SERENDIB HOTELS PLC | ANNUAL REPORT 2016/17 · 2019. 7. 8. · SERENDIB HOTELS PLC Annual Report...

SERENDIB HOTELS PLC | ANNUAL REPORT 2016/17

SEREND

IB HO

TELS PLC | AN

NU

AL REPO

RT 2016/17

Serendib Leisure has been a leader in the local leisure industry since 1973, and today we continue to establish our dominance through our portfolio of iconic hotels; AVANI Bentota Resort & Spa, AVANI Kalutara Resort, Club Hotel Dolphin and Hotel Sigiriya. The year under review was a difficult one for your company, and we dealt with several challenges mostly deriving from an uncertain global business and financial environment. This year’s Annual Report discusses how we continued to honour our stakeholder promise by evolving our business operations, our people and processes in order to stay relevant and strong, looking to new horizons and fresh opportunities even as we strengthen our fundamentals and create lasting value today.

Club Hotel Dolphin, AVANI Bentota Resort & Spa, AVANI Kalutara Resort and Hotel Sigiriya are managed by Serendib Leisure Management Ltd., and are an integral part of the Leisure, Travel, Aviation Group of Hemas Holdings PLC.

EVOLVING

Contents

Vision, Mission & Values 3Financial Highlights 6Chairman’s Message 8Board of Directors 12Senior Management 16Management Discussion & Analysis 20 Sustainability Report 29 Hotel Senior Management 40Corporate Governance 42 Risk Management 55Annual Report of the Board of Directors 58Directors’ Interest in Contracts with the Company 62Report of the Audit Committee 64Report of the Related Party Transactions Review Committee 66

Financial Information

The Statement of Directors’ Responsibility 68 Independent Auditor's Report 69 Statement of Financial Position 70 Statement of Profit or Loss 71Statement of Comprehensive Income 72Statement of Changes in Equity 73 Statement of Cash Flows 75 Notes to the Financial Statements 76

Supplementary Information

Ten Year Group Financial Review 127 Investor Information 128 Major Shareholdings 129 Notice of Meeting 130 Form of Proxy (Voting) 131Form of Proxy (Non-Voting) 132Notes 133Corporate information IBC

086

29Chairman’s MessageHighlights

Sustainability Report

42Corporate Governance

20Management Discussion and Analysis

69Independent Auditor's Report

SERENDIB HOTELS PLCAnnual Report 2016/17 3

Vision

Our Values

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

MissionStakeholder Mission

Our Guests

Our Customers

Our People

Our Community

Our Shareholders

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

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

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

To deliver superior returns to our shareholders through sustained performance excellence

Concern for PeoplePassion for CustomersObsession for PerformanceDriven by Innovation

SERENDIB HOTELS PLCAnnual Report 2016/174


Financial Highlights

0.0

0.5

1.0

1.5

2.0

2.5

3.0

12/13 13/14 14/15 15/16 16/17

Earnings per Share

Rs.

0

5

10

15

20

25

12/13 13/14 14/15 15/16 16/17

Net Assets per Share

Rs.

0

10

20

30

12/13 13/14 14/15 15/16 16/17

Market Price per Share

Rs.

2017 2016

Revenue Rs.000's 1,771,321 1,768,249 Profit before Interest, Tax, Depreciation & Amortization (EBITDA) Rs.000's 351,671 547,891 Profit before Tax Rs.000's 172,824 363,811 Profit after Tax Rs.000's 128,084 301,363 Profit attributable to Equity Holders of the Parent Rs.000's 67,514 203,059 Earnings per Share Rs. 0.61 1.82 Cash Earnings per Share Rs 2.67 4.16 Interest Cover Times 13 16 Return on Equity (ROE) % 3.9 9.2Return on Capital Employed (ROCE) % 5.9 10.7

Statement of Financial Position Highlights and RatiosTotal Assets Rs.000's 4,312,076 4,291,631 Total Debt Rs.000's 310,258 439,954 Total Shareholders' Funds Rs.000's 3,246,448 3,280,124 No. of Shares in Issue 111,525,794 111,525,794Net Assets per Share Rs. 21.89 22.32 Debt / Total Equity % 9.6 13.4 Debt / Total Assets % 7.2 10.3

Market/ Shareholder InformationMarket Price per Share on 31st March Rs. 23.10 27.50Market Capitalization on 31st March Rs.000's 2,576,246 3,066,959 Price Earnings Ratio Times 38 15 Dividends per Share Rs. 1.00 1.00 Dividends pay out % 165.2 54.9


"We are in the process of evolving into a new phase of existence, adding a new chapter to our history within the framework of a new vision for the Hemas Leisure cluster."

Chairman’s Message

‘Evolving’ is an appropriate theme for us to reflect upon, given that the hospitality and leisure industry the world over too is truly evolving, constantly pushing industry players to think and act innovatively, creatively and with vision. From guests to valued business partners, teams to communities, expectations from the industry and therefore companies like ours has truly evolved into a multi-faceted,

dynamic environment. For Serendib Hotels PLC, this evolution heralds new opportunities. As you read through our Annual Report, you will observe that we are in the process of evolving into a new phase of existence, adding a new chapter to our history within the framework of a new vision for the Hemas Leisure cluster.

In this backdrop of transformation, it gives me great pleasure to present to you the Annual Report and Financial Statements for the year ended 31st March 2017, and to discuss in brief some salient points regarding our process of evolution.

Growth in Global TourismThe global travel and tourism industry enjoyed another year of growth in 2016 fuelled by significant movement within the Asia Pacific and African regions. The United Nations World Tourism Organisation’s (UNWTO) World Tourism Barometer estimated that international tourist arrivals increased by 3.9% to reach 1,235 million during the year. The highest growth was reported from the Asia Pacific and Africa at 8%. The western developed nations in Europe recorded a much lower year-on-year growth in tourist arrivals of 2%, mainly attributed to security concerns, whilst arrivals to the Americas grew by 4%. The forecast for 2017 is also positive with the UNWTO predicting that international tourist arrivals worldwide will grow at a rate of 3 % to 4% during the year.

Performance of Sri Lanka’s Tourism IndustryI am indeed happy to note that the national authorities have been proactive in marketing the country globally as a tourism destination. However, Sri Lanka still requires a structured national plan, which is crucial if we are to succeed in the current globally competitive environment. We need to reach the consumer, create demand and the consumer should make Sri Lanka a destination of choice. Price,


which is important, should not be the only criteria. I believe we should also look at the arrival numbers from a more qualitative perspective.

In 2016, arrivals to Sri Lanka exceeded the two million mark, which is indeed an achievement. However, I feel arrivals should not be the only measure of the industry. The tourism growth of 14% in 2016 was at a slower pace compared to the 17.8% of 2015 and total arrivals for the year fell short of the target of 2.2 million. The regional breakdown of arrivals indicates that while traditional tourism source countries in Western Europe continued to be the largest contributors to our tourism industry, other opportunities are emerging. Western Europe accounted for 643,333 visitors to Sri Lanka, which is a 16.5 per cent growth over the previous calendar year. Meanwhile, India and China are gaining fast, with India remaining the largest single source market accounting for 356,729 arrivals, followed by China with 271,577 arrivals. Chinese visitor numbers increased by 26.4% year-on-year.

The room occupancy rate in graded hotel establishments approved by the Sri Lanka Tourism Development Authority (SLTDA) increased to 74.8% in 2016 compared with 74.5% in 2015. Further, the earnings from tourism activities increased to USD 3.5 Bn, recording a growth of 18.0%. This, too, is a promising situation and is indicative of Sri Lanka’s potential as a tourism destination. However, from a macro perspective, it is clear the industry needs a comprehensive national strategy to sustain continuous industry growth and to target specific growth opportunities.

Opportunities and challengesGlobal geopolitical and technology changes are creating new opportunities and challenges for the Sri Lankan tourism industry. The instability in parts of the Middle East and some other parts of the world, coupled with exchange rate volatility, is changing global travel paradigms. More people are opting to visit safer regions

of the world, including ours which is considered relatively stable. Increasing digitisation of lifestyles is also generating opportunities for a more flexible and cost efficient tourism business. New technology applications are driving reservations, hotel design and hotel operations for leaner more efficient functioning. Sri Lanka also has an unmatched opportunity to develop innovative and exciting experiential tourism products, utilising our rich natural and cultural heritage.

However, the domestic travel and tourism industry is already facing some serious challenges. Competition in Sri Lanka is intensifying in certain areas where there is capacity oversupply. In this situation, maintaining price levels, revenues and occupancy, is a challenge. On the other end of the spectrum, the informal sector is gaining market share using a lower-cost operating model. The informal business sector are outside the tax net, while the tax burden on the formal tourism sector companies such is currently over 30%. This unequal playing field puts the formal sector, which is better regulated for quality standards relating to health, food hygiene, fire and safety at a significant cost disadvantage.

The rising cost structures in the formal sector is also eroding overall country competitiveness. Our regional competitor

destinations, such as Thailand, Bali, Malaysia, Vietnam etc offer a similar, or better, product at a cheaper price. This poses a serious sustainability concern for our industry.

In this scenario, it is imperative that the industry becomes creative in new product development. Today, the demand is growing for more experiential products. In Sri Lanka, adequate resources for unique and exceptional product development exists to cater to this demand. In addition, the country requires a holistic plan to take advantage of, and conserve, our national assets such as historical, cultural, marine and wildlife. It is of paramount importance to preserve these assets, not only for tourism, but for our future generations.

Successive governments have considered the tourism industry as an important one for Sri Lanka’s economy. It brings in FDI’s, creates employment and generates growth. Thus, for a sustainable industry, we need to develop an environmental and socially acceptable plan. I am happy to note that the Prime Minister has developed a ‘Vision 2025’ document Plan with the assistance of the World Bank and International Monetary Fund. The critical implementation phase is being embarked upon and we will be an active player to contribute towards implementing this national strategy.

AVANI Kaluthara Resort


Group Turnover

Rs. 1.7 Bn

Chairman’s Message

Our FocusOur focus during the year has been to manage the evolution process of the company in line with the new strategic vision of our parent company, Hemas Holdings PLC. The Board of Directors of Hemas Holdings has singled out tourism as the largest growth opportunity in Sri Lanka in the mid to long term. In order to maximise on the emerging opportunities of the tourism sector, some strategic decisions are being considered which will position the Company to maximise upon the opportunity which exists. I am proud to state that we arguably have one of the most professional teams in the tourism industry, well poised to take advantage of the current business opportunities.

The final objective is to evolve our company into a modern, flexible operation that is extremely competitive and highly responsive to fast changing global demand trends.

Financial Results Serendib Hotels PLC maintained top line growth during the year despite an extremely challenging environment, including lower than anticipated occupancy levels as a result of intense competition and lack of demand creation. Total occupancy averaged at 76% compared to 79% in the last financial year. The Group turnover was Rs. 1,771 Mn compared to Rs. 1,768 Mn, while the operating profit was Rs. 210 Mn against Rs. 399 Mn last year. The profit after tax stood at Rs. 128 Mn from Rs. 301 Mn.

Governance FrameworkAs an organisation with a long-term orientation, the company is very conscious of good governance, ethics, morals, and values which drives every decision that is made. Accountability and complete compliance with regulations is obligatory

with a total buy-in being an imperative from all stakeholders to our compliance blueprint. Our international partners share these values which gives us added impetus to grow our relationship on a common platform with mutual goals in mind.

Another facet I would like to highlight is that we are aiming to have the healthiest workforce in the nation. To achieve this objective, we conducts multi-faceted health and wellness related initiatives ranging from workplace health and safety to medical check-ups, to health insurance and promoting healthy lifestyles and good work-life balance. Remuneration packages are structured to be competitive and is benchmarked against other companies. These progressive human resource management and good governance choices have been central to the way we do business and has been a conduit from which our results, both quantitative and qualitative, have been achieved.

Acknowledgements

Our Board of Directors, with their unmatched expertise and insights, is crucial in leading the Company through its current transformation. I take this opportunity to acknowledge the contributions by Mr. Ranil De Silva, who resigned this year, for his contributions as the Managing Director of Serendib Hotels. I also thank our retiring Directors, Prof. Lalith Gamage and Deshamanya Mr. Lalith De Mel for their expertise and wise counsel during the years they served on the Board. This year, we welcome to

our Board Mr Steven Chojnacki, who represents our business partner Minor International, Ms Linda Speldewinde, Mr Thilan Wijesinghe, and Mr Imtiaz Esufally. Their collective experience and knowledge will augment our future growth plans.

As we move forward under a new vision, our entire team and our business partners will be our success drivers. I fully appreciate their contributions to the Company at all times. Our customers are our inspiration and I thank them for their loyalty and patronage. To our shareholders, I extend my appreciation for their trust and confidence in me and I can assure them of greater returns in the near future as Serendib Hotels consolidates its new business model.

Sincerely

A N EsufallyChairman

24 May 2017


A N EsufallyChairman

Mr. Abbas Esufally was appointed to the Board in 1994 and was elected as Chairman of the Company in 2003. With over 35 years’ experience in the tourism industry, Mr. Abbas Esufally has played a pivotal role in expanding Hemas Group’s Leisure interest. He serves as a Group Director of Hemas Holdings PLC, Chairman of Dolphin Hotels PLC, Hotel Sigiriya PLC as well as Diethelm Travel Lanka (Pvt) Ltd, Sri Lanka’s premier Destination Management Company. He also serves on several other listed and unlisted company boards.

He has played an active part in the growth and development of the country’s tourism industry. Mr. Esufally serves as the Chairman of the Mercantile Service Provident Society of the Ceylon Chamber of Commerce and is a Member of the Advisory Committee of the Tourist Hotels Association of Sri Lanka and a Member of the Advisory Council appointed by the Hon. Minister of Tourism.

Mr. 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 the Peace and serves as the Honorary Consul of Bhutan in Sri Lanka.

W M De F Arsakularatne Executive Director

Mr. Malinga Arsakularatne was appointed as the Managing Director of Hemas’ newly formed Leisure, Travel and Aviation Group, in April 2016. Prior to this appointment Mr. Arsakularatne served as the Chief Financial Officer of Hemas Holdings PLC for over nine years. Mr. Arsakularatne has 18 years of experience in investment management, corporate finance and business strategy.

He also serves on the Boards of Hemas Holdings PLC, Dolphin Hotels PLC and Hotel Sigiriya PLC. Mr. Arsakularatne also holds directorships in some of the other unlisted subsidiary companies within the Hemas Group and also serves as a Non-Executive Director of SLIIT. 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, an MSc in Investment Management from Cass Business School, and an Executive MBA from INSEAD.

S M EnderbyNon-Executive Director

Mr. Steven Enderby joined Hemas in March 2013 to head the Group’s efforts in Mergers and Acquisitions and was appointed to the Serendib Hotels Board in March 2014. He took up the Office of Deputy CEO and Director of Hemas Holdings PLC in November 2013 and was appointed the Chief Executive Officer of the Company on 01st April 2014. Mr. Enderby has had a successful track record in the private equity space with Actis, a leading global emerging markets fund, until his retirement in 2011 as an Actis Partner. He has led many of the most successful private equity transactions in Sri Lanka including South Asia Gateway Terminal, Ceylon Oxygen and Millennium Information Technologies. Mr.Enderby is also Non-Executive Chairman of Ironwood Capital Partners, Sri Lanka’s leading private equity fund. He has also served on the Boards of many leading companies in Sri Lanka and India. He is a Fellow of the Chartered Institute of Management Accountants, and holds a Degree in Economics and Accounting from Queens University Belfast, and a Master’s Degree in Development Studies from the University of Melbourne

Board of Directors


I A H EsufallyNon-Executive Director

Mr. Imtiaz Esufally was appointed to the Board on 28th March 2017. Mr. Esufally serves as a Group Director of Hemas Holdings PLC. He is also the Chairman of the Group’s Logistics and Maritime Sector and serves as a Member of the Audit Committee of Hemas Holdings PLC.

Mr. Esufally holds a Bachelor of Arts (Honours) Degree in Accounting and Economics from the University of Kent, UK. He counts over 30 years of management experience and has been in the forefront of the Transportation Industry.

E J D RajakarierNon-Executive Director

Mr. Dillipraj Rajakarier was appointed to the Board in 2010. He is the Chief Operating Officer of Minor International Public Company Limited and the Chief Executive Officer of the Minor Hotels Group. He has also served as the Deputy Chief Financial Officer of Orient-Express Hotels, Trains & Cruises and as the Group Financial Controller of Easi Solutions PLC.

Mr. Rajakarier has a Masters Degree in Business Administration from the UK and is also a Member of UK Institute of Management Information Systems. He is an Associate Member of the British Association of Hotel Accountants, a Member of the Association of Computer Professionals, a Member of the Association of Business & Administrative Computing, UK, and a Member of the Institute of Directors.

M A G H I JafferjeeIndependent Director

Mr. Murtaza Jafferjee was appointed to the Board in 2010. He is the Chief Executive Officer of JB Securities Limited with over 20 years’ of industry experience in the stock market in Sri Lanka. He serves on the Board of Nations Trust Bank PLC as an Independent Director. He has also served on the Board of the Colombo Stock Exchange from August 2007 to July 2009.

Mr. Jafferjee holds a Bachelors’ Degree in Mechanical Engineering and Computer Science from the University of New South, Australia and a Masters Degree in Financial Economics from the University of Colombo. He is a CFA Charter Holder.


S L Speldewinde (Mrs.) Independent Director

Ms. Linda Speldewinde, appointed to the Board in January 2017 is a visionary entrepreneur and Founder of AOD - Sri Lanka’s pioneer in Design Driven Innovation with business ventures in the physical domain and digital space including education and E commerce, supported by a unique grassroot level Manufacturing model & a full scale supply chain in Fashion & Lifestyle Retail, building an entire professionalized design sector for Sri lanka. Her initiatives are also woven around preserving traditional craft and working on livelihood restoration and reviving cottage industries. Ms. Speldewinde holds a MBA from PIM Post Graduate Diploma from the Chartered Institute of Marketing UK and is an alumni of the YCE program for Creative Entrepreneurship from BC, UK. She has received many awards including the Women Leadership Award - Women Leadership Congress- Mumbai and Professional Career Women Award - Professional Association of Women in Management-Sri Lanka and International Young Fashion Entrepreneur Award for Sri Lanka-British Council; Special commendation by the International Jury for changing society through education.

Dr. R N A AthukoralaIndependent Director

Dr. Rohantha N.A. Athukorala was appointed to the Board in 2010. In his fifteen year career with global multinationals Unilever, Reckittbenckiser and Johnson Diversey, he has held senior positions in Sri Lanka and the South Asian region winning twice the “Best Marketer” Award in Sri Lanka and a Global Award for Brand Building in the South Asian region. He went on to serve the United Nations (UNOPS) for a five year tenure where a ‘Global Award” was secured by a Sri Lankan project.

The Government of Sri Lanka appointed him as the 8th Chairman of Sri Lanka Export Development Board when exports crossed the ten billion dollar mark, then as the Chairman Sri Lanka Tourism Promotions Bureau he re-built the organization from capacity development to Tourism strategy development to support the industry reach an arrivals number of 1.8 million visitors and 3 billion dollars in revenue. Thereafter Dr.

Athukorala was appointed Chairman of the 30 billion rupee largest retail chain in the country Lanka Sathosa, where from a 1.2 billion loss, the business turned around to achieve a 38.2 million profit within seven months and create a performance based culture with strong governance.

At present, he serves a diversified niche property development company Coral Holdings- Sri Lanka and Maldives as Group Chief Executive Officer.

An alumni of Harvard Kennendy school, he has a double degree in marketing, MBA and doctorate in business. He is also a GSE scholar of Rotary International and honoree of the ' Exceptional Rotarian Award' for Rotary District 3220- Sri Lanka & Maldives.

Board of Directors


S A ChojnackiNon-Executive Director

Mr. Stephen Chojnacki was appointed to the Board on 25th January 2017 and is the Chief Commercial Officer and General Counsel of Minor International Pcl. Mr. Chojnacki holds degrees in Economics, Foreign Affairs and Law from the University of Virginia, USA. Mr. Chojnacki is based in Bangkok and has worked for Minor International for 10 years, across Minor’s hotel, food and distribution businesses. Mr. Chojnacki is a practicing lawyer admitted to the New York Bar. Prior to joining Minor International, Mr. Chojnacki worked for Linklaters, a large global law firm, in their New York, Hong Kong and Bangkok offices.

W A T M Wijesinghe Independent Director

Mr. Thilan Wijesinghe was appointed to the Board on 28th July 2016. He has three bachelors’ degrees in Engineering, Economics and Business Administration from Cornell University, USA.

Having commenced his career as a Senior Management Consultant at PriceWaterhouseCoopers, Colombo, Thilan co-founded Asia Capital PLC, which became Sri Lanka’s largest investment bank in terms of market capitalization. In late 1995 Mr. Wijesinghe exited his shareholding in Asia Capital to become the youngest ever Chairman/Director General of the Board of Investment of Sri Lanka. During his 5-year tenure, he directed many pioneering privatization and public-private partnership (PPP) transactions in large-scale infrastructure projects covering ports, telecom, power, housing/townships, hospitals and Software Parks. Mr. Wijesinghe is also a co-founder and Board member for life of the Sri Lanka Institute of Information Technology, which has in 15 years become Sri Lanka’s largest IT and engineering University.

Mr. Wijesinghe is former Managing Director of Forbes & Walker Group, Sri Lanka’s largest commodity broker and headed Sri Lanka’s two largest listed property companies, Asian Hotels Properties PLC and Overseas Realty PLC. He continues as Board member of MJF Leisure and is a co-founder and Director of the award winning Ceylon Tea Trails Resort. He is also a co-founder/Director of Wow.lk Sri Lanka’s largest e-retailer.

Mr. Wijesinghe currently is Chairman of TWCorp that specializes investment structuring with emphasis on real estate focused investments and development advisory, executing carefully selected projects that are visionary and iconic. TWCorp is currently engaged in several real estate collaborations at various stages of implementation valued at over US$1.6 billion and has advised clients and partners on the procurement of over 500 acres of land for greenfield real estate projects.

Mr. Wijesinghe also sits on the boards of several other public and private companies.


Malinga Arsakularatne Executive Director

Refer to Board of Directors profile on page 12

Suranjith De Fonseka Chief Marketing Officer

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), is the Vice President of the Travel Trade Sports Club and a committee member of Skal International Colombo.

Senior Management

Shantha Kurumbalapitiya Chief Operating Officer

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. Shantha took over responsibilities of COO of Serendib Leisure Management Ltd. from the 1st of January 2017.


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

Sanjiv Wijayasinghe Director - Human Resources

Sanjiv has over 35 years’ experience in the field of Human Resource Management in both local and multinational business environments including in association with the UNESCO. A past President and Fellow of the Institute of Personnel Management Sri Lanka Inc., he is a Member of the Chartered Management Institute UK and the

Institute of Professional Managers UK. He served as the Vice President of the Asa Pacific Federation of Human Resource Management and also served in several the Sub-Committees of the National Human Resource Council of Sri Lanka. Sanjiv is an alumni of the Harvard Business School (HBS) USA, the Chartered Institute of People Management (CIPD) UK, the National University of Singapore (NUS) Singapore and the Singapore Institute of Management (SIM) Singapore.

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.


As a strategically positioned entity, we are evolving towards our vision of reaching a new growth paradigm, spearheading the way towards leading the industry in operational excellence and service standards.


The year under review was one of change and transition for Serendib Hotels PLC as the Company commenced a process of evolution with the ultimate objective of dramatically elevating operations into a new growth paradigm. In the process of achieving this strategic objective, the current year’s focus was primarily directed towards building a solid new foundation for the future, which is well aligned to strategic vision the Group has been constructing its future upon in the last few years. With much of the groundwork for a new growth platform accomplished, we are now well on our way to a new level of operational excellence, with strategic and tactical plans clearly established and a hand-picked team in place to drive this new vision.

"With much of the groundwork for a new growth platform accomplished, we are now well on our way to a new level of operational excellence, with strategic and tactical plans clearly established and a hand-picked team in place to drive this new vision."

Management Discussion & Analysis

The Global Tourism LandscapeInternational tourism grew at a moderate pace in 2016, with some destinations showing positive results, while other locations struggled with the impact of negative events. According to the latest UNWTO World Tourism Barometer, the

year 2016 was the seventh successive year of growth following the 2009 economic and financial crisis. During the year, 300 million more international tourists travelled the world, compared to the pre –crisis record of 2008. As a whole, despite persistent pockets of instability in many


parts of the world, 2016 saw international tourist arrivals increasing by 3.9% to reach 1,235 million. Some 46 million more overnight visitors travelled internationally compared to 2015.

While there was uncertainty with regards to European outbound tourism due to spill over impacts of Brexit, experts predict that these impacts will not be too severe for the next two years. Closer to home, the flow of inbound tourism into Thailand did an about-turn in late 2016, following the announcement of a one-year period of mourning, starting from October 2016, to honour the late king of Thailand. Now officially in a state of national mourning, Thailand has decelerated its tourism drive, which has in turn redirected tourism inflows to other countries in the Asian region.

As a region, Asia and the Pacific led global growth in travel and tourism in 2016 with an increase of 8% year-on-year in international tourist arrivals, fuelled by strong demand from inter and intra regional source markets. Africa enjoyed a similar 8% growth, which is a re-bound after two weak years, while the Americas gleaned a comparatively much slower 4% growth. Overall, Europe recorded a 2% increase amidst mixed results, with double digit growth in some areas and a decline in others. Demand in the Middle East declined by 4%.

Global tourism forecasters remain positive with the UNWTO envisaging that international tourist arrivals worldwide will grow at a rate of 3% to 4% in 2017.

Sri Lanka: Crossing the 2 million mark Sri Lanka recorded an annual tourism growth rate of 14.0% in 2016 with tourist arrivals crossing the 2 million milestone for the first time in history to reach 2,050,832 arrivals. However, this growth was

marginally below the government target of 2.2 million and fell below the 17.8% growth of 2015.

India, China, UK, Germany and France are the top five source markets which contributed towards the two million tourist arrivals to the country. These five largest tourist source destinations together have accounted for 51.0% of tourist arrivals to Sri Lanka in 2016, reflecting the market concentration of tourism. India remained the largest country of tourist origin with 356,729 arrivals in 2016, while China remained second, followed by the UK, Germany and France. The highest contribution to growth was recorded from China with 271,577 tourist arrivals, followed by India and the UK. Tourist arrivals from all major regions, except Africa, increased in 2016. Western Europe continued to be the largest region of tourist origin for Sri Lanka, representing 31.4%, with the number of tourist arrivals increasing by 16.5% to 643,333. The share of tourist arrivals from East Asia has increased continuously since 2010, accounting for 20.7 % of total arrivals in 2016 compared to 10.5 % in 2010,

contributed by the impressive growth recorded in tourist arrivals from China.

Earnings from tourism grew by 18.0% to USD 3,518 Mn in 2016, in comparison to USD 2,981 Mn in 2015. According to the latest annual survey on tourist spending and duration of stay, conducted by the Sri Lanka Tourism Development Authority (SLTDA), the average spending per day by a tourist increased to USD 168.2 in 2016 from USD 164.1 in 2015. Further, the average duration of stay by a tourist was estimated at 10.2 days in 2016, which was a marginal improvement from 10.1 days in 2015.

Several international hotels, including Shangri-La Hambantota and RIU commenced their operations in 2016 adding 1,569 rooms to the industry, while several major hotel projects, the Hyatt, Sheraton, ITC and NEXT to name some, continued their construction work during the year. Approval was granted for 41 new hotel projects with 1,526 rooms compared to 37 projects approved in 2015.

At national level, a number of initiatives were introduced to improve prevailing standards within Sri Lanka’s tourism industry. A new classification for tourist hotels was implemented by the SLTDA in April 2016, where all tourist hotels registered with SLTDA are required to have a star classification, which must be reclassified every three years. As directed by the Fiscal Budget 2016, a programme for the absorption of the informal sector into the formal tourism sector was launched. Budget 2017 introduced several proposals to increase the quality of the tourism industry and tourist

18% Growth from last year

Tourism Earnings to Sri Lanka

USD 3,518 Mn

2011

Rs.’000 US$ Bn

2012 2013 2014 2015 2016

Regional Wise Arrivals

0

500

1,000

1,500

2,000

2,500

Western EuropeEastern EuropeMiddle EastEast Asia

South AsiaOtherTourismEarnings US$. Bn)

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

Source: SLTDA


"All Serendib resorts, were faced with a number of challenges emanating from global geopolitical developments and also internal macro developments within the country."


attractions including the construction of a convention centre to develop MICE tourism and financial support schemes for tourist organisations.

Targeted promotional campaigns launched by the SLTPB helped Sri Lanka position itself as an attractive tourist destination in the world. Recognising the importance of tourism promotion, the SLTPB continued its country specific strategic marketing plan in 2016 implementing numerous initiatives and participating in travel fairs, conducting road shows and advertising campaigns in key markets to maintain top of mind recall.

Within this supportive backdrop and favourable global climate, the upward

trend in tourism is expected to continue in 2017. The country has set a national arrivals target of 2.5 million for the year, which is a 21% year-on-year growth, backed by a new international marketing campaign.

Company PerformanceDuring the current financial year, the Serendib Group aligned its operational features with its new long term vision by strengthening and upgrading all germane aspects. All Serendib resorts, were faced with a number of challenges emanating from global geopolitical developments and also internal macro developments within the country. Internationally, the fall-out of the Brexit in the UK and European markets, resulted in a drastic depreciation

of the GBP and the Euro, causing a loss of revenue from European markets for the Group. Meanwhile, escalating competition in the local market heightened the pressure on prices, reducing margins and the rate of top line growth. Undaunted by these short term setbacks, the Serendib Group has set its sights unwaveringly on its future objectives as envisioned by its growth strategy, by concentrating on enhancing brand value and market positioning to strengthen its foundations for anticipated growth.

The shortage of trained high calibre personnel, which is an industry-wide challenge at present, was yet another obstacle to overcome, but which we have addressed with customary aplomb. While the Group went through changes to some of its key management personnel, the leadership platform has now been stabilised and we are looking forward to an exciting year ahead, with the apt skills and expertise in place to guide us forward. The management and staff across the Group have been aligned in single minded cohesion in the direction of the


Company’s vision and objectives, further reinforced by the years of our collective industry experience, ensuring a strong thrust in the new direction of growth.

Financial ReviewAmidst a decline in occupancy levels at our properties and the Brexit fallout on the exchange rate of the Sterling Pound, the total revenue of the Group remained flat during the year. Total Group occupancy recorded a drop of 3 percentage points during the year due to oversupply of rooms and the rising room inventory in the local market also prevented any meaningful increase in room rates. Group gains from the exchange rate were contained due to the GBP depreciating sharply by 10% over the year following the Brexit poll. The combined impact of these market conditions hindered the Group’s top line growth. However, the Group managed to mitigate exchange rate losses through prudent hedging in future anticipated foreign currency inflows using forward rate agreements. Extra F&B and other revenue also saw a decrease as a result of the lower occupancy.

Costs and Profitability Although revenues remained at the same level, the cost of sales trended upwards, mainly due to rising prices of alcoholic

beverages, resulting in a considerable increase in the All-Inclusive beverage cost, especially at Club Hotel Dolphin, which is a predominantly an All-Inclusive hotel. The Group administrative cost went upwards by 14% reflecting the growth in payroll costs, following the upward movement of the minimum wages and other expenses incurred for business development activities conducted throughout the year.

As a future focused business closely watching market developments, the Serendib Group regularly invests in market opportunities presented within its investment scope. In the current financial year, the Group made commitments towards new business development initiatives showcasing an alertness to emerging opportunities and in anticipation of future gains. The total spend on new business development for the year was Rs. 34 Mn.

Responding to the milieu within the foreign exchange market, Dolphin Hotels PLC reduced its exposure to the declining value of foreign exchange by releasing its excess foreign currency reserves for prepayment of foreign currency loans. This also ensured reduction in group finance cost.

As part of the Group’s strategic restructure, the stake in Jada Resort & Spa (Pvt) Ltd was reduced from 19.9% to 6.5% and was re-classified as an available for sale investment in financial statements. Upon dilution of its shareholding the group recognised a fair value loss of Rs 31 Mn and 9.4 Mn at the beginning and the end of the year respectively

The Serendib Group’s bottom line declined by 57% as a result of the increase in costs against the flat revenue base coupled with the fair value loss from dilution of investment, causing the EPS to move downwards by 67%.

Largely due to the repayment of loans and increase in equity, the gearing levels of the Group decreased further to 9%. This ensures low financial risk for the Company and boosts the prospects of further borrowings in future.

The operating cash generation for the year was Rs 379 Mn which was mainly invested in the implementation of the new property management system (PMS) and repayment of loans.

Revenue Mix 16/17

RoomFood & BeverageOthers

%5%

46%

49%

2013 2014 2015 2016 2017

Occupancy

60

65

70

75

80

Group Hotel

%

2013 2014 2015 2016 2017

Revenue / Pro�t After Tax

0

500

1,000

1,500

2,000

Revenue Pro�t After Tax

Rs. ‘000


Operational ReviewAVANI BentotaCompetition within the resort sector saw a dramatic increase during the year with an influx of new hotel rooms and also the emergence of the informal sector providing low-cost board and lodging for travellers. This environment contributed towards a marginal 3 percentage points decline in occupancy levels compared to the previous year. In spite of this drawback, AVANI Bentota achieved consistent growth in income from both accommodation and F&B. The hotel’s astute pricing strategy, based on its clearly differentiated quality standards and brand image, made it possible to enhance room rates by 9% for an overall room revenue growth of 4% against the previous year. This boosted the revenue per available room by 5% for the year. Additional F&B revenue too, recorded an improvement, as a result of the many promotional and interactive guest engagement activities implemented by the hotel.

The luxurious ambiance of the AVANI Bentota continued to attract a steady growth in arrivals from the UK with targeted marketing and promotional activity. However, overall revenues from the UK market declined due to the volatile exchange rate environment during the year, as contracts were based on the GBP.

Club Hotel DolphinClub Hotel Dolphin which is positioned as a family holiday resort, experienced pressure from new room inventory entering the resort sector, seeing a four percentage points drop in occupancy. Nevertheless, the resort was able to successfully adopt a higher-pricing strategy and also recorded a steady increase in British and German visitors, who represent the largest traditional customer segment of the hotel. An improvement in arrivals from the Scandinavian bloc was also observed following the introduction of the TUI Nordic charter flight. This growth in

customers and guest retention in an already overcrowded market amply demonstrated the success of the resort’s guest relations and brand recognition. As a result, it was able to sustain room revenues, while absorbing a significant loss from unstable exchange rates compared to the previous year. Income from F&B however, declined during the year with banquet revenue significantly affected due to intense competition in the geographic area the resort operates in.

Hotel SigiriyaOverall occupancy at the Hotel Sigiriya fell by a marginal two percentage points year-on-year causing a slight decline in overall room revenues despite a 4% increase in room rates. The drop in occupancy was primarily due to a decline in occupants from traditional markets, UK and Germany to name two, in the face of escalating competition with an increasing number of operators targeting the same markets. While the retail business was also faced with a sharp increase in competition, the resort was able to safeguard this segment and prevent further erosion in market share despite an increase in room rates.

Very successful in its promotional initiatives to target new segments which contributed towards sustaining occupancy in a crowded market, Hotel Sigiriya’s marketing strategy was developed and implemented via specific marketing and promotional activities, targeting three different market segments. The resort focused on consolidating its presence in major traditional tourism sources countries including the UK and Germany with participation in trade fares, road shows and targeted sales campaigns. Potential growth locations that were categorised as ‘Focus Markets,’ and included India, China, Japan, GCC and Russia, each given high importance by the marketing team to improve sales generated from these destinations.


2013

2013 2013

2014 2015 2016 2017

Debt / Equity

0

1,000

2,000

3,000

4,000

Equity Debt Gearing

0

20

40

60

80

100

Apr-16 May-16 Jun-16 Jul-16 Aug-16 Mar-17Feb-17Jan-17Dec-16Nov-16Oct-16Sep-16

Average Currency Rates

100

120

140

160

180

200

220

USD/LKR GBP/LKR GBP/USD

1.0

1.2

1.4

1.6USD:GBP/LKR GBP/USD


The third market segment of ‘Emerging Markets’ was Australia and France which were targeted through sales visits.

Technology drive Technology has been clearly identified as a growth driver for the Serendib Group over its next phase of expansion and during the year under review the Group initiated a complete transformation in its property management system (PMS) to become more competitive in the market. The overhaul included hardware and

other infrastructure to facilitate the system rollout handling property management systems (PMS), Point of Sales systems procurement and inventory control system.

In addition, new equipment was installed to uplift IT standards of the hotels with the upgrading of Wi-Fi facilities available at Hotel Sigiriya and Club Hotel Dolphin being an example. The introduction of new systems and related infrastructure has brought in new dimensions of benefits

to the Group. The Wi-Fi infrastructure enhancement resulted in significant improvement in guest satisfaction levels and presence in social media, leading to positive feedback from guests. Greater emphasis was placed on operational excellence, where online guest comments and scores were ranked as high priority. A dedicated team has been established to improve service standards and guest satisfaction. The ultimate objective of technology integration and system improvement is to continue to create greater value for guests and other stakeholders through enhanced operational excellence.

Awards and accolades The Serendib Hotel Group’s properties epitomise best in world class hospitality and hotel management standards, which is evidenced by the plethora of awards and accolades received and the international quality certifications conferred upon our hotels. These coveted laurels serve as a constant reminder of the unparalleled experience that our guests have enjoyed at Serendib Group hotels, not only in terms of star grade accommodation and modern amenities, but also in terms of health and safety, the expansive product and service offerings and the close-to-nature ambience that each resort espouses.

Club Hotel DolphinThe perfect get-away for an unforgettable beach holiday, the family-friendly Club Hotel Dolphin offers all modern facilities coupled with a range of entertainment and dining choices compiled under

F&B Revenue

Rs. 868 Mn

AVAN

IBe

ntot

a

Club

Hot

elD

olph

in

Hot

elSi

giriy

a

AVAN

IKa

luta

ra

Competitive Quality Index

94

96

98

100

102

104

106

108

2016-17 2015-16

%

AVAN

IBe

ntot

a

Club

Hot

elD

olph

in

Hot

elSi

giriy

a

AVAN

IKa

luta

ra

Global Review Index

80.0

81.0

82.0

83.0

84.0

85.0

86.0

87.0

88.0

89.0

90.0

2016-17 2015-16

%


a unique ‘Pause and Play’ concept, which caters to a wide range of visitor segments, including teenagers and children. The resort continued to display its international popularity by winning the Tripadvisor Certificate of Excellence 2016. The property’s commitment to sustainable operations was recognised with the Travelife Gold Certificate for Sustainability in Tourism – 2016/18, reflecting the advanced and effective sustainability measures implemented throughout the daily operations of the resort. The motto safety first, has been the central management guideline with the outcome of obtaining the Crowns for Food Hygiene, ISO 22000 and the Crescent Rating certification on Sharia approved Islamic food standards for 2016 further augmenting the motto.

AVANI Bentota Resort & SpaThis Geoffrey Bawa architectural creation reminiscent of an 18th Century Dutch bungalow located against the picturesque

tropical sands of the southern sea encompasses uncompromising luxury, ranking it among the top hospitality venues in the world. This year the property donned the crowns of the World Luxury Hotel Award – Luxury Contemporary / Stylish Hotel 2016 and the TripAdvisor Travellers’ Choice Award Winner 2017. Ensuring the cascading of best practices and world class standards into its everyday operations, the resort elevated this commitment by obtaining ISO 22000: 2017 and HACCP 2017 certifications.

AVANI Kalutara Resort Nestled between the Indian Ocean and the Kalu Ganga, AVANI Kalutara epitomised its unparalleled R&R signature with a slew of awards for its unparalleled riverside ambience. This year, it won the World Luxury Hotel Award – Luxury Coastal Resort 2016, the Booking.com Award for Guest Reviews 2016 and the Tripadvisor Certificate of Excellence 2016. Demonstrating its dedication towards

"Group initiated a complete transformation in its property management system (PMS) to become more competitive in the market."



conserving the pristine natural environs surrounding it, the resort also won the Travelife Gold Certificate for Sustainability in Tourism 2016/18.

Hotel Sigiriya Balancing the nuances of culture, history and nature, Hotel Sigiriya provides the best of modern leisure facilities while keeping its natural eco systems undisturbed, gaining for itself the title of a leading sustainable leisure operator in the country. Recognising this unique and challenging achievement, the hotel was awarded the Travelife Gold Certificate for Sustainability in Tourism for 2016/18. Acknowledging the diverse entertainment and experiential opportunities of the site, it was also adjudged winners with the HolidayCheck Award for Guest Reviews 2016, the Booking.com Award for Guest Reviews 2016, and the Trip Advisor Certificate of Excellence 2016. The hotel’s commitment to best practices, standards and well-founded operational processes are well exampled with the ISO 14001 certification it gained in 2016.

Way forward As the Sri Lankan tourism industry continues to develop and modernise, it presents not only a number of challenges, but also many opportunities for our Group. A significant challenge is the price impact of the current oversupply of rooms, which will result in an unprecedented increase in competition in the travel and tourism sector over the short to medium term. The lack of a holistic national tourism strategy is yet another industry drawback.

However, observing the milieu optimistically, we see numerous opportunities that we must pursue, given the inherent advantages the Group’s resorts possess. Whether its natural surrounds, or historic locations or cultural vignettes combined into the persona of our resorts, the Group has significant

advantages within its purview. These advantages will assist us in evolving towards our strategic vision of adding momentum to the industry and the Group. We intend to take advantage of the incremental growth in travel and tourism within the Asian region and will concentrate significantly on maintaining and upgrading our guest profile, upskilling our highly valuable team, conserving and preserving our natural and historic surrounds with a greater consciousness, be an integral partner in our community’s development and be a spearhead in pushing industry standards upwards.



The concept of evolving permeates strongly into our sustainability ethos as we are cognisant that the fundamentals of sustainability founded on the 3Ps of People, Planet, Profit are constantly evolving. We are proud to state that our evolution and progress is built upon a long term vision that looks beyond mere growth of numbers. We have pinned our growth onto a vision that encapsulates holistic development through the incorporation of social and environmental consciousness, while also supporting incremental financial returns. We believe in progress together as a nation, as a single community with mutual trust and shared gains, while also being mindful of our responsibility to the future generations of this country by protecting the natural and cultural resources of this country.

Sustainability FrameworkAll properties under the Serendib Group come under the Serendib Group Sustainability Policy which sets the standards on sustainable management of each property. It also must adhere to the framework of our parent company, Hemas Holdings PLC. The Policy, which is based on international best practices on

sustainable hotel management advocates socially and environmentally sustainable business practices and aligns these to the daily administration of the hotels within the Group. Through the continued and rigorous application of these sustainability standards, these sustainability rudiments have now become ingrained into the core operations of our properties. The sustainability principles observed within all our properties include minimising the impact that business activities have on the environment through the application of environmentally friendly approaches. This means ensuring the health and safety of employees, guests and other stakeholders through the strict observance of health and safety standards, sustainable development of employees for career advancement and personal progress, and supporting local communities through contributions to charitable causes and corporate responsibility projects.

We extend our sustainable philosophy to each of our stakeholders, i.e. employees, guests and communities through regular communication and interaction that assist us set key goals and targets in terms of sustainable business

operations. The drivers of these targets are our Sustainability Champions who are appointed at each hotel to promote and popularise these sustainability goals and gain support for widespread acceptance and ownership for greater level of impacts. We believe that setting targets alone does not guarantee any real application or level of effectiveness. Therefore, we continually review and monitor our performance and then disseminate this information, so that our stakeholders are aware of the progress we are making towards becoming a more sustainable business entity.

Supplier PolicyThe Serendib Group Supplier Policy is the guiding directive on dealing with the multiplicity of suppliers who provide a massive range of perishable and non-perishable items daily to our properties to maintain the international look-and-feel of not only the facilities provided at our resorts, but also the food and beverage choices made available to our guests. The Supplier Policy inculcates our sustainability principles on dealing with our suppliers, who we consider our valued business partners and defines the expected quality standards of the products purchased



through local and foreign suppliers. This ensures consistency in brand image and brand promise expected of a leading international hospitality brand through accommodating global best practices and globally accepted certification requirements.

High-end amenities and products such as premium linen, alcohol and other beverages are always sourced from world-class manufacturers to surround our clientele with the luxurious accommodation comparable to international hospitality services provider anywhere in the world. However, as a Group sustainability measure, the Serendib Group properties make it an imperative that purchases, wherever possible are done locally, to provide the best of local produce to guests. However, as in all products sourced, these purchases too are subject to stringent quality inspection imposed regularly and designed to reflect globally accepted criteria to safeguard the health and safety diktats and to ensure that our corporate image and brand reputation is never compromised. Such domestic purchases generally comprise perishable fresh produce such as fruit and vegetables enabling our customers the opportunity to experience Sri Lankan tastes and flavours, prepared and presented under the most hygienic conditions.

The Serendib Group believes in building strong and long lasting relationships with suppliers, and by conforming to our rigorous quality expectations which naturally permeate to the advantage of a better quality product. As a policy, we ensure that all our suppliers are paid a fair price and payment is made on time.

a. Hotel SigiriyaAs a cultural icon in its own right, surrounded by natural and historic Sri Lankan heritage, Hotel Sigiriya remains true to its cultural image by sourcing all dry food in its entirety from the neighbouring towns of Dambulla and

Kekirawa, contributing directly towards livelihood generation and income generation for local farming communities as well as other intermediaries in the supply chain. We record with pride that at the end of the current financial year, U.R Wijeratne, from Dambulla, who has been supplying vegetables to the hotel and Narada Saman Perera, who has been supplying all seasonal fruits to the Hotel has had a partnership with us for eleven years. We value such long standing collaborations that have been time tested and continues to be mutually beneficial and reflects our commitment towards supporting local businesses.

In addition, the hotel purchased 17% of products and services locally, reiterating the support we give to diverse service providers and manufacturers through our strong purchasing policy.

b. Club Hotel DolphinDuring the year, Club Hotel Dolphin made a majority of its purchases from local producers of goods and services, encouraging local communities in their entrepreneurial endeavours, while international imported purchases accounted for 18% of the annual inventory. The Hotel also conducted its bi-annual meetings for suppliers with the objective of informing all suppliers of future requirements, having a dialogue to any challenges or problems they may have encountered and also pursuing other methods in which the Hotel can sustain their livelihoods. These regular meetings have contributed towards developing sustainable partnership networks based on mutual understanding and cooperation, ensuring permeation of benefits across communities.

c. AVANI Kalutara ResortThe lavish ambience and the extravagant facilities of the AVANI Kalutara was sustained during the year with the purchase of choice world-class products from the domestic market, under strict quality supervision intended to sustain

overall brand image. Building strong supplier links that have survived the test of time, the resort has been purchasing premium meats from the same supplier for the last six years and continues to transmit the essence of trust based relationships across the supply chain. Locally sources products and services accounted for 40% of total purchases for the year.

d. AVANI Bentota Resort & SpaImbuing the sustainability principles of the Group, AVANI Bentota places a great deal of importance on maintaining and managing relationships with suppliers. Taking steps towards transitioning engagements to the next the level through regular opportunities for dialogue and communication through monthly meetings that provides the platform to open communication channels between the hotel and its network of dealers, the Hotel also ensures fair and competitive payment and pricing. This is done through short-term agreements built upon market surveys, ensuring the opportunity for continued financial gains for providers of good and services. During the year, 26% of products and services were purchased locally, making a significant contribution towards the advancement of local economies in the adjacent locale of the Hotel.

Health and SafetyA central function of the Serendib Group’s sustainability framework is the uncompromising stand on ensuring the safety and security of guests and employees at all times at all our premises in conformity with international best practices. All our properties have strict policies on health and safety standards where international best practices are enforced at all times to ensure the welfare of our employees and other stakeholders. These practices are continually monitored and improvements are made whenever deemed necessary.


As part of this process, regular risk assessments are conducted to identify potential risks and implement risk mitigation strategies to ensure optimum function of safety systems. A mandatory and high priority area is food safety and hygiene standards. All Serendib Group hotels compulsorily follow the internationally accredited best practices set out under the HACCP food safety management guidelines to ensure the highest global quality in terms of food safety, at all times.

Group Mystery AuditAll requisite facilities and backup procedures are maintained continually at required levels through the ‘Group Mystery Audit’, which pertains to audits on Health and Safety at all four properties. These examinations are conducted annually and detailed reports of findings are circulated to the Management team for corrective action if deemed necessary to maintain uncompromised procedural and systemic safety standards. In addition to the comprehensive Group level Mystery Audits, Public Health Inspectors (PHI) from the Government conduct regular audits of our properties bi-annually to ascertain compliance with all regulatory health and safety requirements.

As a further assurance on the international status of our safety systems, the Group’s hotels align with the globally acknowledged Travelife Sustainability System, which comprises environmental and social compliance requirements. We are pleased to report that all four properties have been awarded the highest honour of “Travellife Gold” for the current financial year, clearly demonstrating not only our commitment to the best industry practices, but also the implementation of these global benchmarks at operational level on a daily basis.

a. Hotel SigiriyaHotel Sigiriya mandates regular health check-ups of all associates, especially the associates who handle food to ensure the

pristine condition of all items consumed at the Hotel. All rooms are equipped with in-room fire detectors which are regularly checked for operational efficacy and monthly fire drills are conducted to ingrain emergency safety procedures into all staff. Pool staff are trained in life saving techniques to ensure that guests, adults and children are constantly watched over by professional life savers. Annual inspections are also conducted by leading tour operators and local DMCs. As such, Der Touristik and Hayes & Jarvis confirm that the Hotel’s ongoing H&S systems are compliant with specific international standards. As yet another indicator of excellence is that the Hotel has also undergone ISO 14000 certification inspection successfully and is pending the certification.

b. Club Hotel DolphinAs a family leisure services provider maintaining health and safety conditions at high levels makes for an uninterrupted fun filled vacation for visitors. Therefore, training on health & safety standards is conducted monthly and quarterly covering First Aid, Evacuation, Fire Fighting, Legionella, Food Hygiene, Swimming Pool Safety, General Hotel Safety, Gas Safety, Beach & Water sports Safety, Children’s Safety, Accidents, Incidents & Illness and Transport Safety. The standards in application are monitored through a detailed daily/monthly inspection system which includes health and safety checklists and audits conducted by the various Heads of Departments. This includes a Monthly Internal Food Safety Checklist, a Suppliers Audit Checklist and a Water Sports Safety Check List.

In addition, the Hotel participates in multiple health and safety audits conducted by independent external parties for assurance and certification on the prevailing safety conditions. The Hotel follows health and safety regulations dictated by Sri Lankan authorities and the FTO, (Federation of Tour Operators)

based on British standards. The latter denotes the highest standards applicable to the industry and the Hotel has annual inspections by numerous tour operators based on these standards. The Hotel undergoes a bi-annual audit from SGS to obtain HACCP certification, while another is the annual from Crowns, the British Health Standard certification.

c. AVANI Kalutara ResortAVANI Kalutara strictly follows and maintains international HACCP procedures on daily internal operational aspects to provide globally recognised assurances on the safety standards within the premises. In addition, the Hotel conducts continuous inspections of health and safety procedures that are in operation to identify any possible weaknesses, while taking immediate preventive and corrective measures to make sure the safety framework is not compromised.

As an example, to protect against water borne threats that may endanger the Hotel’s water supply, water samples are tested frequently at accredited laboratories against recommended criteria. To ensure the safety of guests at all times all rooms are equipped with in-room fire detectors and first aid training programmes are given to all associates, ensuring they are well equipped to deal with any emergencies with professional promptness.

d. AVANI Bentota Resort & SpaAll employees of the Hotel undergo regular medical check-ups are required to take tests that prevent contamination and spread of diseases. The Hotel strictly follows and maintains ISO 22000-2005 procedures on all internal processes for consistently world-class standards in all operational aspects of our daily activities. In addition, the Hotel rigorously upholds the conditions stipulated under the HACCP procedures. In a further demonstration of the unwavering commitment to world class health and safety standards, the Hotel submits its


suppliers to regular audits to ensure that the products purchased conform to required high standards.

Safeguarding against water contamination that could have far reaching health impacts, the Hotel conducts water sampling tests frequently and is subject to annual inspections by leading tour operators and local DMCs including Touristik and Hayes & Jarvis, which have indisputably established that our standards are compliant with international expectations.

Mitigating health and safety risksAs active and leading brands in the travel and tourism sector, the Serendib Group and its properties are unavoidably exposed to volatile health and safety risks through emergent local and global conditions. Therefore, the Group takes this threat very seriously and has implemented a range of responses to mitigate or eliminate such potential risks. As part of the strategy to address health related threats, all four properties provide health insurance cover for all employees, while guests are covered by public liability in terms of health and safety. In addition, each property has systems to address potential health and safety risks as described below.

a. Hotel SigiriyaRisks pertaining to health and safety are continually addressed by Hotel Sigiriya through a range of initiatives and the Hotel is currently pending GMP certification to further consolidate its status. The Hotel continuously maintains records of all cold rooms temperature and food temperatures of served food items, paying close attention to proper packaging and storing of food, aligned with specified hygiene standards. Our environmental certification is renewed each year in line with stipulated guidelines. The effectiveness of the ongoing systems is evidenced by the unbroken track record of the Hotel having no safety issues from inception.

b. Club Hotel DolphinAs an integral aspect of risk mitigation, all employees have been included in the process of maintaining required ground level standards through regular awareness and discussion opportunities. During monthly staff communication meetings, fifteen minutes is allocated for health and safety, which enhances overall employee awareness regarding expected levels of safety and increases employee involvement in monitoring aspects. These efforts are supplemented by daily and monthly health and safety checklists and audits conducted by various Heads of Departments, which includes a Monthly Internal Food Safety Checklist, a Suppliers Audit Checklist, a Water Sports safety Checklist and daily temperature monitoring log sheet. It is mandatory that every food handler undergoes a health check-up twice a year to safeguard against infections and food contamination.

c. AVANI Kalutara ResortAll Hotel staff at AVANI Kalutara are incessantly reminded of the expected standards within the Hotel and Hotel facilities, communicated through posters throughout the property on health and safety standards that need to be followed. As part of visual cues for a safer environment, the Hotel has established a colour code system signage in potential risk areas.

d. AVANI Bentota Resort & Spa Special attention is paid to our guests who use the beach with the deployment of trained security personnel and pool attendants, who safeguard them and are quick to assist in times of danger or emergency. Life guard services in case of accidents in the water. As part of the risk mitigation process we build a good rapport with beach operators around the area and they too assist us in this exercise. In addition, we continually monitor identified critical controls in Hotel operation and maintain records of all cold

room temperatures to ensure high quality standards are observed at all times.

Customer engagement Within the Serendib Group we recognise that as a hospitality services provider within an increasingly competitive operating environment, our customers hold primacy over all decisions. Hence, every effort is made to ensure customer satisfaction, where the bar is constantly raised on excellence levels. This core philosophy is permeated across all management and staff to create an environment and mindset that is customer centric and flexible in meeting diverse customer needs for an unparalleled leisure experience.

A key aspect of our customer centric service model is the systems and processes implemented to encourage and enhance customer engagement points, measuring and understanding customer reactions and by collating vital customer feedback, we are able to redirect these findings to enhance our service levels. As part of this process, the Serendib Group has set up a software system to implement Guest Satisfaction Surveys (GSS) across all four hotels. The surveys are operationalised via a post-stay email to solicit satisfaction of their experience, emailed to guests after the third day of departure. We have also provided GSS in all rooms making it possible for customers to provide feedback and opinions at their convenience. The information collected is then analysed, reviewed and corrective action if any, taken if required.

Online review sites including Tripadvisor are also monitored on a regular basis and management cocktails held weekly, providing an opportunity for the Hotel’s management team to interact with guests during their stay and prompt initiatives that would enhance guest experiences.



Managing the Environmental ImpactThe Serendib Group has conventionally been environmentally conscious as we believe our natural resources are a key national strength to drive tourism industry competitiveness. The country’s divers environmental resource base, be it sun and sand or endemic flora and fauna, makes Sri Lanka one of the most versatile travel destinations on the planet. Only by preserving these natural treasures can we build a sustainable tourism industry that will continue to benefit future generations. Therefore, our management philosophy integrates concepts of environmental conservation with the wider objective of safeguarding the future of the entire nation, not only focusing on short term business gains. At company level, we have permeated a conservation mind set through policies and practices that result in our properties adopting energy efficient practices, water conservation, waste management and preservation of natural eco-systems in their respective locations.

Hotel SigiriyaUnbridled energy consumption leads to erosion of precious fossil fuels while also contaminating the atmosphere with greenhouse gases. This undeniably is hastening climate change across the globe, giving rise to universal urgency in cutting down on fossil fuel consumption. With its culturally and environmentally significant location, Hotel Sigiriya is highly conscious of its obligations towards the environment, both in terms of reducing consumption of precious natural resources including water and fossil fuels and also in mitigating negative environmental impacts through the generation of waste products and contamination of the environment. Investing in a number of energy conservation, for example the installation of solar water heating panels that operate using sunlight, has resulted in lower consumption of fossil fuel based electricity. Another is the adoption of the Card Key Switching system for room air conditioning, which reduces the use of

electricity in guest rooms. We also have a schedule for switching on lights and have changed CFL lighting to LED bulbs, all of which have collectively reduced electricity consumption. Overall, the Hotel has invested Rs 443,197 in the introduction of energy efficient systems. Direct energy consumption was seen at 640,939kwh for last year, compared to 639,476kwh this year, with an overall energy saving of 1463kwh as a direct result of conservation initiatives practiced by the hotel.

The hotel attempts to reduce water usage setting up a self-contained biological sewerage plant, using discharge water for garden irrigation, installing water-saving cisterns and providing guests with the option to re-use room linen. The Hotel’s water withdrawal reading came to 30,496,000lts in the current year from 14,236,000lts last year, while the volume of recycled water that was reused, increased from 33,350 m³ to 300,006m³ in the current year.

With large volumes of daily waste generated through operational activities, it is imperative that precautions are taken to prevent environmental pollution through liquid and solid waste disposal. The hotel generated 64,051 Kgs of waste last year which was reduced to 57,454 Kgs in the current year through astute waste management processes. Liquid waste amounted to a reduced 300,006m³ this year from 33,3500m³.

The Hotel minimised solid waste, air pollution and other chemical pollution by grading garbage and cascading the 3Rs of re-cycling, reusing and reducing. Our system for compositing garden refuse including vermi-composting, making a special effort to reduce use of plastic and investing eco-friendly chemicals for use has also further mitigated adverse environmental impacts.

Club Hotel Dolphin Club Hotel Dolphin continued its energy conservation efforts from the previous financial year, recording a reduction in direct energy consumption from 2,837,122kwh last year, to 2,264,161kwh this year. The energy saving of 572,961kwh was due to changing lighting to more energy saving bulbs and energy efficient chiller operations and air conditioning systems. The total investment on energy use reduction activities was Rs. 171,827.15 during the current year. The focus on managing water usage continued with the monitoring of water withdrawals which increased from 76,522,000lts last year to 100,496,00lts this year. However, water recycled and reused increased from 87,235 m3 last year to 99,152 m3 this year with improved efforts at conserving this precious resource.

A majority of the waste generated by the Hotel is recycled with 162.609 MTs of waste recycled this year from 136.922MTs


last year. The Hotel practices ongoing waste management and segregation within the premises to mitigate environmental impacts. For greater positive outcomes, the Hotel encourages surrounding communities to also practice waste management and segregation techniques by distributing dry garbage bins among the community.

AVANI Kalutara ResortMaintaining the pristine eco-system in the picturesque estuary where the Kalu Ganga meets the ocean, is a feature that AVANI Kalutara Resort considers a duty as a responsible corporate citizen. The Hotel invests in diverse mechanisms to reduce energy and water consumption, in recycling and preventing pollution through effluents. During the year, the Hotel increased its Investment to introduce energy efficient systems from Rs 7500 last year to Rs 17680. As a result of more effective electricity management, the direct energy consumption declined from 1,948,391kwh last year to 1,972,851kwh this year, increasing the energy saving from 719.28kwh to 1065.5kwh. The total water withdrawal for last year was 32,785,000 and current year is 39,797,000 lts and waste generated increased from 6.5 MTs to 70.3 MTs with liquid waste rising from 567 lts to 1860 lts this year.

AVANI Bentota Resort & Spa A conservation consciousness is imbibed across the entire team, by encouraging

them to minimise energy usage and by implementing a range of energy saving methods to reduce consumption. In addition, energy saving committees are activated and regular meetings are conducted to identify potential areas that require attention and to develop solutions that are environmentally more friendly. During the year, the Hotel increased its investment on introducing energy efficient systems from Rs 180,630 last year to Rs 126,748 which resulted in a reduction in the direct energy consumption last year 1,509,361kwh to current year 1,318,332 kwh. Total energy saved due to conservation increased from 4690.4kwh to 6988kwh demonstrating the success of the initiatives for reducing electricity usage. Total water withdrawal increased from 40,644,000lts to 42,010,000lts during the current year. We also segregate the Hotel’s waste before disposal to minimize environmental pollution and sell all reusable/recyclable material as a means of reducing challenges arising from overflowing landfills As part of its waste management system, the Hotel also collects fused CFL bulbs for recycling. During the year, total waste generated reduced from 4.07 MTs to 3.33 MTs as a result of focused reducing, reusing and recycling activities.

Corporate Social Responsibility The Serendib Group business philosophy strongly advocates community welfare and engagement as a sustainability pillar that contributes towards welfare

of all stakeholders; through a better leisure experience for guests, a sense of contributing to society for employees and through direct benefits for communities. Therefore, the Group’s hotels conduct expansive CSR activities every year with the support of local communities and active engagement of our team.

Pintaliya project This year a special Group-wide project was implemented to donate water, of more than 5,000 litres, to people effected by the drought that afflicted the country during October 2016. Recognising the vital life giving qualities of potable water, our hotels distributed drinking water in the regions of Sigiriya, Hambantota and Bentota.

Individually, each of our hotels engaged in constructive CSR projects, some of which are described below.

Hotel SigiriyaCrystallising the Serendib Group’s standpoint on regular and positive community engagement, Hotel Sigiriya conducted a number of community welfare projects within its locale.

• Maintenance of the Diyakepilla school

The Hotel upgraded and carried out regular maintenance of the Diyakepilla school, which is located in a nearby village home to about 54 families. This intervention has made the school more attractive for the children of the community and encourages regular school attendance, which has far reaching consequences in terms of creating an educated generation. The Hotel also cultivates a herb garden within the Diyakepilla school for both educational purposes and practical agricultural use.

• Support for Sigiriya hospital

The Hotel contributes towards the upkeep of two wards at the Sigiriya hospital for the benefit of the residents of Sigiriya and adjacent areas



by supporting continued availability of medical facilities.

• Construction of the Diyakepilla Temple

A temple is a central public and spiritual symbol in the country and contributes towards the creation of an ethical and compassionate community through the imparting of correct guidance and religious ideology. Taking this into focus, the Hotel supported the construction of the Diyakepilla temple, prompting the villagers to reach out to the temple for guidance and solace with greater alacrity.

• Shramadhana Campaigns

The Hotel conducts annual “Shramadhana Campaigns” to clean the surroundings of the Sigiriya Rock Fortress, contributing directly towards

the preservation of this invaluable heritage location for the benefit of future generations.

Club Hotel DolphinClub Hotel Dolphin contributes to the wider welfare of its surrounding communities via a number of targeted interventions that uplifts growth opportunities and health and safety features of the location as well.

• English and computer classes

The Hotel continued conducting monthly English and computer classes at the Kammala South Community Centre, an initiative that is greatly valued by the community due to the opportunities for better employment for young people.

• Vaccination and sterilisation

Recognising the public health hazard posed by stray cats and dogs, quarterly vaccination and sterilisation programmes have been conducted, thus improving public safety in the neighbourhood.

• Volleyball tournament for youth

Sports prove to be an unmatched opportunity to build communities, teamwork, camaraderie and uncover talented young people by showcasing their skills. This year too, the Hotel sponsored the annual village volleyball tournament giving young people the opportunity to use sports as the conduit for self empowerment, highlight leadership skills and teamwork and enable better-knit communities.

• Protecting children from sexual exploitation

Being in the travel and tourism industry, the Hotel recognizes the potential danger that can arise in terms of sexual exploitation of young children. Taking the initiative towards preventive action, a series of awareness programmes on educating the public about protecting children from sexual exploitation was conducted.

AVANI Kalutara Resort Upholding its commitment towards a sustainable operation that incorporates environmental concerns in practice, AVANI Kalutara Resort continued to perform its quarterly beach clean-up campaign, with the support of its employees and beach operators.

AVANI Bentota Resort & SpaAVANI Bentota continued its engagement with the environment and surrounding community through localised clean up initiatives, prompting better health and safety in the locality.


• Beach Cleaning

Volunteers from among our team conducted a beach cleaning campaign with the support of various other institutions to minimise the environmental pollution caused by plastic and polythene.

• Bentota Railway station

The Hotel continued to invest in maintaining the Bentota Railway Station to ensure that the public who

regularly use the station to commute are able to go about their daily activities in a clean and presentable environment.

Human Capital DevelopmentOur team, both front and back-end service providers, are the key guardians of the unblemished reputations of our hotels, ensuring regular repeat custom and consistent positive guest satisfaction reviews. As a service based organisation our human capital is central to the

successful operation of our properties and we expect them to convey our brand promise to our guests. As our hotel brands represent world class hospitality, it become the responsibility of our team members to ensure that our guests experience this hospitality first hand, making it a peerless and faultless leisure encounter from the moment of arrival throughout their stay and up to their departure.

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, deployed at every property in the Serendib Leisure Group. This is our recipe for moulding our workforce to overcome the day to-day challenges encountered in the hospitality industry and compete in an intensely challenging environment, while constantly raising the bar. It also the underlying premise used to identify our human capital development strategies required to give us a competitive advantage.

The Serendib Group’s total workforce during the year under review stood at 768 from 813 last year, consisting of 699 males and 69 females, each of who is highly trained to provide quality and professional services to our guests, ensuing that our brand promise, image and reputation is maintained in high esteem.

Our philosophy:Our human resource philosophy is to hire and retain talented people who embody the Serendib Leisure core values and reflect our persona as a responsible hospitality company. Accordingly, we will create a compelling work culture that helps us become an employer of choice and allows us to grow in a positive and sustainable manner. To help us accomplish our leadership goals, we specifically focus on the following areas:



Serendib Group Hotels’ Employee profile 2016-17

Total employees 2016-17

Total employees 2015-16

New recruitments 2016-17

AVANI Bentota 186 180 47AVANI Kalutara 169 196 15Hotel Sigiriya 129 117 46Club Hotel Dolphin 284 288 77Total 768 781 185

% of males2016-17

% of females2016-17

% Below 30 years

% Between 30-50 years

AVANI Bentota 88% 12% 29% 58%AVANI Kalutara 92% 8% 34% 56%Hotel Sigiriya 90% 10% 47% 46%Club Hotel Dolphin 94% 6% 39% 57%Total

Recruitment and RetentionAn important aspect of our human resource management framework is to be an equal opportunity employer that does not discriminate against any status protected by law. This is strictly applied both in the case of new recruits as well in consideration of internal promotions. We adhere to all diktats contained in the ILO and Sri Lankan labour regulations while also practicing a stringent policy of non-discrimination on the basis of gender orientation, culture, religion, age and status. We also eschew any form of child or forced labour.

We believe employee motivation is enhanced through the provision of career development opportunities within the Group. Therefore, we encourage our employees to develop themselves and to climb the corporate ladder to managerial positions. Our aim is to cultivate 80% of our management team from within the Group and in doing so, all employees are subject to an annual performance evaluation to assess their readiness to take on bigger responsibilities. Entirely based

on meritocracy, 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. During the current year 38 internal promotions were effected across the Group, enabling employees too further their career aspirations and goals, purely based on individual performance.

We are constantly on a quest for new talent and new skills and as an inclusive employer we encourage diversity. To encourage a healthy flow of new and 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 recruitments will be hired purely on their ability to perform the tasks assigned to them in accordance with the Serendib Leisure employee code of conduct.

Employment generation through business activities is a key objective of the company and we encourage applicants from the localities of our properties, as this also enhances the level of work convenience for employees and supports a better work-life balance. As part of the Group’s strategic social development initiatives, 61% of the workforce at each property is hired from the local area. We believe in providing meaningful employment opportunities for the country’s youth, giving them growth and personal development opportunities to support quality of life improvements for young people and their families. As at end of the current financial year, 37% of total Group employees were below the age of 30, infusing a youthful energy and dynamism into the fabric of our hotels.

Employee retention is given high priority to ensure consistent quality of services by preventing work interruptions. While employee mobility is typically high in the travel and tourism industry, through our employee focused human resource policy that provides growth opportunities and many employee benefits, our properties


have been successful in minimizing employee turnover. During the current financial year, the Group experienced an average attrition rate of 22.3% indicating greater employee loyalty and employee satisfaction levels.

Remuneration and benefitsAttracting the appropriate skills and personalities, while retaining the human capital base at its optimum, requires attractive remuneration and welfare packages in the current highly competitive tourism industry labour market. The Serendib Group’s remuneration packages have been benchmarked against industry standards to be extremely competitive and have been successful in helping the Group build a truly impressive skill base that remains benchmarked in the industry. We have also implemented a systematic performance-based incentive scheme for executive and associate employee categories. In addition, all employees are given on-location accommodation facilities for their convenience.

Health and Safety of EmployeesAll Serendib Group properties adhere to international industry best practices in relation to occupational health and safety. All properties have adopted fire safety standards which require them 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 staff are trained on fire prevention and evacuation procedures which are subject to periodic review, to ensure fast response times and effectiveness of systems in place.

Continuous skill upgrades and injection of new skills at Serendib Group hotels, aligned to global hospitality industry trends, is essential to maintain the

globally recognised brand image we have imbued into our hotels. Therefore, our aim is to inculcate a vibrant learning and development culture, where learning is viewed as more of an experiential growth process meeting career aspirations, rather than as a part of enforced protocol.

During the current year, the Group invested a total of Rs 13,519,363 into 18,578 training hours on employee training. Hotel Sigiriya invested Rs 1,230,165 on 2,236 training hours, Club Hotel Dolphin allocated Rs 7,744,207 into 6,800 hours on skill development, AVANI Bentota provided Rs 1,893,358 for 5,213 hours, while Rs 2,651,663 on 4,310 hours of training was invested at AVANI Kalutara, clearly demonstrating the commitment of the Serendib Group towards building its human capital base.

As such, all learning activities ultimately focus on improving the guest experience. Ongoing investments into a multi-layered training agenda has ensured the creation of a dynamic learning culture at all our properties. Moreover, it has helped instil our inimitable value culture as part of the common work ethic.

However, 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 experiences, as well as providing employees with a bankable long term skill.

• German Food Training: All chefs working in Serendib Group hotels were exposed to the arts and sciences of creating German

Learning and Development

OUR TRAINING KPI'S

Hotel SigiriyaInvestment on training: Rs. 1,230,165/-

Training Hours: 2,236

Hotel Club DolphinInvestment on training: Rs. 7,744,207/-


AVANI BentotaInvestment on training: Rs. 1,893,358/-


AVANI KalutaraInvestment on training: Rs. 2,651,663/-




gastronomic delights to satisfy our large German clientele and guests of other nationalities at an in-house training programme conducted by experienced chefs.

• Menu Engineering & Food Costing: Designing F&B Menus to reflect eclectic tastes and sophisticated gourmet experiences is becoming increasingly important, as casual and formal dining options keep looming across the country, targeting tourist arrivals. For readiness of this phenomenon, we conducted a training programme on menu engineering and food costing aimed at aspiring F&B Managers and chefs with a view to driving value through our F&B chain to provide an unparalleled culinary experience to our guests.

• Bakery & Pastry Demonstration: A training programme for all bakery and pastry chefs was conducted to refocus and introduce emerging trends in desserts, cookies, sweets and toffees, croissants and Danish breads.

• Toress Wine Training and Champagne & Cognac Training: F&B staff were educated on Champagne & Cognac to enhance their skills in meeting customer requirements and to increase their knowledge when recommending the appropriate beverage for the cuisine being served.

• Best Cuppa Tea Brewing Training: The Sri Lanka Tea Board held a demonstration on brewing the ideal cup of tea, while maximising flavour.

• Microsoft Excel-Intermediate Level: A basic-level course was conducted covering all the fundamentals of MS Excel for staff who had little or no knowledge of MS Excel.

• Customer Service and Upselling: A programme was conducted for Front office, Restaurant and Pool staff to help them enhance their customer service skills, upselling skills and good

speaking skills in English to facilitate improved guest experiences at our hotels.

• Lifeguard Training: All pool attendants were provided training on life saving by the Lifeguards Association of Sri Lanka which has strengthened the safety systems at our hotels.

• 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. All properties under the group remain aligned to the internationally accredited best practices set out under the HACCP food safety management guidelines with team members trained rigorously on maintaining standards.

The safety of our guests at all times in all our properties is an uncompromised priority of the Serendib Group that receives continuous attention throughout the year. This year, to ensure the general safety of on-location equipment, we conducted regular training to educate staff on the following:

• First aid, evacuation, fire fighting, causes and transmission of legionella that causes Legionnaires' disease and food hygiene

• Swimming pool safety and general hotel safety

• Gas safety, beach & water sports safety and children’s safety

• Accidents, incidents, illness and transport safety

Employee EngagementEffective engagement with employees is essential for the smooth functioning of our properties, not only through clear transmission of instructions, but also by opening up channels of vertical and horizontal communications between employees and management for greater understanding and cooperation.

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 realise that our employees, our Hotel ambassadors, function as an instantaneous feedback mechanism for guests. Hence, we have always encouraged greater employee engagement by opening 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 an incubator for new ideas that can be used for the betterment of business.

Service ExcellenceService 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.

Moving Onwards in SustainabilityRepresenting leading tourism brands of world repute, the Serendib Group is known for ground breaking initiatives that uplift industry standards and enhance guest experiences for infinitely memorable vacations. Aligned with our philosophy of innovative thinking and continuous improvement in our quest for excellence, we will continue to invest in initiatives that align with our focus on the 3Ps of People, Planet, Profit, ensuring that our engagement with each of our stakeholder segments is fundamental to our progress.


Hotel Senior Management

Standing left to right:Indika De Silva - Maintenance Engineer,Hasantha Sooriyaarachchi - Human Resources ManagerJanaka Shanthapriya - Executive HousekeeperMahesh Rajapaksha - Food and Beverage

Manager.

Seated left to right:Kumara Adikari - Rooms Division Manager Roshan Fernando - General ManagerSarath Samarasinghe - Financial Controller

Standing left to right:Lalith Rodrigo - Chief Engineer, Sujith Fernando - Executive Housekeeper, Damien Algan - Director of Finance, Rajitha Bandara - Executive Sous Chef, Andrew Bartholomeusz - Training Manager

Seated left to right:Manoj Malwenna - Manager Information Technology, Tuan Faizan - Manager Food and Beverage, Kalum Disnaka - Director of Human Resources, Jude Silva - Hotel Manager, Reza Sinnen - Director of Food and Beverage, Jayantha P. Gunawardena - Front Office Manager , Prabhash Prabhakaran - Executive Chef


left to right:

Nilantha Sirisena - Ayurvedic Doctor, Thilanka Chandimal - Food and Beverage Manager,Milinda Meegoda - Assistant Front Office Manager, Nishantha Ekanayaka - Pastry Chef, Suresh Athukorala - General Manager, Manoj Alwis - Resident Manager, Bernard Jayasuriya - Executive Chef, Ananda Karunarathne - Maintenance Engineer, Sajith Pathirana - Finance Executive

left to right:Tony Perera - Food and Beverage Manager, Chandika Jayakody - Manager Health and Safety, Suranga Wewegedara - Human Resources Manager, Dhammika Gunasekera - Financial Controller, Stephan Sandmann - General Manager, Manoj Perera - Resident Manager, Jude Fernando - Executive Soue Chef, Jagath Ranmandala - Chief Engineer, Sugath Wijesinghe - Executive Housekeeper, Sumith Kumara - Front Office Manager


IntroductionCorporate 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.

The Company’s Philosophy on Corporate GovernanceSerendib Hotels PLC is fully aware and committed to implementing governance

Corporate 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, engagement 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.

SECTION 1: THE COMPANYA. DIRECTORSThe Board

Corporate Governance Principle

SEC & ICASL Code Reference

Level of Compliance

Board Meetings A 1.1 Five 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, key business risks and other matters. Adhoc meetings are also held when necessary.

Apart from taking decisions at meetings, the Board also takes decisions via Circular Resolutions. These resolutions are required to be 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.

• Promotion of 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 when necessary, at the expense of the Company.




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 for 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 eight occasions for the year under review.

Directors who were unable to attend Board Meetings review Board Papers and submit their observations on the discussion papers to the Chairman prior to the Board Meetings in order that their views may be discussed and recorded.

The Board has delegated some of its functions to its Sub-Committees. However the Board retains the right to make a final decision in respect of some of the selected matters coming under the purview of the Sub-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, (Managing Agent) through a formal Hotel 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 for new Directors is in place and includes the provision of key corporate documents, facilitation of visits to hotels, and meetings with the Managing Director and the Senior Management Team of the Company.

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

Chairman and Managing Director



Level of Compliance

Separation of the role of Chairman & Executive Director

A2 The role of the Chairman and Executive Director is distinct, ensuring the balance of power and authority within the organization.


Chairman’s Role



Level of Compliance

Role of Chairman in conducting meetings

A 3 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

A4 The Board comprises of several professional accountants who possess the necessary knowledge and competence to guide the Board on matters pertaining to finance.

Board Balance



Level of Compliance

Non-Executive Directors

A5.1 The Board comprises of 10 Directors, of whom nine Directors are Non-Executive Directors.

Independent Directors

A5.2

A5.3

Four out of the nine 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 A5.4 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

A5.5 The Board annually determines the independence of each Non- Executive Director based on the declarations submitted by them.

Therefore, the following Directors are considered Independent in terms of the Listing Rules.• Mr. M A G H I Jafferjee

• Dr. R N A Athukorala

• Mr. W A T M Wijesinghe

• Ms. S L Speldewinde

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

The Independent Directors have not appointed Alternate Directors.





Level of Compliance

Senior Independent Director

A5.7 & A5.8

The Board appointed Mr. M A G H I Jafferjee as a Senior Independent Director with effective from 24th May 2017.

Chairman’s meetings with NEDs

A5.9 The Chairman holds meetings with the Non-Executive Directors only, without the Executive Director being present, whenever necessary.

Recording of concerns in Board Minutes

A5.10 Concerns raised by the Directors on matters of the Company which cannot be unanimously resolved are recorded in the Board Minutes.

Supply of Information



Level of Compliance

Management’s obligation to provide appropriate and timely information

A6.1

A6.2

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 Meetings 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 faced by the Company and takes this into account when new Board appointments are considered.

Disclosure of required details of new Directors

A7.3 On appointment of a new Director, the Company communicates to the Colombo Stock Exchange a brief resumé of the Director which includes the nature of their experience in relevant functional areas, other Directorships, or Memberships in Board Sub-Committees and whether the Director is considered “Independent”.


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 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 before the Annual General Meeting vacates office at the Annual General Meeting held after he attains the age of 70 years. A Director so re-appointed will hold office until the next Annual General Meeting at which he will be re-appointed.

Appraisal of Board Performance



Level of Compliance

Appraisal of the Board and Sub-committees

A9 The Board undertakes an annual evaluation of its own performance and the performance of its committees in the discharge of its key responsibilities.



Disclosure of Information in Respect of Directors



Level of Compliance

Information in respect of Directors

A10.1 The biographical details of the Directors, nature of his expertise in relevant functional areas, membership in Board Sub-Committees, attendance at Board and Sub-Committee Meetings, other directorships and Director’s Interest in Contracts are disclosed under the relevant sections in the Annual Report.

The table below provides a record of the Directors’ individual attendance at Board and Sub-Committee Meetings:

Mr. E J D Rajakarier, CEO of Minor Hotel Group has not been able to attend any Board Meeting during the financial year. However, his observations on the discussion papers are sent to the Chairman prior to the Board Meetings in order that his views may be discussed and recorded. He has also had several discussions with the Chairman and Executive Director on matters of the Company which require Board guidance during his regular visits to Sri Lanka.

Name of Director Capacity No. of Board Meetings Attended

No. of Audit Committee Meetings Attended

No. of RPTRC Meetings Attended

Mr. A N Esufally Chairman/Non-Executive Director

6/8 4/4 4/4

Mr. D T R De Silva (Resigned with effect from 31st August 2016)

Managing Director 2/8 - 1/4

Mr. J C L De Mel (Retired with effect from 22nd July 2016)

Independent Director 1/8 - -

Mr. W M De F Arsakularatne Executive Director 8/8 - -

Prof. L D K B Gamage (Retired with effect from 26th March 2017)

Independent Director (Chairman of the Audit Committee)

7/8 4/4 4/4

Mr. E J D Rajakarier Non-Executive Director 0/8 - -

Mr. M A G H I Jafferjee Independent Director (Chairman of the Audit Committee and the RPTRC)

7/8 4/4 4/4

Dr. R N A Athukorala Independent Director 8/8 - -

Mr. S M Enderby Non-Executive Director 8/8 - -

Mr. W A T M Wijesinghe (Appointed with effect from 28th July 2016)


Ms. S L Speldewinde (Appointed with effect from 01st January 2017)


Mr. S A Chojnacki (Appointed with effect from 25th January 2017)

Non-Executive Director 0/8 - -

Mr. I A H Esufally (Appointed with effect from 28th March 2017)

Non-Executive Director 0/8 - -


Appraisal of the Managing Director



Level of Compliance

Setting of annual targets & appraisal of performance

A11.1

A.11.2

At the commencement of each financial year, the Board in consultation with the Executive Director, sets reasonable financial and non-financial targets to be met by the Executive Director, based on the short, medium and long term objectives of the Company.

The performance of the Executive Director is evaluated by the Board against pre-agreed performance targets.

B. DIRECTORS REMUNERATIONRemuneration Procedure



Level of Compliance

Establishment of a Remuneration Committee

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

Composition B1.2

B1.3

The Remuneration Committee of the Parent Company consists of three Non-Executive Directors majority of whom are independent.

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

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

Determination of remuneration

B1.4 In terms of the Articles of the Company, the Board determines the fees payable to the Independent Directors.

Consultation of the Chairman and access to professional advice

B1.5 The Committee consults the Chairman on proposals relating to the remuneration of the Executive Director and has access to professional advice in discharging their duties.

The Level and make up of Remuneration



Level of Compliance

Executive Directors’ Remuneration package

B2.1 The Committee structures remuneration packages to attract, retain and motivate the Executive Director.

Comparison of remuneration with other companies and group

B2.2B2.3

The Committee ensures that the remuneration of executives at each level of management is competitive and in line with their performance. Surveys are conducted, as and when necessary, to ensure that the remuneration is competitive with those of comparative companies.

It also takes into consideration data concerning executive pay among the Group Companies.





Level of Compliance

Performance related element of remuneration

B 2.4 Performance based incentives have been determined by the Remuneration Committee to ensure that the total earnings of the Executive Director is aligned with the achievement of objectives and budgets of the Group Companies.

Disclosure of Remuneration



Level of Compliance

Disclosures B3.1 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 aggregate remuneration paid to the Executive and Independent Directors are disclosed in Note. 32 of the Financial Statements.

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



Level of Compliance

Proxy votes C1.1 The Company counts all proxies lodged on each Resolution.

Separate resolutions C1.2 A separate Resolution is proposed for each separate agenda item at the Annual General Meeting and in particular a resolution relating to the adoption of the reports and accounts.

Availability of Board Sub-committee Chairpersons

C1.3 The Chairpersons of the Board Sub-Committees are present at the Annual General Meeting to answer any questions raised by the Shareholders if so requested by the Chairman.

Adequate notice of AGM

C1.4 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

C1.5 The procedure for voting at the General Meeting is circulated along with the Notice of Meeting.


Communication with Shareholders



Level of Compliance

Policy and methodology for communication with Shareholders

C2 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. Announcement is 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 the Annual Report.

Major Transactions



Level of Compliance

Disclosure on major transactions

C3 The Directors ensure that any corporate transaction that would materially affect the net asset base of the Company or the Group is communicated to the Shareholders.

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

D. ACCOUNTABILITY AND AUDITFinancial Reporting



Level of Compliance

Board’s responsibility for statutory and regulatory reporting

D 1.1 The Board is accountable for presenting the Consolidated Financial Statements of the Company and its subsidiaries, reports to regulators as well as information required to be presented by statute.

Declarations by Directors.

D1.2 The Declarations to be made by the Directors are included in the Annual Report of the Board of Directors on pages 58 to 61 of the Annual Report.

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 68 while the Independent Auditor’s Statement on page 69 sets out the Auditors’ responsibilities.

Management Discussion Analysis

D1.4 Management Discussion and Analysis is given on page 20 of this Report.

Declaration on Going Concern of business

D1.5 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 D1.6 The Directors ensure that in the event the net assets of the Company fall below 50% of the value of the Company’s Shareholder funds, an Extraordinary General Meeting will be called to notify the Shareholders of the position and the remedial action being taken.

Related Party Transactions

D1.7 The transactions entered into by the Company with related parties are disclosed in Note 31 to the Financial Statements.



Internal Control



Level of Compliance

Annual review of the system of internal controls

D2 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.

Strategies adopted by the Company to manage its risks are set out in its Report on Risk Management on pages 55 to 57.

Audit Committee



Level of Compliance

Composition D.3.1 In terms of the Listing Rules, the Audit Committee comprises 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 a written Terms of Reference dealing clearly with its authorities and duties.

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

A report of the Audit Committee setting out the manner of compliance by the Company during the period under review is set out on page 64 of the Annual Report.

Code of Business conduct and ethics



Level of Compliance

Disclosure of Code of Business Conduct and Ethics

D4.1

D4.2

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.

The Chairman in his review on page 8 of the Annual Report has affirmed that he is not aware of any violation of any of the provisions of the Code.


Corporate Governance Disclosures



Level of Compliance

Corporate Governance Report

D5.1 The manner and extent to which the company complies with the principles and practices of good governance is set out below.

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

Board of Directors

CSE Rule No. Applicable Rule Requirement Status of compliance

7.10.1. Non-Executive Directors One third of the total number of Directors to be Non-Executive Directors.

Complied

7.10.2 (a) Independent Directors One third of the Non-Executive Directors to be Independent.

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 to Directors' Independence

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

Complied

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

Complied

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

Complied

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 of Non-Executive Directors, a majority of whom 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 theAnnual 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


SECTION 2: SHAREHOLDERSE: INSTITUTIONAL INVESTORSShareholder voting



Level of Compliance

Communication with shareholders

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

Evaluation of Governance disclosures

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

F: OTHER INVESTORS Investing /Divesting decision



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 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

G1 The Sustainability Report on Page 29 details the sustainability practices of the Company.



Risk Management

Serendib Hotel 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:

• Implement an effective and integrated risk management system while maintaining business flexibility.

• Identify and assess material risks associated with our business, monitor, manage and mitigate risks.

Internal Control and Risk ManagementThe Company reviews and assesses 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 parent of Serendib Hotels 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 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.

Source : ISO 31000 Risk Management Framework.

ESTABLISH THE CONTEXT - Analyse business environment and set objectives

IDENTIFY THE RISKS - Deviation from achieved expected results

ANALYSE THE RISKS - Analyse the likelihood and impact

EVALUATE THE RISKS - Prioritise the issue

TREAT THE RISKS - Implement a suitable risk treatment plan

MO

NIT

OR

& RE

VIEW

COM

MU

NIC

ATI

ON

AN

D C

ON

SULT

ATI

ON


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

Risk Risk exposure Mitigating actions

Market Adverse impact on yields and occupancies Fluctuation In demand

• Closely monitor the socio-economic environment of the traditional markets and targeting new emerging markets

• Analyse resources and capabilities to identify core competencies and differentiate through brand and service levels

• Sourcing new markets and developing new channels

• Participate in trade fairs both local and foreign in order to promote the properties and to attract new tour operators.

• Using the corporate website to improve revenue through direct bookings and marketing the hotel by partnering with popular online travel agents to push web based sales

• Use of Information Technology for effective revenue management

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.

• Establish career development programs and succession plans in order to retain and motivate the talent pool of the company

• Provide focused and structured training for staff at all levels to aid personal and professional development

• Develop a strong employer brand to attract staff of the right quality

Foreign Exchange Rate Risk

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

• Exchange rate movements are taken into consideration when entering into contracts with travel agents

• Structure Forex borrowings in proportion to the revenue currency mix

• Hedge in Forward Rate Agreements (FRAs)

Interest Rate Risk Rising interest rates will increase borrowing cost

• Borrowings in foreign currency to enjoy lower rates compared to locally sourced borrowings

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

• Credit is allowed only to approved customers which is reviewed annually

• Monitor and review the debtor balances monthly.

• Obtain booking advances.

• Compliance to laid down credit SOPs on credit control.

Risk Management


Risk Risk exposure Mitigating actions

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

• Compliance with existing regulations and statutes.

• Actively participate in industry associations to lobby for policy changes to grow and develop the tourism industry.

• Maintain good relationships with State agencies and ministries.

Fire and Natural Disaster

Fire or natural disaster can halt or cease operations

• Insurance is taken to cover all aspects of fire and natural disaster

• Fire safety drills and training is provided to the staff at the Hotel.

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.

• Insurance taken to cover both employee and guest injuries. Further, regular maintenance of the property and equipments is done to ensure all operating equipment are of good operating condition

• The hotel takes all precautions from sourcing the supplier to storage and preparation of food to ensure contamination is avoided

• Tour operator safety standards are complied with and necessary action is taken immediately on any concern area related to health and safety based on audit inspections done by tour operators

• The company sources its products and services from approved suppliers

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

• Proper adherence to the statutory, health & safety concerns by obtaining appropriate quality certification standards including HACCP and environmental regulations

• Continuous review of guest comments in order to exceed customer expectations and ensure quality standards are adhered and improved upon

• Reputation management software (Review-pro) is used to monitor, report and respond to the on-line reviews in the public domain/ review sites (eg. Trip advisor, HolidayCheck, etc)

• Maintenance of highest ethical standards at all times in all business activities

• Conducting meaningful CSR initiatives in the locale of the hotel

In conclusion, Serendib Hotel 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.


The Board of Directors of Serendib Hotels PLC takes pleasure in presenting their Report together with the Audited Financial Statements of the Company and Consolidated Financial Statements of the Group for the year ended 31st March 2017.

Principal Activity of the Company & GroupThe Principal activity of the Company and its subsidiaries which is hoteliering remained unchanged during the year under review.

The Company owns and operates AVANI Bentota Resort & Spa at Bentota. (Formerly known as “Serendib Hotel”)

Subsidiaries & AssociatesSerendib Hotels PLC is the major shareholder of Hotel Sigiriya PLC, which owns Hotel Sigiriya in Sigiriya and Dolphin Hotels PLC, which owns the Club Hotel Dolphin in Waikkal. It also has a 6.48% stake in Jada Resort & Spa (Pvt) Ltd, which owns AVANI Kalutara Resort in Kalutara.

The Company’s fully owned subsidiary Serendib Leisure Management Limited manages the above properties.

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 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 the code of Best Practice 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 pages 42 to 54 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. of Hemas Holdings PLC. 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 55.

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 and Group as at 31st March 2017 duly signed by the Directors are given from pages 70 to 126 while the Auditor’s Report on the Financial Statements is provided on page 69.

Accounting PoliciesThe Financial Statements for the period ended 31st March 2017 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 pages 76 to 88.

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

Group Company

2017Rs.

2016Rs.

2017Rs.

2016Rs.

Revenue 1,771,321,122 1,768,248,795 528,883,276 507,385,131Gross Profit 1,281,274,931 1.310.767.675 396,745,409 390,932,481Profit Before Tax 172,823,733 363,810,769 66,860,443 162,749,643Income Tax expenses (44,739,432) (62,447,848) (9,049,266) (15,293,818)Profit/(loss) After Tax 128,084,301 301,362,921 57,811,177 147,455,825

Attributable to :-Equity holders of the Parent 67,513,635 203,058,798 - -Non-Controlling Interest 60,570,665 98,304,123 - -

Annual Report of the Board of Directors


Dividends The Directors have not recommended a payment of a dividend for the year under review.

Property Plant & Equipment The capital expenditure incurred by the Group and Company during the year amounted to Rs. 191,129,838/- (2016 – Rs. 92,890,151/-) and 45,978,595/- (2016 – Rs. 9,825,712/-) respectively.

Details of Property, Plant & Equipment and their movement during the financial year are disclosed under Note 10 to the Financial Statements.

Details of Land and Buildings held by the Company are given below;-

Location Extent

Tourist Resort, Bentota

3 Acres 1 Rood 3 Perches

(Leasehold land) Stated CapitalThe Stated Capital of the Company as at 31st March 2017 amounted to Rs. 913,121,694/- (2016- Rs. 913,121,694/-) divided into 75,514,738 (2016- 75,514,738) ordinary voting and 36,011,056 (2016- 36,011,056) ordinary non-voting shares.

Events Occurring After the Reporting periodNo circumstances have arisen since the Balance Sheet date that would require adjustment to or disclosure in the Accounts other than those disclosed in Note. 29 to the Financial Statements.

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 and its subsidiaries, all contributions, levies and taxes payable on behalf of and in respect of the employees of the Company and its subsidiaries 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 has complied with the applicable laws and regulations including the Listing Rules of the Colombo Stock Exchange.

Details of Material Issues pertaining to Employees & Industrial Relations of the EntityDuring the year under review there were no material issues pertaining to Employees & Industrial Relations other than those disclosed in Note 28 to the Financial Statements found on page 117.

Employment The number of employees of the Company as at the date of the Statement of Financial Position were 186.

The Group adopts a non-discriminatory policy in recruitment and employment which gives full and fair consideration to persons in selection, training, development and promotions, 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 while 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 29 to 39.

Corporate DonationsDonations made by the Group and Company during the year under review amounted to Rs. 272,436/- (2016 – Rs. 93,000/-) and Rs. 51,092/- (2016 – Nil) respectively.

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

Mr. A N Esufally Chairman

Mr. W M De F Arsakularatne Executive Director

Mr. M A G H I Jafferjee Independent Director

Mr. E J D Rajakarier Non- Executive Director

Dr. R N A Athukorala Independent Director

Mr. S M Enderby Non- Executive Director

Mr. W A T M Wijesinghe Independent Director Appointed with effect from 28th July 2016

Ms. S L Speldewinde Independent Director Appointed with effect from 01st January 2017

Mr. S A Chojnacki Non- Executive Director Appointed with effect from 25th January 2017

Mr. I A H Esufally Non- Executive Director Appointed with effect from 28th March 2017

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

Deshamanya J C L De Mel Independent Director Retired with effect from 22nd July 2016

Mr. D T R De Silva Managing Director Resigned with effect from 31st August 2016

Prof. L D K B Gamage Independent Director Retired with effect from 26th March 2017

Deshamanya J C L De Mel was an Independent Non-Executive Director of the Board and having not offered himself for re-appointment under Section 210 of the Companies Act No 7 of 2007 retired from the Board as at the conclusion of the 48th Annual General Meeting of the Company held on 22nd July 2016.


Prof. Gamage was an Independent Non-Executive Director of the Board and he also served as the Chairman of the Audit Committee of the Company. Upon completion of 9 consecutive years of service on the Board, Prof. Gamage retired on 26th March 2017.

The Board wish to place on record their appreciation to Deshamanya J C L De Mel, Mr. D T R De Silva and Prof. L D K B Gamage for the contributions made during their tenure as Directors of the Company.

Messrs M A G H I Jafferjee and E J D Rajakarier retire by rotation in terms of Article 85 of the Articles of Association of the Company and being eligible offer themselves for re-election, with the unanimous support of the Board.

Messrs W A T M Wijesinghe, S L Speldewinde, S A Chojnacki and I A H Esufally appointed during the period under review retire in terms of Article 73 of the Articles of Association of the Company and being eligible offer themselves for re-appointment, with the unanimous support of the Board.

Mr. W M De F Arsakularatne was made the Executive Director of the Company with effect from 1st April 2016.

The Board appointed Mr. M A G H I Jafferjee as a Senior Director with effect from 24th May 2017.

Board Sub-CommitteesThe following Members served on the Audit, Remuneration and Related Party Transaction Review Committees of the Board:-

Audit CommitteeProf. L D K B Gamage Chairman/ Independent Non-Executive Director Retired with effect from 26th March 2017

Mr. M A G H I Jafferjee Independent Non-Executive Director appointed as the Chairman of the Committee with effect from 28th April 2017

Mr. A N Esufally Non- Executive Director

Dr. R N A Athukorala Independent Non-Executive Director appointed to the Committee with effect from 28th April 2017

Remuneration CommitteeThe 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:-

Dr. S A B Ekanayake - Independent Non-Executive Director (Chairman of the Committee)

Mr. A S Amaratunga - Independent Non-Executive Director

Mr. H N Esufally - Non-Executive Director

The Company follows the Group's Remuneration Policy on Executive Directors and Key Management Personnel remuneration with the objective of attracting, retaining, motivating the KMPs to perform in the best interest of the Company and the Group.

Related Party Transactions Review CommitteeIn compliance with the Stock Exchange Rule No. 9 and the Code of Best Practices on Related Party Transactions issued by the Securities & Exchange Commission of Sri Lanka the Directors have appointed a

Related Party Transaction Review Committee comprising the following Members.

Mr. M A G H I Jafferjee Chairman/ Independent Non-Executive Director

Prof. L D K B Gamage Independent Non-Executive Director Retired with effect from 26th March 2017

Mr. A N Esufally Non- Executive Director

Mr. D T R De Silva Managing Director - Resigned with effect from 31st August 2016

Dr. R N A Athukorala – Independent Non-Executive Director – appointed to the Committee with effect from 28th April 2017

The Report of the Committee is given on page 66 of this report. The Committee has reviewed the Related Party Transactions of the Company during the financial year and reported their comments and observations to the Board of Directors. The details of the related party transactions carried out during the year are set out in page 119 of the Annual Report. The Directors declare that the Company is in compliance with the Rules of the Colombo Stock Exchange and the Code of Best Practices on Related Party Transactions.

Remuneration & Other Benefits of DirectorsDetails of Directors emoluments paid during the year are disclosed in Note 32 of the Financial Statements.

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 2017.

Annual Report of the Board of Directors


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 pages 62 to 63 of the Annual 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:

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 function as the Secretaries to the Company.

Registrars Messrs. SSP Corporate Services (Pvt) Ltd. of No. 101, Inner Flower Road, Colombo 03, function as the Registrars of the Company.

The Audit Fees payable and fees paid for other services rendered are as follows;

Audit Fees - Rs. 845,700/- (2016- Rs. 768,822/-)

Fees for non –audit services - Rs. 172,200/-(2016 – Rs. 231,570/-)

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.

Messrs. Ernst & Young have expressed their willingness to continue in office. A resolution to re-appoint them and to authorize the Directors to determine their remuneration will be proposed at the forthcoming Annual General Meeting.

By Order of the Board ofSerendib Hotels PLC

A. N. EsufallyChairman

S. M. Enderby

Director

Hemas Corporate Services (Pvt) Ltd.Secretaries

24 May 2017

31st March 2017 31st March 2016

No of Shares No of Shares

Mr. A N Esufally 16,565 16,565Mr. W M De F. Arsakularatne Nil NilMr. E J D Rajakarier Nil NilDr. R N A Athukorala Nil NilMr. M A G H I Jafferjee Nil NilMr. S M Enderby Nil NilMr. W A T M Wijesinghe Nil NilMs. S L Speldewinde Nil NilMr. S A Chojnacki Nil NilMr. I A H Esufally Nil NilMr. V H A Perera (Alternate Director to Mr. A N Esufally) Nil Nil

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.

The Shareholders information is given on pages 128 & 129 of the Annual Report.

AuditorsDuring the year under review Messrs. Ernst & Young, Chartered Accountants, served as the External Auditors of the Company.


Related party disclosures as required by the Sri Lanka Accounting standards No. 24 on Related Party Disclosures is detailed in Note 29 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 DIRECTORS/S NATURE OF TRANSACTION 2016/17 Rs.

2015/16Rs.

Dolphin Hotels PLC

A N Esufally Expenses incurred on behalf of the company 504,075 711,188

W M De F Arsakularatne

Settlement of dues from related parties (2,762,615)

Settlement of dues to related parties 284,516 6,923,544

Expenses incurred on behalf of others (5,174,190) (934,253)

Loan Interest paid (39,452)

Loan Paid (40,000,000)

Loans obtained 40,000,000

Hotel Sigiriya PLC

A N Esufally Expenses incurred on behalf of the company 216,920 370,096


Settlement of dues from related parties (213,561) (355,700)

Settlement of dues to related parties - 1,859,692

Expenses incurred on behalf of others (1,859,692)

Loans Granted (46,000,000) (20,000,000)

Loans Repaid 20,000,000

Loan Interest Cost (3,758,841) (118,104)

Loan interest paid 1,547,900 118,104

Serendib Leisure Management Ltd.

A N Esufally Expenses incurred on behalf of the company 6,791,360 6,981,444

E J D Rajakarier Settlement of dues from related parties (5,153,436) (6,638,695)


Settlement of dues to related parties 33,112,502 62,547,680

Expenses incurred on behalf of others (59,308,480) (59,914,902)

Loans granted (7,000,000)

Loans Paid 7,000,000

Loan Interest Cost (147,862) (158,795)

Loan interest paid 117,033 158,795

Jada Resort & Spa (Pvt) Ltd.

A N Esufally Expenses incurred on behalf of the company 1,779,020 501,311,929

E J D Rajakarier Settlement of dues from related parties (500,274,032)

S A Chojnacki Settlement of dues to related parties 86,304

Expenses incurred on behalf of others (86,304) (83,415)

Loans granted - (40,000,000)

Loans Paid - 40,000,000

Loan Interest Cost - (135,342)

Directors’ Interest in Contracts with the Company


COMPANY DIRECTORS/S NATURE OF TRANSACTION 2016/17 Rs.

2015/16Rs.

P H Resorts Ltd.

A N Esufally Expenses incurred on behalf of the company 87,111 1,108,536

E J D Rajakarier Settlement of Dues from Related Parties (1,062,071)


Settlement of dues to related parties 1,261,668

S A Chojnacki Expenses incurred on behalf of others (1,261,668)

S M Enderby

Kalutara Luxury Hotels & Resort (Pvt) Ltd.

A N Esufally Expenses Incurred on Behalf of the Company 128,088 -

E J D Rajakarier Loans granted - (335,000,000)

S A Chojnacki Loans Paid - 335,000,000

Loan Interest Income - 4,492,279

Loan Interest Received (4,492,279) -

Diethelm Travels Lanka (Pvt) Ltd.

A N Esufally Expenses incurred on behalf of the company 4,680,623


Expenses incurred on behalf of the others (495,474)

Settlement of dues from related parties (5,939,018)

Settlement of dues to related parties 278,321

Hemas Corporate Services (Pvt) Ltd.

S M Enderby Settlement of dues to related parties 929,658 810,454

Expenses incurred on behalf of others (1,111,467) (805,069)

Hemas Holdings PLC

A N Esufally Expenses incurred on behalf of the company 4,547,202 -


Settlement of dues from related parties (4,547,202) -

S M Enderby Settlement of dues to related parties 10,472,306 4,928,952

I A H Esufally Expenses incurred on behalf of others (17,300,132) (3,156,561)

Loans granted (20,000,000) (225,000,000)

Loans Paid - 225,000,000

Loan Interest - (3,057,723)


Report of the Audit CommitteeCompositionThe Board appoints the Members of the Audit Committee. Until 26th March 2017, the Audit Committee comprised of Prof. Lalith Gamage and Mr. Murtaza Jafferjee, two directors who qualify as Independent Non-Executive Directors and Mr. Abbas Esufally, a Non-Executive Director, who is a Fellow member of both the Institute of Chartered Accountants of England & Wales and the Institute of Chartered Accountants of Sri Lanka, thereby complying with the Listing Rules of the Colombo Stock Exchange.

Prof. Gamage who was the Chairman of the Committee retired with effect from 26th March 2017 and Mr. M A G H I Jafferjee was appointed as the Chairman of the Audit Committee. Further, Dr. R N A Athukorala, an Independent Non-Executive Director was appointed to the Committee on 28th April 2017.

The Committee wishes to thank Prof. Lalith Gamage for the leadership and valuable guidance provided as the Chairman of the Committee.

Mr. Malinga Arsakularatne, Executive Director, Mr. Dayan Gunasekera, Director Finance of the Managing Agent, Mr. Shantha Kurumbalapitiya, Chief Operating Officer of the Managing Agent and Mr. Prasenna Balachandran, General Manager Risk & Control of Hemas Holdings PLC attend Meetings by invitation. M/s Hemas Corporate Services (Private) Limited functions as the Secretaries 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.

As permitted by the Listing Rules of the Colombo Stock Exchange, the Committee also functions as the Audit Committee for

its quoted subsidiaries Dolphin Hotels PLC & Hotel Sigiriya PLC.

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 functions including the process to ensure that the internal controls and risk management of the 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 yearThe Audit Committee met four times during the year ended 31st March 2017 and carried out the following activities;

• Reviewed and discussed the Un-audited Quarterly Financial Statements and Annual Audited Financial Statements with the Management prior to publication.

• Reviewed and discussed the Audited Financial Statements with both the Management and External Auditors prior to publication

• Discussed the Management Letter issued by the External Auditors for the year 2015/16 along with the management responses and monitored follow up action.

• Approved the Internal Audit Plan and monitored the performance of the Internal Auditors

• Reviewed and discussed with the Internal Auditors, the Internal Audit reports and monitored follow-up action by the Management.

• Reviewed the Risk profile of the Group together with the remedial measures taken to manage them.

• Reviewed the Reports on statutory and regulatory compliance submitted by the Management.

Internal AuditThe Internal Audit function of the Company is carried out by Messers BDO Burah Hathy, 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 on the implementation of recommendations and reports progress to the Audit Committee.

External AuditThe External Audit function of the Company is carried out by Messrs. Ernst & Young, Chartered Accountants. The External Auditors Letter of Engagement 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 recommended to the Board that Messrs. Ernst & Young, Chartered Accountants, be re-appointed External Auditors of the Company for the year ending 31st March 2018, subject to approval by the Shareholders at the forthcoming Annual General Meeting.

M A G H I Jafferjee

Chairman of the Audit Committee

24 May 2017


The Related Party Transactions Review Committee of the Company as noted below comprises two Independent Non-Executive Directors and one Non-Executive Director;

Mr. M. A. G. H. I. JafferjeeIndependent Non-Executive Director (Committee Chairman)

Dr. R. N. A. AthukoralaIndependent Non-Executive Director (appointed with effect from 28th April 2017)

Mr. A. N. Esufally Non-Executive Director

Mr. D. T. R. De Silva and Prof. Lalith Gamage served on the Committee as members until their resignation/retirement on 31st August 2016 and 26th March 2017 respectively.

Mr. Malinga Arsakularatne, Executive Director, Mr. Dayan Gunasekera, Director Finance of the Managing Agent and Mr. Shantha Kurumbalapitiya, Chief Operating Officer of the Managing Agent attends these meetings by invitation and M/s Hemas Corporate Services (Private) Limited serves as Secretaries to the Committee.

The objective of the Committee is to exercise oversight on behalf of the Board, that all Related Party Transactions (“RPTs”) of Serendib Hotels PLC and its listed subsidiaries, other than those exempted by the Code of Best Practices on Related Party Transactions issued by the Securities & Exchange Commission of Sri Lanka (“Code”) are consistent with the Code and that the required disclosures are made in timely manner as required by the Code.

Accordingly, the Committee developed, and recommended for adoption by the Board of Directors of Serendib Hotels PLC

Report of the Related Party Transactions Review Committee

and its listed subsidiaries, a RPTs Policy which is consistent with the operating model and the delegated decision rights of the Serendib Hotels Group and which sets out, amongst others, the following:

• Definition and establishment of threshold values for each of the listed companies as per the Code which requires discussion in detail; RPTs which have to be pre-approved by the Board, and those that require immediate market disclosure, those that require Shareholder approval and RPTs which require disclosure in the Annual Report.

• The principles that guide RPTs which require pre-approval of the Board and those transactions that do not require prior Board approval and therefore, can be reviewed retrospectively.

• Establishment of a process to identify the recurrent RPTs from the total RPTs.

• Guidelines which Senior Management must follow in dealing with Related Parties, including the conformance with the Transfer Pricing regulations and the Code.

• Identifying instances where an immediate market disclosure of an RPT is required in line with the definitions of the code.

• Introduction of standardized documentation that should be used by the listed companies in the Group presenting the RPT information to the Committee.

Further, in accordance with the RPT Policy, the criteria for identifying the Group’s Key Management Personnel (KMP) was established and all Executive & Non-Executive Directors of Boards, and all members of the Senior Management teams (Company and its Subsidiaries) were identified as the KMPs in order to establish

greater transparency and governance. Also, declarations were obtained from each Director and KMP of the Company for the purpose of identifying parties related to them and to provide annual disclosure.

The Committee met four times during the year ended 31st March 2017. The attendance of the members at these meetings is detailed in the Corporate Governance Report found on page 47 of the Annual Report

The RPTRC Charter, operational procedures, activities and the observations by the Committee have been communicated to the Board of Directors through verbal briefings and by tabling the minutes of the Committee Meetings at subsequent Board Meetings.

A declaration by the Board of Directors termed “Negative Statement” that no RPT falling within the scope of the Code was entered into by the Company during the financial year 2016/17 is given on page 61 of the Annual Report under the Section “Annual Report of the Directors”.

M A G H I JafferjeeChairman of the Related Party Transaction Review Committee

24 May 2017


The Statement of Directors’ Responsibility 68Independent Auditor's Report 69 | Statement of Financial Position 70 | Statement of Profit or Loss 71 |

Statement of Comprehensive Income 72 | Statement of Changes in Equity 73 | Statement of Cash Flow 75 | Notes to the Financial Statements 76

Financial Statements


The 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 and of the Group as at the Balance Sheet date and the profit and loss of the Company and the Group for the financial year.

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

• appropriate accounting policies are used, selected and applied in a consistent manner, and material departures, if any, have been disclosed and explained.

• all applicable and relevant Accounting Standards have been followed

• judgement and estimates have been made which are reasonable and prudent.

Statement of Directors’ Responsibility in Relation to Preparing Financial Statements

The Directors confirm that the companies within the Group maintain accounting records, which disclose with reasonable accuracy the financial position of the Company and the Group 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 reviewed 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 of the Group 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.

Compliance ReportThe 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 and its subsidiaries as at the Balance Sheet date have been paid or where relevant provided for in the Financial Statements.

A. N. EsufallyChairman

S. M Enderby Director

24 May 2017


Independent Auditor’s Report

TO THE SHAREHOLDERS OF SERENDIB HOTELS PLCReport on the Financial StatementsWe have audited the accompanying financial statements of Serendib Hotels PLC, (“the Company”), and the consolidated financial statements of the Company and its subsidiaries (“Group”), which comprise the statement of financial position as at 31 March 2017, and the statement of profit or loss, statement of comprehensive income, statement of changes in equity and, statement of cash flows for the year then ended, and a summary of significant accounting policies and other explanatory information. (Set out on pages 76 to 126).

Board’s Responsibility for the Financial StatementsThe Board of Directors (“Board”) is responsible for the preparation of these financial statements that give a true and fair view in accordance with Sri Lanka Accounting Standards, and for such internal control as Board determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

Auditor’s ResponsibilityOur 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.

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 the 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 Board, as well as evaluating the overall presentation of the financial statements.

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

OpinionIn our opinion, the consolidated financial statements give a true and fair view of the financial position of the Group as at 31 March 2017, and of its financial performance and cash flows for the year then ended in accordance with Sri Lanka Accounting Standards.

Report on Other Legal and Regulatory RequirementsAs required by section 163 (2) of the Companies Act No. 07 of 2007, we state the following:

a) The basis of opinion, scope and limitations of the audit are as stated above.

b) In our opinion:

- we have obtained all the information and explanations that were required for the audit and, as far as appears from our examination, proper accounting records have been kept by the Company,

- the financial statements of the Company give a true and fair view of its financial position as at 31 March 2017, and of its financial performance and cash flows for the year then ended in accordance with Sri Lanka Accounting Standards, and

- the financial statements of the Company and the Group comply with the requirements of sections 151 and 153 of the Companies Act No. 07 of 2007.

24 May 2017Colombo


Group Company

Note 2017Rs.

2016Rs.

2017Rs.

2016Rs.

ASSETSNon-Current AssetsProperty, Plant and Equipment 10 3,185,809,146 3,151,645,411 769,906,274 770,903,857 Leasehold Rights 11 29,295,858 31,126,852 27,227,163 28,928,859 Intangible Assets 12 95,986,333 25,791,132 25,084,945 327,428 Investments in Subsidiaries 13 - - 271,191,210 260,497,335 Investment in Associate 14 - 359,063,905 - 360,623,100 Investment in Equity Shares 15 330,106,485 12,000,010 322,106,485 4,000,010

3,641,197,822 3,579,627,310 1,415,516,077 1,425,280,589

Current AssetsInventories 17 25,087,504 21,824,126 7,817,034 6,555,387 Trade and Other Receivables 18 469,075,714 305,983,256 116,773,053 72,788,658 Taxation Recoverables 12,884,895 1,384,627 502,510 - Other Financial Assets 16 705,835 695,700 35,119 20,119 Cash and Cash Equivalents 19 163,124,701 382,115,700 29,045,045 111,460,305

670,878,649 712,003,409 154,172,761 190,824,469 Total Assets 4,312,076,471 4,291,630,719 1,569,688,838 1,616,105,058

EQUITY AND LIABILITIESEquityStated Capital 20 913,121,694 913,121,694 913,121,694 913,121,694 Other Components of Equity 21 570,115,333 571,392,086 82,442,882 82,345,345 Other Revenue Reserves 21 19,940,000 19,940,000 14,500,000 14,500,000 Retained Earnings 938,047,357 985,002,846 193,763,516 247,971,040 Equity Attributable to Equity Holders of the Parent 2,441,224,384 2,489,456,626 1,203,828,089 1,257,938,079 Non Controlling Interest 805,223,472 790,667,153 - - Total Equity 3,246,447,856 3,280,123,779 1,203,828,091 1,257,938,079

Non-Current Liabilities Interest Bearing Loans and Borrowings 22 54,089,969 224,480,182 8,740,836 80,379,382 Deferred Tax Liability 8 144,352,085 116,610,039 31,882,737 16,926,077 Retirement Benefit Obligation 23 56,493,585 53,783,055 14,281,838 13,403,464

254,935,639 394,873,276 54,905,411 110,708,923 Current Liabilities Trade and Other Payables 24 545,981,344 380,003,228 161,843,406 122,998,697 Dividends Payable 25 8,201,331 4,320,852 3,205,560 1,613,606 Income Tax Liability 341,908 16,835,428 - 1,171,586 Interest Bearing Loans and Borrowings 22 126,481,460 157,608,606 130,595,280 88,393,786 Bank Overdraft 19 129,686,933 57,865,550 15,311,090 33,280,381

810,692,976 616,633,664 310,955,336 247,458,056 Total Equity and Liabilities 4,312,076,471 4,291,630,719 1,569,688,838 1,616,105,058

I certify that the financial statements comply with the requirements of the Companies Act No. 7 of 2007.

K.D.D GunasekeraDirector 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 S.M. Enderby Chairman Director

The accounting policies and notes on page 76 through 126 form an Integral Part of the Financial Statements.

24 May 2017Colombo

Statement of Financial PositionAs at 31 March


Group Company

2017 2016 2017 2016Note Rs. Rs. Rs. Rs.

Revenue 3 1,771,321,122 1,768,248,795 528,883,276 507,385,131

Cost of Sales (490,046,191) (457,481,120) (132,137,867) (116,452,650)Gross Profit 1,281,274,931 1,310,767,675 396,745,409 390,932,481

Dividend Income 4 - - 51,135,019 80,183,300 Other Operating Income and Gains 5 18,431,543 50,311,740 2,359,706 10,688,366 Sales and Marketing Expenses (38,780,719) (38,605,650) (18,572,339) (16,793,428)Administrative Expenses (1,051,060,841) (923,428,505) (325,507,284) (296,208,464)Operating Profit 209,864,914 399,045,260 106,160,510 168,802,255 Finance Cost 6 (14,887,315) (24,887,244) (10,130,659) (11,312,388)Finance Income 6 9,387,004 10,980,328 3,930,656 5,259,776 Loss on Deemed Disposal of Investment in Associates 14 (31,540,870) - (33,100,065) - Share of Results of Associate 14 - (21,327,575) - - Profit Before Tax 7 172,823,733 363,810,769 66,860,443 162,749,643 Income Tax Expense 8 (44,739,432) (62,447,848) (9,049,266) (15,293,818)Profit for the Year 128,084,301 301,362,921 57,811,177 147,455,825

Attributable to: Equity Holders of the Parent 67,513,636 203,058,798 Non Controlling Interest 60,570,665 98,304,123

128,084,301 301,362,921

Earnings Per Share - Basic 9 0.61 1.82 0.52 1.32 Dividends Per Share 27 1.00 1.00 1.00 1.00


Statement of Profit or LossYear ended 31 March


Statement of Comprehensive Income

Group Company

2017 2016 2017 2016Note Rs. Rs. Rs. Rs.

Profit for the Period 128,084,300 301,362,921 57,811,177 147,455,825 Other Comprehensive Income Other Comprehensive Income/(Loss) to be reclassified to profit or loss in subsequent periodsNet Gain/(loss) on Cash Flow Hedge 21 5,141,270 (56,756,735) 7,219,858 (26,601,037)

Net Other Comprehensive Income/(Loss) to be reclassified to profit or loss in subsequent periods

5,141,270 (56,756,735) 7,219,858 (26,601,037)

Other Comprehensive Income/(Loss) not to be reclassified to profit or loss in subsequent periodsRevaluation of Land and Buildings 21 - 379,449,979 - (27,507,346)Deferred Taxation Attributable to Revaluation of Land and Buildings

8 (7,122,321) (19,880,416) (7,122,321) 4,166,319

Acturial Gain/(Loss) on Defined Benefit Obligation 23 (4,601,576) 4,319,263 (560,122) 1,397,512 Deferred Taxation Attributable to Acturial (Gain)/Loss 8 436,847 (518,311) 67,215 (167,701)Net Other Comprehensive Income/(Loss) not to be reclassified to profit or loss in subsequent periods

(11,287,050) 363,370,515 (7,615,229) (22,111,216)

Other Comprehensive Income for the Period, Net of Tax (6,145,780) 306,613,780 (395,372) (48,712,253)Total Comprehensive Income for the Period, Net of Tax 121,938,520 607,976,701 57,415,807 98,743,572

Attributable to:Equity Holders of the Parent 63,214,777 383,019,217 Non Controlling Interest 58,723,743 224,957,484

121,938,520 607,976,701


Year ended 31 March


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ect o

f cha

nges

in G

roup

Hol

ding

-

-

-

-

73,

681

73,

681

(10,

767,

536)

(10,

693,

855)

Bala

nce

As

at 3

1 M

arch

201

7 9

13,1

21,6

94

552

,631

,393

1

7,48

3,94

0 1

9,94

0,00

0 9

38,0

47,3

57

2,4

41,2

24,3

84

805

,223

,472

3

,246

,447

,856

The

acco

untin

g po

licie

s and

not

es o

n pa

ge 7

6 th

roug

h 12

6 fo

rm a

n In

tegr

al P

art o

f the

Fin

anci

al S

tate

men

ts.

Year ended 31 March


Attri

buta

ble

to E

quity

Hol

ders

of t

he P

aren

tO

ther

Com

pone

nts o

f Equ

itySt

ated

Cap

ital

Cash

Flo

w

Hed

ge R

eser

ve

Reva

luat

ion

Rese

rve

Oth

er R

even

ue

Rese

rves

Reta

ined

Ea

rnin

gsTo

tal

COM

PAN

YN

ote

Rs.

Rs.

Rs.

Rs.

Rs.

Bala

nce

As a

t 01

April

201

5 9

13,1

21,6

94

17,

894,

926

114

,392

,481

1

4,50

0,00

0 2

10,0

48,4

38

1,2

69,9

57,5

39

Net

Pro

fit fo

r the

Year

-

-

-

-

147

,455

,825

1

47,4

55,8

25

Oth

er c

ompr

ehen

sive

Inco

me

Net

Mov

emen

t of

Cash

Flo

w H

edge

21

-

(26,

601,

037)

-

-

-

(26,

601,

037)

Reva

luat

ion

loss

on

Build

ing

-

-

(27,

507,

346)

(27,

507,

346)

Actu

aria

l Gai

n/(L

oss)

on D

efine

d Be

nefit

Obl

igat

ion

23 -

-

-

-

1

,397

,512

1

,397

,512

D

efer

red

Tax a

ttrib

utab

le to

Rev

alua

tion

Surp

lus

-

-

4,1

66,3

19

-

-

4,1

66,3

19

Def

erre

d Ta

xatio

n At

tribu

tabl

e to

Act

uria

l (Ga

in)/L

oss

8 -

-

-

-

(1

67,7

01)

(167

,701

)To

tal c

ompr

ehen

sive

Inco

me

-

(26,

601,

037)

(23,

341,

027)

-

148

,685

,636

9

8,74

3,57

2 D

ivid

end

paid

-

-

-

-

(111

,525

,794

)(1

11,5

25,7

94)

Writ

e ba

ck o

f Unc

laim

ed D

ivid

ends

-

-

-

-

1,4

08,4

68

1,4

08,4

68

Supe

r Gai

n Ta

x -

-

-

-

(6

45,7

08)

(645

,708

)Ba

lanc

e A

s at

31

Mar

ch 2

016

913

,121

,694

(8

,706

,109

) 9

1,05

1,45

4 1

4,50

0,00

0 2

47,9

71,0

40

1,2

57,9

38,0

79

Net

Pro

fit fo

r the

Year

-

-

-

-

57,

811,

177

57,

811,

177

Oth

er c

ompr

ehen

sive

Inco

me

Def

erre

d Ta

x attr

ibut

able

to R

eval

uatio

n Su

rplu

s 8

-

-

(7,1

22,3

21)

-

-

(7,1

22,3

21)

Net

Mov

emen

t on

Cas

h Flo

w H

edge

21

-

7,2

19,8

58

-

-

-

7,2

19,8

58

Actu

aria

l Gai

n/ (L

oss)

on D

efine

d Be

nefit

Obl

igat

ion

-

-

-

-

(560

,122

) (5

60,1

22)

Def

erre

d Ta

xatio

n At

tribu

tabl

e to

Act

uria

l Gai

n/ (L

oss)

8 -

-

-

-

6

7,21

5 6

7,21

5 To

tal C

ompr

ehen

sive

Inco

me

-

7,2

19,8

58

(7,1

22,3

21)

-

57,

318,

270

57,

415,

807

Div

iden

ds -

-

-

-

(1

11,5

25,7

95)

(111

,525

,795

)Ba

lanc

e A

s at

31

Mar

ch 2

017

913

,121

,694

(1

,486

,251

) 8

3,92

9,13

3 1

4,50

0,00

0 1

93,7

63,5

15

1,2

03,8

28,0

91

The

acco

untin

g po

licie

s and

not

es o

n pa

ge 7

6 th

roug

h 12

6 fo

rm a

n In

tegr

al P

art o

f the

Fin

anci

al S

tate

men

ts.

Statement of Changes In EquityYear ended 31 March


Statement of Cash Flows

Year ended 31 March Group Company

Note 2017Rs.

2016Rs.

2017Rs.

2016Rs.

Cash Flows From/(Used in) Operating Activities Net Profit/(loss) Before Income Tax 172,823,733 363,810,769 66,860,443 162,749,643 Adjustments forDepreciation of PPE 10 134,335,812 145,378,189 46,976,185 46,853,339 Amortization 11 & 12 7,470,484 3,467,399 4,309,574 2,070,336 Foreign Currency (Gains)/Losses 4,360,313 (2,899,417) (387,956) 1,182,357 Dividend Income 4 - - (51,135,019) (80,183,300)Finance Income 6 (9,387,004) (10,980,328) (3,930,656) (5,259,776)Finance Costs 6 14,887,315 24,238,212 10,130,659 11,312,388 Loss on Deemed Disposal of Investment in Associates 15 31,540,870 - 33,100,065 - Impact on Deemed Dilution of AFS Equity Shares 15 9,416,560 - 9,416,561 - Share of Results of Associate 14 - 21,327,575 - - Loss/(Gains) on Disposal of Property, Plant and Equipment 995,177 (87,396) (425,000) 613,737 Other (Write backs) / Write offs 6,060,996 (9,272,479) 2,821,294 (3,224,285)Provision for Defined Benefit Plan 23 13,070,431 12,241,234 2,866,626 3,000,251

385,574,688 547,223,758 120,602,774 139,114,690 Working Capital Adjustments:(Increase)/Decrease in Inventories 17 (3,263,378) (3,597,292) (1,261,650) (621,196)(Increase)/Decrease in Trade and Other Receivables 18 (169,153,453) (75,983,853) (48,172,440) (16,069,086)(Increase)/Decrease Current Financial Assets 24,638 45,792,470 - - Increase/(Decrease) in Trade and Other Payables 24 160,365,588 45,588,000 42,055,515 12,144,448 (Increase)/Decrease Current Financial Liabilities 5,612,527 - - - Cash Generated from Operations 379,160,610 559,023,081 113,224,199 134,568,856

Finance Cost Paid 6 (14,887,315) (24,238,212) (10,130,659) (11,312,388)Defined Benefit Plan Costs Paid 23 (14,961,478) (3,715,265) (2,548,374) (2,278,250)Income Tax Paid (51,676,650) (37,547,731) (2,337,642) (1,239,797)Super Gain Tax Paid 8 - (29,621,483) - (645,708)Net Cash Flows from Operating Activities 297,635,166 463,900,390 98,207,524 119,738,421

Investing ActivitiesAcquisition of Property, Plant and Equipment 10 (189,194,142) (92,890,151) (45,978,595) (9,835,653)Proceeds from Disposal of Property, Plant and Equipment

20,445,599 23,539,461 425,000 6,383,255

Acquisition of Intangible Assets 12 (75,834,690) (2,501,327) (27,365,394) - Investments - - (10,693,875) - Loans Granted to Related Parties - (375,000,000) - (375,000,000)Loans Settled by Related Parties - 375,000,000 - 375,000,000 Interest Received 6 9,387,004 10,980,328 3,930,656 5,259,776 Dividend Received - - 51,135,019 80,183,300 Net Cash Flows Used in Investing Activities (235,196,228) (60,871,689) (28,547,188) 81,990,678

Financing ActivitiesProceeds from Interest Related Party Borrowings - - 73,000,000 - Repayment of Interest Bearing Loans and Borrowings 21 (221,517,359) (147,921,961) (88,580,513) (81,447,388)Repayment of Related Party Borrowings 20,000,000 - (7,000,000) - Adjustment in respect of changes in Group Holding (10,693,855) - - - Dividends Paid (141,040,109) (137,325,193) (111,525,794) (109,889,074)Net Cash Flows From Financing Activities (353,251,323) (285,247,154) (134,106,307) (191,336,462)

Net Increase/(Decrease) in Cash and Cash Equivalents (290,812,382) 117,781,547 (64,445,971) 9,746,930

Cash and Cash Equivalents at the Beginning of the Year 19 324,250,150 206,468,603 78,179,928 68,432,994 Cash and Cash Equivalents at the End of the Year 19 33,437,768 324,250,150 13,733,955 78,179,924


Year ended 31 March


Notes to the Financial Statements

1. CORPORATE INFORMATION1.1 GeneralThe Serendib Hotels PLC is a limited liability Company incorporated and domiciled in Sri Lanka. The registered office is located at Level 3, Hemas House, No 75, Braybrooke Place, Colombo 2.

1.2 Consolidated Financial Statements

The Consolidated financial statements of the Company for the year ended 31 March 2017 comprise Serendib Hotels PLC (“Company”) and all its Subsidiaries and Associates whose accounts have been consolidated therein (The “Group”).

1.3 Principal Activities and Nature of Operations

The principal activity of the Group/Company is hotel operation.

1.4 Parent Entity and Ultimate Parent Entity

The Company’s Parent undertaking and controlling party is Hemas Holdings PLC, which is incorporated in Sri Lanka.

1.5 Date of Authorisation for Issue

The financial statements of the Company for the year ended 31 March 2017 were authorized for issue in accordance with a resolution of the Directors on 24 May 2017.

2. GENERAL POLICIES 2.1 Basis of Preparation The financial statements of the Group have been prepared in accordance with Sri Lanka Accounting Standards, comprising SLFRSs and LKASs (here after “SLFRS”) as issued by the Institute of Chartered Accountants of Sri Lanka.

The financial statements of the Group have been prepared on an accrual basis and under the historical cost convention

other than Property, Plant & Equipment carrying at valuation and otherwise stated. The financial statements are presented in Sri Lankan Rupees (Rs).

The preparation and presentation of these Financial Statements are in compliance with the Companies Act No. 07 of 2007.

2.1.1 Comparative Information

Prior year figures and phrases have re-arranged where necessary to conform to the current year presentation.

2.1.2 Changes in Accounting Policies

The accounting policies adopted by the Group are consistent with those used in the previous year.

2.1.2 Going Concern

The Directors have made an assessment of the Group’s ability to continue as a going concern and they do not intend either to liquidate or to cease operation.

2.2. BASIS OF CONSOLIDATIONThe consolidated financial statements comprise the financial statement of the Group and its subsidiaries as at 31 March 2017. Control over and investee is achieved when the Group is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Specifically, the Group controls an investee if, and only if, the Group has:

• Power over the investee (i.e. existing rights that give it the current ability to direct he relevant activities of the investee)

• Exposure, or rights, to variable returns from its involvement with the investee

• The ability to use its power over the investee to affect its returns

Generally, there is a presumption that a majority of voting rights result in control. To support this presumption and when the Group has less than majority of the voting or similar rights of an investee, the Group considers all relevant facts and circumstances in assessing whether it has power over an investee, including:

• The contractual arrangement with the other vote holders of the investee

• Rights arising from other contractual arrangements

• The Group’s voting rights and potential voting rights

The Group re-assess whether or not it controls an investee if facts and circumstance indicate that there are changes to one or more of the three elements of control. Consolidation of a subsidiary begins when the Group obtains control over the subsidiary and ceases when the Group loses control of the subsidiary. Assets, liabilities, income and expenses of a subsidiary acquired or disposed of during the year are included in the consolidated financial statements from the date the Group gains control until the date the Group ceases to control the subsidiary.

Profit or loss and each component of other comprehensive income (OIC) are attributed to the equity holders of the parent of the Group and to the non-controlling interests, even if this results in the non-controlling interests having a deficit balance. When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with the Group’s accounting policies. All intra-group assets and liabilities, equity, income, expenses and cash flows relating to transactions between members of the Group are eliminated in full on consolidation.

Year ended 31 March


A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as an equity transaction.

If the Group loses control over a subsidiary, it derecognizes the related assets (including goodwill), liabilities, non-controlling interest and other components of equity while any resultant gain or loss recognized in profit or loss. Any investment retained is recognized at fair value.

(a) Investment in Associate

The Group' investments is Associates is accounted for using the equity method. An associate is an entity in which the Group has significant influence.

Under the equity method, the investment is initially recognised at cost. The carrying amount of the investment is adjusted to recognise changes in the Group's share of net assets of Associate since acquisition date.

Goodwill relating to the associate is included in the carrying amount of the investment and is neither amortised nor individually tested for impairment.

The income statement reflects the Group's share of results of operations of the Associate. When there has been a change recognised directly in the equity of the associate, the Group recognises its share of any changes, when applicable, in the statement of changes in equity. Unrealised gains and losses resulting from transactions between the Group and the associate are eliminated to the extent of the interest in the associate.

The Group's share of the profit or loss of an associate is shown on the face of the income statement and represents profit or loss after tax and non-controlling interests in the subsidiaries of the associate.

The financial statements of the Associate are prepared for the same reporting period as the Group. When necessary, adjustments are made to bring the accounting policies in line with those of the Group.

After application of the equity method, the Group determines whether it is necessary to recognise an impairment loss on its investment in its associate. The Group determines at each reporting date whether there is any objective evidence that the investment in the associate is impaired. If this is the case, the Group calculates the amount of impairment as the difference between the recoverable amount of the associate and its carrying value and recognises the amount in 'share of losses of an associate' in the income statement. Upon loss of significant influence over the associate, the Group measures and recognises any retained investment at its fair value. Any difference between the carrying amount of the associate upon loss of significant influence and the fair value of the retaining investment and proceeds from disposal is recognised in profit or loss.

(b) Business Combination and Goodwill

Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the aggregate of the consideration transferred, measured at the acquisition date fair value and the amount of any non-controlling interest in the acquiree. For each business combination, the Group elects whether to measure the non-controlling interest in the acquiree at fair value or at the proportionate share of the acquiree at the fair value or at the proportionate share of the acquiree's identifiable net assets. Acquisition-related costs are expensed as incurred and included in administrative expenses.

When the Group acquires a business, it assesses the financial assets and liabilities assumed for appropriate classification and designation in accordance with the contractual terms, economic circumstances and pertinent conditions as at the acquisition date. This includes the separation of embedded derivatives in host contracts by the acquiree.

If the business combination is achieved in stages, the previously held equity interest is remeasured at its acquisition date fair value and any resulting gain or loss is recognized in income statement.

Any contingent consideration to be transferred by the acquirer will be recognized at fair value at the acquisition date. Contingent consideration which is deemed to be an asset or liability that is a financial instrument and within the scope of LKAS 39 Financial Instruments: Recognision and measurement, is measured at fair value with changes in fair value either in profit or loss or as a change to other comprehensive income (OCI). If the contingent consideration is not within the scope of LKAS 39, it is measured in accordance with the appropriate SLFRS. Contingent consideration that is classified as equity is not re-measured and subsequent settlement is measured at fair value with change in fair value either in the income statement or as a change to the other comprehensive income (OCI).

Goodwill is initially measured at cost, being the excess of the aggregate of the consideration transferred and the amount recognised for non-controlling interest over the net identifiable assets acquired and liabilities assumed. If the fair value of the net assets acquired is in excess of the aggregate consideration transferred, the gain is recognised in profit or loss.

After initial recognition, goodwill is measured at cost less any accumulated impairment losses. For the purpose of


impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Group's cash generating units that are expected to benefit from the combination transferred.

Where goodwill has been allocated to a cash-generating unit and part of the operation within that unit is disposed of, the goodwill associated with the operation disposed of is included in the carrying amount of the operation when determining the gain or loss on disposal of the operation. Goodwill disposed of in this circumstance is measured based on the relative values of the operation disposed of and the portion of the cash-generating unit retained.

2.3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

2.3.1 Revenue Recognition

Revenue is recognised 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 value added taxes.

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

(a) Rooms, Food and Beverage Sales

Rooms revenue is recognized on the rooms occupied on a daily basis, and food and beverage are accounted for at the time of sales.

(b) Rendering of Services

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

(c) 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 statement of profit or loss.

(d) Dividends Income

Income is recognised when the Group/Company’s right to receive the payment is established.

(e) Rental Income

Rental income is recognised on an accrual basis.

(f ) Others

Other income is recognised on an accrual basis.

2.3.2 Functional and Presentation Currencies

The consolidated financial statements are presented in Sri Lankan Rupees, which is also the parent Company' s functional currency. For each entity the Group determines the functional currency and items included in the financial statements of each entity are measured using that functional currency.

(a) Transactions and Balances.

Transactions in foreign currencies are initially recorded by the Group entities their respective functional currency rates prevailing at the date of the transaction.

Monetary assets and liabilities denominated in foreign currencies are retranslated at the functional currency spot rate of exchange ruling at the reporting date.

Differences arising on settlement or transaction of monitory items are recognized in Profit or Loss with the exception of all monetary items that forms part of a net investment in a foreign operation. These are recognised in other comprehensive income until the disposal of the net investment, at which time they are reclassified to profit or loss. Tax charges and credits attributable to exchange differences on those monetary items are also recorded in other comprehensive income.

Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates as at the dates of the initial transactions. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value is determined.

The gain or loss arising on translation of non-monetary items measured fair value is treated in line with the recognition of gain or loss on change in fair value in the item (translation differences on items whose gain or loss is recognised in other comprehensive income or profit or loss is also recognised in other comprehensive income or profit or loss respectively).

2.3.3 Taxation

(a) Current Income 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

Notes to the Financial StatementsYear ended 31 March


compute the amount are those that are enacted or substantively enacted by the reporting date in the country where the Group operates and generates taxable income. Current income tax relating to items recognized directly in equity is recognized in equity and not in the income statement.

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. No 10 of 2006 and amendments thereto.

Management has used its judgment on the application of tax laws including transfer pricing regulations involving identification of associated undertakings, estimation of the respective arm’s length prices and selection of appropriate pricing mechanism.

(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 goodwill, an asset or a 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:

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. Unrecognized 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) Tax on Dividend Income

Tax on dividend income from subsidiaries is recognized as an expense in the Consolidated Income Statement.

2.3.4 Property, Plant and Equipment

Plant and machineries, furniture fittings and equipment, cutlery cookery glassware and silverware, motor vehicles, soil erosion prevention and landscaping are 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. When significant parts of property, plant and equipment are required to be replaced at intervals, the Company derecognizes 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 freehold land, buildings on leasehold land, land improvements and buildings on freehold land 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 recognised 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.

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

2017 2016

Buildings (Old) on Leasehold Land Over the Over the

Remaining Remaining

Lease Period Lease Period

Buildings (New) on Leasehold Land 60 Years 60 Years

Buildings on Freehold Land 60 Years 60 Years

Furniture, Fittings and Equipment 5 -15 Years 5 -15 Years

Motor Vehicles 5 -10 Years 5 -10 Years

Plant and Machinery 5 -10 Years 5 -10 Years

Soil Erosion Prevention 10 Years 10 Years

Landscaping Over 60 Years Over 60 Years

An item of property, plant and equipment and any significant part initially recognised is derecognized 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 derecognized.

a) Leasehold Right / Prepaid Lease Rental

Prepaid lease rentals paid to acquire land use right are amortised over the lease term. Details of the lease rentals paid in advance are given in note 11 to the financial statements.

b) Operating Leases

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

2.3.5 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 capitalised 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.

2.3.6 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 amortisation and accumulated impairment losses, if any. Internally generated intangible assets, excluding capitalised development costs, are not capitalised 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.



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.

2.3.7 Inventories

Inventories are valued at the lower of cost and net realisable value, after making due allowances for obsolete and slow moving items.

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.

2.3.8 Financial Instruments- Initial Recognition and Subsequent Measurement

i) Financial Assets

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 transaction costs of assets, in the case of investments not at fair value through profit or loss.

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

Subsequent Measurement

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

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.

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 derecognized, 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 admin expenses 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 Group 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 Group 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 Group 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 Group 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 are subsequently determined to be impaired, then the amount recorded in equity is reclassified to the income statement.

Derecognition

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


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

ii) The Group 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 Group has transferred substantially all the risks and rewards of the asset, or

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

When the Group 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 Group 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 Group 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 Group could be required to repay.

ii) Impairment of Financial Assets

The Group 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.

Financial Assets Carried at Amortised Cost

For financial assets carried at amortised cost, the Group 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 Group 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.

Available-For-Sale Financial Investments

For available-for-sale financial investments, the Group 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.

iii) Financial Liabilities

Initial Recognition and Measurement

Financial liabilities within the scope of LKAS 39 are classified as financial liabilities at fair value through profit or loss, loans and borrowings, other financial liabilities or as derivatives designated as hedging instruments in an effective hedge, as appropriate. The Group 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 Group’s financial liabilities include trade and other payables, bank overdrafts, loans and borrowings, other financial liabilities.

Subsequent Measurement

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

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 derecognized 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

Derecognition

A financial liability is derecognized 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.

iv) Offsetting of Financial Instruments

Financial assets and financial liabilities are offset and the net amount reported in the statement of financial position if, and only if, there is a currently enforceable legal right to offset the recognised amounts and there is an intention to settle on a net basis, or to realise the assets and settle the liabilities simultaneously.

v) Fair Value of Financial Instruments

The fair value of financial instruments that are traded in active markets at each reporting date is determined by reference

to quoted market prices or dealer price quotations. (bid price for long position and ask price for short positions) ,without any deduction for transaction costs.

For financial instruments not traded in an active market, the fair value is determined using appropriate valuation techniques. Such techniques may include using recent arm's length market transactions; reference to the current fair value of another instrument that is substantially the same; a discounted cash flow analysis or other valuation models.

2.3.9 Derivative Financial Instruments and Hedge Accounting

Initial Recognition and Subsequent Measurement

The Group uses derivative financial instruments such as forward currency contracts to hedge its foreign currency risks. Such derivative financial instruments are initially recognised at fair value on the date on which a derivative contract is entered into and are subsequently remeasured at fair value. Derivatives are carried as financial assets when the fair value is positive and as financial liabilities when the fair value is negative.

Any gains or losses arising from changes in the fair value of derivatives are taken directly to the Statement of Profit or Loss, except for the effective portion of cash flow hedges, which is recognised in Other Comprehensive Income.

Cash Flow Hedges

The effective portion of the gain or loss on the hedging instrument is recognised directly as other comprehensive income in the cash flow hedge reserve, while any ineffective portion is recognised immediately in the Statement of Profit or Loss as other operating expenses. income are transferred to the Statement of Profit or Loss when the hedged transaction affects profit or loss, such as when the hedged financial income or financial expense is recognised or when a forecast sale occurs. Where the hedged item is


the cost of a non-financial asset or non financial liability, the amounts recognised as other comprehensive income are transferred to the initial carrying amount of the non-financial asset or liability. If the forecast transaction or firm commitment is no longer expected to occur, the cumulative gain or loss previously recognised in equity is transferred to the Statement of Profit or Loss. If the hedging instrument expires or is sold, terminated or exercised without replacement or roll over, or if its designation as a hedge is revoked, any cumulative gain or loss previously recognised in other comprehensive income remains in other comprehensive income until the forecast transaction or firm commitment affects profit or loss.

2.3.10 Fair Value Measurement

The Group measures financial instruments such as Financial Assets Held for Trading, Financial Derivatives, and Non Financial Assets such as certain classes of Property, Plant and Equipment, at fair value at each reporting date. Fair value related disclosures for financial instruments and non-financial assets that are measured at fair value or where fair values are disclosed are summarised under the respective notes.

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either: In the principal market for the asset or liability

Or

In the absence of a principal market, in the most advantageous market for the asset or liability The principal or the most advantageous market must be accessible by the Group. The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or

liability, assuming that market participants act in their economic best interest.

A fair value measurement of a non-financial asset takes into account a market participant’s ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use.

The Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximising the use of relevant observable inputs and minimising the use of unobservable inputs. All assets and liabilities for which fair value is measured or disclosed in the Financial Statements are categorised within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole:

Level 1 - Quoted (unadjusted) market prices in active markets for identical assets or liabilities

Level 2 - Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable

Level 3 - Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable For assets and liabilities that are recognised in the Financial Statements on a recurring basis, the

Group determines whether transfers have occurred between levels in the hierarchy by reassessing categorisation at the end of each reporting period. External valuers are involved for valuation of significant assets, such as properties and significant liabilities, such as defined benefit obligations.

Involvement of external valuers is decided upon annually after discussion with and approval by the Group’s Board Audit Committee wherever necessary. Selection criteria include market knowledge, reputation, independence and whether professional standards are maintained. The Board Audit Committee whenever necessary after discussions with the Group’s external valuers decide which valuation techniques and inputs to use for amount. A previously recognised impairment loss is reversed only if there has been a change in the assumptions used to determine the 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

2.3.11 Impairment of Non - Financial Assets

The Group 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 Group 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 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

Goodwill

Goodwill is tested for impairment annually as at 31 March and when circumstances indicate that the carrying value may be

impaired. Impairment is determined for goodwill by assessing the recoverable amount of each CGU (or group of CGUs) to which the goodwill relates. Where the recoverable amount of the cash-generating unit is less than their carrying amount, an impairment loss is recognised. Impairment losses relating to goodwill cannot be reversed in future periods.

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.

2.3.12 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.

2.3.13 Provisions

Provisions are recognised when the Group 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 Group 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.

2.3.14 Retirement Benefit Liability

(a) Defined Contribution Plans - Employees’ Provident Fund and Employees’ Trust Fund

Employees are eligible for Employees’ Provident 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 Employees’ Provident Fund and Employees’ Trust Fund respectively.

(b) Defined Benefit Plans – Gratuity

A defined benefit plan is post-employment benefits plan other than a defined contribution plans - Employees’ Provident Fund and Employees’ Trust Fund. The liability recognised in the Statement of Financial Position in respect of defined benefit plans is the present value of the defined benefit obligation at the reporting date. The defined benefit obligation is calculated using the ‘Projected Unit Credit method’. The present value of the defined benefit obligation is determined by discounting the estimated future cash flows using interest rates that are denominated in the currency in which the benefits will be paid, and that have terms of maturity approximating to the terms of the liability.

Provision has been made in the Financial Statements for retiring gratuities from the first year of service for all employees, in conformity with LKAS 19 R - “Employee Benefits”. Actuarial gain or loss are recognised in Other Comprehensive Income (OCI) in the period which it arises.

However, according to the Payment of Gratuity Act No. 12 of 1983, the liability for payment to an employee arises only after the completion of 5 years continued service. The liability is not externally funded.


2.4 SIGNIFICANT ACCOUNTING JUDGMENTS, ESTIMATES AND ASSUMPTIONS

The preparation of the Group 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.

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:

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.

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 Group 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.

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.

Revaluation of Property, Plant and Equipment and Investment Properties

The Group carries its Land and buildings at revalued amounts with changes in fair value being recognised in OCI. The Group engaged an independent valuation specialist to assess fair value as at 31 March 2016 for land and buildings. Land and buildings were valued by reference to market-based evidence, using comparable prices adjusted for specific market factors such as nature, location and condition of the property. The valuation methodology adopted and the key assumptions used to determine the fair value of the properties and sensitivity analyses are provided in Notes 10.

GoodwillGoodwill is tested for impairment annually as at 31 March and when circumstances indicate that the carrying value may be impaired. Impairment is determined for goodwill by assessing the recoverable amount of each CGU (or Group of CGUs) to which the goodwill relates. Where the recoverable amount of the cash generating unit is less than their carrying amount, an impairment loss is recognised. Impairment losses relating to goodwill cannot be reversed in future periods.

2.5 Effects of Sri Lanka Accounting Standards Issued but not yet Effective:

Effect of Sri Lanka Accounting Standards issued but not yet Effective

The following Sri Lanka Accounting Standards have been issued by the Institute of Chartered Accountants of Sri Lanka (CA Sri Lanka) which have not been effective

and that will be effective from in the future. Further, these standards were not yet applied by the Company in preparation of these Consolidated Financial Statements.

a. SLFRS 9 Financial Instruments

In December 2014, the CA Sri Lanka issued the final version of SLFRS 9 Financial Instruments classification and measurement which reflects all phases of the financial instruments project and replaces the existing guidance in LKAS 39 Financial Instruments: Recognition and Measurement. SLFRS 9 includes revised guidance on the classification and measurement of financial instruments, a new expected credit loss model for calculating impairment on financial assets, and new general hedge accounting requirements. It also carries forward the guidance on recognition and derecognition of financial instruments from LKAS 39.

SLFRS 9 is effective for annual reporting periods beginning on or after 1 January 2018, with early adoption permitted. Retrospective application is required, but comparative information is not compulsory.

The adoption of SLFRS 9 will have an effect on the classification and measurement of the Company’s financial assets, but no impact on the classification and measurement of the Company’s financial liabilities.

From a classification and measurement perspective, the new standard will require all financial assets, except equity instruments and derivatives, to be assessed based on a combination of the entity’s business model for managing the assets and the instruments’ contractual cash flow characteristics.

The LKAS 39 measurement categories will be replaced by: fair Value through profit or loss (FVPL), fair value through other comprehensive income (FVOCI), and amortised cost. SLFRS 9 will also allow entities to continue to irrevocably designate instruments that qualify for amortised cost or FVOCI instruments as FVPL, if doing so eliminates or significantly reduces a measurement or recognition inconsistency.



Equity instruments that are not held for trading may be irrevocably designated as FVOCI, with no subsequent reclassification of gains or losses to the Statements of Profit or Loss.

The accounting for financial liabilities will largely be the same as the requirements of LKAS 39, except for the treatment of gains or losses arising from an entity’s own credit risk relating to liabilities designated at FVPL. Such movements will be presented in OCI with no subsequent reclassification to the Statements of Profit or Loss, unless an accounting mismatch in profit or loss would arise.

A preliminary evaluation of the existing contracts of the company has been performed in relation to the adoption of SLFRS 09. The Company is currently in the process of evaluating and quantifying the accounting impact, and any impacts on the current systems and processors will be modified where necessary.

b. SLFRS 15 Revenue from Contracts with Customers

SLFRS 15 is effective for periods beginning on 1 January 2018 with early adoption permitted. SLFRS 15 defines principles for recognizing revenue and will be applicable to all contracts with customers. However, interest and fee income integral to financial instruments and leases will continue to fall outside the scope of SLFRS 15 and will be regulated by the other applicable standards (e.g., SLFRS 9, and SLFRS 16 Leases).

Revenue under SLFRS 15 will need to be recognised as goods and services are transferred, to the extent that the transferor anticipates entitlement to goods and services. The standard will also specify a comprehensive set of disclosure requirements regarding the nature, extent and timing as well as any uncertainty of revenue and corresponding cash flows with customers. The entity does not anticipate early adopting SLFRS 15.

A preliminary evaluation of the existing contracts of the company has been performed in relation to the adoption of SLFRS 15. The company is currently in the process of evaluating and quantifying the accounting impact, and any impacts on the current systems and processors will be modified where necessary. The Contracts have been evaluated in line with the 5 step model for recognising revenue as follows;

Step 1 – Identify the contracts with the customer

SLFRS 15 applies to all entities and all contracts with customers to provide goods and services in the ordinary course of business.

A customer is defined as a Party who has contracted with the entity to obtain goods and services that are an output of the entity’s ordinary activities in exchange for consideration. In transactions involving multiple parties determining the customer may be critical within the Company.

Step 2 – Identify the Performance obligations with the Customer

An entity must identify the promised goods and services within the contract and determine which of those goods and services are separate performance obligations.

In order for an entity to identify the promised goods and services in a contract, SLFRS 15 indicates that an entity would consider whether there is a valid expectation on the part of the customer that the entity will provide a good or service. If the customer has a valid expectation that it will receive certain goods or services, it would likely view those promises as part of the negotiated exchange. This expectation will most commonly be created from an entity’s explicit promises in a contract to transfer a good(s) or service(s) to the customer.

Step 3 – Determine the Transaction Price

The transaction price is the amount of consideration to which an entity expects to be entitled in exchange for transferring

promised goods or services to a customer, excluding amounts collected on behalf of third parties (for example, some sales taxes). The consideration promised in a contract with a customer may include fixed amounts, variable amounts, or both.

Determining the transaction price is an important step in applying SLFRS 15 because this amount is allocated to the identified performance obligations and is recognised as revenue when (or as) those performance obligations are satisfied. In many cases, the transaction price is readily determinable because the entity receives payment when it transfers promised goods or services and the price is fixed. Determining the transaction price is more challenging when it is variable, when payment is received at a time that differs from when the entity provides the promised goods or services or when payment is in a form other than cash. Consideration paid or payable by the entity to the customer may also affect the determination of the transaction price.

Step 4 – Allocate the Transaction Price

The objective when allocating the transaction price is for an entity to allocate the transaction price to each performance obligation (or distinct good or service) in an amount that depicts the amount of consideration to which the entity expects to be entitled in exchange for transferring the promised goods or services to the customer.

Step 5 – Recognise revenue when a performance obligation is satisfied

An entity only recognizes revenue when it satisfies an identified performance obligation by transferring a promised good or service to a customer. A good or service is considered to be transferred when the customer obtains control.

Recognising revenue upon a transfer of control is a different approach from the ‘risks and rewards’ model that currently exists. SLFRS 15 states that “control of an asset refers to the ability to direct the use of and obtain substantially all of the remaining benefits from the asset”. Control also means the ability


to prevent others from directing the use of, and receiving the benefit from, a good or service. The key terms in the definition of control in the Basis for Conclusions, are as follows:

• Ability — a customer must have the present right to direct the use of, and obtain substantially all of the remaining benefits from, an asset for an entity to recognise revenue.

• Direct the use of — a customer’s ability to direct the use of an asset refers to the customer’s right to deploy or to allow another entity to deploy that asset in its activities or to restrict another entity from deploying that asset.

• Obtain the benefits from — the customer must have the ability to obtain substantially all of the remaining benefits from an asset for the customer to obtain control of it. Conceptually, the benefits from a good or service are potential cash flows (either an increase in cash inflows or a decrease in cash outflows). SLFRS 15 indicates that a customer can obtain the benefits directly or indirectly in many ways, such as: using the asset to produce goods or services (including public services); using the asset to enhance the value of other assets; using the asset to settle a liability or reduce an expense; selling or exchanging the asset; pledging the asset to secure a loan; or holding the asset.

The above evaluation of transfer of control requires significant judgement in certain transactions.

(a) Performance obligations satisfied over time

SLFRS 15 states that an entity transfers control of a good or service over time if one of the following criteria are met:

• As the entity performs, the customer simultaneously receives and consumes the benefits provided by the entity’s performance.

• The entity’s performance creates or enhances an asset (e.g., work in progress) that the customer controls as the asset is created or enhanced.

• The entity’s performance does not create an asset with an alternative use to the entity and the entity has an enforceable right to payment for performance completed to date.

(b) Performance obligations satisfied at a point in time

For performance obligations in which control is not transferred over time, control is transferred as at a point in time. In many situations, the determination of when that point in time occurs is relatively straightforward. However, in other circumstances, this determination is more complex.

c. SLFRS 16 Leases

SLFRS 16 is effective for annual periods beginning on or after 1 January 2019. Early application is permitted provided the new revenue standard, SLFRS 15, is applied on the same date. Lessees must adopt SLFRS 16 using either a full retrospective or a modified retrospective approach. The entity does not anticipate early adopting SLFRS 16. The Lessor accounting will continue however the standard requires lessees to recognise leases on their Statement of Financial Position as lease liabilities, with the corresponding right of use assets.

A preliminary evaluation of the existing contracts of the company has been performed in relation to the adoption of SLFRS 16. The Company’s current assessment has not revealed a significant change to the Leases standard. The Company’s currently in the process of evaluating and quantifying the accounting impact, and any impacts on the current systems and processors will be modified where necessary.

Amendments to LKAS 7 Statement of Cash Flows

The amendments to LKAS 7 Statement of Cash Flows are part of the CA Sri Lanka Disclosure Initiative and require an entity to provide disclosures that enable users of financial statements to evaluate changes in liabilities arising from financing activities, including both changes arising from cash flows and non-cash changes. On initial application of the amendment, entities are not required to provide comparative information for preceding periods. These amendments are effective for annual periods beginning on or after 1 January 2017, with early application permitted. Application of amendments will result in additional disclosure provided by the Company.

Amendments to LKAS 12 - Recognition of Deferred Tax Assets for Unrealised Losses

The amendments clarify that an entity needs to consider whether tax law restricts the sources of taxable profits against which it may make deductions on the reversal of that deductible temporary difference. Furthermore, the amendments provide guidance on how an entity should determine future taxable profits and explain the circumstances in which taxable profit may include the recovery of some assets for more than their carrying amount.

Entities are required to apply the amendments retrospectively. However, on initial application of the amendments, the change in the opening equity of the earliest comparative period may be recognised in opening retained earnings (or in another component of equity, as appropriate), without allocating the change between opening retained earnings and other components of equity. Entities applying this relief must disclose that fact.

These amendments are effective for annual periods beginning on or after 1 January 2017 with early application permitted. If an entity applies the amendments for an earlier period, it must disclose that fact. These amendments are not expected to have any impact on the Company.



3. REVENUE

Group Company

2017 2016 2017 2016Rs. Rs. Rs. Rs.

Accommodation, Food and Beverage 1,688,618,072 1,695,086,107 514,946,637 491,736,449 Others (Hotel Operations) 82,703,050 73,162,688 13,936,639 15,648,682

1,771,321,122 1,768,248,795 528,883,276 507,385,131

4. DIVIDEND INCOME

Group Company

2017 2016 2017 2016Rs. Rs. Rs. Rs.

Income from Investments - Related Parties - - 51,135,019 80,183,300 - - 51,135,019 80,183,300

5. OTHER OPERATING INCOME AND GAINS

Group Company

2017 2016 2017 2016Rs. Rs. Rs. Rs.

Rental Income from - Related Parties 180,000 360,000 180,000 360,000 Rental Income from - Others 749,418 744,000 - - Profit on Disposal of Property Plant and Equipment 1,367,567 - 425,000 - Sundry Income Including Write Back of Project Creditors - 9,631,335 - 3,574,617 Sundry Income - Others 1,523,035 - - - Exchange gains on Operations 14,611,523 39,576,405 1,754,706 6,753,749

18,431,543 50,311,740 2,359,706 10,688,366

6. FINANCE COST AND INCOME6.1 Finance Cost

Group Company

2017 2016 2017 2016Rs. Rs. Rs. Rs.

Interest Expense on Overdraft 2,125,035 1,201,415 486,887 148,857 Interest Expense on Loans and Borrowings - Related Parties 615,272 2,695,718 3,888,093 3,482,567 Interest Expense on Loans and Borrowings - Others 12,147,008 20,990,111 5,755,679 7,680,964

14,887,315 24,887,244 10,130,659 11,312,388


6.2 Finance Income

Group Company

2017 2016 2017 2016Rs. Rs. Rs. Rs.

Interest Income from - Related Parties - 4,989,333 - 3,893,622 Interest Income from - Others 6,720,490 5,990,995 1,264,142 1,366,154 Exchange gains on Loans 2,666,514 - 2,666,514 -

9,387,004 10,980,328 3,930,656 5,259,776

7. PROFIT / (LOSS) FROM OPERATIONS

Group Company

2017 2016 2017 2016Rs. Rs. Rs. Rs.

Stated After Charging/(Crediting)Included in Administrative Expenses Employees Benefits including the following - Defined Benefit Plan Costs - Gratuity 13,212,431 12,241,234 2,866,626 3,000,251 - Defined Contribution Plan Costs - EPF and ETF 42,139,254 30,367,173 7,735,669 7,346,795 Depreciation and Amortisation 142,251,215 149,492,466 51,285,759 48,923,676 Loss on Disposal of Property, Plant and Equipment 2,362,744 613,737 - 613,737 Directors' Fees and Remuneration 1,807,001 5,245,100 302,931 3,247,397 Auditors' Remuneration (Fees and Expenses) 2,175,800 1,989,804 845,700 768,822Management Fees - - 29,052,244 31,340,603 Impairment of Trade Receivables 7,537,343 1,924,087 2,821,294 (150,010)Impact on Deemed Dilution of AFS Equity Shares 9,416,561 9,416,561 Legal Fees 401,478 109,500 117,850 74,500 Donations 974,830 93,000 - -

Included in Selling and Marketing ExpensesAdvertising & Sales Promotion Cost 38,780,719 40,328,465 18,572,339 16,793,429



8. INCOME TAX EXPENSE

Group Company

2017 2016 2017 2016Rs. Rs. Rs. Rs.

Income StatementCurrent Income TaxCurrent Tax Expense on Ordinary Activities for the Year (8.1) 18,728,230 34,935,250 2,535,334 4,168,047 Under/(Over) Provision of Current Taxes in Respect of Prior Years (727,037) 5,460,723 (1,387,620) - Share of Income Tax of Associate Company - 3,169,139 - - Tax on Dividends 5,681,669 8,723,095 - - Deferred Income TaxDeferred Taxation Charge/(Reversal) (8.2.1) 21,056,571 10,159,642 7,901,553 11,125,772

44,739,432 62,447,849 9,049,266 15,293,819

Statement of Other Comprehensive IncomeDeferred Taxation Charge/(Reversal) 6,685,474 20,398,726 7,055,107 (4,334,020)

6,685,474 20,398,726 7,055,107 (4,334,020)Income Tax Expense Recorded in Total Comprehensive Income 51,424,906 82,846,575 16,104,372 10,959,798

8.1 Reconciliation Between Current Tax Expense and the Product of Accounting Profit.

Group Company

2017 2016 2017 2016Rs. Rs. Rs. Rs.

Accounting Profit (Profit Before Tax) 172,823,733 363,810,769 66,860,443 162,749,643 Consolidation Adjustment 50,479,806 80,286,420 - - Aggregate Disallowable Items 176,774,591 279,854,334 101,333,218 75,864,953 Aggregate Allowable Items (327,804,422) (407,050,575) (135,772,279) (189,071,722)

72,273,708 316,900,948 32,421,382 49,542,875 Tax Loss utilised (8.1.1) (11,356,993) (40,504,692) (11,356,993) (18,702,774)Taxable Profit from Business 60,916,714 276,396,256 21,064,390 30,840,101 Taxable Profit from Interest Income 8,240,741 9,045,160 27,168 3,893,622

69,157,455 285,441,416 21,091,557 34,733,723

Income Tax - 12% (2016-12%) 16,260,620 34,935,250 2,527,727 4,168,047 Income Tax - 28% (2016-28%) 2,467,610 - 7,607 - Current Income Tax Expense 18,728,230 34,935,250 2,535,334 4,168,047

8.1.1 Tax Losses Brought Forward 262,222,972 302,727,664 266,436,076 285,138,850 Tax Losses Incurred During the Year - - - - Tax Losses Utilized (11,356,993) (40,504,692) (11,356,993) (18,702,774)Tax Losses Carried Forward 250,865,979 262,222,972 255,079,083 266,436,076


8.1.2 The business profit of the Company and Subsidiaries are liable for income tax at the rate of 12% which is applicable for tourism promotion as per the inland Revenue Act 10 of 2006 and amendments thereto. Other sources of income are taxable at 28%.

8.1.3 Super Gain Tax - 2015/16

As per the provisions of Part III of the Finance Act No 10 of 2015 which was certified on 30th October 2015, the Company , Serendib Group and its Ultimate Parent, Hemas Holdings PLC (Group) were liable for super gain tax of Rs. 645,708/-, Rs.29,621,483 and Rs. 604,893,000/- respectively. According to the Act, the super gain tax shall be deemed to be expenditure in the Financial Statements relating to the year of assessment which commenced on 1st April 2013. The Act supersedes the requirements of the Sri Lanka Accounting Standards; hence the super gain tax is accounted in accordance with the requirements of the said Act as recommended by Statement of Alternative Treatment (SoAT) on Accounting for super gain tax issued by the Institute of Chartered Accountants of Sri Lanka, dated 24th November 2015.

8.2 Deffered Tax8.2.1 Group

Deferred Tax Assets, Liabilities and Income Tax Relates to the Followings ; 2017 2016Rs. Rs.

Deferred Tax Liability 183,908,949 158,160,122 Deferred Tax Assets 39,556,864 41,550,083 Net Deferred Tax Liability 144,352,085 116,610,039

Deferred Taxation Charge/(Reversal) - Statement of Profit or Loss/Other Comprehensive Income

Statement of Profit or Loss Other Comprehensive Income / Directly through

Equity

2017 2016 2017 2016Rs. Rs. Rs. Rs.

Deferred Tax LiabilityCapital Allowances for Tax Purposes 19,206,110 9,320,706 - - Revaluation of Buildings - - 7,122,538 19,880,020 Actuarial (Gain)/Loss - - (579,821) (115,342)

Deferred Tax Assets Defined Benefit Plans 706,553 (1,747,340) - - Collective Impairment of Trade and Other Receivables (1,648,202) (153,907) - - Carry Forward of Unused Tax Losses 1,749,676 2,740,184 - - Actuarial (Gain)/Loss - - 142,974 633,654

20,014,138 10,159,643 6,685,691 20,398,332



Deferred Tax Assets/Liability Statement of Financial Position

Statement of Comprehensive Income / Directly through

Equity

2017 2016 2017 2016Rs. Rs. Rs. Rs.

Deferred Tax LiabilityCapital Allowances for Tax Purposes 133,215,954 114,009,844 19,206,110 9,320,706 Revaluation of Buildings 51,752,551 44,630,013 7,122,538 19,880,020 Actuarial (Gain)/Loss (1,059,556) (479,735) (579,821) (115,342)

183,908,949 158,160,122

Deferred Tax Assets Defined Benefit Plans 6,265,725 6,972,278 706,553 (1,747,340)Collective Impairment of Trade and Other Receivables 1,571,548 965,564 (605,984) (153,907)Carry Forward of Unused Tax Losses 31,719,591 33,469,267 1,749,676 2,740,184

Actuarial (Gain)/Loss 142,974 142,974 633,654 39,556,864 41,550,083

Deferred Income Tax - Income / (Expense) 27,742,046 30,557,976 Net Deferred Tax Liability 144,352,085 116,610,039

8.2.2 Company

Deferred Tax Assets, Liabilities and Income Tax Relates to the following ;

2017 2016Rs. Rs.

Deferred Tax Liability 65,991,139 52,459,600 Deferred Tax Assets 34,108,402 35,533,523 Net Deferred Tax Liability 31,882,737 16,926,077

Deferred Taxation Charge/(Reversal) - Statement of Profit or Loss/Other Comprehensive Income

Statement of Profit or Loss Other Comprehensive Income/ Directly through

Equity

2017 2016 2017 2016Rs. Rs. Rs. Rs.

Deferred Tax LiabilityCapital Allowances for Tax Purposes 6,409,217 11,364,103 - - Revaluation of Assets - - 7,122,321 (4,166,319)

Deferred Tax Assets Defined Benefit Plans 129,511 (203,811) - - Carry Forward of Unused Tax Losses 1,749,891 (57,061) - - Collective Impairment of Trade and Other Receivables (387,066) 22,539 - - Actuarial (Gain)/Loss - - (67,215) (167,701)

7,901,553 11,125,770 7,055,106 (4,334,020)


Deferred Tax Assets/Liability Statement of Financial Position

Statement of Comprehensive Income/ Directly through

Equity

2017 2016 2017 2016Rs. Rs. Rs. Rs.

Deferred Tax LiabilityCapital Allowances for Tax Purposes 62,051,685 55,642,467 6,409,217 11,364,103 Revaluation of Assets 3,939,454 (3,182,867) 7,122,321 (4,166,319)

65,991,139 52,459,600

Deferred Tax Assets Defined Benefit Plans 1,646,606 1,776,117 129,511 (203,811)Collective Impairment of Trade and Other Receivables 555,427 168,361 (387,066) 22,539 Carry Forward of Unused Tax Losses 31,719,591 33,469,482 1,749,891 (57,061)

14,682,037 6,959,453

Actuarial (Gain)/Loss 186,778 119,563 (67,215) (167,701) 34,108,402 35,533,523

Deferred Income Tax - Income 14,956,661 6,791,751 Net Deferred Tax Liability/(Assets) 31,882,737 16,926,077

9. EARNING PER SHARE 9.1 Basic Earnings Per Share is calculated by dividing the net profit for the year attributable to ordinary equity holders of the Parent /

Company by the weighted average number of ordinary shares outstanding during the year.

9.2 The following reflects the income and share data used in the Basic Earnings Per Share computation.

Group Company

2017 2016 2017 2016Amounts Used as the Numerator: Rs. Rs. Rs. Rs.

Profit Attributable to Ordinary Shareholders of the Parent / Company 67,513,635 203,058,798 57,811,177 147,455,825

2017 2016 2017 2016Number of Ordinary Shares Used as the Denominator: Number Number Number Number

Weighted Average Number of Ordinary Shares in IssueApplicable to Basic Earnings Per Share 111,525,794 111,525,794 111,525,794 111,525,794

Earnings Per Share - Basic 0.61 1.82 0.52 1.32

As there were no potential ordinary shares outstanding as at year end, Diluted Earnings per Share is equal to the Basic Earnings per Share for the year.



10. PROPERTY, PLANT AND EQUIPMENT10.1 Group10.1.1 Gross Carrying Amounts

Balance As at

01.04.2016

Additions Disposals Transfers Balance As at

31.03.2017

Rs. Rs. Rs. Rs. Rs.

At CostPlant and Machinery 419,678,919 84,377,403 (12,620,871) - 491,435,450 Furniture, Fittings and Equipment 498,442,524 81,952,908 (8,444,640) - 571,950,791 Cutlery, Crockery, Glassware and Silverware 23,758,483 - - - 23,758,483 Motor Vehicles 36,341,751 4,800,000 (28,318,380) - 12,823,371

978,221,677 171,130,311 (49,383,892) - 1,099,968,095

At Valuation and Subsequent Improvement Freehold Land 531,715,002 9,786,384 - (10,000,000) 531,501,386 Buildings on Freehold Land 1,355,308,052 5,774,024 - - 1,361,082,076 Buildings on Leasehold Land 853,919,071 1,211,242 - 10,000,000 865,130,314

2,740,942,125 16,771,650 - - 2,757,713,776 Total Value of Depreciable Assets 3,719,163,803 187,901,961 (49,383,892) - 3,857,681,871

10.1.2 In the Course of Construction

Balance As at

01.04.2016

Incurred During the

Year

Disposals Transfers Balance As at

31.03.2017

Rs. Rs. Rs. Rs. Rs.

Capital Work in Progress - Building 2,941,427 3,227,877 - (1,935,696) 4,233,608 2,941,427 3,227,877 - (1,935,696) 4,233,608

Total Gross Carrying Amount 3,722,105,230 191,129,838 (49,383,892) (1,935,696) 3,861,915,479

10.1.3 Depreciation

Balance As at

01.04.2016

Charge for the

Year

Disposals Transfers Balance As at

31.03.2017

Rs. Rs. Rs. Rs. Rs.

At CostPlant and Machinery 241,543,263 39,467,438 (12,449,093) - 268,561,608 Furniture, Fittings and Equipment 292,811,153 46,463,567 (4,896,555) - 334,378,165 Cutlery, Crockery, Glassware and Silverware 23,282,785 335,787 - - 23,618,572 Motor Vehicles 12,822,618 3,870,195 (11,343,653) - 5,349,160

570,459,819 90,136,987 (28,689,301) - 631,907,505

At Valuation and Subsequent Improvement Buildings on Freehold Land - 22,344,789 - - 22,344,789 Buildings on Leasehold Land - 21,854,037 - - 21,854,037

- 44,198,826 - - 44,198,826 Total Depreciation 570,459,819 134,335,812 (28,689,301) - 676,106,330


10.1.4 Net Book Value

2017 2016Rs. Rs.

At CostPlant and Machinery 222,873,843 178,135,656 Furniture, Fittings and Equipment 237,572,626 205,631,372 Cutlery, Crockery, Glassware and Silverware 139,911 475,698 Motor Vehicles 7,474,210 23,519,133

468,060,590 407,761,858

At Valuation and Subsequent Improvement Freehold Land 531,501,386 531,715,002 Buildings on Freehold Land 1,338,737,287 1,355,308,052 Buildings on Leasehold Land 843,276,277 853,919,071

2,713,514,948 2,740,942,125

In the Course of Construction - BuildingBuilding Work in Progress 4,233,608 2,941,427

4,233,608 2,941,427 Total Carrying Amount of Property, Plant and Equipment 3,185,809,146 3,151,645,411

10.1.5 During the financial year, the Group acquired Property, Plant and Equipment to the aggregate value of Rs. 191,129,838 /- (2016 - Rs.92,890,151/- ), the consideration for which was settled by cash.

10.1.6 Property, Plant and Equipment includes fully depreciated assets having a gross carrying amounts of Rs.327,466,481/- (2016 Rs. Rs.243,206,061/- ).

10.1.7 Certain assets have been transferred in between existing asset categories to be inline with the Parent's policy.



10.1.8 Following companies have stated their properties at revalued amounts. The surplus arising from the revaluation was transferred to the revaluation reserve.

Professional Valuer / Property / Location

Extent Method of Valuation and Significant Unobservable Inputs

Range of Estimate for Unobservable

InputsRs.

Valuation

Rs.

Date of Valuation

Serendib Hotels PLCSunil Fernando & Associates (Pvt) Ltd - Chartered Valuers

Profit Basis of Valuation

Buildings on Leasehold land at Bentota

95,112 Sq Ft Average Room Rate Rs.15,000 - Rs.20,000 570,128,242 31-Mar-2016

75 Rooms Discount Rate 10%

Dolphin Hotels PLCSunil Fernando & Associates (Pvt) Ltd - Chartered Valuers


Land & Improvements at Waikkal

13A 2R 33.6P Average Room Rate Rs.15,000 - Rs.20,000 505,076,000 31-Mar-2016

Buildings at Waikkal 224,875 Sq Ft Discount Rate 10% 1,364,275,000 154 Rooms

Hotel Sigiriya PLCSunil Fernando & Associates (Pvt) Ltd - Chartered Valuers


Buildings on Leasehold land at Sigiriya

39,614 Sq Ft Average Room Rate Rs.10,000 - Rs.15,000 319,201,714 31-Mar-2016

79 Rooms Discount Rate 10%

10.1.9 The movement of revaluation reserve and other information are disclosed under note 21.

10.1.10 Description of the above valuation techniques together with narrative descriptions on sensitivity of the fair value measurement to changes in significant unobservable inputs are tabulated below;

Valuation Technique Name of the Company Significant unobservable valuation inputs

Correlation

Profit Basis of ValuationIn a trade related property the best measure of value is the income generation. It is based on a hypothetical operator who is knowledgeable prudent and efficient rather than actual. The income is estimated taking the potential into account as against the past records of income and expenditure latter is taken on the basis of sector derived expenditure and EBITDA is thus arrived, the residual profits are deducted and the balance as rent for a fully operational unit is either capitalized at a market derived all risk rate or cast into a DCF

Serendib Hotels PLC Avarage Room Rate Positive

Discount Rate Negative

Dolphin Hotels PLC Average Room Rate Positive


Hotel Sigiriya PLC Average Room Rate Positive



10.2 Company10.2.1 Gross Carrying Amounts

Balance As at

01.04.2016

Additions Disposals Balance As at

31.03.2017

Rs. Rs. Rs. Rs.

At CostPlant and Machinery 128,430,747 14,609,839 (2,278,506) 140,762,080 Furniture, Fittings and Equipment 214,670,251 20,371,130 - 235,041,381 Motor Vehicles 1,237,488 - - 1,237,488

344,338,486 34,980,969 (2,278,506) 377,040,950

At Valuation and Subsequent Improvement Freehold Land 16,639,000 9,786,384 - 26,425,384 Buildings on Leasehold Land 568,917,000 1,211,242 - 570,128,242

585,556,000 10,997,626 - 596,553,626 Total Value of Depreciable Assets 929,894,486 45,978,595 (2,278,506) 973,594,575

10.2.2 Depreciation

Balance As at

01.04.2016

Charge for the year

Disposals Balance As at

31.03.2017

Rs. Rs. Rs. Rs.

At CostPlant and Machinery 58,595,814 12,542,770 (2,278,506) 68,860,078 Furniture, Fittings and Equipment 99,157,327 24,942,116 - 124,099,443 Motor Vehicles 1,237,488 - - 1,237,488

158,990,629 37,484,885 (2,278,506) 194,197,008

At Valuation and Subsequent Improvement Buildings on Leasehold Land - 9,491,300 - 9,491,300

- 46,976,185 - 9,491,300 Total Depreciation 158,990,629 158,990,629 (2,278,506) 203,688,308



10.2.3 Net Book Values

2017 2016

Rs. Rs.

At CostPlant and Machinery 71,902,002 69,834,933 Furniture, Fittings and Equipment 110,941,938 115,512,924

182,843,940 185,347,857

At Valuation and Subsequent Improvement Freehold Land 26,425,384 16,639,000 Buildings on Leasehold Land 560,636,942 568,917,000

587,062,326 585,556,000

Total Carrying Amount of Property, Plant and Equipment 769,906,274 770,903,857

10.2.4 The Company acquired Property, Plant and Equipment to the aggregate value of Rs. 45,978,595 (2016 - Rs. 9,835,653/-) during the financial year, the consideration for which was settled by cash.

10.2.5 Property, Plant and Equipment includes fully depreciated assets having a gross carrying amounts of Rs.28,837,765 (2016 - Rs. 22,100,732/-).

10.2.6 The carrying amount of revalued assets that would have been included in the financial statements had the assets been carried at cost less depreciation is as follows:

Class of Asset Cost CumulativeDepreciation

If Assets were Carried at Cost

Net CarryingAmount

2017

Net CarryingAmount

2016

Rs. Rs. Rs. Rs.

GroupBuildings on Freehold Land 1,031,903,966 149,720,932 882,183,034 893,607,409 Buildings on Leasehold Land 793,127,145 152,205,401 640,921,744 652,929,288

CompanyBuildings on Leasehold Land 527,326,543 81,861,223.78 445,465,319 453,042,853

10.2.8 The details of assets pledged as securities for liabilities are set out in Note 30.


11. LEASEHOLD RIGHTS

Group Company

2017 2016 2017 2016Rs. Rs. Rs. Rs.

As at 1 April 31,126,852 32,957,841 28,928,859 30,630,555 Amortisation for the Year (1,830,994) (1,830,989) (1,701,696) (1,701,696)As at 31 March 29,295,858 31,126,852 27,227,163 28,928,859

Serendib Hotels PLC The Company has Obtained Leasehold Rights to two lots of land situated in Bentota from The Sri Lanka Tourist Board by the

agreement dated 19/02/1969 and 28/02/1973 respectively (the lease expires on 01/02/2019 and 28/02/2033 respectively)

Hotel Sigiriya PLC The land situated in Sigiriya has been leased from the Sri Lanka Tourist Board. The initial 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 As per the agreements these leases can be renewed at the date of expiry. The lessees have constructed buildings on these properties.

If the lease agreement is not renewed on the expiration of the lease term, Sri Lanka Tourist Board will pay to the Group the value of the buildings and improvements constructed with the written approval of Sri Lanka Tourist Board as assessed by the Chief Valuer.

12. INTANGIBLE ASSETS

Group Company

2017 2016 2017 2016Rs. Rs. Rs. Rs.

At CostCOMPUTER SOFTWAREAt the Beginning of the Year 10,328,649 7,827,322 1,908,205 1,908,205 Additions 75,834,690 2,501,327 27,365,394 - Disposals (3,672,500) - (1,908,205) - At the End of the Year 82,490,839 10,328,649 27,365,394 1,908,205

AmortisationAt the Beginning of the Year 6,790,081 5,153,672 1,580,777 1,212,137 Amortisation 5,639,489 1,636,409 2,607,878 368,640 Disposals (3,672,500) - (1,908,205) - At the End of the Year 8,757,070 6,790,081 2,280,449 1,580,777 Carrying Value 73,733,769 3,538,568 25,084,945 327,428

Group Company

2017 2016 2017 2016Rs. Rs. Rs. Rs.

GOODWILL At the Beginning of the Year 22,252,564 22,252,564 - - Adjustment to Goodwill During the Year - - - - At End of the Year 22,252,564 22,252,564 - -

95,986,333 25,791,132 25,084,945 327,428



12.1 Goodwill is annually tested for impairment which is valued based on the earnings growth method. Assumptions applied in such computations are reviewed each year.

Computer software are amortised over their economic useful life ranging 5-10 years.

13. INVESTMENTS IN SUBSIDIARIES - COMPANY

Country of Incorporation

Holding % Cost Market Value

Cost Market Value

2017 2016 2017 2017 2016 2016Rs. Rs. Rs. Rs.

a) Quoted InvestmentsDolphin Hotels PLC. Sri Lanka 65.18% 64.85% 207,799,814 996,076,526 203,692,502 861,274,169 Hotel Sigiriya PLC. Sri Lanka 63.08% 61.97% 63,291,375 570,080,700 56,704,833 348,558,941 Total Quoted Investments in Subsidiaries

271,091,190 1,566,157,226 260,397,335 1,209,833,110

b) Non- Quoted InvestmentsSerendib Leisure Management Ltd Sri Lanka 100% 100% 100,000 - 100,000 - Hemas South Colombo Hospital (Pvt) Ltd Sri Lanka 100% 0% 20 - - - Total Non- Quoted Investments in Subsidiaries 100,020 - 100,000 - Total Net Carrying Value of Investments in Subsidiaries 271,191,210 1,566,157,226 260,497,335 1,209,833,110

Other information pertaining to subsidiaries are given below:

Name of the Subsidiary Nature of Operations Principal place of Business

Dolphin Hotels PLC Hotel Operation WaikkalHotel Sigiriya PLC Hotel Operation SigiriyaSerendib Leisure Management Ltd Hotel Management ColomboHemas South Colombo Hospital (Pvt) Ltd Non-Operating Colombo


13.1 Material Partly-Owned Subsidiaries Financial information of subsidiaries that have material non-controlling interests is provided below:

Proportion of interest held by non-controlling interests

2017 2016 2017 2016% % Rs. Rs.

Dolphin Hotels PLC. 34.82% 35.15% 651,538,980 636,031,705 Hotel Sigiriya PLC. 36.92% 38.03% 153,253,193 154,635,448

Total Comprehensive income allocated to material non-controlling interest:

2017 2016Rs. Rs.

Dolphin Hotels PLC. 33,124,315 180,933,760 Hotel Sigiriya PLC. 24,723,110 44,160,641

Summarised Financial Information of Material partly-owned subsidiaries;

2017 2016Rs. Rs.

Dolphin Hotels PLC.Current Assets 396,355,085 290,737,363 Non Current Assets 2,082,592,187 2,038,513,711 Current Liabilities 446,900,160 278,485,014 Non-Current Liabilities 160,884,045 243,111,659 Total Equity 1,871,163,067 1,807,654,401

Revenue 878,311,369 880,507,510 Profit Before Tax 129,566,390 219,818,063 Profit After Tax 100,337,145 208,171,904 Other Comprehensive Income (5,207,004) 306,575,635 Total Comprehensive Income for the year 95,130,141 514,747,539

Dividends paid to non-controlling interest 11,114,949 16,675,667

Cash FlowsNet Cash Flows from operating activities 115,106,897 226,279,096 Net Cash Flows from investing activities (106,404,360) (50,802,649)Net Cash Flows from financing activities (122,534,850) (121,181,019)



2017 2016Rs. Rs.

Hotel Sigiriya PLCCurrent Assets 128,808,574 139,859,503 Non Current Assets 391,284,729 357,551,638 Current Liabilities 77,284,750 58,796,645 Non-Current Liabilities 27,713,229 31,893,169 Total Equity 415,095,324 406,721,327

Revenue 325,263,132 333,028,739 Profit Before Tax 69,572,745 86,120,457 Profit After Tax 67,108,395 66,529,141 Other Comprehensive Income (144,392) 49,596,022 Total Comprehensive Income for the year 66,964,003 116,125,163

Dividends paid to non-controlling interest 22,281,777 11,140,889

Cash FlowsNet Cash Flows from operating activities 93,454,825 93,635,605 Net Cash Flows from investing activities (107,713,587) (1,424,453)Net Cash Flows from financing activities (58,065,545) (28,527,254)

The information relating to commitment and contingencies of the subsidiaries are disclosed in note 28 to these financial statement.

14. INVESTMENTS IN ASSOCIATE (GROUP / COMPANY)

Group The Group ceased its significant influence over Jada Resort and SPA (Pvt) Ltd with the dilution of shareholding which took place

during the year. As a result the Group discontinued accounting for Jada Resort & Spa (Pvt.) Ltd. on the equity method effective from 1st April 2016 and reclassified same as 'Investment in equity shares' - AFS Investments. Refer note 15.1.

Holding2017 2016 2017 2016

% % Rs. Rs.

Jada Resort and Spa (Pvt) Ltd (14.1) 6.48% 19.90% - 361,800,244 Cumulative profit accruing to the Group net of Dividend - (2,736,339)Carrying Amount of the Investment - 359,063,905

14.1 The details of the loss on the dilution

Group CompanyRs. Rs.

Carrying value of the investment as at the date of dilution 359,063,905 360,623,100

Fair Value of the shares transferred to AFS financial assets (15.1.1) (327,523,035) (327,523,035)

Loss reported in the statement of profit or loss 31,540,870 33,100,065

The group holding percentage as at 31st March 2017 is 6.48% ( 2016 - 19.9%)


Summarised financial information

2017 2016Rs. Rs.

Statement of Financial PositionCurrent Assets - 826,198,999 Non - Current Assets - 4,808,070,937 Current Liabilities - 1,410,138,125 Non - Current Liabilities - 2,006,060,334 Net Assets - 2,218,071,477

2017 2016Rs. Rs.

Group Share of Associate’s Statement of profit or lossShare of the Associate Revenue - 86,649,935 Share of the Associate Profit before tax - (21,327,575)Share of the Associate Profit after tax - (24,496,713)Capital and Other CommitmentsLease Commitments:Less than 1 year - 13,400,000Between 1 and 5 years - 40,200,000

- 53,600,000

Company 2017 2016Rs. Rs.

Jada Resort and Spa (Pvt) Ltd. - 360,623,100 - 360,623,100

15. INVESTMENT IN EQUITY SHARES

Group Company

2017 2016 2017 2016Rs. Rs. Rs. Rs.

Available for Sale InvestmentsRainforest Ecolodge (Pvt) Ltd (15.2) 12,000,010 12,000,010 4,000,010 4,000,010 Jada Resorts & Spa (Pvt) Ltd (15.1.1) 318,106,475 - 318,106,475 - Total Carrying value 330,106,485 12,000,010 322,106,485 4,000,010

15.1 The Group/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. The determination of what is ‘significant’ or ‘prolonged’ requires judgement. ‘Significant’ is evaluated against the original cost of the investment and ‘prolonged’ against the period in which the fair value has been below its original cost.



15.1.1 Movement of the balance - Jada Resorts & Spa (Pvt) Ltd

Group CompanyRs. Rs.

Balance as at the beginning of the year - -

Amount transferred from investment in associates (14.1) 327,523,035 327,523,035Adjustment on fair valuation - impact on deemed dilution of AFS equity shares (9,416,560) (9,416,560)Balance as at the end of the year 318,106,475 318,106,475

15.1.1 Significant unobservable inputs to AFS valuation are given below:

As at 31 March 2017: Valuation technique Significant unobservable inputs

Range (weighted average)

Rs. Rs. Rs.

Jada Resorts & Spa (Pvt) Ltd DCF method Long-term growth rate for cash flows for subsequent years

4% - 8% 6.0%

Cost of Equity(Ke) 16% - 20% 18.0%

15.2 The Group / Company has invested in 2,000,001/ 666,664 equity shares of Rainforest Ecolodge (Pvt.) Ltd. at Rs. 60 each. This investment is carried at cost due to impracticability of assessing the fair value of the investment, primarily as a result of the unavailability adequate and comparable market information.

16. OTHER FINANCIAL ASSETS

Group Company

2017 2016 2017 2016Rs. Rs. Rs. Rs.

CurrentLoans Due from Related Parties(16.1) 671,062 695,700 20,119 20,119 Other 34,773 - 15,000 - Total Carrying Value of other Financial Assets 705,835 695,700 35,119 20,119

16.1 Loans Due From Related Parties

Group Company

2017 2016 2017 2016Relationship Rs. Rs. Rs. Rs.

Hemas Holdings PLC (Note 16.2) Parent Company 671,062 695,700 20,119 20,119 671,062 695,700 20,119 20,119


16.2 Loans Due From Related Parties - Terms and Conditions

As at 01.04.2016

Loans Granted

Loan Repayment

As at 31.03.2017

Repayment Terms

Rates of Interest

Relationship Rs. Rs. Rs. Rs.

GroupHemas Holdings PLC Parent

Company 695,700 - (24,638) 671,062 on Demand At a margin

over AWPLR 695,700 - (24,638) 671,062

CompanyHemas Holdings PLC Parent

Company 20,119 - - 20,119 on Demand At a margin

over AWPLR 20,119 - - 20,119

These loans are unsecured and were granted in accordance with the Group’s treasury policy

17. INVENTORIES

Group Company

2017 2016 2017 2016Rs. Rs. Rs. Rs.

Food 5,368,526 3,704,329 1,741,258 1,299,130 Beverage 8,078,937 6,915,378 3,204,574 2,526,531 House Keeping and Maintenance 6,266,316 4,595,553 2,009,343 2,229,785 Printing and Stationery 754,494 1,367,372 624,089 397,426 Linen / Cutlery & Other 4,619,231 5,241,494 237,770 102,515

25,087,504 21,824,126 7,817,034 6,555,387

18. TRADE AND OTHER RECEIVABLES

Group Company

2017 2016 2017 2016Rs. Rs. Rs. Rs.

Trade Receivable - Related Parties (18.2) 15,326,445 7,729,202 3,787,046 801,348 Trade Receivable - Other 388,475,096 244,303,985 99,970,880 55,451,890 Less: Debtors' Impairment (18.5) (14,941,782) (8,880,787) (4,628,561) (1,401,380)

388,859,759 243,152,400 99,129,365 54,851,858

Other Debtors 1,515,082 3,497,635 1,973,947 726,936 Advances and Prepayments 40,535,924 34,893,172 3,156,386 5,925,984

42,051,006 38,390,807 5,130,334 6,652,920

Festival Advances (18.3) 2,501,886 1,120,967 1,649,381 67,202 Non Trade Dues from Related Parties (18.4) 35,663,063 23,319,082 10,863,974 11,216,678

469,075,714 305,983,256 116,773,053 72,788,658



18.1 Trade Debtors Age Analysis

Past due but not impairedTotal Neither past due

nor impaired30-90 Days 91-120 Days >120 Days

Group2017 388,859,759 174,964,370 163,819,587 15,623,950 34,451,853 2016 243,152,400 154,274,885 77,936,939 4,582,538 6,358,038

Past due but not impairedTotal Neither past due

nor impaired30-90 Days 91-120 Days >120 Days

Company2017 99,129,365 51,201,758 43,359,689 3,170,650 1,397,268 2016 54,851,858 44,158,471 10,347,379 346,008 -

18.2 Trade Dues Receivables from Related Parties

Group Company


Hemas Holdings PLC. Parent Company 200,699 71,700 - - Hemas Manufacturing (Pvt) Ltd. Affiliate Company 62,400 - 62,400 - Diethlem Travel Lanka (Pvt) Ltd. Affiliate Company 6,647,104 5,172,113 3,271,887 559,578 Hemas Air Services (Pvt) Ltd. Affiliate Company 1,344,420 - - - Hemas Travels (Pvt) Ltd. Affiliate Company 104,876 - - - Hemas Hospital (Pvt) Ltd Affiliate Company 80,600 - 80,600 - Kalutara Luxury Hotels & Resort (Pvt) Ltd Affiliate Company 6,756,777 - - - P H Resorts (Pvt) Ltd. Affiliate Company - 1,637,958 - - Jada Resort and Spa (Pvt) Ltd. Affiliate Company 129,569 847,431 258,445 241,771 Serendib Leisure Management Ltd. Subsidiary Company - - 113,714 -

15,326,445 7,729,202 3,787,046 801,348

18.3 Festival Advances

Group Company

2017 2016 2017 2016Rs. Rs. Rs. Rs.

SummaryBalance as at Beginning of the Year 1,120,967 5,129,161 67,202 1,382,870 Loans Granted During the Year 6,908,358 3,163,636 3,127,412 1,501,475 Less: Repayments During the Year (5,527,449) (7,171,830) (1,545,234) (2,817,143)Balance as at End of the Year 2,501,886 1,120,967 1,649,381 67,202


18.4 Amounts Due From Related Parties

Group Company


Hemas Holdings PLC. Parent Company 256,580 774,208 - - Hotel Sigiriya PLC. Subsidiary Company - - 17,755 14,396 Jada Resorts and Spa (Pvt) Ltd. Affiliate Company 12,066,275 17,699,020 5,018,740 3,239,721 Peace Heaven Resorts Ltd Affiliate Company 1,063,632 - - - P H Resorts (Pvt) Ltd. Affiliate Company 4,403,978 4,041,172 192,976 105,865 Paradise Island Resort Ltd. Affiliate Company - 54,344 - - Kammala Hotelliers (Pvt) Ltd. Affiliate Company 389,140 377,242 - - Kalutara Luxury Resort (Pvt) Ltd. Affiliate Company 10,937,082 90,824 128,088 4,492,279 Serandib Leisure Management Ltd Subsidiary Company - - 4,979,992 3,342,068 Dolphin Hotels PLC Subsidiary Company - - 526,523 22,349 Hemas Aviation (Pvt) Ltd Affiliate Company 8,412 - - - Hemas Travels (Pvt) Ltd. Affiliate Company 840,074 - - - Hemas Air Services (Pvt) Ltd. Affiliate Company 989,222 - - - Hemas Manufacturing (Pvt) Ltd. Affiliate Company 4,156,599 - - - Vishwa BPO (Pvt) Ltd. Affiliate Company 115,432 - - - Diethelm Travel Lanka (Pvt) Ltd. Affiliate Company 436,637 282,272 - -

35,663,063 23,319,082 10,863,974 11,216,678

18.5 Movement in Individual and Collective Impairment During the Year

Group CompanyIndividual

ImpairmentCollective

ImpairmentTotal

ImpairmentIndividual

ImpairmentCollective

ImpairmentTotal

ImpairmentRs. Rs. Rs. Rs. Rs. Rs.

At 1 April 2016 5,039,231 3,841,556 8,880,787 316,021 1,085,359 1,401,380 Charge to Profit or Loss 1,241,836 6,701,393 7,943,229 - 3,227,182 3,227,182 Write-off during the period - (1,882,234) (1,882,234) - - - At 31 March 2017 6,281,067 8,660,715 14,941,782 316,021 4,312,541 4,628,562

18.6 The Group grants credit approvals to its customers subjected to the internal credit limits which are regularly reviewed and controlled by the Management . The average credit granted to such Debtors are 30 Days.



19. CASH AND SHORT TERM DEPOSITS AS PER THE STATEMENT OF CASH FLOWS Components of Cash and Cash Equivalents

Group Company

2017 2016 2017 2016Rs. Rs. Rs. Rs.

19.1 Favourable Cash and Cash Equivalent BalancesCash and Bank Balances 163,124,701 382,115,700 29,045,045 111,460,305

163,124,701 382,115,700 29,045,045 111,460,305

19.2 Unfavourable Cash and Cash Equivalent Balances Bank Overdraft (129,686,933) (57,865,550) (15,311,090) (33,280,381)

Total Cash and Cash Equivalents for the Purpose of Cash Flow Statement

33,437,768 324,250,150 13,733,955 78,179,924

20. STATED CAPITAL - COMPANY

2017 2016 Number Rs. Number Rs.

20.1 Fully Paid Ordinary Shares 75,514,738 614,282,951 75,514,738 614,282,951 Fully Paid Non-Voting Ordinary Shares 36,011,056 298,838,743 36,011,056 298,838,743

111,525,794 913,121,694 111,525,794 913,121,694

20.2 Rights, Preference and Restrictions of Classes of Capital The holders of Ordinary Shares possess the right to receive dividends as declared from time to time. The holders of Voting

Ordinary Shares are entitled to one vote per share at a meeting of the Company.

21. RESERVES

Group Company

2017 2016 2017 2016Rs. Rs. Rs. Rs.

Summary(a) Revenue Reserves General Reserve (21.2) 19,940,000 19,940,000 14,500,000 14,500,000

19,940,000 19,940,000 14,500,000 14,500,000

(b) Other Component of Equity Asset Revaluation Reserve (21.1) 552,631,394 559,753,715 83,929,134 91,051,455 Cash Flow Hedge Reserve (21.3) 17,483,939 11,638,371 (1,486,253) (8,706,111)

570,115,333 571,392,086 82,442,882 82,345,344


21.1 Revaluation Reserve

Group Company

2017 2016 2017 2016Rs. Rs. Rs. Rs.

On: Property, Plant and EquipmentBalance as at the Beginning of the Year 559,753,714 336,204,924 91,051,454 114,392,481 Revaluation Surplus During the Year - 234,710,060 - (27,507,346)Deferred Tax attributable to Revaluation Surplus (7,122,321) (11,161,270) (7,122,321) 4,166,319 Balance as at the End of the Year 552,631,393 559,753,714 83,929,133 91,051,454

21.2 General Reserve which is a Revenue Reserve represents the amounts set aside by the Directors for general application.

21.3 Cash Flow Hedge Reserve The Group designated its identified foreign currency loans as a hedging instrument against its highly probable, specifically

identified future revenue in foreign currency namely apartment revenue. Through which, the company hedged the risk of changes in value of the identified foreign currency loans, caused by the fluctuations in foreign exchange rates.

The effective portion of gain or loss on the hedging instrument is recognised in the cash flow hedge reserve, through Other Comprehensive Income while any ineffective portion is recognised immediately in the statement of profit or loss as finance income/Cost.

Amounts recognised as other comprehensive income are transferred to profit or loss when the hedged transaction affects profit or loss,(when the a forecast sale occurs). If the forecast sales are no longer expected to occur, the cumulative gain or loss previously recognised in equity is transferred to the income statement. If the hedging instrument expires or is sold, terminated or exercised without replacement or rollover, or if its designation as a hedge is revoked, any cumulative gain or loss previously recognised in other comprehensive income remains in other comprehensive income until the forecast transaction occurs as per hedge agreement.

21.3.1 Cash Flow Hedge Reserve

Group Company

2017 2016 2017 2016Rs. Rs. Rs. Rs.

Balance At the Beginning of the Year 11,638,372 57,792,364 (8,706,109) 17,894,926 Net Movement of Cash flow Hedge Reserve 5,845,568 (46,153,992) 7,219,858 (26,601,037)Balance at the End of the Period 17,483,940 11,638,372 (1,486,251) (8,706,109)

22. INTEREST BEARING LOANS AND BORROWINGS22.1 Group

2017 2016Amount

RepayableWithin 1 Year

Amount Repayable

After 1 Year

Total Amount Repayable

Within 1 Year

Amount Repayable

After 1 Year

Total

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

Bank Loans (22.1.1) 106,481,460 54,089,969 160,571,429 157,608,606 224,480,182 382,088,788 Loans from Related Parties (22.4)

20,000,000 - 20,000,000 - - -

126,481,460 54,089,969 180,571,429 157,608,606 224,480,182 382,088,788



22.1.1 Bank Loans

As at 01.04.2016

Loans Obtained

Repayment ExchangeGain

As at 31.03.2017

Rs. Rs. Rs. Rs. Rs.

Bank Loans (22.3) 382,088,788 - (190,576,795) (30,940,564) 160,571,429 382,088,788 - (190,576,795) (30,940,564) 160,571,429

22.1.2 Loans from Related Parties

Relationship 2017 2016 Repayment Terms Rates of Interest

Hemas Holding PLC Parent Company

20,000,000 - On Demand At a Margin over one Month AWPLR

22.2 Company

2017 2016Amount

RepayableWithin 1 Year

Amount Repayable

After 1 Year

Total Amount Repayable

Within 1 Year

Amount Repayable

After 1 Year

Total


Bank Loans (22.2.1) 64,595,280 8,740,836 73,336,116 88,393,786 80,379,382 168,773,168 Loans from Related Parties (21.4)

66,000,000 - 66,000,000 - - -

130,595,280 8,740,836 139,336,116 88,393,786 80,379,382 168,773,168

22.2.1 Bank Loans

As at 01.04.2016

Loans Obtained

Repayment ExchangeGain

As at 31.03.2017

Rs. Rs. Rs. Rs. Rs.

Bank Loans (22.3) 168,773,168 - (85,898,998) (9,538,053) 73,336,116 168,773,168 - (85,898,998) (9,538,053) 73,336,116

22.3 Bank Loans - Summary - Group

Balance As at 01.04.2016

Loans Obtained

Repayment Exchangegain

As at 31.03.2017

Rs. Rs. Rs. Rs. Rs.

Serendib Hotels PLC (21.3.1) 168,773,167 - (85,898,998) (9,538,053) 73,336,116 Dolphin Hotels PLC (21.3.2) 213,315,621 - (104,677,797) (21,402,511) 87,235,313

382,088,788 - (190,576,795) (30,940,564) 160,571,429


22.3 Bank Loans

Balance As at 01.04.2016

Loans Obtained

Repayment ExchangeLoss

As at 31.03.2017

Repayment Terms

Rates of Interest

Rs. Rs. Rs. Rs. Rs.

22.3.1 Serendib Hotels PLC Hatton National Bank PLC-Foreign Currency-GBP 325,000

20,583,851 - (12,250,194) (2,196,089) 6,137,568 60 Instalments from Oct' 12

At a Margin over 3 Months

LIIBORHatton National Bank PLC-Foreign Currency-GBP 290,000

20,423,172 - (11,015,479) (2,081,351) 7,326,342 60 Instalments from Jan' 13


LIIBOR

Hatton National Bank PLC-Foreign Currency-EUR 700,000

36,948,989 - (22,263,535) (1,454,736) 13,230,717 60 Instalments from Oct' 12


EURIBOR


37,611,145 - (19,414,284) (1,727,067) 16,469,794 60 Instalments from Dec' 12


EURIBOR


53,206,010 - (20,955,505) (2,078,810) 30,171,695 60 Instalments from Sep' 13


EURIBOR

168,773,167 - (85,898,998) (9,538,053) 73,336,116

22.3.2 Dolphin Hotels PLC Commercial Bank of Ceylon PLC-Foreign Currency (EUR) Loan

69,576,447 - (65,724,635) (3,851,812) - 72 Instalments from Nov' 12

At a margin Over 1 Month

EUR LIBO p.a

Commercial Bank of Ceylon PLC-Foreign Currency (GBP) Loan

143,739,174 - (38,953,163) (17,550,698) 87,235,313 72 Instalments from Nov' 12

At a margin Over 1 Month

EUR LIBO p.a 213,315,621 - (104,677,798) (21,402,510) 87,235,313 382,088,788 - (190,576,796) (30,940,563) 160,571,429

The disclosures relating to assets pledged as securities for above facilities are made in note 30.

22.4 Loans from Related Parties

Relationship 2017 2016 Repayment Terms Rates of Interest Security

Hotel Sigiriya PLC. Subsidiary Company


None

Hemas Holding PLC Parent Company


None

66,000,000 -



23. RETIREMENT BENEFIT OBLIGATION

Group Company

2017 2016 2017 2016Rs. Rs. Rs. Rs.

GratuityBalance As at Beginning of the Year 53,783,055 49,576,349 13,403,464 14,078,975 Interest Cost 4,441,755 3,549,738 - 1,407,898 Current Service Cost 8,628,676 8,691,496 2,866,626 1,592,353 Benefits Paid (14,961,477) (3,715,265) (2,548,374) (2,278,250)Actuarial (Gain)/Loss 4,601,576 (4,319,263) 560,122 (1,397,512)Balance as at End of the Year 56,493,585 53,783,055 14,281,838 13,403,464

23.1 Messers K.A Pandith Actuaries, consultants and Actuaries, carried out an actuarial valuation of the defined benefit plan gratuity on 31.03.2017 Appropriate and compatible assumptions were used in determining the cost of retirement benefits.

23.2 The principle assumptions used for Actuarial Valuation were as follows :

Group Company

2017 2016 2017 2016

a) Demographic Assumptions Retirement Age 55 Years 55 Years 55 Years 55 YearsAverage Expected Future Service 18 Years 18 Years 17 Years 17 Years

b) Financial AssumptionsDiscount Rate 12% 11% 12% 11%Future Salary Increment Rate 10% 9% 10% 9%

23.3 Sensitivity of Assumptions Employed in Actuarial Valuation The following table demonstrates the sensitivity to a reasonable possible change in the key assumptions used, with all other

variables held constant in the post employment benefit liability measurement, in respect of the year 2016/17.

The sensitivity of the Income Statement and Statement of Financial Position is the effect of the assumed changes in discount rate, salary increment rate and employee turnover on the profit or loss and post employment benefit obligation for the year.


Sensitivity Effect on Defined Benefit ObligationDelta Effect of +1% Delta Effect of (-1%)

2017Rs.

2016Rs.

2017Rs.

2016Rs.

GroupIncrease/(Decrease) in Discount Rate (5,022,937) (4,670,618) 5,617,848 5,460,001 Increase/(Decrease) in Salary Increment Rate 5,673,595 5,513,759 (5,148,148) (4,790,482)Increase/(Decrease) in Employee Turnover 676,774 758,031 (1,012,391) (877,805)

Sensitivity Effect on Defined Benefit ObligationDelta Effect of +1% Delta Effect of (-1%)

2017Rs.

2016Rs.

2017Rs.

2016Rs.

CompanyIncrease/(Decrease) in Discount Rate (1,078,831) (965,152) 1,239,076 1,117,347 Increase/(Decrease) in Salary Increment Rate 1,251,148 1,128,295 (1,106,295) (990,052)Increase/(Decrease) in Employee Turnover 152,867 132,067 (186,644) (154,119)

23.4 Following payments are expected weighted average life span obligation on the future years:

Group Company

2017 2016 2017 2016Rs. Rs. Rs. Rs.

Years From the Current Period1st Following Year 4,476,146 6,057,695 1,996,771 2,630,432 2nd Following Year 1,807,261 1,335,668 387,149 187,076 3rd Following Year 2,873,316 3,101,345 1,028,276 780,857 4th Following Year 7,123,023 3,188,521 1,607,513 1,023,002 5th Following Year 5,683,865 14,849,689 3,493,077 1,564,877 Beyond 5 years 55,082,719 39,470,271 11,842,947 9,484,042

24. TRADE AND OTHER PAYABLES

Group Company

2017 2016 2017 2016Rs. Rs. Rs. Rs.

Trade Payable - Other 53,244,742 54,312,083 13,833,609 11,415,590 Sundry Creditors Including Accrued Expenses 394,585,296 287,860,494 87,005,026 91,168,567 Amounts due to Related Parties (24.1) 98,151,306 37,830,652 61,004,771 20,414,540

545,981,344 380,003,228 161,843,406 122,998,697



24.1 Amounts due to Related Parties

Group Company


Dolphin Hotels PLC. Subsidiary Company - - 5,000,064 110,391 Serendib Leisure Management Ltd. Subsidiary Company - - 35,407,906 8,958,954 Hotel Sigiriya PLC. Subsidiary Company - - 2,210,941 - PH Resorts (Pvt) Ltd. Affiliate Company - 227,445 227,445 227,445 Hemas Holdings PLC. Parent Company 71,289,394 32,414,697 17,166,531 10,338,705 Diethlm Travels Ltd. Affiliate Company 848,822 272,421 217,154 - Peace Heaven Resorts Ltd. Affiliate Company 227,445 - - Jada Resort and Spa (Pvt) Ltd. Affiliate Company 2,410,512 2,087,243 556,901 556,902 Hemas Corporate Services Ltd. Affiliate Company 3,951,301 680,846 217,809 - Hemas Hospitals (Pvt) Ltd Affiliate Company 20 - 20 - Hemas Developments (Pvt) Ltd. Affiliate Company 14,990,225 - - - Hemas Travels (Pvt) Ltd. Affiliate Company 1,667,114 1,912,832 - - N-Able (Pvt) Ltd. Affiliate Company 1,030,338 - - - Vishwa BPO (Pvt) Ltd. Affiliate Company 1,736,155 235,168 - 222,143

98,151,306 37,830,652 61,004,771 20,414,540

24.2 The group through its central procurement team negotiates for the best credit terms while ensuring for quality, price and time when deciding on its suppliers to procure. The average credit period for the group is 60 days.

25. DIVIDENDS PAYABLE

Group Company

2017 2016 2017 2016Rs. Rs. Rs. Rs.

Unclaimed Dividends 8,201,331 4,320,852 3,205,560 1,613,606 8,201,331 4,320,852 3,205,560 1,613,606

26. Reclassification of comparative information (expenses) The Group/Company has changed its presentation of Cost of sales, Sales & Marketing expenses, Administrative expenses and

exchange gains/losses for better presentation of financial information. The management has reasonable evidence that such presentation would be more relevant for the understanding of the entity’s financial performance for the user.


The effect of the reclassification on financial statements is summarized below.

As previously reported

Increase/ Decrease

Reclassified

31.03.2016 31.03.2016 Rs. Rs. Rs.

GroupRevenue 1,768,248,795 - 1,768,248,795 Cost of Sales (376,825,375) (80,655,745) (457,481,120)Gross Profit 1,391,423,420 (80,655,745) 1,310,767,675 Dividend Income - - - Other Operating Income and Gains 10,735,335 39,576,405 50,311,740 Sales and Marketing Expenses (85,651,257) 47,045,607 (38,605,650)Administrative Expenses (955,733,540) 32,305,035 (923,428,505)Operating Profit 360,773,958 38,271,302 399,045,260 Finance Cost (24,238,211) (649,033) (24,887,244)Finance Income 10,980,328 - 10,980,328 Exchange Gain/(Loss) 37,622,269 (37,622,269) - Share of Results of Associate (21,327,575) - (21,327,575)Profit /(Loss) Before Tax 363,810,769 - 363,810,769

- Income Tax Expense (62,447,849) - (62,447,849)Profit for the Period 301,362,920 - 301,362,920

As previously reported

Increase/ Decrease

Reclassified

31.03.2016 31.03.2016 Rs. Rs. Rs.

CompanyRevenue 507,385,131 - 507,385,131 Cost of Sales (94,730,521) (21,722,30) (116,452,650)Gross Profit 412,654,610 (21,722,30) 390,932,481 Dividend Income 80,183,300 - 80,183,300 Other Operating Income and Gains 3,934,617 6,753,749 10,688,366 Sales and Marketing Expenses (35,586,820) 18,793,392 (16,793,428)Administrative Expenses (299,137,199) 2,928,734 (296,208,464)Operating Profit 162,048,508 6,753,745 168,802,255 Finance Cost (11,312,388) - (11,312,388)Finance Income 5,259,776 - 5,259,776 Exchange Gain/(Loss) on Others 6,753,747 (6,753,745) - Profit /(Loss) Before Tax 162,749,641 - 162,749,643

- Income Tax Expense (15,293,818) - (15,293,818)Profit for the Period 147,455,825 - 147,455,825



27. DIVIDEND PER SHARE27.1 Dividends Paid

Group Company2017 2016 2017 2016

Rs. Rs. Rs. Rs.

Declared During the YearDividend on Ordinary SharesFinal Dividend out of 2015/2016 Profits 111,525,794 111,525,794 Interim Dividend out of 2014/15 Profits 111,525,794 111,525,794Total 111,525,794 111,525,794 111,525,794 111,525,794

Dividend Per ShareFinal Dividend out of 2015/2016 Profits 1.00 - 1.00 -Interim Dividends out of 2014/15 Profits - 1.00 - 1.00Total 1.00 1.00 1.00 1.00

The Final Dividends for 2015/2016 has been paid on 02 August 2016.

28. COMMITMENTS AND CONTINGENCIES28.1 Commitments28.1.1 Serendib Hotels PLC has given Corporate Guarantees to Kalutara Luxury Hotel & Resort (Pvt) Ltd (Affiliate Company) for USD

5.2Mn (Equivalent to LKR. 790.3Mn) and Jada Resorts & Spa (Pvt) Ltd (Affiliate Company) for USD 960,000 (Equivalent to LKR. 145.9Mn), in favour of The Hongkong and Shanghai Banking Corporation Limited.

28.1.2 Lease Commitments

Group Company2017 2016 2017 2016

Rs. Rs. Rs. Rs.

Lease rental due on non cancellable operating leases:Within one Year 2,997,498 2,997,498 634,998 634,998 One to five Years 12,925,059 12,925,059 3,475,059 3,165,030 More than five Years 48,111,812 51,109,310 18,974,312 20,554,337

64,034,369 67,031,867 23,084,369 24,354,365

Lease Commitments Leased property Lessor

Serendib Hotels PLC Land Sri Lanka Tourist BoardHotel Sigiriya PLC Land Sri Lanka Tourist Board

28.1.3 Capital Commitments

There were no significant capital commitments as at the reporting date.

28.2 Contingencies28.2.1 The Employee Union of Club Hotel Dolphin has filed a case against Club Hotel Dolphin and Serendib Leisure Management

Limited at the Department of Labour-Narahenpita for downgrading of 23 employees based on their performance appraisal for 2013/14. Currently negotiations are underway for settlement at a sum of Rs. 552,000/-.

28.2.2 Marawila Pradeshiya Sabha has filed a case against Club Hotel Dolphin at Magistrate Court- Marawaila, charged for operating the Hotel without the required permit issued by the Pradeshiya Sabha. Summon have been issued to the Hotel and the case shall be called on 31/05/2017


29. EVENTS OCCURRING AFTER THE REPORTING DATE There have been no material events occurring after the reporting date that require adjustments to or disclosure in the Financial

Statements.

30. ASSETS PLEDGED The following Assets have been Pledged as Security for Liabilities.

Nature of Assets Nature of Liability Carrying Amount Pledged Included Under

2017 2016Rs. Rs.

Dolphin Hotels PLCFreehold Land and Building Primary Mortgage Bond No.3120 and No.1425

dated 12/07/2010 for Rs.146.3M and Rs.244.6M executed over Club Hotel Dolphin's Hotel premises at Waikkala owned by the company. Extent 5A-3R-2.6P (Lot 1 in plane No.3105) and 7A:3R:31P to Commercial Bank of Ceylon PLC (EIB Loan of Rs.126.6M and 234.6M and overdraft facility of Rs.20M and 10M)

1,846,608,536 1,869,351,000 Property, Plant and Equipment

Freehold Land and Building A supplementary Mortgage Bond in Euro executed in connection with Primary Mortgage Bond No.3120 dated 13/07/2010 linking the Rupee exposure in foreign currency. A supplementary Mortgage Bond in GBP executed in connection with Primary Mortgage Bond No.1425 dated 13/07/2010 linking the Rupee exposure in foreign currency.

1,846,608,536 1,869,351,000 Property, Plant and Equipment

31. RELATED PARTY DISCLOSURES31.1 Terms and conditions of transactions with related parties Transactions with related parties are carried out in the ordinary course of the business. Outstanding current account balances at

year end are unsecured, interest free and settlement occurs in cash. Interest bearing borrowings are at pre-determined interest rates and terms.

31.2 Non-recurrent related party transactions There were no other non-recurrent Related Party Transactions which in aggregate value exceeds 10% of the equity or 5% of the

total assets whichever is lower of the Company as per 31 March 2016 audited financial statements, which required additional disclosures in the 2016/17 Annual Report under Colombo Stock Exchange listing Rule 9.3.2 and Code of Best Practices on Related Party Transactions under the Security Exchange Commission Directive issued under Section 13(c) of the Security Exchange

Commission Act.

31.3 Recurrent related party transactions There were no other recurrent related party transactions which in aggregate value exceeds 10% of the revenue of the Company

as per 31 March 2016 audited financial Statements, which required additional disclosures in the 2016/17 Annual Report under Colombo Stock Exchange listing Rule 9.3.2 and Code of Best Practices on Related Party Transactions under the Security Exchange Commission Directive issued under Section 13(c) of the Security Exchange Commission Act. Terms and conditions on loans granted to related parties are disclosed in Note 15.2 to these financial statements.



31.4 Transaction With the Parent and Related Entities

Parent Subsidiaries* Affiliate Companies** Total

2017 2016 2017 2016 2017 2016 2017 2016Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs.

Opening BalanceTrade and Other Receivable - - - 1,077,906 801,348 1,817,973 801,348 2,895,879 Amounts Due From Related Parties - - 4,456,718 5,073,094 7,837,865 3,372,830 12,294,583 8,445,924 Amounts Due To Related Parties (10,338,705) (9,053,372) (10,147,250) (17,659,819) (1,140,674) (915,218) (21,626,629) (27,628,409)

(10,338,705) (9,053,372) (5,690,532) (11,508,820) 7,498,538 4,275,586 (8,530,698) (16,286,606)

Management Fees - - - (31,340,603) - - - (31,340,603)Expenses Incurred on Behalf of the

Company

4,547,202 - 7,512,355 8,062,727 1,994,218 22,192,111 14,053,775 30,254,838

Settlement of Dues from Related

Parties

(4,547,202) - (5,366,997) (9,757,009) - (23,045,563) (9,914,199) (32,802,573)

Settlement of Dues to Related Parties 10,472,306 5,065,255 33,397,018 100,839,608 5,223,447 1,261,668 49,092,771 107,166,530 Loans Capital Granted (20,000,000) - (53,000,000) - (4,492,279) - (77,492,279) - Loans Capital Paid 20,119 - 7,000,000 - - - 7,020,119 - Management Fees Settled - - - 29,690,300 - - - 29,690,300 Expenses Incurred on Behalf of the

Others

(17,300,132) (6,350,587) (64,704,814) (91,676,736) (2,430,118) (1,621,30) (84,435,064) (99,648,631)

Loans Interest - - (3,906,703) - - - (3,906,703) - Loans Interest Paid - - 1,664,933 - - - 1,664,933 -

(26,807,707) (1,285,332) (77,404,209) 5,818,287 295,268 3,222,952 (103,916,648) 7,755,907 (37,146,412) (10,338,705) (83,094,741) (5,690,532) 7,793,807 7,498,538 (112,447,346) (8,530,698)

Closing BalanceTrade and Other Receivable - - - - 3,673,332 801,348 3,673,332 801,348 Amounts Due From Related Parties 20,119 - 5,524,170 4,456,718 5,339,804 7,837,865 10,884,093 12,294,583 Amounts Due To Related Parties (37,166,531) (10,338,705) (88,618,911) (10,147,250) (1,219,330) (1,140,674) (127,004,771) (21,626,629)Total (37,146,412) (10,338,705) (83,094,741) (5,690,532) 7,793,807 7,498,538 (112,447,346) (8,530,698)

* Please refer note 13 for the names of the subsidiaries

** Affiliate Companies include Kalutara Luxury Hotels & Resort (Pvt) Ltd.Diethelm Travels Lanka (Pvt) Ltd.PH Resorts (Pvt) Ltd.Hemas Manufacturing (Pvt) Ltd.Hemas Hospitals (Pvt) LtdJada Resorts and Spa (Pvt) Ltd.Hemas Corporate Services Ltd.Vishwa BPO (Pvt) Ltd.

31.5 Terms and Conditions:Management Fees Management fees are paid based on the management agreement with Serendib Leisure

Management Ltd.

Expenses Incured Expenses Incured on behalf of / by Related parties are reimbursed on actual cost basis.

Loans Information relating to loans received from / granted to related parties are disclosed in notes 16.2 & 22.4 respectively

Guarantees Guarantees provided to related parties are disclosed in note 28.2

31.6 A company wise breakdown of amounts receivable from and payable to related parties are disclosed in note 18 and 24 respectively.


32 . TRANSACTIONS WITH KEY MANAGEMENT PERSONNEL OF THE COMPANY OR ITS PARENT The Key Management Personnel of the Company are the all Executive and Non-Executive Directors and identified members of

senior management of the Group.

2017 2016Rs. Rs.

a) Key Management Personnel Compensation - Group Short Term Employee Benefits (Cash & Non-Cash) 53,648,057 62,462,587 Post Employment Benefits - -

53,648,057 62,462,587

b) Key Management Personnel Compensation - Group

During the year two company vehicles used by the former key management personnel were sold to them as of their retirement of the positions. Details of the disposals are given below.

Disposal of Assets Carrying Value as at the date of retirement

Sales Proceeds

2017 2016Rs. Rs.

Disposal of Motor Vehicles 11,641,954 8,173,592

No significant transactions had taken place involving Key Management Personnel & their close family members except for what is disclosed above.

33. FAIR VALUE33.1 Fair value of financial instruments 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:

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

b.) Long-term floating - rate receivables/borrowings are evaluated by the Group/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 2017, the carrying amounts of such receivables, net of allowances, are not materially different from their calculated fair values.



33.1.1 Set out below is a comparison of the carrying amounts and fair values of financial assets and financial liabilities as at 31 March 2017 and 31 March 2016.

Group Company

2017 2016 2017 2016Rs. Rs. Rs. Rs.

GroupRelated party Loans 671,062 671,062 695,700 695,700 Investment in Equity Shares 330106485 330,106,485 12,000,010 12,000,010 Other 34,773 34,773 - -

Financial liabilities:Interest bearing loans and borrowings 180,571,429 180,571,429 382,088,788 382,088,788 Bank Overdraft 129,686,933 129,686,933 57,865,550 57,865,550

2017 2016

Carrying Value Fair Value Carrying Value Fair Value Rs. Rs. Rs. Rs.

CompanyFinancial assets:Related party Loans 20,119 20,119 20,119 20,119 Investment in equity shares 364,533,616 364,533,616 4,000,010 4,000,010 Other 15,000 15,000 - -

Financial liabilities:Interest bearing loans and borrowings 139,336,116 139,336,116 168,773,168 168,773,168

33.2 Fair Value Hierarchy The Group/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


GroupFinancial Assets 31-Mar-2017 Level 1 Level 2 Level 3Investment in equity shares 318,106,475 - - 318,106,475

31-Mar-2016 Level 1 Level 2 Level 3Investment in equity shares - - - -

Non-Financial Assets Measured at Fair Value 31-Mar-2017 Level 1 Level 2 Level 3Land and Building 2,757,713,776 - - 2,757,713,776

31-Mar-2016 Level 1 Level 2 Level 3Land and Building 2,740,942,125 - - 2,740,942,125

CompanyNon-Financial Assets Measured at Fair Value 31-Mar-2017 Level 1 Level 2 Level 3Land and Building 596,553,626 - - 596,553,626

31-Mar-2016 Level 1 Level 2 Level 3Land and Building 585,556,000 - - 585,556,000

34. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (GROUP/COMPANY) The Group's/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 Group's/Company’s operations and to provide guarantees to support its operations. The Group/Company also has loans and receivables, trade and other receivables, and cash and short-term deposits that arrive directly from its operations.

The Group/Company are exposed to market risk, credit risk and liquidity risk due to the financial assets/ liabilities it possess.

The Group’s/Company’s senior management oversees the management of these risks. The Group’s/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 Group’s/Company’s senior management that the Group’s/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 the Group’s policy that all derivative activities for risk management purposes are required to be in line with the Group treasury policy of Hemas Holdings PLC (The Ultimate Parent of the Company) and to be approved by the Board of Directors of Serendib Hotels PLC.

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

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. Financial instruments affected by market risk include loans and borrowings and deposits.

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.

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.



Interest rates sensitivity

The following table demonstrates the sensitivity to a reasonably possible change in interest rates, with all other variables held constant, of the Company’s profit before tax (through the impact on floating rate borrowings).

Increase/ (decrease) in basis points

Effect on Profit Before Tax

Group2017 + 100 basis points (2,813,301)

- 100 basis points 2,813,301

2016 + 100 basis points (4,291,146) - 100 basis points 4,291,146

Company2017 + 100 basis points (1,540,546)

- 100 basis points 1,540,546

2016 + 100 basis points (1,959,313) - 100 basis points 1,959,313

The assumed spread of basis points for the interest rate sensitivity analysis is based on the currently observable market environment changes to base rates such as EUR LIBOR.

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 Group's/Company’s exposure to the risk of changes in foreign exchange rates relates primarily to the Group's/Company’s operating activities (when revenue or expense is denominated in a different currency from the Group's/Company’s functional currency).

Foreign Currency

Change in exchange

rate

Effect on Profit Before Tax

Group2017 GBP 1% 2,772,489

EURO 1% 4,195,973 USD 1% 5,882,847

2016 GBP 1% 1,784,514 EURO 1% 4,227,943 USD 1% 6,478,003

Company2017 GBP 1% 422,285

EURO 1% 446,103 USD 1% 2,556,495

2016 GBP 1% 233,097 EURO 1% 704,219 USD 1% 2,523,874


Equity Price Risk

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

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 Group/Company is exposed to credit risk from its operating activities (primarily for trade receivables and balance with bank).

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 17. The company does not hold collateral as security.

Financial Instruments and Cash Deposits

Credit risk from balances with banks is managed by the Group’s treasury department in accordance with the Group’s policy. Investments of surplus funds are made only with approved counterparties 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 18.

Liquidity Risk

The Group/Company monitors its risk to a shortage of funds by setting up a minimum liquidity level. The Group's/Company’s objective is to maintain a balance between continuity of funding and flexibility through the use of bank overdrafts and bank loans. The Group/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 Group's financial liabilities based on contractual payments.



As at 31 March 2017 On Demand Less Than 3 Months

3 to 12 Months 1 to 5 Years > 5 Years Total


GroupInterest-Bearing Loans and Borrowings

20,000,000 26,620,365 79,861,095 54,089,969 - 180,571,429

Trade and Other Payable - 545,981,344 - - - 545,981,344Bank Overdraft 129,686,933 - - - - 129,686,933

149,686,933 572,601,709 79,861,095 54,089,969 - 856,239,706




GroupInterest-Bearing Loans and Borrowings

- 39,402,151 118,206,455 224,480,182 - 382,088,788

Trade and Other Payable - 380,003,228 - - - 380,003,228 Bank Overdraft 57,865,550 - - - - 57,865,550

57,865,550 419,405,379 118,206,455 224,480,182 - 877,823,115

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




Company Interest - Bearing Loans and Borrowings

66,000,000 16,148,820 48,446,460 8,740,836 - 139,336,116


81,311,090 177,992,226 48,446,460 8,740,836 - 316,490,612




Company Interest - Bearing Loans and Borrowings

- 22,098,447 66,295,339 80,379,382 - 168,773,168


33,280,381 145,097,144 66,295,339 80,379,382 - 291,771,866


Capital Management

Capital includes ordinary shares. The primary objective of the Group's/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 Group/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 Group/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 2017 and 31 March 2016. The Group/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%.



(Figures in Rs.'000 unless otherwise stated)

2017 2016 2015 2014 2013 2012 2011 2010 2009 2008Restated

Trading ResultsProfit /(Loss) for the year 128,084 301,363 279,472 201,707 367,476 91,261 129,278 64,885 (530) 14,961

Non Controlling Interest 60,571 98,304 78,117 49,872 96,273 50,388 12,781 20,917 (12,422) (19,963)Profit /(Loss) Attributable to Equity Holders of the Parent 67,514 203,059 201,356 151,835 271,202 40,874 116,497 43,968 (12,952) (5,002)

Hotel OperationsAnnual Sales Growth (%) 0.2 12.2 23.3 (11.7) 38.2 16.9 32.6 15.7 20.7 1.0

Room Occupancy (%) 76 79 78 68 77 80 79 65 55 27 Current Ratio (Times) 1 1 1 1 1 1 1 1 2 1Interest Cover (Times) 13 16 10 6 11 3 5 6 1 2Debt / Total Equity Ratio (%) 9.6 13.4 20.0 47.0 53.5 41.4 64.3 7.2 12.6 16.8

Market/ Shareholder InformationReturn on Equity (%) 3.9 9.2 9.9 8.3 16.2 4.7 10.7 6.1 (0.1) 1.4 Net assets per Share* (Rs.) 21.89 22.32 25.45 17.27 16.27 13.85 10.25 8.93 8.43 8.71Earnings/(Loss) per Share* (Rs.) 0.61 1.82 1.81 1.36 2.43 0.82 1.31 0.49 (0.15) (0.06)Market value per share (Rs.) 23.10 27.50 28.00 28.00 23.70 24.80 32.02 19.00 5.70 4.80Price Earnings Ratio (Times) 38 15 16 21 10 30 25 38 N/A N/ADividend per Share (Rs.) 1.00 1.00 Nil Nil Nil Nil 0.20 Nil Nil Nil

Club Hotel Dolphin was partially closed for refurbishment from May to Sep'10 and May to Oct'13.

Hotel Serendib was closed for refurbishment from Apr to Nov '11, and was launched in Dec '11 as Avani Bentota Resort and Spa

* Earnings / (Loss) Per Share and Net Assets Per Share: Comparative figures adjusted for rights issue and sub-division of ordinary shares in the proportion of 5:1

Ten Year Financial Review (Group)Year ended 31 March


ANALYSIS OF SHAREHOLDERS a) Ordinary Voting Shares

31 March 2017 31 March 2016

No. of Total % No. of Total %Shareholders Holding Shareholders Holding

1 - 1,000 669 129,278 0.17 634 128,432 0.17 1,001 - 10,000 233 931,420 1.23 244 986,475 1.30 10,001 - 100,000 129 4,328,644 5.73 126 4,362,102 5.77100,001 - 1,000,000 28 7,141,528 9.46 34 9,399,681 12.45Over 1,000,000 4 62,983,868 83.41 5 60,638,048 80.31Total 1,063 75,514,738 100.00 1,043 75,514,738 100.00

Categories of ShareholdersInstitutions 73 66,136,444 87.58 74 65,324,366 86.51Individuals 990 9,378,294 12.42 969 10,190,372 13.49Total 1,063 75,514,738 100.00 1,043 75,514,738 100.00

b) Ordinary Non-Voting Shares

31 March 2017 31 March 2016

No. of Total % No. of Total %Shareholders Holding Shareholders Holding

1 - 1,000 408 103,464 0.29 418 115,863 0.32 1,001 - 10,000 159 568,965 1.58 173 628,640 1.74 10,001 - 100,000 68 2,325,265 6.45 73 2,445,575 6.79100,001 - 1,000,000 16 5,351,216 14.86 17 5,035,880 13.99Over 1,000,000 3 27,662,146 76.82 4 277,855,098 77.16Total 654 36,011,056 100.00 685 36,011,056 100.00

Categories of ShareholdersInstitutions 66 33,332,781 92.56 77 33,289,433 92.44Individuals 588 2,678,275 7.44 608 2,721,623 7.56Total 654 36,011,056 100.00 685 36,011,056 100.00

SHARE TRADING INFORMATIONa) Ordinary Voting Shares

2017 2016

Highest Market Price (Rs) 33.00(20.05.2016) 41.50(05.08.2015)Lowest Market Price (Rs) 21.80(15.02.2017) 26.10(02.03.2016)Last Traded Price (Rs) 23.10(30.03.2017) 27.50(29.03.2016)No. of Shares Traded 25,619,090 1,123,004No. of Trades 403 948Turnover (Rs) 629,944,785.10 38,718,601.50b) Ordinary Non-Voting Shares

2017 2016

Highest Market Price (Rs) 25.00(09.06.2016) 28.50(27.05.15)Lowest Market Price (Rs) 16.60(14.03.2017) 17.50(16.03.16)Last Traded Price (Rs) 20.00(27.03.2017) 17.50(24.03.16)No. of Shares Traded 12,923,357 1,860,841No. of Trades 541 665Turnover (Rs) 240,576,612 47,334,215PUBLIC HOLDING

2017 2016

Ordinary (Voting) Shares 18.05% 20.01%Ordinary (Non-Voting) Shares 26.64% 26.64%

Investor Information


TWENTY MAJOR SHAREHOLDINGS

a) Voting Ordinary Shares 31 March 2017 31 March 2016No. of Shares % No. of Shares %

Hemas Holdings PLC 42,802,738 56.68 20,957,881 27.75Lodging Investment (Labuan) Ltd. 14,972,006 19.83 14,972,006 19.83Lodging Investment (Labuan) Ltd. 3,914,572 5.18 2,162,572 2.86Seylan Bank Ltd./ B.S.M. De Silva 1,294,552 1.71 1,294,552 1.71Mr. E. J. De Soysa 800,000 1.06 800,000 1.06Peoples’ leasing & Finance PLC/L. P. Hapangama 643,579 0.85 643,087 0.85Mrs. B.C.R. Wickramaratne 595,777 0.79 555,200 0.74Acuity Partners (Pvt) Limited/ Mr. B. S. M. De Silva 490,000 0.65 490,000 0.65Mrs. M V Fernando 400,000 0.53 400,000 0.53The Ceylon Chamber of Commerce Account No 02 370,000 0.49 370,000 0.49Dr B. G. S. De Silva 355,747 0.47 344,747 0.47Mrs. C. A. Wenceslaus 286,337 0.38 286,337 0.38Mrs. A. R. Gamage 248,838 0.33 248,838 0.33Dr. R. S. Deraniyagala 225,662 0.30 225,662 0.30Ms. H. G. S. Ansell 216,825 0.29 216,825 0.29P. P. S. Fernando 216,000 0.29Miss J C Wickramaratne 203,145 0.27Waldock Mackenzie Ltd/Dr H S D Soysa 191,047 0.25Hemtours (Private) Limited 181,875 0.24Mrs. S Poologasundram 161,706 0.21Total held by the above shareholders 68,570,406 90.80Shares held by the balance shareholders 6,944,332 9.20Total Issued Capital – Voting Ordinary Shares 75,514,738 100.00

b) Non-Voting Ordinary Shares

31 March 2017 31 March 2016No. of Shares % No. of Shares %

Hemas Holdings PLC 19,260,487 53.48 19,094,512 25.25Lodging Investment (Labuan) Ltd. 7,156,750 19.87 7,156,750 19.87Deutsche Bank AG As Trustee To Candor Opportunities Fund 1,244,909 3.46 - -Askold (Pvt) Ltd 999,658 2.78 679,658 1.89National Industries Group (Holdings) (S.A.K) 950,000 2.64 725,000 2.01Ceylon Guardian Investment Trust PLC A/C # 01 464,400 1.29 464,400 1.29J. B. Cocoshell (Pvt) Ltd 456,307 1.27 - -Trading Partners (Pvt) Ltd 410,986 1.14 543,201 1.51Shalsri Investments (Pvt) Ltd 341,825 0.95 341,825 0.95Acuity Partners (Pvt) Ltd. /Mr. B. S. M. De Silva 309,570 0.86 309,570 0.86Ceylon Investment PLC A/C # 01 266,296 0.74 266,296 0.74Guardian Fund Management Ltd. / The Aitken Spence and Associated Companies Executive Staff Provident

195,000 0.54 195,000 0.54

Mr. H. W. M.Woodward 184,723 0.51 184,723 0.51Cocoshell Activated Carbon Company Limited 150,000 0.42 - -Mr. H. A. Peiris 139,000 0.39 - -Mrs. H. G. S. Ansell 136,300 0.38 136,300 0.38Mr. M.K. Kutubdeen 134,000 0.37 134,000 0.37Dr. H. S. D. Soysa 112,781 0.31 112,781 0.31Mrs. B Y La Brooy 100,370 0.28 - -Mr. H.A.M.P. Algama 100,000 0.28 110,000 0.31Total held by the above shareholders 33,113,362 91.95Shares held by the balance shareholders 2,897,694 8.05Total Issued Capital – Non- Voting Ordinary Shares 36,011,056 100.00

Major ShareholdingsYear ended 31 March


NOTICE IS HEREBY GIVEN THAT the FORTY NINTH (49TH) ANNUAL GENERAL MEETING of SERENDIB HOTELS PLC will be held at the Auditorium of The Institute of Chartered Accountants of Sri Lanka, No. 30A, Malalasekara Mawatha, Colombo 7 on Tuesday, 27th June 2017 at 3:00 p.m. for the following purpose:

AGENDA

1. To receive and consider the Statement of Accounts for the year ended 31st March 2017 together with the Report of the Directors and Auditors thereon.

2. To re-elect Mr. M A G H I Jafferjee who retires by rotation in terms of Article 85 of the Articles of Association of the Company.

3. To re-elect Mr. E J D Rajakarier, who retires by rotation in terms of Article 85 of the Articles of Association of the Company.

4. To re-appoint Mr. W A T M Wijesinghe, who retires in terms of Article 73 of the Articles of Association of the Company.

5. To re-appoint Ms. S L Speldewinde, who retires in terms of Article 73 of the Articles of Association of the Company.

6. To re-appoint Mr. S A Chojnacki, who retires in terms of Article 73 of the Articles of Association of the Company.

7. To re-appoint Mr. I A H Esufally, who retires in terms of Article 73 of the Articles of Association of the Company.

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

9. To authorize Directors to determine and make contributions to charity.

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

By Order of the Board of

Serendib Hotels PLC

Hemas Corporate Services (Pvt) LtdSecretaries

Colombo24 May 2017

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.

Notice of Meeting


Form of Proxy

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

Mr. Abbasally Nuruddin Esufally of Colombo 3 or failing himMr. Warnage Malinga De Fonseka Arsakularatne of Colombo 8 or failing himMr. Emmanuel Jude Dillipraj Rajakarier of Colombo 2 or failing himMr. Murtaza Ali Gulzar Husein Ibrahim Jafferjee of Colombo 4 or failing himDr. Rohantha Neville Anthony Athukorala of Kalubowila or failing himMr. Steven Mark Enderby of Colombo 5 or failing himMr. Wijesinghe Arachchilage Thilan Manjith Wijesinghe of Colombo 7 or failing himMs. Sharlyn Linda Speldewinde of Mount Lavinia or failing herMr. Stephen Andrew Chojnacki of Colombo 2 or failing himMr. Imtiaz Abidhusein Hassanally Esufally of Colombo 3

as*my/our proxyholder to represent *me/us and to vote on *my/our behalf at the Forty Ninth (49th) Annual General Meeting of the Company to be held on Tuesday, 27th June 2017 at 3.00 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 2017 together with the Report of the Directors and Auditors thereon.

2. To re-elect Mr. M. A G H I Jafferjee, who retires by rotation in terms of the Articles of Association of the Company

3. To re-elect Mr. E J D Rajakarier, who retires by rotation in terms of the Articles of Association of the Company

4. To re-appoint Mr. W A T M Wijesinghe, who retires in terms of Article 73 of the Articles of Association of the Company.

5. To re-appoint Ms. S L Speldewinde, who retires in terms of Article 73 of the Articles of Association of the Company.

6. To re-appoint Mr. S A Chojnacki, who retires in terms of Article 73 of the Articles of Association of the Company.

7. To re-appoint Mr. I A H Esufally, who retires in terms of Article 73 of the Articles of Association of the Company.

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

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

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

Dated this ……………… day of ………………………. 2017.

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

(VOTING SHAREHOLDERS)


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. Shareholders should fill in the appropriate Form of Proxy as per the class of shares held by them.

3. 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.

4. 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.

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

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

7. 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.


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

Mr. Abbasally Nuruddin Esufally of Colombo 3 or failing himMr. Warnage Malinga De Fonseka Arsakularatne of Colombo 8 or failing himMr. Emmanuel Jude Dillipraj Rajakarier of Colombo 2 or failing himMr. Murtaza Ali Gulzar Husein Ibrahim Jafferjee of Colombo 4 or failing himDr. Rohantha Neville Anthony Athukorala of Kalubowila or failing himMr. Steven Mark Enderby of Colombo 5 or failing himMr. Wijesinghe Arachchilage Thilan Manjith Wijesinghe of Colombo 7 or failing himMs. Sharlyn Linda Speldewinde of Mount Lavinia or failing herMr. Stephen Andrew Chojnacki of Colombo 2 or failing himMr. Imtiaz Abidhusein Hassanally Esufally of Colombo 3

as*my/our proxy holder to represent *me/us and /or to speak on *my/our behalf at the Forty Ninth (49th) Annual General Meeting of the Company to be held on Tuesday, 27th June 2017 at 3.00 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.

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

Dated this ……………… day of ………………………. 2017.

(i) *Please delete the inappropriate words.

(ii) Shareholders of Non-Voting shares are entitled only to attend and speak at the meeting.

(iii) Instructions regarding completion appear on the reverse hereof.

Form of Proxy

(NON -VOTING SHAREHOLDERS)


INSTRUCTIONS FOR COMPLETION

1. Kindly perfect the appropriate 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. Shareholders should fill in the appropriate Form of Proxy as per the class of shares held by them.

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.


Notes

Corporate Information

NAME OF THE COMPANY Serendib Hotels PLC

LEGAL FORMA Public Quoted Company with Limited Liability incorporated on 9th September 1966 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 223

BOARD OF DIRECTORS A N Esufally – Chairman (Alt V H A Perera)W M De F Arsakularatne - Executive DirectorE J D RajakarierM A G H I Jafferjee - Senior DirectorDr. R N A AthukoralaS M EnderbyW A T M Wijesinghe Ms. S L Speldewinde S A Chojnacki I A H Esufally

REGISTERED OFFICELevel 3 “Hemas House”, No. 75, Braybrooke Place, Colombo 02Tel: +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

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

MANAGING AGENT Serendib Leisure Management Limited

AUDITORSErnst & YoungChartered Accountants201, De Saram Place,Colombo 10

BANKERS Commercial Bank of Ceylon PLCHatton National Bank PLCSampath Bank PLCDeutsche Bank HOTEL Avani Bentota Resort & SpaBentotaTel: +94 (34) 4641464 - 7Fax: + 94 (34) 2275313

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