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KOTAGALA PLANTATIONS PLCANNUAL REPORT 2011/2012

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Corporate InformationName of the Company : Kotagala Plantations PLC

Legal Form : A Quoted Public Company with Limited Liability

Date of Incorporation : 22nd June 1992

Company Registration No. : PQ 174

Principle Activities : Cultivation, Manufacture and Sales of Tea and Rubber

Registered Office : 53 1/1, Sir Baron Jayatilaka Mawatha, Colombo 1.

E-mail : [email protected] : www.lankemplantations.lk Directors : A Rajaratnam - Chairman (Alternate - S D R Arudpragasam) S D R Arudpragasam R C Peries C P R Perera D A Ratwatte G D V Perera

Stock Exchange Listing : The Ordinary Shares of the Company are listed with the Colombo Stock Exchange of Sri Lanka

Senior Management : R C Peries - Executive Director/(CEO - Lankem Tea & Rubber M.C.I.P Plantations (Pvt) Ltd - Managing Agents) : D A Ratwatte - Executive Director-Up Country F.I.P.M : G D V Perera - Executive Director-Marketing & Administration F.I.P.M : Ms K M Ramesh - Executive Director Finance (Lankem Tea & Rubber F.C.M.A (UK), MBA (USA) Plantations (Pvt) Ltd - Managing Agents) : K G Punchihewa - Deputy CEO/Director - Lankem Tea & Rubber Plantations F.C.A (Pvt) Ltd - Managing Agents : S A Eriyagama - Executive Director Low Country (Lankem Tea & Rubber B.Sc (Plantation Mgt), Plantations (Pvt) Ltd - Managing Agents) Dip. (Plantation Mgt) - (NIPM) : H D Caldera - Executive Director Up Country - (Lankem Tea & Rubber Plantations F.I.P.M (Pvt) Ltd - Managing Agents) (Appointed w.e.f. 01.04.2011) : Amrit Rajaratnam - Director - Lankem Tea & Rubber Plantations (Pvt) Ltd - Managing Agents LLB (Notts.), Barrister-at-Law (Appointed w.e.f. 01.04.2012) : M S Madugalle - Director - Lankem Tea & Rubber Plantations (Pvt) Ltd - Managing Agents Dip. (Plantation Mgt) (NIPM) (Appointed w.e.f. 01.04.2012) : B G S Peiris - General Manager (Up Country) F.I.P.M : J K Congreve - General Manager (Manufacture) Dip. (Plantation Mgt) - (NIPM) : Ms J Kariyawasam - General Manager (Legal & Administration) Attorney-at-Law & Notary Public, Dip. in Intellectual Property Law : A M S Kulasekara - General Manager (Engineering) A.I.E. (SL), F.I.I.E. (SL), I.Eng., Graduate - City & Guilds (U.K.)

Secretaries : Corporate Managers & Secretaries (Private) Limited 8-5/2, Leyden Bastian Road, York Arcade Building, Colombo 1.

Auditors : KPMG Chartered Accountants, P.O.Box 186, Colombo 3.

Bankers : Seylan Bank PLC People’s Bank National Development Bank DFCC Bank

Legal Advisers : Messrs Julius & Creasy Attorneys-at-law P.O.Box 154, Colombo 1.

VisionTo be the foremost producer of High Quality Tea &

Rubber

MissionTo maximise land and labour productivity and

achieve excellence in the profitable management

of the Company in an acceptable and socially

responsible manner.

Core ValuesIntegrity

Courage

Commitment

ObjectivesTo lead the way in the technical and innovative

development of the Tea & Rubber agri-industries.

To provide a satisfying work experience to our

employees and ensure a rewarding investment to

our shareholders.

To be a trail-blazer in the shift away from

producing visually graded rubber as an agricultural

commodity to the production of a fully technically

specified industrial polymer

Financial Highlights 01

Chairman’s Review 02

CEO’s Review 04

Board of Directors 07

Risk Management 08

Enterprise Governance 10

Our Plantations 15

Production and Yield 16

Management Discussion & Analysis 17

Ten Year Summary 22

Shareholder & Investor Information 23

Sustainability Reporting 24

Financial Reporting

Annual Report of the Board of Directors 30

Statement of Directors' Responsibilities 33

Report of the Auditors 34

Income Statement 35

Balance Sheet 36

Statement of Changes in Equity 37

Cash flow Statement 38

Notes to the Financial Statements 39

Glossary of Financial and Non Financial Terms 65

Notice of Meeting 66

Form of Proxy 67

Corporate Information Inner Back Cover

Content

1

Year ended 31st March 2012 2011 Change %

Turnover Rs.000 3,610,320 3,683,366 (2)

Profit before interest and tax Rs.000 655,832 931,904 (30)

Profit before tax Rs.000 531,861 775,251 (31)

Profit after tax Rs.000 438,608 667,773 (34)

Dividends Rs.000 64,000 320,000 (80)

Earnings per share Rs. 13.71 20.86 (34)

Interest cover No. of times 5.29 5.95 (11)

Return on equity % 15 48 (70)

Return on capital employed % 46 53 (12)

Balance sheet highlights

Total assets Rs.000 6,503,688 5,772,589 13

Total debt Rs.000 1,129,205 1,412,720 20

Total shareholders’ funds Rs.000 2,471,241 2,352,633 5

Net assets per share Rs. 77.23 73.51 5

Debt/equity % 46 60 23

Debt/total assets % 17 24 29

Market/shareholder information

Market price (Year end) Rs. 70.00 168.00 (58)

Market capitalisation Rs.000 2,240,000 5,376,000 (58)

Dividend per share Rs. 2.00 10.00 (80)

FINANCIAL HIGHLIGHTS

Kotagala Plantations PLC Annual Report 2011/122

CHAIRMAN’S REVIEW

I take great pleasure in presenting on behalf of the Board of

Directors the Annual Report and Audited Financial Statements

of Kotagala Plantations PLC for the year 1st April 2011 to

31st March 2012.

The single most significant factor that impacted on the

performance of the Plantation Industry in the year under review

was the Collective Agreement between the major Plantation

Trade Unions representing the workers and the Employers’

Federation of Ceylon representing Regional Plantation Companies.

This Agreement which came into effect from the 1st of April 2011

is for a period of two years ending 31st March 2013.

The Collective Agreement provided for an unprecedented

increase of 33.3% in the basic wage and the final daily wage

of a worker inclusive of attendance and other incentives is now

Rs.515 per day. The total cash outflow resulting from this wage

increase for the year was Rs.400 Million excluding topping up of

the gratuity provision, which amounted to a further Rs.88 Million.

It is not often realized that, in the Plantation Industry, due to

the irregular attendance of the workforce, the estates employ

an extra 20 to 25% of the workforce to make up for the drop in

attendance. Although workers are paid only for the days they

report for work, the estate has to find housing and provide all

other benefits in terms of health services, paid holidays, etc. and

also make a full provision for gratuity at the end of each year.

This matter has, over the years, been discussed with the relevant

authorities, but unfortunately very little progress has been made

towards solving this vexed question.

COMPANY PERFORMANCE

TeaKotagala Plantations PLC has 2,451 ha of tea in bearing and 3,345

ha of rubber in bearing. The bulk of the Company’s tea is in the

Western High Grown Dimbulla District and a much smaller extent

is in the Low Grown Kalutara District.

Although the island’s tea crop at 328.3 Million kilos was a little

behind the previous years, the Company’s crop harvested in both

the High Grown and Low Grown tea areas performed better than

budget. The total crop harvested on the estates was 5,466,960

kg. The overall yield achieved by the Company for the year

was a very satisfactory 2,230 kg per hectare. In addition to the

Company’s own tea crop, an extra 1.5 Million kilos of tea was

manufactured as smallholder bought leaf.

An above budget performance in crop is generally accompanied

by a reduction in the Cost of Production, but this year, due to the

wage increase referred to above, the final Cost of Production of

the tea was Rs. 326.79 at estate level.

During the year under review, due to instability and uncertainties

in the Middle Eastern Region and a major economic downturn in

the Euro Zone, tea prices were depressed. During the first quarter

of the year 2012, the Rupee was devalued against the US Dollar

and there was a slight improvement in the local Rupee prices.

However, it is significant that the producer is not getting the full

benefit of the Rupee devaluation. The US Dollar equivalent of the

Colombo Auction price is today significantly lower than the year

2010 for both the High Grown and Low Grown teas, although

the Rupee price since devaluation has shown a small increase.

As a result of the increased wages and the depressed prices,

the Kotagala tea recorded a loss of Rs.105 Million for the year at

estate level.

Reference has been made in earlier reviews to the inadequacy

of factory capacity to manufacture the Company’s crop and this

was corrected to a very significant extent last year. We are now

able to handle most of our heavy crops. Nevertheless, cropping

patterns particularly in the high elevation teas are not very

regular and during the high cropping months, there are sudden

peaks which last a few days, which cannot be catered for by

improving manufacturing capacity. Very often, these peaks are

due to inability to harvest leaf at optimum levels due to labour

shortages arising from prolonged absences due to Pongal and

the New Year and localized Temple Festivals. We have therefore

focused on endeavouring to maintain regular plucking rounds

by the introduction of plucking shears as required. This has been

done quite successfully on two of our properties and will be

extended to other properties as necessary.

The total spent on Capital Expenditure during the year, other than

on mature and immature plantations, was Rs.63 million.

RubberKotagala has a significant extent of rubber which is in prime

condition, and due to regular replanting with newer clones, has

now started recording improved yields on most properties. Some

of the larger rubber properties still contain significant extents of

older low yielding clones and it will be sometime before these

extents are also fully replanted. During the year under review,

unusual rains interfered with tapping and against a budget of 307

days tapping for the year, only 231 days tapping were achieved.

This reduced number of tapping days resulted in a decrease in

the crop harvested when compared with budget. Nevertheless,

Kotagala produced 3 Million kilos of rubber which was nearly 2%

of the island’s total production of 157 Million kilos of rubber. Four

of the rubber properties recorded yields in excess of 1,000 kg per

hectare for the year, which is a very satisfactory yield by national

standards.

Nevertheless, the final Cost of Production at Rs.278.43 per kilo

was exceptionally high. In spite of the economic downturn in

the Euro Zone and the US economy yet to return to normal,

international rubber prices ended up stronger and for the year

3

2011/12, mainly due to heavy buying by China and India.

The price of Sri Lanka crepe rubber for the year 2011/12 was

Rs.472.10 as against Rs.409.52 in the previous year.

The Company’s rubber price was Rs.478.25 per kilo and the total

rubber profit for the year was Rs.600 Million at estate level.

We improved on our export operations and exported a total

quantity of latex crepe and sole crepe amounting to 300,000 kg

at an average price of US$ 5 per kg. In the new year, we expect

to expand this further and venture in to export of value added

rubber as well.

The rubber tree has a 30 year life span and it is therefore

necessary that 3% of the rubber hectarage is uprooted and

replanted in new rubber each year. On average, at any given

time, 18% of the total rubber extent is immature and this

extent is maintained under Capital Expenditure. The total spent

on replanting during the year under review on rubber and a

relatively small extent of tea was Rs.306 Million.

PERFORMANCEAfter Colombo charges, lease rental and the extra provision for

the gratuity top up, the tea operated at a net loss of Rs.158

Million whilst rubber recorded a profit of Rs.565 Million. The final

Company profit before tax was Rs.531 Million, which includes

provision for an exchange gain of Rs.129 Million on rubber

export earnings. Given the extremely difficult conditions under

which the Company performed during the year, this final result is

commendable.

FUTURE DEVELOPMENTWe made reference in the last report to the Company’s

diversification into a third crop; Oil Palm. The first 117 ha was

planted in the year under review and is expected to come into

bearing in 2014. We are scheduled to plant another 247 ha in the

year 2012/13 and the plants are already available in the second

stage nurseries. We expect to have a 5 Ton capacity mill in

operation by 2014 and this will be sufficient for our requirements

upto the time the planting of the full 1,000 ha is completed.

Thereafter, as the crop matures and yields increase, the capacity

of the mill will need to be increased by the addition of another 5

Ton crushing capacity.

A major project which we worked on during the year was the

investment of US$70 Million in Cambodia on the lease of 20,000

ha of secondary jungle for clearing and planting in rubber. These

negotiations have progressed very satisfactorily and we expect

to sign final agreements early in the new year. We expect to

commence the initial land clearing and establishment of nurseries

in the year 2013/2014 and hopefully commence the first

planting in the following year. When fully completed, we expect

Kotagala to be one of the major producers of natural rubber in

the world.

The development of our factories to conform to modern

environmental and social responsibility standards continues. Six of

our eight factories are fully certified for ISO 22000 environmental

standards. Mayfield Factory is scheduled to complete certification

in the coming year. Two of our properties have been accepted

by the Fair Trade Labelling Organisation and some of our teas

are bought by Fair Trade Members and sold under Fair Trade

Labels. All the Kotagala Factories also conform to the Ethical Tea

Partnership requirements.

Our social welfare activities continue as usual. We continue to

assist deserving children of employees who gain admission

to Universities and other institutions of tertiary education.

The Manager of Mayfield was selected as the Runner Up for

implementation of social welfare activities in an all island

evaluation of Plantation RPCs. Hedigalla Estate won an award for

the Best Managed and Equipped Crèche in the district.

Unacceptably high labour wages will continue to have its effect

on the performance of the Company in the year 2012/13. A

significant improvement in national tea prices is not forecast.

Colombo is still the highest selling Auction Center in the world.

In recent months, there has been talk about permitting larger

volumes of tea imports to boost the total exports of the country.

What effect such a move will have on the unique image of

“Ceylon Tea” has not been considered. As far as the producing

companies and the tea smallholders are concerned, such a move

which is designed to counteract high auction prices of “Ceylon

Tea” compared to other Centers is bound to adversely affect the

producer who sells all his produce at the auctions.

CONCLUSION

The year 2011/12 was a difficult year for the Industry. Significant

improvements are not expected for the year 2012/13.

I would like to take this opportunity to thank all staff on

plantations and the Head Office for their continued commitment

and support during a difficult year. I also wish to express my

appreciation to my colleagues on the Board for their unfailing

support and advice.

A Rajaratnam

Chairman

18th May 2012


CEO’S REVIEW

I am privileged to present this report at the 19th Annual General

Meeting for the year ended 31st March 2012.

The commodity markets internationally for Tea declined

progressively during the course of the completed season. Rubber

prices that reached peak levels of Rs.685/-per kilo in April 2011

declined to Rs. 475/- per kilo levels by the fourth quarter.

The degree of the decline in tea prices could be assessed by the

fact that, the Western High Grown average declined by Rs. 24.40

per kilo to Rs. 329.00 per kilo whilst the CTC High Grown sale

average of Rs 295.87 recorded a sizeable decrease of Rs. 36.71

per kilo when compared to the previous season.

The 33.3% wage increase that came into effect with the payment

of arrears from the month of April, that is at the commencement

of the season, coupled with the decline in prices referred to

severely affected the viability of all tea plantations and reduced

the profitability of Rubber as well.

This resulted in a sharp decline in profit due to the COP exceeding

the NSA.

Tea Crop –Kotagala –Up-countryThe average rainfall recorded for the region was 2,257 mm with

160 wet days which is a considerable decrease of 1,814 mm

and also the decrease of 36 wet days when compared to the

previous season, could well affect the vegetative growth in the

forthcoming season.

The Region did extremely well to harvest the highest ever crop of

5.1 Mn. kilos made tea, and thereby achieved the highest yield

for the region of 2,268 kilos per hectare.

From the ten estates, nine estates recorded yields of over 2,000

kilos per ha.

Outstanding performances were recorded once again by Mt.

Vernon with a yield of 2,624 KPH, Mayfield 2,551 KPH, Chrystler’s

Farm 2,501 KPH Craigie Lea 2,339 KPH, Drayton 2,262 KPH,

Kelliewatte 2,229 KPH, Stonycliff 2,102 KPH, Bogahawatte 2,088

KPH and Derryclare 2,083 KPH.

Yuillefield estate is the only estate which yielded below 2,000

KPH but improved on its previous highest yield of 1,807, to obtain

a yield of 1,868 KPH.

Innovative management strategies such as shear plucking were

adopted, in order to control plucking rounds, and thereby improve

the quality of the green leaf, sent for manufacture.

Despite the increase in cost of basic wages of 33.3% and the

fuel, chemicals, packing material price increases, the COP was

maintained at a reasonable level of Rs 321.74 per kilo.

As stated earlier the steep decline in the high grown sale average

severely eroded into our overall profits.

We wish to acknowledge the dedication and hard work of all our

employees who strived under very trying conditions to obtain the

co-operation and assistance of the workforce in order to reap the

benefits of the full agricultural programme carried out.

Kotagala Low country TeaKotagala Low country Tea consists of 200 ha of 100% VP tea,

the yield for the season was 1,804 Kgs per ha. improving on the

previous yield of 1,777 Kgs per ha. The Low grown estate crop

harvested was 360,705 Kgs the bought crop from small holders

was 1.1Mn Kgs making a total of 1.5Mn. Kgs.

Rayigam estate achieved the best yield of 1,910 Kgs per ha with

Vogan and Gikiyanakande achieving 1,887 Kgs and 1,649 Kgs per

ha respectively. The depressed low grown sale average coupled

with enhanced wage increase of 33% resulted with the Low

Grown Tea sector operating at a marginal profit of Rs.7.5Mn.

The final combined COP was Rs.345.32 with a NSA of Rs. 352.24

resulting in a combined profit of Rs.6.92 per Kg.

In spite of the restricted profit recorded, the replanting of 10 ha.

in tea was undertaken during the season in the Low country.

Rubber The Rubber market in global terms progressively declined

during the course of the season and its impact was reflected

in the Colombo auctions as well. The peak prices that reached

Rs.635/- levels per Kg for TPC 1X declined to Rs. 475/-

levels by the 3rd quarter.

RSS prices also had a similar trend but improved in demand

over 1X for short period, when RSS attracted better prices than

The Region did extremely well to harvest the highest ever crop of 5.1Mn. kilos made tea, and thereby achieved the highest yield for the region of 2,268 kilos per hectare.

From the ten estates, nine estates recorded yields of over 2,000 kilos per hectare

5

Crepe. However, this trend did not continue and Crepe once

again had improved demand. The annual production of Kotagala

Rubber was 3.0Mn.Kgs. against the budgeted crop of 3.9 Mn. Kgs.

recording a shortfall of 23% against the annual budget.

The COP appreciably increased as a result of the wage hike

during the period under review, which had an impact of 18%.

The overall COP increased further due to high petroleum, energy

and packing materials cost. Despite the decline in profits, Rubber

replanting continued with an extent of 89 ha. undertaken.

Kotagala enhanced its reputation of manufacturing top quality

Crepe Rubber as well as Sole Crepe and was rewarded with 18

top prices, with all our estates contributing to this achievement

and especially Dalkeith, Arapolakande, Rayigam, Padukka,

Paiyagala and Millewa.

The Padukka ISO certified factory specializes in Sole Crepe

manufacture including Honey/colour Sole Crepe and Sole Crepe

sticks, which are exported to end users.

The revenue earned by the export of rubber increased during the

season due to remunerative prices obtained for the Sole Crepe at

US$ 9 per Kg. and Thick 1X Crepe at an average price of US$ 5. A

total quantity of 866,000 kgs was direct exported.

If the present economies of China and India, and the Euro Zone

financial crisis also improves, more favourable market condition

could be expected in the new season.

The COP at the end of the season was Rs.278.43 with a NSA of

Rs.478.25 giving a profit margin of Rs.199.82 per Kg.

The decline in crop was due to the reduced number of tapping

days. The rainfall recorded during the season was 4,115 mm with

165 wet days.

The rain guarding of tapping panels was undertaken in the virgin

bark fields. Even though in these areas there was an increase in

the actual number of days of tapping and consequently increased

crop – the quantity was inadequate to make a significant

contribution to the overall harvest.

Due to the attention given to the manufacture of top quality

Rubber and also paying attention to the percentage of premium

grades manufactured, the Company was able to secure a profit

of Rs.565.9 Mn, inclusive of all charges such as lease rental, MA

fees, gratuity top up etc., The profit for the season on Rubber can

be considered very satisfactory despite the increased expenditure

on wages and all other inputs.

Oil PalmOur target of planting an extent of 1,000 hectares of Oil Palm is

progressing satisfactorily. 117 ha has been completed to-date. It

is our intention to extend our planting programme in the current

season to 217 ha. This project is expected to be completed by

2014.

The seed material for the nurseries continues to be imported

from PNG New Britain Palm Oil Limited. Restriction enforced on

us regarding the purchase of seed material from PNG New Britain

Palm Ltd has resulted in a steady increase in cost.

With a steady increase in demand for Vegetable Oil for the World

Markets, the Oil Palm Industry will be a profitable venture.

Financial ReviewThe Company’s turnover of Rs.3,610.3Mn. indicates a marginal

decline over the previous year turnover of Rs.3,683.3Mn.

The Company recorded a profit before tax of Rs.531.9Mn. and the

cash flow stood at Rs.321.9Mn. in the year under review.

Capital expenditureTo maintain the Company asset value of the following capital

expenditure was incurred during the season under review.

Machinery Tea Rs.7.6Mn.

Machinery Rubber Rs.5.1Mn.

Repalnting Tea Rs.15.1Mn.

Replanting Rubber Rs.30.8Mn.

Equipments Rs.5.5Mn.

Kotagala enhanced its reputation of manufacturing top quality Crepe Rubber as well as Sole Crepe and was rewarded with 18 top prices, with all our estates contributing to this achievement and especially Dalkeith, Arapolakande, Rayigam, Padukka, Paiyagala and Millewa.

The Rubber market in global terms progressively declined during the course

of the season and its impact was reflected in the Colombo auctions as well. The peak prices that reached Rs.635/- levels per Kg for TPC 1X declined to Rs. 475/- levels by

the 3rd quarter.


CEO’S REVIEW

Fairtrade CertificationThe demand for Fairtrade teas continues to increase with all 3

marks of Kelliewatte, Bogahawatte and Chrystler’s Farm being

patronised. These marks have been accepted by Fairtrade – USA

as well.

Kelliewatte with its connected Certificates on Environmental

worker health and safety standards, Ethical Tea Partnership and

ISO 22000:2005 & ISO 9001:2008 continued to have Fairtrade

sales on a weekly basis.

ISO Certification/Ethical Tea PartnershipAll nine plantations have received ETP certifications.

Seven plantations, that is excluding Mayfield and Bogahawatte,

have received ISO 22000: 2005 & ISO 9001:2008 certifications.

These certified factories had regular audits undertaken in order

to ensure that ETP and ISO requirements are continuously

maintained.

Mayfield estate will be ready for ISO certification by June 2012.

Social WelfareThe Company achieved recognition from the PHDT for the various

Worker Welfare activities carried out such as - building of new

units of houses, new Toilets, reproofing of Worker dwellings,

constructing new play grounds, upgrading and building child

development centers.

The infant mortality rate and maternal mortality rate on

our Plantations, are registered at zero levels. This is a great

achievement and is a tribute to our medical and welfare staff.

We give below the details of the awards received by 3

plantations in respect of the Social Welfare activities;

1. Mayfield Estate - Best Manager -1st runner-up

2. Stonycliff Estate - Best Health Care service - 2nd runner-up

3. Hedigalla Estate - Best Estate Worker Housing

Co-operative Society - 2nd runner-up

We wish to extend our thanks and appreciation to the PHDT for

their co-operation and support given in this regard.

Human ResourcesThe Company invested in training all categories of Management,

Staff and Workers with the assistance of NIPM, TRI, RRISL as well

as EFC with resource personnel from reputed Agencies.

The worker welfare activities highlighted in the report were

undertaken with the assistance of the PHDT and the contributions

made by the CARE International and the training programme of

the WUSC.

As done in the past, the Company has given financial assistance

to Staff and Workers’ children for higher education.

Disabled persons on the estates have been assisted through the

Sunera Foundation.

Eye clinics and health clinics continue to be held with the free

distribution of spectacles.

The season under review was very trying with many difficulties

faced with increased labour wages combined with poor prices

especially in tea and decline in prices for Rubber as well.

Our Plantation Executives and Staff, continue to show dedication

and loyalty to the Company to introduce innovative strategies,

with the assistance of all executives at the Head office as well

and an endeavour to meet the many constraints faced during the

season under review.

I wish to thank the Chairman, Board of Directors, Management

Team, Executives in the Plantations, Head office and Estate Staff

and our Workers for their co-operation and dedication during a

very difficult season.

We acknowledge with appreciation the contribution made by all.

R C PeriesChief Executive Officer

Lankem Tea & Rubber Plantations (Pvt) Ltd.

Managing Agents

18th May 2012

The demand for Fairtrade teas continues to increase with all 3 marks of Kelliewatte, Bogahawatte and Chrystler’s Farm being

patronised. These marks have been accepted by Fairtrade – USA as well.

7

BOARD OF DIRECTORS

A Rajaratnam - ChairmanNon-ExecutiveHe joined the Board of Kotagala Plantations PLC in 1996 and was appointed Chairman in the year 2003. He serves as Chairman of The Colombo Fort Land & Building Company PLC (CFLB) and several listed and unlisted companies within the CFLB Group in addition to holding other Directorships within the Group. Mr. A. Rajaratnam is a Fellow of the Institute of Chartered Accountants

of Sri Lanka.

S D R Arudpragasam Non- Executive Director He was appointed to the Board in 1996. He holds the position of Deputy Chairman on the Boards of The Colombo Fort Land and Building Company PLC (CFLB) and Lankem Ceylon PLC. Mr. Arudpragasam also functions as Managing Director of E.B. Creasy & Company PLC in addition to serving on the Boards of other Companies within the CFLB Group. Mr. S.D.R. Arudpragasam is a Fellow of the Chartered Institute of Management Accountants

(U.K.)

R C PeriesExecutive Director Having started his career with Carson Cumberbatch & Co. he then moved to George Steuarts, one of the premier Agency Houses. He has served as Manager of some of most prestigious rubber properties in the Low Country and also held senior appointments in the industry and served on the Rubber Research Board Advisory Panel. In 1983, he was appointed the Regional Director of the JEDB Hatton Board and in 1988 he was made Director General of the Kegalle - Avissawella Zone of the JEDB. In 1992 after the Privatisation of the management of plantations, he joined George Steuart Management Services as the General Manager of Low Country rubber & tea estates of Kotagala Plantations PLC. He continued to serve in this position even after the take over of the Management of Lankem Tea & Rubber Plantations (Pvt) Ltd(LT&RP), Managing Agent in 1995. He was appointed to the Directorate of LT&RP in 2002 and to the Board of KPPLC in 2005 and is presently the Chief Executive Officer of LT&RP. He also serves as a Director in other companies of the Colombo Fort Land & Building Group. He is also a member of the Rubber Research Board and the Chairman of Lankaprene Marketing Company Ltd. He is presently a committee member of the Colombo Rubber Traders Association, and is also a member of the Rubber Wages Board. Mr. R C Peries is a Member of The

Ceylon Institute of Planting.

C P R Perera Independent Non-Executive DirectorAppointed to the Board in 1996. Mr. C.P.R. Perera serves as a Director in several Companies in the Colombo Fort Land & Building Group and also holds directorships in other private and public companies. He is a past Chairman of the Sri Lanka Tea Board, Sri Lanka Insurance Corporation, PERC and Bank of Ceylon. He retired as Chairman of Forbes & Walker Ltd and its subsidiary

companies in June 2005 after almost 44 years of service. He presently functions as Chairman of Ceylon Tea Brokers PLC and Capital Alliance Finance PLC. He is a Director of the Sri Lanka Business Development Center (SLBDC) and a Board Member of the Outward Bound Trust of Sri Lanka. Mr. Perera has served as a Committee Member of the Ceylon Chamber of Commerce, The Planters Association of Ceylon and on the Committee of

Management of the Ceylon Planters Provident Society.

D A RatwatteExecutive DirectorHaving commenced his career with Messers Whittall Boustead

Ltd prior to nationalisation he has contributed many years of his

life to planting. After the nationalization of estates he continued

to be manager of two of the most prestigious plantations in up

country after which he was invited to serve on the board of the

JEDB as a Regional Director in Kandy.

After the privatization of management of the Regional Plantation

Companies in 1992, Mr. Ratwatte took charge of the operations

of Maturata Plantations Ltd. In 1999 he joined Lankem Tea

& Rubber Plantations (Pvt) Ltd.(LT&RP),Managing Agents,

as a Regional Director in charge of the Western High Grown

properties. He was appointed to the Board of LT&RP in 2002 and

joined the Board of KPPLC in 2006. He also serves as a Director

in other Companies of the Colombo Fort Land and Building

Group. Mr. D A Ratwatte is a Fellow of the National Institute of

Plantation Management.

G D V Perera Executive DirectorHe commenced his career in planting with Mackwoods Estates

& Agencies Limited in 1971. With the nationalization of

Estates, he worked as an Estate Manager and Visiting Agent

and was subsequently promoted as a Director of JEDB in the

Nuwara Eliya Region. He has provided his services to the

prestigious Commonwealth Development Corporation (CDC) of

UK on Tea Projects in Tanzania and was resident there. After

the privatization of the management of Regional Plantation

Companies, he returned to Sri Lanka and joined Forbes Plantation

Management Services Ltd., as a Plantation Director of Balangoda

Plantations Limited in 1993. He joined Lankem Tea & Rubber

Plantations (Pvt.) Limited (LT&RP), Managing Agents in 1996 and

was appointed to the Directorate of LT&RP in 2002, and KPPLC

in 2006. He also serves as a Director in other companies of the

Colombo Fort Land and Building Group.

He is a past Chairman of the Planters’ Association of Ceylon and

is a Trustee of the Colombo Tea Traders’ Charity Trust. He is a

Director of the Plantation Human Development Trust Mr. G.D.V.

Perera is a Member of the Ceylon Institute of Planting and a

Fellow of the National Institute of Plantation Management. He is

a member of the consultative committee on Tea Research.


RISK MANAGEMENT

The Risk Management process

At Kotagala , we emphasise the importance of having a strong

working culture within the organization that strengthens the

internal processes. Risk Management is no longer an additional

set of processes but embedded in the business process itself .The

risks could influence the achievement of the strategy of business,

operational and financial objectives therefore the Directors have

taken the initiative to identify the organisations major risks and

introduced several measures to mitigate the risks faced by the

Company.

The following are some of the major risk factors that the

company is exposed to while carrying out its business and the

actions implemented to reduce or eliminate risk.

Operational risk

The company carries out continuous planning, quality control and

disaster recovery management strategies in order to ensure the

continuous operation of business.

Tangible assets are insured against identifiable risks and the

associated insurance policies are reviewed and evaluated

annually. Provision is also made for asset defects and

malfunctions and for obsolescence due to advances in

technology. We go to the best suppliers to ensure that defect free

products are purchased. The factories in the estates and other

infrastructure are continuously upgraded when required.

Exposure to reputation risk is minimized through product quality

controls and a comprehensive quality management process

which includes upgrading our factories to adhere to HACCP

standards

Weather

The Company’s product portfolio being Tea and Rubber, helps

to minimize the impact as tea requires wet and rubber requires

drier weather conditions. The location of our tea estates in the

High grown and Low grown elevation categories also helps in this

regard.

The Company has the option of increasing or decreasing

quantities of bought crop according to weather patterns. Prudent

agricultural practices such as rain guards for rubber trees and

planting of TRI recommended clones and other agricultural

practices to minimise drought effects and proactive planning has

helped the company to minimise the risk of adverse weather

conditions.

Business Risk

Prices are cyclical and have an impact on earnings. Tea Auctions

in Colombo are influenced by global demand and supply, and

foreign currency exchange rates. The company mitigates this

impact by producing high quality tea and rubber. The direct

export of rubber facilitates price stability and entering into

forward contracts with rubber buyers helps reduce market risk.

Kotagala Plantations process a full range of teas (low grown, high

grown and CTC) and different types of rubber which helps reduce

market instability. Initiatives have been taken for diversification

into other crops like cinnamon and oil palm which will reduce

over dependence on tea and rubber.

The Company possesses synergistic benefits from being in a

group which includes a chemical supplier and another company

in the plantation business.

Healthy relationships are maintained with our suppliers.

Fluctuations in the exchange rates are closely monitored and

hedging techniques applied when required.

In order to minimize the dependence on a single distribution

channel (brokers) the company has continued to establish its

export operations. Further the company has leased out a portion

of land to Mlesna (Ceylon) Ltd in Kotagala for the purpose of the

sub lessee to carry out sales and operate a tea centre for their

products. This facility also has provision to market KPPLC garden

mark packs.

Legal and regulatory

The Company addresses this area with great concern in order

to protect its corporate image. Quality assurance standards in

factories have been established over a period of time (ISO,

HACCP) and continuous reviews are conducted to ensure they are

maintained. The Company’s legal division ensures full compliance

with all regulatory requirements including labour regulations,

adherence to laws and instructions of governing authorities

such as Provisions of the Companies Act, Securities & Exchange

Commission and Colombo Stock Exchange requirements. The

Company also obtains expert advice from its Auditors, Tax

consultants, Actuaries, TRI, RRI as and when required. As a public

listed company we also strive for a high standard of corporate

governance in the conduct of our business.

Human resources

Kotagala Plantations has entered into Collective Agreements

with trade unions as a member of the employers’ federation.

This helps to ensure industrial peace and a well negotiated and

affordable wage. Human Resource Management is given priority,

9

where continuous training and development programmes and

workshops are held in order to motivate and develop our human

resources.

Governance Risk

These risks are dealt with preventively through the actions of

the company’s legal department and through frequent internal

& external audits to monitor compliance. The company’s

management culture stresses ethical performance in this area,

following best practices at all times.

Liquidity

We ensure sufficient liquidity is available to meet our

debt commitments and provide for our operational capital

requirements. Loans and overdraft facilities are arranged with

banks to meet planned cash flow commitments. For our long

term investments, we obtain loans from Asian Development

Bank at low interest rates, and we make use of the grants from

the Plantation Human Development Trust and the Plantation

Development Support Programme. Borrowings are suitably

structured to ensure their maturity profiles match those of the

investments they finance.

Employee related risks

Risks such as omissions, fraud, judgmental errors, negligence,

are examples of employee related risks. The company has a

set up a competent internal audit department which carries out

exhaustive checks on a routine basis in order to eliminate the

above mentioned risks. The Internal audit department functions

independently and reports directly to the Executive Directors.

They ensure all receipts have been banked, lodging of funds

have been deployed for the intended activity. Suitable delegated

authority levels have been set up and succession plans are

formulated. We maintain a conducive working environment for

all staff

Information

Proper internal controls have been established in order to secure

the information system. Routine and surprise audit checks are

carried out to detect any deficiencies and improvements are

suggested. The company has implemented sound backup systems

and procedures, and has also entered into maintenance contracts

with established agents and uses licensed software. Further the

company has entered into insurance agreements in order to

hedge financial losses arising from uncertainties.


ENTERPRISE GOVERNANCE

Enterprise Governance is the combination of Business Governance

and Corporate Governance, it is the set of responsibilities and

practices exercised by the Board and executive management

with the goal of providing strategic direction, ensuring that

objectives are achieved, ascertaining that risks are managed

appropriately and verifying that the organization’s resources are

used responsibly.

Enterprise Governance is such an important framework. It

encapsulates Corporate Governance, Performance Management,

Internal Control and Risk Management, and it strives to achieve a

balance between conformance and performance.

At Kotagala Plantations PLC we are firmly committed to the

highest standards of governance. The Company’s performances

are managed to the best interest of its shareholders whilst

maintaining high ethical standards. The Board is committed

to adhere to various business practices in order to further

establish our Company as a good corporate citizen that values

responsibility.

The Company has a management committee that acts as a Board

sub-committee and assists the Board of Directors on various

matters. This process helps the Board to review its strategic

position continually. The strategic options, implementation and

risk control strategies are closely monitored in order to deliver

better results.

The Company is in compliance with the majority of the good

corporate governance practices recommended by The Institute

of Chartered Accountants of Sri Lanka and the listing rules of the

Colombo Stock Exchange. Given below is a demonstration as to

how we adhere to good Corporate Governance practices.

Corporate Governance Principle Company’s adherence Directors

Composition of the Board The Board consists of three Executive Directors and three Non Executive

Directors of whom one is independent. The Directors possess a strong

balanced blend of skills, experience to offer guidance in core areas

important to KPPLC. These Directors are named below and profiled on

page 7.

A Rajaratnam - Chairman - Non Executive

S D R Arudpragasam - Non Executive

R C Peries - Executive

C P R Perera - Independent Non Executive

D A Ratwatte - Executive

G D V Perera - Executive

The Non-Executive Directors have submitted declarations of their

independence or non-independence to the Board of Directors

Mr. C.P.R. Perera was determined to be an Independent Non- Executive

Director with effect from 10th January, 2011. He has served on the

Board for more than nine years and is a Director on the Boards of other

Companies in which a majority of the Directors of the Company are

Directors and is also a Director on certain subsidiaries of The Colombo Fort

Land and Building Company PLC (Ultimate Parent Company) However the

Board after taking into consideration all other circumstances listed in the

Rules pertaining to the Criteria for Defining Independence is of the opinion

that Mr. C.P.R. Perera is nevertheless Independent.

11


Decision Making of the Board In addition to attending Board Meetings, matters are referred to the Board

and decided by Resolutions in writing.

The Board is responsible for :-

• EnsuringtheconductoftheCompany’saffairsinthebest

interest of its stakeholders.

• IdentifyingStrategicoptions,implementationand

monitoring their success.

• Appointment of the Directors, ensuring comprehensive staff

succession and determining remuneration of senior executives

and staff.

• Ensuringaneffectiveinternalcontrolsystem.

• Ensuringaproactiveriskmanagementsystem.

• Ensuring compliance with highest ethical standards and legal

standards.

• Approval of major capital investments acquisition expansions

and Budgets

• Approval of interim and annual financial statements for

publication.

Company Secretaries The Company and all Directors may seek advice from Corporate Managers

& Secretaries (Pvt) Ltd who are qualified to act as Secretaries as per the

provisions of the Companies Act No. 7 of 2007.

Independent Judgement The Board of Directors at all times exhibit high standards of integrity,

commitment & independence of judgement.

Obtaining independent professional advice Advice is sought from independent experts whenever board deems it

necessary. The Directors are updated on the changes in the plantation

industry as well as on the general aspects which may affect the Company’s

operations.

Managing Agents The Board of Directors has delegated the management of Plantation and

the task of achieving the strategic objectives set out by the Board to the

managing agents Lankem Tea & Rubber Plantations (Pvt) Ltd (LT &RP).

The Board of LT&RP meets every month and review the progress towards

achieving the budgets and discuss the operational issues. The successful

implementation of the Capital Expenditure programmes and focussing on

the development strategies are also key priorities.

Finance Acumen The Board comprises of two finance professionals who together with the

Director Finance - LT&RP possess the knowledge and the competence to

offer the Board the necessary guidance on matters relating to finance.




Supply of Information on a timely manner Prior to each meeting all Directors are given a file of Board Papers

which includes Summarized Financial Statements, operational statistics,

performance reviews, sales reports, Schedules of Capital Expenditure and

a Progress Report, covering all significant issues with the comparatives

of prior year and budget. This information is provided at least 7 days

prior to the meeting which gives Directors adequate time for qualitative

deliberation and analysis.

Appointments to the Board New Directors are proposed for appointment in consultation with

the Chairman of the Company. The Board as a whole decides on the

appointments of Directors in accordance with the Articles of Association

of the Company and in compliance with rules on Governance. All

appointments are approved by the Board of The Colombo Fort Land and

Building Co. PLC.

Disclosure of appointments of New Directors The new appointments are made available to shareholders by

to the Shareholders. making announcements at the Colombo Stock Exchange.

Re-Election of Directors In terms of the Articles of Association of the company a Director appointed

to the Board holds office until the next Annual General Meeting, at which

he seeks re-election by the shareholders. The Articles require one-third of

the Directors in office (excluding the Managing Director and the Appointed

Directors) to retire by rotation at each Annual General Meeting. The

Directors who retire are those who have been longest in office since

their last election. Retiring Directors are eligible for re-election by the

shareholders.

Relations with Shareholders

Annual General Meeting The Company always welcomes the active participation of the shareholders

at the Annual General Meeting. Questions put up by the shareholders are

answered thus promoting a healthy dialogue. The required number of

days notice has been given to the shareholders in terms of the Companies

Act No.7 of 2007 and the Articles of Association of the Company.

Communication with Stakeholders The Company publishes the Annual Report together with the interim

reports in order to communicate information to the shareholders in a

timely manner.

Major Transactions There have been no transactions during the year under review which fall

within the definition of “Major Transactions” as set out in the companies

Act.

Price Sensitive Information Due care is exercised with respect to share price sensitive information.

13

Corporate Governance Principle Company’s adherenceRelations with Shareholders

Others The Company also maintains a website under the name of its managing

agents www.lankemplantations.lk which offers any individual or body,

information on the Company and its affairs. The Company’s principal

communicator with all its stakeholders are its Annual Report and Quarterly

Financial Statements. The shareholders are free to communicate with

the Company. When ever possible, the Company implements their

suggestions.

Accountability and Audit

Financial Reporting The Board attaches high priority to timely publication of quarterly

and annual results with comprehensive details (both financial & non

financial) going beyond statutory requirements. This enables both

existing and prospective shareholders to make fair assessments

on the company’s performance and future prospects. The financial

statements are prepared in accordance with Sri Lanka

accounting standards. The Company’s accounting formats and

procedures are in compliance with the procedures laid down by the

regulatory authorities.

Disclosures The Annual Report of the Board of Directors is on pages 30 to 32 of this

report. The Statement of Directors responsibilities for the financial reporting

is on page 33 and the auditors’ report on the financial statements is on the

page 34 of this annual report.

Going Concern The Board of Directors after reviewing the financial position and the

cash flow of the Company are of the opinion that the Company has

adequate resources to continue operations well in the foreseeable future.

Therefore the Board adopts the going concern basis in preparing Financial

Statements.

Internal Control The Directors are responsible for maintaining an effective internal control

system and proactive risk management strategy. Internal controls cover

both financial and operational matters and risk management to safe

guard the assets of the Company. The risk management strategy of the

Company is on pages 8 and 9 of this report. The Company also ensures

that effective internal and external audit procedures are followed and the

Board reviews the reports in order to maintain the progress of the systems

& results.

Internal & External Audits The Internal Audit division comprises of the Internal Audit Manager

and Assistants who report directly to the Executive Directors. They are

empowered to examine and review the financial reporting systems,

internal control procedures, accounting policies and compliance with

accounting standards. It also reviews the adequacy of systems for

compliance with legal, regulatory and ethical requirement and company

policies.

The Company maintains a professional relationship with the external

auditors, M/S KPMG. This ensures their objectivity, independence and

compliance with regulatory and ethical requirements. The Board of

Directors retains authority in determining their remuneration.



Corporate Governance Principle Company’s adherence Accountability and Audit

Audit Committee The Audit Committee of the Company’s Ultimate Parent Company, The

Colombo Fort Land and Building Company PLC is chaired by a qualified

Chartered Accountant, Mr. R. Seevaratnam an Independent Non- Executive

Director and also constitutes of one other Independent Director, Mr. A.M.

de S. Jayaratne and a Non-Executive Director, Mr. S. D. R. Arudpragasam.

The Committee has scrutinized the quarterly accounts and the accounts for

the year ended 31st March, 2012 of Kotagala Plantations PLC.

Steps are being taken to set up the Company’s own Audit Committee.

Directors’ Remuneration

Remuneration Committee The Remuneration Committee of the Ultimate Parent Company, The

Colombo Fort Land and Building Company PLC functions as the Company’s

Remuneration Committee.

Disclosure of Remuneration Aggregate remuneration paid to Directors is disclosed in Note 5 to the

Financial Statements.

Other

Management Committees The Management committee comprises of Directors, Consultants, General

Managers and Deputy General Mangers. Meetings are held once a month

where a review in detail is carried out on the performance of each

individual estate based on both financial and relevant non financial

indicators.

Compliance with Legal Requirements The Board of Directors through the company’s Legal & Finance divisions

makes every endeavour to ensure that the business complies with all laws

and regulations.

Social & Environmental Matters The Company has for many years recognized the benefits that accrue

from responsible employment, environmental and community policies

which are dealt with in detail in the Sustainability Reporting in Pages

24 to 28.

Rights of Employees /Other Stakeholders The Company identifies the rights of employees. Several employee

performance enhancing mechanisms such as performance appraisals and

training initiatives are in place for the career building of our employees.

A series of best practices and techniques are now embedded in the

business and applied intelligently within the organization.

Constant responsiveness to all stakeholder interests and an effective

risk management process are critical success factors to ensure that the

governance process will continue to add value in the future.

The Extent to which the good Corporate Governance practices are adopted

in the Company is given as above in this report.

15

OUR PLANTATION

Estate Crop Planting District

Area in Tea (Ha.) Area in Rubber (Ha.) Other Total

Buildings, roads.

etc Total Extent Type of Factory

Factory Capacity

No. of Workers

Mature Immature Mature Immature Mature Immature (Ha) (Ha.) (Ha.)

Kotagala Region

Bogahawatte Tea Nuwara Eliya 125.50 5.00 - - 70.00 0.25 200.75 42.25 243.00 Leafy 11,000 309

Chrystler’s Farm Tea Nuwara Eliya 116.00 1.00 - - 46.32 0.75 164.07 24.32 188.39 Leafy 7,200 321

Craigie Lea Tea Nuwara Eliya 228.00 4.50 - - 64.55 1.10 298.15 65.85 364.00 Orthodox 15,624 464

Drayton Tea Nuwara Eliya 236.25 2.00 - - 42.50 0.50 281.25 61.75 343.00 Orthodox 19,200 688

Kelliewatte Tea Nuwara Eliya 79.18 5.75 - - 55.28 1.35 141.56 4.55 146.11 Leafy 8,000 210

Mayfield Tea Nuwara Eliya 260.75 21.00 - - 197.00 1.50 480.25 57.00 537.25 Orthodox 17,010 908

Mount Vernon Tea Nuwara Eliya 368.37 22.50 - - 191.93 3.00 585.80 56.13 641.93 CTC 29,250 946

Stonycliff Tea Nuwara Eliya 307.50 10.50 - - 205.75 0.75 524.50 76.50 601.00 Orthodox 21,000 912

Yulliefield Tea Nuwara Eliya 335.00 3.00 - - 214.25 1.25 553.50 106.25 659.75 Orthodox 16,772 861

Derryclare Tea Nuwara Eliya 191.75 4.75 41.75 2.00 240.25 53.75 294.00 No Factory - 524

Regional Total 2,248.30 80.00 - - 1,129.33 12.45 3,470.08 548.35 4,018.43 6,143

Horana/Kalutara Region

Eduragala Tea/Rubber Kalutara 20.82 9.70 240.75 66.22 34.20 - 371.69 159.67 531.36 - 252

Hedigalla Tea/Rubber Kalutara 7.42 3.00 244.94 20.85 31.85 25.00 333.06 146.75 479.81 499

Gikiyanakanda Tea/Rubber Kalutara 52.24 14.20 330.49 124.43 39.11 22.00 582.47 295.13 877.60 Orthodox 1,944 285

Rayigam Tea/Rubber Kalutara 78.27 28.75 211.19 96.98 5.80 420.99 270.02 691.01 Orthodox/Crepe 2800/1975 517

Vogan Tea/Rubber Kalutara 41.25 13.32 265.31 136.21 3.96 460.05 346.71 806.76 Orthodox 1,140 197

Arapolakanda Rubber Kalutara - - 241.17 67.16 39.08 22.05 369.46 258.26 627.72 Crepe 1,500 189

Dalkeith Rubber Kalutara 1.00 - 514.18 170.82 56.18 124.45 866.63 337.37 1,204.00 Crepe 4,500 285

Millewa Rubber Kalutara - - 220.56 65.02 16.21 301.79 91.86 393.65 Crepe/Sole crepe 1,500 272

Padukka Rubber Kalutara - - 253.83 104.12 9.24 367.19 48.81 416.00 Sole Crepe 4,400 607

Paiyagalla Rubber Kalutara - - 280.64 97.01 26.02 403.67 67.60 471.27 Crepe 2,900 317

Sorana Rubber Kalutara - 1.00 254.04 167.49 2.60 61.46 486.59 157.39 643.98 Crepe 3,600 290

Usk Valley Rubber Kalutara - - 287.73 65.78 76.72 117.16 547.39 253.16 800.55 - 481

Regional Total 201.00 69.97 3,344.83 1,182.09 340.97 372.12 5,510.98 2,432.73 7,943.71 4,191

Company Total 2,449.30 149.97 3,344.83 1,182.09 1,482.75 372.12 8,981.06 2,981.08 11,962.14 - 10,334


PRODUCTION AND YIELD

Production (KG ‘000) Yield per Hectare (KG)

2011/12 2010/11 2009/10 2008/09 2007/08 2011/12 2010/11 2009/10 2008/09 2007/08

Tea

Western High Grown

Bogahawatte 342 433 395 344 333 2,088 2,113 2,190 1,986 1,985

Chrystler’s Farm 380 298 286 327 340 2,501 2,357 2,428 2,299 2,542

Craigie Lea 536 570 587 533 510 2,339 2,281 2,386 2,293 2,228

Drayton 534 898 862 852 883 2,262 2,082 2,005 1,977 2,048

Kelliewatte 360 301 260 295 315 2,229 2,174 2,211 2,037 2,246

Mayfield 665 599 576 504 429 2,551 2,380 2,324 2,074 1,810

Mount Vernon 984 951 948 909 940 2,624 2,505 2,518 2,421 2,505

Stonycliff 646 655 671 615 653 2,102 2,067 1,965 1,824 1,938

Yulliefield 624 605 562 524 617 1,868 1,807 1,492 1,409 1,636

Derryclare 404 - - - - 2,083 - - - -

Sub Total 5,475 5,310 5,147 4,903 5,020 2,268 2,182 2,111 1,996 2,061

Low Grown

Eduragala 33 29 31 21 21 1,574 1,420 1,687 1,321 1,499

Hedigalla 15 15 13 11 13 1,955 2,070 1,693 1,777 2,312

Gikiyanakanda 377 359 363 355 459 1,649 1,660 1,737 1,803 1,897

Rayigam 704 727 746 620 812 1,910 1,918 1,914 1,591 1,956

Vogan 365 321 385 291 371 1,887 1,799 1,725 1,574 1,956

Sub Total 1,494 1,451 1,538 1,298 1,675 1,804 1,779 1,800 1,620 1,916

Total Crop - Tea 6,969 6,761 6,685 6,201 6,695 2,230 2,151 2,088 1,969 2,052

Rubber

Arapolakanda 285 282 292 303 312 1,182 1,216 1,229 1,227 1,285

Dalkeith 348 402 481 545 690 678 635 736 740 859

Eduragala 178 203 233 258 280 739 705 793 873 890

Gikiyanakanda 229 234 266 267 291 694 609 719 680 738

Hedigalla 144 145 163 196 175 588 578 650 732 662

Millewa 215 195 229 253 278 976 872 1,057 1,153 1,211

Padukka 274 260 273 299 345 1,081 978 1,019 1,134 1,230

Paiyagalla 392 394 418 422 416 1,398 1,403 1,513 1,401 1,394

Rayigam 207 217 212 242 261 981 925 890 1,011 1,034

Sorana 262 222 252 275 292 1,030 935 974 1,017 1,000

Usk Valley 248 218 236 260 288 862 707 754 852 952

Vogan 222 224 252 233 307 835 889 877 768 964

Total Crop - Rubber 3,006 2,996 3,307 3,552 3,934 899 835 903 925 983

17

MANAGEMENT DISCUSSION & ANALYSIS

RUBBERGlobal Rubber Industry – Asia has the virtual monopoly

Asia is now home to around 92% of the world supply of Natural

Rubber. Thailand and Indonesia are in the forefront of Natural

Rubber production and the global supply of Natural Rubber

continues to be centered on these two nations. This trend is likely

to continue in the next decade.

Industrial development gathered momentum and the Asian

Natural Rubber consumption increased. About 48% of the global

demand for Natural Rubber comes from China, India and Malaysia

which are three major rubber consuming countries within the

Association of Natural Rubber Producing Countries. (ANRPC).

Global rubber demand is forecast to reach 27.2Mn. metric tonnes

in 2012. The global Natural Rubber production is forecast to rise

by 5.1% in 2012, driven by high growth in normal production

according to a study by “International Rubber Study group”.

Global rubber consumption is forecast to rise 4.3% on a year on

year basis till 2015 to 30.5Mn. metric tonnes. Tyres represent by

far the largest market for rubber .Development in the automobile

industry throughout the globe will significantly boost the amount

of rubber consumed.

Sri Lanka performed creditably well in respect of production by

reaching a historically high crop figure of 157,000 metric tonnes

in 2011.

Sri Lanka performed creditably well in respect of production by

reaching a historically high crop figure of 157,000 metric tonnes

in 2011.

Company Performance

Crop

During the year under review the company produced a crop

of 3.0Mn.kgs recording a marginal increase compared to the

previous year. Due to adverse weather conditions in the rubber

growing areas, budgeted crop could not be achieved.

Net Sales Average (NSA)

Sri Lankan rubber prices remained at attractive levels though

they were not as remunerative as in the previous year. The

highest price per 01kg of Ribbed Smoked Sheets No.01 (RSS 01)

at Rs. 625.25 was recorded in June 2011. The prices came down

subsequently owing to the slow growth of the global economy

which impacted on the demand for rubber .The average NSA

recorded for rubber was Rs.478.25 which fell short marginally

compared to the previous year’s figure of Rs.478.74.

Recent increases in the crude oil price, which has reached nearly

$110 a barrel, has driven international rubber prices upward. The

demand for naturally produced rubber always strengthens when

the crude oil price rises because its utilisation becomes more

economical.

WORLD RUBBER CONSUMPTION (%)

18%

28%

47%

6%

1%

Asia Europe North America

Latin America Africa

Sri Lankan Rubber Averages (LCR 1X)

300

400

500

600

700

800

Rs.

2010/2011 2011/2012

April

May

June Jul

Augu

sty

Sept

embe

r

Octo

ber

Nove

mbe

r

Dece

mbe

r

Janua

ry

Febr

uary

Marc

h

CROP- RUBBER

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

08 09 10 11 12

Kg '000



Cost of Production (COP)

The COP for rubber increased from Rs.228.62 to Rs.278.43 as

a result of the high wage increases granted to the plantation

workers.

TEATea Industry

Sri Lanka’s tea crop of 328.3 Mn. kgs in 2011 fell short of 2010’s

all time record harvest of 331.4 Mn. kgs, by only 3.06 Mn. kgs.

Having commenced with a record crop harvest in the first quarter

of 2011, production slowed down as the year progressed.

World tea crop too was lower by approximately 17 Mn. kgs. China

continues to dominate World tea production, with India the 2nd

largest producer followed by Kenya and Sri Lanka. However, it is

the latter two origins that have the larger exportable surpluses,

Kenya being the largest exporter of Black Tea in the World,

followed by Sri Lanka.

Volatile Tea market conditions prevailed in all quarters of Season

2011/2012. Unrest in the Arab world & North Africa, together

with the earth quake in Japan which resulted in a Tsunami,

affected the Colombo Tea Auction prices. Hence the anticipated

advantage of lower production in major tea producing countries

such as Kenya and India did not materialize.

Company Performance

Crop

Favourable weather conditions experienced this year, caused tea

production to rise by 4% to 7.0Mn kgs compared to 6.8 Mn. kgs

produced in the previous year. Our own estate crop exceeded

budget by 3%for both high grown and low grown regions

whereas the budgeted crop target could not be achieved for

bought crop and it fell short by 19%.

8 of the 9 estates in the high grown region reported yields

in excess of 2,000 Kgs per ha, as in the past. The significant

contributors are Mount Vernon, Mayfield and Chrystlers Farm.

Net Sales Averages (NSA)

The sale prices dropped below the corresponding periods in

the previous year, and the decline was further aggravated by

currency fluctuations.

The “Dimbula” quality season during the year was a

disappointment due to erratic weather patterns.

NSA VS COP - RUBBER

100

200

300

400

500

08 09 10 11 12

Rs./Kg

COP NSA

MAJOR TEA PRODUCING COUNTRIES

0

100

200

300

400

500

600

700

800

2010 2011North India South India Bangaladesh Sri Lanka

Indonesia Indonesia Kenya Malawi

Tanzania Uganda Zimbabwe

Kg. 000’

Sri Lanka’s tea production hit by bad weather and low prices

CROP- TEA (Combined)

0

1,000

2,000

3,000

4,000

5,000

6,000

08 09 10 11 12

Kg.000

High Grown Low Grown

The highest price per 01kg of Ribbed Smoked Sheets No.01 (RSS 01) at Rs. 625.25 was recorded in June 2011

19

The policy of attaining an NSA above the COP in order to maintain

a profit margin, was not conducive for our Up-Country estates to

achieve the High grown Elevation Average.

In the face of intensive competition for good quality Bought leaf,

with the exception of Rayigam, company’s other two Low Grown

factories did not fare well

Cost of Production (COP)

The COP stood at Rs.326.79 resulting in an increase of 6.34%

Among the many setbacks suffered by the tea industry, the

wage increase caused the most damage as tea is a more labour

intensive crop than rubber. Wage increase and related gratuity

adjustment wiped out profits. The increases in fuel and electricity

costs further eroded margins.

Diversification – Oil Palm

Oil Palm, (botanical name- Elaeis guineensis ) is native to West

& South Africa and tropics of central America. Most believe this

crop migrated to South-East Asia as an ornamental plant and

later developed as an agricultural crop. Commercial cultivation

is undertaken in many South-Asian countries and Indonesia,

Malaysia and Papua New Guinea account for the bulk of Palm Oil

production in the world.

The commercial planting material consists of Tenera Palms or DxP

Hybrids which are obtained by crossing thick-shelled dura with

shell-less pisifera. These hybrid seeds are imported by Kotagala

Plantations PLC from New Britania Palm Oil Nurseries of Papua

New Guinea under strict quarantine controls. These plants are

planted in two stage Nurseries prior to planting in the field.

Kotagala Plantations PLC has planted 120 ha in the year 2011 and

is programmed to plant 220 ha in the year 2012. The scheduled

extent of 1000 ha is expected to be completed by the year

2014. The first Oil Palm crop is expected in early 2014. This will

enable the reduction of the country’s annual import quantity of

80000 MT at a cost of Rs.14 billion as out-flow. The areas already

planted in Kotagala Low-country are Dalkeith, Usk Valley and

Arapolakande. Bulk of the extents will be confined to Dalkeith,

Usk Valley and Hedigalla since the available land there is not best

suited for rubber with the present weather changes envisaged in

this area.

With diversification to this crop coming in, Kotagala Low-country

will have three major agricultural crops that could sustain it even

during adverse marketing trends for Tea and Rubber.

Field and Factory Development

Investments in replanting and other factory modernization

activities were given priority.Productivity has to increase to

sustain the tea industry. Re-planting and infilling is given priority

with a view to evade this problem.

In the year under review 149.97 ha of tea and 1182.09 ha of

rubber was maintained under immature extents, expending

Rs.306.0Mn.in total.

The company spent Rs.46.7Mn. on plant and machinery,infra

structure development , social work, vehicles, IT development

and to meet HACCP standards .

NSA VS COP - TEA

200

250

300

350

400

08 09 10 11 12

Rs. /Kg

NSA - High grown COP - High grown

NSA - Low grown COP - Low grown

CAPITAL EXPENDITURE

400

500

600

08 09 10 11 12

Rs./Mn.

Kotagala Plantations PLC has planted 120 ha of oil palm in the year 2011 and is programmed to plant 220 ha in the year 2012.


IT Developments

The Company has embarked on implementing a new Enterprise

Resource Planning (ERP) system in the year under reveiw. ERP

system integrates internal management information accross

the Company. The main advantages is improved efficiency

information integration for better decision-making.

Challenges

Despite the impressive progress of the Sri Lankan rubber industry,

it is still faced with stiff challenges such as the incapability of the

aged tappers which affects productivity, labour shortage, high

cost of production, inadequate resources etc.

Our Vision for future

Our vision is to stabilize long term sustainability. This includes

enhancing productivity and look for new markets. In today’s

dynamic and turbulent business environment, it is vital that the

industry re-examines its strategies, taking into consideration the

changing scenario and developments.

There is an urgent need for some level of automation at the tea

picking stage to overcome the problem of a shrinking workforce.

New Venture

We have recently embarked on a venture in collaboration with

an associate Company within our group, M/s C W Mackie PLC,

who have launched the “Kotagala Kahata” brand through their

extensive distributor network.

We are committed to supply a consistent quality of tea for this

purpose, while C W Mackie PLC is adding value to it, for the

benefit of the group.

Investment Abroad

The Company is evaluating possibilities of expanding its land

bank as a strategy to increase revenue generating capacity and

shareholders wealth.

Due to the limited land resources available in our country (to

facilitate large scale planting in a contiguous block), low labour

productivity due to highly unionized labour force and scarcity of

labour who would prefer not to work in the plantation sector, the

company has explored the possibility of securing land from other

rubber growing countries in this region. Approvals required for

the investment have been obtained from the relevant authorities

in Sri Lanka and the project is expected to commence during the

year 2012.

FINANCIAL REVIEW

Net profit after tax was Rs.438.6Mn. which is a decrease of 34%

when compared to the previous year.

The profit recorded for the rubber sector was Rs.565.9Mn.

contributing 139% of the total profit. Tea sector did not perform

well in the year under review. The year’s results were adversely

affected by the decline in tea prices throughout the year.

Substantial contribution from other income of Rs.247.1Mn.

strengthen the Company’s bottom line. This includes Rs.129.1Mn.

of exchange gain.

Turnover

The Company’s turnover of Rs.3,610.3Mn. indicates

a marginal decline over the previous year turnover.

(2010/11-Rs.3,683.4Mn.) Tea was the highest contributor

generating a 60% of the company’s topline.

Rubber sector revenue increased to Rs.1,437.5Mn. from

Rs.1,434.2Mn. of the previous year. Increase in export turnover

and the effect of exchange gain were the factors responsible for

the increase in turnover.

The Company results were commendable given the very difficult conditions that prevailed

PROFIT BEFORE TAX

0

100

200

300

400

500

600

700

800

08 09 10 11 12

Rs. Mn.


The Company has embarked on implementing a new Enterprise Resource Planning (ERP) system in the year under reveiw.

21

Rs.Mn. 2011/12 2010/11

Cumulative 1st 2nd 3rd 4th

Up to Qtr Qtr Qtr Qtr

Revenue 889 1,770 2,749 3,610 3,683

Gross Profit 77 221 391 646 1,043

Profit after Tax 26 95 235 439 667

Shareholders’

Fund 2,219 2,128 2,267 2,471 2,353

Total Assets 5,960 6,040 6,306 6,504 5,773

Earnings per

share -Rs. 0.82 2.97 7.33 13.71 20.86

Net Asset per

Share- Rs. 69.34 66.49 70.85 77.23 73.51

Market price per

Share - Rs. 139.70 92.00 64.30 70.00 168.00

Gross Profit

The company recorded a gross profit Rs.646.2Mn.when compared

with previous year figure of Rs.1,042.8Mn.this was mainly due to

the wage increase in and downturn trend in the prices.

Balance Sheet

The Balance Sheet of the Company has been further

strengthened during the year under review. Total assets stood at

Rs.6,603.7Mn., non current assets and current assets increased by

Rs.631.3Mn. and Rs.99.8Mn. respectively. The Company invested

in Lankem Development PLC and Agarapatana Plantations Ltd

expending Rs.350.0Mn. in the year under review. The Company

spent Rs.352.7Mn. in total on capital expenditure.

Cash Flow

The Company’s cash flow at the end of the year stood at

Rs.321.8Mn. including the exchange gain of Rs.122.3Mn.

Repayment of long term borrowings and dividend payment

amounted to Rs.277.2Mn. and Rs.318.5Mn. respectively.

TURNOVER

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

07 08 09 10 11

Rs.Mn.

SEGMENTAL TURNOVER (Rs.Mn)

1,437

2,173

Tea Rubber

Dividends Per Share

0

2

4

6

8

10

07 08 09 10 11

Rs. /Share

Performance Measurement

Dividend

The Directors recommended a first and final dividend Rs.2.00 per

share which will be declared at the Annual General Meeting.

Share Price

The share price of a Kotagala share was Rs,70.00 as at 31st March

2012. In keeping with market sentiments , share prices reached

a peak of Rs. 210.00 And dropped to a low of Rs. 48.00 The year

end market capitalization for the Company was Rs. 2.2 Bn.


TEN YEAR SUMMARY

2011

/12

2010

/11

2009

/10

2008

/20

09 2

007/

2008

2

006/

2007

2

005/

2006

2

004/

2005

2

003/

2004

2

002/

2003

R

s. ‘0

00

Rs.

‘000

R

s. ‘0

00

Rs.

‘000

R

s. ‘0

00

Rs.

‘000

R

s. ‘0

00

Rs.

‘000

R

s. ‘0

00

Rs.

‘000

TRA

DIN

G R

ESU

LTS

Rev

enue

3

,610

,320

3

,683

,366

3

,173

,728

2

,331

,370

2

,749

,132

2

,175

,599

1

,751

,122

1

,537

,574

1

,222

,295

1

,249

,009

Gro

ss P

rofit

6

46,2

27

1,0

42,7

94

567

,852

2

93,1

63

736

,750

5

84,7

67

364

,929

3

01,1

26

173

,464

1

65,5

68

Oth

er O

pera

ting

Inco

me

247

,058

1

38,3

18

93,

841

134

,827

9

7,46

7 1

17,7

43

60,

276

56,

776

44,

279

46,

937

Ope

ratin

g Pr

ofit/

(Los

s) b

efor

e

Man

agem

ent

Fee

& In

tere

st

743

,321

1

,070

,292

5

54,7

34

314

,853

7

05,5

75

621

,705

3

46,9

93

294

,336

1

41,5

13

132

,199

Pro

fit/(

Loss

) be

fore

Inco

me

Tax

531

,861

7

75,2

51

397

,325

2

05,0

38

547

,401

4

00,8

75

142

,350

1

26,0

49

(36

,767

) (

38,5

67)

Pro

fit/(

Loss

) af

ter

Tax

438

,608

6

67,7

73

323

,190

1

71,0

15

495

,541

3

83,0

70

141

,505

1

24,2

03

(36

,767

) (

38,5

67)

BA

LAN

CE S

HEE

T

Non

-Cur

rent

Ass

ets

4,3

76,5

30

3,8

65,2

41

3,4

97,0

52

2,8

05,3

20

2,3

25,6

09

2,0

81,0

04

1,9

21,4

39

1,8

36,4

11

1,9

60,6

43

1,9

11,7

99

Cur

rent

Ass

ets

2,1

27,1

58

1,9

07,3

48

1,0

70,9

91

853

,549

9

51,3

85

626

,089

5

29,1

71

571

,367

2

71,4

82

328

,277

6

,503

,688

5

,772

,589

4

,568

,043

3

,658

,869

3

,276

,994

2

,707

,093

2

,450

,610

2

,407

,778

2

,232

,125

2

,240

,076

Issu

ed C

apita

l 3

20,0

00

320

,000

3

20,0

00

320

,000

3

20,0

00

320

,000

3

20,0

00

320

,000

3

20,0

00

320

,000

Gen

eral

Res

erve

s 2

40,0

00

240

,000

2

40,0

00

240

,000

2

40,0

00

240

,000

2

40,0

00

240

,000

2

40,0

00

240

,000

Ret

aine

d Pr

ofit/

(Los

s)

1,9

11,2

41

1,7

92,6

33

1,2

20,8

60

929

,670

8

22,6

55

415

,114

1

43,0

83

25,

578

(98

,625

) (

61,8

58)

Sha

reho

lder

s’ F

unds

2

,471

,241

2

,352

,633

1

,780

,860

1

,489

,670

1

,382

,655

9

75,1

14

703

,083

5

85,5

78

461

,375

4

98,1

42

Def

erre

d In

com

e 3

09,4

96

311

,616

2

75,8

81

232

,639

1

82,2

60

161

,926

1

56,1

73

147

,853

1

39,8

92

131

,836

Inte

rest

Bea

ring

Borr

owin

gs

739

,584

1

,163

,240

9

86,4

31

457

,126

3

07,4

04

390

,869

3

04,0

43

280

,149

3

40,9

11

367

,380

Ret

irem

ent

Bene

fit O

blig

atio

ns

568

,897

5

50,2

26

496

,836

3

81,7

00

363

,276

2

79,5

25

245

,052

2

27,2

92

206

,517

1

94,3

79

Net

Lia

bilit

y To

Les

sor

397

,769

4

03,7

97

409

,590

4

15,1

60

420

,514

4

25,6

64

430

,616

4

35,3

77

439

,886

4

44,3

58

Def

erre

d Ta

x 2

76,9

23

177

,890

1

34,7

56

89,

332

63,

851

39,

039

JED

B/SL

SPC

Leas

e A

rrea

rs P

ayab

le

-

-

7

,878

1

9,87

8 2

5,28

6

Lon

g Te

rm R

elat

ed P

arty

Bal

ance

-

74,

094

146

,338

1

64,6

30

-

Cur

rent

Lia

bilit

ies

1,7

39,7

78

813

,187

4

83,6

89

593

,242

5

57,0

34

434

,956

5

37,5

49

577

,313

4

59,0

36

578

,695

6

,503

,688

5

,772

,589

4

,568

,043

3

,658

,869

3

,276

,994

2

,707

,093

2

,450

,610

2,40

7,77

8 2

,232

,125

2

,240

,076

Net

Cas

h Fl

ow

Fro

m/(

Use

d in

) O

pera

ting

Act

iviti

es

811

,786

6

14,5

70

465

,913

2

92,6

97

632

,024

4

01,8

23

267

,018

1

86,0

90

75,

943

98,

153

Fro

m/(

Use

d in

) In

vest

ing

Act

iviti

es

(44

9,03

5) (

477,

774)

(64

0,09

4) (

600,

339)

(40

4,02

5) (

215,

013)

(14

2,46

9) (

104,

951)

(81

,329

) (

68,0

74)

Fro

m/(

Use

d in

) Fi

nanc

ing

Act

iviti

es

(68

9,29

1) 1

87,7

79

501

,585

3

8,36

2 (

183,

971)

(16

,031

) (

18,6

89)

(74

,046

) (

683)

(19

,001

)

Incr

ease

/(D

ecre

ase)

in C

ash

&

Cas

h Eq

uiva

lent

s (

326,

540)

324

,575

3

27,4

05

(26

9,27

9) 4

4,02

8 1

70,7

79

105

,860

7

,093

(

6,06

9) 1

1,07

8

Per

Sha

re -

Rs.

Ear

ning

s/(L

oss)

1

3.71

2

0.86

1

0.10

5

.34

15.

49

11.

97

4.4

2 3

.88

(1.

15)

(1.

21)

Div

iden

ds

2.0

0 1

0.00

3

.00

1.0

0 3

.00

3.0

0 1

.00

0.7

5 -

-

Net

Ass

ets

(Yea

r En

d)

77.

23

73.

51

55.

65

46.

55

43.

21

31.

69

21.

97

18.

30

14.

42

15.

57

Mar

ket

Valu

e (Y

ear

End)

7

0.00

1

68.0

0 4

4.75

1

6.00

6

7.50

2

8.50

1

7.00

8

.50

6.5

0 6

.00

23

SHAREHOLDER & INVESTOR INFORMATION

1 STOCK EXCHANGE LISTINGThe issued ordinary shares of the Company are listed with the Colombo Stock Exchange

2 DISTRIBUTION OF ORDINARY SHARES

31st March 2012 31st March 2011 No. of Total Percentage of No. of Total Percentage

Shareholders Holding Total Shares Shareholders Holding

1-1000 12,325 1,751,056 5.47 13,877 2,008,256 6.27 1001- 10,000 241 825,310 2.58 225 837,188 2.62 10001-100,000 63 1,871,999 5.85 59 1,953,600 6.10 100,001 - 1,000,000 10 2,048,979 6.40 9 1,698,300 5.31 Over - 1,000,000 3 25,502,656 79.70 3 25,502,656 79.70 12,642 32,000,000 100.00 14,173 32,000,000 100.00

No. of Total Percentage of No. of Total Percentage

Shareholders Holding Total Shares Shareholders Holding

Categories of

Shareholders

Individuals 12,524 4,434,406 13.86 14,061 4,285,982 13.40

Institutions 118 27,565,594 86.14 112 27,714,018 86.60

12,642 32,000,000 100.00 14,173 32,000,000 100.00

3 PUBLIC HOLDINGThe percentage of shares held by the public as at 31st March 2012 was 19.97%. (31st March 2011 - 20.17%)

4 MARKET VALUEThe market value of the Company’s ordinary shares was

2012 (Rs.) 2011 (Rs.)

Highest 210.00 230.00 Lowest 48.00 44.75 Close 70.00 168.00

5 MAJOR SHAREHOLDERS

31st March 2012 31st March 2011 No. of Shares % No. of Shares %

1 LANKEM PLANTATION HOLDINGS LIMITED 12,100,000 37.81 12,100,000 37.81 2 LANKEM TEA & RUBBER PLANTATIONS (PVT) LIMITED 9,602,100 30.01 9,602,100 30.01

3 SECRETARY TO THE TREASURY 3,800,556 11.88 3,800,556 11.88 4 PERSHING LLC S/A AVERBACH GRAUSON & CO. 388,300 1.21 434,800 1.36 5 PAN ASIA BANKING CORPORTION PLC/MR.M.MATHEWS 278,900 0.87 - - 6 MR. TALIB TAWFIQ TALIB AL-NAKIB 276,600 0.86 157,200 0.49 7 MR. LOAY MAHMOUD SAYED HAMED ALNAQIB 275,000 0.86 225,000 0.70 8 MR. MUSHTAQ MOHAMED FUAD 199,627 0.62 160,900 0.50 9 MACKSONS HOLDINGS (PVT) LTD 167,400 0.52 50,300 0.16 10 WALDOCK MACKENZIE LTD/HI-LINE TRADING (PVT) LTD 161,000 0.50 131,000 0.41 11 MR. MOHAMED MAKEEN MOHAMED MIZVER 152,052 0.48 54,100 0.17 12 MR. MOHAMED ZAREEN RASHEED 120,450 0.38 109,700 0.34 13 MR. MOHAMED MILFER MOHAMED MAKEEN 101,350 0.32 46,000 0.14 14 SEYLAN BANK PLC/THIRUGNANASAMBANDAR SENTHILVERL 100,000 0.31 - - 15 MR. DAVID KOTTHOFF 98,400 0.31 85,000 0.27 16 MISS. ASHA MORARJI UDESHI 97,500 0.30 97,500 0.30 17 MR. KANGASU CHELVADURAI VIGNARAJAH 74,500 0.23 69,200 0.22 18 SEYLAN BANK PLC/RISING SUN GARMENTS (PVT) LTD 71,500 0.22 90,600 0.28 19 LUNUGANGA TRUST 67,998 0.21 - - 20 BANK OF CEYLON NO. 1 ACCOUNT 64,500 0.20 24,600 0.07

TOTAL 28,197,733 88.12 27,238,556 85.11


SUSTAINABILITY REPORTING

Economic ContributionKotagala is committed to sustainable growth and performance. Our

strategies are geared to deliver sustainable economic growth to all

stakeholders. The Company is committed to enhance shareholders’

value through steady growth in earnings, maintaining effective

cash positions and distributing dividends over the long term.

The Statement of “Value Added” given below explains the value

created by business activities and how it was distributed among

the stakeholders.

Statement of Value Added

2011/12 2010/11

Rs.000 Rs.000

Economic Value Generated

Revenue 3,610,320 3,683,366

Other Income 247,058 138,318

Share of results of associates 1,474 (509)

3,858,852 3,821,175

Economic Value Distributed

Operating Costs 1,298,757 1,432,797

Employee wages and benefits 1,902,789 1,456,983

To- Providers of capital (interest) 77,415 67,261

To- Government as lease rental 46,556 89,392

To- Shareholders as dividends 320,000 96,000

Economic Value Retained

Provision for Depreciation 165,471 145,185

Profit after dividends 118,608 571,773

284,079 716,958

Kotagala maintains a centralized procurement system and

purchases at fair and reasonable prices complying with trade

terms and conditions.

Kotagala is committed to ensure that all dues as per statutory

requirements are paid within the specified time periods.

Defined Contribution Plan Obligations

Employees are eligible for Employees’ Provident Fund and

Employees Trust Fund contributions and the applicable

percentages are contributed to the EPF and ETF.

Retirement Benefit Obligations

Every employee with more than 5 years of continuous service

will receive half month’s salary for every year of service on

retirement or termination of service. An Actuarial Valuation was

carried out by M/s Actuarial Management Consultants (Pvt)

Ltd. According to the valuation, the gratuity liability as at 31st

March 2012 was Rs.568.9Mn. in the year under review, gratuity

payments amounted to Rs.69.5Mn.

Our PeopleKotagala is an equal opportunity employer having a workforce of

11,085 and considers its employees as its greatest asset.

We are conscious of the importance of sustainable practices and continue to balance our social, economic and environmental responsibilities with our business strategy.

Economic Our Customer EnvironmentalContribution People Centric Impact

25

Strength of Kotagala Family

The total workforce is spread around different locations and functional levels as shown below.

Workers Clerical, Technical & Executives Total Other Staff

2011/12 2010/11 2011/12 2010/11 2011/12 2010/11 2011/12 2010/11

Total Employees 10,334 11,063 663 656 88 92 11,085 11,811

Region Wise Kotagala 6,244 6,603 299 291 23 23 6,566 6,917

Horana 4,090 4,460 343 335 31 31 4,464 4,826

Head Office - - 21 30 34 38 55 68

10,334 11,063 663 656 88 92 11,085 11,811

Gender Wise Male 4,632 4,869 495 494 75 70 5,202 5,433

Female 5,702 6,194 168 162 13 22 5,883 6,378

10,334 11,063 663 656 88 92 11,085 11,811

Age Distribution Below 30 years 2,260 2,272 101 100 17 19 2,378 2,391

30 - 45 years 4,585 4,668 223 221 35 33 4,843 4,922

Over 45 years 3,489 4,123 339 335 36 40 3,864 4,498

10,334 11,063 663 656 88 92 11,085 11,811

Service Below 5 years 3,578 2,881 109 108 31 46 3,718 3,035

Distribution 6 - 15 years 3,150 4,154 284 281 23 29 3,457 4,464

Over 15 years 3,606 4,028 270 267 34 17 3,910 4,312

10,334 11,063 663 656 88 92 11,085 11,811

Good employee relations are a necessity in today’s corporate world. It enhances productivity, motivates and also builds up loyalty towards

the company. We at Kotagala invest in our people and their communities to improve their livelihoods.


Housing and Infrastructure

Welfare of our estate workers is given priority under our

corporate responsibility programme. We are working with

Government bodies to provide better facilities for the estate

workers. Kotagala has introduced various welfare projects to

improve worker welfare.

Kotagala, with the assistance of Ministry of Livestock &

Rural Community Development and the Plantation Human

Development Trust (PHDT), expended Rs.29.6Mn. on improving

living standards of workers as shown below.

Re-roofing 98 Units

Sanitation/ Upgrading 150 Units

New Life Housing 25 Units

Playground 2 Units

Water Scheme 2 Units

Child Development Centres 1 Unit

Investments made so far has led to significant improvements in

living standards resulting in evidently better social indicators.

Health care, child care, skill development , sports and recreational

activities

It is our high priority to ensure a safe and conducive environment

for our employees.

Many activities related to welfare, such as health care, child

care, skill development, sports and recreation activities, were

conducted during the year.

Three of our plantations received awards in respect of the

social welfare activities at a ceramony conducted by PHDT.

• Mayfield Estate - Best Manager - 1st runner up

• Stonycliff Estate - Best Health Care Service- 2nd runner up

• Hedigalle Estate - Best estate worker Housing

Cooperative society - 2nd runner up

A workshop was organized by the Department of Labour on

“Protection of Labour Rights” and “Protection of Child Rights”

on Eduragala estate.

We have made a significant breakthrough in the health status of

plantation workers.

A dengue prevention programme was held to create awareness

among the workers and a shramadana was conducted to destroy

the breeding grounds of dengue mosquitos. Estate management

took time and effort to organize a health camp for women over

35 years of age. This was mainly an educational programme.

A free dental clinic was conducted for the needy on Vogan estate.

Infant Mortality Rate (IMR) and Maternal Mortality Rate (MMR)

are registered as zero on our estates.

In addition, the Company also promotes sports activities, cultural

and religious programmes. As done in the past, children’s day

was celebrated with passion in the year under review in our

plantations. Many activities, traditional and novel, were organized

in honour of children.

A “Singithi Pola” was organized by the Child Development Centre

of Eduragala estate. Good quality home grown vegetables were

sold at reasonable prices for everyone’s satisfaction.

Vogan and Padukka estates organized avurudu celebrations

specially for the amusement of children. Estate management

donated gifts to those who excelled in traditional “Avurudu”

games.


Three of our plantations received awards in respect of the social welfare activities at a ceremony conducted by PHDT.

27

CUSTOMER CENTRIC

Endeavour for Greater Standards

Food Safety Management System

The Global tea trade has called upon the Tea Industry to

implement new national standards of ISO 22000 which is a food

safety management system. This is to comply with the growing

demand to ensure higher standards of quality and safety of

food produced and exported from the country. Many of our tea

factories have met this requirement with additional participation

in Fair Trade, Ethical Tea Partnership etc.

During the year under review our plantations in Kotagala continue

to strengthen the work done while completing the surveillance

audits carried out by Messrs. SGS Lanka Pvt Ltd .This surveillance

measures are meant to ensure the ISO standards for which

certification has been given are maintained/ improved upon.

Vogan, Chrystlers Farm and Kelliewatte continue its membership

in the fairtrade organization patronage for Kelliewatte

(Nadoototam) teas continued.

Forest Stewardship Coucil (FSC)

FSC certification provides a credible link between responsible

production and consumption of our forest products , enabling

consumers and business to make purchasing decisions that

benefit people and the environment ,as well as providing

business value. In order to achieve the certification, FSC requires

compliance with a comprehensive set of universally applicable

standards of forest management. The aim is to ensure that forest

resources are managed to meet social, economic and ecological

needs of present and future generations. The FSC label on wood

or any paper product guarantees the consumer that the source is

reliable and can be trusted.

We take pride in announcing that Kotagala has effectively fulfilled

the requirements of the FSC and was awarded certification with

effect from 1st July 2011 to 30th June 2016, subject to annual

surveillance audits.

We are among the very few plantation companies to successfully establish that we manage our rubber properties and the forest areas in tea estates on par with the international standards specified by FSC.

Our customers are important to us.


ENVIRONMENTAL IMPACT

Kotagala is committed to promoting sound environmental practices within our business through policies and practices that enable us to operate in a sustainable and environmentally sound manner.

As a plantation Company we understand the importance of

being green. We proudly state that the 8,981.06 Ha of tea and

rubber plantations we have are themselves a forest cover which

improves the air quality ,environment and enriches the eco –

system.

We have adopted many environment friendly agricultural

practices such as using leguminous cover crops, live and stone

terraces, draining on an annual basis, planting shade and green

manure belts.

The company emphasises the importance of protecting water

resources and ensuring that they are not contaminated. We

make sure that our agricultural practices do not pollute the water

resources on our properties.

Energy Saving

Energy is a critical input for tea manufacture and the tea industry

is one of the biggest consumers of energy in Sri Lanka. Whilst

electrical energy is required at almost all stages of manufacture

,thermal energy is required to remove moisture from the green

leaf as well as from the fermented tea.

We mostly depend on firewood for thermal energy .We have

started installing modern thermal Heaters and state of the art

Boilers/Hot Water Generators. As a result our thermal efficiency

has improved to over 75%. Almost all our large factories are now

equipped with Hot Water Generators. We have installed seven

units of wood fired Hot Water Generators.

Usage of properly dried firewood is another option to save

energy. A modest saving of 30% is not beyond reach.

Future energy management activities

• Continuingtoimproveonthecurrentenergymanagement

practices.

• Carryoutcontinuousperiodicenergyauditstoidentifyfurther

improvements.

• Continuetoevaluatetheuseofrenewableenergyasa

primary source.

• Itissuggestedtosplitfirewoodpriortostoragethereby

increasing the surface area exposed to the atmosphere,

which in turn will lead to faster and more efficient drying of

the firewood.

• Wegiveprioritytocultivationofourownfuelwoodtrees

ensuring the continuous supply of firewood. A sustainable

forest management programme has been already

implemented and is monitored by a dedicated Forestry

Officer.

• UseofvarioustypesofbriquettesmadeofPaddyHusk,

Coconut Husk, Saw Dust, Refuse Tea etc is also an option for

thermal energy but is costly and the technology is still in the

elementary stages.


29

Financial CalendarQuarterly Financial Statements

3 Months ended 30th June 2011 08th August 2011

6 Months ended 30th September 2011 09th November 2011

9 Months ended 31st December 2011 08th February 2012

12 Months ended 31st March 2012 18th May 2012

Annual Report 2011/2012 18th May 2012

19th Annual General Meeting 27th June 2012


Statement of Directors’ Responsibilities 33


Income Statement 35

Balance Sheet 36




Financial Reporting


ANNUAL REPORT OF THE BOARD OF DIRECTORS

The Board of Directors of Kotagala Plantations PLC present their

Report together with the Audited Financial Statements for the

year ended 31st March, 2012.

The details set out herein provide the pertinent information

required by the Companies Act No. 7 of 2007, the Colombo Stock

Exchange Listing Rules and are guided by recommended best

practices

Principal Activities, Business Review/Future

DevelopmentsThe principal activities of the Company are production, processing

and selling of Tea & Rubber. The Chairman’s Review, CEO’s

Review (Lankem Tea & Rubber Plantations (Pvt) Ltd., Managing

Agents), Management Discussion and Analysis, Financial Review

describes the performance of the Company during the year with

comments on financial results and future developments.

The Directors to the best of their knowledge and belief confirm

that the Company has not engaged in any activities that

contravene laws and regulations.

Financial StatementsThe Financial Statements of the Company are given on pages 35

to 64.

Auditors’ ReportThe Auditors’ Report on the Financial Statements is given on Page 34.

Accounting PoliciesThe Accounting Policies adopted in the preparation of the

Financial Statements are given on pages 39 to 44. There were no

changes in the Accounting Policies adopted during the year.

Interests Register

Directors’ Interest in Transactions The Directors have made general disclosures as provided for

in Section 192 (2) of the Companies Act No. 7 of 2007. Arising

from this, details of contracts in which they have an interest are

disclosed in Note 29 to the Financial Statements on pages 63

to 64.

Directors’ Interest in SharesThe Directors of the Company who have an interest in the shares

have disclosed their shareholdings and any acquisitions/disposals

to the Board in compliance with Section 200 of the Companies

Act. No. 7 of 2007.

Details pertaining to Directors direct and indirect shareholdings

are set out herein.

Name of Director No. of Shares No. of Shares as at as at 31.03.2012 31.03.2011

Mr. C P R Perera 20,000 30,000

Mr. R C Peries 500 500

Directors’ RemunerationThe Directors’ remuneration in respect of the Financial Year

2011/2012 is disclosed in Note 5 to the Financial Statements.

Corporate DonationsNo donations were made during the year.

DirectorateThe names of the Directors who held office during the financial

year are given below. Brief profiles of the Directors currently in

office appear on page 7.

Mr. A Rajaratnam - Chairman

Mr. S D R Arudpragasam

Mr. C P R Perera

Mr. R C Peries

Mr. D A Ratwatte

Mr. G D V Perera

In terms of Articles 92 and 93 of the Articles of Association Mr.

D.A. Ratwatte retires by rotation and being eligible offers himself

for re-election.

Mr. A. Rajaratnam who is seventy years of age retires and offers

himself for reappointment under and by virtue of the Special

Notice received from a shareholder of the Company which is

referred to in the Notice of Meeting.

Mr. R.C. Peries being over seventy years of age retires and

offers himself for reappointment under and by virtue of the

Special Notice received from a shareholder of the Company

which is referred to in the Notice of Meeting.

Corporate GovernanceAdoption of good governance practices has become an essential

requirement in today’s corporate culture. The practices carried

out by the Company are given in the Corporate Governance

Statement on pages 10 to 14.

AuditorsIn accordance with the Companies Act No. 7 of 2007 a resolution

proposing the reappointment of Messrs. KPMG as Auditors of the

Company will be submitted at the Annual General Meeting.

31

The Auditors, Messrs. KPMG was paid Rs. 2.8 Mn. (2010/11 -

Rs. 2.5 Mn.) as fees for audit services, Rs. 0.09 Mn. (2010/2011

- Rs. 0.04) as fees for audit related services and Rs. 0.08 Mn.

(2010/2011 - Rs. 0.08 Mn.) as fees for non-audit related work,

which consisted mainly of provision of tax compliance services.

As far as the Directors are aware the Auditors do not have any

relationship (other than that of an Auditor) with the Company.

The Auditors do not have any interests in the Company.

RevenueThe revenue of the Company for the year was Rs. 3,610.3 Mn.

(2010/11 - Rs. 3,683.4 Mn.) which comprises of Rs. 2,172.8 Mn.

from tea (2010/11 - Rs. 2,249.2 Mn.) and Rs. 1,437.5 Mn. from

rubber (2010/11 - Rs. 1,434.2 Mn.).

Results The Company made a Net Profit before Tax of Rs. 531.9 Mn.

against a profit of Rs. 775.2 Mn. in the previous year. The

Company became liable to income tax of Rs. 22.9 Mn. due to

the restriction of setting off the brought forward losses up to

35% of total statutory income from the current year Rs. 72.0 Mn.

(2010/11 - Rs. 72.0 Mn.) As a result, the Net Profit after Tax was

Rs. 438.6 Mn. (2010/11 - Profit of Rs. 667.8 Mn.). The detailed

results are given in Income Statement on page 35 and Note 3 to

the Financial statements on page 45.

Managing Agents & Management FeeLankem Tea & Rubber Plantations (Pvt) Limited, a fully owned

subsidiary of Lankem Plantation Holdings Limited, continue to

manage the affairs of the Company.

The Managing Agent’s Fees charges for the year amounting to

Rs. 87.5 Mn. (2010/11 - Rs. 138.4 Mn.) is based on the

Agreement signed between the Company and Ministry of

Plantation Industries, Sri Lanka State Plantations Corporation and

Janatha Estates Development Board on 4th August 2003.

Investments Investments made by the Company are given in Note 13 to the

Financial Statements on page 51 to 52.

Property, Plant & EquipmentThe capital expenditure during the year amounted to

Rs. 445.7 Mn. (2010/11 - Rs. 517.9 Mn.) which includes

Rs. 383.2 Mn. in replanting expenditure (2010/11 - Rs. 322.6

Mn.) Information relating to movements in Property, Plant &

Equipment are given in Notes 9, 10, 11 and 12 to the Financial

Statements.

Stated Capital The Stated Capital of the Company of Rs. 320,000,010/- is

represented by 32,000,000 Ordinary Shares and 01 Golden Share.

There was no change in the Stated Capital during the year.

ReservesThe total reserves of the Company as at 31st March 2012 amount

to Rs. 2,152.2 Mn., comprising General Reserve Rs. 240.0 Mn.

(31st March 2011 - Rs. 2,032.6 Mn.) and Retained Profits of Rs.

1,911.3 Mn. (31st March 2011 - retained profits of Rs. 1,792.6

Mn). The movement is shown in the Statement of Changes in

Equity in the financial Statements.

TaxationThe Company, in term of section 16 (i) of the Inland Revenue Act

No.10 of 2006 (amendments) “Specified Profits” from cultivation

would be exempt from income tax for a period of 5 years from

2006/07. The Corporate rate of tax applicable to other income

would be at 28%. Further, for the year of assessment 2005/06

the Inland Revenue allows only 35% of the total statutory income

to be set off against the carried forward tax losses. However the

Company paid income tax amounting to Rs. 7.9 Mn. in the year

under review, which includes Rs. 7.9 Mn. ESC paid. Further details

of Income Tax Expense are given in Note 7 to Financial Statements

on Page 47.

The Company is liable to pay Economic Service Charge (ESC)

effective from 1st April 2004, as the liable turnover of the

previous year of assessment has exceeded Rs. 50 Mn. The

turnover relating to agriculture activity and exports is liable to

ESC at the rate of 0.25% and any other turnover is liable to ESC

at 1%. ESC may be set off against income tax payable of the

Company during the year in which the payment was made and

within two years thereafter. Accordingly the Company has paid

Rs. 7.9 Mn. during the year under review and that has been set

off against current year tax payable.

Tea which was previously “zero rated” in Value Added Tax (VAT)

has been classified as “exempt” item with effect from 1st January

2005. As a result the Company is not entitled to claim any input

tax on supplies relevant to tea and this will adversely effect the

profitability of the Company.

Share InformationInformation relating to earnings, dividends, net assets and share

trading is given on pages 23, 35, 38, 47 and 48.

Events Occurring after the Balance Sheet DateNo circumstances have arisen since the Balance Sheet date that

would require adjustment, other than those disclosed in Note 28

to the Financial Statements on page 62.


Capital Commitment and Contingent LiabilitiesCapital Commitments and Contingent Liabilities as at the Balance

Sheet date are disclosed in Notes 26 and 27 to the Financial

Statements on page 62 respectively.

Employment PolicyThe Company’s recruitment and employment policy is non-

discriminatory. The occupational health and safety standards

receive substantial attention. Appraisals of individual employees

are carried out in order to evaluate their performance and realise

their potential. This process benefits the company and the

employees. The number of persons employed by the Company at

the year end was 11,085 (2010/11 - 11,811)

ShareholdersIt is the Company’s policy to endeavour to ensure equitable

treatment of its shareholders.

Statutory PaymentsThe Directors, to the best of their knowledge and belief, are

satisfied that all statutory payments due in relation to employees

and the Government have been made promptly, up to date.

Environmental ProtectionThe Company’s business activities can have direct and indirect

effects on the environment. It is the Company’s policy to

minimize any adverse effects its activities have on the

environment and to promote co-operation and compliance with

the relevant authorities and regulations. We confirm that the

Company has not undertaken any activities which have caused or

likely to cause detriment to the environment.

Enterprise Governance/Internal ControlAdoption of good governance practices has become an essential

requirement in today’s corporate culture. The practices carried

out by the Company are given in the Enterprise Governance

Statement on pages 10 to 14.

The Directors acknowledge their responsibility for the

Company’s system of internal control. The system is designed

to give assurance regarding the safeguarding of assets, the

maintenance of proper accounting records and the reliability

of financial information generated. However, any system can

ensure only reasonable, and not absolute, assurance that errors

and irregularities are either prevented or detected within a

reasonable period of time.

The Board is satisfied with the effectiveness of the system of

internal control for the period up to the date of signing the

Financial Statements.

Going ConcernAs noted in the Statement of Directors’ Responsibilities on

page 33, the Directors have adopted the going concern basis in

preparing Financial Statements.

For and on behalf of the Board

R C Peries G D V Perera

Director Director

By Order of the Board

Corporate Managers & Secretaries (Private) Ltd.

Secretaries

18th May 2012

ANNUAL REPORT OF THE BOARD OF DIRECTORS

33

STATEMENT OF DIRECTORS’ RESPONSIBILITIES

The responsibilities of the Directors in relation to the Financial

Statements of the Company are detailed below. The responsibility

of the Auditors’ in relation to the Financial statements is set out in

the Independent Auditors’ Report appearing on page 34.

The Directors are responsible under the provisions of the

companies Act to ensure compliance with the requirements set

out therein to prepare Financial Statements for each financial

year giving a true and fair view of the state of affairs of the

Company as at the end of the financial year and of the Profit &

Loss of the Company for the financial year.The Directors confirm

that in preparing the Financial Statements, appropriate accounting

policies have been selected and applied consistently, reasonable

and prudent judgements and estimates have been made and Sri

Lanka Accounting Standards have been followed.

The Directors are responsible for ensuring that the Company

keeps sufficient accounting records to disclose with reasonable

accuracy the financial position of the Company and for ensuring

that the Financial Statements have been prepared and presented

in accordance with the Sri Lanka Accounting Standards and

provide the information required by the Companies Act No. 07

of 2007 and the Rules of the Colombo Stock Exchange. They are

also responsible for taking reasonable measures to safeguard the

assets of the Company, and in that context to have proper regard

to the establishment of appropriate systems of internal control

with a view to the prevention and detection of fraud and other

irregularities.

The Directors are required to prepare the Financial Statements

and to provide the Auditors with every opportunity to undertake

whatever inspections they consider appropriate to enable them to

submit their audit report.

The Directors confirm that they have complied with these

requirements. They have a reasonable expectation, after making

enquiries and following a review of the Company’s budget for

the ensuing year, including cash flows and borrowing facilities,

that the Company has adequate resources to continue in

operational existence for the foreseeable future, and therefore

have continued to adopt the going concern basis in preparing the

accounts.

As required by the Section 56 (2) of the Companies Act No 7 of

2007, the Board of Directors signed certificates in respect of the

dividend recommended stating that in their opinion based on the

information available,the company would satisfy the Solvency

Test immediately after the distribution in accordance with

Section 57 of the Companies Act and has sought in respect of

the said dividends certificates of solvency from the Auditors. The

recommended a first and final dividend is to be approved by the

Shareholders at the Annual General Meeting.

Compliance Report

The Directors confirm that to the best of their knowledge all

statutory payments relating to employees and the Government

that were due in respect of the Company as at the Balance Sheet

date have been paid or where relevant provided for.

On behalf of the Board

R C Peries

G D V Perera

Directors

Colombo

18th May 2012


Independent Auditors’ Report

TO THE SHAREHOLDERS OF KOTAGALA PLANTATIONS PLC

Report on the Financial Statements

We have audited the accompanying financial statements of

Kotagala Plantations PLC, which comprise the balance sheet as

at 31st March 2012, and the income statement, statement of

changes in equity and cash flow statement for the year then

ended, and other explanatory notes as set out in pages 35 to 64.

Management’s Responsibility for the Financial

Statements

Management is responsible for the preparation and fair

presentation of these financial statements in accordance with

Sri Lanka Accounting Standards. This responsibility includes:

designing, implementing and maintaining internal controls

relevant to the preparation and fair presentation of financial

statements that are free from material misstatement, whether

due to fraud or error; selecting and applying appropriate

accounting policies; and making accounting estimates that are

reasonable in the circumstances.

Scope of Audit and Basis of Opinion

Our responsibility is to express an opinion on these financial

statements based on our audit. We conducted our audit in

accordance with Sri Lanka Auditing Standards. Those standards

require that we plan and perform the audit to obtain reasonable

assurance whether the financial statements are free from

material misstatement.

An audit includes examining, on a test basis, evidence supporting

the amounts and disclosures in the financial statements. An

audit also includes assessing the accounting policies used

and significant estimates made by management, as well as

evaluating the overall financial statement presentation.

We have obtained all the information and explanations which

to the best of our knowledge and belief were necessary for

the purposes of our audit. We therefore believe that our audit

provides a reasonable basis for our opinion.

Opinion

In our opinion, so far as appears from our examination, the

Company maintained proper accounting records for the year

ended 31st March 2012, and the financial statements give a true

and fair view of the Company’s state of affairs as at 31st March

2012, and its profit and cash flows for the year then ended in

accordance with Sri Lanka Accounting Standards.

Report on Other Legal and Regulatory Requirements

These financial statements also comply with the requirements of

Section 151(2) of the Companies Act No. 07 of 2007.

Chartered Accountants

18th May 2012

Colombo

35

Income Statement

For the year ended 31st March 2012 2011

Note Rs`000 Rs`000

Revenue 3 3,610,320 3,683,366

Cost of Sales (2,964,093) (2,640,572)

Gross Profit 646,227 1,042,794

Other Operating Income 4 247,058 138,318

Administrative Expenses (237,453) (249,208)

Net Financing Cost 6 (123,971) (156,653)

Profit /(Loss) share of Associate Company 13.2 1,474 (509)

Profit before Income Tax Expense 5 533,335 774,742

Income Tax Expense 7 (94,727) (106,969)

Profit for the Year 438,608 667,773

Basic Earnings Per Share (Rs.) 8.1 13.71 20.86

Dividends per Share (Rs.) 8.2 2.00 10.00

The Accounting Policies and Notes on pages 39 to 64 form an integral part of these Financial statements.

Figures in brackets indicate deductions.


Balance Sheet

As at 31st March 2012 2011 Note Rs`000 Rs`000

ASSETS Non Current Assets Property, Plant & Equipment Leasehold Right to Bare Land of JEDB/SLSPC Estates 9 214,550 221,008 Immovable Leased Assets of JEDB/SLSPC Estates (Other than Bare Land) 10 173,067 188,256 Tangible Assets (Other than Mature/Immature Plantations) 11 935,636 964,151 Mature/Immature Plantations 12 2,325,501 1,999,207 Investment in Associates 13.1 90,965 89,491 Other long term Investments 13.3 636,811 283,128 4,376,530 3,745,241 Current Assets Inventories 14 459,150 527,441 Trade & Other Receivables 15 188,810 192,843 Amounts Due from Related Parties 16 323,345 455,079 Assets Held for Sale 13.4 - 120,000 Fixed Deposit 64,116 158,647 Cash and Cash Equivalents 17 1,091,737 573,338 2,127,158 2,027,348 Total Assets 6,503,688 5,772,589 EQUITY AND LIABILITIES Equity Stated Capital 18 320,000 320,000 General Reserve 240,000 240,000 Retained Earnings 1,911,241 1,792,633 Shareholders’ Funds 2,471,241 2,352,633 Non Current Liabilities Interest Bearing Borrowings 20.1 739,584 1,128,240 Retirement Benefit Obligations 21 568,897 550,226Deferred Income 19 309,496 311,616 Net Obligation to Lessor of JEDB/SLSPC 22 397,769 403,797 Deferred Taxation 23 276,923 177,890 2,292,669 2,571,769 Current Liabilities Interest Bearing Borrowings 20.2 389,621 284,480 Income tax payable - 33,925 Trade & Other Payables 24 511,544 396,977 Amounts Due to Related Parties 25 68,665 85,521 Bank Overdraft 17 769,948 47,284 1,739,778 848,187 Total Equity and Liabilities 6,503,688 5,772,589 Net Asset per share (Rs) 77.23 73.51

Notes on pages 39 to 64 form an integral part of these Financial Statements.I certify that the financial statements have been prepared in compliance with the requirements of the Companies Act No.7 of 2007

K M RameshDirector FinanceLankem Tea & Rubber Plantations (Pvt) Ltd -Managing Agents

The Board of Directors is responsible for the preparation and presentation of these Financial Statements.Approved and signed for and on behalf of the Board of Directors of Kotagala Plantations PLC.

R C Peries G D V Perera Director Director Colombo 18th May 2012

37

Statement of Changes in Equity

Stated General Retained Total Capital Reserve Earnings Equity

Rs.’000 Rs.’000 Rs.’000 Rs.’000

Balance as at 01st April, 2010 320,000 240,000 1,220,860 1,780,860

Dividend Paid - - (96,000) (96,000)

Net Profit for the year - - 667,773 667,773

Balance as at 31st March, 2011 320,000 240,000 1,792,633 2,352,633

Dividend Paid - - (320,000) (320,000)

Net Profit for the year - - 438,608 438,608

Balance as at 31st March, 2012 320,000 240,000 1,911,241 2,471,241

The Accounting Policies and Notes on pages 39 to 64 form an integral part of these Financial statements.



Cash Flow Statement


Rs`000 Rs`000

OPERATING ACTIVITIES Profit before Income Tax Expense 533,335 774,742

Adjustments for : Depreciation/Amortisation/Writeoff 165,868 145,185 Share of (Profit)/ Loss of Associate Company (1,474) 509 Profit on Disposal of Property, Plant and Equipment (2,259) (9,106)Profit on disposal of shares (30,000) (27,886)Interest Income (47,500) (13,179)Interest Expense 171,471 169,232 Exchange (gain) / Loss (129,130) 600 Provision for Retirement Benifit Obligation 88,166 103,835 Amortisation of Grants (9,222) (8,393)

Operating Profit before working capital changes 739,255 1,135,539 (Increase)/Decrease in Inventories 68,291 (114,056)(Increase)/Decrease in Trade & Other Receivables 4,033 18,492 (Increase)/Decrease in Amounts Due from Related Parties 131,734 (321,556)Increase/(Decrease) in Trade & Other Payables 132,802 (6,053)Increase/(Decrease) in Amounts Due to Related Parties (16,856) 80,690

Cash Generated from Operations 1,059,259 793,056 Income Tax/ESC paid (32,115) (8,105)Interest Received 47,500 13,179 Interest Paid (193,363) (133,115)Gratuity Paid (69,495) (50,445)

Net Cash from Operating Activities 811,786 614,570

INVESTING ACTIVITIES Purchase of Tangible Assetes (Other than Mature/ Immture Plantations) (46,702) (152,035)Investment in Immature Plantations (306,036) (261,499)Proceeds from Disposal of Property, Plant & Equipment 6,000 9,106 Net Investment in Fixed Deposit 98,078 (104,347)Proceeds from Disposal of shares 150,000 35,239 Investment in shares (350,375) (4,237)

Net cash used in Investing Activities (449,035) (477,774)

FINANCING ACTIVITIES Payments of Finance Lease Rental (30,856) (29,337)Payments to Lessor on Leasehold Rights (69,774) (65,075)Proceeds from Long Term Borrowings - 427,700 Repayments of Long Term Borrowings (277,259) (94,817)Grants Received 7,102 44,128 Dividend Paid (318,504) (94,819)

Net Cash used in Financing Activities (689,291) 187,779

Net Increase/(Decrease) in Cash and Cash Equivalents (326,540) 324,575 Cash and Cash Equivalents at the beginning of the year 526,054 202,821 Effect of Exchange Rate changes 122,275 (1,342)Cash and Cash Equivalents at the end of the year (Note 17) 321,789 526,054

The Accounting Policies and Notes on pages 39 to 64 form an integral part of these Financial Statements.


39

Notes to the Financial Statements

1. SUMMARY OF SIGNIFICANT ACCOUNTING

POLICIES

1.1 General

1.1.1 Basis of Preparation

The Balance Sheet and related Statements of Income, Cash

Flow, Changes in Equity and Accounting Policies and Notes

to the Financial Statements of Kotagala Plantations PLC have

been prepared in accordance with the Sri Lanka Accounting

Standards laid down by the Institute of Chartered Accountants

of Sri Lanka and requirements of Companies Act No 07 of 2007.

These Financial Statements are prepared in accordance with the

historical cost convention other than bare land and leased assets

of JEDB/SLSPC, which have been revalued as described in Note 9

and 10 to the Financial Statements. Where appropriate, specific

policies are explained in the succeeding notes. No adjustments

have been made for inflationary factors in the Financial

Statements. The said Financial Statements are prepared in Sri

Lankan Rupees. (Rs.) The Directors are responsible for preparation

& presentation of these financial statements.

1.1.2 Use of Estimates and Judgements

The preparation of Financial Statements in conformity with

SLAS requires management to make judgments, estimates

and assumptions that influence the application of accounting

policies and the reported amounts of assets, liabilities, income

and expenses. Judgments and estimates are based on historical

experience and other factors, including expectations that are

believed to be reasonable under the circumstances. Hence, actual

experience and results may differ from these judgments and

estimates.

Estimates and underlying assumptions are reviewed on an

ongoing basis. Revisions to accounting estimates are recognized

in the period in which the estimate is revised, if the revision

affects only that period and any future periods affected.

1.1.3 Going Concern

The Directors have made an assessment of the Company’s ability

to continue as a going concern and they do not intend either to

liquidate or to cease trading.

1.1.4 Comparative Information

The Accounting Policies have been consistently applied by the

Company with those used in the previous year. Previous year’s

figures and phrases have been rearranged wherever necessary to

conform to the current year’s presentation.

1.1.5 Events occurring after the Balance Sheet date

All material post balance sheet events have been considered and

where appropriate adjustments to or disclosures have been made

in the Financial Statements.

1.1.6 Income Tax

Income tax expense comprises current and deferred tax. Income

tax expense is recognized in profit or loss except to the extent

that it relates to items recognized directly in equity, in which case

it is recognized in equity.

Current Tax

Current tax is the expected tax payable on the taxable income

for the year, using tax rates enacted or substantively enacted at

the reporting date, and any adjustment to tax payable in respect

of previous years. The elements of income and expenditure as

reported in the financial statements and computed in accordance

with the provisions of the Inland Revenue Act No. 10 of 2006 and

amendments thereto. Relevant details are disclosed in note 7 to

the Financial Statements.

Deferred Tax

Deferred tax is provided using the liability method on temporary

differences at the balance sheet date between the tax bases

of assets and liabilities, and their carrying amounts for financial

reporting purposes.

Deferred tax assets and liabilities are recognised for all temporary

differences. Deferred tax assets are recognised for all deductible

temporary differences, carry forward of unused tax credits and

unused tax losses, to the extent that it is probable that taxable

profit will be available against which the deductible temporary

differences, and the carry-forward of unused tax credits and

unused tax losses can be utilized. The carrying amount of

deferred tax assets is reviewed at each balance sheet date and

reduced to the extent that it is no longer probable that sufficient

taxable profit will be available to allow all or part of the deferred

tax asset to be utilised. Unrecognised deferred tax assets are

reassessed at each balance sheet date and are recognised to the

extent that it has become probable that future taxable profit will

allow the deferred tax asset to be recovered. Deferred tax assets

and liabilities are measured at tax rates that are expected to

apply to the year when the asset is realised or liability is settled,

based on the tax rates and tax laws that have been enacted or

substantively enacted as at the balance sheet date. Income tax

relating to items recognized directly in equity is recognised in

equity. Deferred tax assets and deferred tax liabilities are offset,

if a legally enforceable right exists to set off current tax assets


against current tax liabilities and the deferred taxes relate to the

same taxable entity and the same taxation authority.

1.1.7 Borrowing Costs

Borrowing costs are recognised as an expense in the period in

which they are incurred, except to the extent where borrowing

costs that are directly attributable to the acquisition, construction,

or production of a qualifying asset, which takes a substantial

period of time to get ready for its intended use or sale are

capitalised as part of the specific asset. Borrowing Costs that

are not capitalised are recognised as expenses in the period in

which they are incurred and charged to the Income Statement.

The amount of borrowing costs eligible for capitalisation

are determined in accordance with the Allowed Alternative

Treatment of Sri Lanka Accounting Standard No. 20 -“Borrowing

Costs”. Borrowing costs incurred in respect of specific loans that

are utilised for field development activities have been capitalized

as a part of the cost of the relevant Immature Plantation. The

capitalisation will cease when the crops are ready for commercial

harvest. The amount so capitalised and the capitalisation rates

are disclosed in the notes to the financial statements.

1.2 Assets and Bases of Their Valuation

Assets classified as current assets in the Balance Sheet are cash

and those which are expected to realise in cash, during the

normal operating cycle of the Company’s business, or within one

year from the Balance Sheet date, whichever is shorter. Assets

other than current assets are those, which the Company intends

to hold beyond a period of one year from the Balance Sheet date.

1.2.1 Property, Plant and Equipment Property, Plant and

Equipment - Recognition and measurement

The Property, Plant & Equipment are recorded at cost /valuation

less accumulated depreciation and impairment losses. When an

asset is revalued, any increase in the carrying amount is credited

directly to a revaluation reserve, except to the extent that it

reverses a revaluation decrease of the same asset previously

recognised in the income statement, in which case the increase

is recognised in the income statement. Any revaluation deficit

that offsets a previous surplus in the same asset is directly offset

against the surplus in the revaluation reserve and any excess

recognised as an expense. Upon disposal, any revaluation reserve

relating to the asset sold is transferred to retained earnings.

Items of property, plant and equipment are derecognised upon

disposal or when no future economic benefits are expected from

its use. Any gain or loss arising on derecognition of the asset

is included in the income statement in the year the asset is

derecognised. The cost of property, plant & equipment is the cost

of purchase or construction together with any expenses incurred

in bringing the assets to its working condition for its intended

use. Expenditure incurred for the purpose of acquiring, extending

or improving assets of permanent nature by means of which to

carry on the businesses or to increase the earning capacity of

the business has been treated as capital expenditure. The cost

of property, plant and equipment is the cash price equivalent

at the recognition date. If payment is deferred beyond normal

credit terms, the difference between the cash price equivalent

and the total payment is recognized as interest over the period

of credit unless such interest is recognized in the carrying

amount of the item in accordance with the allowed alternative

treatment in SLAS 20. The carrying values of property plant and

equipment are reviewed for impairment when events or changes

in circumstances indicate that the carrying value may not be

recoverable.

- Subsequent Costs/ Replacement of Parts.

The cost of replacing part of an item of property, plant and

equipment is recognized in the carrying amount of the item if it

is probable that the future economic benefits embodied within

the part will flow to the Company and its cost can be measured

reliably. The carrying amount of those parts that are replaced is

derecognised. The costs of the day-to-day servicing of property,

plant and equipment are recognized in profit or loss as incurred.

a) Depreciation/Amortisation

Provision for depreciation is calculated by using a straight-

line method on the cost or valuation of all property, plant and

equipment, in order to write off such amounts over the estimated

useful economic life of such assets. The leased assets are

depreciated over the shorter of the lease term and their useful

lives.

Buildings & Land Improvement Over 40 years

Plant & Machinery Over 13 1/3 years

CTC Machinery Over 20 Years

Furniture & Fittings Over 10 years

Motor Vehicles Over 5 years

Equipment Over 8 years

Water Projects & Sanitation Over 20 years

Leasehold Assets

- Plant & Machinery Over 13 1/3 years

- Motor Vehicles Over 05 years

Mature Plantations

- Tea Over 33 1/3 years

- Rubber Over 20 years


41

The leasehold rights of assets taken over from JEDB/SLSPC are

being amortized in equal amounts, over the following years.

(Lower of lease period and economic useful life).

Bare Land Over 53 years

Mature Plantations

- Tea & Rubber Over 30 years

- Others Over 25 years

Buildings Over 25 years

Plant & Machinery Over 15 years

Land Development Cost Over 30 years

Water Supply Scheme Over 30 years

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 derecongnised. Leased

assets are depreciated over the shorter of the leased term and

their useful lives. The useful life, residual values and depreciation

methods of assets are reviewed, and adjusted if required, at the

end of each financial year.

1.2.2 Impairment of Assets

The carrying amount of the Company’s non financial assets,

other than inventories and deferred tax assets, are reviewed

at each reporting date to determine whether there is any

indication of impairment. If any such indication exists, then the

asset’s recoverable amount is estimated. For intangible assets

that have indefinite lives or that are not yet available for use,

recoverable amount is estimated at each reporting date. An

impairment loss is recognized if the carrying amount of an assets

or its cash generating units exceeds its recoverable amount.

A cash generating unit is the smallest identifiable asset group

that generates cash flows that largely are independent from

other assets and Company. Impairment losses are recognized

in profit or loss. The recoverable amount of an asset or cash

generating unit is the greater of its value in use and its fair value

less costs to sell. In assessing value in use, the estimated future

cash flows are discounted to their present value using pre tax

discount rate that reflects current market assessment of the time

value of money and the risks specific to the asset. In respect of

other assets, impairment losses recognized in prior periods are

assessed at each reporting date for any indications that the loss

has decreased or no longer exists. An impairment loss is reversed

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 amortization, if no impairment loss had

been recognized.

1.2.3 Permanent Land Development Costs

Permanent land development costs are those costs incurred to

make major changes to land contours to build new access roads

and other major infrastructure development. Such expenditure

on leasehold land has been capitalized and amortized over

the remaining lease period. Permanent impairments to land

development costs are charged to the Income Statement in full

or reduced to the net carrying amounts of such asset in the year

of occurrence after ascertaining the loss.

1.2.4 Limited Life Land Development Costs

(Immature and Mature Plantations)

The cost of new planting, replanting, interplanting and crop

diversification incurred between the time of field development

and being ready for commercial harvesting are classified as

immature plantations. Further, the general charges incurred

on the plantation are apportioned on the labour days spent on

respective replanting and new planting, and capitalized on the

immature areas. The remaining portion of the general charges

is charged to the Income Statement in the year in which it is

incurred. No depreciation is provided for immature plantation.

The total expenditure incurred on perennial crops (Tea & Rubber)

which come into bearing during the year have been transferred

to mature plantations and depreciated over its useful life time.

No depreciation has been charged on mature plantations in the

year of transfer. Permanent impairments to land development

costs are charged to the Income Statement in full or reduced to

the net carrying amounts of such asset in the year of occurrence

after ascertaining the loss.

1.2.5 Infilling Cost

Where infilling results in an increase in the economic life of

the relevant field beyond its previously assessed standard of

performance, the costs are capitalized in accordance with Sri

Lanka Accounting Standard 32 “Plantations” and depreciated over

the useful life at rates applicable to mature plantations. Infilling

costs that are not capitalized have been charged to the Income

Statement in the year in which they are incurred.

1.2.6 Leased Assets

Property, Plant and Equipment on finance leases, (which

effectively transfer substantial risks and benefits incidental

to ownership of the leased item) are capitalized at their cash

price, and depreciated/amortized over the period the Company

is expected to benefit from the use of the leased assets. The

corresponding principal amount payable to the lessor is shown as

a liability. The interest element of the rental obligation applicable

to each financial year is charged to the Income Statement over

the period of the lease so as to produce a constant periodic


rate of interest on the remaining balance of the liability for

each period. The cost of improvements to the leased property

is capitalized and depreciated over the unexpired period of

the lease or the estimated useful lives of the improvements

whichever is shorter.

1.2.7 Investments

1.2.7.1 Investments in Associates

Investments in companies where the company has the significant

influence have been treated as associate companies. The results

of the associate companies have been accounted for on the

equity method of accounting, by incorporating the investor’s

share of profits or losses in the income statement, and the

related investment is presented in the Balance Sheet at values

adjusted to reflect the company’s share of retained assets. The

carrying value of the investment in such associates is reduced

to the extent of the dividend received from these associate

companies.

1.2.7.2 Other Long Term Investments

All the other long term investments are reflected in the

Balance Sheet at cost less any amount written off to reflect any

permanent diminution in the value of such investments. The

investments are also tested for impairment annually.

1.2.8 Inventories

Inventories other than produce stocks are valued at the lower

of cost and estimated net realisable value, after making due

allowance for obsolete and slow moving items. Net realisable

value is the price at which stocks can be sold in the normal

course of business after allowing for cost of realisation and/

or cost of conversion from their existing state to saleable

condition. Cost is arrived as follows, Input Material At actual

cost on FIFO basis. Growing Crop Nurseries At the cost of direct

materials, direct labour, and an appropriate proportion of directly

attributable overheads less provision for overgrown plants. Spares

and Consumables At actual cost on FIFO basis. Produce Stocks

Valued on the basis of estimated realisable price or since realised

price.

1.2.9 Trade and Other Receivables

Trade receivables are stated at the amounts they are estimated

to realise inclusive of provisions for bad and doubtful debts. Other

receivables and dues from related parties are recognised at cost

less provision for bad and doubtful receivables.

1.2.10 Cash and Cash Equivalents

Cash and cash equivalents are defined as cash in hand, demand

deposits and short term highly liquid investments readily

convertible to known amounts of cash and subject to insignificant

risk of changes in value. For the purpose of Cash Flow Statement,

cash and cash equivalents consist of cash in hand and deposits

in banks net of outstanding bank overdrafts. Interest paid and

received are classified as operating cash flows for the purpose of

presentation of Cash Flow Statement. The cash flow Statement

reported is based on indirect method.

1.3 Liabilities and Provisions

1.3.1 Retirement Benefits to Employees

a) Defined Benefit Plans

The Retirement Benefit Plan adopted is as required under the

Payment of Gratuity Act No 12 of 1983 and the Indian Repatriate

Act No. 34 of 1978 to eligible employees. This item is grouped

under Retirement Benefit Obligations in the Balance Sheet.

Provision for Gratuity on the employees of the Company is on

an actuarial basis, using the Projected Unit Credit (PUC) method

as recommended by Sri Lanka Accounting Standard No.16

(revised 2006) “Employee Benefits”. The actuarial valuation was

carried out by a professionally qualified firm of actuaries Messrs

Actuarial and Management Consultants (Pvt) Limited as at 31st

March 2011. The Company expects to carry out a comprehensive

actuarial valuation once in every two years, unless there’s a

revision of wage rates. The key assumptions used by the actuary

include the following:

i Rate of Interest -11% p.a. (net of tax)

ii Rate of Salary Increase

- Workers -16% every two years

- For other

categories of staff -10% p.a.

iii Retirement Age

- Workers - 60 years

- For other categories of staff - 60 years

iv Daily wage rate Rs. 380/ - for workers.

v The Company will continue in business as a going concern.

The liability is not externally funded. However according to the

Payment of Gratuity Act No. 12 of 1983, the liability for payment

to an employee arises only after the completion of 5 years

continued services.

b) Defined Contribution Plans - EPF, ESPS, CPPS & ETF

All employees who are eligible for defined Provident Fund

Contributions (EPF, ESPS & CPPS) and Employees Trust Fund

Contributions are covered by relevant contributory funds in line

with respective statutes.


43

1.3.2 Trade and Other Payables

Trade and other payables are stated at their costs.

1.3.3 Provisions, contingent assets and contingent liabilities

A provision is recognized if, as a result of a past event, the

Company 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

All contingent liabilities are disclosed as a note to the financial

statements unless the outflow of resources is remote. Contingent

assets are disclosed, where inflow of economic benefit is

probable.

1.4 Deferred Income

1.4.1 Grants and Subsidies

Grants and subsidies are credited to the Income Statement over

the periods necessary to match them with the related costs,

which hey are intended to be compensated on a systematic

basis. Grants related to Property, Plant and Equipment, including

non-monetary grants at fair value is deferred in the Balance

Sheet and credited to the Income Statement over the useful life

of the related assets. Grants related to income are recognised in

the Income Statement in the period in which it is receivable.

1.5 Income Statement

1.5.1 Revenue and Expenditure Recognition

1.5.1.1 Revenue Recognition

Revenue from rendering services or sale of goods is measured

at the fair value of the consideration received or receivable, net

of returns and allowances, trade discounts and volume rebates.

Revenue is recognized when the significant risks and rewards of

ownership have been transferred to the buyer, recovery of the

consideration is provable, the associated costs and possible return

of goods can be estimated reliably, and there is no continuing

management involvement with the goods or services rendered.

The following specific criteria are used for recognition of revenue:

a) In keeping with the practice in the Plantation Industry,

revenue on Perennial crops are recognized in the financial

period of harvesting. Revenue is recorded at invoice value

net of brokerage, sale expenses and other levies related to

revenue.

b) Gains or losses of a revenue nature have been accounted

for in the Income Statement.

c) Interest income is recognised on accrual basis.

d) Other income is recognised on accrual basis.

1.5.1.2 Expenditure Recognition

a) All expenditure incurred in the running of the business and

in maintaining the Property, Plant and Equipment in state

of efficiency has been charged to income statement in

arriving at the profit/(loss) for the year.

b) For the purpose of presentation of Income Statement,

the Directors are of the opinion that function of expenses

method presents fairly the elements of the enterprise’s

performance and, hence such presentation method is

adopted.

1.6 Segmental Reporting

A Segment is a distinguishable component of the Company that

is engaged in providing services, which is subject to different

risks and rewards. The Company’s core business is manufacturing

and sale of Tea and this line of business accounts for the entire

operation of the company. The Company’s business is located

in different geographical locations where the risks and rewards

related to each segment could be identified. Revenue and

expenses directly attributable to each segment are allocated

intact to the respective segments. Revenue and expenses not

directly attributable to a segment are allocated on the basis of

their resource utilisation wherever possible. Assets and Liabilities

directly attributable to each segment are allocated intact to the

respective segments. Assets and Liabilities, which are not directly

attributable to a segment, are allocated on a reasonable basis

whenever possible.

1.7 Effects of Accounting Standards issued but not yet ef-

fective

The institute of chartered Accountants of Sri Lanka has issued

a new volume of Sri Lanka Accounting Standards which will

become applicable for financial periods beginning on or after 1st

January 2012. Accordingly, these standards have not been applied

in preparing these financial statements as the effective dates of

these standards are after the Balance Sheet date.

These Sri Lanka Accounting Standards comprise accounting

standards prefixed both SLFRS (corresponding to IFRS) and LKAS

(corresponding to IAS). Application of Sri Lanka Accounting

Standards prefixed SLFRS and LKAS for first time shall be deemed

to be an adoption of SLFRSs.

The Company is currently in the process of evaluating the

potential effect of these standards on its financial statements and

the impacts of the adoption of these standards have not been

quantified as at balance sheet date.


2. CORPORATE INFORMATION

2.1 Domicile and Legal Form

Kotagala Plantations PLC (Formerly known as Kotagala Plantations

Limited) is a limited liability Company incorporated and

domiciled in Sri Lanka, under the Companies Act No. 17 of 1982

(reregistered under the Companies Act No 7 of 2007) in terms

of the provisions of the Conversion of Public Corporation and

Government Owned Business Undertaking into Public Companies

Act No. 23 of 1987. The registered office of the Company is

located at No 53-1/1, Sir Baron Jayathilaka Mawatha, Colombo

01 and Plantations are situated in the planting districts of Nuwara

Eliya and Kalutara.

2.2 Historical Background

The Company was formed on 22 June 1992 under the Companies

Act No. 17 of 1982 (reregistered under the Companies Act

No 7 of 2007) in terms of the provisions of the conversion of

Corporations and Government Owned Business Undertakings in to

public companies Act No. 23 of 1987, to take over the plantations

which were owned and Managed by Janatha Estate Development

Board (JEDB) and the Sri Lanka Estate Plantation Corporation

(SLSPC) both of which owned and managed a number of

plantations and estates.

2.3 Parent and Ultimate Parent Company

The Company’s parent undertaking and controlling party is

Lankem Plantation Holdings Limited which is incorporated in Sri

Lanka as a limited liability company, and the ultimate parent

Company is The Colombo Fort Land and Building Co. PLC.

2.4 Principal Activities and Nature of Operations

During the year, the principal activity of the Company was the

cultivation, manufacture and sale of Tea and Rubber, which

remained unchanged.


45


Rs`000 Rs`000

3. REVENUE Sale of Produce Tea 2,172,853 2,249,188 Rubber 1,437,467 1,434,178 3,610,320 3,683,366

3.1) Segmental Analysis of Principal Crops

Tea Rubber Total Total

2012 2011 2012 2011 2012 2011

Rs`000 Rs`000 Rs`000 Rs`000 Rs`000 Rs`000

a) Segmental Result

Revenue 2,172,853 2,249,188 1,437,467 1,434,179 3,610,320 3,683,366

Less:Cost of Sales (2,211,698) (2,002,789) (752,395) (637,784) (2,964,093) (2,640,572)

Gross Profit / (Loss) (38,845) 246,399 685,072 796,395 646,227 1,042,794

Less: Unallocated Expenses (361,424) (405,861)

Add: Other Income 247,058 138,318

Profit before Income Tax Expense 531,861 775,251

Share of Profit/(Loss) of Associate Company 1,474 (509)

Income Tax Expense (94,727) (106,969)

Net Profit for the year 438,608 667,773

b) Segmental Assets

Non current assets 1,504,315 1,551,884 1,840,904 1,766,826 3,345,219 3,318,710

Current assets 400,150 402,854 201,286 196,966 601,436 599,819

1,904,465 1,954,738 2,042,190 1,963,792 3,946,655 3,918,529

Unallocated 2,557,033 1,854,060

Total Assets 6,503,688 5,772,589

c) Segmental Liabilities

Non current liabilities 462,654 430,554 164,990 182,617 627,644 613,171

Current liabilities 174,688 114,365 121,343 90,495 296,031 204,860

637,342 544,919 286,333 273,112 923,675 818,031

Unallocated 3,108,772 2,601,925

Total Liabilities 4,032,447 3,419,956

d) Segmental Capital Expenditure

Allocated 137,009 262,239 203,079 211,775 340,088 474,014

Unallocated 105,631 43,883

Total Capital expenditure 137,009 262,239 203,079 211,775 445,719 517,897

e) Segmental Depreciation

Allocated 72,627 57,236 74,705 74,823 147,332 132,059

Unallocated 18,139 13,126

Total Depreciation 72,627 57,236 74,705 74,823 165,471 145,185



Rs`000 Rs`000

4. OTHER OPERATING INCOME

Amortisation of Capital Grants 9,222 8,393

Profit on Disposal of Property, Plant & Equipment 2,259 9,106

Profit on Disposal of Shares 30,000 27,886

Sale of Rubber and Other Trees 44,444 68,696

Rent Income 5,490 2,325

Sale of Refuse Tea 10,836 13,407

Exchange gain 129,130 -

Dividend Income 12,908 6,442

Sundry Income 2,769 2,063

247,058 138,318

5. PROFIT BEFORE INCOME TAX EXPENSE

Is stated after charging all expenses including the following;

Directors’ Emoluments 7,550 4,550

Auditor’s Remuneration - Audit fees and expenses 2,800 2,500

- Audit related services 90 46

- Non Audit 80 80

Depreciation/Amortisation

- Leasehold rights to Bare Land 6,458 6,458

- Immovable Leased Assets 15,209 15,209

- Tangible Property, Plant & Equipment 86,853 90,851

- Mature Plantations 56,951 50,006

Managing Agent’s Fees - Lankem Tea & Rubber Plantations (Pvt) Limited 87,489 138,388

Personnel Costs Includes; - Salaries and Wages 1,716,156 1,293,956

- Defined Benefit Plan Cost - Retiring Gratuity 88,166 103,835

- Defined Contribution Plans - EPF, ETF,CPPS and ESPS 186,633 163,027

6. NET FINANCING COSTS

Finance Income

Interest Income 47,500 13,179

47,500 13,179

Finance Cost On;

Bank Overdraft (31,947) (3,124)

Finance Leases (8,759) (7,860)

Net Obligation to Lessor (46,556) (89,392)

Debentures (2,747) (4,168)

Bank Loans (71,514) (64,209)

Broker Advances (9,467) -

Related Company Loans (480) (480)

Exchange loss - (600)

(171,471) (169,833)

Net Financing Cost (123,971) (156,653)


47

7. INCOME TAX EXPENSE

7.1) Current Taxation

Profits from any agricultural undertaking which falls within the Section 16 of the Inland Revenue Act No. 10 of 2006, was exempt for

a period of 5 years from 2006/2007. ( Expired on 31st March 2011). Such profits are liable for income tax at 10% from the year of

assessment 2011/2012. The Corporate rate of tax applicable for Agriculture is 10% and Manufacturing and other income is 28%.


Rs`000 Rs`000

Income tax on profits for the year 22,869 47,486

Under/(over) Provision in respect of previous years (27,175) 16,349

Deferred Tax charge for the year (Note 23) 99,033 43,134

94,727 106,969

7.2) Reconciliation between accounting profit and Income tax

Accounting Profit before Income Tax Expense 531,861 775,251

Aggregate Disallowed Items 277,275 288,264

Aggregate Allowable Expenses (701,348) (231,614)

Statutory Income from Business 107,788 831,901

Statutory Income exempt from taxation under section 16 - (643,223)

Statutory Income not covered under section 16 107,788 188,678

Other sources of income 97,348 16,968

Total Statutory Income 205,136 205,646

Tax Losses set off during the year (71,797) (71,976)

Assessable Income 133,338 133,670

Taxable Income 133,338 133,670

Income Tax at the rate of 10% 8,037 46,785

Income Tax at the rate of 28% 14,832 -

Social Responsibility Levy @ 1.5% - 701

Current Income Tax Expense 22,869 47,486

7.3) Tax Losses

Tax Loss Brought Forward 455,224 567,606

Adjustments to b/f Tax losses 42,761 (40,406)

Tax Losses set off during the year (71,797) (71,976)

Tax Loss Carried Forward 426,188 455,224

7.4) During the year, Rs.7.9Mn. has been paid as ESC and set off against the income tax payable.

8. BASIC EARNINGS PER SHARE/DIVIDENDS PER SHARE

8.1 Basic Earnings per Share

The computation of Basic Earnings per Share is based on profit attributable to ordinary shareholders after tax for the year divided by

the weighted average number of ordinary shares outstanding during the year and calculated as follows;


Amount used as the Numerator

Profit attributable to Ordinary Shareholders (Rs.’000) 438,608 667,773 Amount used as the Denominator Weighted average number of Ordinary Shares (‘000) 32,000 32,000 Basic Earnings per Share (Rs.) 13.71 20.86


8.2 Dividends per Share

The Directors have recommended the payment of a first and final dividend of Rs. 2.00 per share amounting to Rs. 64,000,000/-

for the year ended 31 March 2012, which will be declared at the Annual General Meeting. However, in accordance with Sri Lanka

Accounting Standard No. 12 (Revised) - “Events after the Balance Sheet Date”, this proposed first and final dividend has not been

recognised as a liability as at 31st March 2012.


Amount used as the Numerator Proposed/Paid Dividends for the year (Rs.’000) 64,000 320,000 Amount used as the Denominator

Number of Ordinary Shares (‘000) 32,000 32,000 Dividend per Share (Rs.) 2.00 10.00

9. LEASEHOLD RIGHT TO BARE LAND OF JEDB/SLSPC ESTATES

The leases of all the 23 estates have been executed and will be retroactive from 22nd June, 1992. The leasehold rights to land on all

these estates have been taken into the books of the Company as at 22nd June, 1992 immediately after formation of the Company,

in terms of the ruling obtained from the Urgent Issues Task Force (UITF) of the Institute of Chartered Accountants of Sri Lanka. For this

purpose, the Board decided at its meeting held on 8th March,1995 that these bare lands would be revalued, at the value established

for these lands, by the valuation Specialist Mr.D.R.Wickramasinghe, just prior to the formation of the Company. The value taken into

the 22nd June, 1992, Balance Sheet and the amortisation of leasehold rights upto 31st March, 2012 are as follows.

Revaluation As at Balance Balance

Life of 22.06.1992 31.03.2012 31.03.2011

the Asset Rs`000 Rs`000 Rs`000

Leasehold Right to Bare Land of

JEDB/SLSPC Estates 53 years 358,928 342,287 342,287

Amortisation Carrying Value

Balance Charge Balance As As

as at for the as at at at

year

01.04.2011 31.03.2012 31.03.2012 31.03.2011

Rs`000 Rs`000 Rs`000 Rs`000 Rs`000

121,278 6,458 127,736 214,550 221,008


49

10. IMMOVABLE LEASED ASSETS OF JEDB/SLSPC ESTATES (OTHER THAN BARE LAND)

In terms of the ruling of the UITF of the Institute of Chartered Accountants of Sri Lanka, all immovable assets in the JEDB/SLSPC

estates under finance leases have been taken into the books of the Company retroactive to 22nd, June 1992. For this purpose, the

Board decided at its meeting on 8th March, 1995 that these assets be restated at their book values as they appear in the books of

the JEDB/SLSPC , on the day immediately preceeding the date of formation of the Company. These assets are taken into the Balance

Sheet as at 22nd June 1992 and depreciated as follows:

Revaluation As at Balance Balance

as at as at

Life of 22.06.1992 31.03.2012 31.03.2011

the Asset Rs`000 Rs`000 Rs`000

Land Development Cost 30 years 6,712 6,701 6,701

Buildings other than worker housing 25 years 26,519 25,902 25,902

Plant & Machinery 15 years 8,757 8,757 8,757

Water Projects and Sanitations 30 years 8,688 8,688 8,688

Mature Plantations -

- Tea 30 years 69,767 227,655 227,655

- Rubber 30 years 61,138 172,379 172,379

- Others 25 years - 8,140 8,140

Immature Plantations

- Tea 158,960 - -

- Rubber 126,898 - -

- Others 8,140 - -

475,579 458,222 458,222

Amortisation Balance Charge Balance As As

as at for as at at at

01.04.2011 the year 31.03.2012 31.03.2012 31.03.2011

Rs`000 Rs`000 Rs`000 Rs`000 Rs`000

Land Development Cost 4,192 223 4,415 2,285 2,506

Buildings other than Worker Housing 19,454 1,036 20,490 5,412 6,446

Plant & Machinery 8,755 - 8,755 2 -

Water Projects and Sanitations 5,437 290 5,727 2,962 3,250

Mature Plantations

- Tea 131,337 7,588 138,925 88,730 96,313

- Rubber 97,516 5,746 103,262 69,117 74,858

- Others 3,255 326 3,581 4,560 4,884

Immature Plantations

- Tea - - - -

- Rubber - - - -

- Others - - - -

269,946 15,209 285,155 173,067 188,256

Investment in Immature Plantations at the time of handing over to the Company by way of estate leases are shown under Immature

Plantations as at 22.06.1992. Further investment in such plantations to bring them to maturity are shown under Note 12.


11.

TAN

GIB

LE A

SSET

S (O

THER

TH

AN

MA

TURE

/ IM

MA

TURE

PLA

NTA

TIO

NS)

Bu

ildin

gs

Wat

er

Plan

t an

d M

achi

nery

M

otor

Veh

icle

s

Equi

pmen

t Fu

rnit

ure

Wor

k-in

31.

03.2

012

31.0

3.20

11

an

d La

nd

Proj

ects

and

and

Prog

ress

Im

prov

emen

ts

Sani

tati

ons

Free

hold

Le

aseh

old

Free

hold

Le

aseh

old

Fi

ttin

gs

To

tal

Tota

l

Rs

`000

Rs

`000

Rs

`000

Rs

`000

Rs

`000

Rs

`000

Rs

`000

Rs

`000

Rs

`000

Rs

`000

Rs

`000

Cost

At th

e be

ginn

ing

of th

e ye

ar

557,

703

60,8

89

451,

005

23,6

74

192,

435

78,4

05

59,5

54

9,27

0 6,

652

1,43

9,58

7 1,

252,

868

Addi

tions

/Tra

nsfe

r in

11,8

17

464

12,7

01

- 1,

320

15,7

74

5,53

3 36

6 14

,831

62

,806

23

8,67

8

Disp

osal

s/Tr

ansf

er o

ut

- -

(489

) -

(8,8

96)

- -

- (3

30)

(9,7

15)

(51,

964)

At th

e en

d of

the

year

56

9,52

0 61

,353

46

3,21

7 23

,674

18

4,85

9 94

,179

65

,087

9,

636

21,1

53

1,49

2,67

8 1,

439,

587

Dep

reci

atio

n

At th

e be

ginn

ing

of th

e ye

ar

63,2

65

19,5

79

167,

929

7,07

2 15

5,88

6 20

,613

33

,400

7,

692

- 47

5,43

6 41

0,31

5

Char

ge fo

r the

yea

r 13

,803

3,

098

31,6

44

1,75

1 13

,853

17

,020

5,

428

256

- 86

,853

90

,851

Disp

osal

s/Tr

ansf

er o

ut

-

(92)

-

(5,1

55)

- -

- -

(5,2

47)

(25,

730)

At th

e en

d of

the

year

77

,068

22

,677

19

9,48

1 8,

823

164,

584

37,6

33

38,8

28

7,94

8 -

557,

042

475,

436

Carr

ying

Val

ue a

s at

31.

03.2

012

492,

452

38,6

76

263,

736

14,8

51

20,2

75

56,5

46

26,2

59

1,68

8 21

,153

93

5,63

6 -

Carr

ying

Val

ue a

s at

31.

03.2

011

494,

440

41,3

11

283,

077

16,6

03

36,5

49

57,7

93

26,1

55

1,57

9 6,

652

- 96

4,15

1

(a)

The

asse

ts s

how

n ab

ove

are

thos

e m

ovab

le a

sset

s ve

sted

in t

he C

ompa

ny b

y G

azet

te n

otifi

catio

n on

the

dat

e of

for

mat

ion

of t

he C

ompa

ny (

22.0

6.19

92)

and

all i

nves

tmen

t in

tang

ible

ass

ets

by t

he C

ompa

ny s

ince

its

form

atio

n. T

he a

sset

s ta

ken

over

by

way

of

esta

te le

ases

are

set

out

in N

otes

9 a

nd 1

0.


51

Mature Plantations Immature Plantations 31.03.2012 31.03.2011

Tea Rubber Tea Rubber Other Total Total

Cost Rs`000 Rs`000 Rs`000 Rs`000 Rs`000 Rs`000 Rs’000

At the beginning of the year 542,320 675,882 284,327 697,865 150,741 2,351,133 2,028,498

Additions/Transfer in 67,760 90,025 104,902 188,324 90,017 541,028 459,854

Transfer out (67,760) (90,025) - (157,785) (137,221)

At the end of the year 610,080 765,907 321,469 796,164 240,758 2,734,378 2,351,133

Depreciation

At the beginning of the year 130,298 221,626 - - - 351,924 301,918

Charge for the year 18,924 38,027 - - - 56,951 50,006

At the end of the year 149,222 259,653 - - - 408,875 351,924

Carrying Value as at 31.03.2012 460,858 506,254 321,469 796,164 240,758 2,325,501

Carrying Value as at 31.03.2011 412,020 454,254 284,325 697,863 150,739 1,999,207

a) These are investments in mature/immature plantations since the formation of the Company. The assets (including plantation assets)

taken over by way of estate leases are set out in Notes 9 and 10. Further investment in Immature Plantations taken over by way of

leases are shown in this note. When such plantations become mature, the additional investments since taken over to bring them to

maturity are transferred from immature to mature under this note. A corresponding movement, from Immature to Mature, in respect

of the investment undertaken by JEDB/SLSPC on the same plantation prior to the leases are shown under Note 10.

b) Borrowing costs amounting Rs. 22.9 million (2010/2011 - Rs. 18.6 million) on Tea, and Rs. 54.3 million (2010/2011- Rs 47.8 million)

on Rubber incurred on term loans and overdrafts utilised to finance replanting expenditure of tea and rubber have been capitalised.

The average rate of interest for capitalisation was 11.4% (2010/11 -11.0%) The capitalisation will cease when crops are ready for

harvest.

c) Other immature plantations includes Eucalyptus, Other Timber etc. which have been cultivated and managed in separate fields and

other crops such as Cinnamon, Coconut etc. and carried at cost less impairment.

13. INVESTMENTS

As at 31st March 2012 2011

Holding % Rs`000 Rs`000

13.1 Investments in Associates

90,000,000 Ordinary shares in York Hotels (Kandy) Ltd 41.70% 90,965 89,491

90,965 89,491

13.2 Investments in York Hotels (Kandy) Ltd

Balance as at beginning of the year 89,491 90,000

Share of Profit/ (loss) for the year 1,474 (509)

Balance at the end of the year 90,965 89,491

12. MATURE/IMMATURE PLANTATIONS



Rs`000 Rs`000

13.3 Other Long Term Investments

7,157,857 Ordinary shares in C.W. Mackie PLC (Market Value - Rs. 534.5 Mn.) 251,545 251,545

20,000,000 Ordinary shares in Agarapatana Plantations Ltd 200,000 -

6,016,000 Ordinary shares in Lankem Development PLC (Market Value - Rs. 62.6 Mn.) 150,437 62

26,083 Ordinary shares in Sigiriya Village Hotels PLC (Market Value - Rs. 1.9 Mn.) 963 963

62,677 Ordinary shares in Marawila Resorts PLC (Market Value - Rs. 0.4 Mn.) 340 340

9,949,991 Ordinary Shares in Beruwala Resorts Limited 11,300 11,300

200 Debentures in Bank of Ceylon (US $ 200,000) 25,226 21,918

Provision for dimunition in value of Beruwala Resorts Limited (3,000) (3,000)

636,811 283,128

13.4 Assets Held for Sale

6,000,000 Ordinary shares in Agarapatana Plantations Ltd - 120,000

14. INVENTORIES

Input Materials 39,044 70,691

Growing Crop Nurseries 45,631 20,063

Produce Stock (Tea and Rubber) 336,737 389,199

Spares and Consumables 37,738 47,488

459,150 527,441

15. TRADE & OTHER RECEIVABLES

Trade Receivables 71,592 98,790

Advances, Deposits, Prepayments & Other Receivables 95,087 67,590

Employee Advances (Note 15.1) 28,649 32,981

195,328 199,361

Less : Provision for bad and doubtful Receivables (6,518) (6,518)

188,810 192,843

15.1) No Loans over Rs. 20,000/- have been granted to employees and workers of the Company.

16 AMOUNTS DUE FROM RELATED PARTIES


Relationship Rs`000 Rs`000

Agarapatana Plantations Ltd Affiliate Co. 6,318 144,588

Lankem Plantations Holdings Ltd Parent Co. 9 9

Creasy Plantations Management Ltd Affiliate Co. - 2

E B Creasy & Co. PLC Affiliate Co. 208 208

Sherwood Holidays Ltd Affiliate Co. 9,198 8,330

Marawila Resorts PLC Affiliate Co. 184 209

Beruwala Resorts Ltd Affiliate Co. 13 13

Lankem Ceylon PLC (Note 16.1) Intermediate Parent Company 306,731 300,000

Ceylon Tea Brokers PLC Affiliate Co. 684 1,721

323,345 455,079

16.1) Lankem Ceylon PLC

The company has granted a loan of Rs. 300 Million to Lankem Ceylon PLC (Intermediate Parent Company) on 28th March 2011 at an

interest rate of 9% per annum payable quarterly.


53

17. CASH AND CASH EQUIVALENTS


Rs`000 Rs`000

Cash at Bank and Cash in Hand 1,091,737 573,338

Bank Overdraft (Note 17.1) (769,948) (47,284)Cash and cash equivalents for the purpose of the Cash Flow Statement 321,789 526,054

17.1) Bank Overdraft

Bank : Seylan Bank

Purpose : To finance working capital requirements.

Facility : Rs. 130,000,000/-

Securities Pledged : Primary mortgage over leasehold rights of the estate lands and buildings, fixed

and floating assets of Yuilliefield and Chrystlers Farm Estates

: Primary mortgage over leasehold rights of the estate lands and buildings of

Eduragala and Sorana Estates.

18. STATED CAPITAL


32,000,000 Ordinary Shares 320,000,000 320,000,000 01 Golden Share (Note 18.1) 10 10 320,000,010 320,000,010

18.1) The Golden Shareholder

The total amount received by the Company in respect of issue of shares are referred to as Stated Capital. The Golden

share is currently held by Secretary to the Treasury and should be owned either directly by the Government of Sri Lanka

or by a 100% Government owned public Company. In addition to the rights of the normal ordinary shareholders, in

terms of the Articles of the Company, following special rights are vested with the Golden Shareholder.

a) The Company shall obtain the written consent of the Golden Shareholder prior to sub-leasing, ceding or assigning its

rights in part or all of the lands leased to the Company by the JEDB/SLSPC.

b) The Golden Shareholder shall be entitled to call upon the Board of Directors once in three months to meet him or his nominee to

discuss matters of the Company of interest to the estate.

c) The Golden Shareholder and or his nominee shall be entitled to inspect the books of accounts of the Company afte giving two weeks

written notice to the Company.

d) The company shall submit to the Golden Shareholder, within 60 days of the end of each quarter, a quarterly report relating to

the performance of the Company during the said quarter in a pre- specified format agreed to by the Golden Shareholder and the

Company

e) The Company shall submit to the Golden Shareholder, within 90 days of the end of each fiscal year, information related to the

company in a pre-specified format agreed to by the Golden Shareholder and the Company.


19. DEFERRED INCOME

Total Total

ADB-PRP PDSP PHDT Others as at as at

31.03.2012 31.03.2011

Grants and Subsidies Rs.`000 Rs.`000 Rs.`000 Rs.`000 Rs.`000 Rs.`000

Balance at the beginning of the year 39,580 197,960 17,352 56,724 311,616 275,881

Received during the year - - - 7,102 7,102 44,128

39,580 197,960 17,352 63,826 318,718 320,009

Amortisation for the year (986) (6,139) (1,219) (878) (9,222) (8,393)

Balance at the end of the year 38,594 191,821 16,133 62,948 309,496 311,616

The above represents the following :

(i) Asian Development Bank - Plantation Reform Project (ADB - PRP)

The funds received are utilised for construction of Staff Quarters, Water Projects, Latrines, Farm Roads and purchase of Forestry

Equipment.

(ii) Plantation Development Support Programme (PDSP)

The funds received are utilised for construction of Dispensaries, Staff Quarters, Water Projects and upgrading Creches.

(iii) Plantation Human Development Trust (PHDT)

The funds received are utilised for construction of Worker Housing, Water Projects and purchase of Ambulance.

(iv) Others

a) Ministry of Livestock Development and Estate Infrastructure

The funds received are utilised for construction of Community Centers, Agency Post Offices and Upgrading Farm Roads and

Creches.

b) Sri Lanka Tea Board

Funds received are utilised for the construction of the CTC Tea Factory at Mount Vernon Estate.

The amounts spent are capitalised under the relevant classification of Property Plant & Equipment and the corresponding grant component

is reflected under deferred grants and subsidies and amortised over useful life span of the asset.

20. INTEREST BEARING BORROWINGS


Note Rs`000 Rs`000

20.1) Payable after one year

Debentures 20.3 65,000 65,000

Term Loans 20.4 636,742 1,022,341

Finance Leases 20.5 37,842 40,899

739,584 1,128,240

20.2) Payable within one year

Debentures 20.3 35,000 35,000

Term Loans 20.4 337,530 229,191

Finance Leases 20.5 17,091 20,289

389,621 284,480


55

20.3) Debenture

The Company issued Rs.35Mn. and Rs.65Mn. Guaranteed Redeemable Debentures (unquoted) on 23/04/2009 and 17/07/09

respectively to the Plantations Trust Fund at the interest rate of 15.86% . These Debentures are redeemable in 2012 (Rs.35Mn.),

2013 (Rs.50 Mn.), and 2014 (Rs.15Mn.)

20.4) Term Loans

Cost NDB DFCC Sampath LOLC Peoples Peoples Peoples Total Total

Bank Bank Bank Leasing - E friends Bank 31.03.2012 31.03.2011

Rs`000 Rs`000 Rs`000 Rs`000 Rs`000 Rs`000 Rs`000 Rs`000 Rs`000

Payable within one year 130,113 26,180 6,252 5,714 3,473 7,457 50,000 229,191 53,084

Payable after one year 789,494 80,440 40,622 22,381 31,323 28,914 29,167 1,022,341 865,563

At the beginning of the year 919,607 106,620 46,874 28,095 34,796 36,371 79,167 1,251,532 918,647

Add: Loans Obtained during

the year - 427,700

Less: Repayments made

during the year (167,613) (27,837) (6,252) (5,714) (6,642) (13,201) (50,000) (277,259) (94,817)

At the end of the year 751,994 78,783 40,622 22,381 28,154 23,170 29,167 974,272 1,251,530

Less: Payable

within one year (250,700) (28,665) (6,252) (5,714) (9,126) (7,906) (29,167) (337,530) (229,191)

(Transferred to Current

Liabilities)

Payable after one year 501,294 50,118 34,370 16,667 19,028 15,264 - 636,742 1,022,341


Bank ApprovedFacilityRs.’000

AmountObtained

Rs.’000

Balance31.03.2012

Rs.’000

Balance31.03.2011

Rs.’000

Rate ofInterest

%

Terms of Repayment Securities Pledged

a) NDB

*Term Loan 102,908 49,234 - 2,872 11.78 Repayable over 10 years from 30.11.2001 in equal monthly installments of Rs. 410,287/-, Rs.148,433/- and Rs. 57,497/- respectively.

Primary mortgage over leasehold rights of Stonycliff, Vogan, Gikiyanakanda and Dalkeith Estates and all immovable properties of these estates.

17,812 - 1,039 11.78

6,900 - 402 11.78

73,946 - 4,314

*Term Loan 123,627 74,249 8,043 15,469 11.51 Repayable over 10 years from 30.05.2003, 30.06.2003 and 30.08.2003 in equal monthly installments of Rs.618,745/-, Rs. 41,250/- and Rs.248,333/- respectively.

Secondary mortgage over lease hold rights of Stonycliff, Vogan, Gikiyanakanda and Dalkeith Estates and all immovable properties of these estates.

4,950 578 1,072 11.51

29,800 3,973 6,953 11.51

108,999 12,594 23,494

*Term Loan 215,000 198,000 198,000 198,000 23.74 Terms of repayment repayable over 5 years from 31.12.2012 ,in equal monthly instalments of Rs.3,300,000/- and Rs.283,400 respectively. (After the re-finance is received interest rate would be 15.58%)

Secondary mortgage over lease hold rights of Stonycliff, Vogan, Gikiyanakanda and Dalkeith Estates and all immovable properties of these estates.

17,000 17,000 17,000 23.74

215,000 215,000 215,000

*Term Loan 150,000 150,000 88,000 133,000 AWPLR+2.25% Repayable over 45 months starting from 29.09.2010 in 32 instalments ending in 29.07.2013

Securitisation of Kotagala tea receivable over a period of 45 months

*Term Loan 250,000 250,000 90,100 121,900 AWPLR+4.8% Payable over 4 years in first monthly instalment of Rs.900,000/- and 47 monthly instalments of Rs.3,300,000/-.

Primary mortgageover 12Mn. Ordinary shares of C W Mackie PLC. Further mortgage over leasehold rights buildings,Plant & Machinery in Stonycliff, Vogan, Gikiyanakande & Dalkeith estates.

250,000

90,100

180,200

121,900

243,800

*Term Loan 300,000 300,000 256,200 300,000 AWPLR+1.5% Payable over 38 instalments strating from 24/10/2011.

Securitisation of Kotagala Tea receivables.

Total 1,097,945 751,994 919,608

b) DFCC Bank

*Term Loan 210,852 128,665 19,190 31,982 11.55 Repayable over 10 years from 15.09.2003 in equal monthly installments of Rs. 1,067,614/- each.

Primary mortgage over lease hold rights of Drayton, Rayigam and Padukka Estate.

*Term Loan 50,000 50,000 17,916 22,917 12.75 Repayable over 10 years from 23.06.2005 in equal monthly installments of Rs. 416,667/- each.

Primary mortgage over leasehold rights to the land and buildings of Craigie Lea and Bogahawatte Estates. A Corporate guarantee of Rs. 50 million from Lankem Tea & Rubber Plantations (Pvt) Ltd.

*Term Loan 7,467 7,467 1,089 2,022 12.00 Repayable over 8 years from 25.06.2005 in equal monthly installments of Rs. 77,781/- each.

Primary mortgage over leasehold rights to the land and buildings of Craigie Lea and Bogahawatte Estates. A Corporate guarantee of Rs. 7.467 million from Lankem Tea & Rubber Plantations (Pvt) Ltd.

20.4.1) Term Loans


57


AmountObtained

Rs.’000

Balance31.03.2012

Rs.’000

Balance31.03.2011

Rs.’000

Rate ofInterest

%


*Term Loan 49,700 49,700 40,588 49,700 AWPR or average

treasury bill rate.

Payable over 5 years from in equal 60 monthly instalments. Grace period is 18 months

Secured under the exixting mortgage bond No.1068 dated 8th Septemebr 1998 attested by R S Wijesekara NP over the lease hold rights of Drayton, Padukka and Rayigam estates.

Total 318,019 78,783 106,621

c) Sampath Bank

Term Loan Total

50,000 50,000 50,000

40,622 40,622

46,874 46,874

15.0015.00

In 95 equal monthly instalments of Rs. 521,000/- and a final instalment of Rs. 505,000/- (capital) together with interest after a grace period of 48 months commencing from the date of 1st disbursement. (the interest will be recovered on a monthly basis during the grace period)

Loan Agreement for Rs. 50,000,000/-

Primary Mortgage Bond for Rs.50,000,000/- over leasehold rights of Arapolakande rubber estate at Kalutara together with factory buildings therein.

d) Lanka Orix Leasing Company PLC

Term Loan Total

40,000 40,000 40,000

22,38122,381

28,095 28,095

18.0018.00

Repayable over 7 years from 30.03.2009 in 84 equal monthly installments of Rs. 476,191/- each

An on demand Promissory Note for Rs. 40,000,000/- with interest @ 18% p.a. untill the receipt of refinance of the subsidiary loan from the DFCC bank, and thereafter at the rate of 10.56% p.a and the Interest shall be paid together with any taxes which may be imposed by the government from time to time Primary Mortage Bond over the Un expired Leasehold rights of Uskvalley Estate created by the Indenture of Lease bearing No: 293 dated 2nd March 1995 attested by D C Peiris, Notary Public and the amendement thereto bearing Indenture No: 1522 dated 4th July 1995 attested by M H D Amaratunga, Notary Public Corporate Guarantees of M/s Lankem Plantation Holdings Ltd. and M/s Lankem Tea & Rubber Plantations (Pvt) Ltd.

e) Peoples Leasing Co. PLC

Term Loan 13,000 13,000 3,613 7,087 13.32 Interest monthly at the rate of 24% from the time of disbursement of funds till the time the re-financve is received from DFCC.Thereafter Rs.147,070/- within the capital grace period of 12 months and Rs.350,826/- (Capital+ Interest) to be paid within 48 months.

Primary mortgage over two colour separators, Corporate guarantee of Lankem Tea and Rubber Plantations (Pvt) Ltd and Promissory Notes.

Term Loan 27,709 27,709 24,541 27,709 13.63 Interest monthly at the rate of 21% from the time of disbursement of funds till the time the re-finance is received from DFCC. Thereafter payable withing 60 months with a capital grace period of 12 months .

Primary mortgage over two colour separators, Corporate guarantee of Lankem Tea and Rubber Plantations (Pvt) Ltd and Promissory Notes.

Total 40,709 28,154 34,796

20.4.1) Term Loans (Contd.)



AmountObtained

Rs.’000

Balance31.03.2012

Rs.’000

Balance31.03.2011

Rs.’000

Rate ofInterest

%


f) Peoples Leasing Co. PLC

E- Friends - loan 1

1,768 1,768 1,149 1,496 6.5 Interest monthly at the rate of 25% from the time of disbursement of funds till the time the re-finance is received from PMU. Thereafter Rs.9,760 within the capital grace period of 12 months and Rs.41,924/- (Capital +Interest) to be paid within 60 months.

Loan agreement ,acceptance and receipt and Corporate guarantee from Lankem Tea and Rubber Plantations (Pvt) Ltd

E- Friends - loan 2

1,500 1,500 975 1,269 6.5 Interest monthly at the rate of 25% from the time of disbursement of funds till the time the re-finance is received from PMU. Thereafter Rs.8,281 within the capital grace period of 12 months and Rs.35,573/- (Capital +Interest) to be paid within 60 months.


E- Friends - loan 3

10,235 10,235 7,317 9,670 6.5 Interest monthly at the rate of 25% from the time of disbursement of funds till the time the re-finance is received from PMU. Thereafter capital grace period of 12 months and the loan period is 60 months.

`Loan agreement ,acceptance and receipt and Corporate guarantee from Lankem Tea and Rubber Plantations (Pvt) LtdRubber Plantations (Pvt) Ltd.

E- Friends - loan 4



E- Friends - loan 5



E- Friends - loan 6

3,775 3,775 - 3,775 6.5 Interest monthly at the rate of 25% from the time of disbursement of funds till the time the re-finance is received from PMU. Thereafter capital grace period of 12 months and the loan period is 60 months.


E- Friends - loan 7

2,016 2,016 - 2,016 6.5 Interest monthly at the rate of 25% from the time of disbursement of funds till the time the re-finance is received from PMU. Thereafter capital grace period of 12 months and the loan period is 60 months.


Total 38,499 23,170 36,370


59


AmountObtained

Rs.’000

Balance31.03.2012

Rs.’000

Balance31.03.2011

Rs.’000

Rate ofInterest

%


g. Peoples Bank

Term Loan 100,000 100,000 29,166 79,167 Repayable within 24 instalmentsof Rs.4,166,666/- each.

Securitized tea sales of Mayfield estate

Total 100,000 29,166 79,167

Grand Total 1,685,171 974,272 1,251,530

20.5) Finance Leases

As at 31st March 2012 2011 Rs`000 Rs`000

Gross Lease Obligation 67,309 76,399 Less: Finance cost applicable for future periods (12,376) (15,211)

Net Lease Obligation 54,933 61,188

Payable within one year (Transferred to Current Liabilities)

Gross Lease Obligation 23,631 27,404 Less: Finance cost applicable for future periods (6,540) (7,115)

Net Lease Obligation 17,091 20,289 Payable within two to five years Gross Lease Obligation 43,678 48,995 Less: Finance cost applicable for future periods (5,836) (8,096)

Net Lease Obligation 37,842 40,899 Net lease obligations due after one year 37,842 40,899


20.5.1) Finance Leases

Leasing Company and Asset Cost of the Gross Lease Finance cost Net Lease Amount Amount

Asset Obligation applicable Obligation payable payable

for future within one within two

periods year to five years

Rs`000 Rs`000 Rs`000 Rs`000 Rs`000 Rs`000

People’s Leasing Co. PLC

Double cab 4,400 3,559 (454) 3,105 1,123 1,981

Total 4,400 3,559 (454) 3,105 1,123 1,981

M B S L Savings Bank

Jeep 6,944 3,778 (485) 3,293 2,219 1,074

Total 6,944 3,778 (485) 3,293 2,219 1,074

Nations Leasing Limited

Jeep 8,700 11,155 (3,141) 8,014 1,302 6,712

Truck 1,490 1,557 (251) 1,306 338 968

Total 10,190 12,711 (3,392) 9,319 1,640 7,680

Mercantile Investments PLC

Jeep 8,519 3,081 (223) 2,858 2,858 -

Lorry 2,202 967 (88) 879 741 138

Lorry 1,400 735 (80) 655 445 210

Total 12,121 4,783 (391) 4,392 4,043 348

HNB Leasing Co. Ltd

Double Cabs 38,670 36,917 (6,810) 30,107 6,757 23,350

Double Cab 5,615 5,563 (844) 4,719 1,303 3,416

Total 44,285 42,480 (7,654) 34,826 8,060 26,766

Grand Total 77,940 67,310 (12,376) 54,933 17,091 37,842

21. RETIREMENT BENEFIT OBLIGATIONS


Balance at the beginning of the year 550,226 496,836 Provision made during the year (Note 21.1) 88,166 103,835 638,392 600,671 Payments made during the year (69,495) (50,445)Balance at the end of the year 568,897 550,226

21.1) Provision for the year consists of the following Interest cost 60,524 54,652 Current service cost 48,833 34,139 Actuarial (Gain)/Loss (21,191) 15,044 88,166 103,835


61

The actuarial valuation had been carried out by M/S Actuarial & Management Consultants (Private) Limited.

If the company had provided for gratuity on the basis of Gratuity Act. No. 12 of 1983, the liability would have been Rs.753,639,101/-

Hence, there is a contingent liability of Rs.184,742,101/- which would crystalise only if the company ceases to be a going concern.

22. NET OBLIGATION TO LESSOR


Rs`000 Rs`000

(JEDB/SLSPC ESTATES)

Gross Lease Obligation 736,603 758,777

Less: Finance cost applicable for future periods (332,810) (349,187)


Payable within one year (Transferred to Current Liabilities)



Net Lease Obligation - (Note 25) 6,024 5,793

Payable within two to five years




Payable after five years




Net lease obligations payable after one year 397,769 403,797

In terms of the amendment of leases, Rs.22.2 million is payable each year as lease rental, commencing from 22.06.1996 till the

end of the lease on 21.06.2045. This amount is to be inflated annually by the Gross Domestic Product (GDP) deflater in the form of

contingent rent.

Consequent to the agreement signed on 04th August 2003 by the Company with the Ministry of Plantations Industries, JEDB and

SLSPC, for the capping of management fees and freezing of lease rental in respect of the Privatised Regional Plantation Companies

relating to the Plantation Development Project, the aforesaid lease rental will be frozen for a period of six years commencing from

fiscal year 2002/03. Hence, the GDP deflator adjustment has been frozen untill 17th June 2008. Thereafter the rental will be inflated

by GDP deflator. Accordingly the all inclusive lease rental payable by the Company for a fiscal year is Rs. 59.6 million (Refer Note

22.1).

The charge to the Income Statement for the current financial year on account of interest is Rs. 46.5 million. (2010/2011 - Rs. 89.4

million)

Rs. Mn.

22.1 Gross Lease Obligation per year 22.2

Contingent Interest (GDP deflator)) 37.4

All inclusive lease rental per year 59.6


23 DEFERRED TAXATION


Balance at the beginning of the year 177,890 134,756

Charge for the year 99,033 43,134

Balance at the end of the year 276,923 177,890

23.1 The effective tax rate used to calculate deferred tax liability as at March 2012 is 17.15% (2010/11 -14.36%)

23.2 The closing deferred tax liability arises as follows,


Temporary Tax Temporary Tax Difference Effect Difference Effect Rs`000 Rs`000 Rs`000 Rs`000

Temporary differences on;

Tangible Assets including mature/ Immature Plantations 2,609,713 447,566 2,244,181 322,279

Retirement Benefit Obligation (568,897) (97,566) (550,226) (79,016)

Tax loss carried forward (426,187) (73,077) (455,224) (65,373)

1,614,629 276,923 1,238,731 177,890

24 TRADE & OTHER PAYABLES


Trade payables 124,306 190,960

Other payables including Accrued charges 278,014 107,489

Payable to Employees 99,442 90,472

Payable to JEDB/SLSPC 6,024 5,793

Unclaimed Dividends 3,759 2,263

511,544 396,977

25 AMOUNTS DUE TO RELATED PARTIESAs at 31st March 2012 2011 Relationship Rs`000 Rs`000

Lankem Tea & Rubber Plantations (Private) Limited Affiliate Co. 63,619 80,598

Lankem Plantation Services Limited Affiliate Co. 4,368 4,245

Sigiriya Village Hotels PLC Affiliate Co. 678 678

68,665 85,521

26. CAPITAL COMMITMENTSThere were no material capital commitments as at the Balance Sheet date. However the budgeted capital development programme

for the next financial year amounts to approximately Rs 654.5million.

27. CONTINGENCIESThere were no other material contingent liabilities outstanding as at the Balance Sheet date.

28 EVENTS OCCURRING AFTER THE BALANCE SHEET DATE The Board of Directors has recommended a first and final dividend of Rs. 2.00 per ordinary share for the year ended 31 March 2012

for approval by the shareholders at the Annual General Meeting.No circumstances have arisen since the Balance Sheet date,which

would require adjustments to or disclosures in the Financial statements,other than above.


63

Amount (paid)/ received Balance as at 31 March

Ralated Party Name of Director Details of Transaction 2012 2011 2012 2011

Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000

(1) Transactions with Intermediate Parent Company

Lankem Ceylon PLC A Rajaratnam Paid on chemicals - 59

S D R Arudpragasam Loan Given - 300,000

Expenses Paid (5,047) -

Interest Charged 27,370 -

Interest Received (15,591) - 306,731 300,000

(2) Transactions with Parent Company

Lankem Plantation A Rajaratnam Dividend (108,900) (32,670)

Holdings Limited S D R Arudpragasam Transfer of funds 108,900 32,670

Sundry expenses - 7 9 9

(3) Transactions with Other Related Companies

a. Lankem Tea & Rubber A Rajaratnam Managing Agent Fee (87,489) (138,388)

Plantations S D R Arudpragasam Reimbursement of expenses

(Private) Limited C P R Perera and Managing Agents Fee Paid 18,050 49,536

R C Peries Dividends 86,418 (25,926)

D A Ratwatte Transfer of funds - 31,025

G D V Perera (63,619) (80,598)

b. Agarapatana Plantations Limited

A Rajaratnam Reimbursement of expenses 53,775 11,684

S D R Arudpragasam Settlement of Loans (441) (18,011)

C P R Perera Shortterm advances 8,396 33,831

R C Peries Rights Issue (200,000) -

D A Ratwatte

G D V Perera 6,318 144,588

c. Lankem Plantation Services Limited

A Rajaratnam Interest on short term

S D R Arudpragasam loan (at 12%) (480) (480)

Reimbursement of

expenses and interest paid 357 329 (4,368) (4,245)

d. Sherwood Holidays Limited

A Rajaratnam Bungalow maintainence

S D R Arudpragasam expenditure - 857

D A Ratwatte VAT Paid 868 -

G D V Perera 9,198 8,330

29. Related Party Disclosures


Amount (paid)/ received Balance as at 31 March

Ralated Party Name of Director Details of Transaction 2012 2011 2012 2011

Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000

e. Beruwala Resorts Limited

A Rajaratnam

S D R Arudpragasam

C P R Perera Sale of tea - - 13 13

f. Marawila Resorts PLC A Rajaratnam

S D R Arudpragasam

C P R Perera Cash received for Tea Sales (25) - 184 209

g. E B Creasy & Co.PLC A Rajaratnam

S D R Arudpragasam Land Rent - - 208 208

h. Sigiriya Village A Rajaratnam

Hotels PLC S D R Arudpragasam

C P R Perera - - (678) (678)

i. Creasy Plantation Management Limited

A Rajaratnam Sundry expenses

S D R Arudpragasam Cash received (2) - - 2

j Ceylon Tea Brokers PLC

C P R Perera Sale of tea 101,364 99,368

Cash received (102,404) (103,231) 684 1,721

(4) Compensation of Key Management Personnel

The Key management personnel includes Board of Directors and the senior management committee of the Company

for the year ended 31st March.


Rs`000 Rs`000

Short term employee benefits 82,191 63,637

There were no other related party transactions and balances other than those disclosed in notes 5,6,13,16,25 and 29 to the

Financial Statements

30 COMPARATIVE INFORMATION

Comparative information of the Company has been reclassified wherever necessary to conform with the current year’s presentation.


65

Financial TermsAccounting Policies

The specific principles, bases, conventions, rules and practices adopted by an enterprise in preparing and presenting financial statements.

Contingent LiabilitiesA possible obligation that arises from past events and whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the enterprise.

Current RatioCurrent Assets divided by Current Liabilities. A measure of liquidity.

Debt/Equity Ratio Total Interest Bearing Borrowings to Shareholders’ Fund.

Deferred Taxation The tax effect of timing differences deferred to / from other periods, which would only qualify for inclusion on a tax return at a future date.

DividendsDistribution of profits to holders of equity investments in proportion to their holdings of a particular class of capital.

Dividend CoverProfit attributable to Ordinary Shareholders divided by dividend. Measures the number of times dividend is covered by distributable profit.

Dividend YieldDividend per Share as a percentage of the market price. A measure of return on Investment.

Earnings per Share Profit attributable to shareholders divided by the weighted average number of ordinary shares in issue during the period

EBITDAEarnings before Interest, Tax, Depreciation and Amortisation.

ROCEProfit after Tax plus interest on loans and finance leases divided by the shareholders’ funds and interest bearing loans and borrowings.

Gearing Proportion of borrowings to capital employed.

Interest CoverProfit before tax plus net finance cost divided by net finance cost. Measure of an entity’s debt service ability.

Market CapitalisationNumber of shares in issue multiplied by the market value of a share at the reported date.

Net Assets per ShareShareholders’ Funds divided by the weighted average number of ordinary shares in issue. A basis of share valuation

Price Earnings RatioMarket price of a share divided by earnings per share as reported at that date.

Related partiesParties who could control or significantly influence the financial and operating policies of the business.

SegmentConstituent business units grouped in terms of similarity of operations and locations.

Value AdditionsThe quantum of wealth generated by the activities of the Company measured as the difference between turnover and the cost of materials and services bought in.

Working CapitalCapital required to finance the day-to-day operations computed as the excess of current assets over current liabilities.

Non Financial TermsCOPCost of producing a kilo of Tea/Rubber.

CTCCrush, Tear & Curl. A manufacturing method.

HACCPHazard Analysis Critical Control Point System. A standard for safety of foods.

Immature PlantationThe extent of plantation which is not taken in to the bearing and is in the process of development.

ISOInternational Standard Organisation.

Mature PlantationThe extent of plantation from which crop is being harvested.

NSA Net Sales Average. Measures the average value of net selling price of a kilo of Tea/Rubber.

RRIRubber Research Institute.

Seedling TeaTea grown from a seed.

TRITea Research Institute.

VP TeaVegetatively Propagated. Tea grown from a cutting of a branch of tea plant.

YPHYield per Hectare. The measure of average yearly output of produce from a hectare of mature plantation.

Glossary of Financial and Non Financial Terms


Notice of Meeting

Notice is hereby given that the Nineteenth Annual General

Meeting of Kotagala Plantations PLC will be held at the Grand

Oriental Hotel,No.2, York Street, Colombo 1, on 27th June, 2012,

at 10.30 a.m. for the following purposes:

1. To receive and consider the Annual Report of the Board of

Directors and the Statements of Accounts for the year ended

31st March, 2012 with the Report of the Auditors thereon.

2. To declare a First and Final Dividend as recommended by

the Directors.

3. To re-elect as a Director Mr. D.A. Ratwatte who retires

in accordance with Articles 92 & 93 of the Articles of

Association.

4. To reappoint Mr. A. Rajaratnam who is seventy years of age

as a Director.

Special notice has been received from a Shareholder of

the intention to pass a resolution which is set out below in

relation to his reappointment. (see Note No.4)

5. To reappoint Mr. R.C. Peries who is over seventy years of

age as a Director.

Special notice has been received from a Shareholder of

the intention to pass a resolution which is set out below in

relation to his reappointment. (see Note No.5)

6. To re-appoint as Auditors, KPMG, Chartered Accountants and

authorise the Directors to determine their remuneration.

By Order of the Board

CORPORATE MANAGERS & SECRETARIES (PRIVATE) LTD.

Secretaries

Colombo

23rd May, 2012

Notes:

1. A member of the Company who is entitled to attend and vote

may appoint a proxy to attend and vote instead of him or her.

A proxy need not be a member of the Company.

2. A Form of Proxy is enclosed for this purpose.

3. The instrument appointing a proxy must be deposited at the

Registered Office of the Company’s Secretaries at No.8-5/2,

Leyden Bastian Road, York Arcade Building, Colombo 1,not

less than forty eight hours before the time fixed for the

meeting.

4. Special Notice has been received by the Company from

a shareholder giving notice of the intention to move the

following Resolution as an Ordinary Resolution at the Annual

General Meeting:

Resolved -

“That Mr. A. Rajaratnam who is seventy years of age be and is

hereby reappointed a Director of the Company and it is further

specially declared that the age limit of seventy years referred to

in Section 210 of the Companies Act No.7 of 2007 shall not apply

to the said Director, Mr. A. Rajaratnam.”

5. Special Notice has been received by the Company from

a shareholder giving notice of the intention to move the

following Resolution as an Ordinary Resolution at the Annual

General Meeting:

Resolved -

“That Mr. R.C. Peries who is seventy one years of age be and is

hereby reappointed a Director of the Company and it is further

specially declared that the age limit of seventy years referred to

in Section 210 of the Companies Act No.7 of 2007 shall not apply

to the said Director, Mr. R.C. Peries .”

67

Form of Proxy

I/We* ………………………………………………………………......................................................................................................................……............…… of

..………….................................................................................................................… being a member/members* of Kotagala Plantations PLC, hereby

appoint,......................................................................................................of..…….............................................................………....................or failing him

1. Alagarajah Rajaratnam of Colombo or failing him

2. Sri Dhaman Rajendram Arudpragasam of Colombo or failing him

3. Chrisantha Priyange Richard Perera of Colombo or failing him

4. Ranjit Crisantha Peries of Colombo or failing him

5. Devaka Ajit Ratwatte of Colombo or failing him

6. Ganegodage Dhamitha Vaamaka Perera of Colombo

as my/our *proxy to represent me/us*,and to vote as indicated hereunder for me/us* and on my/our* behalf at the Nineteenth Annual

General Meeting of the Company to be held on 27th June 2012 at 10.30 a.m. and at any adjournment thereof and at every poll which may

be taken in consequence thereof

For Against

1. To receive & consider the Annual Report of the Board of Directors and the Statement of

Accounts for the year ended 31st March 2012 with the Report of the Auditors thereon.

2. To declare a First and Final Dividend as recommended by the Directors.

3. To re-elect Mr. D A Ratwatte as a Director.

4. To re-appoint Mr. A Rajaratnam as a Director.

5. To re-appoint Mr. R C Peries as a Director.

6. To re-appoint as Auditors, KPMG Chartered Accountants and authorise the

Directors to determine their remuneration.

* The proxy may vote as he/she thinks fit on any other resolution brought before the meeting

As witness, my/our* hands this ……................…. day of .............….. 2012.

..........................................

Signature

Note: *Please delete the inappropriate words.

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

2. If no words are struck out or there is in view of the Proxy doubt (by reason of the way in which the instructions contained in the form of

Proxy have been completed) as to the way in which the Proxy should vote, the Proxy will vote as he thinks fit.

3. Instructions as to completion are noted on the reverse hereof.


INSTRUCTIONS AS TO COMPLETION

1. Please write legibly, your name, address and date, and sign in the space provided.

2. The completed Form of Proxy should be received at the Registered Office of the Company’s Secretaries, Corporate Managers & Secretaries

(Private) Ltd. at 8-5/2 Leyden Bastian Road, York Arcade Building, Colombo 01, not less than 48 hours before the time appointed for the

holding of the meeting.

3. In case of a Company/Corporation, this Form of Proxy shall be executed either under its Common Seal or by its Attorney or by an officer

on behalf of such Company/Corporation duly authorised in writing.

4. In the case of a Proxy signed by an Attorney, the Power of Attorney must be deposited at the Registered Office of the Company’s

Secretaries for registration.

Corporate InformationName of the Company : Kotagala Plantations PLC

Legal Form : A Quoted Public Company with Limited Liability

Date of Incorporation : 22nd June 1992

Company Registration No. : PQ 174

Principle Activities : Cultivation, Manufacture and Sales of Tea and Rubber

Registered Office : 53 1/1, Sir Baron Jayatilaka Mawatha, Colombo 1.

E-mail : [email protected] : www.lankemplantations.lk Directors : A Rajaratnam - Chairman (Alternate - S D R Arudpragasam) S D R Arudpragasam R C Peries C P R Perera D A Ratwatte G D V Perera

Stock Exchange Listing : The Ordinary Shares of the Company are listed with the Colombo Stock Exchange of Sri Lanka

Senior Management : R C Peries - Executive Director/(CEO - Lankem Tea & Rubber M.C.I.P Plantations (Pvt) Ltd - Managing Agents) : D A Ratwatte - Executive Director-Up Country F.I.P.M : G D V Perera - Executive Director-Marketing & Administration F.I.P.M : Ms K M Ramesh - Executive Director Finance (Lankem Tea & Rubber F.C.M.A (UK), MBA (USA) Plantations (Pvt) Ltd - Managing Agents) : K G Punchihewa - Deputy CEO/Director - Lankem Tea & Rubber Plantations F.C.A (Pvt) Ltd - Managing Agents : S A Eriyagama - Executive Director Low Country (Lankem Tea & Rubber B.Sc (Plantation Mgt), Plantations (Pvt) Ltd - Managing Agents) Dip. (Plantation Mgt) - (NIPM) : H D Caldera - Executive Director Up Country - (Lankem Tea & Rubber Plantations F.I.P.M (Pvt) Ltd - Managing Agents) (Appointed w.e.f. 01.04.2011) : Amrit Rajaratnam - Director - Lankem Tea & Rubber Plantations (Pvt) Ltd - Managing Agents LLB (Notts.), Barrister-at-Law (Appointed w.e.f. 01.04.2012) : M S Madugalle - Director - Lankem Tea & Rubber Plantations (Pvt) Ltd - Managing Agents Dip. (Plantation Mgt) (NIPM) (Appointed w.e.f. 01.04.2012) : B G S Peiris - General Manager (Up Country) F.I.P.M : J K Congreve - General Manager (Manufacture) Dip. (Plantation Mgt) - (NIPM) : Ms J Kariyawasam - General Manager (Legal & Administration) Attorney-at-Law & Notary Public, Dip. in Intellectual Property Law : A M S Kulasekara - General Manager (Engineering) A.I.E. (SL), F.I.I.E. (SL), I.Eng., Graduate - City & Guilds (U.K.)

Secretaries : Corporate Managers & Secretaries (Private) Limited 8-5/2, Leyden Bastian Road, York Arcade Building, Colombo 1.

Auditors : KPMG Chartered Accountants, P.O.Box 186, Colombo 3.

Bankers : Seylan Bank PLC People’s Bank National Development Bank DFCC Bank

Legal Advisers : Messrs Julius & Creasy Attorneys-at-law P.O.Box 154, Colombo 1.

VisionTo be the foremost producer of High Quality Tea &

Rubber

MissionTo maximise land and labour productivity and

achieve excellence in the profitable management

of the Company in an acceptable and socially

responsible manner.

Core ValuesIntegrity

Courage

Commitment

ObjectivesTo lead the way in the technical and innovative

development of the Tea & Rubber agri-industries.

To provide a satisfying work experience to our

employees and ensure a rewarding investment to

our shareholders.

To be a trail-blazer in the shift away from

producing visually graded rubber as an agricultural

commodity to the production of a fully technically

specified industrial polymer

Financial Highlights 01

Chairman’s Review 02

CEO’s Review 04

Board of Directors 07

Risk Management 08

Enterprise Governance 10

Our Plantations 15

Production and Yield 16

Management Discussion & Analysis 17

Ten Year Summary 22

Shareholder & Investor Information 23

Sustainability Reporting 24

Financial Reporting


Statement of Directors' Responsibilities 33


Income Statement 35

Balance Sheet 36




Glossary of Financial and Non Financial Terms 65

Notice of Meeting 66

Form of Proxy 67

Corporate Information Inner Back Cover

Content

KOTAGALA PLANTATIONS PLCANNUAL REPORT 2011/2012

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