.

The cost of land preparation, rehabilitation, new planting, replanting, crop diversification, interplanting 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. The expenditure incurred on bearer biological assets (Tea, Rubber, Timber fields) which comes into bearing during the year, is transferred to mature plantations. Expenditure incurred on consumable biological assets is recorded at cost at initial recognition and thereafter at fair value at the end of each reporting period.

Permanent impairments to Biological Asset are charged to the Income Statement in full and reduced to the net carrying amounts of such asset in the year of occurrence after ascertaining the loss.

The managed timber trees are measured on initial recognition and at the end of each reporting period at its fair value less cost to sell in terms of LKAS 41.The cost is treated as approximation to fair value of young plants as the impact on biological transformation of such plants to price during this period is immaterial. The fair value of timber trees are measured using DCF method taking in to consideration the current market prices of timber, applied to expected timber content of a tree at the maturity by an independent professional valuer. All other assumptions and sensitivity analysis are given in Note 8B.and 8 C.

The main variables in DCF model concerns

Variable Comment

Currency valuation Rs.

Timber content Estimate based on physical verification of girth, height and considering the growth of the each spices in different geographical regions.Factor all the prevailing statutory regulations enforced for harvesting of timber coupled with forestry plan of the company.

Economic useful life Estimate based on the normal life span of each spices by factoring the forestry plan of the Company.

Selling price Estimate based on prevailing Sri Lankan market price. Factor all the conditions to be fulfilled in bringing the trees in to saleable condition.

Planting cost Estimate costs for the further development of immature areas are deducted.

Discount Rate Future cash flows are discounted at following discount rates:Timber trees 13%


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Nursery cost includes the cost of direct materials, direct labour and an appropriate proportion of directly attributable overheads, less provision for overgrown plants.

The gain or loss arising on initial recognition of biological assets at fair value less cost to sell and from a change

in fair value less cost to sell of biological assets are included in profit or loss for the period in which it arises.

3.2.1.8 Infilling Cost on Bearer Biological Assets The land development costs incurred in the form of infilling have been capitalised to the relevant mature field,

if it increases the expected future benefits from that field, beyond its pre-infilling performance assessment. Infilling costs so capitalised 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 capitalised have been charged to the Income Statement in the year in which they are incurred.

3.2.1.9 Borrowing Cost Borrowing costs that are directly attributable to acquisition, construction or production of a qualifying asset,

which takes a substantial period of time to get ready for its intended use or sale are capitalised as a part of the asset.

Borrowing costs that are not capitalised are recognised as expenses in the period in which they are incurred and charged to the Income Statement.

The amounts of the borrowing costs which are eligible for capitalisation are determined in accordance with the in LKAS 23 -'Borrowing Costs'.

3.2.1.10 Depreciation and Amortisation

(a) Depreciation Depreciation is recognised in Income Statement on a straight-line basis over the estimated useful

economic lives of each part of an item of Property, Plant & Equipment. Assets held under finance leases are depreciated over the shorter of the lease term and the useful lives of equivalent owned assets unless it is reasonably certain that the Company will have ownership by the end of the lease term. Lease period of land acquired from JEDB/ SLSPC will be expired in year 2045. The estimated useful lives and depreciation rates are as follows:

No. of Years Rate (%)

Buildings & Roads 40 2.50

Plant & Machinery 20/25 4.00/5.00

Motor Vehicles 15/20 6.67/5.00

Equipment 8/4 12.50/25

Furniture & Fittings 10 10.00

Mature Plantations (Replanting and New Planting)


Mature Plantations

Tea 33 1/3 3.00

Rubber 20 5.00 Depreciation of an asset begins when it is available for use and ceases at the earlier of the date on which the asset is

classified as held for sale or is derecognised. Depreciation methods, useful lives and residual values are reassessed at the reporting date and adjusted prospectively, if appropriate. Mature plantations are depreciated over their useful lives or unexpired lease period, whichever is less. No depreciation is provided for immature plantations.

(b) Amortisation The leasehold rights of assets taken over from SLSPC are amortised in equal amounts over the shorter of the

remaining lease periods and the useful lives as follows:


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Bare land 53 1.89

Improvements to land 30 3.33

Mature Plantations

(Tea & Rubber) 30 3.33

Buildings 25 4.00

Machinery 15 6.67

3.2.2 Financial Instruments

3.2.2.1 Financial assets Financial assets within the scope of LKAS 39 are classified as financial assets at fair value through profit or loss, loans

and receivables, held-to-maturity investments, available-for-sale financial assets, or as derivatives designated as hedging instruments in an effective hedge, as appropriate. The company determines the classification of its financial assets at initial recognition.

All financial assets are recognised initially at fair value plus, in the case of assets not at fair value through profit or loss, directly attributable transaction costs. The Company's financial assets include cash and short-term deposits, short term investments, and trade and other receivables.

3.2.2.2 Financial assets at fair value through profit or loss Financial assets at fair value through profit or loss include financial assets held for trading and financial assets

designated upon initial recognition at fair value through profit or loss. Financial assets are classified as held for trading if they are acquired for the purpose of selling or repurchasing in the near term.

Financial assets at fair value through profit and loss are carried in the statement of financial position at fair value with changes in fair value recognised in finance income or finance costs in the income statement.

The company has not designated any financial assets upon initial recognition as at fair value through profit or loss.

3.2.2.3 Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not

quoted in an active market. After initial measurement, such financial assets are subsequently measured at amortized cost using the effective interest rate method (EIR), less impairment. Amortized cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the EIR. The losses arising from impairment are recognised in the income statement in finance costs.

3.2.2.4 Held-to-maturity investments Non-derivative financial assets with fixed or determinable payments and fixed maturities are classified as held-

to-maturity when the company has the positive intention and ability to hold them to maturity. After initial measurement, held-to-maturity investments are measured at amortized cost using the effective interest method, less impairment. Amortized cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the EIR. Currently company have not classified any financial Instruments at HTM

The company did not have any held-to-maturity investments during the years ended 31 December 2014 and 2013.

3.2.2.5 Available for sale financial investments Available for sale financial assets are non-derivative financial assets that are designated as available for sale

or are not classified in any of the above categories of the financial assets. Subsequent to initial recognition, they are measured at fair value and changes therein, other than impairment losses are recognised in other comprehensive income and presented in the fair value reserve in equity. Interest income on available-for-sale debt securities is calculated using the effective interest rate method and is recognised in profit or loss. When an investment is derecognised, the gain or loss accumulated in equity is reclassified to profit or loss. Available for sale comprise of investment in quoted and unquoted shares.


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3.2.2.6 Impairment of financial assets The Company assesses at each reporting date whether there is any objective evidence that a financial asset or

a group of financial assets is impaired and if such has been incurred, the amount of the loss is measured as the difference between the assets carrying amount and the present value of estimated future cash flows

3.2.3 Financial liabilities Initial recognition and measurement Financial liabilities within the scope of LKAS 39 are classified as financial liabilities at fair value through profit

or loss, loans and borrowings, or as derivatives designated as hedging instruments in an effective hedge, as appropriate. The Company determines the classification of its financial liabilities at initial recognition. All financial liabilities are recognised initially at fair value and, in the case of loans and borrowings, carried at amortized cost. This includes directly attributable transaction costs.

The BPL financial liabilities include trade and other payables, bank overdrafts, loans and borrowings.

3.2.3.1 Financial liabilities at fair value through profit or loss Financial liabilities at fair value through profit or loss include financial liabilities held for trading and financial

liabilities designated upon initial recognition as at fair value through profit or loss. Financial liabilities are classified as held for trading if they are acquired for the purpose of selling in the near term. Gains or losses on liabilities held for trading are recognised in the income statement.

The Company has not designated any financial liabilities upon initial recognition as at fair value through profit or loss.

3.2.3.2 Loans and borrowings After initial recognition, interest bearing loans and borrowings are subsequently measured at amortized cost

using the effective interest rate method. Gains and losses are recognised in the income statement when the liabilities are derecognised as well as through the effective interest rate method (EIR) amortization process.

Other financial liabilities comprise interest bearing loans and borrowings, trade payables, other payables, income tax payables and amounts due to related parties.

3.2.3.3 Offsetting of financial instruments Financial assets and financial liabilities are offset if, and only if, there is a currently enforceable legal right to

offset the recognised amounts and there is an intention to settle on a net basis, or to realize the assets and settle the liabilities simultaneously

The fair value of the financial instruments is determined in terms of LKAS 39. The Company derecognises a financial liability when its contractual obligations are discharged cancelled or expired.

3.2.4 Financial Risk Management objectives and policies The Company's principal financial liabilities, comprise with loans and borrowings and trade and other

payables,The main purpose of these financial liabilities is to finance the Company's operations and to provide guarantees to support its operations. The company's principal financial assets comprise with loanstrade and other receivables and cash and short term deposits that arise directly from its operations.Accordingly,the company has exposure to namely Credit Risk, Liquidity Risk,Interest Risk from its use of Financial Instruments

This note presents information about the company's exposure to each of the above risks, the company's objectives, policies and processes for measuring and managing risk.

Credit Risk Credit Risk is the risk of financial loss to the Company's if a customer or counterparty to a financial instrument

fails to meet its contractual obligations, and arise principally from the Company's receivable from customers.

Trade and Other Receivables The company's exposure to credit risk is influenced mainly by the individual characteristics of each customer.

However, management also considers the demographics of the Group's customer base, including the default risk of the industry and the country in which the customers operate, as these factors may have an influence on credit risk.


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The Company reviews external ratings and bank references of the customer when available. Purchase limits are established for each customer, which are reviewed quarterly. In monitoring credit risk, customers are categorised according to their credit characteristics, including whether they are an individual or legal entity, whether they are a wholesale or retail customer, geographical location, industry, aging profile, maturity and existence of previous financial difficulties.

Liquidity Risk Liquidity risk is the risk that the Company will encounter difficulty in meeting the obligations associated with

its financial liabilities that are settled by delivering cash or another financial asset. The Company's approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the company's reputation.

Interest Rate Risk The Company's exposure to the risk of changes in market interest rates relates primarily to the Company's

long-term debt obligations with floating interest rates. The Company manages its interest rate risk by having a balanced portfolio of fixed and variable rate loans and borrowings. The company has not engaged in any interest rate swap agreements.

3.2.5 Investments

3.2.5.1 Short-Term Investments Short-term investments are measured at the lower of cost and market value on an aggregate portfoliobasis, with

any resultant gain or loss recognised inprofit or loss.

3.2.5.2 Long-Term Investments Quoted and unquoted investments in shares held on long-term basis are measured at cost, less impairment

losses. Provision for impairment is made when, in the opinion of the Directors there has been a decline other than

temporary in the value of the investment.

3.2.6 Inventories Finish goods manufactured from agricultural produce of biological assets These are valued at the lower of cost and estimated net realisable value, after making due allowance for obsolete

and slow moving items. Net realisable value is the estimated selling price at which stocks can be sold in the ordinary course of business after allowing for cost of realisation and/or cost of conversion from their existing state to saleable condition.

Input Material, Spares and Consumables At actual cost on weighted average basis.

3.2.7 Trade and Other Receivables Trade and other receivables are stated at their estimated realisable amounts inclusive of provisions for bad and

doubtful debts.

3.2.8 Cash and Cash Equivalents Cash and cash equivalents comprise cash balances and call deposits. Bank overdrafts that are repayable on

demand form an integral part of the company's cash management and are included as a component of cash and cash equivalents for the purpose of the Statement of Cash Flows.

3.2.9 Impairment of Assets The carrying amounts of the Company's assets are reviewed at each reporting date to determine whether there

is any indication of impairment. If any such indication exists, then the asset's recoverable amount is estimated. For goodwill and intangible assets that have indefinite lives or that are not yet available for use, recoverable amounts are estimated at each reporting date or more frequently, if events or changes in circumstances indicate that they might be impaired.


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3.2.9.1 Calculation of Recoverable Amount The recoverable amount of an asset or cash-generating unit is the greater of its value in use and its fair value, less

costs to sell. In assessing value in use, estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. A cash-generating unit is the smallest identifiable asset group that generates cash flows that are largely independent from other assets and groups.

3.2.9.2 Impairment/reversal of Impairment An impairment loss is recognised if the carrying amount of an asset or its cash-generating unit exceeds its

recoverable amount. Impairment losses are recognised in profit or loss. Impairment losses recognised in respect of cash-generating units are allocated first to reduce the carrying amount of any goodwill allocated to the units and then to reduce the carrying amount of the group of other assets in the unit on pro rata basis.

An impairment loss in respect of goodwill is not reversed. In respect of other assets, impairment losses recognised in prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset's carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised.

3.3 Liabilities and Provisions Liabilities classified as current liabilities on the Statement of Financial Position are those which fall due for

payment on demand or within one year from the Statement of Financial Position date. Non-current liabilities are those balances that fall due for payment after one year from the Statement of Financial Position date. All known liabilities have been accounted for in preparing these Financial Statements. Provisions and liabilities are recognised when the Company has a legal or constructive obligation as a result of past events and it is probable that an outflow of economic benefits will be required to settle the obligation.

3.3.1 Employees Benefits

(a) Defined Contribution Plans - Provident Funds and Trust Fund A defined contribution plan is a post-employment benefit plan under which an entity pays fixed

contributions into a separate entity and will have no legal or constructive obligation to pay further amounts. Obligations for contributions to Providentand Trust Funds covering all employees are recognised as an expense in profit and loss in the periods during which services are rendered by employees.

The Company contributes 12% on consolidated salary of the employees to Ceylon Planters' Provident Society (CPPS)/Estate Staff 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.

(b) Defined Benefit Plan A defined benefit plan is a post-employment benefit plan other than a defined contribution plan. The

liability recognised in the Financial Statements in respect of defined benefit plan is the present value of the defined benefit obligation at the Reporting date. The defined benefit obligation is calculated annually using the projected unit credit method. The present value of the defined benefit obligation is determined by discounting the estimated future cash flows using the interest rates that are denominated in the currency in which the benefits will be paid, and that have terms to maturity approximating to the terms of the related liability. Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions are charged recognised in the statement of comprehensive income in the period in which they arise. Past service costs are recognised immediately in the Income Statement.

The provision has been made for retirement gratuities from the first year of service for all employees, in conformity with LKAS 19 ,"Employee Benefits". However, under the Payment of Gratuity Act No. 12 of 1983, the liability to an employee arises only on completion of 5 years of continued service.

The Liability is not externally funded.

The key assumptions used in determining the retirement benefit obligations are given in Note 16.


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3.3.2 Trade and Other Payables Trade and other payables are stated at their costs.

3.3.3 Capital Commitments and Contingencies Capital commitments and contingent liabilities have been disclosed in the respective Notes to the Financial

Statements.

3.3.4 Events occurringafterthe date of Financial Position. All material post events occurring after the date of financial position have been considered where appropriate;

either adjustments have been made or adequately disclosed in the Financial Statements.

3.3.5 Deferred Income

3.3 .5.1 Grants and Subsidies Government grants are recognised 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 recognised 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 recognised as deferred income and released to income in equal amounts over the expected useful life of the related asset.

Where the Company receives non-monetary grants, the asset and the grant are recorded gross at nominal amounts and released to the income statement over the expected useful life and pattern of consumption of the benefit of the underlying asset by equal annual instalments. Where loans or similar assistance are provided by governments or related institutions with an interest rate below the current applicable market rate, the effect of this favourable interest is regarded as additional government grant. Assets are amortized over their useful lives as follows.

Buildings 40 years

3.4 Income Statement For the purpose of presentation of Income Statement, the function of expenses method is adopted, as it

represents fairly the elements of the company's performance.

3.4.1 Revenue Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Company and

the revenue can be reliably measured, regardless of when the payment is being made. Revenue is measured at the fair value of the consideration received or receivable, taking into account contractually defined terms of payment and excluding taxes or duty.

(a) Revenue from the sale of goods is recognised when the significant risks and rewards of ownership of the goods have passed to the buyer, usually on delivery of the goods. Revenue is recorded at invoice value net of brokerage, sale expenses and other levies related to revenue.

(b) Gains and losses on disposal of an item of Property, Plant & Equipment are determined by comparing the net sales proceeds with the carrying amounts of Property, Plant & Equipment and are recognised within 'other operating income' in the Income Statement.

(c) Interest income is recognised on accrual basis.

(d) Dividend income is recognised in Statement of Income on the date the entity's right to receive payment is established, which in the case of quoted securities is the ex-dividend date.

(e) Rental income arising from operating leases on investment properties is accounted for on a straight-line basis over the lease terms.

3.4.2 Expenses All expenditure incurred in the running of the business and in maintaining the Property, Plant & Equipment in a

state of efficiency is charged to revenue in arriving at the profit/(loss) for the year.


42


3.4.2.1 Financing Income and Expenses Finance income comprises interest income on funds invested, and gains on translation of foreign currency.

Interest income is recognised in Statement of Income as it accrues.

Finance expenses comprise interest payable on borrowings and losses on translation of foreign currency. The interest expense component of finance lease payments is allocated to each period during the lease term so as to produce a constant periodic rate of interest on the remaining balance of the liability.

3.4.2.2 Income Tax Expense Income tax expense comprises current and deferred tax. Income tax expense is recognised in profit or loss

except to the extent that it relates to items recognised directly in equity, when it is recognised in equity.

Current Tax is the expected tax payable on the taxable income for the year, using tax rates enacted at the reporting date and any adjustments to tax payable in respect of previous years.

Deferred tax is recognised using the liability method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognised for the following temporary differences: the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit, and differences relating to investments in subsidiaries to the extent that they probably will not reverse in the foreseeable future. In addition, deferred tax is not recognised for taxable temporary differences arising on the initial recognition of goodwill. Deferred tax is measured at the tax rates that are expected to be applied to the temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by the reporting date. Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and they relate to income taxes levied by the same tax authority on the same taxable entity.

A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the temporary difference can be utilised. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised.

Tax withheld on dividend income from subsidiaries and associates is recognised as an expense in the Income Statement at the same time as the liability to pay the related dividend is recognised.

3.5 Statement of Cash Flow The Cash Flow Statement has been prepared using the 'indirect method'. Interest paid is classified as operating

cash flows, interest and dividends received are classified as investing cash flows while dividends paid and Government grants received are classified as financing cash flows, for the purpose of presenting the Cash Flow Statement.

3.6 Segment Reporting Segmental information is provided for the different business segments of the Company Business segmentation

has been determined based on the nature of goods provided by the Company after considering the risk and rewards of each type of product.

Since the individual segments are located close to each other and operate in the same industrial environment, the need for geographical segmentation has no material impact.

The segments information are disclosed in Note 23 in the Financial Statements.

Revenue and expenses directly attributable to each segment are allocated to the respective segments. Revenue and expenses not directly attributable to a segment are allocated on the basis of their resource utilisation, wherever possible.

Assets and liabilities directly attributable to each segment are allocated to the respective segments. Assets and liabilities, which are not directly attributable to a segment, are allocated on a reasonable basis wherever possible. Unallocated items comprise mainly interest bearing loans, borrowings, and expenses.

Segment capital expenditure is the total cost incurred during the period to acquire segment assets that are expected to be used for more than one accounting period.


43


4. USE OF ESTIMATES AND JUDGMENTS The preparation of Financial Statements in conformity with SLFRS requires management to make judgments,

estimates and assumptions that influence the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Judgments and estimates are based on historical experience and other factors, including expectations that are believed to be reasonable under the circumstances. Hence, actual experience and results may differ from these judgments and estimates.

Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised, if the revision affects only that period and any future periods affected.

Information about significant areas of estimation uncertainty and critical judgments in applying accounting policies that have the most significant effect on the amounts recognised in the Financial Statements is included in the following notes:

• Note 16 - Measurement of the Defined Benefit Obligations • Note 19 - Liability to make Lease Payment • Note 17 - Deferred Taxation • Note 8.B - Biological Assets

4.1 Income Taxes The Company is subject to income taxes and other taxes including VAT. Significant Judgement was required

to determine the total provision for current, deferred and other taxes pending the issue of tax guidelines on the treatment of the adoption of SLFRS in the financial statements and the taxable profit for the purpose of imposition of taxes. Uncertainties exist, with respect to the interpretation of the applicability of tax laws, at the time of the preparation of these financial Statements.

The Company recognized assets and liabilities for current deferred and other taxes based on estimates of whether additional taxes will be due. Where the final tax outcome of these matters is different from the amounts that were initially recorded,such difference will impact the income, deferred and tax amounts in the period in which the determination is made.

4.2 Deferred Tax Deferred tax is provided using the liability method on temporary differences at the date of Financial Position

between the tax bases of assets and liabilities, and their carrying amounts for financial reporting purposes.

Deferred tax assets and liabilities are recognized for all temporary differences. Deferred tax assets are recognized for all deductible temporary differences, carry-forward of unused tax credits 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 credits and unused tax losses can be utilized.

The carrying amount of deferred tax assets is reviewed at each date of Financial Position 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 tax asset to be utilized. Unrecognized deferred tax assets are reassessed at each date of Financial Position and are recognized to the extent that it has become probable that future taxable profit will allow the deferred tax asset to be recovered.

Deferred tax assets and liabilities are measured at tax rates that are expected to apply to the year when the asset is realized or liability is settled, based on the tax rates and tax laws that have been enacted or substantively enacted as at the date of Financial Position.

Income tax relating to items recognized directly in equity is recognized in equity.

Deferred tax assets and deferred tax liabilities are offset, if a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred taxes relate to the same taxable entity and the same taxation authority.


44


4.3 Retirement Benefit Obligations The present value of the retirement benefit obligations depends on a number of factors that are determined

on an actuarial basis using a number of assumptions. Key assumptions used in determining the retirement benefit obligations are given in Note 16. Any changes in these assumptions will impact the carrying amount of retirement benefit obligations.

4.4 Biological Assets The fair value of managed timber trees depends on a number of factors that are determined on a discounted

method using various financial and non financial assumptions. The growth of the trees is determined by various biological factors that are highly unpredictable. Any change to the assumptions will impact to the fair value of biological assets. Key assumptions and sensitivity analysis of the biological assets are given in the Note 8.B & 8 C

5 STANDARDS ISSUED BUT NOT YET EFFECTIVE Standards issued but not yet effective up to the date of issuance of the company's financial statements are listed

below. This listing of standards and interpretations issued are those that the company reasonably expects to have an impact on disclosures, financial position or performance when applied at a future date. The company intends to adopt these standards when they become effective.

• SLFRS 9 -Financial Instruments: Classification and Measurement SLFRS 9, as issued reflects the first phase of work on replacement of LKAS 39 and applies to classification

and measurement of financial assets and liabilities. This standard was originally effective for annual periods commencing on or after 01 January 2015. However the effective date has been deferred subsequently.

• SLFRS 14 -Regulatory Deferral Accounts The scope of this standard is limited to first-time adopters of SLFRS that already recognise regulatory

deferral account balances in their financial statements. Consequently, the financial statements of rate regulated entities that already apply SLFRS, or that do not otherwise recognise such balances, will not be affected by this standard. This standard is effective for the annual periods beginning on or after 01 January 2016.

• SLFRS 15 -Revenue from Contracts with Customers SLFRS 15 establishes a comprehensive framework for determining whether, how much and when

revenue is recognised. It replaces existing revenue recognition guidance, including LKAS 18 Revenue, LKAS 11 Construction Contracts and IFRIC 13 Customer Loyalty Programmes. This standard is effective for the annual periods beginning on or after 01 January 2017.

None of these new standards and interpretations are expected to have an effect on the Financial Statements of the Company, except for SLFRS 9 and 15. Pending the detailed review of such standards and interpretations, the extent of the impact has not been determined by the management.


45

6 LEASEHOLD PROPERTY, PLANT & EQUIPMENT As at 31st December, 2014 2013 Notes Rs. Rs. Right-to-use of land 6.1 190,232,293 196,481,353 Immovable leased bearer biological assets 6.2 78,863,463 87,904,282 Immovable leased assets (other than 6.3 10,664,565 13,765,873 right-to-use land and bearer biological assets) 279,760,321 298,151,508

6.1 RIGHT-TO-USE OF LAND “Right-To-Use of Land on Lease” as above was previously titled "Leasehold Right to Bare Land". The change is in

order to comply with Statement of Recommended Practice (SoRP) issued by the Institute of Chartered Accountants of Sri Lanka dated 19 December 2012. Such leases have been executed for all estates for a period of 53 years.

This right-to-use land is amortized over the remaining lease term or useful life of the right whichever is shorter

and is disclosed under non-current assets. The Statement of Recommended Practice (SoRP) for right-to-use of land does not permit further revaluation of right-to-use land. The values taken into the Statement of Financial Position as at 18 June 1992 and amortization of the right to use of land up to 31 December 2014 are as follows.

Balance Balance as at as at 31/12/2014 31/12/2013 Rs. Rs. Capitalised Value 331,200,716 331,200,716 Amortization As at 1st January 134,719,363 128,470,303 Amortization charge for the year 6,249,060 6,249,060 As at 31st December 140,968,423 134,719,363 Carrying amount 190,232,293 196,481,353


6.2 Immovable Leased Bearer Biological Assets "In terms of the ruling of the UITF of the Institute of Chartered Accountants of Sri Lanka prevailed at the time of

privatisation of plantation estates, all immovable assets in these estates under finance leases have been taken into the books of the Company retroactive to 18th June 1992. For this purpose, the Board decided at its meeting on 8th March, 1995, that these assets be stated at their book values as they appear in the books of the JEDB/SLSPC, on the day immediately preceding the date of formation of the Company. These assets are taken into the Statement of Financial Position as at 18 June, 1992 and amortisation of immovable leased assets to 31 December 2014 are as follows.

Mature Plantations Tea Rubber 2014 2013 Rs. Rs. Rs. Rs. Capitalised Value

(18th June, 1992) 206,227,260 64,997,320 271,224,580 271,224,580

Amortisation

As at 1st January 139,676,947 43,643,351 183,320,298 174,279,479

Amortisation for the year 6,874,242 2,166,577 9,040,819 9,040,819

As at 31st December 146,551,189 45,809,928 192,361,117 183,320,298

Carrying amount 59,676,071 19,187,392 78,863,463 87,904,282

Investment in Immature Plantations at the time of handing over to the Company as at 18 June, 1992 by way of

estate leases were shown under Immature Plantations.


46


However, since then all such investments in Immature Plantations attributable to JEDB/SLSPC period have been transferred to Mature Plantations. These mature tea and rubber were classified as bearer biological assets in terms of LKAS 41 - Agriculture. The carrying value of the bearer biological assets leased from JEDB/SLSPC is recognised at cost less amortisation.Further investments in such plantations to bring them to maturity are shown in Note 8 A

6.3 Immovable Leased assets (other than right-to-use of land and bearer biological assets) Unimproved Improvement Other Lease to Vested Land Land Assets Buildings Machinery 2014 2013 Rs. Rs. Rs. Rs. Rs. Rs. Rs. Capitalised Value (18 June, 1992) 899,449 15,701,754 151,815 64,023,644 26,164,471 106,941,133 106,941,133 Amortisation As at 1 January 365,787 11,283,459 151,815 55,209,728 26,164,471 93,175,260 90,073,952 Amortisation for the year 16,970 523,392 - 2,560,946 - 3,101,308 3,101,308 As at 31 December 382,757 11,806,851 151,815 57,770,674 26,164,471 96,276,568 93,175,260 Carrying amount 516,692 3,894,903 - 6,252,970 - 10,664,565 13,765,873 These assets are being amortised in equal annual amounts over the following periods: Mature plantations/improvement to land 30 years Buildings 25 years Machinery 15 years Note : The assets shown above are those movable assets vested in the Company by Gazette Notification at the date of

formation of the Company (22nd June 1992) and all investments in tangible assets by the Company since its formation.


47


7 PROPERTY, PLANT AND EQUIPMENT Balance Additions Disposals Balance as at for the during the as at 01.01.2014 year Year 31.12.2014 Cost Rs. Rs. Rs. Rs. Land Improvements 105,992,687 9,724,347 - 115,717,034 Buildings 332,567,432 1,559,923 - 334,127,355 Motor Vehicles 201,372,948 998,234 (4,565,425) 197,805,757 Furniture & Fittings 10,659,082 26,500 - 10,685,582 Equipment & Tools 66,691,326 1,316,522 (984,843) 67,023,005 Water Sanitation 60,732,049 - - 60,732,049 Plant & Machinery 406,058,610 25,712,123 - 431,770,733 1,184,074,134 39,337,649 (5,550,268) 1,217,861,515 Balance Charge Accumulated Balance as at for the depreciation as at 01.01.2014 Year on disposals 31.12.2014 Depreciation Rs. Rs. Rs. Rs. Land Improvements 27,370,394 5,284,078 - 32,654,472 Buildings 75,540,266 8,231,791 - 83,772,057 Motor Vehicles 164,060,234 13,258,017 (4,565,425) 172,752,826 Furniture & Fittings 9,808,535 175,596 - 9,984,131 Equipment & Tools 57,405,120 2,290,462 (984,843) 58,710,739 Water Sanitation 38,457,311 2,982,897 - 41,440,208 Plant & Machinery 247,275,355 18,062,764 - 265,338,119 619,917,216 50,285,605 (5,550,268) 664,652,553 Written Down Value 564,156,918 553,208,962 ASSETS ACQUIRED ON FINANCE LEASE Balance Additions Disposals Balance as at for the during the as at 01.01.2014 year Year 31.12.2014 Cost Rs. Rs. Rs. Rs. Plant & Machinery 30,544,094 - - 30,544,094 Motor Vehicles - 674,200 - 674,200 30,544,094 674,200 - 31,218,294 Balance Charge Accumulated Balance as at for the depreciation as at 01.01.2014 Year on disposals 31.12.2014 Depreciation Rs. Rs. Rs. Rs. Plant & Machinery 559,484 1,221,764 - 1,781,248 Motor Vehicles 56,184 - 56,184 559,484 1,277,948 - 1,837,432 Written Down Value 29,984,610 29,380,862 Balance Additions Capitalised/ Balance as at for the Disposed as at 01.01.2014 Year during the 31.12.2014 Year Rs. Rs. Rs. Rs. Capital Work-in-Progress 17,221,904 15,353,849 (19,816,418) 12,759,335 TOTAL WRITTEN DOWN VALUE 611,363,432 595,349,159


48

8.A BEARER BIOLOGICAL ASSETS Immature Mature Total Total Plantations Plantations 2014 2013 Rs. Rs. Rs. Rs. Cost As at 1st January 1,140,839,501 673,110,659 1,813,950,160 1,489,462,024 Additions during the year 312,468,626 - 312,468,626 324,488,136 Transfers (from)/to (40,077,551) 40,077,551 - - As at 31st December 1,413,230,576 713,188,210 2,126,418,786 1,813,950,160 Depreciation As at 1st January - 285,583,204 285,583,204 257,284,320 Charge for the year - 30,204,291 30,204,291 28,298,884 As at 31st December - 315,787,495 315,787,495 285,583,204 Carrying amount 1,413,230,576 397,400,715 1,810,631,291 1,528,366,956 These are investments in immature/ mature plantations since the formation of the Company. The assets (including

plantation assets) taken over by way of estate leases are set out in Notes 6.2 . Further investment in immature plantations taken over by way of these leases are shown in the above note. When such plantations become mature, the additional investments since take over to bring them to maturity, will be moved from immature to mature under this note.

The requirement for recognittion of bearer biological assets at its fair value less cost to sell under LKAS 41 was

superseded by the ruling issued on March, 2nd 2012 by the Institute of Chartered Accountants of Sri Lanka. Accordingly, the Company has elected to measure the bearer biological assets at cost using LKAS 16 - Property, Plant & Equipment.

Specific borrowings have been obtained to finance the planting expenditure. The above additions include

Rs.58,231,199/= (2013-Rs.43,136,174/= ) of borrowing costs capitalised during the year.

8. B CONSUMABLE BIOLOGICAL ASSETS - TIMBER PLANTATIONS 2014 2013 Rs. Rs. As at 1st January 1,559,765,222 1,475,236,030 Gain/(loss) arising from changes in fair value less cost to sell 92,376,691 74,293,503 Increase due to development 10,233,685 10,235,689 Decrease due to harvest/ transfer - - As at 31st December 1,662,375,598 1,559,765,222 Managed timber plantations include commercial timber plantations cultivated in estates. The timber plantations are

recorded at fair value other than young trees which are recorded at cost as the significant biological transfarmation has not taken place.

The Managed timber plantation is measured at fair value, The corresponding gain/loss was recognized in the

income statement.However fair valuegain/ loss is subsequent reffered in the equity as a separate component which will be available for distribution only on realisation of consumable biological assets.


8.B i FAIR VALUE HIERARCHY All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorised

within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole.

Level 1 - Quoted (unadjusted) market prices in active markets for identical assets or liabilities.Level 2 - Valuation techniques for which the lowest level input that is significant to the fair value measurement

is directly or indirectly observable.Level 3 - Valuation techniques for which the lowest level input that is significant to the fair value measurement

is unobservable.


49


8. B ii INFORMATION ABOUT FAIR VALUE MEASUREMENTS USING SIGNIFICANT UNOBSERVABLE INPUTS (LEVEL 3) Non Range of Relationship of Financial Valuation Unobservable Unobservable Unobservable Assets Techniques Inputs Inputs inputs to Fair Value Consumable Biological DCF Method Discounting factor 13% The higher the discount rate, the

Assets - Timber lower the fair value Weight 50 to 62 lbs per Cu. Ft. The higher the weight the higher

the fair value Price Rs. 200/- Rs.650 /- per Cu. Ft The higher the price the higher

the fair value Timber Reserve Amount Rs Balance at the beginning of the year 1,383,119,847 Gain recognized during the year 92,376,691 Balance at the end of the year 1,475,496,538 The fair value of managed timber plantations was ascertained since the LKAS 41 is only applicable for managed

agricultural activity in terms of the ruling issued by The Institute of Chartered Accountants of Sri Lanka. The valuation was carried by Messers Mr.W.M Chandrasena Incorparated, valuers, using Discounted Cash Flow (DCF) methods. In ascertaining the fair value of timber a physical verification was carried out covering all the estates.

Key assumption used in the Valuation

1. The haversting is approved by the PMMD and Forestry Department Based on the Forestry Department Plan.2. The Current Market Prices used are net of selling expenditure.3. Discount rate is 13%, a Sensitivity analysis at (+) or (-) 1% is also disclosed4. Though the replanting is a condition precedent for harvesting , yet the costs are not taken into consideration.

as these are not considered to be material The valuations, as presented in the external valuation models based on net present values, take into account

the long term exploitation of the timber plantations. Because of the inherent uncertainty associated with the valuation at fair value of the biological assets due to the volatility of the variables, their carrying value may differ from their realisable value. The Board of Directors retains their view that commodity markets are inherently volatile and that long term price projections are highly unpredictable. Hence, the sensitivity analysis regarding discount rate variations as included in this note allows every investor to reasonably challenge the financial impact of the assumptions used in the LKAS 41 against his own assumptions.

NON FINANCIAL ASSETS - Consumable Biological Assets

Level 1 Level 2 Level 3

As at 31st December Date of valuation 2014 2013 2014 2013 2014 2013

Rs. Rs. Rs. Rs. Rs. Rs.

Assets measured at fair value Consumable Biological Assets 31st December 2014 - - - - 1,662,375,598 1,559,765,222 Timber In determining the fair value, highest and best use of timber, current condition of the trees and expected timber

content at harvesting have been considered. Also, the valuers have made reference to market evidence of transaction prices of the company, and the market prices of timber corporation, with appropriate adjustments for size and location. The appraised fair values are rounded within the range of values.


50


8.C Sensitivity Analysis Sensitivity variation discount rate Values as appearing in the Statement of Financial Position are very sensitive to changes of the discount rate applied.

Simulations made for timber trees show that a rise or decrease by 1% of the discount rate has the following effect on the net present value of biological assets:

12% 13% 14% Managed Timber 1,738,525,736 1,662,375,598 1,598,537,092 Total 1,738,525,736 1,662,375,598 1,598,537,092

9. AVAILABLE FOR SALE FINANCIAL ASSETS No of shares 2014 2013 Rs. Rs. Quoted Investments

National Development Bank Ordinary Shares 3,252 813,000 260,973

813,000 260,973 Market Value per Share as at 31st December 2014 Rs 250/=

10. INVENTORIES 2014 2013 Rs. Rs. Nurseries 18,162,532 21,518,772 Harvested Crop 273,323,466 376,036,551 Input Stocks, Consumables & spares 42,445,885 35,945,101 333,931,883 433,500,424 Provision for Obsolete Stocks (385,586) (387,876) 333,546,297 433,112,548

11. TRADE AND OTHER RECEIVABLES Produce Debtors 57,966,700 58,256,533 Employee Related Debtors 35,753,156 31,829,303 Advances & Prepayments 16,568 647,312 Other debtors- Note 11B 51,744,608 38,231,885 Loans to Company Officers - Note 11A 396,645 491,936 145,877,677 129,456,969 Provision for doubtful debts (2,709,590) (2,714,423) 143,168,087 126,742,546

11A LOANS TO COMPANY OFFICERS Balance at the beginning of the year 491,936 303,896 Loans granted during the year 164,415 397,685 656,351 701,581 Re payments (259,706) (209,645) Balance at the end of the year 396,645 491,936

11 B OTHER DEBTORS Interest receivables from Fixed Deposits 5,315,026 9,222,112 Other Debtors 46,429,582 29,009,773 51,744,608 38,231,885


51


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52


16 RETIRING BENEFIT OBLIGATIONS 2014 2013 Rs. Rs.

Provision for retiring gratuity At the beginning of the year 626,818,678 620,569,622 Interest Cost 65,815,961 65,159,810 Current Service Cost 46,081,436 41,754,658 Gratuity Payments for the year (74,097,272) (75,694,104) Actuarial (Gain) / Loss 19,706,762 (24,971,308) At the end of the year 684,325,565 626,818,678 According to the actuarial valuation report issued by the actuarial valuer as at 31 December 2014 the actuarial

present value of promised retirement benefits amounted to Rs. 684,325,565/=. If the company had provided for gratuity on the basis of 14 days wages & half months salary for each completed year of service, the liability would have been Rs. 884,906,771/=. Hence, there is a contingent liability of Rs. 200,581,206/= , which would crystallise only if the company ceases to be a going concern.

LKAS 19 requires the use of actuarial techniques to make a reliable estimate of the amount of retirement benefit that employees have earned in return for their service in the current and prior periods and discount that benefit using the Projected Unit Credit Method in order to determine the present value of the retirement benefit obligation and the current service cost. This requires an entity to determine how much benefit is attributable to the current and prior periods and to make estimates about demographic variables and financial variables that will influence the cost of the benefit. The following key assumptions were made in arriving at the above figure.

The Present Value of Retirement Benefit Obligation is carried on annual basis The following payment are expected from defined plan obligation on annual basis Staff Workers Company Rs Rs Rs Within the next 12 Months 39,156,775 21,887,777 61,044,552 Between 2 and 5 years 28,598,250 91,810,654 120,408,904 Beyond 5 years 32,945,411 469,926,698 502,872,109 100,700,436 583,625,129 684,325,565 The weigted average duration of the Defined Benefit plan obligation at the reporting period is 9.36 years and 13.17

years for staff workers respectively The key assumptions used by Messers.Actuarial & Management Consultants (Pvt) Ltd include the following.

2014 2013(i) Rate of Interest 10 % (per annum) 10.5 % (per annum)(ii) Rate of Salary Increase Workers 15% (every two years) 15% (every two years) Estate Staff 10% (per annum) 10% (per annum) Head Office Staff & Executives 7.5% (per annum) 7.5% (per annum)(iii) Retirement Age Workers 60 years 60 years Staff 55 years 55 years(iv) Daily Wage Rate Tea Rs. 450/- Rs. 380/- Rubber Rs. 450/- Rs. 380/- Dolomite Project Workers Rs. 375/- Rs. 325/-

Sensitivity Analysis - Salary/ Wage Escalation Rate Values appearing in the financial statements are very sensitive to the changes of financial and non financial

assumptions used.The sensitivity was carried for both the rate of wage increment and the salary increment. Simulation made for retirement benefit obligation show that a rise or decrease by 1% of the rate of wage and salary has the following effect on the retirement benefit obligation.


53


Workers Staff As at 31 December 2014 Rs. Rs. Rs. Rs. Rs. Rs. Rate of wage/salary increment in every two years 14% 15% 16% 6.50% 7.50% 8.50% Retirement benefit obligation 557,802,535 583,625,129 611,033,194 95,867,059 100,700,436 106,358,561 As at 31 December 2014 557,802,535 583,625,129 611,033,194 95,867,059 100,700,436 106,358,561 Sensitivity Analysis - Discount Rate Values appearing in the financial statements are very sensitive to the changes of financial and non financial

assumptions used. The sensitivity was carried for the discount rate. Simulation made for retirement benefit obligation show that a rise or decrease by 1% of the rate of the discount rate has the following effect on the retirement benefit obligation.

Workers Staff As at 31 December 2014 Rs. Rs. Rs. Rs. Rs. Rs. Rate of discount 9.0% 10.0% 11.0% 9.0% 10.0% 11.0% Retirement benefit obligation 638,008,864 583,625,129 536,656,804 106,199,388 100,700,436 95,887,391 As at 31 December 2014 638,008,864 583,625,129 536,656,804 106,199,388 100,700,436 95,887,391 2014 201317. DEFERRED TAX Temporary Tax Effect Temporary Tax Effect Difference Difference Rs. Rs. Rs. Rs. As at 1 January 2,201,346,766 166,848,021 2,123,835,879 177,791,709 Amount originating during the year (41,416,742) (26,488,225) 77,510,887 (10,943,688) As at 31 December 2,159,930,024 140,359,796 2,201,346,766 166,848,021 Temporary difference of Property, Plant and Equipment 420,599,797 66,286,549 278,427,975 43,391,328 Temporary difference of mature and immature plantation 1,810,631,291 181,063,129 1,528,366,956 152,836,696 Temporary difference of biological asset 1,662,375,598 166,237,560 1,559,765,222 155,976,522 Temporary difference of Leased asset (7,920,394) (1,248,254) (9,027,804) (3,141,676) Temporary difference of retirement benefit obligation (684,325,565) (107,849,709) (626,818,678) (98,786,625) Carried forward tax losses (1,041,430,703) (164,129,479) (529,366,905) (83,428,224) As at 31 December 2,159,930,024 140,359,796 2,201,346,766 166,848,021 The effective tax rate used to calculate deferred tax liability for all the Temporary Differences other than Biological

Asset as at 31 December, 2014 is 15.76% (2013-15.76%) for the company. The effective tax rate used to calculate deferred tax liability for Biological Asset as at 31 December, 2014 is 10%

(2013-10%) for the company.


54

18. DEFERRED INCOME 2014 2013 Deferred Grants and Subsidies Rs. Rs. Balance at the beginning of the year 214,139,196 227,365,406 Add : Grants received / (refunded) during the year - - Less : Amortisation for the year (11,443,168) (13,226,210) Balance at the end of the year 202,696,028 214,139,196 The Company has received funding from the Plantation Housing and Social Welfare Trust and Plantation

Development Project (PDP) for the development of workers facilities such as re-roofing of line rooms, latrines, water supply, sanitation and roads etc. The amounts spent are included under the relevant classification of property, plant & equipment and the grant component is reflected under Deferred Grants and Subsidies. Grants are amortised over the life of the assets for which they are being deployed.

19. LIABILITY TO MAKE LEASE PAYMENT 2014 2013 Total Total Rs. Rs. Gross Liability As at 1st January 178,385,000 184,058,000 Repayment during the year (5,673,000) (5,673,000) 172,712,000 178,385,000 Finance cost allocated to future periods (73,860,000) (77,881,000) Net Liability 98,852,000 100,504,000 Payable within one year Gross liability 5,673,000 5,673,000 Finance cost allocated to future periods (3,954,000) (4,020,000) Net liability transferred to current liabilities 1,719,000 1,653,000 Payable within two to five years Gross liability 22,692,000 22,692,000 Finance cost allocated to future periods (15,098,000) (15,385,000) Net liability 7,594,000 7,307,000 Payable after five years Gross liability 144,347,000 150,020,000 Finance cost allocated to future periods (54,808,000) (58,476,000) Net liability 89,539,000 91,545,000 Net liability payable after one year 97,133,000 98,852,000 The lease of the estates have been amended, with effect from 11th June 1996 to an amount substantially higher

than the previous lease rental of Rs. 500/= per estate per annum. The first rental payable under the revised basis is Rs.5,673 million from 11th June 1997.This amount is to be inflated annually by the Gross Domestic product (GDP) deflator, and is in the from of Contingent rental. The contingent rental charged to the Income statement amounted to Rs.22,276,019/= Which is based on GDP deflator of 6.7% (2013)

The Statement of Recommended Practice (SoRP) for Right-to-use of Land on Lease was approved by the Council

of the Institute of Chartered Accountants of Sri Lanka on 19th December 2012. Subsequently, the amendments to the SoRP along with the modification to the title as Statement of Alternative Treatment (SoAT) were approved by the Council on 21st August 2013. The Company has not reassessed the Right-to-use of Land because this is not mandatory requirement. However, if the liability is reassessed according to the alternative treatment (SoAT) on the assumption that the lease rent is increased constantly by GDP deflator of 4% and discounted at a rate of 7.3% , liability would be as follows.

Gross Liability = 1,774,455,702 Finance Charges = (830,826,335) Net Liability = 943,629,367 The above reassessed liability is not reflected in these Financial Statements.



55


20. TRADE AND OTHER PAYABLES 2014 2013 Rs. Rs. Trade Creditors 127,408,160 128,751,659 Employee Related Creditors 179,447,234 202,494,910 Accrued Expenses 21,612,271 33,602,274 Others 60,165,994 45,457,097 388,633,659 410,305,940

21. AMOUNTS DUE TO RELATED COMPANIES Relationship Stassen Exports (Pvt) Ltd Managing Agent 104,471,439 102,349,039 104,471,439 102,349,039

22. DIVIDENDS PAYABLE22.a. Unclaimed Dividend 2014 2013 Rs. Rs. Payable to - Related Parties - - - Others 6,608,137 5,762,211 6,608,137 5,762,211

22.b. DIVIDENDS PAID AND PROPOSED Dividend on Ordinary Shares Dividend paid during the year Nil 23,636,364 Proposed for approval at AGM Final dividends for 2014 Rs. Nil/= per share (2013- Rs.1/=) Nil 23,636,364 Dividends per share (Rs.) Nil 1.00

23 REVENUE 2014 2013 Rs. Rs.

23.1 Summary Sale of Goods Tea 2,816,064,602 2,880,333,495 Rubber 186,091,016 291,649,386 3,002,155,618 3,171,982,881

23.2 Segment Information Segment Revenue Tea Revenue 2,816,064,602 2,880,333,495 Revenue Expenditure (2,730,813,543) (2,678,586,204) Depreciation (63,740,531) (59,714,834) Other Non Cash Expenditure (104,656,297) (69,993,029)

Segment Results (83,145,769) 72,039,428 Rubber Revenue 186,091,016 291,649,386 Revenue Expenditure (223,007,402) (226,644,105) Depreciation (27,317,370) (26,331,973) Other Non Cash Expenditure (19,205,431) (10,214,156) Segment Results (83,439,187) 28,459,152 Total Revenue 3,002,155,618 3,171,982,881 Revenue Expenditure (2,953,820,945) (2,905,230,309) Depreciation (91,057,901 (86,046,807)

Other Non Cash Expenditure (123,861,728) (80,207,185) Segment Results (166,584,956) 100,498,580


56


2014 2013 Rs. Rs. Gains on fair value of biological assets 92,376,691 74,293,503 Other Income 157,260,549 156,153,063 Other Expenditure (148,026,261) (141,822,628) Depreciation (8,595,618) (14,354,755) Gratuity (7,742,432) (1,865,875) Management Fees (25,132,800) (43,186,640) Operating Profit of the Company (106,444,827) 129,715,248 Segment Assets 2014 2013 Rs. Rs. Tea Non Current Assets Cost 1,991,673,925 1,942,432,724 Amotization/ Depreciation (987,501,950) (922,244,846) 1,004,171,975 1,020,187,878 Rubber Non Current Assets Cost 1,890,847,598 1,591,649,610 Amotization/ Depreciation (367,300,943) (340,983,637) 1,523,546,655 1,250,665,973 Unallocated Non Current Assets Cost 1,928,632,525 1,825,891,825 Amotization/ Depreciation (107,421,786) (98,837,585) 1,821,210,739 1,727,054,240 4,348,929,369 3,997,908,091

23.2 Segment Information 2014 2013 Rs. Rs. Tea Current Assets Cost 337,463,279 480,643,180 337,463,279 480,643,180 Rubber Current Assets Cost 44,791,903 71,829,844 44,791,903 71,829,844 Allocated 382,255,182 552,473,024 Unallocated 413,092,708 282,673,901

795,347,890 835,146,925

Total Assets 5,144,277,261 4,833,055,016 Segement Eqiuty and Liabilities Non Current Liabilities Tea Allocated 741,017,989 691,316,234 741,017,989 691,316,234 Rubber Allcoted 125,984,445 119,912,701 125,984,445 119,912,701

Allocated 867,002,434 811,228,935 Unallocated 778,744,781 318,144,425 1,645,747,251 1,129,373,360


57


23.2 Segment Information 2014 2013 Rs. Rs. Current Liabilities Tea 296,198,247 298,550,362 Rubber 73,425,406 62,954,281 Unallocated 507,274,005 585,627,989 876,897,658 947,132,632 Stated Capital and Reserve 2,621,632,388 2,756,549,024 Total Equity and Liabilities 5,144,277,261 4,833,055,016 Segment Capital Expenditure Cost Tea 49,514,839 41,949,692 Rubber 296,570,434 222,475,234 Unallocated 12,166,318 60,063,210 358,251,591 324,488,136

24. OTHER INCOME AND GAINS 2014 2013 Rs. Rs. Interest Income 19,198,601 28,330,800 Amortisation of Government Grants 11,443,168 13,226,210 Rent Income From Related Companies 2,443,129 2,357,231 Sale of Refuse Tea 33,084,452 28,501,896 Net Income from Travellers Paradise 2,935,478 2,800,769 Net Income from Dolomite Project 23,316 (278,786) Sales of Rubber Trees 19,941,433 40,664,252 Sundry Income 64,619,472 40,550,691 Profit on Disposal of Property Plant & Equipment 3,571,500 - 157,260,549 156,153,063

25. FINANCE COST Interest on Lease Rental (JEDB/SLSPC) 4,020,000 4,084,000 Contingent Lease Rental (JEDB/SLSPC) 22,276,019 20,294,271 Overdraft Interest 37,660,706 41,703,179 Loan Interest 24,474,260 4,077,877 88,430,985 70,159,327 Less: Amount Capitalised (58,231,199) (43,136,174) 30,199,786 27,023,153

26. PROFIT BEFORE TAX IS STATED AFTER CHARGING Notes 2014 2013 Rs. Rs. Auditors Fees 3,428,000 3,491,040 Depreciation and Leased Amortisation Right to Use of Land 6.1 6,249,060 6,249,060 Immovable leased Bearer Biological assets 6.2 9,040,819 9,040,819 Immovable Leased assets 6.3 3,101,308 3,101,308 Feehold Property ,Plant & Equipment 7.0 51,563,553 61,028,881 Bearer Biological Assets 8.A 30,204,291 28,298,884 Staff Cost Defined Benefit Plan Costs (Retirement Benefit Obligation) 104,794,059 81,943,160 Defined Contributions Plan Costs - EPF & ETF 171,725,179 171,928,581 Others - Staff Costs 1,549,302,359 1,460,096,327 Management Fees 25,132,800 43,186,640 Provision /(reversal) for bad & doubtful debts (4,833) 295,322 Provision /(reversal) for bad & doubtful Inventories 2,290 7,302 Gain on change in fair value of biological assets 92,376,691 74,293,503 Directors Emoluments Nil Nil Key Management Compensation Nil Nil


58


27. INCOME TAX EXPENSE The major component of income tax expenses for the year ended 31st December 2014 are as follows : 2014 2013 Current Tax Expenses Rs. Rs.

(i) Current Income Tax Charges 12,168,935 11,939,978 12,168,935 11,939,978

(ii) Deferred Tax Expenses Deferred Taxation Charge / (Reversal) (23,382,440) (14,879,165) Tax Charge reported in Income Statement (11,213,505) (2,939,187)

27.1 Statement of Other Comprehensive Income Net gain on acturial gains on Defined Benefit Plans 3,105,785 (3,935,478) Tax Charge directly to Other Comprehensive Income 3,105,785 (3,935,478)

27.2 RECONCILIATION BETWEEN TAX EXPENSES AND THE PRODUCT OF ACCOUNTING PROFIT MULTIPLIED BY THE STATUTORY EFFECTIVE TAX RATES ARE AS FOLLOWS: 2014 2013 Rs. Rs. Profit before Tax (106,444,827) 203,423,413 Effective Tax Rate 15.76% 15.76% Tax effect on Accounting Profit / (Loss) Before Tax (16,775,705) 32,059,530 Tax effect on Aggregate disallowed items 41,475,843 36,183,026 Tax effect on Aggregate allowable items (107,890,872) (108,483,715) (83,190,734) (40,241,159) Tax effect on Interest Income 5,375,608 7,932,624 Tax effect on Rent Income 13,345,830 10,436,573 Tax effect on Tax Loss B/F & Utilised (6,552,503) (6,429,219) Income Tax Charge/(Reversal) 12,168,935 11,939,978

28. EARNINGS PER SHARE

28.1 The calculation of the basic earnings per share is based on after tax profit for the year divided by the weighted average number of ordinary shares outstanding during the period.

28.2 The following reflects the income and share data used in the basic earnings per share computations. 2014 2013 Rs. Rs. Amounts used as the Numerator : (95,231,322) 132,654,435 Net profit applicable to ordinary shareholders for basic earnings per share (95,231,322) 132,654,435 Amounts used as the Denominator : Weighted average number of ordinary shares in issue applicable to 23,636,364 23,636,364 basic earnings per share 23,636,364 23,636,364 Earnings/ (Loss) Per Share (4.03) 5.61


59


29. ASSETS PLEDGED Following assets have been pledged as securities for liabilities.

Name of Bank Loan Security Nature of Liability Carrying Facility Amount of Rs. assets Pledged 2014 2013 Rs. Rs. DFCC Bank 321 Mn. Primary mortgage over the Lease hold rights Long Term Loans - 6,115,959 to the land and building of Palmgarden, Pettiagala and Balangoda Estates

CENTRAL FIANACE COMPANY PLC 34 Mn. Mortage on Colour Separator Long Term Loans 22,715,465 27,777,432 HATTON NATIONAL BANK PLC 190 Mn Primary mortgage over the Lease hold rights Permanent 190,000,000 - of Balangoda Estates Overdraft Facility HATTON NATIONAL BANK PLC 500 Mn Primary mortgage over the Lease hold rights Long Term Loans 500,000,000 - of Balangoda Estates. HATTON NATIONAL BANK PLC 17.8 Mn Mortage on Colour Separator Long Term Loans 13,693,200 - HATTON NATIONAL BANK PLC 0.7 Mn Abosoute Owership of the Leased Bikes Finance Lease 574,453 -

30. COMMITMENTS AND CONTINGENCIES No known contigent liabilities exist as at the date of financial position other than the matters discloused in Note 16 to the financial Statements.

31. EVENTS OCCURRING AFTER THE REPOTING PERIOD No circumstances have arisen since the reporting date which require adjustments to or disclosure in the Financial Statements.

32. RELATED PARTY DISCLOSURES Details of Significant Related Party Disclosures are as follows.

32.1 Transactions with the parent and related entities Nature of the Company Name of the Director Nature of Transaction Amounts 2014 2013 Rs. Rs. Group Company Distilleries Co. of Sri Lanka PLC Mr. D. H. S. Jayawardena Reimbursement of expenses 129,151 106,738 Mr. R. K. Obeyesekere Mr. C.R. Jansz Other Related Parties Stassen Exports (Private) Ltd. Mr. D. H. S. Jayawardena Management Fee (25,132,800) (43,186,640) Mr. R. K. Obeyesekere Share of Head Office Expenses (2,640,000) (2,640,000) Madulsima Plantations PLC Mr. D. H. S. Jayawardena Reimbursement of expenses (144,779) (2,415,453) Mr. R. K. Obeyesekere Reimbursement of expenses 290,233 2,500,086 Mr. S. K. L. Obeyesekere Milford Exports (Ceylon) (Private) Ltd. Mr. D. H. S. Jayawardena Rent Received 2,443,128 2,357,230 Mr. R. K. Obeyesekere Hatton National Bank PLC Mr. D. H. S. Jayawardena Interest Income 19,198,601 26,667,150 Mr. R. K. Obeyesekere Interest Expenses (58,442,512) (41,703,179) Lanka Bell Limited Mr. D. H. S. Jayawardena Lease Rental Received 2,884,477 2,673,210 Mr. C.R. Jansz Communication Charges (2,129,985) (2,115,019)

33.2 Transactions with the key management personnel of the company and parent There were no material transactions with the key management personnel of the company and its parent other than those disclosed in the above note.

33 RELATED PARTY TRANSACTIONS There are no related party transactions other than those disclosed in Notes 11, 12, 13, 15, 21, 24, 26 and 32 above


60

Shareholders and Investors Information

The issued Ordinary shares of Balangoda Plantations PLC are listed with the Colombo Stock Exchange of Sri Lanka. The Audited Accounts of the Company for the year ended 31st December 2014 have been submitted to the Colombo Stock Exchange.

Distribution of Shareholdings as at 31 December 2014

No. of Shares held No. of ShareholdersNo. of Shareholders

%Total Holdings Total Holding %

1 - 1,000 17,952 97.45 2,375,412 10.05

1,001 - 10,000 366 1.99 1,219,400 5.16

10,001 - 100,000 88 0.48 2,217,150 9.38

100,001 - 1,000,000 12 0.07 2,858,767 12.09

1,000,001 & Over 3 0.01 14,965,634 63.32

Grand Total 18,421 100.00 23,636,363 100.00

Analysis Report of Shareholders

No. of Shares held No. of ShareholdersNo. of Shareholders

%Total Holdings Total Holding %

Individual 18,276 99.21 5,763,927 24.39

Institution 145 0.79 17,872,436 75.61

Grand Total 18,421 100.00 23,636,363 100.00

Residents 18,401 99.90 23,404,375 99.02

Non-Residents 20 0.10 231,988 0.98

Grand Total 18,421 100.00 23,636,363 100.00

Shares held by Public amounts to 41.39%

Market Statistics as at 31st December2014 2013

Number of shares 23,636,363 23,636,363

Earning/(Loss) per Share Rs (4.03) 5.61

Net Asset per Share Rs 110.92 115.62

Dividend per Share Rs - 1.00

Highest Share Price Rs 35.00 40.50

Lowest Share Price Rs 24.30 23.10

Closing Share Price Rs 26.30 31.00


61

Shareholders and Investors Information

Twenty Five Major Shareholders As at 31st December 2014

No Name of Shareholder No. of Shares %

1 Melstacorp Limited 10,217,300 43.23

2 Milford Exports (Ceylon) (Pvt) Limited 3,636,363 15.38

3 Employees Provident Fund 1,111,971 4.70

4 Macksons Holdings (Pvt) Ltd 662,459 2.80

5 Mr. M M M Milfer 375,788 1.59

6 Mr. M.M.M. Mizver 360,560 1.53

7 Merchant Bank of Sri Lanka Ltd A/C No.1 269,481 1.14

8 MCSL Financial Services Ltd 218,128 0.92

9 Associated Electrical Corporation Ltd 195,866 0.83

10 ADL Equities Limited / M A M Arafath Akram 162,187 0.69

11 Cocoshell Activated Carbon Company Limited 145,900 0.62

12 First Capital Markets Limited / Ventura Crystal (Pvt) Limited 136,000 0.58

13 Sandwave Limited 114,398 0.48

14 Mr. R. Maheswaran 110,000 0.47

15 Mr. A K P Guruge Don 108,000 0.46

16 Gnanam Imports (Pvt) Ltd 100,000 0.42

17 Mr. K N Karunaratne 93,425 0.40

18 Seylan Bank PLC/ Mr. Duleep Nissanka Daluwatte 74,911 0.32

19 Mrs. W W Somawathie 68,600 0.29

20 Mr. G Rajendren 56,673 0.24

21 Aberdeen Holdings (Pvt) Limited 52,649 0.22

22 Mr. D P Peiris 51,304 0.22

23 Mrs. B K V Wickramasinghe 50,100 0.21

24 Tranz Dominion L L C 50,000 0.21

25 Code-Gen International Pvt Ltd 50,000 0.21


62

2014Rs.'000

2013Rs.'000

2012Rs.'000

2011Rs.'000

2010Rs.'000

2009Rs.'000

2008Rs.'000

Turnover 3,002,156 3,171,983 2,779,742 2,659,168 2,797,267 2,509,827 2,160,352

Profit(Loss)before Taxation (106,445) 129,715 110,308 118,398 79,176 98,595 93,910

Taxation - 2939 (18,103) (4,524) (56,066) (16,990) (15,332)

Profit(Loss) after Taxation (95,231) 132,654 92,205 113,874 23,110 81,605 78,578

Other Comprehensive Income (16,048) 21,147

Profit (Loss) brought forward 999,681 943,921 918,037 836,012 852,175 800,115 739,265

Dividend - (23,636) - (47,273) (29,545) (17,727)

Transfer from General Reserve - - - - 8,000 - -

Transfer to Timber Reserve (92,377) (74,293) (42,684) (31,849) - - -

Available for Sales Reserve (552) (111)

Retained Profit (Loss) 795,473 999,681 943,921 918,037 836,012 852,175 800,116

Fixed Assets 4,348,929 3,997,908 3,642,643 3,421,754 3,213,789 1,826,441 1,723,854

Current Assets 795,348 835,147 745,843 733,906 880,582 825,745 742,617

Current Liabilities 876,898 970,769 653,391 507,801 561,687 505,860 449,078

Non Current Liabilities 1,645,747 1,129,373 1,132,347 1,113,680 1,112,380 936,151 859,277

Net Assets 2,621,632 2,732,912 2,602,748 2,534,179 2,420,304 1,210,175 1,158,116

Share Capital 350,000 350,000 350,000 350,000 350,000 350,000 350,000

General Reserves - - - - - 8,000 8,000

Timber Reserves 1,475,496 1,383,120 1,308,826 1,266,142 1,234,293

Profit & Loss Account 663 111 943,921 918,037 836,012 852,175 800,116

Available for Sales Reserve 795,473 999,681

Capital Employed 2,621,632 2,732,912 2,602,748 2,534,179 2,420,305 1,210,175 1,158,116

Number of Shares ('000) 23,636 23,636 23,636 23,636 23,636 23,636 23,636

Earning per Share (Rs.) (4.03) 5.61 3.90 4.82 0.98 3.45 3.32

Dividend per Share (Rs.) - 1.00 1.00 - 2.00 1.25 0.75

Net Asset per Share (Rs.) 110.92 115.62 111.12 107.22 102.40 51.20 49.00

Dividend Payout Ratio (%) - 18 26 - 204 36 23

Financial Information


63

Year ended 31.12.2014Rs.'000

Year ended 31.12.2013Rs.'000

%

REVENUE 92.32 3,002,156 93.23 3,171,983

Other Income 7.68 249,637 6.77 230,446

Total Revenue 100.00 3,251,793 100.00 3,402,429

Cost of Material & Service bought 1,523,451 1,461,166

VALUE ADDED 53.15 1,728,342 57.06 1,941,263

% Share % Share

DISTRIBUTION OF VALUE ADDED

A to Employees as Remuneration 99.58 1,721,028 84.07 1,632,024

B to Government as Taxes (0.65) (11,213) (0.15) (2,939)

B1 to Government as Lease Interest 1.52 26,296 1.26 24,378

C to Lenders of Capital as Interest 0.23 3,904 0.14 2,644

D to Shareholders as Dividends - - 1.22 23,636

E Retained in Business

E1 Provision of Depreciation 5.80 100,159 5.55 107,719

E2 Profit Retained (6.47) (111,832) 7.92 153,801

100.00 1,728,342 100.00 1,941,263

Statement of Value Addition


64

Tea Estates ElevationCategory

Year Tea Extentha

Total Crop(kg)

YieldKg/ha

C. O.PRs/kg

N.S.ARs/kg

Agarsland Low 2014 30.81 41,370 1,343 502.27 431.40

2013 30.81 39,991 1,298 398.35 414.47

Balangoda Uva Medium 2014 443.54 636,806 1,084 435.83 414.65

2013 441.54 702,280 1,073 378.93 398.90

Cecilton Uva Medium 2014 201.29 370,852 917 461.03 420.21

2013 200.84 342,318 898 428.18 389.58

Meddakande Uva Medium 2014 169.75 443,823 1,325 436.13 429.60

2013 169.75 412,810 1,277 399.49 428.62

Non Perial Uva High 2014 248.00 146,650 451 692.08 392.50

2013 248.00 125,936 436 573.96 350.74

Pettiagalla Uva Medium 2014 185.00 338,545 1,085 454.05 434.85

2013 182.00 327,534 1,052 404.80 421.77

Rassagalla Low 2014 206.00 593,348 1,395 431.32 431.40

2013 206.00 570,382 1,290 397.87 410.83

Rye / Wikiliya Low 2014 165.80 106,182 640 452.98 321.20

2013 165.80 324,616 608 419.70 369.38

Walaboda Uva Medium 2014 127.00 173,456 828 477.82 428.40

2013 127.00 149,857 749 435.54 385.45

Mahawala Low 2014 1.75 2,252 1,287 339.18 449.22

2013 1.75 2,082 1,190 383.33 433.27

Palmgarden Low 2014 4.08 468,319 1,600 448.33 442.04

2013 4.08 601,935 1,440 430.16 433.27

Cullen Uva Medium 2014 171.90 128,854 750 503.41 423.46

2013 171.90 139,599 812 427.05 389.27

Glen Alpin Uva Medium 2014 346.80 909,447 738 413.29 410.27

2013 352.23 931,191 780 381.62 403.62

Gowerakelle Uva Medium 2014 209.01 152,389 729 538.73 412.48

2013 209.01 177,834 851 431.93 386.42

Spring Valley Uva High 2014 582.15 649,489 819 490.62 401.59

2013 582.15 754,761 852 421.27 373.90

Telbedde Uva Medium 2014 557.88 710,226 1,141 474.50 381.48

2013 584.98 761,701 1,083 414.66 359.33

Ury Uva Medium 2014 336.13 452,413 1,033 457.26 399.16

2013 340.13 425,740 1,087 395.62 367.68

Wewessa Uva Medium 2014 244.70 484,085 926 434.31 415.95

2013 244.70 507,984 887 385.83 405.42

Performance of Estates 2014 & 2013


65

Performance of Estates 2014 & 2013

Rubber Estates

ElevationCategory

Year Rubber Extent

ha

Total Crop(kg)

YieldKg/ha

C. O.PRs/kg

N.S.ARs/kg

Galatura 2014 203.74 121,229 546 460.01 277.34

2013 228.48 171,855 691 327.60 361.22

Mahawala 2014 240.88 117,158 485 424.50 275.77

2013 245.43 137,768 560 338.37 351.11

Millawitiya 2014 59.32 25,836 436 430.68 280.63

2013 80.32 37,242 463 457.97 358.31

Mutwagalla 2014 182.64 94,026 512 462.26 278.67

2013 201.37 117,129 571 380.42 356.93

Palmgarden 2014 246.95 151,432 613 414.16 275.47

2013 278.31 187,145 672 305.51 356.74

Rambukkande 2014 192.30 149,759 772 353.37 280.75

2013 202.87 156,611 767 299.54 360.93

Rye / Wikiliya 2014 0.00 3,043 - 337.55 216.25

2013 0.00 3,805 - 259.54 292.94

Ury 2014 6.53 5,430 832 263.83 267.65

2013 6.53 4,941 757 313.56 333.44

Wewessa 2014 5.00 3,127 625 325.12 267.65

2013 0.00 0.00 0.00 0.00 0.00


66


67

I/We………………….…………………………………………………………………………………………………………

of ………………………………………………………………………………………………………………………………

being a member/members of BALANGODA PLANTATIONS PLC do hereby appoint.

Don Harold Stassen Jayawardena or failing him

Rajpal Kumar Obeyesekere or failing him.

Shanthi Kumar Lalith Obeyesekere or failing him

Cedric Royle Jansz or failing him

Amitha Lal Gooneratne or failing him

Arinesarajah Shakthevale or failing him

Don Soshan Kamantha Amarasekera

or………………………………….of ………………………………………………………………………as my/our proxy to

represent me/us and * ………………….. to vote as indicated hereunder for me/us and on my/our behalf at the Twenty

Second Annual General Meeting of the Company to be held on 24th June 2015 and at any adjournment thereof, and at

every poll which may be taken in consequent thereof.

1) To receive and consider the report of the Directors, and the Financial Statements of the Company for the Year ended 31st December 2014 together with the Auditors' Report thereon.

2) To re-elect Mr. D H S Jayawardena who has reached the age of 72 years on 17th August, 2014 in terms of Sections 210 and 211 of the Companies Act No. 7 of 2007, as a Director of the Company.

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

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

5) To re-appoint M/s Ernst & Young as Auditors and to authorize the Directors to determine their remuneration.

Signed this ………………………………….. day of ……………………………….. Two Thousand and Fifteen

Signature/s ………………………………………

Instructions regarding completion of Form of Proxy appear overleaf.

Form of Proxy

FOR AGAINST


68

Instructions for Completion of Form of Proxy

1. A member entitled to attend and vote at the Meeting is entitled to appoint a Proxy to attend and vote instead of him.

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

3. Kindly complete the form of Proxy, after filling in legibly your full name and address, by signing in the space provided. Please fill in the date of signature.

4. A Proxy may not speak at the Meeting unless expressly authorized by the instrument appointing him. The Proxy may vote on a poll (and join in demanding a poll) but not on show of hands.

5. If you wish the Proxy to speak at the meeting you should interpolate the words "to speak and" in the space indicated with an asterisk (*) and initial such interpolation.

6. Please indicate a "X" in the space provided how your Proxy is to vote on each resolution. If there is in the view of the proxy holder doubt (by reason of the way in which the instructions contained in the Proxy have been completed) as to the way in which the Proxy holder should vote, the proxy holder will vote as he thinks fit.

7. In the case of corporate member the Proxy must be completed under its Common Seal which should be affixed and attested in the manner prescribed by its Articles of Association. If the form of proxy is signed by an Attorney, the relative Power of Attorney should also accompany the completed form of proxy if it has not already been registered with the Company.

8. To be valid, the completed form of Proxy should be deposited at the Registered office of the Company at No.110 Norris Canal Road, Colombo 10, not less than 48 hours before the time of the meeting.

9. The Shareholders and the Proxy holders are kindly requested to bring this Annual Report along with an acceptable form of identity.

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