Hotel Sigiriya PLC AR 2014

HOTEL SIGIRIYA PLC

Pursuing

We are what we repeatedly do. Excellence, then, is not an act, but a habit.

Annual Report 2014/15

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Our Vision, Mission / 4

Financial Highlights / 6

Serendib Leisure Properties / 8

Chairman’s Message / 10

Board of Directors / 14

Senior Management / 16

Management Discussion and Analysis / 20

Hotel Management / 24

Sustainability Report / 25

Risk Management / 32

Corporate Governance / 35

Remuneration Committee Report / 45

Annual Report of the Board of Directors / 46

Directors’ Interest in Contracts with the Company / 49

Report of the Audit Committee / 50

Financial Reports

Statement of Directors’ Responsibility in Relation to

Preparing Financial Statements / 54

Independent Auditor’s Report / 55

Income Statement / 56

Statement of Comprehensive Income / 57

Statement of Financial Position / 58

Statement of Changes in Equity / 59

Statement of Cash Flow / 60

Notes to the Financial Statements / 61

Supplementary Information

Investor Information / 90

Ten Year Financial Review / 92

Notice of Meeting / 94

Form of Proxy / 95

Corporate Information / IBC

Contents

NAME OF THE COMPANYHotel Sigiriya PLC (Formally Ceylon Luxury Hotels Ltd.)

LEGAL FORM A public Quoted Company with Limited Liability incorporated on 1st October 1971 under the Companies Ordinance No. 51 of 1938 (Cap 145) and Re-registered under the Companies Act No. 7 of 2007.

COMPANY REGISTRATION NO. PQ 81

BOARD OF DIRECTORS

A N Esufally - Chairman(Alt. V H A Perera)L P FernandoB S M De SilvaA R Gamage (Mrs) (Alt: Prof. L D K B Gamage)W M De F ArsakularatneD T R De Silva

REGISTERED OFFICE“ Hemas House”, No. 75, Braybrooke Place, Colombo 02.Tel: +94 (11) 4790500-6Fax: +94 (11) 2438933E-mail: [email protected]: www.serendibleisure.com

SECRETARIES Hemas Corporate Services (Pvt) Ltd.Level 9, “Hemas House”, No. 75, Braybrooke Place,Colombo 02. Tel : + 94 (11) 4731731Fax : +94 (11) 4731777

Corporate Information

REGISTRARS SSP Corporate Services (Pvt) Ltd.No. 101, Inner Flower RoadColombo 03.Tel : + 94 (11) 2573894Fax : +94 (11) 2573609

MANAGING AGENT Serendib Leisure Management Limited

AUDITORS PricewaterhouseCoopers100, Braybrooke Place,Colombo 02.

BANKERS Commercial Bank of Ceylon PLCSampath Bank PLC

HOTEL Hotel SigiriyaSigiriyaTel : + 94 (66) 4930500-3Fax : + 94 (66) 2286820

About Serendib Hotels Group

Hotel Sigiriya is part of the Serendib Hotels Group. From the golden sands of Bentota and Waikkal, to the beauty of the Kalutara peninsula and the exotic jungle retreat of Sigiriya - Serendib Hotels portfolio of four unique hotels – AVANI Bentota Resort and Spa, AVANI Kalutara Resort, Club Hotel Dolphin and Hotel Sigiriya capture the essence of Sri Lankan hospitality.

For more information go to www.serendibleisure.com

Designed & produced by

Printed by Softwave Printing and Publishing (Pvt) LtdPhotography by Dhanush De Costa

PursuingexcellenceExcellence is not a skill.It is an attitude. Ralph Marston

Uniquely located beneath the towering ‘palace in the sky’ that is the spectacular Sigiriya rock fortress, Hotel Sigiriya has something special for everyone. Enjoy a range of exciting outdoor excursions and activities, outstanding local and international cuisine and the soothing pleasures of our Ayurveda spa experience’; all adding up to an unforgettable experience for every guest.

This year, as always we remained true to our vision of pursuing excellence in all we do, delivering good results and fine destination experiences to the many stakeholders we partner and the thousands of guests we serve every day.

The Elephant Gathering at Minneriya and Kaudulla National Parks have been listed amongst the top ten wildlife events in the world. It is the largest annually recurring concentration of wild elephants anywhere in the world. Stay at Hotel Sigiriya and catch this amazing experience.

Explore the sights and sounds of the jungle...

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HOTEL SIGIRIYA PLCAnnual Report 2014/15

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Vision of the Serendib Hotel Group

To be one of the top three contributors to the development of the hospitality industry in Sri Lanka and be the benchmark for guest service, F&B standards and management of human capital

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Mission

Stakeholder Mission

Our Guests

Create experiences to write home about by exceeding the expectations of our guests at all times

Our Customers

To be the most trusted hotel partner, delivering consistently superior value at all times

Our People

To create an environment that will inspire our people to work with pride, happiness and passion which will reflect in service excellence thus delighting our guests

Our Community

To develop our community and protect our environment by adopting and implementing sustainable tourism initiatives

Our Shareholders To deliver superior returns to our shareholders through sustained performance excellence


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Delivering good results Financial Highlights

Year ended 31 March at a glance 2015 2014

Revenue Rs.000's 258,288 211,883 Profit before Interest, Tax, Depreciation & Amortization (EBITDA) Rs.000's 81,224 43,290 Profit /(Loss) before Tax Rs.000's 63,930 30,727 Profit after Tax Rs.000's 60,808 27,589 Earnings per Share Rs. 10.38 4.71Cash Earnings per Share Rs. 9.20 8.80 Return on Equity (ROE) % 19 10

Balance Sheet Highlights and RatiosTotal Assets Rs.000's 395,002 333,321 Total Shareholders' Funds Rs.000's 324,890 264,488 No. of Shares in Issue 000's 5,859 5,859 Net Assets per Share Rs. 55.45 45.14

Market/ Shareholder InformationMarket Price per Share Rs. 87.90 78.00Market Capitalization Rs.000's 515,006 457,002 Price Earnings Ratio Times 8.5 16.6 Dividend Per Share Rs. - - Dividend Pay out % - -

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2014: 27Mn Operating Profit

2014: 31Mn Profit Before Tax

258Mn2014: 212Mn Revenue

64Mn62Mn

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Serendib Leisure Properties

AVANI Bentota Resort & SpaInspired by 18th Century Dutch architecture, the property was designed by world-renowned architect Geoffrey Bawa. Located along the pristine beaches of the southern coast, AVANI Bentota Resort and Spa captures the essence of world class-luxury in a home-away-from-home setting.

AVANI Kalutara ResortThe AVANI Kalutara is a perfect blend between old world charm and cosmopolitan elegance. Nestled between the Indian Ocean and the Kalu Ganga, the hotel’s unique location and contemporary design makes it one of the most sought after properties in the region.

Hotel SigiriyaNestled at the foot of the majestic Sigiriya Rock Fortress, Hotel Sigirya has been providing guests with truly unforgettable holidays for the past three decades. Always in tune with nature, the hotel’s unique experiences cater to both the avid nature lover as well as the cultural tourist, while the premium service has seen many a guest return year after year.

Club Hotel DolphinThe perfect destination for an unforgettable beach holiday, Club Hotel Dolphin is the ideal family-friendly hotel. A short 30 minute drive from the international airport, Club Hotel Dolphin is a veritable oasis that offers a gamut of modern facilities, entertainment and cuisine choices to suit every member of the family. The hotels’ unique ‘pause and play’ concept, allows for uninterrupted fun, adventure and relaxation for the entire family.

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Among the top hospitality chains in the country, Serendib Leisure stands apart for its unique, portfolio of offerings. While each property retains its own unique characteristics, it is definitely the pursuit of excellence that has been the common denominator of success for all our hotels.


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‘The passion for excellencecontinues to be our mantra’

Chairman’s Message

Sri Lanka is now a much sought-after global travel destination. Having emerged as a frontline industry in the recent past, tourism continues to attract more and more foreign direct investments into the country

Scan this QR Code to read the Chairman’s Statement online

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I am happy to note that as one of the key players in Sri Lanka’s tourism milieu, Hotel Sigiriya PLC too has played its part in putting Sri Lanka on world tourism map.

In what is widely seen as a good year for global tourism, record numbers were seen travelling the world in 2014. Moreover, the remarkable resilience and uninterrupted growth since 2009, has led to the tourism industry being labelled as a catalyst of global growth. What is more encouraging though, is the commitment shown by many countries to develop tourism as a key driver of economic growth. This will no doubt set the pace for sustained growth in the years to come.

As I recap the highlights for the year, I am happy to note that as one of the key players in Sri Lanka’s tourism milieu, Hotel Sigiriya PLC too has played its part in putting Sri Lanka on the world tourism map. It is thus with a deep sense of accomplishment that I present to you, the annual report and financial statements for the year ended 31st March 2015.

Global Tourism industry – a snapshot

For the fifth consecutive year international tourist arrivals expanded to reach 1,139 million by end 2014, a YoY increase of 4.7%. In terms of numbers, this translates into 51 million more overnight visitors globally, compared to the previous year. Notably all regions registered growth, with the Asia-Pacific region expanding by 5%, second only to the Americas which grew by 7% in 2014.

International tourist receipts also mirrored this trend, crossing the USD 1.4 billion mark in 2014.

Meanwhile, a notable pick up in expenditure from traditional source markets helped make up for the slowdown of the large emerging markets seen in 2014. According to UNWTO data, China still remained the largest outbound market for 2014, despite growing at a slower pace than in the recent past. The USA, the second largest outbound market grew by 6%, while key European markets were seen rebounding strongly, with France and Italy recording 11% and 6% growth respectively. The UK rounded up the top five, registering 4% growth in outbound travel expenditure for 2014.

Russia, another one of the world’s largest outbound markets was hit by a wave of trouble due to economic sanctions and the fall in global oil prices. The rapid deceleration of demand for outbound travel that followed, resulted in a 6% de-growth in outbound travel expenditure from the Russia.

Sri Lanka’s Tourism Industry

The country’s tourism industry continued to perform well throughout 2014, surpassing the arrival target of 1.5 million set for the year. The country recorded 1,527,153 arrivals for 2014, a robust YoY increase of 19.8%, with Western Europe accounting for the bulk of this growth. Interestingly however, the overall percentage share of arrivals from source markets in Western Europe declined in 2014, mainly due to a notable increase in arrivals from emerging source markets in Asia.

For the third consecutive year, India remained the largest source market, bringing in 243,000 visitors to the country, closely followed by the UK, China and Germany, with the Maldives rounding up the top five, together accounting for over 46% of the total arrivals. Moreover, a coordinated effort by industry stakeholders to boost the country’s profile and attract travellers from China, Indonesia and Japan resulted in a remarkable increase in inbound tourists from these countries, signalling a definite shift in Sri Lanka’s tourism demographics.

However, the increase in arrivals did not necessarily translate into the arrival logs at hotels. Foreign guest nights at resort hotels would be a possible indicator of the real growth in the country’s tourist industry for the year. The steady growth of online travel agents have led to the informal sector receiving more visibility with wider reach to the end customer resulting in more room nights generated to this sector.


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Advocating a sustainable tourism proposition

Sri Lanka is now a much sought-after global travel destination. Having emerged as a frontline industry in the recent past, tourism continues to attract more and more foreign direct investments into the country.

However, it is important to bear in mind that with the promise of growth comes myriad challenges that, if not dealt with in a cohesive manner, could undermine whatever progress has been made so far. Therefore it is imperative that all stakeholders of the industry come together to work out a structured agenda that would underpin the progress of the industry, in the years ahead.

This calls for a unified marketing strategy that would reflect the country’s vision for tourism. I believe that destination branding should be the

nucleus of this long term branding model and am glad to note that SLTPB and the SLTDA are taking necessary action in this regard. To do this, the country would need to make extensive investments to develop, nurture and sustain a globally competitive brand. The challenge is to bring out a dynamic value proposition that personifies the unique characteristics of our island nation in a manner that would differentiate our offering from that of regional peers.

This can only be done through a broader strategic vision that leverages on the country’s vast untapped resources. For instance, Sri Lanka is blessed with resplendent waterways, wherein lies a possible opportunity to develop the country’s numerous bays and harbours to serve as a regional marina, capable of attracting luxury yachts, cruise ships and other leisure lines. In addition, the country’s magnificent bird life and endemic flora and fauna, represent abundant opportunities that could also be harnessed.

Given Sri Lanka’s cultural diversity, experiential tourism is yet another concept that offers great promise. Experiential travel is likely to be the next big thing that will reshape the prospects of global tourism in the coming years. Here too, what is needed is a sustainable long term manifesto that combines suitable regulations to help cultivate an experiential travel model that is uniquely Sri Lankan.

It is important to remember that any or all of these opportunities should be managed systematically, by first

strengthening necessary infrastructure, while establishing clear guidelines to ensure effective administration and regulations are enforced.

Once again, I cannot overemphasize the importance of stricter controls to preserve the country’s resources and protect what is rightfully our legacy. At present, the overuse of our resources has become a critical issue. To quote a few examples, vehicular overcrowding in many of the country’s wild life parks, including national parks in Yala and Wilpattu among others, have already caused untold damage to the wild life who inhabit these parks. The deployment of boats without adequate safety measures and overcrowded waters with unregulated vessels significantly increase the risk to visitors and marine life alike.

We urge the government to introduce suitable regulations to limit the damage to our natural resources. It is equally important that measures be taken to preserve and protect our cultural heritage sites.

Our focus

For our part, we continue to work cognizant to the challenges and opportunities that are currently reshaping the local tourism industry, where the passion for excellence continues to be our mantra. Hence our focus for the year was centered on three key pillars namely, food and beverage quality, service quality and human capital development. As part of the development process, we looked at strengthening each aspect individually, while at the same time creating a

We urge the government to introduce suitable regulations to limit the damage to our natural resources. It is equally important that measures be taken to preserve and protect our cultural heritage sites.

Chairman’s Message

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cohesive platform that would spearhead future growth. I feel this is a step in the right direction which will be the cornerstone in our journey towards sustainable tourism.

Our Performance

The hotel performed admirably during the year after refurbishment and posted strong earnings in a challenging environment.

Turnover Rs. 258Mn

Operating Profit Rs. 62Mn

Profit Before Tax Rs. 64Mn

Appreciations

I take this opportunity to thank my colleagues on the Board of Directors for the invaluable support extended to me during the year under review.

I also wish to thank our Executive Director, Mr. Ranil De Silva, and the Board of Management, who have led from the front to deliver the consistent results.

My heartfelt appreciation goes to each and every member of the Hotel Sigiriya team for their commitment towards achieving corporate goals. I rely on their passion and professionalism to realize the future aspirations of the company and all its stakeholders.

In conclusion, I wish to thank our shareholders for the trust and confidence placed in the company and seek their continued patronage in the years ahead.

A.N. EsufallyChairman

26th May 2015


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Effective LeadershipThe Board of Directors

1. A. N. Esufally Chairman Non-Executive Director

2. A. R. Gamage (Mrs) Independent Director

3. D. T. R. De Silva Executive Director

4. L. P. Fernando Independent Director

5. B. S. M. De Silva Independent Director

6. W. M. De F. Arsakularatne Non-Executive Director

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Managing Director of Serendib Hotels PLC and is a Non-Executive Director of Dolphin Hotels PLC. He is a Fellow Member of the Chartered Institute of Management Accountants UK, an Associate Member of the Institute of Chartered Accountants of Sri Lanka and a Member of the Chartered Institute of Marketing UK. He began his career at Ernst & Young and has worked overseas with a Multi-National for 10 years. Mr. De Silva has wide experience locally in diverse industries having previously held the position of Group CEO of the DCSL Group. He is also an Independent Director of Singer Sri Lanka PLC, Singer Industries PLC and Regnis Lanka PLC.

L P Fernando Independent Director

Mr. Lasantha Fernando is founder Director of the Company. He also holds directorships in other companies including; Kelani Tyres PLC, Silverstock Holdings (Private) Limited, Silverstock Limited, Ceat-Kelani Holdings (Private) Limited, Ceat-Kelani International Tyres (Private) Limited, Associated Ceat (Private) Limited, Ceat-Kelani Radials (Private) Limited, Asian Tyres (Private) Limited, Wheels (Private) Limited, Smart Wheels (Private) Limited, Hercules Motor Company (Private) Limited, Tyres Express (Private) Limited, Power Wheels (Private) Limited, Wheels Logistics (Private) Limited & Executive Cars (Private) Limited.

B. S. M. DE SILVA Independent Director

Mr. Sarada de Silva Counts over 25 years’ experience in the Tourism and Leisure industries. He was appointed to the Board in 1990. He also has extensive experience in the Spice industry and is the Founder Chairman of the Spice Council. He is the Chairman &

A. N. Esufally Chairman

With over 35 years’ experience in the tourism industry, Mr. Abbas Esufally has played a pivotal role in expanding the Groups’ Leisure interest. He was appointed to the Board in 1994 and elected Chairman of the Company in 2012. He serves as a Group Director of Hemas Holdings PLC and is the Chairman of Serendib Hotels PLC, Dolphin Hotels PLC and Diethelm Travel Lanka (Private) Limited, Sri Lanka’s premier Destination Management Company. He serves on several other listed and unlisted company boards as well.

He has taken an active part in the growth and development of the tourism industry. Mr. Esufally serves as the Chairman of the Mercantile Service Provident Society of the Ceylon Chamber of Commerce and a Member of the Advisory Committee of the Tourist Hotels Association of Sri Lanka

Mr. Abbas Esufally is a Fellow Member of both the Institute of Chartered Accountants of England & Wales and the Institute of Chartered Accountants of Sri Lanka. He is an All Island Justice of Peace and serves as the Honorary Consul of Bhutan in Sri Lanka.

A. R. Gamage (Mrs)Independent Director

Mrs. Ramani Gamage was appointed to the Board in 1994. She is a Fellow of the Chartered Institute of Management Accountants UK. Mrs. Gamage also serves as a Director of Dolphin Hotels PLC and Infocraft Limited.

D. T. R. De Silva Executive Director

Mr. Ranil De Silva was appointed to the Board in 2012. He also serves as the

Managing Director B. Darsin De Silva & Sons (Private) Limited and serves as a Director of Intercom Group of Companies, the Chairman, Cinnamon Training Academy Limited and also holds directorships in Dolphin Hotels PLC and several other companies. Mr. De Silva is also the President of the National Chamber of Exporters of Sri Lanka.

W. M. De F. Arsakularatne Non-Executive Director

Mr. Malinga Arsakularatne was appointed to the Board in 2007. He serves as a Board Director and Chief Financial Officer of Hemas Holdings PLC, and is also a member of the Board of Management of the Group. He has been part of the Hemas Group since 2004. Mr. Arsakularatne has nineteen years of experience spread across investment management, corporate finance and business strategy. He also serves on the Boards of Serendib Hotels PLC and Dolphin Hotels PLC and in several more unlisted subsidiary companies within the Hemas Group in the capacity of Non-Executive Director and also serves as a Non-Executive Director of NDB Capital Holdings PLC.

Mr. Arsakularatne is a CFA Charter Holder and a Past President of CFA Sri Lanka. He is also a Fellow Member of the Chartered Institute of Management Accountants (CIMA), UK and a Past Board Member of the CIMA Sri Lanka Division. He holds a BSc in Computer Science & Engineering from the University of Moratuwa, Sri Lanka, an MSc in Investment Management from Cass Business School, UK, and an Executive MBA from INSEAD, France| Singapore| UAE.


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Our winning team!Senior Management

1. Ranil De Silva Executive Director2. Sanjika Perera Director – Business Development and Projects3. Sanjiv Wijayasinghe Director - Human Resources4. Suranjith De Fonseka Director – Sales and Marketing5. Shantha Kurumbalapitiya Director – Commercial6. Dayan Gunasekera Director – Finance

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Ranil De SilvaExecutive Director

Refer to Board of Directors Profile on page 15.

Sanjika Perera Director – Business Development and Projects

He possesses extensive Branding, Marketing and General Management experience in diverse sectors such as FMCG, Retail, B2B and Service Sectors in South Asia and Western Europe during a career spanning over 20 years. He last served as the Director – UK and Ireland for Sri Lanka Tourism. He read for his MBA at The Postgraduate Institute of Management, University of Jayewardenepura. He is a Fellow of the Chartered Institute of Marketing and a Chartered Marketer. He is a Board Member of CIM – Sri Lanka Regional Office where he currently serves as the Chairman of the CIM Sri Lanka Regional Board.

Sanjiv Wijayasinghe Director - Human Resources

Sanjiv has to his credit 35 years of experience in the field of Human Resource Management of which 30 years in Senior Managerial positions. He is a Fellow Member of the Institute of Personnel Management Sri Lanka where he has also served as its president, and he is also a Member of the Chartered Management Institute UK and a Member of the Institute of Professional Managers UK.

Suranjith De FonsekaDirector – Sales and Marketing

He joined the management team of Serendib Leisure Hotels in September 2007 and has gathered over 12 years’ experience in the tourism industry. He holds a B.A. (Hons) degree in Business Administration from Nottingham Trent University – UK, is a Sri Lanka prize winner of the Chartered Institute of Marketing – UK, and is a Chartered Marketer. He also holds an MBA from the Postgraduate Institute of Management of the University of Sri Jayewardenepura, and has participated in executive education programs conducted by the Indian School of Business (ISB) and the Cornell Nanyang Institute of Hospitality Management in Singapore. In addition, he is a committee member of the Marketing sub-committee of the Tourist Hotels Association of Sri Lanka (THASL), and is also the Vice President of the Travel Trade Sports Club.

Shantha Kurumbalapitiya Director – Commercial

He has over 20 years experience in the areas of Accounting & Finance, Business Restructure, Production Management, International Marketing, Construction and Project Management, Human Resource Management, Business Process Re-engineering and General Management, including CEO responsibilities. Prior to joining Serendib Leisure, he was the Group CFO of Rockland Distilleries (Private) Limited. He is a Fellow Member of the Institute of Chartered Accountants

Sri Lanka and a Fellow Member of the Chartered Institute of Management Accountants UK. He currently serves on the Council of the Institute of Chartered Accountants of Sri Lanka.

Dayan Gunasekera Director – Finance

Dayan has spent the majority of his career at the Hemas group; initially with the FMCG Sector and then with the Transportation Sector prior to his appointment to the management team of Serendib Leisure. He is an Associate Member of the Chartered Institute of Management Accountants (UK) and a Diplomate of the Chartered Institute of Marketing (UK). He holds an honours degree in Accounting and Financial Management from the University of Sri Jayewardenepura and a MBA from the Postgraduate Institute of Management of the same university.

A destination experience that is exciting, relaxing...and unforgettableTraditional Sri Lankan hospitality at its finest to help you immerse yourself in the charm of the moment and at the same time be transported to the serenity of a bygone era.

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Management Discussion andAnalysis

Global Tourism grows for the fifth consecutive year

Tourism continues to be a driver of global growth, growing 4.7% in 2014 as 1,139 million travellers undertook overseas travel, 51 million more than the previous year.

It is pertinent to note that the composition of arrivals and earnings is now shared almost 50:50 between traditionally favoured destinations and exciting new emerging destinations. The mix of source markets too has undergone change.

Traditional European markets remain among the top travellers to Asia, but are now opting for shorter durations and intra-regional travel while emerging source markets such as China, Russia and Brazil have led growth during recent years. China continued its strong performance in 2014 while numbers from Eastern Europe dwindled as the region was gripped by the fallout from the Crimean crisis.

The tourism sector continues to outperform regional markets as well as most other industry sectors within Sri Lanka; it has been a key driver of economic growth in Sri Lanka accounting for significant foreign investment, infrastructure development and job creation.

Room occupancy rates in graded hotel establishments approved by the Sri Lanka Tourism Development Authority (SLTDA) increased to 74.3% in 2014, up slightly from 71.7% in the previous year. Meanwhile, earnings from tourism

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Tourist Arrivals to Sri Lanka

020,00040,00060,00080,000

100,000120,000140,000160,000180,000

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2012/13

2013/14

2014/15

Source: SLTDA

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F&B excellence was pursued at Hotel Sigiriya through innovations including new dining options, revamped restaurant, fresh menu selections and theme nights which all contributed towards an exciting experience for guests.

surpassed the US Dollars two billion mark by the end of the year, registering an annual growth of 41.7 % for 2014.

Financial Review

Revenue grew over last year by 22% to Rs. Rs.258 Mn due to increased room inventory and higher occupancy. The hotel was successful in growing yields during a year that witnessed the entry of new inventory to the region and lower yields from the conversion of Euros . The web channel continued to perform throughout the year with a significant growth in online bookings being made with the hotel.

Profit Before Tax of Rs. 64 Mn grew by 108% from last year which included a one-off reversal of an expense provision. The company was successful in funding its entire refurbishment internally which led to a decline in cash and equivalents by 11.8 Mn from last year.

Occupancy

The hotel achieved an average occupancy of 74% during the year, with its full room inventory of 79 rooms operational following refurbishment.

2011 2012 2013 2014 2015

Occupancy

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Management Discussion and Analysis

This compared well with the annual average occupancy of 70% achieved during the nine months the hotel was in operation in 2013/14.

The hotel is popular among European travellers, and as in the past, this year’s arrivals too were topped by British, German and French nationals. The hotel’s location within the cultural triangle, in close proximity and with enviable views of the Sigiriya Rock – a world heritage site, makes it a popular destination within the region.

The region has witnessed a transformation of its tourism offering, with a multitude of formal and informal operators stepping into the fray, creating heavy competition across hotel grades. Hotel Sigiriya, one of the pioneering properties in the region, has differentiated itself by taking the lead in sustainable tourism and green initiatives.

Marketing

Hotel Sigiriya was the foremost beneficiary of the Serendib Hotel Group’s enhanced online and mobile marketing platforms; during the year, the largest volume of online bookings was directed towards the hotel.

The hotel continued to attract bookings from traditional source markets through conventional business channels, mainly from international travel promoters.

The Hotel was promoted at a series of road shows in the main travel markets to gain a foothold with key stakeholders. The roadshow sought to highlight the diversity and versatility of the entire property offered by Serendib Leisure as it is a favourite among experiential travellers who enjoy the hospitality of the hotel which includes an ayurvedic spa and interaction with the surrounding villages.

Operational Improvements

The Serendib Hotel group pursues a three pronged strategy towards operational excellence, which has been deployed across all of the properties including Hotel Sigiriya. The three themes encompassed within the strategy are food and beverage

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43%

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excellence, service excellence and human capital development. At each property, the strategy also seeks to accentuate the unique aspects on offer.

F&B excellence was pursued at Hotel Sigiriya through innovations including new dining options, a revamped restaurant, fresh menu selections and theme nights which all contributed towards an exciting experience for guests.

Service excellence is a clear differentiator in the crowded Sri Lankan tourism market and our pursuit of best in class service levels has been driven by many initiatives to refine and instil internationally accepted standards of hospitality services.

One of the foremost challenges facing the country’s tourism sector is the lack of suitably skilled and trained personnel. To combat this, the hotel has

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taken a number of measures including enhanced training and development for employees and an expanded apprenticeship programme. In addition, more focused, needs-based efforts are initiated to address identified service and skill gaps.

Selected employees were provided cross functional exposure at the Group’s other properties as well as overseas training opportunities in collaboration with the group’s overseas partner, Minor Hotel Group.

Awards

Hotel Sigirya had the honour of being inducted into the TripAdvisor Certificate of Excellence Hall of Fame in 2015. Hall of fame inductees are those Hotels that have secured the “Certificate of Excellence” for five consecutive years. The hotel also won the Booking.com award 2015 for having obtained excellent feedback from its customers on guest services and F & B.


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Standing from left : Ananda Karunaratne - Maintenance Engineer, W. P. D. M. De Silva - Naturalist, Sugath Wijesinghe - Executive Housekeeper, E. G. G. N. Ekanayake - Pastry Chef, A. H. C. A. Dias - F & B Manager , H. N. P. Kumarage - HR Manager

Seated from left : J. A. D. Jayampathi - Executive Chef, Laksitha Wegodapola - General Manager, T. M. S. Kumara - Financial Controller , E. W. P. C. Samarakoon - Front Office Manager

Hotel Management

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Sustainability has always been considered part and parcel of our business and is the fundamental premise that drives our operations. Our philosophy is “To be Sri Lanka’s most responsible hospitality brand, capable of driving positive change for the benefit of the environment, people and communities impacted by our work”.

In tribute to this philosophy we have always pursued a sustainable business model that will support a scalable platform for triple bottom line growth. Accordingly, we adopt an integrated approach that aligns our sustainability initiatives with our corporate goals. It is how we are able to deliver consistent financial results, while at the same time, transmit greater value to all

other stakeholders associated with the business.

Serendib Hotels Group Sustainability Policy Statement

All properties under the Serendib Hotels PLC umbrella are required to maintain high standards of performance and advocate socially and environmentally sustainable business practices. Our aim is to bring a positive benefit to the societies in which we operate through high quality services, economic growth, environmental protection, community involvement and employment.

Environmental Sustainability

The group remains committed to minimize the impact on the environment resulting from the operation of the property. Our aim is to go beyond the basic legal and regulatory obligations to fulfil a broader environmental agenda, where concern for the environment influences all our actions. In our search for environmental–friendly business practices, we have established sound environmental objectives and targets together with an integrated review process to highlight possible cause and effect. Our efforts are illustrated below.

Reduce, Reuse, Recycle

Energy Reduction

Core PrinciplesKey initiatives Focus Areas Strategic Imperatives

Water Conservation

Waste Control

Bio-diversity preservation

Reduce the use of plastic annually

by 5%

Reduce water consumption by 5%

Reduce electricity consumption

annually by 5%

Energy efficient lighting

Energy efficient equipment

Improve operational efficiencies

Improve efficiency of the self-contained

sewerage plant

Rain water harvesting

Waste segregation

Composting

Increase volume of recycled water annually by 10%

Invest in protecting coastal properties

and marine life

Increase employee awareness

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Moreover, our transparent reporting framework is used to communicate with stakeholders and create environmental awareness among our employees, guests and the community at large. We also use this as a benchmark to work towards improving our environmental performance on an ongoing basis. Some of our efforts have been outlined below.

Underpinned by our pursuit of excellence, we strive to provide a premier F & B offering, service excellence and the ultimate in guest comfort at all our properties. We remain committed at all times to protect and preserve the authenticity of nature.


IndicatorHotel Sigirya

2013/14 2014/15

Direct energy consumption (kwh). 531,570 553,606

Energy saved due to conservation (kwh) 869 2100

Investment to introduce energy efficient systems (Rs.) 395,000 355,500

Water withdrawal (Units or Ltrs)

18,000 31,482

Water recycled and reused (Ltrs) 14,000 27,386

Waste generate (MT) 7.50 6.60

Liquid waste (Ltrs) 2,160 4,240

Travellife Gold certificate recipients - Serendib Leisure Group

Human Capital Development

We entrust our human capital to operate our properties and we expect them to convey our brand promise to our guests. Further, we see it as their duty to ensure that our guests experience world-class hospitality that we promise to provide. Therefore, it is critical that we develop the best and brightest talent in the industry to help us in our pursuit of excellence.

To achieve this, we have in place a comprehensive Human Resources infrastructure. It is how we have succeeded in moulding our workforce to overcome the day-to-day challenges encountered in the hospitality industry. It is also the underlying premise used to identify our human capital development strategies needed to give us a competitive advantage. To help us accomplish our leadership goals, we specifically focus on the following areas:

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Recruitment and retention

As an equal opportunity employer, the Company does not discriminate against any status protected by law. This is strictly applied both in the case of new recruits as well as in consideration for internal promotions.

Our philosophy:

To hire and retain talented people who embody The Serendib Hotels core values and reflect our character as a responsible hospitality company. Accordingly, we will create a compelling work culture that help us become an employer of choice and allows us to grow in a positive and sustainable manner.

Our aim is to cultivate 80% of our management team from within the business and in doing so all employees are subjected to an annual performance evaluation to assess their readiness to take on greater responsibilities. This talent assessment module is used as the basis for internal promotions and career mapping which allow employees to access both vertical and lateral growth opportunities within the group.

Meanwhile, in order to encourage a healthy flow of diverse ideas and perspectives, we seek to acquire 20% of our management talent from outside our current team, vis-à-vis new recruits who are able to envision their personal goals congruent to our own corporate ambitions. Many of these are trainee apprentices who can adapt to the changing environment of work life.

Our recruitment policy specifies that all new recruits will be hired purely on their ability to perform the tasks assigned to them in accordance with the Serendib Hotels employee code of conduct. 60% of the workforce of the property are hired from the local area.

Workforce statistics 2014/15

Property Total Workforce

(No.)

Gender distribution (% of total workforce)

Age Distribution (% of total workforce)

Workforce Mobility

M F <30 30 - 50 >50 New recruits

(No.)

Internal Promotions

(No.)

Attritions (No.)

Hotel Sigiriya

128 120 8 66 56 6 31 8 20

Remuneration and benefits

All employees are entitled to a fair and equitable remuneration in line with industry standards. We also have in place a systematic performance-based incentive scheme for executive and associate employee categories.

We provide all employees with on-location accommodation facilities

Health and safety of employees

The Hotel has adopted fire safety standards which requires it to be equipped with fire detection, alarm and emergency communication systems, fire suppression systems and fire training. Fire drills are conducted at least twice yearly and the evaluation of fire-readiness is monitored continuously under supervision of the Group Engineer. All our staff have been trained on fire prevention and evacuation procedures which are subjected to review periodically.

Learning and development

Our aim is to inculcate a vibrant learning and development culture, where learning is viewed as more of an experiential growth process, rather than as a part of the enforced protocol. As such, all learning activities ultimately focus on improving the guest experience.

Despite the overriding focus on improving service levels, our training itinerary also seeks to boost the long term employability of workforce vis-à-vis skills development initiatives that improve employee sustainability. The following programmes undertaken during the year, achieve the dual objectives of enhancing the guest experience as well as providing employees with a bankable long term skill.

German Food Training – A program for Chefs of all Serendib Group Hotels, which was conducted by experienced Chefs in-house.


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Menu Engineering & Food Costing – A programme aimed at aspiring F&B Managers and Chefs with a view to driving value through our F&B effort to provide an unparalleled culinary experience

Bakery & Pastry Demonstration – A programme for all Bakery and Pastry chefs on different types of Desserts, Cookies, sweets & toffees, Croissant and Danish bread varieties.

Toress Wine Training and Champagne & Cognac Training.

Best Cuppa Tea Brewing Training – A programme on how to Brew the ideal cup of tea conducted by the Sri Lanka Tea Board

Microsoft Excel-Intermediate Level – A basic programme that covers all the fundamentals of MS Excel which is focused for those of less or no knowledge In MS Excel.

Employee Engagement

As a business built on relationships, we understand the importance of maintaining a healthy dialogue with our employees. In essence the “eyes and ears” of our hotels, we realize that our employees function as an instantaneous feedback mechanism for guests.

Hence, we have always encouraged greater employee engagement by opening up a number of formal and informal channels, including regular networking forums that promote greater knowledge sharing. These mediums have proved to be successful not only in conflict resolution, but also as a hot bed for new ideas that can be used for the betterment of business.

Service Excellence

Service excellence has and always will be the ultimate goal of our human capital development model. In striving to provide our guests with a premium experience, we continue to deploy both general training as well as area-specific content that is deemed by the management to be timely and relevant in addressing possible service gaps at each property.

Key initiatives for 2014/15;

• CustomerServiceandUpselling–Aprogram conducted to focus on the development of customer service skills, upselling and good speaking skills in English for Front office, Restaurant and Pool Staff

• LifeguardTraining–Aprogrammeconducted for all pool attendants on life saving by the Lifeguard Association of Sri Lanka

Health & safety of products and services

Ensuring the health and safety of our products and services, is among our key priorities in providing a superior guest experience. The property remains aligned to the internationally accredited best practices set out under the HACCP food safety management guidelines.

Further we have initiated a “Mystery Audit” as the basis of ensuring that all on-location products and services meet with specific safety parameters spelt out as per the operational mandate. As part of the learning drive, we conducted “Chemical Training” – A programme for Kitchen and Housekeeping staff on the proper usage of chemicals, impact on using detergents and sanitizers, handling & storage and safety measures to avoid accidents.

Meanwhile, to ensure the general safety of on-location equipment we conduct regular training to educate staff on the following aspects;

• Firstaid,evacuation,firefighting,legionella, food hygiene

• Swimmingpoolsafety,generalhotelsafety

• Gassafety,beach&watersportssafety, children’s safety

• Accidents,incidents,illnessandtransport safety

Training

KPI's

Hotel Sigiriya

Investment on training: Rs. 778,199/-

Training hours: 2,236


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Guest feedback mechanism

All properties are equipped with Guest Satisfaction Survey (GSS) software to manage guest feedback. Online review sites such as TripAdvisor are monitored on a regular basis and our General Managers are encouraged to respond to compliments and complaints alike. The General Manager of the property hosts the guests for cocktails each week providing an opportunity for the hotel’s management team to interact with guests whilst on their stay and look into ways of enhancing their in-house experience.

Supply Chain Management

As a group-wide policy, at each property, we aim to source at least 30% of our fresh produce from local farmers and growers who have adopted ethically responsible farming and growing practices. Most of our fresh fruits, vegetables and seafood is procured in this manner 17% of our product needs are sourced locally. We believe in paying a fair market price for the produce that we buy from these suppliers, some of whom have been supplying to us for over a decade. While ensuring a degree of backward integration, these practices also tie in with the group’s social development goals.

Our philosophy:

To promote local sourcing, wherever possible and practical so as to ensure a sustainable source of produce at any time

Community Service

We have always been mindful of our impact on the communities in and around our property. As such we try to integrate these social concerns as part of our day-to-day operations, as much as possible. The ties we have fostered in the process have helped to make a positive impact on these communities and resulted in greater economic progress for the area.

Hotel Sigiriya carried out sharamadhana campaigns involving the cleaning and clearing of the area leading from the hotel to the Sigiriya Rock fortress. These campaigns are carried out by the staff of the Hotel and take place regularly throughout the year.

Our philosophy:

To interact with the communities impacted by our work and make a positive socio-economic change for the betterment of the community and the nation as a whole.

“The village lunch” excursion promoted by the hotel which helps local families in the village of Diyakepilla, providing the community with an additional source of income.

Sharamadhana Campaign “The village lunch” Preparation of the village lunch

The lush foliage, exotic wildlife and our brand of service to pamper you, all under the shadow of the spectacular wonder of the world.

Relax in the shadow of a rock fortress in the sky

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Hotel Sigiriya PLC believes that our dynamic approach to risk management ensures that key risks are proactively identified, assessed and responded to. Our ongoing assessment process takes into account the likelihood of an event, its potential impact on the business and the need for mitigation.

We have adopted the ISO 31000 standard of risk management illustrated below. It elaborates on risk identification, risk assessment, risk response and risk reporting methodologies.

The Company’s risk policy

Our policy for risk management is to proactively manage risk to ensure continued growth of our business and to protect our people, assets and reputation. This implies that we will:

• Implementaneffectiveandintegrated risk management system while maintaining business flexibility.

• Identifyandassessmaterialrisksassociated with our business, monitor, manage and mitigate risks.

Internal Control and Risk Management

The group reviews and assess significant risks on a regular basis and has implemented an oversight programme to ensure that there is a system of information gathering, awareness and action to mitigate exposure to identified risks.

The Group Risk Management Committee (GRMC) of Hemas Holdings PLC, the ultimate parent of Hotel Sigiriya PLC overlooks the risk management process of the Serendib Hotels group . The GRMC reviews the company’s risk profile and provides guidance on required risk responses on a quarterly basis.

The Audit Committee of the Serendib Hotels PLC reviews and monitors

internal controls. The internal audit scope is approved by the Audit Committee at the start of the year and one internal audit per hotel is done by an external party and one by the Hemas internal audit team. The audit reports, risk reports and compliance reports are reviewed by the Audit Committee on a quarterly basis.

As a part of the Risk Management process, the Board reviews its strategies, processes, procedures and guidelines on a continuous basis to effectively identify, assess and respond to risks.

The group wide risk management programme is facilitated by the Risk and Control division with the inputs from Business Strategy, Corporate Finance, Group Treasury and Group Human Resource divisions.

Risk facilitation is exercised through risk workshops, risk reviews, essential control checklists and risk reporting.

Risk Management

ESTABLISH THE CONTEXTAnalyse business environment and set objectives

IDENTIFY THE RISKSDeviation from expected results

ANALYSE THE RISKSAnalyse the likelihood and impact

EVALUATE THE RISKSPrioritise the issue

TREAT THE RISKSImplement a suitable risk treatment plan

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Source: ISO 31000 Risk Management Framework.

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Risk Risk exposure Mitigating actions

Market Adverse impact on yields and occupancies

Fluctuations in demand

• Closelymonitorthesocio-economicenvironmentofthetraditionalmarkets and targeting new emerging markets

• Analyseresourcesandcapabilitiestoidentifycorecompetenciesanddifferentiate through brand and service levels

• Sourcingnewmarketsanddevelopingnewchannels

• Participateintradefairsbothlocalandforeigninordertopromotethe properties and to attract new tour operators.

• Usingthecorporatewebsitetoimproverevenuethroughdirectbookings and marketing the hotel by partnering with popular online travel agents to push web based sales

Human Resource Risk

Risk of losing skilled and trained human capital and recruitment of staff for new hotel developments.

Trade union activities resulting in work disruptions.

• Establishcareerdevelopmentprogramsandsuccessionplansinorderto retain and motivate the talent pool of the company

• Providefocusedandstructuredtrainingforstaffatalllevelstoaidpersonal and professional development

• Developastrongemployerbrandtoattractstaffoftherightquality

Foreign Exchange Rate Risk

Depreciation of the Rupee and loss on exchange in conversion of loans denominated in foreign currency

• Exchangeratemovementsaretakenintoconsiderationwhenenteringinto contracts with travel agents

• StructureForExborrowingsinproportiontotherevenuecurrencymix

Operational Process Risk

Internal process failures, fraud, pilferage and breakdown of internal controls.

• Providefocusedandstructuredtrainingtostaffatalllevelstofamiliarize processes and procedures

• Systemsandproceduresareinplacetoensurecompliancewithinternal controls, which are monitored and reviewed for their continued efficiency and effectiveness

• Actionistakenimmediatelyasperemploymentpoliciesonanystaffinvolved to fraud / pilferage

• OutsourceinternalauditstoreputedAuditFirmstoreviewandreporton the adequacy of the financial and operational controls

Credit Risk Risk arising due to default by customers. of payments. Impact on liquidity and profitability

• Creditisallowedonlytoapprovedcustomerswhichisreviewedannually

• Monitorandreviewthedebtorbalancesmonthly.

• Obtainbookingadvances.

• CompliancetolaiddowncreditSOPsoncreditcontrol.

Key Risks and Action Plans

The following framework depicts the specific and most relevant risks faced by the company and management actions to mitigate them.


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Risk Risk exposure Mitigating actions

Political Risk Changes to government policy could adversely impact the operating environment

• Compliancewithexistingregulationsandstatutes.

• Activelyparticipateinindustryassociationstolobbyforpolicychangesto grow and develop the tourism industry.

• MaintaingoodrelationshipswithStateagenciesandministries.

Fire and Natural Disaster

Fire or natural disaster can halt or cease operations

• Insuranceistakentocoverallaspectsoffireandnaturaldisaster

• FiresafetydrillsandtrainingisprovidedtothestaffattheHotel.

Health and Safety Risk

Risk of litigation due to non-adherence to laid down health and safety regulations. This could be due to, but not restricted to food poisoning, personal or accidental harm to guests or employees.

• Insurancetakentocoverbothemployeeandguestinjuries.Further,regular maintenance of the property and equipments is done to ensure all operating equipment are of good operating condition

• Thehoteltakesallprecautionsfromsourcingthesuppliertostorageand preparation of food to ensure contamination is avoided

• Touroperatorsafetystandardsarecompliedwithandnecessaryactionis taken immediately on any concern area related to health and safety based on audit inspections done by tour operators

• Thecompanysourcesitsproductsandservicesfromapprovedsuppliers

Reputation Risk Adverse impact on the corporate image and brand equity which is likely to diminish shareholder value.

• Properadherencetothestatutory,health&safetyconcernsbyobtaining appropriate quality certification standards including HACCAP and environmental regulations

• Continuousreviewofguestcommentsinordertoexceedcustomerexpectations and ensure quality standards are adhered and improved upon

• Reputationmanagementsoftware(Brand-Gain)isusedtomonitor,report and respond to the on-line reviews in the public domain/review sites (eg. Trip advisor, HolidayCheck, etc)

• Maintenanceofhighestethicalstandardsatalltimesinallbusinessactivities

• ConductingmeaningfulCSRinitiativesinthelocaleofthehotel

In conclusion, Hotel Sigiriya PLC’s transparent risk management system engages risks posed to the company on a broad front. Our risk management process is entrenched in the core values of the company and the senior management demonstrates leadership in championing the company’s risk management initiatives, thereby ensuring the company’s competitiveness and sustainability in the long term.

Risk Management

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Corporate Governance

SECTION 1 : THE COMPANY

A. DIRECTORS

The Board

Corporate Governance Principle

SEC & ICASL Code Reference

Level of Compliance

Board Meetings A 1.1 Four regular Board Meetings are scheduled during a year to review the strategic direction of the operational units, annual budgets and progress towards achieving those budgets and key business risks and other matters. Ad hoc meetings are held when necessary. Board decisions are taken at Meetings and via Circular Resolutions signed by all the Directors.

Responsibilities of the Board

A 1.2 The Directors are responsible for;

• Formulating, implementing and monitoring overall business policy and strategy.

• Ensuring effective systems are in place to secure integrity of information, internal controls and risk management.

• Ensuring compliance with relevant laws, statutes and regulations.

• Ensuring all stakeholder interests are considered in corporate decisions.

• Promoting open and proper communication between the Company and its stakeholders.

Compliance with the law and independent professional advice

A 1.3 The Board collectively and the Directors individually act in accordance with the laws and regulations applicable to the business enterprise.

In discharging their duties, Directors may seek independent professional advice from external parties where necessary at the expense of the Company.

Introduction

Corporate Governance involves a set of relationships between a Company’s management, its Board, its shareholders and other stakeholders. Corporate Governance also provides the structure through which the objectives of the Company are set, and the means of attaining those objectives and monitoring performance are determined.

Company’s Philosophy on Corporate Governance

Hotel Sigiriya PLC is fully aware and committed to implementing governance standards that conform to best practices. As part of the corporate

culture, it engages and interacts with all the stakeholders in a way that promotes mutual trust, better understanding and good faith.

The main scope of the Company's Corporate Governance policies encompass; clear description of duties and responsibilities among the Board of Directors, checks and balances, clear business roles and strategies within the Company, ethical business conduct, engagements with stakeholders through risk mitigation, upholding corporate social responsibility in sustaining good corporate citizenship as well as disclosure of material information in a timely and accurate manner.

Set out below is the extent to which the Company complies with the Code of Best Practice on Corporate Governance issued jointly by the Securities & Exchange Commission of Sri Lanka and the Institute of Chartered Accountants of Sri Lanka.


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Level of Compliance

Company Secretary A1.4 All Directors have access to the advice and services of the Company Secretary who is responsible to the Board in ensuring that proper Board procedures are followed and applicable rules and regulations are complied with.

The appointment and removal of the Company Secretary is a decision taken by the Board as a whole.

Independent judgment

A1.5 The Directors exercise independent judgment on matters pertaining to strategy, performance, resource allocation and standards of business conduct and act free from any undue influence and bias from other parties.

Dedication of adequate time and effort by the Directors

A1.6 The members of the Board dedicate adequate time and effort in discharging their duties and responsibilities towards the Company.

The Board met on four occasions during the year under review and the attendance at these meetings are given below:

Name of Director Capacity No. of meetings attended

Mr. A N Esufally Chairman/ Non Executive Director 4/4Mr. L P Fernando Independent Director 3/4Mr. B S M De Silva Independent Director 3/4Mrs. A R Gamage Independent Director 4/4Mr. W M De F Arsakularatne Non Executive Director 2/4Mr. D T R De Silva Executive Director 4/4

The Board has delegated some of its functions to its Sub-Committees, while retaining the rights for final determination pertaining to matters under the purview of the Committees. The composition and the functions of these sub–committees are discussed in detail under the relevant sections of this Report.

The management of the hotel owned by the Company has been delegated to Serendib Leisure Management Limited through a formal Management Agreement. The Managing Agent operates the hotel within the policy framework outlined by the Board and is assessed periodically by way of Management Reports and presentations.

Induction and Training for Directors

A1.7 An Induction programme is in place which includes the provision of key corporate documents, facilitation of visits to the hotels and meetings with the Senior Management Team.

In addition, the Directors are also encouraged to participate in continuous professional and self-development activities.


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Chairman’s Role



Level of Compliance

Role of Chairman in conducting meetings

A 3.1 The Chairman encourages the participation of all the Directors in decision making, seeks and ascertains the views of the Directors and thereby ensures that the Board functions in an efficient manner which is beneficial to the stakeholders and the Company.

Financial Acumen



Level of Compliance

Availability of those with sufficient financial knowledge

A.4 The Board comprises of several professional accountants who posses the necessary knowledge and competence to guide the Board on matters pertaining to finance.

Board Balance



Level of Compliance

Non executive Directors

A.5.1 All the Directors are Non-Executive Directors.

Independent Directors

A.5.2

A.5.3

Three out of the Six Non-Executive Directors are considered independent.

These Directors are independent of management and free of any business or other relationship that could materially interfere with or could reasonably be perceived to materially interfere with the exercise of their unfettered and independent judgement.

Annual Declaration A.5.4 The Independent Directors have submitted written Declarations of their independence as required by section 7.10.2(b) of the Listing rules.

Determination of independence

A.5.5 The Board annually determines the independence of each Non-Executive Director based on the Declarations submitted by them.

Messrs. L P Fernando, B S M De Silva and Mrs. A R Gamage meet the criteria of Independence specified in Rule 7.10.4 of the Listing Rules except that they have served on the Board for more than nine years. However, the Board having evaluated all the factors concluded that their independence has not been impaired due to them serving on the Board for continually for a period exceeding nine years from the date of their first appointment.

Alternate Directors A.5.6 The Alternate Director appointed by the Non-Executive Director is not an Executive of the Company.

Recording of concerns in Board Minutes

A.5.10 Concerns raised by the Directors on matters of the Company which cannot be unanimously resolved are recorded in the Board Minutes.


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Supply of Information



Level of Compliance

Management’s obligation to provide appropriate and timely information

A.6.1

A.6.2

The Board is provided with appropriate and timely information to discharge its duties. The Directors are also entitled to request for additional information where they consider such information necessary to make informed decisions.

The Agenda for the Board Meeting and connected discussion papers are circulated to the Directors at least seven days in advance to facilitate the effective conduct of the Meeting.

Appointments to the Board



Level of Compliance

Nominations Committee

A 7.1 The Board has not established a Nominations Committee to make recommendations on Board appointments; instead appointments to the Board are made collectively and with the consent of all the Directors.

Assessment of Board composition

A.7.2 The Board assesses its composition to ascertain whether the combined knowledge and experience of the Board matches the strategic demands facing the company and takes this into account when new board appointments are considered.

Disclosure of required details of new Directors

A.7.3 On appointment of a new Director, the Company communicates to the Colombo Stock Exchange the appointment including a brief resume of the Director which includes;

(a) the nature of his experience in relevant functional area

(b) other Directorships or memberships in Board Sub-Committees; and

(c) whether the Director is considered an Independent, Non-Executive or Executive Director

Re – election



Level of Compliance

Re-election of Directors

A.8.1

A.8.2

The Company’s Articles require a Director appointed by the Board to hold office until the next Annual General Meeting and seek re-appointment by the shareholders at that meeting.

One third of the Directors including the Chairman retire by rotation at each Annual General Meeting in conformity with the Articles of Association of the Company. Directors who retire are those who have served for the longest period after their re-appointment/ re-election.

In addition, a Director who has reached 70 years of age vacates office at the conclusion of the next Annual General Meeting after he attains the age of seventy years or if he is re-appointed as a Director after attaining the age of 70 years, at the Annual General Meeting following that re-appointment.

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Disclosure of Information in Respect of Directors



Level of Compliance

Information in respect of Directors

A.10.1 The biographical details of the Directors, natures of his/her expertise in relevant functional areas, memberships in Board Sub–Committees, attendance at Board and Sub-Committee Meetings, other directorships and Directors' Interests in Contracts are disclosed under the relevant sections in the Annual Report.

B. DIRECTORS REMUNERATION

Remuneration Procedure



Level of Compliance

Establishment of a Remuneration Committee

B.1.1 The Board has delegated powers to the Remuneration Committee of its Ultimate Parent Company, Hemas Holdings PLC to make recommendations to the Board on remuneration policy and practice that is consistent with the objectives of the Company.

Composition B.1.2

B.1.3

The Remuneration Committee of the Parent Company consists of two Independent Non-Executive Directors.

The Chairman of the Committee is an Independent Director appointed by the Parent Company Board.

The names of the Chairman and members of the Committee are indicated in the Annual Report of the Board of Directors.

Determination of remuneration

B.1.4 In terms of the Articles of Association of the Company, the Board determines the fees payable to the Independent Directors.

Access to professional advice

B.1.5 The Committee has access to professional advice in discharging their duties.

Disclosure of Remuneration



Level of Compliance

Disclosures B.3.1. The Remuneration Policy supports a strong performance-oriented culture and ensures that individual rewards and incentives relate directly to the performance of the individual, the operations and functions for which they are responsible for and the Group as a whole.

The Directors were not paid a remuneration during the year under review.


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C. RELATIONS WITH SHAREHOLDERSConstructive use of the Annual General meeting and conduct of General Meetings



Level of Compliance

Proxy votes C.1.1 The Company counts all proxies lodged on each resolution.

Separate resolutions C.1.2 A separate resolution is proposed for each issue at the Annual General Meeting.

Adequate notice of AGM

C.1.4 The Notice of Meeting of the Annual General Meeting and the relevant documents are published and dispatched to the shareholders 15 working days prior to the Meeting as required by the Companies Act No. 7 of 2007.

Procedure of voting at General meetings

C.1.5 The procedure for voting at the Meeting is circulated along with the Notice of Meeting.

Communication with Shareholders



Level of Compliance

Policy and methodology for communication with shareholders

C.2 The Company disseminates information pertaining to the performance of the Company through the publication of the Interim Financial Statements and the Annual Report in a timely manner. Announcements are also made to the Colombo Stock Exchange on any information which may materially affect the share performance.

The Company Secretary could be contacted in relation to shareholder matters. The contact details are indicated in the Corporate Information section of this Report.

Major Transactions



Level of Compliance

Disclosure on major transactions

C.3.1 The Directors ensure that any corporate transaction that would materially affect the net assets base of the Company is communicated to the Shareholders.

There were no major transactions as defined under section 185 of the Companies Act no. 7 of 2007 during the year under review.

D. ACCOUNTABILITY AND AUDIT

Financial Reporting



Level of Compliance

Board’s responsibility for statutory and regulatory reporting

D.1.1 The Board is accountable for presenting the Financial Statements of the Company as well as the information required to be presented by Statute, to regulators.

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Level of Compliance

Declarations by Directors

D.1.2 The Declarations to be made by the Directors are included in the Annual Report of the Board of Directors.

Statement of Directors and Auditors responsibility for the Financial Statements

D.1.3 The Statement of Directors' Responsibilities in the preparation of the Financial Statements is given on page 54 while the Independent Auditors' Statement on page 55 state the Auditor's responsibility for the Financial Statements.

Management Discussion Analysis

D.1.4 Management Discussion Analysis is given on page 20 of this Report.

Declaration on Going Concern of business

D.1.5 The Declaration by the Board that the Company is a going concern is given in the Annual Report of the Board of Directors.

Serious loss of Capital D.1.6 The Directors ensure that in the event the net assets of the Company fall below 50% of the value of the Company’s Shareholders funds an Extraordinary General Meeting will be called to notify the shareholders of the position and the remedial action being taken.

Related Party Transactions

D.1.7 The transactions entered into by the Company with related parties are disclosed in Note 27 to the Financial Statements.

Internal Control



Level of Compliance

Annual review of the system of internal controls

D.2 The Board maintains a sound system of internal control to safeguard shareholder investments and the Company’s assets. The adequacy and the effectiveness of the internal controls are reviewed by the Internal Auditors under the direction of the Audit Committee.

Audit Committee



Level of Compliance

Composition D.3.1 As permitted by the Listing Rules of the Colombo Stock Exchange, the Audit Committee of the Parent Company Serendib Hotels PLC functions as the Audit Committee of the Company.

The Audit Committee of Serendib Hotels PLC consists of two Independent Directors and a Non-Executive Director. The Chairman of the Committee is an Independent Director.

Duties D.3.2 The main purpose of the Committee is to assist the Board in the effective discharge of its responsibilities on financial reporting, risk management and internal control. It also reviews the nature and extent of non–audit services provided by the Auditors seeking to balance objectivity and independence.

Terms of Reference D.3.3 The Committee has written Terms of Reference dealing clearly with its authority and duties.


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Level of Compliance

Disclosures D.3.4 The Members of the Committee are indicated in the Annual Report of the Board of Directors. The Managing Director of the Company attends the Meetings by invitation.

The Committee met four times during the year under review and the attendance at these Meetings are given below:

Name of Director Capacity No. of meetings attended

Prof. L D K B Gamage Chairman/Independent Director 4/4Mr. M A Jafferjee Member/Independent Director 4/4Mr. A N Esufally Member/Non-Executive Director 4/4Mr. D T R De Silva Managing Director 4/4

The Report of the Audit Committee is given on page 50.

Code of Business Conduct and Ethics



Level of Compliance

Disclosure of Code of Business conduct and Ethics

D.4.1 The Company has adopted a Code of Business Conduct and Ethics and the Directors and Members of the Senior Management are committed to the Code and the principles contained therein.

Corporate Governance Disclosures



Level of Compliance

Corporate Governance Report

D.5.1 The manner and extent to which the Company complies with the provisions and principles of the Code is disclosed in the Report on Corporate Governance.

SECTION 2 : SHAREHOLDERS

E: INSTITUTIONAL INVESTORS

Shareholder Voting



Level of Compliance

Communication with shareholders

E.1.1 The Chairman conducts a structured dialogue with the institutional shareholders based on the mutual understanding of objectives and ensures that the views of the shareholders are communicated to the Board as whole.

Evaluation of Governance disclosures

E.2 When evaluating the governance arrangements particularly in relating to Board structure and composition, institutional investors are encouraged to give due weight to all relevant factors drawn to their attention.

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F : OTHER INVESTORS

Investing /Divesting Decisions



Level of Compliance

Individual shareholders

F.1 Individual investors are encouraged to carry out adequate analysis or seek independent advice when making investing and divesting decisions.

The Company places great emphasis on releasing its Financial Statements in a timely manner so as to ensure that shareholders have access to information on which they could make informed decisions.

Shareholder Voting



Level of Compliance

Individual shareholder voting

F.2 All shareholders are encouraged to participate at General Meetings of the Company and a Form of Proxy accompanies each Notice providing shareholders who are unable to attend such meeting the opportunity to cast their vote.

G : SUSTAINABILITY REPORTING



Level of Compliance

Principles of Sustainability Reporting

G.1 The Sustainability Report on Page 25 details the sustainability practices of the Company.

The following table presents the Company’s compliance with Section 7.10 of Listing Rules on Corporate Governance issued by the Colombo Stock Exchange.

CSE Rule No. Applicable Rule Requirement Status of compliance

Board of Directors

7.10.1. Non executive Directors(NEDs)

One – third of the total number of Directors subject to a minimum of two.

Complied

7.10.2 (a) Independent Directors One – third of the Non–Executive Directors subject to a minimum of two.

Complied

7.10.2(b) Declaration of Independence

Each Non-Executive Director should submit a declaration of independence/ non-independence.

Complied

7.10.3(a) and (b)

Disclosure relating toDirectors Independence

Names of Independent Directors should be disclosed in the Annual Report and the basis for determination of independence of Non–Executive Directors, if criteria for independence is not met.

Complied

7.10.3(c) A brief resume of each Director should be included in the Annual Report, including his area of expertise.

Complied

7.10.3(d) Upon appointment of a new Director a brief resume of the Director to be submitted to the Stock Exchange.

Complied


44


CSE Rule No. Applicable Rule Requirement Status of compliance

Remuneration Committee

7.10.5(a) Composition The Committee shall comprise of Non–Executive Directors, a majority of whom shall be independent.

The Chairman of the Committee shall be a Non-Executive Director.

Complied

7.10.5(b) Functions of theRemunerationCommittee

The Committee shall recommend the remuneration payable to the Executive Directors and Chief Executive Officer or equivalent role.

Complied

7.10.5 (c) Disclosure in theAnnual Report

The Annual Report should set out the names of the Members of the Remuneration Committee, a statement of Remuneration Policy and the aggregate remuneration paid to Executive and Non-Executive Directors.

Complied

Audit Committee

7.10.6.( a) Composition The Committee shall comprise Non-Executive Directors a majority of who shall be independent.

The Chairman shall be a Non-Executive Director.

The Chairman or a Member should be a member of a recognized professional accounting body.

Complied

7.10.6. (b) Functions *Overseeing the preparation , presentation and adequacy of the disclosures in the financial statements in accordance with the SLAS.

*Overseeing compliance with financial reporting related regulations and requirements.

*Overseeing the processes to ensure that internal controls and risk management are adequate.

*Assessing the independence and performance of the External Auditors.

*Recommending to the Board the appointment, re- appointment and removal of the External Auditors and approving their remuneration and terms of engagement.

Complied

7.10.6.(c) Disclosure in the

Annual Report

The names of the Members of the Audit Committee should be disclosed in the Annual Report

The Audit Committee to determine the independence of Auditors and disclose the basis of such determination in the Annual Report.

Annual Report to contain a report by the Audit Committee setting out the manner of compliance in relation with their functions.

Complied

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In accordance with the Rules on Corporate Governance issued by the Colombo Stock Exchange, the Remuneration Committee appointed by the Board of the Ultimate Parent Company, Hemas Holdings PLC, functions as the Remuneration Committee of the Company.

At the commencement of the financial year, the Remuneration Committee comprised of the following Independent Directors of Hemas Holdings PLC

� Mr. Pradipta Mohapatra – Independent Director (Chairman)

� Dr. Anura Ekanayake – Independent Director

Frequency of meetings

The Committee meets at least four times a year. Additional meetings shall be convened at the request of the Chairman or a Member of the Committee.

Remuneration Policy

The Committee has given full consideration to the principles of Good Governance as set out in the Code with reference to Directors’ remuneration. The main objectives of the policy are to ensure that pay and benefits packages are sufficiently competitive to attract, develop and retain high calibre executives. The Committee will continue in the future to ensure that a competitive and well-balanced package is maintained. It also seeks to align individual reward and incentives with the performance of the Group and hence, with the interests of the shareholders. When carrying out its role the Committee will consider corporate performance in environmental, social and corporate governance issues.

Role of the Committee

The scope of the Remuneration Committee shall cover the following responsibilities:-

� Compensation Philosophy / Policies including stock options and benefits

� Fixed Pay (based on grading /evaluation)

� Performance Bonus

� Special schemes

� Performance Management Systems

� Annual Goals and Performance Targets

� Performance Assessment and development plans

� Executive search

Pradipta Mohapatra Chairman

26th May 2015

Remuneration Committee Report


46

The Board of Directors of Hotel Sigirya PLC takes pleasure in presenting their Report together with the Audited Financial Statements of the Company for the year ended 31st March 2015.

Principal Activity of the Company & GroupThe Principal activity of the Company which is operating a tourist hotel remained unchanged during the year under review. The Company owns and operates a 79 room hotel in Sigiriya.

The Directors to the best of their knowledge and belief confirm that neither the Company nor its subsidiaries have been engaged in any activity that contravenes laws and regulations.

Review of Operations & Future DevelopmentsThe financial and operational performance of the Company during the year under review and future developments are discussed in the Chairman’s Review and the Management Discussion & Analysis. These Reports together with the Audited Financial Statements reflect the state of affairs of the Company and the Group.

Corporate GovernanceThe Directors confirm that the Company complies with the Rules on Corporate Governance laid down by the Colombo Stock Exchange and has adopted the relevant rules on Corporate Governance issued by the Securities & Exchange Commission of Sri Lanka and the Institute of Chartered Accountants of Sri Lanka . The Corporate Governance practices of the Company are given from page 35 to 44 of the Annual Report.

Risk ManagementThe Company has put in place a process to identify, evaluate and manage any significant risks faced by the entity, where annual risk reviews are carried out by the Group Risk & Control Dept. The principal risks and mitigating actions are reviewed by the Audit Committee on a quarterly basis. A detailed overview of the Risk Management process is outlined in the Risk Management Report on page 32.

Going ConcernThe Board having considered the financial position, operating conditions, regulatory and other factors and such matters required to be addressed in the Corporate Governance Code, have a reasonable expectation that the Company possesses adequate resources to continue its operations for the foreseeable future. For this reason, the Company continues to adopt the ‘Going Concern basis’ in preparing the Financial Statements.

Financial Statements & Auditors ReportThe Financial Statements of the Company as at 31st March 2015 duly signed by the Directors are given from page 56 to 89 while the Auditor’s Report on the Financial Statements is provided on page 55.

Accounting PoliciesThe Financial Statements for the period ended 31st March 2015 have been prepared in accordance with the Sri Lanka Accounting Standards which were in effect upto that date. The Accounting Policies adopted in the preparation of these Financial Statements are given from page 61 to 73.

ResultsThe Financial Results of the Company as at the Balance Sheet date are tabulated below:-

2015 (Rs) 2014 (Rs)

Revenue 258,287,530 211,882,730Gross Profit 204,169,931 161,348,996Profit Before Tax 63,930,106 30,727,163Income Tax expenses (3,122,476) (3,138,124)Profit/(loss) After Tax 60,807,630 27,589,039

Dividends The Directors have approved the payment of an Interim Dividend of Rs. 5/- per share for the financial year 2014/15 which is payable to the shareholders by 17th June 2015 (2014 – Nil)

As required by Section 56(2) of the Companies Act No. 7 of 2007, the Directors have signed Certificate stating

Annual Report of the Board of Directors

that in their opinion the Company based on the information available satisfies the Solvency Test immediately after the dividend distribution. A Certificate of Solvency was obtained from the Auditors of the Company in terms of the Act.

Property Plant & Equipment The capital expenditure incurred by the Company during the year amounted to Rs. 53,795,402/-.(2014 – Rs. 99,806,431/-).

Details of Property, Plant & Equipment and their movement during the financial year is disclosed under Note 11 to the Financial Statements.

Details of Land and Buildings held by the Group is given below;-

Location Extent

Sigiriya 8A- 0R- 16.0 P (Leasehold land)

Stated CapitalThe stated capital of the Company as at 31st March 2015 amounted to Rs. 97,650,000 dividend into 5,859,000 ordinary shares. There was no change to the Stated Capital of the Company during the year under review.

Events Occurring After the Balance Sheet DateNo circumstances have arisen since the Balance Sheet date that would require adjustment to or disclosure in the Accounts other than those disclosed in Note 26 to the Financial Statements.

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Statutory Payments & Compliance with Laws and regulations The Directors confirm that to the best of their knowledge, all taxes, duties and levies payable by the Company, all contributions, levies and taxes payable on behalf of and in respect of the employees of the Company as at the Balance sheet date have been paid or where relevant provided for in the Financial Statements.

The Company has also ensured that it complied with the applicable laws and regulations including the Listing rules of the Colombo Stock Exchange.

Employment Permanent and Contract employees of the Company as at the Balance Sheet dates was 128 (2014-123)

The Company adopts a non discriminatory policy in recruitment and employment which gives full and fair consideration to persons in selection, training, development and promotion ensuring that all decisions are based on merit.

SustainabilityThe Company has taken specific steps, particularly in ensuring the conservation of the natural resources and environment and addressing material issues highlighted by its stakeholders. Every endevour is made to minimize the adverse effect on the environment to ensure sustainable continuity of our natural resources. The Company’s sustainable practices are detailed on pages 25 to 29.

Corporate DonationsDonations made by the Company during the year under review amounted to Rs. 9,500/- (2014 – Rs. 6,500 /-).

DirectorsThe Board of Directors of the Company during the financial year under review is given below:-

Mr. A N Esufally – Chairman

Mr. L P Fernando

Mr. B S M De Silva

Mrs. A R Gamage

Mr. W M De F Arsakularatne

Mr. D T R De Silva

Mr. V H A Perera (Alternate Director to Mr. A N Esufally)

Prof. L D K B Gamage (Alternate Director to Mrs. A R Gamage)

Mr. A N Esufally and Mrs. A R Gamage retire by rotation in terms of Article 86 of the Articles of Association of the Company and being eligible offer themselves for re-election, with the unanimous support of the Board.

Board CommitteesAudit Committee

The Audit Committee of the Parent Company, Serendib Hotels PLC, functions as the Audit Committee of the Company. The names of the members of the Committee is indicated below.

Prof. L D K B Gamage - Chairman

Mr. M A Jafferjee

Mr. A N Esufally

Remuneration Committee

The Remuneration Committee of the Ultimate Parent Company, Hemas Holdings PLC functions as the Remuneration Committee of the Company. The names of the Members of the Committee are given below:-

Mr. Pradipta Mohapatra - Independent Director (Chairman)

Dr. Anura Ekanayake - Independent Director

Related Party Transactions Review CommitteeIn compliance with the Code of Best Practices on Related Party Transactions issued by the Securities & Exchange Commission of Sri Lanka in December 2013 the Board appointed a Related Party Transactions Review Committee comprising the following members.

Mr. M A Jafferjee – Chairman

Prof. L D K B Gamage

Mr. A N Esufally

Mr. D T R De Silva

Remuneration & Other Benefits of DirectorsNo remuneration was paid to the Directors for the year under review (2014 - Nil)

Interest RegisterIn compliance with the requirements of the Companies Act No. 7 of 2007, an Interest Register was maintained by the Company during the accounting period ended 31st March 2015.

Directors' Interest in ContractIn terms of section 192 (2) of the Companies Act, the Directors have declared their interests in contracts in the Company and have refrained from voting on matters in which they were materially interested. Directors' Interest in contracts with the Company is disclosed on page 49 of the report.

Directors’ interest in sharesIn compliance with Section 200 of the Companies Act, the Directors have disclosed their relevant interest in shares of the Company.

The shareholdings of the Directors during the financial year were as follows:

2015 2014

31.03.15 01.04.14 31.03.14

Mr. A N Esufally - - -Mr. L P Fernando 13,548 13,548 13,548Mr. B S M De Silva 19,500 19,500 19,500Ms. A R Gamage 2,100 2,100 2,100Mr. W M De F Arsakularatne - - -Mr. D T R De Silva 1,500 1,500 1,500


48

As explained in the Report of the Audit Committee Messrs Ernst & Young will be appointed as Auditors at the forthcoming Annual General Meeting.

By Order of the Board of

Hotel Sigiriya PLC

A N Esufally D T R De SilvaChairman Director

Hemas Corporate Services (Pvt) Ltd.Secretaries

26th May 2015

Annual Report of the Board of Directors

Related Party transactions There were no recurrent or non-recurrent transactions carried out by the Company with related parties during the year under review that is required to be disclosed in terms of the Code of Best Practice on Related Party Transactions.

Company SecretariesMessrs. Hemas Corporate Services (Pvt) Ltd. of Hemas House, No. 75, Braybrooke Place, Colombo 02 functions as the Secretaries of the Company.

Registrars

Messrs. SSP Corporate Services (Pvt) Ltd. of 101, Inner Flower Road, Colombo 03 function as the Registrars of the Company.

Internal ControlThe Board has reviewed the internal controls covering financial, operational and compliance controls and risk management and have obtained reasonable assurance of its effectiveness.

ShareholdersThe Company has made all endeavours to ensure equitable treatment to all its shareholders.

AuditorsDuring the year under review Messrs PricewaterhouseCoopers, Chartered Accountants served as the External Auditors of the Company. The Audit Fees payable and fees paid for other services rendered are as follows;

Audit Fees -Rs. 411,780/- (2014 – Rs. 275,000/-)

Fees for non –audit services -Rs. 224,406/- (2014 – Rs. 224,406/-)

The Directors have confirmed that to the best of their knowledge the Auditors have had no interest in or relationship with the Company or its subsidiaries other than that of External Auditors.

The Auditors have confirmed that they are independent in accordance with the Code of Ethics of the Institute of Chartered Accountants of Sri Lanka.

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Related Party Disclosures as required by the Sri Lanka Accounting Standards No. 24 on Related Party Disclosures is detailed in Note 27 to the Financial Statements. In addition, the Company carried out transactions in the ordinary course of business with entities where the Directors of the Company are Directors of such entities.

Company Director/s Nature of Transaction Value 2014/15 Value 2013/14

Dolphin Hotels PLC A N Esufally

W M De F Arsakularatne

D T R De Silva

B S M De Silva

A R Gamage (Ms)

Sale of goods/services

Purchases of goods / services

33,600

1,170,512

141,800

287,355

Serendib Hotels PLC A N Esufally


D T R De Silva

Sale of goods/services


-

870,015

286,644

1,437,118

Serendib Leisure Management Ltd.

A N Esufally

D T R De Silva

Loan advanced

Loan Repayment

Finance expense

Management fees paid

Accounting fees paid

Expenses reimbursed

-

-

-

21,554,158

612,245

20,877,345

6,000,000

6,000,000

65,492

14,597,901

612,245

23,556,494

Jada Resort & Spa (Pvt) Ltd. A N Esufally Sale of goods/services


-

8,000

129,725

216,725

Diethelm Travels Lanka (Pvt) Ltd.

A N Esufally


Sale of goods/services 23,033,086 17,208,619

Hemas Corporate Services (Pvt) Ltd.

W M De F Arsakularatne Secretarial & professional fees 363,732 330,720

Hemas Holdings PLC A N Esufally


Loan advanced

Loan repayment

Finance income

15,000,000

10,000,000

650,273

-

53,000,000

2,568,138

Directors' Interest in Contracts with the Company


50

Composition

The Audit Committee of the Parent Company, Serendib Hotels PLC functions as the Audit Committee of the Company. The Committee comprises two Independent Directors, namely Prof. Lalith Gamage (Chairman), Mr. Murtaza Jafferjee and a Non-Executive Director, Mr. Abbas Esufally.

The Executive Director and Director Finance of the Managing Agent and the Head of Risk & Control of Hemas Group attend Meetings by invitation. The Company Secretary serves as the Secretary to the Committee.

The activities and views of the Committee have been communicated to the Board through verbal briefings and by tabling the Minutes of the Committee Meetings.

Role of the Committee

The Audit Committee operates within the Terms of Reference outlined in its Charter and assists the Board in fulfilling their oversight responsibilities in the following areas;

(i) quality and integrity of the Company’s Financial Statements and financial reporting process including the preparation, presentation and adequacy of disclosures in the Financial Statements in accordance with the Sri Lanka Accounting Standards;

(ii) system of internal accounting and financial control of the Company;

(iii) compliance with legal and statutory requirements including financial reporting requirements, disclosure requirements of the Companies Act and other relevant financial reporting related regulations and requirements;

(iv) performance of internal audit function including the process to ensure that the internal controls and risk management of Company are adequate to meet the requirements of the Sri Lanka Auditing Standards.

(v) assess the independence and performance of the external Auditors of the Company and make recommendations to the Board pertaining to the appointment, re-appointment or removal of external Auditors and their remuneration and approve terms of engagement of the external Auditors.

Main activities carried out during the year

The Audit Committee met four times during the year ended 31st March 2015 and carried out the following activities;

• ReviewedanddiscussedtheUn-audited Quarterly Financial Statements with the Management prior to publication.

• ReviewedanddiscussedtheAudited Financial Statements with both the Management and External Auditors prior to publication.

• DiscussedtheManagementLetterissued by the external Auditors for the year 2014/15 along with the Management responses and monitored follow up action.

• ApprovedtheInternalAuditPlanand monitored the performance of the Internal Auditors.

• Reviewedanddiscussedwiththe Internal Auditors, the Internal Audit Reports and monitored follow-up action by the Management.

• ReviewedtheReportsonstatutoryand regulatory compliance submitted by the Management.

Internal Audit

The Internal Audit function of the Company is carried out by Messrs. B R De Silva & Company, Chartered Accountants under the overarching control of the Hemas Group Risk & Control Division. Internal audit independently reviews the risks and control processes operated by Management. It carries out independent Audits in accordance with an Internal Audit Plan which is approved by the Audit Committee before the commencement of the financial year.

The Internal Audit Report which includes recommendations to improve internal controls together with agreed Management action plans to resolve the issues, is presented to the Audit Committee for review. The Group Internal audit follows up the implementation of recommendations and reports progress to the Audit Committee.

Report of the Audit Committee

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External Audit

The External Audit function of the Company for the Financial Year was carried out by Messrs. PricewaterhouseCoopers, Chartered Accountants. The Letter of Engagement of the External Auditors including the scope of the audit is discussed with the External Auditors and the Management prior to commencement of the Audit.

The Committee is satisfied that the independence of the External Auditors has not been impaired by any event or service that gives rise to a conflict of interest. Confirmation has been obtained from the External Auditors of their compliance with the independence guidance given in the Code of Ethics of the Institute of Chartered Accountants of Sri Lanka.

Having reviewed the effectiveness of the external audit, the Committee appreciates the work carried out by Messrs. PricewaterhouseCoopers. However, as recommended by the Company’s Holding Company, Hemas Holdings PLC, the Company proposes to engage the services of the External Auditors of its Holding Company, Messrs Ernst & Young, Chartered Accountants of No. 201, De Saram Place, Colombo 10 as the External Auditors of the Company for the year ending 31st March 2016, subject to approval by the Shareholders at the forthcoming Annual General Meeting.

Prof. L. D. K. B. Gamage Chairman – Audit Committee

26th May 2015


52

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Exciting eco adventures that you will never forget…

Pursuing Excellence

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54

Statement of Directors’ Responsibility in Relation to Preparing Financial StatementsThe Statement of Directors responsibilities is to be read in conjunction with the Report of the Auditors and is made to distinguish the respective responsibilities of the Directors and of the Auditors in relation to the Financial Statements.

Companies Act No. 7 of 2007 requires that the Directors to prepare and circulate among shareholders Financial Statements which give a true and fair view of the state of affairs of the Company as at the Balance Sheet date and the profit and loss of the Company for the financial year.

The Directors are required to ensure that in preparing the Financial Statements;

• appropriateaccountingpoliciesare used, selected and applied in a consistent manner, and material departures, if any, have been disclosed and explained.

• allapplicableandrelevantAccounting Standards have been followed

• judgementandestimateshavebeen made which are reasonable and prudent.

The Directors confirm that the Company maintain accounting records, which discloses with reasonable accuracy the financial position of the Company and that the Financial Statements have been prepared in accordance with the Companies Act No. 7 of 2007, Sri Lanka Accounting Standards and have provided the information required by or otherwise complied with the Rules of the Colombo Stock Exchange.

The Directors having reviewing the Group’s future financial projections, cash flows and current performance are satisfied that the Company has adequate resources to continue its operations in the foreseeable future. The Directors have thus adopted a ‘Going concern basis’ in preparing the Financial Statements.

The Directors have also taken reasonable steps to safeguard the assets of the Company and to establish proper systems of internal control with a view to detect and prevent any irregularities.

The Directors are of the view that they have discharged their responsibilities as set out in this statement.

Further as required by Section 56(2) of the Companies Act No. 7 of 2007, the Directors have confirmed that the Company satisfies the Solvency Test immediately after the distribution in accordance with Section 57 of the said Act and have obtained a Certificate from the Auditors prior to dispatching the Interim dividend of Rs. 5/- per share.

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 the in Financial Statements.

By order of the Board of

Hotel Sigiriya PLC

Hemas Corporate Services (Pvt) Ltd.Secretaries

26th May 2015

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Independent Auditor’s Report

Report on the Financial Statements

1 We have audited the accompanying financial statements of Hotel Sigiriya PLC, which comprise the statement of financial position as at 31 March 2015, and the statement of comprehensive income, statement of changes in equity and statement of cash flow for the year then ended, and a summary of significant accounting policies and other explanatory notes as set out on pages 61 to 89.

Management’s Responsibility for the Financial Statements

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

Scope of Audit and Basis of Opinion

3 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 comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

4 An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation of financial statements that give a true and fair view in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

Independent Auditor’s Report To the shareholders of Hotel Sigiriya PLC

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

5 In our opinion the financial statements give a true and fair view of the financial position of Hotel Sigiriya PLC as at 31 March 2015, and its financial performance and its cash flows for the year then ended in accordance with Sri Lanka Accounting Standards.

Report on Other Legal and Regulatory Requirements

6 These financial statements also comply with the requirements of Section 151 (2) of the Companies Act, No. 07 of 2007.

Chartered Accountants 05th June 2015

Colombo

PricewaterhouseCoopers, P. O. Box 918, 100 Braybrooke Place, Colombo 2, Sri Lanka T: +94 (11) 771 9838, 471 9838, F: +94 (11) 230 3197, www.pwc.com/lk

Partners Y. Kanagasabai FCA, D.T.S.H. Mudalige FCA, C.S. Manoharan FCA, N.R. Gunasekera FCA, S. Gajendran FCA, Ms. S. Hadgie FCA, Ms. S. Perera ACA, T.U. Jayasinghe ACAPricewaterhouseCoopers is a member firm of PricewaterhouseCoopers International Limited, each member firm of which is a separate legal entity.


56

Income StatementYear ended 31 March 2015

Notes 2015 2014

Rs. Rs.

Revenue 5 258,287,530 211,882,730 Cost of sales (54,117,599) (50,533,734)Gross profit 204,169,931 161,348,996 Other operating income 6 1,232,333 602,168 Sales and marketing expenses (13,175,151) (9,835,431)Administrative expenses (129,855,399) (124,916,246)Operating profit 8 62,371,714 27,199,487 Finance cost 7.1 (691) (74,116)Finance income 7.2 1,559,083 3,601,792 Profit before tax 63,930,106 30,727,163 Income tax expense 9 (3,122,476) (3,138,124)

Profit for the year 60,807,630 27,589,039

Earnings per share - Basic 10 10.38 4.71

The accounting policies and notes on pages 61 to 89 form an integral part of these financial statements.

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Statement of Comprehensive IncomeYear ended 31 March 2015

Notes 2015 2014

Rs. Rs.

Profit for the year 60,807,630 27,589,039

Other comprehensive income

Remeasurement of post employment benefit obligation 21.2 (698,673) (823,524)

Deferred taxation impact from remeasurement of post employment benefit obligation 9 83,841 (59,370)

Other comprehensive income for the year, net of tax (614,832) (882,894)

Total comprehensive income for the year 60,192,798 26,706,145



58

Statement of Financial PositionYear ended 31 March 2015

2015 2014

Notes Rs. Rs.

ASSETSNon-current assetsProperty, plant and equipment 11.4 303,399,297 266,362,257 Leasehold property 12 2,327,287 2,456,579 Intangible assets 13 909,912 1,383,145 Other financial assets 14.1 4,000,000 4,000,000

310,636,496 274,201,981 Current assetsInventories 15 3,719,037 4,244,744 Trade and other receivables 16 44,904,137 26,239,979 Taxation receivable Nil 2,126,076 Other current financial assets 14 5,000,000 Nil Cash and cash equivalents 17 30,742,533 26,508,090

84,365,707 59,118,889 Total Assets 395,002,203 333,320,870

EQUITY AND LIABILITIESEquityStated capital 18 97,650,000 97,650,000 Other reserves 19 72,987,357 74,520,639 Retained earnings 154,252,845 92,317,688 Total equity 324,890,202 264,488,327

Non-current liabilities Deferred tax liability 9.2.1 9,673,729 13,720,732 Employee benefit obligation 21 8,094,056 5,975,785

17,767,785 19,696,517 Current liabilities Trade and other payables 22 39,555,932 47,412,981 Income tax liability 4,049,516 Nil Borrowings 24 7,693,423 657,000 Dividends payable 23 1,045,345 1,066,045

52,344,216 49,136,026 Total equity and liabilities 395,002,203 333,320,870

These financial statements are in compliance with the requirements of the Companies Act No.07 of 2007.

Dayan Gunasekera - Director Finance

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

A.N. Esufally - Chairman D. T. R. De Silva - Director

26th May 2015 Colombo


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59

Statement of Changes in EquityYear ended 31 March 2015

Stated Revaluation Retained Total

capital reserve earnings

Notes Rs. Rs. Rs. Rs.

Balance as at April 01, 2014 97,650,000 76,053,921 63,750,444 237,454,365

Net profit for the year - - 27,589,039 27,589,039 Other comprehensive income - Remeasurement of post employment benefit obligation

21.2 - - (823,524) (823,524)

- Deferred taxation impact fromremeasurement of post employment benefit obligation

9 - - 59,370 59,370

Total comprehensive income for the year - - 26,824,885 26,824,885

Deferred tax on revaluation surplus - 209,077 - 209,077 Depreciation transfer on revaluation - (1,742,359) 1,742,359 - Balance as at March 31, 2014 97,650,000 74,520,639 92,317,688 264,488,327

Net Profit for the year - - 60,807,630 60,807,630 Other comprehensive income - Remeasurement of post employment benefit obligation

21.2 - - (698,673) (698,673)

- Deferred taxation impact from remeasurement of post employment benefit obligation

9 - - 83,841 83,841

Total comprehensive income - - 60,192,798 60,192,798

Deferred tax on revaluation surplus - 209,077 - 209,077 Depreciation transfer on revaluation - (1,742,359) 1,742,359 - Balance as at March 31, 2015 97,650,000 72,987,357 154,252,845 324,890,202



60

Statement of Cash FlowsYear ended 31 March 2015

Notes 2015 2014

Rs. Rs.

Operating ActivitiesProfit before taxation 63,930,106 30,727,163 Adjustments for

Depreciation 11.3 16,690,680 11,883,318 Amortization of intangible assets 13 473,233 475,731 Amortization of lease hold property 12 129,292 129,292 Amortisation of government grant 20 Nil (1,214,931)Finance income 7 (1,559,083) (3,601,792)Gain / (loss) on disposal of property, plant & equipments 8 (403,291) 136,884 Finance costs 7 691 74,116 Write off of gassifire loan Nil 1,175,298 Provision for defined benefit plans 21.2 1,506,296 968,659

80,767,924 40,753,739 Working capital adjustments

Decrease in inventories 525,707 157,907 (Increase) / Decrease in trade and other receivables (18,664,156) 7,709,336 (Decrease) / Increase in trade and other payables (7,857,049) 13,974,173

Cash generated from operations 54,772,426 62,595,156 Interest paid 7 (691) (74,116)Defined benefit obligation paid 21.1 (86,698) (171,620)Income tax paid (700,970) (10,836,689)

Net cash generated from operating activities 53,984,067 51,512,731

Investing activitiesPurchase of property, plant & equipment 11.1 (53,795,402) (99,806,431)Purchase of intangible assets 13 Nil (277,500)Proceeds from sale of property, plant & equipment 470,972 1,055,545 Loans given to related parties (15,000,000) (15,000,000)Loans settlements from related parties 10,000,000 68,000,000 Interest received 7 1,559,083 3,601,792

Net cash flows used in investing activities (56,765,347) (42,426,594)

Financing activitiesRepayment of interest bearing loans & borrowings Nil (116,522)Dividend paid (20,700) -

Net cash flows used in financing activities (20,700) (116,522)

Net increase in cash and cash equivalents (2,801,980) 8,969,615 Cash and cash equivalents at the beginning of the period 26,508,090 17,538,475

Cash and cash equivalents at the end of the period 17 23,706,110 26,508,090


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Notes to the Financial Statements 1 CORPORATE INFORMATION

1.1 General

Hotel Sigiriya PLC (“Company”) is a limited liability Company incorporated and domiciled in Sri Lanka whose shares are publicly traded and listed in the Colombo Stock Exchange. The registered office is located at, Hemas House, No 75, Braybrooke Place, Colombo 2.

Principal activities and nature of operations

The principal activity of the Company is the operation of a hotel.

1.2 Parent Entity and ultimate Parent Entity

The Company’s parent undertaking is Serendib Hotels PLC. In the opinion of the Directors the Company’s ultimate parent undertaking and controlling party is Hemas Holdings PLC, which is incorporated in Sri Lanka.

1.3 Date of Authorization for issue

The financial statements of the Company for the year ended 31 March 2015 were authorized for issue in accordance with a resolution of the Directors on 26th May 2015.

1.4 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. The Company therefore continues to adopt the going concern basis in preparing its financial statements.

2.1 Basis of preparation

The financial statements of the Company has been prepared in accordance with Sri Lanka Accounting Standards (SLFRSs) as issued by the Institute of Chartered Accountants of Sri Lanka.

2.1.1 Basis of Measurement

The Company’s financial statements have been prepared under the historical cost convection, except for

the revaluation of freehold land and buildings and investments which are stated at market values. The Company’s financial statements are presented in Sri Lankan Rupees. The preparation and presentation of these Financial Statements is in compliance with the Companies Act No. 07 of 2007.

2.1.2 Changes in accounting policies and disclosures

New accounting standards, amendments and interpretations adopted

The following standards have been adopted by the Company for the first time with effect from financial year beginning on 1 April 2014.

SLFRS 10 Consolidated Financial Statements

SLFRS 10 ‘Consolidated Financial Statements’, builds on existing principles by identifying the concept of control as the determining factor in whether an entity should be included within the consolidated financial statements of the parent company. The standard provides additional guidance to assist in the determination of control where this is difficult to assess.

SLFRS 11 Joint Arrangements

SLFRS 11 ‘Joint Arrangements’, focuses on the rights and obligations of the parties to the arrangement rather than its legal form. There are two types of joint arrangements: joint operations and joint ventures. Joint operators account for its share of the assets, liabilities, revenue and expenses. Joint ventures are accounted for under equity method. Proportional consolidation of joint arrangements is no longer permitted.

SLFRS 12 - Disclosure of Interests in Other Entities

SLFRS 12 ‘Disclosure of Interests in Other Entities’, includes the disclosure requirements for all forms of interests in other entities, including joint arrangements, associates, special

purpose vehicles and other off balance sheet vehicles.

SLFRS 13-Fair value measurement

SLFRS 13 establishes a single source of guidance under SLFRS for all fair value measurements. SLFRS 13 does not state when an entity is required to use fair value, but rather provides guidance on how to measure fair value under SLFRS when fair value is required or permitted.

IFRIC 21 - Levies

IFRIC 21 ‘Levies’, establishes the accounting for an obligation to pay a levy if that liability is within the scope of LKAS 37 ‘Provisions’. The interpretation addresses what the obligating event which gives rise to pay a levy and when a liability should be recognised. The Company has applied the IFRIC 21 and there has been no significant impact on the Company’s financial statements.

LKAS 1 - Financial Statement Presentation

Amendment to LKAS 1 ‘Financial Statement Presentation’, regarding other comprehensive income. The main change resulting from these amendments is a requirement for entities to group items presented in ‘Other Comprehensive Income’ (OCI) on the basis of whether they are potentially re-classifiable to profit or loss subsequently (reclassification adjustments).

LKAS 32 - Financial Instruments: Presentation

Amendments to LKAS 32 ‘Financial Instruments: Presentation’, with regard to offsetting financial assets and financial liabilities. This amendment clarifies that the right of set-off must not be contingent on a future event. It must also be legally enforceable for all counter-parties in the normal course of business, as well as in the event of default, insolvency or bankruptcy. The amendment also considers settlement mechanisms. The amendment does not have a significant effect on the Group financial statements.


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LKAS 36 - Impairment of Assets

Amendments to LKAS 36 ‘Impairment of Assets’, regarding recoverable amount disclosures for non-financial assets. This amendment removed certain disclosures of the recoverable amount of ‘Cash-Generating Units’(CGUs) which had been included in LKAS 36 by the issue of SLFRS 13.The amendment does not have a significant effect on the Company financial statements.

LKAS 39 - Financial Instruments: Recognition and Measurement

Amendments to LKAS 39 ‘Financial Instruments: Recognition and Measurement’, on novation of derivatives and the continuation of hedge accounting. This amendment considers legislative changes to ‘over-the-counter’ derivatives and the establishment of central counter-parties. Under LKAS 39 novation of derivatives to central counter-parties would result in discontinuance of hedge accounting. The amendment provides relief from discontinuing hedge accounting when novation of a hedging instrument meets specified criteria. The amendment is not applicable to the Group financial statements in the current financial year.

New accounting standards, amendments and interpretations issued but not yet adopted.

Standards issued but not yet effective up to the date of issuance of the Company’s financial statements are listed below. This listing of standards and interpretations issued are those that the Company reasonably expects to have an impact on disclosures, financial position or performance when applied at a future date. The Company intends to adopt these standards when they become effective.

SLFRS 9 Financial Instruments: Classification and Measurement

SLFRS 9 ‘Financial Instruments, addresses the classification, measurement and recognition of financial assets and financial liabilities. The complete version of SLFRS 9 was issued in July 2014. It replaces the guidance in LKAS 39 that relates to the classification and measurement of financial instruments. SLFRS 9 retains but simplifies the mixed measurement model and establishes three primary measurement categories for financial assets: amortised cost, fair value through OCI and fair value through profit or loss. The basis of classification depends on the entity’s business model and the contractual cash flow characteristics of the financial asset.

Investments in equity instruments are required to be measured at fair value through profit or loss with the irrevocable option at inception to present changes in fair value in OCI not recycling. There is now a new expected credit losses model that replaces the incurred loss impairment model used in LKAS 39. For financial liabilities there were no changes to classification and measurement except for the recognition of changes in own credit risk in other comprehensive income, for liabilities designated at fair value through profit or loss. SLFRS 9 relaxes the requirements for hedge effectiveness by replacing the bright line hedge effectiveness tests. It requires an economic relationship between the hedged item and hedging instrument and for the ‘hedged ratio’ to be the same as the one management actually use for risk management purposes. Contemporaneous documentation is still required but is different to that currently prepared under LKAS 39. The standard is effective for accounting periods beginning on or after 1 January 2018. Early adoption is permitted. The Company is yet to assess the full impact of SLFRS 9.

Notes to the Financial StatementsYear ended 31 March 2015

SLFRS 15 - Revenue from Contracts with Customers

SLFRS 15, ‘Revenue from Contracts with Customers’, deals with revenue recognition and establishes principles for reporting useful information to users of financial statements about the nature, amount, timing and uncertainty of revenue and cash flows arising from an entity’s contracts with customers. Revenue is recognised when a customer obtains control of a good or service and thus has the ability to direct the use and obtain the benefits from the good or service. The standard replaces LKAS 18 and LKAS 11 and related interpretations. This standard will be effective for annual periods beginning on or after 1 January 2017 and earlier application is permitted.

2.2 Segment reporting

The Company does not identify any segments for reporting purposes.

2.3 Foreign currency translation

(a) Functional and presentation currency

Items included in the financial statements of the Company are measured using the currency of the primary economic environment in which the entity operates (‘the functional currency’). The financial statements are presented in ‘Sri Lankan Rupees’ (‘LKR’), which is the Company’s functional and presentation currency since the entity use Sri Lankan Rupees in majority of their transactions and reflects the economic substance of the underlying events and circumstances relevant to the Company.

(b) Transactions and balances

Foreign currency transactions are translated into the functional currency using the monthly average exchange rates. Foreign exchange gains and losses resulting from the settlement of such

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transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the statement of comprehensive income.

Foreign exchange gains and losses that relate to borrowings and cash and cash equivalents are presented in the statement of comprehensive income within ‘finance income or cost’. All other foreign exchange gains and losses are presented in the statement of comprehensive income within ‘other gains / (losses) – net’.

Changes in the fair value of monetary securities denominated in foreign currency classified as available for sale are analysed between translation differences resulting from changes in the amortised cost of the security and other changes in the carrying amount of the security. Translation differences related to changes in amortised cost are recognised in profit or loss, and other changes in carrying amount are recognised in other comprehensive income.

Translation differences on non-monetary financial assets and liabilities such as equities held at fair value through profit or loss are recognised in profit or loss as part of the fair value gain or loss. Translation differences on non-monetary financial assets, such as equities classified as available for sale, are included in other comprehensive income.

2.4 Summary Of Significant Accounting Policies

2.4.1 Revenue Recognition

Revenue is recognized to the extent that it is probable that the economic benefits will flow to the Company and the revenue and associated costs or to be incurred can be reliably measured, regardless of when the payment is being made. Revenue is measured at the fair

value of the consideration received or receivable net of trade discounts, and value added taxes.

The following specific recognition criteria must also be met before revenue is recognized:

(a) Rendering of services

Revenue from rendering of services is recognized in the accounting period in which the services are rendered or performed.

(b) Interest income

For all financial instruments measured at amortized cost and interest bearing financial assets classified as available for sale, interest income or expense is recorded using the effective interest rate (EIR), which is the rate that exactly discounts the estimated future cash payments or receipts through the expected life of the financial instrument or a shorter period, where appropriate, to the net carrying amount of the financial asset or liability. Interest income is included in finance income in the income statement.

(c) Dividends

Dividend income is recognized when the Company’s right to receive the payment is established.

(d) Rental income

Rental income is recognized on an accrual basis.

(e) Others

Other income is recognized on an accrual basis

2.4.2 Taxation

a) Current Taxes

Current income tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the Commissioner General of Inland Revenue. The tax rates and tax laws

used to compute the amount are those that are enacted or substantively enacted by the reporting date in the country where the Company operates and generates taxable income.

The provision for income tax is based on the elements of income and expenditure as reported in the financial statements and computed in accordance with the provisions of the Inland Revenue Act.

b) Deferred Taxation

Deferred income tax is provided, using the liability method, on all temporary differences at the reporting date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes.

Deferred income tax liabilities are recognised for all taxable temporary differences except;

i). Where the deferred income tax liability arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and

ii). In respect of taxable temporary differences associated with investments in subsidiaries, except where the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future.

Deferred income 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 except:


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i). Where the deferred income tax asset relating to the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and

ii). In respect of deductible temporary differences associated with investments in subsidiaries, deferred tax assets are only recognised to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilized.

The carrying amount of deferred income tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilized. Unrecognised deferred tax assets are reassessed at each reporting date and are recognized to the extent that it has become probable that future taxable profits will allow the deferred tax assets to be recovered.

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

Deferred tax relating to items recognized outside profit or loss is recognized outside profit or loss.

Deferred tax items are recognized in correlation to the underlying transaction either in other comprehensive income or directly 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 when the deferred taxes relate to the same taxable entity and the same taxation authority.

c) Sales tax

Revenues, expenses and assets are recognized net of the amount of sales tax, except: Where the sales tax incurred on a purchase of assets or services is not recoverable from the taxation authority, in which case, the sales tax is recognized as part of the cost of acquisition of the asset or as part of the expense item, as applicable receivables and payables are stated with the amount of sales tax included. The net amount of sales tax recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the statement of financial position.

2.4.3 Property, plant and equipment

Property, plant and equipment is stated at cost, net of accumulated depreciation and/or accumulated impairment losses, if any. Such cost includes the cost of replacing component parts of the property, plant and equipment and borrowing costs for long-term construction projects if the recognition criteria are met. Land and buildings are shown at fair value, based on valuations by external independent valuers, less subsequent depreciation for buildings. Valuations are performed with sufficient regularity to ensure that the fair value

of a revalued asset does not differ materially from its carrying amount. When significant parts of property, plant and equipment are required to be replaced at intervals, the Company derecognises the replaced part, and recognizes the new part with its own associated useful life and depreciation. Likewise, when a major inspection is performed, its cost is recognised in the carrying amount of the plant and equipment as a replacement if the recognition criteria are satisfied. All other repair and maintenance costs are recognised in the income statement as incurred.

Where items of property, plant and equipment are subsequently revalued, the entire class of such assets is revalued. Any revaluation surplus is recognised in other comprehensive income and accumulated in equity in the asset 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. A revaluation deficit is recognized in the income statement, except to the extent that it offsets an existing surplus on the same asset recognised in the asset revaluation reserve.

Accumulated depreciation as at the revaluation date is eliminated against the gross carrying amount of the asset and the net amount is restated to the revalued amount of the asset. Upon disposal, any revaluation reserve relating to the particular asset being sold is transferred to retained earnings.


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Depreciation is calculated on straight line basis over the estimated useful lives of the assets as follows:

Leasehold Land Over the remaining lease period

Buildings on Leasehold Land

up to 60 Years

Swimming pool up to 30 Years

Furniture and fittings 5 -10 Years

Plant, machinery and equipments

5 -10 Years

Office equipments 5 -10 Years

Tube well Over the remaining lease period

Soft Furniture Over 5 years

Motor vehicles 5 -10 Years

An item of property, plant and equipment and any significant part initially recognized is derecognised upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the income statement when the asset is derecognised.

The carrying value of property, plant and equipment is reviewed for impairment either annually or when events or changes in circumstances indicate the carrying value may not be recoverable. If any such indication exists and where the carrying values exceed the estimated recoverable amount the assets are written down to their recoverable amount. Impairment losses are recognized in the statement of comprehensive income unless it reverses a previous revaluation surplus for the same asset.

2.4.4 Leases

The determination of whether an arrangement is, or contains, a lease is based on the substance of the arrangement at the inception date, whether fulfillment of the arrangement is dependent on the use of a specific asset or assets or the arrangement conveys a right to use the asset, even if that right is not explicitly specified in an arrangement.

a) Operating leases

Operating lease payments are recognized as an operating expense in the income statement on straight line basis over the lease term.

b) Finance leases

The Company leases certain property, plant and equipment. Leases of property, plant and equipment where the Company has substantially all the risks and rewards of ownership are classified as finance leases. Finance leases are capitalised at the lease’s commencement at the lower of the fair value of the leased property and the present value of the minimum lease payments.

2.4.5 Borrowings

Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently stated at amortised cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognised in the statement of comprehensive income over the period of the borrowings using the effective interest method.

2.4.6 Borrowing costs

Borrowing costs directly attributable to the acquisition, construction or production of an asset that necessarily takes a substantial period of time to get ready for its intended use or sale

are capitalized as part of the cost of the respective assets. All other borrowing costs are expensed in the period they occur. Borrowing costs consist of interest and other costs that an entity incurs in connection with the borrowing of funds.

2.4.7 Intangible assets

Intangible assets acquired separately are measured on initial recognition at cost. The cost of intangible assets acquired in a business combination is their fair value as at the date of acquisition. Following initial recognition, intangible assets are carried at cost less accumulated amortization and accumulated impairment losses, if any. Internally generated intangible assets, excluding capitalized development costs, are not capitalized and expenditure is reflected in the income statement in the year in which the expenditure is incurred.

The useful lives of intangible assets are assessed as either finite or indefinite.Intangible assets with finite lives are amortised over their useful economic lives and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortisation period and the amortisation method for an intangible asset with a finite useful life is reviewed at least at the end of each reporting period. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset is accounted for by changing the amortisation period or method, as appropriate, and are treated as changes in accounting estimates. The amortisation expense on intangible assets with finite lives is recognised in the income statement in the expense category consistent with the function of the intangible assets.


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Intangible assets with indefinite useful lives are not amortised, but are tested for impairment annually, either individually or at the cash-generating unit level. The assessment of indefinite life is reviewed annually to determine whether the indefinite life continues to be supportable. If not, the change in useful life from indefinite to finite is made on a prospective basis.

Gains or losses arising from derecognition of an intangible asset are measured as the difference between the net disposal proceeds and the carrying amount of the asset and are recognised in the income statement when the asset is derecognised.

2.4.8 Trade receivables

Trade receivables are amounts due from customers for merchandise sold or services performed in the ordinary course of business. If collection is expected in one year or less (or in the normal operating cycle of the business if longer), they are classified as current assets. If not, they are presented as non-current assets.

Trade receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less provision for impairment.

A provision for impairment of trade receivables is established when there is objective evidence that the Company will not be able to collect all amounts due according to the original terms of receivables. Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganisation, and default or delinquency in payments are considered indicators that the trade receivable is

impaired. The amount of the provision is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rate.

2.4.9 Financial instruments-initial recognition and subsequent measurement

a) Financial assets

I. Initial recognition and measurement

Financial assets within the scope of LKAS 39 are classified as financial assets at fair value through profit or loss, loans and receivables, held-to-maturity investments and available-for-sale financial assets, as appropriate and determine the classification of its financial assets at initial recognition.

All financial assets are recognised initially at fair value plus, in the case of investments not at fair value through profit or loss, directly attributable transaction costs.

The financial assets include cash and short-term deposits, trade and other receivables, other financial assets.

II. Subsequent measurement

The subsequent measurement of financial assets depends on their classification as follows:

a) Financial assets at fair value through profit or loss

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

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

b) Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. After initial measurement, such financial assets are subsequently measured at amortised cost using the effective interest rate method (EIR), less impairment. Amortised cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the EIR. The EIR amortisation is included in finance income in the income statement. The losses arising from impairment are recognised in the income statement in finance cost.

c) Held-to-maturity investments

Non-derivative financial assets with fixed or determinable payments and fixed maturities are classified as held to- maturity when the Company has the positive intention and ability to hold it to maturity. After initial measurement, held-to-maturity investments are measured at amortised cost using the effective interest method, less impairment. Amortised cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the EIR. The EIR amortisation is included in finance income in the income statement. The losses arising from impairment are recognised as finance cost in the income statement in finance cost.


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d) Available-for-sale financial investments

Available-for-sale financial investments include equity and debt securities. Equity investments classified as available for- sale are those, which are neither classified as held for trading nor designated at fair value through profit or loss. Debt securities in this category are those which are intended to be held for an indefinite period of time and which may be sold in response to needs for liquidity or in response to changes in the market conditions.

After initial measurement, available-for-sale financial investments are subsequently measured at fair value with unrealized gains or losses recognised as other comprehensive income in the available-for-sale reserve until the investment is derecognised, at which time the cumulative gain or loss is recognised in other operating income, or determined to be impaired, at which time the cumulative loss is reclassified to the income statement in finance costs and removed from the available-for-sale reserve. Interest income on available-for-sale debt securities is calculated using the effective interest method and is recognised in profit or loss.

The Company evaluates its available-for-sale financial assets to determine whether the ability and intention to sell them in the near term is still appropriate. When the Company is unable to trade these financial assets due to inactive markets and management’s intention to do so significantly changes in the foreseeable future, the Company may elect to reclassify these financial assets in rare circumstances. Reclassification to loans and receivables is permitted when the financial assets meet the definition of loans and receivables and the Company has the intent and ability to hold these

assets for the foreseeable future or until maturity. Reclassification to the held-to-maturity category is permitted only when the entity has the ability and intention to hold the financial asset accordingly.

For a financial assets reclassified out of the available for sale category, any previous gain or loss on that asset that has been recognized in equity is amortized to profit or loss over the remaining life of the investment using the EIR. Any difference between the new amortized cost and the expected cash flows is also amortized over the remaining life of the asset using the EIR. If the assets is subsequently determined to be impaired, then the amount recorded in equity is reclassified to the income statement.

III. Derecognition

A financial asset (or, where applicable a part of a financial asset or part of a group of similar financial assets) is derecognised when,

i). The rights to receive cash flows from the asset have expired

ii). The Company has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full without material delay to a third party under a ‘pass-through’ arrangement; and either

_ The Company has transferred substantially all the risks and rewards of the asset, or

_ The Company has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.

When the Company has transferred its rights to receive cash flows from an asset or has entered into a pass-through arrangement, and has neither transferred nor retained substantially all of the risks and rewards of the asset nor transferred control of it, the asset is recognised to the extent of the company’s continuing involvement in it. In that case, the Company also recognizes an associated liability. The transferred assets and the associated liability are measured on a basis that reflects the rights and obligations that the Company has retained. Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of consideration that the Company could be required to repay.

b) Impairment of financial assets

The Company assesses at each reporting date whether there is any objective evidence that a financial asset or a group of financial assets is impaired. A financial asset or a group of financial assets is deemed to be impaired if, and only if, there is objective evidence of impairment as a result of one or more events that has occurred after the initial recognition of the asset and that loss event has an impact on the estimated future cash flows of the financial asset or the group of financial assets that can be reliably estimated.

Evidence of impairment may include indications that the debtors or a group of debtors is experiencing significant financial difficulty, default or delinquency in interest or principal payments, the probability that they will enter bankruptcy or other financial reorganization and where observable data indicate that there is a measurable decrease in the estimated future cash flows, such as changes in arrears or economic conditions that correlate with defaults.


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I. Financial assets carried at amortised cost

For financial assets carried at amortised cost, the Company first assesses whether objective evidence of impairment exists individually for financial assets that are individually significant, or collectively for financial assets that are not individually significant. If the Company determines that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, it includes the asset in a group of financial assets with similar credit risk characteristics and collectively assesses them for impairment. Assets that are individually assessed for impairment and for which an impairment loss is, or continues to be, recognised are not included in a collective assessment of impairment.

If there is objective evidence that an impairment loss has been incurred, the amount of the loss is measured as the difference between the assets carrying amount and the present value of estimated future cash flows (excluding future expected credit losses that have not yet been incurred). The present value of the estimated future cash flows is discounted at the financial asset’s original effective interest rate. If a loan has a variable interest rate, the discount rate for measuring any impairment loss is the current effective interest rate.

The carrying amount of the asset is reduced through the use of an allowance account and the amount of the loss is recognised in the income statement. Interest income continues to be accrued on the reduced carrying amount and is accrued using the rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss. The interest income is recorded as part of finance income in the income statement.

Loans together with the associated allowance are written off when there is no realistic prospect of future recovery and all collateral has been realised or has been transferred to the Group. If, in a subsequent year, the amount of the estimated impairment loss increases or decreases because of an event occurring after the impairment was recognised, the previously recognised impairment loss is increased or reduced by adjusting the allowance account. If a future write-off is later recovered, the recovery is credited to finance costs in the income statement.

II. Available-for-sale financial investments

For available-for-sale financial investments, the Company assesses at each reporting date whether there is objective evidence that an investment or a group of investments is impaired.

In the case of equity investments classified as available-for-sale, objective evidence would include a significant or prolonged decline in the fair value of the investment below its cost. Where there is evidence of impairment, the cumulative loss measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that investment previously recognised in the income statement, is removed from other comprehensive income and recognised in the income statement. Impairment losses on equity investments are not reversed through the income statement; increases in their fair value after impairments are recognised directly in other comprehensive income.

In the case of debt instruments classified as available-for-sale, impairment is assessed based on the same criteria as financial assets carried at amortised cost. However,

the amount recorded for impairment is the cumulative loss measured as the difference between the amortised cost and the current fair value, less any impairment loss on that investment previously recognised in the income statement.

Future interest income continues to be accrued based on the reduced carrying amount of the asset, using the rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss. The interest income is recorded as part of finance income. If, in a subsequent year, the fair value of a debt instrument increases and the increase can be objectively related to an event occurring after the impairment loss was recognised in the income statement, the impairment loss is reversed through the income statement.

c) Financial liabilities

I. Initial recognition and measurement

Financial liabilities within the scope of LKAS 39 are classified as financial liabilities at fair value through profit or loss, loans and borrowings, other financial liabilities or as derivatives designated as hedging instruments in an effective hedge, as appropriate. The company determines the classification of its financial liabilities at initial recognition.

All financial liabilities are recognised initially at fair value and, in the case of loans and borrowings, and other financial liabilities carried at amortised cost. This includes directly attributable transaction costs.

The Company’s financial liabilities include trade and other payables, bank overdrafts, loans and borrowings, other financial liabilities.


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II. Subsequent measurement

The measurement of financial liabilities depends on their classification as follows;

a) Financial liabilities at fair value through profit or loss

Financial liabilities at fair value through profit or loss include financial liabilities held for trading and financial liabilities designated upon initial recognition as at fair value through profit or loss.

Financial liabilities are classified as held for trading if they are acquired for the purpose of selling in the near term. This category includes derivative financial instruments entered into by the Company that are not designated as hedging instruments in hedge relationships as defined by LKAS 39. Separated embedded derivatives are also classified as held for trading unless they are designated as effective hedging instruments. Gains or losses on liabilities held for trading are recognised in the income statement.

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

b) Loans and borrowings / other financial liabilities

After initial recognition, interest bearing loans and borrowings are subsequently measured at amortised cost using the effective interest rate method. Gains and losses are recognised in the income statement when the liabilities are derecognised as well as through the effective interest rate method (EIR) amortisation process.

Amortised cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the EIR. The EIR amortisation is included in finance costs in the income statement

III. Derecognition

A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires. When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability, and the difference in the respective carrying amounts is recognised in the income statement.

2.4.10 Inventories

Inventories are valued at the lower of cost and net realisable value, after making due allowances for obsolete and slow moving items. Net realisable value is the price at which inventories can be sold in the ordinary course of business less the estimated cost of completion and the estimated cost necessary to make the sale.

The cost incurred in bringing inventories to its present location and conditions are accounted using the following cost formulae:-

Foods and Beverages Stocks

- At actual cost on weighted average basis.

Maintenance and Others

- At actual cost on weighted average basis.

Net realisable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and the estimated costs necessary to make the sale.

2.4.11 Impairment of non - financial assets

The Company assesses at each reporting date whether there is an indication that an asset may be impaired. If any indication exists, or when annual impairment testing for an asset is required, the Company estimates the asset’s recoverable amount. An asset’s

recoverable amount is the higher of an asset’s or cash-generating unit’s (CGU) fair value less costs to sell and its value in use and is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets. Where the carrying amount of an asset or CGU exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. In determining fair value less costs to sell, recent market transactions are taken into account, if available. If no such transactions can be identified, an appropriate valuation model is used. These calculations are corroborated by valuation multiples, quoted share prices for publicly traded subsidiaries or other available fair value indicators.

Impairment losses of continuing operations, including impairment on inventories, are recognised in the income statement in those expense categories consistent with the function of the impaired asset, except for a property previously revalued where the revaluation was taken to other comprehensive income. In this case, the impairment is also recognised in other comprehensive income up to the amount of any previous revaluation.

For assets excluding goodwill, an assessment is made at each reporting date as to whether there is any indication that previously recognised impairment losses may no longer exist or may have decreased. If such indication exists, the Group estimates the asset’s or cash-generating unit’s recoverable amount. A previously recognised impairment loss is reversed only if there has been a change in the assumptions used to determine the


70

asset’s recoverable amount since the last impairment loss was recognised. The reversal is limited so that the carrying amount of the asset does not exceed its recoverable amount, nor exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognised for the asset in prior years. Such reversal is recognised in the income statement unless the asset is carried at a revalued amount, in which case the reversal is treated as a revaluation increase.

a) Intangible assets

Intangible assets with indefinite useful lives are tested for impairment annually as at 31 March either individually or at the CGU level, as appropriate and when circumstances indicate that the carrying value may be impaired.

2.4.12 Cash and short term deposits

Cash and short-term deposits in the statement of financial position comprise cash at banks and on hand and short-term deposits with a maturity of three months or less.

For the purpose of the Company statement of cash flows, cash and cash equivalents consist of cash and short-term deposits as defined above, net of outstanding bank overdrafts.

2.4.13 Stated capital

Ordinary shares are classified as equity.

Incremental costs directly attributable to the issue of new shares are shown in equity as a deduction, net of tax, from the proceeds.

2.4.14 Provisions

General

Provisions are recognised when the Company has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the

obligation and a reliable estimate can be made of the amount of the obligation. Where the Company expects some or all of a provision to be reimbursed, for example under an insurance contract, the reimbursement is recognised as a separate asset but only when the reimbursement is virtually certain. The expense relating to any provision is presented in the income statement net of any reimbursement.

If the effect of the time value of money is material, provisions are discounted using a current pre-tax rate that reflects, where appropriate, the risks specific to the liability. Where discounting is used, the increase in the provision due to the passage of time is recognised as a finance cost.

2.4.15 Trade payables

Trade payables are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers. Accounts payable are classified as current liabilities if payment is due within one year or less (or in the normal operating cycle of the business if longer). If not, they are presented as non-current liabilities.

Trade payables are recognised initially at fair value.

2.4.16 Retirement benefit obligation

(a) Defined contribution plans –Mercantile Services Provident Society Fund and Employees’ Trust Fund

Employees are eligible for Mercantile Services Provident Society Fund Contributions and Employees’ Trust Fund Contributions in line with the respective statutes and regulations. The Company contributes 12% and 3% of gross emoluments of employees to Mercantile Services Provident Society Fund and Employees’ Trust Fund respectively.

(b) Defined benefit plan – Gratuity

A defined benefit plan is a pension plan that is not a defined contribution plan. Typically, defined benefit plans define an amount of pension benefit that an employee will receive on retirement, usually dependent on one or more factors such as age, years of service and compensation.

The liability recognised in the balance sheet in respect of defined benefit pension plans is the present value of the defined benefit obligation at the end of the reporting period. The defined benefit obligation is calculated annually by independent actuaries using the projected unit credit method. The present value of the defined benefit obligation is determined by discounting the estimated future cash outflows using market interest rates of government bonds denominated in the currency in which the benefits will be paid, and that have terms to maturity approximating to the terms of the related pension obligation as there is no deep market in high-quality corporate bonds in Sri Lanka.

Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions are charged or credited to equity in other comprehensive income in the period in which they arise.

The assumptions based on which the results of the actuarial valuation was determined, are included in Note 21 to the financial statements.

The gratuity liability is not externally funded.

2.4.17 Government Grants

Grants from the government are recognised at their fair value where there is a reasonable assurance that the grant will be received and the Company will comply with all attached conditions.


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Government grants relating to costs are deferred and recognised in the income statement over the period necessary to match them with the costs that they are intended to compensate.

Government grants relating to property, plant and equipment are included in non-current liabilities as deferred government grants and are credited to the income statement on a straight-line basis over the expected lives of the related assets.

2.4.18 Dividend distribution

Dividend distribution to the company’s shareholders is recognised as a liability in the Company’s financial statements in the period in which the dividends are approved by the Company’s shareholders.

2.5 Significant accounting judgments, estimates and assumptions

The preparation of the Company financial statements requires management to make judgments, estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities, and the disclosure of contingent liabilities, at the end of the reporting period. However, uncertainty about these assumptions and estimates could result in outcomes that require a material adjustment to the carrying amount of the asset or liability affected in future periods.

a) Judgments

In the process of applying the Company accounting policies, management has made the following judgments, which have the most significant effect on the amounts recognised in the financial statements:

I. Deferred tax assets

Deferred tax assets are recognised for all unused tax losses to the extent that it is probable that taxable profit will be

available against which the losses can be utilised. Significant management judgment is required to determine the amount of deferred tax assets that can be recognised, based upon the likely timing and level of future taxable profits together with future tax planning strategies.

b) Estimates and assumptions

The key assumptions concerning the future and other key sources of estimation uncertainty at the reporting date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are described below. The Company based its assumptions and estimates on parameters available when the financial statements were prepared. Existing circumstances and assumptions about future developments, however, may change due to market changes or circumstances arising beyond the control of the Company. Such changes are reflected in the assumptions when they occur.

I. Impairment of non-financial assets

Impairment exists when the carrying value of an asset or cash generating unit exceeds its recoverable amount, which is the higher of its fair value less costs to sell and its value in use. The fair value less costs to sell calculation is based on available data from binding sales transactions in an arm’s length transaction of similar assets or observable market prices less incremental costs for disposing of the asset. The value in use calculation is based on a discounted cash flow model.

II. Defined benefit plans

The cost of defined benefit plans-gratuity is determined using actuarial valuations. The actuarial valuation involves making assumptions about discount rates, futures salary increases and retirement age . Due to the long term nature of these plans, such

estimates are subject to significant uncertainty. All assumptions are reviewed at each reporting date.

III. Fair value of financial instruments

Where the fair value of financial assets and financial liabilities recorded in the statement of financial position cannot be derived from active markets, their fair value is determined using valuation techniques including the discounted cash flow model. The inputs to these models are taken from observable markets where possible. Where this is not feasible, a degree of judgment is required in establishing fair values.

3 FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES

The Company’s principal financial liabilities, other than derivatives, comprise loans and borrowings and trade and other payables. The main purpose of these financial liabilities is to finance the Company’s operations and to provide guarantees to support its operations. The Company has loan and other receivables, trade and other receivables, and cash and short-term deposits that arrive directly from its operations.

The Company is exposed to market risk, credit risk and liquidity risk

The Company’s senior management oversees the management of these risks. The Company’s senior management is supported by the Board of Directors (BOD) that advises on financial risks and the appropriate financial risk governance framework for the Company. BOD provides assurance to the Company’s senior management that the Company’s financial risk-taking activities are governed by appropriate policies and procedures and that financial risks are identified, measured and managed in accordance with group policies and group risk appetite. It is


72

the Group’s policy that all derivative activities for risk management purposes are required to be approved by Board of Directors of Hemas Holdings PLC.

The Board of Directors reviews and agrees policies for managing each of these risks which are summarized below.

3.1 Market risk

Market risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market prices. Market prices comprise four types of risk: interest rate risk, currency risk, commodity price risk and other price risk, such as equity price risk.

The overall risk management program focuses on the unpredictability of financial markets and seeks to minimize potential adverse effects on the entity’s financial performance.

3.2 Interest rate risk

Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. At the reporting date, the interest rate profile of the Company’s interest-bearing financial instruments was:

Carrying Amount

2015 Rs. 2014 Rs.

Financial liabilities - variable rate instruments

7,036,423 Nil

3.3 Foreign currency risk

Foreign currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. The company’s exposure to the risk of changes in foreign exchange rates relates primarily to the company’s operating activities (when revenue or expense is denominated in a different currency from the company’s functional currency) and the company’s net investments in foreign subsidiaries.

3.4 Equity price risk

The company’s listed and unlisted equity securities are susceptible to market price risk arising from uncertainties about future values of the investment securities. The company’s Board of Directors reviews and approves all equity investment decisions.

At the reporting date, the exposure to unlisted equity securities at fair value was Rs.4,000,000/- (Note 14.1)

3.5 Credit risk

Credit risk is the risk that counterparty will not meet its obligations under a financial instrument or customer contract, leading to a financial loss. The company is exposed to credit risk from its operating activities (primarily for trade receivables) and from its financing activities which includes deposits with banks.

No credit limits were exceeded during the reporting period, and management does not expect any losses from non-performance by these counter-parties.

3.6 Trade receivables

Customer credit risk is managed by each company subject to the Group’s established policy, procedures and

control relating to customer credit risk management. Credit quality of the customer is assessed based on the credit risk evaluation model and individual credit limits are defined in accordance with this assessment.

Outstanding customer receivables are regularly monitored and contracts are signed and agreed with all credit customers.

Additionally, a large number of minor receivables are grouped into homogenous groups and assessed for Impairment collectively. The calculation is based on actual incurred historical data. The maximum exposure to credit risk at the reporting date is the carrying value of each class of financial assets disclosed in Note 16. The company does not hold collateral as security.

3.7 Financial instruments and cash deposits

Credit risk from balances with banks is managed by the Company’s treasury department in accordance with the Company policy. Investments of surplus funds are made only with approved counter-parties as per the Treasury Policy and within credit limits assigned to each counterparty. Counterparty credit limits are reviewed by the Group’s Board of Directors on an annual basis, and may be updated throughout the year subject to approval of the Group’s Treasury Committee. The limits are set to minimize the concentration of risks and therefore mitigate financial loss through potential counterparty’s failure. The company’s maximum exposure to credit risk for the components of the statement of financial position is the carrying amounts as illustrated in Note 14 except for financial guarantees and derivative financial instruments.


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3.8 Liquidity risk

The Company monitors its risk to a shortage of funds by setting up a minimum liquidity level. The Company’s objective is to maintain a balance between continuity of funding and flexibility through the use of bank overdrafts and bank loans. The Company assessed the concentration of risk with respect to refinancing its debt and concluded it to be low. Access to sources of funding is sufficiently available and debt maturing within 12 months can be rolled over with existing lenders.

The table below summarizes the maturity profile of the company’s financial liabilities based on contractual undiscounted payments.

As at 31st March 2015

On demand Less than 3 months

3 to 12 months

1 to 5 years > 5 years Total (Rs)

Interest-bearing loans and borrowings

- 7,036,423 - - - 7,036,423

- 7,036,423 - - - 7,036,423

There were no interest-bearing loans and borrowings for the year ended 31 March 2014.

3.9 Capital management

Capital includes ordinary shares. The primary objective of the Company’s capital management is to ensure that it maintains a strong credit rating and healthy capital ratios in order to support its business and maximize shareholder value.

The Company manages its capital structure and makes adjustments to it in light of changes in economic conditions. To maintain or adjust the capital structure, the Company may adjust the dividend payment to shareholders, return capital to shareholders or issue new shares. No changes were made in the objectives, policies or processes managing capital during the years ended 31 March 2015 and 31 March 2014. The Company monitors capital using a gearing ratio, which is debt divided by total capital plus debt. The Group’s policy is to keep the gearing ratio below 40%.

The Company has no gearing for the year ended 31 March 2015.

4 SEGMENT INFORMATION

There were no segment information identified for the year.


74

5 REVENUE

2015 2014

Rs. Rs.

Sales 250,087,832 205,174,435 Add : NBT 5,665,184 4,630,144 Tourism development levy 2,534,514 2,078,151

258,287,530 211,882,730

6 OTHER OPERATING INCOME

2015 2014

Rs. Rs.

Rental income 738,000 479,999 Miscellaneous services 91,042 82,534 Write back of government Grant Nil 39,635 Gain on disposal of fixed assets 403,291 Nil

1,232,333 602,168

7 FINANCE INCOME & COST

2015 2014

Rs. Rs.

7.1 Finance CostInterest expense on bank overdrafts 691 6,970 Interest expense on loans & borrowings payable to - Related parties Nil 65,492 - Others (Bank) Nil 1,654

691 74,116

7.2 Finance IncomeRelated parties 618,630 2,568,138 Other 940,453 1,033,654

1,559,083 3,601,792

8 PROFIT FROM OPERATING ACTIVITIES Stated after charging/(crediting)

2015 2014

Rs. Rs.

Included in administrative expenses Transport costs 351,528 349,437 Auditors’ remuneration - Audit fee 411,780 275,000 - Non audit fee 224,406 224,406 Depreciation and amortization 17,293,207 12,488,341 Maintenance expenses 2,276,050 1,613,959 Staff cost include Salaries and wages 36,464,878 35,204,849 Defined benefit plan costs - Gratuity 1,456,096 1,792,183 Defined contribution plan costs - EPF & ETF 4,295,716 3,778,905 Management fees 18,258,623 12,381,089 Donations 9,500 6,500 Legal fees 162,009 143,105 (Gain) / loss on disposal of property, plant & equipment (403,291) 136,884

Included in selling and marketing expenses Impairment for debtors 49,046 (147,459)Advertising costs 855,252 1,544,057 Sales Promotion 4,028,366 4,027,536 Discounts & Commissions 6,278,666 2,904,761 Others 1,963,821 1,506,536


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9 INCOME TAX EXPENSE

2015 2014

Rs. Rs.

Current income taxCurrent tax expense on ordinary activities for the year (9.1) 6,876,560 3,256,096

Deferred income taxDeferred taxation charge (9.2) (3,754,084) (117,972)Income tax expense reported in the income statement 3,122,476 3,138,124

Income tax reported in other comprehensive income Deferred tax impact on remeasurement of post employment benefit obligation 83,841 59,370

3,206,317 3,197,494

9.1 Reconciliation between current tax expense and the product of accounting profitAccounting profit before tax 63,930,106 30,727,163 Aggregate disallowed items 19,579,064 14,870,338 Income not subject to tax (30,342,364) (34,869,716)Aggregate allowable income 1,559,083 3,601,791

Taxable profit 54,725,889 14,329,577 Income tax @ 12%Trading income 6,440,017 2,247,594 Interest income 436,543 1,008,502 Current income tax expense 6,876,560 3,256,096

9.2 Deferred tax expenseDeferred tax expense arising due to Reversal and origination and of timing differences (3,754,084) (117,972)

(3,754,084) (117,972)


76

9.2.1 Deferred tax asset,liabilities and income tax relates to the followings

Balance Sheet Income Statement

2015 2014 2015 2014

Rs. Rs. Rs. Rs.

Deferred tax liability Capital allowance for tax purposes 1,168,478 4,653,382 (3,484,904) 17,126 Revaluation of buildings 9,575,367 9,784,444 - -

10,743,845 14,437,826

Deferred tax assetsDefined benefit plans 887,452 618,271 (269,181) (135,098)Carry forward of unused tax losses - - - -

887,452 618,271 Deferred taxation impact from actuarial (gain)/loss 182,664 98,823 (83,841) (59,370)

1,070,116 717,094 Deferred income tax (income)/expense (3,837,926) (177,342)Net deferred tax liability 9,673,729 13,720,732

9.3 Deferred tax has been computed using current effective tax rate of 12%


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10 EARNINGS PER SHARE

10.1 Basic earning per share is calculated by dividing the net profit for the year attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the year. The weighted average number of ordinary shares outstanding during the year and the previous year are adjusted for events that have changed the number of ordinary shares outstanding, without a corresponding change in the resources such as a bonus issue.

10.2 The following is the basic earnings per share computations.

2015 2014

Rs. Rs.

Net Profit attributable to ordinary shareholders (Rs.) 60,807,630 27,589,039

Number of ordinary shares used as the denominator:

Weighted average number of ordinary shares in issue 5,859,000 5,859,000

Basic earnings per share (Rs.) 10.38 4.71


78

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80

11.4 Net book values

2015 2014

Rs. Rs.

At cost/cost incurred since last revaluation 161,474,650 116,345,101 161,474,650 116,345,101

At valuation 141,924,647 150,017,156

Total carrying amount of property, plant & equipment 303,399,297 266,362,257

11.5 The Company has stated its properties at revalued amounts. The surplus arising from the revaluation was transferred to revaluation reserve.

Property Extent Method of Valuation and Significant Unobservable Inputs

Range of Estimate for Unobservable Inputs

Valuation Date of Valuation

A.R Ajith Fernando Incorporated Valuers

Market Comparable Method

Buildings on Leasehold land at Sigiriya

79 Rooms Price Per Guest Room

Rs. 2,500,000/ to 3,500,000/

285,032,838 31 Mar 2012

11.6 Property, plant and equipment includes fully depreciated assets having a gross carrying amount of Rs. 66,153,597 (2014 - Rs. 61,772,340) which were in use during the year.

12 LEASEHOLD PROPERTY

2015 2014

Rs. Rs.

Opening Balance 2,456,579 2,585,871 Depreciation for the year (129,292) (129,292)Closing Balance 2,327,287 2,456,579

The leasehold land revalued has been leased from the Sri Lanka Tourist Board. The lease expired on 25 July 2004 and has been renewed by Sri Lanka Tourist Board for a further period of 30 years up to 25 July 2034. The Company has constructed buildings on these properties. On the expiration of the lease term the Sri Lanka Tourist Board will pay to the Company the value of the buildings and improvements constructed with the written approval of Sri Lanka Tourist Board as assessed by the Chief Valuer.


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13 INTANGIBLE ASSETS

2015 2014

Rs. Rs.

At CostComputer softwareAt the beginning of the year 2,121,800 1,844,300 Additions Nil 277,500 At the end of the year 2,121,800 2,121,800

Amortisation At the beginning of the year 738,655 262,924 Amortisation 473,233 475,731 At the end of the year 1,211,888 738,655

Carrying value 909,912 1,383,145

14 OTHER FINANCIAL ASSETSSummary

2015 2014

Current Non Current Total Total

Rs. Rs. Rs. Rs.

Investments in Equity Securities (14.1) Nil 4,000,000 4,000,000 4,000,000 Loans to Hemas Holdings PLC (14.3) 5,000,000 Nil 5,000,000 Nil

Total Carrying Value of Other Financial Assets 5,000,000 4,000,000 9,000,000 4,000,000

14.1 Investments in Equity Securities - non currentNon Quoted - Available For Sale InvestmentsAt the beginning of the year 4,000,000 4,000,000 At the end of the year 4,000,000 4,000,000

Investments in Equity Securities solely comprise application and allotment money paid, to Rainforest - Ecolodge (Private) Ltd for the purchase of 400,000 shares of Rs.10/- each. Investment in Rainforest Ecolodge (Pvt) Ltd is carried at cost due to impracticability of assessing the fair value of the investment.

14.2 Loan repayments,terms and conditions

Loan Description Terms of Repayment Rate of Interest

Loan given to Hemas Holdings PLC Short term source of funding, payable on demand

At a margin over monthly AWPLR

15 INVENTORIES

2015 2014

Rs. Rs.

Food stuff 884,370 978,234 Liquor,soft drinks and cigarettes 1,230,180 1,320,386 Housekeeping and maintenance 2,288,101 1,946,124

4,402,651 4,244,744


82

16 TRADE AND OTHER RECEIVABLES2015 2014

Rs. Rs.

Trade debtors - related parties (16.1) 4,746,385 364,017 - other 37,016,048 23,496,148

41,762,433 23,860,165 Less: Provision for Impairment of trade receivables (83,631) (34,584)

41,678,802 23,825,581

Advances and prepayments 2,569,642 2,093,842

Loans to company officers (16.2) 341,227 54,223 Other receivable from related parties (16.5) 314,466 266,333

44,904,137 26,239,979

16.1 Trade dues receivables from related parties Relationship

Diethelm Travel Lanka (Private) Limited Affiliate company 4,746,385 364,017 4,746,385 364,017

16.2 Loans to Company OfficersBalance as at the beginning of the year 54,227 56,352 Loans granted during the year 1,300,923 1,187,075 Less: repayments (1,013,923) (1,189,200)Balance as at the end of the year 341,227 54,227

16.3 Trade debtors age analysisTotal < 30 days 30-90 days 91-120 days

2015 41,762,432 28,708,931 13,004,250 49,251 2014 23,496,148 17,857,791 5,022,952 615,405

16.4 The movement of the provision for impairment of trade receivablesThe trade receivables impaired were Rs. 83,631 (2014 - Rs. 34,584) at the end of the reporting period

2015 2014

Rs. Rs.

At 1 April 34,584 182,043 Provision for receivables impairment 88,137 340,768 Unused amounts reversed (39,090) (488,227)As at 31 March 83,631 34,584

16.5 Other Receivables From Related Parties 2015 2014

Rs. Rs.

Dolphin Hotels PLC Affiliate company 195 136,995 Hemas Holdings PLC Ultimate Parent company 314,271 (387)Jada Resort & Spa (Pvt) Limited Affiliate company Nil 129,725

314,466 266,333


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17 CASH AND CASH EQUIVALENTS 2015 2014

Rs. Rs.

17.1 Favourable cash and cash equivalents balanceCash and bank balances 30,742,533 26,508,090

30,742,533 26,508,090

17.2 Unfavourable cash and cash equivalent balances Bank overdraft (24) (7,036,423) Nil

Cash and cash equivalents for the purpose of cash flow statement 23,706,110 26,508,090

18 STATED CAPITALAt the At the At the

Ordinary shares issued and fully paid End Beginning End

of the Year of the Year of the Year

31.03.2014 01.04.2014 31.03.2015

Number Number Number

Number of Shares 5,859,000 5,859,000 5,859,000

Rs. Rs. Rs. Stated Capital (Rs.) 97,650,000 97,650,000 97,650,000

19 RESERVES2015 2014

Summary Rs. Rs.

Capital reservesRevaluation reserve (19.1) 72,987,357 74,520,639

72,987,357 74,520,639

19.1 Revaluation reserveProperty, plant & equipment

Balance as at the beginning of the year 74,520,639 76,053,921 Deferred tax effect on excess depreciation 209,077 209,077 Reversal of excess depreciation on revaluation surplus (1,742,359) (1,742,359)Balance as at the end of the year 72,987,357 74,520,639

20 DEFFERED INCOME2015 2014

Rs. Rs.

At beginning of year Nil 1,214,931

Less: Amortization during the year Nil (1,214,931)At end of year Nil Nil


84

EMPLOYEE BENEFIT OBLIGATION2015 2014

Rs. Rs.

Statement of financial position obligations for:Retirement benefit obligation - Gratuity 8,094,056 5,975,785

8,094,056 5,975,785 Charge in statement of comprehensive income included in operating profit:Retirement benefit obligation - Gratuity 1,506,296 968,659

1,506,296 968,659 Remeasurements recognised in other comprehensive income :Retirement benefit obligation - Gratuity 698,673 823,524

698,673 823,524

21.1 The movement in the defined benefit obligations over the year is as follows:

2015 2014Rs. Rs.

At beginning of the year 5,975,785 4,355,222 Current service cost 848,960 489,585 Interest cost 657,336 479,074 Actuarial loss 698,673 823,524 Benefit paid (86,698) (171,620)At end of year 8,094,056 5,975,785

21.2 The amounts recognised in the statement of comprehensive income are as follows:

2015 2014Rs. Rs.

Current service cost 848,960 489,585 Interest cost 657,336 479,074

1,506,296 968,659 Remeasurements: - Actuarial loss 698,673 823,524

698,673 823,524 2,204,969 1,792,183

21.3 Messers K.A Pandith Actuaries, consultants and Actuaries, carried out an actuarial valuation of the defined benefit plan gratuity on 31 March 2015 Appropriate and compatible assumptions were used in determining the cost of retirement benefits. The principle assumptions used as follows :

2015 2014

Discount rate 10.00% 11.00%Salary escalation rate for future years 9.00% 9.00%Retirement age 55years 55years

21.4 The sensitivity of the defined benefit obligation to changes in the weighted principal assumptions is:

Impact on defined benefit obligationChange in Increase in Decrease in

assumption assumption assumption

Discount rate 1% (817,207) 972,221 Salary growth rate 1% 972,221 (831,074)Attrition rate 1% 65,846 (77,881)

The above sensitivity analyses are based on a change in an assumption while holding all other assumptions constant. In practice, this is unlikely to occur, and changes in some of the assumptions may be correlated. When calculating the sensitivity of the defined benefit obligation to significant actuarial assumptions the same method (present value of the defined benefit obligation calculated with the projected unit credit method at the end of the reporting period) has been applied as when calculating the retirement benefit liability recognised within the statement of financial position.


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22 TRADE AND OTHER PAYABLES2015 2014

Rs. Rs.

Trade payable 8,969,280 6,420,241 Other payables - related parties (22.1) 4,895,655 8,192,449 - other 6,653,961 3,573,160 Sundry creditors including accrued expenses 19,037,036 29,227,131

39,555,932 47,412,981

Sundry creditors and accrued expenses mainly comprise the provision made for pradeshiya sabha levy amounting LKR 1,267,257 (2013 - 11,538,098) and bonus payable of LKR 2,940,725 (2013 - 4,500,000).

22.1 Other payable to related parties

2015 2014

Relationship Rs. Rs.

Dolphin Hotels PLC An Affiliate 76,034 22,696 Serendib Leisure Management Limited An Affiliate 4,819,621 7,606,282 Serendib Hotels PLC Parent Nil 369,746 Jada Resort & Spa (Private) Limited An Affiliate Nil 193,725

4,895,655 8,192,449

23 DIVIDEND PAYABLE

2015 2014

Rs. Rs.

Others 1,045,345 1,066,045 1,045,345 1,066,045

24 BORROWINGS

Current 2015 2014

Rs. Rs.

Interest Bearing Loans and BorrowingsBank overdraft 7,036,423 Nil

7,036,423 Nil

Non Interest Bearing Loans and BorrowingsSoft Loan from Ministry of Tourism and Civil Aviation 657,000 657,000

657,000 657,000 Total borrowings 7,693,423 657,000

The above loan has been obtained during the period 1982-1985, and the repayments have not been finalised.

25 COMMITMENTS AND CONTINGENCIESThe company has contingencies in respect of legal claims arising in the ordinary cause of business. It is not anticipated that any material liabilities will arise from the ongoing litigation.

26 EVENTS AFTER THE REPORTING PERIODThere have been no material events occurring after the reporting date that require adjustments to or disclosure in the Financial Statements. Except the board of directors of the company have proposed an interim dividend of Rs. 5/- per share for the financial year ended 31 March 2014, the total amounting of Rs. 29,295,000/-.


86

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27 RELATED PARTY TRANSACTIONS (Contd.)27.2 The details of transactions carried out with the related parties are listed below;

Serendib Hotels PLC

Parent Company

Serendib Leisure

Mgt. Ltd Group Company

Dolphin Hotels PLC

Group Company

Diethelm TravelLanka (Pvt) Ltd

Affiliate

2014/15 2013/14 2014/15 2013/14 2014/15 2013/14 2014/15 2013/14

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

Nature of transactionSale of goods / services - 286,644 - - 33,600 141,800 23,033,086 17,208,619 Purchase of goods & services

870,015 1,437,118 - - 1,170,512 287,355 - -

Loan advanced - - - 6,000,000 - - - - Loan repayment - - - 6,000,000 - - - - Finance income - - - - - - - - Finance expense - - - 65,492 - - - - Management fees paid - - 21,554,158 14,597,901 - - - - Accounting fees paid - - 612,245 612,245 - - - - Secretarial & professional fees paid

- - - - - - - -

Expenses reimbursed - - 20,877,345 23,556,494 - - - -

27.2 The details of transactions carried out with the related parties are listed below;

Hemas Holdings PLCUltimate Parent

Hemas Corporate Serv. Ltd. Affiliate

Jada Resorts and Spa (Pvt) Limited

Affiliate

Total

2014/15 2013/14 2014/15 2013/14 2014/15 2013/14 2014/15 2013/14

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

Nature of transactionSale of goods / services - - - - - 129,725 23,066,686 17,766,788 Purchase of goods & services

- - - - 8,000 216,725 2,048,527 1,941,198

Loan advanced 15,000,000 - - - - - 15,000,000 6,000,000 Loan repayment 10,000,000 53,000,000 - - - - 10,000,000 59,000,000 Finance income 650,273 2,568,138 - - - - 650,273 2,568,138 Finance expense - - - - - - - 65,492 Management fees paid - - - - - - 21,554,158 14,597,901 Accounting fees paid - - - - - - 612,245 612,245 Secretarial & professional fees paid

- - 363,732 330,720 - - 363,732 330,720

Expenses reimbursed - - - - - - 20,877,345 23,556,494


88

28. FAIR VALUE Set out below is a comparison by class of the carrying amounts and fair values of the Company’s financial instruments that are carried in the financial statements.

Carryingamount

Fair value

Company 2014/15 2013/14 2014/15 2013/14

Rs. Rs. Rs. Rs.

Financial assetsTrade and other receivables 44,904,137 26,239,979 44,904,137 26,239,979 Other current financial assets 5,000,000 Nil 5,000,000 Nil Other non current financial assets 4,000,000 4,000,000 4,000,000 4,000,000 Cash and short term deposits 30,742,533 26,508,090 30,742,533 26,508,090 Total 84,646,670 56,748,070 84,646,670 56,748,070

Financial liabilities

Trade and other payables 39,555,932 47,412,981 39,555,932 47,412,981 Borrowings 7,693,423 Nil 7,693,423 Nil Total 47,249,355 47,412,981 47,249,355 47,412,981

The fair values of the financial assets and liabilities are included at the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale.

The following methods and assumptions were used to estimate the fair values:

Cash and short-term deposits, trade receivables and trade payables approximate their carrying amounts largely due to the short-term maturities of these instruments.

Long-term fixed-rate and variable-rate receivables/borrowings are evaluated by the Company based on parameters such as interest rates, specific country risk factors, individual creditworthiness of the customer and the risk characteristics of the financed project. Based on this evaluation, allowances are taken to account for the expected losses of these receivables. As at 31 March 2015, the carrying amounts of such receivables, net of allowances, are not materially different from their calculated fair values.

The fair value of loans from banks and other financial liabilities estimated by discounting future cash flows using rates currently available for debt on similar terms, credit risk and remaining maturities.


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Fair value hierarchy - Company

As at 31 March 2015, the company held the following financial instruments carried at fair value on the statement of financial position :

The company uses the following hierarchy for determining and disclosing the fair value of financial instruments by valuation techniques.

Level 1: quoted (unadjusted) prices in active markets for identical assets or liabilities

Level 2: other techniques for which all inputs which have a significant effect on the recorded fair value are observable, either directly or indirectly

Level 3: techniques which use inputs that have a significant effect on the recorded fair value that are not based on observable market data

Assets measured at fair value 31.03.2015 Level 1 Level 2 Level 3

Investment in equity shares 4,000,000 Nil Nil 4,000,000

31.03.2014 Level 1 Level 2 Level 3

Assets measured at fair valueInvestment in equity shares 4,000,000 Nil Nil 4,000,000


90

Investor InformationYear ended 31 March 2015

SHARE DISTRIBUTION

31.03.2015 31.03.2014

No. of Total % No. of Total %

Shareholders Holding Shareholders Holding

1 - 1000 563 117,287 2.00 600 141,451 2.41 1,001 - 10,000 109 376,644 6.43 129 432,375 7.38

10,001 - 100,000 27 685,534 11.70 28 746,825 12.75

100,001 - 1,000,000 3 1,048,624 17.90 2 907,438 15.49

Over 1,000,000 1 3,630,911 61.97 1 3,630,911 61.97

703 5,859,000 100 760 5,859,000 100.00

Institutions 45 4,814,261 82.17 45 4,818,081 82.23

Individuals 658 1,044,739 17.83 715 1,040,919 17.77

703 5,859,000 100.00 760 5,859,000 100.00

PUBLIC HOLDING37.34% of the Issued Shares were held by the Public as at 31st March 2015

SHARE TRADING

2015 2014

Highest Market Price (Rs) 109.90 (7.11.14) 87.00 (11.06.13)Lowest Market Price (Rs) 71.20 (26.5.14) 70.00 (16.07.13)Last Traded Price (Rs) 87.90 (30.3.15) 78.00 (31.03.14)No. of Shares Traded 308,115 382,342No. of Trades 453 491Turnover (Rs) 26,629,352 30,745,952

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20 MAJOR SHAREHOLDERS

List of Twenty Major shareholders 31.03.2015 31.03.2014

No. of Shares % No. of Shares %

Serendib Hotels PLC 3,630,911 61.97 3,630,911 61.97Commercial Credit and Finance PLC 600,745 10.25 600,745 10.25Bansei Securities Finance (Pvt) Ltd./ R C J Goonewardene 300,000 5.12 - -Mr. J R De Silva 147,879 2.52 34,832 0.59Mr. E J De Soysa 70,000 1.19 70,000 1.19Mr. D S D De Lanerolle 67,038 1.14 77,975 1.33Mr. J C L De Mel 65,000 1.11 65,000 1.11Mr. N Balasingam 52,100 0.89 52,100 0.89Mercantile Investments & Finance PLC 38,900 0.66 38,900 0.66Dr. S Yaddehige 33,900 0.58 33,900 0.58Mr. B V Selvanayagam 27,719 0.47 27,719 0.47Merchant Bank of Sri Lanka PLC/ Mr. P S M Fernando 25,819 0.44 16,485 0.28Mr. A M E Fernando 25,000 0.43 25,000 0.43Mr. K C Vignarajah 23,326 0.40 23,326 0.40Dr. H S M Singh 20,000 0.34 20,000 0.34Seylan Bank Ltd. / Mr. B S M De Silva 19,500 0.33 19,500 0.33Rosewood (Pvt) Ltd - Acc No - 01 18,618 0.32 - -Waldock Mackenzie Ltd. / Mrs. G Soysa 17,800 0.30 17,800 0.30Dr. K Shanmuganathan 17,447 0.30 17,447 0.30Freudenberg Shipping Agencies Ltd. 15,955 0.27 - -

5,217,657 89.05 - -Shares held by the balance shareholders 641,343 10.95 - -

5,859,000 100 - -


92

(Figures in Rs.’000 unless otherwise stated)

2015 2014 2013 2012 2011 2010 2009 2008 2007 2006

Restated Restated

Trading ResultsTurnover 258,288 211,883 251,797 214,108 163,401 101,584 77,222 62,882 78,719 74,720Profit /(Loss) Before Tax 63,930 30,727 80,291 51,835 18,385 (2,243) (19,919) (20,438) (5,419) 1,910Profit /(Loss) for the year 60,808 27,589 68,257 46,256 14,966 (1,774) (16,451) (16,643) (5,208) 553

Earnings/(Loss) per Share (Rs.) 10.38 4.71 11.65 7.9 2.6 (0.3) (2.8) (2.8) (0.9) 0.1Net assets per Share (Rs.) 55.5 45.1 40.5 36.4 23.6 22.5 22.7 25.5 28.3 29.2Current Ratio (Times) 1.6 1.2 2.4 2.0 1.1 1.1 0.9 0.9 1.7 1.6Debt / Total Equity Ratio (%) - - 3.2 4.7 12.6 20.6 26.8 24.4 8.6 12.8Return on Equity (%) 18.7 10.4 28.7 21.7 10.9 (1.3) (12.4) (11.1) (3.1) 0.3

Hotel OperationsAnnual Sales Growth (%) 21.90 (16) 18 31 61 32 23 (20) 5 (7)Room Occupancy (%) 74 70 71 73 71 53 46 39 47 43

Market / Shareholder InformationMarket value per share (Rs.) 87.9 78.0 79.0 71.6 76.1 52.3 24.5 32.0 33.0 37.0Price Earnings Ratio (Times) 8.5 16.6 6.8 9.1 29.8 N/A N/A N/A N/A 411.1Dividend (per Share) - - 5.0 5.0 1.5 - - - - 0.5

* Hotel Sigiriya was closed during May & July ‘13 for refurbishment. Figures shown from 2011 to 2015 is as per Sri Lanka Financial Reporting Standards (SLFRS).

Ten Year Financial ReviewYear ended 31 March 2015

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Notes


94

Notice of Meeting

NOTICE IS HEREBY GIVEN that the FORTY FIRST (41st) ANNUAL GENERAL MEETING of HOTEL SIGIRIYA PLC will be held at the Auditorium of The Institute of Chartered Accountants of Sri Lanka, No. 30A, Malalasekara Mawatha, Colombo 7 on Friday, 10th July 2015 at 4:00 p.m. for the following purpose:

AGENDA

1. To receive and consider the Statement of Accounts for the year ended 31st March 2015 together with the Report of the Directors and Auditors thereon.

2. To re-elect Mr. A N Esufally, who retires by rotation in terms of Article 86 of the Articles of Association of the Company.

3. To re-elect Mrs. A R Gamage, who retires by rotation in terms of Article 86 of the Articles of Association of the Company.

4. To appoint Messrs Ernst & Young, Chartered Accountants as the Auditors of the Company for the ensuing year and authorize the Directors to determine their remuneration.

5. To authorize the Directors to determine and make contributions to charity.

6. To consider any other business of which due notice has been given.

By Order of the Board of

HOTEL SIGIRIYA PLC

HEMAS CORPORATE SERVICES (PVT) LTDSecretaries

Colombo17th June 2015

Notes:

(i) A Member unable to attend is entitled to appoint a proxy to attend and vote on his/her behalf.

(ii) A proxy need not be a Member of the Company.

(iii) A Form of Proxy accompanies this Notice.

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Form of Proxy

I/We …………………………………………………………………………………………………………........................…………(NIC No………………………..)of………………………………………………………………………………………………………………...........….............………………………..……………………being a Member/s of HOTEL SIGIRIYA PLC do hereby appoint …………………........................….............…………………….………………………………………………………………………………………………………………………………(NIC No.………..........….............……………………………..)of………………………………………………………………….……………………………………………………or failing him/her

Mr. A N Esufally or failing himMr. L P Fernando or failing himMr. B S M De Silva or failing himMrs. A R Gamage or failing herMr. W M De F Arsakularatne or failing himMr. D T R De Silva

as*my/our proxy holder to represent *me/us and to vote on *my/our behalf at the Forty First (41st) Annual General Meeting of the Company to be held on Friday, 10th July 2015 at 4.00 p.m. at the Auditorium of The Institute of Chartered Accountants of Sri Lanka, No. 30A, Malalasekara Mawatha, Colombo 7 and any adjournment thereof and at every poll which may be taken in consequence thereof.

For Against

1. To receive and consider the Statement of Accounts for the year ended 31st March 2015 together with the Report of the Directors and Auditors thereon.

2. To re-elect Mr. A N Esufally, who retires by rotation in terms of the Articles of Association of the Company

3. To re-elect Mrs. A R Gamage, who retires by rotation in terms of the Articles of Association of the Company

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

5. To authorize Directors to determine and make Contributions to charity.

Signature of Shareholder/s …………………….………………… NIC/Passport No…………………………….

Dated this ……………… day of ………………………. 2015.

(i) *Please delete the inappropriate words.(ii) Instructions regarding completion appear on the reverse hereof.


96

INSTRUCTIONS FOR COMPLETION

1. Kindly perfect the Form of Proxy by filling in legibly your name in full, NIC No. and address and by signing in the space provided. Please fill in the date of signature.

2. Please indicate with an “X” in the space provided how your Proxy is to vote on each resolution. If no indication is given, the Proxy in his/her discretion will vote as he/she thinks fit.

3. In the case of Corporate Members, the Form of Proxy must be completed under the Common Seal, which should be affixed and attested in the manner prescribed by the Articles of Association.

4. If the Form of Proxy is signed by an Attorney, the relevant Power of Attorney should also accompany the completed Form of Proxy.

5. In case of joint holders the Form of Proxy must be signed by the first holder.

6. The completed Form of Proxy should be addressed to the Secretaries and deposited at the Registered Office of the Company, at “Hemas House”, No. 75, Braybrooke Place, Colombo 02 not less than forty eight (48) hours before the appointed time for the Meeting.

Our Vision, Mission / 4

Financial Highlights / 6

Serendib Leisure Properties / 8

Chairman’s Message / 10

Board of Directors / 14

Senior Management / 16

Management Discussion and Analysis / 20

Hotel Management / 24

Sustainability Report / 25

Risk Management / 32

Corporate Governance / 35

Remuneration Committee Report / 45

Annual Report of the Board of Directors / 46

Directors’ Interest in Contracts with the Company / 49

Report of the Audit Committee / 50

Financial Reports

Statement of Directors’ Responsibility in Relation to

Preparing Financial Statements / 54

Independent Auditor’s Report / 55

Income Statement / 56

Statement of Comprehensive Income / 57

Statement of Financial Position / 58

Statement of Changes in Equity / 59

Statement of Cash Flow / 60

Notes to the Financial Statements / 61

Supplementary Information

Investor Information / 90

Ten Year Financial Review / 92

Notice of Meeting / 94

Form of Proxy / 95

Corporate Information / IBC

Contents

NAME OF THE COMPANYHotel Sigiriya PLC (Formally Ceylon Luxury Hotels Ltd.)

LEGAL FORM A public Quoted Company with Limited Liability incorporated on 1st October 1971 under the Companies Ordinance No. 51 of 1938 (Cap 145) and Re-registered under the Companies Act No. 7 of 2007.

COMPANY REGISTRATION NO. PQ 81

BOARD OF DIRECTORS

A N Esufally - Chairman(Alt. V H A Perera)L P FernandoB S M De SilvaA R Gamage (Mrs) (Alt: Prof. L D K B Gamage)W M De F ArsakularatneD T R De Silva

REGISTERED OFFICE“ Hemas House”, No. 75, Braybrooke Place, Colombo 02.Tel: +94 (11) 4790500-6Fax: +94 (11) 2438933E-mail: [email protected]: www.serendibleisure.com

SECRETARIES Hemas Corporate Services (Pvt) Ltd.Level 9, “Hemas House”, No. 75, Braybrooke Place,Colombo 02. Tel : + 94 (11) 4731731Fax : +94 (11) 4731777

Corporate Information

REGISTRARS SSP Corporate Services (Pvt) Ltd.No. 101, Inner Flower RoadColombo 03.Tel : + 94 (11) 2573894Fax : +94 (11) 2573609

MANAGING AGENT Serendib Leisure Management Limited

AUDITORS PricewaterhouseCoopers100, Braybrooke Place,Colombo 02.

BANKERS Commercial Bank of Ceylon PLCSampath Bank PLC

HOTEL Hotel SigiriyaSigiriyaTel : + 94 (66) 4930500-3Fax : + 94 (66) 2286820

About Serendib Hotels Group

Hotel Sigiriya is part of the Serendib Hotels Group. From the golden sands of Bentota and Waikkal, to the beauty of the Kalutara peninsula and the exotic jungle retreat of Sigiriya - Serendib Hotels portfolio of four unique hotels – AVANI Bentota Resort and Spa, AVANI Kalutara Resort, Club Hotel Dolphin and Hotel Sigiriya capture the essence of Sri Lankan hospitality.

For more information go to www.serendibleisure.com

Designed & produced by

Printed by Softwave Printing and Publishing (Pvt) LtdPhotography by Dhanush De Costa

HOTEL SIGIRIYA PLC

Pursuing

We are what we repeatedly do. Excellence, then, is not an act, but a habit.

Annual Report 2014/15

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Hotel Sigiriya PLC AR 2014

Documents

Transcript of Hotel Sigiriya PLC AR 2014