future sustainable

Future Sustainable.

TOUCHWOOD INVESTMENTS PLC

ANNUAL REP ORT 2 0 1 1 / 1 2

TOUCHWOOD INVESTM

ENTS PLC ANNUAL REPORT 2010/11

www.touchwood.com

Touchwood Investments PLCNo. 28, Joseph’s Lane, Colombo 4, Sri Lanka.Tel: +94 117 444 888

Future Sustainable.

At Touchwood we are deeply committed to a sustainable future - because we know that we must. Our business involves the environment and our impact on it more closely than most. This is why we have to consider social, political and environmental impacts in all our undertakings. Because we believe that it is more socially, ethically and financially rewarding to be a truly sustainable company.

We pioneered the business model for managed forestry investments in the Asia Pacific region. And that singular expertise sets us apart. Over the past 13 years, our constant research and hands-on involvement with field experts and leading educational institutions has enabled us to incorporate patented cultivation programs with proprietary design technology that deliver an assortment of unparalleled products and services. These scientific advancements and sustainable practices provide our clients socially-responsible investments through the practice of managed forestry, growing trees with a high commercial value while preserving old-growth forests.

Name of the Company : Touchwood Investments PLC

Legal Form : A Public Quoted Company with Limited Liability Incorporated on June 7, 1999 Registration No. PQ - 217

Registered Office : No. 28, Joseph’s Lane, Colombo 4, Sri Lanka. Tel: +94 117 444 888 Fax: +94 117 444 889

Board of Directors : Mr. Roscoe A. Maloney (Chairman) Mr. S. P. Asitha Koralage (Deputy Chairman) Mr. Channa Abeygunawardene (Chief Executive Officer) Mrs. Swarna Maloney Mr. L. L. Kulatunga Mr. A. R. Pereira

Alternate Directors : Mr. Janath Olaboduwa Mr. Prageeth Herath

Secretary : Corporate Advisory Services (Pvt) Ltd

Registrars : P W Corporate Secretarial (Pvt) Ltd

Auditors : KPMG (Chartered Accountants)

Lawyer : Mr. Janath Olaboduwa

Bankers : The Hongkong and Shanghai Banking Corporation Limited Sampath Bank PLC Bank of Ceylon Hatton National Bank PLC

Tax Consultants : BDO Partners, Chartered Accountants, Charter House, 65/2, Sir Chittampalam Gardiner Mawatha, Colombo 2.

Corporate Information

2 TOUCHWOOD INVESTMENTS PLC ANNUAL REPORT 2011/12

Financial Highlights 6

The Touchwood Plantations 8

Chairman’s Statement 12

Deputy Chairman’s Statement 14

Chief Executive Officer’s Statement 16

Board of Directors 20

Management Team 22

Management Discussion and Analysis 24

Sustainability Reporting 38

The GRI Index 40

Environmental Bottom Line 42

Economic Bottom Line 46

Social Bottom Line 48

Triple Bottom Line Performance 50

Corporate Governance 52

Risk Management 56

Report of the Directors 58

Audit Committee Report 64

Directors’ Responsibility Statement

for Financial Reporting 65

Chief Executive Officer’s & Head

of Finance’s Responsibility Statement 66

Independent Auditor’s Report 67

Income Statement 68

Balance Sheet 69

Statement of Changes in Equity 70

Cash Flow Statement 71

Notes to the Financial Statements 72

Investor Information 105

Notice of Meeting 107

Form of Proxy 109

Corporate Information Inner Back Cover

CONTENTS

3

OUR VISION“To help stop the destruction of our rainforests”

Our natural forests are under relentless pressure. Touchwood’s role in providing managed and sustainable alternatives contributes to saving old growth forests from destruction. Our vision is a world where forest products are obtained from sustainable managed Agro-forestry leaving our natural forests just as nature intended them to be.

Join with Touchwood and help preserve our natural forests and forest products for our children so they may also see and share our vision.

OUR MISSIONOur mission is to grow trees that are commercially viable and environmentally sustainable, to make our clients wealthy and healthy, creating an environment for our employees that promotes job satisfaction, safe in the knowledge that we are saving the rainforests whilst acquiring wealth. Touchwood is proud to be a true triple bottom line company, profiting, protecting the environment and being socially responsible.

VALUESWe are proud of Touchwood and our achievements.

We recognise that our clients pay for our actions.

We ensure win win situations where all transactions are negotiated with the result that all parties to the transaction are satisfied.

All stakeholders are given equal importance.

The culture of every employee and organisation is respected.

Diversity and objectivity of employment is maintained.

Integrity and honesty are valued even at the risk of a loss in profits.

We compete as a team.


What We Do

Touchwood is the pioneer of the agro-forestry investment industry in Sri Lanka. We are a company that specialises in the cultivation of high value exotic tropical timbers as an alternative and sustainable source of forest products (Mahogany, Vanilla, Sandalwood, Teak and other cash crops).

Over a decade of inspired action and foresight, Touchwood Investments has grown in stature and global presence, and has proudly shown the promise of a good harvest to all those who have placed their trust in the credibility, integrity and capability of the Company.

The long term prospects of the Company are indeed promising. The Hancock Natural Resource Group, a unit of John Hancock Financial Services, Boston, USA has predicted that “the main appeal of the sector is its long-term profitability. Over the last 30 years, annualised returns on timber have averaged 15.2 per cent compared with 13.2 per cent for the Standard & Poor’s 500 stock index”. The speculation therefore is that agro-forestry is a strong investment tool with a greater return on investment. Analysts have described agro-forestry as a sector that remains resilient in the face of economic meltdowns, because of its sheer lack of correlation to the global commodity, stocks and bond markets.

Engaging as we do in this business, we draw on the innovation and expertise of global resource personnel to fuel our growth momentum. We collaborate with stellar institutions across the world to further our agro-forestry management practices and plans, and adopt the latest techniques and technologies throughout our plantations while constantly engaging in research and development to better our offering.

Those who invest with us are empowered with the choice to invest responsibly; it is an investment option that goes beyond financial gain to ecological and environmental gain. The communities where Touchwood operates appreciate the benefits of our commitment and we continue to invest in and develop the skills of Touchwood people who work tirelessly to ensure that stakeholder expectations are met.

As Sri Lanka’s premier Agro-Forestry Company, Touchwood for the fourth successive year emerged as one of Sri Lanka’s most valuable brands by being ranked within Sri Lanka’s Top 100 Brand Index. Compiled annually by Brand Finance (Lanka), a subsidiary of a global entity, Brand Finance PLC, the Brand rankings for the Year 2010 were disclosed and presented in the April 2011 issue of Sri Lanka’s pioneering Business Magazine, the Lanka Monthly Digest (LMD).

In essence, we are in the business of creating a brighter future for our investors, our future generations and for mother Earth.

5

What We Believe

The triple bottom line is intrinsic to our business model and is the core upon which our values system is built.

We empower PEOPLE We protect our PLANET We ensure PROFIT to our stakeholders.

We believe that all things in this world have an effect on another and our business is no exception.

Our agro-forestry activities have positive effects on the environment and the water cycles of the island and in a larger sense, contribute to the wellbeing of the global environment as a whole.

The profit we deliver to our stakeholders is one that we can truly be proud of, as it signifies a partnership to develop our nation, our people and our children’s future.

“Our strong track record of performance on results delivery supports our strategy for the future”


Financial Highlights

GroupFor the year ended 31st March 2012 2011 Rs.’000 Rs.’000

Revenue 1,196,403 1,466,429

Profit before Taxation 132,437 368,023

Profit after Taxation 83,847 325,296

Net Financing Cost 17,903 12,088

Earnings per Share (Rs.) 1.47 5.05

As at 31st March

Shareholders’ Fund 3,017,149 2,921,604

Total Assets 6,884,184 5,884,699

Net Assets per Share (Rs.) 42.33 40.99

Two Year Financial Summary

For the year ended 31st March 2012 2011 Rs.’000 Rs.’000

Operating Results Revenue 1,196,403 1,466,429Financial Cost 17,903 12,088Depreciation 19,821 11,917Profit before Interest 150,340 380,111Profit before Tax 132,437 368,023

Assets Employed Property Plant & Equipment 800,386 711,218Biological Assets 5,510,386 4,525,952Current Assets - Liabilities 251,125 409,399

Shareholders’ FundStated Capital 623,616 623,616Retained Losses (401,596) (215,823)Non Current Liabilities 3,761,136 2,890,362

Rs. Rs.

Net Assets per Share 42.33 40.99

7

CompanyFor the year ended 31st March 2012 2011 Rs.’000 Rs.’000

Revenue 1,196,403 1,466,429 Profit before Taxation 173,792 399,728 Profit after Taxation 125,203 357,001 Net Financing Cost 16,062 12,088Earnings per Share (Rs.) 1.76 5.28 As at 31st March Shareholders’ Fund 3,054,464 2,938,284 Total Assets 6,846,976 5,901,823 Net Assets per Share (Rs.) 42.86 41.23

Five Year Financial SummaryFor the year ended 31st March 2012 2011 2010 2009 2008 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000

Operating Results Revenue 1,196,403 1,466,429 857,482 727,010 593,844 Financial Cost 16,062 12,088 20,640 9,538 6,154 Depreciation 19,767 11,917 7,030 4,354 3,729 Profit before Interest 189,854 411,816 361,666 264,443 290,742 Profit before Tax 173,792 399,728 341,026 254,905 284,587 Assets Employed Property Plant & Equipment 690,094 633,979 558,364 289,055 377,384 Biological Assets 5,510,386 4,525,952 3,316,556 2,692,811 2,190,999 Current Assets - Liabilities 334,560 501,778 (3,415) 28,417 1,785 Shareholders’ Fund Stated Capital 623,616 623,616 89,088 89,088 89,088 Retained Losses (364,281) (199,144) (194,813) (25,645) (11,724)Non Current Liabilities 3,672,476 2,890,362 1,958,526 1,452,250 1,171,518 Rs. Rs. Rs. Rs. Rs.

Market Value per Share 15.50 23.50 104.75 50.50 90.25 Net Assets per Share 42.86 41.23 229.75 182.36 153.87


The Touchwood Plantations

Plantation Name Location Altitude Climate Species Planted Land ExtentAcres

Ihalakanda Ratnapura 100 m - 125 mAverage annual temperature : 22 - 30 C

Annual rainfall : 4000 mm - 5000 mmMahogany 68

Munihinkanda Ratnapura 75 m -100 mAverage annual temperature : 22 - 30 C


Kalugalahena Ratnapura 75 m -100 mAverage annual temperature : 22 - 30 C


Foot Print Ratnapura 75 m -100 mAverage annual temperature : 22 - 30 C


Gomaragala Ratnapura 75 m -100 mAverage annual temperature : 22 - 30 C


St. Anthony's Ratnapura 100 m -125 mAverage annual temperature : 22 - 30 C


Liyangama Ratnapura 50 m - 75 mAverage annual temperature : 22 - 30 C

Annual rainfall : 4000 mm - 5000 mmMahogany & Vanilla 70

Hartley Mathugama 0 m - 50 mAverage annual temperature : 25 - 30 C


Pelawatta Mathugama 50 m - 75 mAverage annual temperature: 25 - 30 C


Leelajan Mathugama 0 m - 50 mAverage annual temperature : 25 - 30 C


Kukuleganga Mathugama 50 m - 75 mAverage annual temperature : 25 - 30 C


Panthiya Mathugama 0 m - 50 mAverage annual temperature : 22 - 33 C


Seelani Matale 300 mAverage annual temperature : 22 - 33 C

Annual rainfall : 2200 mm - 2900 mm

Mahogany, Vanilla & Teak

91

North Matale Matale 300 m - 350 mAverage annual temperature : 22 - 33 C



67

Rusigama Matale 300 m - 350 mAverage annual temperature : 22 - 33 C


Kent Matale 300 m - 350 m Average annual temperature : 22 - 33 C



29

Ambanganga Matale 300 mAverage annual temperature : 22 - 33 C


9

Plantation Name Location Altitude Climate Species Planted Land ExtentAcres

Salagama Matale 300 mAverage annual temperature : 22 - 33 C


Pallethenna Matale 300 mAverage annual temperature : 22 - 33 C

Annual rainfall : 2200 mm - 2900 mmVanilla 10

Pamunuwa Matale 300 mAverage annual temperature : 22 - 33 C

Annual rainfall : 2200 mm - 2900 mmVanilla 23

Lower Ley Grow Badulla 500 mAverage annual temperature : 24 - 34 C

Annual rainfall : 2000 mm - 2500 mmSandalwood 26

Panketiya Badulla 250 mAverage annual temperature : 24 - 34 C

Annual rainfall : 1500 mm - 2500 mmSandalwood & Teak 48

Palugedara Badulla 1000 mAverage annual temperature : 18 - 34 C

Annual rainfall : 2000mm - 2500mmSandalwood 95

Kandaketiya Badulla 1000 mAverage annual temperature : 18 - 34 C


Soranatota Badulla 1000 mAverage annual temperature : 18 - 34 C


Meegahakiula Badulla 900 mAverage annual temperature : 23 - 34 C


Aggalaulpatha Badulla 950 mAverage annual temperature : 25 - 34 C


Kivulegedara Badulla 1000 mAverage annual temperature : 25 - 34 C


Farm Grow Badulla 150 mAverage annual temperature : 26 - 37 C


Sandalwood, Coconut & Mango

374

Burnside Kandy 1000 mAverage annual temperature : 27 C


Sandalwood & Vanilla

47

Cliveland Kandy 168 mAverage annual temperature : 25 C 30 C


Vanilla, Mahogany & Rubber

56

Carson Polonnaruwa 110 m Average annual temperature : 30 - 37 C

Annual rainfall : 1200 mm - 1800 mmCoconut 600

Doramadalawa Anuradhapura 115 mAverage annual temperature : 30 - 37 C

Annual rainfall : 1200 mm - 1800 mmTeak 49

Carson

This land is leased out by the company, under the Mahaveli Act of 1983. This act provides the ownership to the investor for a period of 33 1/2 years

Because we must.

11

Management ReportsOur vision is of business and

communities thriving together in a future that is environmentally

sustainable and socially just.


Chairman’s Statement

Conclusive evidence that agroforestry and agriculture are the means by which to enlarge the scope of sustainable business adds to the opportunities.

A future of opportunities awaitThe financial year 2011/2012 has been one of great significance

for Touchwood. The year was wrought with great challenges and

trepidation as the global economy brinked on further collapse. With

the Euro-zone debacle and ensuing political turmoil in the Middle

East, 2011/2012 was a year in which fresh pressures mounted

towards creating uncertainty in the global financial markets.

Continued losses for investors were unfortunately a constant. Yet in

the face of these adversities, I see great prospects for Touchwood

and I am confident that 2011/2012 has placed your Company in the

nexus of a new phase of growth.

But it is not just the opportunities for agro-forestry investments that

excite me. Conclusive evidence that agro-forestry and agriculture

are the means by which to enlarge the scope of sustainable business

adds to the opportunities. Certainly, in the face of a global downturn,

13

we have seen and most definitely benefited from the popularity of

sustainable investments such as ours. With agroforestry investments

gaining ground as conventional investment opportunities decline,

we will witness by far one of the most significant changes in the

dynamics of international business and finance. Global corporates

and international funds have turned to commodities such as Timber

in pegging their future returns and this trend will only continue to

grow, as more and more investors realize the potential gain from

an investment that has no correlation to the rest of the financial

markets. This lack of uncertainty will define the future of agro-

forestry investments in the years to come.

But out there lies an even greater opportunity. Global and national

food and nutrition security will face critical challenges in the

decades ahead. It is expected that global food demand will increase

by nearly 70% by 2050. This increased demand will be driven by

population growth, changing dietary demands of a more affluent

and increasingly urban population, and increased competition

for resources between foods, feed, fiber and biofuel feedstock

production. Prospects for achieving these increases in agricultural

output will be impaired by deteriorating soil quality, decreasing

availability of fresh water, and industrial farming’s high dependence

on fossil energy sources for mechanization, pesticides and fertilizers

(IAASTD, 2009). The agriculture sector will need to affordably nourish

nine billion people worldwide by 2050.

With this in mind the group has acquired 11,388 hectares of land in

Cambodia to set up a agricultural project to plant rubber and other

crops. The land has several harvestable trees providing a signifant

revenue.

Over the last three years we have moved from a mere agro-forestry

investment model to one that embraces agriculture for food

purposes. Our strategy of value addition and diversification has

enabled us to fully optimize our resources towards cash crops and

food production. As we gear to evolve our business to harness future

opportunities, I can surely assure you, our shareholders, that the

future holds great promise.

(Sgd.)

Roscoe A. Maloney

Chairman

15th August 2012


Deputy Chairman’s Statement

Challenging times The year 2011/ 2012 was by far a year of discontent for the global

economy. Despite previous forecasts that the world economy would

signal recovery in 2011/2012, the world economy regressed and

recessionary pressured protracted. By mid 2011, growth forecasts for

the global economy were revised to more realistic figures and fears

of an economic crisis loomed over Europe, as a sovereign debt crisis

challenged the Euro zone plummeting the world economy into a very

difficult phase characterized by significant downside risks and fragility.

The financial turmoil generated by the intensification of the fiscal

crisis in Europe spread to developing and high-income countries,

causing problems on a wide scale. As the advanced economies reeled

from further shocks, the domino effect placed the rest of the world in

vulnerability and challenged, in insulating themselves from exigent

pressures. Growth in several major developing countries (Brazil,

India, and Russia) slowed as capital inflows slowed. As the global

economy lagged stock markets, bonds, commodities and all other

traditional investments plummeted and became less viable means for

investment.

In Sri Lanka, although the economy stayed well insulated from the

global onslaught, the economy remained less conducive for private

and corporate investment. The Colombo Stock Exchange witnessed

a dramatic decline in the final two quarters of the financial year,

interest reductions in the banking system – a result of monetary policy

interventions by the Government of Sri Lanka – directly impacted

investment returns delivering negligible returns to investors.

Touchwood’s business proposition gains recognitionIn this scenario, Touchwood’s business proposition gained recognition

as an investment opportunity that is unrelated to the inherent risks

of the global and local, economic and financial markets. Despite the

uncertainty that pervades the global economy, few commodities

continue to demand high prices. Amongst these are precious metals,

gold, oil and our main interest timber.

With Touchwood’s investment proposition directly linked to timber and

agro-forestry, the returns on investment far superseded the returns

from the conventional financial instruments. Our business case

for agro-forestry became all the more viable and attractive during

the year. We essentially witnessed a growth in our agro-forestry

investment portfolio during the year, as investors who would otherwise

have invested in conventional stocks, bonds and mortgages turned to

Touchwood as an alternative and more lucrative investment option.

Agro-forestry investments have generally outperformed stocks, bonds,

and commodities over the long run. One of the main reasons investors,

especially large institutional investors, turn to timber, is the fact that

the asset displays low to zero correlation with other assets, especially

those linked to financial markets. It has been demonstrated over a long

period of time that adding timber to a portfolio of investments has the

effect of improving overall risk-adjusted returns. This low correlation

reflects the fact that the primary driver of returns -biological growth- is

unaffected by economic cycles.

Moreover, with pervasive deforestation leading to the destruction of

over 1/5th of the world’s forests since 1950, new global legislation

is in place to protect the forests that remain as they play a vital role

in carbon sequestration and the ecosystem. This means that agro-

forestry will be the main source of timber in the future, a trend that is

further accelerated by eco-conscious consumers who demand “green”

timber from sustainable managed sources.

Thus, we remain confident of Touchwood’s ability to perform

exceptionally not only in the medium term but also in the long term

especially as in 2011/2012, we were able to demonstrate the potential

of agro-forestry investment as a viable source of investment income to

individuals and corporates.

Value addition drives greater growthWe persisted with our strategy of value addition and diversification in

2011/2012. As in the previous year our adoption of a strategy of “seed

to shelf” yielded high returns to the Company. The strategy of value-

addition together with backward and forward integration allowed

Touchwood to maximize returns. Aside from the value of timber as

the core asset, Touchwood was also able to garner returns from sale

of its produce through value addition. Thus, returns from aromatics,

essential oils, and value added timbers and by-products positively

contributed to the enlargement of revenue during the year.

An integral component of our strategic plan is to optimize returns

across the value chain through value addition and down streaming.

Thus, in 2011/2012 we witnessed the completion of a production

facility for bamboo flooring products. We continued to optimize land

use by effectively utilising available space in plantation undergrowths

to produce cash crops. All of these strategies for value addition served

to enlarge not only our scope of activities but also our revenues for the

year. Yet it is not only commercial performance that is perpetuated by

this strategy of value addition. Indeed, we firmly believe that through

value-addition we can further optimize on opportunities to do business

sustainably. Our flooring product, for example, is 100% biodegradable

and therefore essentially a sustainable product. We are hopeful that

will inspire consumers to think green and opt for green flooring and

building alternatives. As a renewable product, it also holds great

promise in the international flooring market and therefore assists

towards economic value generation to the nation.

The specifics of the strategic initiatives undertaken in 2011/2012 will

be further explored in the Management Discussion and Analysis on

page 24.

15

With Touchwood’s investment proposition directly linked to timber and agro-forestry, the returns on investment far superseded the returns from the conventional financial instruments.

AppreciationsI wish to take this opportunity to thank the Board of Directors, the

Chairman, the CEO and the Executive Management as well as the

entirety of the Touchwood family for their unstinted support, guidance

and overall governance to take Touchwood to greater heights.

Appreciation is also due to our customers and shareholders, all of you

gave us the strength and resolve to persevere in challenging times.

Let me assure you, that as we look to the future, the horizons are filled

with opportunity and we at Touchwood are fully expectant of the next

phase of growth.

(Sgd.)

Asitha KoralageDeputy Chairman

15th August 2012


CEO’s Statement

A year of dedicated excellenceThe financial year 2011/2012 has drawn to close with Touchwood

registering excellence across its business function and performance.

After years of dedication to the business, it is indeed, satisfying to

report that in the year under review, we were able to meet all our

projections for the year from the perspective of product efficiencies,

value addition, sustainable business to of course bottom line

management. The business reconfigurations that we undertook over

the past few years, realized greater gains and we are confident that

we are on a path towards sustainable growth.

During the year, we continued to enlarge on our strategy of

diversification and value addition. We accelerated our efforts towards

this, in view of the opportunities that exist for agro-forestry and food

production, as global demand for food is billed to supersede supply

particularly in Asia, over the next few decades. We are cognizant

of the fact that if we put in place a comprehensive business plan

Our shareholders will be pleased to note that during the reporting period, Touchwood recorded growth that exceeded our expectations.

17

that enhances the scope of our current business strategy through

a complimentary mix of agricultural products, that we will be in a

position to optimize returns from our plantations whilst also tooling

agricultural communities in Sri Lanka with the know-how for

sustainable food production.

In the financial year 2011/2012, we improved upon strategic

initiatives instituted in the previous financial year to optimize

resources through the achievement of greater productivity and

efficiency. These operational and strategic reconfigurations have,

I believe, already started to demonstrate returns. The Company’s

commendable operational and financial performance during the

financial year is attributable to this. Our shareholders will be pleased

to note that during the reporting period, Touchwood recorded growth

that exceeded our expectations. Of course, our attention will be

focused on the challenge of maintaining this momentum of growth in

the years ahead.

As a viable commercial enterprise, we continued to prove to our

shareholders, customers and other stakeholders that Touchwood

is truly a sustainable business. We believe that commerce should

benefit beyond the bottom-line. In this belief, we continued to

operate along the tenets of fairness, equality, ethics and governance,

inculcating this across the organisation. We have embedded

practices that ensure the well being of the society, communities and

the environment.

TIPLC confirms to “International Labour” Standards (ILS). This

provides for our compliance to core ILO conventions which super

cedes Sri Lanka, National Labour Standards (NLS).

Notably, in 2011/2012, Touchwood’s operations became SA8000

certified, as we adopted the international standard for social

accountability. Social Accountability 8000 (SA8000) has been

developed by Social Accountability International (SAI), and is a

voluntary, universal standard for companies interested in auditing

and certifying labour practices in their facilities and those of their

suppliers and vendors. It is designed for independent third party

certification. SA8000 is based on the principles of international

human rights norms as described in International Labour

Organisation conventions, the United Nations Convention on the

Rights of the Child and the Universal Declaration of Human Rights.

It measures the performance of companies in eight key areas:

child labour, forced labour, health and safety, free association

and collective bargaining, discrimination, disciplinary practices,

working hours and compensation. SA8000 also provides for a

social accountability management system to demonstrate ongoing

conformance with the standard. Our adoption of the set of standards,

serves to further our focus on sustainable business and reinforces

our emphasis on the triple bottom-line concept of people, plant and

profit.

From a standpoint of stability and strength, Touchwood continued

to fortify. For the third consecutive year Touchwood emerged as

one of Sri Lanka’s most valuable brands by being ranked within Sri

Lanka’s Top 100 Brand Index. Touchwood’s brand enhanced during

the year by a staggering 62% to emerge at the 66th rank – up four

notches from the previous year - with an overall brand value of

Rs. 250 million. The Top 100 Brand Index is compiled annually by

Brand Finance (Lanka), a subsidiary of a global entity, Brand Finance

Plc; it is an independent consulting company that values brands

following guidelines and methodologies adopted by its international

counterpart. Brand Finance espouses the importance of recognizing

and growing brand equity with an emphasis on par with that applied

to tangible assets of a business. In addition, the validity and viability

of our business model was further substantiated with Touchwood

receiving a validation by Poyry one of the world’s foremost agro-

forestry assessors subsequent to a comprehensive audit of our

present and future competencies.

Our plans to expand our plantation acreage persisted during the

financial year. Through land procurement we have set in motion the

planning and cultivation of a further 600 acres over the next two

Our adoption of the set of standards, serves to further our focus on sustainable business and reinforces our emphasis on the triple bottom-line concept of people, plant and profit.


years. In 2011/2012, we purchased mature plantations of Teak,

Mahogany and mixed crop plantations of Rubber and Cloves valued

at Rs. 350 million to further mitigate risks. This has served to further

consolidate company stock comprising of 375 acres of cultivated

plantation. These initiatives will not only future proof our customers

investments but accumulate substantial asset value.

In striving to enhance the productivity of our plantations, I am

pleased to report that in 2011/2012 we enhanced productivity by

as much as 50% without exploiting land resources. The adoption

of traditional Sri Lankan agricultural practices such as SALT (Slopy

Agriculture Land Technique), together with organic agro practices

have enabled us to be kind to mother earth, and assisted towards

enriching soil as opposed to the bleaching effects of commercial,

chemical based agro-techniques. Sri Lanka has historically had a

rich agricultural heritage. Our forefathers understood and worked

with nature in complete harmony and balance. We now strive to re-

introduce those same agricultural practices to our plantations with a

view to increase the long-term fertility of the soil. In the year under

review, Touchwood relied 80% on organic material and manure

as fertilizer for its plantations. We have continued to demonstrate

our commitment towards the development of natural pest control

methods, and in 2011/2012, our innovative and biological pest

control methods assisted towards reducing Shoot Borer infestations

by as much as 98%. We are currently engaged in obtaining a patent

for our Shoot Borer control methodology and are hopeful that

we are nearing the end of this protracted process. Our research

and development facility established in collaboration with the Sri

Jayawardanapura University in the previous financial year would

be a core conduit for our efforts towards sustainable agricultural

practice in the years ahead. The facility is a fully equipped tissue

culture laboratory and will strive towards the development of more

efficient and environment friendly agricultural practices, to be

adopted by Touchwood in the future.

During the year, Touchwood also actively pursued a strategy of

diversification, with focus on backward and forward integration

across the value chain. Termed the “seed to shelf” strategy we

continue to explore avenues through which we can tap and explore

value growth especially in light of the tremendous opportunities

and demand for aromatics and essential oils in the global cosmetic

and food product markets. Our Sandalwood oil distillation plant

is capable of processing 500 Kg much of which will be exported

to international buyers in the aromatics markets of the world.

The distillation plant has the capacity to process half a ton of

Sandalwood heartwood, and therefore, we are yet to fully maximize

returns. With the establishment of this plant Touchwood is placed as

the pioneer in the export of value added and sustainable Sandalwood

products from Sri Lanka. We also undertook Vanillin extraction during

the year with process standards compliant to ISO 55651 (which

yielded A1 Grade Vanilla).

During the previous financial year, Touchwood Investments in

collaboration with Touchwood Group entered in to the flooring

market with the commencement of work on our purpose built

flooring manufacturing plant in Sri Lanka. The 45,000 square

foot state-of-the-art manufacturing plant is set out on 3 acres

in Minuwangoda. The plant was commissioned and orders were

secured surpassing expectations. Specializing in the manufacture

of wooden flooring solutions predominantly Bamboo flooring, a

product that has witnessed exponential growth in demand due to

its eco-empathy, distinct appearance and other natural properties,

Touchwood foresees great demand potential for the product

as a natural alternative to currently non-biodegradable flooring

options available in the marketplace. Pre-processed bamboo from

Touchwood Group plantations will be exported from Thailand to

Sri Lanka where 90 percent of the value addition will take place

before being exported worldwide.

We also see great potential for tourism in the future, particularly

as Sri Lanka is witnessing a rebounding in tourism. But, what

particularly interests us is the potential to develop agro-tourism

as a viable component of our business model. With agro-tourism

gaining ground, as more and more people show interest in learning

In the year under review, Touchwood relied 80% on organic material and manure as fertilizer for its plantations.

CEO’s Statement

19

and experiencing agricultural livelihoods, the viability to offer a

comprehensive agro and eco tourism product that co-exists with our

core operation seems feasible. Therefore, with a view to showcase

the successes of our plantations and to cascade the learnings on

sustainable agricultural practices to the public at large, Touchwood

constructed a unique eco tourism property in the Farm Grow

plantation. This will act as the base for our tourism initiatives for the

future and determine how we modulate the agro-tourism offer.

In 2011/2012 we continued to collaborate with noteworthy projects

and partners in pursuing our efforts towards community outreach.

Aside from this we continued to engage in a number of other

projects and endeavours towards sustainability. You will be better

able to explore these in the Social Sustainability Report on page 48.

In looking to the future, Touchwood remains committed to the goal

of increasing its agro-plantation acreage to 15,000 acres over the

next five years. In pursuant of the strategy of diversification, the

plans to develop plantations of coconut and other cash crops to meet

the growing demand in the medium term. Land has already been

acquired for this purpose.

I am confident that Touchwood will continue to perform

commendably in the forthcoming financial year. By the year 2018 we

expect the first Mahogany payout from the plantation in Ihalakanda,

Ratnapura. Our growth expectations are in line with forecasts and

I believe our drive to enhance the buffer stock will be key to future

wealth generation due in large to the accumulation of biological

assets.

As I conclude this statement, I must give credit to the Touchwood

team that has always strived against the odds to deliver. The

communities within which we operate have taken us into their

homes and hearts; we remain committed to enhancing their quality

of life. Our customers and shareholders have believed in our ability

to make a difference and we are grateful for this sense of conviction.

My thanks also to the Chairman and Deputy Chairman for their

visionary leadership and of course the Management Team and to the

Touchwood family for delivering on all fronts.

Our position on Biological Asset Valuation

As our shareholders are aware, our company’s biological assets have

been stated on fair value basis since the financial year 2004/2005

and we have continued to adopt this same principle in accordance

with the International Accounting Standard (IAS) 41 “Agriculture”

during the reporting period. As such, we have maintained the same

valuation model, methodology and the assumptions that have been

backed by independent professional Chartered Valuers, independent

evaluators and external technical consultants. We remain confident

that this is the most applicable valuation approach given the nature

of our business. The consistency with which we have adopted this

methodology over the past eight financial years have ensured that

the values depicted in our financial statements are consistent from

one period to another.

It is noteworthy to mention that we have given due prominence to

the development of Sandalwood plantations on a large scale. Over

the past two years we have planted in excess of 70,000 trees as

buffer stock. This will yield tremendous returns in the future as a

viable export industry for the nation, and be a significant foreign

exchange earner.

Annually, all of our trees are measured and classified against growth

parameters, conforming to yield patterns established by leading

technical experts on managed agro-forestry both in Sri Lanka as

well as across the world.

As the Sri Lanka Accounting Standards LKAS 41 “Agriculture”

becomes operative for financial statements covering periods

beginning on or after 1st January 2012, we will be adopting the

same for the forthcoming financial year. Prior to the adoption of

the provisions of the above standards, if and when it appears that

some modifications are needed to the methodology, measurement,

assumptions and practices applied in previous financial years under

IAS 41 “Agriculture” , we intend to seek clarifications, advice and

guidance from the Institute of Chartered Accountants of Sri Lanka

(the sole authority for the establishment of accounting standards in

Sri Lanka) as well as other relevant regulatory bodies.

(Sgd.)

Channa Abeygunawardene

Chief Executive Officer

15th August 2012


The Board of Directors

R A MaloneyFounder Chairman

Mr. Maloney, the Founder/Group Chairman of Touchwood, commenced operations of Touchwood in 1999, owing to the increasing demand for timber and diminishing forest cover.

He holds an MBA (Australia) with 27 years experience in business management ranging from retail, wholesale, and manufacturing to plantations.

Mr. Maloney is the Group Chairman/Managing Director of the other Companies in the Touchwood Group, which currently operates globally.

Channa AbeygunawardeneChief Executive Officer

Mr. Abeygunawardene joined Touchwood in 2004 as the Business Development Manager and was instrumental in developing the international SBUs. His involvement in Business Development, Sales Management and Branch/Regional Management saw him promoted to General Manager in late 2005. An Electronics Engineer by profession, he is also a Microsoft Certified Engineer and a Member of the Institution of Engineering and Technology (formerly IEE) of UK.

Mr. Abeygunawardene possesses over 17 years of Management exposure in UK, Japan, Middle East and Thailand.

S P Asitha KoralageDeputy Chairman

With over 21 years of senior level work experience, Mr. Koralage possesses varied experience in the fields of Strategic and Business Management. Mr. Koralage has been with Touchwood for 9 years and is presently the Group Deputy Chairman.

The international exposure he gained through working in the UK, Thailand, Hong Kong, Australia and Middle East has been instrumental in conceptualising Touchwood’s global expansion.

Mr. Koralage holds an MBA (Australia) and is professionally qualified in Information Technology and Business (UK). He is also a member of the Institute of Management.

Swarna MaloneyDirector

Mrs. Maloney was instrumental in conceptualising Touchwood in 1999. She has held various positions from Group Head of Finance, and Head of IT to current Group Operations Director. She holds a BSc. in Business Administration and has 17 years experience in Finance, IT and business management both nationally and internationally.

21

Prageeth HerathAlternate Director

Mr. Herath has over 16 years active planting and manufacturing exposure with expertise in tea and rubber. His experience includes senior management level involvement at leading plantation and manufacturing companies.

L L KulatungaIndependent Director

Mr. Kulatunga is a fellow of both the Institute of Chartered Accountants of Sri Lanka and the Chartered Institute of Management Accountants of the United Kingdom. He also holds an MBA from the Indian Institute of Management, Ahmedabad, India with over 42 years post qualifying experience.

Aloysius Ralph PereiraIndependent Director

Mr. Pereira joined the Royal Ceylon Air Force in 1954, and was trained as an Aeronautical Engineer for three years at the Royal Air Force School of Technical Training in the UK in 1955. He worked as a Engineer/Factory Manager at Tissa Industries.

He is a full member of the Australian & New Zealand Pulp & Paper Institute’s Technical Association and is presently is a Consultant as a Pulp and Paper Technologist.

Janath OlaboduwaAlternate Director

An Attorney at Law by profession, Mr. Olaboduwa has experience over 21 years in the field of Law, as an Administrator as well as in the private bar, predominantly in the area of company law.

He has gained international exposure by participating in several summits and serving as a legal executive on several United Nations Development Programme projects.


Management Team

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Nanthini NanthakumarBusiness Coordinator

Prageeth HerathHead of Plantations(Alternate Director)

Janath OlaboduwaManager Legal(Alternate Director)

Somasiri MunasingheHead of Finance

Channa AbeygunawardeneChief Executive Officer

Jeffry EbertHead of Sales & Marketing

Gayan AbeyveeraHead of IT

Maj. Gen. Athula Jayawardene (Rtd.)Head of HR

S. P. Asitha KoralageDeputy Chairman

Left to Right

Management Discussion &Analysis

No of Perches

No of Vines

Guaranteed Harvest (Kg)

Total Plantation cost (Rs.)

Projected Harvest Return (gross)

IRR

40 250 1,900 825,000 2,955,062 16%

80 500 3,800 1,562,000 5,910,124 17%

160 1,000 7,600 2,970,000 11,820,248 18%

Vanilla

KEY FEATURES:

• Issuingaharvestcertificate,whichislegallybindingandtradable

• Rightofownershipofyourvineswithadeedofthelandthereof

• AharvestGuarantee

• Allplantationsarefullyinsured

• Anannualrecurringincomefrom3rdyearonwardsfor10consecutive years.

• 12yearinvestmentterm

We practice the viable solutions put forward for nations to be more discerning in their approach to global warming and deforestation. We are confident that not only do we lead by example but that we are an icon of sustainable business practice that has sown the seeds of sustainable practice to be followed for greater value creation in the future.


No of Sandalwood

trees

Initial Down payment

Annual Installment

(Rs.)

Total Annual Installments

(Rs.)

Total Plantation

cost

Conservative Projected

Harvest (Rs.)

IRR

50 805,200 80,520 1,207,800 2,013,000 25,000,000 21%

100 1,536,700 153,670 2,305,050 3,841,750 50,000,000 22%

200 2,928,200 292,820 4,392,300 7,320,500 100,000,000 22%

No of trees

Initial Down payment

Annual Installment

(Rs.)

Total Annual Installments

(Rs.)

Total Plantation

cost

Conservative Projected

Harvest (Rs.)

IRR

40 393,750 39,375 669,375 1,063,125 10,000,000 17%

80 743,750 74,375 1,264,375 2,008,125 20,000,000 17%

160 1,450,000 145,000 2,465,000 3,915,000 40,000,000 17%

Sandalwood

Mahogany

KEY FEATURES:

• Rightofownershipofyourtreeswithadeedofthelandthereof


• Aharvestguarantee(25Kgpertree)


• An16yearproduct

KEY FEATURES:

• Rightofownershipofyourtreeswithadeedofthelandthereof


• Aharvestguarantee


• An18yearproduct

25


Management Discussion & Analysis

Our intentions are propelled by a desire to go beyond the constraints of pure commercial intent to consciously impact the lives of people and the future of our planet.

Sri Lanka’s forest cover recedesLittle of Sri Lanka’s original forest cover remains following decades of conversion and degradation pressures. The remaining forests harbour much of Sri Lanka’s rich biodiversity. Forests in Sri Lanka are officially classified into nine categories: Montane, sub-montane, lowland rainforest, moist monsoon, dry monsoon, riverine dry, mangroves, sparse forest, and forest plantations excluding rubber. Tropical rain forests are found in the wet zone, sub-montane forests in the central highlands and dry monsoon forest in the dry zone . In 1992 and 1996, dry monsoon forests covered the largest area making up >50% of the total forest cover, followed by sparse forests (> 21%), moist monsoon forests (11% in both years) and lowland rainforests (6% in both years).

The forest cover in Sri Lanka declined drastically over the past century. Early inventories suggest that Sri Lanka’s closed canopy forest cover declined from about 84 percent of the land area in 1881, to 44 percent in 1956 and to 27 percent in 1983 (Figure 5). Closed-canopy forest cover declined further to 24% (1.58 million hectares) in 1992 and 22.2% (1.47 million hectares) in 1996 (from Table 1). Bandaratillake and Fernando (2003) suggest a figure of 22.4% (1.46 million hectares) in 1999.

The Department of Forestry’s last update of forest cover assessment was conducted in 1999 through the utilization of LANDSAT TM imageries acquired during 1996 and aerial photographs of 1999. The assessment uncovered the alarming rate of deforestation with forest cover as percent of land area declining from 44.2% in 1956 to 29.6% four decades later. The total forest cover according to this assessment was about 1,942,229 ha or 29.6% of the land area.

Source - Sri Lanka forestry outlook study by forest department, government of Sri Lanka. Working paper No.APFSOS II/WP/2009/29, Asia - Pacific forestry sector outlook study II, FAO-Regional office for Asia and the Pacific.

The rise of Managed Agro-forestation as a viable solutionTouchwood engages in a sustainable business wherein sustainability and the adoption of sustainable practices are an inclusive aspect of our business proposition. Through managed forestry and agro-forestation we look to reverse the trend of deforestation through reforestation. We practice the viable solutions put forward for nations to be more discerning in their approach to global warming and deforestation. We are confident that not only do we lead by example

27

but that we are an icon of sustainable business practice that has sown the seeds of sustainable practice to be followed for greater value creation in the future.

Touchwood is driven by a set of values and beliefs that shapes the way we do business. Our intentions are propelled by a desire to go beyond the constraints of pure commercial intent to consciously impact the lives of people and the future of our planet. We are in essence a triple bottom line company - People, Planet, and Profit. We recognize that our clients desire an expected action and outcome and work actively to meet those expectations. As a company that is sensitive to issues that are paramount to the future sustenance of Mother Earth, we respect and uphold diversity, integrity and honesty.

Sustainable Business ModelTouchwood as a company proposes a unique form of investment that promises returns in the short, medium and long term. Future Value is the core of the Touchwood business proposition. As an Agro-forestation company, our investment portfolio comprises of a range of valuable and rare timber resources managed for future harvest. Simply put, Touchwood is in the business of growing trees to meet the future demand for timber, thus alleviating deforestation whilst growing our customers investments through value creation for increased timber demand.

Consumers are increasingly demanding timber from sustainable sources. The proportion of timber harvested from old growth, natural forests will decline in favour of production from sustainable managed resources in the future. Thus, the equation put forward by

Touchwood; agro-forestation = habitat control + future value is a compelling proposition for the future sustenance of eco and financial assets despite economic downturns.

Our forestry plantations secure because:

• TheCompany’sprofitisanticipatedatmaturitythereforeplantation maintenance is imperative.

• Independentevaluationsbyagro-forestryexpertsandinternational bio-diversity consultants ensure best practices in continuous monitoring and process improvements.

• Eachplotandtreesareuniquelynumberedlendingquickidentification and tied to an agreement via a deed transfer.

• Thebestofriskmitigationinpractice:100%treebufferstock,1:3 volume stock, scattered land use, patented agro-forestry techniques, maintenance of bio-diversity and product diversity.

• InnovationandthebestofR&Dpracticeensurequalityandtimely delivery of harvest.

Ours is a “bullet-proof’” business model because our eco-assets are neither correlated to the global or local economic trends, nor the variations in other asset classes such as stocks, bonds, real estate or the money market. As an independent asset class, timber and value added spices and herbs define their own value in global markets. In the last 49 years timber has seen a lull in the market only three times, thus performing with much less risk and greater returns than other investment tools.

Sandalwood plantation - Farm Grow Estate, Girandurukotte Coconut plantation - Carson Estate, Welikanda

Touchwood engages in a sustainable business wherein sustainability and the adoption of sustainable practices are an inclusive aspect of our business proposition.

Step 1 – Land Banking

At Touchwood we make a concerted effort to procure the most suitable land for plantation. With the assistance of forestry management, horticultural and bio-diversity experts from across the world, we earmark, select and procure large extents of land that are best suited for specific crops. As differing species optimise growth in differing climatic and soil conditions, our priority is to ensure that we purchase lands that have enhanced fertility and bear the correct natural and biological environment for conducive growth of a crop. Pre-determination of critical factors such as rainfall, soil type, land typology and climatic conditions and secondary factors such as proximity to developed commercial infrastructure enable us to form a sound decision prior to purchase of lands. Upon purchase, the land is further subdivided based on client requirements and plot sale.

Step 2 – Cultivation

Touchwood’s products are all rare and high value timbers protected by C.I.T.E.S. (Convention on International Trade in Endangered Species of Wild Flora and Fauna). Our plantations grow unique products that are exotic and have a high marketability, most of which are threatened and rare to their natural locations. As a result, our harvests yield above industry returns due to a scenario of excess demand in the global timber market. Our agro portfolio consists of a wide variety of perennial crops, short-term cash crops, indigenous plants and herbs to maximise synergies with our main crops and acts as investments that provide returns both in the short, medium and long term. We endeavour to achieve sustainable production by optimising land use through integrated farming and agro forestry technologies and through the implementation of appropriate, sustainable agricultural practices. We offer our customers more than a Asset-backed investment, in effect we create an opportunity to collaborate towards the future well-being of our planet Earth, by inspiring individuals and organisations to offset their carbon footprint through reforestation.

Step 3 – Sustainable Crop Maintenance

Maintenance of plantations is a priority at Touchwood. Our commitment to protect our plantations is driven by actions that transcend the commercial aspects of agro forestation. Our passion for our plantations has resulted in Touchwood being recognised as the standard in Asia for managed forestry maintenance practices. An experienced team of agro-scientists heads our technical team and are supported by global resource specialists in agro-forestry, forest silviculture, forest management, horticulture and bio-diversity who work hand in hand to achieve yields that are above predetermined norms. Global experts are currently engaged in a series of Research and Development initiatives for Touchwood Investments, which includes an initiative to quantify the total carbon sequestration of the Touchwood plantations as well as the development of a Geographic Information System (GIS) for Touchwood’s forest plantations. We maintain working partnerships with credible and recognised institutions for agro-forestry in all our countries of operation including The University of Minnesota (USA), Kasetsart University (Thailand), University of Melbourne (Australia), University of Sri Jayawardhanapura and the University of Uwa Wellassa (Sri Lanka).

Touchwood’s own auditors monitor plantation health through a random sampling process with independent auditors evaluating plantation health and quality yearly.

The technologies we adopt at our plantations are world-class. Specialised Research & Development and Forestry Management divisions consistently source and test new agro-forestry methodologies and technologies prior to large-scale adoption. We encourage our clients to visit our plantations periodically to view their plots and cultivation, to engage with our plantation teams and to enjoy the satisfaction of being immersed in a natural habitat. For those who are unable to do so, we provide a specialised report per plot and a full analysis of each tree conducted by our expert foresters.


The Plantation - Returns Process

Our business model is defined by five steps - acquisition of land, cultivation, crop maintenance, harvest and distribution of returns – that pave the way for the enhancement of your investments whilst simultaneously purifying mother Earth’s lungs.


Step 4 – Harvesting

Upon maturity of our plantations harvesting is carried out with utmost care with the intention of maximising the value of the final product. Our harvesting and processing centres are equipped with both the technology as well as the know-how to ensure that the final produce meets the exacting standards of the highest caliber demanded by the world market. Timber as well as cash crops and value added produce are placed in the market for sale through Touchwood’s network of global offices. Touchwood ensures that all produce placed for sale is sold at or above prevailing market prices. Clients have the option of selling the product independantly if the price offered to them at harvest does not meet their expectations.

Step 5 - Distribution of Returns

Financial stability is the core of this model with initial plot sale and accrued income recognition acting as the foundation for the long-term sustenance and commercial viability of the business whilst further economic gain is garnered through a combination of manufacture and sale of finished and unfinished products as well as through value addition.

Touchwood’s global presence allows for marketability of produce globally with an earnings ability that exceeds ten times the outflow at maturity. The 100 per cent buffer stock maintained by us allows for a doubled earnings capacity whilst the natural appreciation of the main asset - both biological assets and the land - over time, enhances the future value proposition. Due to the nature of the business, it lends itself conducive for Carbon Trading thus extending the earnings capability. Bio culture and cash crops create a scenario for increased returns whilst the model also lends itself towards eco-tourism prospects.

Acquisition and Development of Land

HarvestCultivation Distribution of Return

Crop Maintenance (Organic Fertilizing)

Our Business Model

29



Global FootprintFounded in 1999, Touchwood pioneered forestry investment in the Asia Pacific region. A decade of inspired action and foresight has yielded an array of sustainable forestry products as investment opportunities to both the institutional and retail investor. With over 2,800 acres of private forestry plantations that are home to high value, exotic tropical timbers, our client portfolio exceeds 25,000 investors globally and our operations span across 10 nations. Touchwoods’ Vanilla plantations entered its fourth year of posting on target returns to investors, approximately six plus years into the cultivation process. Touchwood today epitomises the very best in agro-forestry practice and is a sustainable business model that goes beyond commercial value to delivering returns to mother earth to offset global warming through sustainable re-forestation.

Internationally Benchmarked Process ManagementThe ISO 14000 series developed by the International Organisation for Standardisation (ISO) is a collection of voluntary standards that assists organisations to achieve environmental and financial gains through the implementation of effective environmental management. The standards provide both a model for streamlining environmental management, and guidelines to ensure environmental issues are considered within decision-making practices. In Essence, ISO 14001 is the standard for Environment Management Systems. Touchwoods’ operations conform to the ISO 14001 standards as well as to the ISO 9001 process standard for Quality Management. Our operations are on par with global standards for forestry management and we adopt global best practices across every aspect of our operations.

Touchwood’s biological assets are stated on fair value basis from the year 2004/2005 to the current financial year 2011/2012, in accordance with the International Accounting Standard (IAS) 41 “Agriculture”. We have obtained an independent professional opinion from a reputed Chartered Valuer for the valuation of the biological assets of the Company and the assumptions employed by the independent professional valuer are in complete harmony with the

“letter” and “spirit” of the IAS 41 “Agriculture”. Touchwood adopts Triple Bottom Line Reporting and is a Public Quoted Company, and is therefore 100 per cent transparent across all functions and actions of the Company. We are the only agro-forestry company listed on the Colombo Stock Exchange.

Knowledge Share and external collaborationOur experience in agro-forestry over the last decade has given us the ability to garner exceptional support for future growth. In fact, collectively our investment advisory and management team has more than eight decades of relevant experience and includes some of the world’s foremost authorities in the area of agro-forestry including but not limited to:

• TheUniversityofMinnesota(USA)

• KasetsartUniversity(Thailand)

• UniversityofMelbourne(Australia)

• UniversityofSriJayawardhanapura

• UniversityofUwaWellassa(SriLanka)

Operating in over ten countries across the world, our network acts as a catalyst for innovation and connecting with critical business partners. Our operations and approved by the Forest Department of Sri Lanka and the Board of Investment. We are the standard for agro-forestry in the region.

Innovation in business

Tissue Culture ProjectUnder the guideline of Prof. Sandun Senarath of Sri Jayewardenepura University, we have developed a Tissue Culture Laboratory at the University premises to increase productivity levels and enhance the growth patterns of our plantations. We have deployed two scientists for this purpose who are technically qualified to fulfill the objective.

Mahogany plantation, Gomaragala Teak plantation, Mihintale

31

The first task given to the reserchers was to formulate and developed protocols for Binkohomba, Sandalwood, Pineapple & Banana, which would help our diversification strategy.

We are pleased to foot forward the progress made by the affiliated tissue culture project of the University to the organization. The two researches managed to develop protocols for pineapple, binkohomba and banana and they are on a commercial level production.

The advantages of having tissue culture plants as our base of planting material.

1. It can create a large number of clones from a single seed or explants.

2. It is easy to select desirable traits directly from the culture setup (in vitro), thereby decreasing the amount of space required for field trials.

3. The time required is much shortened, no need to wait for the whole life cycle of seed development.

4. It overcomes seasonal restrictions for seed germination.

5. It helps to eliminate plant diseases through careful stock selection and sterile techniques.

6. It enables cold storage of large numbers of viable plants in a small space.

Sandalwood nursery The experience has resulted to produce high quality planting materials; the plantlets should be transferred to poly bags within 21 days of sand bed layout. The literature says transplant of plantlets has to be done within 4-6 weeks after laying seeds in the sand beds.

We have found a system of removing lateral branches (which are not in food process) and by removing those laterals will not give additional stress or hinder the growth of the plant. Further, this system will enhance the trunk formation of sandalwood plants. Our expectation is to shorten the commercial harvestable life span of sandalwood by minimum of two to three years.

Sustained ReturnsDemand for timber is expected to increase in response to both global population increases and growth in the global economy with an increase in timber consumption per capita. Supply will continue to be under pressure as environmental constraints restrict harvesting and consumers increasingly demand timber from sustainable resources.

Biological growth increases both the volume and value of the timber - as trees increase in diameter they are utilised for more valuable end products. This growth is predictable at the time of investment and at constant timber prices provides the investor with an assured

return.

At a time when there is increasing focus on global warming and sustainability issues, timber holds many advantages over other raw materials such as steel, brick and oil derivatives which require substantial amounts of energy to manufacture and have lower insulation properties.

Wood is a renewable and sustainable resource and is considered environmentally friendly. Unlike fossil fuels the carbon dioxide from using wood is recycled by regenerating forests and does not permanently remain in the atmosphere. Wood production requires less energy than other materials such as steel. The United Nations Food and Agricultural Organisation (FAO) has forecasted that world wood demand will increase from the 3506 million cubic metres consumed in 1990 to over 5000 million cubic metres annually by the year 2010 - an increase of 40% over 20 years. This represents an annual increase equivalent to 78 million cubic metres per year.

Investments into Agro-forestation has been viewed as a sound Portfolio Diversification Strategy as it broad-bases the portfolio risk, given that agro-forestation investments carry only a moderate to low risk due to its independence from other financial market tools – stocks, bonds money markets , or real estate - and given its ability to offset inflation and currency devaluation. It possesses a unique ability to meet medium term investment horizons whilst providing attractive returns due to a scenario of prudently managed risk and low volatility.

Furthermore, the continued global demand for timber places agro-forestation businesses such as Touchwood in an even stronger position with scope for exponential growth. Agro-forestation has been propelled by an increasing demand for timber as a direct result of hyper-population growth that has manifested in almost all parts of the world. Timber is an internationally traded commodity. It has wide ranging traditional uses, and is now being extended to include biomass for electricity generation and bio ethanol as a substitute for oil derived fuels, both from a non polluting source. These new markets are creating significant new demand for timber - demand that is forecast to grow.

Thus, managed forestry is a sound proposition for the future sustenance of eco and financial assets despite an economic downturn. Forestry investments are a proven asset class for institutional and private investors. The combination of value in a naturally growing commodity and the underlying land provides investors with a low risk asset creating long-term capital appreciation in a sustainable, environmentally beneficial medium. Negative correlation to other assets and low volatility provides an optimum route to diversify a portfolio and reduce risk.

A decade of inspired action and foresight has yielded an array of sustainable forestry products as investment opportunities to both the institutional and retail investor.



Risk ManagementTouchwood adopts a holistic approach to risk mitigation. Determining the probable material effects of an uncertain environment on our business goals, allows the Company to manage events that will negatively impact the financial, physical, biological and human capital of the organisation. Touchwood recognises risk management as a key area that contributes towards safeguarding the interests of our stakeholders, by stabilising our operations.

We view effective Risk Management as a tool of good business strategy, and hence do not limit our scope only to compliance requirements. While well-defined policies are in place, the Company constantly strives to update and improve controls and procedures. The risk management policies ensure the identification, measurement, monitoring and controlling of risk. Our Board of Directors has overall responsibility to assess risks associated with the Company and maps potential risks onto a “Risk Awareness” assessment which has proven to be an effective way to manage the Company’s risks.

Our Strategic Risk Management approach embraces the following with practices and process in place to mitigate:

• ManagementRisk

• FinancialRisk

• MarketRisk

• SocialRisk

• RegulatoryRisk

• AgriculturalRisk

• ActsofGod

• InsuranceRisk

• CountryRisk

• ReputationRisk

• LegalRisk

Governance and ComplianceTouchwood and its Directors endorse the principles of good Corporate Governance.

The Board of Directors in a consistent manner focuses on reviewing all procedures and policies in an effort to adopt and practice the most current tenets of governance across the entirety of the organisation. This is drive by a desire to enhance controls, to facilitate monitoring of performance and for the compliance and establishment of lines of responsibility and accountability in every facet of the Company’s operations.

Touchwood seeks to comply with the governance principles advocated by the Institute of Chartered Accountants of Sri Lanka, whilst also instituting numerous self-governance initiatives.

Products and Services

Sandalwood (Santalum album)Sandalwood is one of the oldest known sources of perfume in the world. Recorded use of the wood dates back to over 4,000 years. With origins harking to China, India and Egypt, it is now also grown in other markets such as Philippines, Indonesia and Sri Lanka. Historically, the wood was also prized by furniture makers and in India many of the temples were built from Sandalwood.

Uses:

The evergreen sandalwood tree grows to a height of up to 30 feet (8 meters). The syrupy, balsamic oil is extracted from the roughly chipped and powdered heartwood through steam distillation. With a warm, woody odour, the essential oil is used as fixative in perfumes and gives the lingering, classic base note to many expensive and renowned brands of fragrances. Sandalwood also has sedative properties and is demanded for therapeutic uses such as for the treatment of depression and tension. An expectorant and an anti-spasmodic, Sandalwood is used for treatment in traditional

Sandalwood nursary, Panketiya Sandalwood plantation, Palugedara

33

medicine. With diverse, uses the East Indian Sandalwood (as it is less commonly known) fits into a plethora of end products from soaps, incense, medicines, aromatic timber to oil. In the essential oil trade, sandalwood oil trades as one of the most valuable natural products.

Demand & Pricing:

Global demand for Sandalwood has always been on the rise and has been propelled by a scenario of diminished supply. As a result, Sandalwood timber and oil prices have risen significantly over the years and the projected to continue rising owing greatly to the banning of sandalwood exports by India. The price of Sandalwood has increased significantly from US$ 4,000/tonne to US$ 115,000 in the 17 years period from 1990 to 2009 (H S Ananda Padmanabha’s International Market Report to TFS, Australia). Therefore, Sandalwoods’ global price has increased at 22% per annum over the past 20 years.

Annual Demand:

Sandalwood Oil

India > 40 Tonnes

International (current) > 30 Tonnes

Present Production < 50 Tonnes

Projected global Demand > 80 Tonnes

Sandalwood Heartwood

Global > 6,000 Tonnes

Investment Benefit:

Core benefits in investing in Sandalwood plantations are many. Optimal plantation practices will allow the harvest of as many as 400 trees per hectare with a rotation period between 12-16 years. Each tree yields up to 30-35 kilograms of saleable timber with per kilo price averaging of Rs. 10,600 (USD 106). From a hectare

approximately 10-14 tonnes of heartwood are harvested.

Mahogany (Swietenia Macrophylla)Mahogany is considered the world’s most luxurious timber. It is listed by CITES (Convention on International Trade in Endangered Species of Wild Flora and Fauna) as an endangered species due to the rapid dwindling of mahogany in our forest cover.

Uses:

Mahogany is used for manufacturing of yachts, high-end furniture and interior constructions. Mahogany has a generally straight grain and is usually free of voids and pockets. It has a reddish-brown color, which darkens over time, and displays a beautiful reddish sheen when polished. It has excellent workability, and is very durable. These properties make it a favourable wood for crafting furniture.

Demand & Pricing:

The demand for mahogany has risen remarkably over the last 20 years due to the timber’s resistance to extreme weather conditions (both hot and cold). Maturity for the Mahogany timber is at the age of 15 years if fertilised and maintained. To obtain the optimal value, trees are felled at 18 years, allowing for the timber to acquire substantial graining and to be well seasoned. Touchwood uses technology to obtain strong, straight and healthy trees ensuring that at harvest, value is maximised.

Mahogany in log form is not permitted for export due to a scenario of insufficient supply of Mahogany in Sri Lanka and is expected to continue till local demand can be fully satisfied with local produce. In the medium term, Touchwoods’ yield from Mahogany plantations will satisfy local demand. The Company is also billed to be a major exporter of Mahogany in dressed grooved plank form in the future. Therefore, in the open market - both global and local - Touchwoods’ harvests will obtain the highest price.

Chorus of Positive forecasts

“Timber has only had 3 down years in the past 47 years.....have beaten the stock market with less risk. The track record of early investors - and a slew of recent academic research indicate that timber is a near perfect asset.”

- Smart Money Magazine

“Returns 5 times higher than equities or bonds”

- FT.com

“Forestry was the best performing asset class of 2007 delivering returns of 31.6%”

- IPD’s index

“Indeed as an asset class, timber - a renewable resource with a constant demand - stands out as a remarkably stable investment”

- Bloomberg Wealth Manager

“Average annual returns on timber....have outstripped those from leading global stock indices, property, oil and gold for the past decade.”

- The Economist Magazine



Vanilla (Vanilla planifolia)The main species harvested for vanillin is Vanilla planifolia. Vanilla grows as a vine, climbing up an existing tree pole, or other support. It can be grown in a wood (on trees), in a plantation (on trees or poles), or in a “shader”, in increasing orders of productivity. Its growth environment is referred to as its terroir and includes not only the adjacent plants, but also the climate, geography and local geology. Left alone, it will grow as high as possible on the support, with few flowers. Every year, we fold the higher parts of the plant downwards so that the plant stays at heights accessible by a standing human. This also greatly stimulates flowering.

Uses:

Vanilla remains the single most popular flavouring agent in the culinary world. Also used extensively in cosmetics and perfumes, the global demand for Vanilla continues to exceed production. There are three main commercial preparations of natural vanilla: whole pod, powder, and extract.

Demand & pricing:

The export potential for Vanilla is high, and coupled with increasing global prices for the commodity, the potential for high returns makes it a conducive addition to the Touchwood product portfolio. By meeting international standards in plantation management, harvest techniques and in value addition, we are confident of enhancing our returns from this crop.

Why Vanilla & Trees?

The dual growth of Vanilla and Timber maximizes the yield per hectare. As such, we are able to optimise our resources effectively and to garner the highest return for our investors. Vanilla is harvested every nine months and therefore allows for an annual return on yield. This enhances the returns to investors who will be able to avail themselves of the annual return from the vanilla yield as well a lump sum return.

Why grow in Sri Lanka?

Vanilla grows best under hot humid climate from sea level to an elevation of 1500 m. Most of its production is done 10 to 20 degrees above and below the equator. The ideal growing conditions are moderate rainfall, 150-300 cm, evenly distributed through 10 months of the year. The optimum temperatures for cultivation are 15-30°C (~60-90°F) during the day and 15-20°C (~60-70°F) during the night. Sri Lanka, as a tropical country is blessed with the perfect conditions for Vanilla plantation. As a nation that is renowned for its spices, the country holds equity to garner commendable prices in the international market for its commodity produce. We are confident this will add value to vanilla’s marketability. With the availability of ample expertise, unutilised manpower and land, the opportunity to grow Sri Lanka’s vanilla plantations is immense. Moreover, the support of the Government of Sri Lanka for the production of cash crops further improves the future outlook for Vanilla production.

Investment SpectrumVanilla as an asset class provides investment opportunity to a broad spectrum of potential investors from retail investors to corporate investors. It serves as a simple and regular income for those who seek to augment their existing annual incomes, whilst also serving as a multiplier of income to those seeking to develop a regular expenditure for future use (such as for higher education purposes of children). Ideal for the investors who are either pensioners or on the verge of retirement, Vanilla as a cash crop investment will yield a regular supplementary income.

Carson Estate – WelikandaThe investment model of Touchwood is based on developing Agro-forestry with the contribution of Investors. Having maintained this concept for over a decade the company felt that it’s cash outflow for fixed overheads approximately Rs.10 million. The management after realizing that cash outflow of this magnitude could not be met with only investments, specially when there are certain periods the financial behavior pattern of the economy is so tight for investments.

Sandalwood plantation, Palugedara Coconut plantation - Carson Estate, Welikanda

35

Having given due consideration to this scenario the management of the company has decided to generate their own income for sustainability. As a first step toward this goal we have done an in-depth study of acquisition land for this purpose and found leasing land from Mahaweli authority. We thereafter made arrangements to acquire 600 acres from Jayawickramagama of Sinhapura block, Mahaweli system B.

When the management decided to diversify their agro-business we have given a special consideration on planting non-traditional crops in the area, which give high returns within shortest possible time, knowing well that it is a challenged task with a high risk. Nevertheless we have confidence on our in-house expertise and delivery ability of our staff. Therefore having taken into consideration the agro-climatic condition of the area we have decided to cultivate Sandalwood, Coconut & Mango as long-term sustainability and pineapple, banana & Pepper as short and medium term investment for the company. The anticipated annual net income from this project is well over Rs.200 million.

The Progress Review

Land Clearing 238 Acres

Perimeter fence 08 Km

Elephant protection fence 06 Km

Drainage system 4.5 Km

Cultivated extent

Coconut 125 Acres

When the management decided to diversify their agro-business we have given a special consideration on planting non-traditional crops in the area, which give high returns within shortest possible time, knowing well that it is a challenged task with a high risk.

Cinnamon 47 Acres

Arriconut 45 Acres

Mango 25 Acres

Pineapple 3.3 Acres

Pepper 2.5 Acres

Coffee 2 Acres

Because we care.

Sustainability ReportFor a business to be sustainable

it needs to be economically viable and business needs to take the lead in demonstrating that sustainability

makes good business sense.


Sustainability Report

About the ReportPrinciples and Reporting Guidelines:This sustainability report is Touchwood’s third consecutive year of reporting in compliance with the Sustainability Reporting Framework proposed by Global Reporting Initiative (GRI). The Report strives to comply with specific ‘Reporting principles’ and ‘Reporting Guidance’ as laid out by the G3 guidelines and indicator protocols for economic, environment, human rights, labour, responsibility and societal performance. In the financial year under review, the Company will be reporting against C level requirements of GRI G3 guidelines. The Company seeks to graduate to ‘B’ and B+ level of reporting over the next 3 years.

Report Boundary & ScopeEffort has been made towards achieving completeness of the report with regard to the dimensions of scope and boundary for the reporting period. This report covers the performance of the entity Touchwood Investments PLC for the reporting period March 2011 to March 2012.

MaterialityTouchwood has been an advocate of the triple bottom line concept since its inception. Sustainability is intrinsic to the nature of the business of Touchwood’s commercial operations. Accordingly, this report is an effort to present in a structured manner the company’s commitment to the Economic, Environment and Social wellbeing.

Touchwood identifies its key stakeholders based on the impact of its operations on:• Customers-investmentprotectionandincomegeneration

• Community-forestcover,climatechange,enhanceknowledgebase and poverty alleviation

• Government-forestcover,supportgovernmentagriculturepolicies

• Employees-jobsecurityandcareergrowth

• Shareholders-returnoninvestment

Aligning the creation of Future Value with Sustainability Future Value is the core of the Touchwood business proposition. However, what is unique is the fact that it goes beyond the conventional norms of business to encapsulate a much larger focus. Sri Lanka as a bio diversity hot spot is an eco-system that needs to be further nurtured.

Nestled in the pristine waters of the Indian Ocean, Sri Lanka drops off the tip of the Indian subcontinent, reminiscent of it’s popular claim to be the Pearl of the Indian Ocean.

One of the smallest, but biologically diverse countries in Asia, Sri Lanka is recognized as a Biodiversity hotspot of global and national importance. Its varied climate and topographical conditions have given rise to a rich species diversity, believed to be the highest in Asia in terms of unit land area. Home to 15 national wildlife reserves, 7 UNESCO World Heritage Sites, nearly 500,000 acres of tea country, 250 acres of botanical gardens, the island is also blessed with 103 rivers and streams and over 100 waterfalls radiating from the central hills, rushing down rocky precipices forming a number of roaring waterfalls of various shapes and heights, all ending up loosing the momentum at the Indian Ocean.

Much of the country’s species are endemic, a reflection of the island’s separation from the Indian subcontinent since the late Mesozoic period. This is especially relevant for mammals, amphibians, reptiles and flowering plants. These species are distributed in a wide range of ecosystems which can be broadly categorized into forest, grassland, aquatic, coastal, marine and cultivated. The diversity of ecosystems in the country has resulted in a host of habitats, which contain high genetic diversity. Biodiversity includes species diversity, genetic diversity and ecosystem diversity. Sri Lanka has been identified by the environment activist group Conservation International (CI) as one of 25 biodiversity hot spots in the world.

For developing nations, such as Sri Lanka, there are two broad approaches to dealing with climate change. In Sri Lanka both mitigation and adaptation are feasible solutions given that we are still at the elementary stage of industrial development from a global perspective. The solution then seems to be a build future value through the adoption of better industrialization practices and through the use of reforestation practices.

Touchwood pioneered managed agro-forestry investment in the Asia Pacific region and specializes in growing high value native tropical timbers as an alternative and sustainable source for forest products. Through commitment to our vision, our stakeholders, to listening and

Touchwood has been an advocate of the triple bottom line concept since its inception. Sustainability is intrinsic to the nature of the business of Touchwood’s commercial operations.

39

learning, to improvement and advancement, we have demonstrated our ability to make a difference by not just growing trees but through the creation of a business concept that goes beyond business to the creation of future value for our next generations.

Wealth creation for the nation is a priority for Touchwood. We engage in both the viable solutions put forward for nations to be more discerning in their approach to global warming. We are confident that not only do we lead by example but that we are an icon of sustainable business practice that has sown the seeds of sustainable practice to be followed for greater value creation in the future.

By offering an investment option that goes beyond financial gain to ecological and environmental gain, we have empowered investors with a choice to invest responsibly. The communities in which Touchwood operates appreciate the benefits of our commitment and we continue to invest in and develop the skills of Touchwood people who work tirelessly to ensure that stakeholder expectations are met.

What we do, in essence, is the creation of a brighter future – for our investors, our future generations and a growing contribution for the well being of our Mother Earth by integrating our business concept to benefit a larger and more critical concern. Thus sustainability is part and parcel of our business. It is integrated and a subset of what we do. Through agro-forestry we create wealth for our stakeholders and the environment, equitably.

At Touchwood we firmly believe in the precept of sustainability for the well-being of future generations. Future Value is the core of the Touchwood business proposition. Our principle business lies in the conservation of the planets eco-systems through planned re-forestation. By utilizing forestry as an investment tool, our business proposition is to monetize forestry thereby instilling the concept of investment returns based in development of managed forestry cover. For every tree harvested, our business model ensures the re-planting of up to 3 new trees.

Touchwood believes in acting consciously towards the preservation of natural rainforests through the propagation of agro-forestry. Currently a reforestation has enabled Touchwood to not only create more opportunities for our investors who seek both long-term and medium-term investments, but also to assist in the preservation of natural rainforests. Essentially, we go beyond mere Corporate Social Responsibility, we believe that what we do as a business is strategic to the future well-being of mother Earth.

Touchwood pioneered managed agro-forestry investment in the Asia Pacific region and specializes in growing high value native tropical timbers as an alternative and sustainable source for forest products.



GRI Index

Page No.

1. Strategy and Analysis

1.1 Statement from the Chairman, Deputy Chairman and CEO Chairman’s/Deputy Chairman’s and CEO’s Statements

12 - 19

2. Organisational Profile

2.1 Name of the Organisation Corporate Information Inner back cover

2.2 Primary Brands, Product and Services What We Do Management Discussion and Analysis

424 - 35

2.3 Operational Structure of the Organisation Board of Directors & Management Team 20 - 23

2.4 Location of the Organisation Corporate Information Inner back cover

2.5 Number of Plantations The Touchwood Plantations 8 - 9

2.6 Nature of Ownership and Legal Form Corporate Information Inner back cover

2.7 Markets Served What We Do 4

2.8 Scale of the Organisation Financial Statements 68 - 104

2.9 Significant Changes during the Reporting Period CEO’s Statement/Financial Statements 16 - 19 68 - 104

3. Report Parameters

3.1 Reporting Period Year ended 31st March 2011 -

3.2 Date of the most recent previous report None -

3.3 Reporting Cycle 1st April to 31st March -

3.4 Contact point for more Information Corporate Information Inner back cover

3.5 Report Scope and Boundaries Sustainability Report 38 - 51

3.6 Boundary of the Report Sustainability Report 38 - 51

3.7 Limitations on Scope Report covers only Sri Lankan Operations of TIPLC

-

3.8 Basis of Reporting Accounting Policies 72 - 81

3.11 Significant Changes None -

4. Governance, Commitments and Engagements

4.1 Governance Structure of the Organisation Corporate Governance 52 - 55

4.2 Chair of the Highest Governance Body Corporate Governance 52 - 55

4.3 Highest Governance Body Corporate Governance 52 - 55

4.4 Mechanisms for Employees/Shareholders to provide Recommendations/Direction to the Board

AGM/Corporate Governance 107 52 - 55

4.14 List of Stakeholder Groups Investor Information 105 - 106

4.15 Identification and Selection of Stakeholders Investor Information 105 - 106

41

Page No.

Performance Indicators

Economic Performance Indicators

EC1 Direct Economic Value Generated and Distributed Financial Statements 68 - 104

EC2 Financial Implications and Other Risks CEO’s Statement/Risk Management 16 - 19 56 - 57

Environmental Performance Indicators

EN3 Coverage of the Organizations Defined Benefit Plan Obligations

Notes to the Financial Statements 72 - 104

EN4 Significant Financial Assistance Received from Government

Sustainability Report 38 - 51

EN6 Policy, Practices and Proportion of Spending on Locally Based Suppliers


EC7 Procedures for Local Hiring Sustainability Report 38 - 51

EC8 Development and Impact of Infrastructure Sustainability Report 38 - 51

Environmental Performance Indicators

EN3 Direct Energy Consumption by Primary Energy Sustainability Report 38 - 51

EN5 Energy Saved due to Efficiency Improvements Sustainability Report 38 - 51

EN14 Strategies, Current Actions, and Future Plans for Managing Impacts on Biodiversity


EN26 Initiatives to Mitigate Environmental Impact Sustainability Report 38 - 51

Social Performance Indicators

LA1 Total Workforce by Employment Type Sustainability Report 50 - 51

LA2 Total number and rate of Turnover Sustainability Report 50 - 51

LA10 Average Hours of Training per Year per Employee Sustainability Report 50 - 51

LA11 Programmes for Skills Management and Lifelong Learning Sustainability Report 50 - 51

LA12 Percentage of employees receiving regular performance reviews


LA13 Breakdown of employees per category according to gender, age group


Society Performance Indicators

Community

SO1 Nature, Scope and Effectiveness of any Programs and Practices that assess and manage the Impacts of Operations on Communities


SO7 Total number of Legal Actions for Anti competitive Behavior, Anti Trust and Monopoly Practices

None -

SO8 Monetary Value of Significant Fines and Total None -


The Role of Reforestation & Sustainable Forest ManagementGlobal warming and climate change is an undeniable phenomenon in present times, with only 6 per cent of the earth covered with rainforests today compared to 14 per cent in the past. Traditionally there has been a strong correlation between population growth and the level of timber consumption. FAO analysis indicates that “Every woman, man and child consumes a fully grown tree per year”. With a global population of over 7 billion and ever increasing, this is a serious threat to our environment. Global population is projected to grow by approximately 24 per cent by 2030 to 8.3 billion, with consumption of round wood forecast to increase by 35 per cent between the years 2000 to 2030. Annually 36 million acres of forests are destroyed with the highest levels of deforestation evidenced in South America with 9.4 ,million acres lost per year. Research indicates that 150 acres of forest are lost every minute globally. However, alarmingly the fastest rates of deforestation occur in South East Asia,

The definition of sustainable forest management (SFM) has gradually evolved from its original connotation of sustained timber production to embrace concepts of economic, environmental and social aspects.

Forest Management deals with the overall administrative, economic, legal, social, technical and scientific aspects related to natural and planted forests. It implies various degrees of deliberate human intervention, ranging from actions aimed at safeguarding and maintaining the forest ecosystem and its functions, to favouring specific socially or economically valuable species or

groups of

species for the improved

production of goods and services. Sustainable

forest management will ensure that the values derived

from the forest meet present-day needs while at the same time ensuring

their continued availability and contribution to long-term development needs (Source: FAO.

Sustainable forest management will ensure that the values derived from the forest meet present-day needs while at the same time ensuring their continued availability and contribution to long-term development needs

ENVIRONMENTAL SUSTAINABILITY

42 TOUCHWOOD INVESTMENTS PLC

43

1993. The Challenge of Sustainable Forest Management - what future for the world’s forests?).

Whilst globally the Kyoto Protocol and the UN-REDD determine and shape the debate on carbon sequestration, in Sri Lanka the Government has been making and implement policies and programs that encourage sustainable use of forests. Sri Lanka’s Forest Policy, Forest Ordinance, Fauna and Flora Protection Ordinance, CITIES (involves the trade of fauna and flora), Wildlife Policy are ones more targeted towards protection of forests while the National Environment Act and National Environmental Regulations (1993) which calls for the Environmental Impact Assessment for larger development projects and National Environment Policy 2003 in

respect of over ranching. The Forestry Master Plan which was prepared in 1995 has made projections up to 2020 to

conserve and sustainable use forests. A recent initiative of the Government to have Strategic Environmental

Assessments for the country helps to conserve forests and wildlife areas while giving the

green light for sustainable development by zoning the land into appropriate

land uses.

Yet, over the period 1990-2005, Sri Lanka recorded one

of the highest deforestation rates of primary forests in the world with a loss

of more than 35 percent of its old-growth forest cover. Similarly, the total forest cover

diminished by an estimated 18 percent during the same period.

Touchwood has assured that all of its practices comply with the laws, principles and guidelines set by the Forest

Stewardship Council. Touchwood is essentially in the business of Agro-forestation, a concept that is widely acclaimed as a means to bio-diversity conservation. Whilst agro-forestation balances the scale of commercial with sustainable ecological returns, at Touchwood we take the initiative to ensure that our practices are best in class, and therefore those that are geared for optimization of returns to both commercial and ecological interests. Sustainable Forestry Management practices adopted by Touchwood ensure the long-term viability of the forest cover in Sri Lanka, through the use of new wood in productive and industrial use while safeguarding old forestry growth.

Touchwood’s core business concept primarily revolves around environmental conservation with our vision being to “help stop the destruction of our precious rainforests”. We are acutely aware and sensitive to the fact that there are a multitude of environmental concerns that demand our attention. To this effect we are considerate of the need to create the best solutions through a cohesive business concept that aligns corporate strategy with environmental needs.

As opposed to agro-businesses that adopt a monoculture approach to plantation (planting large expanses with a single crop to increase efficiency and yield and adding high inputs of fertilizers, pesticides, and herbicide), we at Touchwood we are ardent proponents of agro-forestation. In other words, by planting an array of crops and allowing for a number of vegetation structures to coexist, we enable the formation of high-quality habitats that are critical for biodiversity conservation.

Management Approach to Environmental Sustainability

Environmental Management Systems An Environmental Management System (EMS) serves as the framework for the Company’s sustainability efforts by integrating our daily operations to objectives of the EMS.

Our operations in Sri Lanka have been recognized as the first Forestry Management Company in South Asia to achieve accreditation status for its plantations, by conforming to the ISO 14001: 2000 having being assessed and accredited by TUV of Germany.

Land Preservation Touchwood consciously chooses land that has previously been farmed, and which is considered low fertility. Through green farming methods, these lands are nurtured to levels of high fertility, thereby recuperating dis-used land for viable agricultural use.

Touchwood’s forestry operations are carried out to the strictest and most widely accepted forest management techniques. The practices adopted by the Company ensure the prevention of soil erosion whilst maximizing the nutrient contents through natural means.

Our plantations strike a careful balance between natural species and introduced species, thereby ensuring that the soil is not exposed to direct rainfall, thus preventing excessive soil erosion. The existing treeline acts as a erosion barrier whereupon the washing away of soil through harsh rainfall is minimized through the cushioning effects of the existing foliage. Furthermore, the forest ground cover remains rich with decaying plant material which in turn increases the water filtration capacity inducing a greater absorption of rain fall to the ground water, thereby recharging the water table. Excess water is slowly released to the water streams originating from the plantations forestry. This natural process ensures that soil erosion is minimal and that the soil maintains its fertility through proper cycling of nutrients between the physical and biological environments of the forest.

Moreover, ground cover vegetation increases the soil organic matter content due to the decomposing biomass, and therefore protects and enhances the soil fertility.

Safeguarding Reservations & natural forests Touchwood has adhered rigorously to the regulations for natural forests, water courses and buffer zones, natural forest and vegetation cover have been preserved and maintained. Irrespective



ENVIRONMENTAL SUSTAINABILITY

of the land use, land resources have been managed strictly according to environmental regulations and in order to minimise erosion and soil loss, downstream impact and the impact on local communities. The Company at all times meet rules and regulations laid down by the various government institutions.

Rekindling national agricultural heritage Sri Lanka has an incredibly rich agricultural heritage including over 2500 varieties of rice as well as huge numbers of indigenous species of fruits and vegetables. It has extensive ancient irrigation systems with a colossal 42,000 tanks and traditional labour practices and farming techniques that were once highly productive, all of which are in danger of disappearing as the knowledge dies off. Touchwood is cognizant of the need to rekindle these practices as we too believe in the adage of “looking after the environment so that the environment will look after our produce and life in the long term”, a philosophy embraced by farmers of yester-year.

Agro-technology best practices: • Useofinsectpreventionnettingtechnologypatentedby

Touchwood.

• Continuationofoptimalsoilfertilizationtechniquesthatareapplied based on the outcomes of soil tests

• Inorganicfertilizersareappliedinacontrolledmannerthroughitscombination with organic compost.

• Fertiliserleachingisfullycontrolledthroughtheapplicationofcorrect dosages at the optimal times.

• Manualweedingisemployedandservestoreduceairpollution

• Dripirrigationthroughamicroirrigationsystemtoensuresufficient water use.

• Theintroductionofanintegratedpestmanagementsystemwhich encourages the use of bio-pesticides such as Neem.

• Useofstraightfertilizersinsteadofmixturessothatnutrientdeficiencies can be directly targeted and the fertilizer used to optimal advantage.

• Protectionofwaterstreambanksbythegrowthofwidebandsofvegetation

• Reductionofairpollutionfromplantationsitestoastateofalmost zero pollution through the use of manual labour for forestry operations

• Plantationsclearedonaneedbasisthusensuringthenaturalhabitat is maintained as far as possible

• Silviculturepracticesareadoptedforpestanddiseasecontrol.

• Scientificweedmanagementtocontrolrootcompetition

Awarded the SA 8000 Certification

Bishops House - Badulla

SA 8000 Certification

St. Mary’s Church - Dehiwala

“ Sadun Aruna” Tree Planting Campaign at SSC

Devram Vehera - Pannipitiya

45

• FieldDevelopmenteffortsforMahoganyplantationsincludeinexcess of 40 per cent cover crops thereby retaining soil moisture,

• FieldDevelopmenteffortsforSandalwoodplantationswhichareplaced in the dry zone area necessitates ground cover through cover crops to avoid erosion and control soil temperature.

• SlopingAgriculturalLandTechniqueshavebeenimplementedon 80% of the land area across newly established Sandalwood fields.

• Reverseslopeplatformhavebeencutoncontourlinesforplanting Sandalwood. This helps prevent soil erosion and leaching out of fertilizer.

• Terracinganddrainagesystemsutilizingmaterialorganictotheplantation site have been constructed.

S.A.L.T - Slopy Agriculture Land Technique• Terracing

• ContourPlanting

• Reverseslopeplatforms

• Pavingofallleaderdrains

Soil development & moisture conservation through Leguminous cover crops

Weed management: complete weeding, patch weeding and line weeding.

Carbon “Balance Sheet”Agro forestation remains one of the most effective means by which to remove CO2 from the atmosphere. The average carbon Dioxide production per person in a developed country per year is 9.7 metric tones. The CO2 emissions from an individual, which is called the

Carbon Footprint comes from their household usage and transport requirements. The required mathematics of a carbon offset for a individual therefore is:

Average carbon emission per person per year - 9700 Kg

Amount of CO2 absorbed by a single tree - 20.3 Kg

Required number of trees to offset carbon production - 478

Therefore, if a person planted 478 trees that are now mature, that person would be a carbon free individual.

Touchwoods Environmental Bottomline currently stands at:

1. 2,854 acres planted in 42 plantations covering seven Districts

2. Approximately 20,300 tons of CO2 absorbed by approximately 1,000,000 trees

National Campaign to save the Sandalwood TreeA national campaign termed ‘Sandun Arana’ conceptualized by Touchwood Investments and launched in partnership with the Ministry of Environment and Natural Resources in 2008 and continued to play a key role in the Company’s public enagement process to-date. The project aimed to create greater awareness towards the preservation of the Sandalwood tree. The project implementation focused on the donation of Sandalwood trees to places of worship in Sri Lanka in a bid to create greater visibility for the species in a sanctified setting thereby contributing towards the re-introduction of the Sandalwood tree to the populance of Sri Lanka albeit reversing the trend of extinction.

A total of 150,000 Sandalwood trees have been planted across Sri Lanka as a direct outcome of the “Sandun Arana” project of which 50,000 trees were planted during the year under review.

Touchwood has assured that all of its practices comply with the laws, principles and guidelines set by the Forest Stewardship Council. Touchwood is essentially in the business of Agro-forestation, a concept that is widely acclaimed as a means to bio-diversity conservation.

Slopy Agriculture Land Technique Contour planting Reverse slope platforms

46


ECONOMIC SUSTAINABILITYTouchwood Investments is committed to enhance its contribution to the domestic macro-economic activity through the export of value added agro products. Export of such high end products will no doubt yield an inflow of foreign exchange earnings into the economy. We have identified numerous produce, namely Vanilla, Sandalwood, Mahogany and Teak which all pose the potential to be high foreign exchange earners for Sri Lanka. Given the appreciating value of such exotic assets, the inelastic demand for high-end wood is deemed to be significant. Moreover, the production of value added products also bears the potential to attract foreign investment into the country, especially given the rise in confidence, given an end to terrorism. We expect to see more investors turning to Sri Lanka in seeing the possibility of the revenue to be generated from the export of such lucrative goods.

The flavoring, beauty, cosmetics and pharmaceutical industries consider aromatic plants such as Vanilla and Sandalwood as essential and exotic raw materials. Such plants target a niche

market. For many years, these plants have been used as raw materials for cosmetics, pharmaceuticals and botanical pesticides.

The demand for Sandalwood is strong. The use of Sandalwood in joss sticks is intimately tied to Asian cultures and has been for thousands of years. It is a strong, stable market. The major Asian suppliers, India and Indonesia, have completely restricted Sandalwood log exports because of dwindling stocks. China recently changed its policy enabling recommencement of importation of Sandalwood thus opening a new and potent market for the wood. Moreover, the use of Sandalwood Moreover, the production of value

added products also bears the potential to attract foreign investment into the country, especially given the rise in confidence, given an end to terrorism.


47

oil in perfumes, oils, soaps and aromatherapy is well established and growing, owing to its exceptional fixative

quality and woody fragrance.

Annual world consumption of tropical hardwoods is now more than

250 million cubic meters, or over 100 billion board feet, per year.

Southeast Asia, until recently, has been the largest source of supply

for tropical hardwoods, but this geographic source will largely be

depleted within the next five years. All of the primary forests in India,

Burma (Myanmar) and Bangladesh are consumed or destroyed. Ivory

Coast’s forests are essentially non-existent. Nigeria’s forests have

been decimated as well.

Sandalwood Oil Extraction Plant - Panketiya Vanilla Processing Centre - Matale Twood Flooring - Timber Flooring Solutions

We expect to see more investors turning to Sri Lanka in seeing the possibility of the revenue to be generated from the export of such lucrative goods.

World consumption of tropical hardwoods has multiplied nearly 25

times in just the last four decades, to more than 100 billion board

feet per year. The demand for tropical hardwoods continues to grow

rapidly.

While supply is limited, the demand outlook for Teak is very positive. It has long been sought after in Asian, European and North American countries. These markets are well established and are likely to grow, particularly as a result of population and economic growth in China and India. Demand for commercial plantation Teak is likely to increase with the availability of a sustainable supply of quality Teak from well-managed plantations.

48 TOUCHWOOD INVESTMENTS PLC

SOCIAL SUSTAINABILITYLivelihood sustenance and developmentTouchwood mobilizes communities in terms of direct and indirect jobs though the operations of Touchwood. Apart from monetary compensation the Company has infused investment into eco-friendly infrastructure development, forestry and associated skills development, imparted agro-best practices and showcased livelihood sustenance programs for these communities in the hope that through the imparting of skills and know-how, these individuals can create a better livelihood sustenance for themselves and their families.

WorkplaceWe are strongly committed to the creation of an invigorating workplace. Our work day commences with an energy boosting session where employees are given the chance to contribute and are acknowledged and appreciated. Health and safety is in line with ISO standards – all workers are given safety equipment in the

plantations and a hazard audit is conducted periodically to ascertain possible safety issues, thus creating a pre-emotive hazard mitigation process .Employees are recognized every month, quarter and year, based on performance and rewarded. As a policy and in an attempt to reward our existing employees, preference is given to internal recruitment, wherever possible, for new vacancies. Thus, employees are assured of a career path within the organization. The Management provides clear guidance and know-how for career development to employees on an ongoing basis to ensure that new skills are imparted and personal development is achieved.

A number of

general as well as specialized

training programmes were organized for the staff

based on the business plan and corporate objectives. Training

is in line with ISO standards and involves pre- and post-training evaluation

of participants backed with Divisional Head’s comments on improvement.

Our work day commences with an energy boosting session where employees are given the chance to contribute and are acknowledged and appreciated.


49

Key performance objectives are set at the beginning of each year and an objective-

oriented evaluation is carried out at the end of the year, in an open

discussion with each employee. All employees, including plantation workers are entitled

to Profit Related Pay. Employees are also provided cross-functional

opportunities through their appointment to special project teams which are

evaluated annually and rewarded accordingly. Surveys are carried out bi-annually to explore job

satisfaction among our employees. The survey results are then backed with analysis and corrective measures

undertaken where required.

Team building is given focus on a weekly basis with a session dedicated to the enhancement and maintenance of good relationships among staff. The forum acts as an effective mechanism for the creation of a one team attitude. Meanwhile more serious conflict resolution is addressed at a weekly meeting where disputes with peers is discussed in an open session that promotes team spirit and respect for each other.

Community DevelopmentOur plantations are situated in rural areas where infrastructure is minimal and the quality of life is poor. As we expand our presence in these areas, we have enmeshed ourselves with the communities by assisting them with roadways, bridges and other infrastructure facilities, including assistance to upgrade nearby schools and places of religious worship. Our presence has also meant that direct and indirect employment opportunities are on the increase - and the resultant increase in income has had a cascading effect on the quality of life of the villagers and their children.

Touchwood drives an Island-wide programme to educate students including pre-schoolers on the importance of trees and the importance of preserving our environment. This attitude building programme instills a admiration for the environment amongst young minds and inculcates the good habit of environmental preservation for future well being of our planet.

Donation for Thaldena Hospital

A donation was given for the “Bikes for Life” campaign, initiated by Mr. Kumar Sangakkara and managed by the Foundation for Goodness

Quarterly health scan will be held at estate levels under the patronage of Health Department

Cattle releasing at Girandurukotte estate



Triple Bottom Line Performance Indicators

Environmental Bottom Line1. 2,854 acres planted in 42 plantations covering six districts

Kalutara Ratnapura Matale Anuradhapura Kandy Badulla Polonnaruwa

2. Planted over 500,000 high value trees - absorbs approximately over 9,000 tonnes of CO2 per year.

3. Maintained bio diversity - preservation of other trees - further carbon absorption takes place

4. Environmental impacts

Compliance - ISO 14001

Aspect registers maintained, audited and improved annually 95%

Environmental Impact Assessment records maintained 95%

Water - all natural sources are protected 100%

Energy - 90% of our plantations utilize solar energy 90%

Bio diversity - maintained everywhere possible 40%

Soil protection - prevention of erosion through ground cover crops, bio diversity etc. 80%

Economic Bottom Line

ClientBase

11,1

03

10,8

00

10,5

00

9,00

0

8,50

020

08

2009

2010

2011

2012

Earningsper Share(Rs)31

.85

28.5

5

6.83

5.28

1.76

2008

2009

2010

2011

2012

2008

2009

2010

2011

2012

Net Assetper Share(Rs)15

3.87

182.

36

229.

75

41.2

3

42.8

6

PriceEarningsRatio(Rs)2.

83

1.77

15.3

4

4.45

8.81

2008

2009

2010

2011

2012

ProductDistribution

Sandalwood (26%) Vanilla (35%)

Mix Products (27%) Foreign Products (12%)

Revenue(Rs)59

3,84

4

727,

010

857,

482

1,46

6,42

9

1,19

6,40

3

2008

2009

2010

2011

2012

51

18 -

30

31 -

40

41 -

50

51

Abo

ve

EmployeeAge Analysis74 93 47 37

EmployeeGender Analysis2012

Male (83%)

Female (17%)

0-5 1-5 5-10

Employee Service Analysis82 12

5

44

Staff Strength2012

Directors (6%) Senior Management (6%)

Managers (23%) Senior Executive (17%)

Executive (20%) Officers (2%)

Clerical Staff (8%)

EmployeeTraining Analysis7 10 15 13 24

2008

2009

2010

2011

2012

Social Bottom Line

“Sandun Arana” National Project

Launched under the guidance of Ministry of Environment & Natural Resources to plant and protect trees in places of religious significance, schools and government entities

Sinhalese Sports Club A tree planting campaign was held at the Sinhalese Sports Club on the World Environmental Day with the participation of the SSC committee and Touchwood Staff

Devram Vehera A tree planting campaign was held at the Sri Devram Maha Vehera Buddhist Monastary, Depanama, Pannipitiya graced by Ven. Kolonnawe Sumangala thero.

St.Mary’s Church During the annual church festival a tree planting campaign was organised together with the Rev. Fr. Mahendra and Touchwood Staff

Corporate Social Responsibility

The Foundation of Goodness “Bikes for life”

A donation was given for the “Bikes for Life” campaign, initiated by Mr. Kumar Sangakkara and managed by the Foundation for Goodness as a contribution to purchase 1500 bicycles for children living in the rural areas surrounding Kilinochchi, Mankulam and Mullativu.


Corporate Governance

The Directors endorse the principles of good Corporate Governance. Over the past year, the Board has focused on reviewing all procedures and policies. The Directors are desirous of enhancing controls, facilitating monitoring of performance and compliance and establishing lines of responsibility and accountability.

Detailed below are the corporate governance principles advocated by the Institute of Chartered Accountants of Sri Lanka, and the Company’s compliance thereto.

Governance Principle Conformance

BOARD OF DIRECTORS AND BOARD COMMITTEESProcedure for appointment of new Directors In view of the responsibilities of a Director and the contribution expected from him or her,

any appointments of new Directors are considered by the Board as a whole.

Holding of regular Board Meetings Board Meetings are held every month. The CEO reports on performance, while the financial position is reported through comprehensive board papers.

The Board also calls for reports on any issues which it feels should be studied in depth, whether in the micro or the macro environment.

Availability of formal schedule of matters The Board is responsible for;

specificallyreservedforthedecision •DecidingthevisionandthestrategyoftheCompanymakingoftheBoard • Approvingappointmentsofkeyseniorofficers • Approvingbudgetsandtargetsandmonitoringperformanceagainst

these budgets and targets • Reviewingriskmanagementandenhancingcontrolswherenecessary • Ensuringcompliancewithstatutoryandregulatoryrequirements • Approvingsignificantacquisitions • Reviewingexistingpoliciesandproceduresandimprovingonthemwherenecessary

Obtaining of independent professional advice The Board seeks the independent professional advice of third parties. These include the Company’s lawyers, auditors or tax consultants, and such advice is sought at the Company’s expense.

Company Secretary The Company Secretaries are Corporate Advisory Services (Pvt) Ltd. Their advice and support can be sought by any director. They are also the contact point for any shareholder. The removal of the Company Secretaries is a matter for the whole Board.

Independent judgment Each Director is called upon to exercise independent judgment when participating in the discussion and decision making, and to give the Company the benefit of their expertise and experience.

Dedication of adequate time and effort At the monthly Board meetings adequate time is given so that all information provided can be discussed and any Director can seek clarification or further information if desired.

Training for directors Formal training has not been considered necessary. However, the Board seeks to be aware of potential risks and opportunities, both in the local and global environment.

53


CHAIRMAN AND CEO Clear division of responsibilities A balance of power is established by having three separate directors to serve as Chairman,

Deputy Chairman and Chief Executive Officer.

Role of the Chairman The Chairman oversees the agenda of Board meetings, and the reports provided, to ensure that decision making and critical analysis of performance is facilitated. He also encourages all Directors to contribute at meetings, whilst providing effective leadership

Role of the CEO The CEO oversees the operational functions of the Company and reports to the Board on performance, risk analysis and mitigation measures and governance and compliance issues.

Financial acumen There is a sufficient amount of financial acumen and knowledge available among the Directors. The advice of the auditors and tax consultants is called for when required.

Balance of the Board / Independence of Directors The Board consist of 6 Directors of which 2 are independent Directors. These Independent Directors Chair the Board Sub Committees.

Supply of quality information Reports on operational and financial performance are submitted regularly.

Availability of management information The Board is provided with any additional information it requests.

Re-election of Directors One third or nearest to one third of the Directors retire by rotation, and offer themselves for re-election. The Board, having considered each Director’s performance, recommends to the shareholders the re-election of a retiring Director.

Appraisal of Board performance The Directors believe that the Company’s performance and compliance levels reflect the effectiveness of the Board.

Appraisal of CEO The CEO is held responsible for operational and financial performance, risk mitigation and compliance. His performance is measured against these areas. The profile of the CEO is found on page 20.

DIRECTOR’S REMUNERATIONDirectors remuneration policy The Board has appointed a remuneration Committee which reviews the remuneration

paid/payable to the Executive Directors.

Disclosure of remuneration The Directors remuneration is disclosed on page 103.

RELATIONSHIP WITH SHAREHOLDERS Constructive use of Shareholder meetings Notices of Shareholder meetings are dispatched to all Shareholders giving the prescribed

period of notice.

Should a Shareholder be unable to attend, such Shareholder has the opportunity to convey his/her views through a proxy. As the Company provides two way proxy forms, all Shareholders are able to communicate their wish on any decision which has been submitted for their approval.

The Board encourages Shareholders to actively participate at all Shareholder meetings.

Each decision voted on separately Each agenda item is voted on separately, enabling every Shareholder to indicate his assent or dissent on each item.

Procedures for voting Voting is on a show of hands, unless a poll is called for. The outcome of each decision is then declared by the Chairman.

Should a poll be called for, the Auditors will be available to oversee the counting of the poll votes, after which the Chairman will declare the result.


Corporate Governance


Availability of sub committee Board sub committees have been established.

Disclosure of major transactions While there have been no such transactions to date, should there be any, they will be disclosed in accordance with the regulations.

Enhancing shareholder value The Board believes in enhancing shareholder value, and to this end is striving to optimise use of the Company’s resources, reduce costs and increase profitability.

FINANCIAL REPORTING Interim Financial Statements are provided to all shareholders within the stipulated timelines. The Annual Report contains comprehensive financial report. All these Financial Statements are prepared in accordance with the Companies Act No 7 of 2007, the Listing Rules of the Colombo Stock Exchange and Sri Lanka Accounting Standards.

Any price sensitive information is disclosed promptly.

Declaration by the Directors The Directors annual report on the affairs of the Company is found on page 58.

The Directors have disclosed any interests in contracts with companies of which they (or their spouses) are Directors and /or significant Shareholders.

These disclosures have been tabled at Board Meetings and recorded in the Minutes.

Statement on responsibility for The statement by the Directors on their responsibility for the preparation Financial Statements and presentation of financial statements is on page 65.

Going concern The Board is confident that the business is a going concern. This statement is also included in the Directors report on page 58.

Summoning an EGM if assets fall below Such a situation has not arisen. However, should such a situation arise, the

half Shareholders funds statutory procedure will be complied with.

INTERNAL CONTROLSPeriodic review of controls Internal Audit Reports have been called for by the Audit Committee to enable them to

analyse existing controls and make recommendations to the Board on changes where deemed necessary.

Reporting to the Shareholders on risks The Risk Management review is on pages 56 to 57.

AUDIT & AUDITORSAudit committee The Audit Committee has called for Internal Audit Reports, in order to review existing

controls and risk mitigation.

Relationship with external auditors The Audit Committee also meets with the External Auditors to review the audits and the objectivity and independence of the auditors.

The Audit Committee Report is on page 64.

55


CORPORATE GOVERNANCE PRACTICESCompliance The Company complies with the requirements of the Listing Rules of the Colombo

Stock Exchange and the Companies Act No. 7 of 2007 and all other applicable laws and regulations.

Self governance initiatives The Company has adopted the Voluntary Code on dealings by Directors, by the Company CEOs and connected parties issued by the Colombo Stock Exchange.

Relationship with stakeholders The Company values its relationship with all stakeholders, including Shareholders, financiers and regulators. The Board seeks to ensure timely and comprehensive disclosures, optimising of performance and of compliance all of which they feel will serve to enhance stakeholder confidence.

BOARD COMMITTEESAudit Committee The Audit Committee comprises the followings: Mr. L. L. Kulatunga Mr. Ralph Pereira (Committee Chairman/Independent Director)

Mr. Channa Abeygunawardene (CEO/Director)

The Audit Committee meets quarterly to discuss Internal Audit Reports. The Committee also reviews the bi - annual Financial Statements before they are dispatched to the shareholders and regulators.

The Audit Committee reviews all reports of the External Auditors and meets with the Auditors periodically to discuss these reports and any other issues.

Having met with the Internal and External Auditors, reviewed and discussed their respective reports, the Audit Committee then makes recommendations to the Board which ensures that the recommended corrective actions and controls are implemented and monitored.

Remuneration Committee The Remuneration Committee is a sub committee of the Board and comprises of 3 members of whom two are non-executive Independent Directors. The members of the Committee are Mr. L. L. Kulatunga (Committee Chairman/Independent Director), Mr. Ralph Pereira (Independent Director), Mr. Channa Abeygunawardene (CEO/Director). The Chairman and members of the Committee are appointed by the board.

The remuneration committee determines the policy for the remuneration of the Company’s Executive Directors and other key management personnel of the Company. The Committee reviews and makes recommendation to the Board on the remuneration policy and strategy of the Company and evaluates whether the remuneration are linked to the individual performance. The committee also appraises whether such remuneration packages linked to the individual performance are aligned with the company’s long term strategy and contribute to the enhancement of the performance of the key management personnel.

The committee acts within the parameters set out by the terms of reference. The proceedings of the committee meetings are reported to the Board by the Chairman of the committee.

The details of the aggregate remuneration paid to the key management personnel are disclosed on page 103.

Executive Committee The Executive Committee comprises the following; Mr. Roscoe Maloney Mr. Asitha Koralage Mr. Channa Abeygunawardene Mrs. Swarna Maloney Mr. Somasiri Munasinghe

The Executive Committee has been delegated authority to oversee more routine operational issues. This includes approving expenses over designated limits.


Risk Management

Associated risks assessment of biological assetsTouchwood Investments PLC recognises risk management as a key area that contributes towards safeguarding the interests of its stakeholders, by stabilising the operations of Touchwood Investments PLC. The Company views effective Risk Management as a tool of good business strategy, and hence does not limit its scope only to compliance requirements. While well-defined policies are in place, the Company constantly strives to update and improve controls and procedures. The risk management policies ensure the identification, measurement, monitoring and controlling of risk.

Management risk

Plantation managementThe Company is dependent on the expertise of its staff to ensure the success of its plantations. Some of the best foresters in Sri Lanka are on the payroll of the Company or provide regular consultancy services. The Company also obtains expert consultancy services of reputed international consultants from time to time.

Annual independent evaluations are carried out by industry experts and academics. ISO audits are also carried out every year by foreign audit consultants (TUV). Existing long term collaborations with universities and other institutions bring in state of the art technical capabilities and management practices.

Financial risk

PriceMovements in the Sri Lankan and US currencies affect our market price. However we carry out a valuation exercise annually in order to minimise the risk occurring at the end of the harvesting cycle. Thus, investors will know the exact asset value without having to wait till harvest. A very high discount rate of 12.5% is accounted (on real terms) in view of providing adequate security for future financial risk. An automatic hedge against currency devaluation and inflation is embedded in the product. The Company also has the luxury of capitalising on the best prices by holding the stock or releasing it at peak market conditions.

Market risk

Substitute productsThere is a trend in many industries for the original resource to gain greater value when a substitute is introduced, due to the scarcity of the original. In our case, substitutes are most likely to be more harmful to the population and the environment than the original resource, resulting in the original gaining even greater recognition. Eventually, to balance the carbon cycle, the best source of renewable energy to use would be timber (or fuel wood).

Social changeChanging social conditions will have an impact on social change. Historical international market information suggests that the demand has increased year on year while the supply has dropped due to scarcity.

Regulatory riskChange in the Government’s policy on harvesting trees could have an impact on the Company’s business. However, the Company is approved by the Board of Investment for planting trees for commercial harvesting at the end of the harvesting cycle. Foreign, Local, Private & Public sector Investors have invested in the project on the strength of this BOI endorsement. Touchwood Investments PLC is the only plantation company that has obtained such approval in view of securing investor interest. Further, owing to the sustainable nature of the business, governments would encourage such projects the world over.

Agricultural risk

Tree survival/growth levelsThe Company’s nurseries hold plants of up to 4 years old to be used at a time when an existing plant of up to the same age dies due to any reason. The Company operates 3 major nurseries and each site is also equipped with mini nurseries.

Touchwood maintains a 100% tree buffer with an additional volume buffer to mitigate this risk further. As per the projected growth chart, unique action plans are prepared as a result of the independent evaluation to maintain average growth levels annually.

Scattered plantationsTouchwood has followed a strategy of geographically scattering the plantations. We are thereby enabled to compensate any loss, through the buffer from a different location to mitigate the risk factors given below.

ClimateThe best climate for Mahogany in Sri Lanka is the wet zone. Tropical line is the most preferred climate for this species. Mahogany is planted specifically bordering the Sinharaja Reserve, which is the best climate zone. Sandalwood on the other hand requires dry cool weather; Balangoda to Badulla through Beragala are identified as the best climate. These areas of the country have been known for naturally grown Sandalwood for many years and are endorsed by industry experts, specifically for Touchwood.

PestsShoot borer is the only known threat for Mahogany plantations. This does not kill the plant but restricts its growth if sufficient measures

57

are not taken to counter it. Measures have been taken to overcome this by covering the plants with nets until they are strong enough to tackle the problem on their own; this occurs mostly in the first five years. The Company has also developed a patented netting technology and application of biological repellents for this purpose. Sandalwood species is not known to be affected by pest attacks. Should any pest attack or diseases take place, the Company shall take relevant preventive measures.

FireOccurrence of this event is negligible in the wet zone of the country where Mahogany and Sandalwood are planted. The Company has taken counter measures to overcome such event by:

Spreading the plantationsIntroducing fire belts around the edges of the sites in order to separate them from the adjoining lands, to ensure that the fire will not cross over to the Company’s sites.

Maintaining a buffer tree stock of 100% and a volume stock of 200% for any emergencies.

Lack of nutritionThe Company has in-house and external experts to monitor nutrients to improve soil conditions and provide required nutrition supplements for the trees.

Act of GodThe Company’s sales agreements with its clients prevent it from being responsible for risks such as cyclones, floods, earthquakes & lightning etc. However, the Management shall oblige the client should such an event take place from the 200% volume buffer. In the past 10 years, Touchwood has not recorded such events.

InsuranceAll Plantations are comprehensively insured.

Reputational riskReputational risk may arise from loss of confidence placed in the organisation by the stakeholders. This can have an adverse effect on operations. In order to safeguard the Company from this risk and maintain confidence, the Company ensures that statutory, regulatory and other compliance requirements are met.

The Company also employs a Compliance Officer to help achieve the required level of regulatory compliance, which is monitored by the Legal Officer.

Touchwood is focused on providing an excellent service to the customers and contributing towards the economic development of Sri Lanka from a Triple Bottom Line perspective, thus adhering to its objective.

The Company’s regular interest in its Social Responsibilities also has a positive impact on its reputation.

Legal riskLegal risk arises due to the inability to enforce contractual obligations, unexpected lawsuits against the Company or adverse judgments that may cause material, unforeseen financial losses to the Company. The Company employs competent legal staff and obtains services from external consultants, where necessary, to minimise this risk.

Risk review and controlThe Board has overall responsibility to assess risks associated with the Company. The Company identifies developing an organization wide “Risk Awareness” programme as an effective way to manage risks.


Report of the Directors

The Directors take pleasure in presenting their report together with

the audited Financial Statements for the year ended 31st March,

2012.

Principal activities

The principal activities of the Company remain re-forestation, and

the maintenance and sale of such reforested areas to investors in

the local and overseas market.

Directorate

The Directors of the Company during the year under review are as

follows:

Roscoe Anthony Maloney

Rienzie Theobald Wijetilleke (from 2nd January 2012 to 09th July

2012)

Swamy Pandith Asitha Koralage


Swarna Maloney

Liyanage Laksaman Kulatunga

Aloysius Ralph Pereira

Deepal Manik De Silva Wijeyaratne (from 23rd February 2012 to 14th

July 2012)

Michael Kenneth Simmons (Appointed w.e.f. 06th August 2012)

Malcolm Scorer (Appointed w.e.f 06th August 2012)

Alternate Directors

Prageeth Bandara Herath (Alternate Director to Mr. S P A Koralage)

Janath Sohitha Olaboduwa (Alternate Director to Mr. Channa

Abeygunawardene)

Directors Meetings

The Board meets every month. At each meeting, performance to

date is reviewed and compared with targets. Presentations are made

covering all aspects of operations, including productivity. The Board

is constantly seeking to optimize resources and manage costs.

The financial position is monitored against budgets. Comprehensive

papers are presented on the financial position of the Company for

the month under review and the year to date. Comparisons are

also made with the previous years’ figures and with the macro

environment, to detect trends and the impact of outside influences.

Where necessary, decisions are taken by circular resolutions, to

expedite action.

Re-election of Directors

To re-elect Mrs. Swarna Maloney who retires by rotation at the

Annual General Meeting in terms of Article 91 of the Company’s

Articles of Association.

To re-elect as a Director, Mr. L L Kulatunga, who is 70 years of age

and who vacates his office in terms of Section 210 of the Companies

Act No. 7 of 2007, and Mr. L L Kulatunga also retires by rotation at

the Annual General Meeting, in terms of Article 91 of the Company’s


To re-elect as a Director, Mr. Aloysius Ralph Pereira, who is 74 years

of age, and who vacates his office in terms of Section 210, of the

Companies Act No. 7 of 2007.

To re-elect Mr. Michael Kenneth Simmons who has been appointed

a Director during the year, in terms of Article 96 of the Company’s


To re-elect Mr. Malcolm Scorer who has been appointed a Director

during the year, in terms of Article 96 of the Company’s Articles of

Association.

Directors’ Interest in shares

The Directors interests in shares as at 31st March, 2012 were as

follows:

As at 31.03.2012 As at 31.03.2011

R A Maloney 11,664,000 11,664,000

S J Maloney 6,409,600 6,409,600

S P A Koralage 496,000 496,000

C Abeygunawardene - -

L L Kulatunga - -

Aloysius Ralph Perera - -

Rienzie Theobald Wijetilleke -

Deepal Manik De Silva Wijeyaratne - -

59

Directors interests in contracts

In accordance with the provisions of the Companies Act No. 7

of 2007, the Directors have made declarations relating to their

interests. These have been entered into the Interest Register which

is maintained by the Company.

Directors remuneration

The Directors remuneration is disclosed on page 103.

Board sub committees

During the year under review, an Audit Committee was appointed

by the Board. The Audit Committee approved an Audit Charter which

describes the role and the functions of the Committee.

Review of business

With the unprecedented financial crisis of the recent past, the

Company has found its business also affected. This impact has

coincided with the expansion programme which the Company had

recently commenced.

Details on the Company’s performance for the year under review can

be found in the statements of the Chairperson, Deputy Chairman and

the Chief Executive Officer (found on pages 12 to 19)

Directors’ responsibility for financial reporting

The Directors are responsible for the preparing of Financial

Statements of the Company. The Directors believe that the Financial

Statements (appearing from page 68 to 104) have been prepared

in accordance with the requirements of the Sri Lanka Accounting

Standards, the Companies Act No. 7 of 2007 and continued Listing

Rules of the Colombo Stock Exchange, and that they reflect a true

and fair view of the state of Companies affairs for the year under

review.

Responsibility statements

The Directors responsibility statement appears on page 65 The Chief

Executive Officer’s and Head of Finance responsibility statement

appears on page 66.

Going concern

The Directors are of the view that the Company is in a position to

continue its operations in the foreseeable future. Accordingly, the

Financial statements are prepared on the basis that the Company is

a going concern.

Financial Statements

The Financial Statements are given on pages 68 to 104.

Financial Results

The financial results for the year ended 31st March 2012.

2012 2011

Rs.’000 s Rs. ‘000 s

Revenue 1,196,403 1,466,429

Net Profit Before taxation 173,792 399,728

Less: taxation (48,590) (42,729)

Net Profit after taxation 125,203 357,001

Audit Committee

During the year under review, the Directors appointed an Audit

Committee. The Composition of the Committee is given at page 64.

The Audit Committee has approved an Audit Committee Charter,

which lays out its role and its functions.

The Committee has requested that Internal Audit reviews be carried

out of all processes and procedures, to ensure that adequate

controls are in place to safeguards assets, eliminate waste, optimize

use of resources and maximize productivity.

The Committee has also met with the External Auditors to discuss

issues relating to the preparations and presentation of the Financial

Statements, and any other issues of concern, which require the

Directors attention.

The Audit Committee Report can be found on page 64.

Remuneration Committee

During the year under review, the Directors appointed a

Remuneration Committee.

The Remuneration Committee is a sub committee of the Board

and comprises of 3 members of which two are non-executive

Independent Directors. The members of the Committee are

Mr. L L Kulatunga (Committee Chairman/Independent Director),

Mr. Ralph Pereira (Independent Director), Mr. Channa

Abeygunawardene. The Chairman and members of the Committee

are appointed by the Board.


Report of the Directors

The remuneration committee determines the policy for the

remuneration of the Company’s Executive Directors and other key

management personnel of the Company. The Committee reviews and

make recommendation to the board on the remuneration policy and

strategy of the Company and evaluates whether the remuneration

are linked to the individual performance. The committee also

appraises whether such remuneration packages linked to the

individual performance are aligned with the company’s long term

strategy and contribute to the enhancement of the performance of

the key management personnel.

The committee acts within the parameters set out by the terms of

reference. The proceedings of the committee meetings are reported

to the Board by the Chairman of the committee.

The details of the aggregate remuneration paid to the key

management personnel are disclosed on page 103.

Auditors

The Auditors, M/s. KPMG (Chartered Accountants) retire and offer

themselves for re-appointment. The Board recommends their re-

appointment at a fee to be determined by the Board.

The Auditors have confirmed that they have had no interest in or

relationship with the Company other than that of Auditors. They have

also confirmed that they are independent in accordance with the

code of ethics of the Institute of Chartered Accountants of Sri Lanka.

During the year under review, the Auditors were paid Rs. 1,525,000

as audit fees.

Auditors Report

The Auditors report appears on page 67.

Significant accounting policies

The significant accounting polices adopted when preparing the

Financial Statements and any changes thereto (if applicable) are

given on pages 72 to 81.

Statutory Payments

For the year under review, all known statutory payments have been

made and all retirement gratuities have been provided for. Further, all

management fees and payments to related parties for the year under

review have been reflected in the accounts. Details are given in Note

No. 6 (Page 83).

Number of Employees

The number of employees as at 31st March 2012 was 251.

Stated Capital

The Stated Capital of the Company is Rs. 623,616,000/- made up of

71,270,400 Ordinary Shares and 3,040 Preference Shares. (The total

paid up value of the Preference Shares is Rs. 30,400,000/-).

The shareholding structure is given on pages 105 to 106 together

with the 20 largest shareholders.

During the year, the share price ranged from Rs. 12.80 to Rs. 33.20.

As at the end of trading on 31st March 2012 the share price was

Rs. 15.50/-.

Compliance with laws and regulations

Following the revision of the continued Listing Rules of the Colombo

Stock Exchange (CSE) in April 2009, the Company has submitted to

the CSE the required Listing undertaking.

The Company has not engaged in any activity that contravenes any

applicable law or regulation.

Equitable treatment of shareholders

The Directors have made every endeavour to ensure the equitable

treatment of all shareholders, and are committed to maximizing

shareholder wealth.

All Notices of shareholders’ Meetings are sent out in accordance

with the provision of the Company’s Articles of Association. Any

shareholder unable to attend is still able to indicate his/her consent

or dissent on any decision, by completing and returning the two way

proxy provided with the Notice.

61

Notice of Meeting

The Notice of Meeting is found on page 107 If you are unable to be

present, please complete and return the Form of Proxy (page 109).

BY ORDER OF the Board of Directors

of Touchwood Investments PLC

(Sgd.)

L L Kulatunga

Director

(Sgd.)


Chief Executive Officer

(Sgd.)

Corporate Advisory Services (Private) Limited

Company Secretaries

15th August 2012

Colombo

Because it is rewarding.

Financial informationWe need to fully understand the worldaround us, as well as the needs of the

many thousands of people upon whom we rely to contribute to a well-run

business.


Audit Committee Report

The Audit Committee Comprise of two Independent Non-executive Directors upto 22nd February 2012 and 3 Independent Non-executive Directors from 23rd February 2012 and two other Directors. The Chairman of the Audit Committee is a Fellow Member of the Institute of Chartered Accountants of Sri Lanka and the Chartered Institute of Management Accountants of United Kingdom.

The Composition of the Audit Committee is as follows.

Mr. L L Kulatunga Independent, Non-executive Director, Chairman

Mr. Ralph Pereira Independent, Non-executive Director

Mr. D M D S Wijerathne from 23rd February 2012 Independent, Non-executive Director

Mr. Channa Abeyagunawardene, Director/CEO

Mr. Asitha Koralage, Deputy Chairman

The former Chairman, Mr. Rienzie Wijetilleke participated as an observer from 2nd January 2012 to 14th July 2012

The Committee has held regular meetings during the year under review to discharge its duties.

The Committee has made in depth studies of internal audit reports, analysed the effectiveness of existing controls, systems and procedures and made appropriate recommendations to the Board of Directors, which have been duly complied with.

The Committee has also met with the external Auditors and continue the hold regular meeting with them, to discuss Accounting issues, the Management Letter and Managements Responses and corrective action taken.

The Committee recommends the payment of fees to the External Auditors, and has given consideration of the independence of the External Auditors.

The Audit Committee has recommended to the Board of Directors that Messrs KPMG (Chartered Accountants) be reappointed as Auditors for the financial year ending March, 31st 2012.

The reappointment of Audit Firm and the determination of its fee by the Board of Directors will be subject to the approval of the shareholders at the Annual General Meeting to be held on September 28th, 2012.

(Sgd.)L L KulatungaChairman - Audit Committee

15th August 2012Colombo

65

Directors’ Responsibility for Financial Reporting

The Company’s Financial Statements for the year ended 31st March, 2012 have been prepared and presented in conformity with the requirements of the Sri Lanka Accounting standards, the Listing Rules of the Colombo Stock Exchange & the Companies Act No. 7 of 2007.

These Financial Statements present a true and fair view of the operations and the position of the Company for the year under review.

The Directors have put in place systems and procedures which enable adequate information to be captured, and which facilitate the maintenance of accurate records.

Appropriate accounting policies have been adopted.

Internal controls, check and balances have been implemented.

The Directors believe that they have taken all reasonable steps to safeguard the assets of the Company, to ensure the integrity, accuracy and safeguarding of operational data, and to prevent, deter and detect fraud.

M/s. KPMG (Chartered Accountants) the Auditors, have examined the financial and other records of the Company. Their opinion is given on page 67.

Compliance ReportThe Directors confirm that to the best of their knowledge, all statutory payments relation to employees and the government that were due in respect of the Company and its Subsidiaries an at the balance sheet date have been paid or where relevant, provided for.

(Sgd.)Channa AbeygunawardeneChief Executive Officer

(Sgd.)L L Kulatunga Director

(Sgd.) CORPORATE ADVISORY SERVICES (PVT) LTDCompany Secretaries



Chief Executive Officer’s & Head of Finance’s Responsibility Statement

The Financial Statements are prepared in compliance with the Sri Lanka Accounting Standards issued by the Institute of Chartered Accountants of Sri Lanka and the requirements of the Companies Act No. 7 of 2007 and any other applicable statutes to the extent applicable to the Company. There are no departures from the prescribed accounting standards in their adoption. The accounting policies used in the preparation of the Financial Statements are appropriate and are consistently applied.

The Board of Directors and the management of your Company accept responsibility for the integrity and objectivity of these Financial Statements. The estimates and judgments relating to the Financial Statements were made on a prudent and reasonable basis, in true and fair manner the form and substance of transactions and reasonably present the Company’s state of affairs. To ensure this, the Company has taken proper and sufficient care in installing a system of internal controls and accounting records, for safeguarding assets and for preventing and detecting frauds as well as other irregularities, which is reviewed, evaluated and updated on an ongoing basis. Our internal auditors have conducted periodic audits to provide reasonable assurance that the established policies and procedures of the Company were consistently followed. However, there are inherent limitations that should be recognized in weighing the assurances provided by any system of internal controls and accounting.

The Financial Statements were audited by KPMG (Chartered Accountants), the Company’s external auditors.

It is also declared and confirmed that the Company has complied with and ensured compliance by the auditor with the guidelines for the audit of listed companies where mandatory compliance is required, it is further confirmed that all the other guidelines have been complied with.

(Sgd. Illegibly)Channa Abeygunawardene Chief Executive Officer

(Sgd. Illegibly)S. MunasingheHead of Finance


67

Independent Auditors’ Report

TO THE SHAREHOLDERS OF TOUCHWOOD INVESTMENTS PLC

Report on the Financial StatementsWe have audited the accompanying financial statements of Touchwood Investments PLC (the “Company”), the consolidated financial statements of the Company and its subsidiaries as at 31 March 2012 which comprise the balance sheet as at 31 March 2012, and the income statement, 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 as set on pages 68 to 104 of this annual report.

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 control 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 whether the financial statements are free from material misstatement.

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 financial statement presentation.

Except as discussed in following opinion paragraph, we have obtained all the information and explanations which to the best of our knowledge and belief were necessary for the purposes of our audit. We therefore believe that our audit provides a reasonable basis for our opinion.

Opinion - CompanyAs disclosed in Note 2.5 to these financial statements, the fair value of the biological assets are estimated using discounted cash flow method. Accordingly, the Sandalwood trees which were planted during 2010/2011 and valued at Rs.1.1 billion have been revalued at Rs. 1.3 billion as at 31 March 2012 and a gain of Rs. 200 million has been recorded for the year ended 31 March 2012. However, due to

the limitation of information demonstrating that the growth patterns corresponding to the relevant trees as given in note 14.6.1 has been integrated in to the financial valuation, we were unable to verify the appropriateness of the above gain from fair valuation.

In our opinion, so far as appears from our examination, except for the effect of such adjustments, if any, as might have been determined to be necessary had we been able to satisfy ourselves on the above matter, the Company maintained proper accounting records for the year ended 31 March 2012 and the financial statements give a true and fair view of the Company’s state of affairs as at 31 March 2012 and its profit and cash flows for the year then ended in accordance with Sri Lanka Accounting Standards.

Opinion - GroupAs disclosed in Note 2.5 to these financial statements, the fair value of the biological assets are estimated using discounted cash flow method. Accordingly, the Sandalwood trees which were planted during 2010/2011 and valued at Rs.1.1 billion have been revalued at Rs. 1.3 billion as at 31 March 2012 and a gain of Rs. 200 million has been recorded for the year ended 31 March 2012. However, due to the limitation of information demonstrating that the growth patterns corresponding to the relevant trees as given in note 14.6.1 has been integrated in to the financial valuation, we were unable to verify the appropriateness of the above gain from fair valuation.

In our opinion, except for the effect of such adjustments, if any, as might have been determined to be necessary had we been able to satisfy ourselves on the above matter, the consolidated financial statements give a true and fair view of the state of affairs as at 31 March 2012 and the profit and cash flows for the year then ended, in accordance with Sri Lanka Accounting Standards, of the Company and its subsidiaries dealt with thereby, so far as concerns the shareholders of the Company.

Report on Other Legal and Regulatory RequirementsThese financial statements also comply with the requirements of Sections 153(2) to 153(7) of the Companies Act No. 07 of 2007.

CHARTERED ACCOUNTANTS

Colombo 15 August 2012.


Income Statement

Group CompanyFor the year ended 31st March 2012 2011 2012 2011 Note Rs. Rs. Rs. Rs.

Revenue 3 1,196,403,047 1,466,429,265 1,196,403,047 1,466,429,265

Direct Expenses (104,073,597) (74,675,144) (104,073,597) (74,675,144)

Gross Profit 1,092,329,450 1,391,754,121 1,092,329,450 1,391,754,121

Other Income 4 43,539,463 81,415,157 61,978,130 88,415,157

Selling Expenses (98,312,095) (63,580,438) (98,306,094) (63,580,438)

Administration Expenses (172,564,529) (166,446,670) (151,524,213) (141,863,718)

Other Expenses 5 (714,652,742) (863,030,854) (714,622,817) (862,908,633)

Profit from Operating Activities 6 150,339,547 380,111,316 189,854,456 411,816,489

Finance Expenses 7 (17,902,558) (12,088,157) (16,062,064) (12,088,157)

Profit before Taxation 132,436,989 368,023,159 173,792,392 399,728,332

Income Tax Expenses 8 (48,589,810) (42,727,364) (48,589,810) (42,727,364)

Profit for the year 83,847,179 325,295,795 125,202,582 357,000,968

Attributable to: Owners of the Company 104,567,216 341,105,180 125,202,582 357,000,968

Minority Interest (20,720,037) (15,809,385) - -

83,847,179 325,295,795 125,202,582 357,000,968

Earnings Per Share 9.1 1.47 5.05 1.76 5.28

Diluted Earning Per Share 9.1 1.47 5.05 1.76 5.28

Dividend Per Share 9.2 0.10 - 0.10 -

The Notes form an integral part of these Financial Statements.

Figures in brackets indicate deductions.

69

Balance Sheet

Group CompanyAs at 31st March 2012 2011 2012 2011 Note Rs. Rs. Rs. Rs.

ASSETSNon Current AssetsProperty, Plant and Equipment 10 800,386,249 711,217,972 690,094,214 633,979,312Investments 11 3,000,000 - 22,700,000 19,700,000Leasehold Right Over Bare Land 12 29,920,451 17,650,902 6,962,504 -Mature Trees 13 162,237,439 147,237,439 162,237,439 147,237,439Biological Assets 14 5,510,385,663 4,525,951,667 5,510,385,663 4,525,951,667Total Non Current Assets 6,505,929,802 5,402,057,980 6,392,379,820 5,326,868,418

Current AssetsInventories 15 9,053,257 9,109,164 8,196,114 9,109,164Trade and Other Receivables 16 114,410,080 66,135,854 91,963,813 63,135,852Amounts Due From Related Parties 17 28,389,394 14,531,764 144,661,867 111,127,005Other Short Term Investments 18 11,791,860 20,000,000 11,791,860 20,000,000Cash and Cash Equivalents 19 214,609,817 372,863,845 197,982,426 371,582,255Total Current Assets 378,254,408 482,640,627 454,596,080 574,954,276Total Assets 6,884,184,210 5,884,698,607 6,846,975,900 5,901,822,694

EQUITY AND LIABILITIESCapital and ReservesStated Capital 20 623,616,000 623,616,000 623,616,000 623,616,000Revaluation Reserve 21 477,450,830 479,346,332 477,450,830 479,346,332Capital Reserve 22 2,233,868,483 1,968,070,728 2,233,868,483 1,968,070,728Preference Share Redemption Reserve 23 83,809,778 66,394,383 83,809,778 66,394,383Retained Losses (401,596,233) (215,823,259) (364,281,165) (199,143,557)Equity Attributable to Owners 3,017,148,858 2,921,604,184 3,054,463,926 2,938,283,886Minority interest (21,229,420) (509,385) - -

Total Equity 2,995,919,438 2,921,094,799 3,054,463,926 2,938,283,886

Non Current LiabilitiesPreference Share Capital 24 27,945,728 27,936,728 27,945,728 27,936,728Provision for Purchase Back Guarantee 25 3,147,075,884 2,501,462,361 3,147,075,884 2,501,462,361Debentures 26 47,731,546 40,900,383 47,731,546 40,900,383Employee Benefits 27 6,938,926 5,883,433 6,938,926 5,883,433Deferred Taxation 28 250,796,536 216,893,100 250,796,536 216,893,100Deferred Revenue on Annual Maintenance 29 118,869,242 47,345,299 118,869,242 47,345,299Accumulated Preference Dividends Payable 30 2,518,619 2,214,619 2,518,619 2,214,619Reservation & Establishment Fee Advances 31 41,472,407 25,095,193 41,472,407 25,095,193Interest Bearing Borrowings 33 117,786,789 22,631,238 29,126,790 22,631,238Total Non Current Liabilities 3,761,135,677 2,890,362,354 3,672,475,678 2,890,362,354

Current LiabilitiesInterest Bearing Borrowings 33 18,793,427 7,198,732 14,101,528 7,198,732Amounts Due to Related Parties 32 9,094,708 19,148,404 9,094,708 19,148,404Income Tax Payable 10,729,583 10,430,572 10,729,583 10,430,572Director’s Loan 1,015,002 - - -Trade and Other Payables 34 82,885,360 36,463,746 81,499,462 36,398,746Bank Overdrafts 19 4,611,015 - 4,611,015 -Total Current Liabilities 127,129,095 73,241,454 120,036,296 73,176,454Total Equity and Liabilities 6,884,184,210 5,884,698,607 6,846,975,900 5,901,822,694

Net Assets Per Share 42.33 40.99 42.86 41.23


It is certified that these Financial Statements have been prepared and presented in compliance with the requirements of the Companies Act No. 7 of 2007.

(Sgd.)Mr. S. MunasingheHead of Finance

The Board of Directors is responsible for the preparation and presentation of these Financial Statements.

Approved and signed for and on behalf of the Board;

(Sgd.) (Sgd.)Mr. S. P. A. Koralage Mr. Channa AbeygunawardeneDirector / Deputy Chairman Director / Chief Executive Officer



Statement of Changes in Equity

Equity Attributuble to owners of the Company

Group Stated Revaluation Capital Pref. Share Retained Total Minority Total Capital Reserve Reserve Redemption Losses Interest Equity Reserve Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs.

Balance as at 01st April 2010 89,088,000 479,346,332 1,621,569,800 51,564,502 (194,813,715) 2,046,754,919 - 2,046,754,919

Adjustment due to acquisition of Subsidiaries - - - - (783,915) (783,915) 15,300,000 14,516,085

Right Issue 534,528,000 - - - - 534,528,000 - 534,528,000

Profit for the year - - - - 341,105,180 341,105,180 (15,809,385) 325,295,795

Transfers - - 346,500,928 14,829,881 (361,330,809) - - -

Balance as at 31st March 2011 623,616,000 479,346,332 1,968,070,728 66,394,383 (215,823,259) 2,921,604,184 (509,385) 2,921,094,799

Profit for the year - - - - 104,567,216 104,567,216 (20,720,036) 83,847,180

Dividend - - - - (7,127,040) (7,127,040) - (7,127,040)

Adjustment to RR - (1,895,502) - - - (1,895,502) - (1,895,502)

Transfers - - 265,797,755 17,415,395 (283,213,150) - - -Balance as at 31st March 2012 623,616,000 477,450,830 2,233,868,483 83,809,778 (401,596,233) 3,017,148,858 (21,229,420) 2,995,919,438

Company Stated Revaluation Capital Pref. Share Retained Total Capital Reserve Reserve Redemption Losses Equity Reserve Rs. Rs. Rs. Rs. Rs. Rs.

Balance as at 01st April 2010 89,088,000 479,346,332 1,621,569,800 51,564,502 (194,813,715) 2,046,754,919

Right Issue 534,528,000 - - - - 534,528,000

Profit for the year - - - - 357,000,967 357,000,967

Transfers - - 346,500,928 14,829,881 (361,330,809) -

Balance as at 31st March 2011 623,616,000 479,346,332 1,968,070,728 66,394,383 (199,143,557) 2,938,283,886

Profit for the year - - - - 125,202,582 125,202,582

Adjustment to RR - (1,895,502) - - - (1,895,502)

Dividend - - - - (7,127,040) (7,127,040)

Transfers - - 265,797,755 17,415,395 (283,213,150) -

Balance as at 31st March 2012 623,616,000 477,450,830 2,233,868,483 83,809,778 (364,281,165) 3,054,463,926


Figures in brackets indicate deductions.

71

Cash Flow Statement

Group CompanyFor the year ended 31st March 2012 2011 2012 2011

Rs. Rs. Rs. Rs.

CASH FLOW FROM OPERATING ACTIVITIES Profit before Income Tax Expense 132,436,989 368,023,159 173,792,392 399,728,332 Adjustment for; Gain arising from changes in fair value (926,211,695) (1,209,395,812) (926,211,695) (1,209,395,811)Depreciation 21,323,421 12,608,239 20,007,444 11,916,860 Gain on Disposal of Property, Plant and Equipment (3,415,139) (3,404,962) (3,415,139) (3,404,962)Profit on Sale of Shares (7,626,586) - (7,626,586) - Interest Income (28,868,969) (36,317,208) (47,335,636) (43,278,758)Interest Cost 17,598,558 11,165,274 15,758,064 11,165,274 Provision for Purchase Back Guarantee 660,413,940 862,894,883 660,413,940 862,894,883 Transfer from Deferred Income (4,203,437) (2,276,532) (4,203,437) (2,276,532)Provision for Retiring Gratuity 1,725,516 3,748,478 1,725,516 3,748,478 Transferred from Reservation and Establishment Advance (148,467,259) (179,503,190) (148,467,259) (179,503,190)Preference Dividends 304,000 304,000 304,000 304,000 Mature Tree - (39,864,428) - (39,864,428)Provision for Shares 19,880,018 - 19,880,018 - Provision for Loss on Vanilla Process Beans 1,827,000 - 1,827,000 - Provision for Land Loss 2,122,623 - 2,122,623 - Impairment of RP balances 1,156,643 - 1,156,643 - Operating Loss before Working Capital Changes (260,004,377) (212,018,099) (240,272,112) (187,965,854)

(Increase) / Decrease in Inventories 55,907 (3,769,483) 913,050 (3,769,483)Increase in Trade and Other Receivables (48,274,229) (46,560,104) (28,611,748) (43,560,104)Increase in Amounts due from Related Companies (15,014,273) (13,622,414) (33,534,862) (7,154,125)Increase / (Decrease) in Amounts due to Related Companies (10,053,696) 2,571,683 (10,053,696) 2,571,683 Increase in Trade and other Payables 46,421,614 17,460,113 45,100,716 17,395,113 Cash used in Operations (286,869,054) (255,938,304) (266,458,652) (222,482,770)

Gratuity Paid (670,023) (619,141) (670,023) (619,141)Vanila Return Paid (14,711,022) (13,126,381) (14,711,023) (13,126,381)Interest Paid (10,723,768) (5,333,101) (8,683,274) (5,333,101)Tax Paid (14,387,363) (173,963) (14,387,363) (173,963)Advanced Received on Reservation and Establishment Fee 164,844,473 171,960,982 164,844,472 171,960,980 Rental Received in Advanced on Annual Maintenance 75,727,380 25,009,439 75,727,380 25,009,439 Net Cash used in Operating Activities (86,789,377) (78,220,469) (64,338,483) (44,764,937)

CASH FLOW FROM INVESTING ACTIVITIES Acquisition of Property, Plant and Equipment (137,838,971) (116,467,199) (88,205,265) (39,613,734)Proceeds from Disposal of Property, Plant and Equipment 3,545,000 7,041,713 3,545,000 7,041,713 Funds Raised from Rights Issue - 534,528,000 - 534,528,000 Investment in Shares & other Investments (13,000,000) (20,000,000) (13,000,000) (20,000,000)Proceeds from Disposal of Shares 5,954,708 - 5,954,708 - Investment in Subsidiaries - - - (14,700,000)Interest Received 22,139,793 26,428,759 27,561,291 32,838,171 Investment in Trees (32,222,300) - (32,222,300) - Net Cash generated from / (used in) Investing Activities (151,421,770) 431,531,273 (96,366,566) 500,094,150

CASH FLOW FROM FINANCING ACTIVITIES Proceeds from Issue of Share Capital - 15,300,000 - - Calls received for Preference Shares 9,000 17,000 9,000 17,000 Loans Taken during the Year 96,851,898 - 4,000,000 - Loans Paid during the Year - (5,219,782) - (5,219,782)(Redemption of Debentures) / Proceeds Received for Debentures (40,000) (55,000) (40,000) (55,000)Lease Rentals Paid (14,347,755) (7,831,803) (14,347,755) (7,831,803)Dividend Paid during the Year (7,127,040) - (7,127,040) - Loan Granted During the year - - - (88,000,000)Net Cash generated from / (used in) Financing Activities 75,346,103 2,210,415 (17,505,795) (101,089,585)Net Increase / (Decrease) in Cash and Cash Equivalents (162,865,044) 355,521,219 (178,210,844) 354,239,628 Cash and Cash Equivalents at the Beginning of the Year (Note 19) 372,863,846 17,342,627 371,582,255 17,342,627 Cash and Cash Equivalents at the End of the Year (Note 19) 209,998,802 372,863,846 193,371,411 371,582,255


The figures in bracket indicated deductions


Notes to the Financial Statements

1 REPORTING ENTITY & BASIS FOR PREPARATION

1.1 Domicile and Legal Form Touchwood Investments PLC is a quoted public limited

liability company incorporated and domiciled in Sri Lanka under the Companies Act No. 17 of 1982, re registered under the Companies Act No. 07 of 2007, and registered under Section 16 of Board of Investment Act No 04 of 1978. The registered office of the Company is located at No.28, Joseph’s Lane, Colombo 04, Sri Lanka.

1.2 Date of Incorporation and Commencement of Commercial Operations

The Company was incorporated on 07 June 1999 as a private limited liability Company and commenced its commercial operations on the same date.

1.3 Principal Activities and Nature of Operations The principal activity of the Company is to plant and manage

private Agro-forestry and sell such plants as an investment to local and foreign investors.

1.4 Parent Entity and Ultimate Parent Entity In the opinion of Directors, the Company’s immediate

and ultimate parent undertaking and controlling party is Touchwood Limited, which is incorporated in Hong Kong.

1.5 Number of Employees The Number of Employees at the end of the year was 251.

(222 - 2011).

1.6 Basis of Preperation

1.6.1 Statement of Compliance The Consolidated Financial Statements of the Company

comprising the Balance Sheet, Income Statement, Statement of Changes in Equity, Cash Flow Statement together with significant Accounting Policies and Notes (“the Consolidated Financial Statements”) are prepared in accordance with Sri Lanka Accounting Standards (SLASs) laid down by the Institute of Chartered Accountants of Sri Lanka except for the Biological assets of the Company which is measured and recognized in accordance with International Accounting Standards 41, “Agriculture”, which is applicable for agricultural activities. These Consolidated Financial Statements have also been prepared and presented in accordance with the requirements of the Companies Act No. 07 of 2007.

The Consolidated Financial Statements were authorized for issue by the Directors on 15th August 2012.

1.6.2 Basis of Measurement The Consolidated Financial Statements are prepared in

accordance with historical cost convention other than for lands those have been re-valued as explained in the Note 10 and biological assets together with mature trees those have been stated at fair value, as explained in the Note 14 and 13 to the Consolidated Financial Statements respectively.

No adjustments have been made for inflationary factors in the accounts.

1.6.3 Functional and Presentation Currency The Consolidated Financial Statements are presented in Sri

Lankan Rupees, which is the Company’s functional currency. All financial information presented in Sri Lankan Rupee has been rounded to the nearest rupee.

1.6.4 Use of Estimates & Judgments The preparation of the Consolidated Financial Statements

in conformity with SLASs requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.

Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected.

Information about critical judgments in applying accounting policies that have the most significant effects on the amounts recognised in the Consolidated Financial Statements and information about assumptions and estimation uncertainties that have a significant risk of resulting in a material adjustment in future periods are included in the respective notes.

1.6.5 Materiality and Aggregation Each material class of similar items is presented separately

in the Consolidated Financial Statements. Items of dissimilar nature or function are presented separately unless they are immaterial.

1.6.6 Going Concern The Board is satisfied that the Company has adequate

resources to continue its operations in the foreseeable future. Therefore, continue to adopt the going-concern basis in preparing these Consolidated Financial Statements.

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1.6.7 Directors’ Responsibility for the Consolidated Financial Statements

The Board of Directors is responsible for the preparation and fair presentation of these Consolidated Financial Statements in accordance with Sri Lanka Accounting Standards and as per the provisions of the Companies Act No. 07 of 2007. This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of Consolidated 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.

The Board of Directors acknowledges this responsibility as set out in the page no. 58, “Report of the Board of Directors”.

1.6.8 Basis of Consolidation The Consolidated Financial Statements include the

Consolidated Financial Statements of the company, its subsidiaries and other companies over which it has control. The group’s Consolidated Financial Statements comprise of the Consolidated Financial Statements of the company and the group which have been prepared in compliance with the group’s accounting policies unless otherwise stated.

1.6.8.1 Acquisitions and divestments

Acquisitions of subsidiaries are accounted for using the purchase method of accounting. The results of subsidiaries, joint ventures and associates acquired or incorporated during the year have been included from the date of acquisition, or incorporation while results of subsidiaries, joint ventures and associates disposed have been included up to the date of disposal.

1.6.8.2 Subsidiaries Subsidiaries are those entities controlled by the Group.

Control exists when the Company has the power, directly or indirectly, to govern the financial and operating policies of an enterprise so as to obtain benefits from its activities. The Consolidated Financial Statements of subsidiaries are included in the Consolidated Financial Statements from the date that control commences until the date that control ceases.

Followings are the Subsidiaries coming under the Group,

•TwoodFlooring(Pvt)Limited-TimberFlooringSolutions

•FarmGrow(Pvt)Limited-PlantingSandalwoodTrees

Minority Interest in the net assets not owned, directly or

indirectly, by the group are presented in the consolidated Balance Sheet within equity, separately from the equity attributable to equity holders of the group. Minority Interests in the profit or loss of the Group are presented separately in the consolidated Income Statement.

1.6.8.3 Financial Year

The Consolidated Financial Statements incorporating all subsidiaries in the group are prepared to a common financial year ending March 31. In the case where the reporting dates are different from the group reporting dates, adjustments are made for any significant transactions or events up to 31 March.

1.6.8.4 Goodwill acquired in a Business Combination

Goodwill acquired in a business combination is initially measured at cost being the excess of the cost of the business combination over the group’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities. Following initial recognition, goodwill is measured at cost less any accumulated impairment losses. Goodwill is reviewed for impairment, annually or more frequently if events or changes in circumstances indicate that the carrying value may be impaired. For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to groups of cash-generating units that are expected to benefit from the synergies of the combination. Impairment is determined by assessing the recoverable amount of the cash-generating unit to which the goodwill relates. Where the recoverable amount of the cash generating unit is less than the carrying amount, an impairment loss is recognized. The impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets pro-rata to the carrying amount of each asset in the unit.

Where goodwill forms part of a cash-generating unit and part of the operation within that unit is disposed of, the goodwill associated with the operation disposed of is included in the carrying amount of the operation when determining the gain or loss on disposal of the operation.

1.6.8.5 Transaction Eliminated on Consolidation Intra-group balances and transactions and any unrealized

gains arising from intra-group transactions, are eliminated in preparing the Consolidated Financial Statements. Unrealized gains arising from transactions with associates are eliminated to the extent of the Group’s interest in the enterprise, against the investment in the associate. Unrealized losses are eliminated in the same way as unrealized gains.


1.6.9 Events After the Balance Sheet Date All the material events after the Balance Sheet date have

been considered and appropriate adjustments/ disclosures have been made in Note no. 36 to the Consolidated Financial Statements, where necessary.

1.6.10 Comparative Information Where necessary, certain comparative amounts have been

reclassified to conform to the current year’s presentation.

1.6.11 New Accounting Standards Issued But Not Effective as At Balance Sheet Date

The Institute of Chartered Accountants of Sri Lanka has issued a new volume of Sri Lanka Accounting Standards which will become effective for financial periods beginning on or after 1st January 2012. Acccordingly, these standards have not been applied preparing these Financial Statements as they were not effective for the year ended 31st March 2012.

These Sri Lanka Accounting Standards comprise Accounting Standards prefixed both SLFRS (corresponding to IFRS) and LKAS (corresponding to IAS). Application of Sri Lanka Accounting Standards prefixed SLFRS and LKAS for the first time shall be deemed to be an adoption of SLFRSs.

The Company is currently in the process of evaluating the potential effects of these Standards on its Consolidated Financial Statements and the impact on the adoption of these Standards have not been quantified as at Balance Sheet date.

The Company continues to adopt International Accounting Standards 41, agriculture as in the prior years due to the absence of an equivalent Sri Lanka Accounting Standard. The application of this standard is detailed in note 2.5.

2 SIGNIFICANT ACCOUNTING POLICIES The accounting policies set out below have been applied

consistently to all periods presented in these Consolidated Financial Statements. The Accounting Policies of the Company have been consistantly applied by group entities where applicable and diviation if any have been disclosed accordingly.

2.1 Income Tax Expense Income tax expense comprises current and deferred tax.

Current Tax and Deferred Tax is recognised in the Income Statement except the items recognised directly in the Statement of Changes in Equity.

2.1.1 Current Taxes Current Tax is the expected tax payable/recoverable on the

taxable income (if any) for the year, using tax rates enacted or substantially enacted at the Balance Sheet date and any adjustments to tax payable/receivable in respect of previous years. Current tax payable also includes any tax liability arising from the declaration of dividends.

The provision for Income Tax is based on the profit for the financial year adjusted for tax purposes in accordance with the Inland Revenue Act No. 10 of 2006 and subsequent amendments thereto.

2.1.2 Deferred Tax Deferred tax is recognized in respect of temporary

differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is measured at the tax rates that are expected to be applied to 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, or on different tax entities, but they intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realized simultaneously.

A deferred tax asset is recognized for unused tax losses, tax credits and deductible temporary differences, to the extent that it is probable that future taxable profits will be available against which they can be utilized. 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 realized.

The net increase in the carrying amount of deferred tax liability net of deferred tax asset is recognized as deferred tax expense and conversely any net decrease is recognized as reversal to deferred tax expense, in the income statement.

2.1.3 Withholding Tax on Dividends Dividend distributed out of taxable profit of the local

companies attracts a 10% deduction at source and is not available for set off against the tax liability of the Company. Withholding tax that arises from the distribution of dividends by the Company is recognized at the same time as the liability to pay the related dividend is recognized.


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2.1.4 Economic Service Charge (ESC) As per the provisions of Economic Service Charge Act No.

13 of 2006 amendments thereto, ESC is payable on the liable turnover at specified rates. 1% for Annual Maintains Fee and 0.25% for Establishment Income under Section two of the above mentioned act .ESC is deductible from the income tax liability. Any unclaimed amount can be carried forward and set off against the income tax payable in the four subsequent years as per the relevant provision in the Act.

2.2 Foreign Currency Transactions All foreign Currency transactions are converted into Sri

Lankan Rupees at the rates of exchange prevailing at the time the transactions are affected.

Monitory assets and liabilities denominated in foreign currencies are translated into Sri Lankan Rupees at a rate of exchange prevailing at the Balance Sheet date while non monitory assets and liabilities denominated in foreign currencies which are stated at historical cost are converted to Sri Lankan Rupees at the rates prevailing at the dates transactions are affected.

Exchange differences arising there from are dealt within the Income Statement.

2.3 Research and Development Expenditure on research activities, undertaken with the

prospect of gaining new scientific or technical knowledge and understanding, is recognized in profit or loss as incurred.

Development activities involve a plan or design for the production of new or substantially improved products and processes. Development expenditure is capitalized only if development costs can be measured reliably, the product or process is technically and commercially feasible, future economic benefits are probable, and the Group intends to and has sufficient resources to complete development and to use or sell the asset. The expenditure capitalized includes the cost of materials, direct labour, overhead costs that are directly attributable to preparing the asset for its intended use, and capitalized borrowing costs. Other development expenditure is recognized in profit or loss as incurred.

Capitalized development expenditure is measured at cost less accumulated amortization and accumulated impairment losses.

ASSETS AND BASES OF THEIR VALUATION Assets classified as current assets in the Balance Sheet are

cash and those which are expected to realize in cash, during the normal operating cycle of the Company’s business, or within one year from the Balance Sheet date. Assets other than current assets are those, which the Company intends to hold beyond a period of one year from the Balance Sheet date.

2.4 Property, Plant and Equipment

2.4.1 Free hold Assets The Property, Plant & Equipment are measured at cost

less accumulated depreciation and any accumulated impairment, loss except land those have been mesured at fair value.

2.4.1.1 Recognition and measurement Items of property, plant and equipment are measured

at cost / revaluation less accumulated depreciation and accumulated impairment losses.

Cost includes expenditure that is directly attributable to the acquisition of the asset. The cost of self-constructed assets includes the cost of materials and direct labor, any other costs directly attributable to bringing the assets to a working condition for their intended use, the costs of dismantling and removing the items and restoring the site on which they are located and capitalized borrowing costs. Purchased software that is integral to the functionality of the related equipment is capitalized as part of that equipment.

When parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items (major components) of property, plant and equipment.

An item of property, plant and equipment is de-recognized upon disposal or when no future economic benefits are expected from its use or disposal. The gain or loss on disposal of an item of property, plant and equipment is determined by comparing the proceeds from disposal with the carrying amount of the property, plant and equipment, and is recognized net within other income/other expenses in profit or loss.

When revalued assets are sold, any related amount included in the revaluation reserve is transferred to retained earnings.

2.4.1.2 Subsequent Expenditure

Subsequent expenditure is included in the assets’ carrying amount or recognized as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Company and the cost of the item can be measured reliably. All other repairs


and maintenance are charged to the Income Statement during the financial period in which they are incurred.

2.4.1.3 Permanent Land Development Costs

Permanent land development costs are those costs incurred in making major infrastructure development and building new access roads on lands.

Permanent impairment to land development costs are charged to the Income Statement in full or reduced to the net carrying amounts of such asset in the year of occurrence after ascertaining the loss.

The cost of land development is being charged over the estimated useful life of 15 years.

2.4.1.4 Revaluation of Lands

The Company revalues its lands at least once in every three years which is measured at its fair value at the date of revaluation less any subsequent impairment losses. On revaluation of land, any increase in the revaluation amount is credited to the revaluation reserve in shareholder’s equity unless it off sets a previous decrease in value of the same asset that was recognized in the Income Statement. A decrease in value is recognized in the Income Statement where it exceeds the increase previously recognized in the revaluation reserve.

Upon disposal, any related revaluation reserve is transferred from the revaluation reserve to retained earnings and is not taken into account in arriving at the gain or loss on disposal.

2.4.1.5 Restoration Costs

Expenditure incurred on repairs or maintenance of Property, Plant and Equipment in order to restore or maintain the future economic benefits expected from originally assessed standard of performance, is recognized as an expense when incurred.

2.4.2 Leasehold Assets Assets obtained under finance lease, which effectively

transfers substantial risks and benefits incidental to ownership of the leased assets, are treated as if they have been purchased outright and are capitalized at their cash price.

Assets held under finance lease are depreciated 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

is 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 capitalized, 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.

Assets acquired by the way of finance lease are measured at an amount equal to the lower of their fair value of minimum lease payments at the inception less accumulated depreciation and accumulated impairment losses.

2.4.3 Depreciation Depreciation is based on the cost of an asset less its

residual value. Significant components of individual assets are assessed and if a component has a useful life that is different from the remainder of that asset, that component is depreciated separately.

Depreciation is recognised in profit or loss on a straight-line basis over the estimated useful lives of each component of an item of property, plant and equipment. Leased assets are depreciated over the shorter of the lease term and their useful lives unless it is reasonably certain that the Group will\ obtain ownership by the end of the lease term. Lands are not depreciated.

The estimated useful lives for the current and comparative years are as follows:

No. of Years Rate

Buildings 20 5%

Plant & Machinery 5 20%

Motor Vehicles 4 25%

Furniture & Fittings 5 20%

Leasehold Lands 30 3%

Land Improvements 15 6.6%

The Company provides depreciation from the date the assets are available for use whereas depreciation of an


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asset ceases at the earlier of the date that the asset is classified as held for sale and the date that the asset is de-recognized, at the above mentioned rates on a straight line basis over the period appropriate to the estimated useful lives of the different types of assets or in an earlier date where any circumstance indicate such assessment requires.

Depreciation methods, useful lives and residual values are reviewed at each reporting date and adjusted if appropriate.

2.5 Biological Assets and Agricultural Produce In the absence of Sri Lanka Accounting Standards,

International Accounting Standards 41, Agriculture has been used for the valuation of biological assets.

The biological assets are stated at its fair value less estimated point of sale cost, with any resultant gain or loss recognized in the Income Statement. Point of sale costs include all costs that would be necessary to sell the assets, excluding costs necessary to get the assets to market.

The biological assets are classified as Consumables and Bearer biological assets. Consumable biological assets are those that are to be harvested as agricultural produce or sold as biological assets. Bearer biological assets are those other than consumable biological assets. Bearer biological assets are not agricultural produce but, rather, are self-regenerating. Mahogany, Teak and Sandalwood trees are considered as Consumable biological assets and Vanilla vines are considered as Bearer biological assets.

2.5.1 Nature of activities Life span of Mahogany Trees to maturity is expected to be

18 years from the date of planting. Mahogany plants are grown in the wet zone, the Company is expecting to carry out proper fertilising program in order to get the expected return.

Life span of Teak Trees to maturity is expected to be 18 years from the date of planting. Teak plants are grown in the mid zone and the Company is expecting to carry out proper fertilising program in order to get the expected return.

Life span of Sandalwood Trees to maturity is expected to be 16 years from the date of planting. Sandalwood plants are grown in the dry zone and the Company is expecting to carry out a proper fertilising program in order to get the expected return.

[The agricultural produce (timber and heart wood) is to be harvested only at maturity. Realizable value of the agricultural produce (timber and heart wood) at the time of

maturity will be used to settle Purchase Back Guarantees, which is more fully explained in the respective Accounting Policies.]

Bearer biological assets’ (Vanilla Vines) life span to maturity is 4 years from the date of planting. Vanilla vines are grown in up country mid zone and the Company is expecting to carry out a proper fertilizing program in order to get the expected harvest. As per the standard specifications, agricultural produce (Vanilla) can be harvested for another 10 years from the date of maturity.

[Realizable value of the agricultural produce (Vanilla) at the time of harvest will be used to settle the Purchase Back guarantees which are, more fully explained in the respective Accounting Policies.]

2.5.2 Valuation of Biological Assets Fair Value of Biological assets is determined based on a

valuation carried out by a qualified valuer when determining the fair value of biological assets, the number of trees in plantations are physically verified together with their height and girth. The basis used by the valuer is as follows;

2.5.2.1 Fair Value of Consumable Biological Assets

Value per immature tree is determined by considering the growth pattern of the tree, age and the current market price of a mature tree.

Value of Mature Mahogany Tree

Market value of a mature Mahogany tree is determined by considering the average market price of a mature tree as per the standard specification as at the Balance Sheet date, net of selling cost.

Value of Mature Teak Tree

Market value of a mature Teak tree is determined by considering the average market price of a mature tree as per the standard specification as at the Balance Sheet date, net of selling cost.

Value of Mature Sandalwood Tree

Market price of Sandalwood heart wood is determined by considering the Tamil Nadu Auction Price of a mature tree, since there is no local market for Sandalwood, as per the standard specification as at the Balance Sheet date, net of selling cost.


Growth Patterns of Trees

The height and girth of trees are measured and compared with accepted standard growth specifications in determining the actual growth patterns for the respective age groups.

2.5.2.2 Fair Value of Bearer Biological Assets

Value per immature vanilla vine is determined by considering the average yield expected from the Weighted Average Cost of Capital and the market price of 1 kg of vanilla.

Market value of 1 kg of Vanilla

Market Value of 1 kg of vanilla is determined considering the average market price of a 1 kg of vanilla as per the standard specification as at the balance sheet date, net of selling cost.

Expected Harvest

This refers to the harvest pattern corresponding to the relevant age. The Company is expecting to harvest Vanilla Pods for a period of 10 years from the year of maturity.

Respective assumptions are disclosed under Note 14.6.1 to these Consolidated Financial Statements.

2.5.3 Mature Trees The mature trees considered as part of unplanned forestry

in the plantations, which includes commercial exotic timber species such as Teak, Jack, Halmilla, etc. are ready for harvest.

These trees are valued once in a three years time (3 Years) to ensure that the book values match the current market values.

2.5.4 Investments Investments in shares where the Company’s holding is

less than 20% and where the Company does not exercise significant influence and/or control over the financial and operating decisions/ policies, are accounted for on the basis stated in 2.5.4.1 The income from these investments is recognized only to the extent of dividend received.

2.5.4.1 Classification

All investments held for yield or capital appreciation are classified as long term investments. All the other investments are classified as current investments.

2.5.4.2 Valuation of other Short Term Investments.

All quoted investments are carried in the Balance Sheet at market value on a portfolio basis. The unquoted investments are carried at cost and provision is made for any impairment losses.

2.5.4.3 Valuation of Long Term Investments

All quoted investments are carried in the Balance Sheet at cost and provision is made for any permanent diminution in value.

2.5.5 Inventories Inventories are measured at the lower of cost and net

realizable value. The cost of inventories is based on the first-in first-out principle, and includes expenditure incurred in acquiring the inventories, production or conversion costs and other costs incurred in bringing them to their existing location and condition. In the case of manufactured inventories and work in progress, cost includes an appropriate share of production overheads based on normal operating capacity.

Net realizable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses.

Input Material

At actual cost on weighted average basis.

Nurseries

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

2.5.6 Impairment of Non-Financial Assets The carrying amounts of the Company’s non-financial

assets, other than mature trees, biological assets, inventories and deferred tax 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. An impairment loss is recognized if the carrying amount of an asset or its related cash-generating unit (CGU) exceeds its estimated recoverable amount.

The Company’s corporate assets do not generate separate cash inflows and are utilized by more than one CGU. Corporate assets are allocated to CGUs on a reasonable and consistent basis and tested for impairment as part of the testing of the CGU to which the corporate asset is allocated.


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Impairment losses are recognized in profit or loss. Impairment losses recognized in respect of CGUs are allocated first to reduce the carrying amount of any goodwill allocated to the CGU (group of CGUs), and then to reduce the carrying amounts of the other assets in the CGU (group of CGUs) on a pro rata basis.

Impairment losses recognized 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, if no impairment loss had been recognized.

2.5.7 Trade and Other Receivables.

Trade and other receivables are stated at the amounts they are estimated to be realized net of provisions for bad and doubtful debts. Provision for bad and doubtful debts for trade receivables is established when there is evidence that the Company will not be able to collect all amounts due according to the original terms of receivables.

2.5.8 Cash and Cash Equivalents Cash and Cash Equivalents are defined as cash in hand,

demand deposits and short-term highly liquid investments readily convertible to known amounts of cash and subject to insignificant risk of changes in value.

Cash and cash equivalents comprise cash balances and call deposits with original maturities of three months or less.

Bank overdrafts that are repayable on demand and form an integral part of the Company’s cash management are included as a component of cash and cash equivalents for the purpose of the statement of cash flows.

LIABILITIES AND PROVISIONS Liabilities classified as current liabilities on the Balance

Sheet are those which fall due for payment on demand or within one year from the Balance Sheet date.

Non current liabilities are those balances that fall due for payment after one year from the Balance Sheet date.

All known liabilities have been accounted for in preparing these Consolidated Financial Statements. Provisions and liabilities are recognized 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 in accordance with Sri

Lanka Accounting Standard No. 36 on Provisions, Contingent Liabilities and Contingent Assets.

2.5.9 Borrowings Borrowings include borrowings from financial institutions.

They are brought to account at the gross value of the outstanding balance. The cost of borrowings is recognized as an expense in the period in which they are incurred.

2.5.10 Employee Benefits

2.5.10.1 Defined Benefit Plan – Retirement Benefit Obligations

A defined benefit plan is a post employment benefit plan other than a defined contribution plan. The liability recognized in the balance sheet in respect of defined benefit plan is the present value of the defined benefit obligation at the balance sheet date. Benefits falling due more than 12 months after the balance sheet date are discounted to present value. The defined benefit obligation is calculated annually by independent actuaries using Projected Unit Credit Method (PUC) as recommended by SLAS – 16 (Revised 2006), “Employees benefits”. The assumptions based on which the results of the actuarial valuation was determined, are disclosed in Note 27 to the financial statements.

The Retirement Benefit Obligation is based on the actuarial valuation carried out by the M/s. Actuarial & Management Consultants (Pvt) Ltd., Chartered Valuer.

However under the Payment of Gratuity Act No.12 of 1983, the liability to an employee arises only on completion of five years of continued service.

The liability is not externally funded.

2.5.10.1.1 Defined Contribution Plans

Contributions to defined contribution plans, Employees Provident Fund & Employees Trust Fund are recognized as an expense in the income statement as incurred.

2.5.10.1.2 Employees’ Provident Fund (EPF)

The Company and employees contribute 12% and 8% respectively on the salary of each employee to the above mentioned funds.

2.5.10.3 Employees’ Trust Fund (ETF)

The Company contributes 3% of the salary of each employee to the Employees’ Trust Fund.

2.5.11 Provision for Purchase back Guarantee Provision for Purchase back guarantee is created for the

guarantees given to purchase back the harvest at an agreed time and price.


The liability is measured based on the present value of the cost expected to be required to settle the obligation.

Further as per the agreement entered into with customers, the value of purchase back guarantee will be reduced to 50% or 33 1/3 % of the initial agreed amount, if the payment of maintenance fee defaulted for more than 3 years.

Where volume back guarantees are provided considered as contingent liability and those trees are not considered as Biological assets accordingly.

2.5.12 Reservation and Installment Fee Advances Reservation and Installment fee Advances include payments

for special projects and from other investments once all the payments due are fully paid. The reservation & Installment fee account consists payments accounted for investments that are not completed. Special project installments are recognized as the income once the risk and rewards are transferring to the clients.

2.5.13 Debentures Debenture notes with tenure of 18 years were issued in

August 2005. On maturity the notes will be redeemed along with the interest. Accordingly the interest has been accrued and accounted for in the Income Statement annually.

Debenture can be redeemed at any time at the issue price.

2.5.14 Deferred Revenue on Annual Maintenance Deferred Revenue includes the prepayments paid on annual

installments due on investments. This deferred revenue is recognized as revenue in the Income Statement over the tenure of the client’s contract on the anniversary of the contract.

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

2.5.15.1 Value Added Tax

As per the provisions of Value Added Tax Act No. 14 of 2002, and amendments thereto, VAT is payable on Annual Maintain Fee income at a rate of 12%.

2.5.16 Stated Capital

Ordinary shares

Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of ordinary shares

are recognized as a deduction from equity, net of any tax effects.

Preference Share Capital

Preference share capital is classified as a financial liability if it is redeemable on a specific date or at the option of the shareholders, or if dividend payments are not discretionary. Dividends thereon are recognized in the income statement as accrued.

INCOME STATEMENT

2.5.17 Revenue and Income Recognition

Income generated from the operation of the business consists of followings;

• PlantationEstablishmentfeeincome.

• MaintenanceIncome.

• Gainarisingfromchangesinfairvalueofbiologicalassets.

The revenue from the above sources is recognized on the following basis;

Plantation Establishment Fee IncomeAt the receipt of total package fee and issuance of investment certificate.

Maintenance Income Tree Packages: - Initial receipt of total maintenance fee

relevant to the package is recorded as deferred revenue and recognized as revenue on annual basis.

Other than tree packages: - Maintenance income is recognized on cash basis.

Gain arising from changes in fair value of biological assets.

Gains or losses arising on initial recognition of biological assets and agricultural produce at fair value less estimated point of sale costs are recognized in profit or loss.

Gains or losses arising on change in fair value due to subsequent measurements are recognized in profit or loss in the period in which they arise.

2.5.18 Other Income All other income is recognized on an accrual basis.

2.5.19 Expenditure Recognition All expenditure incurred in running of the business and in

maintaining the Property, Plant and Equipment in a state of efficiency is charged to revenue in arriving at the profit / (loss) for the year.


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For the purpose of presentation of Income Statement, the Directors are of the opinion that function of expenses method present fairly the elements of the enterprises performance, hence such presentation method is adopted.

Borrowing costs are recognized as an expense in the period in which they are incurred and charged to the Income Statement.

2.5.20 Finance Income and Finance Costs Finance income comprises interest income on funds

invested; dividend income and gains on the disposal of investments are recognized in profit or loss. Interest income is recognized as it accrues in profit or loss, using the effective interest method. Dividend income is recognized in profit or loss on the date that the Company’s right to receive payment is established, which in the case of quoted securities is normally the ex-dividend date.

Finance costs comprise interest expense on borrowings, dividends on preference shares classified as liabilities and impairment losses recognized on financial assets (other than trade receivables), are recognized in profit or loss.

Borrowing costs that are not directly attributable to the acquisition, construction or production of a qualifying asset are recognized in profit or loss using the effective interest rate method.

Foreign currency gains and losses are reported on a net basis as either finance income or finance cost depending on whether foreign currency movements are in a net gain or net loss position.

2.5.21 Segmental Reporting A segment is a distinguishable component of the

Company that is engaged in either providing products or services (business segment) or in providing products or services within a particular economic environment (geographical segment), which is subject to different risk and rewards that are different from those of other segments. However, there are no distinguishable components to be identified as segments for the Company.

2.5.22 Cash Flow Statement The Cash Flow Statement has been prepared using the

“Indirect Method” of preparing Cash Flows in accordance with the Sri Lanka Accounting Standard 9 “Cash Flow Statements”. Cash and cash equivalents comprise short term, highly liquid investments that are readily convertible to known amounts of cash and are subject to an insignificant risk of changes in value. The cash and cash equivalent include cash in hand and balances with banks.

Interest paid is classified as operating cash flow.

Interest received and dividends received are classified as investing cash flows.

Dividends paid are classified as financing cash flows.

2.5.23 Earnings per Share The Company presents basic and diluted earnings per

share data for its ordinary shares. Basic earnings per share is calculated by dividing the profit or loss attributable to ordinary shareholders of the Company by the weighted average number of ordinary shares outstanding during the year. Diluted earnings per share is determined by adjusting the profit or loss attributable to ordinary shareholders and the weighted average number of ordinary shares outstanding, for the effects of all dilutive potential ordinary shares.

2.5.24 Commitments and Contingencies All discernible risks are accounted for in determining the

amount of all known liabilities. Contingent liabilities are possible obligations whose existence will be confirmed only by uncertain future events or present obligations where the transfer of economic benefit is not probable or cannot be reliably measured. Contingent liabilities are not recognized in the Balance Sheet but are disclosed unless they are remote.

2.5.25 Financial Risk Management Strategies The Company is exposed to financial risk arising from

changes in Mahogany, Teak, Sandalwood timber and Vanilla prices. However the Company, based on past trend in Mahogany, Teak, Sandalwood and Vanilla prices, does not anticipate that the prices will decline significantly in the foreseeable future and therefore has not entered into any other contracts to manage the risk of decline in Mahogany, Teak, Sandalwood and Vanilla prices. The Company reviews its outlook for Mahogany, Teak, Sandalwood and Vanilla prices regularly in considering the need for active financial risk management.



Group CompanyFor the year ended 31st March 2012 2011 2012 2011 Rs. Rs. Rs. Rs.

3. REVENUEPlantation Establishment and Maintenance IncomeLocal - Plantation Establishment 148,467,259 155,485,353 148,467,259 155,485,353 - Annual Fee 78,177,278 100,094,396 78,177,278 100,094,396Foreign 18,054,925 882,089 18,054,925 882,089Commission from Agarwood Sales - Foreign 25,491,890 275,182 25,491,890 275,182Commission from Agarwood Sales - Local - 296,433 - 296,433Gain Arising from Changes in Fair Value of Biological Assets (Note 3.1) 926,211,695 1,209,395,812 926,211,695 1,209,395,812 1,196,403,047 1,466,429,265 1,196,403,047 1,466,429,265

3.1 Gain/(Loss) Arising from Changes in Fair Value of Biological Assets This amount relates to gain arising from changes in the fair value of biological assets, by adoption of IAS-41- ‘Agriculture’. This gain is

totally unrealized as at the Balance Sheet date.


Mahogany 287,469,708 (23,328,441) 287,469,708 (23,328,441)Vanilla 78,365,400 34,034,000 78,365,400 34,034,000Sandalwood 330,092,888 1,188,879,134 330,092,888 1,188,879,134Teak 230,283,699 9,811,119 230,283,699 9,811,119 926,211,695 1,209,395,812 926,211,695 1,209,395,812

4. OTHER INCOMEInterest income on Short Term Deposits 28,847,248 36,297,983 28,847,248 36,297,983Interst income on Short Term Loans - - 18,466,667 7,000,000Interest income on Loans 21,721 19,225 21,721 19,225Profit on Disposal of vehicles 3,415,139 3,404,962 3,415,139 3,404,962Foreign Currency Exchange Gain/(Loss) - 2 - 2Surplus on Mature Tree Valuation - 39,864,428 - 39,864,428Profit from Sale of Shares 7,626,586 - 7,626,586 -Sundry Income 3,628,769 1,828,557 3,600,769 1,828,557 43,539,463 81,415,157 61,978,130 88,415,157

5. OTHER EXPENSESProvision for Purchase Back Guarantee (Note 25) 660,324,546 862,894,883 660,324,546 862,894,883Other Operating Expenses 54,328,196 135,971 54,298,271 13,750 714,652,742 863,030,854 714,622,817 862,908,633

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6. OPERATING PROFIT BEFORE FINANCE COSTIs stated after charging all expenses including the followings;Auditor’s Remuneration - On Statutory Audit 1,685,000 1,085,000 1,525,000 1,035,000 - Audit Related - 50,000 - 50,000 - ISO Audit Expenses 137,713 1,121,317 137,713 1,121,317Directors’ Emoluments 31,410,797 19,140,000 31,410,797 19,140,000Legal Fees 691,266 1,071,293 686,266 3,302,254Depreciation and Amortisation 21,323,421 12,608,239 20,007,443 11,916,860Marketing Incentives 27,014,888 15,247,675 27,014,888 15,247,675Personnel Cost IncludesDefined Contribution Plan - Gratuity Provision/(Reversal) 1,725,516 3,748,478 1,725,516 3,748,478Defined Benefit Plan - EPF 7,047,293 5,542,389 6,763,933 5,542,389 - ETF 1,810,717 1,318,580 1,768,093 1,318,580Staff related Cost (Salaries, Wages and etc.) 94,634,138 70,023,396 93,305,782 70,023,396Bonus 3,652,853 2,162,787 3,652,853 2,162,787

7. FINANCE COSTDebenture Interest 6,874,790 5,956,666 6,874,790 5,956,666Loan interest 2,439,482 997,743 600,000 997,743Lease Interest 6,275,031 3,906,865 6,275,031 3,906,865Preference Share Dividend 304,000 304,000 304,000 304,000Over Draft Interest 2,009,255 922,883 2,008,243 922,883 17,902,558 12,088,157 16,062,064 12,088,157

8. INCOME TAX EXPENSES

8.1 Current Taxes

Touchwood Investments PLC

The Company in terms of Section 16 (1) of the Inland Revenue Act No.10 of 2006, “Specified Profits” from cultivation, would be exempt from income tax for a period of 5 years from 01 April 2006. The Corporate tax applicable to profits other than “ Specified Profits” would be at 28%.

As per Inland Revenue (Amendment) Act No 22 of 2011, such profit would be liable to Income Tax at the rate of 10% commencing from the year of assessment of 01 April 2011. However During the year Company did not make any taxable profit from “Specified Business - Cultivation”

Twood Flooring (Pvt) Limited

The Company in terms of Section 17 (A) of the Inland Revenue Act No. 10 of 2006 as ammended by Act No. 22 of 2011, “Profits and Income from any new undertaking engaged any prescribed activities”, would be exempt from income tax for a period of 5 years from 1st April 2007.

Group Company 2012 2011 2012 2011 Rs. Rs. Rs. Rs.

Income Tax on Profits for the year (Note 8.2) 13,253,978 14,655,655 13,253,978 14,655,655Under/(Over) provisions of Income Tax in prior years 719,692 (11,844,943) 719,692 (11,844,943)Deemed Dividend Tax - 105,368 - 105,368Dividend Tax 712,704 - 712,704 -Deferred Tax Recognised During the Year (Note 28) 33,903,436 39,811,284 33,903,436 39,811,284 48,589,810 42,727,364 48,589,810 42,727,364



8. TAXATION (Contd.)

8.2 Reconciliation between Accounting Profit to Income Tax Group CompanyFor the year ended 31st March 2012 2011 2012 2011 Rs. Rs. Rs. Rs.

Accounting Profit Before Taxation 132,436,989 368,023,159 173,792,392 399,728,331Consolidation adjustments 41,355,403 31,705,172 - -Adjusted/Accounting Profit Before Taxation 173,792,392 399,728,331 173,792,392 399,728,331Aggregate Disallowable Items 730,903,959 903,875,549 730,903,959 903,875,549Aggregate allowable Items (999,954,016) (1,304,841,562) (999,954,016) (1,304,841,562)Adjusted Profit from the Business (95,257,665) (1,237,683) (95,257,665) (1,237,683)

Taxable Income from Other Sources 47,335,636 43,317,208 47,335,636 43,317,208Total Taxable Income 47,335,636 43,317,208 47,335,636 43,317,208

Tax on Other Income 28% (2010/2011@ 33.33%) 13,253,978 14,439,069 13,253,978 14,439,069Social Responsibility Levy (1.5% on Income Tax) - 216,586 - 216,586Income Tax on Profits for the year 13,253,978 14,655,655 13,253,978 14,655,655

8.3 Deferred Tax Provision has been made for deferred taxation under the liability method in respect of temporary differences arising from carrying

amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purpose as described in Note 28. Difference arising from the deferred tax liability has been recognised in the Financial Statement during the year.

8.4 Economic Service ChargeDuring the year the Company has paid Rs.1,091,274/- (Rs.656,492/- in 2011) as Economic Service Charge and this amount can be set off against the Income Tax Liability had it been paid to the Department of Inland Revenue and balance can be carried forward for a period of 4 years.

9. EARNINGS AND DIVIDEND PER SHARE

9.1 Earnings per Share

Basic Earnings per Share

The calculation of Basic Earnings per Share is based on the profit for the year attributable to the ordinary shareholders divided by weighted average number of ordinary shares outsanding during the year and calculated as follows; Group CompanyFor the year ended 31st March 2012 2011 2012 2011

Profit Attributable to Owners of the Company (Rs.) 104,567,216 341,105,180 125,202,582 357,000,967Weighted Average Number of Ordinary Shares 71,270,400 67,574,849 71,270,400 67,574,849Basic Earning per Share (Rs.) 1.47 5.05 1.76 5.28

Diluted Earnings per Share

There were no potential dilutive ordinary shares outstanding at any time during the year ended 31 March 2012. Therefore, Diluted Earnings per Share is same as Basic Earnings per Share reported above.

9.2 Dividend per Share Group CompanyFor the year ended 31st March 2012 2011 2012 2011

Interim Dividends Paid (Rs.) 7,127,040 - 7,127,040 -Number of Ordinary Shares 71,270,400 71,270,400 71,270,400 71,270,400Dividend per Share (Rs) 0.10 - 0.10 -

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10. PROPERTY, PLANT AND EQUIPMENT - GROUPCost/Revaluation Balance Additions Disposals/Transfers Balance as at During the During the as at 01.04.2011 Year Year 31.03.2012 Rs. Rs. Rs. Rs.

Freehold AssetsLand 592,479,902 50,924,926 (13,636,397) 629,768,431Buildings 6,951,778 55,889,809 - 62,841,587Motor Vehicles 7,460,305 21,832,080 (23,788,720) 5,503,665Machinery and Equipments 65,815,970 6,392,424 (198,720) 72,009,674Furniture & Fittings 7,323,275 1,180,836 - 8,504,111 680,031,230 136,220,075 (37,623,837) 778,627,468

Leasehold Assets -Motor Vehicles 34,710,780 27,471,000 (14,139,130) 48,042,650 34,710,780 27,471,000 (14,139,130) 48,042,650

Intangible AssetsSoftware - ERP 3,409,183 180,200 - 3,589,383Total 718,151,193 163,871,275 (51,762,967) 830,259,501

Accumulative Depreciation Balance as at Charge for the Disposals/Transfers Balance as at 01.04.2011 Year During the Year 31.03.2012 Rs. Rs. Rs. Rs.

Freehold AssetsBuildings 1,234,019 398,074 - 1,632,092Motor Vehicles 2,256,377 3,061,352 (3,642,076) 1,675,653Machinery and Equipments 21,309,561 4,845,699 (122,281) 26,032,979Furniture & Fittings 5,030,044 699,694 - 5,729,738 29,830,001 9,004,818 (3,764,357) 35,070,462

Leasehold AssetsMotor Vehicles 6,896,362 10,098,747 (5,449,886) 11,545,223 6,896,362 10,098,747 (5,449,886) 11,545,223

Intangible AssetsSoftware - ERP 407,234 717,933 - 1,125,167Total 37,133,597 19,821,498 (9,214,243) 47,740,852

Balance Additions Transfers Balance as at During the During the as at 01.04.2011 Year Year 31.03.2012 Rs. Rs. Rs. Rs.

Work in Progress 30,200,377 42,617,453 (54,950,230) 17,867,600

Carrying Value 711,217,973 - - 800,386,249



10. PROPERTY, PLANT AND EQUIPMENT - COMPANYCost/Revaluation Balance Additions Disposals/Transfers Balance as at During the During the as at 01.04.2011 Year Year 31.03.2012 Rs. Rs. Rs. Rs.

Freehold AssetsLand 572,479,902 50,924,926 (13,636,397) 609,768,431Buildings 6,198,941 1,425,390 - 7,624,331Motor Vehicles 7,460,305 21,832,080 (23,788,720) 5,503,665Machinery and Equipments 34,292,505 5,920,399 (198,720) 40,014,184Furniture & Fittings 7,323,275 959,763 - 8,283,038 627,754,928 81,062,558 (37,623,837) 671,193,649


Intangible AssetsSoftware - ERP 3,409,183 180,200 - 3,589,383Total 665,874,891 108,713,758 (51,762,967) 722,825,682

Accumulative Depreciation Balance Charge Disposals/Transfers Balance as at for the During the as at 01.04.2011 Year Year 31.03.2012 Rs. Rs. Rs. Rs.

Freehold AssetsBuildings 1,196,377 343,932 - 1,540,308Motor Vehicles 2,256,377 3,061,352 (3,642,076) 1,675,653Machinery and Equipments 21,309,561 4,845,699 (122,281) 26,032,979Furniture & Fittings 5,030,044 699,694 - 5,729,738 29,792,359 8,950,676 (3,764,357) 34,978,679


Intangible AssetsSoftware - ERP 407,234 717,933 - 1,125,167Total 37,095,955 19,767,356 (9,214,243) 47,649,068

Balance Additions Transfers Balance as at During the During the as at 01.04.2011 Year Year 31.03.2012 Rs. Rs. Rs. Rs.

Work in Progress 5,200,376 10,617,454 (900,230) 14,917,600

Carrying Value 633,979,312 - - 690,094,214

10.1 The Lands owned by the Company were revalued during the period of 01 March to 31 March 2010. The Land and the revalued values are detailed in note no 10.3 to the financial statements.

10.2 Based on the assessment of potential impairment carried out internally for property, plant and equipment by the Board of Directors as at 31 March 2012, no provision was required to be made in the financial statements.

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10.3 Details of the Estates hold by Company are given below;Estate Name No of Acres Cost / Revaluation Revalued Value Capital Expenditure incurred Cost/Revalued Amount 2009 / 10 after 1 April 2010 as at 31 March 2012

Ihalakanda 68.86 13,772,000 20,658,000 - 20,658,000 Gomaragala 68.16 20,448,000 27,264,000 - 27,264,000 Munihinkandha 47.00 9,400,000 14,100,000 - 14,100,000 Panthiya 118.00 35,400,000 59,000,000 - 59,000,000 Kalugalahena 34.89 6,105,750 10,467,000 - 10,467,000 Footprint 43.78 8,756,000 13,134,000 - 13,134,000 Kuttikanda 34.28 6,856,000 10,284,000 10,284,000 Atakalandadawatahena 40.23 10,057,500 16,092,000 16,092,000 St Anthony’s 43.26 10,815,000 21,630,000 - 21,630,000 Kent I 29.54 7,385,000 10,339,000 - 10,339,000 Kent II 64.00 19,200,000 25,600,000 25,600,000 Kent III 11.19 3,357,000 4,476,000 4,476,000 Rusigama 23.50 4,700,000 7,050,000 113,600 7,163,600 Palawatta 33.33 9,999,000 16,665,000 - 16,665,000 Mahalewkanda 15.65 2,738,750 6,260,000 1,790,525 8,050,525 Lakhsmi 17.66 3,090,500 7,064,000 - 6,976,861 Leelajan 46.42 6,963,000 23,210,000 - 23,210,000 Lower Lye Grove 26.00 2,600,000 7,800,000 - 7,800,000 Liyangama 69.93 10,489,000 27,972,000 - 27,972,000 Hartley 45.31 6,796,500 22,655,000 - 22,655,000 Ambangaga 108.13 32,739,000 54,065,000 25,500 54,090,500 Pankatiya 48.24 7,236,000 19,296,000 - 19,296,000 Salagama 26.00 9,424,000 10,639,200 10,639,200 Lognager 03 15.80 2,500,000 6,347,200 - 6,347,200 Palugedara 91.84 8,411,488 27,551,100 118,750 27,669,850 Kandaketiya 46.32 4,656,000 13,994,079 4,245,875 18,239,954 Kekalagastenna/ Soranatota 58.54 4,091,910 21,403,335 110,425 21,513,760 Udalinda Walalanda 25.31 5,934,910 7,591,800 1,806,515 9,398,315 Burnside/Diganakele 50.00 8,403,322 21,403,300 21,287,587 Makulugolla Yaya 31.50 5,000,000 9,465,000 5,446,875 Aggalaulpatha 36.14 5,648,000 11,489,902 1,820,820 13,310,722 North Matale 26.00 3,962,500 7,824,986 116,514 7,941,500

Land acquired after 01 April 2010 Pallatanna 11.00 1,764,726 - 313,799 2,078,525 Kiulagedara 15.08 2,100,000 - 1,432,762 3,532,762 Pamunuwa 25.03 8,750,000 - 846,250 9,596,250 Clive land 56.00 25,000,000 - 842,444 25,842,444 609,768,431

Date of Revaluation - During the period 01 March 2010 to 31 March 2010.

The Key assumptions made by the valuer are as follows;

a. The land value per acre of the estates revalued, ranges from Rs.100,000/- to Rs.300,000/-

b. The land values are determined based on the locality, demand, supply and other factors applicable

c. These lands are used for agriculture purposes.

Independent Valuer- Mr. R S Wijesuriya; Incorporate Valuer.



10. PROPERTY, PLANT AND EQUIPMENT (Contd.)10.4 There were no capitalized borrowing costs related to the acquisition of property, plant & equipment during the year. (2010/11- nill)

10.5 There were no items of property, plant & equipments retired from the active use as at 31 March 2012.

10.6 There were no temporary idle items of property, plant & equipments as at 31 March 2012.

Group CompanyAs at 31st March 2012 2011 2012 2011 Rs. Rs. Rs. Rs.

11. INVESTMENTSInvestments in Subsidiary Companies (Note 11.1) - - 19,700,000 19,700,000Other Investmets 3,000,000 - 3,000,000 - 3,000,000 - 22,700,000 19,700,000

11.1 Investments in Subsidiary Companies Company No. of Shares % Holding 2012 2011 Rs. Rs.

Farm Grow (Pvt) Ltd 500,000 100% 5,000,000 5,000,000Twood Flooring (Pvt) Ltd 1,470,000 49% 14,700,000 14,700,000 19,700,000 19,700,000

11.1.1 The Financial Statements of above companies were not consolidated in previous financial years in accordance with section 153 (6A) of the Companies Act No. 07 of 2007 since there is no real value to the shareholders of the Company due to the insignificant accounts involved. However, this basis has been reassessed by the Directors of the Company and determined to prepare the consolidated Financial Statements of the Group from the financial year ending 31st March 2012, which effects retrospectively.

12. LEASEHOLD RIGHT OVER BEAR LAND - GROUPCost Balance Additions Transfers Balance as at During the During the as at 01.04.2011 Year Year 31.03.2012 Rs. Rs. Rs. Rs.

Leasehold Right to Bare Land 19,063,555 13,771,473 - 32,835,028 19,063,555 13,771,473 - 32,835,028

Accumulated Amortisation Balance Charge Transfers Balance as at During the During the as at 01.04.2011 Year Year 31.03.2012 Rs. Rs. Rs. Rs.

Leasehold Right to Bare Land 1,412,652 1,501,922 2,914,574 1,412,652 1,501,922 - 2,914,574 17,650,903 12,269,551 - 29,920,454

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12. LEASEHOLD RIGHT OVER BEAR LAND - COMPANYCost Balance Additions Transfers Balance as at During the During the as at 01.04.2011 Year Year 31.03.2012 Rs. Rs. Rs. Rs.

Leasehold Right to Bare Land - 7,202,591 - 7,202,591 - 7,202,591 - 7,202,591

Accumulated Amortisation Balance Charge Transfers Balance as at During the During the as at 01.04.2011 Year Year 31.03.2012 Rs. Rs. Rs. Rs.

Leasehold Right to Bare Land - 240,087 - 240,087 - 240,087 - 240,087 - 6,962,504 - 6,962,504

12.1 During the year Company obtained Doramadalawa estate under a lease agreement for re-forestation of land from the forest conservation department. The lease value of the land is Rs.40,000,000 which comprises teak plantation as well. Above land is valued by Mr. B.L Ariyatillake, independent Chartered Valuer on 28th May 2012 and based on the valuaion report, teak plantation is valued at Rs.33,222,300/- and land valued at Rs.6,777,700/-. Capital expenditure of Rs.424,893/- has been incurred with regard to this land by the company during the year.

13. MATURE TREES Group Compay 2012 2011 2012 2011 Rs. Rs. Rs. Rs.

Balance at the beginning of the year 147,237,439 107,373,011 147,237,439 107,373,011Addition during the year 15,000,000 - 15,000,000 -Fair Valuation Surplus during the year - 39,864,428 - 39,864,428Balance at the end of the year 162,237,439 147,237,439 162,237,439 147,237,439

13.1 The mature trees considered as part of unplanned forestry in Ratnapura, Kaluthara and Mathale Districts having commercial exotic timber species such as Teak, Albizia, Jack, Halmilla, etc are ready for harvest, have been valued by Mr.L.B.Ariyathilake Independent Chartered Valuer on 24 June 2011. The resultant surpluses on valuation amount to Rs.39,864,428/- and this amount had been transferred to Profit and Loss Statement for the year ended 31 March 2011.

During the year company has acquired a Land called Clive land with mature trees and mature trees in the land have been valued at Rs.15,000,000 by Mr.L.B.Ariyathilake Independent Chartered Valuer on 24 May 2012.

The key assumptions used for valuation of mature forestry trees are as follows;

a. Based on the price list of State Timber Corporation and price timber logs & sawn timber in the popular furniture manufacturing areas of Sri Lanka.

b. When considering the market price of the estimated out put of standing timber an average value of market prices were taken after deducting 10% of price for cost of harvesting and transportation.

c. The volume of timber is calculated on the General Volume Table (Species Classes i to vi) from the State Timber Corporation Metric Volume and Conversion Table.



Group Company 2012 2011 2012 2011 Rs. Rs. Rs. Rs.

14. BIOLOGICAL ASSETSConsumable Biological Assets (Mahogany) Note 14.2 2,666,716,774 2,354,247,066 2,666,716,774 2,354,247,066Bearer Biological Assets (Vanilla) Note 14.3 321,244,400 242,879,000 321,244,400 242,879,000Consumable Biological Assets (Sandalwood) Note 14.4 2,202,251,908 1,872,159,020 2,202,251,908 1,872,159,020Consumable Biological Assets (Teak) Note 14.5 320,172,581 56,666,581 320,172,581 56,666,581 5,510,385,663 4,525,951,667 5,510,385,663 4,525,951,667

14.1 Biological Assets Movement Balance as at Additions Fair Value Balance 01 April 2011 during the year Gain as at at Cost 31 March 2012

Mahogany 2,354,247,066 25,000,000 287,469,708 2,666,716,773Vanilla 242,879,000 - 78,365,400 321,244,400Sandalwood 1,872,159,020 - 330,092,888 2,202,251,908Teak 56,666,581 33,222,300 230,283,699 320,172,581 4,525,951,667 58,222,300 926,211,695 5,510,385,662

14.2 Consumable Biological Assets (Mahogany)Carrying amount at the beginning of the year 2,354,247,066 2,377,575,507

Gain/(Loss) arising from changes in fair value less estimated Point of sales cost attributable to-Physical Change 170,402,862 253,674,863Price Change 279,611,955 (277,003,304)Discount Rate Change (137,545,109) -Carrying amount at the end of the year 2,666,716,774 2,354,247,066

14.2.1 Planted-year wise analysis of Consumable Biological Assets (Mahogany)

Planted No. of Trees Planted No. of Trees

Year Planted Year Planted

1997 1,028 2004 31,048

1998 409 2005 39,684

1999 525 2006 38,921

2000 961 2007 33,885

2001 2,705 2008 24,276

2002 8,627 2009 14,736

2003 20,040 2010 6,194

2011 1,107

Total 224,146

(Last planted year 2009)

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14. BIOLOGICAL ASSETS (Contd.)

14.3 Bearer Biological Assets (Vanilla) 2012 2011 Rs. Rs.

Carrying amount at the beginning of the year 242,879,000 208,845,000Gain arising from changes in fair value less estimated Point of sales cost attributable to-Physical Change 11,128,200 34,034,000Price Change 67,237,200 -Carrying amount at the end of the year 321,244,400 242,879,000

14.3.1 Planted-year wise analysis of Bearer Biological Assets (Vanilla)

Planted No. of Vine Planted No. of Vine


2004 7,011 2008 2,992

2005 7,331 2009 3,337

2006 24,696 2010 19,197

2007 - 2011 4,250

2012 5,894

Total 74,708


As at 31st March 2012 2011 Rs. Rs.

14.4 Consumable Biological Assets (Sandalwood)Carrying amount at the beginning of the year 1,872,159,020 683,279,886Gain/(Loss) arising from changes in fair value less estimated Point of sales cost attributable to-Physical Change 305,880,224 1,188,879,134Price Change 167,545,863 -Discount Rate Change (143,333,199) -Carrying amount at the end of the year 2,202,251,908 1,872,159,020

14.4.1 Planted-year wise analysis of Consumable Biological Assets (Sandalwood)



2004 57 2008 3,510

2005 997 2009 5,960

2006 2,211 2010 14,787

2007 3,783 2011 62,952

Total 94,257




14.5 Consumable Biological Assets (Teak) 2012 2011 Rs. Rs.

Carrying amount at the beginning of the year 56,666,581 46,855,463Gain/(Loss) arising from changes in fair value less estimated Point of sales cost attributable to-Physical Change 230,994,286 9,811,119Price Change 45,441,406 -Discount Rate Change (12,929,692) -Carrying amount at the end of the year 320,172,581 56,666,582

14.5.1 Planted-year wise analysis of Bearer Biological Assets (Teak)



1997 6 2004 1,658

1998 53 2005 1,096

1999 304 2006 1,153

2000 904 2007 1,140

2001 2,114 2008 818

2002 3,072 2009 455

2003 2,531 2010 147

2011 18

Total 15,469


14.6 The above biological Assets of the Company were valued by Mr. B. L. Ariyatillake, independent Chartered Valuer. Based on the Valuation Report dated 28th May 2012, the immature mahogany plantations are valued at Rs.2,666,716,773/- (Rs.2,424,269,857/- in 2011), immature Vanilla vines are valued at Rs.321,244,400/- (Rs.242,879,000/- in 2011), the immature Sandalwood plantations are valued at Rs 2,202,251,908/- (Rs 1,872,159,020/- in 2011) and the immature Teak plantations are valued at Rs 320,172,581/- (Rs 56,668,581/- in 2011) which is sated under note 14 to these Financial Statements.

14.6.1 Significant Assumptions Made by the Valuer In assessing the fair value, the key assumptions made by the Valuer are as follows;

(A) Consumable Biological Assets (Mahogany)

Market value of a Tree

Mahogany price is mainly obtained from International Market price of Mahogany Timber, State Timber Corporation and the Local Market in determining the value of mature tree. Cost of sawing and other outgoings have been deducted to obtain the net value of sawn timber per mature tree. Value of a mature mahogany tree is assumed to be Rs.50,000/- (Rs. 45,000/- in 2011) for the purpose of valuation as at the Balance sheet date.

Determination of growth patterns

In determining the growth patterns, the following assumptions have been made.

a) Time period for maturity is 18 years

b) An average mature tree would contain 0.9 (0.9 - in 2011) cubic meters of timber

c) Fully mature tree is expected to have an average height of 64 feet.

d) Growth pattern corresponding to relevant height is based on published international growth patterns (Source: silviculture of Mahogany 1998 J.E Mayhew and A.C Newton) adjusted to suit the local conditions.

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Discount Rate

Discount Rate of 13% (12.5% in 2011) is used as the rate of return on the capital. This rate is based on the current accepted rates of returns expected by investors and general rates used by the valuers.

Maintenance Cost

The on going cost of growing the trees has been deducted in determining the cash flow and on consistant in real terms.

(B) Bearer Biological Assets (Vanilla)

Market value of a Vine

The Company has obtained the membership of the Kandy Vanilla Growers’ Association (KVGA) on 08th November 2009. The market price is mainly obtained from the Kandy Vanilla Growers’ Association and Export Agricultural Department. One Kilogram of Vanilla is assumed to be Rs.1,280/- (Rs.1,000/- in 2011) as at the balance sheet date.

Determination of expected harvest patterns

In determining the expected harvest patterns, the following assumptions have been made

a) Time period to obtain harvest is 4th year from date of planting

b) A mature vanilla vine would give a total harvest of 15Kg during its maturity.

c) Value per immature vanilla vine is determined by considering expected harvest pattern of vine.

Discount Rate

Rate of return on capital is assumed to be 20%. (20% in 2011)

(C) Consumable Biological Assets (Sandalwood)


Sandalwood price is mainly obtained from the International Market price of tamilnadu auction prices in determining the value of mature tree. The estimated cost of sawing and other outgoings have been deducted to obtain the net value of sawn timber per mature tree. Value of a mature Sandalwood tree is assumed to be Rs.5,400/- per 1 kg (5000/- in 2011), for the purpose of valuation as at the Balance sheet date.



a) Time period for maturity estimated at 16 years

b) An average mature tree would contain 25 kg of heartwood

c) Growth pattern corresponding to relevant height is based on published international growth patterns (Source : Sandalwood consultant Dr. Anantha Padmanabha) adjusted to suit the local conditions.

d) Fully mature tree expected to have average girth (Root Collar) of 70 cm.

Discount Rate of 13% (12.5% in 2011) is used as the rate of return on the capital. This rate is based on the current accepted rates of returns expected by investors and general rates used by the valuer.

Maintenance Cost




(D) Consumable Biological Assets (Teak)


Teak price is mainly obtained from International Market price of Teak Timber, State Timber Corporation and the Local Market in determining the value of mature tree. Cost of sawing and other outgoings have been deducted to obtain the net value of sawn timber per mature tree. Value of a mature Teak tree is assumed to be Rs.65,000/- (Rs.56,000/- in 2011)for the purpose of valuation as at the Balance sheet date.



a) Time period for maturity estimated at 18 years

b) A average mature tree would contain 0.7 cubic meters of timber

c) Fully mature tree is expected to have an average height of 70 feet.

d) Growth pattern corresponding to relevant height is based on published international growth patterns (Source : Thai Orchid Laboratory) adjusted to suit the local conditions.

Discount Rate

Discount Rate of 13% (12.5% in 2011) is used as the rate of return on the capital. This rate is based on the current accepted rates of returns expected by investors and general rates used by the valuer.

Maintenance Cost


Sensitivity Analysis - Mahogany, Sandalwood and Teak

DiscountingRate

Changes inDiscounting Rate

Impact to

Net Assets Profit

15.50% 1.5% 1,825,112,379 (1,104,148,965)

14.00% 1.0% 2,458,039,655 (471,221,689)

13.50% +0.5% 2,778,061,062 (151,200,282)

13.00% 0% 3,054,463,926 125,202,582

12.50% -0.5% 3,348,271,927 419,010,583

12.00% -1.0% 3,660,696,950 731,435,606

11.50% -1.5% 3,993,042,976 1,063,781,632

The sensitivity analysis explains the sensitivity of the Mahogany, Sandalwood and Teak fair value to the discounting factor. However the discounting rate of 13% has been used for the mahogany, Sandalwood and Teak biological asset valuation during the year.

14.7 The Mahogany trees included in the biological assets valuation are only those trees, which the company maintain in order to meet the obligation arising from the purchase back guarantee agreement it has with the client. This included the trees in client’s plots as well as company stock. Trees on which there is no purchase back guarantee is shown under Note 25.1.

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15. INVENTORIESSandalwood - Nurseries 1,774,943 807,460 1,774,943 807,460Sandalwood - Stock - 100,000 - 100,000Jatropha - Nurseries 4,291,797 4,245,387 4,291,797 4,245,387Vanilla Process Bean Stock 1,218,000 3,045,000 1,218,000 3,045,000Plantation Stock 911,318 911,317 911,318 911,317Stationery Stock 56 - 56 -Raw Material 857,143 - - - 9,053,257 9,109,164 8,196,114 9,109,164

16. TRADE AND OTHER RECEIVABLESPrepayments & Advances 67,108,398 26,322,607 47,662,131 26,322,606Loans Against Preference Shares 2,769,689 2,737,670 2,769,689 2,737,670Project Costs 13,178,234 13,785,669 13,178,234 13,785,668Staff Loan (Note 16.1) 676,980 267,951 676,980 267,951VAT Receivable 2,774,504 - 2,774,504 -ESC Receivable 1,091,274 1,053,098 1,091,274 1,053,098WHT Receivable 2,824,511 3,629,674 2,824,511 3,629,674Other Receivable (Note 16.2) 23,986,490 18,339,185 20,986,490 15,339,185 114,410,080 66,135,854 91,963,813 63,135,852

16.1 Staff LoansBalance at the beginning of the year 267,951 28,185 267,951 28,185Loans granted during the year 2,139,487 456,772 2,139,487 456,772 2,407,438 484,957 2,407,438 484,957Loans settled during the year (1,730,458) (217,006) (1,730,458) (217,006)Balance at the end of the year 676,980 267,951 676,980 267,951

16.2 Other ReceivablesInterest Receivable 1,307,678 3,440,587 1,307,678 3,440,587Salary Advances 95,512 136,011 95,512 136,011Deferred Revenue expenses against Sales Reservation 13,161,557 3,715,762 13,161,557 3,715,762Sundry Advance 4,857,397 5,260,779 4,857,397 5,260,779Receivables from PPE Disposals 130,000 2,670,000 130,000 2,670,000Corporate Credit Card 1,434,346 116,046 1,434,346 116,046Bank Guarantee 3,000,000 3,000,000 - - 23,986,490 18,339,185 20,986,490 15,339,185




17. AMOUNTS DUE FROM RELATED PARTIESTouchwood Ltd 28,320,944 13,323,171 18,832,154 -Touchwood (Pvt) Ltd - 1,141,643 - 1,141,643Farm Grow (Pvt) Ltd - - 15,676,782 14,841,392Twood Flooring (Pvt) Ltd - - 110,084,481 95,077,020Green Forestry Ventures (Pvt) Ltd 68,450 66,950 68,450 66,950 28,389,394 14,531,764 144,661,867 111,127,005

18. OTHER SHORT TERM INVESTMENTSBalance at the beginning of the year 20,000,000 - 20,000,000 -Investments made during the year 10,000,000 20,000,000 10,000,000 20,000,000Reinvestment of the Profit made during the year 7,626,586 - 7,626,586 - 37,626,586 20,000,000 37,626,586 20,000,000Profit obtained in Cash (5,954,708) - (5,954,708) - 31,671,878 20,000,000 31,671,878 20,000,000Less: Provision for falling of Market Value of Shares (19,880,018) - (19,880,018) -Balance at the end of the year 11,791,860 20,000,000 11,791,860 20,000,000

18.1 This represents the investment made in the share market. The reason for the diminution of the balance as at 31st March 2012 is due to envisaged impairment of this asset.

19 CASH AND CASH EQUIVALENTSFavourable BalancesCash in Hand 808,271 617,826 688,271 617,826Cash at Bank 27,122,415 21,137,418 10,615,024 19,855,828Short Term Deposits 186,679,131 351,108,601 186,679,131 351,108,601 214,609,817 372,863,845 197,982,426 371,582,255

Unfavourable BalanceBank Overdrafts (4,611,015) - (4,611,015) -Cash and Cash Equivalents for the purpose of Cash Flow Statement 209,998,802 372,863,846 193,371,411 371,582,255

20 STATED CAPITAL71,270,400 Ordinary Shares (71,270,400 - 2011) 623,616,000 623,616,000 623,616,000 623,616,000

The holders of ordrnary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share at meetings of the company. All shares rank equally with regard to the company’s residual assets.

97

21. REVALUATION RESERVE The revaluation reserve comprises of the gain arisen from revaluing lands. This reserve is realised upon the disposal of the revalued

lands.

22. CAPITAL RESERVE Rs.265,797,755/- (Rs.346,500,928/- 2011) has been transferred to a Capital Reserve during the year. This reserve comprises unrealized

gains arising from the fair value of the biological assets net of purchase back guarantee. This is not used for distribution of profits until it is realized in cash.

23. PREFERENCE SHARE REDEMPTION RESERVE Profits have been retained in order to utilize for redemption of preference shares at an agreed premium.

24. PREFERENCE SHARE CAPITAL Group Company 2012 2011 2012 2011 Rs. Rs. Rs. Rs.

Called up amount at the beginning of the year 30,400,000 30,400,000 30,400,000 30,400,000(3,040 Non- Voting, Redeemable, Cumulative Preference Shares)Calls in arrears (Note 24.1) (2,454,272) (2,463,272) (2,454,272) (2,463,272)Balance at year end (3,040 Non- Voting, Redeemable, Cumulative Preference Shares) 27,945,728 27,936,728 27,945,728 27,936,728

The preference shares were issued on 3rd July 2003, at a redemption premium of Rs 196,500/-, which is payable together with 1% annual dividend. These Preference Shares will be redeemed at the end of the 18th year from the date of allotment.

24.1 Call In Arrears 2012 2011 2012 2011 Rs. Rs. Rs. Rs.

Balance at the beginning of the year 2,463,272 2,480,272 2,463,272 2,480,272Received during the year (9,000) (17,000) (9,000) (17,000)Balance at the end of the year 2,454,272 2,463,272 2,454,272 2,463,272

SecurityThe Company has planted one Mahogany tree for each Preference Share issued and sold. (Trees were planted in Rusigama Estate)




25. PROVISION FOR PURCHASE BACK GUARANTEEProvision at the beginning of the year 2,501,462,361 1,651,693,859 2,501,462,361 1,651,693,859Provision made during the year 660,324,546 862,894,883 660,324,546 862,894,883Payment of Vanilla return (14,711,023) (13,126,381) (14,711,023) (13,126,381)Provision at the end of the year 3,147,075,884 2,501,462,361 3,147,075,884 2,501,462,361

25.1 No cash back guarantees has been offered in respect of 351 (374- 2011) tree sale agreements. However volume guarantees have been given are disclosed below.

Current Year Year todateProduct No of No of Volume gurentee No of No of Volume gurentee Contracts Trees/Vines Given(Cu.m3/kg) Contracts Trees/Vines Given (Cu.m3/kg)

Mahogany 1 20 18 120 2,349 2,114Vanilla 72 32,625 247,000 174 61,928 461,450Sandalwood 278 4,922 123,050 1,371 26,561 664,025Sandalwood & Vanilla - - - 11 1,125/ 4,500 28,125/27,540Total 351 37,567 370,068 1,676 30,035/66,428 694,264/ 488,900

25.2 As per the purchase back guarantee agreements, the Company has the right to terminate the contract and pay only 50% of the initial agreed guarantee until 2002/03 and 33.33% there after, if 3 or more instalments are in arrears. Therefore the above provision has been made based on performing purchase back guarantee agreements.

25.3 The above provision for purchase back guarantee has been arrived after discounting following actual guaranties (payable at maturity) given after considering the expected maintenance income receivable, using a cost of capital relevant to each contracts varying from 18% to 34%. (IRR)

Total Purchase Back Guarantees Given 2012 Rs.

Mahogany 20,996,700,000Sandalwood 1,307,600,000Vanilla 1,147,242,815Total Guarantee Given 23,451,542,815

The Purchase Back Guarantee given has been discounted and made the provision in the Financial Statements as the note no. 25.

99

26. DEBENTURES Group Company 2012 2011 2012 2011 Rs. Rs. Rs. Rs.

Balance at the beginning of the year 13,590,000 13,645,000 13,590,000 13,645,000Redeemed During the year (40,000) (55,000) (40,000) (55,000) 13,550,000 13,590,000 13,550,000 13,590,000Accrued Interest 34,181,546 27,310,382 34,181,546 27,310,382 47,731,546 40,900,382 47,731,546 40,900,382

The Company has issued 2,744, secured, Redeemable, unlisted Cumulative Debentures. These debentures are redeemable on or after 18 years from the allotted date at an interest rate of 17% per annum. The interest on Debentures will be paid after maturity of 18 years. The issue opened on 17th March 2003 and will be closed on the day the issue is fully subscribed.

Security The company has planted one Mahogany tree for each debenture issued and sold. (Trees were planted in Panthiya Estate) These trees

have been valued at its fair value of bialogical assets.


27. EMPLOYEE BENEFITSBalance at the beginning of the Year 5,883,433 2,754,096 5,883,433 2,754,096Provision made during the Year 1,725,516 3,748,478 1,725,516 3,748,478Payments made during the Year (670,023) (619,141) (670,023) (619,141)Balance at the end of the Year 6,938,926 5,883,433 6,938,926 5,883,433

An Actuarial Valuation of the retirement benefit obligation was carried out as at 31st March 2012 by Actuarial & Management Consultants (Pvt) Ltd.

The Valuation method used by the actuaries to value the benefit is the ‘Projected Unit Credit Method’, the method recommended by the Sri Lanka Accounting Standard No.16 (Revised 2006),’Employee Benefits’

27.1 Expenses recognised in Profit or Loss 2012 2011 Rs. Rs.

Interest Cost 588,343 - Current Service Costs 1,265,648 3,748,478 Net Actuarial (Gain)/Loss recognised immediately (128,475) - Amount Recognised in the Income Statement 1,725,516 3,748,478

27.2 The Key Assumptions used by the actuary include the following

27.2.1 Financial AssumptionsRate of Interest 11.0% (Per Annum)Rate of Increase of Salaries Executives 10.0% (Per Annum) Non Executives 10.0% (Per Annum)

27.2.2 Demographic Assumptions In addition to the above financial assumptions, demographic assumptions such as mortality, withdrawal, disability and retirement age

were considered for the actual valuation. A 67/70 mortality table issued by Institute of Actuaries, London was used to estimate the gratuity liability of the company.

Retirements-Age Male/Female 55 The Company will continue as a going concern.




28 DEFERRED TAXATIONBalance at the beginning of the year 216,893,100 177,081,816 216,893,100 177,081,816Recognised during the year (Note 8.1) 33,903,436 39,811,284 33,903,436 39,811,284Balance at the end of the year 250,796,536 216,893,100 250,796,536 216,893,100

28.1 Recognised Deferred Tax Assets & Liabilities Deferred Tax assets and liabilities are attributable to the following originations of temporary differences; Taxbale/ (Deductible) Temporary Differences: Biological Assets 5,510,385,662 4,525,951,667 Mature Trees 162,237,439 147,237,439 Property, Plant & Equipments (10,642,931) 3,087,683 Purchase Back Guarantee (3,147,075,885) (2,501,462,361)Retirement Benefit Obligation (6,938,926) (5,883,433) 2,507,965,359 2,168,930,995 Applicable Tax Rate 10% 10%Net Deferred Tax Liabilities 250,796,536 216,893,100

Future Applicable Tax Rate As per the tax consultants’ opinion, profit derived by the Company from its normal course of business may be considered as profits

derived from “Agriculture” and would be liable for income tax at the rate of 10% commencing from the year of assessment 01 April 2011.

Accordingly, tax rate of 10% has been considered as future enacted tax rate for the purpose of deferred taxation.

29. DEFERRED REVENUE ON ANNUAL MAINTANANCE CHARGESAnnual MaintenanceBalance at the beginning of the year 47,345,299 24,612,392 47,345,299 24,612,392Payment received in advance during the year 75,727,380 25,009,439 75,727,380 25,009,439Less: Amortised during the year (4,203,437) (2,276,532) (4,203,437) (2,276,532)Balance at the end of the year 118,869,242 47,345,299 118,869,242 47,345,299

30. ACCUMULATED PREFERENCE DIVIDENDS PAYABLEBalance at the beginning of the year 2,214,619 1,910,619 2,214,619 1,910,619Appropriated during the year 304,000 304,000 304,000 304,000Balance at the end of the year 2,518,619 2,214,619 2,518,619 2,214,619

31. RESERVATION & ESTABLISHMENT FEE ADVANCEBalance at the beginning of the year 25,095,193 32,637,403 25,095,193 32,637,403Advance received during the year 197,743,251 171,960,980 197,743,251 171,960,980Transferred to revenue during the year (181,366,037) (179,503,190) (181,366,037) (179,503,190)Balance at the end of the year 41,472,407 25,095,193 41,472,407 25,095,193

32. AMOUNTS DUE TO RELATED PARTIESTouchwood Ltd. - 11,424,046 - 11,424,046Touchwood Asia Co. Ltd 9,094,708 7,724,358 9,094,708 7,724,358 9,094,708 19,148,404 9,094,708 19,148,404

101


33. INTEREST BEARING BORROWINGSPayable after one yearLong Term Loans (33.1) 88,159,999 - - -Finance Lease Liability (33.3) 29,126,780 22,631,238 29,126,790 22,631,238 117,786,789 22,631,238 29,126,790 22,631,238Payable within one yearShort Term Loans (33.2) 8,691,899 - 4,000,000 -Finance Lease Liability (33.3) 10,101,528 7,198,732 10,101,528 7,198,732 18,793,427 7,198,732 14,101,528 7,198,732

33.1 Long Term LoansBalance at the beginning of the Year - 1,500,000 - 1,500,000Loans obtained during the year 88,159,999 - - -Payments made durring the year - (1,500,000) - (1,500,000)Balance at the end of the year 88,159,999 - - -Payable within one year - - - -Payale after one year 88,159,999 - - -

33.2 Short Term LoansBalance at the beginning of the Year - 3,719,782 - 3,719,782Loans obtained during the year 8,691,899 - 4,000,000 -Payments made during the year - (3,719,782) - (3,719,782)Payable within one year 8,691,899 - 4,000,000 -

33.3 Finance Lease LiabilityBalance at the beginning of the year 41,424,678 7,067,073 41,424,678 7,067,073Leases obtained during the year 27,963,488 42,189,408 27,463,488 42,189,408Payments made during the year (14,347,755) (7,831,803) (14,347,755) (7,831,803) 55,040,411 41,424,678 54,540,411 41,424,678Interest in suspense (15,312,093) (11,594,708) (15,312,093) (11,594,708) 39,728,318 29,829,970 39,228,318 29,829,970Lease rental payable within one year 10,101,528 7,198,732 10,101,528 7,198,732Lease rental payable after one year 29,126,790 22,631,238 29,126,790 22,631,238

34 TRADE AND OTHER PAYABLESSalaries and Incentives Payable 5,689,688 5,086,289 5,556,771 5,086,289Creditors & Accrued Expenses 56,753,606 10,427,717 55,500,625 10,362,717Other payable 20,442,066 20,949,740 20,442,066 20,949,740 82,885,360 36,463,747 81,499,462 36,398,746



35. RELATED PARTY DISCLOSURES

35.1 Related Party Transactions The Company carries out transactions in the ordinary course of its business with parties who are defined as related parties in Sri Lanka

Accounting Standard 30 “Related Party Disclosures (Revised 2005)”, the details of which are reported below. The pricing applicable to such transaction is based on the assessment of the risk and pricing model of the Company and is comparable with what is applied to transactions between the Company and its unrelated Customers.

Name of the Company Nature of Relationship

Name of Common Directors

Nature of transactions Amount Received/

(Charged) Rs.

GroupTwood Flooring (Pvt) Limited with:

Touchwood Limited Parent Mr. R A Maloney Capital Received (5,400,000)

Mrs. J G S Maloney Consultancy Fee Paid (6,082,423)

Payment made on behalf of TL 5,372,848

Convertion of Director’s Loan 3,000,000

Other Payments (87,000)

TIL Product Sales Commission 17,156,028

Return Paid on Agarwood Product 37,552,767

Payments made on behalf of TL 29,715,199

Touchwood (Pvt) Limited Affiliate Mr. R A Maloney Payments made on behalf of TW (Pvt) Ltd 15,000

Mrs. J G S Maloney Written Off of the Balance (1,156,643)

Mr. S P A Koralage

Twood Floring (Pvt) Limited Subsidiary Mr. R A Maloney Loan 20,000,000

Mrs. J G S Maloney Payments made on behalf of TWF (Pvt) Ltd 26,540,794

Mr. S P A Koralage Interest on Loan 18,466,667

Cash Receipts (50,000,000)

Touchwood Asia Limited Affiliate Mr. R A Maloney Technical fees (1,370,350)

Mrs. J G S Maloney

Mr. S P A Koralage

Farm Grow (Private) Limited

Subsidiary Mr. S P A Koralage Expense on Buldings 517,900

Mr. Channa Abeygunawardana

Expenditure over Land Audit Fee

299,990 17,500

Green Forestry Ventures (Pvt) Limited

Affiliate Mr. Channa Abeygunawardene

Sale of Trees 37,383,720

Payments made on behalf of GFV 1,500

This note should be read in conjunction with Note 17 and 32.

103

35.2 Compensation to Key Management Personnel

According to Sri Lanka Accounting Standards 30 (Revised 2005) “Related Party Disclosures”, Key Management Personnel are those

having authority and responsibility for planning, directing and controling activities of entity. Accordingly, the Board of Directors (including

Executive and Non-Executive Directors) have been classified as Key Management Personnel of the Company. Emoluments paid to Key

Management Personnel have been disclosed in Note 6.

This Note should be read in conjuction with Note 17 - Amounts due from Related Companies.

Key Management Personnel CompensationCompany For the year ended 31st March 2012 2011 Short term Long term Total Short term Long term Total benefits benefits benefits benefits Rs. Rs. Rs. Rs. Rs. Rs.

Salary 31,410,797 - 31,410,797 20,622,045 - 20,622,045

Incentive 5,621,518 - 5,621,518 4,284,637 - 4,284,637

GroupFor the year ended 31st March 2012 2011 Short term Long term Total Short term Long term Total benefits benefits benefits benefits Rs. Rs. Rs. Rs. Rs. Rs.

Salary 31,410,797 - 31,410,797 20,622,045 - 20,622,045

Incentive 5,621,518 - 5,621,518 4,284,637 - 4,284,637

Interest on Loan given 1,000,000 - 1,000,000 - - -

• Rs.7,515,000paymentshavebeenmadebyMrs.J.G.S.MaloneyonbehalfofTwoodFlooring(Pvt)LtdandRs.6,500,000ofwhich

has been settled by the Company during the year.

• CompanyhasnotincurredanyamountasTerminationbenefitsorPostEmploymentbenefitsonaccountofthekeymanagerial

personnel during the year.

• Companyhasnotprovidedloans,advancesorothercreditfacilitiesinthenamesofkeymanagerialpersonnelasat31.03.2012.

• DuringtheyearRs.29,016,887wasrefundedbyMrs.J.G.S.Maloneyinrespectofthetreesacquiredin2009/10

35.3 There are no related party transactions those require specified disclosure in accordance with section 07 of the continuing listing

requirements of Colombo Stock Exchange.



36. COMMITMENTS AND CONTINGENCIES

SLAASMB Case

The Judgment to CA (Writ) 323/2007 filed against SLAASMB (Sri Lanka Accounting and Auditing Standard Monitoring Board) was delivered in favor of the petitioner, Touchwood Investments PLC on the 25 of January 2010. SLAASMB has filed for leave to appeal the Judgment given by the Court of Appeal in the Supreme Court on the 08 of March 2010 (SC SPL Leave to Appeal No 42/10) Appeal No.42/10.

This case is pending as an appeal matter was heard before the Supreme Court on the 21 May 2012 and postponed until 06 November 2012 for arguments.

Case No: CA/WRIT/322/2007 (Touchwood Investments PLC Vs. Security and Exchange Commission of Sri Lanka)

In the Court of Appeal on 19 April 2007, the Court granted an Order, staying the operation of the directives of the SEC dated 09 March 2007. The Stay Order prevailing in the case No.CA (Writ) 323/2007 which was given against SEC has been extended by the Supreme Court untill determination of the Appeal case No.SC/Appeal/100/2011.

Reserve Price for Agarwood Sales

Company promotes Agar wood Tree and has agreed a minimum reserve price of Rs.36 mn (Thai Bath 9.9 mn) on behalf of Touchwood Ltd.

Volume Guarantee

Details of volume back guarantee given as at the Balance Sheet date are disclosed in Note No. 25.1 of the Financial Statements.

36.1 Litgation and Claims There are no material litigations or claims that could have a material impact on the financial position of the company, or which would

lead to a disclosure in the Financial Statements.

37. EVENTS OCCURRING AFTER THE BALANCE SHEET DATE No circumstances have arisen since the balance sheet date which would require adjustments to, or disclosure in the financial

statements.

105

Investor Information

SHARE DISTRIBUTION

SHAREHOLDING AS AT 31ST MARCH 2012 From To No of Holders No of Shares %

1 1,000 3,203 1,625,252 2.28 1,001 10,000 2,748 10,587,996 14.85 10,001 100,000 705 19,036,543 26.71 100,001 1,000,000 57 15,782,377 22.15

Over 1,000,000 05 24,238,232 34.01 6,718 71,270,400 100.00

CATEGORIES OF SHAREHOLDERSLocal Individuals 6,472 53,510,598 75.08Local Institutions 204 10,571,470 14.84Foreign Individuals 34 1,335,740 1.87Foreign Institutions 8 5,852,592 8.21

6,718 71,270,400 100.00

DIRECTORS SHAREHOLDING AS AT 31ST MARCH 2012 No. of Shares %

Mr. R T Wijetilleke Nil NilMr. R A Maloney 11,664,000 16.36%Mrs. G S Jamburegoda 6,409,600 8.99%Mr. S P A Koralage 496,000 0.70%Mr. C Abeygunawardene Nil NilMr. L L Kulatunga Nil NilMr. P B Herath(Alternate director to Mr.S P A Koralage) Nil NilMr. J S Olaboduwa(Alternate director to Mr.C Abeygunawardene) Nil NilMr. A R Perera Nil NilMr. D M De Silva Wijeyeratne Nil Nil

SHARE PRICES FOR THE YEAR As at As at 31/03/2012 31/03/2011

Market price per shareHighest during the year Rs.33.20 (26.05.11) Rs.141.25Lowest during the year Rs.12.80 (15.02.12) Rs. 21.50As at end of the year Rs.15.50 Rs. 23.50

PUBLIC HOLDINGThe percentage of shares held by the public 73.94%

106

20 Largest Shareholders

20 MAJOR SHAREHOLDERS OF THE COMPANY AS AT 31ST MARCH 2012 NAME NO OF SHARES (%)

1 Mr. R A Maloney 11,664,000 16.366

2 Mrs. S G Jamburegoda 6,409,600 8.993

3 Touchwood Limited 2,528,000 3.547

4 Seylan Bank PLC /Mr. Jayantha Dewage 1,847,132 2.592

5 HSBC International Nominees Ltd-SSBT-Deustche Bank AG Singapore A/C 01 1,789,500 2.511

6 Pan Asia Banking Corporation PLC /Mr. S Gobinath 876,000 1.229

7 Pan Asia Banking Corporation PLC /Nuwara Eliya Property Developers (Pvt) Ltd 755,180 1.06

8 Seylan Bank PLC /Capital Trust Holdings (Pvt) Ltd 688,085 0.965

9 Mellon Bank N A-Acadian Frontier Markets Equity Fund 644,000 0.904

10 Mrs. U R Wijayarathne 625,000 0.877

11 Amina Investments Limited 600,000 0.842

12 Mr. S S Abhayawickrama 562,200 0.789

13 Mr. S P A Koralage 496,000 0.696

14 Pan Asia Banking Corporation PLC. /Mr.Ravindra Erle Rambukwelle 470,000 0.659

15 Dr. A S Abeygunawardena 443,400 0.622

16 Multiform Chemicals Limited 420,000 0.589

17 Mr. K M R P B Kasturisinghe 400,900 0.563

18 Merchant Bank of Sri Lanka Limited/ Union Investments Ltd 400,000 0.561

19 Mr. L M S H Alnaqib 375,000 0.526

20 Mr. M S M Ali 354,500 0.497

32,348,497 45.388

Others 38,921,903 54.612

Total 71,270,400 100

TOUCHWOOD INVESTMENTS PLC ANNUAL REPORT 2011/12

Investor Information

107

Notice of Meeting

NOTICE IS HEREBY GIVEN that the Thirteenth Annual General Meeting of the Company will be held on Friday 28th September, 2012 at 9.30 a.m. at The Eagle, Water’s Edge, Ethul Kotte, Battaramulla for the following purposes.

1. To receive and consider the Report of the Directors and Statement of Accounts for the year ended 31st March 2012 with the Report of the Auditors thereon.

2. To re-elect Mrs. Swarna Maloney who retires by rotation at the Annual General Meeting in terms of Article 91 of the Company’s Articles of Association.

3. To re-appoint as a Director, Mr. L L Kulatunga, who is 70 years of age and who vacates his office in terms of Section 210 of the Companies Act No. 7 of 2007, and Mr. L L Kulatunga also retires by rotation at the Annual General Meeting, in terms of Article 91 of the Company’s Articles of Association.

Notice is hereby given of the undernoted Ordinary Resolution in relation to Mr. L L Kulatunga’s re-appointment to be passed in compliance with Section 211 of the Companies Act No. 7 of 2007.

“RESOLVED THAT Mr. L L Kulatunga who is 70 years of age be and is hereby re-appointed a Director of the Company and it is hereby declared as provided for in Section 211 of the Companies Act No. 07 of 2007, that the age limit of 70 years referred to in Section 210 of the said Companies Act shall not apply to the said Mr. L L Kulathunga.”

4. To re-appoint as a Director, Mr. Aloysius Ralph Pereira, who is 74 years of age, and who vacates his office in terms of Section 210, of the Companies Act No. 7 of 2007.

“RESOLVED THAT Mr. Aloysius Ralph Pereira who is 74 years of age be and is hereby re-appointed a Director of the Company and it is hereby declared as provided for in Section 211 of the Companies Act No. 07 of 2007, that the age limit of 70 years referred to in Section 210 of the said Companies Act shall not apply to the said Mr. Aloysius Ralph Pereira.”

5. To re-elect Mr. Michael Kenneth Simmons who has been appointed a Director during the year, in terms of Article 96 of the Company’s Articles of Association.

6. To re-elect Mr. Malcolm Scorer who has been appointed a Director during the year, in terms of Article 96 of the Company’s Articles of Association.

7. To re-appoint as auditors M/s, KPMG (Chartered Accountants) at a remuneration to be fixed by the Directors.

BY ORDER OF THE BOARD TOUCHWOOD INVESTMENTS PLC

(Sgd.)CORPORATE ADVISORY SERVICES (PVT) LTDSECRETARIES

15th August 2012

108

Notes


109

Form of Proxy

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

of…………………………………………………………………………………being a member/members of the above named Company

hereby appoint ……………………………………………………… of ………………………………………………….. whom failing

Roscoe Anthony Maloney of Colombo or failing him

Swarna Maloney of Colombo or failing her

Swamy Pandith Asitha Koralage of Colombo or failing him

Channa Abeygunawardene of Colombo or failing him

Liyanage Laksaman Kulatunga of Colombo or failing him

Aloysius Ralph Pereira of Colombo or failing him

Michael Kenneth Simmons of Colombo or failing him

Malcolm Scorer of Colombo or failing him

Mr./Mrs./Miss. ……………………………………………………………………………………………………………………………

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

represent me/us and vote on my/our behalf at the 13th Annual General Meeting of the Company to be held on Friday 28th September 2012,

at 9.30 a.m. and at any adjournment thereof and at every poll which may be taken in consequence of the aforesaid Meeting.

FOR AGAINST

1. To receive and consider the Report of the Directors and Statement of Accounts for the year ended 31st March 2012 with the Report of the Auditors thereon.

2. To re-elect Mrs. Swarna Maloney who retires by rotation at the Annual General Meeting in terms of Article 91 of the Company’s Articles of Association.

3. To pass the Ordinary Resolution set out in the Notice of Meeting to re-appoint Mr. L L Kulatunga, who is 70 years of age, as a Director of the Company, and to re-elect Mr. L L Kulatunga who also retires by rotation in terms of Article 91 of the Company’s Articles of Association.

4. To pass the Ordinary Resolution set out in the Notice of Meeting to re-appoint of Mr. Aloysius Ralph Pereira, who is 74 years of age, as a Director of the Company.

5. To re-elect Mr. Michael Kenneth Simmons who has been appointed a Director during the year in terms of Article 96 of the Company’s Articles of Association.

6. To re-elect Mr. Malcolm Scorer who has been appointed a Director during the year in terms of Article 96 of the Company’s Articles of Association.

7. To re-appoint as auditors M/s, KPMG (Chartered Accountants) at a remuneration to be fixed by the Directors.

Signed this ……………… day of ……………………..………….2012. …………………………………….. Signature

NOTE:1) A proxy need not be a member of the Company.

2) If you wish your proxy to speak at the meeting you should insert the words”and to speak” immediately before the words “and vote” in the place indicated with an (*) and initial such insertion.

3) Instructions for completion appear on the reverse thereof


110

Form of Proxy

INSTRUCTION FOR COMPLETION OF FORM OF PROXY1 Kindly complete the Form of Proxy by filling in legibly your full name and address, and your instructions as to voting, by signing in the space

provided and filling in the date of signature.

2. Please indicate with an “X” in the cages provided how your proxy is to vote on the Resolution. If no indication is given or if there is any doubt as to how the Proxy should vote by reason of the manner in which the instructions are carried out, the proxy in his/her discretion may vote as he/she thinks fit

3. The completed Form of Proxy should be deposited at the Registered Office of the Company at No. 28, Joseph Lane, Colombo 4, not less than 48 hours before the time appointed for holding the meeting.

4. If the Form of Proxy is signed by an attorney, the relative power of attorney should accompany the completed form of proxy for registration, if such power of attorney has not already been registered with the Company.

NoteIf the shareholder is a Company or body Corporate, Section 138 of the Companies Act No. 7 of 2007 applies to corporate shareholders of Touchwood Investments PLC.

5. Please furnish the following information:

Shareholder Proxy holder

NIC No./ Passport No.

Nationality

Share Certificate No.

No. of Shares:


Future Sustainable.

At Touchwood we are deeply committed to a sustainable future - because we know that we must. Our business involves the environment and our impact on it more closely than most. This is why we have to consider social, political and environmental impacts in all our undertakings. Because we believe that it is more socially, ethically and financially rewarding to be a truly sustainable company.

We pioneered the business model for managed forestry investments in the Asia Pacific region. And that singular expertise sets us apart. Over the past 13 years, our constant research and hands-on involvement with field experts and leading educational institutions has enabled us to incorporate patented cultivation programs with proprietary design technology that deliver an assortment of unparalleled products and services. These scientific advancements and sustainable practices provide our clients socially-responsible investments through the practice of managed forestry, growing trees with a high commercial value while preserving old-growth forests.

Name of the Company : Touchwood Investments PLC

Legal Form : A Public Quoted Company with Limited Liability Incorporated on June 7, 1999 Registration No. PQ - 217

Registered Office : No. 28, Joseph’s Lane, Colombo 4, Sri Lanka. Tel: +94 117 444 888 Fax: +94 117 444 889

Board of Directors : Mr. Roscoe A. Maloney (Chairman) Mr. S. P. Asitha Koralage (Deputy Chairman) Mr. Channa Abeygunawardene (Chief Executive Officer) Mrs. Swarna Maloney Mr. L. L. Kulatunga Mr. A. R. Pereira

Alternate Directors : Mr. Janath Olaboduwa Mr. Prageeth Herath

Secretary : Corporate Advisory Services (Pvt) Ltd

Registrars : P W Corporate Secretarial (Pvt) Ltd

Auditors : KPMG (Chartered Accountants)

Lawyer : Mr. Janath Olaboduwa

Bankers : The Hongkong and Shanghai Banking Corporation Limited Sampath Bank PLC Bank of Ceylon Hatton National Bank PLC

Tax Consultants : BDO Partners, Chartered Accountants, Charter House, 65/2, Sir Chittampalam Gardiner Mawatha, Colombo 2.

Corporate Information

Future Sustainable.


ANNUAL REP ORT 2 0 1 1 / 1 2

TOUCHWOOD INVESTM

ENTS PLC ANNUAL REPORT 2010/11

www.touchwood.com

Touchwood Investments PLCNo. 28, Joseph’s Lane, Colombo 4, Sri Lanka.Tel: +94 117 444 888

future sustainable

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