powering - prima grain elevators plc ar 2018.pdf · annual report through which we hope to provide...

CEYLON GRAIN ELEVATORS PLC | ANNUAL REPORT 2018

POWERING

CEYLON

GRAIN

ELEVATORS PLC | AN

NU

AL REPORT 2018

Ceylon Grain Elevators PLCNo. 15, Rock House Lane, Colombo 15, Sri Lanka.Tel : +94 11 2522556 or 8 / 2523580 / 2526378 to 2526383Fax : +94 11 2524163E-mail : [email protected]

Ceylon Grain Elevators PLC has earned the supreme position as Sri Lanka’s largest

operator in the poultry industry. Pursuing an aggressive diversification strategy from our

core business of feed milling we are well on the path to be an integrated poultry business.

Moving up with a strong commitment towards achieving product quality and maintaining

efficiency in our manufacturing processes we have continuously recorded profitability.

Built on a strong foundation of good corporate governance and accountability with our

relentless pursuit to maintain the highest standards of quality we are on the right track

powering sustainable progress.

POWERING

Ceylon Grain Elevators PLC | Annual Report 20182

NAVIGATING THIS REPORT

REPORT STRUCTURE VALUE CREATION

REPORT BOUNDARY

EXTERNAL ASSURANCE

MATERIALITY ASSESSMENT

GOVERNANCE

02

02

109

24

32

76

Report Structure

The Annual Report of the Company covers

the period of twelve -months from

1 January 2018 to 31 December 2018 which

represents the annual reporting cycle.

The Annual Report for the financial year

ended 31 December 2018 represents

a balanced review of our financial,

environmental and social performance, our

governance framework and how we manage

risks. Our objective is to provide our readers

with an overview of how we nurtured our

capitals to achieve sustainable growth and

deliver value to our stakeholders.

Scope and Report Boundary

This Report considers the financial

performance of the subsidiaries of the

Company which are namely; Three Acre

Farms PLC, Millennium Multibreeder Farms

(Private) Limited, Ceylon Pioneer Poultry

Breeders Limited, Ceylon Livestock and

Agribusiness Services (Private) Limited,

Ceylon Warehouse Complex (Private) Limited

and Ceylon Aquatech (Private) Limited which

are collectively referred to as the ‘Group’ in

the Annual Report. The key financial aspects

are discussed in the context of the Company

as well as the Group. The non-financial

aspects are discussed from the perspective

of the Company.

Materiality Determination

We apply the principles of materiality in

assessing the information that is to be

included in the integrated report. Matters

which are identified as material are those

that affect the value creation capacity. Pages

32 to 34 of this report covers the material

aspects relevant to the Company.

This year we present our second Integrated Annual Report through which we hope to provide a comprehensive yet concise review on how Ceylon Grain Elevators PLC (the ‘Company’) created value to its stakeholders through its financial, social and environmental performance for the year ended 31 December 2018.

Ceylon Grain Elevators PLCNo. 15, Rock House Lane,

Colombo 15, Sri Lanka.

Tel: +94 11 252 2556

Fax: +94 11 252 4163

E-mail : [email protected]

3

Standards and principles of preparation

The Financial Statements presented on pages 112 to 170

of this Report have been prepared in accordance with the

Sri Lanka Accounting Standards (SLFRS / LKAS) issued by

the Institute of Chartered Accountants of Sri Lanka (CA Sri

Lanka) and the requirements of the Companies Act No. 7 of

2007. The narrative on Corporate Governance (pages 76 to

88) complies with the Code of Best Practice on Corporate

Governance issued jointly by the Securities and Exchange

Commission of Sri Lanka and CA Sri Lanka and the Listing

Rules of the Colombo Stock Exchange

We have followed the Integrated Reporting Framework adopted

by the International Integrated Reporting Council (IIRC)

Responding to our stakeholders

The Company creates value through the Business Model, which takes inputs from the six capitals and transforms through business activities to produce outputs and outcomes that create value over time for its diverse stakeholders. Our stakeholder centric approach to

value creation.

Available Forms

CEYLON GRAIN ELEVATORS PLCAnnual Report 2018

PrintAvailable onrequest

CD-RomPosted to all Shareholders

OnlineAvailable as PDF

www.prima.com.lk

Our leadershipChairman’s Message and Chief Executive Officer’s Review

are placed on page 18 and 20 respectively

Our Value CreationIn terms of value creation to the stakeholders, our

model, strategy, resource allocation and materiality

assessment disclosed on pages 24 to 32

Management Discussion and AnalysisThe operational environment, segmental review and

six capitals reports disclosed on page 36 to 75

Corporate GovernanceGovernance structure, composition and committees

and reports thereon are disclosed on pages 76 to 95

Financial StatementsFinancial statements, significance accounting

policies and related Notes disclosed on pages 112

to 170

Group Overview and Executive ReviewsOur Vision | Our Mission | Our Corporate Goals

6

Our History 7

Group Structure 8

Milestones 10

Financial Highlights 12

Our Numbers at a Glance 13

Our Product Portfolio 14

Our LeadershipChairman’s Message 18

Chief Executive Officer’s Review 20

Board of Directors 22

Creating Value for StakeholdersOur Value Creation Model 24

Business Strategy and Resource Allocation

26

Stakeholder Engagement 28

Materiality Assessment 32

Management Discussion and Analysis

Operating Environment 36

Sector Reviews 40

Financial Capital 44

Manufactured Capital 50

Intellectual Capital 54

Human Capital 58

Relationship Capital - Customer 64

Relationship Capital – Business Partners and Community

68

Natural Capital 72

Governance ReportsCorporate Governance Review 76

Audit Committee Report 89

Remuneration Committee Report 92

Nomination Committee Report 93

Related Party Transactions Review Committee Report

94

Enterprise Risk Management Review

96

Financial ReportsFinancial Calendar 103

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

104

Statement of the Directors’ Responsibility

108

Independent Auditors’ Report 109

Statement of Profit or Loss and Other Comprehensive Income

112

Statement of Financial Position 113

Statement of Changes in Equity 114

Statement of Cash Flows 115

Notes to the Financial Statements 116

Investor Highlights and InformationFive Year Financial Summary 171

Value Added Statement 172

Shareholder Information 173

Glossary of Financial Terminology 175

Notice of Meeting 176

Form of Proxy 177

Corporate Information Inner Back Cover


CONTENTS

Our corporate philosophy is centred upon the 3H principles of building a Healthy

Organisation, being an Honourable Winner and making an Honest Fortune. This business

philosophy is derived from our Parent Company, Prima Limited of Singapore.

HealthyOrganisation

Honourable Winner

Honest Fortune

Achieving success through fair competition. Striving towards

excellence.

Establishing trust, fairness and mutual benefits with all within our business

circle. Contributing to the well-being of society.

Developing a sound, effective and efficient organisation system. Promoting team spirit and reaching out to create a

“PRIMA FAMILY” identity.

5

OUR VISION

OUR MISSION

“To achieve complete poultry integration synergies, ultimately gaining export market competitiveness.”

To tap and harness business opportunities by expanding into various vertical integration projects. This will lead to increase in Agriculture, Aquaculture and Livestock production, thus encouraging national progress through nutritious protein-rich food to the people of this Nation.

Our Corporate Goals

In line with our Chairman’s directives and Prima Group corporate philosophy, we will continue to grow steadily in our primary activities with the ultimate goal of reaching the status of an integrated feed milling business.

Our future expansion plans shall be within our management capability and financial resources.

To establish “PRIMA” and “FARMERS’ CHOICE” as a brand name synonymous with the very best in high quality products.

To establish high standards of good corporate governance, improve transparency and the standards of accountability to shareholders.


The corporate journey of Ceylon Grain Elevators PLC (CGE) commenced way back in December 1982, when the

Government of Sri Lanka and Prima Limited of Singapore inked an agreement beginning a partnership that has

endured over three decades of yeoman service to the poultry industry in the country.

Today, CGE is the largest operator in the poultry industry of Sri Lanka, establishing six subsidiary companies operating

not only in the field of poultry, but also offering products and services in diverse fields.

CGE and the companies under its umbrella manufacture and distribute a wide range of feeds under the “PRIMA” and “FARMERS’ CHOICE” brands. They also operate poultry and

hatchery breeder farms, commercial poultry farms and also engage in the processing, packaging and retailing of poultry

meat products, the import and sale of poultry equipment, veterinary products, produce aqua feed and provide a state-of-the-art laboratory and consultancy service to customers

and farmers throughout the Island.

7

OUR HISTORY


Ceylon Livestock and

AgrobusinessServices (Private)

Limited(CLAS)

Ceylon WarehouseComplex

(Private) Limited(CWCL)

Ceylon Aquatech(Private) Limited

(CAT)

Integrated poultry activities including feed milling, broiler farming, processing and distribution of chicken

Import and sale of poultry equipment, drugs and vaccines

Provide storage facilitiesIntegrated shrimp operation

including breeding, processingand culture of shrimp

100% 100% 100%

CGE

GROUP STRUCTURE

9

Three Acre Farms PLC (TAF)

Prima ManagementServices (Private)

Limited(PMS)

Poultry breeder farms, hatcheries and commercial broiler farms

MillenniumMultibreeder

Farms (Private)Limited(MMF)

CeylonPioneer Poultry

Breeders Limited(CPPBL)

Poultry breederfarming

and hatchery

Renting of farmoperation

Provide ICT solutionand services

57.21% 33%

CGE Shares were introduced to the

Central Depository System at the

Colombo Stock Exchange

Bonus issue of 1-for-3 share capitalising

Rs.50 Million from capital reserves

Right issue of Rs.10 Million ordinary

shares for a premium of Rs. 35/- per

share raising CGE’s capital to Rs.300

Million

Acquisition of Three Acre Farms Limited

Incorporation of Ceylon Pioneer Poultry

Breeders Limited, a wholly-owned

subsidiary of TAF

Incorporation of Ceylon Warehouse

Complex (Private) Limited, a wholly-

owned subsidiary of CGE

Bonus issue of 1-for-2 share capitalising

Rs. 150 Million from share premium

Right issue of 15 Million ordinary shares

at a premium of Rs. 15/- per share to

raise CGE’s issued capital to Rs. 600

Million

Ceylon Aquatech (Private) Limited was

incorporated to venture further into

integrated shrimp business

Acquisition of Bulathsinhala and

Halwathura Farms

Agreement signed between SLPA and

CWCL to reclaim land from the seabed

at Mutwal, adjacent to CGE factory

Incorporation of Ceylon Grain Elevators

The Company was listed on the

Colombo Stock Exchange

First invoiced sale of Animal Feed

Breeder Farm Project at Kosgama

started production of Commercial Day-

Old Chicks

Investment in the equity of Ceylon

Livestock and Agrobusiness Services

(Private) Limited which undertakes

trading activities


MILESTONES

Incorporation of Millennium

Multibreeder Farms (Private) Limited, a

wholly-owned subsidiary of TAF

First commercial shrimp feed plant

established in Sri Lanka.

Launched “PRIMA SUPER SHRIMP FEEDS”

Construction of New Silos - CWCL

Acquisition of Hijra Farms

Investment in Prima Management

Services (Private) Limited, an Associate

Company of CGE

Commencement of Environment

Controlled House projects at

Commercial Farms

Implementation of ERP System

ISO Quality Management System

certification (ISO 9001:2008)

Addition of a new feed mill line

Fully taking over the operation of

poultry processing plant

Construction of state-of-the art cold room in Poultry Processing Plant

Freehold ownership of Ittapana land to increase the capacity of Breeder Farms

11

Group

2018 2017 Change

Change%

Operating Results

Revenue Rs. Million 17,086 15,155 13

Operating profit Rs. Million 1,326 1,102 20

Profit for the year Rs. Million 1,211 1,070 13

Dividend (proposed) Rs. Million 180 120 50

Earnings per share (EPS) Rs. 14.84 13.17 13

Return on shareholders' fund (ROE) % 13.7% 13.8% (0.7)

Balance sheet strength

Total assets Rs. Million 11,571 10,171 14

Total debts Nil Nil -

Shareholders' fund (equity) Rs. Million 6,479 5,712 13

No. of shares in issues Rs. Million 60 60 -

Net assets per share Rs. 107.99 95.21 13

Current ratio No. of times 2.67 2.47 8

0

1,000

2,000

3,000

4,000

5,000

6,000

20182017201620152014

Value added(Rs. Million)

0

200

400

600

800

1,000

20182017201620152014

Earnings per employee(Rs.'000)

0

200

400

600

800

1,000

1,200

20182017201620152014

Net cash used in investing activities(Rs. Million)


FINANCIAL HIGHLIGHTS

Group Revenue Operating Profit Earnings Per Share

17.1 1.3 14.84Rs. Billion Rs. Billion Rs.

2017 - Rs. 15.2 Billion 2017 - Rs. 1.1 Billion 2017 - Rs.13.17Û Û Û

13% 20%

Group Assets Dividend Per Share

11.6 3.00Rs. Billion Rs.

2017 - Rs. 10.2 Billion 2017 - Rs. 2.00Û Û

14% 50%

13%

7362017 - 640

No. ofEmployees

Employee Retention rate

94%

13

OUR NUMBERS AT A GLANCE


We focus on sourcing the best raw materials for effective feed formulation. Maize is one of the key ingredients which plays a dominant role in the cost and quality of the feed. By purchasing locally harvested Maize at a competitive market price, we play our role as a responsible corporate citizen.

15

OUR PRODUCT PORTFOLIO

As a pioneer in the Sri Lankan feed manufacturing industry with decades of expertise, we produce a wide range of feed products to our customers. The main categories are Poultry feed, Cattle feed, Horse feed and Aqua feed. The highest volume contributor, Poultry feed consists of sub-categories of Broiler feed, Layer feed and Breeder feed of which Broiler feed contributed more than fifty percent of total feed sales. We have understood the emerging trend in cattle feed demand and accordingly we have enhanced our cattle feed range to meet specific requirements of our customers.

Poultry and other animal feeds are produced under ‘Prima’ and ‘Farmer’s Choice’ brands for the majority of farm animals bred across the island. They are considered the most preferred brands among customers as the brands are synonymous with high quality.

Broiler and Layer Chicks are provided under Prima quality chicks, a brand which is well accepted by customers from diverse sectors.


OUR PRODUCT PORTFOLIO

The nutrition value along with competitive price are the main reasons for the increased demand in chicken every year. Thus, we guaranteed the nutrition value of Prima chicken as we are the pioneer in the integrated poultry business. With the increase in demand over the last few decades the consumer preferences have also evolved. In order to meet these customer expectations value added poultry products have been introduced in frozen and chilled forms.

Augmented with five key attributes and available in a wide array of products to suit modern lifestyles, Prima Chicken provides goodness to everyone.

With an increased growth trend evident in per capita annual chicken consumption in Sri Lanka, the demand for chicken is set to follow a growth trajectory with the increase in per capita income and the expansion of the hospitality industry.

17

Dear Valued Stakeholder,

It is with great pleasure that I present the

Integrated Annual Report and Audited

Financial Statements for the financial year

ended 31 December 2018. I consider it to

be an achievement that the Company is

nourishing the nation with the promise of

nutritious protein goodness of our products.

The theme, ‘Powering Sustainable Progress’,

indicates a successful year for the Company

as we approached our business with a

renewed sense of pride and responsibility,

raising the bar in the areas of quality and

technology advancements to take the

industry ahead.

Overall Performance

I am pleased to report that your Company

recorded an increase in Revenue and Profit

After Tax (PAT) of 13% over the previous

year while achieving PAT of over Rs. 1 Billion

for the fourth consecutive year despite

challenging market conditions. This was

achieved primarily due to efficiency in farm

operations, higher demand for feed due

to consistency in feed quality and farmers

shifting towards formulated feed from

self-mixing and optimising formulated feed

costs.

I am pleased to announce that your

company has proposed a First and Final

dividend of Rs. 3.00 per share amounting to

Rs. 180 Million for the year 2018 subject to

the approval of shareholders at the Annual

General Meeting. We remain committed to

growing shareholder wealth in a sustainable

manner.

Our sustainable development and growth is

a direct result of the prudent management

and good governance practices entrenched

in our Company’s ethos. Upholding the

principles of transparency, accountability

and ethical operations has helped sustain

profitability and enhance shareholder value.

Social and Environmental Stewardship

The Company adopts the modern human

resource management practices and is

keen on maintaining the highest working

standards for employees.

As an ethical corporate citizen, the Company

demonstrates its sense of responsibility

for the environment by enhancing waste

water treatment plants on its farms and

continuously maintaining the quality of

the end product. The Company also avidly

supports a variety of CSR events and also

continues to support the community to

uplift their livelihood.

It gives me pride to inform that our previous

Annual Report was selected for a Bronze

award at the CA Annual Report Awards 2018

under the Food and Beverages sector and

we remain committed to enhancing our

in-depth reporting to improve the quality of

the annual report with each passing year.

Looking Ahead

We remain optimistic about further

expansion of the poultry industry with

the export market opportunities that avail

in the regional countries and ambitious

infrastructure development programme by

the Government. Our Company in particular

is on a strong growth trajectory, supported

by plans for expansion and infusion of

the latest technology to meet the highest

standards of quality and nourishment.

During the year under review, we

contributed to state coffers to the tune

of over Rs. 3.1 Billion and committed to

enhancing operations continuously in future.

Appreciation

I wish to thank fellow Directors on the Board

for their support and the management and

staff of the Company for their hard work

and dedication to sustain our market leader

position through yet another challenging

year of successful operations. It is extreme

Forging ahead by nourishing

the nation with the promise of

goodness.

ON A STRONG GROWTH TRAJECTORY


CHAIRMAN’S MESSAGE

sadness that I announce the demise of

Mr. Sunil Karunanayake (Non-Executive

Independent Director), who provided

valuable support to the Board of Directors of

your company. I would also like to welcome

our new Non-Executive Independent

Director, Dr. Prathap Ramanujam to the

Board of your Company and look forward to

his enormous expertise to contribute to our

future success. Our success despite a tough

year is due to the unwavering support from

all of our stakeholders who remain the pillars

of our success.

(Sgd.)

Wickrema Senaka Weerasooria

Non-Executive Independent Chairman

Colombo, Sri Lanka

8 April 2019

“Your Company recorded an increase in Revenue and PAT of 13% over the previous year while achieving PAT of over Rs. 1 Billion.”

19

Dear Valued Stakeholder,

It gives me great pleasure to present

before you, our Annual Report and Audited

Financial Statements for the year ended

31 December 2018. Our theme of the Annual

Report this year, ‘Powering Sustainable

Progress’, reflects our resilience as an

organisation, demonstrates our strength

in key fundamentals to sustain and grow

market leadership in the industry in a year

marked by many challenges and volatile

changes.

Operating Conditions

The Sri Lankan economy grew at 3.3% in the

first nine months of 2018 supported by the

expansion in service activities and recovery

in agricultural activities. The depreciation of

the LKR against US dollar and the increase in

fuel prices increased costs and inflation. This

resulted in a decline in disposable income,

which affected the demand for chicken

meat adversely as well. Factors such as high

level of taxes imposed on maize imports and

delay in issuing import permits affected the

cost of production of chicken and eggs. As a

result, consumers had to incur more to meet

their protein requirement.

Company Performance

The Company continues its momentum

by increasing Revenue by 13% Year-on-

Year (YoY) to Rs. 17.1 Billion for the year.

The Revenue growth was improved due to

farmers shifting towards formulated feed

from self-mixing due to scarcity of raw

materials in the country.

The Company saw growth across all three

segments in 2018, evidencing a significant

improvement in Operating Profit which

rose 20% YoY to Rs. 1.3 Billion. Our emphasis

on cost and cash management together

with our procurement of key raw materials

competitively contributed to our improved

operational performance.

Despite the challenging industry and market

trends, CGE delivered strong underlying

Profit after Tax growth of 13% YoY to

Rs. 1.2 Billion during the year, in spite of

increased income tax rates and exchange

loss amounting to Rs. 121.9 Million. The

earnings per share increased to Rs. 14.84

in year 2018, compared to Rs. 13.17 in year

2017.

Doing Business Responsibly

CGE has a strong commitment to operating

responsibly and playing our role in meeting

some of the political and economic

challenges in the country. In year 2018, we

introduced new products and implemented

significant nutritional improvements in

production. The Company is always striving

to stay one step ahead, staying in tune with

industry and customer needs.

As a responsible corporate, the Company

continues to support Government initiatives

to promote Maize production amongst local

maize farmers by purchasing majority of

locally grown Maize.

Driving Innovation

Ceylon Grain Elevators PLC is committed

to introduce environmentally-friendly

technology into its operations and deliver

significant innovation by adopting cutting

edge technology and processes. Sales Force

Automation (SFA), installation of interactive

software and control system for feed mill

operations and the new state-of-the-art cold

room facilities have boosted operational

efficiency. Moreover, laboratory facilities

were enhanced with Near-Infrared (NIR)

spectroscopic equipment and plans for

construction of a modern breeder farming

facility with advanced technology which is

currently underway.

STRENGTH IN KEY FUNDAMENTALS

Maintaining growth momentum

and enhancing profitability.


CHIEF EXECUTIVE OFFICER’S REVIEW

Looking Ahead

With strong performance levels, quality

products, modern operation platform, a

dedicated management and experienced

staff, we have great confidence in staying at

the forefront of the industry.

The demand for poultry products is expected

to grow in tandem with the thriving tourism

sector, expanding country’s population and

fast-growing franchised restaurants. These

are encouraging signs of improving market

conditions.

Expanding Environmentally Controlled

(EC) houses, installation of maize dryer and

increasing storage capacity are some of the

company’s initiatives to meet anticipated

increase in local demand.

These initiatives will help us deliver superior

products to the industry in the future.

Appreciation

I take this opportunity to thank the Chairman

and Board of Directors for placing their

confidence in me and my team and for

providing the strategic direction for the

company’s future growth. Our success would

not be possible without the support of our

customers, suppliers and other business

partners, who have always extended

their fullest support. Our staff has been

exceptionally patient and hard-working

through a challenging year and need to be

commended for their dedication.

(Sgd.)

Cheng Chih Kwong, Primus

Executive Director and Chief Executive Officer

Colombo, Sri Lanka

8 April 2019

“Sales Force Automation (SFA), installation of interactive software and control system for feed mill operations and the new state-of-the-art cold room facilities have boosted operational efficiency.”

21

Mr. Wickrema Senaka WeerasooriaNon-Executive Independent Chairman

Mr. Wickrema Senaka Weerasooria was

appointed as a Non-Executive Independent

Director with effect from 15 January 2015

and he was appointed as the Non-Executive

Independent Chairman of the Board with

effect from 25 February 2015.

Mr. Wickrema Senaka Weerasooria holds

a Masters in Information Technology

(University of Canberra, Australia), a Graduate

Diploma in Commercial Law (Australian

National University) (ANU) and a Bachelor of

Science (ANU).

Currently, he is a Vice President of the FINCO

Group of companies as the Chief Executive

of Genesiis Software Pvt. Ltd., FINCO

Technologies Pvt. Ltd. and a Director of

Wealth Trust Securities Ltd.

He has served as a Manager / Consultant

at several Australian public sector agencies

including the Department of Primary

Industry, Department of Education and

Department of Foreign Affairs and Trade.

Mr. Cheng Chih Kwong, PrimusExecutive Director and Chief Executive

Officer

Mr. Cheng Chih Kwong, Primus was the

Chairman and Chief Executive Officer of the

Prima Group and its subsidiary companies

since 1998. He has stepped down as

Chairman of the Board and will continue as

an Executive Director and Chief Executive

Officer of the Company with effect from 25

February 2015. He is a Certified Practicing

Accountant (CPA) - Australia and also holds a

Diploma in Business Studies.

Mr. Tan Beng ChuanExecutive Director and Group General

Manager

Mr. Tan Beng Chuan is the Group General

Manager of Prima Group of Companies, Sri

Lanka since 2004. He was appointed as a

Director of the Company and its subsidiary

companies in 2004. He also serves as a

Director of Three Acre Farms PLC and its

subsidiaries, Ceylon Agro-Industries Limited

and Prima Ceylon Machinery (Private)

Limited.

He holds an MBA in Management and

Marketing from University of Warwick, UK

and B.Sc. (Hon) in Chemical Engineering

from University of Surrey UK.

Mr. Tan Beng Chuan was the past President

Mentor of Singapore (Sri Lanka) Club;

Executive Committee member of Sri

Lanka - Canada Business Council, Executive

Committee member of Sri Lanka - Singapore

Business Council and a Committee member

of Sri Lanka - China Business Council.

Mr. Cheng Koh Chuen, BernardNon-Executive Director

Mr. Cheng Koh Chuen, Bernard has been a

Director of the Company with effect from 1

August 2012. He also serves as an Executive

Director of Prima Limited.

He holds a Bachelor of Science in Business

Administration and also an MBA from the

University of Southern California.

Mr. Cheng Eng LoongNon-Executive Director

Mr. Cheng Eng Loong has been a Director

of the Company with effect from 1 August

2012.

He holds a Bachelor of Science degree

majoring in Biochemistry and Chemistry

from the National University of Singapore.


BOARD OF DIRECTORS

Mr. Sunil KarunanayakeNon-Executive Independent Director

Mr. Sunil Karunanayake was a Director of the

Company since 2009. He was appointed as

Senior Director of the Board with effect from

25 February 2015 and was re-appointed as

Non-Executive Independent Director with

effect from 15 April 2015. He held office as

Non-Executive Independent Director until

his demise on 27 May 2018.

He held a Fellowship of the Institute

of Chartered Accountants of Sri Lanka

and Chartered Institute of Management

Accountants(UK) and an MBA from the

Postgraduate Institute of Management of

the University of Sri Jayewardenepura. He

also obtained a Diploma in Commercial

Arbitration from the Institute of Commercial

Law and Practice.

Dr. Prathap RamanujamNon-Executive Independent Director

Dr. Prathap Ramanujam was appointed as a

Non-Executive Independent Director of the

Company with effect from 7 August 2018.

After completing over 36 years of service

in the Public Sector and as a Permanent

Secretary to several important Ministries

during his last fourteen years in the Public

Sector. Dr. Prathap Ramanujam who was

responsible to setup the Secretariat for

Infrastructure Development and Investments

which was instruments to initiate the first

mini hydro power project in Sri Lanka back in

1993 joined the private sector by taking up

the directorship of Pan Asian Power in 2010.

He was appointed as the Chairman and the

Chief Executive Officer in the same year. He

brought in his diversified expertise from his

distinguished career in Public Sector over a

period of 36 years.

Dr. Ramanujam holds a First Class B.Sc.

(Hons.) degree from the University of

Peradeniya Sri Lanka, a M.Sc. degree in

Economics from the University of Bristol, UK

and a PhD in Economics from the Australian

National University (ANU), Canberra,

Australia.

He was appointed as the Chairman of

Onally Holdings PLC (2008) and Waters

Edge Limited (appointed by the Supreme

Court of Sri Lanka in 2009). Currently he is

the Chairman of Manelwala Hydropower

(Private) Limited and Padiyapelella

Hydropower Limited and serves in the Board

of Ceylon Agro – Industries Limited and

Pan Asian Investments (Private) Limited.

He is currently the Deputy Chairman of

Senkadagala Finance PLC. He was appointed

as member of the Public Service Commission

by constitutional council in August 2015.

23

Manufactured Capital

� Property, plant and equipment Rs. 2,652 Million

� Increase in FAT storage capacity

� Construction of new administrative building, staff quarters in our chicken processing facility

Intellectual Capital

� Team of knowledge and expertise

� System and processes

� Brand reputation

Human Capital

� Employee engagement

� Skills, knowledge and competencies of employees

� Employee health and safety

� Compliance

Social And Relationship Capital

� Contributing to build up spiritual well-being of society

� Contributing to community service

� Relationship with business partners

� Frequent communication with customers

Natural Capital

� Land

� Water

� Energy

� Material

� Legal compliance requirements

Financial Capital

� Shareholders’ funds Rs. 6,479 Million

� Operating cash flows Rs. 1,135 Million

Capital Input

Honourable Winner

Healthy Organisation

Hon

est F

ortune

Poultry breeding and commercial

Milling and farming

Poul

try

equi

pmen

t, w

areh

ousing and othersHow we Create ValueH

ow w

e Cr

eate

Value

How we Create Value

Governance

Gov

ernan

ce GovernanceValu

e Ch

ain

Man

agem

ent

Risk Managem

ent

Capital Management

Sour

cing

and

war

ehousin

g

Sourcing and attraction

Capital managem

ent

Capital enhancement and retention

Impact m

anagement

Man

ufac

turin

g

Rese

arch

and

dev

elop

men

t

Del

iver

y an

d af

ter s

ales s

ervic

es Mission

Vision Goal

s


OUR VALUE CREATION MODEL

Manufactured Capital

� Capacity enhancement

� Cost optimisation

� Cost savings

Intellectual Capital

� Business performance improvements

� New product innovation

� Enhanced brand reputation

� Stakeholder satisfaction

Human Capital

� Talented and skilled pool employees

� Motivated and target driven employees

� Zero-non compliance

� Employee satisfaction

Social And Relationship Capital

� Over 300 registered local and foreign suppliers

� Offer fair price for suppliers, especially for local farmers to empower their live hood

� Product responsibility

� Long lasting relationship with over 50% of customers

Natural Capital

� Well-being of society

� Improved performance

� Brand reputation

� Stakeholder satisfaction

Financial Capital

� Financial stability

� Shareholder satisfaction

� Compliance

Output

Outcome

Impacts

� Customer satisfaction and loyalty

� Dynamic team and innovative attitude

� Sustainable operation and market leadership

� Protection of Environment

� Livelihood enhancement of the community

Honourable Winner


Hon

est F

ortune

Poultry breeding and commercial

Milling and farming

Poul

try

equi

pmen

t, w

areh

ousing and othersHow we Create ValueH

ow w

e Cr

eate

Value

How we Create Value

Governance

Gov

ernan

ce GovernanceValu

e Ch

ain

Man

agem

ent

Risk Managem

ent

Capital Management

Sour

cing

and

war

ehousin

g

Sourcing and attraction

Capital managem

ent

Capital enhancement and retention

Impact m

anagement

Man

ufac

turin

g

Rese

arch

and

dev

elop

men

t

Del

iver

y an

d af

ter s

ales s

ervic

es Mission

Vision Goal

s

� Economic, Social and Environmental impacts

25

Business Strategy

The strategic focus of CGE is centred around

the following three core business principles

which are achieved through collaboration

with our stakeholders.

1) Healthy organisation

2) Honourable winner

3) Honest fortune

Thus, we believe that our business strategies

are within our capabilities to create

sustainable development while optimising

returns to shareholders and achieving

objectives of our stakeholders.

Healthy organisation

Continuous improvements in the supply

chain system will enable us create an

effective and efficient business operation.

This will enhance the competitiveness

through cost optimisation. Empowering

our employees’ soft skills, developing their

skills as well as satisfaction levels through a

comprehensive engagement plan will set in

place the foundation for a healthy business

operation.

Honourable winner

We believe that CGE should strive towards

exceptional standards to be an honourable

winner. Thus, sustainable growth, integrated

business diversification and gaining export

market entry through fair competition will

lead CGE towards excellence.

Honest fortune

Trust, fairness and mutual benefits are the

core imperatives that we focus on when

establishing relationship with our business

partners and customers. This has helped our

organisation to look beyond our capabilities

and share the benefits with them. As a

responsible corporate citizen and as a key

player in the integrated poultry industry,

we are conscious on the well-being of the

society and the community through our

business activities.

Resource allocation

Allocation of resources between business

segments when implementing our corporate

strategies towards optimising value creation

is challenging due to scarcity of resources.

However, through accumulated knowledge

and expertise over the past decades in the

business and implicit management skills,

CGE is able to optimise resource allocation

while balancing the strategic focus between

short, medium and long term goals to create

sustainable value creation. The allocation

of resources to each business segment and

capitals have been disclosed on pages 40 to

43 and pages 44 to 75 respectively.

Our Value delivery platforms

At CGE, we depend on with a view to ensure

the delivery of the value of our strategies

in accordance with and governed by our

resource allocation initiatives, objectives,

both in terms of the inputs to our activities

are outlined on pages 44 to 75 and our

strategy and the outcomes that we aspire

to in fulfilling the expectations of our

stakeholders.

� Maintaining a consistent Return on

Equity (RoE) of 13.7% in 2018

� Market capitalisation of Rs. 3,570 Million,

despite violate market conditions

� Expanded our reach to segments of

the market with high level of market

penetration

� Developed products and solutions that

are best-fit, cost effective and relevant to

prevailing needs and requirements


BUSINESS STRATEGY AND RESOURCE ALLOCATION

STRATEGIC FRAMEWORK

Û

Û Û

Û Û

27

Sustainable shareholder return

Value creation for stakeholder

Altered capitals through value creation

Mandatory and voluntary compliances

To achieve complete poultry

integration synergies, ultimately

gaining export market

competitiveness

To tap and harness business

opportunities by expanding

into various vertical integration

projects. This will lead to increase

in agriculture, aquaculture

and livestock production, thus

encouraging national progress

through nutritious protein-rich food

to the people of this nation.

Our Vision

Our Mission


Developing a sound, effective

and efficient organisation system.

Promoting team spirit and reaching

out to create a “PRIMA FAMILY”

Identity.

� Supply chain development

� Collaboration with employees

Honourable Winner

Achieving success through fair

competition. Striving towards

excellence.

� Sustainable growth

� Integrated business

diversification

� Gaining export market

competitiveness

Honest Fortune Establishing trust, fairness and

mutual benefits with all within our

business circle. Contributing to the

well-being of society.

� Collaboration with business

partners and customers

� Responsible corporate

behaviour

CORPORATE STRATEGY

PILLARS

CORPORATE STRATEGY

CORPORATE STRATEGY

OUTCOMES


STAKEHOLDER ENGAGEMENT

Value creation is for the stakeholders, as they

provide capitals to the organisation. Thus,

achieving those individual goals requires

formal communication, interaction and

feedback. This is called the stakeholder

engagement and our governance parties

play a key role as this engagement derives us

to redefine our Vision, Mission and objectives

and lead to a sustainable future.

CGE operates in the agri-food supply

chain and recognises the importance of

understanding the views of its stakeholders.

CGE’s strategic focuses is on long-term

value creation, especially for customers

and suppliers. The Company believes the

importance of timely and adequately

responding to market developments. In this

light, stakeholder dialogues are vital.

We maintain regular stakeholder

engagement through a range of formal

and transparent mechanisms that facilitates

continuous communication, dialogue

and feedback from our many and varied

stakeholder groups while raising awareness

of the need for sustainable resource

consumption and sustainable lifestyles.

We also continue to pursue new avenues

of communication that would enable our

stakeholders to give us more feedback to

improve our sustainability efforts.

Û Û Û ÛStak

eholder prioritisation

Dev

elop

m

ent of engagement p

lan

Imp

lem

enta

tion of engagem

ent plan

Control,

mon

itor a

nd improve engagement plan

Identify

stakeholders

Stakeholder engagement process

Our Stakeholders

Connected

External

Internal

BOD

Management and

Em

ploy

ees

Supplie

rs a

nd B

usin

ess

Part

ners

Custo

mers

Investors/Shareholders

Government and Regulatory Bodies

Press/Media

Envi

ronm

ent

Communiti

es

Stakeholder Mapping and Prioritising

Our stakeholder mapping process is

based on Mendelow’s Matrix which take

into account the influence exerted by the

stakeholders on our business and their

interest in doing so. We have also agreed on

our strategy on each quadrant in terms of

responding.

29

Pow

er

Interest

Key Players

Shareholders

Suppliers and Business Partners

Customers

Keep Informed

Employees

Environment

Community

Financers

Keep Satisfied

Government

Regulatory Bodies

Minimal Effort

Press

Media

Low

Hig

h

High Low

We always adhere to

their expectations as

they exert high power

through decisions

though they do not have

a high level of interest in

the Company

We have given

importance to every

stakeholder by

continuously maintaining

an interest towards them.

Hence we do not have

any stakeholder in this

category.

Our strategy is to keep

them informed and

provide feedback and

suggestions about the

business as they are

able to build a strong

foundation of support for

the Company

We nurture strong

relationships with

them by continuously

engaging, as any

decision by them could

considerably impact on

our business

Stakeholder Engagement : Mendelow’s Matrix

Engaging with our stakeholders

Stakeholder Engagement mechanism and frequency Key concerns Responses

Shareholders

Shareholders are the owners of the Company who provide financial capital to our business.

Prima Limited, Singapore is the main shareholder of CGE, who holds 45.45% stake of the business and the remainder is hold by the public and institutional shareholders.

� One-on-one discussions / engagement (When required)

� Corporate Website (Online)

� Annual General Meeting

� Annual Reports

� Interim Financial Statements (Quarterly)

� CSE Announcements (Continuous)

� Extraordinary General Meetings (Ad-hoc)

� Future prospects and sustainable growth in the business

� Return on Investments

� Dividends and capital gains

� Governance and transparency

All measures taken by the Company is devoted to the wealth maximisation of the shareholders in the long run and sustainable growth by coordinating other capitals.

Accordingly, productivity improvements, cost saving initiatives and risk assessment measures are taken continuously by the Company.


STAKEHOLDER ENGAGEMENT


Customers

Customers are the main focus of the Company as their satisfaction is required to enrich the financial capital.

Our customer base consists with dealers, Farmers, HoReCa sector, Supermarket chain, Retail Outlets, Other Institutions and Consumers.

� Technical support and product awareness session (Continuous)

� Direct customer interaction with sales force (Continuous)

� Customer satisfaction surveys (Periodically)

� Corporate website (Online)

� Social media (Continuous)

� Regular one-on-one engagements and site visits (Continuous)

� Specific audit reviews (Periodically)

� Dealer convention (Annually)

� Regional Dealer Meetings (Periodically)

� Product quality

� Affordability and resilience

� Availability and convenience

� Product portfolio

� Trade discounts and promotions

� Credit facilities

We continuously invest to enrich quality of our products and increase product varieties such as fresh chicken portfolio.

Brand promotion and other promotional activities are continuously conduct in order to provide product awareness

Also, the Company maintain relationship with our dealers for a long period and provides secured credit facilities and attractive trade discounts which ultimately secure the product availability around the country.

The customer feedbacks receive on all the way of interaction links with the future strategies and improvements.


Employees

Our competent and committed human capital is the key success factor in achieving sustainable growth.

� Internal communication through memo, intranet and notice board (Continuous)

� Regular training sessions (Continuous)

� Employee council meeting (Quarterly)

� Open-door policy (Continuous)

� Annual appraisal

� Employee counselling and grievance handling (When Required)

� Staff events (Annually)

� Remuneration and other benefits

� Job safety and healthy work environment

� Work-life balance

� Employee motivation and job satisfaction

� Continuous training and career progression

� Welfare facilities

� Recognition and succession planning

One of the cooperate philosophies of CGE is devoted to create healthy organisations through promoting team spirit and reaching out to create a “PRIMA Family” identity.

Thus, all the assessment is done to bond the relationship with our employees and detailed discussion on actions taken during the year disclosed under the ‘Human Capital’.


Suppliers and business partners

We source raw materials and other ingredients through a network of suppliers including local farmers and overseas suppliers.

They play a vital role in our social and relationship capital.

� Supplier selection process (When required)

� Attending trade exhibitions and supplier conventions (Periodic)

� Supplier surveys across the country (Regular)

� One-on-one engagements (Continuous)

� Site visits (Continuous)

� On time settlement and flexibility in negotiations

� Long term business relationships

� Sustainable business practices

We have built up a solid and strategic relationship with our suppliers while ensuring settlements on time and maintaining flexible terms for mutual benefits of both parties.

We have a sound communication with our suppliers to secure quality standards of our product.

31


Government and Regulatory bodies

Our regulators include the Government, Board of Investments (BOI), Sri Lanka Consumer Affairs Authority, Inland Revenue Department, The Department of Animal Production and Health (DAPH), Central Environmental Authority, the Colombo Stock Exchange, etc.

Productive and constructive dialogue with our regulators and the Government to ensure a conductive industry environment.

� Directives and circulars (Continuous)

� One-on-one engagement (When required)

� Periodic returns (as specified)

� Corporate website and CSE Website (Online)

� Maintaining environment and other specific Licenses (As specified)

� Payment of taxes and other regulatory payments on time

� Timely submission of Periodic Returns

� Contribute towards community development and creating job opportunities

� Environment preservation

� Using renewable energy sources

� Sustainable growth and business expansion

Complied with all relevant regulatory and statutory requirements. Further, all liabilities were settled and the periodic returns were submitted on time.

We continued to earn over Rs. 1Billion profit after tax and supported to the growth in the national economy and the industry.


Community and environment

We have a cordial and mutually beneficially relationship with the community we operate which is crucial to our success. We conduct our business operations in a manner that mitigates negative environment forces.

Also, we play a vital role in our social and relationship capital.

� Public events and sponsorship (Regular)

� Corporate website and CSE Website (Online)

� Maintaining environment and other specific Licenses (As specified)

� Social media interaction (Online)

� Contribute towards community development and creating job opportunities

� Contribute towards community and livelihood development

� CSR initiatives and responsible corporate citizen

� Social well-being

� Fair competition

Our 3H principles devoted to the well-being of our society and accordingly, our goals and strategies are always bound with it.

CGE has developed a sustainability framework comprising of material topics that affects the Group’s ability to create value in the short, medium

and long term. The creation of this framework was the result of careful stakeholder analysis.

Our approach to assessing materiality is as follows: Im

pact

on

stak

ehol

ders

Hig

hM

ediu

mLo

w

Low Medium High

Impact on the company

12

14

10

13

1

2

3

5

6 9

4

11

19

17

7

2015

16

18

8

Combines similar

issues across

categories such

as economic,

social and

environmental

Identifies the

significance of

these material

issues on

Company’s

capitals and

stakeholders

Prioritises based

on assessment

of the level of

importance

to external

stakeholders

Identifies material

aspects for

disclosure and

their boundaries

in the integrated

report of the

Company

Identifies matters

relating to Group

that affect the

Company and

stakeholders at

large.

Û Û Û Û

Inve

ntory of Material Issues A

ggre

gate Material Issues Eval

uate Material Issues Prio

ritise Material Issues

Iden

tify

Mat

erial Aspects and Boun

daries

Materiality Matrix

CGE has devised a materiality matrix that

segregates the material aspects identified

as impacting our business and stakeholders

at the highest to medium to lowest levels of

significance.



A few material topics we have focused on this year are as follows:

Energy consumption

Livestock production requires significant

energy consumption and has therefore

been identified as a material topic. CGE

recognises that feed is a major contributor

to the environmental impact of livestock

production.

We are continuously monitoring our

electricity usage by investing in energy

efficient LED bulbs and upgrading our

systems and processes.

Ensure safe and fair working conditions

Providing a safe working environment for

all employees, temporary contracted staff,

contractors and visitors is given the highest

priority and is therefore included as a

material topic.

CGE records the number of Lost Time Incidents

(LTIs) by gender. All significant LTIs are

reported to the Management within 24 hours

and lessons learned are discussed at each

management meeting. An LTI is defined as;

“any unplanned event that results in personal

injury, where the injured party is unable to

work during their next scheduled day”.

CGE’s approach to health and safety centres

around raising awareness by training staff,

implementing clear rules, performing

dynamic risk assessments, inspiring

employees to increasingly report near

incidents in order to prevent real incidents

from occurring and effecting a change in

behaviour and audits to ensure proactive

management of all critical areas of risk.

Our material aspects and impact on the Company

Capital Stakeholder Material AspectComparison with

previous year Future outlook

Financial and Manufactured

Shareholders 1. Financial performance

2. Market leadership

3. Wealth maximisation

High

High

High

High

No change

High

Social and Relationship

Customers

Business

Partners

Community

Government

4. Customer satisfaction

5. Product responsibility and value for money products

6. Contribution to national economy

7. Supply chain and commitments

8. Community engagement and livelihood improvement

9. Compliance with rules and regulations

10. Ethical business practices

No change

High

Low

No change

High

High

Low

High

High

No change

No change

High

High

No change

Human Employees 11. Gender diversity and inclusion

12. Remuneration and benefits

13. Health and safety

14. Child labour

15. Indigenous rights

No change

High

No change

No change

No change

No change

High

No change

No change

No change

Natural Environment 16. Persevering bio-diversity

17. Management effluents

No change

No change

No change

No change

Intellectual Employees

Customers

18. Product quality and innovation

19. System and process improvement

20. Enhanced brand reputation

No change

High

No change

No change

No change

No change

33

Improve feed safety

CGE is part of the food supply chain.

Therefore, feed safety has and always will be

a priority. As such, it has been included as a

material topic. Company has in place with

effective mechanism to ensure compliance

with feed regulation and voluntary codes.

Feed safety is reported by recording the total

number of feed safety incidents of non-

compliance with regulations and voluntary

codes concerning the health and safety

impacts of products and services within the

reporting period, by:

� Number of feed safety incidents of non-

compliance with regulations resulting in

a fine or penalty;

� Number of feed safety incidents of non-

compliance with regulations resulting in

a warning;

� Number of feed safety incidents of major

non-compliance with voluntary codes

via external audits.

A feed safety incident is defined as any

incident where it is deemed that feed

produced, processed, manufactured or

distributed could be a potential risk to either

human or animal health and/or could make

the food derived from food-producing

animals unsafe for human consumption.

Feed materials and compound feeds are

continuously monitored to determine

unwanted substances as defined by

legislation.



13%Group revenue increase

35

MANAGEMENT DISCUSSION AND

ANALYSIS

Global economy at glance [1] [2]

The global economy witnessed weakening

levels of expansion during 2018. The global

economy was expected to have grown

by 3.7% in 2018 despite weaker economic

prospects in Europe and Asia, and amidst a

tapering of industrial production and trade.

Global capital goods production, which is

highly trade-intensive, slowed notably in

Europe and developing Asia, two tightly

interconnected global manufacturing hubs.

Trade growth in the first nine months of

2018 averaged only 3.7%, compared to 4.7%

growth for the corresponding period in 2017.

The US economy grew by 2.9%, due to

a stronger domestic demand as a direct

result of ongoing fiscal stimulus and

accommodative monetary policy measures

introduced by the Federal Reserve.

This growth momentum was maintained

despite the ongoing US-China trade tensions

which began with the US administration

raising tariffs on imports from China; in turn

prompting other countries to retaliate with

tariffs on about US dollar 200 Billion worth of

US exports.

Emerging Market and Developing

Economies’(EMDE) reported stagnant

growth levels amidst the strengthening

of the US dollar, weakening capital flows,

heightened trade tensions and moderating

global manufacturing and trade. As a result,

aggregate growth in EMDEs edged down

to an estimated 4.2% in 2018, 0.3% below

previous projections.

International Monetary Fund (IMF) projects

that the global economy will grow at 3.5% in

2019 and 3.6% in 2020.

According to the Organisation for Economic

Co-operation and Development (OECD)

– FAO Agriculture Outlook 2018 -2027 the

per capita consumption of poultry meat is

expected to grow even in the developed

world, but growth rates will remain higher in

the developing regions. It is expected that

among all the meat consumed over the next

decade poultry meat is expected to account

for 44%.

Sri Lankan economy at glance [3]

During the first half of 2018, the Sri Lankan

economy recorded a modest growth of

3.6% compared to the 3.2% growth for

the corresponding period. This declining

economic performance in Sri Lanka

was partially due to the country facing

domestic challenges such as stagnant

fixed investment, weak domestic demand

and investment, trade deficit as a result of

negative net exports, higher debt servicing

ratio and tightening of monetary policy

which led to macroeconomic instability.

There was growth in the all three major

sectors of the economy—Services, Industries

ECONOMIC

GROWTH

Services

4.8%

Agriculture,Forestry and

Fishing

4.9%

Industries

1.6%(Y-o-Y)First Half 2018

Source [4]

Economic growth in Sri Lanka - First Half of 2018

[1] IMF, World Economic Outlook (WEO) Update, Jan 2019

https://www.imf.org/en/Publications/WEO/Issues/2019/01/11/weo-update-january-2019

[2] World Bank Group, Global Economic Prospects, Jan 2019

http://www.worldbank.org/en/publication/global-economic-prospects

[3] Central Bank of Sri Lanka - Recent Economic Developments 2018, chapter 2

[4] https://www.cbsl.gov.lk/sites/default/files/cbslweb_docments/publications/red/2018/3%20-%20Chapter%202%20-%20English.pdf


MANAGEMENT DISCUSSION AND ANALYSIS

OPERATING ENVIRONMENT

and Agriculture, forestry and fishing for the

first half of the year 2018.

The Agriculture sector recorded a turnaround

in the first half of the year, indicating a

recovery from adverse weather conditions.

The agricultural sector rebounded to reach

a growth of 4.9% in the first half of 2018,

while the services sector too expanded by

4.8%. The tourism industry demonstrated

positive improvements in first ten months of

2018, with an increase of 10.6% in earnings

recording total earnings of USD 3,496 Million.

This reflected an increase in arrivals which

grew by 10.6% to reach 1.9 Million visitors,

while the construction sector fell by 0.4%

in first nine months of 2018 displaying the

predicted slowdown of industrial activities

in 2018.

The trade deficit widened to USD 7,953

Million in nine months ended 30 September

2018, an increase of 16% in comparison to

2017. This was the direct impact of an import

expenditure growth level of 10.4% against

export earnings growth of 5.6%. Capital

outflows, particularly from Government

rupee securities, the tightening conditions

in the global markets, the strengthening

of the US dollar in view of monetary policy

normalisation and speculation in the

domestic market exerted pressure on the

exchange rate.

As a result, the Sri Lankan Rupee (LKR)

depreciated by over 18% against the US

dollar in 2018, the sharpest decline in

a decade. The gross official reserves of

the country declined to USD 6.9 Billion

(equivalent to 3.7 months of imports) by end

2018 from USD 8.0 Billion reported in 2017.

Headline inflation remained in low single

digit levels while core inflation too remained

subdued. The tight monetary policy

continued in 2018 as well.

During the year several structural reforms

such as the implementation of the new

Inland Revenue Act and the introduction

of Fuel Pricing Formula in keeping with its

policy of revenue driven fiscal consolidation

were introduced. Due to political uncertainty,

Sri Lanka’s sovereign rating was downgraded

by three major credit rating agencies. A

higher rate of inflation is expected stemming

from potential risks arising from global

commodity prices, inclement weather

and the impact of rupee depreciation on

domestic prices.

Agricultural sector at glance

The agriculture sector which employs over

25% of Sri Lanka’s population contributes

about 6.9% to the national GDP out of which

the fisheries sector contributes around 1.3%

and the livestock sector accounts for 0.6%.

Although Sri Lanka is a fertile tropical land

with the potential for the cultivation and

processing of a variety of crops, issues such

as productivity and profitability hamper the

growth of the sector.

Food and Agriculture Organisation of

the United Nations (FAO) said, Sri Lanka

is forecasted to produce approximately

180,000 metric tons (MT) of Maize by the end

of the year, which is 40% decrease from last

year’s yield of 242,000 MT. This is significantly

a lower volume compared to actual annual

requirement of 400,000 MT.

High import duties imposed on Maize and a

permit system which is in force have resulted

in imported Maize being sold at very high

prices. Further, the delay in issue of permits

has resulted in lack of Maize in the market

when needed causing further prices hikes

due to lack of supply.

Poultry Industry at glance

The annual per capita consumption of

chicken in Sri Lanka has increased to 10

Kg in 2018 from 4.9 Kg a decade ago. It is

expected that this will increase further to

12 Kg in the years ahead. This is mainly due

to the increase in the tourism industry and

the overall increase in consumption levels

triggered by the increased urbanisation

and changes in lifestyle. Further, chicken is

considered a nutritious source of protein. As

Sri Lanka continues on its growth trajectory,

demand for poultry products is anticipated

to increase at an even sharper rate.

37

Key indicators at glance

Maize Production and Import Restrictions

Maize is the key ingredient for feed production. The industry requirement per annum is over 400,000 MT while country’s production is approximately 180,000 MT. Import of Maize was subject to the permit and Government imported Maize during the first half of the year.

The sourcing of raw materials is challenging due to the short supply of quality

materials at a reasonable price. As a result of continuous demand raised by the key

players in poultry industry the Government granted permit for import of Maize

subject to a Rs.10 /- special commodity levy during the latter part of the year.

GDP Growth

GDP growth rate was 3.3% for the first half of the year 2018 and it was 3.2% for the corresponding period of 2017.

Indirectly, but positively contributed to the Group performance as a result of

improvement in demand for meat and eggs.

Inflation Rate

Inflation rate was 4.3% for the year 2018 and it was 7.1% for year 2017. (CCPI based headline inflation YoY)

This resulted in a decrease in disposable income of consumers and increase in cost

of production. This created a market glut for chicken in the latter part of the year

and decrease in profit margins.

Sri Lankan Rupee Depreciation

Sri Lankan Rupee depreciated against US Dollar by over 18% for the period end 2018.

Short supply of domestic key raw materials resulted in import of materials. This

exposed the Company to exchange rate losses and increases in material costs. For

the year 2018, the Group was exposed to Rs.121.9 Million foreign exchange losses.



OPERATING ENVIRONMENT

Dairy Industry

The Ministry of Fisheries & Aquatic Resources Development and Rural Affairs is forecasting on importing high yield cross-breeds and issuing them to local farmers at attractive prices with necessary expertise and guidance.

This has given rise to increase in demand for cattle feed which has lead to

introduce a new product category.

Tourist Arrivals

The tourist arrival for the first ten months of 2018 has increased by 10.6% to reach 1.9 Million tourist arrivals. Sri Lanka was named as the ‘Lonely Planet’ top destinations for travel and has been recognised as one of the most photographed cities in the world due to its natural beauty and scenic

attractions.

Increase in tourist arrivals will boost the tourism sector, with more hotels,

restaurants being opened. This will increase the demand for poultry products such

as chicken and eggs.

Shortage in Skilled Labour

With the expansion in service sector and improvements in education, there is a shortage in skilled labour for certain sectors including poultry industry.

The Company faces a lack of skilled workers and therefore, the Company is focused

on automating its systems and processes.

Introduction of new Inland

Revenue Act No. 24 of 2017

The new Inland Revenue Act was effective from 2018 and the increased income tax thresholds had a negative impact on profitability levels of corporates.

Corporate tax rate of Milling and farming sector increased to 28% (2017 -12% / 10%),

Poultry breeding and commercial farming segments taxation rates increased to

14% (2017 - 10%) and corporate tax rate of warehousing operations increased to

28% (2017 - 10%).

39



SECTOR REVIEWS

Our integrated poultry business of the Group consists of three main business segments; Milling and farming, Poultry breeding and commercial

and Others. During the year under review, we saw a remarkable growth in all three segments of the Group, surpassing revenue of Rs.17.1 Billion

for the first time in a year. Operating profit of the Group rose by 20% to Rs.1.3 Billion showing an exceptional performance and productivity in

terms of business activities and ultimately satisfying key objectives of all stakeholders.

Each segment individually and as an integrated poultry business provided a valuable contribution to the Group performance to deliver value to

its stakeholders.

2018

l 58% Milling and farming

l 36% Poultry breeding and commercial

l 6% Others

2017



l 7% Others

Asset Base 2018 2017

(Rs. Million) (Rs. Million)

Milling and farming 6,998 6,236

Poultry breeding and commercial 4,363 3,557

Others 687 685

2018



l 1% Others

2017



l 1% Others

2018



l 4% Others

2017



l 2% Others

Revenue 2018 2017

(Rs.Million) (Rs.Million)

Milling and farming 16,626 14,848

Poultry breeding and commercial 2,626 2,404

Others 126 142

Profit for the year 2018 2017


Milling and farming 576 451

Poultry breeding and commercial 749 654

Others 62 16

41

Milling and farming segment

The milling and farming

segment engage in

manufacturing and selling of

poultry and other animal feed

and processing of chicken. This

is the main operating segment

of the Group which contribute

86%, 42% and 58% to the

Group Revenue, Profitability

and Assets base respectively.

The YoY growth of Revenue

and Profit After Tax (PAT), when

compared to last year was

reported at an impressive 12%

and 28%, respectively, where

the segment achieved the

highest ever monthly feed sales

volume, reported during the

current year.

The reported growth in revenue during the

year were directly correlated to the increase

in demand for formulated feed with farmers

shifting from self-mixing and improved

market for other animal feed such as cattle

feed as a result of increased demand with

the emerging dairy industry. Additionally,

consistent feed quality, a wide range of

customised animal feed and sustainable

partnerships with key chicken processes also

heavily contributed to the revenue growth

during the year. The milling operation

provides a basis and the success of this

segment has been heavily beneficial and

directly impact on the performance of the

remaining operations of the Group.

The escalating prices of raw materials in the market and continuous depreciation of LKR against

USD significantly affected the sector performances. This was recovered to a certain extent with

effective feed formulation and alternative sourcing of materials, improved operational efficacy

and cost saving measures that took place in year 2018. However, the scarcity of quality local

Maize and pricing pressure together with quota restrictions imposed on Maize importation by

the Government have suppressed the operational performance of the sector.

The glut in the chicken market during the latter part of the year along with high competition

led to the decrease in demand for processed chicken and resulted in price competition. Further,

increased material costs and utility expenses together with increase in income tax rates to 28%,

narrowed the profit margins of the segment.

Additionally, the upward revision of fuel prices and adverse weather conditions negatively

affected the consumer purchasing power which resulted in decrease in the demand for the

end products, chicken and egg.

Despite these challenges, the milling and farming segment reported a revenue and profit of Rs.

16.6 Billion and Rs. 576 Million respectively during the current year against Rs. 14.8 Billion and

Rs. 451 Million recorded in the previous year, with the prudent management and cost controls.

Key indicators and contribution

Milling and farming 2018 2017 Change

(Rs. Million) (Rs. Million)

Revenue* 16,626 14,848 1,778 Û

EBIT 909 589 320 Û

PBT 779 584 195 Û

PAT 576 451 125 Û

TA 6,998 6,236 762 Û

TL 2,903 2,594 309 Û

*Revenue includes inter-company sales

Number of employees

4822017 Number of employees 430

Net assets (Rs. Million)

4,0952017 Net assets Rs. 3,642 Million



SECTOR REVIEWS

Poultry breeding and commercial segment

The poultry breeding and

commercial segment consist

of selective breeding, hatchery

and sale of commercial Day-Old

Chicks (DOCs) and commercial

farming, is the second largest

contributor to the Group’s

revenue and profitability during

the year. The sector contributed

to the Group’s Revenue, PAT

and Assets base respectively

by 13%, 54% and 36%. The YoY

growth of Revenue and profit,

when compared to last year

was reported at an impressive

9% and 14%, respectively.

The reported growth in revenue during

the year was attributable to the improved

demand for Broiler DOCs due to the increase

in demand for chicken and table eggs.

However, the Revenue from export of Parent

Stock DOCs to regional countries affected

due to the imposition of transit tariff and

restriction from suppliers’ countries due to

Avian Flu Influenza.

Along with the increase in revenue, the

segment was able to maintain its profitability

throughout the year due to effective farm

management in Breeder and Commercial

farms, application of leading industry

technical know-how, resulting in efficiency in

poultry breeding and improved productivity

in farm operations, despite the increase in

raw material and utility costs.

CGE’s subsidiary, Three Acre Farms PLC (TAF) holds the sole franchise for Hy-Line breeds for

commercial Layers and the Indian River breeds for commercial Broilers.

Unfavourable weather conditions resulted in lower productivity in the commercial farms.

Revenue from Layer DOCs continued to deteriorate due to instability in the table egg market at

the beginning of the year. Unsold layer DOCs were stemmed from poor demand was recovered

during the third quarter of the year and contributed positively to the bottom line at the end.

The segment continued to produce disease-free, healthy products upheld by the segment’s

stringent quality control measures, bio-security standards and effective farm and capacity

management. This ensured the Company maintains the continuous supply of highest quality

DOCs to the Sri Lankan market under the Prima brand name, whilst enabling the segment to

export Parent Stock DOCs to meet the increased demand from countries in the region.

During the year the Company faced increase in corporate taxes by the Government and further

narrowing of profit margins. However, despite these challenges the segment continued to

perform exceptionally as the largest contributor to the Group’s profitability during the year.

The segment recorded revenue and profitability of Rs. 2.6 Billion and Rs. 749 Million

respectively during the year against Rs. 2.4 Billion and Rs. 654 Million which was recorded

in the previous year.


Poultry breeding and commercial 2018 2017 Change

(Rs. Million) (Rs.Million)

Revenue* 2,626 2,404 222 Û

EBIT 903 779 124 Û

PBT 896 780 116 Û

PAT 749 654 95 Û

TA 4,363 3,557 806 Û

TL 725 597 128 Û


Number of employees



3,6382017 Net assets Rs. 2,960 Million

43

Other segments

The other segments of the

Group consists of revenue

generated from other

activities which includes,

renting of warehouse storage

spaces, supply of specialised

equipment, drugs and vaccines

to the poultry industry. The

revenue from this sector for

the year amounted to Rs. 126

Million when compared to Rs.

142 Million during the previous

year. Decrease in revenue from

this segment is attributable

to the rental expense paid to

third parties due to insufficient

storage facilities.

Despite this fact, the segment has reported

a profit after tax of Rs. 62 Million reflecting

a growth of Rs.46 Million against the year

2017. This growth was achieved as a result

of improved efficiency and warehouse

management. 6% of the Group’s asset

base which amounts to Rs. 687 Million is

attributable to this segment.

This segment provides warehousing and

silo facilities, where the Group is able

to obtain a competitive advantage by

purchasing raw materials in bulk. Our

warehousing and silo facilities are built

with the aim of preserving the quality of

raw materials. Consequently, we are able

to maintain the quality of our feed.

The segment also supports local farmers in the production of Maize. This is in support of the

Government policy to assist farmers in maintaining better and constant prices.


Other 2018 2017 Change


Revenue* 126 142 (16) Ü

EBIT 89 86 3 Ü

PBT 88 86 2 Û

PAT 62 16 46 Û

TA 687 685 2 Û

TL 214 200 14 Û


Number of employees



4732017 Net assets Rs. 485 Million

We see positive signs in the operating environment which

will enable us to continue with our growth momentum. With the

anticipated increase in tourist arrivals, expected upward revision in public sector employee salaries, continuing trend for dining out and LKR stabilisation against the USD, CGE expects a growing market demand and profit margins. Further, we foresee an improved demand for our export in regional countries and robust prices for Broiler and Layer Day Old Chicks.

However, financial performance may affect due to adverse weather conditions, fluctuation in global crude oil prices and pricing pressures on key raw materials. Nevertheless, the market is expected to grow despite these challenges.



FUTURE OUTLOOK

OUR CAPITAL INPUTS AND RESOURCES

HOW WE PERFORMED

HOW WE MEASURE OUR

PROGRESS

Value created by utilising

our Financial Capital

Our financial strategy is designed to create

capacity over the long term and to maintain financial stability. To meet

market demand, CGE invests for long-term growth prospects.

� Sourcing of funds

� Working capital management

� Performance management

� Investments

� Internal controls

� Shareholders’ funds

� Borrowings

� Working capital

� CAPEX

� Compliances

FINANCIAL CAPITAL

6,479,396

14.84

OUR FINANCIAL STABILITY

Group net current assets position

Sri Lankan Rupees thousands

Group earnings per share

(2017 - 5,712,458) (2016- 5,066,472)

STAKEHOLDER VALUE ADDED (%)

Value retained 16% 18%

2018 2017

To Shareholders 3% 2%

To Capital providers and creditors 5% 6%

To Government 52% 53%

To Employees 24% 21%

2017

2018

45

CGE has gained financial stability over the lastfour years due to improved performance.

The Significance of Financial Capital to CGE Group

The balancing of other capitals to create

sustainable value while securing all the

stakeholders’ expectation depends on

Financial Capital. Further, shareholders’ funds

is the key component of the financial capital,

thus derives through vision and mission of

the Company while trade-off with other

capitals is challenging in present competitive

business environment. Also, the sustainable

growth of the company is derived through

strengthen financial capital and the

significance could not measure under the

negative market circumstances.

Management Approach

The Company manages its financial capital

by prioritising its compliance with the

best practices and standards of all relevant

statutory and regulatory bodies and placing

an effective safeguard mechanism to deal

with uncertainty and associated risk. CGE

practices prudent financial management in

all areas of business and operates under the

financial advantages which have placed us

on a solid financial foundation.

Our capital inputs and resources

Shareholders’ funds are represented in

equity capital whereas borrowings consist of

generated funds to facilitate operational

activities and new investments. Therefore,

internally generated cash was the main

source of funds of the Company for past

few years and the Company has not utilised

any debt capital for creating value to the

stakeholders.

Working capital management

The managing of working capital is vital as

it helps the smooth operation of business

while optimising allocation of financial

capital for value creation. Management

takes prudent actions to manage

individual items of the working capital

through the accumulated experience in

the industry that it operates.

interest bearing borrowings and interest free

borrowings from lenders. Working capital

includes, trade receivables, trade payables

and inventories while CAPEX includes

non-current assets such as Investment

in subsidiaries, equity investment and

biological assets.

There are many compliance requirements

which are applicable for managing financial

capital such as Sri Lanka Accounting

Standards, Inland Revenue Act, Foreign

Exchange Act, Money Laundering Act, etc.

How we performed

Sourcing of funds

CGE has gained financial stability over last

four years due to improved performance.

As a result, CGE was able to use internally

Group (Rs. ‘000) 2018 2017 2016 2015

Cash generated from operating activities 1,135,429 1,927,046 1,923,557 2,804,969

Utilised for:

Investing activities 809,320 1,065,320 679,102 501,630

Financing activities 150,225 190,300 87,157 1,111,500

As cash reserve 175,884 671,426 1,157,298 1,186,600

Sources of funds



FINANCIAL CAPITAL

Inventories

The sourcing of quality raw materials at

the right price for manufacture of feed is

challenging due to the short supply in local

market and escalating cost of imported key

raw materials as a result of Sri Lankan Rupee

depreciation. Accordingly, CGE has allocated

additional funds to collect raw materials

at competitive prices which resulted in

increasing total inventory by 31% at the end

of current year.

The value of raw materials and consumables has increased during the period under review due to increase in unit costs and quantities. However, composition of inventories has reduced to 76% from 78% in the previous year as a result of increased finished goods due to the glut prevailed in chicken market at the latter part of the year. Thus, inventory turnover ratio has slightly dropped in the current year despite the increase in gross profit. However, the increase in inventory level will secure the forthcoming years business operation of CGE.

Inventory turnover ratio (No. of times)

2018 4.06

2017 4.64

Receivables

Receivables include amount dues from trade,

prepayments and other receivables. The

current year total receivables have gone up

to Rs. 821.5 Million (2017 - Rs. 619.1 Million)

after deducting impairment provision of

Rs. 182.9 Million (2017 - Rs. 216.5 Million).

This increase was due to providing secured

credit facilities to key chicken processors

under the prevailed market glut. However,

during the year, all outstanding trade dues

amounting to Rs. 33.5 Million was written

off and reversed the impairment provision

accordingly.

Operational Performance

Revenue

The remarkable growth in revenue of 13%

to Rs. 17,085.6 Million (2017 - Rs. 15,154.9

Million) was achieved due to valuable

contribution given by milling and farming

segment. The contribution to the Group

revenue by the segment for the current

year was Rs. 15,725.8 Million compared

to Rs. 13,950.2 Million in year 2017, which

was a 13% increase when compared to the

previous year.

The improved market condition in chicken

market in first nine months was the key

factor for increase in sales volume and

average selling prices of Broiler Chicken,

Broiler DOCs and Broiler Feed.

Group Revenue(Rs. Million)

0

5,000

10,000

15,000

20,000

20182017201620152014

Profitability

The Group’s gross profit for the year 2018

was Rs. 1,872.1 Million, an increase of

Rs. 328.6 Million or 21%, when compared

to Rs. 1,543.5 Million in year 2017. The

operating profit of the Group for the year

was Rs. 1,325.7 Million (2017 - Rs. 1,101.9

Million) while profit before tax reported for

the year was Rs. 1,586.2 Million (2017 - Rs.

1,399.6 Million).

Although the escalating cost of key raw

materials, restrictions on import of locally

sourced key raw materials and emerged

chicken market glut experienced at the

latter part of the year negatively affected the

industry, CGE was able to reach over

Rs. 1 Billion profitability for the fourth

consecutive year as a result of effective

utilisation of each capital. For the last three

years, profit before tax amount has gone

up other than operating profit due to the

contribution received from finance income.

Composition of inventories(Rs. Million)

0

500

1,000

1,500

2,000

2,500

3,000

3,500

Out grower stock(Working Progress)

Finished goodsGoods in transitRaw materialsand consumables

20182017

47

The Group was able to report of Rs. 1,210.9

Million profit after tax compared to Rs.

1,069.9 Million reported in year 2017,

which was a 13% increase compared to the

previous year.

Finance Income

The impressive skills on working capital

management and business operation, CGE

was able to earn Rs. 373.9 Million

(2017 - Rs. 293.3 Million) interest income by

investing in short term bank deposits and

commercial papers.

Finance Costs

Finance costs comprises of foreign exchange

loss and interest costs on overdraft facilities

utilised by CGE. The significant increase in

finance costs was due to the Sri Lankan Rupee

depreciation against United State Dollars

and for the current year, reported a foreign

exchange loss of Rs. 121.9 Million while it was

Rs. 1.0 Million in the year 2017.

Taxation

Taxation has gone up for the current year

as a result of change in corporate tax rates

as per the new Inland Revenue Act and

accordingly, taxation for the current year

was Rs. 375.3 Million (2017 - Rs. 329.7 Million)

which was an increase of

Rs. 45.6 Million or 14%. The total tax

comprises of income tax, deferred tax and

dividend tax on inter-company dividend.

Taxation(Rs. Million)

0

50

100

150

200

250

300

350

400

20182017

Deferred taxDividend tax on intercompany dividend Income tax

Income tax expense has increased

significantly by 94% in the current year is

due to the increased taxable income (Note

10 - Taxation) and change in corporate tax

rates. However, the deferred tax charged for

the current year has decreased by 86% as

an adjustment of impact of new corporate

tax rate to the temporary differences at the

end of year 2017. The change in dividend tax

on intercompany dividends was due to the

increased dividend income and increase in

tax rate from 10% to 14%.

Other Comprehensive Income

The effect of changes in fair value or actuarial

assumptions on defined benefit obligations

is recognised as other comprehensive

income or expenses. For the current year

it was an expense of Rs. 5.2 Million while

during the previous year it was an income of

Rs. 8.6 Million. The increase in expense was

due to the decrease in discount rate from

11.5% to 11% and new recruitments during

the year. Taxation represents deferred tax on

change in defined benefit obligations.

Investments

It is required to continue improvements in

existing assets to improve the efficiency

and productivity while capitalising business

opportunities. Thus, we manage our financial

capital for by maximising the sustainable

outcome. As a result of current macro-

economic factors and the nature of business,

significant expansion is not advisable.

Accordingly, CGE is mainly focusing on

infrastructure development and productivity

improvements which will enable us to be

more competitive in the market.

For the current year, CGE has invested of

Rs. 261.9 Million ( 2017 - Rs. 482.2 Million)

on property, plant and equipment and

the detailed breakup of key investments

has been disclosed on pages 50 to 53,

under Manufactured Capital. During the

year under review, Company received the

freehold ownership of Ittapana land which

was acquired under leasehold basis in

year 2016 amounting to Rs. 68.8 Million.

Further, investment made in new software

amounting to Rs. 0.8 Million

(2017 - Rs. 7.6 Million) has boosted the

efficiency in financial reporting.’

Profitability(Rs. Million)

0

500

1,000

1,500

2,000

2,500

20182017201620152014

Operating profit Gross profitProfit before tax



FINANCIAL CAPITAL

Internal Controls

Effective internal control policies and

procedures are in place for each aspect of

business operation to satisfy that intentional

or unintentional act of employees or

management will not risk the financial

capital of the Group. The monitoring of

effectiveness is hold by the governance

and drill down the responsibility up to the

employees. Our Internal Audit department

together with Finance Department takes

comprehensive control procedures

which are quarterly reported to the Audit

Committee of the Group.

How we measure our progress

Financial Stability

Assets Base

The impressive performance over the last

four year together with over Rs. 1 Billion in

profitability, CGE has become a stable entity

in the industry and increased the total assets

amounting to Rs. 11,571.2 Million from

Rs. 10,170.8 Million in the previous year.

The total assets at the end of year 2013 was

amounting to Rs. 5,743.4 Million and it was

a remarkable achievement by CGE over the

last five year which doubled its asset value.

Equity

The retained earning reserves also

increased significantly over the last

five years even after the distribution of

dividends for shareholders. For the current

period, an amount of Rs. 886.9 Million

(2017 - Rs. 796.0 Million) was transferred

from total comprehensive income of the

Group to the shareholders’ equity while

amount of Rs. 320.1 Million (2017 - Rs.

280.7 Million) was transferred to the non-

controlling interest equity.

Liquidity

The pre-emptive actions taken by the

management through managing of flow of

funds has upgraded CGE’s liquidity position

over the last five years. The Group is in a

position to serve the liabilities on normal

course of business and hold excess cash

position to meet the capital expenditure

requirements.

The current ratio of the Group at the end of

current year was 2.67 times while it was 2.47

times in previous year. The cash ratio stood

1.27 times over the current year and previous

year which implied the continuation of

liquidity position of the CGE.

Shareholder satisfaction

Dividend

During the current year the Company has

distributed dividend amounting to Rs.

120 Million in respect of previous year and

Board of Directors has proposed Rs. 180

Million or Rs. 3.00 per share in respect of

the current year performance subject to

the shareholders’ approvals. The Company

has satisfied the solvency test in terms of

dividend distribution.

Total assets(Rs. Million)

0

2,000

4,000

6,000

8,000

10,000

12,000

20182017201620152014

Total assets and equity(Rs. Million)

0

2,000

4,000

6,000

8,000

10,000

12,000

20182017201620152014

Non-controlling interestTotal liabilities Shareholders’ equity

Investments(Rs. Million)

0

100

200

300

400

500

600

20182017201620152014

Leasehold assetsIntangible assetsProperty plant and equipment

2018 2017 2016 2015 2014

EPS (Rs.) 9.60 7.51 13.63 10.25 (0.81)

DPS (Rs.) 3.00 2.00 2.50 1.10 -

Dividend and Earnings Per Share

49

Nest Assets Value and Market Price of the Share

The net assets per share has gone up in the

current year up to Rs. 68.25 from

Rs. 60.70 in the previous year as a result of

increase in accumulated reserves of the

Company. However, the closing market price

has dropped to Rs. 59.50 per share from

Rs. 66.10 per share in the previous year due

to the poor capital market performance.

Net Assets and Market Price(Rs.)

20

40

60

80

100

20182017201620152014

Market Price Per Share

Net Assets Per Share

Compliance

The Group is committed to comply with

the financial reporting and other rules

and regulations. The Board of Directors

has expressed their responsibility over

compliances on page 108, under the

Statement of the Directors’ Responsibility.

Further, Annual Reports of both CGE and

TAF have been recognised with awards

of compliance at the CA Sri Lanka Annual

Report Awards 2018 where CGE was

awarded a Bronze Award in the Food and

Beverage category.

We are focused on improving our productivity in potential

areas as it will drive us towards sustainable growth in future years.

Our expansions plans for breeder farm facilities with advanced technology is currently underway to enhance our production capacity. Also, we will continue with our planned capacity increase in Commercial Farms with new Environmentally Controlled Houses. Our state-of-the-art cold room facilities at the chicken plant, Seeduwa has an added competitive advantage to the Group. Installation of the Maize Dryer will enable CGE to purchase more maize from local farmers.



FUTURE OUTLOOK


HOW WE PERFORMED

HOW WE MEASURE OUR

PROGRESS

Value created by utilising our Manufactured

Capital

The physical infrastructure used in the

administration and operations of the business activities of the

Company form the Manufactured Capital.

� Investments

� Controlling and monitoring

� Maintenance

� Safety

� Buildings

� Plant, machinery and equipment

� Motor vehicles

MANUFACTURED CAPITAL

275,018

OUR CAPITAL BASE

Investment for manufactured capital


(2017 - 482,226) (2016- 137,918)

MANUFACTURED CAPITAL COMPOSITION (%)

2018 2017

Buildings 42% 44%

Plant, machinery and equipment 45% 43%

Furniture and �ttings 4% 4%

Motor vehicles 5% 5%

Capital work-in-progress 4% 4%

2017

2018

51

Manufactured Capital includes the infrastructure that we use in our business activities which includes the integrated poultry manufacturing platform and our extensive distribution network.

The Significance of Manufactured Capital to CGE Group

As a manufacturing organisation and leader

in the integrated poultry business, we

believe that manufactured capital is the

heart of our business process and success

we achieved over the years. The importance

is not limited to our success story but helped

to provide quality products for our valued

customers and enhanced the responsible

usage of natural resources.

Management Approach

All aspects of the business process of CGE,

manufacture of feed, processing of chicken,

growing of birds and hatching of eggs are

involved with manufactured capital. Thus,

the management prudently evaluates

technology utilised by the Company on a

periodical basis and continuously invests

in innovative technology to satisfy our

customer needs with minimum and effective

resource utilisation. We also evaluate the

machinery held by the Company and adhere

to a maintenance plan with the help of

technical expertise.

Our Capital Inputs and Resources

Physical assets used for reproduction,

administrative function and delivering

value to the customers considered as

manufactured capital and based on nature,

we divided them into three categories

namely Buildings, Plant, Machinery and

Equipment and Motor Vehicles.

Buildings comprise of factory buildings,

warehouse and silo buildings, EC houses

and open houses, etc. The details of number

of freehold buildings and value has been

disclosed in Note 12 - Property, Plant and

Equipment and details of leasehold buildings

were disclosed in Note 13 - Leasehold Right

over Land and Buildings. Plant, machinery

and equipment includes production plants,

machinery, farm and factory equipment,

electrical equipment and other specific

equipment used for each business segment.

These vehicles are commercial vehicles

used mainly for transportation of goods and

materials between farms and other business

units.

How we Performed

Investment in manufactured capital

During the period under review, the

Company has invested Rs. 258 Million for

capacity enhancement and cost saving

initiatives. These investments are funded by

funds that are generated internally rather

than utilising any debt capital. The category

wise additions during the period are as

follows;

Investment in Manufactured Capital

Category 2018 2017

(Rs. ‘000) (Rs. ‘000)

Buildings 28,125 25,543

Plant, machinery and equipment 189,189 316,177

Furniture and fittings 15,795 16,798

Motor Vehicles 3,898 29,690

Capital work-in-progress 38,011 94,018

Total 275,018 482,226



MANUFACTURED CAPITAL

Controlling and Monitoring

Manufactured capitals are relatively

movables except for any buildings and

could damage as a result of continuous use

and without proper maintenance. Thus,

the Company has proper controlling and

monitoring procedures in place to overcome

damages. Also, policies and procedures

are followed for purchase and disposal of

manufactured capital of the Company to

achieve purpose of such assets.

Meanwhile, the Company invests in training

facilities for the staff in order to optimise the

utilisation of manufactured capital for value

creation.

Maintenance

Scheduled maintenance is carried out by

in-house team to ensure smooth flow of

operations and to avoid every possible

down-time. Every repair or maintenance

job follows a well-structured process and

procedure by the Company’s engineering

department. We also obtain technical

expertise from our principals in Singapore as

well as local service providers.

Safety Measures

Detailed safety plans are drawn up for all

CGE locations. The Company also places a

lot of importance on creating heightened

awareness, as well as train all staff (this

also refers to logistics safety), completing

inventories in all factories with regards to

safety aspects and reporting on the status

of any shortcomings and actions to resolve

these.

We have installed new fire hydrant and a

new fire pump house as safety measures

for adverse fire situations. We conduct fire

drills and safety training (including first aid

training) for employees in association with

the Fire Brigade of Sri Lanka.

Also, in preparation for any workplace

injuries we have highly trained in-house

first aid in place, who can handle minor

injuries to severe injuries. If any injury related

incident was to occur such cases will be

discussed in monthly management meeting

and corrective/preventive action will be

taken to ensure that such an injury is avoided

in the future.

How we Measure our Progress

Capacity Enhancement

The Group invested in the following key

expansion projects during the year:

� Increase in cool room capacity.

� Increase in FAT storage capacity.

� Construction of new administrative

building, staff quarters in our processing

plant and farms.

CGE is equipped with its own fleet of vehicles for distribution of feed among our farms

53

Cost optimisation

The increase in efficiency and effectiveness

of the current business process will lead us

to save cost and new initiatives introduced

are as follows:

� Conveyor belt for feed loading to

increase daily sales volume

� Installation of interactive software &

control system and PLC system upgrade

for feed mill operations

� Adaptation of modern testing methods

Our renewed emphasis on research and development will

benefit us in terms of new product development, improved quality and

increased productivity. Training and development programmes designed for our employees will allow them to seize new business opportunities while facing global and local market challenges. Our market surveillance programmes and Sales Force Automation systems will continue to identity the changing customer expectations by collecting proprietary information. Also, our focused efforts on CSR events and activities will improve the brand awareness in the forthcoming year.



FUTURE OUTLOOK


HOW WE PERFORMED

HOW WE MEASURE OUR

PROGRESS

� Research and development (R&D)

� Training and development

� Employee retention

� System and process development and modification

� Engage with corporate community

� Knowledge and expertise

� System and processes

� Brand reputationValue created

by utilising our Intellectual

Capital

The Intellectual Capital of the Company is

developed and enhanced within our unique corporate culture, to ensure that our business is

sustainable well into future.

INTELLECTUAL CAPITAL

2,237,000

AA-

OUR BRAND VALUE

Brand value for “PRIMA” and “FAMERS’ CHOICE”


Brand rating for the year 2018

(2017 - 2,125,000) (2016- 2,164,000)

OUR BRAND LOGOS

The Significance of Intellectual Capital to CGE Group

Over the decades of accumulated

knowledge and industry expertise,

innovative business process and strong

brand reputation have been the invisible

strength for market leadership in overall

poultry industry. As such, we believe the

intellectual capital is material aspect of CGE

value creation.

Management Approach

We consolidate our intellectual capital

to address all the aspects of the livestock

industry yet continuing to advance towards

more efficient livestock production and

improved qualities of livestock products. Our

investments in intellectual capital are aimed

at safeguarding our livestock by considering

animal welfare, external constituencies such

as customers and various other associated

entities. As a result, we were able to

harmonies people and their competencies

and knowledge, organisational and

management systems, and external

constituencies to uplift our intellectual

capital to greater heights.

Value Created by utilising Our Intellectual Capital

The intellectual capital of the Company

is developed and enhanced within our

unique corporate culture, to ensure that our

business is sustainable well into future.


Knowledge and experience possess by our

employees that accumulated over the period

and sharing with expertise those who within

the Group or outside. “PRIMA” and “FARMERS’

CHOICE” are our brands and always reflect

quality in customers’ mind. Processes and

procedures are continually upgrading

with experience and innovations through

research and development.

How we Performed

Invest in Research and Development

In line with the requirements of our

customers we have introduced new feeds,

special breeder feeds and chicken products

to the market in order to cater to their

needs and as a response to the changes in

our business environment. We believe that

these products would benefit the respective

brands, by facilitating increased brand

loyalty and brand equity in the long run. We

always ensure the quality of our product

to maximise the customer satisfaction and

experience.

Further our Research and Development

(R&D) function is carried out by our technical

and nutrition team which consists of highly

skilled and experienced professionals.

Kno

wledge and Experience

Brand Reputation

Proc

esses and Procedures

55

Our R&D function is carried out by our technical and nutrition team which consists of highly skilled and experienced professionals.

Activities during the year

� The Company invested into a new

modern laboratory for chicken

processing.

� Research on feed for continuous

improvement.

� Cost effective feed formulations through

continuous trials resulted in improved

digestibility and antibiotics free.

Training and Development

In order to adopt with new technologies

and practices around the world, our

employees were given continuous training

opportunities within the country as well

as around the world. The learning and

experience gathered by the employees have

been ultimately contributed to the overall

performance of the Group.

Employee Retention

Retention of our key employees those who

have accumulated industry knowledge over

their long service period and experience are

vital in order to focus on sustainable growth

in future. Hence, the management took

necessary steps to identify the knowledge

base of each individual and provide

satisfactory facilities above the industry

standards which include performance

rewards, training facilities, promotions and

recognition.

System and Process development and modification

� Introducing a Sales Force Automation

(SFA) system for automated chicken sales

operation.

� Invested in new cool room facility which

improves our store capacity to preserve

our chicken stock.

� Adoption of supportive software to

minimise manual work in ERP system in

terms of Financial Reporting.

� Purchase of modern laboratory

equipment to enhance our accuracy

level in scrutinising nutritional

parameters within lesser time.

Engage with Corporate Community

In order to enhance our brand strength

and stakeholder engagement the following

activities have been carried out during the

financial year:

1. Consumer Exhibitions (Culinary Art Food

Expo)

2. Launch of Digital Video Commercials

3. Radio campaigns



INTELLECTUAL CAPITAL

We continuously invest in Research and Development to maintain our quality levels which is our key strength.


During the year, the Group was able to

achieve Rs.1.2 Billion profit for the fourth

consecutive year despite the challenging

market condition.

As per Brand Finance Lanka (2018) our brand

was ranked 40th amongst the 100 most

valuable consumer brands in the Island,

valued at Rs. 2,237 Mn with a brand rating of

AA (Source: Brand Finance Lanka, 2018).

Our first integrated Annual Report of 2017

was selected for a Bronze Award at the CA

Annual Report Awards 2018 in the Food and

Beverages sector.

Kno

wledge and experience

Syst

em and Processes

Brand Reputation

� Skilled and trained employees

� Technical experts

� R&D Team

� Quality assurance

� ERP system

� High bio-security measures

� Experimental farms and in house laboratories

� Brand Equity

� Outstanding relationships with stakeholders

Intellectual Capital enhancing activities

57

Our professional team of employees are dedicated

to sustain the Group’s corporate reputation and most of

the achievements are mainly because of their tireless efforts. CGE will continue to reward them by enabling them to pursue greater career progress and by creating a learning culture. The local and foreign training programmes will assist them to meet challenges in the industry and improved welfare facilities and accommodation enhance their productivity.

However, sourcing of skilled labour for manufacturing and farming is challenging. The improvement in service sector specially tourism, hotels and malls are attracting the new generation. We have been successful at retaining our permanent staff by offering a bundle of benefits as well as brand reputation, under the “PRIMA” family.



FUTURE OUTLOOK


HOW WE PERFORMED

HOW WE MEASURE OUR

PROGRESS

� Talent attraction

� Talent retention

� Training and development

� Administration

� Employee engagement

� Skills, knowledge and competencies of employees

� Employee composition

� Employee health and safety compliancesCreated by utilising our

Human Capital

Human capital is an essential

building block for creating value. The competencies, motivation

and ethical work practices of our employees and service providers

enable us to create commercial and sustainable developmental

value.

HUMAN CAPITAL

736

25%

OUR EMPLOYEE BASE

Number of employees of the group

Total employees

Women composition

(2017 - 640) (2016- 546)

TENURE BREAKDOWN (%)

18<25 12% 10%

2018 2017

26<35 30% 30%

36<45 28% 29%

46<55 25% 26%

56 and above 5% 5%

2017

2018

59

We focus on nurturing and building our Human Capital by enhancing skills and expertise by providing opportunities for career development and personal growth.

The Significance of Human Capital to CGE Group

CGE Group specialised in integrated poultry

business which requires very own set of

skills, knowledge and expertise to survive

in the business which is highly volatile by

its nature. The motive for CGE Group being

leader in integrated poultry business is

our unique employee capital those who

enhanced intellectual capital to deliver

desired objectives of our stakeholders.

Also, the unique capital that has potential to

improve itself, thus CGE Group considered

Human Capital is vital in value creation.

Management Approach

The success of our organisation, to a high

degree, is determined by the commitment

and performance of our employees.

Therefore, it is of great importance to right

staff at right place for the organisation

and facilitates them to progress internally.

The Group has in place extensive Human

Resource Management (HRM) strategies

which ensure the Company’s recruitment,

retention, development and rewards of employees are well-integrated as part of the

overarching corporate strategies of the Group. In consideration of the complexities of the

macro environment and in anticipation of the challenges and emerging opportunities, the

Company annually develops a plan to manage and oversee all activities related to employees.

Rewards Need to be Added Under Process

From the date of recruitment notice to retirement date, the interaction with employees is much

vital to deliver the value. Also, the skills, knowledge and competencies need to be effectively

managed through the comprehensive administrative structure including legal and voluntary

compliances. Continuous measures on health and safety will lead to improve confidence of our

workforce.

CGE Group has a staff cadre that comprises 526 permanent employees and 210 fixed term

contract staff who works full time and certain work functions are outsourced to few contractors.

The composition of employee group as follows;

Gender Composition 2018 2017

No. of Employees

Percentage No. of

Employees

Percentage

Male 551 75% 488 76%

Female 185 25% 152 24%

736 100% 640 100%



HUMAN CAPITAL

How we performed

Talent Attraction

The right person for the right place at the

right time will lead CGE Group achieving

its corporate goals. Thus, recruitment of

right candidate at right time is the key to

the success and brand reputation “PRIMA”

is provided a strong perception to attract

right talent. Also, the Group provides

remuneration packages in part with the

industry standards together with bundle of

other benefits.

Talent Retention

It is a challenge to the governance body of

the Group to retain recruited employees to

deliver the stakeholder objectives. As our

employees possess accumulated knowledge

Designation Composition 2018 2017

No. of Employees

Percentage No. of

Employees

Percentage

GM 1 - 1 -

AGMs 9 1% 9 2%

Managers (E6 to E4) 53 7% 51 8%

Executives (E7 and E8) 68 9% 67 10%

Non-Executives 605 83% 512 80%

736 100% 640 100%

Age Composition 2018 2017

No. of Employees Percentage No. of Employees Percentage

Executive and Above

Non-Executive

Total Executive

and Above

Non-

Executive

Total

18 < 25 1 85 86 12% 1 59 60 10%

26 < 35 32 192 224 30% 28 164 192 30%

36 < 45 41 168 209 28% 44 144 188 29%

46 < 55 47 136 183 25% 46 121 167 26%

55 < 10 24 34 5% 9 24 33 5%

130 605 736 100% 128 512 640 100%

and competencies, we are facing a rising

threat from competitive organisation

and labour markets in retaining our staff.

However, the risk has been managed to

an acceptable level through the tools of

Performance Management, Recognition and

Employee Welfare.

Performance Management

Evaluation of employee performance is

required to assess the achievement of

given strategic objectives of CGE as well

as personnel objectives of each employee.

The performance appraisal conducts by

the immediate supervisor and confirm by

the Head of the Department. This helped

management to assess achievements and

competencies of each individual. It provides

comprehensive information for training

requirements, map the career growth

and manage the rewards. Based on the

performance evaluation made for the year

2018, 46 employees were promoted.

Recognition

CGE is an equal opportunity employer. Each

employee is considered a member of the

‘Prima Family’. The Company brand name is

an internationally recognised brand name

and each employee of the Group receives

that recognition. We recognise our staff

throui qualitative and quantitative incentives

to enrich their work experience.

Further, within the Group, individual

employees are recognised for their long

service in each year and for the year ended

2018, 103 employees received the ‘Long

Service Award’ out of which 7 employees

received award for more than 25 year of

service.

61

Employee welfare

CGE considers employee work and life

balance as a responsibility of the Company

as we recognise employees as the heart of

the Company and accordingly provides a

bundle of welfare benefits to our employees.

This includes, family insurance benefits,

personal accident insurance, children

education benefits, scholarship for children

higher education, contribution for death

of nearest family member, meal and

refreshment, uniforms and laundry, study

leave for the professional exams and etc.

The Company permits allowed our staff to

purchase PRIMA products at discounted

prices. CGE Sports and Recreation Club

organised numerous activities such as inter-

department Cricket Tournament, helping

hand to the needy employees and ‘Bakmaha

Senakeliya’.

The Company annually organises a staff

event that allows our staff members to

interact with each other and enhance the

team spirit.

Breeder farms annual staff get-together

Training and development

The implementation of our strategies

requires clear leadership from managers and

willingness to change from employees. This

is why CGE devotes particular attention to

training of staff.

Our training process consists of identifying

skill gaps, evaluating training needs

and selecting the appropriate training

programmes to bridge this gap. On the other

hand, it also focuses on succession planning,

where competencies required to undertake

a higher role is identified and training

is provided as a strategic measure. All

managers take part in management training,

which places an emphasis on aspects such

as being able to translate strategy to the

department, financial management and

commercial excellence. Attention is also

devoted to skills such as giving feedback or

holding recruitment interviews to identify

candidates’ qualities. Technical training

and skill training are also developed and

imparted.

To keep knowledge and skills, refresher

sessions were first given to those who

had previously taken part in the Senior

Management and potential programmes.

The HR Department committed to

continuously improve training programmes

and to ensure their roll-out is coordinated.

CGE has access to a broad pool of

knowledge and skills due to its international

affliation. This knowledge is shared internally

and employed for the benefit of customers.

The main aims of these training programmes

are to improve technical knowledge, to share

new developments and strategic partners,

and to fine-tune sales skills.

In 2018, our employees were invited to take

part in many training programmes. These

programmes are very appealing aspect of

our HR policy, both for talent from outside

the organisation and for internal talent.

Through our comprehensive training

approach, CGE gives substance to

professional employment practices and

talent development. The motto of our

training is ‘Continuous Development’. With

the Management Programmes, many

forms of career progression, traineeships,

the opportunity to follow other (external)

training courses and career interviews

forming a fixed part of the annual appraisals,

CGE stimulates promotion among

employees.

Also, the training evaluation is conducted

after three months to identify the application

of such knowledge to our day to day

operations and employee self-development.



HUMAN CAPITAL

Administration

The governance structure comprises with

the Remuneration Committee and HR

Department which set the guidelines and

direction for human capital management for

value creation. As part of the administrative

process, HR Department utilise integrated

Information System, health and safety

measures and grievance handling.

HR Information system

CGE is focused on exchanging and making

the best use of internal knowledge and

further professionalising the organisation,

achieving a uniform way of working and

making optimal use of economies of scale.

In this context, we strive to continuously

improve our HR systems. Accordingly, the

foundation has been laid for optimising the

management and execution of HR processes

and the documentation of agreements.

Managers and employees are not only

supported in standardised HR processes but

also in talent management, career planning

and strategic personnel planning.

Health and Safety

CGE wants to offer employees a safe

work environment. That is why significant

attention is paid to safety, monitoring and

proactive identification of hazardous or

potentially hazardous situations at CGE’s

premises and manufacturing facilities, in

order to provide a safe working environment

for all employees, including contracted staff

and visitors.

CGE records the number of Lost Time

Incidents (LTIs) by gender. An LTI is defined as

“any unplanned event that results in personal

injury, where the injured party is unable to

work during their next scheduled day”.

CGE’s objective is to reduce LTIs as much as

possible. As increased attention are paid to

health and safety, an increasing number of

LTIs and near misses have been recorded in

recent years.

CGE’s approach to Health and Safety is

about raising awareness by training staff,

implementing clear rules, performing

dynamic risk assessments, inspiring

employees to increasingly report near

incidents in order to prevent real incidents

from occurring and effecting a change in

behaviour and audits to see to the correct

management of all critical areas of risk. In

addition, more has been invested in the

factories and in employee know-how.

The positive outcome of this has led to

an increase in the number of near-miss

notifications that are used to prevent

accidents from occurring.

Notwithstanding all the measures taken,

accidents still can occur in exceptional

circumstances. During the year 2018,

unfortunately one male employee from

the group has been subject to a health and

safety incident.

CGE is committed to ensuring the safety

of people, processes and products and

aims for fair and good working conditions

throughout the entire supply chain.

Grievance handling

Company maintains an open and

transparent process in all aspects of dealing

with its workforce and considers positive

industrial relations as being an essential

aspect of the business. The guidance receive

for the grievance handling is received from

the top of the governance and strictly

followed by the CGE Group.

Open Door Policy

Employees are always encouraged to speak

directly even with top of the governance for

any matters which could affect the employee

and secure the confidentiality by the

Company. The conducting of investigation

is done by the independent parties such as

internal auditors or Audit Committee in order

to secure the informer.

Session on supervisory skills development programme

63

Employee Council

The management regularly conducts

employee council meeting to hear from the

employee and resolve the matters that affect

the employees. The council comprises with

representatives from each department and

Sectional Heads and General Manager. The

employees are encouraged to present their

circumstances and follow up action review at

the initiate of next meeting.

Code of Conduct

CGE has a Code of Conduct, which provides

a set of guidelines for work ethics within the

Company. The code describes values that

guide employees on their way of working

and working together. These values allow

employees to work independently and to

call each other to account with respect

to misconduct. The matters involved

are handled in accordance with a set

procedures.


As a result of comprehensive process of

human capital management, the Group was

able to retain their employees for continuity

of value creation. Staff got their annual

increments and performance benefits that

helped them to enhance their lifestyle.

Average Employee

Turnover

2018 2017

Male 5.8% 9.3%

Female 7.7% 11.4%

Group has paid Rs. 1,452.7 Million for staff

salaries and other benefits.

Compliance

Group adhered to the all the legal and

other voluntary compliances related to the

employees during the year and not reported

any incident against violation of these

regulations. CGE does not recruit any child

labour nor considered religion, ethnic or

gender as an evaluation criterion.

We observing that society in general and consumers in

particular placing an ever-increasing emphasis on the origin of

food, quality, animal health and welfare. In order to successfully meet the challenges ahead, we are planning to further strengthen our brand loyalty and product responsibility along with the emerging opportunities in the tourism and HoReCa sector.

We believe that segregation of business operations will help us to differentiate the strong customer-oriented products and services. This will enable us to position the right people in the right function to cater to customer expectations in an effective manner. This will empower us to keep our brand promise while navigating our business as a customer-centric profitable organisation.



FUTURE OUTLOOK


HOW WE PERFORMED

HOW WE MEASURE OUR

PROGRESS

� Understanding the trends in the market and customer behaviour

� Response to the customer feedback

� Creating value additions to the products

� Sharing of knowledge

� Events and activities

� Customer base

� Communication channels

� ProductValue created

by utilising our Customer

Relationship

CGE’s customers consist of the dealer network,

government institutions, hotels and restaurants, supermarkets and farmers. Equipped with a

customer-centric approach we aim at providing maximum customer

satisfaction to maintain and build strong relationships.

RELATIONSHIP CAPITAL - CUSTOMER

91%

97%

OUR CUSTOMER BASE

Total customer satisfaction percentage

Overall satisfaction

Satisfaction on customer service

(2017 - 83%) (2016- 78%)

QUALITY STANDARD

OUR QUALITY POLICY

We are committed to provide quality products and support services to our customers

at competitive price whilst adhering to ISO 9001:2015 standard and other applicable

regulatory requirements. We consider employees as most valuable asset and will

develop their competence in this sector, to improve processes in quality management

system continually, create value to customers and improve business performance.

We ensure the policy is reviewed, understood and communicated to all levels of the

organisation.

65

We recognise the importance of engaging with our customers at a deeper level to understand their needs and expectations with the objective of delivering on customer expectations to retain our customers in the long term.

The Significance of Customer Relationship to CGE Group

In an extremely competitive business

environment, customer relationship

management strategies play a critical role

in understanding and meeting existing

and potential customers’ diverse needs and

expectations. CGE’s customers consist of the

dealer network, government institutions,

hotels and restaurants, supermarkets and

farmers. Our customer-centric approach

is aimed at providing maximum customer

satisfaction. Therefore, CGE maintains strong

relationships with its valuable customer

network to obtain market information

related to changes in consumer preferences,

market trends and product quality

expectations.

Management Approach

During the last few years there has been an

increasing level of interest and awareness

been built up on the quality and provenance

of food products. This has been driven by

the state as well as through overall interest

by the public towards nutrition and quality

of food. This is a growing phenomenon

Globally as well where customers are moving

towards Genetically Modified Organisms

(GMO) free and organic products. This has

reshaped purchasing patterns of food in

the recent years. However, price and quality

continue to be important factors in the

customer decision making process. CGE

plays a proactive role in managing customer

relations by responding to changing

customer needs and provides an integrated

solution comprising feed and other related

products and associated advisory services by

fulfilling customer satisfaction levels.


Our customer base mainly consists of the

following segments:

� Chicken and feed customers

� DOC customers.

In order to ensure that customer

expectations are fulfilled, our sales teams

continuously engages with customers on a

regular basis to understand and cater to their

requirements.

We frequently communicate with our

customers to understand their expectations

and concerns towards the Company. We

have in place a comprehensive engagement

plan to connect and engage with customers

as shown in Stakeholder Engagement on

pages 28 to 31.



RELATIONSHIP CAPITAL - CUSTOMER

How we Performed

Understand the trend in market and customer behaviour

The evolving market trends are usually

depend on customer behavioural changes

and other macro-environment factors. Thus,

CGE continuously evaluates the market

trends to identify changes in customer

behaviours and restructure of processes

to satisfy their needs. Therefore, CGE is

equipped with a better mechanism on

understanding customer preferences and

their changes in advance. This has helped us

in modifying our marketing mix to develop

and sustain the customer relationships with

CGE.

As a result of these market evaluations,

CGE has realised that there is an increasing

demand for fresh chicken and dairy feed. This

understanding has helped us to provide a

better service for our customers especially

for key chicken processors in order to secure

their business at the time of glut in the

chicken market.

Response to the feedback

We value and take into cognisance the

feedback provided by our customers

in terms of product quality and other

improvements. We respond with remedial

actions on a priority basis to resolve matters

as and when they arise. Our staff, especially

the sales force and front-end office staff

have been trained to obtain customer

feedback on variables such as quality of the

product, competitor information, consumer’s

comments and etc. These feedback is

frequently discussed in the management

meetings and are incorporated into the

strategic imperatives.

Creating value for product

We add value to our products by offering

other auxiliary services such as discounts

and transportation. Our products are

marketed under the brand name of ‘PRIMA’

and ‘FARMERS CHOICE’. All our products

bear exclusive quality standards. We remain

focused on delivering supreme quality and

nutritional value which far exceeds the price

of the product.

Quality standards are guaranteed through

the intensive research and product

developments which are conducted to

enhance the nutritional value. During the

year a new laboratory was constructed at our

chicken processing plant upgraded with the

state-of-the-art equipment. Further, we have

equipped our existing laboratory designated

to the feed mill with the latest equipment.

Sharing Knowledge

The poultry industry in Sri Lanka is exposed

to many externalities. In order to maintain

market leadership, position the expertise and

accumulated experience play a critical role.

Demands for poultry productions are highly

volatile in its nature. Therefore, accumulated

Our brand marketing department continuously organises events and activities that create product awareness and direct interactions with our customers.

67

experience and technical knowledge will

mitigate the risk of falling of poultry business.

Due to established business acumen of CGE

as a leading player in the poultry business

we possess a competitive advantage. As

a responsible corporate citizen, we share

our knowledge and expertise with our

customers through our qualified field

staff force. We continuously educate our

customers on best practices and provide

advisory services as an additional service.

We have also taken steps to update the

knowledge and technical expertise of our

farmers with the latest technology and

practices. During the year under review our

key feed and DOC customers were sent to

the ‘VIV Exhibition’ held in Bangkok to update

their knowledge on the new trends in

poultry industry.


Customer satisfaction surveys are carried out

on a regular basis through comprehensive

feedback forms which track multiple

indicators relating to product quality, sales

staff service, complaint handling, product

range, innovativeness, prices, delivery times

and etc. CGE has performed well in all

parameters achieving its quality standard.

During the year under review CGE

introduced a fresh chicken product to the

market. Furthermore, we expanded our

product range with the introduction of dairy

feed which would have a positive demand

considering the focus on the dairy industry,

The Company will continue to integrate supply chain

with its sustainability strategy through long lasting relationships with

business partners, especially out-growers. With the growing business prospects of the Company and the increasing demand for our products, the interaction with our business partners will be a key factor in achieving our business objectives. We intended to buy a greater volume of raw materials from local suppliers by focusing on enhanced collaboration with our out-grower suppliers through better terms and conditions for mutual benefits.

Further, we aim to give investors clear, accurate and prompt information on developments within our organisation and maintain strong relationships with our stakeholders.



FUTURE OUTLOOK


HOW WE PERFORMED

HOW WE MEASURE OUR

PROGRESS

Value created by utilising

our Business Partner and community relationship

Our business partners and community are a vital component of the sustainable

operations of the Company. We ensure that our relationships with our business

partners are maintained to secure the interests of all stakeholders. We reach

out to communities as a responsible corporate citizen.

� Evaluation of business partners

� Relationship building

� Conflict resolution

� Business partner base

� Communication channels

� Engagement term and conditions

RELATIONSHIP CAPITAL – BUSINESS PARTNERS AND COMMUNITY

1,649,522

OUR SUPPLIER BASE

Total payment for local raw material suppliers


(2017 - 1,993,193) (2016- 1,000,532)

SOURCE OF RAW MATERIAL PURCHASED (%)

Local 43% 33%

2018 2017

Imports 57% 67%

2017

2018

71Number of out-grower agreement

69

Maize is an integral component of feed production. We strive to source locally grown maize in order to promote the local industry.

The Significance of Business Partner Relationship to CGE Group

The nutritional value and quality of our

product is largely dependent on the

ingredients and processes we use. Hence,

sourcing of right product at the right price is

a critical aspect which we need to manage.

We also need the right platform with

the support services in place to ensure a

smooth business operation to create value.

CGE believes that sustainable business

relationship with our business partners is a

vital component for the sustainable growth

of the Company.

Management Approach

As part of our procurement process, we

carefully screen prospective business

partners before we select them as a supplier.

We strive to adhere to our procurement

standards of quality, reliability and cost. We

pursue sustainable long-term relationships

with our business partners and endeavour to

build mutually beneficial relationships based

on trust and professional conduct nurtured

over the years to create value.


Our business partners consist mainly of

goods and service suppliers, bankers and

other connected parties with those who

we have built relationships over the years.

Infrastructure and communication channels

help us to build up strong relationship

with our business partners. All the business

relationships that we enter into are legally

bound by terms and conditions to secure

the interests of the connected parties and all

stakeholders.

How We Performed

Evaluation of Business Partners

The evaluation process of our existing

business partners is carried out continuously

and on a periodical basis in order to enhance

the business relationship and to compare

with our goals on creating value.

Our suppliers and other business partners

are evaluated on four basic criteria namely:

� Quality of product and service;

� Ethical business practices;

� Compliance with laws and regulations

and

� Protection of human rights

Our supplier base mainly consists of

local and foreign suppliers of goods and

services. However, small and medium size

suppliers and local farmers are given special

consideration to encourage them to increase

production by purchasing their goods at fair

price.

Periodic evaluation also helps CGE to

identify any issues in the relationship with

our suppliers and improve the policies and

procedure on procurement.

Relationship Building

Encouraging existing business partners

as well as engaging with new partners

is an important source of input for our

manufacturing process. CGE strives to

comply with ethical business practices

and ensure transparency in all its business

transactions.

Our strategic long standing key suppliers are

listed in the table on page 70.

During the year 2018, CGE had registered

300 suppliers, of which 3 suppliers are

foreign institutions. These new registrations

have helped CGE to sufficiently procure raw

materials for feed productions.

CGE maintains the supplier settlement

period within agreed credit periods and offer

fair price for the suppliers, with the objective



RELATIONSHIP CAPITAL – BUSINESS PARTNERS AND COMMUNITY

of empowering and strengthening local

farmers.

Over the years CGE has received many

accolades and recognitions which bear

testimony to CGE’s ability to meet business

partners’ expectations.

Conflict Resolution

CGE maintains good business practices

with its business partners and as a result

was able to minimise conflicts. These

experiences have helped us to negotiate for

‘win-win’ solutions for both parties. Through

collaborative arrangements entered into

with our suppliers we have been successful

to avert any conflicts with our business

partners.


All the activities that take place with

our business partners contributed to a

sustainable business process in term of

value creation. These partnerships created

rewarding for our business partners and

at the same time provided economic

empowerment to local farmers.

Business partner Country Transaction typeApproximate relationship period

Aviagen USA Supply of PS Layer

DOCs

Above 50 years

Jamesway

Incubators inc.

Canada Supply of Incubators

and spare parts

Above 50 years

Long standing key suppliers

71

The Significance of Community Relationship to CGE Group

CGE’s corporate philosophy is underpinned

by the importance of being a corporate

entity that focus on social well-being.

As a responsible corporate citizen, we

reach out to the communities with many

community centred initiatives to uplift the

local communities. We always ensure that

these initiatives will benefit society at large

while contributing to the national economic

growth. We have been consciously adopting

a stance of sharing the benefits among each

stakeholder category in a just and equitable

manner.

Management Approach

As part of building long term relationships,

CGE continues to protect and uplift the

livelihoods of our local communities. CGE

therefore follows a strategy to promote

initiatives targeted to help the less privileged

segments of the community, the youth

of today who are the future of tomorrow

and the spiritual needs of the community

members. The process that we follow is

a combination of proactive and reactive

approaches to identify community needs

and implement programmes to address and

solve these needs. We are proud of the fact

that our employees also share the same spirit

and actively participate in these programmes

by volunteering their time along with

financial contributions.

Corporate Social Responsibility (CSR) Initiatives Spearheaded by CGE

Contributing to foster spiritual well-being of society

� CGE supported the construction of a

new building of ‘Samudrarama Maha

Viharaya’ at Modara during the year

under review.

� CGE contributed to the development of

‘Church of Our Lady of Compassion’ at

Bandarawatta during the year.

� CGE entered into a partnership with

the Urban Development Authority to

organise ‘Colomthota Vesak Kalapaya’

during the annual Vesak period in May

to support the dissemination of the

Buddhist philosophy among urban

communities.

Contributing to community service

CGE as a responsible corporate citizen,

extended financial support to the ‘National

Dangerous Drugs Control Board’ to create

greater awareness amongst the community

of the usage of dangerous drugs and

eradication of the drug addiction.

We encourage our employees to take part

in building societal relationships. During

the year, CGE employees contributed and

donated the entire stationary requirements

to the school children studying in

‘Dikwennagama Primary School’ in

Galkiriyagama for the academic year 2019.

The ‘Culinary Art Food Expo 2018’ is an

annual event organised by the Chefs

Guild of Lanka to increase awareness and

promote the food industry. This event

draws professionals from the culinary field

as well as business entities in the food

and beverages sector and is considered a

platform to showcase their products. CGE as

a premier player in the food industry took an

active role in this event.

Due to population growth and improved economic

performance, the demand for animal protein such as meat, eggs and

dairy products is expected to increase in the future. It is challenging to produce this increasing amount of food in a sustainable manner by optimising the use of raw materials and natural resources such as energy, land and water. We are focused on operating as an environmentally friendly, sustainable organisation, posing no threat to the environment.



FUTURE OUTLOOK


HOW WE PERFORMED

HOW WE MEASURE OUR

PROGRESS

� Efficient usage of energy

� Effective formulation and efficient usage of materials

� Responsible usage of water

� Sustainable usage of land

� Waste management

� Land

� Water

� Energy

� Material

� Mandatory and voluntary compliances

Value created by utilising our Natural Capital

The Natural Capital include

air, water, land, minerals and forests, as well as biodiversity and ecosystems’ health. CGE embraces

its responsibility to institute activities that enhance the natural

environment’s capacity to meet the resource needs of future

generations.

NATURAL CAPITAL

388A - 2R - 4.47P

418

OUR LAND OCCUPATION

Total freehold land for farming

Acres (A) Roods (R) Perch (P)

Value invested in Land (Rs. Million)

(2017 - 357A - 0R - 16.37P) (2016 - 357A - 0R - 16.37P)

MANAGING OUR IMPACT

73

As responsible corporate citizen we strive to conduct our operations in manner which will reduce our environmental footprint.

The Significance of Natural Capital to CGE Group

As a responsible corporate citizen, CGE

adopts environmentally conscious practices

in making the production sustainable.

CGE therefore, considers natural capital

and sustainability to be an integral and

unequivocal part of its business. It is CGE’s

ambition to stay ahead of the field in terms

of sustainability in terms of the use of raw

materials, production, logistics, development

and supply of efficient feed solutions for

healthy livestock. In this way, the Company

intends to contribute to commercially

profitable and sustainable food production.

Management Approach

As an agricultural business, our sustainability

concerns are the use of quality raw

materials, the impact on the environment,

consideration for people and society and

respecting animal welfare. CGE leads the

poultry industry in terms of environmental

responsibility, particularly the use of raw

materials, production, logistics, efficient and

more animal-friendly concepts.


CGE utilises land, water and energy for its

business operations. Land represents, lands

purchased on outright basis and leasehold

basis. These lands are utilised throughout

our value chain activities in a way that the

environment is conserved and preserved.

Ground water as well as pipe-borne water

are the primary sources of water for our

operational requirement. Key materials

which are used for feed production are

mostly agro-based products such as Maize

and other cereal products which are

considered scarce materials.

Energy is also another key natural resource

which we use across our production

process. CGE uses both renewable and

non-renewable energy sources and we

have implemented energy saving measures

throughout our business operations.

How we Performed

Efficient usage of energy

Our key sources of energy are electricity,

furnace oil, gas and diesel. While we are

mindful of our energy consumption, we

monitor the use of electricity and fuel

consumption levels to drive continuous

improvements in the manufacturing

processes to reduce energy consumption.

� Energy consumption

Through our energy preserving

techniques, we have reduced our

electricity consumption during the

financial year 2018 in comparison

to 2017. This was the result of a

combination of factors including

investment in energy efficient plant and

equipment and a favourable energy mix.

Effective formulation and efficient usage of material

Due to the lack of land for cultivation, the

industry requirement for raw materials is not

sufficiently generated within the country.

Hence, the industry relies on imported

materials. We as a responsible corporate

citizen and market leader in the integrated

poultry business with accumulated

intellectual capital of our employees always

focus on effective feed formulation by

optimising material usage and feed quality.

CGE uses many by-products from agricultural

produce to formulate feed in order to reduce

the wastage and lead to optimisation of

utilisation of resources.



NATURAL CAPITAL

CGE always purchases local raw materials

whenever it is available, to promote local

farmers and production. However, it could

preclude by lower quality due to higher

moisture levels. Higher levels of moisture

could lead to wastage arising from difficulties

encountered in storing the raw materials for

a longer period. Therefore, CGE management

has taken steps to establish a ‘Dryer’ in the

forthcoming year which could reduce the

moisture level of agricultural produce.

Responsible usage of water

The Group uses mainly ground water sources

and also pipe-borne water and is dependent

on continuous access to high quality water

across its operations. This is a critical factor in

sustaining a healthy agricultural business. Every

effort is expended to ensure that water is used

mindfully and taking steps to conserve and

efficient usage of water at all times.

Achieving efficiencies in our water

consumption is an important environmental

priority for the Group.

Sustainable usage of Land

The details of the land occupied by the

Group have been disclosed in Note 12 -

Property, Plant and Equipment and Note 13 -

Leasehold Right over Land and Buildings. The

Group takes substantial measures to monitor

and ensure that, utilisation of land will not

create future destruction to the property as

well as to the society. As discussed above,

the recycling of used water and also the

waste management have been properly

planned with each operating activities.

Waste management

As a hygiene and quality control necessity in

chicken processing and feed manufacturing,

water and energy usage consequently

generate waste water, effluents and

emissions. As such we have not disposed of

this waste water in a manner which will have

a negative impact on the environment.

� Solid waste management and waste mapping

CGE believes that waste mapping is

a crucial step in identifying where

exactly waste is generated in day-to-day

processes of an organisation. We have

clearly mapped out the points in which

waste is generated and how much it

costs the organisation. This has enabled

us to cut down on waste and increase

the efficiency of material usage which

saves cost and eliminate the impact on

the environment.

We have invested in a dedicated scrap

yard, which has enabled us to segregate

our waste effectively. Through this

mechanism we are able to identify

non-harmful by-products of poultry

production such as litter to utilise these

as compost and organic fertiliser due to

their high nutrient content.

We dispose of our waste materials in

conjunction with the Municipal Council

on a daily basis. All other disposables

including e-waste are disposed responsibly

in conjunction with the Municipal Council

of the area that we are located.

� Waste water management

Due to the high usage of consumption

of fresh water and the possible depletion

of water resources, public authorities

have taken steps to reduce the water

footprint of regions and businesses.

Companies are therefore facing

technological challenges involved in

measuring and lowering their water

consumption and reducing their

production costs. To obtain this virtuous

circle, businesses must make the best

choices in terms of production sites and

processes, assess their supply chain’s

water footprint as accurately as possible

and select the most suitable means of

transport for their goods and services.

CGE monitors and reviews its own water

usage by site and continuous efforts are

made to optimise water usage. Waste

water at our chicken processing plant

are treated at our in-house effluent

treatment plant before it is discharged to

the environment.

Additionally, we have established an

in-house water treatment facility which

ensures that the waste water disposed

from our farm premises are treated, so

that water does not adversely affect the

environment.

Currently, we are measuring water

quality parameters on an ongoing basis

and the quality of water discharged is in

par with acceptable levels imposed by

regulatory controls.

� Recycling

We have formulated recycling methods

to reduce the waste sent to landfills

along with our waste collection

frequency, given that availability of

landfills is rapidly reducing. As the cost

of waste management increases with

volume, we have identified that correctly

recycled waste will have a beneficial

impact on our company’s waste

handling costs.

As such we use our own rendering

plant which utilises waste of our meat

processing plant and recycles them

after a high-quality refining process

that includes boiling, steaming and

palletising.

75

Environment Management System

The Environmental Management System

is developed within the Group to ensure

the policies and procedures initiated are

effective to optimise resource consumption,

impact management and comply with legal

and voluntary compliances.

In House KPI’s

Managing Output and Impacts

Waste and Effluents

Effluents Waste Management

Material

Optimise Material Consumption

Water

Optimise Water Consumption

Energy and Fuel

Preserving Energy and

reduce Carbon Footprint

Preserving Bio-Security

Regulatory Framework

Compliance

Managing Inputs

Environmental Framework


Responsible and optimised resource

utilisation leads well-being of our society in

many ways: such as increase in income of

our farmers, healthy environment, minimum

agricultural waste and sharing of scarce

resources with all parties, reservation of

resources to the future generation and etc.

Also, these initiatives have been guided us to

focus more on cost savings and improve the

financial performance of the Group.

� Compliance

As a Company that operates in the

agriculture sector, we have given a

high level of priority to compliance

with Central Environmental Authority

(CEA) requirements. This includes farm

management, usage and monitoring

of natural resources. These compliance

indicators are regularly monitored to

ensure that the Company is always in

line with the required environmental

conservation measures.

Executive Summary

Corporate governance is the mechanism that enhances transparency and accountability towards our stakeholders. We, at Ceylon Grain Elevators PLC (CGE), are committed to maintain the highest standards of ethical practices to ensure compliance with all statutory and regulatory requirements in achieving our strategic goals. This helps us create value for our shareholders whilst safeguarding the business through the adoption of effective risk management strategies.

CGE has created a corporate governance structure, which is based on well-structured processes and ethical business practices that incorporates internal and external benchmarks within the organisation. This has enabled us to build long-term credible relationships with our stakeholders whilst ensuring the sustainability of the business over decades. The sustainability of our governance principles is preserved by the commitment of all employees by inculcating a culture of awareness and continuous efforts to adhere with best practices.

This report explains how we have complied with relevant mandatory provisions of the Companies Act No. 7 of 2007, Listing Rules of Colombo Stock Exchange (CSE) and the voluntary adoption of best practices as set out by the Code of Best Practice on Corporate Governance (2013) issued jointly by the Institute of Chartered Accountants of Sri Lanka (CA Sri Lanka) and the Securities and Exchange Commission (SEC). Further, we are currently evaluating the applicability of new Governance Code (2017) and adopting the same where applicable together with relevant internal and external benchmarks.

Compliance to these mandatory and voluntary regulatory governance

requirements is undertaken in a regular and timely manner by the adoption of a control and monitoring framework which reviews the corporate governance structure and the level of adherence to specific references by both internal and external benchmarks, as well as the Board of Directors and specific Board sub-committees. A summary of compliances to regulatory benchmarks is shown in Table on page 77.

The extent of compliance with the Code of Best Practice on Corporate Governance jointly issued by SEC and CA Sri Lanka is shown from pages 87 to 88.

Further, certain functions of the Board have been delegated to Board Sub-committees for reviewing and enhancing the accountability of several areas which require greater expertise and knowledge. However, the Board has the final decision rights and responsibilities over these Sub-Committees thereby safeguarding the good governance practices of the Group.

The Board sub-committees play a vital role in the company’s governance structure and is headed by a designated Board Director who is empowered to act on behalf of the company’s Board to carry out the duties and responsibilities of Sub-committees.

Internal Governance Structure

The corporate governance practices adopted by CGE are a well established internal governance structure which consists of external and internal and external governance benchmarks. This provides a proper mechanism and communicate transparently to its stakeholders about the company’s business activities and operations. (Figure 2) on page 78.

The internal governance structure is so designed and strengthened that the executive authority is entrusted and designated through a committee structure. All listed benchmarks are incorporated within day-to-day business operations and employees from the highest to the lowest level are deemed accountable and responsible for undertaking business in accordance with the set corporate governance policies and practices.

The internal governance structure consists of:

� The Board of Directors;

� Senior Management Committees;

� Role of Chairman of the Board and

separation of Chairman and CEO;

� Group Management Committees;

� Senior Management and

� Employee Empowerment.

The Management Committee is a vital part of

the company’s management structure and is

headed by the Chief Executive Officer (CEO).

He is empowered to act on behalf of the

Company. The members of this Management

Committee are: The Executive Director

and Group General Manager, the General

Manager, the Board of Directors, the Audit

Committee and the Senior Management

Committee. These positions and committees

are complemented by strong internal

governance procedures and are responsible

for the day-to-day operations including

functions of each business segment of the

Group. It also ensures a continuous flow

of functions and proper implementation

and execution of the Group’s corporate

governance framework.


CORPORATE GOVERNANCE REVIEW

Key External Benchmarks

� Companies Act No. 7 of 2007

� Listing Rules of the Colombo Stock

Exchange

� Code of Best practice on Corporate

Governance issued jointly by the SEC

and CA Sri Lanka (2013)

� Code of Best practice on Corporate

Governance issued jointly by the SEC

and CA Sri Lanka (2017)

� Inland Revenues Acts

� External Audits

Key Internal Benchmarks

� Articles of Association

� The Code of Conduct

� Recruitment, selection and career

development policies

� Rewards and recognition policy

� Policy on grievance handling

� Terms of Reference of Board sub-

committees

� ISO and Quality Management

Framework and Standards

� Risk Management Framework

� Employee Declaration Policy

� Internal Audits

The Code of Conduct

The Board carries out its functions based

on a well-structured Code of Conduct

which supports the adoption of standards

for sustainability, accountability and

transparency across business operations.

The Code includes internal and external

benchmarks and the structure of key

stakeholder groups which is facilitated by

an assurance mechanism which ensures

good governance practices are properly and

continuously adopted and adhered to.

CGE’s Code of Conduct is based on the four

key tenets as shown below.

� Trust, professionalism and integrity in all

partnerships and transactions

� Continuous professional development

along with the Company and individual

compliance with all rules and regulations

� Conduct business in an ethical manner

in keeping with international industry

standards

� Always act in the best interests of the

Company, ensuring transparency in all

matters

Benchmarks Specific Details Adherence

Companies Act No. 7 of 2007 Mandatory provisions Fully compliant

Listing Rules of the CSE Disclosure requirements for the Listed companies in the CSE

including Corporate Governance mandatory requirements

Complied. Disclosures are stated on

pages 84 to 88.

The Code of Best Practice on

Corporate Governance jointly issued

by SEC and CA Sri Lanka (2013)

The Code of Best Practices on Corporate Governance All relevant voluntary provisions are

fully complied and are disclosed on

pages 87 to 88.

The Code of Best Practice on

Corporate Governance jointly issued

by SEC and CA Sri Lanka (2017)

The Code of Best Practices on Corporate Governance Under review for relevant voluntary

provisions.

Inland Revenues Acts Mandatory provisions Fully compliant

Stakeholder Engagement Report provides information to all stakeholders with regard

to the most material areas that are identified through

stakeholder engagement

Engagement with key Stakeholders

are reported in the stakeholder

Engagement on pages 27 to 31.

Articles of Association Requirement stated in the Articles of Association of the Group Complied

The Code of Conduct Compliance requirements applicable to all employees All the employees sign a declaration

to the effect that they will follow the

Code of Conduct

Table 1: Summary of compliances

77

External and Internal Audits

External audit functions provide an

independent opinion to the shareholders

on the truth and fairness of the Financial

Statements and whether they have been

properly prepared in accordance with the

Companies Act while internal audit functions

provide an independent assurance that

CGE’s risk management, governance and

internal control procedures are operating

effectively.

The internal audit function of the Group

is carried out by the Group internal audit

division which ensures the internal control

function of the Company is complied with

Company requirements and standards of

governance.

Benchmarks Assurance Mechanisms

Audi

t Committe

e Nomination Comm

itteeRelated Party Transactions

Review Committee

Remuneratio

n Comm

ittee

External

� Companies Act No. 7 of 2007

� Listing Rules of the Colombo Stock Exchange (CSE)

� The Code of Best Practice on Corporate Governance jointly issued by SEC and CA Sri Lanka (2013 and 2017)

Internal

� Articles of Association

� Code of Conduct

� Internal Control System

� Quality Management

� Risk Management Framework

� The Code of Conduct

� Internal Audit

� Independent Audit

� Compliance Reviews

� Independent Certifications

Shareholders

Group ManagementCommittee

EmployeeEmpowerment

SeniorManagement

Chairman CEO

BOD and SeniorManagement Committees

Figure : Internal Governance Structure

Internal Governance Structure



Internal Controls

The effectiveness of the internal controls

of CGE is ensured via frequent reviews

and a proper monitoring mechanism.

The Board of Directors including the

Audit Committee are responsible for the

company’s system of internal controls

and for reviewing its effectiveness. The

system is designed to safeguard assets of

the Company against unauthorised use or

disposal and is supported by a structured

documentation procedure. Internal controls

of CGE incorporate financial, operational, risk

management, and regulatory compliance

controls.

The Audit Committee carries out regular

reviews of the internal control process and

the effectiveness of risk management on

behalf of the Board and reports to the Board

during the regular Board meetings to enable

the Board to take final responsibility for the

oversight of the internal controls of the

Company.

The Board of Directors

Board Responsibilities

The Board provides the leadership in

achieving business objectives, value creation

and risk management while promoting

a culture of transparency and integrity

in carrying out the company’s business

functions. The Statement of Directors

Responsibility in relation to financial

reporting is given on page 108 and in

Note 34 - Directors’ Responsibility on page

170. Directors have no interest with the

Company other than those disclosed in

the Financial Statements in Note 31.1 - Key

Management Personnel on page 164 and

the Report of the Board of Directors on the

State of Affairs of the Company on pages

104 to 107. Further, the Board of Directors

have made a declaration in the Related

Party Transactions Review Committee on

page 95 in accordance with the section

9.3.2.(d) of Listing Rules issued by the CSE

on their responsibility towards Financial

Statements. The Board takes all reasonable

steps to ensure that accurate and timely

information is available to shareholders

and regulatory bodies and published in the

annual and quarterly Financial Statements in

consultation with the Audit Committee and

the External Auditors.

In addition to the responsibilities mentioned

above, the following key responsibilities

are also collectively held by the Board and

individually by the Directors who act in

accordance with the laws of the Country.

� Providing guidance on formulation

and implementation of a sustainable

business strategy;

� Conducting business functions

efficiently and profitably to create

shareholder value;

� Ensuring effective systems to secure

integrity of information, internal controls

and risk management;

� Ensuring that the Group accomplishes

its goals;

� Meeting regularly to establish and

maintain the company’s direction and

position;

� Providing guidance and direction

to ensure the Group has adequate

resources and is effectively utilised;

� Reviewing the Group’s operating and

financial performance and evaluating

progress against plans and budgets;

� Ensuring compliance with laws,

regulations, governance and ethical

standards;

� Ensuring all stakeholder interests are

considered in corporate decision

making;

� Reviewing and approving major

transactions including acquisitions,

disposals and capital expenditures and

� Fulfilling any other function that is

vital to the growth and success of the

business.

In carrying out these functions the Board

seeks professional advice on matters that

need specialist expertise such as litigation

from Company lawyers, and from any other

external experts as appropriate. The provision

for the Company’s Directors to retire by

rotation has also been recommended by

the Board to preserve expertise within the

Group.

Functions of the Board

Providing strategic direction

The Board of Directors collectively

responsible for establishing the Group’s

general direction, corporate policies,

overall strategic objectives and corporate

plans which are communicated to the

Management Committee. They also layout

a schedule of issues and directions which

could only be approved by the Board as part

of the monitoring controls processes.

Additionally, Board approval is required

on all matters relevant to overall strategy

formulation, annual budget development,

preparation of business plans, dissemination

of management information, reporting

financial statements, dividend payments,

investments and business acquisitions/

disposals. The Board is also responsible for

the continuous review and monitoring of the

performance of the Group against the set

objectives while directing the Management

Committee on specific action points.

Communication with shareholders

Communication with shareholders is an

important part of the Board’s responsibilities.

CGE communicates with its shareholders on

a number of issues to ensure transparency

of operations. The Board is responsible

for reporting statutory and other relevant

information to shareholders regularly and

79

in a timely and accurate manner. To ensure

transparency, the Board has laid down

very definite policies in relation to keeping

accurate records of accounts together with

the preparation of financial statements to

represent a balanced view of the Group.

The Board also takes measures to report

statutory and all relevant information with

full disclosure of all major transactions

to shareholders’ in a timely and accurate

manner. Meanwhile, the Board welcomes

shareholders’ independent advice on matters

of investment and divestment. Quarterly and

annual results are prepared and presented

in accordance with the Sri Lanka Accounting

Standards, Companies Act No. 7 of 2007,

Colombo Stock Exchange (CSE) and the

Securities and Exchange Commission.

Overseeing risk management

Another important duty of the Board is

overseeing risk management mechanism

of the Group. The Board is responsible for

the regular evaluation of the risk factors

of the Group while maintaining updated

control systems by regularly making policy

recommendations on risk factors and the

improvement of controls. The formulation

of the risk management process is overseen

by the Board and ensures that an effective

system is implemented to identify, evaluate

and manage significant risks encountered

by the Group in protecting its assets and

processes. This risk management process is

regularly reviewed by the Board based on

the guidelines set by relevant regulatory

bodies. The Management Committee

is responsible for the detail, design and

operation of the system of internal controls

on risk management. However, the Board

maintains overall responsibility for the

management of risks within the Group.

CGE has also in place a well-established

control framework consisting of clear

structures and accountabilities, policies and

procedures together with budgeting and

review processes. Each business segment

of the Group has a formal management

structure with clear responsibilities operating

within defined policies which incorporate

key areas such as product safety, financial

matters, health and safety, safeguarding the

environment, human resource management,

operational matters, and purchasing and

engineering.

Compliance

The Board is also responsible for ensuring

that the Group always operates within

the laws and adheres to regulations and

standards as laid down by the various

regulatory bodies in the country. The Board

is also constantly updated with information

in respect of compliance with laws and

regulations and directs the Management

Committee regarding any action that needs

to be taken.

Appointments to board sub-committees

The Board of Directors is also responsible for

the appointment of members to the various

Board sub-committees and guarantee that

they act in accordance with the Terms of

Reference as set out by the Board sub-

committee charters. The Board of Directors

in turn appoint Directors to the Audit,

Remuneration, Nomination and Related

Party Transactions Review Committees along

with Directors and Key Senior Management

personnel to the Management Committee.

Each such committee acts within its own

set of Terms of Reference. An expanded

review of each such committee’s function is

described further in this report on pages 89

to 95.

Board Composition

The Group maintains a balance between

Executive and Non-Executive Directors to

ensure that no individual or a small group of

individuals dominates the decision making

within the Board of Directors, thereby

ensuring objectivity and independent

oversight. Board composition is also

maintained to enable the Company to

add value to all stakeholders by leveraging

on the expertise of both Executive and

Non-Executive Directors’ experience and

know-how.

The Board consisted of six (6) members

during the year 2018, with two (2) Executive

Directors, two (2) Non-Executive Directors

and two (2) Non-Executive Independent

Directors. This composition complies with

the Listing Rules of the Colombo Stock

Exchange, which requires a minimum of

three or one third of the Board whichever is

higher be Non-Executive Directors.

Board Evaluations

The Board periodically appraises its own

and its sub-committees’ performance to

ensure that their responsibilities are properly

carried out in fairness to the Company

and to stakeholders. For the year under

consideration an assessment was made

regarding the Board composition and they

reached the conclusion that the current

knowledge and expertise of the current

Board matches the strategic requirements

of the Group. A brief profile of the Board of

Directors is shown on pages 22 to 23.

Appraisal of Chief Executive Officer (CEO)

At the end of each fiscal year, the

Remuneration Committee assesses the

performance of the Chief Executive Officer

based on pre-agreed goals established at

the commencement of the fiscal year, set in

consultation with the Board, covering the

following broad aspects.

� Creating and adding value to

shareholders and other stakeholders;

� Achievement of financial objectives and

goals;

� Developing human capital;



� Ensuring integrity and good governance

in the Group;

� Identifying and implementing projects and

� Building sustainable business

relationship with external parties.

Board Skills

Board diversity must be considered when formulating the balance of a Board which enables them to make collective decisions more effectively with a wide exposure to the fields of finance, administration, management, law, economics, marketing, taxation and human resources. In choosing directors to the Board, the Company seeks people who possess high levels of business experience together with an elevated sense of integrity and judgment. In addition, the Board has ensured the availability within its ranks of those with financial acumen and knowledge to offer guidance on matters of finance.

CGE is mindful of the need to maintain an appropriate mix of skills and expertise within the Board and hence undertakes timely review of the Board composition to ensure the skill representation is matched with the current and future needs of the Group. The Board consists of IT professionals, Marketing professionals and a Banker who possess the required knowledge and expertise in various subject matters to drive the business to sustainable success.

Access to Independent Professional Advice

The Board encourages its members to obtain independent professional advices that may be required in discharging their responsibilities at the company’s expense to strengthen the decision making and to preserve the independence of the Board. This is generally coordinated through the Board Secretary as and when required. Hence, when required the Board seeks advice on various areas such as laws and regulations, taxes, valuation, macro-economic conditions,

and any other subject matters as Directors thinks as appropriate and required.

Continuous Training and Development

The Group is dedicated to empowering all

employees with opportunities to enhance

their individual skills, knowledge and

expertise. Such development programmes

are also available to Board members. To

enable new Board Directors to understand

business operations a comprehensive

induction programme is conducted that

ensures new Board members garner the

required knowledge on the values, culture,

operations, business model, policies and

procedures, governance, and business norms

so as to integrate well and perform efficiently

when carrying out duties and responsibilities.

This programme is conducted over a

period of several months and includes

presentations from key Senior Management

members and visits to the various business

segments of the Group. If a Director seeks

a deeper understanding on a specific area,

further follow-up meetings are arranged to

make available the required information to

the Board members. In addition, all Directors

are provided required training and regularly

updates on the latest developments within

the industry and the Group which enables

them to discharge their duties at the

expected standard of quality and form.

Board Secretary

The Board Secretary facilitates the Board in carrying out good corporate governance practices. The responsibilities and functions of the Board Secretary includes providing timely and accurate information about company operations, board procedures, changes on applicable laws and regulations, as well as guidance on matters of interest. The Board Secretary also maintains Board minutes and other records of information. This information is documented with the Board Secretary and available to members of the Board at any time as and when they required or requested.

Changes to the Board

Board Tenure

The Executive Directors are appointed and

recommended for re-election subject to

their prescribed company retirement age

and Non-Executive Directors are appointed

and recommended for re-election subject to

the age limits as per statutory provisions at

the time of re-appointment.

Retirement

At each Annual General Meeting one

third of the Directors retire by rotation on

the basis prescribed in the Articles of the

Association of the Company and are eligible

for re-election. The Directors who retire are

those who have been longest in office since

their appointment or re-election. In addition,

any new Director who has been appointed

to the Board during the year is required to

stand for re-election at the next Annual

General Meeting.

Re-election

The re-election of Directors ensures that

the shareholders have an opportunity to

re-assess the composition of the Board.

The names of the Directors submitted for

re-election are provided to the shareholders

in advance to enable them to make an

informed decision concerning their election.

The names of the retiring Directors eligible

for re-election this year are given in the

Notice of the Annual General Meeting of the

Company on page 176. Further, Directors

who are over the age of 70 years are re-

elected to the Board annually in accordance

with the Section 210 of the Companies Act

No. 7 of 2007.

Timely Supply of Information

All members of the Board are continually

updated and supplied with timely, accurate

and comprehensive information to enable

them to perform their duties successfully.

81

This enables board members to engage in a

healthy debate and a process of optimised

decision making towards the betterment of

the Company.

Directors are provided access to:

� Board minutes and reports which are

circulated before Board meetings;

� Clarification on any matter contained in

the minutes;

� The advice of experts and professionals

if required;

� Advice and services provided by the

Company Secretaries;

� Information wherever necessary to carry

out duties and responsibilities more

effectively and efficiently and

� Information updates from management

on topical matters, formulation of

new regulations and best practices as

relevant to the Group’s business.

Role of Chairman of the Board and the CEO

The Chairman of the Board

The Non-Executive Independent Chairman

of the Board is Mr. Wickrema Senaka

Weerasooria who provides the leadership to

the Board and is entrusted with a number of

responsibilities including conducting board

meetings. He ensures that board functions

are effectively discharged by all members

of the Board. He chairs Board meetings

and steers it in the proper direction, taking

responsibility for the Board’s composition,

facilitating the effective contribution of Non-

Executive Directors and ensuring that there

is a positive correlation between Executive

and Non-Executive Directors.

The CEO

The execution of company’s business

activities including implementation of

business strategies approved by the Board

are entrusted to the CEO. There is a clear

division of responsibilities between the

Chairman and the CEO, in accordance with

best practices that ensure no one individual

has unfettered power of decision making.

Board Meetings

The Board met four (4) times over the

past year to review the overall strategic

development of the Group. The Chairman

convenes board meetings at regular intervals

and as and when necessary. The Chairman

also facilitates the effective contribution of

all Board members to discuss routine and

non-routine matters depending on the

need and ensures that the Board operates

effectively in keeping with the interests of

the shareholders.

The Company Secretaries, SSP Corporate

Services, are in turn responsible on behalf

of the Chairman to ensure that all Board

meetings are conducted in a proper manner

and that all Directors receive the necessary

information prior to meetings so that the

Board could review the Key Performance

Indicators (KPI’s).

In addition, the Company Secretaries

also guide the Board in order that good

governance practices are considered and

implemented. The Board is brought up to

date on the latest financial position of the

Company by the Group General Manager.

Board Minutes

The Board minutes are prepared by the

Company Secretaries. In the event of a

matter not being unanimously adopted at

a Board meeting, the concerns expressed at

such situations are recorded in the minutes.

Minutes of the Board meetings are circulated

to all Directors and adopted at subsequent

Board meetings.

Board sub-committees

Some functions of the Board have been delegated to Board sub-committees for monitoring, reviewing and enhancing the accountability for several areas which require greater expertise and knowledge. However, the Board has the final decision rights and responsibilities over these sub-committees thereby safeguarding the good governance practices of the Group.

The five Board subcommittees are as follows:

I. Management Committee

II. Remuneration Committee

III. Audit Committee

IV. Nomination Committee

V. Related Party Transactions Review

Committee

The above sub-committees carry out their

duties and responsibilities in accordance

with the Terms of Reference as set out by the

Board. The proceedings of their meetings

are regularly communicated to the Board.

(Table 3)

Management Committee

Members of the Committee are selected by

the Board. The Management Committee is

responsible for the following:

� Implementing group strategy;

� Monitoring business performance;

� Approving budgets and capital

expenditure recommendations to the

Board and

� Ensuring efficient management of the

Group.

The Management Committee has also been vested with the authority to implement Board decisions. This authority is exercised within the policy framework as stipulated by the Board.



The Management Committee meets once a month to discuss and evaluate various topics including segmental performance of the Group, business development plans, financial and operating budgets and forecasts, capital expenditure proposals, management issues and Key Performance Indicators (KPIs). The Board constantly reviews reports from the Management Committee and also from executives and sectional heads of key risk areas and makes decisions pertaining to segmental performance. The Management Committee has the right to run the business of the Group as they deem fit to meet the demand of the customers of the Group and the strategic and financial targets set by the Board in addition to the required corporate guidelines. Such a deregulated structure is necessary to ensure that decisions are made and implemented in a timely manner, speedy innovation at a rate as demanded

by the customer is enabled while providing products and services which cater to consumers specific needs.

Remuneration Committee

This Board Sub-Committee is responsible to determine the remuneration policy for the Executive Directors and Senior Managers. The Remuneration Committee comprises of two (2) Non-Executive Independent Directors, one of whom is the Chairman of the Committee and is appointed by the Board. The detailed report by the Remuneration Committee appears on page 92.

Nomination Committee

The Nomination Committee is entrusted

with maintaining the Board composition

to meet business needs while facilitating

a formal and transparent procedure for

all new appointments to the Board. The

Nomination Committee consists of one (1)

Executive Director and two (2) Independent

Non-Executive Directors one of whom is

the Chairman of the Committee who is

appointed by the Board. The report by the

Committee appears on page 93.

Audit Committee

The Audit Committee is responsible for assisting the Board in accomplishing its oversight responsibilities in the financial reporting process. The Audit Committee consists of two (2) Independent Non-Executive Directors one of whom is the Chairman of the Committee and is appointed by the Board. The detailed Audit Committee Report appears on pages 89 to 91.

Name of the Directors Capacity

No. of shares

held

BoardAudit

CommitteeNomination Committee

Remuneration Committee

Related Party

Transactions Review

Committee

Position

No. of meetings

held

No. of meetings attended Position Position Position Position

Mr. Wickrema Senaka Weerasooria

Non-Executive Independent Chairman

2,800 Chairman 4 4 Member Chairman Chairman Chairman

Mr. Cheng Chih Kwong, Primus

Executive Director and Chief Executive Officer

397 Member 4 4 - Member - -

Mr. Tan Beng Chuan

Executive Director and Group General Manager

- Member 4 4 - - - Member

Mr. Cheng Koh Chuen, Bernard

Non-Executive Director

- Member 4 4 - - - -

Mr. Cheng Eng Loong


- Member 4 4 - - - -

Mr. Sunil Karunanayake

Non-Executive Independent Director

- Member 4 2 Chairman

(Former)

Member

(Former)

Member

(Former)

Member

(Former)

Dr.Prathap Ramanujam


- Member 4 1 - Member Member Member

Table3: Composition of the Board and Board Committees and attendance at Meetings for 2018

83

Related Party Transactions Review Committee

The Related Party Transactions Review

Committee was formed to strengthen the

effective management and oversight of

related party transactions of the Group.

Details of the Related Party Transactions

Review Committee are disclosed in

the Related Party Transactions Review

Committee Report on pages 94 and 95.

Shareholder / Investor Relationship

Stakeholder Management is a key

component in CGE’s corporate governance

mechanism.

The primary modes of communication

between the Company and its stakeholders

are, the Annual and Quarterly Financial

Reports and the Annual General Meetings

(AGM).

Release of Information to the Public and CSE

All material and price sensitive information

is communicated to the CSE in a timely

and accurate manner to minimise the

information gap among shareholders/

investors.

Annual General Meetings (AGM)

The effective relationship with shareholders

is maintained by conducting AGMs where

every shareholder is given a chance to vote

and raise specific queries regarding the

company’s operations.

Serious Loss of Capital

It is unlikely that the company’s net assets

fall below a half of the stated capital, the

shareholders would be notified of an

Extraordinary General Meeting (EGM) in

terms of Section 220 of the Companies Act

No. 7 of 2007.

Disclosures

The table given below provides the relevant

details and disclosures mandated by the

Companies Act No. 7 of 2007 and the Listing

Rules of CSE.

Disclosures required by the Companies Act No. 7 of 2007.

Section Reference Requirement

Annual Report Reference

168 (1) (a) The nature of the business of the Group and the Company together with any change thereof during the

accounting period

page 104

168 (1) (b) Signed Financial Statements of the Group and the Company for the accounting period completed pages 112 to 170

168 (1) (c) Auditors’ Report on Financial Statements of the Group and the Company pages 109 to 111

168 (1) (d) Accounting policies and any changes therein pages 116 to 131

168 (1) (e) Particulars of the entries made in the interest register during the accounting period page 104

168 (1) (f ) Remuneration and other benefits paid to Directors of the Company during the accounting period pages 104 and

165

168 (1) (g) Corporate donations made by the Company during the accounting period page 104

168 (1) (h) Information on the Directorate of the Company and its subsidiaries during and at the end of the accounting

period

pages 104 to 105

168 (1) (i) Amounts paid/payable to the External Auditor as audit fees and fees for other services rendered during the

accounting period

page 105

168 (1) (j) Auditors’ relationship or any interest with the company and its Subsidiaries page 105

168 (1) (k) Acknowledgement of the contents of this Report and Signatures on behalf of the Board pages 107 to 108



Disclosures required by Section 7.10 of the Listing Rules of the CSE.

Rule No. Subject RequirementCompliance

status Remarks

Disclosures regarding Board of Directors

7.10.1 (a) Non-Executive Directors

Two or one third of the total number of Directors shall be Non-Executive Directors, whichever is higher.

Compliant Corporate Governance Review - page 80

7.10.2 (a) Independent Directors

Two or one third of Non-Executive Directors, whichever is higher shall be Independent.

Compliant Corporate Governance Review - page 80

7.10.2 (b) Independent Directors

Each Non-Executive Director should submit a declaration of independence / non-independence in the prescribed format.

Compliant Non-Executive Directors have submitted declaration during the year 2018

7.10.3 (a) Disclosure relating to Directors

Names of Independent Directors should be disclosed in the Annual Report.

Compliant Board of Directors - pages 22 to 23

7.10.3 (b) Disclosure relating to Directors

The basis for the Board to determine a Director is Independent, if criteria specified for Independent is not met.

Compliant The Board has determined the Independence / Non- Independence of each Non-Executive Director

7.10.3 (c ) Disclosure relating to Directors

A brief resume of each Director should be included in the Annual Report including the area of expertise.

Compliant Board of Directors - pages 22 to 23

7.10.4 (a-h) Determination of Independence

Requirements for meeting criteria of ‘Independence’. Compliant The Board has determined the Independence of each Non-Executive Director during the year 2018

Disclosures regarding the Remuneration Committee

7.10.5 Remuneration Committee

A Listed Company shall have a Remuneration Committee.

Compliant Remuneration Committee Report - page 92

7.10.5 (a) Composition of Remuneration Committee

The Committee shall consist of Non-Executive Directors, a majority of whom shall be independent.


7.10.5 (b) Functions of Remuneration Committee

The Remuneration Committee shall recommend the remuneration of the Chief Executive Officer and Executive Directors.


7.10.5 (c) Disclosure in the Annual Report relating to Remuneration Committee

The Annual Report should set out:

a. Names of Directors comprising the Remuneration Committee.


b. Statement of Remuneration Policy. Compliant Remuneration Committee Report - page 92

c. Aggregated remuneration paid to Executive and Non-Executive Directors.

Compliant Note 31.1 - Key Management Personnel information - page 164

Disclosures regarding the Audit Committee

7.10.6 Audit Committee A Listed Company shall have an Audit Committee. Compliant Audit Committee Report - page 89

7.10.6 (a) Composition of Audit Committee

The Committee shall comprise Non-Executive Directors, the majority of whom shall be independent.

Compliant Audit Committee Report - page 89

85

Rule No. Subject RequirementCompliance

status Remarks

7.10.6 (b) Functions of Audit Committee

a. Overseeing of the preparation, presentation and adequacy of disclosures in the Financial Statements of a Listed Entity, in accordance with Sri Lanka Accounting Standards.


b. Overseeing of the Entity’s compliance with financial reporting requirements, information requirements of the Companies Act and other relevant financial reporting related regulations and requirements.


7.10.6 (b) Functions of Audit Committee (Contd.)

c. Overseeing the processes to ensure that the Entity’s internal controls and risk management are adequate to meet the requirements of the Sri Lanka Auditing Standards.


d. Assessment of the independence and performance of the Entity’s external auditors.


e. To make recommendations to the Board pertaining to appointment, re-appointment and removal of external auditors and to approve the remuneration and Terms of Engagement of the external auditors.


7.10.6 (c) Disclosure in Annual Report relating to Audit Committee

a. Names of Directors comprising the Audit Committee.


b. The Audit Committee shall make a determination of the independence of the Auditors and disclose the basis for such determination.


c. The Annual Report shall contain a Report of the Audit Committee setting out of the manner of compliance with their functions.


Disclosures required by Section 9.3.2 of the Listing Rules of the CSE

Rule No. Disclosure Requirement Section ReferencePage Reference

9.3.2 (a) In the case of non-recurrent Related Party Transactions, if aggregate value of the non-recurrent Related Party Transactions exceeds 10% of the equity or 5% of the Total Assets whichever is lower, of the Listed Entity according to the latest Audited Financial Statements.

Related Party Transactions Note in the Financial Statements

page 167

9.3.2 (b) In the case of recurrent Related Party Transactions, if the aggregate value of the recurrent Related Party Transactions exceeds 10% of the Net revenue/income as per the latest Audited Financial Statements

Related Party Transactions Note in the Financial Statements

page 167



Rule No. Disclosure Requirement Section ReferencePage Reference

9.3.2 (c) Annual Report shall contain a report compiled by the RPTRC

including the following:

� Names of the Directors who are in the Committee;

� Statement about related party transactions reviewed during the financial year;

� Number of times the Committee has met during the financial year and

� Policies and procedures adopted by the RPTRC.

Related Party Transactions Review Committee Report

page 94

9.3.2 (d) A declaration by the Board of Directors as an affirmative statement of the compliance with the rules pertaining to Related Party Transactions or a negative statement in the event the Entity has not entered into any Related Party Transactions.


page 95

Disclosures required by the Code of Best Practice on Corporate Governance jointly issued by SEC and CA Sri Lanka.

Rule SubjectCompliance

Status Reference

A. Directors

A.1 Effective Board to Control the Company

Yes Corporate Governance Review - section (6)

A.2 Chairman and Chief Executive Officer Yes No one individual has unfettered powers of decisions

A.3 Chairman’s Role Yes Corporate Governance Review - section (6.8)

A.5 Board Balance Yes Corporate Governance Review - section (6.3)

A.6 Supply of Information Yes Corporate Governance Review - section (6.7.4)

A.7 Appointments to the Board Yes Corporate Governance Review - section (6.11.3), Nomination Committee Report, Board of Directors - pages 22 to 23

A.8 Re-election Yes Corporate Governance Review - section (6.7.3)

A.9 Appraisal of Board Performance Yes Corporate Governance Review - section (6.4)

A.10 Disclosure of Information in respect of Directors

Yes Board of Directors - pages 22 to 23

A.11 Appraisal of Chief Executive Officer Yes Corporate Governance Review - section (6.4.1)

B Director’s Remuneration

B.1 Remuneration Procedure Yes Corporate Governance Review - section (6.11.2), Remuneration Committee Report - page 92

B.2 The level and make up of Remuneration

Yes Corporate Governance Review - section (6.11.2), Remuneration Committee Report - page 92

B.3 Disclosure of Remuneration Yes Corporate Governance Review - section (6.11.2), Remuneration Committee Report - page 92

87

Rule SubjectCompliance

Status Reference

C Relations with Shareholders

C.1 Constructive use of the AGM and conduct of general meetings

Yes Corporate Governance Review - section (7.2)

C.2 Communication with shareholders Yes Corporate Governance Review - section (7)

C.3 Major and material transactions Yes Notes to the Financial Statements

D. Accountability and Audit

D.1 Financial Reporting Yes Corporate Governance Review - section (6.1), Report of the Board of Directors on the State of Affairs of the Company, Statement of the Directors’ Responsibility, Independent Auditors’ Report, Management Discussion and Analysis, Notes to the Financial Statements relating to Related Party Transactions.

D.2 Internal Control Yes Risk Management Review, Corporate Governance Review - section (5)

D.3 Audit Committee Yes Audit Committee Report - pages 89 to 91

D.4 Code of Business Conduct and Ethics

Yes Corporate Governance Review - section (3)

D.5 Corporate Governance Disclosures Yes Corporate Governance Review

E. Institutional Investors

E.1 Shareholder Voting Yes Corporate Governance Review - section (7), Institutional Investors are encouraged to provide any feedback on the governance arrangements.

E.2 Evaluation of Governance Disclosures

Yes Corporate Governance Review

F. Other Investors

F.1 Investing/ Divesting Decisions Yes The extensive nature of the information given in the annual report facilitates the shareholders in carrying out adequate analysis when making their decisions.

F.2 Shareholder Voting Yes Proxy Form

G. Sustainability Reporting Yes Sustainability Review

Disclosures Specified by section 7.6 of the Listing Rules of the Colombo Stock Exchange

1. Disclosures specified by section 7.6

of Listing Rules of the Colombo Stock

Exchange are contained in this Annual

Report.

2. There is no evidence of the book value

being substantially different from the

market value of land and other fixed

assets of the Company or its subsidiaries.



89

AUDIT COMMITTEE REPORT

The Audit Committee is a sub-committee of

the Main Board which provides assistance

to the Board of Directors in fulfilling its

oversight responsibilities over various

functions.

Functions of the Committee

The key function of the Committee is to

assist the Board in the following:

� Preparation, fair presentation and assure

adequacy of disclosures in the financial

statements of the Company and the

Group, in accordance with the Sri Lanka

Accounting Standards;

� Ensure compliance with financial

reporting requirements, information

requirements of the Companies Act and

other relevant financial reporting related

regulations and requirements by the

Group;

� Review processes to ensure the

adequacy of CGE’s internal controls

and risk management procedures to

meet the requirements of the Sri Lanka

Auditing Standards;

� Assessing the company’s ability to

continue as a going concern in the

foreseeable future;

� Evaluate adequacy and performance of

the company’s internal audit function;

� Ensure independence and performance

of the company’s external audit function

and

� Establish procedures to identify, monitor

and manage significant business and

financial risks.

Accordingly, the Committee carries out its

responsibilities under various functional

areas such as financial reporting, internal controls and risk management, internal and external

audit, compliance, regulatory reporting and any other function for the advancement of the

Group.

The Committee carried out its duties and responsibilities in accordance with the written Terms

of Reference as approved and reviewed annually by the Board. This report from the Committee

is an overview of the functions and responsibilities pertaining to the Group as a whole.

Composition of the Committee

The Committee comprises of two (2) Non-Executive Independent Directors and the group’s

Internal Auditor, functions as the Secretary to the Committee.

New appointment to the Committee

During the reporting period Dr. Prathap Ramanujam was appointed to the Audit Committee

with effect from November 2018, in place of Mr. Sunil Karunanayake (Former Non-Executive

Independent Director).

Meetings

For the year under review, the Committee held four (4) meetings with the members of the

management and auditors of the Company, to discuss the relevant matters and to review the

results of the Group and to provide appropriate information to those matters which are integral

to the Group . On invitation, these meetings were also attended by the Executive Director

and Group General Manager, the General Manager and the AGM - Finance, of the Company.

Meeting agendas are prepared by the Committee Secretary and provided to members in

advance along with required previous meeting minutes.

In addition, the Chairman of the Committee attends the Annual General Meeting of the

Company and responds to any questions from shareholders on the activities of the Committee.

The information on the attendance of the meetings by the Committee Members is given

below.

Name CapacityNo.of

meetings heldNo.of meetings

attendedMr. Sunil Karunanayake

Chairman / Non-Executive Independent Director (Former)

4 2

Dr. Prathap Ramanujam

Chairman / Non-Executive Independent Director

4 1

Mr. Wickrema Senaka Weerasooria

Member / Non-Executive Independent Chairman

4 4

Mr. Majintha Illankone

Secretary / Group Internal Auditor

4 4


AUDIT COMMITTEE REPORT

Financial reporting

During the financial year, the Committee has reviewed and discussed the Group’s quarterly and

annual financial results with the Management and the External Auditors, prior to its publication.

In this connection, the Committee partners with the Board in ensuring that the financial and

non – financial information that are reported to the Shareholders is a fair assessment of the

position of the Company.

This review includes:

� The evaluation of the appropriateness of the Accounting Standards and Policies adopted

by the Company in the preparation and presentation of the Financial Statements and

consider whether they are complete and consistent with information known to committee

members;

� Compliance with the relevant accounting standards, laws and regulations;

� Assessing the adequacy and validity of the estimates and judgments made by the

management on significant and complex accounting transactions and regulatory

pronouncements and understand their impact on the Financial Statements;

� Assessing the company’s ability to continue as a going concern in the foreseeable future;

� Review other sections of the Annual Report and ensure the accuracy and completeness of

the information and

� Discussion of Key Audit Matters in connection with the preparation of financial statements

and evaluates the extent of internal and external auditors involvement.

Internal controls and risk management

The Committee is responsible to review the adequacy and effectiveness of internal controls and

risk management procedures adopted by the Company. Accordingly, risk mitigating strategies

are recommended and incorporated by the Committee based on the related findings in order

to overcome internal and external threats from the environment.

Also, the Committee reports on regulatory matters that may have a significant impact on the

Financial Statements, non-compliance with the relevant ethical guidance and misappropriation

of assets. Furthermore, the Committee reviews the whistle blowing policy of the Group and

discuss with the management for changes and improvements where necessary.

Accordingly, the Company is able to safeguard the investment of the Shareholders in the

Company and meet the expectations of other stakeholders’ of the Company.

Internal audit

Internal auditors have direct access to the Audit Committee and submit their reports on

a quarterly and annual basis to the Committee. The Committee is responsible to evaluate

the effectiveness of internal audit function and performance and provides appropriate

recommendations for improvement. The adequacy of the scope of the internal audit and

internal audit plans for the Group are also discussed by the Committee.

External audit

The Committee reviews the independence,

performance and the objectivity of the

external auditors and is further responsible

for:

� Making recommendations to the

Board regarding the appointment,

re-appointment and removal of the

external auditors at the Annual General

Meeting;

� Approving the remuneration and terms

of engagement of the external auditors;

� Discussion and review of the external

audit scope and plan including

coordination with internal audit prior

to the commencement of the external

audit;

� Discussion with the external auditors

and management on the key audit

findings and their recommendations;

� Discussion of the company’s financial

statements prepared quarterly and

annually and

� Reviewing of the non audit services

provided by the external auditors and

evaluate how it affects their objectivity

and independence and disclose the

basis for such determinations.

The Committee meets external auditors to

discuss the findings of their audit over the

company’s financial statements and obtain

their views on any specific matters.

The Audit Committee has recommended to

the Board of Directors that KPMG Sri Lanka,

Chartered Accountants be re-appointed

as external auditors for the financial year

ending 31 December 2019 subject to the

approval of Shareholders at the Annual

General Meeting.

91

Compliance and other responsibilities

The committee is held responsible for

compliance with laws and regulations and

regularly reports to the board regarding

committee activities. Accordingly the

committee;

� Reviews the effectiveness of the system

of monitoring compliance with the laws

and regulations by the Group;

� Obtains regular updates regarding

compliances from the management and

company’s legal counsel;

� Monitors compliance with corporate

conduct and ethical principals;

� Assures confidentiality of whistle

blowing employees and

� Performs special investigations and any

other assignments as requested by the

management in order to enhance the

internal control system and transparency

of the performance of the Company.

Evaluation of the functions of the Committee

The functions of the Audit Committee have

been evaluated by the Board throughout

the year and they have concluded that

the Committee has performed their

responsibilities to the complete satisfaction

of the Board and seek the continued support

of the Committee in the future in achieving

the stakeholders’ expectations.

(Sgd.)Dr. Prathap RamanujamChairman, Audit Committee


The Remuneration Committee was

established for the purpose of developing a

formal and transparent policy on Executive

Directors remuneration and setting the

remuneration packages of individual

Directors of the Board. The Committee

has acted within the parameters set out

by its Terms of Reference in order to avoid

potential conflicts of interest, Hence no

director is involved in deciding his own

remuneration.

In discharging committee responsibilities,

the Committee obtains advices from

Chairman and / or CEO in proposing

remuneration of directors, when they think

as necessary.

Functions of the Committee and Remuneration Policy

The remuneration policy is designed to

attract, retain and motivate the company’s

Executive Directors to support the continued

long term success of the business and

creation of stakeholder value, provided they

are not paying more than the required level

for this purpose and remunerations are in

line with the industry standards.

The aggregated remuneration paid to

Executive and Non-Executive Directors are

disclosed in Note 31.1 - Key Management

Personnel information, on page 164.


The Board appointed Remuneration

Committee comprises of two (2) members

both of whom are Non-Executive

Independent Directors as required by the

guidelines as set out by the Colombo Stock

Exchange.


During the reporting period Dr. Prathap Ramanujam was appointed to the Remuneration

Committee with effect from November 2018, in place of Mr. Sunil Karunanayake (Former Non-

Executive Independent Director).

Meetings

Remuneration Committee meetings were held when necessary and a total of three (3)

meetings were conducted over the past year.

The information on the attendance of the meetings by the Committee members is given

below.

Name Capacity

No. of meetings

held

No. of meetings eligible to attended

No. of meetings attended

Mr. Wickrema Senaka

Weerasooria

Chairman / Non-Executive

Independent Chairman

3 3 3

Dr. Prathap

Ramanujam

Member / Non-Executive

Independent Director

3 1 1

Mr. Sunil

Karunanayake



(Former)

3 1 -

Mr. M.C.M. De Costa Secretary 3 3 3

The Executive Director and Group General Manager who is responsible for the overall

management of the Group provides information to the Committee and participates in all

deliberations except in relation to those matters where the committee objectives impaired with

his presence. Group Treasurer and the General Manager were also attended to the meetings on

invitation.

Evaluation of the functions of the Committee

The annual evaluation of the Committee was carried out by the Board and it was concluded

that the Committee continues to operate effectively.

(Sgd.)Wickrema Senaka WeerasooriaChairman, Remuneration Committee

REMUNERATION COMMITTEE REPORT

93

The Nomination Committee is entrusted with keeping the board composition under review while facilitating a formal and transparent procedure for all new appointments to the Board.


The Committee, as at the end of the year 2018, consisted of three (3) members including two (2) Non-Executive Independent Directors and the Chief Executive Officer of the Company. The Non-Executive Independent Chairman is the Chairman of the Committee.


During the reporting period Dr. Prathap Ramanujam was appointed to the Nomination Committee with effect from November 2018, in place of Mr. Sunil Karunanayake (former Non-Executive Independent Director).


The Nomination Committee oversees a range of responsibilities which include:

� Consider the making of new appointment or re-appointment to the Board;

� Provide appropriate advices and recommendations to the Board or the Chairman in making such appointments to the Board;

� Evaluate the skills, knowledge and experience of any individual who is recommended to the Board, by considering the required strategic skills by the Company;

� Review the structure, size and composition of the Board and make appropriate recommendations to the Board with regard to any required changes;

� Evaluate the performance of the members of the Board to determine whether they are

adequately performing their duties and responsibilities as a director;

� Recommend insurance cover to be taken for all directors indemnity and

� Provide any other appropriate professional advices to the Board as and when it considers as

necessary.

During the reporting period the appointment of Dr. Prathap Ramanujam was recommended

by the Nomination Committee as a Non-Executive Independent Director with effect from 7

August 2018, in place of Mr. Sunil Karunanayake (Former Non-Executive Independent Director)

and the Board accepted the recommendation.

Meetings

The Committee met on two (2) occasions during the year 2018 in order to discharge their

responsibilities in keeping with the combined knowledge and experience of the Board

according to the strategic demands of the Company.

The information on the attendance of the meetings by the Committee members is given

below.

Name Capacity

No. of meetings

held

No. of meetings eligible to attended

No of meetings attended

Mr. Wickrema

Senaka Weerasooria



2 2 2

Mr. Cheng Chih

Kwong, Primus

Member / Executive Director

and Chief Executive Officer

2 2 2

Mr. Sunil

Karunanayake


Independent Director (Former)

2 1 -

Dr. Prathap

Ramanujam



2 1 1

Mr. M.C.M. De Costa Secretary 2 2 2

On invitation, these meetings were also attended by the Executive Director and Group General

Manager, the General Manager and the Group Treasurer.

(Sgd.)Wickrema Senaka WeerasooriaChairman, Nomination Committee

NOMINATION COMMITTEE REPORT


RELATED PARTY TRANSACTIONS REVIEW

COMMITTEE REPORT

The Board formed the Related Party Transactions Review Committee (RPTRC) on 13 November

2015, to exercise supervision on behalf of the Board to ensure overall related party transactions

(RPTs) of the Group are in compliance with Code of Best Practices on Related Party Transactions

issued by Securities and Exchange Commission of Sri Lanka (SEC) together with Colombo Stock

Exchange (CSE).


The Committee comprises of two (2) Non-Executive Independent Directors and an Executive

Director in accordance with Listing Rule No. 9.2.2 of the CSE. The Group’s Internal Auditor,

functions as the Secretary to the Committee.


During the reporting period Dr. Prathap Ramanujam was appointed to the Related Party

Transactions Review Committee with effect from November 2018, in place of

Mr. Sunil Karunanayake (Former Non-Executive Independent Director).

Meetings

The Committee met four (4) times during the period to comply with Listing Rule No. 9.2.4 of the

Colombo Stock Exchange.

The details of attendance of members at meetings held for the year under review are as follows:

Name Capacity

No. of meetings

held

No.of meetings attended

Mr. Wickrema Senaka

Weerasooria



4 4

Mr. Sunil Karunanayake Member/ Non-Executive

Independent Director (Former)

4 2

Dr. Prathap

Ramanujam



4 1

Mr. Tan Beng Chuan Member / Executive Director and

Group General Manager

4 4

Mr. Majintha Illankone Secretary / Group Internal

Auditor

4 4

Policies and procedures

The members of the Board of Directors of the Company have been identified as Key

Management Personnel (KMP), with a view to enhance transparency and good governance.

In accordance with the Related Party Transactions policy, the declarations were obtained from

each KMP of the Company for the purpose

of identifying any RPTs that were carried out

by the Company if any and were reviewed by

the Committee.


The key function of the Committee is to

ensure on behalf of the Board, that all RPTs of

the Company and its listed subsidiaries are

consistent with the Code of Best Practices on

Related Party Transactions.

This include the following functions:

� Adopting policies and procedures to

ensure that company does not engage

in any transaction with related parties in

a manner that is not within the normal

course of business;

� Reviewing and overseeing existing

policies and procedures for RPTs;

� Reviewing in advance all proposed RPTs

of the Company except those explicitly

exempted in the Code.

� Determining whether RPTs that are to be

entered into by the Company require the

approval of the Board or shareholders of

the Company;

� Establish procedures to identify and

report recurrent and non-recurrent RPTs

and obtain required approvals from the

Board or Shareholders of the Company;

� Ensuring that no director of the

Company shall participate in any

discussion of a proposed related party

transaction for which he or she is a

related party, unless such Director is

requested to do so by the Committee

95

for the express purpose of providing

information concerning the related party

transaction to the Committee;

� If there is any potential conflict in any

related party transaction, the Committee

may recommend the creation of

a special committee (including

independent consultant if necessary)

to review and approve the proposed

related party transaction;

� Ensuring that immediate market

disclosures and disclosures in the Annual

Report as required by the Code are

made in a timely and detailed manner

and

� Update the Board on RPTs of the Group

on a quarterly basis.

Activities during the year

� All recurrent and non-recurrent related

party transactions that had taken place

during the year 2018 were reviewed by

the RPTRC and communicated to the

Board where necessary.

� In addition, the Board of Directors were

updated on the RPTs of the Group on a

quarterly basis.

The RPTRC convenes quarterly. The minutes

of all meetings are properly documented

and communicated to the Board of Directors.

Declaration

A declaration by the Board of Directors as an

affirmative statement of the compliance with

the rules set out in the CSE Listing Rules 9.3.2

(d) pertaining to RPTs is given on page 106 of

this Annual Report.

(Sgd.)Wickrema Senaka WeerasooriaChairman, Related Party Transactions Review

Committee

Enterprise Risk Management (ERM)

Proactive and effective identification, evaluation and management of risks is an essential and supportive element in the Group’s sustainable value creation process which ensures continuity of operations and achievement of financial, operational and social objectives of the entity.

ERM is an ongoing process that has been adopted across the entire organisation by the Management in strategy setting, which is designed to identify potential events that affect the entity and to manage risks within the Company’s risk appetite. It provides a reasonable assurance regarding the achievement of financial and non-financial strategic objectives of the Group.

Risk Awareness Culture in CGE

People cannot be expected to avoid risks if

they are not aware of and educated on risks.

Therefore, embedding the Risk Management

Framework into organisation culture plays a

vital role and it should be communicated to

all the levels across the entity, on what the

risk management philosophy is and what

is expected from the organisation’s people.

Accordingly, risk management process is

driven through a combination of a ‘top-

down’ (driven by the Board) and ‘bottom-up’

(originating from business unit level such

as from the level of employees at farms

and plants) approaches where people are

educated through numerous ways such as:

� discuss risks and risk responses with

employees;

� induction session for new employees;

� consult employees with higher

management on appropriate when new

risk events are identified;

� regularly communicate ERM policies,

procedures and standards across the

entity;

� conducting awareness workshop and

training on risk management to enhance

the understanding and given them a

stake in the risk management of the

entity.

Risk Governance

RiskManagementAu

dit C

omm

ittee

Corporate Management

BoD

The Board

The Board has the overall responsibility

for risk management and ensure risk

management is embedded to all processes

and activities of the business. They create

a risk awareness culture and provide

guidance to the Senior Management, Audit

Committee and Employees in formulating

appropriate strategies, policies and

procedures on risk management and internal

controls, by analysing entity’s risk profiles

and determines entity’s risk appetite.

Audit Committee

The Audit Committee, reviews the

effectiveness of the risk management

process and internal controls, including the

systems established to identify, assess, and

monitor the overall exposure to risks and

ensures that these identified risks are within

the risk appetite set by the Board. Further,

the Committee provides advance warnings

to the Board on emerging risk issues and

significant changes to the Company’s risk

profile.

Senior Management

Senior Management held responsible for

communicating risk management policies

and procedures to employees across the

organisation and provides guidance on

the same. They examine processes and

events, uncertainties and changes in

the environment that might expose to

situations that could seriously reduce future

earnings, impair its asset value or create

legal, regulatory or reputational risks. They

also evaluate options available to eliminate

or mitigate risks and implement risk

management strategies within the Group

Monitoring and reporting of potential risks

and their impact on the business, to the

Board is also a responsibility that rests with

the Senior Management.

Employees

Amongst all the above parties, employees

play a major role in risk management. They

need to understand and follow the risk

management processes and procedures set

by the management in order to be on alert

on conditions and events that may arise

unfavourable results to the organisation. In

doing so , they report on failure on existing

risk controls and inefficient work conditions

and corporate with the management in

achieving risk management objectives.


ENTERPRISE RISK MANAGEMENT REVIEW

Risk Management Framework (RMFW)

CGE as a business that operates in the poultry industry is exposed to a myriad of risks and

uncertainties in the day to day operations. In order to overcome these risks, the management

has developed a Risk Management Framework, which facilitates the management to identify

all potential risks related to Environment, Business, Operation and product and evaluates

the impact on the business by considering both financial and non-financial factors and take

necessary precautionary actions to overcome the threat of those risks. The impacts of such

identified risks are assessed in terms of potential loss or damage.

Establishing the Context

Com

mun

icat

ion

and

Cons

ulta

tion

Monitor, Review

and Docum

entation

Risk Treatment

Prevention CorrectionDetectionÛ Û

Risk Identifi cation Risk Analysis Risk Evaluation

Û Û

Risk Assessment

Û

Û

Û

Û

Û

Û

The RMFW emphasises the importance of proper management and the Company’s system of

internal controls that implement the policies, procedures, processes and systems to monitor,

detect, correct, prevent and report matters relating to the continued effectiveness of the

framework.

The risk management process identifies risks, evaluates them by mapping them and assessing

the potential impact and identifies mitigating action following a rigorous review and

monitoring process.

Risk Appetite

Risk appetite is the aggregate amount and

type of risks the entity is willing to accept in

different aspects of business in achieving its

strategic objectives.

The Company has set clear guidance on

identification of risks that embedded within

their processes and activities and accordingly

prioritised them based on the level of impact

on the business. As a result, the Company is

aiming to achieve the following benefits:

� develop a common understanding of

risks across the organisation and manage

risk effectively

� achieve competitive advantage through

better understanding and managing

risks

� better management of internal resources

and achieve cost savings

� provides insights and supports the Board

in decision making

� create an environment promoting

sustainable long term growth in the

entity

97

Continuous Increase of Corporate

Value

ÛÛÛ

Business Value Creation vs. Risk

� Customers

� Employees

� Shareholders

� Business Partners

� Regulatory Bodies

� Community

Stakeholder Value Proposition

� Financial Capital

� Manufactured Capital

� Human Capital

� Social and Relationship Capital

� Natural Capital

� Intellectual Capital

Capitals

Periodic AdequacyReview

Org

anis

atio

n an

d Governance

Reporting and Monitorin

g Systems Measures Controls

Procedures

Business Value Creation

Continuous Risk Management

Impa

ct o

n st

akeh

olde

rs

Hig

hM

ediu

mLo

w

Low Medium High

Impact to the company

6.3

6.4

4.2

4.1

1.2

5.1

6.2

1.73.3

2.11.6

2.2

4.3

1.5

1.8 5.1

4.41.1

3.1

6.1

2.3

3.2

1.4

1.3

Risk Evaluation

Each risk is evaluated in terms of probability

of occurrence and business impact of event/

events:

� Probability of occurrence is evaluated

based on past experience, industry

conditions and the mitigating controls

that are in place. A rating of 1-3 has been

assigned for high, medium and low for

likelihood of occurrence.

� The impact of the event is evaluated by

determining the estimated loss it would

cause and the extent of the business

impact. A rating of 1-3 has been

assigned for high, medium and low for

impact for each risk.

Upon assessment of the likelihood of

occurrence and the extent of the business

impact of each risk, it is plotted in the

following matrix to identify the nature and

extent of action required. A ranking of high,

moderate, low is assigned based on the

risk factor derived through probability and

impact assessment.



Risks and Challenges

These risks and challenges are related to the capitals and stand as the backdrop to the decision-making process and strategy formulation.

Impacted CapitalRisk Ref Risk statement Risk mitigating strategy Risk Factor

1. Financial Capital

1.1 Sourcing of raw materials at the right time,

right quantity and at the expected standard

of quality

Having multiple sources both locally and

internationally

HighContinuous research and development on

alternative raw materials

Obtaining the import permits from the

Government on time

1.2 Frequent changes in government policies Periodic evaluation and adaptation of regulations

and policiesMedium

1.3 Interest rate fluctuations Maintaining an appropriate combination of

investment.Medium

1.4 Threat of substitutes Carrying out promotional activities and engage in

product developmentMedium

1.5 Exchange rate fluctuations Timely monitoring of international transactions

and effective treasury functionHigh

1.6 Credit risk arises from credit exposure to

customers on unsecured debts

Timely assessment of customer credit worthiness

LowAge analysis of debtors

Set credit controls over the value and terms

1.7 Availability of sufficient funds to settle dues Strong relationship with banks to ensure that

urgent borrowing needs are met at short notice.Low

1.8 Price volatility Continuous market surveillance High

2. Human Capital

2.1 Recruiting and retaining employees Development of Competency Matrix and skill pool.

Low

Maintain a succession plan

Adaptation of HR best practices

Conducting employee satisfaction surveys

Continuous training and development

2.2 Losses from low productivity and low

employee engagement

Open door policy to discuss on grievancesLow

Livelihood development programmes

2.3 Sourcing of skilled labour Agreements with outsource labour suppliers High

99

Impacted CapitalRisk Ref Risk statement Risk mitigating strategy Risk Factor

3. Natural Capital

3.1 Natural catastrophes including disease

outbreaks adversely affecting Company’s

operations

Building environmentally controlled houses

Insurance coverage High

3.2 Waste and disposal management Adaptation of central drain system, incineration,

disposal of liquid waste through dilutive and

cleansed process

Medium

3.3 Negative impact on the environment due to

its operations

Environmental factors are considered in decision

making

LowObtaining all required approvals for our business

operations

Promoting importance of carbon foot print

Promoting energy saving initiatives

4. Social And Relationship Capital

4.1 Loss of customers Conducting customer satisfaction surveys

MediumAwareness programs to customers

Effective brand marketing initiatives

4.2 Loss of suppliers Conducting supplier grading surveysMedium

Periodic evaluation of principal’s satisfaction levels

4.3 Procurement and supply chain

management

Develop and maintaining long term business

relationshipsLow

4.4 Regulatory risk All relevant statutes that the Company has to

comply with has been identified and updated as

and when necessary

High

5. Manufactured Capital

5.1 Machine breakdown and system failures Continuous check-ups and upgrades

MediumAdherence to a maintenance plan

Evaluation of man and machine hours

6. Intellectual Capital

6.1 Reputational risk Adhering into corporate governance principals

MediumAdaptation of ethical practices in supply chain and

manufacturing processes

CSR activities

6.2 Loss of data through system breaches Controls over IT infrastructure and data regular

back up off data Medium

Availability of disaster recovery plan

6.3 Product quality risk Regular process monitoring and update

MediumContinuous quality checks

Test on the input of raw materials and

experimental farm tests

6.4 Risk of technological obsolescence Regular investment in new technology Medium



Built on a strong foundation of good corporate governance

and accountability we relentlessly pursue to maintain

the highest standards of quality.

101


We strive to uphold quality in every aspect of our business in bringing forth nutrition to our nation.

103

Financial CalendarFinancial year ended 31 December 2018

Results Announcements to the Colombo Stock Exchange

1st Quarter End Publication of Interim Financial Statements

31 March 2018

10 May 2018

2nd Quarter EndPublication of Interim Financial Statements

30 June 2018

7 August 2018

3rd Quarter EndPublication of Interim Financial Statements

30 September 2018

12 November 2018

4th Quarter EndPublication of Interim Financial Statements

31 December 2018

30 January 2019

Publication of Annual Report for 2017

Publication of Annual Report for 2018

6 April 2018

10 April 2019

Meetings

35th Annual General Meeting 9 May 2018

36th Annual General Meeting 8 May 2019

FINANCIAL REPORTS

Financial ReportsFinancial Calendar 103


104

Statement of the Directors’ Responsibility

108

Independent Auditors’ Report 109

Statement of Profit or Loss and Other Comprehensive Income

112

Statement of Financial Position 113

Statement of Changes in Equity 114

Statement of Cash Flows 115

Notes to the Financial Statements 116

Investor Highlights and InformationFive Year Financial Summary 171

Value Added Statement 172

Shareholder Information 173

Glossary of Financial Terminology 175

Notice of Meeting 176

Form of Proxy 177

Corporate Information Inner Back Cover


REPORT OF THE BOARD OF DIRECTORS ON THE STATE OF AFFAIRS OF THE COMPANY

The Board of Directors is pleased to present

their Report and the Audited Financial

Statements of the Company for the year

ended 31 December 2018. The details set

out herein provide pertinent information

required by the Companies Act No. 7 of 2007,

Listing Rules issued by the Colombo Stock

Exchange and are guided by recommended

best accounting practices.

1. Principal Activities

The principal businesses of the Group

are manufacturing and selling of poultry

feed and other animal feed, importing

and selling of poultry equipment, drugs

and vaccines, operating of poultry

breeder farms, raising grandparent and

parent stock and hatcheries, hatching

and selling of day old chicks, operation

of commercial farms, poultry processing

and distribution and provision of

warehouse facilities.

2. Review of Performance for the year ended 31 December 2018 and Future Developments

A review of the company’s performance

during the year, with comments on

financial results for the year ended

31 December 2018 and future

developments are contained in the

Chairman’s Message (pages 18 to 19)

and Chief Executive Officer’s Review

(pages 20 to 21). These reports, together

with the Financial Statements reflect the

state of affairs of the Company.

3. Financial Statements

The Financial Statements of the

Company are given on pages 112 to 170.

4. Independent Auditors’ Report

The Independent Auditors’ Report on the

Financial Statements is given on pages

109 to 111.

5. Accounting Policies

The accounting policies adopted in preparation of Financial Statements are given on pages 116 to 131. There were no material changes in the accounting policies adopted by the entity except for SLFRS 9 and SLFRS 15 related policies.

6. Interest Register

The Company maintains an Interest Register and the particulars of those Directors who were directly or indirectly interested in a contract of the Company are stated therein.

7. Directors’ Interest

None of the Directors had a direct or

indirect interest in any contracts or

proposed contracts with the Company

other than as disclosed in Note 31

– Related Party Transactions to the

Financial Statements.

8. Directors’ Remuneration and Other Benefits

Directors’ remuneration in respect of the

Company for the financial year ended

31 December 2018 is given in Note

31 - Related Party Transactions, to the


9. Corporate Donations

Donations made by the Company

amounted to Rs. 127,419/-

(2017 - Rs. 310,200/-). No donations were

made for political purposes.

10. Directorate

The names of the Directors who held office as at 31 December 2018 are given below.

Mr. Wickrema Senaka Weerasooria Non-Executive Independent Chairman

Mr. Cheng Chih Kwong, Primus Executive Director and Chief Executive

Officer

Mr. Tan Beng Chuan

Executive Director and Group General

Manager

Mr. Cheng Eng Loong






Mr. Sunil Karunanayake, Non-Executive

Independent Director passed away on 27

May 2018. The Board wishes to place on

record the company’s sincere appreciation

to the late Mr. Sunil Karunanayake for the

valuable contribution extended to the

Company during his tenure on Board.

Dr. Prathap Ramanujam was appointed as

a Non - Executive Independent Director of

the Company on 7 August 2018.

In accordance with the provisions of

Article 87 of the Articles of Association

of the Company, Mr. Cheng Koh Chuen,

Bernard retires by rotation and being

eligible, offers himself for re-election.

In accordance with the provisions of

Article 95 of the Articles of Association

of the Company, Dr. Prathap Ramanujam

retires and being eligible, offers himself

for re-election.

A resolution for the re-appointment of

Mr. Tan Beng Chuan, who is 72 years

of age, will be proposed at the Annual

General Meeting in terms of Section 211

of the Companies Act No. 7 of 2007.

Mr. Tan Beng Chuan’s re-appointment is

recommended by the Directors.

A resolution for the re-appointment of

Mr. Cheng Chih Kwong, Primus who is

70 years of age, will be proposed at the

Annual General Meeting in terms of

Section 211 of the Companies Act No.

105

7 of 2007. Mr. Cheng Chih Kwong, Primus’s re-appointment is recommended by the

Directors.

A resolution for the appointment of Mr. Rajanayagam Nalliah Asirwatham who is 76

years of age, will be proposed at the Annual General Meeting in term of section 211 of

the Companies Act No. 7 of 2007. Mr. Rajanayagam Nalliah Asirwatham’s appointment is

recommended by the Directors.

11. Directors’ Shareholdings

Number of shares

As at 31/12/2018 As at 31/12/2017

Mr. Wickrema Senaka Weerasooria 2,800 2,800

Mr. Cheng Chih Kwong, Primus 397 397

Mr. Tan Beng Chuan Nil Nil

Mr. Cheng Koh Chuen, Bernard Nil Nil

Mr. Cheng Eng Loong Nil Nil

Dr. Prathap Ramanujam Nil Nil

12. Auditors

The Financial Statements for the year ended 31 December 2018 have been audited

by Messrs KPMG Chartered Accountants, who express their willingness to continue in

office. In accordance with the Companies Act No. 7 of 2007, a resolution relating to their

re-appointment and authorising the Directors to determine their remuneration will be

proposed at the forthcoming Annual General Meeting.

The Auditors Messrs KPMG were paid Rs. 4,377,500/- (2017 - Rs. 3,985,000/-) as audit fees by

the Company. As far as the Directors are aware, the Auditors do not have any relationship

(other than that of an Auditor) with the Company other than those disclosed above.

The Auditors also do not have any interest in the Company.

13. Turnover

Group turnover amounted to Rs. 17,085.6 Million (2017 - Rs. 15,154.9 Million) and company

turnover amounted to Rs.16,626.4 Million (2017 - Rs. 14,848.0 Million)

14. Dividends

The Directors recommend a First and Final Dividend of Rs. 3.00 per share for the financial

year ended 31 December 2018.

15. Investments

Details of investments held by the Company are disclosed in Note 15 – Investment in

Associate Company and Note 16 – Investment in Subsidiary Companies, to the Financial

Statements.

16. Intangible Assets

An analysis of the intangible assets of the

Company, additions and amortisation

charged during the year are set out

in Note 14 – Intangible Assets, to the


17. Property, Plant and Equipment

An analysis of the property, plant and

equipment of the Company, additions

and disposals made during the year and

depreciation charged during the year are

set out in Note 12 – Property, Plant and

Equipment, to the Financial Statements.

18. Capital Commitments

Capital expenditure contracted for

as at 31 December 2018 for which

no provision has been made in

the accounts are set out in Note

27 – Commitments, to the Financial

Statements.

19. Stated Capital

The issued and fully paid up

stated capital of the Company is

Rs.1,017,996,000/- divided into

60,000,000 ordinary shares. There was

no change in the stated capital of the

Company during the year.

20. Reserves

Total reserves of the Company as at 31

December 2018 amounted to

Rs. 3,077.2 Million (2017 - Rs. 2,624.2

Million) and the Group reserves

amounted to Rs. 5,461.4 Million

(2017 - Rs. 4,694.5 Million). The

movement of reserves is shown in the

Statement of Changes on Equity on

page 114.


REPORT OF THE BOARD OF DIRECTORS ON THE STATE OF AFFAIRS OF THE COMPANY

21. Events after the reporting period

No significant events have occurred after the reporting period other than those disclosed

in Note 32 – Events After the Reporting Period, to the Financial Statements.

22. Employment Policies

The Company identifies Human Resources as one of the most important factors

bequeathing the survival and growth of the Company in the current competitive business

environment. While appreciating and valuing the service of our employees, a greater effort

is being made to hire the best talent from external sources, to bolster weak areas and

continue to maintain the highest standards prevalent in the Industry. Human Resource

head count is considered as a key indicator and recruitment is based on the annual

manpower planning. The Company provides equal opportunities. Greater emphasis is

given to the areas of training, professional development and ethical business practices. All

rewards and career opportunities are based on merit and on performance.

23. Taxation

The tax position of the Company is given in Note 10 – Taxation, to the Financial Statements.

24. Share Information

Information relating to earnings, dividend, market price, net assets per share and

information on share trading is given on page 171.

25. Disclosure as per CSE Rule No.7.6 (xi)

2018 2017

Rs. Cts. Rs. Cts.

Market price per share as at 31 December 59.50 66.10

Highest share price 76.00 72.80

Lowest share price 54.50 63.00

Net assets per share 68.25 60.70

Earnings per share 9.60 7.51

Dividend per share (proposed) 3.00 2.00

Dividend payout ratio (%) 31.25 26.63

26. Shareholding

The number of registered shareholders of the Company as at 31 December 2018 was 4,767.

The distribution and analysis of shareholding are given on page 173.

27. Major Shareholders

The twenty largest shareholders of the Company as at 31 December 2018, together with an

analysis are given on page 174.

28. Statutory Payments

The Directors to the best of their

knowledge and belief are satisfied that

all statutory payments in relation to the

Government and the employees have

been made on time.

29. Environment, Health and Safety

Company policy continues to ensure

that all Environmental, Health and

Safety regulations are strictly adhered

to, minimising any adverse effects to

the environment. Recycling of waste

is carried out wherever possible.

Employees are provided with all personal

protective equipment as health and

well-being which are our prime

concerns. Fire fighting and safety

systems are in place to safeguard the

company’s best interests.

30. Corporate Governance / Internal Control

The Corporate Governance and Internal

Control Policies of the Company are

given on pages 70 to 78.

31. Contingent Liabilities

Contingent Liabilities as at 31 December

2018 are set out in Note 26 – Contingent

Liabilities, to the Financial Statements.

32. Related Party Transactions

The company’s transactions with related

parties, given in Note 31 - Related Party

Transactions, to the Financial Statements,

have complied with Colombo Stock

Exchange Listing Rule 9.3.2 and the

Code of Best Practices on Related

Party Transactions under the Securities

Exchange Commission Directive issued

under section 13(c) of the Securities

Exchange Commission Act.

107

33. Annual General Meeting

The 36th Annual General Meeting of

the Company will be held at the Sri

Lanka Foundation Institute Auditorium,

No. 100, Sri Lanka Padanama Mawatha,

Independence Square, Colombo 7 on

Wednesday, 8 May 2019 at 10.45 a.m.

By Order of the Board of

Ceylon Grain Elevators PLC

(Sgd.)Wickrema Senaka WeerasooriaNon-Executive Independent Chairman

(Sgd.)Tan Beng ChuanExecutive Director and Group General Manager

(Sgd.)S S P Corporate Services (Private) LimitedSecretaries

Colombo8 April 2019


STATEMENT OF THE DIRECTORS’ RESPONSIBILITY

The responsibility of the Directors in relation

to the Financial Statements of the Company

and the Group, is set out in the following

statement. The responsibility of the auditors,

in relation to the Financial Statements, is set

out in their report appearing on pages 109

to 111.

The Companies Act No. 7 of 2007 requires

the Directors to prepare Financial Statements

for each financial year which give a true

and fair view of the status of affairs of the

Company and the Group and of the profit or

loss for that year.

In preparing these Financial Statements, the

Directors are required to:

• Selectsuitableaccountingpoliciesand

then apply them consistently.

• Makejudgementsandestimatesthatare

reasonable and prudent.

• Statewhateverapplicableaccounting

standards have been followed, subject to

any material departures and explained in

the Financial Statements.

• PreparetheFinancialStatementson

a going concern basis, unless it is

inappropriate to presume that the Group

will continue in business.

The Directors are responsible for keeping

proper accounting records which disclose

with reasonable accuracy of any time the

financial position of the Company and the

Group and to ensure that the Financial

Statements comply with the Companies Act.

The Directors are also responsible for taking

such steps as they deemed reasonable or

required in order to safeguard the assets

of the Company and the Group, and in this

regard, to give proper consideration to the

establishment of appropriate internal control

systems, with a view to prevent and detect

fraud and other irregularities.

The Directors are required to prepare the

Financial Statements to provide the auditors

with every opportunity to take whatever

steps and undertake whatever inspections

they may consider to be appropriate to

enable them to express their audit opinion.

Compliance Statement

The Directors are of the view that they have

discharged their responsibilities as set out

in this statement. They also confirm that to

the best of their knowledge, all statutory

payments payable by the Company and its

subsidiaries, as at the reporting date, have

been paid or where relevant, provided for.

By Order of the Board of


(Sgd.)Wickrema Senaka WeerasooriaNon-Executive Independent Chairman

(Sgd.)Tan Beng ChuanExecutive Director and Group General

Manager

Colombo, Sri Lanka

8 April 2019

109

INDEPENDENT AUDITORS’ REPORT

TO THE SHAREHOLDERS OF CEYLON GRAIN ELEVATORS PLC

Report on the Audit of the Financial Statements

Opinion

We have audited the financial statements of Ceylon Grain Elevators PLC (“the Company”) and the consolidated financial statements of the Company and its subsidiaries (“the Group”), which comprise the statement of financial position as at December 31, 2018, and the statement of profit or loss and comprehensive income, statement of changes in equity and statement of cash flows for the year then ended, and notes to the financial statements, including a summary of significant accounting policies and other explanatory information set out on pages 112 to 170.

In our opinion, the accompanying financial statements of the Company and the Group give a true and fair view of the financial position of the Company and the Group as at December 31, 2018, and of their financial performance and cash flows for the year then ended in accordance with Sri Lanka Accounting Standards.

Basis for Opinion

We conducted our audit in accordance with Sri Lanka Auditing Standards (SLAuSs). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report. We are independent of the Group in accordance with the Code of Ethics issued by CA Sri Lanka (Code of Ethics), and we have fulfilled our other ethical responsibilities

in accordance with the Code of Ethics. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Key Audit Matters

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the company financial statements and the consolidated financial statements of the current period. These matters were addressed in the context of our audit of the Company financial statements and the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

1) Valuation of Biological Assets

Refer Note 3.6 significant accounting policy and Note 17 to the Financial Statements.

Risk Description Our Response

The carrying value of bearer and consumable biological assets measured at fair value less cost to sell, is Rs.556 Million and Rs.18 Million respectively as at 31 December 2018, with a gain arising from changes in fair value less costs to sell recorded in the Statement of Profit or Loss and Other Comprehensive Income amounting to Rs.17 Million.

The Group’s consumable biological assets comprise of Hatchable eggs and commercial Day Old Chicks (DOC).

The Group has identified grandparent, parent and livestock as bearer biological assets as they are self-regenerating.

Management performed an internal valuation of the biological assets of the company as at reporting date.

The calculation of the fair value involves a significant judgments and assumptions particularly in respect of DOC yield, DOC selling price, discounting rate and mortality.

We focused on this area because the valuation of biological assets is dependent on certain key assumptions, which require the exercise of significant judgments and are subject to an inherent risk of error or potential management bias.

Our audit procedures included,• Understanding,evaluatingandtestingthekeyinternalcontrols

over the valuation of biological assets.

• Onsamplebasis,testingthecapitalisedamountsandreasonableness of the inputs used in valuation of biological assets.

• Evaluatingthereasonablenessofcashflowsandrelatedassumptions associated with deriving the fair value of breeder biological assets.

• Challengingthekeyassumptionsusedinthevaluation,inparticular the discount rate, DOC yield, DOC market price and mortality.

• Challengingthemethodologiesadoptedinthevaluationofbiological assets with reference to the requirements of the accounting standards.

• Assessingtheadequacyoftherelateddisclosuresinthefinancialstatements and consistency with the accounting policies.


INDEPENDENT AUDITORS’ REPORT

2) Carrying Value of Inventories

Refer Note 3.7 significant accounting policy and Note 19 to the Financial Statements

Risk Description Our Response

As shown in the Note 19, inventory balance comprise of raw materials and consumables, finished goods, goods in transit and out grower stock which forms a significant part of the Group’s assets, amounting to Rs. 4,246 Million as at December 31, 2018.

Carrying value of inventories is identified as a Key Audit matter because establishing a provision for slow-moving, obsolete and damaged inventory and valuation of inventories involve significant judgments and assumptions exercised by the management.

Our audit procedures included,

• Obtaininganunderstandingoverthesupplychainandtestingselected key controls over recognition and measurement of inventory and inventory provisioning.

• Testingonasamplebasistheaccuracyofcostforinventoryby verifying the actual production costs, and testing the net realizable value by comparing actual cost with relevant market data.

• Forasampleofwarehouses,attendingthephysicalstock-takeprocedures or reconciling third party confirmations with the accounting records of the Group.

• Gaininganunderstandingofthemovementsintheinventoryfor the year and assess the adequacy of the provision for non-moving and slow moving inventory.

• Assessingwhetherthegroup’saccountingpolicieshadbeenconsistently applied and the adequacy of the group’s disclosures in respect of the judgment and estimation made in respect of inventory provisioning.

Other Information

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

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

In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material

misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.

Responsibilities of Management and Those Charged with Governance for the Financial Statements

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

In preparing the financial statements, management is responsible for assessing the Group’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the

going concern basis of accounting unless management either intends to liquidate the Group or to cease operations, or has no realistic alternative but to do so.

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

Auditor’s Responsibilities for the Audit of the Financial Statements

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with SLAuSs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error

111

and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.

As part of an audit in accordance with SLAuSs, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:

• Identifyandassesstherisksofmaterial misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

• Obtainanunderstandingofinternalcontrol relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company and the Group’s internal control.

• Evaluatetheappropriatenessofaccounting policies used and the reasonableness of accounting estimates and related disclosures made by management.

• Concludeontheappropriatenessofmanagement’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention

in our auditor’s report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group to cease to continue as a going concern.

• Evaluatetheoverallpresentation,structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

• Obtainsufficientappropriateauditevidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion.

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

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

From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the

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

Report on Other Legal and Regulatory Requirements

As required by section 163 (2) of the Companies Act No. 7 of 2007, we have obtained all the information and explanations that were required for the audit and, as far as appears from our examination, proper accounting records have been kept by the Company.

CA Sri Lanka membership number of the engagement partner responsible for signing this independent auditor’s report is 2618.

CHARTERED ACCOUNTANTS

Colombo, Sri Lanka

8 April 2019


All amounts in Sri Lankan Rupees thousandsFor the year ended 31 December

STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME

Group Company

Notes 2018 2017 2018 2017

Revenue 4 17,085,577 15,154,866 16,626,358 14,848,045

Cost of sales (15,213,510) (13,611,362) (15,539,826) (14,086,693)

Gross profit 1,872,067 1,543,504 1,086,532 761,352

Other operating income 8 50,725 41,803 244,837 113,947

Selling and distribution expenses (225,879) (192,375) (213,650) (176,676)

Administrative expenses (371,179) (290,970) (360,063) (283,030)

Operating profit 5 1,325,734 1,101,962 757,656 415,593

Finance income 9 373,889 293,310 151,900 173,444

Finance costs 9 (123,163) (4,054) (130,499) (4,829)

Share of profit of associate 15 9,779 8,406 - -

Profit before tax 1,586,239 1,399,624 779,057 584,208

Taxation 10 (375,329) (329,688) (202,972) (133,564)

Profit after tax 1,210,910 1,069,936 576,085 450,644

Other comprehensive incomeItems that will not be reclassified to profit or lossActuarial (loss) / gain arising from defined benefit obligation 25 (5,206) 8,551 (4,333) 5,963

Taxation on other comprehensive income 24 1,340 (1,794) 1,213 (1,431)

Total other comprehensive (expenses) / income (3,866) 6,757 (3,120) 4,532

Total comprehensive income for the year 1,207,044 1,076,693 572,965 455,176

Profit attributable to :Equity holders of the parent 890,495 790,179 576,085 450,644

Non-controlling interest 320,415 279,757 - -

1,210,910 1,069,936 576,085 450,644

Total comprehensive income attributable to :Equity holders of the parent 886,938 795,986 572,965 455,176

Non-controlling interest 320,106 280,707 - -

1,207,044 1,076,693 572,965 455,176

Earnings Per Share - Basic and Diluted (Rs.) 11 14.84 13.17 9.60 7.51

The notes on pages 116 to 170 form an integral part of these Financial Statements.

Figures in brackets indicate deductions.

113

STATEMENT OF FINANCIAL POSITION

All amounts in Sri Lankan Rupees thousandsAs at 31 December

Group Company

Notes 2018 2017 2018 2017

ASSETSNon-current assetsProperty, plant and equipment 12 2,651,957 2,591,272 893,603 805,714Leasehold right over land and buildings 13 151,184 227,625 151,184 159,049Intangible assets 14 24,558 39,445 24,558 39,445Investment in associate company 15 41,730 31,951 33 33Investment in subsidiary companies 16 - - 301,625 330,920Biological assets 17 555,918 501,110 - -Total non-current assets 3,425,347 3,391,403 1,371,003 1,335,161

Current assetsBiological assets 17 17,898 27,649 - -Inventories 19 4,245,805 3,246,821 4,127,222 3,170,521Trade and other receivables 20 821,514 619,059 679,247 545,026Amount due from related companies 18 - - 2,067 837Current tax receivable 27,277 28,375 24,150 24,150Cash and cash equivalents 21 3,033,328 2,857,444 794,423 1,160,125Total current assets 8,145,822 6,779,348 5,627,109 4,900,659Total assets 11,571,169 10,170,751 6,998,112 6,235,820

EQUITYStated capital 28 1,017,996 1,017,996 1,017,996 1,017,996Retained earnings 5,461,400 4,694,462 3,077,170 2,624,205Total equity attributable to equity holders of the parent 6,479,396 5,712,458 4,095,166 3,642,201Non-controlling interest 29 1,556,631 1,266,750 - -Total equity 8,036,027 6,979,208 4,095,166 3,642,201

LIABILITIESNon-current liabilitiesDeferred tax liabilities 24 379,071 358,781 84,748 59,354Employee benefits 25 101,176 83,698 80,107 66,659Total non-current liabilities 480,247 442,479 164,855 126,013

Current liabilitiesTrade and other payables 22 1,471,052 1,036,814 944,633 720,521Amount due to related companies 23 1,583,843 1,712,250 1,793,458 1,747,085Total current liabilities 3,054,895 2,749,064 2,738,091 2,467,606Total liabilities 3,535,142 3,191,543 2,902,946 2,593,619Total equity and liabilities 11,571,169 10,170,751 6,998,112 6,235,820

Net assets per share (Rs.) 35 107.99 95.21 68.25 60.70

The notes on pages 116 to 170 form an integral part of these consolidated financial statements.These financial statements have been prepared in compliance with the requirements of the Companies Act No. 7 of 2007.

(Sgd.)K.A.R.S. PereraGeneral Manager

These financial statements were approved by the Board of Directors on 8 April 2019.

(Sgd.) (Sgd.)Wickrema Senaka Weerasooria Tan Beng ChuanNon-Executive Independent Chairman Executive Director and Group General Manager


All amounts in Sri Lankan Rupees thousands

STATEMENT OF CHANGES IN EQUITY

Group Attributable to equity holders of the parent

Non-

Stated Retained Total controlling Total

capital earnings interest equity

Balance as at 1 January 2017 1,017,996 4,048,476 5,066,472 1,026,343 6,092,815

Profit for the year - 790,179 790,179 279,757 1,069,936

Other comprehensive incomeActuarial gain arising from defined benefit obligation, net of tax - 5,807 5,807 950 6,757

Distribution to ownersDividend paid - (150,000) (150,000) (40,300) (190,300)

Balance as at 31 December 2017 1,017,996 4,694,462 5,712,458 1,266,750 6,979,208

Balance as at 1 January 2018 1,017,996 4,694,462 5,712,458 1,266,750 6,979,208

Profit for the year - 890,495 890,495 320,415 1,210,910

Other comprehensive income

Actuarial loss arising from defined benefit obligation, net of tax - (3,557) (3,557) (309) (3,866)

Distribution to ownersDividend paid - (120,000) (120,000) (30,225) (150,225)

Balance as at 31 December 2018 1,017,996 5,461,400 6,479,396 1,556,631 8,036,027

Company Stated Retained Total

capital earnings equity

Balance as at 1 January 2017 1,017,996 2,319,029 3,337,025

Profit for the year - 450,644 450,644

Other comprehensive income

Actuarial gain arising from defined benefit obligation, net of tax - 4,532 4,532

Distribution to ownersDividend paid - (150,000) (150,000)

Balance as at 31 December 2017 1,017,996 2,624,205 3,642,201

Balance as at 1 January 2018 1,017,996 2,624,205 3,642,201

Profit for the year - 576,085 576,085

Other comprehensive expenses

Actuarial loss arising from defined benefit obligation, net of tax - (3,120) (3,120)

Distribution to ownersDividend paid - (120,000) (120,000)

Balance as at 31 December 2018 1,017,996 3,077,170 4,095,166



115


STATEMENT OF CASH FLOWS

Group Company

Notes 2018 2017 2018 2017

Operating activitiesProfit before tax 1,586,239 1,399,624 779,057 584,208

AdjustmentsDepreciation 12 238,614 224,149 120,714 101,415Amortisation of leasehold right over land and buildings 13 8,565 8,320 7,865 7,620Amortisation of intangible assets 14 15,647 13,944 15,647 13,944Usage of biological assets 17 519,461 482,139 - -Loss / (profit) on disposal of property, plant and equipment 8 9,026 2,667 938 (783)Written off of work-in-progress 33,403 - 29,504 -Change in fair value less cost to sell on biological assets 17 (16,814) (203) - -Impairment provision on investment in subsidiaries - - 29,295 -(Reversal) / provision of impairment on amount due from related companies - - (100,620) 1,642Dividend income - - (114,903) (60,990)Exchange loss 9 121,941 1,041 129,355 1,848Interest income 9 (373,889) (293,310) (151,900) (173,444)Interest expense 9 1,222 3,013 1,144 2,981Written off of doubtful debts 33,549 38,388 29,112 38,388Reversal of provision for doubtful debts (33,549) (38,388) (29,112) (38,388)Provision for slow moving and obsolete items 6,479 4,954 6,136 4,050Share of profit of associate (9,779) (8,406) - -Changes in working capital

- trade and other receivables (250,224) (181,522) (217,358) (139,796)- inventories (1,001,572) (627,120) (962,845) (622,261)- trade and other payables 306,915 (140,643) 142,942 (141,176)- amount due from related companies - - 99,390 37,112- amount due to related companies (128,407) 818,903 46,373 851,621

Employee benefits 25 18,471 16,712 14,558 12,535Cash generated from operations 1,085,298 1,724,262 (124,708) 480,526Exchange loss (121,941) (1,041) (129,355) (1,848)Interest received 301,937 264,271 139,842 152,364Interest paid (1,222) (3,013) (1,144) (2,981)Employee benefits paid (6,199) (8,122) (5,443) (4,355)Tax paid (105,557) (49,311) - -Net cash generated from / (used) operating activities 1,152,316 1,927,046 (120,808) 623,706

Investing activitiesPurchase of property, plant and equipment 12 (278,783) (482,226) (239,158) (461,525)Purchase of leasehold assets 13 - (59,233) - (58,733)Purchase of Intangible Assets 14 (760) (7,568) (760) (7,568)Proceeds from disposal of property, plant and equipment 1,040 2,620 121 1,478Proceeds from dividend income - - 114,903 60,990Purchase of biological assets 17 (547,704) (518,913) - -Net cash used in investing activities (826,207) (1,065,320) (124,894) (465,358)

Financing activitiesDividend paid (150,225) (190,300) (120,000) (150,000)Net cash used in financing activities (150,225) (190,300) (120,000) (150,000)

Increase / (decrease) in cash and cash equivalents 175,884 671,426 (365,702) 8,348

Movements in cash and cash equivalentsAt the beginning of the year 2,857,444 2,186,018 1,160,125 1,151,777Increase / (decrease) in cash and cash equivalents 175,884 671,426 (365,702) 8,348Cash and cash equivalents as at 31 December 21 3,033,328 2,857,444 794,423 1,160,125




NOTES TO THE FINANCIAL STATEMENTS

1. CORPORATE INFORMATION

1.1 Reporting entity

Ceylon Grain Elevators PLC (the

‘Company’) is a “Quoted Public

Company” with limited liability,

incorporated and domiciled in Sri

Lanka. The address of the Company’s

registered office is No.15, Rock

House Lane, Colombo - 15, Sri Lanka.

The Company was listed on the

Colombo Stock Exchange on 01

January 1984.

1.2 Financial Statements


Company as at and for the year

ended 31 December 2018 comprise

the Company and its subsidiaries

and the Group’s interest in associate,

listed below.

Subsidiaries

� Three Acre Farms PLC

� Millennium Multibreeder Farms

(Private) Limited

� Ceylon Pioneer Poultry Breeders

Limited

� Ceylon Livestock and

Agrobusiness Services (Private)

Limited

� Ceylon Warehouse Complex

(Private) Limited

� Ceylon Aquatech (Private)

Limited

All subsidiaries of the Company have

been incorporated in Sri Lanka.

Associate

� Prima Management Services

(Private) Limited


Group entities are prepared to a

common financial year ending

31 December using uniform

accounting policies.

Ultimate Parent

The Ultimate Parent Company Prima

Limited, Singapore, holds 45.45 %

of the issued share capital of the

Company.

1.3 Principal activities and nature of the operation

The principal businesses of the

Group are manufacturing and

selling of poultry feed and other

animal feed, importing and selling

of poultry equipment, drugs and

vaccines, operating of poultry

breeder farms, raising grandparent

and parent stock and hatcheries,

hatching and selling of Day Old

Chicks, operation of commercial

farms, poultry processing and

distribution and provision of

warehouse facilities.

There were no significant changes in

the nature of the principle business

activities of the Group and the

company during the financial year

under review. The activities of the

Group are described in detailed in

the Group structure on pages 8 to 9.

1.4 Approval of Financial Statements by Directors

The Financial Statements were

authorised for issue by the Board of

Directors on

8 April 2019.

1.5 Responsibility for the Financial Statements

The Board of Directors

acknowledge their responsibility

for Financial Statements, as set

out in the ‘Statement of Directors’

Responsibility’ in this Annual Report.

2. BASIS OF PREPARATION

2.1 Statement of compliance

The Financial Statements of the Company and those consolidated with such comprise the statement of Financial Position, Statement of Profit or Loss and Other Comprehensive Income, Statement of Changes in Equity and Statement of Cash Flows together with the accounting policies and Notes to the Financial Statements. The Financial Statements have been prepared and present fairly in accordance with Sri Lanka Accounting Standards (SLFRS) as issued by the Institute of Chartered Accountants of Sri Lanka (CA Sri Lanka) and in compliance with the requirements of the Companies Act No. 07 of 2007 and provide appropriate disclosures as required by the Listing Rules of the Colombo Stock Exchange (CSE). These Financial Statements, except for information on cash flows have been prepared following the accrual basis of accounting.

2.2 Basis of measurement

The Financial Statements have been

prepared on the historical cost basis

except the valuation of retirement

benefit obligation and valuation of

biological assets which are disclosed

in Note 25 - Employee Benefits and

Note 17 - Biological Assets to the


117

2.3 Functional and presentation currency

The Financial Statements are

presented in Sri Lankan Rupees,

which is the company’s functional

and presentation currency, rounded

to the nearest thousand, unless

otherwise stated.

2.4 Significant accounting estimates, judgements and assumptions

The preparation of the Financial

Statements in conformity with

Sri Lanka Accounting Standards

(SLFRS) require management

to make judgements, 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. Underlying estimates,

judgements, assumptions are

reviewed on an ongoing basis.

Revisions to accounting estimates

are recognised prospectively.

Going concern

The management has made

an assessment of its ability to

continue as a going concern and

is satisfied that it has the resources

to continue in business for the

foreseeable future. Furthermore, the

management is not aware of any

material uncertainties that may cast

significant doubt upon the Group’s/

company’s ability to continue as

a going concern. Therefore, the

Financial Statements of the Group

continue to be prepared on a going

concern basis.

Information about assumptions

and estimation uncertainties and

critical judgements in applying

accounting policies that have

the most significant effect on the

amounts recognised in the Financial

Statements is included in the

following notes:

� Note 3.4.5 - Depreciation

� Note 3.4.7 - Leasehold right

classification

� Note 3.5 - Intangible assets

� Note 3.6 - Biological assets

� Note 3.3 (d) - Impairment

� Note 3.8.3 - Measurement of

defined benefit obligation

� Notes 3.9 and 3.17 - Provisions,

commitments and contingencies

� Note 3.12 - Deferred taxation

2.5 Measurement of fair value

A number of the Group’s accounting

policies and disclosures require the

measurement of fair value, for both

financial and non-financial assets

and liabilities. The Group has an

established control framework with

respect to the measurement of fair

value.

This includes a valuation team

that has overall responsibility for

overseeing all significant fair value

measurements, including Level 3

fair value and reports directly to the

management.

The valuation team regularly reviews

significant unobservable inputs and

valuation adjustments.

If third party information, such as

broker quotes or pricing services,

is used to measure fair value, then

the valuation team assesses the

evidence obtained from the third

parties to support the conclusion

that such valuations meet the

requirements of SLFRS, including

the level in the fair value hierarchy

in which such valuations should be

classified. Significant valuation issues

are reported to the Group’s Audit

Committee.

When measuring the fair value of an

asset or a liability, the Company uses

observable market data as far as

possible. Fair values are categorised

into different levels in a fair value

hierarchy based on the inputs used

in the valuation techniques as

follows:

� Level 1: Quoted prices

(unadjusted) in active markets for

identical assets or liabilities.

� Level 2: Inputs other than

quoted prices included in Level 1

that are observable for the asset

or liability, either directly (i.e. as

prices) or indirectly (i.e. derived

from prices).

� Level 3: Inputs for the asset

or liability that are not based

on observable market data

(unobservable inputs).

If the inputs used to measure the

fair value of an asset or a liability

fall into different levels of the fair

value hierarchy, then the fair value

measurement is categorised at its

entirety in the same level of the fair

value hierarchy as the lowest level

input that is significant to the entire

measurement.



The Company recognises transfers

between levels of the fair value

hierarchy at the end of the reporting

period during which the change has

occurred.

Further information about the

assumptions made in measuring

fair value is included in Note 17

-Biological Assets.

2.6 Use of materiality, offsetting and rounding

2.6.1 Materiality and aggregation

Each material class of similar items

is presented separately in the

Financial Statements. Items of a

dissimilar nature or function are

presented separately, unless they are

immaterial.

Notes to the Financial Statements

are presented in a systematic

manner which ensure the

understandability and comparability

of Financial Statements of the Group.

Understandability of the Financial

Statements is not compromised by

observing material information or

by aggregating material items that

have different nature of functions.

2.6.2 Offsetting

Assets and liabilities and income and

expenses in the Financial statements

are not set-off unless regained by Sri

Lanka Accounting Standards.

2.6.3 Rounding

The amounts in the Financial

Statements have been rounded off

to the nearest rupees thousands,

except where otherwise indicated.

3. SIGNIFICANT ACCOUNTING POLICIES

The accounting policies set

out below have been applied

consistently to all periods presented

in these Financial Statements and

accounting policies have been

applied consistently by the entity

except for the SLFRS 9 and SLFRS 15

related policies.

3.1 Basis of consolidation

3.1.1 Business combinations

Business combinations are

accounted for using the acquisition

method as at the acquisition

date - i.e. when control is transferred

to the Group. Control is the power to

govern the financial and operating

policies of an entity, so as to obtain

benefits from its activities. In

assessing control, the Group also

takes into consideration potential

voting rights that are currently

exercisable.

The Group measures goodwill at the

acquisition date as:

� The fair value of the

consideration transferred

� The recognised amount of any

non-controlling interests in the

acquiree

� If the business combination is

achieved in stages, the fair value

of the pre-existing equity interest

in the acquiree; less

� The net recognised amount

(generally fair value) of the

identifiable assets acquired and

liabilities assumed.

When the excess is negative, a

bargain purchase gain is recognised

immediately in profit or loss.

The consideration transferred

does not include amounts related

to the settlement of pre-existing

relationships such amounts are

generally recognised in profit or

loss. Transactions costs, other than

those associated with the issue of

debt or equity securities, that the

Group incurs in connection with a

business combination are expensed

as incurred.

3.1.2 Non-controlling interest

The total profit and loss for the year

of the Company and its subsidiaries

included in consolidation are shown

in the consolidated statement of

profit or loss with the proportion

of profit or loss after taxation

pertaining to minority shareholders

of subsidiaries being deducted as

‘Non-controlling interest’. All assets

and liabilities of the Company

and of its subsidiaries included in

consolidation are shown in the

consolidated statement of financial

position. The interest of minority

shareholders of subsidiaries in the

fair value of net assets of the Group

are indicated separately in the

consolidated statement of financial

position under the heading ‘Non-

Controlling Interest’.

Changes in the Group’s interest in

a subsidiary that do not result in a

loss of control are accounted for as

transactions with owners in their

capacity as owners. Adjustments to

non-controlling interest are based

on a proportionate amount of the

net assets of the subsidiary. No

adjustments are made to goodwill

and no gain or loss is recognised in

profit or loss.

119

3.1.3 Subsidiaries

Subsidiaries are entities controlled

by the Group. The Financial

Statements of subsidiaries are

included in the Group Financial

Statements from the date that

control commences, until the date

that control ceases.

3.1.4 Loss of control

On the loss of control, the Group

derecognises the assets and

liabilities of the subsidiary, any

non-controlling interest and the

other components of equity related

to the subsidiary. Any surplus or

deficit arising on the loss of control

is recognised in profit or loss.

There are no significant restrictions

on the ability of subsidiaries to

transfer funds to the Company

(parent) in the form of cash,

dividend or repayment of loans and

advances.

3.1.5 Investment in associates

Associates are those entities in

which the Group has significant

influence, but not control or joint

control, over the financial and

operating policies. Significant

influence is presumed to exist when

the Group holds between 20 % and

50 % of the voting power of another

entity.

Investments in associates are

accounted for under the equity

method and are recognised initially

at cost. The cost of the investment

includes transaction costs. The

Group Financial Statements include

the Group’s share of the profit or loss

and other comprehensive income

of equity-accounted investees, after

adjustments to align the accounting

policies with those of the Group,

from the date that significant

influence commences until the date

that significant influence or joint

control ceases.

When the Group’s share of losses

exceeds its interest in an equity-

accounted investee, the carrying

amount of the investment, including

any long-term interests that form

part thereof, is reduced to zero, and

the recognition of further losses is

discontinued except to the extent

that the Group has an obligation or

has made payments on behalf of the

investee.

3.1.6 Transactions eliminated on consolidation

Intra-group balances and

transactions, and any unrealised

income and expenses arising

from intra group transactions, are

eliminated in preparing the Group

Financial Statements. Unrealised

gains arising from transactions with

equity accounted investees are

eliminated against the investment

to the extent of the Group’s interest

in the investee. Unrealised losses

are eliminated in the same way as

unrealised gains, but only to the

extent that there is no evidence of

impairment.

3.1.7 Statement of Cash Flows

The Statement of Cash Flows

has been prepared by using the

‘’Indirect Method’’ of preparing cash

flows in accordance with Sri Lanka

Accounting Standards – LKAS 7 on

Statement of Cash Flows.

3.2 Foreign currency

Transactions in foreign currencies

are translated into the respective

functional currencies of the Group

at the exchange rates at the dates of

the transactions.

Monetary assets and liabilities

denominated in foreign currencies

are translated into the functional

currency at the exchange rate at the

reporting date. Non-monetary assets

and liabilities that are measured

at fair value in a foreign currency

are translated into the functional

currency at the exchange rate when

the fair value was determined.

Non-monetary assets and liabilities

dominated in foreign currencies

that are measured at fair value are

translated to the functional currency

at the exchange rate at the date that

the fair value was determined.

Foreign currency differences arising

on re-translation are recognised in

profit or loss except the differences

arising on re-translation of available

for- sale equity instruments,

which are recognised in other

comprehensive income.

3.3 Financial instruments

Financial assets –Accounting - policy applicable from 1 January 2018

(a) Recognition and initial measurement

Trade receivables are initially

recognised when they are

originated. All other financial

assets are initially recognised

when the Group becomes

a party to the contractual

provisions of the instrument.


A financial asset (unless it is

a trade receivable without

a significant financing

component) is initially measured

at fair value plus, for an item

not at FVTPL, transaction costs

that are directly attributable to

its acquisition or issue. A trade

receivable without a significant

financing component is initially

measured at the transaction

price.

(b) Classification and subsequent measurement

On initial recognition, a financial

asset is classified as measured

at: amortised cost; FVOCI- debt

investment; FVOCI - equity

investment; or FVTPL.

Financial assets are not

reclassified subsequent to their

initial recognition unless the

Group changes its business

model for managing financial

assets, in which case all affected

financial assets are reclassified

on the first day of the first

reporting period following the

change in the business model.

A financial asset is measured at

amortised cost if it meets both of

the following conditions and is not

designated as at FVTPL:

� it is held within a business model

whose objective is to hold assets

to collect contractual cash flows;

and

� it’s contractual terms give rise on

specified dates to cash flows that

are solely payments of principal

and interest on the principal

amount of outstanding.

A debt investment is measured

at FVOCI if it meets both of the

following conditions and is not

designated as at FVTPL:

� it is held within a business model

whose objective is achieved by

both collecting contractual cash

flows and selling financial assets;

and

� its contractual terms give rise on

specified dates to cash flows that

are solely payments of principal

and interest on the principal

amount outstanding.

On initial recognition of an equity

investment that is not held for

trading, the Group may irrevocably

elect to present subsequent

changes in the investment’s fair

value in OCI. This election is made

on an investment-by-investment

basis.

All financial assets not classified

as measured at amortised cost

or FVOCI as described above are

measured at FVTPL. This includes

all derivative financial assets. On

initial recognition, the Group may

irrevocably designate a financial

asset that otherwise meets the

requirements to be measured at

amortised cost or at FVOCI as at

FVTPL if doing so eliminates or

significantly reduces an accounting

mismatch that would otherwise

arise.

Financial assets - Business model assessment:

The Group makes an assessment

of the objective of the business

model in which a financial asset is

held at a portfolio level because this

best reflects the way the business

is managed and information is

provided to management. The

information considered includes:

� the stated policies and objectives

for the portfolio and the

operation of those policies in

practice. These include whether

management’s strategy focuses

on earning contractual interest

income, maintaining a particular

interest rate profile, matching the

duration of the financial assets

to the duration of any related

liabilities or expected cash

outflows or realising cash flows

through the sale of the assets;

� how the performance of

the portfolio is evaluated

and reported to the Group’s

management;

� the risks that affect the

performance of the business

model (and the financial assets

held within that business

model) and how those risks are

managed;

� how managers of the business

are compensated - e.g. whether

compensation is based on the

fair value of the assets managed

or the contractual cash flows

collected; and

� the frequency, volume and

timing of sales of financial assets

in prior periods, the reasons for

such sales and expectations

about future sales activity.

Transfers of financial assets to

third parties in transactions that

do not qualify for de recognition

are not considered sales for this

purpose, consistent with the Group’s


121

continuing recognition of the assets.

Financial assets that are held for

trading or are managed and whose

performance is evaluated on a fair

value basis are measured at FVTPL.

Financial assets -Assessment whether contractual cash flows are solely payments of principal and interest: Policy applicable from 1 January 2018

For the purposes of this assessment,

‘principal’ is defined as the fair

value of the financial asset on initial

recognition. ‘Interest’ is defined as

consideration for the time value

of money and for the credit risk

associated with the principal

amount outstanding during a

particular period of time and for

other basic lending risks and costs

(e.g. liquidity risk and administrative

costs), as well as a profit margin.

In assessing whether the contractual

cash flows are solely payments of

principal and interest, the Group

considers the contractual terms

of the instrument. This includes

assessing whether the financial asset

contains a contractual term that

could change the timing or amount

of contractual cash flows such that

it would not meet this condition. In

making this assessment, the Group

considers:

� contingent events that would

change the amount or timing of

cash flows;

� terms that may adjust the

contractual coupon rate,

including variable-rate features;

� prepayment and extension

features; and

� terms that limit the Group’s claim to cash flows from specified assets (e.g. non-

recourse features).

A prepayment feature is consistent with the solely payments of principal and interest

criterion if the prepayment amount substantially represents unpaid amounts of

principal and interest on the principal amount outstanding, which may include

reasonable additional compensation for early termination of the contract. Additionally,

for a financial asset acquired at a discount or premium to its contractual par-amount, a

feature that permits or requires prepayment at an amount that substantially represents

the contractual par amount plus accrued (but unpaid) contractual interest (which may

also include reasonable additional compensation for early termination) is treated as

consistent with this criterion if the fair value of the prepayment feature is insignificant

at initial recognition.

Financial assets - Subsequent measurement and gains and losses: Policy applicable from 1 January 2018

Financial assets at

FVTPL

These assets are subsequently measured at fair value. Net

gains and losses, including any interest or dividend income, are

recognised in profit or loss.

Financial assets at

amortised

These assets are subsequently measured at amortised cost

using the effective interest method. The amortised cost

is reduced by impairment losses. Interest income, foreign

exchange gains and losses and impairment are recognised in

profit or loss. Any gain or loss on derecognition is recognised

in profit or loss.

Debt investments

at FVOCI

These assets are subsequently measured at fair value. Interest

income calculated using the effective interest method, foreign

exchange gains and losses and impairment are recognised in

profit or loss. Other net gains and losses are recognised in OCI.

On derecognition, gains and losses accumulated in OCI are

reclassified to profit or loss.

Equity investments

at FVOCI

These assets are subsequently measured at fair value.

Dividends are recognised as income in profit or loss unless the

dividend clearly represents a recovery of part of the cost of the

investment. Other net gains and losses are recognised in OCI

and are never reclassified to profit or loss.


Financial assets - Policy applicable prior to 1 January 2018

The Group classified its financial assets into one of the following categories:

� loans and receivables;

� held to maturity;

� available for sale; and

� at FVTPL, and within this category as:

- held for trading

- derivative hedging instruments; or

- designated as at FVTPL

Financial assets - Subsequent measurement and gains and losses: Policy applicable prior to 1 January 2018

Financial assets at

FVTPL

Measured at fair value and changes therein, including any

interest or dividend income, were recognised in profit or loss.

Held-to-maturity

financial assets

Measured at amortised cost using the effective interest

method.

Loans and

receivables

Measured at amortised cost using the effective interest

method.

Available-for-sale

financial assets

Measured at fair value and changes therein, other than

impairment losses, interest income and foreign currency

differences on debt instruments, were recognised in OCI and

accumulated in the fair value reserve. When these assets were

derecognised, the gain or loss accumulated in equity was

reclassified to profit or loss.

Financial liabilities - Classification, subsequent measurement and gains and losses

Financial liabilities are classified as measured at amortised cost or FVTPL. A financial

liability is classified as at FVTPL if it is classified as held-for-trading, it is a derivative or it

is designated as such on initial recognition. Financial liabilities at FVTPL are measured

at fair value and net gains and losses, including any interest expense, are recognised

in profit or loss. Other financial liabilities are subsequently measured at amortised

cost using the effective interest method. Interest expense and foreign exchange gains

and losses are recognised in profit or loss. Any gain or loss on derecognition is also


(c) Derecognition

Financial assets

The Group derecognises

a financial asset when the

contractual rights to the cash

flows from the financial asset

expire, or it transfers the rights

to receive the contractual cash

flows in a transaction in which

substantially all of the risks and

rewards of ownership of the

financial asset are transferred

or in which the Group neither

transfers nor retains substantially

all of the risks and rewards of

ownership and it does not retain

control of the financial asset.

The Group enters into

transactions whereby it

transfers assets recognised

in its statement of financial

position, but retains either all or

substantially all of the risks and

rewards of the transferred assets.

In these cases, the transferred

assets are not derecognised.

Financial liabilities

The Group derecognises a

financial liability when its

contractual obligations are

discharged or cancelled,

or expire. The Group also

derecognises a financial liability

when its terms are modified and

the cash flows of the modified

liability are substantially

different, in which case a new

financial liability based on the

modified terms is recognised at

fair value.


123

On derecognition of a

financial liability, the difference

between the carrying

amount extinguished and the

consideration paid (including

any non-cash assets transferred

or liabilities assumed) is


Offsetting

Financial assets and financial

liabilities are offset and the

net amount presented in the

statement of financial position

when, and only when, the

Group currently has a legally

enforceable right to set off the

amounts and it intends either to

settle them on a net basis or to

realise the asset and settle the

liability simultaneously.

(d) Impairment

Impairment policy: applicable from 1 January 2018

Non-derivative financial assets

Financial instruments and contract assets

Loss allowances for trade

receivables is always

measured at an amount

equal to lifetime ECLs. When

determining whether the

credit risk of a financial asset

has increased significantly

since initial recognition and

when estimating ECLs, the

Group considers reasonable

and supportable information

that is relevant and available

without undue cost or effort.

This includes both quantitative

and qualitative information

and analysis, based on the

Group’s historical experience

and informed credit assessment

and including forward-looking

information.

The Group assumes that the

credit risk on a financial asset

has increased significantly if it is

more than 30 days past due.

The Group considers a financial

asset to be in default when:

� the borrower is unlikely to pay its

credit obligations to the Group

in full, without recourse by the

Group to actions such as realising

security (if any is held); or

� the financial asset is more than

180 days past due.

Lifetime ECLs are the ECLs that result

from all possible default events

over the expected life of a financial

instrument.

12-month ECLs are the portion of

ECLs that result from default events

that are possible within the 12

months after the reporting date (or

a shorter period if the expected life

of the instrument is less than 12

months).

The maximum period considered

when estimating ECLs is the

maximum contractual period over

which the Group is exposed to

credit risk.

Measurement of ECLs

ECLs are a probability-weighted

estimate of credit losses. Credit

losses are measured as the present

value of all cash shortfalls (i.e. the

difference between the cash flows

due to the entity in accordance with

the contract and the cash flows

that the Group expects to receive).

ECLs are discounted at the effective

interest rate of the financial asset.

Credit-impaired financial assets

At each reporting date, the Group

assesses whether financial assets

carried at amortised cost and debt

securities at FVOCI are credit-

impaired. A financial asset is ‘credit-

impaired’ when one or more events

that have a detrimental impact on

the estimated future cash flows of

the financial asset have occurred.

Evidence that a financial asset

is credit-impaired includes the

following observable data:

� significant financial difficulty of

the borrower or issuer;

� a breach of contract such as a

default or being more than 180

days past due;

� the restructuring of a loan or

advance by the Group on terms

that the Group would not

consider otherwise;

� it is probable that the borrower

will enter bankruptcy or other

financial reorganisation; or

� the disappearance of an active

market to a security because of

financial difficulties.

Presentation of allowance for ECL in the statement of financial position

Loss allowances for financial assets

measured at amortised cost are

deducted from the gross carrying

amount of the assets.


Write-off

The gross carrying amount of a

financial asset is written off when

the Group has no reasonable

expectations of recovering a

financial asset in its entirety or

a portion thereof. For individual

customers, the Group has a policy

of writing off the gross carrying

amount when the financial asset

is 180 days past due based on

historical experience of recoveries

of similar assets. For corporate

customers, the Group individually

makes an assessment with respect

to the timing and amount of write-

off based on whether there is a

reasonable expectation of recovery.

The Group expects no significant

recovery from the amount written

off. However, financial assets that

are written off could still be subject

to enforcement activities in order to

comply with the Group’s procedures

to recovery of amounts due.

Impairment Policy: applicable prior to 1 January 2018

Financial assets (including receivables)

A financial asset not carried at

fair value through profit or loss

is assessed at each reporting

date to determine whether

there is objective evidence that

it is impaired. A financial asset is

impaired if objective evidence

indicates that a loss event has

occurred after the initial recognition

of the asset, and that the loss

event had a negative effect on the

estimated future cash flows of that

asset that can be estimated reliably.

Objective evidence that financial

assets (including equity securities)

are impaired can include default

or delinquency by a debtor,

restructuring of an amount due to

the Group on terms that the Group

would not consider otherwise,

indications that a debtor or issuer

will enter bankruptcy, or the

disappearance of an active market

for a security. In addition, for an

investment in an equity security,

a significant or prolonged decline

in its fair value below its cost is

objective evidence of impairment.

The Group considers evidence

of impairment for receivables at

both a specific asset and collective

level. All individually significant

receivables are assessed for specific

impairment. All individually

significant receivables found not

to be specifically impaired are

then collectively assessed for any

impairment that has been incurred

but not yet identified. Receivables

that are not individually significant

are collectively assessed for

impairment by grouping together

receivables with similar risk

characteristics.

In assessing collective impairment

the Group uses historical trends of

the probability of default, timing of

recoveries and the amount of loss

incurred, adjusted for management’s

judgment as to whether current

economic and credit conditions are

such that the actual losses are likely

to be greater or less than suggested

by historical trends.

An impairment loss in respect of a financial asset measured at amortised cost is calculated as the difference between its carrying amount and the present value of the estimated future cash flows discounted at the asset’s original effective interest rate. Losses are recognised in profit or loss and reflected in an allowance account against receivables. Interest on the impaired asset continues to be recognised through the unwinding of the discount. When a subsequent event causes the amount of impairment loss to decrease, the decrease in impairment loss is reversed through profit or loss

Impairment Policy: Non-financial assets

The carrying amounts of the Group’s

non-financial assets, other than

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. For intangible

assets that have indefinite useful

lives or that are not yet available

for use, the recoverable amount is

estimated each year at the same

time.

The recoverable amount of an asset

is the greater of its value in use and

its fair value less costs to sell. In

assessing value in use, the estimated

future cash flows are discounted to

their present value using a pre-tax

discount rate that reflects current

market assessments of the time

value of money and the risks specific

to the asset. For the purpose of

impairment testing, assets that

cannot be tested individually are

grouped together into the smallest


125

group of assets that generates cash

inflows from continuing use that

are largely independent of the cash

inflows of other assets.

An impairment loss is recognised

if the carrying amount of an asset

exceeds its estimated recoverable

amount. Impairment losses are


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

3.4 Property, plant and equipment

Property, plant and equipment are

tangible items that are held for use

in the production or supply of goods

or services, for rental to others, or

for administrative purposes and are

expected to be used during more

than one period.

3.4.1 Recognition and measurement

Items of property, plant and

equipment are measured at cost

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 include the

cost of materials and direct labour,

any other costs directly attributable

to bringing the asset to the working

condition for its intended use

and the cost of dismantling and

removing the items and restoring

the site on which they are located

and capitalised borrowing cost.

Purchased software that is integral

to the functionality of the related

equipment is capitalised 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.

3.4.2 Gains and losses on disposal

Gains and losses on disposal of

an item of property, plant and

equipment are determined by

comparing the proceeds from

disposal with the carrying amount

of property, plant and equipment

and are recognised net within ‘other

income / other expenses’ in profit

or loss.

3.4.3 Subsequent costs

The cost of replacing a part of

an item of property, plant and

equipment is recognised in the

carrying amount of the item if it is

probable that the future economic

benefits embodied within the

part will flow to the Group and its

cost can be measured reliably. The

carrying amount of the replaced

part is derecognised. The costs of

the day-to-day servicing of property,

plant and equipment are recognised

in profit or loss as incurred.

3.4.4 Derecognition

The carrying amount of an item

of property, plant and equipment

is derecognised on disposal or

when no future economic benefits

are expected from its use or

disposal. The gain or loss arising

from derecognition of an item of

property, plant and equipment

is included in profit or loss when

the item is derecognised. When

replacement costs are recognised in

the carrying amount of an item of

property, plant and equipment, the

remaining carrying amount of the

replaced part is derecognised. Major

inspection costs are capitalised.

At each such capitalisation, the

remaining carrying amount of

the previous cost of inspections is

derecognised.

3.4.5 Depreciation

Depreciation is based on the cost or

other amount substituted for cost,

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

part 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. No

depreciation is provided on assets

under construction.


The estimated useful lives for the

current and comparative years are

as follows:

Freehold building 20 - 50 years

Plant and

machinery

10 - 16 2/3

years

Electrical and

factory equipment

2 - 5 - 10 - 20

years

Farm equipment 5 - 20 years

Furniture and

fittings and office

equipment

10 years

Motor vehicles 5 - 10 years

Land is not depreciated as it is

deemed to have indefinite life.

Depreciation of an asset begins

when it is available for use and

ceases at the earlier of the date that

the asset is classified as held-for-

sale and the date that the asset

is derecognised. Depreciation

methods, useful lives and residual

values are reviewed at each

reporting date and adjusted, if

appropriate. Where the carrying

amount of an asset is greater than

its estimated recoverable amount, it

is written down immediately to its

recoverable amount.

3.4.6 Capital work-in-progress

Capital expenses incurred during

the year which are not completed

as at the reporting date are shown

as capital work-in-progress, while

the capital assets which have been

completed during the year and put

to use are transferred to property,

plant and equipment.

3.4.7 Leased assets

Leases in terms of which the Group assumes substantially all the risks and rewards of ownership are classified as finance leases. Upon initial recognition the leased assets are measured at an amount equal to the lower of its fair value and the present value of the minimum lease payments. Subsequent to initial recognition, the asset is accounted for in accordance with the accounting policy applicable to that asset.

Other leases are operating leases and any prepayments are recognised in the consolidated Statement of Financial Position as lease hold rights. The leasehold rights under operating leases are charged to profit or loss on a straight-line basis over the period of the lease.

When an operating lease is

terminated before the lease period

has expired, any payment required

to be made to the lessor by way of

penalty is recognised as an expense

in the period in which termination

takes place.

The cost of improvements to or on

leased property is capitalised and

depreciated over the unexpired

period of the lease or the estimated

useful lives of improvements,

whichever is shorter.

3.5 Intangible assets

3.5.1 Basis of recognition

An intangible asset is recognised if

it is probable that future economic

benefits that are attributable to the

assets will flow to the entity and the

cost of the assets can be measured

reliably.

3.5.2 Basis of measurement

Intangible assets acquired separately

are measured on initial recognition

at cost. Subsequent measurement

is carried at cost less accumulated

amortisation and accumulated

impairment losses, if any.

3.5.3 Subsequent expenditure

Subsequent expenditure is

capitalised only when it increases

the future economic benefits

embodied in the specific asset

to which it relates. All other

expenditure, including expenditure

on internally generated goodwill

and brands are recognised in profit

or loss as incurred.

3.5.4 Amortisation

Amortisation is recognised in profit

or loss on a straight- line basis

over the estimated useful lives

of intangible assets, other than

goodwill, from the date that they

are available for use. The estimated

useful lives for the current and

comparative years are as follows:

Computer software 10 years

Amortisation methods, useful lives

and residual values are reviewed at

each reporting date and adjusted if

appropriate.

3.6 Biological assets

A biological asset is a living

animal. Biological assets consist of

grandparent and parent livestock,

used to breed Hatchable eggs

and commercial Day Old Chicks.

Grandparent and parent birds

include the growing birds and the

laying birds.

Consumable biological assets are


127

those that are to be harvested as

agricultural produce or sold as

biological assets. Hatchable eggs

and commercial Day Old Chicks

have been identified as Consumable

biological assets.

Bearer biological assets are those

other than Consumable biological

assets. Bearer biological assets are

not agricultural produce but, rather,

are self-regenerating.

Company has identified grandparent

and parent and livestock as Bearer

biological assets.

Biological assets are measured at

fair value less cost to sell within any

changes therein recognised in profit

or loss for the period in which it

arises.

3.7 Inventories

Inventories are measured at the

lower of cost and net realisable

value.

Net realisable value is the estimated

selling price in the ordinary course

of business, less the estimated costs

of completion and selling expenses.

The general basis on which cost is

determined is as follows:

a) All inventory items except

finished goods and working

progress at purchased cost.

b) Manufactured goods and work-

in-progress at factory cost which

include all direct expenditure

and production overhead at

normal level of activity.

3.8 Employee benefits

3.8.1 Short-term employee benefits

Short-term employee benefit

obligations are measured on

an undiscounted basis and are

expensed as the related service is

provided. A liability is recognised

for the amount expected to be

paid under short-term cash bonus

or profit-sharing plans if the Group

has a present legal or constructive

obligation to pay this amount as a

result of past service provided by the

employee and the obligation can be

estimated reliably.

3.8.2 Defined contribution plan

A defined contribution plan is a

post-employment benefit plan

under which an entity pays fixed

contributions into a separate entity

and has no legal or constructive

obligation to pay further amounts.

Obligations for contributions

to defined contribution plans

are recognised as an employee

benefit expense in profit or loss in

the periods during which related

services are rendered by employees.

Prepaid contributions are recognised

as an asset to the extent that a

cash refund or a reduction in future

payments is available.

(a) Employees’ Provident Fund

The Group and employees

contribute 12% and 8%,

respectively, on the salary

of each employee to the

Employees’ Provident Fund

(EPF).

(b) Employees’ Trust Fund

The Group contributes 3 % of

the salary of each employee

to the Employees’ Trust Fund

(ETF). These obligations come

within the scope of a defined

contribution plan as per LKAS

-19 on ‘’Employee Benefits’’.

Obligations for contributions to

defined contribution plans are

recognised in profit or loss as

the related service is provided.

3.8.3 Defined benefit plan - Gratuity

A defined benefit plan is a post

employment benefit plan other

than a defined contribution plan.

The Group’s net obligation in

respect of defined benefit plans

is calculated separately for each

plan by estimating the amount of

future benefit that employees have

earned in return for their service in

the current and prior periods. That

benefit is discounted to determine

its present value. Any unrecognised

past service costs and the fair value

of any plan assets are deducted.

The calculation is performed

annually by a qualified actuary

using the Projected Unit Credit

(PUC) method as recommended

by LKAS 19 - ‘Employee Benefits’.

When the calculation results in a

benefit to the Group, the recognised

asset is limited to the total of any

unrecognised past service costs

and the present value of economic

benefits available in the form of

any future refunds from the plan or

reductions in future contributions

to the plan. In order to calculate

the present value of economic

benefits, consideration is given to

any minimum funding requirements

that apply to any plan in the Group.


An economic benefit is available to

the Group if it is realisable during

the life of the plan, or on settlement

of the plan liabilities. When the

benefits of a plan are improved, the

portion of the increased benefits

related to past service by employees

are recognised in profit or loss

on a straight-line basis over the

average period until the benefits

become vested. To the extent that

the benefits vest immediately, the

expense is recognised immediately

in profit or loss.

The assumptions based on which

the results of actuarial valuation was

determined, are included in Note 25

- Employee Benefits, to the Financial

Statements.

The Company recognises all

actuarial gains and losses arising

from defined benefit plan

immediately in other comprehensive

income and all expenses related to

defined benefit plan in employee

benefit expense in profit or loss.

The Company recognises gains

and losses on the curtailment or

settlement of a defined benefit plan

when the curtailment or settlement

occurs. The gain or loss on

curtailment or settlement comprises

any resulting change in the fair value

of plan assets, any change in the

present value of the defined benefit

obligation, any related actuarial

gains and losses and past service

cost that had not previously been

recognised. However, according

to the Payment of Gratuity Act

No.12 of 1983, the liability for the

gratuity payment to an employee

arises only on the completion of 5

years of continued service with the

Company.

3.9 Provisions

A provision is recognised if, as a

result of a past event, the Group

has a present legal or constructive

obligation that can be estimated

reliably and it is probable that an

outflow, of economic benefits will

be required to settle the obligation.

3.10 Revenue

Revenue from contract with customers Accounting policy - Applicable from 1st January 2018

Sales of Goods

Revenue is recognised when the significant risks and rewards of ownership have been transferred to the customer, recovery of the consideration is probable, the associated costs and possible return of goods can be estimated reliably, there is no continuing management involvement with the goods and the amount of revenue can be measured reliably.

Revenue is measured net of returns, trade discounts and volume rebates. The Group expects the revenue recognition to occur at a point in time when control of the asset is transferred to the customer, generally on delivery of the goods.

Rendering of Services

The Group recognises revenue from rendering of services in proportion to the stage of completion of the transaction at the reporting date. The stage of completion is assessed based on surveys of work performed. If the services under a single arrangement are rendered in different reporting periods, then the consideration is allocated on a relative fair value basis between the different services.

Rental Income

The Group earns revenue from renting of its warehouse facilities. Rental income is recognised on a straight-line basis over the period of rental contracts. When the customer initially enters into a rental contract, the Group usually receives an advance or a deposit or both which is recognised as a liability. The advance is recognised as revenue with the passage of time while deposit is refunded to the customer in accordance with the rental contract on termination.

Other income

Gains/losses on the disposal of

investments held by the Group have

been accounted for as other income

in profit or loss. Gains / losses on

the disposal of property, plant and

equipment determined by reference

to the carrying amount and related

expenses, have been accounted for

as other income in profit or loss.

Dividend income

Dividend income is recognised in

profit or loss on the date that the

Group’s right to receive payment is

established.

Accounting policy applicable prior to 1 January 2018

Sale of Goods

Revenue from the sale of goods in the course of ordinary activities are measured at the fair value of the consideration received or receivable, net of returns, trade discounts and volume rebates. Revenue is recognised when persuasive evidence exists, usually in the form of an executed sales agreement, that


129

the significant risks and rewards of ownership have been transferred to the customer, recovery of the consideration is probable,the associated costs and possible return of goods can be estimated reliably, there is no continuing management involvement with the goods,and the amount of revenue can be measured reliably. If it is probable that discounts will be granted and the amount can be measured reliably, then the discount is recognised as a reduction of revenue as the sales are recognised. Revenue excludes value added taxes or other sales taxes.

Rental income

Rental income received or receivable

in the course of ordinary activities

is recognised as revenue in profit

or loss on a straight-line basis

over the term of the lease. Lease

incentives granted are recognised

as an integral part of the total rental

income.

Dividend income

Dividend income is recognised in

profit or loss on the date that the

Group’s right to receive payment is

established.

Other income

Gains / losses on the disposal of

investments held by the Group have

been accounted for as other income

in profit or loss. Gains / losses on

the disposal of property, plant and

equipment determined by reference

to the carrying amount and related

expenses, have been accounted for

as other income in profit or loss.

Finance income

Finance income comprises

interest income on funds invested

(including available-for-sale financial

assets),gains on the disposal of

available for-sale financial assets and

fair value gains on financial assets

at fair value through profit or loss.

Interest income is recognised as it

accrues in profit or loss, using the

effective interest method.

3.11 Expenses

Operating lease payments

Where the Company has the use

of assets under operating leases,

payments made under the leases

are recognised in the statement of

profit or loss on a straight-line basis

over the term of the lease. Lease

incentives received are recognised

in the statement of profit or loss as

an integral part of the total lease

expense over the term of the lease.

Contingent rentals are charged

to profit or loss in the accounting

period in which they are incurred.

Finance cost

Finance costs comprise interest

expense on borrowings, unwinding

of discounts on provisions and

losses on disposal of available-

for-sale financial assets, fair value

losses on financial assets at fair

value through profit or loss and

impairment losses recognised on

financial assets (other than trade

receivables). Borrowing costs that

are not directly attributable to

the acquisition, construction or

production of a qualifying asset are

recognised in profit or loss using

the effective interest method.

Foreign currency gains and losses

on financial assets and financial

liabilities 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.

3.12 Deferred taxation

Income tax expense comprises

current and deferred tax. Income tax

is recognised in profit or loss, except

to the extent that it relates to items

recognised directly in equity, in

which case it is recognised in equity.

Current tax

Current tax is the expected tax

payable on the taxable income for

the year, using tax rates enacted

at the reporting date, and any

adjustment to tax payable in respect

of previous years.

Deferred tax

Deferred tax is recognised in respect

of temporary differences between

the carrying amounts of assets and

liabilities for financial reporting

purposes and the amounts

used for taxation purposes. The

following temporary differences

are not provided for goodwill

not deductible for tax purposes,

the initial recognition of assets

or liabilities that affect neither

accounting nor taxable profit, nor

differences relating to investments

in subsidiaries to the extent that

they will probably not reverse

in the foreseeable future. The

amount of deferred tax provided

is based on the expected manner

of realisation or settlement of the

carrying amount of assets and

liabilities, using tax rates enacted

or substantively enacted at the

reporting date.


The principal temporary differences

arise from depreciation on property,

plant and equipment, tax losses

carried forward, biological assets

and provisions for defined benefit

obligations. Deferred tax assets

relating to the carrying forward of

unused tax losses are recognised to

the extent that it is probable that

future taxable profit will be available

against which the unused tax losses

can be utilised.

A deferred tax asset is recognised

only to the extent that it is probable

that future taxable profits will be

available against which the asset can

be utilised. Deferred tax assets are

reviewed at reporting date and are

reduced to the extent that it is no

longer probable that the related tax

benefit will be realised.

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 realised

simultaneously.

Additional income taxes that arise

from the distribution of dividends

are recognised at the same time

as the liability to pay the related

dividend is recognised.

3.13 Segment reporting

A segment is a distinguishable

component of the Group that

is engaged either in providing

products or services (business

segment), or in providing

products and services within a

particular economic environment

(geographical segment), which is

subject to risks and rewards that

are different from those of other

segments.

3.14 Earnings per share

The Group presents Earnings per

share (EPS) data for its ordinary

shares. EPS is calculated by dividing

the profit attributable to ordinary

shareholders of the Company by

the weighted average number of

ordinary shares outstanding during

the period.

3.15 Events after the Reporting Period

All material post reporting period

events have been considered and

where appropriate adjustments

or disclosures have been made in

respective notes to the Financial

Statements.

3.16 Comparative figures

Where necessary, the comparative

figures have been reclassified

to conform to the current year’s

presentation.

3.17 Commitments and contingencies

Contingencies are possible assets

or obligations that arise from a past

event and would be confirmed

only on the occurrence or non-

occurrence of uncertain future

events, which are beyond the

Company’s control. Contingent

liabilities are disclosed in Note

26 - Contingent Liabilities,

to the Financial Statements.

Commitments are disclosed in Note

27 - Commitments, to the Financial

Statements.

3.18 New standards and interpretations not yet adopted as at reporting date

Standard issued but not yet effective

up to the date of issuance of the

Group’s financial statements are

listed below.

This listing is of standards issued,

which the Group reasonably expects

to be applicable at a future date.

The group intends to adopt this

standard when they become

effective.


131

SLFRS 16 Leases

SLFRS 16 replaces LKAS 17 Leases

and related interpretations

(IFRIC 4 Determining whether an

Arrangement contains a Lease,

SIC-15 Operating Leases-Incentives

and SIC-27 Evaluating the Substance

of Transactions Involving the Legal

Form of a Lease) with effect from 1st

January 2019.

SLFRS 16 sets out the principles

for the recognition, measurement,

presentation and disclosure of leases

and requires lessees to account

for all leases under a single on-

balance sheet model similar to the

accounting for finance leases under

LKAS 17. The standard includes

two recognition exemptions for

lessees- leases of ‘low-value’ assets

(e.g., personal computers) and

short-term leases (i.e., leases with a

lease term of 12 months or less). At

the commencement date of a lease,

a lessee will recognise a liability to

make lease payments (i.e., the lease

liability) and an asset representing

the right to use the underlying

asset during the lease term (i.e., the

right-of-use asset). Lessees will be

required to separately recognise the

interest expense on the lease liability

and the depreciation expense on

the right-of-use asset.

Lessees will be also required to re-

measure the lease liability upon the

occurrence of certain events (e.g., a

change in the lease term, a change

in future lease payments resu1ting

from a change in an index or rate

used to determine those payments).

The lessee will generally recognise

the amount of the re measurement

of the lease liability as an adjustment

to the right-of-use asset.

Lessor accounting under SLFRS 16

is substantially unchanged from

the current requirements under

LKAS 17. Lessors will continue to

classify all leases using the same

classification principle as in LKAS 17

and distinguish between two types

of leases: operating and finance

leases.

The Group is assessing the potential

impact on its financial statements

resulting from the application of

these new standards.



04. REVENUE

(a) Business Segments

The Group has three main business segments which offers different products and services and are managed separately since it requires

different technology and resources.

Business Segments Operations

Milling and farming Manufacturing and selling of poultry feed, other animal feed, poultry

processing, importing and selling of drugs and vaccines.

Poultry breeding and commercial Breeding of commercial Day Old Chicks and broiler farming and

provision of hatchery services

Others Provision of warehouse facilities (rental) and trading

There are varying levels of integration between segments which includes transfer of raw materials and shared services. The inter-

segment pricing is determined on an arm's length basis.

The Group's operating environment that affect the segments are discussed under the Management Discussion and Analysis -

Operating Environment (pages 36 to 39).

The information relevant to each business segment is set out below and it is used to measure performance since management believes

that this information is the most relevant in evaluating the results of the respective segments relative to other entities that operate in

the same industry.

Segment assets consist primarily of property, plant and equipment, intangible assets, inventories, receivables and operating cash and

exclude investments in subsidiaries. Segment liabilities comprise of current and non-current liabilities. Capital expenditure comprises

additions to property, plant and equipment.


133

(b) Sales are made up on follows :

Group Company

Notes 2018 2017 2018 2017

Milling and farming 19,433,396 17,366,918 19,433,396 17,366,918

Poultry breeding and commercial 3,073,787 2,797,389 - -

Others 147,412 166,235 - -

22,654,595 20,330,542 19,433,396 17,366,918

Elimination / adjustment (2,721,075) (2,648,030) - -

19,933,520 17,682,512 19,433,396 17,366,918

Sales taxes 4 (c) (2,847,943) (2,527,646) (2,807,038) (2,518,873)

17,085,577 15,154,866 16,626,358 14,848,045

(c) Sales taxes

Group Company

2018 2017 2018 2017

Nation Building Tax 325,055 283,497 343,272 301,180

Value Added Tax 2,522,888 2,244,149 2,463,766 2,217,693

2,847,943 2,527,646 2,807,038 2,518,873



(d) Business segments

For the year ended 31 December 2018 Poultry

Milling and breeding and Elimination /

farming commercial Others adjustment Group

Sales to outsiders 15,725,847 1,345,794 13,936 - 17,085,577Inter segmental sales 900,511 1,279,780 111,843 (2,292,134) -Total revenue 16,626,358 2,625,574 125,779 (2,292,134) 17,085,577

Operating income 757,656 698,819 55,487 (186,228) 1,325,734Finance income 151,900 189,697 32,292 - 373,889Finance costs (130,499) 7,488 (152) - (123,163)Share of profit of associate company - - - 9,779 9,779Profit before tax 779,057 896,004 87,627 (176,449) 1,586,239

Taxation (202,972) (147,195) (25,162) - (375,329)Profit for the year 576,085 748,809 62,465 (176,449) 1,210,910

Other comprehensive expenseActuarial loss arising from defined benefit

obligation - net of tax (3,120) (724) (22) - (3,866)

Total comprehensive income for the year 572,965 748,085 62,443 (176,449) 1,207,044

For the year ended 31 December 2017 Poultry



Sales to outsiders 13,950,205 1,177,189 27,472 - 15,154,866Inter segmental sales 897,840 1,226,931 114,310 (2,239,081) -Total revenue 14,848,045 2,404,120 141,782 (2,239,081) 15,154,866

Operating income 415,593 675,740 69,977 (59,348) 1,101,962Finance income 173,444 103,713 16,153 - 293,310Finance costs (4,829) 805 (30) - (4,054)Share of profit of associate company - - - 8,406 8,406Profit before tax 584,208 780,258 86,100 (50,942) 1,399,624

Taxation (133,564) (126,467) (69,657) - (329,688)Profit for the year 450,644 653,791 16,443 (50,942) 1,069,936

Other comprehensive incomeActuarial gain arising from defined benefit

obligation - net of tax

4,532 2,219 6 - 6,757

Total comprehensive income for the year 455,176 656,010 16,449 (50,942) 1,076,693


135

(e) Business segments

As at 31 December 2018 Poultry



Segment assets 6,996,012 4,155,397 679,655 (301,625) 11,529,439Associate 33 - - 41,697 41,730Inter segment assets 2,067 207,282 7,718 (217,067) -Total assets 6,998,112 4,362,679 687,373 (476,995) 11,571,169

Segment liabilities 2,693,331 718,635 123,176 - 3,535,142Inter segment liabilities 209,615 6,209 90,677 (306,501) -Total liabilities 2,902,946 724,844 213,853 (306,501) 3,535,142

Capital expenditure 226,930 35,726 - - 262,656Depreciation / amortisation 128,579 103,043 15,557 - 247,179Amortisation of intangible assets 15,647 - - - 15,647

As at 31 December 2017 Poultry



Segment assets 6,234,950 3,557,126 677,644 (330,920) 10,138,800

Associate 33 - - 31,918 31,951

Inter segment assets 837 - 7,587 (8,424) -

Total assets 6,235,820 3,557,126 685,231 (307,426) 10,170,751

Segment liabilities 2,557,974 523,674 109,895 - 3,191,543

Inter segment liabilities 35,645 73,067 89,767 (198,479) -

Total liabilities 2,593,619 596,741 199,662 (198,479) 3,191,543

Capital expenditure 527,826 21,201 - - 549,027

Depreciation / amortisation 109,035 107,897 15,537 - 232,469

Amortisation of intangible assets 13,944 - - - 13,944



5. OPERATING PROFIT

The following items have been charged / (credited) in arriving at operating profit:

Group Company

Notes 2018 2017 2018 2017

Directors’ emoluments 31.1 2,200 2,400 1,100 1,200

Auditors’ remuneration - Audit service 7,222 6,601 4,378 3,985

- Other services 1,109 304 973 110

Legal fees 4,010 2,641 3,532 2,152

Depreciation on property, plant and equipment 12 238,614 224,149 120,714 101,415

Amortisation of leasehold right over land and buildings 13 8,565 8,320 7,865 7,620

Amortisation of intangible assets 14 15,647 13,944 15,647 13,944

Usage of biological assets 17 519,461 482,139 - -

Operating lease rentals - property 74,399 74,399 62,399 62,399

Staff expenses 7 1,452,683 1,047,240 912,309 715,024

6. TEMPORARY CESSATION OF OPERATION

On 1 November 2004 the directors temporarily ceased the operation of breeding, hatching and growing of shrimp and sea cucumber

of Ceylon Aquatech (Private) Limited, a subsidiary of the Company.

The Management of the Company is of the view that the commercial operations of the Chilaw Farm could be recommenced. The

assets and liabilities as at the reporting date of the division were as follows:

As at 31 December

2018 2017

Property, plant and equipment 56,275 57,697

Total assets 56,375 57,795

Total liabilities (89,654) (89,179)

Net assets / (Liabilities) (33,279) (31,384)


137

7. STAFF EXPENSES

Group Company

Notes 2018 2017 2018 2017

Salaries and wages 1,380,020 982,644 855,545 664,491

Social security costs 6 89 - 82

Defined contribution plans 54,186 47,795 42,206 37,916

Employee benefits 25 18,471 16,712 14,558 12,535

1,452,683 1,047,240 912,309 715,024

The number of employees as at 31 December :

- Full time 736 640 482 430

- Part time 744 738 217 236

1,480 1,378 699 666

Part time employees include out sourced workers hired from third parties.

8. OTHER OPERATING INCOME

Group Company

2018 2017 2018 2017

Sundry income 42,937 44,267 59,547 53,816

Dividend income - - 114,903 60,990

Impairment provision on investment in subsidiaries - - (29,295) -

Reversal / (provision) of impairment on amount due from

Related companies

- - 100,620 (1,642)

Change in fair value less cost to sell 16,814 203 - -

(Loss) / Profit on disposal of property, plant and equipment (9,026) (2,667) (938) 783

50,725 41,803 244,837 113,947

9. NET FINANCE INCOME

Group Company

2018 2017 2018 2017

Finance income

- Interest income on short-term investments 373,889 293,310 151,900 173,444

Finance costs

- Foreign exchange transaction losses (121,941) (1,041) (129,355) (1,848)

- Interest expense on bank borrowings (1,222) (3,013) (1,144) (2,981)

(123,163) (4,054) (130,499) (4,829)

250,726 289,256 21,401 168,615



10. TAXATION

Group Company

Notes 2018 2017 2018 2017

Current tax 337,063 202,768 160,584 94,670

(Over) / Under provision in respect of previous year (434) (29,323) 525 (2,191)

Dividend tax on inter company dividend 17,070 6,731 15,256 5,567

Deferred tax charge recognised in profit or loss 24 21,630 149,512 26,607 35,518

375,329 329,688 202,972 133,564

Current tax has been computed in accordance with the provisions of Inland Revenue Act No. 24 of 2017.

Company Source of income Category Tax rate (%) Tax loss carried forward (Rs.)

2018 2017 2018 2017

Ceylon Grain Elevators PLC Feed Manufacturing

28

12

Nil NilChicken Poultry farming 10

Interest income and

other sources

Other sources 28

Ceylon Livestock and

Agrobusiness Services (Private)

Limited

Poultry Equipment Trading

2828

Nil NilInterest income Other sources 28

Ceylon Warehouse Complex

(Private) Limited

Rent Storage facility28

10Nil Nil

Interest income Other sources 28

Ceylon Aquatech (Private) Limited Other income Other sources 28 12 19,969,373 20,445,351

Three Acre Farms PLC Poultry breeder farming Poultry farming

14

10

Nil NilRearing Agriculture 12


Millennium Multibreeder Farms

(Private) Limited

Poultry breeder farming Poultry farming

14

10

Nil NilHatchery service Service fee 28


Ceylon Pioneer Poultry Breeders

Limited

Rent Other sources 28 28 224,125,571 224,755,755


139

Reconciliation of the accounting profit to income tax expense

The tax on the results of the Group’s operations and the Company’s profit before tax differs from the theoretical amount that would

arise using the basic tax rate as follows:

Group Company

2018 2017 2018 2017

Profit before tax 1,586,239 1,399,624 779,057 584,208 Share of profit of associate (9,779) (8,406) - -

1,576,460 1,391,218 779,057 584,208 Add: disallowable expenses 1,034,598 912,498 233,537 181,516 Deduct: allowable expenses (1,326,118) (1,099,385) (590,980) (442,598)Profit from trade or business 1,284,940 1,204,331 421,614 323,126

Add: interest income 373,889 293,310 151,900 173,444 Deduct: Interest income from FCBU - (713) - (26)Deduct: tax loss claimed (629) (28,311) - - Deduct: qualifying payments - - - - Taxable income 1,658,200 1,468,617 573,514 496,544

Income tax using the domestic corporate tax rateat 10% - 66,558 - 7,207 at 12% - 43,593 - 23,543 at 14% 147,336 - - - at 28% 189,727 92,617 160,584 63,920 Current tax 337,063 202,768 160,584 94,670

(Over) / Under provision in respect of previous year (434) (29,323) 525 (2,191)Deferred tax charge / recognised in Profit or Loss 21,630 149,512 26,607 35,518 Dividend tax on intercompany dividend 17,070 6,731 15,256 5,567

375,329 329,688 202,972 133,564

Further information about deferred tax is presented in Note 24 - Deferred Taxation.

11. EARNINGS PER SHARE - BASIC AND DILUTED

Earnings per share is calculated by dividing the net profit attributable to ordinary shareholders by the weighted average number of

ordinary shares outstanding during the year.

Group Company

2018 2017 2018 2017

Net profit attributable to ordinary shareholders 890,495 790,179 576,085 450,644 Weighted average number of ordinary shares (thousands) 60,000 60,000 60,000 60,000 Basic earnings per share (Rs.) 14.84 13.17 9.60 7.51

There were no potentially dilutive ordinary shares outstanding at any time during the year / previous year, hence diluted earnings per

share is equal to the basic earnings per share.


All amounts in Sri Lankan Rupees thousandsAs at 31 December 2018

12. PROPERTY, PLANT AND EQUIPMENT

(a) Group

As at Additions / Disposals/ As at

01.01.2018 WIP transfer write off 31.12.2018

CostLand 346,659 71,641 - 418,300Building 1,167,672 2,717 (10,028) 1,160,361Leasehold buildings and improvements 551,840 25,408 - 577,248Plant and machinery, electrical and farm equipment 1,682,373 189,189 (17,201) 1,854,361Furniture and fittings and office equipment 166,084 15,795 (2,733) 179,146Motor vehicles 198,779 3,898 (7,632) 195,045Capital work-in-progress 155,032 38,011 (37,302) 155,741

4,268,439 346,659 (74,896) 4,540,202

As at Charge for Disposals/ As at

01.01.2018 the year write off 31.12.2018

DepreciationBuilding 185,987 28,850 (1,517) 213,320Leasehold buildings and improvements 215,480 15,547 - 231,027Plant and machinery, electrical and farm equipment 1,011,542 152,398 (16,241) 1,147,699Furniture and fittings and office equipment 124,800 13,931 (2,505) 136,226Motor vehicles 139,358 27,888 (7,273) 159,973

1,677,167 238,614 (27,536) 1,888,245

As at As at

01.01.2018 31.12.2018

Carrying amountLand 346,659 418,300Building 981,685 947,041Leasehold buildings and improvements 336,360 346,221Plant and machinery, electrical and farm equipment 670,831 706,662Furniture and fittings and office equipment 41,284 42,920Motor vehicles 59,421 35,072Capital work-in-progress 155,032 155,741

2,591,272 2,651,957


141

(b) Company

As at Additions / Disposals / As at

01.01.2018 WIP transfer write off 31.12.2018

CostLand 40,314 - - 40,314Building 38,636 482 - 39,118Leasehold buildings and improvements 25,631 25,408 - 51,039Plant and machinery, electrical and farm equipment 836,101 180,634 (17,021) 999,714Furniture and fittings and office equipment 156,279 15,748 (2,733) 169,294Motor vehicles 104,877 3,898 (4,142) 104,633Capital work-in-progress 142,668 12,988 (29,504) 126,152

1,344,506 239,158 (53,400) 1,530,264

As at Charge for Disposals/ As at

01.01.2018 the year write off 31.12.2018

DepreciationBuilding 4,683 982 5,665Leasehold buildings and improvements 2,002 3,019 - 5,021Plant and machinery, electrical and farm equipment 350,821 87,212 (16,231) 421,802Furniture and fittings and office equipment 115,721 13,844 (2,505) 127,060Motor vehicles 65,565 15,657 (4,109) 77,113

538,792 120,714 (22,845) 636,661

As at As at

01.01.2018 31.12.2018

Carrying amountLand 40,314 40,314Building 33,953 33,453Leasehold buildings and improvements 23,629 46,018Plant and machinery, electrical and farm equipment 485,280 577,912Furniture and fittings and office equipment 40,558 42,234Motor vehicles 39,312 27,520Capital work-in-progress 142,668 126,152

805,714 893,603



(c) Freehold land carried at cost (Rs.) :

Location Land extent Cost

Ceylon Grain Elevators PLC Attanagalla Farm, Attanagalla 12 A - 2 R - 15.7 P 40,314,00040,314,000

Three Acre Farms PLC Meegoda Farm, Meegoda 24 A - 0 R - 3.17 P 19,215,850Kosgama Farm, Aluthambalama, Kosgama 20 A - 3 R - 27.05 P 10,041,150Halwathura Farm, Halwathura 54 A - 0 R - 3.76 P 29,796,324Bulathsinhala Farm, Agaloya, Bulathsinhala 60 A - 3 R - 27.00 P 56,045,250Hijra Farm - A, Pagoda, Beruwala 41 A - 3 R - 13.42 P 41,034,200Hijra Farm - B, Beruwala 8 A - 3 R - 3.71 P 74,829,300Makuluwatta Farm, Waga 12 A - 2 R - 18.90 P 6,098,235Ittapana Farm, Mahagoda, Ittapana 31 A - 1 R - 28.10 P 71,640,983

308,701,292

Ceylon Pioneer Poultry Breeders Limited Nillambe Farm, Office Junction, Galaha 33 A - 0 R - 28.82 P 39,541,310Aswatta Farm, Kosgama 5 A - 3 R - 18.19 P 7,522,838Wewelpanawa Farm, Wewelpanawa 27 A - 3 R - 20.47 P 11,151,175

58,215,323

Ceylon Aquatech (Private) Limited Chilaw Farm 54 A - 1 R - 36.18 P 11,068,86511,068,865

Total 418,299,480

The Group has done an assessment on the market value of land by an independent professional valuer Mr. J.C. Leuke Bandara Incorporated valuer (Graduate member of the Institute of Valuers) and identified that there were no substantial differences between the market value and the book value.

(d) Freehold building carried at cost (Rs.) :

Location Number of Buildings Cost

Ceylon Grain Elevators PLC Attanagalla Farm, Attanagalla 56 39,117,70639,117,706

Three Acre Farms PLC Meegoda Farm, Meegoda 75 174,495,552Kosgama Farm, Aluthambalama, Kosgama 52 57,741,461Halwathura Farm, Halwathura 60 74,409,186Bulathsinhala Farm, Agaloya, Bulathsinhala 95 196,112,750Hijra Farm - A, Pagoda, Beruwala 66 186,172,952Hijra Farm - B, Beruwala 40 22,633,749Makuluwatta Farm, Waga 36 69,447,700

781,013,350

Ceylon Pioneer Poultry Breeders Limited Nillambe Farm, Office Junction, Galaha 2 1,205,030Aswatta Farm, Kosgama 45 51,085,000

52,290,030

Millennium Multibreeder Farms (Private) Limited

Wewelpanawa Farm, Wewelpanawa 45 231,565,950

231,565,950

Ceylon Aquatech (Private) Limited Chilaw Farm 32 56,374,60056,374,600

Total 1,160,361,636


143

(e) Capital work-in-progress

Capital work-in-progress includes the construction of capital assets which mainly consists of buildings and plant and machinery.

(f) Capitalised borrowing costs

There were no capitalised borrowing costs related to the acquisition of property, plant and equipment during the year 2018 (2017 – Nil).

(g) Fully depreciated but still in use

The cost of fully depreciated property, plant and equipment of the Group and the Company which are still in use amounted to,

Group Company

2018 2017 2018 2017

Fully depreciated property, plant and equipment 861,371,026 536,815,384 301,866,792 236,518,244

(h) Property, plant and equipment pledged as security for liabilities

There were no items of property, plant and equipment pledged as securities for liabilities as at the reporting date (2017 - Rs. Nil).

(i) Title restriction on property, plant and equipment

There were no restrictions existed on the title of the property, plant and equipment of the Group as at the reporting date.

(j) Permanent fall in value of property, plant and equipment

There was no permanent fall in the value of property, plant and equipment which recognises provision for impairment as at reporting date.

13. LEASEHOLD RIGHT OVER LAND AND BUILDINGS

Group Company

2018 2017 2018 2017

Balance at the beginning of the year 227,625 176,712 159,049 107,936

(Transfer) / addition during the year (67,876) 59,233 - 58,733

Amortisation for the year (8,565) (8,320) (7,865) (7,620)

Balance at the end of the year 151,184 227,625 151,184 159,049

Company

Head Office Premises - Colombo 15

The Company has an agreement to mortgage for Rs. 495 Million over leasehold land and buildings at No.15, Rock House Lane, Colombo-15 as security for credit facilities.

The leasehold land and buildings are recognised as Operating Lease based on the substance of lease agreement.

The lease period of the leasehold land expired on 19 September 2012 and the Board of Directors has taken necessary action to renew the lease for a further period of 30 years (the current status of the lease agreement disclosed in Note 27 - Commitments, to the Financial Statements).

Seeduwa Sub-Lease Premises

The Company entered into the agreement with Ceylon Agro-Industries Limited for Sub-lease of land and premises of poultry

processing plant for Rs. 57,000,000/- for a period of twenty years on 17 January 2017 and recognised as operating lease based on

substance of lease agreement



Group

Ittapana - Beruwela

Leasehold right over land on Ittapana farm situated in Ittapana, Mahagoda, Ittapana for unexpired lease period of 99 years. In consideration of the amendment made to the Land (Restrictions on Alienation) Act, No. 38 of 2014 by the Land (Restrictions on Alienation) (amendment) Act No. 21of 2018, the Group has acquired the ownership of Ittapana land on December 2018 on outright basis, which was earlier under 99 year lease basis.

14. INTANGIBLE ASSETS

(a) The intangible assets consists with computer software and server software which purchased from associated company, Prima Management Services (Private) Limited.

Group Company

2018 2017 2018 2017

CostBalance at the beginning of the year 138,602 131,034 138,602 131,034

Additions during the year 760 7,568 760 7,568


AmortisationBalance at the beginning of the year (99,157) (85,213) (99,157) (85,213)

Amortisation for the year (15,647) (13,944) (15,647) (13,944)

Balance at the end of the year (114,804) (99,157) (114,804) (99,157)

Carrying amount 24,558 39,445 24,558 39,445

(b) Fully amortised but still in use

There were no fully amortised intangible assets as at the reporting date (2017 - Rs. Nil).

(c) Intangible assets pledged as security for liabilities

There were no items of intangible assets pledged as securities for liabilities as at the reporting date (2017 - Rs. Nil).

(d) Title restriction on intangible assets

The Company has perpetual copyright to use these computer software.

(e) There are no significant intangible assets controlled by the entity but not recognised as assets because they did not meet

recognition criteria or because they were acquired or generated before SLFRS 3 - Business Combinations, was effective.


145

15. INVESTMENT IN ASSOCIATE COMPANY

Group Company

2018 2017 2018 2017

Prima Management Services (Private) Limited 41,730 31,951 33 33

41,730 31,951 33 33

(a) Prima Management Services (Private) Limited

Group

2018 2017

Balance at the beginning of the year 31,951 24,145

Share of profit after tax 9,779 8,406

(-) Share of dividend distributed - (600)

Balance at the end of the year 41,730 31,951

(b) Summarised financial information of Prima Management Services (Private) Limited

The following table summarises the financial information of Prima Management Services (Private) Limited as included in its own

financial statements adjusted for fair value adjustments at the acquisition and differences in accounting policies. The table also

reconciles the summarised financial information to the carrying amount of the Group's interest in Prima Management Services (Private)

Limited.

2018 2017

Statement of financial positionTotal assets 207,433 128,040

Total liabilities (82,245) (32,188)

Net assets 125,188 95,852

Statement of comprehensive incomeRevenue 236,946 242,898

Profit 29,337 25,218

(c) Share of profit of associate company

Group’s share of profit after tax

2018 2017

Prima Management Services (Private) Limited 9,779 8,406

9,779 8,406



(d) Investment in associate company - unquoted

Group Company

No. of No. of

shares Holding % 2018 2017 shares Holding % 2018 2017

Prima Management Services

(Private) Limited 3,334 33 41,730 31,951 3,334 33 33 33

Net book value as at 31 December - - 41,730 31,951 - - 33 33

Share of movement in equity value - - - - - - - -

Equity value in investments - - 41,730 31,951 - - 33 33

The Company has invested Rs. 33,334/- in Prima Management Services (Private) Limited, acquiring 33% stake during the year 2006.

16 INVESTMENT IN SUBSIDIARY COMPANIES

Notes 2018 2017

Investment in subsidiary companies - quoted 16 (a) 148,625 148,625

Investment in subsidiary companies - unquoted 16 (b) 213,000 213,000

Investment in subsidiary companies - cost 361,625 361,625

Provision for impairment (60,000) (30,705)

301,625 330,920

An impairment assessment was carried out as at 31 December 2018 and it was concluded that net realisable value of all the investment

included under unquoted investments exceed its carrying value except for Ceylon Aquatech (Private) Limited. Based on an assessment

made for impairment, the provision provided as above considered to be adequate as at the reporting date.

(a) Investment in subsidiary company- quoted

No. of shares Company Group holding

holding % %

2018 2017

Three Acre Farms PLC 13,469,980 57.21 57.21

Net book value as at 31 December 148,625 148,625

Market value as at 31 December 1,365,856 1,522,108

(b) Investment in subsidiary companies - unquoted

No. of Company Group

shares holding % holding % 2018 2017

Ceylon Warehouse Complex (Private) Limited 15,000,002 100 100 150,000 150,000

Ceylon Aquatech (Private) Limited 6,000,002 100 100 60,000 60,000

Ceylon Livestock and Agrobusiness Services

(Private) Limited 300,002 100 100 3,000 3,000

Net book value as at 31 December 213,000 213,000


147

(c) Details of the companies incorporated in Sri Lanka, in which the Company held an interest of 50% or more are set out below:

Name of the Company Proportion of ordinary shares held

2018 Movement 2017

Ceylon Livestock and Agrobusiness Services (Private) Limited

100% - 100% Import and sale of poultry equipment, drugs and vaccines.

Ceylon Warehouse Complex (Private) Limited 100% - 100% Provide storage facilitiesCeylon Aquatech (Private) Limited 100% - 100% Integrated shrimp operation including

breeding, processing and culture of shrimp

Three Acre Farms PLC 57.21% - 57.21% Poultry breeder farms, hatcheries and commercial broiler farms

Ceylon Pioneer Poultry Breeders Limited 57.21% - 57.21% Renting of farm operationMillennium Multibreeder Farms (Private) Limited 57.21% - 57.21% Poultry breeder farming and hatchery

All the above companies, the financial year of which end on 31 December are audited by KPMG.

17. BIOLOGICAL ASSETS

Group Company

2018 2017 2018 2017

Fair value less cost to sell at the beginning of the year 528,759 491,782 -Additions during the year 547,704 518,913 - -

Usage for the year (519,461) (482,139) - -

Change in fair value less cost to sell 16,814 203 - -

Fair value less cost to sell at the end of the year 573,816 528,759 - -

Non-current 555,918 501,110 - -

Current 17,898 27,649 - -

573,816 528,759 - -

(a) Biological assets

A biological assets is a living animal . Biological assets consist of parent and grandparent livestock, used to breed commercial Day Old

Chicks, hatchable eggs and broiler birds. Parent and grandparent birds include the growing birds and the laying birds.

Biological assets - Non-current

Bearer biological assets are those other than consumable biological assets and recognised as “Biological assets - Non-current”. Bearer

biological assets are not agricultural produce but, rather, are self generating. Parent and grandparent livestock have been identified as

bearer biological assets.

Biological assets - Current

Consumable biological assets are those that are to be harvested as agricultural produce or sold as biological assets. Hatchable eggs and

Commercial Day Old Chicks have been identified as consumable biological assets.



(b) Measurement of fair value

(i) Fair value hierarchy

The fair value measurement of livestock have been categorised as level 3 fair values based on the inputs to the valuation technique

used.

(ii) Level 3 fair values

The following table shows a breakdown of the total gains / (losses) recognised in respect of level 3 fair values.

Group Company

2018 2017 2018 2017

Change in fair value less cost to sell included in ‘Other Income’

Biological assets - non-current 18,004 (983) - -

Biological assets - current (1,190) 1,186 - -

16,814 203 - -

(iii) Valuation technique and significant unobservable inputs

Following table shows the valuation technique used in measuring level 3 fair value as well as the significant unobservable inputs used.

Type Valuation technique Significant unobservable inputs

Inter-relationship between key unobservable inputs and fair value measurements

Biological assets

Bearer biological assets comprises

Broiler Grandparent, Broiler Parent

and Layer parent

Discounted Cash Flows

The valuation model

considers the present

value of the net cash flows

expected to be generated

by breeder farming. The

expected net cash flows

are discounted using a risk

adjusted discount rate.

DOC yield The FV will;

- increase when DOC yield increased

- decrease when DOC yield decreased

DOC selling

price

- increase when selling price increased

- decreased when selling price decreased

Discounting

rate

- increase when discounting rate decreased

- decreased when discounting rate increased

Mortality - Increase when mortality rate decreased

- decrease when mortality rate increased

Consumable Biological Assets

Consumable biological assets comprise of Hatchable Eggs and Commercial Day Old Chicks (DOCs). DOCs are fair valued at the market

price and cost is approximated as fair value for Hatchable Eggs as no or only little biological change was observed as at the year end.


149

(c) Risk management strategy related to the biological assets

(i) Regulatory and environmental risks

The Group is subject to laws and regulations in various countries in which it operates. The Group has established environmental

policies and procedures aimed at compliance with local environmental and other laws.

(ii) Supply and demand risks

The Group is exposed to risks arising from fluctuations in the price and sales volume of commercial Day Old Chicks. When possible,

the Group manages this risk by aligning its harvest volume to market supply and demand. Management performs regular industry

trend analyses for projected harvest volumes and pricing.

(iii) Climate and other risks

The group’s biological assets are exposed to the risk of damage from climatic changes, diseases, and other natural forces. The Group

has extensive processes in place aimed at monitoring and mitigating those risks, including regular health inspection, implementing

disease control policies and procedures. The Group is also insured against natural disasters such as floods and hurricanes.

18. AMOUNT DUE FROM RELATED COMPANIES

Group Company

2018 2017 2018 2017

Ceylon Livestock and Agrobusiness services (Private) Limited - - 1,243 -

Ceylon Aquatech (Private) Limited - - 89,434 88,930

Ceylon Pioneer Poultry Breeders Limited - - 824 101,124

Ceylon Warehouse Complex (Private) Limited - - - 837

- - 91,501 190,891

Less: Provision for receivables - - (89,434) (190,054)

- - 2,067 837

Provision has been made for receivables from Ceylon Aquatech (Private) Limited amounting to Rs. 89,434,028/- and the provision made

for Ceylon Pioneer Poultry Breeders Limited Rs. 101,124,000/- has been reversed during the year due to the settlement of receivables.

The movement in provision for receivables disclosed in Note 30.1 - Financial instruments.



19. INVENTORIES

Group Company

2018 2017 2018 2017

Raw materials and consumables 3,276,166 2,570,986 3,154,242 2,491,688

Goods in transit 546,134 414,556 546,134 414,556

Finished goods

- Feeds 134,526 112,139 134,526 112,139

- Chicken 155,537 41,550 155,537 41,550

Out grower stock (Work-in-progress) 181,302 148,971 181,302 148,971

4,293,665 3,288,202 4,171,741 3,208,904

Less: provision for slow moving and obsolete items (47,860) (41,381) (44,519) (38,383)

Total inventories at the lower of cost and net realisable value 4,245,805 3,246,821 4,127,222 3,170,521

Inventories are on an "agreed to mortgage" condition, against short term bank borrowings .

20. TRADE AND OTHER RECEIVABLES

Group Company

Notes 2018 2017 2018 2017

Trade receivables 669,086 564,278 638,251 538,139

Less: provision for doubtful debts (182,952) (216,501) (177,365) (206,477)

486,134 347,777 460,886 331,662

Prepayments 52,697 35,912 41,282 23,822

Other receivables 20 (a) 282,683 235,370 177,079 189,542

821,514 619,059 679,247 545,026

The movement in provision for doubtful debt disclosed in Note 30.1 - Financial instruments.

(a) Other receivables

Group Company

2018 2017 2018 2017

Deposits and advances 49,412 52,353 36,562 39,958

Staff loans 718 718 180 180

Other receivables 232,553 182,299 140,337 149,404

282,683 235,370 177,079 189,542


151

21. CASH AND CASH EQUIVALENTS

Group Company

2018 2017 2018 2017

Cash at bank 210,014 207,269 232,683 81,273Short term bank deposits 2,251,068 1,641,522 558,462 718,029Investment in short term securities 567,942 1,001,300 - 354,000Cash in hand 4,304 7,353 3,278 6,823

3,033,328 2,857,444 794,423 1,160,125

The Group’s weighted average effective interest rate on short term bank deposits was on AWDR.

Bank overdrafts that are repayable on demand and forming an integral part of the Group’s cash management as included as a component cash and cash equivalents for the purpose of the Statement of Cash Flows.

22. TRADE AND OTHER PAYABLES

Group Company

Notes 2018 2017 2018 2017

Trade payables 142,998 177,073 116,285 108,248Accrued expenses 433,577 225,682 240,244 173,153Dividend payable 514 514 514 514Other payables 22 (a) 893,963 633,545 587,590 438,606

1,471,052 1,036,814 944,633 720,521

(a) Other payables

Group Company

2018 2017 2018 2017

Deposit and advances 100,732 81,880 64,269 54,671Government taxes 448,107 307,265 263,422 199,862Staff related expenses 345,124 233,848 259,899 179,247Other payables - 10,552 - 4,826

893,963 633,545 587,590 438,606

23. AMOUNT DUE TO RELATED COMPANIES

Group Company

2018 2017 2018 2017

Ceylon Agro-Industries Limited 8,972 9,196 8,972 9,112Prima Ceylon (Private) Limited 353,832 254,116 353,832 254,116Prima Management Services (Private) Limited 4,797 5,651 4,797 4,925Hapiways Management Services Pte Limited 1,216,242 1,443,287 1,216,242 1,443,287Three Acre Farms PLC - - 147,653 28,901Millennium Multibreeder Farms (Private) Limited - - 60,453 2,661Ceylon Livestock and Agrobusiness Services (Private) Limited - - - 4,083Ceylon Warehouse Complex (Private) Limited - - 1,509 -

1,583,843 1,712,250 1,793,458 1,747,085



24. DEFERRED TAXATION

Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against tax liabilities and

when the deferred income taxes relate to the same fiscal authority. The offset amounts are as follows:

24.1 Deferred tax liability

The gross movement on the deferred income tax account is as follows:

Group Company

Notes 2018 2017 2018 2017

Balance at the beginning of the year 358,781 207,475 59,354 22,405

Deferred tax charge recognised in profit or loss 10 21,630 149,512 26,607 35,518

Deferred tax (release) / charge recognised in other

comprehensive income

(1,340) 1,794 (1,213) 1,431


24.2 Movement in deferred tax assets and liabilities

The movement in deferred tax assets and liabilities during the year, without taking into consideration the off setting of balances within

the same tax jurisdiction, is as follows:

2018 2017

Temporary Tax effect on Temporary Tax effect on

difference temporary difference temporary

difference difference

GroupProperty, plant and equipment 1,669,365 345,177 1,623,926 326,590

Biological assets 555,917 77,828 501,110 70,155

Defined benefit obligation (101,176) (25,410) (83,698) (21,070)

Tax loss (19,969) (5,591) (20,455) (5,727)

Provision for slow moving and obsolete items (47,860) (12,933) (41,381) (11,167)

2,056,277 379,071 1,979,502 358,781

2018 2017

Temporary Tax effect on Temporary Tax effect on

difference temporary difference temporary

difference difference

CompanyProperty, plant and equipment 427,298 119,643 317,021 88,766

Defined benefit obligation (80,107) (22,430) (66,659) (18,665)

Provision for slow moving and obsolete items (44,519) (12,465) (38,383) (10,747)

302,672 84,748 211,979 59,354


153

Deferred tax of the Group companies have been computed by applying future tax rate at the reporting date as follows:

2018 2017

Ceylon Grain Elevators PLC 28% 28%

Three Acre Farms PLC 14% 14%

Millennium Multibreeder Farms (Private) Limited 14% 14%

Ceylon Warehouse Complex (Private) Limited 28% 28%

Ceylon Aquatech (Private) Limited 28% 28%

Ceylon Pioneer Poultry Breeders Limited (CPPBL) 28% 28%

24.3 Unrecognised deferred tax assets

Deferred tax assets have not been recognised on tax losses carried forward for following company, since it is not probable that future

taxable profit will be available against which the Company can utilise the benefit there on.

2018 2017

Ceylon Pioneer Poultry Breeders LimitedTax losses carried forward 224,126 224,756

Tax effect there at 28% 62,755 62,932



25. EMPLOYEE BENEFITS

Group Company

2018 2017 2018 2017

Employee benefit obligation as at 1 January 83,698 76,970 66,659 57,753

Provisions made during the year 23,677 8,161 18,891 6,572

Provisions transfer from related company - 6,689 - 6,689

Benefits paid by the plan (6,199) (8,122) (5,443) (4,355)

Employee benefit obligation as at 31 December 101,176 83,698 80,107 66,659

Movement in the present value of the defined benefit obligationsEmployee benefits as at 1 January 83,698 76,970 66,659 57,753

Benefits paid by the plan (6,199) (8,122) (5,443) (4,355)

Provisions transfer from related company - 6,689 - 6,689

Current service cost 8,846 8,245 6,892 6,182

Interest on obligation 9,625 8,467 7,666 6,353

Actuarial loss / (gain) during the year 2,126 (5,497) 1,937 (3,814)

Change in actuarial assumption 3,080 (3,054) 2,396 (2,149)

Defined benefit obligations at the end of the year 101,176 83,698 80,107 66,659

The amounts recognised in the consolidated statement of financial positionPresent value of unfunded obligations 101,176 83,698 80,107 66,659

Recognised liability for defined benefit obligations 101,176 83,698 80,107 66,659

Expense recognised in the consolidated statement of profit or lossCurrent service cost 8,846 8,245 6,892 6,182

Interest on obligation 9,625 8,467 7,666 6,353

18,471 16,712 14,558 12,535

Expense recognised in the consolidated statement of other comprehensive income / (expenses)Actuarial loss / (gain) during the year 2,126 (5,497) 1,937 (3,814)

Change in actuarial assumption 3,080 (3,054) 2,396 (2,149)

5,206 (8,551) 4,333 (5,963)

The provision for retiring gratuity for the year is based on the actuarial valuation made on 31 December 2018.

The actuarial valuation was carried out by professionally qualified actuary Mr. Piyal S Goonetilleke of Piyal S Goonetilleke Associates for

retiring gratuity for employees as at 31 December 2018.

The liability was not externally funded.


155

Actuarial assumptions

Principal actuarial assumptions at the reporting date (expressed as weighted averages) :

Group / Company

2018 2017

Discount rate 11.0% 11.5%

Future salary increases 10.0% 10.0%

Actuarial assumptions

Future mortality is based on published statistics and mortality tables.

The average life expectancy of an individual retiring at age 55

Staff turnover sliding scale by the age of employee retiring from 10%-1%

Sensitivity analysis

Reasonably possible changes at the reporting date to one of the relevant actuarial assumptions, holding other assumptions constant,

would have affected the defined benefit obligation by the amounts shown below.

Group 2018 2017

Increase Decrease Increase Decrease

Movement by 1%

Discount Rate (5,995) 6,707 (4,660) 5,213

Future salary scale (3,117) 3,689 4,937 (4,493)

Company 2018 2017

Increase Decrease Increase Decrease

Movement by 1%

Discount Rate (4,666) 5,211 (3,555) 3,972

Future salary scale (4,504) 4,939 3,758 (3,425)



26. CONTINGENT LIABILITIES

(a) 284 / 2008 MR- Green Valley Farm (Private) Limited Vs. Ceylon Grain Elevators PLC

Green Valley Farm (Private) Limited filed the above case against CGE claiming Rs. 195,775,306/- as losses resulted from the business

affairs, it had with CGE. The judgement of the case was delivered on 21 November 2014.

It was decided that Green Valley Farm (Private) Limited is entitled to recover only a sum of Rs. 47,223,869/- from CGE and that amount

be set off against the amount due to be paid by Green Valley Farm (Private) Limited to CGE.

The Company has filed an appeal against the said judgement and case is pending before the Supreme court.

(b) A 3175 - Inter Company Employees Union Vs. CGE and Subsidiaries (‘the Group’)Court of Appeal case No. CA (Writ) 134/18

Employees of the Group went on strike on 20 March 2006 and those who went on strike were terminated. The dispute was referred to

the Commissioner of Labour and the reference was gazetted by the Minister dated 26 May 2006 referring the case for hearing at the

Industrial Court.

At the Industrial Court the Group took up a preliminary objection that Composite reference is bad in law as they are separate legal

entities and cannot be referred in one dispute. The Industrial Court gave its verdict rejecting the preliminary objection and thereafter

the Company made an appeal against the interim order in the Court of Appeal (C/A796/2007). Court of Appeal delivered its judgment

on 18 May 2010 rejecting the appeal filed by the Group. Accordingly the case was taken up for hearing before the Industrial Court.

After a lengthy trial at the industrial Court, the Award was gazetted on 16 January 2018 directing the Group to reinstate the employees

with back-wages. The Company has filed a writ application under case number CA (Writ) 134/18 in the Court of Appeal to quash the

said award.

Case is coming for arguments on 2 August 2019.

( c ) A 3174 - Inter Company Employees Union Vs. CGE and Global Engineering & Supplies

Employees who worked under Labour Contractor, Global Engineering & Supplies were also involved in the strike.

This case was also referred to the Commissioner of Labour and reference was gazetted by the Minister dated 26 May 2006 referring the

case for hearing at the Industrial Court.

This dispute was referred as 'Non offer of employment'. Lawyers appearing for CGE took up an objection in the Industrial Court that

there is no such dispute called 'Non offer of employment'. The Industrial Court in its preliminary order rejected the said objection and

thereafter CGE made an appeal to the Court of Appeal. Court of Appeal delivered its judgment by rejecting the appeal filed by CGE and

referring the case back to the Industrial Court for hearing.

This matter is coming on 21 May 2019, before the Industrial Court for further evidence of the Second Respondent, Global Engineering

& Supplies.


157

27. COMMITMENTS

(a) Capital commitments

No capital commitments outstanding as at the reporting date.

(b) Operating commitments

Within Within More than

one year 1-5 years 5 years Total

Ceylon Grain Elevators PLC 118,577 474,308 2,134,386 2,727,271

Ceylon Warehouse Complex (Private) Limited 13,500 54,000 243,000 310,500

132,077 528,308 2,377,386 3,037,771

(c) The Agreement has been inked for another period of 30 years effective from 12 September 2012 between the Company and

Divisional Secretariat at Colombo for use of land and buildings at No. 15, Rock House Lane, Colombo 15.

The Agreement for related leases with Sri Lanka Ports Authority yet to be finalised as at the reporting date.

(d) The Company is the Parent Company of Ceylon Aquatech (Private) Limited and confirms their commitment, in present

circumstances to continue financial support in the business operations and to meet financial obligations. As the ultimate Parent

Company of the above company, CGE has no intention or inclination of withdrawing their support or reducing the scale of

operations of the above company in the forthcoming 12 months.

28. STATED CAPITAL

Company

2018 2017

Ordinary shares - issued and fully paid (Nos.) 60,000,000 60,000,000

Issued and fully paid (Rs.) 1,017,996 1,017,996

None of the shares held by neither the Company on its own nor its subsidiaries or associate.

The holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share per

individual present at meeting of the shareholders or one vote per share in the case of a poll.



29. NON - CONTROLLING INTERESTS

(a) Movements in non-controlling interest (NCI) during the period ended 31 December

Group

2018 2017

As at the beginning of the year 1,266,750 1,026,343

Share of net profit of subsidiaries 320,415 279,757

Share of other comprehensive income of subsidiaries (309) 950

Dividend paid (30,225) (40,300)

As at the end of the year 1,556,631 1,266,750

(b) NCI Percentage for the period ended 31 December

Principal place Operating

of business Segment Ownership interest held by NCI

2018 2017

Three Acre Farms PLC Sri Lanka Poultry

breeding and

commercial

42.79% 42.79%

(c) Summarised Financial Statements of Three Acre Farms PLC

Statement of financial positionNon-current assets 1,953,020 1,974,535

Current assets 2,409,659 1,582,591

Non-current liabilities (229,839) (227,015)

Current liabilities (495,005) (369,726)

Net assets 3,637,835 2,960,385

Net assets attributable to NCI 1,556,631 1,266,750

Statement of profit or loss and other comprehensive incomeRevenue 2,625,574 2,404,120

Profit for the year 748,809 653,791

Other comprehensive (expenses) / income for the year, net of tax (724) 2,219

Total Comprehensive Income 748,085 656,010

Profit attributable to NCI 320,415 279,757

Other comprehensive (expenses) / income attributable to NCI, net of tax (309) 950

Total comprehensive income attributable to NCI 320,106 280,707

Net cash generated from operating activities 507,207 524,626

Net cash used in investing activities (249,256) (230,627)

Net cash used in financing activities (30,225) (40,300)

Net increase in cash and cash equivalent 227,726 253,699


159

30. FINANCIAL INSTRUMENTS

The Group has an exposure to the following risks arising from financial instruments;

� Credit risk

� Liquidity risk

� Currency risk

� Interest rate risk

� Market risk

Risk management framework

The Group’s Board of Directors have overall responsibility for the establishment and oversight of the Group’s risk management framework, developing and monitoring the Group’s risk management policies and report regularly to the Board of Directors on its activities.

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

The Board of Directors of Ceylon Grain Elevators PLC, oversee how management monitors compliance with the Company’s risk management policies and procedures, and review the adequacy of the risk management framework in relation to the risks faced by the Group. The Group Audit Committee assists the Board in its oversight role by internal audit which undertakes both regular and ad-hoc reviews of risk management policies and procedures and the results of which are reported to the Audit Committee.

Financial Instruments - Statement of financial position

Group Company

Notes 2018 2017 2018 2017

Financial AssetsLoans and receivables

Trade and other receivables 20 768,817 583,147 637,965 521,204

Amount due from related companies 18 - - 2,067 837

768,817 583,147 640,032 522,041

Cash and cash equivalents 21 3,033,328 2,857,444 794,423 1,160,125

3,802,145 3,440,591 1,434,455 1,682,166

Group Company

Notes 2018 2017 2018 2017

Financial LiabilitiesOther financial liabilities

Amount due to related companies 23 1,583,843 1,712,250 1,793,458 1,747,085

Trade and other payables 22 589,368 503,867 440,967 347,506

2,173,211 2,216,117 2,234,425 2,094,591



Financial Instruments - Statement of profit or loss

2018 2017

Gain / Losses / Gain / Losses /

income expenses income expenses

GroupOther financial liabilities

Interest bearing instruments 373,890 1,222 293,310 3,013

Total 373,890 1,222 293,310 3,013

CompanyOther financial liabilities

Interest bearing instruments 151,900 1,144 173,444 2,981

Total 151,900 1,144 173,444 2,981

30.1 Credit risk

Credit risk is the risk of financial loss to the Group, if a customer or counterparty to a financial instrument fails to meet its contractual

obligations and arises principally from the Group’s receivables from customers, placements with banking institutions and in

government securities.

(a) Exposure to credit risk

The carrying amount of financial assets represents the maximum credit exposure. The maximum exposure to credit risk at the reporting

date was;

Group Company

Notes 2018 2017 2018 2017

Amount due from related companies 18 - - 91,501 190,891

Trade and other receivables 20 768,817 583,147 637,965 521,204

Cash and cash equivalents 21 3,033,328 2,857,444 794,423 1,160,125

3,802,145 3,440,591 1,523,889 1,872,220

(b) Impairment losses

(i) The aging of trade and other receivables at the reporting date was;

Group 2018 2017

Gross Impairment Gross Impairment

Not past due 102,646 - 61,835 -

Past due 0 - 30 days 338,119 - 279,168 -

Past due 31 - 365 days 278,696 - 191,805 -

More than one year 227,972 182,952 266,840 216,501

947,433 182,952 799,648 216,501


161

Company 2018 2017


Not past due 38,455 - 47,314 -

Past due 0 - 30 days 306,519 - 262,250 -

Past due 31 - 365 days 227,574 - 171,675 -

More than one year 237,768 177,365 246,442 206,477

810,316 177,365 727,681 206,477

The movements in the allowance for impairment in respect of loans and receivables during the year was as follows:

Group Company

2018 2017 2018 2017

Balance as at 1 January 216,501 254,889 206,477 244,865

Impairment loss reversed (33,549) (38,388) (29,112) (38,388)

Balance as at 31 December 182,952 216,501 177,365 206,477

(ii) The aging of amount due from related companies at the reporting date was;

Company 2018 2017


Not past due 2,067 837 -

Past due 0 - 365 days 89,434 (89,434) 190,054 (190,054)

More than 365 days - - - -

91,501 (89,434) 190,891 (190,054)

The movement in the allowance for impairment in respect of amount due from related companies during the year was as follows;

Group Company

2018 2017 2018 2017

Balance as at 1 January - - 190,054 188,412

Impairment loss (reversed) / recognised - - (100,620) 1,642

Balance as at 31 December - - 89,434 190,054



30.2 Liquidity risk

The following are the contractual maturities of financial liabilities, including estimated interest payments and excluding the impact of netting agreements.

Liquidity risk is the risk that the Group will encounter difficulty in meeting the obligation associated with its financial liabilities that are

settled by delivering cash or another financial asset. To measure and mitigate liquidity risk, Group will closely monitor its net operating

cash flow, maintained a level of cash and cash equivalent and secured committed funding facilities from financial institutions.

Group

As at 31 December 2018 Carrying Contractual 6 months 6 - 12 1 - 2 2 - 5 More than

amount cash flows or less months years Years 5 years

Non-derivative financial liabilitiesTrade and other payables 589,368 (589,368) (589,368) - - - -Amount due to related companies 1,583,843 (1,583,843) (1,583,843) - - - -

2,173,211 (2,173,211) (2,173,211) - - - -

Company




2,234,425 (2,234,425) (2,234,425) - - - -

Group




2,216,117 (2,216,117) (2,216,117) - - - -

Company



Non-derivative financial liabilitiesTrade and other payables 347,506 (347,506) (347,506) - - - -

Amount due to related companies 1,747,085 (1,747,085) (1,747,085) - - - -

2,094,591 (2,094,591) (2,094,591) - - - -

It is not expected that the cash flows included in the maturity analysis could occur significantly earlier, or at significantly different amount.


163

30.3 Market risk

Market risk is the risk that changes in market price, such as foreign exchange rates and interest rates affecting to the Company’s income

or the value of its holding of financial instruments. The objective of market risk management is to manage and control market risk

exposures within acceptable parameters , while optimising the return.

Market risk comprise of the following types of risk:

� Currency risk � Interest Rate Risk � Commodity price risk � Equity Price Risk

(a) Currency risk

Currency risk is the risk that the fair value of future cash flows of a financial instrument of fluctuating due to changes in foreign

exchange rate. The Group is exposed to currency risk on sales, purchase and investments that are denominated in a currency other

than functional currency which is Sri Lankan Rupees (LKR).

Exposure to currency risk

The Group’s exposure to foreign currency risk was as follows based on notional amounts;

Group 2018 2017

USD EUR USD EUR

Cash and cash equivalents 256,585 - 806,240 -

Trade payables 18,906 15,235 (215,713) 24,628

Amount due to related company (6,655,219) - (9,407,598) -

(6,379,728) 15,235 (8,817,071) 24,628

Company 2018 2017

USD EUR USD EUR

Cash and cash equivalents 80,309 - 16,742 -

Trade payables 18,906 15,235 (17,242) 23,859

Amount due to related company (6,655,219) - (9,407,598) -

(6,556,004) 15,235 (9,408,098) 23,859

The principal exchange rates used by the Group for conversion of foreign currency balances and transactions for the year ended 31

December are as follows:

Average rate Reporting date spot rate

2018 2017 2018 2017

USD 164.04 153.19 182.75 153.42

EUR 193.03 172.88 208.99 182.49



Interest rate risk

Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market

interest rates. The Group is exposed to the risk of changes in market interest rates relates primarily to the Group’s Investments with

variable interest rates. The Group does not have any variable rate long term borrowing as at the reporting date, which results material

interest rate. At the reporting date the interest rate profile of the Group’s interest bearing financial instruments were:

Group Company

2018 2017 2018 2017

Fixed rate instrumentsFinancial assets - - - -

Financial liabilities - - - -

- - - -

Variable rate instrumentsFinancial assets 2,819,010 2,642,822 623,710 1,072,029

Financial liabilities - - - -

2,819,010 2,642,822 623,710 1,072,029

Capital management

The board’s policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence and sustain future

development of the business. Capital consist of ordinary share, retained earnings and non- controlling interest of the Group. The Board

of Directors monitors the return on capital as well as the level of dividends to ordinary shareholders.

31. RELATED PARTY TRANSACTIONS

31.1 Key management personnel information

Key management personnel include all the members of the Board of Directors of the Company having authority and responsibility for planning, directing and controlling the activities of the Company as well as the subsidiaries, directly or indirectly. Compensation paid to key management personnel on behalf of the companies are as follows:

Group Company

2018 2017 2018 2017

Short-term employee benefits 2,200 2,400 1,100 1,200

Post employment benefits - - - -

2,200 2,400 1,100 1,200


165

There were no loans given to the Directors of the company during the financial year or as at the reporting date.

Mr. Wickrema Senaka Weerasooria, Mr. Cheng Chih Kwong, Primus, Mr. Tan Beng Chuan, Mr. Cheng Koh Chuen, Bernard, Mr. Cheng Eng Loong and Dr. Prathap Ramanujam, the directors of the Company are also the directors of the following companies as set out below and with transaction in Note 31.2 have been carried out.

Name of the related party Name of the Director Nature of transaction

Three Acre Farms PLC (TAF)Subsidiary

Mr. Wickrema Senaka Weerasooria CGE sells feeds to TAF. Also company purchases broiler DOC and culled birds from TAF.Mr. Cheng Chih Kwong, Primus

Mr. Tan Beng Chuan



Ceylon Pioneer Poultry Breeders Limited (CPPBL)Subsidiary

Mr. Cheng Chih Kwong, Primus No inter-company transactions have been carried out during the year.Mr. Tan Beng Chuan

Ceylon Aquatech (Private) Limited (CAT)Subsidiary

Mr. Cheng Chih Kwong, Primus No inter-company transactions have been carried out during the year.Mr. Tan Beng Chuan

Ceylon Livestock and Agrobusiness Mr. Cheng Chih Kwong, Primus CLAS supplies veterinary drugs, medicine and

Services (Private) Limited (CLAS)Subsidiary

Mr. Tan Beng Chuan poultry equipment to the Company’s outgrower farms.

Ceylon Warehouse Complex(Private) Limited (CWCL)Subsidiary

Mr. Cheng Chih Kwong, Primus CWCL provides storage facilities to the Company.Mr. Tan Beng Chuan

Millennium Multibreeder Farms(Private) Limited (MMF)Subsidiary

Mr. Cheng Chih Kwong, Primus CGE sells feeds to MMFL. Also company purchases broiler DOC and culled birds from MMFL.

Mr. Tan Beng Chuan

Prima Ceylon (Private) Limited (PCL)Group Company

Mr. Cheng Chih Kwong, Primus CGE purchases raw materials from PCL. Also the Company sells processed chicken to PCL.Mr. Cheng Koh Chuen, Bernard

Prima Management Services (Private) Limited PMS)Associate Company

Mr. Cheng Chih Kwong, Primus PMS provides ICT solutions and services to the Company

Hapiways Management ServicesPte Limited (HMS)Group Company

Mr. Cheng Chih Kwong, Primus Purchase of all kind of imported raw materials, feed additives, spare parts and other significant imports from HMS.

Ceylon Agro-Industries Limited (CAI)Group Company

Mr. Wickrema Senaka Weerasooria CGE Sells processed chicken to CAI. Also the Company purchases Value Added Products (VAP) from CAI.

Mr. Cheng Chih Kwong, Primus

Mr. Tan Beng Chuan





31.2 Recurrent related party transactions

The Group has a related party relationship with its subsidiaries, associates and related group companies as disclosed in Note 31.1.Key

Management Personnel Information.

Companies within the Group engage in trading transactions. The following transactions were carried out with related parties during the

year ended 31 December 2018.

(a) Transaction with Subsidiaries

Company CWCL CLAS CAT TAF MMF CPPBL Total 2018 Total 2017

Sale of goods - - - 656,994 243,517 - 900,511 897,840

Purchase of goods - (339) - (448,978) (266,402) - (715,719) (667,849)

Sale of services 13,562 300 - 12,141 3,038 - 29,041 29,572

Purchase of services (109,152) - - (564,400) - - (673,552) (670,735)

Recovery of expenses 254 170 - 17,825 5,745 - 23,994 23,730

Settlement of third party dues 14,471 5,678 564 172,845 6,593 1,058 201,209 209,197

Funds (received) / paid 95,100 (484) (59) 86,395 (52,483) (234) 128,235 164,706

(b) Transaction with Other Related Companies

Group HMS CAI PCL Total 2018 Total 2017

Sale of goods - 67,681 5,019 72,700 90,799

Purchase of goods (8,629,817) (8,148) (1,580,712) (10,218,677) (8,466,466)

Sale of services - 7,311 - 7,311 6,011

Purchase of services (39,288) (2,036) (15,718) (57,042) (54,877)

Interest income received - - - 373,889 6,811

Recovery of expenses (15) (76,662) - (76,677) (80,345)

Funds paid 8,896,167 739 1,764,656 10,661,562 8,004,290

Company HMS CAI PCL Total 2018 Total 2017

Sale of goods - 67,681 5,019 72,700 90,799

Purchase of goods (8,611,082) (7,590) (1,580,712) (10,199,384) (8,452,894)

Sale of services - 7,311 - 7,311 6,011

Purchase of services (39,288) (2,036) (15,718) (57,042) (54,877)

Interest income received - - - 373,889 6,811

Recovery of expenses (15) (76,662) - (76,677) (80,345)

Funds paid 8,877,431 - 1,764,656 10,642,087 7,990,802


167

(c) Transaction with Associate

Group PMS Total 2018 Total 2017

Purchase of services (57,723) (57,723) (55,905)

Funds / paid 68,336 68,336 60,567

Company PMS Total 2018 Total 2017

Purchase of service (57,723) (57,723) (54,355)

Funds paid 67,610 67,610 59,482

(d) The receivables from related companies and payables to related companies on sale / purchase of goods / services are set out in

Note 18 and Note 23 respectively. These receivables and payables are unsecured, interest free and have no fixed repayment terms.

(e) The subsidiary companies utilise certain facilities of the Company free of charge and part of the accounting and administrative

functions of the subsidiary companies are also performed by the Company for which no charges are made.

(f) Terms and Conditions for recurrent transactions with related parties

All related party transactions are carried out in the ordinary course of business and transacted at normal business terms. The sales to

and purchases from related parties are made in terms of equivalent to those that prevail in arm’s length transactions and comparable

with those that would have been charged from unrelated companies. All related party outstanding balances at the year-end are

unsecured and are to be settled in cash. The Group does not have any material commitments to related parties.

31.3 Non-recurrent related party transactions

The Group entered into the non-recurrent related party transactions for the year 2018 as follows:

(a) Non-recurrent related party transactions

Related party Ceylon Pioneer Poultry Breeders Limited

Nature of the transaction Financial support for settlement of long outstanding balance due to CGE

Terms of transaction Not applicable

Total Value Rs. 101,124,000

As a % of Equity 1.44%

As a % of Total Assets 0.99%

(b) There were no any non-recurrent Related Party Transactions entered during the year, other than the transactions specified above as

per the CSE Listing Rule 9.3.2.



32. EVENTS AFTER THE REPORTING PERIOD

There are no events which require adjustment to, or disclosure in the Financial Statements except for the following.

The Directors propose for payment a First and Final dividend of Rs. 3.00 per share for the year ended 31 December 2018 on 8 April 2019.

Under the Inland Revenue Act No. 24 of 2017, a withholding tax of 14% will be imposed on dividends declared.

33 COMPARATIVE INFORMATION

33.1 Changes in Significant Accounting Policies

The Group has initially applied SLFRS 15 (3.10) and SLFRS 9 (3.3) from 01 January 2018. A number of other standards are also effective

from 01 January 2018 but they do not have a material effect on the Group’s financial statements.

Due to the transition methods chosen by the Group in applying these standards, comparative information throughout these

financial statements has not been restated to reflect the requirements of the new standards.

33.1.1 SLFRS 15 - Revenue from Contracts with Customers

SLFRS 15 establishes a comprehensive framework for determining whether, how much and when revenue is recognised. It replaced

LKAS 18 Revenue, LKAS 11 Construction Contracts and related interpretations. Under SLFRS 15, revenue is recognised

when a customer obtains control of the goods or services. Determining the timing of the transfer of control - at a point in time or

over time - requires judgment.

The Group has adopted SLFRS 15 using the cumulative effect method (without practical expedients), with the effect of initially

applying this standard recognised at the date of initial application (i.e.1st January 2018). Accordingly the information presented

for 2017 has not been restated- i.e. it is presented, as previously reported, under LKAS 18, LKAS 11 and related interpretations.

Additionally, the disclosure requirements in SLFRS 15 have not generally been applied to comparative information.

There was no impact on the comparative figures presented in the Statement of Financial Position, Statement of Changes in Equity

and Statement in Cash Flows. Further the changes in accounting policy has no impact on the reported amount of accumulated

profits as at 1 January 2018.

33.1.2 SLFRS 9 - Financial Instruments

SLFRS 9 sets out requirements for recognising and measuring financial assets, financial liabilities and some contracts to buy or sell

non-financial items. This standard replace LKAS 39 Financial Instruments: Recognition and Measurement.

33.1.2.1 Classification and measurement of Financial Assets and Financial Liabilities

SLFRS 9 contains three principal classification categories for financial assets: measured at amortised cost, FVOCI and FVTPL.

The classification of financial assets under SLFRS 9 is generally based on the business model in which a financial asset is managed

and its contractual cash flow characteristics. SLFRS 9 eliminates the previous LKAS 39 categories of held to maturity loans

and receivables and available for sale. SLFRS 9 largely retains the existing requirements in LKAS 39 for the classification

and measurement of financial liabilities.


169

Changes in accounting policies resulting from the adoption of IFRS 9 have been applied retrospectively, except as described below.

The Group has used an exemption not to restate comparative information for prior periods with respect to classification

and measurement (including impairment) requirements. Therefore, comparative periods have not been restated. Differences

in the carrying amounts of financial assets and financia1 liabilities resulting from the adoption of SLFRS 9 are recognised in retained

earnings and reserves as at 1st January 2018. Accordingly, the information presented for 2017 does not generally reflect

the requirements of SLFRS 9, but rather those of LKAS 39. However, the impact of adopting this standard has not been recognised

as a revision of opening reserves as it is considered immaterial.

The effect of adopting SLFRS 9 on the carrying amounts of financial assets at 01st January 2018 relates solely to the new impairment

requirements.

The following table and the accompanying notes below explain the original measurement categories under LKAS 39 and the new

measurement categories under SLFRS 9 for each class of the Group’s financial assets and financial liabilities as at 1st January 2018.

Carrying Carrying

amount under amount under

Note LKAS 39 SLFRS 9 LKAS 39 SLFRS 9

Rs.000 Rs.000

Financial assetsTrade and other receivables 20 Loans and receivables Amortised Cost 768,817 768,817

Amount due from related company 18 Loans and receivables Amortised Cost - -

Cash and cash equivalents 21 Loans and receivables Amortised Cost 3,033,328 3,033,328

Financial liabilitiesOther payables 22 Other Financial Liabilities Other Financial Liabilities 589,368 589,368

Amount due to related parties 23 Other Financial Liabilities Other Financial Liabilities 1,583,843 1,583,843

33.1.2.2 Impairment of financial assets

SLFRS 9 replaces the ‘incurred loss’ model in LKAS 39 with an ‘expected credit loss’ (ECL) model. The new impairment model applies

to financial assets measured at amortized cost, contract assets and debt investments at FVOCI, but not to investments in equity

instruments. Under SLFRS 9, credit losses are recognised earlier than under LKAS 39.

For assets in the scope of the SLFRS 9 impairment model, impairment losses are generally expected to increase and become more

volatile. A simplified “lifetime expected loss model” has been used for balances arising as a result of revenue recognition, as permitted

by the standard, and the Group recognises impairment for only assets that are outstanding for a prolonged period of time and is

based on the management discretion.



34. DIRECTOR’S RESPONSIBILITY

The Board of Directors are responsible for the preparation and fair presentation of these financial statements.

35. NET ASSETS PER SHARE

Group Company

2018 2017 2018 2017

Net assets attributable to ordinary shareholders 6,479,396 5,712,458 4,095,166 3,642,201

Weighted average number of ordinary shares in issue (thousands) 60,000 60,000 60,000 60,000

Net assets per Share (Rs.) 107.99 95.21 68.25 60.70


171

FIVE YEAR FINANCIAL SUMMARY


2018 2017 2016 2015 2014

Group Operating results for the periodRevenue 17,085,577 15,154,866 14,521,693 13,741,283 11,543,764

Operating profit 1,325,734 1,101,962 1,809,253 1,356,578 260,747

Finance income 373,889 293,310 151,187 27,308 1,253

Finance expense (123,163) (4,054) (8,526) (55,969) (81,673)

Share of results of associate 9,779 8,406 6,494 9,919 4,643

Profit before taxation 1,586,239 1,399,624 1,958,408 1,337,836 184,970

Taxation (375,329) (329,688) (276,692) (159,145) (34,679)

Profit from ordinary activities 1,210,910 1,069,936 1,681,716 1,178,691 150,291

Non - controlling interest 320,415 279,757 (347,807) (235,624) (70,739)

Profit attributable to the Company 890,495 790,179 1,333,909 943,067 79,552

Financial PositionStated capital 1,017,996 1,017,996 1,017,996 1,017,996 1,017,996

Retained earnings 5,461,400 4,694,462 4,048,476 2,776,136 1,833,562

Non-controlling interest 1,556,631 1,266,750 1,026,343 699,188 468,865

Non - current liabilities 480,247 442,479 284,445 228,709 194,500

8,516,274 7,421,687 6,377,260 4,722,029 3,514,923

Intangible assets 24,558 39,445 45,821 58,924 72,028

Property, plant and equipment and investments 2,803,141 2,818,897 2,515,194 2,518,892 2,650,252

Investment in an associate company 41,730 31,951 24,145 18,652 19,033

Biological assets 555,918 501,110 473,534 439,170 430,629

Current assets 8,145,822 6,779,348 5,386,832 3,940,667 3,244,126

Current liabilities (3,054,895) (2,749,064) (2,068,266) (2,254,276) (2,901,145)

8,516,274 7,421,687 6,377,260 4,722,029 3,514,923

CompanyKey ratios and other information Basic earnings / (loss) per share (Rs.) - (Basic / Diluted) 9.60 7.51 13.63 10.25 (0.81)

Dividends per share - propose (Rs.) 3.00 2.00 2.50 1.10 -

Dividends pay out ratio - propose (%) 31.25 26.63 18.34 10.74 -

Market price per share (Rs.) 59.50 66.10 82.90 91.60 41.00

Price earnings ratio (No. of times) 6.20 8.80 6.08 8.94 (50.62)

Debt / equity ratio (No. of times) - - - - 0.46

Interest cover (No. of times) 549.21 138.79 367.45 44.83 0.36

Net assets per share (Rs.) 68.25 60.70 55.62 43.02 32.78

Current ratio (No. of times) 2.06 1.99 2.40 1.82 1.39

Shares traded 7,039,013 12,946,790 32,287,273 33,983,884 13,246,893

US $ Exchange rate (average) 164.04 153.19 147.16 137.01 130.78

US $ Exchange rate (year end spot) 182.75 153.42 150.10 144.06 132.00



VALUE ADDED STATEMENT

2018 2017 2016 2015 2014

Value AddedRevenue 19,912,971 17,682,512 16,919,727 15,778,015 13,286,671

Less: Cost of materials and services (14,300,355) (12,944,647) (11,442,542) (11,383,761) (10,428,035)

Value added by operations 5,612,616 4,737,865 5,477,185 4,394,254 2,858,636

Add:

Other income 33,911 41,600 29,738 13,659 11,770

Finance income 373,889 293,310 151,187 27,308 1,253

Share of profit of associate 9,779 8,406 6,494 9,919 4,643

Total value added 6,030,195 5,081,181 5,664,604 4,445,140 2,876,302

2018 % 2017 % 2016 % 2015 % 2014 %

Value Distribution to:EmployeesSalaries, wages and other benefits 1,452,683 24.09 1,047,240 20.61 1,146,070 20.23 919,156 20.68 707,883 24.61

GovernmentIncome tax 258,477 4.29 180,176 3.55 215,799 3.81 87,152 1.96 28,772 1.00

Sales tax 2,847,943 47.23 2,527,646 49.75 2,398,034 42.33 2,036,732 45.82 1,742,907 60.60

Capital providers and creditorsInterest expenses 1,222 0.02 3,013 0.06 2,356 0.04 30,471 0.69 68,928 2.40

NCI 320,106 5.31 280,707 5.52 348,312 6.15 235,562 5.30 69,784 2.42

ShareholdersDividend 180,000 2.98 120,000 2.36 150,000 2.65 66,000 1.48 - -

Value distributed 5,060,431 83.92 4,158,782 81.85 4,260,571 75.21 3,375,073 75.93 2,618,274 91.03

Value retainedAs depreciation and amortization 262,826 4.36 246,413 4.85 215,693 3.81 193,493 4.35 186,594 6.49

As reserves 706,938 11.72 675,986 13.30 1,188,340 20.98 876,574 19.72 71,434 2.48

Value retained within the business 969,764 16.08 922,399 18.15 1,404,033 24.79 1,070,067 24.07 258,028 8.97

173


SHAREHOLDER INFORMATION

1. Analysis of shareholders according to the number of shares as at 31 December 2018

Shareholding Resident Non Resident Total

Number of

shareholders

Number of

shares Percentage

Number of

shareholders

Number of

shares Percentage

Number of

shareholders

Number of

shares Percentage

1 - 1,000 3,433 858,160 1.43 25 12,895 0.02 3,458 871,055 1.45

1,001 - 10,000 1,026 3,628,203 6.05 28 126,661 0.21 1,054 3,754,864 6.26

10,001 - 100,000 207 5,945,051 9.91 10 300,612 0.50 217 6,245,663 10.41

100,001 - 1,000,000 31 7,423,487 12.37 3 1,638,532 2.73 34 9,062,019 15.10

Over 1,000,000 1 5,350,549 8.92 3 34,715,850 57.86 4 40,066,399 66.784,698 23,205,450 38.68 69 36,794,550 61.32 4,767 60,000,000 100.00

Categories of shareholders 2018 2017

Number of shareholders

Number of ordinary

shares PercentageNumber of

shareholders

Number of

ordinary

shares Percentage

Individual 4,487 9,500,022 15.83 4644 9,564,297 15.94

Institutional 280 50,499,978 84.17 314 50,435,703 84.06

4,767 60,000,000 100.00 4958 60,000,000 100.00

Less: Shares held by non public holders

Ultimate parent company (1) (27,270,800) (1) (27,270,800)

Directors (2) (3,197) (2) (3,197)

(3) (27,273,997) (45.46) (3) (27,273,997) (45.46)Total representing the public holding 4,764 32,726,003 54.54 4,955 32,726,003 54.54

Float Adjusted Market Capitalisation

The float adjusted market capitalisation as at 31 December 2018 was Rs. 1,947 Million under Option 5 of Section 7.13.1 (a) of the Listing Rules of

the Colombo Stock Exchange and the Company has complied with the minimum public holding requirement applicable under the said option.



2. List of 20 major shareholders based on their shareholding

As at 31 December 2018 As at 31 December 2017

No. NameNumber of

SharesPercentage of Issued Capital

Number of Shares

Percentage of Issued Capital

1 Prima Limited, Singapore 27,270,800 45.45 27,270,800 45.45

2 Employees Provident Fund 5,350,549 8.92 5,350,549 8.92

3 Supra Limited, Hong Kong 5,179,797 8.63 5,179,797 8.63

4 Eka Limited 2,265,253 3.78 2,265,253 3.78

5 Laugfs Gas PLC 1,000,000 1.67 1,000,000 1.67

6 Mellon Bank N.A. -Commonwealth of Massachusetts 941,581 1.57 941,581 1.57

7 Bank of Ceylon No.1 Account 612,498 1.02 612,498 1.02

8 J.B. Cocoshell (Pvt) Ltd 572,139 0.95 432,403 0.72

9 Mellon Bank N.A - Acadian Frontier Markets Equity Fund 523,037 0.87 523,037 0.87

10 Commercial Bank of Ceylon PLC / Sithijaya Fund Limited 438,524 0.73 418,524 0.70

11 Timex Garments (Pvt) Ltd 400,000 0.67 400,000 0.67

12 E.W. Balasuriya & Co. (Pvt) Ltd 332,529 0.55 - -

13 Mr. B.L. Jayaratne / Dr. Y.S. Liyanage 279,300 0.47 279,300 0.47

14 Seylan Bank PLC / C.N. Rajahmoney 267,354 0.45 242,354 0.40

15 Commercial Bank of Ceylon PLC A/C No. 04 250,000 0.42 - -

16 Deutsche Bank AG as Trustee to Astrue Alpha Fund 236,451 0.39 - -

17 Guardian Fund Management Limited / The Aitken Spence and Associated Companies Executive Staff Provident Fund 202,417 0.34 - -

18 Deutsche Bank AG as Trustee for Guardian Acquity Equity Fund 192,796 0.31 - -

19 Mr. S.B.H. Wanduragala 192,673 0.31 194,573 0.32

20 Hallsville Trading Group Incorporation 173,914 0.28 - -

Total 46,681,612 77.80 45,110,669 75.18

SHAREHOLDER INFORMATION

175

GLOSSARY OF FINANCIAL TERMINOLOGY

Accrual Basis

Recording Revenues and Expenses in the

period in which they are earned or incurred

regardless of whether cash is received or

disbursed in that period.

Capital Employed

Shareholders’ Funds plus Debt.

Contingent Liabilities

A condition or situation existing at the end

of the reporting period due to past events,

where the financial effect is not recognised

because:

1. The obligation is crystallised by the

occurrence or non occurrence of one or

more future events or,

2. A probable outflow of economic

resources is not expected or,

3. It is unable to be measured with

sufficient reliability.

Current Ratio

Current Assets over Current Liabilities.

Quick Ratio

Cash plus Short Term Investments plus

Receivables over Current Liabilities.

Debt / Equity Ratio (Gearing)

Debt as a percentage of Shareholders’ Funds.

Dividend Cover

Earnings per share over dividend per share.

Dividend Payout Ratio

Total Dividend as a percentage of Company

profits.

Dividend Yield

Dividend per share as a percentage of

market price of share at the end of the

period.

Earnings Per Share (EPS)

Profit after tax attributable to Ordinary

Shareholders over weighted average number

of shares in issue during the period.

Enterprise value

Market capitalisation plus debt minus total

cash and cash equivalents.

Earnings Yield

Earnings per share as a percentage of Market

Price per share at the end of the period.

Effective Rate of Taxation

Income Tax including Deferred tax over Profit

Before Tax.

Interest Cover

Profit Before Interest and Tax over Finance

Expenses.

Market Capitalisation

Number of shares in issue at the end the of

period multiplied by the share price at the

end of the period.

Net Assets

Total Assets minus Current Liabilities minus

Long Term Liabilities minus Minority Interest.

Net Asset per Share

Net Assets divided by number of Ordinary

Shares in issue at the end of the period.

Net Debt

Debt minus Cash and Short Term Deposits.

Net Turnover per Employee

Net Turnover over average number of

employees.

Price Earnings Ratio

Market Price of Share over Earnings per

Share.

Return on Assets

Profit After Tax over Average Total Assets.

Return on Capital Employed

Earnings before interest and tax as a

percentage of average of shareholders’ funds

plus total debt.

Return on Equity

Profit after Tax as a Percentage of Average

Shareholders’ Funds.

Shareholders’ Funds

Stated Capital, Capital Reserves and Revenue

Reserves.

Shareholders’ Equity Ratio

Total Equity divided by Total Assets.

Earnings Before Interest and Taxes (EBIT)

Revenue minus Operating Expenses.

Profit Before Tax (PBT)

The amount of profit made by the Company

before tax is deducted.

Profit After Tax (PAT)

Net profit earned by the Company after

all taxation related expenses have been

deducted.

Total Assets (TA)

Non-Current Assets plus Current Assets.

Total Debt (TD)

Long Term Loans plus Short Term Loans and

Overdraft.

Total Debt / Total Assets

Total Debt divided by Total Assets.

Total Value Added

The difference between Revenue (including

Other Income) and Expenses, Cost of

Materials and Services purchased from

External Sources.


NOTICE IS HEREBY GIVEN that the 36th

Annual General Meeting of the Company will

be held on Wednesday, 8 May 2019 at the

Sri Lanka Foundation Institute Auditorium,

No.100, Sri Lanka Padanama Mawatha,

Independence Square, Colombo 7 at 10.45

a.m. and the business to be brought before

the Meeting will be:

1. To receive and consider the Report of

the Board of Directors on the State of

Affairs of the Company and the Financial

Statements for the year ended 31

December 2018, with the Report of the

Auditors’ thereon.

2. To declare a First and Final Dividend of

Rs. 3.00 per share for the year ended 31

December 2018.

3. To re-elect Mr. Cheng Koh Chuen,

Bernard, a Director who retires by

rotation at the Annual General Meeting

in terms of Article 87 of the Articles of

Association of the Company.

4. To re-elect Dr. Prathap Ramanujam,

a Director who retires at the Annual

General Meeting in terms of Article

95 of the Articles of Association of the

Company.

5. To consider and if thought fit to pass the

following Ordinary Resolution pertaining

to the re-appointment of Mr. Tan Beng

Chuan, as a Director who is over 70 years

of age, in compliance with Section 211

of the Companies Act No. 7 of 2007

and whose re-appointment has been

recommended by the Board of Directors.

Ordinary Resolution

“That the age limit of 70 years referred

to in Section 210 of the Companies Act,

No. 7 of 2007 shall not apply to Mr. Tan

Beng Chuan, a Director, who is 72 years

of age (having reached 70 years of age

on 14 October 2016) and accordingly

that Mr. Tan Beng Chuan be and is

hereby re-appointed as a Director of the

Company in terms of Section 211 of the

Companies Act No. 7 of 2007”.


following Ordinary Resolution pertaining

to the re-appointment of Mr. Cheng

Chih Kwong, Primus, as a Director, who is

over 70 years of age, in compliance with


7 of 2007 and whose re-appointment

has been recommended by the Board of

Directors.

Ordinary Resolution

“That the age limit of 70 years referred

to in Section 210 of the Companies Act,

No.7 of 2007 shall not apply to

Mr. Cheng Chih Kwong, Primus, a

Director, who is 70 years of age (having

reached 70 years of age on 30 November

2018) and accordingly that Mr. Cheng

Chih Kwong, Primus be and is hereby

re-appointed as a Director of the

Company in terms of Section 211 of the

Companies Act No. 7 of 2007”.


following ordinary Resolution pertaining

to the appointment of Mr. Rajanayagam

Nalliah Asirwatham as a Director who is

over 70 years of age, in compliance with


7 of 2007 and whose appointment has

been recommended by the Board of

Directors.

Ordinary Resolution

“That the age limit of 70 years referred to in Section 210 of the Companies Act No. 7 of 2007 shall not apply to Mr. Rajanayagam Nalliah Asirwatham, a Director, who is 76 years of age (having reached 70 years of age on 26 August 2012) and accordingly that Mr. Rajanayagam Nalliah Asirwatham be and is hereby appointed as a Director of the Company in terms of Section 211 of

the Companies Act No. 7 of 2007”.

8. To re-appoint Messrs KPMG, Chartered

Accountants as Auditors and to

authorise the Directors to determine

their remuneration.

9. To authorise the Directors to determine

contributions to charities and other

purposes.

BY ORDER OF THE BOARD

(Sgd.)S S P CORPORATE SERVICES (PRIVATE) LIMITEDSECRETARIES

Colombo, Sri Lanka

10 April 2019

Note:

(a) A member entitled to attend and vote

at the above mentioned meeting is

entitled to appoint a Proxy to attend

and vote instead of him/her. Such

Proxy needs not be a member of the

Company.

(b) A Form of Proxy is annexed to this notice.

(c) The completed Form of Proxy should

be deposited at the Registered Office

of the Company, No. 15, Rock House

Lane, Colombo 15 not later than 48

hours before the time appointed for the

holding of the meeting.

(d) Shareholders/proxy holders are

requested to bring with them their

National Identity Card or any other form

of clear/valid identification and present

same at the time of registration.

NOTICE OF MEETING

177

FORM OF PROXY

I/We...................................................................................................................................................................................................................(NIC No.............................................................................................)

of ...................................................................................................................................................................................................................................................................................... being a member/s of

Ceylon Grain Elevators PLC, hereby appoint ..........................................................................................................................................................................................................................................

(NIC No ........................................................................................) of........................................................................................ or failing him

Mr. Wickrema Senaka Weerasooria of Colombo or failing him

Mr. Cheng Chih Kwong, Primus of Singapore or failing him

Mr. Tan Beng Chuan of Colombo or failing him

Mr. Cheng Eng Loong of Singapore or failing him

Mr. Cheng Koh Chuen, Bernard of Singapore or failing him

Dr. Prathap Ramanujam of Colombo

as my/our Proxy to represent me/us and vote on my/our behalf at the Annual General Meeting of the Company to be held on Wednesday, 8 May 2019,

and at any adjournment thereof and at every poll which may be taken in consequence of the aforesaid Meeting and to VOTE as indicated below:

FOR AGAINST

1. To receive and consider the Report of the Board of Directors on the State of Affairs of the Company and the Financial

Statements for the year ended 31 December 2018, with the Report of the Auditors’ thereon.

2. To declare a First and Final Dividend of Rs. 3.00 per share for the year ended 31 December 2018.

3. To re-elect Mr. Cheng Koh Chuen, Bernard a Director who retires by rotation at the Annual General Meeting in terms

of Article 87 of the Articles of Association.

4. To re-elect Dr. Prathap Ramanujam, a Director who retires at the Annual General Meeting in terms of Article 95 of

the Articles of Association.

5. To re-appoint Mr. Tan Beng Chuan, who is over 70 years of age as a Director of the Company by passing the Ordinary

Resolution set out in the Notice of Meeting.

6. To re-appoint Mr. Cheng Chih Kwong, Primus, who is over 70 years of age as a Director of the Company by passing

the Ordinary Resolution set out in the Notice of Meeting.

7. To appoint Mr. Rajanayagam Nalliah Asirwatham who is over 70 years of age as a Director of the Company by

passing the Ordinary Resolution set out in the Notice of Meeting.

8. To re-appoint Messrs KPMG, Chartered Accountants as Auditors and to authorise the Directors to determine their

remuneration.

9. To authorise the Directors to determine contributions to charities and other purposes.

As witness my/our hand/this .......................................................... day of .......................................................... Two Thousand and Nineteen.

Signature: ..........................................................

Note : Please delete the inappropriate words.

1. Instructions for completion of proxy are noted on the next page

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

3. Please mark ‘X’ in appropriate cages, to indicate your instructions as to voting


FORM OF PROXY

INSTRUCTIONS TO COMPLETION OF FORM OF PROXY

1. Kindly perfect the Form of Proxy by filling in legibly your full name and address, your

instructions as to voting, by signing in the space provided and filling in the date of

signature.

2. Please indicate with a ‘X’ in the cages provided how your proxy is to vote on the

Resolutions. If no indication is given 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. 15, Rock House Lane, Colombo 15, at least 48 hours before the time

appointed for holding of 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

Note:

If the shareholder is a Company or body corporate, Section 138 of the Companies Act No.7 of 2007 applies to Corporate Shareholders of Ceylon

Grain Elevators PLC. Section 138 provides for representation of Companies at meetings of other Companies. A Corporation, whether a Company

within the meaning of this act or not, may-where it is a member of another Corporation, being a Company within the meaning of this Act, by

resolution of its Directors or other governing body authorise such person as it thinks fit to act as its representative at any meeting of the Company.

A person authorised as aforesaid shall be entitled to exercise the same power on behalf of the Corporation which it represent as that Corporation

could exercise if it were an individual shareholder.

Company Name


Company Registration No.

PQ 161

Registered O�ce

No.15, Rock House Lane, Colombo 15,

Sri Lanka.

Tel : +94 11 2522556 or 8 / 2523580 /

2526378 to 2526383

Fax : +94 11 2524163

E-mail : [email protected]

Subsidiary Companies

Three Acre Farms PLC

Millennium Multibreeder Farms (Private)

Limited

Ceylon Pioneer Poultry Breeders Limited

Ceylon Livestock and Agrobusiness Services

(Private) Limited

Ceylon Warehouse Complex (Private) Limited

Ceylon Aquatech (Private) Limited

Associate Company

Prima Management Services (Private) Limited

Bankers

Hatton National Bank PLC

Nations Trust Bank PLC

National Development Bank PLC

Sampath Bank PLC

Union Bank of Colombo PLC

Bank of Ceylon

Commercial Bank of Ceylon PLC

Axis Bank Limited

DFCC Vardhana Bank PLC

Cargills Bank Limited

Pan Asia Banking Corporation PLC

CORPORATE INFORMATION

Lawyers

Varners Lanka Law office

D.L. & F. De Saram

Auditors

KPMG, Colombo, Sri Lanka

Company Secretary

S S P Corporate Services (Private) Limited

No. 101, Inner Flower Road, Colombo 3

Board of Directors

Mr. Wickrema Senaka WeerasooriaNon-Executive Independent Chairman

Mr. Cheng Chih Kwong, PrimusExecutive Director and Chief Executive

Officer

Mr. Tan Beng ChuanExecutive Director and Group General

Manager

Mr. Cheng Koh Chuen, BernardNon-Executive Director

Mr. Cheng Eng LoongNon-Executive Director

Mr. Sunil Karunanayake Non-Executive Independent Director

(Demised on 27 May 2018)

Dr. Prathap Ramanujam Non-Executive Independent Director

(Appointed w.e.f. 7 August 2018)

Management

Mr. K.A.R.S. PereraGeneral Manager

Mr. Chng Sun TickAGM (Farms)

Mr. Ang Kian HuatAGM (Farms)

Mr. Akram AnsarAGM (Finance)

Mr. Je� Li Zhen JieAGM (Technical)

Mr. Lalith AbeywardenaAGM (Sales)

Mr. M.C.M. De CostaAGM (Personnel, Security and General Affairs)

Mr. Sumith PeirisAGM (Material Management)

Mr. Neil JayaweeraAGM (Processing)

Mr. Waruna JayathilakaAGM (Human Resources)

CEYLON GRAIN ELEVATORS PLC | ANNUAL REPORT 2018

POWERING

CEYLON

GRAIN

ELEVATORS PLC | AN

NU

AL REPORT 2018

Ceylon Grain Elevators PLCNo. 15, Rock House Lane, Colombo 15, Sri Lanka.Tel : +94 11 2522556 or 8 / 2523580 / 2526378 to 2526383Fax : +94 11 2524163E-mail : [email protected]

powering - prima grain elevators plc ar 2018.pdf · annual report through which we hope to provide...

Documents