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Celebrating Life

Keells Food Products PLC (PQ3)Annual Report 2012/2013

ContentsFinancial Highlights 2New Manufacturing Facility 3Elephant House Sausages Relaunch 4Chairman’s Review 6Management Discussion & Analysis 9Directors Profile 13Sustainability Report 16Corporate Governance 19Audit Committee Report 44Enterprise Risk Management 47

Financial Calendar 53Financial Information 53Annual Report of the Board of Directors On The Affairs of the Company 54Statement of Directors’ Responsibility 60Independent Auditors’ Report 61Income Statement 62Statement of Comprehensive Income 63Statement of Financial Position 64Statement of Cash Flows 65Statement of Changes in Equity 67Notes to the Financial Statements 68Your Share in Detail 112Ten Year Information at a Glance 114Key Ratios and Information 115Real Estate Portfolio 115Glossary of Financial Terminology 116Notice of Meeting 117Notes 118Form of Proxy 119

Keep on celebrating!Keells food products believe in celebrating life. And no celebration is complete without food. It is one of life’s truest joys. Our range of products always keep kids first, families are brought together, communities are bonded with each other at anytime of the day and anytime and occasion of the year. Over the years, our delicious, nutritious food has become an integral part in the lives of Sri Lankans. And the recipe for our success has been our unwavering commitment to taste and quality. We are proud that this promise has enabled us to be a part of many memorable moments, and many celebrations over the years. Here’s to many more to come.

Celebrating Life

2 | Keells Food Products PLC (PQ3) Annual Report 2012/2013

Financial Highlights

Year ended 31 March 2013 2012 Change

Group %

Revenue Rs. 000 2,197,482 2,328,752 (6)

Operating Profit Rs. 000 65,701 184,177 (64)

Profit Before Tax (PBT) Rs. 000 115,956 180,644 (36)

Profit After Tax (PAT) Rs. 000 91,625 129,639 (29)

Shareholders Funds Rs. 000 1,597,616 452,427 253

Total Assets Rs. 000 2,492,008 818,812 204

Total Debt Rs. 000 264,734 86,820 205

Earnings per Share (Re-stated) Rs. 4.86 14.56 (67)

Return on Capital Employed % 5.47 34.73 (84)

Return on Equity % 8.94 33.44 (73)

Market Price per Share as at 31 March Rs. 70.00 100.00 (30)

Market Capitalisation Rs. 000 1,785,000 850,000 110

Price Earning Ratio (Re-stated) No. of times 14.41 6.87 110

Quick Ratio No. of times 1.89 0.99 92

Note: Figures in brackets indicate an unfavourable fluctuation

0

500

1,000

1,500

2,000

2,500 200

Net Revenue

Operating Profit

150

100

50

0

(50)

(100)

(150)

Rs. Mn Rs. Mn

2009

2010

2011

2012

2013

Net Revenue and Operating Profit

470

465

460

455

450

445

440

4350

3

2

1

5

4

6

2009

2010

2011

2012

2013

Employees and Revenue per Employee

Net Revenue Per Employee

Average No of Employees

Rs. Mn No20

15

10

0

-5

5

-10

-15

-200

600

400

200

1,200

800

1,000

1,400

1,600

1,800

2009

2010

2011

2012

2013

Shareholders Funds and Earnings per Share (Re-stated)

Shareholders Funds

EPS

Rs. Mn Rs.


This year marks a significant millestone for Keells Food Products PLC, which acquired a state-of-the-art manufacturing facility at the Industrial Estate in Makandura, Pannala. This acquisition and subsequent investment in machinery gave us opportunity to achieve the following:

New Manufacturing Facility

sausage range.

global best practices.

in Sri Lanka who guarantees that our product quality parameters are always consistent.


Elephant House Sausages Relaunch

- The most popular variant which everybody likes to indulge taste is most famous for Lingus!

- The popular chunky pork sausage with superior bacon taste!

- The one and only beef variant in the range which beef lovers love to eat.

since its launch in 1966, providing consumers with premium products that are on par with international standards. Made using our traditional recipe, the wide range of products currently on offer is unmatched in

of the highest quality, thus creating a product that is irresistible and succulent. This range of sausages have been promoted to consumers as hot, tastier and outrageous and no matter what, it is always a treat!

of Sausages!

Overwhelmed by the taste and superior quality, loyal consumers have


Chairman’s Review

I am pleased to present the Annual Report together with the audited Financial Statements for the financial year ended 31 March 2013.

In the period under review the strategy of segmenting the market and positioning our Brands to serve diverse consumer needs did not achieve the desired results due to the overall downturn

volumes grew mainly in the modern trade channel. In order to strengthen our offering to entry level consumers, smaller pack sizes were introduced at very competitive prices. The new

accepted.

Your Company continues to be the only manufacturer and marketer of a range of processed meat products under SLS

increase consumer awareness on our food hygiene and quality standards and have received very high ratings for our products.

During the year, your Company acquired the manufacturing

at Makandura Pannala for a consideration of Rs. 700 million.

2012 onwards, and have installed and commissioned additional equipment to increase capacity and the capability of manufacturing our full range of products.

The Company raised Rs. 1,020 million from the rights issue of two (2) shares for every one (1) share held, whereby the ordinary shares in issue increased from 8,500,000 shares to 25,500,000 shares. The proceeds from the rights issue was used to fund the acquisition of the facility and subsequent expansion project as stated above.

The Indian operations did not achieve the expected volumes as the distributor in India did not perform to expectations. Due to the complexities in serving the Indian market with our products, which depend on a very high quality cold chain operation across India, your Company is presently evaluating the appointment of several distributors to serve the different regions in the Indian market.

During the year Revenue declined by 6 percent from Rs. 2,329 million to Rs. 2,197 million due to less than expected off take of our products. Profit before tax decreased to Rs. 116 million from Rs. 180 million recorded in the previous year due to escalation of material prices, the full impact of which could not be passed to consumers.

purchases, the Company recorded a profit after tax of Rs. 92 million compared to Rs. 129 million in the previous year.

At a consolidated level , the profit after tax was at Rs. 92 million against a profit of Rs. 130 million in the previous year.

Your Board has approved the payment of a first and final dividend of Rs. 2/- per share for the year under review resulting in a payment of Rs. 51 million as compared to the dividend of Rs. 2/- per share paid in the previous year when the total payout was Rs. 17 million. The enhanced amount is as a result of the increase in the number of shares in issue post the Rights Issue in August 2012.

Although the standards for sausages were established through the Food Act and the SLS, the enforcement of the standard has not been rigorous, and as such, we are compelled to compete with products that are not audited nor certified under these standards.

consumers, as well as our suppliers.

suppliers, creating a sustainable income for entrepreneurs and small entities. Our relationship with the Kandy Spice Growers Association to obtain quality local spices for our products has proven to be a win-win for both parties. This has enhanced a

ensuring a supply of quality spices.

of the country by developing the retailer cold chain facilities, strengthening our distribution and educating consumers on our product range.

possible contraction in discretionary disposable income for fast

new manufacturing facility and increasing our manufacturing capability through state of the art machinery, we are confident of gaining efficiency and productivity improvements which would improve our margins. Further, considering the capacity enhancement through the new plant we are ready to explore the export markets more aggressively with our full range of products.


The penetration of processed meat products still remains

economic development and resultant increase in consumer spending, combined with changes in the life styles of consumers, demand for convenience foods is expected to increase in the medium term.

On behalf of the Board, I wish to express my appreciation to our distributors for being with us during a challenging year. I take this opportunity to thank the team at Keells Food Products for their commitment and dedication and convey my appreciation to my colleagues on the Board for the support extended to me during the year.

I would also like to acknowledge all our stakeholders for continuing to have confidence in us and look forward to your continued support in the year ahead.

Chairman

27 May 2013


Management Discussion & Analysis

The year was a watershed in our history as it marked the important milestone of our 30th anniversary as a pioneer in

marketed under the processed meats and sausage brands of

their respective categories. The processed foods industry grew increasingly more competitive during this period due to new entrants competing for the bottom end of the market. Consumer spending too was lower due to the high cost of living which impacted disposable incomes.

The Keells processed meats brand has become synonymous with quality, and our strict adherence to quality standards such as SLS has demonstrated our commitment to deliver quality products to our customers. Keells remains the only brand compliant with Sri Lanka Standard (SLS) for processed meats and sausages. The Company has developed an array of processed meat choices for consumers ranging from premium to catering segments. Our product range includes Sausages,

Crumbed Range in Chicken, Fish and Vegetable and raw cuts of meat.

The best performer during the financial year under consideration

volume. Although our share in the branded retail segment increased for our Keells and Krest brands, the mass market sausages for the catering industry faced price pressures from competitor products not compliant with SLS certification. The practice of opening bulk catering sausage packets in the general trade should not be allowed as it poses a high risk of contamination. In order to counter this practice, Keells has introduced four sausages in a pack, priced at Rs. 57/-, to ensure entry level consumers can avail of a hygienic offering at a low price point.

Keells Foods purchased the manufacturing facility and assets of

move to enhance its manufacturing capacity and add process improvements to benefit from energy savings and material yield in the manufacturing process. The new facility is located in the Makandura Industrial zone in Pannala. The land extent of the property is 4.08 acres with a building area of 28,700 sq ft, including a state of the art manufacturing facility and cold room storage.

at Makandura, Pannala have commenced production and the Company has already introduced new machinery. Furthermore, we received approval to include the Pannala plant into the scope

of our ISO:9001 certification. As a result of this acquisition, KFP succeeded in doubling its current capacity in the processed meats category appropriately and is poised to cater to enhanced volumes.

The Company maintains open and powerful communication

channels through which we solicit consumer feedback to

with consumer needs. During the year, we have positioned our products and brands to serve a range of consumption moments across different socio economic segments.

position for its recipe and long standing performance in the market, is being marketed as a premier range product because

enter the digital platform in terms of advertising and promotion. The brand has now embraced a new digital strategy to engage with its consumers and its ongoing digital campaign was

has over 10,000 loyal fans, with 60% of the fan base between

brand building, we also leveraged on it as a tool for demographic research and other key analytics. The data collected through the platform is real-time and tracked on a daily basis.

Priced affordably and targeted at the mass market, we offer a wide choice of chicken, beef and pork sausages targeting several consumption occasions. Our range includes plain breakfast sausages in chicken, beef, pork and fish, and value added products such as chicken and cheese sausages, frankfurters, brockwurst and pork lingus.

In this range we cover the entire spectrum from chicken, fish and vegetable ready-to-fry crumbed products, nuggets, drumsticks,

healthy snack on the go for the entire family.

As a member of one of the most highly respected corporates in the country, Keells Foods is imbued with the principles of aspiring to excellence in all aspects of its operations. In a bid to gain control over its entire supply chain so as to maintain consistency of taste and quality, the Company has achieved seamless backward integration. Over the years, we have built strong


Management Discussion & Analysis Contd.

links with local producers and suppliers, which enabled them to grow their business and introduce technology to achieve higher standards. Our chicken suppliers today operate to international standards in their processing plants to our specifications and quality standards and under our guidance and supervision. Keells Foods has entered into forward contracts with piggery farms, chicken farms and poultry farms to ensure uninterrupted supply, superior quality and fixed prices.

The Company has established a seamless farmer out grower model which enables it to eliminate middle men and engage directly with farmers who grow spices and vegetables used in the product range. This direct contact with farmers allows farmers to earn better prices for their produce while we have assured supply, thereby eliminating reliance on third parties. Keells Foods has successfully secured its spice and vegetable requirements directly from the Vanilla Farmers Association through an extension of their activities.

The Company has also introduced a Distributor Management System (DMS) which leverages on an advanced technology platform to generate operational efficiency amongst our distributor and sales force. This system was put into place in 2012 and witnessed a major part of its implementation in 2013. The direct benefits of DMS is that it gives the operations, sales, planning and marketing teams in-depth insights to retail purchase and off-take trends which will enable Keells Foods to segment and target each area to its maximum potential. The insights we gain from this system will help us position our range of products with greater distribution efficiencies.

Keells Foods exports its products to India and the Maldives. During the period under review, the revenue from exports of our products fell short of our target forecasts. The Company was unable to achieve the expected sales in the Indian market as the new distributor could not deliver the desired volumes. Serving the Indian market poses its own set of challenges and due to these complexities we are re-evaluating the appointment of several distributors to handle different regions in the Indian market.

Our endeavour going forward will be to grow the overall processed meats category. The level of sausage consumption in rural areas is low and we are developing a strategy to enhance our presence in strategic regional markets that are demonstrating an emerging middle class with higher disposable incomes. Sausages lead the processed meats category and given our wide sausages range, the Company is ideally positioned to

support the authorities and work with them to educate retailers

on the handling of processed meat products for better quality and hygiene standards. As a Company, we remain committed to delivering nutritional value while mitigating the ensuing material and energy cost increases by leveraging on our R&D capability.

The penetration of processed meats too remains low in the

and our distribution network on to grow share locally, while pursing an increase in our exports to India and the Middle East. The growth of the economy and the resultant positive impact on lifestyles of consumers will drive demand for convenience foods, which will eventually benefit the Company. Our foremost priority going ahead is to strengthen our presence in the market by leveraging on all the systems and process improvements made during the year.


The Revenue at Company level decreased by 6% to Rs.2,197 million (Rs.2,329 million in 2011/12) mainly due to a reduction in volume. The loss of volume was as a result of unfavourable consumer market conditions and new entrants competing for the bottom end of the market at lower prices. Your Company continues to be the only manufacturer and marketer of a range of processed meat products under SLS certification in the country ensuring compliance with standards. The Company was constrained in taking price increases to mitigate the full cost increase due to unfavourable market conditions.

Availability of our main raw material chicken was not consistent during the year whilst we were also impacted due to price volatility while pork prices declined marginally. Cost of imported raw materials too increased sharply due to depreciation of rupee and escalation of world prices.

Factory wages and related costs too increased whilst power costs increased by nearly 20% due to tariff increases as well as operating two manufacturing facilities. Cold storage costs were also impacted due to tariff increases.

Gross profit of the Company was Rs. 459 million representing a 18% decrease against Rs. 562 million recorded in the previous year. Gross profit margin reduced to 21% from the previous year of 24% as a result of all cost increases not being passed on to consumers in terms of price increases.

Other operating income at Company level reduced to Rs.4.5 million from the previous year of Rs. 7.1 million.

Selling and Distribution expenses include the cost incurred in distribution of products, advertising and promotional expenses as well as all other sales related expense.

Distribution cost at the Company decreased to Rs. 233 million from Rs. 248 million in the previous year.

Administration cost increased by 16% to Rs. 109 million from Rs.94 million in the previous year due to increase in staff costs, professional services and administration cost related to Pannala operation.

At a Group level administration expenses increased to Rs. 110 million against Rs. 96 million in the previous financial year.

During the year under review, interest rates inclined towards the latter part of the year. The Company attracted favourable interest rates from the financial institutions, at low premiums to SLIBOR,

The Company finance cost increased to Rs. 26.3 million from the Rs. 7.6 million in the previous year as a result of increase in the level of borrowing during the year for the investment in plant and machinery. The Company availed of a debt facility from the European Investment Bank (EIB) through the Development Finance Corporation of Ceylon (DFCC) at favourable terms to fund the purchase of machinery to augment the new facility at Makandura Pannala from European manufacturers.

The Company also earned interest income of Rs. 77 million during the year as a result of investing surplus funds. The Company as at 31st March 2013 has only paid Rs. 350 million out of the Rs. 700 million of the total consideration due on the acquisition of

Food Products (Pvt) Ltd. The balance is payable only on the execution of the lease by the Government of Sri Lanka.

Interest cover at the Company level was 2.5 times (24.3 times in 2011/12).

The Company posted a Profit before Tax of Rs. 116 million as compared to a comparative of Rs. 180 million in the previous year.

At a Consolidated level the Profit before Tax was also Rs. 116 million compared to Rs. 181 million in the previous year.

The tax charge for the year at the Company was Rs. 24.3 million (2011/12 Rs. 51 million) due the reduction in profitability and claiming of capital allowances for the assets purchased during the year.

million the previous year representing an increase of Rs. 1,146 million. This substantial increase was on account of the right issue of Rs. 1,020 million in August 2012.


Management Discussion & Analysis Contd.

Rs. 452 million in the previous year.

The asset base at the Company increased to Rs. 2,488 million from the previous year of Rs. 813 million as a result of the acquisition of the new facility and the investment in new plant and machinery.

The Company disposed and retired fully depreciated assets amounting to Rs. 39.6 million while acquiring assets worth of Rs. 661 million during the financial year.

2,492 million as against Rs. 819 million in 2011/12.

were cash generated from operations, long term borrowings and proceeds from the Rights Issue. The Company ensured the adequacy of liquidity to service debt and meet future requirements of working capital and capital expenditure.

The Company operates its own treasury function assisted by

the policies and plans approved by the Board. Our Treasury manages a variety of market risks, including the effects of changes in foreign exchange rates, interest rates and liquidity. Further details of the management of these risks are given on page 51. The role of the Treasury is to ensure that appropriate financing is available for all value-creating investments. Additionally, the Treasury delivers financial services to allow the Company to manage its financial transactions and exposures in an efficient, timely and low-cost manner.

Cash flow from operating activities at Company level amounted to Rs. 103.5 million (Rs. 198.8 million in 2011/12). Cash generated from operations inclusive of working capital changes was Rs. 121 million in comparison to Rs. 219 million in the previous year.

The increase in cash flows during the year were due to the proceeds from right issue of Rs. 1,020 million and long term borrowings of Rs. 252 million. The Gearing Ratio at Company level declined to 16% as against 19% in 2011/12.

future is likely to be cash generated from operations, with an effective combination of long term and short term borrowings. Therefore it is expected that the said sources of finance will provide sufficient capacity of liquidity to service debt and meet future working capital and capital expenditure requirements.

delivering shareholder value through the achievement of sustainable, capital efficient and long term profitability growth.

The basic Earnings per Share (EPS) for the Group was at Rs. 4.86 (EPS for 2011/12 was Rs. 14.56).

The Group net assets per share at book value stood at Rs. 62.65 (Rs. 17.44 for 2011/12) whilst at Company Level it stood at Rs. 62.54 (Rs. 17.63 for 2011/12).

financial year and saw a decrease to Rs. 70 as at 31st March 2013 moving within a range of Rs. 60 to Rs. 104.5 during the year. The market capitalisation of the Company was Rs. 1,785 million (Rs. 850 million in 2011/12) as at the end of the financial year.

Return on Equity (ROE) for the Group declined to 9% (33 % - 2011/12) and for the Company to 9% (34% - 2011/12) whilst Return on Capital Employed (ROCE) at Group level also decreased to 5% against the 35% in the last year and for the Company to 6% (35%-2011/12).

R.F.N. Jayasooriya - Chief Executive OfficerS.R. Jayaweera - Chief Financial Officer

D.R. Abeysundara - Manager Engineering

K.A.V. Fernando - Assistant Manager - Production - KeellsS. Fernando - ManagerT.G.T.P.K. Gamage - Manager Sales AdministrationG. Ganeshamoorthi - Channel Manager - RetailJ.O. Gregory - Manager Purchasing

M.D.D. Kaviratne - Channel Manager - MassJ.D. Kanagaraj - Manager FinanceA.A.N. Lalantha - Manager Research and DevelopmentA.C. Morris - Manager FinanceM.C.R. Perera - Manager Credit

G.P.I.P. Sampath - Channel ManagerC.N. Soza - Assistant Manager - Production - Krest

S. Nanayakkara - Manager Brand Activation


Directors Profile

Mr. Ratnayake was appointed to the Board of Keells Food Products PLC from 1st April 1993.

Susantha Ratnayake was appointed as the Chairman and CEO

of many of the listed and un-listed companies within the Group. Mr. Ratnayake is the Chairman of the Ceylon Chamber of

Ceylon and serves on several clusters of the National Council for

experience, all of which is within the John Keells Group.

Mr.Gunewardene was appointed to the Board of Keells Food Products PLC from 1st October 2002.

Ajit Gunewardene is the Deputy Chairman of John Keells

member of the board of SLINTEC, a Company established for the development of nanotechnology in Sri Lanka under the

also served as the Chairman of the Colombo Stock Exchange. Ajit has a degree in Economics and brings over 31 years of management experience.

Mr.Peiris was appointed to the Board of Keells Food Products PLC from 1st June 2003.

Finance and Accounting including Taxation, the Information Technology, Corporate Finance and Treasury functions and

Anglo American Corporation (Central Africa) Limited in Zambia. Ronnie has over 40 years of finance and general management

Institute of Management Accountants, UK; Association of Chartered Certified Accountants UK and the Society of Certified Management Accountants, Sri Lanka and holds an MBA from

the committee of the Ceylon Chamber of Commerce, Chairman of its Taxation Sub Committee and also serves on its Economic,

several companies in the John Keells Group and the outgoing President of the Sri Lanka Institute of Directors.

Mr. Gunaratne was appointed to the Board of Keells Food Products PLC from 1st July 2004.

Prior to his appointment as President, he overlooked the

experience in the Group also covers Leisure and Property.

the Beverage Association of Sri Lanka and the chairman of the steering committee for food and beverage of the chamber

Committee on Consumer Affairs of the Ceylon Chamber of Commerce.

Mr. Amarasekera was appointed to the Board of Keells Food Products PLC from 1st July 2005 and is a member of the Audit Committee of the Board of Directors.

specialised in Commercial Law, Business Law, Securities Law,

Independent Director in several listed companies in the Colombo

Amaya Leisure PLC, Vallibel Power Erathna PLC & Expo Lanka

Ltd and Amana Bank Ltd.

Mr. Perera was appointed to the Board of Keells Food Products PLC from 1st October 2005 and is a member of the Audit Committee of the Board of Directors.

Limited and serves on the Boards of other public and private

Postgraduate Institute of Management (PIM), University of

member of the Chartered Institute of Marketing, UK with many years of experience in general management and marketing in

and business strategy, in which areas he is also actively engaged in consultancy assignments.


Directors Profile Contd.

Mr. Pieris was appointed to the Board of Keells Food Products PLC from 1st July 2005 and is a member of the Audit Committee of the Board of Directors.

Richard Pieris and Company PLC, at the time he was on the Board of 13 Subsidiary Companies of RPC and was Chairman of

Super Centres and introduced the hyper market concept to the local market. For a period he was CEO at EDNA. More recently

Today he is involved with developing a project in Real Estate. In

degree from Florida International University in the USA.

Mr. Jayawardena was appointed to the Board of Keells Food Products PLC from 10th May 2007 and is the Chairman of the Audit Committee of the Board of Directors.

A Fellow of the Institute of Chartered Accountants of Sri Lanka

Chemanex Group, Non-Executive Chairman of The Finance

Commercial Bank PLC, Ram Rating (Lanka) Limited, and a number of other unlisted companies in the CIC Group. Served at Zambia Consolidated Copper Mines Limited for 13 years

Member of the Monetary Policy Consultative Committee of the Central Bank of Sri Lanka and Chairman of the Ceylon National Chamber of Industries.


Sustainability Report

The Company has a strong ethos of sustainability which manifests in our business. As a result, we have tried and tested sustainability practices cascaded down by the Parent Company

recycling of resources, energy conservation and occupational health and safety initiatives are followed diligently. The passion of our employees to ensure a high sustainability quotient in the Company has motivated them to improve on our existing sustainability practices, demonstrating a marked improvement every year. The Group-wide commitment to sustainability is a holistic one, with focused projects and initiatives that have a strong flavour of sustainability, as opposed to mere philanthropy.

Keells Foods Products have earned a reputation for consistent taste, quality, safety and hygiene. This valuable brand recognition underscores every aspect of our operations. The Company has invested heavily in the latest technology and adherence to exacting quality certifications to ensure that our hard-earned brand reputation is sustained. Keells Foods created a revolution in quality pre-cooked and processed meats in the market by introducing superior quality products that promised health, nutrition and time saving benefits for customers. Today, products of Keells Foods are universally acknowledged as the most superior quality processed and pre-cooked meats in the market.

Our passion for driving excellence in our products and services is supported by advanced systems and processes and our committed staff. The Company remains closely engaged with customers across the country, for example, through outdoor promotions where staff is able to gauge customer feedback and track consumption trends. Armed with these and other insights, we are able to create new products for our customers. Only the freshest ingredients are used in our products and strict quality systems and checks are in place to ensure total hygiene standards are maintained.

In addition to launching successful new products, we continued to focus on operational improvements through the year. The Company exercises quality control along its entire supply chain. Other stakeholders such as suppliers and partners are also educated on the importance of quality and hygiene so that they too take ownership of the manufacturing process. Proud to be a Sri Lankan Company, we have fused local tastes with global technology to deliver world-class products. Continuous improvement forms an important facet in our operations and training and development programmes were ongoing through the year.

Modern lifestyles have created a huge demand for healthy convenience foods and the Keells power snack was created to fill this need, as it offers a filling and nutritious snack with adequate protein. Our product range boasts some unique innovations that excite buyers and remain in line with evolving

of charting new directions for our products and inspires the Research and Development team to use the insights to create products that truly delight customers.

Trust is the foremost pillar on which we base our marketing strategy. Our brand goodwill has been built up over the years on the basis of our ethical marketing and advertising efforts. The Company adopts zero tolerance for false claims or half-truths. As a result, customers know that Keells products are genuine. The Company also takes on a role of educator, informing

brand promises and deliverables are consistent and in line with our principles of ethical marketing. The Company strictly adheres to laws and regulations that govern Fast Moving Consumer Goods (FMCG) and food products in Sri Lanka. In the case of our export market, we remain within the laws governing our product in those countries.

Our sourcing strategy is imbued with sustainability as it benefits a range of micro and small entrepreneurs from whom we source

invested valuable resources in building a network of farmers and streamlining the sourcing process. Keells Foods leverages on

our comprehensive pool of suppliers. The Company sources chicken, pork, vegetables and spices from farmers around the country. Our integrated farmer community supplies vegetables and spices, whilst farmers from seven districts and 20 villages in the Ratthota area who are employed directly under the Kandy Vanilla Growers Association supply us with our requirements of onions and sweet potatoes.


Product Location Primary Suppliers/ Project Partners

No. of farmers

Total Annual Supply(Kgs)

Total Payment (Rs.)

Pork

Kaluaggala, DiulapitiyaBujjampola, Giriulla,

Kosgama, PamunugamaDambulla, Kandy,

Kaypro Farms, Maxies Livestock, S.N. Brothers Farm, Pussalla Farm, Dilini Farms, CIC Farms, Sanjeewa Farms, St Anthonys Farm D.S.D.

25 708,670

179,909,881

Chicken Kosgama, Meethirigala

Meethirigala

Maxies & Company Pussalla Farms New Anthonys Farm

2200 1,476,719

399,520,577

Spices Kandy Vanilla Growers Association

2500 26,062 28,134,065

Vegetable Kandy Vanilla Growers Association

2500 170,838 15,848,631

The Company not only sources produce from the farmers, but we support them with technical input, educate them on the latest farming methods, help them in improving the quality of their crop and to maintain animal health, and improve their farm management and financial management skills. All these inputs help farmers produce quality products for which they can command a higher price. Our emphasis on quality has resulted in the Kandy Vanilla Growers Association obtaining GMP certification from the Sri Lanka Standards Institute for its processing facility and grinding mill at Ratthota.

The Company thrives in an atmosphere of stringent international standards/ISO certifications for hygiene and safety and the Sri Lankan SLS standard which are all entrenched in our manufacturing process. This unique culture drives our business - from sourcing, to product innovation, manufacturing, marketing

Company in Sri Lanka to obtain SLS certification along with ISO 9001 and ISO 22000 for Food Safety Standards.

The Company is keenly aware of its responsibility to ensure that products conform to the highest quality standards and are manufactured in a safe and hygienic environment, underscored by sustainable practices. As a member of one of the most respected conglomerates in the country, ethical manufacturing emanates from our vision to be the leading supplier of foods that is measurable not only by profitability, but also by an inherent ethical manufacturing mindset. Every aspect of our operations conforms to legal and regulatory requirements.

Today, many customers are emphatic about the fact that they will become a loyal customer only if they are satisfied that the

Company is maintaining the highest standards and also doing

to this ideology due to our ethical systems and processes. Our constant engagement with our customers inspires us to create better products. Consumers demand quality, convenience and value for money from the brands they choose and Keells products score high in this regard. Our well equipped laboratory is the nurturing ground for new formulas that are tested and perfected, before rolling them out to customers. Ethical manufacturing covers the entire gamut of our manufacturing related activities.

Transport and storage of pre-cooked and processed meats requires specialised skills due to the fact that they have to be stored at specific temperatures. The distribution network and the retail network are carefully screened to ensure total conformance to the standards we expect third parties to demonstrate. Distribution vehicles and storage rooms are equipped with the latest equipment and we also monitor retailers to ensure they maintain the same high storage of our products.

Keells Foods is in the business of manufacturing, an energy intensive process, therefore, the Company has adopted a host of environmental conservation measures to preserve energy, reduce emissions, reuse water and so on. This is a Group policy

keeping in line with Group-wide concern for the environment. Our business is now led by sustainability goals first and profitability

but a profitable business without sustainability at its core can never prosper. This is our brand promise to all our stakeholders as well and is embedded in our best practices.


Sustainability Report Contd.

Energy efficiency and energy management initiatives have been adopted to reduce and optimise energy usage, while exploring at environmentally friendly and renewable energy options. Although the Company does source energy from the national grid, we have simultaneously embarked on a series of initiatives to reduce energy consumption.

constantly exploring ways in which we can reduce and reuse this valuable resource.

that conforms to required standards for a food manufacturing facility. The incinerator has a capacity of disposing 6,000 kgs of solid waste with complete safety mechanisms in place.

Further, we have been awarded a certificate of compliance from the Central Environmental Authority (CEA) for having eliminated/limited sound pollution from our factories. Emission levels are closely monitored and conform to CEA norms.

Keells Foods strives hard to maintain its status as a preferred employer and is continually reviewing its systems and processes to ensure that qualities of professionalism and a progressive outlook attracts the best and brightest talent in the industry. Our advanced talent management skills and compliance with International Labour Organisation (ILO) standards has given rise to global best practices in all aspects of our operations. More importantly, the strong sustainability element prevalent in our Company ethos fuels the passion of our people to take the organisation to the next level.

Keells Foods is powered by its people. Our employees breathe life into our corporate goals and in turn, the Company adds

ensure the people we hire and train understand and are aligned to our Company vision to become the leading foods Company in Sri Lanka. In a bid to retain their dynamism and enthusiasm, the Company ensures a perfect work-life balance and other welfare measures to ensure that they are free from stress and able to

is a preferred employer in the sector and our team is reputed for its commitment and professionalism.

Close engagement between management and other employees ensures shared values and knowledge sharing which is essential

monthly meetings and an open door policy are inherent in our working culture. The management bonds strongly with employees so as to learn their hopes and ambitions. Employee feedback and suggestions form a vital component of our

human resources strategy. This constant dialogue enables the Company to achieve excellence in all aspects of our business and builds team spirit and inculcates a proactive approach to growing the business.

Enhancing livelihoods is one of our key sustainability initiatives. Our vision for a productive nation has spurred the Company to encourage the future prospects of the youth of our country.

imparting vocational and other skills so that their employability is raised. The Company also opens their eyes to emerging opportunities for employment and entrepreneurship.

During the 2012/13 financial year, we sustained our continuous programme of developing selected undergraduates from economically under privileged backgrounds who are engaged in the food and beverage industry. Approximately 27 graduates underwent training during this period. The students are currently studying for degrees in Agriculture, Food Sciences,

the university level. They are trained by our in-house specialists in quality control, product development, livestock handling, human resources and marketing. These training sessions are extremely practical as they incorporate latest methods and requirements of the workplace and add great value to make the students employment-ready.

2013 2012

10 years & above 26 26

05 to 10 years 22 25

Below 5 years 28 19

76

Employee Distribution 2013 2012

Senior Management 20 21

Middle Management 56 49

Sales Reps 65 61

Clerical & Supervisior 32 28

261 267

14 27

35 -

Sustainability Report Contd.


Corporate Governance

Keells Food Products PLC (KFP) and its Subsidiary John Keells Foods India (Pvt) Limited (JKFI) referred to as the “Group”

a culture of performance within a framework of conformance

environs in a manner that is sustainable and equitable to all our stakeholders.

This philosophy has been institutionalised at all levels in the Group through a strong set of corporate values and a written code of conduct that all employees, senior management and the Board of Directors are required to follow in the performance of their official duties and in other situations that could affect the

The Directors and employees at all levels are expected to display ethical and transparent behaviour through their communication

and the behaviour of the senior management of the Group, is monitored through an annual 360 degree feedback programme.

The Group is committed to the highest standards of business integrity, ethical values and professionalism in all its activities towards rewarding all its stakeholders with greater creation of value, year-on-year. Our governance framework which has been communicated to all levels of management and staff in individual businesses and functional units is based on the following –

The Board is responsible to the shareholders to fulfill its stewardship obligations, in the best interest of the Company and its stakeholders.

Maximising shareholder wealth-creation on a sustainable basis while safeguarding the rights of multiple stakeholders.

The methods we employ to achieve our goals are as important to us as the goals themselves.

No one person has unfettered powers of decision making. Building and improving stakeholder relationships is an

integral aspect of Board effectiveness and a responsible approach to business.

Opting, when practical, for early adoption of best practice governance regulations and accounting standards.

Our resolve to maintain strong governance practices which present strong commercial advantages especially through a lowering of our cost of capital as a result of the strengthened stakeholder confidence, particularly the confidence of our investors, both institutional and individual.

The making of business decisions, and resource allocations, in an efficient and timely manner, within a framework that ensures transparent and ethical dealings which are compliant with the laws of the country and the standards of governance our stakeholders expect of us.

The Corporate Governance Framework of the Group entails three key components as summarised below and the discussion within this report is sequenced to highlight the different elements that combine to ensure a robust and a sound governance framework.

1. – Components that are embedded within the Group in order to execute governance related initiatives, systems and processes.

2. – Supervisory module of the Group Corporate Governance Framework.

3. – From an external perspective, adherence to laws and best practices plays a vital role in directing the Group towards conformance to established governance related laws, regulations and best practices.

compliance with the following Acts, Rules & Regulations;

Companies Act No. 7 of 2007 –

Listing Rules of the Colombo Stock Exchange (CSE) – Mandatory Compliance (Including subsequent revisions up to 1 April 2013).

The Code of Best Practice on Corporate Governance as published by the Securities and Exchange Commission and the Institute of Chartered Accountants, Sri Lanka –

.

by the relevant rules and regulations have been explained.

The Internal Governance Structure encompasses two main pillars as illustrated in the diagram and those are;

Executive authority is well devolved and delegated through a committee structure ensuring that the CEO and functional managers are accountable for the Group and the business units/sub-functions respectively.

Clear definitions of authority limits, responsibilities and accountabilities are set and agreed upon in advance to achieve greater operating efficiency, expediency, healthy debate and freedom of decision making.


Promote good governance within the wider context of achieving sustainable success which is beyond mere conformance with regulations.

These mechanisms, within the internal governance structure, ensure implementation and execution towards upholding the

Directors.

the Nomination Committee of the Parent Company John

Compensation Committee and the Nomination Committee of the Company and the Subsidiary Company.

Control and Review, and External Auditors by invitation.

Corporate Governance Contd.

Chairman & the Board of Directors

Gro

up E

xecu

tive

Com

mitt

ee (G

EC

)

Strategy Formulation and Decision

Making Process

CEO

and Compensation

Audit Committee

Nominations committee of

Board of Directors and Senior Management Committees

Integrated Governance Systems

and Procedures

INTERNAL GOVERNANCE STRUCTURE ASSURANCE REGULATORY

Employee Performance Governance

People and Talent Management

Stakeholder Management

Effective & Transparent

Communication

IT Governance

Integrated Risk Management

Management Committee (MC)

Employees

Independent Directors

Audit Committee

Internal Control

Employee Participation

Conduct

External Audit

Code of best practice on corporte governance issued jointly by SEC and

ICASL

Corporate Governance rules published by CSE

Companies Act No. 07 of 2007


The Board of Directors, along with the Chairman, is the apex body responsible and accountable for the stewardship function. The Directors are collectively responsible for upholding and ensuring the highest standards of Corporate Governance and inculcating ethics and integrity.

Please refer Board of Directors section for details on expertise, experience and qualifications of the Board of Directors.

Notwithstanding the functioning of the Board Committees, the Board of Directors is collectively responsible for the decisions and actions taken by these Board sub-committees.

The John Keells Group Corporate Governance Framework expects the Board of Directors to:

Ensure that no one person has unfettered powers of decision making.

Recognise that the methods employed to achieve goals are as important as the goals themselves.

Maintain strong governance practices which facilitate commercial advantages, especially through a lowering of cost of capital.

Strengthen stakeholder confidence, particularly investors, both institutional and individual as well as the banks.

Make business decisions and resource allocations, in an

efficient and timely manner, within a framework that ensures transparent and ethical dealings.

Comply with the laws of the country and other jurisdictions present and meet with stakeholder expectations surrounding the standards of governance to be maintained across the Group.

Encourage proactive discussions with the relevant regulatory bodies to facilitate the implementation of matters pertaining to governance and related business reforms in Sri Lanka and other jurisdictions where the Group has major business interests.

Opt, when practical, for early adoption of best practices.

As at 31st March 2013, the Board consisted of eight (8) Directors, of which four (4) are Non-Executive, Independent Directors. As at the last Annual General Meeting held on the 26th June 2012, the Board consisted of the same number of Directors.

The Board members have a wide range of expertise as well as significant experience in corporate, marketing, legal and financial activities enabling them to discharge their governance duties in an effective manner.

Name of Director Executive / Non Executive

Independent / Non Independent

Involvement/ Interest in Shareholding

Involvement/ Interest in Management

Involvement/ Interest in Supply Contracts

Continuously served for 9 years

Mr. S. C. Ratnayake - Chairman

Non-Executive Non-Independent Yes No No Yes

Mr. A. D. Gunewardene Non-Executive Non-Independent No No No Yes

Mr. J. R. F. Peiris Non-Executive Non-Independent No No No Yes

Mr. J. R. Gunaratne Non-Executive Non-Independent No No No No

Non-Executive Independent No No No No

Mr. R. Pieris Non-Executive Independent No No No No

Mr. A. D. E. I. Perera Non-Executive Independent No No No No

Mr. M. P. Jayawardena Non-Executive Independent No No No No



Collectively, the Non-Executive Directors bring a wealth of value adding knowledge, ranging from domestic and international experience to specialised functional know-how, thus ensuring adequate Board diversity in accordance with principles of Corporate Governance.

The Company is conscious of the need to maintain an appropriate mix of skills and experience in the Board. Independence of the Directors has been determined in accordance with the criteria of the CSE Listing Rules, and the Board confirms that its present composition of Non-Executive Independent directors is in line with the requirements of the CSE Listing Rules. The four independent non-executive Directors have submitted signed confirmations of their independence.

All Non-Executive Directors (NED) are encouraged to propose discussion items for the board meetings.

Each Director has a continuing responsibility to determine whether he or she has a potential or actual conflict of interest arising from external associations, interests in material matters and personal relationships which may influence his judgment. Such potential conflicts are reviewed by the Board from time to time.

Details of Companies in which Board members hold Board or Board committee membership are available with the Company for inspection by shareholders on request. In order to avoid potential conflicts or biasness, Directors adhere to best practices as illustrated below.

The Executive Directors are appointed and recommended for re-election subject to their prescribed Company retirement age whilst Non Executive Directors are appointed and recommended for re-election subject to the age limit as per statutory provisions at the time of re-appointment

At each Annual General Meeting one third of the Directors, retire by rotation on the basis prescribed in the Articles of Association of the Company and are eligible for re-election. The Directors who retire are those who have been longest in office since their appointment / re-appointment. In addition any new Director who was appointed to the Board during the year is required to stand for re-election at the next Annual General Meeting.

The re-election of Directors ensures that shareholders have an opportunity to reassess the composition of the Board. The names of the Directors submitted for re-election are provided to the shareholders in advance to enable them to make an informed decision on their election.

The names of the retiring Directors eligible for re-election this year are mentioned in the Notice of the Annual General Meeting of the Company.

The Chairman is a Non Executive Non Independent Director. The Chairman conducts Board Meetings ensuring effective participation of all Directors. The Chairman is responsible for providing leadership to the Board and ensuring that proper order and effective discharge of Board functions are carried out at all times by the Board Members. The roles of the Chairman and Chief Executive Officer (CEO) are separate with a clear distinction of responsibilities between them. The executive

Nominees are requested to make known their various interests that could potentially conflict with the interests of the Company.

Directors obtain Board clearance prior to:

that could create a potential conflict of interest.

All NEDs notify the Chairman of any changes to their current board representations or interests.

Directors who have an interest in a matter under discussion:

deliberations on the subject matter.

subject matter (abstentions, where applicable, from decisions, are duly minuted).

Prior to Appointment Once Appointed During Board Meetings


including implementation of strategies approved by the Board and developing and recommending to the Board the business

been entrusted to the CEO.

To ensure robust deliberation and optimum decision making, the Directors have access to: Information as is necessary to carry out their duties and

responsibilities effectively and efficiently. Information updates from management on topical matters,

new regulations and best practices as relevant to the

External and Internal Auditors. Experts and other external professional services. The services of the Company Secretaries whose appointment

and/or removal is the responsibility of the Board. Periodic performance report. Senior management under a structured arrangement.

The Board consists of two senior qualified Accountants with significant experience in the corporate sector. Both of them possess the necessary knowledge and expertise to offer the Board of Directors guidance on matters of finance. One Director serves as the Finance Director of the Parent Company whilst the other as the Chairman of the Audit Committee.

The Board of the Company meets once every quarter, in the least. Any absences are excused in advance and duly minuted. The absent members are immediately briefed on the discussions and actions taken during the meeting.

The attendance of the Directors at the Board Meetings held for the period 1st April 2012 to 31st March 2013 are as follows:

Directors Date

23rd July 2012

25th October 2012

21st January 2013

22nd April 2013

Mr. S. C. Ratnayake

Mr. A. D. Gunewardene

Mr. J. R. F. Peiris

Mr. J. R. Gunaratne

Mr. R. Pieris

Mr. A. D. E. I. Perera

Mr. P. S. Jayawardena

The Board has delegated some of its functions to Board committees while retaining final decision rights pertaining to matters under the purview of these committees.

The Board has, subject to pre-defined limits, delegated its executive authority to the CEO who exercises this authority through the Management Committee(MC) which he heads and to which he provides leadership and direction.

The Group Executive Committee (GEC) of the Parent Company,

prior to it being recommended to the KFP Board.

As at 31 March 2013, the 9 member GEC consisted of the Chairman-CEO, the Deputy Chairman, the Group Finance

GEC members not only play a mentoring role, but are accountable in total for the business units and functions under their purview. The members of the GEC are well equipped to execute these tasks and bring in a wealth of experience and diversity to the Group in terms of their expertise and exposure.

The Management Committee operates under the leadership of the CEO and are dedicated and focused towards implementing strategies and policies determined by the Board and designing, implementing and monitoring the best practices in their respective functions, strategic business units or even at departmental level where appropriate and material.

The underlying intention of the MC is to encourage the respective business units to take responsibility and accountability to the lowest possible level, via suitably structured committees and teams in a management by objectives setting.

The agenda of the MC is carefully structured to avoid duplication of effort and ensure that discussions and debate are complementary both in terms of a bottom-up and top-down flow of accountability and information. Responsibility and accountability of the effective functioning of the MC is vested upon the CEO, the functional heads and the function managers as applicable.


The MC focus is aligned to headline financial and non-financial indicators, strategic priorities, and risk management, implement the strategies and policies determined by the Board, the use of IT as a tool of competitive advantage, new business development, continuous process improvements , management of the human resource and managing through delegation and empowerment, the business affairs of the Company.

Responsibility for monitoring and achieving plans as well as ensuring compliance with Group policies and guidelines rests with the CEO, and the functional managers where applicable.

The Audit Committee comprises solely of Non-Executive, Independent Directors and conforms to the requirements of the Listing Rules of the Colombo Stock Exchange. It is governed by a Charter, which inter alia, covers the reviewing of policies and procedures of Internal Control, business risk management, compliance with laws and Company policies and independent audit function.

The Committee is also responsible for the consideration and recommendation of the appointment of External Auditors, the maintenance of a professional relationship with them, reviewing the accounting principles, policies and practices adopted in the preparation of public financial information and examining all documents representing the final Financial Statements.

A quarterly self certification program that requires the CEO,

to confirm compliance, on a quarterly basis, with statutory requirements and key control procedures and to identify any deviations from the set requirements. In addition the CEO

required to confirm operational compliance with statutory and other regulations and key control procedures, coupled with the identification of any deviations from the expected norms. These have significantly aided the committee in its efforts in ensuring correct financial reporting and effective internal control and risk management.

The Audit Committee had 5 meetings during the year and attendance of the Audit Committee members are indicated in the Audit Committee Report on page 44.

heads are invited to the meetings of the Audit Committee. The detailed Audit committee report including areas reviewed during the financial year 2012/13 is given on page 45 of the Annual Report.

Company and conforms to the requirements of the Listing Rules of the Colombo Stock Exchange.

Parent Company consists of following four Non-Executive Independent Directors:

Mr. Franklyn Amerasinghe - Chairman Mrs. S. TiruchelvamMr. I. CoomaraswamyMr. R. Gunesekara

The key principles underlying the Remuneration Policy of the Group are as follows:

by an independent third party on the basis of the relative worth of jobs.

Compensation be set at levels that are competitive to enable the recruitment and the retention of high caliber executives in the identified job classes/bands – as guided by the best comparator set of companies (from Sri Lanka and the region, where relevant)

Compensation, comprising of fixed (base) payments, short term incentives and long term incentives be tied to performance, both individual and organisational.

Performance be measured annually on well-defined objectives and matrices at each level- individual, business and Group, thereby aligning shareholder interests through well established performance management system.

The more senior the level of management, the higher the proportion of the incentive component, thereby lower the proportion of the fixed (base) component of total compensation.

As the seniority, and therefore the decision influencing capability of the position on organisational results, increases, the individual performance to hold lesser weightage than the organisational performance when determining total compensation and incentives.

financial reporting is given in the Financial Information section

Company are addressed in the Annual Report of the Board of Directors.



The Board of Directors in consultation with the Audit Committee have taken all reasonable steps in ensuring the accuracy and timeliness of published information and in presenting an honest and balanced assessment of results in the quarterly and annual Financial Statements.

As discussed in the shareholder relations section of this note, all price sensitive information has been made known to the Colombo Stock Exchange, shareholders and the press in a timely manner and in keeping with the regulations.

The Board of Directors upon the recommendation of the Audit Committee is satisfied that the Company and the Subsidiary have sufficient resources to continue in operation for the foreseeable future. In the event that the net assets of the Company and the Subsidiary Company fall below a half of shareholders funds, shareholders would be notified and an extraordinary resolution passed on the proposed way forward.

The going concern principle has been adopted in preparing the Financial Statements. All statutory and material declarations are highlighted in the Annual Report of the Board of Directors in the Annual Report. Financial Statements are prepared in accordance with the Sri Lanka Financial Reporting Standards (SLFRS) and Lanka Accounting Standards (LKAS), including all the new standards introduced during the subject year, and International Accounting Standards (IAS), as applicable.

Information in the Financial Statements of the Annual Report are supplemented by a detailed ‘Management Discussion

operational, investment and risk related aspects of the Company that have translated into the reported financial performance and are likely to influence future results.

Inte

grat

ed g

over

nanc

e sy

stem

s an

d p

roce

dur

es Strategy formulation and decision making process

Employee performance governance

People and talent management

Stakeholder management

Effective & transparent communication

IT governance

Integrated risk management

1. Formulating business strategy,

objectives and risk management for each BU for

the financial year

2. Board and GEC approval

3. Business performance evaluation of

first six months against target

4. Reforecasting the targets for

the second half of the year

5. Performance evaluation of

the second half/full year

Business Units and Functional Units of Group carry out detailed analysis on the following aspects when formulating strategies for the forthcoming financial year;

Customer and stakeholder needs and the expectations of the society as a whole

products and services Opportunities and threats that arise from competitive

environments Risks associated with the operating landscape

Formulated strategies are presented to the Board of Directors

by the respective business units for approval and the approved strategies are then translated into numbers where annual plans, key performance indicators (KPI) and targets for each business unit are set.

the key enablers of performance, together with organisational structures and processes are defined and are in place to ensure the delivery of its goals and objectives and approves annual plans.


Upon the completion of the first half of the financial year the Board and the Group Executive Committee evaluates the performance of the businesses against the plan with deviations being noted along with the identification of corrective action.

Reforecast Annual Plan for the second half of the financial

Committee for approval having taken into consideration changes taking place at both a macro and micro levels.

Business performance during the second half of the financial year as well as the full financial year is evaluated against the reforecast plans and targets at the end of the financial year.

In addition to the periodic performance review by the Board

detailed performance evaluations are taking place at regular intervals at business unit and MC levels. The outcome of such performance evaluations acts as a key determinant in awarding short term incentives to respective employees.

The employees are rewarded with a performance based scheme that is determined as follows:

– given the high level of decision making authority, the performance is measured annually on well-defined individual as well as organisational objectives and matrices

objectives, thereby aligning employee management and stakeholder interests.

– measured only by the individual performance rating as it is difficult for these individuals to directly influence the performance of their respective business units.


Greater prominence is given to the incentive component of the total target compensation of the management.

Continuously focuses on creating a sound work environment covering all aspects of employee satisfaction.

percentile and 75th percentile of the best comparator set of companies (from Sri Lanka and the region, where relevant) as a guide.

compensated.

for equal roles.

Methodology for job evaluation on the basis of the relative worth of jobs.


The employee share option schemes (ESOPs) implemented by

the Group at defined career levels based on pre-determined criteria which are uniformly applied across the eligible levels. Such options are offered at market prices prevailing on the date of the offer.

The equity sharing scheme has primarily paved the way for;

Improved employee commitment and buy-in to management goals

Alignment of interest between employees and shareholders Emergence of a more transparent governance mechanism

Under SLFRS/LKAS, ESOPs has to be accounted in the Financial Statements of individual Companies with effect from

employees since 01st January 2012.

well served by involving employees actively in safeguarding the Group Corporate Governance framework, where the employees are encouraged and empowered to positively contribute towards upholding the principles of Corporate Governance.

engages employees at various levels to the internal governance structure and in recognition of the same, policies, processes and systems are in place to ensure effective recruitment, development and retention as the Group is committed to hiring, developing and promoting individuals who possess the required competencies.

Moreover the Group provides a safe, secure and conducive environment for its employees, allows freedom of association and collective bargaining, prohibits child labour, forced or compulsory labour and any discrimination based on gender, race or religion, and promotes workplaces which are free from physical, verbal or sexual harassment, all of which compliment effective Corporate Governance.

Top management and other senior staff are mandated to involve, as appropriate, all levels of staff in formulating goals, strategies and plans.

Decision rights are defined for each level in order to instill a sense of ownership, reduce bureaucracy and speed-up the decision making process.

A bottom-up approach is taken in the preparation of annual and five year plans that also ensures employee involvement and empowerment in the process.

Employee relations are designed to enable, and facilitate, high accessibility by all employees to every level of management.

The Board views effective stakeholder management as a vital aspect in safeguarding the Corporate Governance philosophy.

high accessibility by any employee to every level of management. Constant dialogue and facilitation are also maintained, relating to work-related issues as well as matters pertaining to general interest that could affect employees and their families. Therefore, the Group follows open-door policies for its employees and key stakeholders and this is promoted at all levels of the Group.

The Group also has skip level meetings where an employee can discuss matters of concern with superiors who are at a level higher than their own immediate supervisor in an open but confidential environment. A detailed discussion on employee relations was discussed in the Effective and Transparent Communication section under Internal Governance Structure.

The Group has opened up through the Parent Company, several channels to ensure sound communication with the shareholders.

Other stakeholders: Corporate social responsibility and sustainability

The Group recognises that it exists not only to maximise long term shareholder value but also to look after the rights and appropriate claims of many non-shareholder groups such as employees, consumers, clients, suppliers, lenders, environmentalists, host communities and governments.

The Group is continuously working towards introducing innovative and effective ways of employee communication and employee awareness. The importance of communication - top-down, bottom-up, and lateral communication in gaining employee commitment to organisational goals has been conveyed extensively and intensively through various communiqués

employees have many opportunities to interact with senior


management, the Group has also created formal channels for such communication through feedback as described below:

- feedback on the Company and its management is obtained from different perspectives by holding regular skip level meetings at assistant manager and above levels.

- opinion is obtained in the form of a 360 degree evaluation for employees at Manager level and above.

- used as a means of knowledge sharing and gathering new suggestions for new business opportunities and improvements.

- enables employees to bring to his notice any transgression of Group values when other established avenues have not yet yielded results.

- practice of conducting exit interview for all employees at executive level and above where all such reports are forwarded to the respective Presidents and Executive Vice President for their comments which are subsequently discussed by GEC.

- Annual employee satisfaction surveys and dip stick surveys.

- Obtain employee feedback to ensure continuous focus on creating a sound work environment covering all aspects of employee satisfaction

- The primary goal of corporate communications is to enhance and safeguard the

to build the brand amongst both current and prospective employees in addition to creating awareness amongst the general public at large.

for maintaining an active dialogue with shareholders, potential investors, investment banks, stock brokers and other interested parties, towards developing an effective investor communication

Focusing on the long-term view and strength of the Statement of Financial Position

Responding to queries and clarifying on concerns of investors

Coordinating media relations and investor communications

Shareholders have the opportunity at the AGM, to put forward questions to the Board and to the Chairman and the Chairmen of the Audit Committee to have better familiarity with the

Annual Report will enable existing and prospective stakeholders to make better informed decisions in their dealings with the Company.

In general, all steps are taken to facilitate the exercise of shareholder rights at AGMs, including the receipt of notice of the AGM and related documents within the specified period, voting for the election of new Directors, new long term incentive schemes or any other issue of materiality that requires a shareholder resolution.

Asset and as such it needs to be managed to leverage competitive business benefits for the Group. To achieve the same, the Information Technology Governance frame work is built upon the following set of primary objectives:

Leverage IT as a Strategic Asset Create an “Agile Governance Model” Create better Alignment between business and IT Create greater business value with our investments in IT Create a strong IT governance and regulatory framework

through a coherent set of policies, processes and adoption of best practices in line with world-class organisations

The basic philosophy of the IT Governance is based on Business Value Creation vis-à-vis Capital, Benefit, Cost and Risk.



The Governance is based on the following model in aligning IT Value, Performance, Risk and Accountability across the Group through well-defined governance structures, procedures, policies.

Accountability Performance Management

IT value and Alignment

Risk Management

Deliver Business Value

Sustainability of Business Value

Sustainability of Business Value

Deliver Business Value

The Governance Framework used within the Group leverages best practices and industries leading models such as CoBIT, ISO 35800, COSO/BCP, ITIL, ISO27001, ISO 9000:2008 in giving us a best of bred framework as highlighted below.

ITIL ISO27001

CobiT

ISO 9001:2008

IT Governance

Process Management

Service Management

Risk & BC Management

Security Management

COSO/BCM

Based on the above the Group IT Strategy Map is drawn as

detailed in table below.

Drivers & Objectives

Architectural Views Products & Results

Alignment Contextual Business Catalogue

Requirements

Considerations

Conceptual Process Management

Case

Identification

Collaboration

Logical System – Alteratives

Refinement

Requirements

Constraints

Component Model – Enablement

Operational Lifecycle Management Methodologies

Continuous Improvements

All of the above is governed through layered and nested

Company IT Operation Committee with well-defined roles and responsibilities at a Group, Sector and Business unit level.

programme with focus on wider sustainability development, to identify, evaluate and manage significant risks and to stress-test various risk scenarios which the Group has adopted. The programme ensures that a multitude of risks, arising as a result

creating and preserving shareholder and other stakeholder wealth.

risk management; Integrating and aligning activities and processes related

to planning, policies/ procedures, culture, competency, internal audit, financial management, monitoring and reporting with risk management.

Supporting executives/managers in moving the organisation forward in a cohesive integrated and aligned manner to improve performance, while operating effectively, efficiently, ethically, legally, and within the established limits for risk taking.


The detailed Risk Management report of the Annual Report describes the process of risk management as adopted by the Group and the identified key risks to the achievement of the

Corporate Governance Framework, where a range of assurance mechanisms such as monitoring and benchmarking are used with effectiveness tests carried out, and corrective actions being proposed and implemented.

The employees can report to the Chairman through a

about unethical behavior and any violation of Group values. Employees reporting such incidents are guaranteed complete confidentiality and such complaints are investigated and addressed via a select committee under the direction of the Chairman.

The ombudsperson entertains complaints from an individual employee or a group of employees of alleged violations of the

alleged violation has not been addressed satisfactorily.

The findings and the recommendations of the ombudsperson arising subsequent to an independent inquiry is confidentially communicated to the Chairman upon which the duty of the ombudsperson ceases.

The Chairman will place before the Board;

i. The decision and the recommendations ii. Action taken based on the recommendations

findings and or the recommendations thereon, the areas of disagreement and the reasons therefore.

In situation (iii) the Board is required to consider the areas of disagreement and decide on the way forward. The Chairman is expected to take such steps as are necessary to ensure that the complainant is not victimised for having invoked this process.

shares of other companies in which the Group has a present business interest.

The Board, GEC as well as certain identified employees in senior

prior to their availability to the public are prohibited from trading during periods leading up to the release of quarterly and annual results, new investments, particularly mergers and acquisitions, announcements of scrip issues and dividend payments.

employees who are violating these policies.

Actual financials are compared against the original plan on a monthly basis and material variances are identified and explanations are discussed at the MC whilst a mid year reforecast is done where necessary.

The CEO and Functional Managers are able to view either online or by circulation, the information relevant to their areas of responsibility. The Chairman and Non-Independent Non- Executive Directors are able to view key financial information for all Group companies on a real time basis via the Group ERP system.

The Board has taken necessary steps to ensure the integrity of the

control systems remain effective via the review and monitoring of such systems on a periodic basis. A brief description of some of the key internal control systems are listed below:

A quarterly self-certification programme requires the CEO, Chief

with financial standards and regulations. Further the CEO

compliance with statutory and other regulations and key control procedures, and also identify any significant deviations from the expected norms.

The role of the internal auditor has been transformed into a value

audit findings form an integral input in modifying and improving our internal processes.

The risk review programme covering the internal audit of the

(Pvt) Limited, a firm of Chartered Accountants and the reports arising out of such audits are, in the first instance, considered and discussed at the business / functional unit levels and after review by the CEO of the Company are forwarded to the Audit Committee on a regular basis. Further, the Audit Committees also assess the effectiveness of the risk review process and



systems of internal control on a regular basis. Follow-ups on internal audits are done on a structured basis.

The written Code of Conduct, to which all the employees including the Board of Directors are bound by, engraves the desired behaviors of staff at executive and above level, particularly the senior management. This is being constantly and rigorously monitored.

Code of Conduct

Allegiance to the Company and the Group Compliance with rules and regulations applying in the

territories that the Group operates in Conduct of business in an ethical manner at all times and

in keeping with acceptable business practices Exercise of professionalism and integrity in all business

The objectives of the Code of Conduct are being further preserved by a strong set of corporate values which were re-launched during the financial year 2011/12 by the John Keells Group which are applicable to both the Company and the Subsidiary as well. The Group values are well institutionalised at all levels within the Group and linked to the reward and recognition schemes.

The Chairman of the Board affirms that there have not been any material violations of any of the provisions of the Code of Conduct. In the instances where violations did take place, or were alleged to have taken place, they were investigated and

which, among others, include direct and confidential access to an independent, external Ombudsperson.

Ernst & Young are the external auditors of the Company and Luthra and Luthra Chartered Accountants are the External Auditors of the Subsidiary. Ernst & Young also audit the Consolidated Financial Statements.

In addition to the normal audit services, Ernst and Young, also

lead/consolidating auditor would not engage in any services which are in the restricted category as defined by the CSE for external auditors. All such services have been provided with the full knowledge of the respective audit committees and are assessed to ensure that there is no compromise of external auditor independence.

The Board has agreed that, such non-audit services should not exceed the value of the total audit fees charged by the subject auditor within the relevant geographic territory. The external auditors also provide a certificate of independence on an annual basis.

The audit and non-audit fees paid by the Company and Group to its auditors are separately classified in the notes to the Financial Statements of the Annual Report.

operating structures, strives to ensure that the Company and its Subsidiary comply with the laws and regulations of the country.

The Board of Directors has also taken all reasonable steps in ensuring that all Financial Statements are prepared in accordance with the Sri Lanka Accounting Standards, the requirements of the Colombo Stock Exchange and other applicable authorities.

Sri Lanka Financial Reporting Standards (SLFRS) and Lanka Accounting Standards (LKAS), as set by the Institute of Chartered Accountants of Sri Lanka, are those, which govern the preparation of the Financial Statements. The Board is aware of the growing importance of the disclosure of critical accounting policies as a part of good governance and are of the opinion that there are no instances where the use of such

Information on the Financial Statements of the Annual Report are supplemented by a detailed ‘Management Discussion

operational, investment, sustainability and risk related aspects of the Company that have translated into the reported financial performance and are likely to influence future results.

This Report has been prepared as per the rules and regulations stipulated by the Corporate Governance Listing Rules published by the Colombo Stock Exchange (revised in 2011) and also by the Companies Act No. 07 of 2007.

The Group has also given due consideration and adhered to the Code of Best Practice on Corporate Governance Reporting guidelines jointly set out by the Institute of Chartered Accountants of Sri Lanka and the Securities & Exchange Commission in preparation of this Corporate Governance Report, and where necessary deviations have been explained as provided within the rules and regulations.


The Group is committed to conducting its affairs, under a stakeholder model, with integrity, efficiency and fairness.

an increasing emphasis on customer satisfaction, both external and internal customers, as a way of measuring the adaptability of the organisation over time. Additionally we also believe that there will emerge a new type of corporate information and control architecture in the form of more specialised Board Groups and Advisory Stakeholder Councils comprising employees, lead customers, suppliers and others. Our growing emphasis on “sustainability” is the first step in this journey.

Our key areas of focus will be:

Creating operating structures which are agile and flexible in aligning to the constantly changing needs of the dynamic environment that we operate in.

Maintaining appropriate internal controls and a robust framework of risk management and mitigation.

Reviewing, regularly, the internal processes and benchmarking them against international best practices.

Entrenching stakeholder relationships through more transparent information flows and proactive dialogue.

Rule No. Subject Applicable requirement Compliance Status

Applicable Section in the Annual Report

7.10.1(a) Non Executive Directors

Two or at least one third of the total number of Directors should be Non-Executive Directors.

Compliant Corporate Governance Report

7.10.2(a) Independent Directors

Two or one third of Non-Executive Directors, whichever is higher, should be independent.


7.10.2(b) Independent Directors

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

Compliant Available with Secretaries for Review

7.10.3(a) Disclosure relating to Directors

The Board shall annually make a determination as to the independence or otherwise of the Non-Executive Directors and names of Independent Directors should be disclosed in the Annual Report.


7.10.3(b) Disclosure relating to Directors

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


7.10.3(c) Disclosure relating to Directors

A brief resume of each Director should be included in the Annual Report and should include the Directors areas of expertise.

Compliant Board of Directors profile section in the Annual Report

7.10.3(d) Disclosure relating to Directors

Forthwith provide a brief resume of new Directors appointed to the Board with details specified in 7.10.3(a), (b) and (c) to the Exchange.

Compliant No new Director was appointed during the year.

7.10.4 (a-h)

Determination of Independence

Requirements for meeting criteria Compliant Corporate Governance Report

7.10.5 Remuneration Committee

A listed Company shall have a Remuneration Committee.






7.10.5(a) Composition of Remuneration Committee

Shall comprise of Non – Executive Directors a majority of whom will be Independent.


7.10.5.(b) Functions of Remuneration Committee

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


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

The Annual Report should set out, a. Names of Directors comprising the

Remuneration Committeeb. Statement of Remuneration Policyc. Aggregated remuneration paid to

Executive and Non – Executive Directors

Compliant

Compliant Compliant

Corporate Governance Report

Do

Refer Note 9 Notes to the Financial Statements

7.10.6 Audit Committee The Company shall have an Audit Committee.


7.10.6(a) Composition of Audit Committee

Shall comprise of Non – Executive Directors a majority of whom will be Independent.

A Non – Executive Director shall be appointed as the Chairman of the Committee.

Chief Executive Officer and Chief Financial Officer should attend Audit Committee Meetings.

The Chairman of the Audit Committee or one member should be a member of a professional accounting body.

Compliant

Compliant

Compliant

Compliant

Corporate Governance Report

Do

Do

Do

7.10.6(b) Audit Committee Functions

Functions shall include;

a. Overseeing of the preparation, presentation and adequacy of disclosures in the financial statements in accordance with Sri Lanka Accounting Standards.

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

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

Compliant

Corporate Governance Report and the Audit Committee Report

Do

Do




d. Assessment of the independence and performance of the external auditors.

e. Make recommendations to the Board pertaining to appointment, re-appointment and removal of external auditors, and approve the remuneration and terms of engagement of the external auditors.

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

a. Names of Directors comprising the Audit Committee.

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

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

Compliant.

Compliant

Compliant

The Report of the Audit Committee

Do

Do

(Issued on 1st July 2008)

Code of Best Practice ComplianceStatus

Action

A. 1 The Board

Company to be headed by an effective Board to direct and control the Company

The Board of Directors, along with the Chairman, is the apex body responsible and accountable for the stewardship function of the Group. The Directors are collectively responsible for upholding and ensuring the highest standards of Corporate Governance and inculcating ethics and integrity across the Group.

Regular Board meetings The Board of KFP meets at least once a quarter.




Action

Board should be responsible for matters including implementation of business strategy, skills and succession of the management team, integrity of information, internal controls and risk management, compliance with laws and ethical standards, stakeholder interests, adopting appropriate accounting policies and fostering compliance with financial regulations and fulfilling other Board functions

Powers specifically vested in the Board to execute and gratify their responsibility include:

Providing direction and guidance to the Company and the Subsidiary Company in the formulation of its strategies, with emphasis on the medium and long term, in the pursuance of its operational and financial goals.

Reviewing and approving annual budget plans.

succession planning. Monitoring systems of governance and compliance. Overseeing systems of internal control and risk management. Determining any changes to the discretions/authorities delegated

from the Board to the executive levels. Reviewing and approving major acquisitions, disposals and capital

expenditure. Approving any amendments to constitutional documents.

Act in accordance with the laws of the country and obtain professional advice as and when required

The Board seeks independent professional advice when deemed necessary. During the year under review, professional advice was sought on various matters, including the following:

Employee satisfaction survey and employee compensation and benefit survey done to ensure that the Group is considered “more than just a work place” by the employees.

Legal, tax and accounting aspects, particularly where independent external advice was deemed necessary in ensuring the integrity of the subject decision.

Market surveys, research and expert opinion on the products and services offered as necessary for business operations.

Actuarial valuation of retirement benefits and valuation of property including that of investment property.

Specific technical know-how and domain knowledge required for identified project feasibilities and evaluations.

Access to advice and services of the Company Secretary

To ensure robust deliberation and optimum decision making, the Directors have access to The services of the Company secretaries whose appointment and/or removal is the responsibility of the Board.

Bring Independent judgment on various business issues and standards of business conduct

Every member of the Board has dedicated adequate time and effort in discharging their duties as a director and thereby brings independent judgment on various business issues.

Dedication of adequate time and effort

Every member of the Board has dedicated adequate time and effort for the affairs of the Company by attending Board meetings, Board sub-committee meetings and by making decisions via circular resolutions. In addition, the Board members have meetings and discussions with management when required.The Board met on four occasions during the year and attendance is

The Board is satisfied that the Chairman and the Non-Executive Directors committed sufficient time during the year to fulfill their duties.



Action

Board induction & training In instances where Non-Executive Directors are newly appointed to the Board, they are apprised of the:

Values and culture. Operations of the Group and its strategies. Operating model. Policies, governance framework and processes. Responsibilities as a director in terms of prevailing legislation. The Code of Conduct demanded by the Company. Brief on important developments in the business activities of the

Group.

opportunities for continuous development, subject to requirement and relevance for each Director. The Directors are constantly updated on the latest trends and issues facing the Company and the industry in general.

A. 2 Chairman and Chief Executive Officer

Division of responsibilities between the Chairman and CEO

The positions of Chairman and CEO are separated to ensure a balance of power and authority and to prevent any one individual from possessing unfettered decision making authority.

Decision to combine the roles of the Chairman and the CEO in one person

In accordance with best practice and in order to maintain a clear division of responsibilities, the roles of Chairman and CEO have not been combined.

A. 3 Chairman’s Role

Preserving order and facilitating the effective discharge of Board functions

The Chairman is responsible for leading the Board and for its effectiveness. In practice, this means taking responsibility for the

Board focuses on its key tasks and supports the CEO. The Chairman is also the ultimate point of contact for shareholders, particularly on Corporate Governance issues.

The Board continued to have Four independent Non-Executive Directors during 2012/13 in accordance with best practice.

The Chairman should ensure Board proceedings are conducted in a proper manner

The Chairman is instrumental in;

Leading the Board for its effectiveness. Directing the Board towards discharging stakeholder duties. Setting the tone for the governance and ethical framework. Ensuring that constructive working relations are maintained between

the Executive and Non-Executive members of the Board.




Action

A. 4 Financial Acumen

A. 4 The Board should ensure the availability within it of those with sufficient financial acumen and knowledge to offer guidance on matters of finance.

Two out of the Eight Board members hold membership in professional accounting bodies.

A. 5 Board Balance

Number of Executive and Non-Executive Directors on the Board.

As at 31st March 2013, the Board consisted of Eight Directors, with Four being Non-Executive, Independent Directors

“Independence” of Non – Executive Directors

Compliant with the rules which require a minimum of two independent Non-Executive Directors on the Board.

Jayawardena, continued to be Independent Non-Executive Directors during the year 2012/13.Accordingly, the Company continued to be in compliance with the requirement to have the higher of two, or one third of Non-Executive

Definition of independent directors

All the Independent Directors of the KFP Board 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 judgment.

Declaration of independent directors

Each Non-Executive Director has submitted a signed and dated declaration of his/her independence.

Disclosure of names of Non-Executive Directors who are deemed to be “independent”

The names of the independent Non-Executive Directors are disclosed in the Annual Report.

Appointment of SeniorIndependent Director (SID)

N/A The requirement to appoint a Senior Independent Director does not arise as the roles of Chairman and CEO are separated.

Availability of SID for confidential discussions with other Directors

N/A N/A

The Chairman should hold meetings with the Non-Executive Directors only, without the Executive Directors being present

has an open door policy to allow Independent Directors to have a discussion on any issue which in their opinion is significant. During the year under review Chairman had discussions with Independent Directors on an informal basis.

about the matters of the Company which cannot be unanimously resolved, they should ensure their concerns are recorded in the Board Minutes.

All the Board meeting proceedings are comprehensively recorded in the Board Minutes.



Action

A. 6 Supply of information

Board should be provided with timely information to enable it to discharge its duties

The Board is provided with;

Information as is necessary to carry out their duties and responsibilities effectively and efficiently.

Information updates from management on topical matters, new

External and internal auditors. Experts and other external professional services. Periodic performance report. Senior management under a structured arrangement.

Timely submission of the minutes, agenda and papers required for the board meeting.

The Board papers are circulated a week prior to Board meetings.

A. 7 Appointments to the Board

Formal and transparent procedure for Board appointments

Board appointments follow a transparent and formal process within the purview of the Nominations Committee of the Parent Company. There were no new Board appointments during the year 2012/13

Nomination Committee to make recommendations on new Board appointments

It is the responsibility of the Nominations Committee of the Parent Company to identify and propose suitable candidates for appointment as non-executive directors to the Board of KFP as and when required, in keeping with the target board composition and skill requirements.

Assessment of the capability of Board to meet strategic demands of the Company

The emerging needs, combined with the objectives and the strategies set for the future are considered key when identifying skill sets required by potential Board members, especially skills that may not be readily available within Sri Lanka. Based on these requirements the Nominations Committee scans the external environment to identify potential candidates that can add value to the existing Board.

Disclosure of New Board member profile and Interests

Currently the Board members have varying qualifications in economic, environmental and social topics and are involved in many committees and associations that serve the business community as a whole.

Refer Board Member Profiles for more information.

A. 8 Re election

Re-election at regular intervals and should be subject to election and re-election by shareholders

The Non-Executive Directors are appointed for a term of three years, ideally up to a maximum of three terms each, subject to the age limit as per statutory provision at the time of re-appointment following the end of term.

One third of the Directors, except the Chairman retire by rotation on the basis prescribed in the articles of the Company. A Director retiring by rotation or a Director who is subject to appointment is eligible for re-election by a shareholder resolution at the AGM.

The resolutions for the AGM to be held on 25th June 2013 cover re-election of:





Action

A. 9 Appraisal of Board performance

The Board should annually appraise itself on its performance in the discharge of its key responsibilities

The Board should also undertake an annual self-evaluation of its own performance and that of its Committees

The Board should state how such performance evaluations have been conducted

Although no formal process has been established, the openness and the keenness displayed by the Executive and Non-Executive Directors reflect the regular review of the Board performance.

A. 10 Disclosure of information in respect of Directors

Profiles of the Board of Directors

Refer Board profiles section

A. 11 Appraisal of the Chief Executive Officer

Appraisal of the CEO against the set strategic targets

The GEC appraises the performance of the CEO of the Company on the basis of pre-agreed objectives for the Company set in consultation with the Board.

B. 1 Remuneration procedure

the Board of Directors should set up a Remuneration Committee the remuneration committee of the Group and functions within agreed

terms of reference.

Committee and Policy” section in the Corporate Governance Report.

Remuneration Committees should consist exclusively of Non-executive Directors

of Non-Executive Directors and headed by the Senior Independent

The Chairman and members of the Remuneration Committee should be listed in the Annual Report each year.

Refer details on Board Committees

Determination of the remuneration of Non-Executive Directors

NEDs receive a fee for devoting time and expertise for the benefit of the Group in their capacity as Director and additional fees for either chairing or being a member of a committee. NEDs do not receive any performance/incentive payments and are not eligible to participate in

fees are not time bound or defined by a maximum/minimum of hours committed to the Group per annum, and hence are not subject to additional/lower fees for additional/lesser time devoted.

Access to professional adviceprofessional advice from within and outside the Company

B. 2 The level and makeup of Remuneration



Action

Performance related elements in pay structure and alignment to industry practices

The remuneration of the Senior Management has a higher component of variable component relative to the lower rank executives because of the impact on decision making.

Executive share options should not be offered at a discount

The senior management is entitled to participate in the share option

Executive share options were not offered at a discount.

designing schemes of performance-related remuneration

Basis of performance related remuneration schemes are known up front.In terms of long term incentive schemes, the senior management is entitled to participate in the share option scheme initiated by the

Performance related remuneration schemes are not applied retrospectively.

Annual bonuses are not pensionable.

Non-Executive Directors are not eligible to performance based remuneration schemes.

Compensation commitments in the event of early termination of the Directors

There are no terminal compensation commitments other than gratuity

Level of remuneration of Non-Executive Directors.

Compensation of NEDs is determined in reference to fees paid to other NEDs of comparable Companies. The fees received by NEDs are determined by the Board and reviewed annually.

B. 3 Disclosure of Remuneration

Disclosure of remuneration policy and aggregate remuneration

In accordance with the guidelines of the Securities and Exchange Commission of Sri Lanka aggregate remuneration paid to Executive and Non-Executive Directors during the financial year 2012/2013 is disclosed in Note 9 Notes to the Financial Statements.

C. 1 Constructive use of the Annual General Meeting (AGM) and Conduct of General Meetings

Shareholders have the opportunity at the AGM, to put forward questions to the Board and to the Chairman CEO and the

Counting of proxy votes Complied

Separate resolution to be proposed for each item

Complied

to be available to answer queries queries




Action

Notice of Annual General Meeting to be sent to shareholders with other papers as per statute

Notice of the AGM and related documents are sent to shareholders along with the Annual Report within the specified period.

The contents of this Annual Report will enable existing and prospective stakeholders to make better informed decisions in their dealings with the Company.

Summary of procedures governing voting at General meetings to be informed

A summary of the procedures governing voting at the AGM is provided in the proxy form, which is circulated to shareholders 15 working days prior to the AGM.

C. 2 Major Transactions

C. 2. 1 Disclosure of all material facts involving any proposed acquisition, sale or disposition of assets

All material and price sensitive information about the Company is promptly communicated to the Colombo Stock Exchange, where the shares of the Company are listed, and released to the press and shareholders. The Group also publishes Quarterly Interim Financial Statements.

D. 1 Financial Reporting

Disclosure of interim and other price-sensitive and statutorily mandated reports to Regulators

The Board of Directors in consultation with the Audit Committee have taken all reasonable steps in ensuring the accuracy and timeliness of published information and in presenting an honest and balanced assessment of results in the quarterly and annual financial statements.

All price sensitive information has been made known to the Colombo Stock Exchange, shareholders and the press in a timely manner and in keeping with the regulations.

Declaration by the Directors that the Company has not engaged in any activities, which contravene laws and regulations, declaration of all material interests in contracts, equitable treatment of shareholders and going concern with supporting assumptions orqualifications as necessary

All statutory and material declarations are highlighted in the Annual Report of the Board of Directors in the Annual Report.

responsibility

Management Discussion and Analysis

Refer Management Discussion and Analysis Section

The Directors should report that the business is a going concern, with supporting assumptions or qualifications as necessary.

The Board of Directors upon the recommendation of the Audit committee is satisfied that the Company and the Subsidiary Company have sufficient resources to continue in operation for the foreseeable future.

Remedial action at EGM if net assets fall below 50% of value of

In the unlikely event that the net assets of the Company fall below a

extraordinary resolution passed on the proposed way forward.



Action

D.2 Internal Control

Annual review of effectiveness of system of Internal Control and report to shareholders as required.

The Board has taken necessary steps to ensure the integrity of the

control systems remain effective via the review and monitoring of such

some of the key systems.

Internal Audit Function The internal audit function in the Company and the Subsidiary Company is not outsourced to the external auditor of that Company in a further attempt to ensure external auditor independence. The

year under review is found in the Financial Information section of the Annual Report.

The role of the internal auditor of the Group, has transformed into a

audit findings form an integral input in modifying and improving our internal processes.

D. 3 Audit Committee

The Audit Committee should be comprised of a minimum of two Independent Non-Executive Directors or exclusively by Non-Executive Directors, a majority of whom should be independent, whichever is higher. The Chairman of the Committee should be a Non-Executive Director, appointed by the Board.

The Audit Committee comprises of Four independent Non-Executive Directors.

Terms of reference, duties and responsibilities

The Audit Committee has the overall responsibility for overseeing the preparation of Financial Statements in accordance with the laws and regulations of the country and also recommending to the Board, on the adoption of best accounting policies.

The Committee is also responsible for maintaining the relationship with the external auditors and for assessing the role and the effectiveness of the Group Business Process Review Division.

The Audit Committee to have written Terms of reference covering the salient aspects as stipulated in the section.

Composition of the Audit Committee, independence of the Auditors

The Audit Committee has written Terms of reference outlining the scope.

Refer Audit Committee Report.

D. 4 Code of Business Conduct and Ethics

Availability of a Code of Business Conduct and Ethics and an affirmative declaration that the Board of Directors abide by such Code.

The written Code of Conduct, to which all the employees including the Board of Directors are bound by, engraves the desired behaviors of the staff at executive and above level, particularly the senior management. This is being constantly and rigorously monitored.




Action

The Chairman must certify that he/she is not aware of any violation of any of the provisions of this Code.

The Chairman of the Board affirms that there has not been any material violations of any of the provisions of the Code of Conduct. In the instances where violations did take place, or were alleged to have taken place, they were investigated and handled through

include direct and confidential access to an independent, external ombudsperson as discussed above.

D.5 Corporate Governance disclosures

The Directors should include in the

Governance Report

A Corporate Governance Section is included in the Annual Report.

E. 1 Shareholder voting

A listed Company should conduct a regular and structured dialogue with shareholders based on a mutual understanding of objectives.

The AGM is used as a forum to have a structured, objective dialogue with shareholders. The Chairman ensures that the views expressed at the AGM are communicated to the Board as a whole.

E. 2 Evaluation of Governance Disclosures

Encourage institutional investors to give due weight to relevant governance arrangements

The Corporate Governance report in the annual report sets out the

F.1 investing Divesting decision

Individual shareholders, investing directly in shares of companies should be encouraged to carry out adequate analysis or seek independent advice in investing or divesting decisions.

division maintains an active dialogue with shareholders, potential investors, investment banks, stock brokers and other interested parties. Also the Annual Report contains sufficient information to help make an informed decision.

F.2 Shareholder Voting

Individual shareholders should be encouraged to participate in General Meetings of companies and exercise their voting rights.

All steps are taken to facilitate the exercise of shareholder rights at AGMs, including the receipt of notice of the AGM and related documents within the specified period. Shareholders exercise their voting rights for the election of new Directors, new long term incentive schemes or any other issue of materiality that requires a shareholder approval.


The powers and responsibilities of the Audit Committee are governed by the Audit Committee Charter which is approved and adopted by the Board. The terms of reference comply with the requirements of the Corporate Governance Rules as per Section 7.10 of the Listing Rules of the Colombo Stock Exchange (CSE).

with the requirements of the Code of Best Practice on Audit

requirements of the Code of Best Practice on Audit Committees.

The Committee is tasked with assisting the Board in fulfilling its oversight responsibility to the shareholders, potential shareholders, the investment community and other stakeholders in relation to the integrity of the Financial Statements of the Group, ensuring that a good financial reporting system is in place and is well managed in order to give accurate, appropriate and timely information, that it is in accordance with the

that adequate disclosures are made in the Financial Statements in accordance with the relevant Accounting Standards.

The Audit Committee reviews the design and operational effectiveness of internal controls and implement changes where required and ensures that the risk management processes are effective and adequate to identify and mitigate risks.

The Audit Committee also ensures that the conduct of the business is in compliance with applicable laws and regulations and policies of the Group.

continue as a going concern in the foreseeable future.

The Committee evaluates the performance and the independence of the Internal Auditors and the External Auditors. The Committee is also tasked with the responsibility of recommending to the Board the re-appointment and change of External Auditors and to recommend their remuneration and terms of engagement.

In fulfilling its purpose, it is the responsibility of the Audit Committee to maintain a free and open communication with the Independent External Auditors, the outsourced Internal Auditors and the management of the Company and to ensure that all parties are aware of their responsibilities.

The Audit Committee is empowered to carry out any investigations it deems necessary and review all internal control systems and procedures, compliance reports, risk management reports etc. to achieve the objectives as stated above. The Committee has reviewed and discussed with management and internal and external auditors, the audited Financial Statements, the quarterly unaudited Financial Statements as well as matters

Audit Committee Report

key judgments and estimates in the preparation of Financial Statements and the processes that support certification of the Financial Statements by the Directors and the CFO.

The Audit Committee is a sub-committee of the Board of Directors appointed by and responsible to the Board of Directors. The Audit Committee consists of four Independent, Non-Executive Directors in conformity with the Listing Rules of The Colombo Stock Exchange, who are,

Mr. M. P. Jayawardena - Chairman

Mr. A. D. E. I. Perera Mr. R. Pieris

The Audit Committee comprises of individuals with extensive experience and expertise in the fields of Finance, Corporate Management, Legal and Marketing. The Chairman of the Audit Committee is a Chartered Accountant. A brief profile of each member of the Audit Committee is given on pages 13 and 14 of this report under the section Board of Directors.

The Audit Committee meets as often as may be deemed necessary or appropriate in its judgment and at least quarterly each year. During the year under review there were five (5) meetings and attendance of the committee members are given below.

meetings by invitation and briefed the committee on specific issues. The External Auditors and the Internal Auditors were also invited to attend meetings when necessary. The proceedings of the Audit Committee are reported to the Board of Directors by the Chairman of the Audit Committee.

Name

3rd

May

201

2

20th

Jul

y 20

12

6th

No

vem

ber

20

12

5th

Feb

ruar

y 20

13

12th

Mar

ch

2013

Mr. M. P. Jayawardena

Y Y Y Y Y

Amarasekera N Y Y Y N


Y N Y Y Y

Mr. R. Peiris Y Y Y Y Y


Oversight of Company and Consolidated Financial Statements and Convergence to Sri Lanka Financial Reporting Standards (SLFRS) and Lanka Accounting Standards (LKAS)The Committee reviewed with the independent External Auditors who are responsible for expressing an opinion on the truth and fairness of the audited Financial Statements and their conformity with the Sri Lanka Financial Reporting Standards (SLFRS) and Lanka Accounting Standards (LKAS).

The Committee is satisfied with the structured approach adopted over the past year and half by the management for a smooth convergence to the new accounting standards in line with the International Financial Reporting Standards (IFRS) and International Accounting Standards (IAS) issued by The Institute of Chartered Accountants of Sri Lanka which is applicable for financial periods beginning on or after 1st January 2012.

These Accounting Standards comprise Accounting Standards prefixed both SLFRS (corresponding to IFRS) and LKAS (corresponding to IAS). The Financial Statements, for the year ended 31st March 2013, are the first, the Company has prepared in accordance with SLFRS / LKASs. For periods up to and including the year ended 31st March 2012, the Company prepared its Financial Statements in accordance with Sri Lanka Accounting Standards (SLASs). Accordingly, the Company has prepared Financial Statements which comply with SLFRS / LKASs and related interpretations applicable for period ending 31st March 2013, together with the comparative period data as at and for the year ended 31st March 2012, as described in the accounting policies.

statement of Financial Position was prepared as at 1st April 2012,

SLFRS 1 - First Time Adoption of Sri Lanka Financial Reporting Standards, SLFRS 7 - Financial Instruments, Disclosure, LKAS 39 - Financial Instruments, Recognition and Measurement and SLFRS 8 – Operating Segments which are new to the Sri Lankan financial reporting framework and applicable to Keells Food Products PLC. have been applied.

The Committee also reviewed the Accounting Policies of the Company and such other matters as are required to be discussed with the independent External Auditors in compliance with Sri Lanka Auditing Standard 260 – Communication of Audit Matters with those charged with Governance. The quarterly Financial Statements were also reviewed by the Committee and recommended their adoption to the Board.

The Committee also reviewed the process to assess the effectiveness of the internal financial controls that have been designed to provide reasonable assurance to the Directors that

the Financial Reporting System can be relied upon in preparation and presentation of the Financial Statements of the Company and the Group.

Internal AuditThe Committee monitors the effectiveness of the internal audit function and is responsible for approving their appointment or removal and for ensuring they have adequate access to information required to conduct their audits.

The internal audit function of the Company has been outsourced

Chartered Accountants. The Audit Committee has agreed with the Internal Auditor as to the frequency of audits to be carried out, the scope of the audit, the areas to be covered and the fee to be paid for their services.

During the year under review, the Audit Committee has met the Internal Auditors to consider their reports, management responses and matters requiring follow up on the effectiveness of the internal controls and audit recommendations.

The internal audit frequency depends on the risk profile of each area, higher risk areas being on a shorter audit cycle. The Audit Committee is of the opinion that the above approach provides an optimal balance between the need to manage risk and the costs thereof.

Risk and Control ReviewThe Audit Committee has reviewed the Business Risk Management Process and procedures adopted to manage and mitigate the effects of such risks and observe that the risk analysis exercise has been conducted. The key risks that could impact operations have been identified and wherever necessary, appropriate action has been taken to mitigate their impact to the minimum extent.

External AuditThe External Auditors of the Company Messrs Ernst & Young Chartered Accountants submitted a detailed audit plan for the financial year 2012/2013, which specified, inter alia, the areas of operations to be covered in respect of the Company. The

been identified from the last audit and from a review of current operations. The Audit committee had meetings with the External Auditor to review the scope, timelines of the audit plan and approach for the audits. The areas of special emphasis have been selected due to the probability of error and the material impact it can have on the Financial Statements. At the conclusion of the audit, the External Auditors met with the Audit Committee to discuss and agree on the treatment of any matter of concern discovered in the course


in accordance with accepted policies and that assets are properly accounted for and adequately safeguarded. The Committee is

have been effective and independent throughout the period under review.

Chairman, Audit Committee

27 May 2013

of the audit and also to discuss the Audit Management Letters. Actions taken by the Management in response to the issues raised were discussed with the CEO. There were no issues of significance during the year under review.

The Audit Committee also reviewed the audit fees of the External Auditors of the Company and recommended its adoption by the Board. It also reviewed the other services provided by the auditors in ensuring that their independence as auditors was not compromised.

The Audit Committee has received a declaration from Messrs Ernst & Young, as required by the Companies Act No. 7 of 2007, confirming that they do not have any relationship or interest in the Company, which may have a bearing on their independence within the meaning of the Code of Conduct and Ethics of The Institute of Chartered Accountants of Sri Lanka.

The Audit Committee has proposed to the Board of Directors that Messrs Ernst & Young, Chartered Accountants, be recommended for reappointment as auditors of the Company for the financial year commencing 1st April 2013, at the next Annual General Meeting.

The Audit Committee receives a quarterly declaration from the

financial reporting, statutory requirements and Group policies. Reported exceptions, if any, are followed up to ensure that appropriate corrective action has been taken.

adopted the standardised format of Annual Financial Statements developed by the ultimate Parent Company.

The Committee received the necessary support and information from the management during the year to enable them to carry out its duties and responsibilities effectively.

The Audit Committee formally evaluated the performance of the Committee as well as the individual contribution of each member. Steps have been taken to address the matters highlighted following such evaluation.

The Audit Committee is satisfied that the effectiveness of the organisational structure of the Group in the implementation of the accounting policies and operational controls, provide reasonable assurance that the affairs of the Group are managed

Audit Committee Report Contd.


Imp

act/

Sev

erity

5 Catastrophic/ Extreme Impact 5 10 15 20 254 4 8 12 16 203 3 6 9 12 152 Minor Impact 2 4 6 8 101 Low/ Insignificant Impact 1 2 3 4 5 Rare /

Remote to occur

Unlikely to occur

Possible to occur

Likely to occur

Almost certain to

occur

1 2 3 4 5

Occurrence/Likelihood

Priority Level

Colour Code

Score

1 15 - 25

2 9 - 14

3 Medium 4 - 8

4 Low 2 - 3

5 Insignificant 1

Enterprise Risk Management

Keells Food Products PLC is exposed to various forms of industrial, operational, environmental and financial risk arising from transactions entered into and the economic environment within which it operates. Enterprise Risk Management (ERM),

a part of our business process. The objective of the Risk Management Strategy of the Company is to identify and mange risk, risk mitigation, harness opportunities, adopt to changing environment and adopt long term and short term strategies which link well with the overall objectives of the Company and the John Keells Group.

The annual risk management cycles constitute the ‘bottom-

to be an integral part of strategic decision making. Risks are identified and assessed through a Risk Control Self-Assessment (RCSA) document unique to the John Keells Group. The Company rate their level of risk for each identified risk event using an evaluation of the expected severity of impact of the risk event and the likelihood of its occurrence. During the year, the John Keells Group introduced guidelines on the evaluation of the severity of impact and likelihood of occurrence with the objective of achieving increasing uniformity in risk assessment by Business Units. Further, the introduction of velocity of impact of a risk event, or the speed at which the risk event will impact the organisation, in the RCSA document, has served to prioritise risks and their relevant mitigation plans.

Individual Company or Business Units are the ultimate owners of their risks and are responsible for reviewing their RCSA forms on a quarterly basis. Identified risks are then validated at the Group Management Committee and presented to the Audit Committee. The risk management cycle is concluded with the distribution of a Group Risk Report containing risk profiling and analysis to the John Keells Group Audit Committee.

The ERM Framework adopted by the John Keells Group and implemented by the Company involves the following:

Any event with a degree of uncertainty which, if occurs, may result in the Organisation or Business Unit not meeting its stated objectives.

Core Sustainability RisksCore Sustainability Risks are defined as those risks having a catastrophic impact to and from the organisation, but may have a very low or nil probability of occurrence.

These are risks that threaten the sustainability or long term viability of a business and are typically risks stemming from our impact on the environment or society that will have an eventual negative impact on the longevity of our business operations.

Using the guideline in Table 1, a Risk Grid is established for the Company. Every Risk is analysed in terms of Likelihood of Occurrence and Severity of Impact assigning a number ranging from 1 (low probability/impact) to 5 (high probability/impact) to signify the possibility of occurrence and the level of impact to the organisation. Please see Table 1 for further details.

Based on the values assigned for each individual risk, using the matrix given in Table 1, a level of risk is established by multiplying the Likelihood of Occurrence with Severity of Impact.


Headline Risk

External Environment

Business Strategies & Policies

Business Process Organisation & People

Analysing & Reporting

Technology & Data

Rel

ated

Ris

ks

Competitor Capital & Finance

Operations - Planning, Production, Process

Skills/ Competency/Motivation

Budgeting/ Financial Planning

Data Relevance & Integrity

Catastrophic Loss

Strategy & Innovation

Operations - Technology, Design, Execution, Continuity

Change Readiness

Accounting/ Tax Information

Data Processing Integrity

Customer Expectations

Business/Product Portfolio

Resource Capacity & Allocation

Communication External Reporting & Disclosures

Technology Reliability & Recovery

Macro Economic

Organisation Structure

Vendor/Partner Reliance

Performance Incentives

Pricing / Margins

IT Security

Foreign Exchange and Interest Rates

Stakeholders Channel Effectiveness

Accountability Market Intelligence

IT processes

ClimateInvestment & Mergers & Acquisitions

Interdependency Corruption, Fraud & Abuse

Contract Commitment

Environment,

Safety

Customer Satisfaction

Knowledge/ Intellectual Capital

Insurable risks

Legal, Regulatory Compliance

Change Integration

Innovation Labor Relations

Property & Equipment Damage

Attrition

Utilities

It is the responsibility of the CEO and the risk management team to ensure that each risk item is tracked over the course of the year (reviewed at least on a quarterly basis) and to ensure the mitigation actions identified during the risk review process are being carried out adequately.

updated based on internal and external conditions.

from Enterprise Risk Management Division of the John Keells Group will track the changes of impact and occurrence of risks over time.

The identified risks are broadly classified into the Risk Universe as identified by the John Keells Group. The Risk Universe is as follows in Table 2.

Enterprise Risk Management Contd.


Group Executive Committee (GEC)

Risk Validation

Risk Presentation

Risk Normalisation

Normalisation

KFP Audit Committee

Group Management Committee

JK Group Review

Risk Report & Action

BU Risk Report & Action

BU Review & Sector Risk

Report & Action

Report Content

John Keells Risk Universe

Risks

External Environment

Business Strategies &

Policies

Business Process

Organisation & People

Analysis & Reporting

Technology &

Data

Business Unit

Operational Units

Bottom Up Approach of Risk Management

Risk management and sustainability are firmly intertwined within the Company. The Company believes that sustainability is a form of overall risk management, considering not only operational and financial risks faced by the Company, but a process that also proactively manages the risks faced by the Company resulting from possible impacts on the environment, employees and community due to its operations. Risks and issues identified herein were tracked on the RCSA documents of the respective Company and subsequently mapped to the relevant GRI sustainability indicator for further sustainability performance tracking and reporting.

The Group have also continued to track and monitor their ‘Core

identified as having the potential to catastrophically impact the long term sustainability of the business. The meeting of key performance indicators related to such risks is linked to organisation ratings, thus ensuring the evaluation of the Company on both financial and sustainability performance and

John Keells Group.

The Enterprise Risk Management cycle begins during the second quarter with the annual risk review of all Business Units.

Division assisted Chief Executive Officer and their respective

set mitigation plans for any structural, operational, financial

and strategic risks relevant to each Department, based on past information and horizon scanning. Awareness and training were also provided to the Company regarding the introduction of the

categorisation of mitigation plans to ensure a more structured and focused approach to risk mitigation.

Any high level risks or Core Sustainability Risks were then reviewed by Group Management Committee headed by the President of the Industry Group as a means of validating the risk process at the Company level. The Company also presented their identified risk events and mitigation action plans to the Audit Committee for review.

The significant risk areas that impact the achievement of the strategic business objectives of the Company and the measures taken to address these risks are given below;

The Company has identified Product liability which can arise due to fault in the product as a core risk. Over the years the Company has taken several steps to mitigate this risk which includes certifying the manufacturing processes in ISO 9001(2008) and ISO 22000, adherence to GMP and Food safety standards, compliance to all Consumer Affairs Authority rules and regulations and other statutory regulations. Further the

regarding the products to Company officials and an internal mechanism has been established to address these suggestions or complains promptly.


Enterprise Risk Management Contd.

The Company is presently faced with certain capacity limitations in production and has identified this constraint as another core risk. During certain peak demand months of the financial year the Company has to prioritise production of items to get the maximum benefit of the available capacity. The Management has with the advice from the Board of Directors mapped out plans to increase the capacity during the next financial year by expanding the production facilities and other auxiliary services.

Products manufactured and sold by the Company have a leading house hold brand name with high brand equity. Therefore it must be managed and protected to survive and prosper in the years to come. The irreparable damage done to the brand following a crisis or catastrophe may substantially outweigh the immediate and visible costs. The strategies used to manage brand risks include quantitative and qualitative tools, including market intelligence and competitive intelligence management systems, with a focus on negating potential risk factors, as well as developed proactive risk management practices for our brands.

The Company faces stiff competition from other producers of thirst quenchers and frozen confectionery manufacturers. The Company has formulated a basis on which the Company competes with such producers which revolve mainly on Brand identification, product portfolio, availability, communication, quality and distribution.

upon the cost of meat sourced from local suppliers. Over the last few years there has been significant price volatility in the

mitigated some of the risks associated with price volatility as well as availability by entering into contracts and identifying overseas suppliers to import during times when there is scarcity in local supply. Further we have built a strong relationship with the farming community and other local suppliers through the CSR initiatives to ensure continuous supply at stable price levels.

Stability of distribution channels largely depend on the viability and consistent performance of our distributors. It is extremely important to ensure the continued services of the distributors to deliver the Company products to end consumers. The Company has a stringent process for selection of distributors and monitors the distributor performance on an on going basis and guide and supports them to ensure the viability and growth of their business.

management, performance management, training and development, competency frameworks and coaching skills to talent appreciation, reward and recognition and compensation and benefits have been reviewed and revised to modern standards.

The Company has 483 employees in its cadre and 293 of the staff are represented by unions. A deterioration of labor relations or a significant increase in labour costs would have a significant

management, training and development, coaching and mentoring skills to reward and recognition and compensation and benefits have all been reviewed and revised in keeping with modern trends and methodologies. The Company maintains a dialogue, on a proactive basis with unionised employees to maintain cordial industrial relations.

Deficiencies in skills/ knowledge/training amongst existing staff cadre is identified as an area for improvement and the Company has deployed specialised training programs which are targeted to improve specialised skills and knowledge. Limited availability of specialised staff in the market is also a matter of concern. The Company believes in succession planning to overcome this risk and has in place various personal development programmes to develop skills and capabilities of internal staff to take over higher responsibilities and challenges

The Company promotes an organisational culture that is committed to the highest level of honesty and ethical dealings and will not tolerate any act of fraud or corruption. The Anti Corruption Policy is designed to put these principles into practice. It is Company policy to protect itself and its resources from fraud and other similar malpractices, whether by members of the public, contractors, sub-contractors, agents, intermediaries or its own employees.

Apart from the legal consequences of fraud and corruption,

and reputation and financial position. Unresolved allegations can also undermine an otherwise credible position and reflect negatively on innocent individuals. All staff must be above fraud and corruption. Sanctions will apply to those who are not. In addition, staff must act so they are not perceived to be involved in such activities. Through transparent and accountable decision-making, together with open discussion by staff and managers about the risks of fraud and corruption, the Company seeks to foster an organisational culture which does not tolerate fraud or corruption.


Dedicated professionals and use of appropriate software ensures continuity of business operations and safeguard from IT related risks including the setting up of early warning mechanism to mitigate possible infrastructure failure.

with the business environment. This may expose the Company to default of payments. The Company mitigates such risk by offering credit within set limits following an evaluation of creditworthiness together with measures to adequately safeguard exposures with sufficient asset backed securities.

Segregation of duties, definition of authority limits, operating manuals, detective & preventive controls and internal & external audit procedures which are independent of each other enable the management to ensure that the operations are being carried out as per laid down procedures.

The food manufacturing industry is subject to general risks of food spoilage or contamination, consumer preferences with respect to nutrition and health related concerns, governmental regulations, consumer liability claims etc. Our quality assurance system administered by qualified specialists using international benchmarks considers all continuous product & process

edge and avoid any regulatory, health and nutrition related

such risks and set in motion an action plan to mitigate the results of such risks. Towards addressing nutritional concerns the Company has a food nutritionist validating all products

the Company ensures only ingredients that satisfy international standards are used in its product formulation. The Company also ensures compliance to the ISO 22000 food safety standard with the conduct of regular internal and external audits as applicable to the industries and product lines we operate.

Exposure to liquidity risk arises in the general funding of the

unable to fund the business activities in a timely manner. The Company managers its liquidity risk by marinating sufficient cash and available funding through unutilised credit facilities from various banks.

Compliance Risk is managed through the use of legal advice from appropriately qualified and experienced legal professionals

periodic reporting of compliance by the respective Functional Managers.

a mix of fixed and variable rate debt taking advantage of the changes in the market rates. Guidance received from Group Treasury division with respect to forecasting of exchange rates, interest rates etc has been of immense value in management of this risk exposure.


Financial InformationAnnual Report of the Board of Directors On The Affairs of the Company 54

Income Statement 62Statement of Comprehensive Income 63Statement of Financial Position 64Statement of Cash Flows 65Statement of Changes in Equity 67Notes to the Financial Statements 68

Financial CalendarFirst Quarter Released on 23 July 2012Second Quarter Released on 8 November 2012Third Quarter Released on 11 February 2013Fourth Quarter Released on 30 May 2013Annual Report 2012/2013 3 June 2013Thirty First Annual General Meeting 25 June 2013


Annual Report of the Board of Directors on the Affairs of the CompanyThe Board of Directors of Keells Food Products PLC has pleasure in presenting their Annual Report together with the Audited Financial Statements of Keells Food Products PLC and the Audited Consolidated Financial Statements of the Group for the year ended 31 March 2013.

The content of this Report has also considered the requirements of the Companies Act No 7 of 2007, the relevant Listing Rules of the Colombo Stock Exchange and recommended best reporting practices.

The Company was incorporated on the 5th of November 1982 as a Public Limited Liability Company and the shares of the Company are listed on the Colombo Stock Exchange. Pursuant to the requirements of the new Companies Act No.7 of 2007, the Company was re-registered and obtained a new Company number PQ 3 on 15 June 2007.

Corporate Conduct The business activities of the Company and its Subsidiary are conducted with the highest level of ethical standards.

CompanyThe principal activities of the Company which are manufacture and sale of processed meats, crumbed products and raw meats remained unchanged.

SubsidiaryThe principal activity of John Keells Foods India (Pvt) Limited is marketing of processed meat products. The Company was incorporated on the 7 April 2008.

Business Review

and Analysis section. These reports form an integral part of the Annual Report of the Board of Directors and together with the audited Financial Statements provide a fair review of the performance of the Company and its Subsidiary during the financial year ended 31 March 2013.

Future DevelopmentsAn overview of the future developments of the Group is given

Discussion & Analysis (pages 9 to 10).

Financial Statements and Auditors’ Report The Financial Statements for the year ended 31st March 2013 are the first, the Group has prepared, in accordance with SLFRS/LKASs, the Accounting Standards issued by The Institute of Chartered Accountants of Sri Lanka to converge with International Financial Reporting Standards (IFRS) and International Accounting Standards (IAS).

The Financial Statements of the Group duly signed by the

Report on the Financial Statements is provided on page 61 of this Annual Report.

Going ConcernAfter considering the financial position, operating conditions, regulatory and other factors and such matters required to be addressed in the Code of Best Practice on Corporate Governance, issued jointly by the Institute of Chartered Accountants of Sri Lanka and the Securities and Exchange Commission of Sri Lanka, the Directors have a reasonable expectation that the Company and its Subsidiary possess adequate resources to continue in operation for the foreseeable future. For this reason, they continue to adopt the going concern basis in preparing the Financial Statements.

Stated CapitalIn compliance with the Companies Act No. 7 of 2007, the Financial Statements reflect the Stated Capital of the Company. The Stated Capital is the total of all amounts received by the Company in respect of the issued Share Capital.

The total Stated Capital of the Company as at 31 March 2013 was Rs. 1,295 million (Rs. 275 million as at 31 March 2012) details of which are provided in note 26 (page 105) to the Financial Statements.

Accounting PoliciesThe Accounting Policies resulting from convergence to the Accounting Standards issued by The Institute of Chartered Accountants of Sri Lanka (SLFRS / LKASs) are provided in detail in the notes to the Financial Statements on pages 68 to 80.

RevenueThe Net Revenue generated by the Company for the financial year amounted to Rs. 2,197 million (2011/2012 Rs. 2,329 million) and the Consolidated Net Revenue of the Group amounted to Rs. 2,197 million (2011/2012 Rs. 2,329 million). An analysis of the Net Revenue is given in Note 4 to the Financial Statements.


Financial Results and Appropriations

For the year ended 31 March Group

In Rs. ‘000s 2013 2012

Results from operating activities 65,701 184,177Finance cost (26,355) (7,560)Finance income 76,610 4,027

115,956 180,644Provision for taxation including deferred tax (24,331) (51,005)

91,625 129,639

Balance brought forward from the previous year 65,340 (64,299)Transfer of general reserve 20,305 -Transfer of dividend reserve 133 -Direct cost on rights issue (6,048) -

171,356 -

Dividend paid for previous year (17,000) - 154,356 65,340

Final dividend declared of Rs. 2/- per share (2012 - Rs. 2/-) to be paid out of profits* (51,000) (17,000)Balance to be carried forward to the next year 103,356 48,340

* The final dividend recommended for this financial year has not been recognised as at the date of the Statement of Financial Position in compliance with LKAS 10 Events after the reporting period.

Provision for TaxationProvision for taxation has been computed at the rates given Note 10 & 33 to the Financial Statements.

Segment ReportingA segmental analysis of the activities of the Company and the Group is given in Note 4.1 to the Financial Statements.

Related Party TransactionsRelated party transactions, exceeding the lower of 10% of Equity or 5% of the total assets of the Company is detailed below;

Jaykay Marketing Services (Pvt) Limited - Rs. 473 million (2011/2012 - Rs. 455 million).

Directors have disclosed the transactions with related parties in terms of Sri Lanka Accounting Standard LKAS 24 – Related Party Disclosures, in Note 36 to the Financial Statements.

Corporate DonationsDuring the year the Group made donations amounting to Rs. 0.7 million (2011/2012 – Rs. 0.7 million). The Group made no political donations.

DividendsThe Directors have declared a first and final dividend of Rs. 2/- per share for the year ended 31 March 2013, from the profits available for appropriation. The total dividend payout amounts to Rs. 51 million in accordance with Sri Lanka Accounting and Reporting Standards 10, events after the reporting period, the declared dividend has not been recognised as a liability as at 31 March 2013.

As required by sections 56 (2) of the Companies Act No. 7 of 2007, the Board of Directors have confirmed that the Company satisfies the solvency test in accordance with section 57 of Companies Act No. 7 of 2007 and have obtained a certificate from the auditors prior to declaring the first and final dividend of Rs. 2/- per share.

The dividends paid out are out of taxable profits of the Company and will be subjected to a 10% withholding tax. Property, Plant and EquipmentThe details of property, plant and equipment of the Company and its Subsidiary are shown in Note 16 (pages 99 to 101).


Annual Report of the Board of Directors on the Affairs of the Company Contd.

Capital ExpenditureThe total capital expenditure on acquisition of property, plant and equipment and intangible assets of the Company amounted to Rs. 203 million (2011/12 Company : Rs. 28 million) details of which are given in Note 16 to the Financial Statements. Further more the Company also acquired Rs. 457.7 million of property, plant and equipment on the acquisition of the assets

in note 16 to the Financial Statements. The capital expenditure approved and contracted for, after the year end is given in Note 38 to the Financial Statements.

Market Value of Freehold PropertiesThe Land and Buildings owned by the Company were re-valued by a professionally qualified independent valuer as at 31 March 2013. The Directors are of the opinion that the re-valued amounts are not in excess of the current market values of such properties.

The details of the revalued land and building of the Company as well as the extent of the land, location and the number of buildings along with the relevant accounting policies are given in note 1.4.4 and 16.4 of the Financial Statements and the real estate portfolio on page 115 of the Annual Report.

InvestmentsDetails of investments held by the Company are disclosed in Note 24 to the Financial Statements.

ReservesTotal reserves as at 31st March 2013 for the Company and Group amounted to Rs. 300 million (2011/2012 - Rs. 174.6 million) and Rs. 303 million (2011/2012 - Rs. 177.6 million) respectively.

The detailed movement of Reserves is given in the Statement of Changes in Equity on page 67 of the Annual Report.

Events occurring after the reporting periodEvents occurring after the date of the Statement of Financial Position are given in Note 39 to the Financial Statements.

Contingent Liabilities and Capital CommitmentsThere were no material Contingent liabilities or Capital commitments as at 31 March 2013 except those disclosed in Note 37 and 38 to the Financial Statements.

Outstanding LitigationIn the opinion of the Directors and in consultation with the Company lawyers, litigation currently pending against the Company will not have a material impact on the reported financial results or future operations of the Company.

Human ResourcesThe Group has an equal opportunity policy and these principles are enshrined in specific selection, training, development and promotion policies, ensuring that all decisions are based on merit. The Group practices equality of opportunity for all employees irrespective of ethnic origin, religion, political opinion, gender, marital status or physical disability.

The Number of persons directly employed by the Company and its Subsidiary as at 31 March 2013 was 483 (31 March 2012- 453).

ensure the individual development of all our team as well as facilitating the creation of value for themselves, the Group and all other stakeholders.

There were no material issues pertaining to employees and industrial relations during the year under review.

System of Internal ControlsThe Directors acknowledge their responsibility for the system of Internal Control and having conducted a review of internal controls covering financial, operational, compliance controls and risk management, have obtained reasonable assurance of their effectiveness and successful adherence for the period up to the date of signing the Financial Statements.

Corporate GovernanceCorporate Governance practices and principles with respect to the management and operations of the Group are set out on pages 19 to 43 of the Annual Report. The Directors confirm that the Group is in compliance with the Rules on Corporate Governance as per the listing rules of Colombo Stock Exchange.

The Directors declare that: The Company and its Subsidiary have not engaged in any

activities, which contravene laws and regulations. The Directors have declared all material interests in

contracts involving the Company and its Subsidiary and refrained from voting on matters in which they were materially involved.

The Company has made all endeavors to ensure the equitable treatment of all shareholders.

A review of internal controls covering financial, operational and compliance controls and risk management has been conducted and the Directors have obtained a reasonable assurance of their effectiveness and successful adherence.

The Board of Directors is committed to maintaining an effective Corporate Governance structure and process. A full report on Corporate Governance is found on pages 19 to 43.


Risk ManagementThe Board and the Executive Management of the Company have put in place a comprehensive risk identification, measurement and mitigation process. The Risk Management process is an integral part of the annual strategic planning cycle. A detailed overview of the process is outlined in the Risk Management Report on pages 47 to 51.

Audit CommitteeThe following Non-Executive, Independent Directors of the Board served as members of the Audit Committee during the year.

Mr. M.P. Jayawardena - Chairman

Mr. A.D.E.I. PereraMr. R. Pieris

The report of the Audit Committee is given on pages 44 to 46 of the Annual Report. The Audit Committee has reviewed all other services provided by the External Auditors to the Group to ensure that their independence as Auditor has not been compromised.

Human Resources and Compensation CommitteeAs permitted by the Listing Rules of the Colombo Stock

Resources and Compensation Committee of John Keells

Directors:

Mr. Franklyn Amerasinghe - Chairman Mrs. S. TiruchelvamDr. I. CoomaraswamyMr. A. R. Gunesekara

The Remuneration Policy of the Company and its Subsidiary is detailed in the Corporate Governance Report on Page 24 of the Annual Report.

Share InformationAn Ordinary Share of the Company was quoted on the Colombo Stock Exchange at Rs. 70/- as at 31st March 2013 (31st March 2012 – Rs. 100/-). Information relating to earnings, dividends, net assets and market value per share is given in the Ten Year Information on page 114, and Key Ratios and information on share trading is given on page 115 of this report.

ShareholdingsThere were 1,051 registered shareholders, holding ordinary voting shares as at 31st March 2013 (995 registered shareholders as at

31st March 2012). The distribution of shareholdings including the percentage held by the public is given on page 112 of this report. The Company has made every endeavour to ensure the equitable treatment of all shareholders.

Equitable Treatment to all Shareholders The Company has made every endeavour to ensure the equitable treatment of all shareholders and has adopted adequate measures to prevent information asymmetry.

Substantial ShareholdingsThe list of top twenty shareholders is given on page 113 of this report.

Information to ShareholdersThe Board strives to be transparent and provide accurate information to shareholders in all published material. The quarterly financial information during the year has been sent to the Colombo Stock Exchange in a timely manner.

DirectorateThe Board of Directors of Keells Food Products PLC consisted of eight Directors who served during the year and as at the end of the Financial Year are given below.

Brief profiles of the Directors appear on pages 13 to 14 of the Annual Report.

No other Director held office during the period under review.

Mr. S. C. Ratnayake (Chairman) (Non –Executive, Non Independent)

Mr. A. D. Gunewardene (Non - Executive, Non Independent)

Mr. J. R. F. Peiris (Non - Executive, Non Independent)

Mr. J. R. Gunaratne (Non – Executive, Non Independent)

Mr. M.P. Jayawardena (Non - Executive, Independent)

(Non - Executive, Independent)

Mr. A.D.E.I. Perera (Non - Executive, Independent)

Mr. R. Pieris (Non - Executive, Independent)

The Board of Directors of John Keells Foods India (Pvt) Limited who served during the year and as at the end of the Financial Year are given below. No other Director held office during the period under review.


Mr. S. C. Ratnayake (Chairman) (Non - Executive, Non Independent)

Mr. R.S. Fernando (Non - Executive, Non Independent)

Mr. J. R. Gunaratne (Non - Executive, Non Independent)

Retirement of Directors by rotation or otherwise and their Re-election

terms of Article 83 of the Articles of Association of the Company, and being eligible offer themselves re-election.

Directors’ and CEO’s Interests in SharesThe share ownership of Directors and the CEO is stated below. The increase in the number of shares held by Mr. S.C. Ratnayake is due to the rights issue held during the year under review.

March 2013 and 31st March 2012 were as follows. Number of Shares

Name of Directors As at As at 31 March 31 March 2013 2012

Mr. S. C. Ratnayake (Chairman) 12,750 4,250Mr. A. D. Gunewardene - -Mr. J. R. F. Peiris - -Mr. J. R. Gunaratne - -Mr. M.P. Jayawardena - -

Mr. A.D.E.I. Perera - -Mr. R. Pieris - -Mr. R.F.N. Jayasooriya-CEO - -

Remuneration to Directors

Committee. The Directors are of the opinion that the framework assures appropriateness of remuneration and fairness for the Company. The remuneration of the Non-Executive Directors is determined according to scales of payment decided upon by

paid during the year are disclosed in the Note 9 to Financial Statements.

Directors’ Meetings

report.

Interests RegisterThe Company has maintained an Interests Register as contemplated by the Companies Act No 7 of 2007. In compliance with the requirements of the Companies Act No 7 of 2007 this Annual Report contains particulars of entries made in the Interests Register.

Particulars of Entries in the Interests Register for the Financial Year 2012/13

a) Interests in Contracts - The Directors have all made a General Disclosure to the Board of Directors as permitted by Section 192 (2) of the Companies Act No. 7 of 2007 and no additional interests have been disclosed by any Director.

b) Share Dealings: There have been no disclosures of share dealings as at 31st March 2013.

c) Indemnities and Remuneration There have been no new disclosures made in respect of

indemnities and remuneration in the Interest Register as at 31st March 2013.

Directors’ Responsibility for Financial ReportingThe Directors are responsible for the preparation of the Financial Statements of the Company and its Subsidiary to reflect a true and fair view of the state of its affairs. The Directors are of the view that these Financial Statements have been prepared in conformity with the requirements of the Sri Lanka Accounting Standards, Companies Act No. 7 of 2007, Sri Lanka Accounting and Auditing Standards Act No. 15 of 1995 and the Listing Rules of the Colombo Stock Exchange.

Compliance with Laws and RegulationsThe Company and its Subsidiary has complied with all applicable laws and regulations. A compliance checklist is signed on a quarterly basis by responsible officers and any violations are reported to the Audit Committee and Board of Directors.

Supplier PolicyThe Group endeavours to transact business with reputed organisations capable of offering quality goods and services at competitive prices with a view to building mutually beneficial business relationships.

Statutory PaymentsThe Directors confirm to the best of their knowledge that all taxes, duties and levies payable by the Group and all contributions, levies and taxes payable on behalf of and in respect of the employees of the Group and all other known statutory dues as were due and payable by Group as at the date of the Statement of Financial Position have been paid or where relevant provided for.

Annual Report of the Board of Directors on the Affairs of the Company Contd.


Environment ProtectionThe Group is conscious of the impact, direct and indirect, on the environment due to its business activities. Every endeavour is made to minimise the adverse effects on the environment to ensure sustainable continuity of our resources.

Major TransactionAt an Extraordinary General Meeting held on 31 July 2012 approval was granted as a major transaction, to acquire the

(Pvt) Ltd, located at Makandura Pannala, for a total consideration

Rights Issue At an Extraordinary General Meeting held on 31 July 2012, the shareholders of the Company approved a Rights Issue of two (02) for every one (01) ordinary shares held in the Company at Rupees Sixty (Rs. 60/-) per share. The Rights issue was successful and fully subscribed. Subsequent to the Rights issue, the Ordinary Shares in the issue increased from 8,500,000 to 25,500,000.

Purpose of the Rights IssueThe purpose of the Rights Issue was to fund the acquisition of the assets and the leasehold rights of the factory owned

the expansion work to be carried out at the said facility. The acquisition was concluded in August 2012 and the Company commenced commercial production in September 2012 at the said facility.

Business CombinationIn August 2012 the Company acquired the Building and Plant

consideration of Rs. 700 million consisting of Property, Plant and Equipment of Rs. 457.7 million and Goodwill of Rs. 242.3 million.Details of the assets acquired are disclosed in Note 3 of the Financial Statements.

SustainabilityThe Group pursues its business goals from a stakeholder approach of business governance. Based on the findings of the continuous stakeholder engagements, the Group has taken specific steps, in focusing on material issues such as the conservation of natural resources and the environment, as well as addressing material issues highlighted by other stakeholders such as the community and employees. These steps have been encapsulated in a Group-wide sustainability initiative which has seen continuous progress over the last few years.

Research and Development The Group has an active approach to research and development

operations. Significant expenditure has taken place over the years and substantial efforts will continue to be made to introduce new products and processes and develop existing products and processes to improve operational efficiency.

AuditorsThe Financial Statements for the year have been audited by Messrs Ernst & Young Chartered Accountants. The retiring auditors, Messrs Ernst & Young have intimated their willingness to continue in office and a resolution to re-appoint them as auditors and authorising the Directors to fix their remuneration; will be proposed at the Annual General Meeting.

The Audit Committee reviews the appointment of the Auditor, its effectiveness, independence and its relationship with the Company, including the level of audit and non –audit fees paid to the Auditor.

The details of fees paid to the Auditors for the Company and its Subsidiary are set out in Note 9 to the Financial Statements. As far as the Directors are aware, the Auditors have no other relationship with the Company and its Subsidiary.

Independent Auditor’s Report

page 61 of the Annual Report.

Approval of the Financial StatementsThe audited Financial Statements were approved by the Board of Directors on 27 May 2013.

Notice of MeetingThe Notice of Meeting relating to 31st Annual General Meeting is given on page 117 of the Annual Report.

This Annual Report is signed for and on behalf of the Board of Directors by:

Director Director Secretaries

27 May 2013


Statement of Directors’ Responsibility

The responsibility of the Directors, in relation to the Financial Statements, is set out in the following statement.

The responsibility of the Auditors, in relation to the Financial Statements prepared in accordance with the provisions of the Companies Act No. 7 of 2007, is set out in the Independent Auditors Report on page 61 of the Annual Report.

As per the provisions of the Companies Act No. 7 of 2007 the Directors are required to prepare, for each financial year and place before a general meeting, Financial Statements which comprise of;

A Statement of Income, which presents a true and fair view of the profit or loss of the Company for the financial year; and

A Statement of Other Comprehensive Income; and

A Statement of Financial Position, which presents a true and fair view of the state of affairs of the Company as at the end of the financial year.

The Directors have ensured that, in preparing these Financial Statements:

Using appropriate accounting policies, which have been selected and applied in a consistent manner and material departures, if any have been disclosed and explained; and

All applicable accounting standards as relevant have been applied; and

Reasonable and prudent judgements and estimates have been made so that the form and substance of transactions are properly reflected; and

Provides the information required by and otherwise comply with the Companies Act and the Listing Rules of the Colombo Stock Exchange.

The Directors are also required to ensure that the Company and its Subsidiary have adequate resources to continue in operation to justify applying the going concern basis in preparing these Financial Statements.

Further, the Directors have a responsibility to ensure that the Company and its Subsidiary maintains sufficient accounting records to disclose, with reasonable accuracy the Financial Position of the Company and of the Group.

The Directors are also responsible for taking reasonable steps to safeguard the assets of the Company and its Subsidiary, and in this regard to give a proper consideration to the establishment of appropriate internal control systems with a view to preventing and detecting fraud and other irregularities.

The Directors are required to prepare the Financial Statements and to provide the Auditors with every opportunity to take whatever steps and undertake whatever inspections they may consider being appropriate to enable them to give their audit opinion.

Further, as required by section 56(2) of the Companies Act No. 7 of 2007, the Board of Directors have confirmed that the Company, based on the information available, satisfies the solvency test immediately after the distribution, in accordance with Section 57 of the Companies Act No. 7 of 2007, and has obtained a certificate from the Auditors, prior to declaring first and final dividend of Rs. 2/- per share for this year to be paid on 19 June 2013.

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

The Directors confirm that to the best of their knowledge, all taxes, duties and levies payable by the Company and its Subsidiary, all contributions, levies and taxes payable on behalf of the employees of the Company and its Subsidiary, and all other known statutory dues as were due and payable by the Company and its Subsidiary as at the date of the Statement of Financial Position have been paid or, where relevant provided for except as specified in note 37 to the Financial Statements covering contingent liabilities.

By Order of the Board

Secretaries

27 May 2013


Independent Auditors’ Report

Keells Food Products PLC (“Company”), the consolidated financial statements of the Company and its subsidiary which comprise the statement of financial position as at 31 March 2013, and the income statements, statements of comprehensive income, statements of changes in equity and statements of cash flows for the year then ended, and a summary of significant accounting policies and other explanatory notes.

Management is responsible for the preparation and fair presentation of these financial statements in accordance with Sri Lanka Accounting Standards. This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances.

Our responsibility is to express an opinion on these financial

accordance with Sri Lanka Auditing Standards. Those standards require that we plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement.

An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.

to the best of our knowledge and belief were necessary for

provides a reasonable basis for our opinion.

In our opinion, so far as appears from our examination, the Company maintained proper accounting records for the year ended 31 March 2013 and the financial statements give a true

2013 and its performance and cash flows for the year then ended in accordance with Sri Lanka Accounting Standards.

In our opinion, the consolidated financial statements give a true and fair view of the financial position as at 31 March 2013 and the performance and cash flows for the year then ended, in accordance with Sri Lanka Accounting Standards, of the Company and its subsidiaries dealt with thereby, so far as concerns the shareholders of the Company. Report on other legal and regulatory requirementsThese financial statements also comply with the requirements of Sections 151(2) and 153(2) to 153(7) of the Companies Act No. 07 of 2007.

27 May 2013Colombo.


Income Statement

Group Company

For the year ended 31 March Note 2013 2012 2013 2012 Rs. Rs. Rs. Rs.

4 2,197,482,358 2,328,751,844 2,197,482,358 2,328,751,844

Cost of sales (1,738,607,810) (1,766,954,656) (1,738,607,810) (1,766,954,656)

458,874,548 561,797,188 458,874,548 561,797,188Other operating income 5 4,780,231 9,473,160 4,493,739 7,137,834Selling and distribution expenses (232,612,437) (248,273,214) (232,612,437) (248,311,977)Administrative expenses (110,280,288) (96,254,575) (109,284,707) (94,077,150)Other operating expenses 6 (55,061,193) (42,565,283) (55,044,020) (42,311,267)

Operating profit 65,700,861 184,177,276 66,427,123 184,234,628

Finance cost 7 (26,354,556) (7,560,071) (26,354,556) (7,560,071)Finance income 8 76,609,675 4,026,512 76,281,518 3,689,104Net finance (costs)/income 50,255,119 (3,533,559) 49,926,962 (3,870,967)

9 115,955,980 180,643,717 116,354,085 180,363,661

Tax expense 10 (24,331,433) (51,005,053) (24,331,433) (51,005,053) 91,624,547 129,638,664 92,022,652 129,358,608

Equity holders of the parent 91,624,547 129,638,664 91,624,547 129,638,664

Rs. Rs.

Basic 11 4.86 14.56

12 2.00 -

The accounting policies and notes as set out in pages 68 to 111 form an integral part of these Financial Statements.

Figures in brackets indicate deductions.


Statement of Comprehensive Income

Group Company


Profit for the year 91,624,547 129,638,664 92,022,652 129,358,608

Currency translation of foreign operations 225,847 (174,672) - -

Revaluation of land and buildings 59,648,902 - 59,648,902 -

Income tax on other comprehensive income 10.2 (3,261,693) - (3,261,693) -

56,613,056 (174,672) 56,387,209 -

148,237,603 129,463,992 148,409,861 129,358,608

Note:As required by SLFRS/LKAS, the Statement of Other Comprehensive Income includes movement in currency translation of foreign operations and revaluation surplus on land and buildings. Transactions of similar nature were routed directly through the Equity Statement under SLAS.




Group Company

As at 1 April As at 1 April As at 31 March Note 2013 2012 2011 2013 2012 2011 Rs. Rs. Rs. Rs. Rs. Rs.

Property, plant and equipment 16 878,975,105 189,235,533 173,635,229 878,975,105 189,235,533 173,635,229Intangible assets 17 246,208,963 - - 246,208,963 - -Investments in subsidiary 18 - - - 6,132,376 6,132,376 6,132,376Other non-current financial assets 19 26,264,238 29,158,793 17,407,289 26,264,238 29,158,793 17,407,289Other non-current assets 20 6,385,227 4,800,226 1,228,710 6,385,227 4,800,226 1,228,710 1,157,833,533 223,194,552 192,271,228 1,163,965,909 229,326,928 198,403,604

Inventories 21 253,657,054 291,549,291 298,548,217 253,657,054 291,549,291 298,548,217Trade and other receivables 22 203,541,307 219,687,709 194,690,986 201,406,164 216,714,517 193,378,653Amounts due from related parties 36 71,937,890 59,144,063 64,675,298 71,937,890 59,144,063 64,675,298Other current assets 23 19,890,763 8,378,174 17,478,179 18,725,222 7,315,571 16,321,020Short term investments 24 766,591,841 7,236,621 8,957,384 760,582,048 - -Cash in hand and at bank 25 18,555,430 9,621,949 1,839,136 17,936,650 8,831,748 1,393,743 1,334,174,285 595,617,807 586,189,200 1,324,245,028 583,555,190 574,316,931

2,492,007,818 818,812,359 778,460,428 2,488,210,937 812,882,118 772,720,535

Stated capital 26 1,294,815,000 274,815,000 274,815,000 1,294,815,000 274,815,000 274,815,000Revenue reserves 27 154,355,687 85,779,502 (43,859,162) 148,945,137 79,970,847 (49,387,761)Other components of equity 28 148,445,294 91,832,238 92,006,910 151,041,072 94,653,862 94,653,862

1,597,615,981 452,426,740 322,962,748 1,594,801,209 449,439,709 320,081,101

Borrowings 29 233,333,333 - - 233,333,333 - -Deferred tax liabilities 30 30,494,360 2,901,234 2,779,880 30,494,360 2,901,234 2,779,880Employee benefit liabilities 31 60,280,195 54,939,342 50,648,242 60,280,195 54,939,342 50,648,242 324,107,888 57,840,576 53,428,122 324,107,888 57,840,576 53,428,122

Trade and other payables 32 519,646,824 201,862,309 156,498,615 518,664,715 199,007,811 154,237,719Amounts due to related parties 36 9,462,817 7,357,493 8,791,540 9,462,817 7,357,493 8,791,540Income tax liabilities 33 - 5,504,170 25,330,329 - 5,504,170 25,330,329Current portion of borrowings 29 18,330,571 - - 18,330,571 - -Short term borrowings 34 - - 81,902,185 - - 81,902,185Other current liabilities 35 9,774,085 7,001,248 13,093,663 9,774,085 6,912,536 12,496,313Bank overdrafts 25 13,069,652 86,819,823 116,453,226 13,069,652 86,819,823 116,453,226 570,283,949 308,545,043 402,069,558 569,301,840 305,601,833 399,211,312

2,492,007,818 818,812,359 778,460,428 2,488,210,937 812,882,118 772,720,535

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

Chief Financial Officer

The Board of Directors is responsible for the preparation and presentation of these Financial Statements.Signed for and on behalf of the board by,

Director Director

The accounting policies and notes as set out in pages 68 to 111 form an integral part of these financial statements.

27 May 2013

Statement of Financial Position


Group Company


Profit before working capital changes A 102,853,850 198,720,609 103,580,112 198,777,961

(Increase) / Decrease in inventories 37,892,237 6,998,926 37,892,237 6,998,926(Increase) / Decrease in trade and other receivables 16,146,402 (24,996,723) 15,308,353 (23,335,864)(Increase) / Decrease in amounts due from related parties (12,793,827) 5,531,235 (12,793,827) 5,531,235 (Increase) / Decrease in other current assets (1,571,819) 9,100,005 (1,468,880) 9,005,449(Increase) / Decrease in other non-current assets (1,585,001) (3,571,516) (1,585,001) (3,571,516)(Increase) / Decrease in other non-current financial assets 2,894,555 (11,751,504) 2,894,555 (11,751,504)Increase / (Decrease) in trade and other payables (32,215,485) 45,363,694 (30,343,096) 44,770,092Increase / (Decrease) in amounts due to related parties 2,105,324 (1,434,047) 2,105,324 (1,434,047)Increase / (Decrease) in other current liabilities 2,772,837 (6,092,415) 2,861,549 (5,583,777)

116,499,073 217,868,264 118,451,326 219,406,955

Finance income received 76,609,675 4,026,512 76,281,518 3,689,104Finance expenses paid (26,354,556) (7,560,071) (26,354,556) (7,560,071)Tax paid (15,444,938) (70,709,857) (15,444,938) (70,709,857)Gratuity paid net of transfers (3,573,120) (1,386,045) (3,573,120) (1,386,045)

147,736,134 142,238,803 149,360,230 143,440,086

Purchase and construction of property, plant and equipment (202,818,091) (28,004,778) (202,818,091) (28,004,778)Purchase of assets - business combination (350,000,000) - (350,000,000) -Purchase of intangible assets (4,120,560) - (4,120,560) -Proceeds from sale of property, plant and equipment and intangible assets 2,400,000 3,538,285 2,400,000 3,538,285

(554,538,651) (24,466,493) (554,538,651) (24,466,493)

Proceeds from issue of shares 1,020,000,000 - 1,020,000,000 -Direct cost on issue of shares (6,048,362) - (6,048,362) -Dividend paid (17,000,000) - (17,000,000) -Net of receipts/(repayments) of long term borrowings 251,663,904 - 251,663,904 -Net of receipts/(repayments) of short term borrowings - (81,902,185) - (81,902,185)

1,248,615,542 (81,902,185) 1,248,615,542 (81,902,185)

841,813,025 35,870,125 843,437,121 37,071,408

(69,961,253) (105,656,706) (77,988,075) (115,059,483)

771,851,772 (69,786,581) 765,449,046 (77,988,075)

Statement of Cash Flows


Group Company


Other investments 24 766,591,841 7,236,621 760,582,048 -Cash in hand and at bank 18,555,430 9,621,949 17,936,650 8,831,748

Bank overdrafts (13,069,652) (86,819,823) (13,069,652) (86,819,823)Total cash and cash equivalents as previously reported 772,077,619 (69,961,253) 765,449,046 (77,988,075)Effect of exchange rate changes (225,847) 174,672 - -Cash and cash equivalents restated 771,851,772 (69,786,581) 765,449,046 (77,988,075)

Profit before tax 115,955,980 180,643,717 116,354,085 180,363,661

Finance income (76,609,675) (4,026,512) (76,281,518) (3,689,104)Finance cost 26,354,556 7,560,071 26,354,556 7,560,071Depreciation of property, plant and equipment 29,200,494 12,404,473 29,200,494 12,404,473Amortisation of intangible assets 179,643 - 179,643 -(Profit) / loss on sale of property, plant and equipment and intangible assets (1,141,119) (3,538,285) (1,141,119) (3,538,285)Gratuity provision and related costs 8,913,971 5,677,145 8,913,971 5,677,145 102,853,850 198,720,609 103,580,112 198,777,961

The accounting policies and notes as set out in pages 68 to 111 form an integral part of these Financial Statements.Figures in brackets indicate deductions.

Statement of Cash Flows Contd.


Statement of Changes in Equity

Attributable to equity holders of parent

Stated Revaluation Foreign General Dividend Revenue Total capital reserve currency reserve reserve reserves translation reserve GROUP Rs. Rs. Rs. Rs. Rs. Rs. Rs.

274,815,000 94,653,862 (2,646,952) 20,305,176 133,875 (64,298,213) 322,962,748Profit for the year - - - - - 129,638,664 129,638,664Other comprehensive income - - (174,672) - - - (174,672)Total comprehensive income - - (174,672) - - 129,638,664 129,463,992

274,815,000 94,653,862 (2,821,624) 20,305,176 133,875 65,340,451 452,426,740

Profit for the year - - - - - 91,624,547 91,624,547Other comprehensive income - 56,387,209 225,847 - - - 56,613,056Total comprehensive income - 56,387,209 225,847 - - 91,624,547 148,237,603Transfers - - - (20,305,176) (133,875) 20,439,051 -Issue of ordinary shares 1,020,000,000 - - - - - 1,020,000,000Direct cost of share issue - - - - - (6,048,362) (6,048,362)First & Final dividend paid - 2011/12 - - - - - (17,000,000) (17,000,000)

1,294,815,000 151,041,071 (2,595,777) - - 154,355,687 1,597,615,981

Stated Revalution General Dividend Revenue Total capital reserve reserve reserve reserves equity COMPANY Rs. Rs. Rs. Rs. Rs. Rs.

274,815,000 94,653,862 20,305,176 133,875 (69,826,812) 320,081,101Profit for the year - - - - 129,358,608 129,358,608Other comprehensive income - - - - - -Total comprehensive income - - - - 129,358,608 129,358,608

274,815,000 94,653,862 20,305,176 133,875 59,531,796 449,439,709

Profit for the year - - - - 92,022,652 92,022,652Other comprehensive income - 56,387,210 - - - 56,387,210Total comprehensive income - 56,387,210 - - 92,022,652 148,409,862Transfers - (20,305,176) (133,875) 20,439,051 -Issue of ordinary shares 1,020,000,000 - - - 1,020,000,000Direct cost of share issue - - - - (6,048,362) (6,048,362)First & Final dividend paid - 2011/12 - - - - (17,000,000) (17,000,000)

1,294,815,000 151,041,072 - - 148,945,137 1,594,801,209

The accounting policies and notes as set out in pages 68 to 111 form an integral part of these Financial Statements.Figures in brackets indicate deductions.


Keells Food Products PLC (PQ3) is a Public Liability Company incorporated and domiciled in Sri Lanka and is listed in the Colombo Stock Exchange. The registered office of the Company is at the office of Keells Consultants Ltd, located at No.130, Glennie Street Colombo 2, and the principal place of business is at no. 16, Minuwangoda Road, Ekala, Ja Ela. The Company has also a manufacturing facility at the Makandura Industrial Estate in Pannala.

The issued ordinary shares of the Company are listed in the Colombo Stock Exchange.

CompanyDuring the year, the principal activities of the Company were manufacture and sale of processed meats, crumbed products and sale of raw meats.

SubsidiaryThe principal activity of John Keells Foods India Private Limited is marketing of processed and formed meat products.

In the report of the Directors and in the financial statements “the Company” refers to Keells Food Products PLC. “The Group” refers to Companies whose accounts have been consolidated therein.

The Consolidated Financial Statements of the Group for the year ended 31 March 2013 were authorised for issue by the Directors on the 27 May 2013. 1.2 BASIS OF PREPARATIONBases of MeasurementThe consolidated financial statements have been prepared on an accrual basis and under the historical cost convention unless stated otherwise.

The consolidated financial statements are presented in Sri

currency and all financial information presented in Sri Lankan Rupees has been rounded to the nearest rupee.

The significant accounting policies are discussed in note 1.4 below.

Responsibility for Financial StatementsThe Board of Directors are responsible for the preparation and presentation of these Financial Statements.

Notes to the Financial Statements

The responsibility of the Directors in relation to the financial

Responsibility on Page 60 to in the Annual Report.

Statement of complianceThe Financial Statements which comprise the Statement of Financial Position, The Statement of Income, Statement of Comprehensive income, Statement of Changes in Equity and the Statement of Cash Flows, together with the accounting policies and notes (the “financial statements”) have been prepared in accordance with Sri Lanka Accounting Standards (SLFRS/LKAS) as issued by the Institute of Chartered Accountants of Sri Lanka (CA Sri Lanka) and the requirement of the Companies Act No. 7 of 2007.

For all periods up to and including the year ended 31 March 2012, the Group prepared its Financial Statements in accordance with Sri Lanka Accounting Standards (SLAS) which were effective up to 31 March 2012. These Financial Statements for the year ended 31 March 2013 are the first the Group has prepared in accordance with Sri Lanka Accounting Standards (SLFRS/LKAS) immediately effective from 1 April 2011. These SLFRS/LKASs have materially converged with the International Financial Reporting Standards (IFRS) as issued by, the International Accounting Standards Board (IASB). The effect of the transition to SLFRS/LKAS on previously reported Financial Positions, Financial Performances and Cash Flows of the Company is given in note 2 to the Financial Statements.

Basis of consolidationThe consolidated financial statements comprise the financial statements of the Company and its subsidiaries as at 31 March 2013. The financial statements of the subsidiaries are prepared

otherwise stated.

All intra-group balances, income and expenses and unrealised gains and losses are eliminated in full.

Subsidiaries are fully consolidated from the date of acquisition or incorporation, being the date on which the Group obtains control, and continue to be consolidated until the date that such control ceases.

The financial statements of the subsidiaries are prepared for the same reporting period as the Parent Company, which is 12 months ending 31 March, using consistent accounting policies.

SubsidiariesSubsidiaries are those enterprises controlled by the parent. Control exists when the parent holds more than 50% of the voting rights or otherwise has a controlling interest.


The following Company has been consolidated under section 152 of the Companies Act No.7 of 2007, where the Company controls the composition of the Board of Directors of this Company.

John Keells Foods India Private Limited 100%

John Keells Foods India Private Limited was incorporated in India on the 7 of April 2008.

The total profits and losses for the year of the Company and of its Subsidiary are included in consolidation and all assets and liabilities of the Company and of its Subsidiary are included in consolidation are shown in the consolidated income statement and statement of financial position respectively.

The Consolidated Statement of Cash Flows includes the cash flows of the Company and its Subsidiary.

Losses within a Subsidiary are attributed to the non-controlling interest even if that results in a deficit balance.

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:

Derecognises the assets (including goodwill) and liabilities of the Subsidiary

Derecognises the carrying amount of any non-controlling interest

Derecognises the cumulative translation differences, recorded in equity

Recognises the fair value of the consideration received

Recognises the fair value of any investment retained

Recognises any surplus or deficit in profit or loss

recognised in other comprehensive income to profit or loss or retained earnings, as appropriate.

The total profits and losses for the year of the Company and of its Subsidiary are included in consolidation and all assets and liabilities of the Company and of its Subsidiary are included in consolidation are shown in the consolidated income statement, statement of comprehensive income and statement of financial position respectively.

Non-controlling interest which represents the portion of profit or loss and net assets not held by the Group, are shown as a component of profit for the year in the consolidated income statement and statement of comprehensive income and as a component of equity in the consolidated statement of financial

1.3. ACCOUNTING POLICIES 1.3.1 CHANGES IN ACCOUNTING POLICIESThe changes to accounting policies set out below have been applied consistently to all financial periods presented in these Financial Statements and in preparing the opening SLFRS/LKAS Statement of Financial Position as at 1 April 2011 for the purpose of the transition to SLFRS/LKAS, unless otherwise indicated.

The presentation and classification of the Financial Statements of the previous years have been amended, where relevant for better presentation and to be comparable with those of the current year.

1.3.2 SIGNIFICANT ACCOUNTING JUDGEMENTS, ESTIMATES AND ASSUMPTIONS The preparation of the Financial Statements of the Group require the management to make judgments, estimates and assumptions, which may affect the amounts of income, expenditure, assets , liabilities and the disclosure of contingent liabilities, at the end of the reporting period. In the process of

made relating to the future and the sources of estimation at the reporting date together with the related judgments that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.

The Group measures land and buildings at revalued amounts with changes in fair value being recognised in the statement of equity. The Group engaged independent valuation specialists to determine fair value of land and buildings as at 31 March 2013.

The valuer has used valuation techniques such as market values and discounted cash flow methods where there was lack of comparable market data available based on the nature of the property.

The manufacturing facility and assets acquired through the business combination was valued as at 1 August 2012 engaging independent valuation specialists to determine fair value and these valuers are certain that there is no significant difference in the valuations done as at 31 March 2013.


The Group assesses the remaining useful lives of items of property, plant and equipment at least at each financial year-end. If expectations differ from previous estimates, the changes accounted for as a change in an accounting estimate in accordance with LKAS 8 Accounting Policies, Changes in Accounting Estimates and Errors. Estimated useful lives for certain items of property, plant and equipment has been changed as disclosed in note 16.8.

Impairment exists when the carrying value of an asset or cash generating unit exceeds its recoverable amount, which is the higher of its fair value less costs to sell and its value in use (VIU). The fair value less costs to sell calculation is based on available

similar assets or observable market prices less incremental costs for disposing of the asset. The value in use calculation is based on a discounted cash flow model. The cash flows are derived from the budget for the next five years and do not include restructuring activities that the Group is not yet committed to

performance of the cash generating unit being tested. The recoverable amount is most sensitive to the discount rate used for the discounted cash flow model as well as the expected future cash inflows and the growth rate used for extrapolation purposes.

The key assumptions used to determine the recoverable amount for the different cash generating units, are further explained in Note 17.

The Group is subject to income tax and other taxes including VAT. Significant judgment was required to determine the total provision for current, deferred and other taxes pending the issue of tax guidelines on the treatment of the adoption of SLFRS in the Financial Statements and the taxable profit for the purpose of imposition of taxes. Uncertainties exist, with respect to the interpretation of the applicability of tax laws, at the time of the preparation of these financial statements.

Uncertainties also with respect to the interpretation of complex tax regulations and the amount and timing of future taxable income. Given the wide range of business relationships and the long-term nature and complexity of existing contractual agreements, differences arising between the actual results and the assumptions made, or future changes to such assumptions, could necessitate future adjustments to tax income and expense

is different from the amounts that were initially recorded, such differences will impact the income and deferred tax amounts in the period in which the determination is made.

The Group has tax losses carried forward amounting to Rs. 219.4 million (2012 - Rs. 240.5 million). These losses relate to subsidiaries that have a history of losses that do not expire and may not be used to offset other tax liabilities and where the Subsidiary has no taxable temporary differences nor any tax planning opportunities available that could partly support the recognition of these losses as 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 the level of future taxable profits together with future tax planning strategies.

Further details on taxes are disclosed in Notes 9 and 10.

The employee benefit liability of the Company is based on the actuarial valuation carried out by Messrs. Acturial & Management Consultants (Pvt) Ltd., actuaries. The actuarial valuations involve making assumptions about discount rates and future salary increases. The complexity of the valuation, the underlying assumptions and its long term nature, the defined benefit obligation is highly sensitive to changes in these assumptions. All assumptions are reviewed at each reporting date. Details of the key assumptions used in the estimates are contained in Note 31.

recorded in the statement of Financial Position cannot be derived from active markets, their fair value is determined using valuation techniques including the discounted cash flow model. The inputs to these models are taken from observable markets where possible.

establishing fair values. The judgments include considerations of inputs such as liquidity risk, credit risk and volatility. Changes in assumptions about these factors could affect the reported fair value of financial instruments refer Note 15.3.

1.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES1.4.1 Business combinations & goodwill Acquisitions are accounted for using the acquisition method of accounting. The Group measures goodwill at the acquisition date as the fair value of the consideration transferred less the recognised amount (generally fair value) of the identifiable assets acquired, all measured as of the acquisition date.

Notes to the Financial Statements Contd.


Transaction costs, that the Group incurs in connection with a business combination are expensed as incurred.

Goodwill is initially measured at cost being the excess of the

acquired. If this consideration is lower than the fair value of the acquired assets, the difference is recognised in the income statement.

After initial recognition, goodwill is measured at cost less any accumulated impairment losses. Goodwill is reviewed for impairment, annually or more frequently if events or changes in circumstances indicate that the carrying value maybe impaired.

For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated

from the combination, irrespective of whether other assets or liabilities of the acquiree are assigned to those units.

Impairment is determined by assessing the recoverable amount

the recoverable amount of the cash generating unit is less than the carrying amount, an impairment loss is recognised. The impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets pro-rata to the carrying amount of each asset in the unit.

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.

1.4.2 Foreign currency translation

currency.

The functional currency is the currency of the primary economic environment in which the entities of the Group operate.

All foreign exchange transactions are converted to functional currency, at the rates of exchange prevailing at the time the transactions are effected.

Monetary assets and liabilities denominated in foreign currency are retranslated to functional currency equivalents at the spot exchange rate prevailing at the reporting date.

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 assets and liabilities are translated using exchange rates that existed when the values were determined. The gain or loss arising on translation of non-monetary items is recognised in line with the gain or loss of the item that gave rise to the translation difference.

The statement of financial position and income statement of the overseas Subsidiary which is deemed to be foreign operation is translated to Sri Lanka rupees at the rate of exchange prevailing as at the reporting date and at the average annual rate of exchange for the period respectively.

The exchange differences arising on the translation are taken directly to other comprehensive income. On disposal of a foreign entity, the deferred cumulative amount recognised in other comprehensive income relating to that particular foreign operation is recognised in the income statement.

Any goodwill arising on the acquisition of a foreign operation subsequent to 1 April 2012 and any fair value adjustments to the carrying amounts of assets and liabilities arising on the acquisition are treated as assets and liabilities of the foreign operation and translated at the closing rate.

Prior to 1 April 2012, the date of transition to SLFRS/LKAS, the Group treated goodwill and any fair value adjustments to the carrying amounts of assets and liabilities arising on the acquisition as assets and liabilities of the parent. Therefore, those assets and liabilities are non-monetary items already expressed in the functional currency of the parent and no further translation differences occur.

During the year the extent of fluctuation in the Sri Lankan Rupee exchange rate to the Indian Rupee can be observed by looking at the two extremes in the exchange rates that prevailed during the year which is the highest and lowest rate set during the year. This is especially important when deducing the potential

financial statements.

The exchange rates applicable during the period were as follows:

Statement of Financial PositionClosing rate

Income StatementAverage rate

2012/13 2011/12 2012/13 2011/12

Indian Rupees 2.33 2.49 2.39 2.26


1.4.3 Tax

Current tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted, at the reporting date.

Current income tax relating to items recognised directly in equity is recognised in equity and for items recognised in other comprehensive income shall be recognised in other comprehensive income and not in the income statement. Management periodically evaluates positions taken in the tax returns with respect to situations in which applicable tax regulations are subject to interpretation and establishes provisions where appropriate.

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

Deferred tax liabilities are recognised for all taxable temporary differences.

Deferred tax assets are recognised for all deductible temporary differences, and unused tax credits and tax losses carried forward, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences and the unused tax credits and tax losses carried forward can be utilised.

The carrying amount of deferred 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 tax asset to be utilised. Unrecognised deferred tax assets are reassessed at each reporting date and are recognised to the extent that it has become probable that future taxable profit will allow the deferred tax asset to be recovered.

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

Deferred tax relating to items recognised outside profit or loss is recognised outside profit or loss. Deferred tax items are recognised 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.

Tax benefits acquired as part of a business combination, but not satisfying the criteria for separate recognition at that date, would be recognised subsequently if new information about facts and circumstances changed. The adjustment would either be treated as a reduction to goodwill (as long as it does not exceed goodwill) if it is incurred during the measurement period or in profit or loss.

Revenues, expenses and assets are recognised net of the amount of sales tax except:

services is not recoverable from the taxation authority, in which case the sales tax is recognised as part of the cost of acquisition of the asset or as part of the expense item as applicable and

of sales tax included.

The net amount of sales tax recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the Statement of Financial Position.

1.4.4 Property, plant and equipment

Property, plant and equipment are recognised if it is probable that future economic benefits associated with the asset will flow to the Group and the cost of the asset can be reliably measured.

Plant and equipment are stated at cost less accumulated depreciation and any accumulated impairment loss. Such cost includes the cost of replacing component parts of the plant and equipment and borrowing costs for long-term construction

of plant and equipment are required to be replaced at intervals, the Group derecognises the replaced part, and recognises 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. The present value of the expected cost for the decommissioning of the asset after its use is included in the cost of the respective asset if the recognition criteria for a provision are met.



Land and buildings are measured at fair value less accumulated depreciation on buildings and impairment charged subsequent to the date of the revaluation.

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 related to the particular asset being sold is transferred to retained earnings.

An item of property, plant and equipment are derecognised upon replacement, disposal or when no future economic benefits are expected from its use. Any gain or loss arising on derecognition of the asset is included in the income statement in the year the asset is derecognised.

Depreciation is calculated by using a straight-line method on the cost or valuation of all property, plant and equipment, other than freehold land, in order to write off such amounts over the estimated useful economic life of such assets.

Depreciation commences in the month following the purchase/commissioning of the asset and ceases in the month of disposal/scrapped.

The estimated useful life of assets is as follows:

Assets Years

Buildings on Freehold Land 33 (Remaining useful life)

Buildings on Leasehold Land 10-30 (Over the lease period)

Plant and Machinery 10-20

Computer Equipment 4-5

Furniture and Fittings 8

Motor Vehicles 5

Freezers 10

Office Equipment 6

Other Equipment 2

adjusted if appropriate, at each financial year end.

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

For arrangements entered into prior to 1 April 2011, the date ofinception is deemed to be 1 April 2012 in accordance with the SLFRS 1. A leased asset is depreciated over the useful life of

Company will obtain ownership by the end of the lease term, the asset is depreciated over the shorter of the estimated useful life of the asset and the lease term.

Leases, where the lessor effectively retains substantially all the risks and benefits of ownership over the terms of the lease, are classified as operating leases.

Lease payments are recognised as an expense in the income statement on a straight line basis over the terms of the leases.

1.4.6 Leasehold propertyPrepaid lease rentals paid to acquire land use rights are amortised over the lease term in accordance with the pattern of benefits provided.

Details of the Leasehold Property are given in Note 16 to the Financial Statements.

1.4.7 Intangible assets

An Intangible asset is recognised if it is probable that future economic benefits associated with the asset will flow to the Company and the cost of the asset can be reliably measured.

Intangible assets acquired separately are measured on initial recognition at cost. The cost of intangible assets acquired in a business combination is the fair value as at the date of acquisition.

Following initial recognition, intangible assets are carried at cost less any accumulated amortisation and any accumulated impairment losses.


Internally generated intangible assets, excluding capitalised development costs, are not capitalised, and expenditure is charged against income statement in the year in which the expenditure is incurred.

The useful lives of intangible assets are assessed as either finite or indefinite lives. Intangible assets with finite lives are amortised over the useful economic life 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 each financial year-end and such changes are treated as accounting estimates. The amortisation expense on intangible assets with finite lives is recognised in the income statement.

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

Purchased software is recognised as intangible assets and is amortised on a straight line basis over its useful life.

Software license costs are recognised as an intangible asset and amortised over the period of expected future usage of related ERP systems.

assets is as follows.

Intangible Useful life

Acquired/ Internally generated

Impairment testing

Purchased Software

05 Acquiredimpairment arise. The amortisation method is reviewed at each financial year end.

Software License

05 Acquired

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.

1.4.8 Financial instruments - initial recognition and subsequent measurement

i) Financial assets

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, available-for-sale financial assets, or as derivatives designated as hedging instruments in an effective hedge, as appropriate. The Group determines the classification of its financial assets at initial recognition.

All financial assets are recognised initially at fair value plus, in the case of assets not at fair value through profit or loss, directly attributable transaction costs. Purchases or sales of financial assets that require delivery of assets within a time frame established by regulation or convention in the marketplace (regular way trades) are recognised on the trade date, i.e., the date that the Group commits to purchase or sell the asset.

deposits, trade and other receivables, loans and other receivables.

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

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 costs.

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



from the asset or has assumed an obligation to pay the received cash flows in full without material delay to a third

Group has transferred substantially all the risks and rewards of the asset, or (b) the Group has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.

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

involvement in it.

In that case, the Group also recognises an associated liability. The transferred asset 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 assetsThe 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 (an incurred

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 reorganisation 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.

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 Company determines that no objective

evidence of impairment exists for an individually assessed financial asset, whether significant or not, it includes the asset in a Group of financial assets with similar credit risk characteristics and collectively assesses them for impairment. Assets that are individually assessed for impairment and for which an impairment loss is, or continues to be, recognised are not included in a collective assessment of impairment.

If there is objective evidence that an impairment loss has been incurred, the amount of the loss is measured as the difference between the assets carrying amount and the present value of estimated future cash flows (excluding future expected credit losses that have not yet been incurred). The present value of the

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

iii) Financial liabilities

Financial liabilities within the scope of LKAS 39 are classified as financial liabilities at fair value through profit or loss, loans and borrowings, 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, carried at amortised cost. This includes directly attributable transaction costs.

bank overdrafts, loans and borrowings.


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

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

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

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

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

A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires.

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 instrumentsFinancial assets and financial liabilities are offset and the net amount reported in the consolidated 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 For financial instruments not traded in an active market, the fair value is determined using appropriate valuation techniques.

transactions; reference to the current fair value of another instrument that is substantially the same; a discounted cash flow analysis or other valuation models.

1.4.9 Impairment of non-financial assetsThe Group assesses at each reporting date whether there is an indication that an asset may be impaired. If any such indication exists, or when annual impairment testing for an asset is required,

use and is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of

amount of an asset 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.

Impairment losses are recognised in the income statement, except that, impairment losses in respect of property, plant and equipment previously revalued are recognised against the revaluation reserve through the statement of other comprehensive income to the extent that it reverses a previous revaluation surplus.

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 recoverable amount is estimated. A previously recognised impairment loss is reversed only if there has been a change in the estimates used to determine

was recognised. If that is the case, the carrying amount of the asset is increased to its recoverable amount. That increased amount cannot 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 revalued amount, in which case the reversal is treated as a revaluation increase. After such a reversal, the depreciation

carrying amount, less any residual value, on a systematic basis over its remaining useful life.

The following criteria are also applied in assessing impairment of specific assets:

Goodwill is tested for impairment annually and when circumstances indicate that the carrying value may be impaired.

Impairment is determined for goodwill by assessing the recoverable amount of each cash-generating unit (or group of



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.

1.4.10 InventoriesInventories are valued at the lower of cost and net realisable value. Net realisable value is the estimated selling price less estimated costs of completion and the estimated costs necessary to make the sale.

The costs incurred in bringing inventories to its present location and condition, are accounted for as follows:

Raw Materials Actual cost on a weighted average basis

Manufactured Finished Goods

At the actual cost of direct materials, direct labour and an appropriate proportion of fixed overheads.

At the cost of direct material (excluding packing material) and an appropriate proportion of direct labour of fixed production overheads based on percentage completed.

Finished Goods Purchased At actual cost on weighted average basis.

Spares At actual cost on weighted average basis.

Other Inventories At actual cost

1.4.11 Cash and cash equivalentsCash 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 cashflow statement, cash and cash equivalents consist of cash and short-term deposits as defined above, net of outstanding bank overdrafts.

1.4.12 Defined benefit plan - gratuityThe liability recognised in the statement of financial position is the present value of the defined benefit obligation at the reporting date using the projected unit credit method. Any actuarial gains or losses arising are recognised immediately in income statement.

1.4.13 Defined contribution plan - Employees’ Provident Fund and Employees’ Trust Fund

line with respective statutes and regulations. The companies contribute the defined percentages of gross emoluments of

funded.

1.4.14 Provisions, contingent assets and contingent liabilitiesProvisions 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

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

is used, the increase in the provision due to the passage of time is recognised as a finance cost.

All contingent liabilities are disclosed as a note to the financial statements unless the outflow of resources is remote. A contingent liability recognised in a business combination is initially measured at its fair value. Subsequently, it is measured at the higher of:

the general guidance for provisions above (LKAS 37) or

cumulative amortisation recognised in accordance with the guidance for revenue recognition (LKAS 18)

Contingent assets are disclosed, where inflow of economic benefit is probable.

1.4.15 Revenue recognitionRevenue is recognised to the extent that it is probable that the economic benefits will flow to the Group, and the revenue and associated costs incurred or to be incurred can be reliably measured. Revenue is measured at the fair value of the consideration received or receivable, net of trade discounts and value added taxes. After eliminating sales within the Group.

The following specific criteria are used for recognition of revenue:

Revenue from the sale of goods is recognised when the significant risk and rewards of ownership of the goods have passed to the


buyer with the Group retaining neither a continuing managerial involvement to the degree usually associated with ownership, nor an effective control over the goods sold.

Turnover based taxes include Value Added Tax and Nation Building Tax. Companies in the Group pay such taxes in accordance with the respective statutes.

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

Net gains and losses of a revenue nature arising from the disposal of property, plant and equipment and other non-current assets, including investments, are accounted for in the income statement, after deducting from the proceeds on disposal, the carrying amount of such assets and the related selling expenses.

Gains and losses arising from activities incidental to the main revenue generating activities and those arising from a group of similar transactions, which are not material are aggregated, reported and presented on a net basis.

Other income is recognised on an accrual basis.

1.4.16 Expenditure recognitionExpenses are recognised in the income statement on the basis of a direct association between the cost incurred and the earning of specific items of income. All expenditure incurred in the running of the business and in maintaining the property, plant and equipment in a state of efficiency has been charged to the income statement.

For the purpose of presentation of the income statement, the “function of expenses” method has been adopted, on the basis

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 the Group incurs in connection with the borrowing of funds.

1.5 SRI LANKA ACCOUNTING STANDARDS (SLFRS/LKAS) ISSUED BUT NOT YET EFFECTIVEStandards issued but not yet effective up to the date of issuance

is of standards and interpretations issued, which the Group reasonably expects to be applicable at a future date. The Group intends to adopt those standards when they become effective.

a) SLFRS 9-Financial Instruments: Classification and Measurement

SLFRS 9 as issued reflects the replacement of LKAS 39 and applies to classification and measurement of financial assets and financial liabilities as defined in LKAS 39. The standard is effective for annual periods beginning on or after 1 January 2015. The adoption of SLFRS 9 will have an effect on the classification

potentially have no impact on classification and measurements of financial liabilities.

b) SLFRS 10-Consolidated Financial StatementsSLFRS 10 replaces the portion of LKAS 27 Consolidated and separate Financial Statements that addresses the accounting for consolidated financial statements. It also includes the issues raised in standing interpretations committee – SIC-12 Consolidation – Special Purpose Entities.

SLFRS 10 establishes a single control model that applies to all entities including special purpose entities. The changes introduced by SLFRS 10 will require management to exercise significant judgment to determine which entities are controlled, and therefore are required to be consolidated by a parent, compared with the requirements that were in LKAS 27. This standard becomes effective for annual periods beginning on or after 1 January 2014.

c) SLFRS 11-Joint ArrangementsSLFRS 11 replaces LKAS 31 Interests in Joint Ventures and SIC-1e Jointly-controlled entities - Non-monetary Contributions by ventures. SLFRS 11 removes the option to account for jointly controlled entities (JCEs) using proportionate consolidation. Instead, JCEs that meet the definition of a joint venture must be accounted for using the equity method. The application of this new standard will impact the financial position of the Group. This is due to the cessation proportionate consolidating of joint ventures being changed to equity accounting. This standard becomes effective for annual periods beginning on or after 1 January 2014.



d) SLFRS 12 Disclosure of Interests in other entitiesSLFRS 12 includes all of the disclosures that were previously in LKAS 27 related to consolidated financial statements, as well as all of the disclosures that were previously included in LKAS 31

in subsidiaries, joint arrangements, associates and structured entities. A number of new disclosures are also required. This standard becomes effective for annual periods beginning on or after 1 January 2014.

e) SLFRS 13-Fair Value Measurement SLFRS 13 establishes a single source of guidance under SLFRS for all fair value measurements. SLFRS 13 does not state when an entity is required to use fair value, but rather provides guidance on how to measure fair value under SLFRS when fair value is required or permitted. The Group is currently assessing the impact that this standard will have on the financial position and performance. This standard becomes effective for annual periods beginning on or after 1 January 2014

1.6 SEGMENT INFORMATION

based on individual products and services which are similar in nature and process and where the risk and return are similar.

There are two segments identified as Manufacturing and Trading, these operating segments are monitored and strategic

results.

The measurement policies the Company uses for segment reporting under SLFRS 8 are the same as those used in its financial statements.

The activities of each of the reported business segments of the Group are detailed in Note 4.1.

Segment information has been prepared in conformity with the Accounting Policies adopted for preparing and presenting the Financial Statements of the Group.

These financial statements, for the year ended 31 March 2013, are the first the Group has prepared in accordance with SLFRS/LKAS. For periods up to and including the year ended 31 March 2012, the Group prepared its financial statements in accordance with Sri Lanka Accounting standards which were effective up to 31 March 2012.

Accordingly, the Group has prepared financial statements which comply with SLFRS/LKAS applicable for periods ending on or after 31 March 2013, together with the comparative period data as at and for the year ended 31 March 2012, as described in the accounting policies. In preparing these financial statements, the

This note explains the principal adjustments made by the Group in restating its SLAS statement of financial position as at 1 April 2011, and its previously published SLAS financial statements as at and for the year ended 31 March 2012.

SLFRS 1 First-Time Adoption of Sri Lanka Financial Reporting Standards allows first-time adopters certain exemptions from the retrospective application of certain SLFRS/LKAS.

The Group has applied the following optional exemptions:

SLFRS 3 Business Combinations has not been applied to acquisitions of subsidiaries, which are considered businesses for SLFRS/LKAS, or of interests in associates and joint ventures that occurred before 1 April 2011. The Group has not applied LKAS 21 retrospectively to fair value adjustments and goodwill from business combinations that occurred before the date of transition to SLFRS/LKAS. Such fair value adjustments and goodwill are treated as assets and liabilities of the parent rather than as assets and liabilities of the acquiree. Therefore, those assets and liabilities are already expressed in the functional currency of the parent or are non-monetary foreign currency items and no further translation differences occur.

Use of this exemption means that the SLAS carrying amounts of assets and liabilities, which are required to be recognised under SLFRS/LKAS, are stated at their deemed cost at the date of the acquisition. After the date of the acquisition, measurement is in accordance with SLFRS/LKAS. Assets and liabilities that do not qualify for recognition under SLFRS/LKAS are excluded from the opening SLFRS/LKAS statement of financial position.

SLFRS 1 also requires that the SLAS carrying amount of goodwill must be used in the opening SLFRS/LKAS statement of financial position (apart from adjustments for goodwill impairment and recognition or derecognition of intangible assets). In accordance with SLFRS 1, the Group has tested goodwill for impairment at the date of transition to SLFRS/LKAS.

Freehold land and buildings, other than investment property, were carried in the statement of financial position prepared in accordance with SLAS on the basis of valuations performed prior to 31 March 2012. The Group has elected to regard those values as deemed cost at the date of the revaluation since they were broadly comparable to fair value.


The Group has applied the transitional provision in IFRIC 4 determining whether an arrangement contains a lease and has assessed all arrangements based upon the conditions in place as at the date of transition.

Significant accounting judgments, estimates and assumptions at 1 April 2011 and at 31 March 2012 are consistent with those made for the same dates in accordance with SLAS effective up to 31 March 2013 (after adjustments to reflect any differences in accounting policies).

The estimates used by the Group to present these amounts in accordance with SLFRS/LKAS effective from 1 April 2012 reflect conditions at 1 April 2011, the date of transition to SLFRS/LKAS and as of 31 March 2012.



FIRST TIME ADOPTION OF SLFRS/LKAS

2.1 RECONCILIATION OF CONSOLIDATED INCOME STATEMENT Group Company

For the year ended 31 March 2012 Note As per Effect of As per As per Effect of As per SLAS transition to SLFRS/LKAS SLAS transition to SLFRS/LKAS SLFRS/LKAS SLFRS/LKAS Rs. Rs. Rs. Rs. Rs. Rs.

2,328,751,844 - 2,328,751,844 2,328,751,844 - 2,328,751,844Cost of sales (1,766,954,656) - (1,766,954,656) (1,766,954,656) - (1,766,954,656)

561,797,188 - 561,797,188 561,797,188 - 561,797,188Other operating income 2.5 13,499,672 (4,026,512) 9,473,160 10,826,938 (3,689,104) 7,137,834Selling and distribution expenses (248,273,214) - (248,273,214) (248,311,977) - (248,311,977)Administrative expenses (96,254,575) - (96,254,575) (94,077,150) - (94,077,150)Other operating expenses (42,565,283) - (42,565,283) (42,311,267) - (42,311,267)Finance cost (7,560,071) - (7,560,071) (7,560,071) - (7,560,071)Finance income 2.5 - 4,026,512 4,026,512 - 3,689,104 3,689,104

180,643,717 - 180,643,717 180,363,661 - 180,363,661Tax expense (51,005,053) - (51,005,053) (51,005,053) - (51,005,053)

129,638,664 - 129,638,664 129,358,608 - 129,358,608

The accounting policies and notes as set out in pages 68 to 111 form an integral part of these financial statements.



FIRST TIME ADOPTION OF SLFRS/LKAS

2.2 RECONCILIATION OF CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME Group Company

For the year ended 31 March 2012 As per Effect of As per As per Effect of As per SLAS transition to SLFRS/LKAS SLAS transition to SLFRS/LKAS SLFRS/LKAS SLFRS/LKAS Rs. Rs. Rs. Rs. Rs. Rs.

129,638,664 - 129,638,664 129,358,608 - 129,358,608

Currency translation of foreign operations - (174,672) (174,672) - - -

- (174,672) (174,672) - - -

129,638,664 (174,672) 129,463,992 129,358,608 - 129,358,608





FIRST TIME ADOPTION OF SLFRS/LKASGROUP2.3 RECONCILIATION OF CONSOLIDATED STATEMENT OF FINANCIAL POSITION Equity as at 31 March 2012 Equity as at 1 April 2011 (date of transition to SLFRS/LKAS)

Note As per Effect of As per As per Effect of As per SLAS transition to SLFRS/LKAS SLAS transition to SLFRS/LKAS SLFRS/LKAS SLFRS/LKAS Rs. Rs. Rs. Rs. Rs. Rs.

Property, plant and equipment 189,235,533 - 189,235,533 173,635,229 - 173,635,229Other non-current financial assets 2.6 - 29,158,793 29,158,793 - 17,407,289 17,407,289Other non-current assets 2.6 33,959,019 (29,158,793) 4,800,226 18,635,999 (17,407,289) 1,228,710 223,194,552 - 223,194,552 192,271,228 - 192,271,228

Inventories 291,549,291 - 291,549,291 298,548,217 - 298,548,217Trade and other receivables 2.7 228,065,883 (8,378,174) 219,687,709 212,169,165 (17,478,179) 194,690,986Amounts due from related parties 59,144,063 - 59,144,063 64,675,298 - 64,675,298Other current assets 2.7 - 8,378,174 8,378,174 - 17,478,179 17,478,179Short term investments 7,236,621 - 7,236,621 8,957,384 - 8,957,384Cash in hand and at bank 9,621,949 - 9,621,949 1,839,136 - 1,839,136 595,617,807 - 595,617,807 586,189,200 - 586,189,200Total assets 818,812,359 - 818,812,359 778,460,428 - 778,460,428

Stated capital 274,815,000 - 274,815,000 274,815,000 - 274,815,000Capital reserves 2.8 94,653,862 (94,653,862) - 94,653,862 (94,653,862) -Revenue reserves 2.8 82,957,878 2,821,624 85,779,502 (46,506,114) 2,646,952 (43,859,162)Other components of equity 2.8 - 91,832,238 91,832,238 - 92,006,910 92,006,910

452,426,740 - 452,426,740 322,962,748 - 322,962,748

Deferred tax liabilities 2,901,234 - 2,901,234 2,779,880 - 2,779,880Employee benefit liabilities 54,939,342 - 54,939,342 50,648,242 - 50,648,242 57,840,576 - 57,840,576 53,428,122 - 53,428,122

Trade and other payables 2.9 208,863,557 (7,001,248) 201,862,309 169,592,278 (13,093,663) 156,498,615Amounts due to related parties 7,357,493 - 7,357,493 8,791,540 - 8,791,540Income tax payable 5,504,170 - 5,504,170 25,330,329 - 25,330,329Short term borrowings - - - 81,902,185 - 81,902,185Other current liabilities 2.9 - 7,001,248 7,001,248 - 13,093,663 13,093,663Bank overdrafts 86,819,823 - 86,819,823 116,453,226 - 116,453,226 308,545,043 - 308,545,043 402,069,558 - 402,069,558

818,812,359 - 818,812,359 778,460,428 - 778,460,428




FIRST TIME ADOPTION OF SLFRS/LKASCOMPANY2.4 RECONCILIATION STATEMENT OF FINANCIAL POSITION Equity as at 31 March 2012 Equity as at 1 April 2011 (date of transition to SLFRS/LKAS)

Note As per SLAS Effect of As per As per SLAS Effect of As per transition to SLFRS/LKAS transition to SLFRS/LKAS SLFRS/LKAS SLFRS/LKAS Rs. Rs. Rs. Rs. Rs. Rs.

Property, plant and equipment 189,235,533 - 189,235,533 173,635,229 - 173,635,229Intangible assets - - - - - -Investments in subsidiary 6,132,376 - 6,132,376 6,132,376 - 6,132,376Other non-current financial assets 2.6 - 29,158,793 29,158,793 - 17,407,289 17,407,289Other non-current assets 2.6 33,959,019 (29,158,793) 4,800,226 18,635,999 (17,407,289) 1,228,710 229,326,928 - 229,326,928 198,403,604 - 198,403,604

Inventories 291,549,291 - 291,549,291 298,548,217 - 298,548,217Trade and other receivables 2.7 224,030,088 (7,315,571) 216,714,517 209,699,673 (16,321,020) 193,378,653Amounts due from related parties 59,144,063 - 59,144,063 64,675,298 - 64,675,298Other current assets 2.7 - 7,315,571 7,315,571 - 16,321,020 16,321,020Cash in hand and at bank 8,831,748 - 8,831,748 1,393,743 - 1,393,743 583,555,190 - 583,555,190 574,316,931 - 574,316,931

812,882,118 - 812,882,118 772,720,535 - 772,720,535

Stated capital 274,815,000 - 274,815,000 274,815,000 - 274,815,000Capital reserves 2.8 94,653,862 (94,653,862) - 94,653,862 (94,653,862) -Revenue reserves 79,970,847 - 79,970,847 (49,387,761) - (49,387,761)Other components of equity 2.8 - 94,653,862 94,653,862 - 94,653,862 94,653,862

449,439,709 - 449,439,709 320,081,101 - 320,081,101

Deffered tax liability 2,901,234 - 2,901,234 2,779,880 - 2,779,880Employee benefit liabilities 54,939,342 - 54,939,342 50,648,242 - 50,648,242 57,840,576 - 57,840,576 53,428,122 - 53,428,122

Trade and other payables 2.9 205,920,347 (6,912,536) 199,007,811 166,734,032 (12,496,313) 154,237,719Amounts due to related parties 7,357,493 - 7,357,493 8,791,540 - 8,791,540Income tax liabilities 5,504,170 - 5,504,170 25,330,329 - 25,330,329short term borrowings - - - 81,902,185 - 81,902,185Other current liabilities 2.9 - 6,912,536 6,912,536 - 12,496,313 12,496,313Bank overdrafts 86,819,823 - 86,819,823 116,453,226 - 116,453,226 305,601,833 - 305,601,833 399,211,312 - 399,211,312

812,882,118 - 812,882,118 772,720,535 - 772,720,535





NOTES TO RECONCILIATIONS/RECLASSIFICATIONS

2.5 Other operating incomeAs per previous SLAS interest income has been classified under other operating income. Under SLFRS/LKAS interest income has been classified in finance income.

Group Company Rs. Rs.

For the Year ended 31 March 2012 4,026,512 3,689,104

2.6 Other non-current assetDue to the application of LKAS 32 & 39, financial assets in other non-current assets have been reclassified to other non-current financial assets.


As at 31 March 2012 29,158,793 29,158,793As at 1 April 2011 17,407,289 17,407,289

2.7 Trade and other receivablesDue to the application of LKAS 32 & 39, non financial assets (Prepayments and Tax refunds) in trade & other receivables have been reclassified to other current assets.



2.8 ReservesDue to the application of SLFRS/LKAS, Presentation of Financial Statements has changed. Capital reserve and Exchange Equalisation reserve have been reclassified to other components of equity.



As at 31 March 2012 2,821,624 -As at 1 April 2011 2,646,952 -



2.9 Trade and other payablesDue to the application of LKAS 32 & 39, non financial liabilities (Tax payables and Advance received) in trade & other payables have been reclassified to other current liabilities.



2.10 Statement of cash flowsThe transition from SLAS to SLFRS/LKAS has not had a material impact on the statement of cash flows.

3.1 Acquisitions

In August 2012 the Group acquired a production facility which included Buildings, Plant and Machinery of a third party Company for a total consideration of Rs. 700,000,000/- in view of increasing production capacity.

The Group recognised a fair value of Rs. 457,731,954/- for the items of property, plant & equipment with the assistance of independent valuers, giving rise to a provisional amount of Rs. 242,268,046/- of Goodwill, of which the final value will depend on the amount of Lease rental for the land . In particular, the operating lease agreement with the government is still in the draft stage.

Further details are disclosed in Note 16 and 17.

The fair value of the identifiable assets as at date of acquisition were:

For the year ended 31st March Rs.

700,000,000Less:Fair value of assets aquired Property, plant and equipment (457,731,954)Goodwill 242,268,046

as per SLFRS 3, the Group has recognised an intangible asset in the Statement of Financial Position amounting to Rs. 242,268,046/- on 1st August 2012, the acquisition date. Further, an intangible asset recognised on the date of acquisition will not be amortised but is reviewed annually for any impairment in value.


Group Company

For the year ended 31 March 2013 2012 2013 2012 Rs. Rs. Rs. Rs.

Net Revenue 2,197,482,358 2,328,751,844 2,197,482,358 2,328,751,844

Value Added Tax of Rs. 239,419,958/- (2011/12 Rs. 237,974,280/-) has been deducted in arriving at the revenue of the Company.

4.1 Business Segment Analysis - Group 2013 2012

For the year ended 31 March Manufacturing Trading Total Manufacturing Trading Total Rs. Rs. Rs. Rs. Rs. Rs.

Revenue 2,056,649,252 140,833,106 2,197,482,358 2,182,803,833 145,948,011 2,328,751,844 474,245,324 11,141,616 485,386,940 554,933,635 15,415,186 570,348,821

Other operating income 4,493,739 286,492 4,780,231 7,137,834 2,335,326 9,473,160Depreciation/Amortisation (29,380,137) - (29,380,137) (12,404,473) - (12,404,473)Selling and distribution expenses (231,047,539) - (231,047,539) (245,537,920) - (245,537,920)Administrative expenses (108,977,441) - (108,977,441) (95,137,029) - (95,137,029)Other operating expenses (55,061,193) - (55,061,193) (42,565,283) - (42,565,283)

54,272,753 11,428,108 65,700,861 166,426,764 17,750,512 184,177,276

Finance costs (26,354,556) - (26,354,556) (7,560,071) - (7,560,071)Finance income 76,609,675 - 76,609,675 4,026,512 - 4,026,512Net finance (cost)/ income 50,255,119 - 50,255,119 (3,533,559) - (3,533,559)

104,527,872 11,428,108 115,955,980 162,893,205 17,750,512 180,643,717

Reportable segment assets 2,231,174,454 18,565,318 2,249,739,772 767,103,516 51,708,843 818,812,359 Capital expenditure including business combination 660,549,745 - 660,549,745 28,004,778 - 28,004,778Reportable segment liabilities 796,688,286 6,928,996 803,617,282 298,895,447 9,649,597 308,545,044

4.1.1 All Inter Company revenues, other income and expenses have been eliminated on consolidation.

4.1.2 Segment results have been arrived at after adding back depreciation. 4.1.3 Segment assets does not include goodwill arising from the business combination. 4.1.4 Non current assets have not been allocated to the trading segment.


Group Company


4.2 Geographical segment analysis (by location of customers)Sri Lanka 2,189,196,547 2,282,723,334 2,189,196,547 2,282,723,334Others 8,285,811 46,028,510 8,285,811 46,028,510Total Group external revenue 2,197,482,358 2,328,751,844 2,197,482,358 2,328,751,844

All non current assets are located in Sri Lanka.

Exchange gain 14,817 204,039 14,817 204,039Profit on sale of property, plant and equipment 1,141,115 3,538,285 1,141,115 3,538,285Royalty Income 286,492 2,335,326 - -Sundry income 3,337,807 3,395,510 3,337,807 3,395,510 4,780,231 9,473,160 4,493,739 7,137,834

Other operating expenses includes Nation Building Tax of Rs. 35,168,146/- for the year ended 31 March 2013 (2012 - Rs. 36,256,351/-) for the Group, and Rs. 35,168,146/- (2012 - Rs. 36,256,351/-) for the Company.

Group Company


Interest expense on borrowingsLong term 19,624,795 - 19,624,795 -Short term 6,729,761 7,560,071 6,729,761 7,560,071 26,354,556 7,560,071 26,354,556 7,560,071

Interest income 72,050,831 351,690 71,722,674 14,282Finance income from other financial instruments 4,558,844 3,674,822 4,558,844 3,674,822 76,609,675 4,026,512 76,281,518 3,689,104

Finance income from other financial instruments includes notional interest pertaining to executive staff loans granted.



Group Company


Profit before Income Tax is stated after charging all expenses including the following;Remuneration to Non Executive Directors 6,300,000 5,600,000 6,300,000 5,600,000

- Non Audit Service 706,727 72,750 89,400 72,750

Defined benefit plan cost - Gratuity 8,913,971 5,677,145 8,913,971 5,677,145 Defined contribution plan cost - EPF and ETF 28,371,546 26,883,729 28,371,546 26,883,729Staff expenses 288,274,828 275,141,321 288,274,828 275,141,321Depreciation of property, plant and equipment 15,011,494 12,404,473 15,011,494 12,404,473Depreciation of property, plant and equipment - business combination 14,189,000 - 14,189,000 -Amortisation of intangible assets 179,643 - 179,643 -Provision for impairment of trade debtors - 232,653 - 232,653Operating lease payments 217,368 217,368 217,368 217,368Research & Development 500,000 - 500,000 -Donations 720,000 722,000 720,000 722,000

Income Tax - 51,503,041 - 51,503,041Income Tax over provision - (619,342) - (619,342) - 50,883,699 - 50,883,699

Relating to origination and reversal of temporary differences 10.2 24,331,433 121,354 24,331,433 121,354 24,331,433 51,005,053 24,331,433 51,005,053

Applicable Rates of Income TaxThe Tax Liability of the Company is Computed at the Standard Rate of 28% (2011/12 - 28%) and for qualified exports at the rate of 12% (2011/12 - 12%).


Group Company


10.1 Reconciliation between tax expense and the product of accounting profitProfit before tax 115,955,980 180,643,717 116,354,085 180,363,661Exempted Profit (144) - (144) -Other consolidation adjustments 398,105 - - -Aggregate Accounting Profit 116,353,941 180,643,717 116,353,941 180,363,661Profits not charged to income tax - - - -Accounting profit liable for Income Tax 116,353,941 180,643,717 116,353,941 180,363,661

Income Tax on Accounting Profit at the applicable rates 32,579,103 50,573,222 32,579,103 50,573,222Under/ (Over) provision - (619,342) - (619,342)Aggregate disallowable deductions (21,249,107) 929,819 (21,249,107) 929,819Tax effect on deductions claimed (280,000) - (280,000) -Qualifying payment relief (11,049,996) - (11,049,996) - - 50,883,699 - 50,883,699

Income tax charged atStandard rate 28% - 50,781,570 - 50,781,570Concessionary rate of 12% - 721,471 - 721,471Under provision for previous years - (619,342) - (619,342)Charge for the year - 50,883,699 - 50,883,699Deferred tax Charge/(reversal) 24,331,433 121,354 24,331,433 121,354Total income tax expense 24,331,433 51,005,053 24,331,433 51,005,053

Group Company


10.2 Deferred tax expense

Deferred tax expense arising from;Accelerated depreciation for tax purposes 29,508,157 1,035,145 29,508,157 1,035,145Employee benefit liability (1,783,156) (913,791) (1,783,156) (913,791)Benefit arising from Tax Losses (3,393,568) - (3,393,568) -Deferred tax charge 24,331,433 121,354 24,331,433 121,354

Deferred tax expense arising from;Revaluation of land and building to fair value 3,261,693 - 3,261,693 -Total deferred tax charge 27,593,126 121,354 27,593,126 121,354

The Subsidiary has carried forward tax losses amounting to Rs. 219,433,013/- (2011/12 - Rs. 240,529,544/-). Deferred Income Tax

not probable that the taxable profits will be available in the foreseeable future against which the deductible temporary difference can be utilised.



Group Company


10.3 Tax losses carried forwardTax losses brought forward - - - -Adjustments on finalisation of liability - - - -Tax losses arising during the year 37,917,118 - 37,917,118 -Utilisation of tax losses (25,797,255) - (25,797,255) - 12,119,863 - 12,119,863 -

10.4 Details of investment relief Cost of Liability to approved Relief claimed additional tax on Year of investment investment investments disposal of Investment Rs. Rs. Rs. 2012/2013 457,731,954 39,464,193 - 2011/2012 - - - The Subsidiary has carried forward tax losses amounting to Rs. 219,433,013/- (2011/12 - Rs.240,529,544/-). Deferred Income Tax

probable that the taxable profits will be available in the foreseeable future against which the deductible temporary difference can be utilisd.

Group

For the year ended 31 March 2013 2012 Rs. Rs.

11.1 Basic earnings per shareProfit attributable to equity holders of the parent 91,624,547 129,638,664

Basic earnings per share 4.86 14.56

11.2 Amount used as denominator Ordinary shares at the beginning of the year 8,500,000 8,500,000 Shares increased due to rights issue 17,000,000 17,000,000 Ordinary shares at the end of the year 25,500,000 25,500,000

2013 2012

For the year ended 31 March Rs. Rs. Rs. Rs.

First and Final dividend* 2.00 17,000,000 - -Total dividend 2.00 17,000,000 - -


2013 2012

For the year ended 31 March Rs. Rs. Rs. Rs.

12.2 Proposed dividend First & Final dividend 2.00 51,000,000 2.00 17,000,000 The final dividend proposed for this financial year has not been recognised in the statement of Financial Position as at 31 March 2013 amounting to Rs. 51,000,000/- in compliance with LKAS 10 - Events after the reporting period.

13.1 FINANCIAL ASSETS AND LIABILITIES BY CATEGORIESFinancial assets and liabilities in the tables below are split into categories in accordance with LKAS 39.

Financial assets by category Loans and receivables

Group Company

As at 1 April As at 1 April As at 31 March 2013 2012 2011 2013 2012 2011 Rs. Rs. Rs. Rs. Rs. Rs.

Other non-current financial assets 26,264,238 29,158,793 17,407,289 26,264,238 29,158,793 17,407,289

Trade and other receivables 203,541,307 219,687,709 194,690,986 201,406,164 216,714,517 193,378,653Amounts due from related parties 71,937,890 59,144,063 64,675,298 71,937,890 59,144,063 64,675,298Short term investments 766,591,841 7,236,621 8,957,384 760,582,048 - -Cash in hand and at bank 18,555,430 9,621,949 1,839,136 17,936,650 8,831,748 1,393,743Total 1,086,890,706 324,849,135 287,570,093 1,078,126,990 313,849,121 276,854,983

The fair value of loans and receivables amounts to Rs.1,086,890,706/- (2012 -Rs. 324,849,135/-, as at 1st April 2011 Rs. 287,570,093/-) for the Group and Rs. 1,078,126,990/- (2012 -Rs. 313,849,121/-, as at 1 April 2011 Rs. 267,854,983/-) for the Company.

Financial liabilities by category Financial liabilities measured at amortised cost

Group Company


Borrowings 233,333,333 - - 233,333,333 - -

Trade and other payables 519,646,824 201,862,309 156,498,615 518,664,715 199,007,811 154,237,719Amounts due to related parties 9,462,817 7,357,493 8,791,540 9,462,817 7,357,493 8,791,540Short term borrowings - - 81,902,185 - - 81,902,185Current Portion of Borrowings 18,330,571 - - 18,330,571 - -Bank overdrafts 13,069,652 86,819,823 116,453,226 13,069,652 86,819,823 116,453,226Total 793,843,197 296,039,625 363,645,566 792,861,088 293,185,127 361,384,670

The fair value of financial liabilities amounts to Rs. 793,843,197/- (2012 Rs. 296,039,625/- as at 1 April 2011 Rs. 363,645,566/-) for the Group, and Rs. 792,861,088/- (2012 - Rs. 293,185,127/- as at 1 April 2011 Rs. 361,384,670/-.



The Company and its Subsidiary has loan and other receivables, trade and other receivables, and cash and short-term deposits that arise directly from its operations.

The Company and its Subsidiary is exposed to market risk, credit risk and liquidity risk.

The fair value of floating rate loan is determined by discounting the future cash flows using prevailing market rates. The frequency of re-pricing per year affects the fair value. In general, a loan that is re-priced every six (6) months will have a carrying value closer to the fair value with similar maturity and interest basis.

15.1 Credit riskCredit risk is the risk that a counter party will not meet its obligations under a financial instrument or customer contract, leading to a financial loss. The Company and its Subsidiary is exposed to credit risk from its operating activities (primarily trade receivables) and from its financing activities, including deposits with banks and financial institutions, foreign exchange transactions and other financial instruments.

The Company and its Subsidiary trades only with recognised, creditworthy third parties. It is the The Company and its Subsidiarypolicy is that all clients who wish to trade on credit terms are subject to credit verification procedures. In addition, receivable balances are monitored on an ongoing basis with the result that the Company and its Subsidiarysignificant.

Company and its Subsidiary, such as cash and cash equivalents, the Company and its Subsidiaryits operations to avoid any excessive concentration of counter party risk and the Company and its Subsidiary takes all reasonable steps to ensure the counter parties, fulfill their obligations.

15.1.1 Credit risk exposureThe maximum risk positions of financial assets which are generally subject to credit risk are equal to their carrying amounts (without consideration of collateral, if available).

Following table shows the maximum risk positions;

Group 2013

Note Other Cash in Trade and Other Amounts due Total % of non current hand other investments from related allocation financial and at bank receivables parties assets Rs. Rs. Rs. Rs. Rs. Rs.

Government securities 15.1.2 - - - 8,600,000 - 8,600,000 1Bank deposits 15.1.3 - - - 757,991,841 - 757,991,841 70Loans to executives 15.1.4 26,264,238 - - - - 26,264,238 2Trade and other receivables 15.1.5 - - 203,541,307 - - 203,541,307 19Amounts due from related parties 15.1.6 - - - - 71,937,890 71,937,890 7Cash in hand and at bank 15.1.7 - 18,555,430 - - - 18,555,430 1


Group 2012


Government securities 15.1.2 - - - - - - -Bank deposits 15.1.3 - - - 7,236,621 - 7,236,621 2Loans to executives 15.1.4 29,158,793 - - - - 29,158,793 9Trade and other receivables 15.1.5 - - 219,687,709 - - 219,687,709 68Amounts due from related parties 15.1.6 - - - - 59,144,063 59,144,063 18Cash in hand and at bank 15.1.7 - 9,621,949 - - - 9,621,949 3

Company 2013


Government securities 15.1.2 - - - 8,600,000 - 8,600,000 1Bank deposits 15.1.3 - - - 751,982,048 - 751,982,048 70Loans to executives 15.1.4 26,264,238 - - - - 26,264,238 2Trade and other receivables 15.1.5 - - 201,406,164 - - 201,406,164 19Amounts due from related parties 15.1.6 - - - - 71,937,890 71,937,890 7Cash in hand and at bank 15.1.7 - 17,936,650 - - - 17,936,650 1

Company 2012


Government securities 15.1.2 - - - - - - -Bank deposits 15.1.3 - - - - - - -Loans to executives 15.1.4 29,158,793 - - - - 29,158,793 9Trade and other receivables 15.1.5 - - 216,714,517 - - 216,714,517 69Amounts due from related parties 15.1.6 - - - - 59,144,063 59,144,063 19Cash in hand and at bank 15.1.7 - 8,831,748 - - - 8,831,748 3

15.1.2 Government securitiesAs at 31 March 2013 as shown in table above, for the Group 1% (2012 - 0%) and for the Company 3% (2012 - 0%) of debt securities comprise investments in government securities consist of treasury bonds, bills and reverse repo investments. Government securities are usually referred to as risk free due to the sovereign nature of the instrument.



15.1.3 Deposits with bankDeposits with bank mainly consist of fixed and call deposits.

As at 31 March 2013, fixed and call deposits comprise 100% (2012 - 100%) were rated “A” or better.

Group Company

As at 31 March 2013 2012 2013 2012

Rs. Rating % Rs. Rating % Rs. Rating % Rs. Rating % Fitch Rating of total of total of total of total

AAA 6,009,793 1% 7,236,621 100% - - - -AA 489,046,000 64% - - 489,046,000 64% - -AA+ 271,536,048 35% - - 271,536,048 36% -Total 766,591,841 100% 7,236,621 100% 760,582,048 100% - -

15.1.4 Loans to executivesThe executive loan portfolio is largely made up of vehicle loans which are given to staff at assistant manager level and above. The respective business units have obtained the necessary Power of Attorney/promissory notes as collateral for the loans granted.

15.1.5 Trade and other receivables

Group Company

31 March 2013 2012 2013 2012 Rs. Rs. Rs. Rs.

198,976,148 213,435,860 198,976,148 213,435,86001–60 days

61–90 days 1,782,843 3,104,399 1,782,843 3,104,39991–120 days 229,404 127,515 229,404 127,515121–180 days 282,915 46,743 282,915 46,743> 181 days 2,269,997 2,973,192 134,854 -

3,842,931 4,047,899 3,842,931 4,047,899 207,384,238 223,735,608 205,249,095 220,762,416

Less: impairment provisionCollectively assessed impairment provision (3,842,931) (4,047,899) (3,842,931) (4,047,899)

203,541,307 219,687,709 201,406,164 216,714,517

The Company has obtained bank guarantees from all distributors by reviewing their past performance and credit worthiness, as collateral. The requirement for an impairment is analysed at each reporting date on an individual basis for major clients. 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.

15.1.6 Amounts due from related partiesThe Group and its Subsidiary balances, consist of the balance from the Parent and Companies under common control of the parent.


15.1.7 Credit risk relating to cash and cash equivalentsIn order to mitigate concentration, settlement and operational risks related to cash and cash equivalents, the Company and its Subsidiary limits the maximum cash amount that can be deposited with a single counterparty. In addition, the Company and its Subsidiary maintains an authorised list of acceptable cash counterparties based on current ratings and economic outlook, taking into account analysis of fundamentals and market indicators. The Company and its Subsidiary held cash and cash equivalents of Rs. 772,077,619/- as at 31 March 2013 (2012 Negative Rs. 69,961,253). The Company held cash and cash equivalents of Rs. 765,449,046/- at 31 March 2013 (2012 - Negative Rs. 77,988,075).

15.2 Liquidity risk

Company and its Subsidiary has available funds to meet its medium term capital and funding obligations, including organic growth and acquisition activities, and to meet any unforeseen obligations and opportunities. The Company and its Subsidiary holds cash and undrawn committed facilities to enable the Company and its Subsidiary to manage its liquidity risk.

The Company and its Subsidiary monitors its risk to a shortage of funds using a daily cash management process. This process

financial assets) and projected cash flows from operations.

multiple sources of funding including bank loans and overdrafts over a broad spread of maturities.

15.2.1 Net cash/(debt) Group Company

As at 31 March 2013 2012 2013 2012 Rs. Rs. Rs. Rs.

Short term investments 766,591,841 7,236,621 760,582,048 -Cash in hand and at bank 18,555,430 9,621,949 17,936,650 8,831,748

Borrowings 233,333,333 - 233,333,333 -Current portion of borrowings 18,330,571 - 18,330,571 -Bank overdrafts 13,069,652 86,819,823 13,069,652 86,819,823

15.2.2 Liquidity risk managementThe mixed approach combines elements of the cash flow matching approach and the liquid assets approach. The business unit attempts to match cash outflows in each time bucket against a combination of contractual cash inflows plus other inflows that can be generated through the sale of assets, repurchase agreement or other secured borrowing.

undiscounted payments.

1 year 1-2 years 2-3 years 3-4 years 4-5 years 5 years Rs. Rs. Rs. Rs. Rs. Rs. Rs.

Borrowings-Financial instruments in non-current liabilities - 50,000,000 50,000,000 50,000,000 50,000,000 33,333,333 233,333,333Borrowings-Financial instruments in current liabilities 18,330,571 - - - - - 18,330,571Trade and other payables 519,646,824 - - - - - 519,646,824Amounts due to related parties 9,462,817 - - - - - 9,462,817Bank overdrafts 13,069,652 - - - - - 13,069,652



1 year 1-2 years 2-3 years 3-4 years 4-5 years 5 years Rs. Rs. Rs. Rs. Rs. Rs. Rs.

Borrowings-Financial instruments in non-current liabilities - 50,000,000 50,000,000 50,000,000.00 50,000,000.00 33,333,333 233,333,333Borrowings-Financial instruments in current liabilities 18,330,571 - - - - - 18,330,571Trade and other payables 518,664,715 - - - - - 518,664,715Amounts due to related parties 9,462,817 - - - - - 9,462,817Bank overdrafts 13,069,652 - - - - - 13,069,652

15.3 Market riskMarket 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 two types of risk:* Interest rate risk* Currency risk

The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimising the return.

The sensitivity analyses in the following sections relate to the position as at 31 March in 2013 and 2012. The analysis excludes the impact of movements in market variables on; the carrying values of other post-retirement obligations; provisions; and the non-financial assets and liabilities of foreign operations.

The following assumptions have been made in calculating the sensitivity analyses;

The statement of financial position sensitivity relates to derivatives and available-for-sale debt instruments The sensitivity of the relevant Income Statement item is the effect of the assumed changes in respective market risks. This is based on the financial assets and financial liabilities held at 31 March 2013 and 2012.

15.3.1 Interest rate riskInterest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market

obligations with floating interest rates.

Most lenders grant loans under floating interest rates. To manage this, based on the market condition and outlook of the interest rate, the Group takes mitigating action such as interest rate swaps, caps, etc.

The following table demonstrates the sensitivity to a reasonably possible change in interest rates, with all other variables held

2013

Increase/(decrease) Group Company in basis points Rs. Rs.

+150 3,774,959 3,774,959 -150 (3,774,959) (3,774,959)

+165 - - -165 - -


The assumed spread of basis points for the interest rate sensitivity analysis is based on the currently observable market environment changes to base floating interest rates.

15.3.2 Foreign currency riskForeign 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 has exposure to foreign currency risk where it has cash flows in overseas operations and foreign

bookings of foreign currency.

15.3.2.2 Effects of currency translation

liabilities of the Subsidiary located outside Sri Lanka are converted into Sri Lankan Rupees (LKR). Therefore, period-to-period changes in average exchange rates may cause translation effects that have a significant impact on, for example, revenue, segment results (earnings before interest and taxes - EBIT) and assets and liabilities of the Group. Unlike exchange rate transaction risk, exchange

by exchange rates.

Group

Currency Increase/(decrease) Effect on profit before tax Effect on equity in exchange rate Rs. Rs.

2013INR 5% 324,276 (439,961) -5% (324,276) 439,9612012INR 16% (1,007,760) (1,806,249) -16% 1,007,760 1,806,249

The assumed movement, in the spread of the exchange rate sensitivity analysis, is based on the current observable market environment.

15.4 Capital management

capital ratios in order to support its business and maximise shareholder value.

The Group manages its capital structure, and makes adjustments to it, in the light of changes in economic conditions. To maintain or adjust the capital structure, the Group may issue new shares, have a rights issue or buy back of shares.

Group Company

2013 2012 2013 2012

Debt / Equity 16.57% 19.19% 16.60% 19.32%



Land and Buildings on Plant and Furniture and Motor Freezer Other Capital Total Total

Land Equipment Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs.

16.1 Group

At the beginning of the year 124,654,125 6,200,000 207,618,858 36,588,382 674,166 27,049,980 10,467,161 8,282,749 421,535,421 430,359,694Additions 947,615 4,231,382 183,388,181 6,640,448 - 4,928,000 2,682,465 - 202,818,091 28,004,778Additions - business combination - 182,350,000 272,366,749 3,015,205 - - - - 457,731,954 -Disposals - - (22,712,559) (13,605,197) - (123,150) (3,134,648) - (39,575,554) (36,829,051)Transfer (396,000) 396,000 8,282,749 - - - - (8,282,749) - -Revaluations 48,986,110 1,229,000 - - - - - - 50,215,110 -At the end of the year 174,191,850 194,406,382 648,943,978 32,638,838 674,166 31,854,830 10,014,978 - 1,092,725,022 421,535,421

At the beginning of the year (4,164,787) (3,335,845) (163,695,923) (31,135,877) (674,166) (19,802,004) (9,491,286) - (232,299,888) (256,724,465)Charge for the year (2,133,160) (200,000) (9,172,054) (1,828,076) - (966,443) (711,761) - (15,011,494) (12,404,473)Charge - business combination - (3,158,011) (10,592,040) (438,949) - - - - (14,189,000) -Disposals - - 21,453,678 13,605,197 - 123,150 3,134,648 - 38,316,673 36,829,050Transfer - - - - - - - - - -Revaluations 6,297,947 3,135,845 - - - - - - 9,433,792 -At the end of the year - (3,558,011) (162,006,339) (19,797,705) (674,166) (20,645,297) (7,068,399) - (213,749,917) (232,299,888)

As at 31 March 2013 174,191,850 190,848,371 486,937,639 12,841,133 - 11,209,533 2,946,579 - 878,975,105 As at 31 March 2012 120,489,338 2,864,155 43,922,935 5,452,505 - 7,247,976 975,875 8,282,749 189,235,533As at 1 April 2011 119,695,795 4,661,638 36,289,776 4,599,300 - 7,296,855 994,365 97,500 173,635,229

Land and Buildings on Plant and Furniture and Motor Freezer Other Capital Total Total

Land Equipment As at 31 March Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs.

16.2 Company

At the beginning of the year 124,654,125 6,200,000 207,618,858 36,588,382 674,166 27,049,980 10,467,161 8,282,749 421,535,421 420,914,563Additions 947,615 4,231,382 183,388,181 6,640,448 - 4,928,000 2,682,465 - 202,818,091 28,004,778Additions - business combination - 182,350,000 272,366,749 3,015,205 - - - - 457,731,954 -Disposals - - (22,712,559) (13,605,197) - (123,150) (3,134,648) - (39,575,554) (27,383,920)Transfer (396,000) 396,000 8,282,749 - - - - (8,282,749) - -Revaluations 48,986,110 1,229,000 - - - - - - 50,215,110 -At the end of the year 174,191,850 194,406,382 648,943,978 32,638,838 674,166 31,854,830 10,014,978 - 1,092,725,022 421,535,421

At the beginning of the year (4,164,787) (3,335,845) (163,695,923) (31,135,877) (674,166) (19,802,004) (9,491,286) - (232,299,888) (247,279,335)Charge for the year (2,133,160) (200,000) (9,172,054) (1,828,076) - (966,443) (711,761) - (15,011,494) (12,404,473)Charge - business combination - (3,158,011) (10,592,040) (438,949) - - - - (14,189,000) -Disposals - - 21,453,678 13,605,197 - 123,150 3,134,648 - 38,316,673 27,383,920Transfer - - - - - - - - - -Revaluations 6,297,947 3,135,845 - - - - - 9,433,792 -At the end of the year - (3,558,011) (162,006,339) (19,797,705) (674,166) (20,645,297) (7,068,399) - (213,749,917) (232,299,888)

As at 31 March 2013 174,191,850 190,848,371 486,937,639 12,841,133 - 11,209,533 2,946,579 - 878,975,105 As at 31 March 2012 120,489,338 2,864,155 43,922,935 5,452,505 - 7,247,976 975,875 8,282,749 189,235,533 As at 1 April 2011 119,695,797 4,661,638 36,289,776 4,599,300 - 7,296,854 994,364 97,500 173,635,229


Group Company


16.3 Carrying value of total assetsAt cost 513,934,884 69,908,226 513,934,884 69,908,226At valuation 365,040,221 119,327,308 365,040,221 119,327,308 878,975,105 189,235,534 878,975,105 189,235,534

16.4 Land and buildingAt valuation 365,040,221 119,327,308 365,040,221 119,327,308 365,040,221 119,327,308 365,040,221 119,327,308

Revaluation of land and buildingsThe Group uses the revaluation model of measurement of land and buildings. The Group engaged Messrs. P.B. Kalugalagdara, an independent expert valuer, to determine the fair value of its land and buildings. Fair value is determined by reference to market-based evidence. Valuations are based on active market prices, adjusted for any difference in the nature, location or condition of the specific property. The date of the most recent revaluation was 31 March 2013.

Details of land and building stated at valuation are indicated below;Property Location Method of Effective date of Independent Valuer valuation valuation

Land and building at Ja Ela Open Market Value Method 31 March 2013 Messrs. P.B. Kalugalagedera Chartered Valuation SurveryorManufacturing facility at Pannala Open Market Value Method 01 August 2013

The production facility at Pannala was revalued as at 1st August 2012 on acquisition. The valuer is of the view that there was no significant change to the valuation as at 31st March 2013.

The surplus arising from the revalution was transferred to the revaluation reserve.

Details of the previous revaluation is as follows;Property Location Method of Effective date of Independent Valuer valuation valuation

Land and building at Ja Ela Open Market Value Method 31.03.2008 Messrs. P.B. Kalugalagedera

The carrying amount of Revalued Land and Building if they were carried at cost less depreciation,would be as follows; Group Company


Cost 28,461,000 28,461,000 28,461,000 28,461,000Accumulated Depreciation (24,628,851) (23,562,691) (24,628,851) (23,562,691) 3,832,149 4,898,309 3,832,149 4,898,309

Property, Plant and Equipment with a cost of Rs. 158,605,256/- (2012 - Rs. 191,600,836/-) have been fully depreciated and continue to be in use by the Company.


}


During the financial year, the Company acquired Property, Plant & Equipment including that of the business combination to the aggregate value of Rs. 660,550,045/- (2012 - Rs. 28,004,778/-). Cash payments amounting to Rs. 552,818,091/- (2012 - Rs. 28,004,778/- ) were made during the year for purchase of Property, Plant and Equipment.

Useful lives of assets were reviewed during financial year and useful life of the following assets have been changed. Due to the change in estimation, an additional credit resulted in the current year in comparison to the depreciation charge based on the previous estimate which will continue to arise in the future periods for these assets.

Group Company

Asset class Previous Current Decrease in Previous Current Decrease in useful useful Depreciation useful useful Depreciation life life Rs. life life Rs.

Freezers 6 10 880,558 6 10 880,558

Group Company

As at 31 March Software 2013 2012 Software 2013 2012 Purchased Goodwill Purchased Goodwill Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs.

At the beginning of the year - - - - - - - -Additions / transfers 4,120,560 - 4,120,560 - 4,120,560 - 4,120,560 -New acquisitions - 242,268,046 242,268,046 - - 242,268,046 242,268,046 -At the end of the year 4,120,560 242,268,046 246,388,606 - 4,120,560 242,268,046 246,388,606 -

At the beginning of the year - - - - - - - -Amortisation (179,643) - (179,643) - (179,643) - (179,643) -At the end of the year (179,643) - (179,643) - (179,643) - (179,643) -

3,940,917 242,268,046 246,208,963 - 3,940,917 242,268,046 246,208,963 -As at 31 March 2012 - - - - - - - -As at 1 April 2011 - - - - - - - -

Carrying Carrying value of value of goodwill goodwill As at 31 March 2013 2012 Rs. Rs.

Goodwill 242,268,046 -

(Pvt) Limited and goodwill is tested for impairment as follows;

Cash Generating UnitThe recoverable amount of the CGU has been determined based on the value in use (VIU) calculation.


Key assumptions used in the VIU calculations;

Gross marginsThe basis used to determine the value assigned to the budgeted gross margins, is the gross margins achieved in the year preceding the budgeted year adjusted for projected market conditions.

Discount ratesThe discount rate used is the risk free rate, adjusted by the addition of an appropriate risk premium.

InflationThe basis used to determine the value assigned to the budgeted cost inflation, is the inflation rate, based on projected economic conditions.

Volume growthVolume growth has been budgeted on a reasonable and realistic basis by taking into account the growth rates of one to four years immediately subsequent to the budgeted year based on industry growth rates. Cash flows beyond the five year period are extrapolated using 5% growth rate.

Company

As at 1 April As at 31 March 2013 2012 2011 Rs. Rs. Rs.

18.1 Carrying value - Unquoted investmentJohn Keells Foods India Private Limited (JKFI) 220,291,730 220,291,730 220,291,730

LessAllowance for impairment of investment- JKFI (214,159,354) (214,159,354) (214,159,354) 6,132,376 6,132,376 6,132,376

The Subsidiary Company John Keells Foods India (Pvt) Limited was restructured in June 2010, due to the significant losses incurred. Despite efforts made by John Keells Foods India (Pvt) Limited to appoint a master distributor who could carry out sales on their behalf, The Company was unable to agree terms which were beneficial to both parties. Therefore Keells Food Products PLC began exporting directly to India. In the above context it was considered prudent and appropriate to impair the investment in John Keells Foods India (Pvt) Limited. The amount of Rs. 214,159,354/- was impaired of which Rs. 119,727,152/- was made in 2010/2011 and Rs. 94,432,202/- was made in 2009/10.

Group Company


Loans to executives 19.1 26,264,238 29,158,793 17,407,289 26,264,238 29,158,793 17,407,289 26,264,238 29,158,793 17,407,289 26,264,238 29,158,793 17,407,289



Group Company


19.1 Loans to executivesAt the beginning of the year 39,195,516 24,229,054 39,195,516 24,229,054Loans granted / transfers 12,595,484 33,848,629 12,595,484 33,848,629Recoveries (15,249,662) (18,882,167) (15,249,662) (18,882,167)At the end of the year 36,541,338 39,195,516 36,541,338 39,195,516

10,277,100 10,036,723 10,277,100 10,036,723

Receivable between one and five years 26,264,238 29,158,793 26,264,238 29,158,793 36,541,338 39,195,516 36,541,338 39,195,516

Group Company

As at 1 April As at 1 April As at 31 March 2013 2012 2011 2013 2012 2011 Note Rs. Rs. Rs. Rs. Rs. Rs.

Pre paid staff cost 6,385,227 4,800,226 1,228,710 6,385,227 4,800,226 1,228,710 6,385,227 4,800,226 1,228,710 6,385,227 4,800,226 1,228,710

Pre paid staff cost represents the pre paid portion of executive staff loans granted.

Group Company


Raw materials 127,441,965 146,410,922 157,238,409 127,441,965 146,410,922 157,238,409

Finished goods 103,183,116 120,353,895 106,084,633 103,183,116 120,353,895 106,084,633Spare Parts 17,663,697 15,139,430 15,163,415 17,663,697 15,139,430 15,163,415Other stocks 295,569 259,352 233,275 295,569 259,352 233,275 253,657,054 291,549,291 298,548,217 253,657,054 291,549,291 298,548,217

Trade and other receivables 197,107,138 213,698,885 191,848,520 194,971,995 210,725,693 190,536,187Less: Impairment of trade debtors (3,842,931) (4,047,899) (3,979,299) (3,842,931) (4,047,899) (3,979,299)Loans to executives 19.1 10,277,100 10,036,723 6,821,765 10,277,100 10,036,723 6,821,765 203,541,307 219,687,709 194,690,986 201,406,164 216,714,517 193,378,653

Rs. 204,968/- impaired in the previous year for trade debtors was written back to the Income Statement during the year.

An analysis of trade and other receivables (including past due and impaired) is given in note 15.1.5.


Group Company


Other receivables 9,949,995 8,378,174 17,478,179 8,784,454 7,315,571 16,321,020Tax refunds 33 9,940,768 - - 9,940,768 - - 19,890,763 8,378,174 17,478,179 18,725,222 7,315,571 16,321,020

Group Company


Bank deposits (less than 3 months) 757,991,841 7,236,621 8,957,384 751,982,048 - -Government securities (less than 3 months) 8,600,000 - - 8,600,000 - -Reported for cash flow 766,591,841 7,236,621 8,957,384 760,582,048 - -

Cash in hand 729,250 783,500 814,500 729,250 783,500 814,500Cash at bank 17,826,180 8,838,449 1,024,636 17,207,400 8,048,248 579,243Favourable cash & cash equivalent balance 18,555,430 9,621,949 1,839,136 17,936,650 8,831,748 1,393,743

Bank overdraft (13,069,652) (86,819,823) (116,453,226) (13,069,652) (86,819,823) (116,453,226)Unfavourable cash & cash equivalent balance (13,069,652) (86,819,823) (116,453,226) (13,069,652) (86,819,823) (116,453,226)

Security and repayment terms

Type of Facility Lending Nature of Facility Security Repayment Institution Facility Amount Rs. Terms

unencumbered assets in Ja ElaShort term Deutsche bank Bank overdraft 40,000,000 Clean basis On demandShort term NTB Bank overdraft 100,000,000 Clean basis On demandShort term BOC Bank overdraft 1,000,000 Clean basis On demandShort term DFCC Bank overdraft 50,000,000 Clean basis On demand



1 April 2013 2012 2011

Number of Value of Number of Value of Number of Value of shares shares shares shares shares shares As at 31 March Rs. Rs. Rs.

At the beginning of the year 8,500,000 274,815,000 8,500,000 274,815,000 8,500,000 274,815,000Number of shares increased due to rights issue 17,000,000 1,020,000,000 - - - -At the end of the year 25,500,000 1,294,815,000 8,500,000 274,815,000 8,500,000 274,815,000

At an extra ordinary meeting of the shareholders of the Company held on the 31st of July 2012, the shareholders approved a rights issue of two (2) for every one (1) ordinary share held in the Company at Rupees sixty (Rs. 60) per share.

The rights issue was successful and fully subscribed. Subsequent to the rights issue the ordinary shares in issue increased from 8,500,000 shares to 25,500,000 shares. For the purpose of calculating the earnings per share the increased number of shares has been considered for all periods.

Group Company


Accumulated profit 154,355,687 85,779,502 (43,859,162) 148,945,137 79,970,847 (49,387,761) 154,355,687 85,779,502 (43,859,162) 148,945,137 79,970,847 (49,387,761)

Revaluation reserve 28.1 151,041,071 94,653,862 94,653,862 151,041,072 94,653,862 94,653,862Foreign currency translation reserve 28.2 (2,595,777) (2,821,624) (2,646,952) 148,445,294 91,832,238 92,006,910 151,041,072 94,653,862 94,653,862

Revaluation reserve consists of the surplus on the revaluation of Property, Plant and Equipment net of deferred tax effect.

Foreign currency translation reserve consists of currency translation difference from the Foreign Subsidiary.


Group Company


Borrowings 251,663,904 - 251,663,904 -

Repayable within one year 18,330,571 - 18,330,571 -

Repayable between one and five years 200,000,000 - 200,000,000 -Repayable after five years 33,333,333 - 33,333,333 - 233,333,333 - 233,333,333 -Total borrowings 251,663,904 - 251,663,904 -

Security and repayment terms

Lending Nature/Amount Security Repayment Installments institution of facility terms remaining

DFCC Project Loan A corporate guarantee 60 equal monthly 60 from John Keells installments after a grace

Group Company

As at 31 March 2013 2012 2013 2012 Note Rs. Rs. Rs. Rs.

At the beginning of the year 2,901,234 2,779,880 2,901,234 2,779,880Charge and release 10.2 27,593,126 121,354 27,593,126 121,354At the end of the year 30,494,360 2,901,234 30,494,360 2,901,234

Group Company


The closing deferred tax asset and liability balances relate to the following;Accelerated depreciation for tax purposes 50,766,382 17,996,533 50,766,382 17,996,533Employee benefit liability (16,878,454) (15,095,299) (16,878,454) (15,095,299)Benefit arising from Tax Losses (3,393,568) - (3,393,568) 30,494,360 2,901,234 30,494,360 2,901,234



Group Company


At the beginning of the year 54,939,342 50,648,242 54,939,342 50,648,242Current service cost 4,162,018 5,256,917 4,162,018 5,256,917Transfers 206,715 224,503 206,715 224,503Interest cost on benefit obligation 5,493,934 5,064,824 5,493,934 5,064,824Payments (3,779,835) (1,610,548) (3,779,835) (1,610,548)Arising from changes in assumptions or due to (over)/under provision in the previous year (741,979) (4,644,596) (741,979) (4,644,596)At the end of the year 60,280,195 54,939,342 60,280,195 54,939,342

The expenses are recognised in the income statement in the following line items;

Cost of sales 6,141,844 (1,048,043) 6,141,844 (1,048,043)Selling and distribution expenses 852,033 3,786,510 852,033 3,786,510Administrative expenses 1,920,094 2,938,678 1,920,094 2,938,678 8,913,971 5,677,145 8,913,971 5,677,145

Messrs. Actuarial and Management consultants (Pvt) Limited; Independent actuaries, carried out and actuarial valuation of the employee benefit plan liability.

The principal assumptions used in determining the cost of employee benefits were:

2013 2012

Discount rate 11% p.a 10% p.aFuture salary increases 6% - 10% p.a 6% - 10% p.a

Clerical and labour staff 55 years 55 yearsSales Representatives 55 years 55 yearsExecutive staff 55 years 55 years

The liability to the above employee benefits is not externally funded.

31.1 Sensitivity of assumptions usedPercentage change to discount rate: 2013

Increase to Decrease to 12% 10% Rs. Rs.

Effect on the employee benefit liability (3,426,236) 3,802,233


Group Company


Trade payables 98,985,653 137,851,386 104,699,827 98,003,544 136,288,986 105,046,787Sundry creditors including accrued expenses 420,661,171 64,010,923 51,798,788 420,661,171 62,718,825 49,190,932 519,646,824 201,862,309 156,498,615 518,664,715 199,007,811 154,237,719

Products (Pvt) Limited being the balance consideration payable for the acquisition of the manufacturing facility and the assets.

Group Company


At the beginning of the year 5,504,170 25,330,328 5,504,170 25,330,328Charge for the year - 51,503,041 - 51,503,041Income Tax -Under/(Over) provision - (619,342) - (619,342)Payments during the year (15,444,938) (70,709,857) (15,444,938) (70,709,857)Transfer to tax refund under other current assets 9,949,768 - 9,949,768 -At the end of the year - 5,504,170 - 5,504,170

Group Company


At the beginning of the year - 81,902,185 - - 81,902,185 -Loans received - - - - - -Loans settled - (81,902,185) - - (81,902,185) - - - 81,902,185 - - 81,902,185

The above loans were obtained to finance the general working capital requirements of the Company. The loans were obtained on a 3-6 months tenor and rolled over. Average interest rate on the loans was 8.15%.

Group Company


Other tax payables 9,774,085 7,001,248 13,093,663 9,774,085 6,912,536 12,496,313 9,774,085 7,001,248 13,093,663 9,774,085 6,912,536 12,496,313



The Company carried out transactions in the ordinary course of business with the following related entities.

Group Company


36.1 Amounts due from related partiesUltimate Parent 36.3 - - - - - -Subsidiary - - - - - -Companies under common control 71,937,890 59,144,063 64,675,298 71,937,890 59,144,063 64,675,298 71,937,890 59,144,063 64,675,298 71,937,890 59,144,063 64,675,298

36.2 Amounts due to related partiesUltimate Parent 36.3 3,005,642 2,215,615 2,238,051 3,005,642 2,215,615 2,238,051Subsidiary - - - - - -Companies under common control 6,457,175 5,141,878 6,553,489 6,457,175 5,141,878 6,553,489 9,462,817 7,357,493 8,791,540 9,462,817 7,357,493 8,791,540

Amounts due from Amounts due to


36.3 Ultimate Parent

John Keells Foods India (Pvt) Limited. - - - - - -

Auxicogent International Lanka (Pvt) Limited - - - - - 31,530Ceylon Cold Stores PLC - - - 3,803,876 2,694,623 3,123,275

InfoMate (Pvt) Limited - - - 238,898 254,591 278,975JayKay Marketing Services (Pvt) Limited 68,281,942 55,187,747 59,667,895 1,929,626 51,825 57,000NDO Lanka (Pvt) Limited - - - 149,030 1,360,996 1,659,608John Keells Office Automation (Pvt) Limited - - 8,855 142,000 - -John Keells PLC - 1,635 - 20,288 24,488 20,601

Keells Consultants (Pvt) Limited - - - 73,319 42,168 44,685

Mackinnons Travels (Pvt) Limited - - - - 628,877 85,231

Union Assurance PLC - - - - 34,022 408,506 71,937,890 59,144,063 64,675,298 9,462,817 7,357,493 8,791,540


Amounts due from Amounts due to


36.4 Ultimate Parent

John Keells Foods India (Pvt) Limited. - - - - - -

Auxicogent International Lanka (Pvt) Limited - - - - - 31,530Ceylon Cold Stores PLC - - - 3,803,876 2,694,623 3,123,275

InfoMate (Pvt) Limited - - - 238,898 254,591 278,975JayKay Marketing Services (Pvt) Limited 68,281,942 55,187,747 59,667,895 1,929,626 51,825 57,000NDO Lanka (Pvt) Limited - - - 149,030 1,360,996 1,659,608John Keells Office Automation (Pvt) Limited - - 8,855 142,000 - -John Keells PLC - 1,635 - 20,288 24,488 20,601

Keells Consultants (Pvt) Limited - - - 73,319 42,168 44,685

Mackinnons Travels (Pvt) Limited - - - - 628,877 85,231

Union Assurance PLC - - - - 34,022 408,506 71,937,890 59,144,063 64,675,298 9,462,817 7,357,493 8,791,540

Group Company

For the year ended 31st March Note 2013 2012 2013 2012 Rs. Rs. Rs. Rs.

36.5 Transactions with related parties

(Receiving) of services (17,380,178) (16,877,998) (17,380,178) (16,877,998)Interest (paid) (3,492,808) (2,410,124) (3,492,808) (2,410,124)

Sales of goods 521,846,905 509,995,115 521,846,905 509,995,115(Purchase) of goods/services received (32,511,460) (27,647,718) (32,511,460) (27,647,718)

36.6 Compensation of key management personnelShort term employee benefits 6,300,000 5,600,000 6,300,000 5,600,000

36.7 Post Employment Benefit PlanContribution to Provident Funds 4,563,746 4,323,463 4,563,746 4,323,463

36.8 Short Term Borrowings from Related Parties(Repayment) of Loan to Parent Company - (81,902,185) - (81,902,185)



36.9 Terms and conditions of transactions with related partiesTransactions 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. There are no related party transactions other than the above.

There were no material contingencies as at the Reporting date.

Capital commitments approved as at the Reporting date, but not provided for in the Financial Statements amounted to Rs. 181,325,416/- (2012 Nil).

The Company has constructed a building on leasehold land obtained on lease, the details are stated below; As at 31 March 2013 2012 Property Period of Lease Rentals Rs. Rs.

Ekala, Ja Ela 1st September 2010 Between one and five years 1,086,840 1,086,840 After five years 304,315 521,683 1,608,523 1,825,891

The Company is presently in negotiation with the Government of Sri Lanka, the terms of the operating lease on the land of the manufacturing facility in the industrial estate at Makandura Pannala.

There have been no material events occurring after the Statement of Financial Position date that required adjustment to or disclosure to the Financial Statements other than following:

As required by section 56(2) of the Companies Act No. 7 of 2007, the Board of Directors have confirmed that the Company satisfies the solvency test in accordance with Section 57 of the Companies Act No 7 of 2007, and has obtained a certificate from the Auditors, prior to approving a first and final dividend of Rs. 2/- per share and to be paid on 19 June 2013.


Your Share in Detail

0

1,000

500

1,500

2,000

2009

2010

2011

2012

2013

Market Capitalisation

Rs. Mn.

Number of ordinary shares - 25,500,000

31 March 2013 31 March 2012

Shareholding Range No. of No. of % No. of No. of %

Less than or equal to 1000 874 176,601 0.70 829 176,182 2.07 1,001 to 10,000 136 462,196 1.80 136 456,929 5.38 10,001 to 100,000 33 945,874 3.71 22 504,781 5.94 100,001 to 1,000,000 5 992,087 3.89 7 1,780,801 20.95 Over 1,000,001 3 22,923,242 89.90 1 5,581,307 65.66 1,051 25,500,000 100.00 995 8,500,000 100.00

Categories of Shareholders No. of No. of % No. of No. of %

Directors & Spouses 1 12,750 0.05 1 4,250 0.05Public 1,042 2,136,592 8.38 984 1,315,687 15.48Total 1,051 25,500,000 100.00 995 8,500,000 100.00

Sri Lankan Residents 1,034 25,374,550 99.51 980 8,434,230 99.23Non-Residents 17 125,450 0.49 15 65,770 0.77Total 1,051 25,500,000 100.00 995 8,500,000 100.00

0

400

800

1,200

1,600

Rs. Mn.

2009

2010

2011

2012

2013

Shareholders Funds


Your Share in Detail Contd.

As at 31 March 2013 2012

No. of Shares % of Issued No. of Shares % of Issued

John Keells PLC 2,573,196 10.09 788,784 9.28

Mack Air (Pvt) Limited 328,791 1.29 109,597 1.29

Mr. Chamil A. Damion Kohombanwickramage 231,600 0.91 77,200 0.91

Deutsche Bank AG-Comtrust Equity Fund 142,419 0.56 - -

Mr. D.J.M. Blackler 90,000 0.35 30,000 0.35Distilleries Company of Sri Lanka PLC 64,854 0.25 - -Mackinnon Mackenzie & Company (Ceylon) Limited 60,000 0.24 20,000 0.24

J.B. Cocoshell ( Pvt ) Limited 30,000 0.12 - -Keells Realtors Limited 30,000 0.12 10,000 0.12Mrs. F.A.A. Mark 30,000 0.12 18,000 0.21Mr. C.D. Kohombanwickremage 28,800 0.11 9,600 0.11

As at 31 March 2013 2012

Share Prices Rs. Rs.Beginning of the year 100.00 150.00

Lowest for year 60.10 (30-08-2012) 72.00 (21-02-2012 )As at 31st March 70.00 100.00

0

10

20

40

30

50

70

Rs.

2009

2010

2011

2012

2013

Net Asset Per Share

60

0

100

50

150

Rs.

2009

2010

2011

2012

2013

Market Price


Ten Year Information at a Glance

2013 2012 2011 2010 2009 2008 2007 2006 2005 2004 Group Group Group Group Group

Revenue 2,197,482 2,328,752 2,196,156 1,833,113 1,792,635 1,552,000 1,401,620 1,201,182 1,153,900 1,055,396

65,701 184,177 110,209 (123,470) 41,364 132,458 91,215 (11,654) 54,312 35,364Net finance (costs)/income 50,255 (3,534) (14,657) (13,798) (24,995) (10,948) (15,162) (13,674) (12,161) (15,868)

115,956 180,644 95,552 (137,268) 16,369 121,510 76,054 (25,328) 42,151 19,496Income Tax Expenses (24,331) (51,005) (65,189) (9,062) (28,583) (45,428) (29,359) (918) (13,740) (5,150)

91,625 129,639 30,363 (146,330) (12,215) 76,082 46,695 (26,245) 28,411 14,346

Property, Plant & Equipment 878,975 189,236 173,635 176,005 180,163 170,853 114,920 131,086 151,575 164,361Non Current Assets / Goodwill 278,858 33,959 18,636 12,816 15,382 14,466 - - - 120Short term investments 766,592 7,237 8,957 29,484 22,369 5,800 - - - -Inventories 253,657 291,549 298,548 191,381 189,757 156,796 155,582 124,041 90,381 85,710Debtors 275,479 278,831 259,366 236,716 263,698 215,968 193,846 151,055 181,529 155,675Other Current Assets 38,446 18,000 19,318 26,174 18,975 4,258 48,736 15,936 98,128 31,379 2,492,008 818,812 778,460 672,576 690,343 568,141 513,084 422,118 521,614 437,245

Stated Capital 1,294,815 274,815 274,815 274,815 274,815 99,815 99,815 99,815 99,815 99,815Revenue Reserves 154,356 85,780 (43,859) (78,051) 86,395 123,072 59,490 12,795 49,041 20,750Other components of equity 148,445 91,832 92,007 92,803 92,803 92,803 32,417 35,223 35,223 35,223Total Equity 1,597,616 452,427 322,963 289,567 454,013 315,690 191,723 147,833 184,079 155,787Non-current liabilities 324,108 57,841 53,428 51,897 50,746 49,294 46,326 73,424 98,131 50,686Current portion of borrowings 18,331 - - - - - -Interest Bearing Borrowings 13,070 86,820 198,355 108,283 26,921 35,013 128,727 90,479 136,390 161,780Trade and Other Payables including dues from Related Parties 538,884 216,221 178,384 222,829 158,663 150,189 124,859 110,382 103,015 68,991Provision for Taxation & Government - Levies - 5,504 25,330 - - 17,955 21,449 - - - 2,492,008 818,812 778,460 672,576 690,343 568,141 513,084 422,118 521,614 437,245

The above indicates the simplified Income Statement and the Statement of Financial Position of the Company for the year 2004 to 2008 and the Group for the year 2009 to 2013.

The Statement of Financial Position is catergorised in to its key Assets and Liabilities.

The SLFRS/LKAS has been applied for the years 2013 and 2012, prior to 2010 SLAS has been applied.


Key Ratios and Information

Real Estate Portfolio No. of Buildings Land in acresLocation Buildings in (Sq. Ft) Freehold Leasehold

Keells Food Products PLC. 16, Minuwangoda Road, Ekala, Ja-Ela 5 44,869 3.0016, Minuwangoda Road, Ekala, Ja-Ela 1 7,700 1.00Industrial Estate Makandura Gonawila Pannala 3 28,700 4.08

2013 2012 2011 2010 2009 2008 2007 2006 2005 2004 Group Group Group Group Group

KEY INDICATORS

Net profit ratio (%) 4.17 5.57 1.38 (7.98) (0.68) 4.90 3.33 (2.18) 2.46 1.36 Earnings/(loss) per share (Rs.) - (re-stated) 4.86 14.56 3.41 (16.43) (1.37) 8.54 5.24 (2.95) 3.19 1.61Return on equity (%) 8.94 33.44 9.91 (39.36) (3.17) 29.99 27.50 (15.81) 16.72 9.65Return on capital employed (%) 5.47 34.73 23.98 (28.10) 9.95 39.47 32.65 (4.17) 17.02 11.13Dividend per share - paid 2.00 - - 2.50 3.50 2.50 - 2.00 - - Debt equity ratio (%) 16.57 19.19 61.42 37.39 5.93 11.09 69.07 79.53 101.52 103.85Shareholder equity ratio ( % ) 64.11 55.25 41.49 43.05 65.77 55.57 37.37 35.02 35.29 35.63

Current ratio (times) 2.34 1.93 1.46 1.46 2.67 1.88 1.45 1.45 1.55 1.18Quick ratio (times ) 1.89 0.99 0.72 0.88 1.64 1.11 0.88 0.83 1.17 0.81Interest cover (times) 2.49 24.36 7.52 (8.95) 1.65 12.10 6.02 (0.85) 4.47 2.23

Price earnings ratio (No. of times) - (re-stated) 14.41 6.87 44.00 (4.20) (36.82) 6.55 9.49 (11.54) 11.91 10.55 Dividend cover (No. of times) 7.28 - - (0.55) 2.44 2.10 - 1.60 - - Earnings yield (%) 6.94 14.56 2.27 (23.81) (2.72) 15.26 10.54 (8.67) 8.40 9.48 Net assets per share (Rs.) - (re-stated) 62.65 17.74 12.67 11.36 17.80 12.38 7.52 5.80 7.22 6.11

Market value per share (Rs.) 70.00 100.00 150.00 69.00 50.50 56.00 49.75 34.00 38.00 17.00

Number of employees 483 453 440 456 455 434 435 439 452 490Turnover per employee (Rs. ‘000) 4,550 5,141 4,991 4,020 3,940 3,576 3,222 2,736 2,553 2,154Value added per employee (Rs. ‘000) 1,656 2,028 1,683 1,108 1,376 1,566 1,231 1,014 987 772

The Above ratio are based on the Income Statement and the Statement of Financial Position of the Company from year 2004 to 2008 and the Group for the year 2009 to 2013.

The SLFRS/LKAS has been applied for the years 2013 and 2012, prior to 2010 SLAS has been applied.


Glossary of Financial Terminology

Recording Revenues and Expenses in the period in which they are earned or incurred regardless of whether cash is received or disbursed in that period.

A condition or situation existing at the Reporting date due to past events, where the financial effect is not recognised because:

1. The obligation is crystalised by the occurrence or non occurrence of one or more future events or,

2. A probable outflow of economic resources is not expected or,

3. It is unable to be measured with sufficient reliability.

Current Assets over Current Liabilities.

Debt as a percentage of Shareholders Funds.

Earnings per Share over Dividends per Share.

Profit After tax attributable to ordinary shareholding over weighted average numbers Shares in issue during the period.

Earnings per Share as a percentage of Market price per Share end of the period.

Income Tax, including deffered tax over Profit before Tax.

Profit before Interest and Tax over Finance Expenses.

Number of Shares in issue at the end of period multiplied by the Market price at end of period.

Total assets minus Current Liabilities minus Long Term Liabilities minus Minority Interest.

Net Assets divided by number of ordinary shares in issue at the end of the period.

Net Debt minus (Cash plus Short Term Deposits).

Net Turnover over average number of employees.

Market Price per Share over Earnings per Share.

Cash plus Short term Investments plus Receivables over Current Liabilities.

Profit After Tax over Average Total Assets.

Consolidated Profit after Tax as a Percentage of Average

Stated Capital, Capital Reserves and Revenue Reserves.

Long Term Loans plus Short Term Loans and Overdrafts

The difference between revenue (including other income) and expenses, cost of materials and services purchased from external sources.

Fixed Assets plus Investments plus Non Current Assets plus Current Assets.

Operating Profit as percentage of Capital Employed.

Total Dividend as percentage of Company Profits.


Notice of Meeting

Notice is hereby given that the 31st Annual General Meeting of

Street, Colombo 2, on Tuesday, 25th June 2013 at 11.00 a.m. The business to be brought before the meeting will be: To read the Notice convening the meeting.

To receive and consider the Annual Report of the Directors

and the Financial Statements for the Financial Year Ended 31st March 2013 with the Report of the Auditors thereon.

retires by rotation in terms of Article 83 of the Articles of Association.

To re-elect as Director, Mr. Athulugamage Damian Eardley

Ignatius Perera who retires by rotation in terms of Article 83 of the Articles of Association

To re-appoint Messrs Ernst and Young, Chartered

Accountants as Auditors of the Company for the year 2013/14 and to authorise the Directors to determine their remuneration.

To consider any other business of which due notice has

been given in terms of the relevant laws and regulations.

By Order of the Board

Secretaries Colombo 03 June 2013

Note: A shareholder unable to attend is entitled to appoint a proxy

to attend and vote in his/her place.

A proxy need not be a shareholder of the Company.

A shareholder wishing to vote by proxy at the meeting may use the proxy form enclosed.

To be valid, the completed proxy form must be lodged at the Registered Office of the Company not less than 48 hours before the meeting.


Notes


Form of Proxy

..................................................................................................................................................................................................... being a

member/s of Keells Food Products PLC, hereby appoint:

............................................................................................................................................................................................................. of

..................................................................................................................................................................................... or failing him/her

Mr. Susantha Chaminda Ratnayake of Colombo or failing himMr. Ajit Damon Gunewardene of Colombo or failing himMr. James Ronnie Felitus Peiris of Colombo or failing himMr. Jitendra Romesh Gunaratne of Colombo or failing him

Mr. Athulugamage Damian Eardley Ignatius Perera of Colombo or failing himMr. Ranil Pieris of Colombo or failing himMr. Mahinda Preethiraj Jayawardena of Colombo

as my/our proxy to vote for me/us on my/our behalf at the 31st Annual General Meeting of the Company to be held at 11.00 a.m. on the 25th of June 2013 and at any adjournment thereof and at every poll which may be taken in consequence thereof.

of Association of the Company.

To re-elect as Director, Mr. A. D. E. I. Perera, who retires in terms of Article 83 of the Articles of Association of the Company.

To re-appoint Auditors and to authorise the Directors to determine their remuneration.

Signed this .............................................. day of .............................................. Two Thousand and Thirteen

..............................................Signature/s of shareholder/s


Form of Proxy Contd.

1. Kindly complete the Form of Proxy by filling in legibly your full name and address and that of the Proxy holder. Please sign in the space provided and fill in the date of signature.

2. The instrument appointing a Proxy shall, in the case of an individual, be signed by the appointer or by his Attorney and in the case of a Corporation must be executed under the Common Seal or in such other manner prescribed by its Articles of Association or other Constitutional documents.

3. If the Proxy Form is signed by an Attorney the relevant Power of Attorney or a notarially certified copy thereof, should also accompany the completed Form of Proxy if it has not already been registered with the Company.

4. To be valid, the completed Form of Proxy should be deposited at the Registered Office of the Company at 130, Glennie Street, Colombo 2 not less than 48 hours before the time appointed for the holding of the meeting.

Corporate Information

Produced by Copyline (Pvt) Ltd Printed by Printel (Pvt) Ltd

Name of CompanyKeells Food Products PLC

Company Registration NumberPQ 3

Legal FormPublic limited Liability CompanyEstablished in 1982

Registered Office of the CompanyNo. 130, Glennie Street, Colombo 2, Sri LankaTel: 2421101

Ekala FactoryNo.16, Minuwangoda Road, Ekala, Ja-Ela.Tel: +94 11 2236317Fax: +94 11 2236359E-Mail: [email protected]: www.keells.com

Pannala FactoryPO Box 14, Industrial State, MakaduraGonawila (NWP).Tel: +94 037 4933248-51Fax: +94 031 2298195

Board of DirectorsMr. S. C. Ratnayake (Chairman)Mr. A. D. GunewardeneMr. J. R. F. Peiris Mr. J. R. GunaratneMr. R. PierisMr. S. H. AmarasekeraMr. A. D. E. I. PereraMr. M.P. Jayawardena

Audit CommitteeMr. M. P JayawardenaMr. R. PierisMr. S. H. AmarasekeraMr. A. D. E. I. Perera

Secretaries & RegistrarsKeells Consultants (Pvt) LtdNo. 130, Glennie Street, Colombo 02, Sri Lanka

AuditorsErnst & young , Chartered Accountants,201, De Saram Place,Colombo 10, Sri Lanka.

BankersHongkong & Shanghai Banking Corporation Ltd.Deutsche Bank AGBank of Ceylon LimitedNation Trust Bank PLCDFCC Vardhana BankDFCC Bank

Stock Exchange ListingThe Ordinary Shares of the Company are Listed with the Colombo Stock Exchange of Sri Lanka.

Subsidiary CompanyJohn Keells Foods India Private Limited

Keells Food Products PLC (PQ3)No. 130, Glennie Street, Colombo 2,

Sri Lanka.

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