Hikkaduwa Beach AR 2012-13

www.citrusleisure.com

Annual Report 2012/13

Content

The Board of Directors 1Annual Report of the Board of Directors on the Affairs of the Company 3Statement of Directors’ Responsibility 6Corporate Governance 7Audit Committee Report 9Remuneration Committee Report 10Independent Auditors’ Report 11Statement of Comprehensive Income 12Statement of Financial Position 13Statement of Changes in Equity 14Statement of Cash Flows 15Notes to the Financial Statements 16Share Information 42Notice of Annual General Meeting 44Notes 45Form of Proxy 47Corporate Information Inner Back Cover

Corporate Information

Name of CompanyHikkaduwa Beach Resort Limited Legal FormPublic Quoted Company with limited liability Incorporated in Sri Lanka. Registered Office

No: 02, Police Park Avenue, Colombo 05. Telephone : 0115755055 Fax : 0112593455 E-mail : [email protected] Website: www.citrusleisure.com

Board of Directors

Mr. E.P.A. Cooray (Chairman)Mr. D. S. JayaweeraMr. Hemantha Ratnayake Mr. Vasula Premawardene Mr. Gihan De Soyza Mr. R. Seneviratne Company Secretaries

P W Corporate Secretarial (Pvt) Ltd. No.3/17, Kynsey Road, Colombo 08.

AuditorsErnst & YoungChartered Accountants201, de Saram Place,Colombo 10. BankersSampath Bank PLCNations Trust Bank PLCPan Asia Bank Corporation PLCCommercial Bank of Ceylon PLC

1

The Board of Directors

The Board of Directors guides and supervises the business and operations of the Company. The Board consists of the Chairman and five Directors.

Mr. E.P.A Cooray

ChairmanMr. E.P.A. Cooray, the immediate past Chairman of Aitken Spence PLC counts well over 30 years experience in travel and tourism. He led the Hotel Sector of Aitken Spence for several years making a significant contribution in making Aitken Spence a leading player in the development of resorts both in Sri Lanka and Maldives.

He is acknowledged for the pivotal role played in the development of sustainable tourism and especially for his leadership in developing the renowned Kandalama Hotel which has won many global accolades for its contribution to environmental management, food & beverage excellence and service standards of a truly exceptional nature.

These achievements signalled the entry of Sri Lanka’s tourism to the world map of the hospitality industry. He also led the pioneering effort of large scale expansion to the Republic of Maldives in early ‘90s and this regional development contributed exceptionally to the overall profile and growth of Aitken Spence. Mr. Cooray wasselected by USAID to lead the Tourism Cluster from 2001 to 2008 which introduced the concept of ‘Going Beyond Beaches’. The diversity in the profile of Sri Lanka’s tourism today is mainly attributed to the efforts made by this Cluster.

He is a past President of the Tourist Hotels Association of Sri Lanka (1998-2000) and was the Chairman of the Sri Lanka Convention Bureau (2007-2009). Presently he chairs a rainforest initiative partnered by the private sector which benchmarks the best practices for Eco Tourism development in Sri Lanka.

He serves as a Member of the Tourism Cluster of the National Council for Economic Development (NCED) and also serves as a Member of the Grants Board of ICTA. He is also a Board Member of Waters Edge and Lighthouse Hotel PLC. He served as the Secretary-General/CEO of the Ceylon Chamber of Commerce (2003-2008) and presently heads the Project Management Arm of the Chamber – CCC Solutions (Pvt) Ltd. Mr. Cooray has a MBA from the University of Sri Jayawardenepura, is a Certified Management Accountant and he is also a Member of the Institute of Hospitality, UK.

Mr. D.S. Jayaweera

Executive DirectorMr. D.S. Jayaweera is the co-founder of a dynamic conglomerate of 22 companies with diverse interests in communications, mass media, leisure, finance, property development and manufacturing. An entrepreneur committed to building strong and sustainable Sri Lankan businesses, Mr. D.S. Jayaweera has built a reputation for challenging convention with his can-do spirit. An Attorney-at-Law, he holds a LLB from the University of Colombo and an MBA from the University of Wales.

Mr. H. Rathnayake

Executive DirectorAn industry veteran, Mr. H. Rathnayake has been a hotelier for over 34 years with exposure to the tourism industries of Europe and Asia where he has spearheaded hotel project management and hotel openings. He is synonymous with his pioneering work in Eco Tourism and Environmental Management, and has previously worked as the resident manager of the Kandalama Hotel. Mr. H. Rathnayake is well respected in the industry for his organizational and training skills and is a leading trainer in the hotels sector.

Mr. H. Rathnayake is a Graduate of the Ceylon Hotel School and has obtained a Post Graduate qualification in Pedagogics from the Institute of Economics, Kiel, Germany.

2 Hikkaduwa Beach Resort Limited . Annual Report 2012/13

Mr. R. Seneviratne

Independent Non Executive DirectorMr. Seneviratne’s family established Reefcomber Hotel in Hikkaduwa in the 1980s. The family has diversified into trading in tea, packaging and warehousing through Corona T Stores Ltd. Mr. Seneviratne is the Managing Director of Corona T Stores Ltd.

Mr. V. Premawardene

Independent Non Executive DirectorMr. Premawardene is an accomplished professional with over 15 years of comprehensive management experience comprising local and international hands-on experience in the fields of Capital Markets and Risk Management. He holds an MA in Financial Economics from the University of Colombo and a BSc in Computer Science from the University of Southern California- USA.Mr. Premawardhana is the Managing Director of First Derivatives (Pvt) Ltd and was appointed to the Board of George Steuart Finance Limited as an Independent Non-Executive Director with effect from 23rd December 2011. He is a former director of the Securities and Exchange Commission of Sri Lanka.

Mr. G.R.W De Soysa

Independent Non Executive DirectorMr. G R W De Soysa brings to the Board vast experience in managing high-paced medium to large organizations in a multitude of industries. Mr. De Soysa serves as the Chairman of Monarch International and Threadworks (Pvt) Ltd, and currently sits on the Boards of Lanka Weaving Mills, where he has previously served as General Manager, and Furniture Factory (Pvt) Ltd, of which he is the Joint Managing Director. He also has the distinction of serving as Chief Consultant to ESL (Pvt) Ltd in Ghana on an eight year sustainable apparel manufacturing project aimed at generating 10,000 jobs, and has been a consultant to a waste-to-power project launched by the Colombo Municipal Council in collaboration with the Waste Management Authority. He holds an MBA from the University of Western Sydney and has read for a BSc in Business from the Manchester Metropolitan University.

The Board of Directors

3

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

The Directors of Hikkaduwa Beach Resort Limited have pleasure in presenting their Annual Report together with the Audited Financial Statements of the Company for the year ended 31st March 2013.

General

The Company was incorporated under the Companies Act, No.7 of 2007 as a Limited Liability Company on 23rd February 2011. It obtained a listing for its shares on the Diri Savi Board of the Colombo Stock Exchange on 17th December 2012.

Principal Activity

The principal activity of the Company is to carry on the business of Tourist Hotel Management.

Financial Statements

The complete Financial Statements of the Company duly signed by two Directors on behalf of the Board and the Auditors are given on pages 11 to 41.

Auditors’ Report

The Report of the Auditors on the Financial Statements of the Company is given on page 11.

Accounting Policies

Financial Statements of the company have been prepared in accordance with the revised Sri Lanka Financial Reporting Standards (SLFRS/ LKS) and policies adopted thereof are given on pages 16 to 25. Figurers pertaining to the previous period have been restated where necessary to confirm the current year’s presentation.

Directors

The names of the Directors who held office as at the end of the accounting period are given below.

Executive Directors Mr. D S JayaweeraMr. H Ratnayake

Independent Non-Executive Directors Mr E P A Cooray - ChairmanMr P V S PremawardeneMr R Seneviratne Mr G R W De Soysa

� Messrs Sharvajana Anandaraj Ameresekere, Janesh Manoj Bandara Pilimatalawwe, Suresh Dayanath De Mel, Arumadura Samantha Rayynor Silva and Ms Varuni Sonali Amunugama Fernando resigned as Directors of the Company with effect from 22nd March 2012.

� Messrs Hemantha Ratnayake, Vasula Premawardhana and Gehan De Soysa were appointed to the Board with effect from 22nd March 2012.

In terms of Article 95 of the Articles of Association, both Messrs Vasula Premawardhana and Gehan De Soysa will hold office until the forthcoming Annual General Meeting and being eligible, offer themselves for re-election at the said Annual General Meeting.

Interests Register

The Company maintains an Interest Register in terms of the Companies Act No. 7 of 2007, which is deemed to form part and parcel of this Annual Report and is available for inspection upon request.

All related party transactions which encompass the transactions of Directors who were directly or indirectly interested in a contract or a related party transaction with the Company during the accounting period are recorded in the Interest Register in due compliance with the applicable rules and regulations of the relevant Regulatory Authorities.

The relevant interests of Directors in the shares of the Company as at 31st March 2013 as recorded in the Interests Register are given in this Report under Directors’ shareholding.


Directors’ Remuneration

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

Director’s interests in contracts

Related party disclosures as required by the Sri Lanka Accounting Standards No. 24 are detailed in note 23 to the financial statements.

Directors’ responsibility for Financial Reporting

The Directors are responsible for the preparation of Financial Statements of the Company to reflect a true and fair view of the state of its affairs. A further statement in this regard is included on page 6.

Auditors

Messrs Ernst & Young, Chartered Accountants served as the Auditors during the year under review.

A total amount of Rs. 345,000./- is payable by the Company to the Auditors for the year under review as audit fee.

The Auditors have expressed their willingness to continue in office. A resolution to re-appoint the Auditors and to authorise the Directors to determine their remuneration will be proposed at the Annual General Meeting.

Stated Capital

The Stated Capital of the Company as at 31 March 2013 was Rs. 778,568,197/- representing 57,573,897 ordinary shares (Rs. 669,568,197/- representing 51,816,507 ordinary shares as at 31st March 2012).

Issue of shares through Initial Public Offering

The Company had an Initial Public Offer (“IPO”) in November 2012 of 5,757,390 Ordinary Shares at an issue price of Rs.20/- each. Resulting from the said IPO, the Stated Capital increased by Rs115,147,800/-.

The proceeds of the said issue were utilized for the proposed activities in the prospectus

Directors’ Shareholding

Directors’ interest in the shares of the Company as at 31st March 2013 and 31st March 2012 were as follows:

As at 31.3.2013

As at 31.3.2012

Mr. Emilianus Prema Alphonse Cooray 1 1Mr. Dilith Susantha Jayaweera Nil NilMr. Rajinda Seneviratne Nil NilMr. Pathiranage Vasula Sanjeewa Premawardhana

Nil Nil

Mr Hemantha Ratnayake Nil NilMr Gehan De Soysa Nil Nil

Major Shareholders, Distribution Schedule and other information

Information on the distribution of shareholding, analysis of shareholders, market values per share, earnings per share, net assets per share, twenty largest shareholders of the Company, percentage of shares held by the public as per the Listing Rules of the Colombo Stock Exchange are given on pages 42 to 43 under Shareholders’ Information.

Employment Policy

The Company’s employment policy is totally non-discriminatory which respects individuals and provides career opportunities irrespective of the gender, race or religion.

As at 31st March 2013, 135 person were in employment (121 persons as at 31st March 2012).

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

5

Statutory Payments

The Directors confirm that to the best of their knowledge, all payments in respect of statutory liabilities including EPF,ETF and PAYE tax have been made within the stipulated periods during the financial year.

Reserves

The reserves of the Company with the movements during the year are given in the financial statements on page 12.

Land Holdings

The Company’s land holding referred to comprise freehold land in an extent of 1,147 perches .Note No. 12 at Financial Statements.

Property, Plant & Equipment

Details and movements of property, plant and equipment are given under Note No. 12 to the Financial Statements on pages 29 to 31.

Material Foreseeable Risk FactorsAs part of the governance process, the Board on a continuous basis reviews and takes any measures and evaluates the internal controls and risks of the Company and takes any measures required to mitigate the risks.

Donations

The Company made donations amounting to Rs. 27,465/- in total, during the year under review.

Dividends

Directors do not recommend a dividend for the year under review.

Corporate Governance

The Board of Directors confirms that the Company is compliant with section 7.10 of the Listing Rules of the Colombo Stock Exchange.

The report on Corporate Governance is given on pages 5 to 6 of the Annual Report.

Post Balance Sheet Events

There were no post Balance Sheet events which would require adjustment to or disclosure in the Financial Statements.

Status Change of the Company

A resolution will be placed before the shareholders at the Annual General Meeting, for the status change of the Company from “Limited” to “PLC” in terms of Sections 8(1) and 11(3) read together with Section 92(1)(g) of the Companies Act, No.7 of 2007, consequent to the Shares of the Company being listed on the Colombo Stock Exchange.

Annual General Meeting

The Annual General Meeting of Hikkaduwa Beach Resort Ltd will be held at Citrus Leisure PLC, No. 2, Police Park Avenue, Colombo 5 on Friday, 27th September 2013 at 9.15 am. The Notice of the Annual General Meeting is on page 42 of this Report.

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

E. P. A. Cooray Hemantha Ratnayake Chairman Director

P W Corporate Secretarial (Pvt) Ltd Secretaries

17 August 2013


Statement of Directors’ Responsibility

The Companies Act, No 07 of 2007 stipulates that Directors are responsible for the preparation of financial statements for each financial year and to place before a general meeting financial statements, comprising a Comprehensive Statement of Income and 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 and which comply with the requirements of the above Act.

The financial statements have been prepared and presented in accordance with Sri Lanka Accounting Standards. In preparing the financial statements, appropriate accounting policies have been selected and applied consistently, whilst reasonable and prudent judgments and estimates have been made.

As per Section 148 of the Act, the Directors are required to maintain sufficient accounting records to disclose with reasonable accuracy the financial position of the Company and to ensure that the financial statements presented comply with the requirements of the Companies Act.

The Directors are also responsible for devising proper internal controls for safeguarding the assets of the Company against unauthorised use or disposition, prevention and detection of fraud and for reliability of financial information used within the business or for publication.

The Directors continue to adopt the going concern basis in preparing accounts and after making inquiries and following a review of the Company’s budget for the financial year 2013/2014, including cash flows and borrowing facilities, consider that the Company has adequate resources to continue in operation.

The Board of Directors is of the opinion that it has discharged its responsibilities as set out above.

By order of the Board ofHikkaduwa Beach Resort Limited

P W Corporate Secretarial (Pvt) LtdSecretaries

Colombo17 August 2013

7


Board of Directors

The Board of Directors is responsible for the governance of the Company whilst the shareholders role in governance is to appoint the Directors and the Auditors to satisfy themselves that an appropriate governance structure is in place.

The Board of Directors of the Company currently comprises of six members. There is a balance of Executive and Non Executive Directors to ensure that the decisions taken by the Board are collective decisions. One third of the Directors retires by rotation at each Annual General Meeting but are eligible for re-election.

Each Non-Executive Director has submitted a Declaration of his independence or non-independence as required under the Listing Rules of the Colombo Stock Exchange.

The Board has determined that Messrs Prema Cooray, Vasula Premawardene, Rajinda Seneviratne and Gehan De Zoysa are ‘independent Non-executive’ as per the criteria set out in the Listing Rules of the Colombo Stock Exchange.

In its said determination, the Board has considered that Messrs Prema Cooray, Vasula Premawardene and Rajinda Seneviratne who serve on the directorate of Citrus Leisure PLC (which is the holding company of Hikkaduwa Beach Resort Limited) and certain other companies in the group do not qualify as “Independent” against the criteria set out in Rule 7.10.4(g) of the Listing Rules of the CSE. Nevertheless, the Board, having considered that the said Directors serve as Independent Directors on the Board of the holding company has resolved that in its opinion the directorships held by said Directors do not compromise their independence and objectivity in discharging the functions as “Independent” Directors in Hikkaduwa Beach Resort Limited and accordingly in terms of Rule 7.10.3(b) of the Listing Rules of the CSE, the Board has determined that Messrs Prema Cooray, Vasula Premawardene and R Seneviratne, are nevertheless “Independent” as per the said Listing Rules.

Board Sub Committees

Audit CommitteeThe primary function of the Committee is to assist the Board in fulfilling its responsibilities by reviewing the financial information provided to Shareholders. The Audit Committee also oversees the relationship between the Company and the Auditor and reviews the Company’s financial reporting system.

The Board has appointed an Audit Committee consisting three non-executive Directors, all of whom are independent.

Mr. E.P. A Cooray serves as Chairman of the Audit Committee. Mr Cooray is a Certified Management Accountant.

The names of the members of the Audit Committee are as follows.

Mr Prema Cooray - ChairmanMr. V. Premawardhana, Mr. R. Seneviratne

The Report of the Audit Committee appears on .

Remuneration Committee

The Remuneration Committee consists of three non-executive Directors all of whom are Independent. The Committee reviews the remuneration of Senior Management and Executive Directors.

The names of the members of the Remuneration Committee are as follows.

Mr. E.P.A Cooray - Chairman. Mr. V. Premawardhana,Mr. G.R.W De Soysa

Report of the Remuneration Committee appears on Page 10.


Board Meetings

The Board meets regularly to discharge their duties effectively. The Board’s functions include the assessment of the adequacy and effectiveness of internal controls, compliance with applicable laws and regulations, review of management and operational information, adoption of annual and interim accounts before they are published, review of exposure to key business risks, strategic direction of operational and management units, approval of annual budgets, monitoring progress towards achieving the budgets, approvals relating to key appointments, sanctioning major capital expenditure etc.

The Board met 12 times during the period under review and the attendance is given below.

Name Directorship status AttendedMr.E.P.A Cooray * NED /IND 11/12Mr. D.S Jayaweera ED 11 /12Mr. R. Seneviratne NED/IND 8/12Mr P V S Premawardhane NED/IND 8/8Mr H Ratnayake ED 8/8Mr G R W De Soysa NED/IND 2/8

* Chairman, NED = Non-Executive Director, ED= Executive Director, IND = Independent Director

Financial Reporting

The Board aims to provide and present a balanced assessment of the Company’s position and prospects in compliance with the Sri Lanka Accounting Standards and the relevant Statutes, and has established a formal and transparent process for conducting financial reporting and internal control principles.

The Statement of Directors’ Responsibilities for the Financial Statements is given on page 6 of this Report.

Internal Controls

The Board is responsible for the Company’s internal controls. In this respect controls are established for safeguarding the Company’s assets, making available accurate and timely information and imposing greater discipline on decision making.

Corporate Disclosure and Shareholder Relationship

The Company is committed to providing timely and accurate disclosure of all price sensitive information, financial results and significant developments to all shareholders, the Colombo Stock Exchange and where necessary, to the general public.

Shareholders are provided with the Annual Report and, the Company disseminates to the market, Quarterly Financial Statements in accordance with the Listing Rules of the Colombo Stock Exchange.

The Annual General Meeting provides a platform for shareholders to discuss and seek clarifications on the activities of the Company.

By Order of the Board ofHikkaduwa Beach Resort Limited


Colombo

17 August 2013


9

The responsibilities of the Audit Committee are governed by the Audit Committee Charter, approved and adopted by the Board. The Audit Committee focuses principally on assisting the Board in fulfilling its duties by providing an independent and objective review of the financial reporting process, internal controls and the audit function. These include the quality of interim and annual reported earnings and the adequacy and fairness of disclosure; monitoring management’s strategy for ensuring that the Company has implemented appropriate internal controls to address business risks and that these controls are functioning effectively; reviewing procedures relating to statutory, regulatory and related compliance; and the adequacy of the Company’s internal and external audit function.

Committee composition, meetings held and attendance

The Audit Committee consists of three members. The Chairman of the Audit Committee is a Fellow of the Institute of Certified Management Accountants of Sri Lanka. All Non-Executive Directors satisfy the criteria for independence as specified in the Standards on Corporate Governance for listed Companies issued by the Securities & Exchange Commission of Sri Lanka. The Audit Committee reports directly to the Board. The individual and collective financial and hotel industry specific knowledge, business experience and the independence of members are brought to bear on all matters, which fall within the committee’s purview. The Finance Manager, Chief Executive Officer, Director Operations and Director Marketing attend Audit Committee meetings by invitation. Outsourced Internal Auditors, BDO Partners and Independent External Auditors, Ernst & Young, are required to attend meetings.

Activities performed

The committee reviewed the activities and financial affairs of the Company and its subsidiaries and underlying hotel entities, and the financial reporting system adopted in the preparation of quarterly and annual financial statements to ensure reliability of the process, appropriateness and consistency of accounting policies and methods adopted and that they facilitate compliance with the requirements of the new Sri Lanka Accounting Standards (SLFRS/LKAS), the Companies Act, No. 7 of 2007 and other relevant statutory and regulatory requirements.

Audit Committee Report

The Business Risk Management processes and procedures adopted by the Companies, to manage and mitigate the effects of such risks and observed that risk analysis exercises had been conducted across the different Companies, key risks that could impact operations had been identified and to the extent possible measures taken to minimize the impact of such risks. It was noted that with the integration of sustainability within the Leisure Group, further measures to mitigate the core sustainability risks had been identified and risk mitigation measures designed and implemented.

It was reviewed the Company’s compliance framework to determine that it provides reasonable assurance that all relevant laws, rules and regulations have been complied with.

The Audit Committee has recommended to the Board of Directors that Messrs Ernst & Young be re-appointed as Auditors for the Financial Year ending 31st March 2014, subject to the approval of the shareholders at the next Annual General Meeting.

E. P. A. CoorayChairman Audit Committee

17 August 2013


Remuneration Committee Report

The Directors following comprising the Committee are independent of management and are totally free from any business, personal or other relationships that may interfere with the exercise of their independent judgments.

1. Mr. E. P. A. Cooray2. Mr. P. V. S. Premawardene3. Mr. G. R. W. De Soysa

Function of the Committee

The Company remuneration policy remained unchanged during the year under review and the Committee formally met once.

The Company policy on remuneration packages is to attract the best caliber of professional, skilled and managerial talent to the Group, to retain such employees within the Group, and to motivate and encourage them to perform at the optimum level.

The Company has a structured and professional methodology to evaluate the performance of employees. The policy ensures that internal equity and fairness among employees are maintained and that a suitable work environment and working conditions are provided. Further, there is no discrimination on account of gender, age, ethnicity or religion.

The Remuneration Committee having considered the performance of the Company and the Strategic Business Units and the contribution of the employees to the Strategic Business Unit to which they are attached, approved promotions and the revision of individual remuneration packages. These packages were based on the cost of living, inflation and comparative industry norms. No Director was involved in deciding his/ her own remuneration.

The Remuneration Committee’s decisions were based on these policies and practices, which ensured that sound and measured judgment, were adopted at all times.

E.P.A. CoorayChairmanRemuneration Committee

Colombo17 August 2013

11

Independent Auditors’ Report

TO THE SHAREHOLDERS OF HIKKADUWA BEACH RESORT LIMITED

Report on the Financial StatementsWe have audited the accompanying Financial Statements of Hikkaduwa Beach Resort Limited (“the Company”), which comprise the Statement of Financial Position as at 31 March 2013, and Statement of Comprehensive Income, Statement of Changes in Equity and Statement of Cash Flow for the year then ended, and a summary of significant accounting policies and other explanatory notes.

Management’s Responsibility for the Financial StatementsManagement is responsible for the preparation and fair presentation of these financial statements in accordance with Sri Lanka Accounting Standards (LKAS/SLFRS). 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.

Scope of Audit and Basis of OpinionOur responsibility is to express an opinion on these Financial Statements based on our audit. We conducted our audit in accordance with Sri Lanka Auditing Standards. Those standards require that we plan and perform the audit to obtain reasonable assurance whether the Financial Statements are free from material misstatement.

An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the Financial Statements. An audit also includes assessing the

accounting policies used and significant estimates made by management, as well as evaluating the overall Financial Statement presentation.

We have obtained all the information and explanations which to the best of our knowledge and belief were necessary for the purposes of our audit. We therefore believe that our audit provides a reasonable basis for our opinion.

OpinionIn 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 and fair view of the Company’s state of affairs as at 31 March 2013 and its financial performance and cash flows for the year then ended in accordance with Sri Lanka Accounting Standards.

Report on Other Legal and Regulatory RequirementsThese Financial Statements also comply with the requirements of Section 151(2) of the Companies Act No. 7 of 2007.

17 August 2013Colombo

Hikkaduwa Beach Resort Limited . Annual Report 2012/1312

Year ended 31 March Note 2013 2012Rs. Rs.

Revenue 6 223,160,957 73,507,132 Cost of Sales (73,884,726) (13,370,482)

Gross Profit 149,276,231 60,136,650 Other Income 7 5,926,193 981,557 Administrative Expenses (93,745,153) (25,220,263)Selling and Distribution Expenses (7,375,686) (5,975,912)Finance Income 8.1 - 199,818 Finance Cost 8.2 (1,755,899) (132,073)

Profit Before Tax 9 52,325,686 29,989,777 Income Tax (Expense) / Reversal 10 5,414,903 (3,605,593)Profit for the year 57,740,589 26,384,184

Other Comprehensive Income - - Total Comprehensive Income for the year, net of tax 57,740,589 26,384,184

Earnings Per Share - Basic (Rs.) 11 1.08 1.13

The accounting policies and notes on pages 16 through 41 form an integral part of the financial statements.

Statement of Comprehensive Income

13

Statement of Financial Position

As at 31 March Note 2013 2012Rs. Rs.

ASSETS Non-Current AssetsProperty, Plant and Equipment 12 883,575,786 887,843,086 Deferred Tax Asset 10.2 1,865,258 -

885,441,044 887,843,086 Current AssetsInventories 14 3,975,184 4,516,070 Trade and Other Receivables 15 87,694,477 92,146,502 Advances and prepayments 1,265,407 2,308,004 Income Tax Receivable 360,479 - Cash and Cash Equivalents 16.1 14,424,472 2,249,206

107,720,019 101,219,781 Total Assets 993,161,063 989,062,867

EQUITY AND LIABILITIESCapital and ReservesStated Capital 17 778,568,197 669,031,426 Retained Earnings 84,124,773 26,384,184 Total Equity 862,692,970 695,415,610

Non-Current LiabilitiesInterest Bearing Loans and Borrowings 13 4,738,989 1,872,697 Retirement Benefit obligation 18 4,965,037 4,475,656 Deffered Tax Liability 10.2 - 3,549,643

9,704,026 9,897,996

Current Liabilities Trade and Other Payables 19 101,613,191 260,567,660 Interest Bearing Loans and Borrowings 13 19,150,876 23,181,601

120,764,067 283,749,261 Total Equity and Liabilities 993,161,063 989,062,867

These Financial Statements are in compliance with the requirements of the Companies Act No: 07 of 2007.

Ravindra DissanayakaFinance Manager

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

E. P. A. Cooray Hemantha RatnayakeChairman Director The accounting policies and notes on pages 16 through 41 form an integral part of the financial statements.

17 August 2013Colombo


Statement of Changes in Equity

Year ended 31 March Stated Retained Capital Earnings Total

Rs. Rs. Rs.

Balance as at 01 April 2011 - - -

Issue of Shares 669,031,426 - 669,031,426

Profit for the period - 26,384,184 26,384,184

Balance as at 31 March 2012 669,031,426 26,384,184 695,415,610

Issue of Shares 109,536,771 - 109,536,771

Profit for the year - 57,740,589 57,740,589

Balance as at 31 March 2013 778,568,197 84,124,773 862,692,970


15

Statement of Cash Flow

Year ended 31 March Note 2013 2012 Rs. Rs.

Cash Flows From / (Used in) Operating Activities

Profit before Income Tax Expense 52,325,686 29,989,777

Adjustments for Depreciation 38,238,038 4,377,310

Provision for Retirement Benefits Obligation 18 1,114,347 1,393,077 Finance Income - (199,818)Finance Costs 8.2 1,755,899 132,073

Operating Profit before Working Capital Changes 93,433,970 35,692,419(Increase) Decrease in Inventories 540,886 (4,516,070)(Increase) / Decrease in Trade and Other Receivables 4,452,025 (94,454,505)Increase in Advances and prepayments 1,042,597 - Increase / (Decrease) in Trade and Other Payables (158,954,469) 170,670,815

Cash Generated from / (used in ) Operations (59,484,991) 107,392,659 Finance Cost Paid (1,755,899) (132,073)Income Tax Paid (360,479) - Retirement Benefit Obligation Paid 18 (624,966) (144,608)

Net Cash from / (used in ) Operating activities (62,226,335) 107,115,978

Cash Flows from/(Used in) Investing ActivitiesAcquisition of Property, Plant and Equipment 12.4 (33,970,738) (437,320,271)Finance Income Received - 199,818

Net Cash Flows From / (used in ) Investing Activities (33,970,738) (437,120,453)

Cash Flows from/(Used in) Financing ActivitiesCash Received on New Share Issue 17.1 109,536,771 309,543,133 Proceeds From Interest Bearing Loans and Borrowings 13.1 8,000,000 - Repayment of Interest Bearing Loans and Borrowings 13.1 (2,007,000) - Principal Payment under Finance Lease Liabilities 13.2 (397,883) (102,811)

Net Cash Flow from Financing Activities 115,131,888 309,440,322

Net Increase/(Decrease) in Cash and Cash Equivalents 18,934,815 (20,564,152)Cash and Cash Equivalents at the beginning of the period (20,564,152) - Cash and Cash Equivalents at the end of the period 16 (1,629,337) (20,564,152)



1. CORPORATE INFORMATION

1.1 General Hikkaduwa Beach Resort Limited (“Company”) is a Public Limited Liability

Company incorporated and domiciled in Sri Lanka. The registered office of the Company is located at No 02, Police Park Avenue, Colombo 05 and the principal place of business is situated at Hikkaduwa.

1.2 Principal Activities and Nature of Operations During the period, the principal activities of the Company is provision of food and

beverage, lodging, and other hospitality industry related activities.

1.3 Parent Entity and Ultimate Parent Entity The Company’s parent entity is Citrus Leisure PLC. In the opinion of the Directors

the Company’s ultimate parent undertaking and controlling party is also Citrus Leisure PLC, which is incorporated in Sri Lanka.

1.4 Date of Authorisation for Issue The financial statements of Hikkaduwa Beach Resort Limited for the year ended

31 March 2013 were authorized for issue in accordance with a resolution of the Board of Directors on 17 August 2013.

2. BASIS OF PREPARATION

2.1 Statement of Compliance The Financial Statements have been prepared in accordance with the

Sri Lanka Accounting and Auditing Standards Act No. 15 of 1995, which requires compliance with Sri Lanka Accounting Standards (SLFRS’s and LKAS’s) promulgated by the Institute of Chartered Accountants of Sri Lanka (ICASL), and with the requirements of the Companies Act No. 7 of 2007.

For all periods up to and including the year ended 31 March 2012, the Company prepared its Financial Statements in accordance with Sri Lanka Accounting Standards (SLAS). These Financial Statements for the year ended 31 March 2013 are the first the Company has prepared in accordance with Sri Lanka Accounting Standards (SLFRS and LKAS) effective for the periods beginning on or after 01 April 2012.

Note 05 discloses the impact of the transition to SLFRS on the Company’s reported financial position and cash flows, including the nature and effect of

Notes to the Financial Statements

significant changes in accounting policies from those used in the Company’s financial statements for the year ended 31 March 2012 prepared under SLASs.

2.2 Basis of measurement The Financial Statements have been prepared on a historical cost basis except

certain items of financial instruments, which are stated at fair value.

Where appropriate, the specific policies are explained in the succeeding Notes.

No adjustments have been made for inflationary factors in the Financial Statements.

2.3 Going Concern The Directors have made an assessment of the Company’s ability to continue as a

going concern and they do not intend either to liquidate or to cease trading and operations.

2.4 Materiality and Aggregation Each material class of similar items is presented separately in the Financial

Statements. Items of a dissimilar nature or function are presented separately unless they are immaterial.

3 SIGNIFICANT ACCOUNTING POLICIES

The following are the significant accounting policies applied by the Company in preparing its financial statements.

3.1 Foreign Currency Translations The Company’s Financial Statements are presented in Sri Lanka Rupees, which is

the functional and presentation currency of the Company. Transactions in foreign currencies are initially recorded at the functional currency rate ruling at the date of the transaction.

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

All differences are taken to the Statement of Comprehensive Income.

Year ended 31 March 2013

17

Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates as at the dates of the initial transactions. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value is determined. The gain or loss arising on translation of non-monetary items is recognized in line with the gain or loss of the item that gave rise to the translation difference (translation differences on items whose gain or loss is recognized in other comprehensive income or statement of income is also recognized in other comprehensive income or profit or loss respectively).

3.2 Statement of Comprehensive Income For the purpose of presentation of the Income Statement, the function of

expenses method is adopted, as it represents fairly the elements of Company performance.

3.2.1 Revenue recognition Revenue is recognised to the extent that it is probable that the economic benefits

will flow to the Company and the revenue can be reliably measured, regardless of when the payment is being made. Revenue is measured at the fair value of the consideration received or receivable, taking into account contractually defined terms of payment and excluding taxes or duty. The Company assesses its revenue arrangements against specific criteria to determine if it is acting as principal or agent. The Company has concluded that it is acting as a principal in all of its revenue arrangements. The specific recognition criteria described below must also be met before revenue is recognised.

Room Revenue Room revenue is recognised on the rooms occupied on a daily basis and food and

beverage and other hotel related sales are accounted for at the point of sales.

Interest income 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 statement of income.

Dividend Income Dividend income is recognised in profit and loss on the date the entity’s right

to receive payment is established, which in the case of quoted securities is the ex-dividend date.

Gains and losses on Disposal of Assets Gains and losses on disposal of Assets are determined by comparing the net sales

proceeds with the carrying amounts of the Assets and are recognised net within “other operating income” in the Statement of Income. When revalued assets are sold, the amounts included in the revaluation surplus reserve are transferred to retained earnings.

3.2.2 Expenses All expenditure incurred in the running of the business has been charged to

income in arriving at the profit for the year.

Repairs and renewals are charged to the Statement of Income in the year in which the expenditure is incurred.

3.2.3 Borrowing costs Borrowing costs are recognized as an expense in the period in which they

are incurred, except to the extent that they are directly attributable to the acquisition, construction or production of a qualifying asset, in which case they are capitalized as part of the cost of that asset.

3.2.4 Finance income and finance costs Finance income comprises interest income on funds invested (including

available-for-sale financial assets), gains on the disposal of available-for-sale financial assets, changes in the fair value of financial assets at fair value through profit or loss. Interest income is recognised as it accrues in Statement of Comprehensive Income.

Finance costs comprise interest expense on borrowings, unwinding of the discount on provisions, changes in the fair value of financial assets at fair value through profit or loss. Borrowing costs that are not directly attributable to the acquisition, construction or production of a qualifying asset are recognised in statement of income using the effective interest method.


The interest expense component of finance lease payments is allocated to each period during the lease term so as to produce a constant periodic rate of interest on the remaining balance of the liability. Foreign currency gains and losses are reported on a net basis.

3.2.5 Tax Expense The profit relating to the hotel trade is exempt from income tax for 6 years

reckoned from the commencement of the year of assessment in which such undertaking commences to make profits from transactions entered in to in that year of assessment or from the commencement of the year of assessment immediately succeeding the year of assessment in which such undertaking completes a period of two years reckoned from the date on which such undertaking commences to carry on commercial operations, whichever occurs earlier. Accordingly tax exemption will commence from the year of assessment 2011/12 to 2016/17.

Interest income is taxed at the rate of 28%.

Deferred Tax

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

Deferred tax assets are recognised for all deductible temporary differences, the carry forward of unused tax credits and any unused tax losses. Deferred tax assets are recognised to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carry forward of unused tax credits and unused tax losses can be 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 profits will allow the deferred tax asset to be recovered.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the year when the asset is realised or the liability is settled, based on tax rates that have been enacted or substantively enacted 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.

Sales Tax Revenues, expenses and assets are recognised net of the amount of sales tax,

except:

• Whenthesalestaxincurredonapurchaseofassetsorservicesisnotrecoverable 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

• Receivablesandpayablesthatarestatedwiththeamountofsalestaxincluded

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.

3.3 Assets and bases of their valuation 3.3.1 Property, Plant and Equipment3.3.1.1 Recognition and measurement Items of Property, Plant and Equipment are measured at cost less accumulated

depreciation and accumulated impairment losses, if any, whilst land is measured at fair value.

3.3.1.2 Owned assets The cost of Property, Plant and Equipment includes expenditure that are

directly attributable to the acquisition of the asset. The cost of self-constructed assets includes the cost of materials and direct labour, any other costs directly attributable to bringing the asset to a working condition for its intended use, and the costs of dismantling and removing the items and restoring the site on

Notes to the Financial StatementsYear ended 31 March 2013

19

which they are located, and borrowing costs on qualifying assets for which the commencement date for capitalisation is on or after 1 April 2011.

When parts of an item of Property, Plant and Equipment have different useful lives, they are accounted for as separate items (major components) of Property, Plant and Equipment.

The assets’ residual values, useful lives and methods of depreciation are reviewed at each financial year end and adjusted prospectively, if appropriate.

3.3.1.3 Lease assets The determination of whether an arrangement is, or contains, a lease is based

on the substance of the arrangement at inception date, whether fulfilment 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.

3.3.1.4 Company as a lessee Finance leases that transfer to the Company substantially all the risks and

benefits incidental to ownership of the leased item, are capitalised at the commencement of the lease at the fair value of the leased property or, if lower, at the present value of the minimum lease payments. Lease payments are apportioned between finance charges and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are recognised in finance costs in the statement of income.

A leased asset is depreciated over the useful life of the asset. However, if there is no reasonable certainty that the 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.

3.3.1.5 Subsequent Costs The cost of replacing a component of an item of Property, Plant and Equipment

is recognised in the carrying amount of the item if it is probable that the future economic benefits embodied within the part will flow to the Company and its cost can be measured reliably. The carrying amount of the replaced part is derecognised in accordance with the derecognition policy given below.

The costs of the day-to-day servicing of Property, Plant and Equipment are recognised in profit and loss as incurred.

3.3.1.6 Derecognition The carrying amount of an item of Property, Plant and Equipment is

derecognised on disposal; or when no future economic benefits are expected from its use. Gains and losses on derecognition are recognised in statement of income and gains are not classified as revenue.

3.3.1.7 Depreciation

Depreciation is recognised in the Statement of Comprehensive Income on a straight-line basis over the estimated useful lives of each part of an item of Property, Plant and Equipment, since this most closely reflects the expected pattern of consumption of the future economic benefits embodied in the asset.

Assets held under finance leases are depreciated over the shorter of the lease term and the useful lives of equivalent owned assets unless it is reasonably certain that the Company will have ownership by the end of the lease term. Freehold land is not depreciated.

The estimated useful lives for the current and comparative periods are as follows:

Buildings 40 Years Furniture and Fittings 6 Years Entertainment Equipments 4 Years Office Equipments 6 Years Sundry Equipments 5 Years Linen and Furnishing 3 years Kitchen Utensils and Other Equipments 10 years Air Condition 13 years Electrical Fittings 10 years Crockery and Cutlery 3 Years Motor Vehicles 4 Years

Depreciation of an asset begins when it is available for use and ceases at the earlier of the dates on which the asset is classified as held for sale or is derecognised.


3.3.2 Current Assets Assets classified as current assets on the Balance Sheet are cash and bank

balances and those which are expected to be realised in cash during the normal operating cycle or within one year from the reporting date, whichever is shorter.

3.3.2.1 Inventories Inventories are valued at the lower of cost and estimated net realisable value,

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

The cost incurred in bringing inventories to its present location and condition is accounted using the following cost formulae.

House keeping and Maintenance Food Beverage Printing & Stationary Ayurveda

3.3.2.2 Cash and cash equivalents Cash and cash equivalents comprise cash balances and call deposits. Bank

overdrafts that are repayable on demand and form an integral part of the Company’s cash management are included as a component of cash and cash equivalents for the purpose of the Statement of Cash Flows.

3.3.3 Impairment of non-financial assets The carrying amounts of the Company’s non-financial assets are reviewed at

each reporting date to determine whether there is any indication of impairment. If any such indication exists, then the asset’s recoverable amount is estimated. For goodwill and intangible assets that have indefinite lives or that are not yet available for use, the recoverable amount is estimated at each reporting date or more frequently, if events or changes in circumstances indicate that they might be impaired.

3.3.3.1 Calculation of recoverable amount The recoverable amount of an asset or cash-generating unit is the greater of

its value in use and its fair value less costs to sell. In assessing value in use, 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. A cash-generating unit is the smallest identifiable asset Company that generates cash flows that largely are independent from other assets.

3.3.3.2 Impairment / Reversal of impairment An impairment loss is recognised if the carrying amount of an asset or its

cash-generating unit exceeds its recoverable amount. Impairment losses are recognised in statement of income. Impairment losses recognised in respect of cash-generating units are allocated first to reduce the carrying amount of any goodwill allocated to the units and then to reduce the carrying amount of the other assets in the unit on a pro rata basis.

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

3.4 Financial Instruments – Initial recognition and subsequent measurement

3.4.1 Financial assets3.4.1.1 Initial recognition and measurement Financial assets within the scope of LKAS 39 are classified as financial assets

at fair value through profit or loss, loans and receivables, held-to-maturity investments, available-for-sale financial assets, or as derivatives designated as hedging instruments in an effective hedge, as appropriate. The Company determines the classification of its financial assets at initial recognition.

All financial assets are recognised initially at fair value plus transaction costs, except in the case of financial assets recorded at fair value through profit or loss.


- At actual cost on weighted average basis

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Purchases or sales of financial assets that require delivery of assets within a time frame established by regulation or convention in the market place (regular way trades) are recognised on the trade date, i.e., the date that the Company commits to purchase or sell the asset.

The Company’s financial assets include cash and short-term deposits, financial assets at fair value through profit or loss and other receivables.

3.4.1.2 Subsequent measurement The subsequent measurement of financial assets depends on their classification

as described below:

Financial assets at fair value through profit or loss Financial assets at fair value through profit or loss include financial assets held

for trading and financial assets designated upon initial recognition at fair value through profit or loss. Financial assets are classified as held for trading if they are acquired for the purpose of selling or repurchasing in the near term. Derivatives, including separated embedded derivatives are also classified as held for trading unless they are designated as effective hedging instruments as defined by L KAS 39.

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

Financial assets designated upon initial recognition at fair value through profit and loss are designated at their initial recognition date and only if the criteria under LKAS 39 are satisfied. The Company has not designated any financial assets at fair value through profit or loss.

The Company evaluates its financial assets held for trading, other than derivatives, to determine whether the intention to sell them in the near term is still appropriate. When in rare circumstances the Company is unable to trade these financial assets due to inactive markets and management’s intention to sell them in the foreseeable future significantly changes, the Company may elect to reclassify these financial assets. The reclassification to loans and receivables, available-for-sale or held to maturity depends on the nature of the asset. This evaluation does not affect any financial assets designated at fair value through profit or loss using the fair value option at designation, these instruments cannot be reclassified after initial recognition.

Loans and receivables Loans and receivables are non-derivative financial assets with fixed or

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

Derecognition A financial asset (or, where applicable, a part of a financial asset or part of a

Company of similar financial assets) is derecognised when:

• Therightstoreceivecashflowsfromtheassethaveexpired

• TheCompanyhastransferreditsrightstoreceivecashflowsfromtheassetor has assumed an obligation to pay the received cash flows in full without material delay to a third party under a ‘pass-through’ arrangement; and either (a) the Company has transferred substantially all the risks and rewards of the asset, or (b) the Company has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.

When the Company has transferred its rights to receive cash flows from an asset or has entered into a pass-through arrangement, it evaluates if and to what extent it has retained the risks and rewards of ownership. When it has neither transferred nor retained substantially all of the risks and rewards of the asset, nor transferred control of the asset, the asset is recognised to the extent of the Company’s continuing involvement in the asset. In that case, the Company 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 Company has retained.

Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of consideration that the Company could be required to repay.


3.4.1.3 Impairment of financial assets The Company assesses, at each reporting date, whether there is any objective

evidence that a financial asset or a Company of financial assets is impaired. A financial asset or a Company 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 ‘loss event’) and that loss event has an impact on the estimated future cash flows of the financial asset or the Company of financial assets that can be reliably estimated. Evidence of impairment may include indications that the debtors or a Company 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 when observable data indicate that there is a measurable decrease in the estimated future cash flows, such as changes in arrears or economic conditions that correlate with defaults.

Financial assets carried at amortised cost For financial assets carried at amortised cost, the Company first assesses whether

objective evidence of impairment exists individually for financial assets that are individually significant, or collectively for financial assets that are not individually significant. If the Company determines that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, it includes the asset in a Company 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 asset’s carrying amount and the present value of estimated future cash flows (excluding future expected credit losses that have not yet been incurred). The present value of the estimated future cash flows is discounted at the financial asset’s original effective interest rate. If a loan has a variable interest rate, the discount rate for measuring any impairment loss is the current EIR.

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 statement of income. 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 Company. 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 statement of comprehensive income.

3.4.2 Financial Liabilities3.4.2.1 Initial recognition and measurement Financial liabilities within the scope of LKAS 39 are classified as financial

liabilities at fair value through profit or loss, loans and borrowings, or as derivatives designated as hedging instruments in an effective hedge, as appropriate. The Company determines the classification of its financial liabilities at initial recognition.

All financial liabilities are recognised initially at fair value plus, in the case of loans and borrowings, directly attributable transaction costs.

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

Subsequent measurement The measurement of financial liabilities depends on their classification as

described below:

Loans and borrowings After initial recognition, interest bearing loans and borrowings are subsequently

measured at amortised cost using the EIR method. Gains and losses are recognised in the statement of comprehensive income when the liabilities are derecognised as well as through the 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 statement of comprehensive income.


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Derecognition A financial liability is derecognised when the obligation under the liability is

discharged or cancelled or expires.

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

3.4.3 Offsetting of Financial Instruments Financial assets and financial liabilities are offset and the net amount reported in

the consolidated statement of financial position if, and only if:

• Thereisacurrentlyenforceablelegalrighttooffsettherecognisedamounts

And

• Thereisanintentiontosettleonanetbasis,ortorealisetheassetsandsettlethe liabilities simultaneously

3.4.4 Fair value of financial instruments The fair value of financial instruments that are traded in active markets at each

reporting date is determined by reference to quoted market prices or dealer price quotations (bid price for long positions and ask price for short positions), without any deduction for transaction costs.

For financial instruments not traded in an active market, the fair value is determined using appropriate valuation techniques. Such techniques may include:

• Usingrecentarm’slengthmarkettransactions

• Referencetothecurrentfairvalueofanotherinstrumentthatissubstantiallythe same

• Adiscountedcashflowanalysisorothervaluationmodels.

An analysis of fair values of financial instruments and further details as to how they are measured are provided in Note 15.

3.5 Provisions Provisions are recognised when the Company has a present obligation (legal

or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. When the Company expects some or all of a provision to be reimbursed, 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 statement of comprehensive income net of any reimbursement.

3.5.1 Employee Benefits 3.5.1.1 Defined Contribution Plans A defined contribution plan is a post-employment benefit plan under which an

entity pays fixed contributions into a separate entity and will have no legal or constructive obligation to pay further amounts. Obligations for contributions to Provident and Trust Funds covering all employees are recognised as an employee benefit expense in statement of comprehensive income in the periods during which services are rendered by employees.

The Company contributes 12% and 3% of gross emoluments to employees as Provident Fund and Trust Fund contribution respectively.

3.5.1.2 Defined Benefit Plans A defined benefit plan is a post-employment benefit plan. The defined benefit

is calculated by independent actuaries using Projected Unit Credit (PUC) method as recommended by LKAS 19 on “Employee Benefits”. The present value of the defined benefit obligation is determined by discounting the estimated future cash outflows using interest rates that are denominated in the currency in which the benefits will be paid, and that have terms to maturity approximating to the terms of the related liability.

The present value of the retirement benefit obligation depends on a number of factors that are determined on a actuarial basis using a number of assumptions. Key assumptions used in determining the retirement benefit obligations are given in Note 18. Any changes in these assumptions will impact the carrying amount of defined benefit obligations.


Provision has been made for retirement gratuities from the first year of service for all employees, in conformity with LKAS 19 on “Employee Benefits”. However, under the payment of gratuity act No.12 of 1983, the liability to an employee arises only on completion of 5 years of continued service.

The liability is not externally funded.

3.5.1.3 Short term benefits Short-term employee benefit obligations are measured on an undiscounted

basis and are expensed as the related service is provided.

3.5.2 Stated Capital 3.5.2.1 Ordinary Shares Ordinary shares are classified as equity. Incremental costs directly attributable

to the issue of ordinary shares and share options are recognised as a deduction from equity, net of any tax effects.

3.6 General3.6.1 Events occurring after the Balance Sheet date All material post Balance Sheet events have been considered and where

appropriate adjustments or disclosures have been made in the respective notes to the Financial Statements.

3.6.2 Earnings/ (Loss) Per Share The Company presents basic earnings per share (EPS) for its ordinary shares.

Basic EPS is calculated by dividing the profit or loss attributable to ordinary shareholders of the Company by the weighted average number of ordinary shares outstanding during the period.

3.7 Statements of Cash Flow The Statements Cash Flow has been prepared using the “indirect method”.

Interest paid is classified as an operating cash flow. Grants received, which are related to purchase and construction of Property, Plant and Equipment are classified as investing cash flows. Dividend and interest income are classified as cash flows from investing activities.

Dividends paid are classified as financing cash flows and Dividends received are classified as investing cash flows.

3.8 Use of Estimates and Judgments In the process of applying the Company’s accounting policies, management has

exercise judgment and estimates in determining the amounts recognized in the Financial Statements. Use of available information, estimates and assumptions and application of judgment is inherent in the preparation of the Financial Statements as they affect the application of accounting policies and the recorded amounts in the Financial Statements.

The Company believes its estimates including the valuation of assets and liabilities are appropriate. Estimates and Underline assumptions are reviewed on a continuous basis. However, the actual results may differ from those estimates. The most significant uses of judgment and estimates are as follows.

Taxation The Company is subject to income tax. Significant judgment was required to

determine the total provision for current and deferred 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.

The Company recognised assets and liabilities for current and deferred taxes based on estimates of whether additional taxes will be due. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the income and deferred tax amount in the period in which the determination is made.

Retirement Benefit Obligation – Gratuity The cost of the retirement benefit plan – gratuity, is determine using an

actuarial valuation. Actuarial valuation involve making assumptions about inter alia discount rates, future salary increases, remaining working life of employees and mortality rates. Due to the long term nature of these obligations such estimates are subject to significant uncertainty. Description of retirement employee benefits is given in Note 18.

Impairment of non-financial assets Impairment exists when the carrying value of an asset or cash generating unit

exceeds its recoverable amount, which is the higher of its fair value less costs to sell and its value in use. The fair value less costs to sell calculation is based on available data from binding sales transactions in arm’s length transactions of


25

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 Company is not yet committed to or significant future investments that will enhance the asset’s performance of the CGU 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 CGUs, including a sensitivity analysis, are further explained in Note 13.

4 STANDARDS ISSUED BUT NOT YET EFFECTIVE

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

• SLFRS9FinancialInstruments:ClassificationandMeasurement

SLFRS 9 replaces 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 the first phase of SLFRS 9 will have an effect on the classification and measurement of the Company’s financial assets, but will potentially have no impact on classification and measurements of financial liabilities. The Company will quantify the effect in conjunction with the other phases, when issued, to present a comprehensive picture.

• SLFRS13-FairValueMeasurement

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 Company 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.

4.1 Explanations to the transition of SLFRS To comply with the SLFRS 1, the Company provides explanations to the

transition to SLFRS/LKAS from SLAS. The explanations includes a background and quantification of the change, this also includes reconciliation of Company’s equity as at and end of reporting period 31 March 2012. Reconciliation for total comprehensive income includes only for the latest financial year ended 31 March 2012. The financial statements of Hikkaduwa Beach Resort Ltd, for the year ended 31 March 2013 are the first financial statements prepared to comply with SLFRS since the Company’s first financial year is 2011/12.


5 FIRST TIME ADOPTION OF SLFRS

These financial statements, for the Year ended 31 March 2013, are the first the Company has prepared in accordance with SLFRS’s. For periods up to and including the year ended 31 March 2012, the Company prepared its financial statements in accordance with Sri Lanka Accounting Standards (SLAS).

Accordingly, the Company has prepared financial statements which comply with SLFRS’s applicable for periods beginning on or after 01 April 2012. The Company was incorporate in 2012, hence this applies only for the year ended 31 March 2012. This note explains the principal adjustments made by the Company in restating its Sri Lanka Accounting Standards (SLAS) statement of financial position as at and for the year ended 31 March 2012.

5.1 Reconciliation of equity as at 31 March 2012SLAS SLFRS/LKAS

Year ended 31 March 2013 Asat31March Asat31March2012 Remeasurement 2012

Rs. Rs. Rs.

ASSETSNon-Current AssetsProperty, Plant and Equipment (A) 880,150,409 7,692,677 887,843,086

880,150,409 7,692,677 887,843,086 Current AssetsInventories 4,516,070 - 4,516,070 Trade and Other Receivables (C) 94,454,505 (2,308,004) 92,146,502 Advances and prepayments (C) - 2,308,004 2,308,004 Cash and Bank Balances 2,249,206 - 2,249,206

101,219,781 - 101,219,781 Total Assets 981,370,190 7,692,677 989,062,867

EQUITY AND LIABILITIESCapital and ReservesStated Capital 669,031,426 - 669,031,426 Retained Earnings (B) 26,841,661 (457,477) 26,384,184 Total Equity 695,873,087 (457,477) 695,415,610

Non-Current LiabilitiesInterest Bearing Loans and Borrowings 1,872,697 - 1,872,697 Retirement Benefit obligation (B) 4,018,179 457,477 4,475,656 Deffered Tax Liability 3,549,643 - 3,549,643

9,440,519 457,477 9,897,996 Current Liabilities Trade and Other Payables (A) 252,874,983 7,692,677 260,567,660Interest Bearing Loans and Borrowings 23,181,601 - 23,181,601

276,056,584 7,692,677 283,749,261Total Equity and Liabilities 981,370,189 7,692,677 989,062,867


27

5.2 Reconciliation of comprehensive income for the period ended 31 March 2012

SLAS SLFRS/LKASPeriod Ended Period Ended 31March2012 Remeasurement 31March2012

Rs. Rs. Rs.

Revenue 73,507,132 - 73,507,132 Cost of Sales (13,370,482) - (13,370,482)Gross Profit 60,136,650 - 60,136,650 Other Income 981,557 - 981,557 Administrative Expenses (B) (24,762,786) (457,477) (25,220,263)Selling and Distribution Expenses (5,975,912) - (5,975,912)Finance Income 199,818 - 199,818 Finance Costs (132,073) - (132,073)Profit Before Tax 30,447,254 (457,477) 29,989,777 Income Tax Expense (3,605,593) - (3,605,593)Net Profit for the Period 26,841,661 (457,477) 26,384,184

5.3 Notes to the reconciliation of equity as at 31 March 2012 and comprehensive income for the period ended 31 March 2012

(A) Property,plant and equipment/IntercompanyThe Company had purchased the property from its parent and the parent had reassessed the transfer price of the asset based on the fair value and the necessary adjustment has been made accordingly.

(B) Retirement Benefit obligationThe Company remeasured their gratuity liability based on the Actuarial valuation done by Messers. Actuarial and Management Consultants (Private) Limited, actuaries and the adjustments has been made accordingly.

(C) Advance and Prepayments Under SLAS, the Company has classified Receivables, Advances and Prepayments as "Other Receivables". Under SLFRS, Advances and Prepayments do not fall within the definition of Financial Assets as defined in LKAS 39. Advances and prepayments has therefore been disclosed separately in the Statement of Financial Position as such presentation would facilitate a better understanding of the entity's financial position.


6 REVENUE

2013 2012Rs. Rs.

6.1 SummarySales 252,517,626 84,407,693 Less - Sales Taxes Value added Tax (27,055,460) (10,119,339)Tourism Development Levy (2,301,209) (781,222)

223,160,957 73,507,132

7 OTHER INCOME 2013 2012Rs. Rs.

Guest Telephone 23,925 14,264 Guest Laundry 325,022 103,605 Swimming Pool 142,153 36,601 Foreign Currency Encashment 276,319 181,718 Exchange gain 2,762,776 472,391 Ayurvedic Centre 1,286,020 172,978 Sundry income 1,109,978 -

5,926,193 981,557

8 FINANCE COSTS AND INCOME8.1 Finance Income

2013 2012Rs. Rs.

Interest Income - 199,818 - 199,818

8.2 Finance Cost 2013 2012Rs. Rs.

Interest Expense on Overdrafts 523,099 19,260 Interest Expense on Finance Leases 307,437 112,813 Interest Expenses on Bank Loans 925,363 -

1,755,899 132,073


29

9 PROFIT BEFORE TAX Stated after Charging 2013 2012

Rs. Rs.

Included in Administrative Expenses Employees Benefits including the following - Salaries and Wages 10,407,323 3,761,218- Defined Benefit Plan Cost - Gratuity 1,114,347 1,040,644 - Defined Contribution Plan Cost - EPF and ETF 980,796 248,268 Depreciation 38,238,038 4,377,310 Auditors' Remuneration 345,000 325,000

10 INCOME TAX EXPENSE 2013 2012Rs. Rs.

Current Income TaxIncome Tax Expense (10.1) - 55,949

Deferred Income TaxDeferred Taxation Charge/ (Reversal) (10.2) (5,414,903) 3,549,644

(5,414,903) 3,605,593

10.1 Reconciliation between Current Tax Expense/ (Income) and the product of Accounting Profit.2013 2012

Rs. Rs.

Accounting Profit (Profit before Tax ) 52,325,686 29,989,777 Aggregate Disallowable Items 40,607,751 4,101,200 Aggregate Allowable Items (89,616,119) (79,150,165)Taxable Profit/(Loss) 3,317,318 (45,059,188)Profit and Income Exempt from Tax (3,317,318) - Net Taxable Profit/(Loss) - (45,059,188)

Interest Income - 199,818

Current Income Tax Expense @ 28% - 55,949


10 INCOME TAX EXPENSE (Contd….)10.2 Deferred Tax Liabilities and Income Tax relates to the followings

Balance Sheet Income Statement2013 2012 2013 2012

Rs. Rs. Rs. Rs.

Deferred Tax LiabilityCapital allowances for tax purposes - 9,122,538 (9,122,538) 9,122,538

- 9,122,538 -

Deferred Tax Assets

Capital allowances for tax purposes 1,269,454 - (1,269,454 ) -

Defined Benefit Plans 595,804 448,201 (147,603) (448,201)Business Loss - 5,124,693 5,124,693 (5,124,693)

1,865,258 5,572,894

Deferred income tax Income / (Expense ) (5,414,903) 3,549,643

Net Deferred Tax Asset/(Liability) 1,865,258 (3,549,643)

11 EARNINGS PER SHAREBasic Earnings Per Share is calculated by dividing the net profit for the period attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the period. The weighted average number of ordinary shares outstanding during the period are adjusted for events that have changed the number of ordinary shares outstanding, without a corresponding change in the resources such as Bonus Issue.

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

2013 2012AmountsUsedastheNumerator: Rs. Rs.

Profit for the period 57,740,589 26,384,184

2013 2012NumbersofOrdinarySharesUsedasDenominator: Number Number

Weighted Average number of Ordinary Shares in issue 53,255,844 23,317,424


31

12 PROPERTY, PLANT AND EQUIPMENT Balance Additions Disposals / Balance Additions Disposals / Balance

As at /Acquisitions Transfers As at /Acquisitions Transfers As at12.1 Gross Carrying Amounts 01.04.2011 31.03.2012 31.03.2013

Rs. Rs. Rs. Rs. Rs. Rs. Rs.At Cost

Freehold Land - 259,667,036 - 259,667,036 - - 259,667,036 Buildings - 121,357,054 349,038,579 470,395,633 - 9,292,874 479,688,508 Furniture and Fittings - 28,340,550 7,709,791 36,050,340 1,193,780 - 37,244,120 Equipments : Entertainment Equipment - 4,865,840 - 4,865,840 532,970 - 5,398,810 Office Equipment - 4,129,254 2,386,546 6,515,800 241,185 - 6,756,985 Sundry Equipment - 5,863,367 11,285,383 17,148,750 1,095,036 - 18,243,786 Linen and Furnishing - 5,452,809 2,253,193 7,706,002 340,300 - 8,046,302 Kitchen Utensils and Other Equipments - 10,089,223 687,595 10,776,818 563,683 - 11,340,501 Air Condition - 6,442,953 45,684,587 52,127,541 6,999,632 - 59,127,173 Gardening & Other Equipment - 296,739 - 296,739 - - 296,739 Electrical Fittings - 3,996,266 16,056,770 20,053,035 2,849,747 - 22,902,782 Crockery and Cutlery - 2,671,735 - 2,671,735 834,942 - 3,506,677 Generator - - - 10,497,393 - 10,497,393

- 453,172,825 435,102,445 888,275,270 25,148,668 9,292,874 922,716,812 Assets on Finance LeaseMotor Vehicles - 3,494,322 3,494,322 (20,000) - 3,474,322

- 3,494,322 - 3,494,322 (20,000) - 3,474,322

TotalValueofDepreciableAssets - 456,667,147 435,102,445 891,769,592 25,128,668 - 926,191,134

In the Course of Construction Balance Incurred Disposals / Balance Incurred Disposals / Balance As at During Transfers As At During Transfers As At

01.04.2011 the Period 31.03.2012 the Period 31.03.2013 Rs. Rs. Rs. Rs. Rs. Rs. Rs.

Capital Work in Progress - 435,553,249 (435,102,445) 450,804 8,842,070 (9,292,874) - - 435,553,249 (435,102,445) 450,804 8,842,070 (9,292,874) -

Total Gross Carrying Amount - 892,220,396 - 892,220,396 43,263,612 (9,292,874) 926,191,134


12 PROPERTY, PLANT AND EQUIPMENT (Contd….)Balance Charge for Disposals/ Balance Charge for Disposals/ Balance

12.2 Depreciation As at the period / Transfers As at the period / Transfers As at 01.04.2011 Transfers 31.03.2012 Transfers 31.03.2013

At Cost Rs. Rs. Rs. Rs. Rs. Rs.

Buildings - 1,853,162 - 1,853,162 11,759,891 - 13,613,053 Furniture & Fittings - 557,000 - 557,000 6,046,572 - 6,603,572 Equipments : Entertainment Equipment - 294,897 - 294,897 1,252,119 - 1,547,016 Office Equipment - 164,734 - 164,734 1,102,080 - 1,266,814 Sundry Equipment - 308,127 - 308,127 5,804,717 - 6,112,844 Linen and Furnishing - 263,939 - 263,939 2,648,822 - 2,912,761 Kitchen Utensils and Other Equipments - 252,046 - 252,046 1,106,662 - 1,358,708 Air Condition - 158,815 - 158,815 4,024,743 - 4,183,558 Gardening & Other Equipment - 18,946 - 18,946 59,348 - 78,294 Electrical Fitting - 72,060 - 72,060 1,607,258 - 1,679,318 Crockery & Cutlery - 282,416 - 282,416 958,002 - 1,240,418 Generator 994,243 - 994,243

- 4,226,143 - 4,226,143 37,364,457 - 41,590,600 Assets on Finance leaseMotor Vehicles - 151,167 - 151,167 873,581 1,024,748 Total Depreciation - 4,377,310 - 4,377,310 38,238,038 - 42,615,348

12.3 Net Book Values 2013 2012Rs. Rs.

At CostFreehold Land 259,667,036 259,667,036 Buildings 466,075,454 468,542,471 Furniture and Fittings 30,640,548 35,493,340 Equipments : Entertainment Equipment 3,851,794 4,570,943 Office Equipment 5,490,171 6,351,066 Sundry Equipment 12,130,942 16,840,623 Linen and Furnishing 5,133,541 7,442,063 Kitchen Utensils and Other Equipments 9,981,793 10,524,772 Air Condition 54,943,615 51,968,726 Gardening & Other Equipment 218,445 277,793 Electrical Fittings 21,223,464 19,980,975 Crockery and Cutlery 2,266,259 2,389,319 Generator 9,503,150

881,126,212 884,049,127 Assets on Finance Lease

Motor Vehicles 2,449,574 3,343,155 2,449,574 3,343,155

Working CapitalCapital Work in Progress - 450,804

- 450,804 883,575,786 887,843,086


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12.4 During the period, the company acquired Property, Plant and Equipment to the aggregate value of Rs. 33,970,738/- (2012 - Rs. 892,220,396/-) , the consideration for which was settled by cash amounting Rs. 33,970,738/- (2012 - Rs. 437,320,271/-)

13 OTHER FINANCIAL ASSETS AND FINANCIAL LIABILITIES2013 2012

Interest Bearing Loans and Borrowings Rs. Rs.

Current Interest Bearing Loans and BorrowingsBank Loan (13.1) 2,676,000 - Bank Overdrafts 16,053,809 22,813,358 Obligation Under the Finance Lease 421,067 368,243 Total Current Interest Bearing Loans and Borrowings 19,150,876 23,181,601

Non Current Interest Bearing Loans and BorrowingsBank Loan (13.1) 3,317,000 -

Obligation Under the Finance Lease 1,421,989 1,872,697Total Non Current Interest Bearing Loans and Borrowings 4,738,989 1,872,697

13.1 Bank Loans Rate of Term of Balance Loans Repayments Balance As atInterest Repayment As at Obtained 31.03.2013

% 01.04.2012 Rs. Rs. Rs.

Sampath Bank PLC - Rs. 8 Mn Loan AWPLR + 25% with a floor of

15% Pa

35 equal monthly

Installments

- 8,000,000 (2,007,000) 5,993,000

2013 2012

Rs. Rs.

Current 2,676,000 - Non Current 3,317,000 -

5,993,000 -

Securities1. Mortgage over FG Wilson sound proof Generator for Rs. 8 Mn.2. Corporate Guarantee of Citrus Leisure PLC for Rs. 8 Mn.


13 OTHER FINANCIAL ASSETS AND FINANCIAL LIABILITIES (Contd….)13.2 Finance Lease

Balance New Leases Obtained

Repayments Balance New Leases Repayments Balance

As at As at Obtained As at01.04.2011 31.03.2012 31.03.2013

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

National Development Bank PLC - 3,234,360 (215,624) 3,018,736 - (705,320) 2,313,416 Finance Charges Allocated to future periods - (890,610) 112,813 (777,797) - 307,437 (470,360)Net Liability - 2,343,750 (102,811) 2,240,939 - (397,883) 1,843,056

2013 2012Rs. Rs.

Current 421,067 368,243 Non Current 1,421,989 1,872,697

1,843,056 2,240,940

13.3 Fair Values Carrying Amount

FairValues

2013 2012 2013 2012

Financial AssetsTrade and Other Receivables 87,694,477 92,146,502 87,694,477 92,146,502 Cash and cash equivalents other than bank over draft 14,424,472 2,249,206 14,424,472 2,249,206 Total 102,118,949 94,395,708 102,118,949 94,395,708

Financial LiabilitiesInterest Bearing Loans and BorrowingsFinancial Lease 1,843,056 - 1,843,056 - Fixed rate Borrowings 5,993,000 - 5,993,000 - Trade and other payables 101,613,191 260,567,660 101,613,191 260,567,660 Bank Overdraft 16,053,809 22,813,358 16,053,809 22,813,358 Total 125,503,056 283,381,018 125,503,056 283,381,018


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

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

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

Long-term fixed-rate and variable-rate receivables / borrowings are evaluated by the Company based on parameters such as interest rates, specific country risk factors, and individual creditworthiness of the customer and the risk characteristics of the financed project. Based on this evaluation, allowances are taken to account for the expected losses of these receivables. As at 31 March 2013, the carrying amounts of such receivables, net of allowances, are not materially different from their calculated fair values.

35

14 INVENTORIES2013 2012

Rs. Rs.

House keeping and Maintenance 1,057,965 1,156,564 Food 749,590 1,281,704 Beverage 1,723,979 1,587,141 Printing and Stationery 443,650 477,156 Ayurveda - 13,505

3,975,184 4,516,070

15 TRADE AND OTHER RECEIVABLES2013 2012

Rs. Rs.

Trade Debtors 45,724,007 58,699,909 Other Debtors - Others 8,335,304 27,407,373 - Related Parties (15.1) 33,635,166 6,039,220

87,694,477 92,146,502

As at 31 March, the age analysis of trade receivables are as follows: Neither past due or not impaired Past due but not impaired

Total < 30 31 - 60 61-90 91-120 > 120days days days days days

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

2013 45,724,007 18,776,626 6,837,007 6,428,343 3,761,751 9,920,280 2012 58,699,909 17,421,196 26,807,745 14,470,968 - -

15.1 Trade Dues Receivables from Related Parties Relationship 2013 2012

Rs. Rs.

Kalpitiya Beach Resort PLC Affiliate Company

- 19,720

Citrus Aqua Limited Affiliate Company

1,208,128 250,000

Citrus Vacations Limited Affiliate Company

16,645,050 5,494,500

Passikudah Beach Resort Limited Affiliate Company

1,731,976 275,000

Waskaduwa Beach Resort PLC Affiliate Company

14,050,012 -

33,635,166 6,039,220


16 CASH AND CASH EQUIVALENTS 2013 2012Components of cash and cash equivalents Rs. Rs.

16.1 Cash and Cash Equivalents Balance Cash and Bank Balances 14,424,472 2,249,206

16.2 Unfavourable Cash and Cash Equivalent BalancesBank Overdraft (16,053,809) (22,813,358)Total Cash and Cash Equivalents for the Purpose of Cash Flow Statement (1,629,337) (20,564,152)

17 STATED CAPITAL 2013 2013 2012 2012Number Rs. Number Rs.

As at 01 April 51,816,507 669,031,426 - - Issue of Shares 5,757,390 109,536,771 51,816,507 669,031,426 As at 31 March 57,573,897 778,568,197 51,816,507 669,031,426

18 RETIREMENT BENEFIT OBLIGATION 2013 2012Rs. Rs.

Balance as at 01 April 4,475,656 - Transferred of Gratuity Liability - 3,227,187 Provision for the period 1,114,347 1,393,077 Payments made during the period (624,966) (144,608)Balance as at 31 March 4,965,037 4,475,656

The defined benefit obligation of the Company is based on the Messers. Actuarial and Management Consultants (Private) Limited, actuaries. Appropriate and compatible assumptions were used in determining the cost of defined benefits.

The principle assumptions used were as follows,

2013 2012

Discount Rate 11% 11%Future Salary Increment Rate 10% 10%Retirement Age 60 60


37

19 TRADE AND OTHER PAYABLES 2013 2012Rs. Rs.

Trade Creditors 4,783,724 7,724,784 Sundry Creditors Including Accrued Expenses 39,764,204 97,576,367 Amount due to Related parties (Note 19.1) 57,065,263 155,266,509

101,613,191 260,567,660

19.1 Amounts due to Related Parties Relationship 2013 2012Rs. Rs.

Citrus Leisure PLC Parent Company 32,696,583 95,989,574 Waskaduwa Beach Resort PLC Affiliate Company - 59,276,935 Kalpitiya Beach Resort PLC Affiliate Company 24,368,680 -

57,065,263 155,266,509

20 COMMITMENTS AND CONTINGENCIES

The Company does not have significant capital commitments and contingencies as at the end of reporting period.

21 ASSETS PLEDGED

Description CarryingValue Included2013 Under

FG Wilson Generator - Mortgaged over Sampath Bank loan 9,503,150 Property, Plant and Equipment Sampath Bank PLC Ac. No. 5029 0900 0225 for Euro. 13,129.91Sampath Bank PLC Ac. No. 5029 0900 0209 for USD 25,520.01

4,800,000 Cash and Cash Equivalents

22 EVENTS OCCURRING AFTER THE REPORTING DATEThere have been no material events occurring after the reporting period that require adjustments to or disclosure in the financial statements.


23 RELATED PARTY DISCLOSURESDetails of significant related party disclosures are as follows:

Transaction with the parent and related entities

Nature of Transaction Parent Company Affiliate Companies* Total2013 2012 2013 2012 2013 2012

Rs. Rs. Rs. Rs. Rs. Rs.Investments made in the Company - 659,829,280 - - - 659,829,280 Transfer of Freehold Land and Buildings and other assets - (398,526,493) - - - (398,526,493)Transfer of Gratuity Liability - 3,472,520 - - - 3,472,520 Fund Transfers 65,297,560 (58,435,508) 155,476,010 (53,237,715) 220,773,570 (111,673,223)Collection made by the Company on behalf of others (275,717) - - (275,717) - Expenses Allocation (1,388,876) - - (1,388,876) - Funds received from (3,000,000) - (94,755,075) - (97,755,075) - Management Fee 6,914,171 - - 6,914,171 - Payable for Services (4,254,147) - (48,579) - (4,302,726) - Service received - - 1,831,845 - 1,831,845 - Total (32,696,583) 206,339,799 9,266,486 (53,237,715) (23,430,097) 153,102,084

*Transactions with Waskaduwa Beach Resort PLC, Kalpitiya Beach Resort PLC, Citrus Vacation Limited,Citrus Aqua Limited are given above under details of related party transactions with affiliates.

** Included in Stated Capital ,Amounts due from and due to Related Parties which are disclosed under Notes 17,15 and 19 respectively.

23.1 Compensation to Key Management Personnel

The Key Management Personnel of the Company are the members of its Board of Directors and that of its parent.

No material transactions have taken place during the year with the Key Management Personnel of the Company and that of its Parent, which disclosure in these Financial Statements other than those disclosed above.

23.2 Other Related Parties Disclosures

Transactions with the parties/entities in which Key Management Personnel or their Close Family Members have control, joint control or significant influence, which disclosure in these Financial Statements.

No material transactions have taken place during the year with the parties/entities in which Key Management Personnel or their Close Family Members have control, joint control or significant influence, which disclosure in these Financial Statements other than those disclosed above.


39

24. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES

24.1 Risk management framework The Board of Directors has overall responsibility for the establishment and oversight of the Company’s risk management framework. The Board has established the Risk

Management Committee, which is responsible for developing and monitoring the Company’s risk management policies. The committee reports regularly to the Board of Directors on its activities.

The Company’s risk management policies are established to identify and analyses the risks faced by the Company, to set appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and the Company’s activities. The Company, through its training and management standards and procedures, aims to develop a disciplined and constructive control environment in which all employees understand their roles and obligations.

The Company Audit Committee oversees how management monitors compliance with the Company’s risk management policies and procedures, and reviews the adequacy of the risk management framework in relation to the risks faced by the Company. The Company Audit Committee is assisted in its oversight role by Internal Audit. Internal Audit undertakes both regular and ad hoc reviews of risk management controls and procedures, the results of which are reported to the Audit Committee.

Financial Instruments held by Company, principally comprise of cash, trade and other receivables, trade and other payables, loans and borrowings and finance leases. The main purpose of these financial liabilities is to manage the Company’s operating, investing and financing activities.

Financial Risk management of the Company is carried out based on the guidelines established by the parent company’s management team which comes under the purview of the Board of Directors of the parent company.

Credit Risk Credit risk is the risk of financial loss to the Company if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from

the Company’s receivables from customers and investment securities.

The Company is exposed to credit risk from its operating activities (primarily trade receivables) and from its financing activities, including deposits with banks, foreign exchange transactions and other financial instruments. The Company trades only with recognized, creditworthy third parties. The Company’s exposure to credit risk is influenced mainly by the individual characteristics of each customer. However, management also considers the demographics of the Company’s customer base, including the default risk of the industry and country in which customers operate, as these factors may have an influence on credit risk.

It is the Company’s policy 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’s exposure to bad debts is not significant.

The Risk Management Committee has established a credit policy under which each new customer is analyzed individually for creditworthiness before the Company’s standard payment and delivery terms and conditions are offered.

Liquidity Risk Liquidity risk is the risk that the Company will encounter difficulty in meeting the obligations associated with its financial liabilities that are settled by delivering cash or another

financial asset. The Company’s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Company’s reputation.


24. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (Contd….)

24.1 Risk management framework (Contd….) Market Risk Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and equity prices will affect the Company’s income or the value of its holdings of

financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimising the return.

Operational risk Operational risk is the risk of direct or indirect loss arising from a wide variety of causes associated with the Company’s processes, personnel, technology and infrastructure, and

from external factors other than credit, market and liquidity risks such as those arising from legal and regulatory requirements and generally accepted standards of corporate behaviour. Operational risks arise from all of the Company’s operations.

The Company’s objective is to manage operational risk so as to balance the avoidance of financial losses and damage to the Company’s reputation with overall cost effectiveness and to avoid control procedures that restrict initiative and creativity.

The primary responsibility for the development and implementation of controls to address operational risk is assigned to senior management within each business unit. This responsibility is supported by the development of overall Company standards for the management of operational risk in the following areas:

- Requirements for appropriate segregation of duties, including the independent authorization of transactions - Requirements for the reconciliation and monitoring of transactions - Compliance with regulatory and other legal requirements - Documentation of controls and procedures - Requirements for the periodic assessment of operational risks faced, and the adequacy of controls and procedures to address the risks identified - Requirements for the reporting of operational losses and proposed remedial action - Development of contingency plans - Training and professional development - Ethical and business standards - Risk mitigation.

Compliance with Company standards is supported by a programme of periodic reviews undertaken by Internal Audit. The results of Internal Audit reviews are discussed with the management of the business unit to which they relate, with summaries submitted to the Audit Committee and senior management of the Company.

Capital management The Board’s policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence and to sustain future development of the business. The Board of

Directors monitors the return on capital, which the Company defines as result from operating activities divided by total shareholders’ equity, excluding noncontrolling interests. The Board of Directors also monitors the level of dividends to ordinary shareholders.


41

The Board seeks to maintain a balance between the higher returns that might be possible with higher levels of borrowings and the advantages and security afforded by a sound capital position.

The Company’s debt to adjusted capital ratio at the end of the reporting period was as follows:

2013 2012

Total Liabilities 130,468,093 293,647,257Less: Cash and Cash Equivalent 14,424,472 2,249,206Net Debt 144,892,565 295,896,462

Total Equity 862,629,970 695,415,610( + / - ) Adjustments - -Adjusted Capital 862,692,970 695,415,610Debt to Adjusted Capital 17% 43%

There were no changes in the Company’s approach to capital management during the year. The Company is not subject to externally imposed capital requirements.


Share Information

ORDINARY SHAREHOLDERS

There were 493 registered shareholders as at 31st March 2013, distributed as follows.

Shareholders Categorized Summary Report – As At 31St March 2013

From To No of Holders No of Shares %

1 1,000 365 122,061 0.21 1,001 10,000 106 311,015 0.54 10,001 100,000 17 370,651 0.64 100,001 1,000,000 2 394,597 0.69 Over 1,000,000 3 56,375,573 97.92 Total 493 57,573,897 100.00

Categories of Share Holders

Category No of Holders No of Shares %

ShareholdersLocal Individuals 466 6,023,361 10.46Local Institutions 26 51,530,536 89.51Foreign Individuals - - 0.00Foreign Institutions 1 20,000 0.03Total 493 57,573,897 100.00

The percentage of issued shares held by the public as at 31st March 2013 was 11.20%

Share Prices 31.03.2013 Price

Highest Rs.29.80 (17.12.2012)

Lowest Rs.16.80 (12.03.2013)

Close Rs.18.00

43

Directors’ Shareholding as at 31.3.2013 No of Shares

1 Mr. Rajinda Seneviratne - 2 Mr. Dilith Susantha Jayaweera - 3 Mr Emilianus Prema Alphonse Cooray 1 4 Mr Pathiranage Vasula Sanjeewa Premawardhana - 5 Mr Gehan Ramesh Walter De Soysa - 6 Mr Hemantha Ratnayake -

20 MAJOR SHAREHOLDERS OF THE COMPANY

NAME NOOF (%) SHARES AS AT 31.3.2013 1 CITRUS LEISURE PLC 51,127,239 88.80 2 MR C N SAMARATHUNGA 5,248,334 9.12 3 VENTURA CRYSTAL INVESTMENT (PVT) LTD 232,000 0.40 4 MR T G THORADENIYA 162,597 0.28 5 OPULANT FUND (PRIVATE) LIMITED 40,000 0.07 6 WALDOCK MACKENZIE LIMITED / MR M UDAYASUNDER & MRS M U VANITHA KUMARI 39,975 0.07 7 MR B T SAMARAWEERA 39,180 0.07 8 MERCHANT BANK OF SRI LANKA PLC / UNION INVESTMENTS LTD 33,742 0.06 9 MR W S E FERNANDO AND MRS S K FERNANDO 26,000 0.04 10 MR N L WICKRAMAGE 25,140 0.04 11 PRIDEASIA INVESTMENT’S (PVT) LIMITED 25,000 0.04 12 MR S H AMARASEKERA 20,600 0.04 13 TRANZ DOMINION L L C 20,000 0.03 14 MR W G T DISALA AND MRS D N D SAMARAWEERA 18,166 0.03 15 MR M M FUAD 13,820 0.02 16 SIME MAXIS (PRIVATE) LIMITED 12,721 0.02 17 MR G RAJENDREN 12,640 0.02 18 MRS F N RAMEEZ 12,000 0.02 19 MRS D S ABEYWARDENA 10,972 0.08 20 MRS S GAMAGE 10,680 0.08 57,130,806 99.23 Others 443,091 0.77 Total 57,573,897 100.00


Notice of Annual General Meeting

NOTICE IS HEREBY GIVEN that the Second Annual General Meeting of Hikkaduwa Beach Resort Ltd. will be held at Citrus Leisure PLC, No. 2, Police Park Avenue, Colombo 5 on Friday, 27th September 2013 at 9.15 a.m. for the following purposes.

1. Ordinary Business 1.1. To receive and consider the Annual Report of the Board of Directors on the affairs of the Company and the Statement of Accounts for the year ended 31st March 2013, together with

the Report of the Auditors thereon.

1.2. To re-elect Mr. P V S Premawardhana, in terms of Article 95 of the Articles of Association as a Director of the Company.

1.3. To re-elect Mr. Gehan Ramesh Walter De Soysa, in terms of Article 95 of the Articles of Association as a Director of the Company.

1.4. To re-appoint M/s Ernst & Young Chartered Accountants as Auditors of the Company for the ensuring year and to authorize the Directors to determine their remuneration.

1.5. To authorize the Directors to determine and make payments for charitable and other purposes for the year 2013/2014 as set out in The Companies Donation Act (CAP147). 2. Special Business

To consider and if thought fit to pass the following as a Special Resolution:

“IT IS HEREBY RESOLVED THAT to approve the change of status of the Company from ‘Limited’ to ‘PLC’ in terms of Sections 8(1) and 11(3) read together with Section 92(1)(g) of the Companies Act, No.7 of 2007, consequent to the Shares of the Company being listed on the Colombo Stock Exchange.”

By order of the Board ofHikkaduwa Beach Resort Limited


Colombo 17 August 2013

Note:

i) A Shareholder is entitled to appoint a Proxy to attend and vote at the meeting on his/her behalf.

ii) A Proxy need not be a shareholder of the Company.

iii) The completed Form of Proxy should be deposited at the Registered Office of the Company at No 2, Police Park Avenue, Colombo 5 not later than 36 hours prior to the time appointed for the holding of the meeting.

45

Notes


Notes

47

*I/We ...................................................................................................................................................... of ...............................................................................................................................

....................... being a Shareholder / Shareholders* of Hikkaduwa Beach Resort Limited, do here by appoint ........................................................................................................................

.............................. of .................................................................................................................................................................................................................................................................

or failing *him /her

Mr. Emilianus Prema Alphonse Cooray of Colombo or failing him*Mr. Dilith Susantha Jayaweera of Colombo or failing him*Mr. Rajinda Seneviratne of Colombo or failing him*Mr. Hemantha Ratnayake of Colombo or failing him*Mr. Pathiranage Vasula Sanjeewa Premawardhana of Colombo or failing him*Mr. Gehan Ramesh Walter De Soysa of Colombo as *my/our proxy to represent *me/us, to speak and to vote for *me/us on *my/our behalf at the Annual General Meeting of the Company to be held on 27 September 2013 at 9.15 a.m. and any adjournment thereof and at every poll which may be taken in consequence thereof.

1. Ordinary Business FOR AGAINST

1.1. To receive and consider the Annual Report of the Board of Directors on the affairs of the Company and the Statement of Accounts for the year ended 31st March 2013, with the Report of the Auditor

1.2. To re-elect Mr. P V S Premawardhana, in terms of Article 95 of the Articles of Association as a Director of the Company.

1.3. To re-elect Mr. G R W De Soysa, in terms of Article 95 of the Articles of Association as a Director of the Company

1.4. To re-appoint M/s Ernst & Young, as Auditors of the Company for the ensuring year and to authorize the Directors to determine their remuneration.

1.5. To authorize the Directors, to determine and make payments for charitable and other purposes for the year 2013/2014 as set out in the Companies Donation act. (CAP 147)

2. Special Business

To pass the Special Resolution set out under item 2 of the Notice of Meeting for the change of status of the Company.

Signed this …………………… day of ………………………. 2013 ................................................... Signature of Shareholder/s

Notes 1. *Please delete the inappropriate words. 2. Instructions as to completion are noted on the reverse hereof.

Form of Proxy


INSTRUCTIONS AS TO COMPLETION

1. Kindly perfect the Form of Proxy by filling in legibly your full name, address and signing in the space provided and filling in the date of signature.

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

3. If you wish to appoint a person other than the Chairman or a Director of the Company as your Proxy, please insert the relevant details in the space provided (above the names of the Board of Directors) on the Proxy Form.

4. If the Form of Proxy is signed by an Attorney, the relative Power of Attorney should accompany the Form of Proxy for registration if such Power of Attorney has not already been registered with the Company.

5. If the appointer is a Company / Incorporated body this Form must be executed in accordance with the Articles of Association / Statute.

6. The completed Form of Proxy should be deposited at the Registered Office of the Company at No 2, Police Park Avenue, Colombo 5 not later than thirty six (36) hours before the time appointed for the meeting.

Form of Proxy

Content

The Board of Directors 1Annual Report of the Board of Directors on the Affairs of the Company 3Statement of Directors’ Responsibility 6Corporate Governance 7Audit Committee Report 9Remuneration Committee Report 10Independent Auditors’ Report 11Statement of Comprehensive Income 12Statement of Financial Position 13Statement of Changes in Equity 14Statement of Cash Flows 15Notes to the Financial Statements 16Share Information 42Notice of Annual General Meeting 44Notes 45Form of Proxy 47Corporate Information Inner Back Cover

Corporate Information

Name of CompanyHikkaduwa Beach Resort Limited Legal FormPublic Quoted Company with limited liability Incorporated in Sri Lanka. Registered Office

No: 02, Police Park Avenue, Colombo 05. Telephone : 0115755055 Fax : 0112593455 E-mail : [email protected] Website: www.citrusleisure.com

Board of Directors

Mr. E.P.A. Cooray (Chairman)Mr. D. S. JayaweeraMr. Hemantha Ratnayake Mr. Vasula Premawardene Mr. Gihan De Soyza Mr. R. Seneviratne Company Secretaries

P W Corporate Secretarial (Pvt) Ltd. No.3/17, Kynsey Road, Colombo 08.

AuditorsErnst & YoungChartered Accountants201, de Saram Place,Colombo 10. BankersSampath Bank PLCNations Trust Bank PLCPan Asia Bank Corporation PLCCommercial Bank of Ceylon PLC

www.citrusleisure.com

Annual Report 2012/13

Hikkaduwa Beach AR 2012-13

Documents

Transcript of Hikkaduwa Beach AR 2012-13