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Seizing Opportunities, Embracing Change
Annual Report 2011 - 2012
Hotel Services (Ceylon) PLCCo. Reg. No. PQ 203
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Inormation to Shareholders 2| Financial Summary 3| Chairmans Statement 5| Board o Directors 7Annual Report o the Directors on the Afairs o the Company 9| Corporate Governance 12Risk Management 18| Statement o Directors Responsibilities 20| Audit Committee Report 21Independent Auditors Report 23| Income Statement 24| Balance Sheet 25| Statement o Changes in Equity 26Cash Flow Statement 27| Notes to the Financial Statements 28| Notice o Meeting 46| Form o Proxy 47| Corporate Structure - Inner Back Cover
Contents
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Annual Report 2011 - 2012
Hotel Services (Ceylon) PLC
It is remarkable to relect on our companys past yearand the complete reurbishment and transormationthat is taking place in this relatively short time span.Being a orerunner in the hotel sector we are uniquely
grounded in our purpose to open doors to a world oopportunity and conident it will propel our success.Thus, the Hoberman Sphere on the cover o thisreport relects our momentum to seize opportunityand embrace change.
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Annual Report 2011 - 2012
Hotel Services (Ceylon) PLC
Information to
ShareholdersOrdinary Shareholders as at 31st March 2012Residents Non Residents Total
No. of No. of No. of No. of No. of No. of No. of
Shares Held Shareholders Shares % Shareholders Shares % Shareholders Shares %
1 - 1,000 2,316 1,049,633 0.5964 6 2,540 0.0014 2,322 1,052,173 0.5978
1,001 - 5,000 1,183 3,194,063 1.8148 12 40,160 0.0228 1,195 3,234,223 1.8376
5,001 - 10,000 298 2,465,739 1.4010 3 28,700 0.0163 301 2,494,439 1.4173
10,001 - 50,000 265 6,323,408 3.5928 10 299,300 0.1701 275 6,622,708 3.7629
50,001 - 100,000 57 4,352,500 2.4730 2 175,000 0.0994 59 4,527,500 2.5724
100,001 - 500,000 48 11,156,300 6.3388 2 324,800 0.1845 50 11,481,100 6.5234
500,001 - 1,000,000 10 7,690,046 4.3693 - - - 10 7,690,046 4.3693
OVER 1,000,000 16 138,897,811 78.9192 - - - 16 138,897,811 78.9192
4,193 175,129,500 99.5054 35 870,500 0.4946 4,228 176,000,000 100.0000
Category
Individuals 3,987 22,514,467 15.5569 31 520,670 0.2958 4,018 23,035,137 13.0881
Institutions 206 152,964,779 83.9485 4 349,830 0.1988 210 152,964,863 86.9119
4,193 175,129,500 99.5054 35 870,500 0.4946 4,228 176,000,000 100.0000
First Twenty Shareholders as at 31st March 2012
No. o Shares No. o Shares
Name o Shareholder as at 31.03.2012 % as at 31.03.2011 %
1 HAYLEYS PLC NO 3 SHARE INVESTMENT ACCOUNT 66,762,690 37.93 66,762,690 37.93
2 CARBOTELS (PVT) LIMITED 23,000,000 13.07 23,000,000 13.07
3 EMPLOYEES PROVIDENT FUND 18,374,122 10.44 12,917,700 7.34
4 BANK OF CEYLON - A/C NO. 2 7,833,500 4.45 7,833,500 4.45
5 NATIONAL SAVINGS BANK 2,707,100 1.54 1,748,900 0.99
6 MERCHANT BANK OF SRI LANKA LTD - A/C NO. 1 2,672,370 1.52 2,792,870 1.59
7 RENUKA HOTELS LIMITED 2,371,300 1.35 2,222,300 1.26
8 RENUKA CITY HOTELS LIMITED 2,260,300 1.28 2,166,500 1.23
9 DEUTSCHE BANK AG-NATIONAL EQUITY FUND 2,200,000 1.25 2,200,000 1.25
10 SEYLAN BANK PLC. - A/C NO. 3 2,000,229 1.14 2,350,000 1.34
11 PREMIUM BRANDS (PVT) LIMITED 1,928,700 1.10 1,928,700 1.1012 RENUKA CONSULTANTS & SERVICES LIMITED. 1,835,100 1.04 1,510,100 0.86
13 DEUTSCHE BANK AG NAMAL ACUITY VALUE FUND 1,650,000 0.94 1,650,000 0.94
14 WALDOCK MACKENZIE LIMITED/MR. L. P. HAPANGAMA 1,227,700 0.70 1,227,700 0.70
15 EAST WEST PROPERTIES PLC 1,064,600 0.60 0 0.00
16 CARGO BOAT DEVELOPMENT COMPANY LIMITED 1,010,100 0.57 1,010,100 0.57
17 MISS. A. N. DE SILVA 1,000,000 0.57 1,250,000 0.71
18 UNION BANK OF COLOMBO LTD 1,000,000 0.57 1,000,000 0.57
19 MR. V. LINTOTAWELA 977,700 0.56 1,373,100 0.78
20 ASSOCIATED ELECTRICAL CORPORATION LTD 948,400 0.54 500,000 0.28
TOTAL 142,823,911 81.15 135,444,160 76.96
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Hotel Services (Ceylon) PLC
Financial
Summary5 Year Financial Summary and Key Indicators 2011/12 2010/11 2009/10 2008/09 2007/08
Rs.000 % Rs.000 Rs.000 % Rs.000 % Rs.000 %
Revenue
Rooms 251,439 46 277,689 46 111,385 33 134,799 32 172,073 35
Food & Beverages 282,471 52 310,342 51 213,013 62 277,645 65 300,087 62
Other Operating Income 13,267 2 18,517 3 17,013 5 14,753 3 15,533 3
Total Revenue 547,177 100 606,548 100 341,411 100 427,197 100 487,693 100
Direct Cost
Food & Beverage Cost 111,156 20 123,313 20 75,613 22 98,492 23 91,120 19
Total Expenses 111,156 20 123,313 20 75,613 22 98,492 23 91,120 19
Gross Operating Prot 436,021 80 483,235 80 265,798 78 328,705 77 396,573 81
Expenses
Administration & General 249,222 46 206,129 34 136,289 40 151,508 35 180,473 37
Advertising & Sales 55,500 10 54,328 9 19,282 6 28,674 7 22,335 5
Heat, Light & Power 79,956 15 77,512 13 49,218 14 53,354 12 49,108 10
Repairs & Maintenance 25,716 5 21,624 4 10,703 3 12,687 3 19,864 4
Total Deductions 410,393 75 359,593 59 215,492 63 246,223 58 271,780 56
Operating Prot 25,628 5 123,642 20 50,306 15 82,482 19 124,793 26
Other Income and Expenses (22,664) (4) 1,042 0 1,540 0 7,380 2 1,921 0De - recognition o Property,
Plant and Equipment (149,992) (27) - - - - - - - -
(147,028) 1 124,684 21 51,846 15 89,862 21 126,714 26
Interest Expenses/(Income) (1,461) (0) (4,727) (1) 1,476 0 4,382 1 (3,220) (1)
Depreciation 56,675 10 62,751 10 46,294 14 47,522 11 48,199 10
55,213 10 58,024 10 47,770 14 51,904 12 44,979 9
Net (Loss)/Prot Beore Taxation (202,241) (10) 66,660 11 4,076 1 37,958 9 81,735 17
Tax 13,152 2 (13,961) (2) 3,132 1 (9,745) (2) (15,201) (3)
Net (Loss)/Prot Ater Taxation (189,089) (35) 52,699 9 7,208 2 28,213 7 66,534 14
Operating Results
Total Revenue 547,177 606,548 341,411 427,197 487,693Sales Growth % (9.79) 77.66 (20.08) (12.40) (4.78)
Operating Prot 25,628 123,642 50,306 82,473 124,793
Net (Loss)/Prot Beore Taxation (202,241) 66,660 4,076 37,949 81,735
Interest Expenditure (1,461) (4,727) 1,476 4,382 (3,220)
Depreciation 56,675 62,751 46,294 47,522 48,199
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Hotel Services (Ceylon) PLC
2011/12 2010/11 2009/10 2008/09 2007/08
Rs.000 % Rs.000 Rs.000 % Rs.000 % Rs.000 %
Capital Employed
Share Capital 176,000 176,000 176,000 176,000 176,000
Revaluation & Other Reserves 1,087,053 1,227,417 962,933 141,825 143,320
Retained Earnings 164,177 193,762 120,695 111,728 102,876
Shareholders Fund 1,427,230 1,597,179 1,259,628 429,552 422,196
Assets Employed
Non Current Assets 1,956,358 1,729,487 1,453,958 529,185 579,871
Net Current Assets 41,528 67,588 12,544 (16,980) (56,822)
1,997,886 1,797,075 1,466,502 512,205 523,049
Long-term Liabilities 410,290 9,939 10,802 22,825 38,414
Deerred Liabilities 160,366 189,957 196,072 59,828 62,439
1,427,230 1,597,179 1,259,628 429,552 422,196
Key Indicators
Current Ratio 1.63 1.48 1.15 0.79 0.68
Net Assets per Share 8.11 9.07 7.16 24.41 23.99
Market Price per Share 17.40 23.10 23.50 152.25 145.00
Earnings per Share (1.07) 0.30 0.04 1.59 3.78
FinancialSummary
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Hotel Services (Ceylon) PLC
Chairmans
StatementThe year marks major
initiatives undertaken by the
Company to stand out rom the
competition to lagship Ceylon
Continental Hotel through itsmajor reurbishment program
coupled with an ambitious
program to set new standards o
quality and service to its existing
and potential clientele.
Dear Shareholders,
On behal o the board, I am pleased to present the Annual Report
o Hotel Services (Ceylon) PLC or the nancial year 2011/12.
Having aced a particularly challenging environment in 2011,
especially with the ull scale reurbishment o the Ceylon
Continental Hotel, I am pleased to report that the Company
remained operationally protable until the closure at the end
o January 2012. However, the Company registered a decline in
earnings compared to the previous nancial year. This was largely
as a consequence o the signicantly reduced perormance
o Ceylon Continental Hotel which closed its operations in the
months o February and March 2012.
The year marks major initiatives undertaken by the Company to
stand out rom the competition to agship Ceylon Continental
Hotel through its major reurbishment program coupled with an
ambitious program to set new standards o quality and service to
its existing and potential clientele. Furthermore, we are oering
a new standard o quality dened by its unique architecture and
decor in addition to highly personalised service encompassed in
our total value proposition to customers.
Perormance Review
The total revenue declined to Rs. 547 million rom Rs. 606 million
in 2011, resulting in a 10% decline year on year. Additionally,
gross prot showed a slight decline o 13% to Rs. 291 million
rom Rs. 335 million rom the previous year. These results were
in line with the Company business plan pending the major
reurbishment program that commenced in early 2012, to make
a total transormation o its quality and service standards to
customers.
Initiative and Development
With the ongoing renovation programme taking place at theCeylon Continental Hotel, Hotel Services (Ceylon) PLC is poised to
set new standards to secure in its uture growth and to maintain
competitiveness.
During the year, we have strived to develop and sustain all
our capital expenditure programs, whilst investing in new
inrastructure, marketing and human resource capabilities
simultaneous with the ongoing reurbishment.
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Hotel Services (Ceylon) PLC
The Hotel Services (Ceylon) PLC is investing approximately Rs
1.8 billion or its reurbishment project which will transorm the
property into a ully reurbished 229 room hotel as compared
to the 189 units it was previously operating , making it one o
the nest hotels in Colombo. The architecture o the hotel has
been inspired by a neo-classical theme. Upon the completion
o this major reurbishment program, it is expected to provide
our customers a whole new ambience coupled with a new level
o quality and service standards to provide a new meaning and
experience to Sri Lankan hospitality.
The hotel will consist o luxury suites and deluxe rooms, in
addition to 6 restaurants, 3 banquet venues, 3 board rooms,
a business centre, the lounge bar and unique sky bar, innity
pool, state-o-the-art gym and spa. An important part o the
renovation project is the replacement o the old mechanical and
electrical systems o the hotel in its entirety with increased ocus
on reducing energy consumption and carbon emissions, whilst
also saving on operational costs.
Simultaneously, development o our human resources remains
a key ocus to the overall success o this hotel. Thus particular
attention is paid to ensure that we support the development
o all our team members by providing them not only with thenecessary working environment that will keep them motivated
but by training our employees with help rom outside expertise
rom some o the leading hotel chains. Along with this we
conduct recruitment programs to hire people that have been
exposed to international standards consequently developing
both management and leadership capabilities as well as
guaranteeing consistent delivery o high standards o service to
all our customers. We are strengthening our sales and marketing
eorts to gain higher market share by increasing promotional
activity and innovative marketing programmes in key target
markets throughout 2012. Additionally, we have redened our
marketing strategy on our regional and domestic markets with a
more distinct strategy. Our new inrastructure with leading edgetechnology in the hospitality industry, installed throughout the
hotel will help us solidiy our target industry leadership position
in the use o technology to better serve our customers.
Directorate
I would like to acknowledge the service rendered by Mr Upul
Gamage who resigned during the year under review and wish
him success in his uture endeavours.
Outlook
Parallel to the strong economic growth potential o Sri Lanka, the
tourist gures to the country indicates an exponential growth
with a hundred percent increase in the last two years. In this back
drop, the overall outlook or our leisure business remains largely
optimistic. The novel positioning strategy coupled to the major
reurbishment program and new service standards, the Ceylon
Continental Hotel is poised strategically and timely to reap
maximum benets rom the boom in the leisure sector.
Appreciation
It has been a year o signicant challenges and noteworthy
accomplishments or the Company. I am pleased to report that
the changes set in motion in 2011 will help Hotel Services (Ceylon)
PLC to be a benchmark in the leisure industry in years ahead.
The accomplishment o the challenges and the major initiatives
set in motion are attributable to the hard work and dedication o
all our employees and to the guidance and support provided by
my colleagues on the Board. I convey my appreciation to them or
giving me such support and guidance. My sincere appreciation is
urther extended to our shareholders and other key stakeholders
or the condence and support provided during the year.
Mohan Pandithage
Chairman
17th May 2012
ChairmansStatement
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Hotel Services (Ceylon) PLC
Mr. A. M. Pandithage (Chairman)
Mr. Pandithage joined Hayleys Group in 1969. Appointed Chairman and Chie Executive o Hayleys since July 2009.
Honorary Consul o United Mexican States (Mexico) to Sri Lanka. Fellow o the Chartered Institute o Logistics & Transport. Member o
the Presidential Committee on Maritime Matters. Committee Member o the Ceylon Chamber o Commerce. Council Member o the
Employers Federation o Ceylon. Member o the Monetary Policy Consultative Committee o the Central Bank o Sri Lanka. Director, Sri
Lanka Port Management & Consultancy Services Limited. Former Chairman o the Ceylon Association o Ships Agents. Former Director
o both the Sri Lanka Ports Authority and Jaya Container Terminals Limited.
Mr. S. C. Ganegoda *Mr Ganegoda is a ellow member o Institute o Chartered Accountants o Sri Lanka and member o the Institute o Certied Management
Accountants o Australia. He holds an MBA rom the Postgraduate Institute o Management, University o Sri Jayawardenepura. He has
worked or Hayleys PLC and Diesel & Motor Engineering PLC between 1987 and 2002 and ultimately as an Executive Director o the
latter. Subsequently he has held several senior management positions in private sector entities in Sri Lanka and Overseas. He rejoined
Hayleys in March 2007 and unctioned as Head, Strategic Business Development until July 2009. He was appointed to the Board o
Hayleys PLC in September 2009 and to several other Boards o Hayleys Group Companies.
Mr. K. D. D. Perera *
Appointed to the Board in 2010. He is a quintessential strategist and business specialist with 24 years o business experience.
His business interests include Hydropower generation, Manuacturing, Hospitality, Entertainment, Banking and Finance. Currently he
holds the position o Secretary to the Ministry o Transport, Sri Lanka. He is the Chairman o Sampath Bank PLC, Vallibel One PLC, Vallibel
Finance PLC, Vallibel Power Erathna PLC, The Fortress Resorts PLC, Lewis Brown & Company (Pvt) Ltd and Greener Water Ltd. He is the
Deputy Chairman o Hayleys PLC, Royal Ceramics Lanka PLC & LB Finance PLC. He also serves on the Boards o Amaya Leisure PLC,
Hayleys MGT Knitting Mills PLC, Haycarb PLC, Dipped Products PLC, Orit Apparels Lanka (Pvt) Ltd, Nirmalapura Wind Power (Pvt) Ltd,
Alutec Anodising & Machine Tools (Pvt) Ltd and Sri Lanka Insurance Corporation Ltd.
He is also a member o the Board o Directors o Strategic Enterprise Management Agency (SEMA).
Mr. S. P. Dissanayake *
Joined Hayleys in July 2007. Appointed to the Group Management Committee in the same month. Graduate in Hotel Management. Was
awarded the Lie Time Gold Award in 2011 and Honorary Membership in 2004 by the Institute o Personnel Management, in recognition
o his contribution to Human Resources activities in Sri Lanka. Director o Hayleys Group Services (Pvt) Ltd and Director o Hayleys
Foundation (Guarantee) Ltd. Is the Co-Patron o the Hayleys Group Toastmasters Club and Vice Patron o Hayleys Group Recreation
Club. Prior to joining Hayleys, he held several senior management positions in large private sector entities in Sri Lanka and abroad inHuman Resources Management and previously in Hotel Management. Has held signicant honorary and advisory positions in Human
Resources and the Hotel industry. Is a ormer President o the Hotel School Graduates Association and a ormer Member o the Hotel
Classication Committee o Sri Lanka Tourism Development Authority. Is a member o the Ceylon Chamber o Commerce Steering
Committee or HR and Education and is also a Steering Committee Member o the Lanka Business Coalition (LBCH) or prevention o
AIDS. Is the Sector Head or Group Human Resources, Corporate Communications/Sustainability and Group Security at Hayleys.
Mr. S. J. Wijesinghe
Joined Hayleys in October 2008 as CEO o Civaro International and later moved on to take over his current position as Head o the
Leisure and Aviation sector in 2009. He was appointed to the Group Management Committee in 2011. Johann holds a MBA rom the
University o Leicester (UK) and is a Member o the Chartered Institute o Marketing (UK). Johann has over 20 years experience in the
Board of
Directors
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Annual Report 2011 - 2012
Hotel Services (Ceylon) PLC
Aviation industry with the National Carrier SriLankan Airlines. Prior to joining Hayleys, he was the Head o Worldwide Cargo at SriLankan
Airlines responsible or the entire air reight business sector o the organisation. He also held several senior positions or the airline
including management positions in Europe, Middle East, Far East and at the Head Ofce in Colombo. Johann also has over 5 years
experience in the Hotel industry having served as the Director Marketing & Sales at The Lanka Oberoi.
Mr. N. J. De S. Deva-Aditya **
Mr. Deva-Aditya was the First Asian MP elected to Conservative Party in the House o Commons and Bachelor Technology (Honors)
Upper Second, Aeronautical Engineering and Design , Research Fellow, University o Louhborough, Graduate o the Royal Aeronautical
Society and Institute o Mechanical Engineers and he holds directorships in six companies.
Ms. R. N. Ponnambalam **
Mrs. Ponnambalam has held several senior management positions in large private sector entities.
She has served as a Director o McLarens Holdings Limited & GAC Shipping Limited. She currently serves as Director o Amaya Leisure
PLC, Alliance Finance Co. PLC and McBolon Polymer (Pvt) Ltd. She is presently the Managing Director / CEO o Macbertan (Pvt) Ltd. She
has also been in roles o International & Local Business Development and negotiation.
Mr. L. N. De S. Wijeyeratne **
Mr. De Silva Wijeyeratne is a ellow member o the Institute o Chartered Accountants o Sri Lanka and counts over thirty years experience
in nance and general management, both locally and overseas. He was the ormer Group Finance Director o Richard Pieris & Company
PLC and is presently a Director o several listed and unlisted companies.
Mr. W. D. N. H. Perera *
Appointed to the Board in 2011. He counts or over 30 years experience in Finance, Capital Market Operations, Manuacturing, Marketing
and Management Services. Managing Director o Royal Ceramics Lanka PLC, Executive Deputy Chairman o Vallibel One PLC, Chairman
o Pan Asia Banking Corporation PLC, Don Wilbert Capital Ltd, N Sports (Pvt) Ltd, N Capital (Pvt) Ltd, Director o Hayleys PLC, Haycarb
PLC, Amaya Leisure PLC, LB Finance PLC, Vallibel Finance PLC, Talawakele Tea Estates PLC and Vallibel Power Erathna PLC.
Mr. L. T. Samarawickrama *
Mr. Samarawickrama serves as the Managing Director o Amaya Leisure PLC. He is an internationally qualied Hotelier having gained
most o his Management experience in UK, Working or large international hotel chains over a long period o time. First Sri Lankan
Manager to be appointed by the Beauort International chain o Hotels to run the rst seaside boutique resort in the island. He is a
Member o the Institute o Hospitality UK (ormerly HCIMA) and o the Royal Society o Health, London. He counts over several years oexperience in the trade. Having specialised in Hotel design, he has been responsible or the careul planning and execution o Amaya
Resorts & Spas reurbishment and rehabilitation programs. He is also a Director o the Fortress Resorts PLC, Hunas Falls PLC, Royal
Ceramics Lanka PLC and Kelani Valley Plantations PLC.
Executive
* Non-Executive
** Non-Executive Independent
Board ofDirectors
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Annual Report 2011 - 2012
Hotel Services (Ceylon) PLC
The Board o Directors is pleased to present their report and the
Audited Financial Statements o the Company or the year ended
31st March 2012. The details set out herein provide pertinent
inormation required by the Companies Act, No.7 o 2007 and
the Colombo Stock Exchange Listing rules and are guided by
recommended best accounting practices.
Review o the year
The Chairmans review describes the Companys aairs and
mentions important events o the year.
Principal Activity
The principal activity o the Company is Hoteliering and is the
owner o Ceylon Continental Hotel Colombo.
Financial Statements
The nancial statements o the Company are given in pages 24
to 43.
Auditors Report
The auditors report on the nancial statements is given on page23.
Accounting Policies
The accounting policies adopted in preparation o nancial
statements are given on pages 28 to 32 There were no material
changes in the accounting policies adopted.
Interest Register
The Company in compliance with the Companies Act No. 7 o
2007, maintains an interest register. Particulars o the entries in
the register are detailed below.
Directors Interests in Transactions
The Directors o the Company have made the general disclosure
provided or in section 192(2) o the Companies Act No. 7 o 2007.
Note - 25 to the nancial statements dealing with related party
disclosure includes details o their interests in transactions.
Directors Interests in Shares
Directors interests in shares are given later in this report. There
were no changes to the relevant interests in shares during the
year.
Directors Remuneration and Other Benets
Directors remuneration in respect o the Company or the
nancial year ended 31st March 2012 is given in Note - 5 to the
nancial statements.
Executive Directors remuneration is established within an
established ramework. The total remuneration o Executive
Directors or the year ended 31st March 2012 is Nil. The total
remuneration o Non-Executive Directors or the year ended 31st
March 2012 is Rs. 1,219,000 determined according to scales o
payment decided upon by the Board. The Board is satised thatthe payment o this remuneration is air to the company.
Corporate Donations
Donations made during the year was nil.
Directorate
Directors o the Company as at 31st March 2012
Mr. A. M. Pandithage
Mr. S. C. Ganegoda*
Mr. S. P. Dissanayake*Mr. S. J. Wijesinghe
Mr. N. J. De S. Deva Aditya**
Mr. L. T. Samarawickrama*
Mr. L. N. De S. Wijeyeratne**
Mr. K. D. D. Perera*
Ms. R. N. Ponnambalam**
Mr. W. D. N. H. Perera*
* Non-Executive Directors
** Independent Non-Executive Directors
Mr. U. D. Gamage resigned rom the Board on 20 th December
2011.
In terms o the Article 87 o the Articles o Association o the
Company Messrs. N. J. De S. Deva Aditya, S. J. Wijesinghe and L.
T. Samarawickrama retire by rotation and being eligible, oers
themselves or re-election.
Directors Shareholdings
None o the Directors held shares directly in the Company as at
31st March 2012.
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Hotel Services (Ceylon) PLC
Mr. K. D. D. Perera held directly and indirectly 48% o the total
issued shares o Hayleys PLC.
Corporate Governance
The Company has complied with the corporate governance rules
laid down under the listing rules o the Colombo Stock Exchange.
The corporate governance section on page 12 to 17 discuss this
urther.
EmploymentNumber o persons employed by the Company was 393.
Internal Controls
The Directors acknowledge their responsibility or the Companys
system o internal control. The system is designed to give
assurance, inter alia, regarding the saeguarding the assets, the
maintenance o proper accounting records and the reliability o
nancial inormation generated. However, any system can only
ensure reasonable and not absolute assurance that errors and
irregularities either prevented or detected within a reasonable
time period.
The Board, having reviewed the system o internal controls, is
satised with its eectiveness or the period up to the date o
signing the nancial statements.
Going Concern
The Directors, ater making necessary inquiries and reviews
including the reviews o the Companys budget or the ensuing
year, Capital expenditure requirement, uture prospects and
risks, cash ows and borrowing acilities, have a reasonable
expectation that the Company have adequate resources to
continue in operational existence or the oreseeable uture.
Thereore, the going concern basis has been adopted in the
preparation o the nancial statements.
Auditors
The Auditors, Messrs Ernst & Young, Chartered Accountants,
were paid Rs. 350,000 (2011 Messrs PricewaterhouseCoopers,
Chartered Accountants were paid Rs.306,000) as audit ees by the
Company. In addition, they were paid Rs. 100,000 (2011 Messrs
PricewaterhouseCoopers, Chartered Accountants were paid
Rs.250,000 ) by the Company or non- audit related work.
As ar as the Directors are aware, the Auditors do not have any
relationship (other than that o an Auditor) with the Company
other than those disclosed above. The auditors also do not have
any interest with the Company.
Messrs Ernst & Young, Chartered Accountants, are deemed re-
appointed, in terms o section 158 o the Companies Act No.7 o
2007, as auditors o the Company.
Dividends
The Directors do not recommend the payment o dividends or
the nancial year ended 31st March 2012.
Investments
Details o the investments held by the Company are disclosed in
Note 12 to the nancial statements.
Property, Plant and Equipment
An analysis o the property, plant and equipment o the Company
additions and disposals made during the year and depreciation
charged during the year are set out in Note 11 to the nancial
statements.
The Company closed down the hotel rom 1st February 2012 or a
major reurbishment. As part o the reurbishment, property, plant
and equipment with net book value amounting to Rs.150Mn were
de-recognised by the Company. Total de-recognised amount was
charged to the income statement.
Capital Commitments
Details o the capital commitments o the Company as at 31st
March 2012 are disclosed in Note 21 to the nancial statements.
Stated Capital
The stated capital o the Company is Rs.176,000,000/- comprising
176,000,000 shares.
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Reserves
Total Company reserves as at 31st March 2012 amounts to Rs.
233.68 Mn. (2011 Rs. 263.26 Mn.) Movements are shown in the
statement o changes in equity in the nancial statements.
Taxation
The tax position o the Company is given in Note 9 and 15 to the
nancial statements.
Employees and Industrial Relations
There have been no material issues pertaining to employees and
industrial relations o the Company during the nancial year.
Disclosure as per Colombo Stock Exchange RuleNo.7.6.Xi
31.03.12 31.03.11
Market price per share as at 31st
March
17.40 23.10
Highest share price during the
year
25.60 32.00
Lowest share price during the year 12.60 22.30
Net Asset per share 8.11 9.07
Ordinary shares in issue 176,000,000 176,000,000
Shareholding
The number o registered shareholders o the Company as at 31st
March 2012 was 4228.
Major Shareholders
The twenty largest shareholders o the Company as at 31st March
2012, together with an analysis are given on page 2 o the annual
report.
Public Shareholding
As at 31st March 2012, 49% o the issued capital o the Company
was held by the public.
Statutory Payments
The Directors to the best o their knowledge and belie are
satised that all statutory payments in relation to the government
and the employees have been made and provided.
Contingent Liabilities
There were no material contingent liabilities outstanding as
at 31st March 2012 other than that described in Note 20 to the
nancial statements.
Post Balance Sheet Events
Subsequent to the date o the balance sheet no circumstances
have arisen which would require adjustments to the accounts.
Signicant post balance sheet events which in the opinion o
the Directors require disclosure are described in Note 26 to the
nancial statements.
Annual General Meeting
The Annual General Meeting will be held at the Ceylon Continental
Hotel Colombo, Sapphire Ballroom at 3.00 p.m. on Tuesday, 26 th
June 2012. The Notice o the Annual General Meeting appears
on page 46.
For and on behal o the Board
HOTEL SERVICES (CEYLON) PLC
A. M. Pandithage S. J. Wijesinghe
Hayleys Group Services (Pvt) Ltd
Secretaries
17th May 2012
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Hotel Services (Ceylon) PLC
Hotel Services (Ceylon) PLC is committed to achieve the highest
standards in Corporate Governance practices in conducting its
business.
We set out below the corporate governance practices adopted by
the Company in line with the Code o Best Practice on Corporate
Governance issued by the Institute o Chartered Accountants o
Sri Lanka and the Listing Rules o the Colombo Stock Exchange.
Board o Directors
The Board o Hotel Services (Ceylon) PLC comprise o 10 Directors;
an Executive Chairman, one Executive Director and eight Non-
Executive Directors o which three are independent. The names
o the Directors and their proles are available on page 7 o this
report.
The Board meets quarterly as a practice and adhoc meetings are
held whenever necessary. During the year under review the Board
met on 9 occasions. The attendance o these meetings were:
Name o Director Executive / Non-Executive Attendance
Mr. A. M. Pandithage Chairman Executive 9/9
Mr. S. C. Ganegoda Non-Executive 8/9Mr. S. P. Dissanayake Non-Executive 8/9
Mr. S. J. Wijesinghe Executive 8/9
Mr. N. J. De S. Deva-Aditya Independent Non-Executive 3/9*
Mr. L. T. Samarawickrama Non-Executive 6/9
Mr. L. N. De S. Wijeyeratne Independent Non-Executive 8/9
Mr. U. D. Gamage Executive 4/5**
Mr. K. D. D.Perera Non-Executive 1/9
Ms. R. N. Ponnambalam Independent Non-Executive 9/9
Mr. W. D. N. H. Perera Non-Executive 1/9
* Mr. N. J. De S. Deva-Aditya participated in 02 o these meetings
via conerence call.
** Mr. U. D. Gamage resigned rom the board w.e.. 20/12/2011.
Responsibilities
The directors o the Company are responsible or:
Enhancing shareholder value, ormulating, communicating,
implementing and monitoring o business policies and
strategies.
Corporate
Governance
The Board is ultimately responsible or the Companys nancial
perormance. It is in control o the Companys aairs and
conscious o its obligation to all stakeholders.
Company Secretary
The service and advice o the Company Secretary are made
available to Directors as necessary. The Company Secretary keeps
the Board inormed o new laws, regulations and requirements
coming in to eect which are relevant to them as individual
Directors and collectively to the Board.
Ensuring due compliance with applicable legal, ethical,
health, environment and saety standards and regulations.
Ensuring that due attention is given to appropriate
accounting policies and practices and setting priorities
and communicating values and ethical standards or
management.
Ensuring that appropriate systems o internal controls are in
place to saeguard the assets o the Company.
Reviewing and approving Annual Budgets and periodic
monitoring o perormance against the budgets.
Approving o major investments on business proposals and
adopting annual and interim nancial statements prior to
publication.
Evaluating and monitoring the perormance o the
Company on a regular basis and initiating remedial action
where necessary.
Adopting annual and interim accounts and recommending
dividend or approval by the shareholders.
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Hotel Services (Ceylon) PLC
Board Balance
The composition o the Executive and Non-Executive Directors
(the latter are over one third o the total number o Directors)
satises the requirements laid down in the Listing Rules o the
Colombo Stock Exchange.
The balance o Executive and Non- Executive Directors on the
Board ensures that decision making is transparent and not
dominated by any individual or small group.
As at 31 March 2012, the Board consisted o 10 Directors
comprising o:
2 Executive Directors (ED)
5 NonExecutive Non-Independent Directors (NED)
3 Non-Executive Independent Directors (NED/ID)
Their proles reect their calibre and the weight their views carry
in Board deliberations.
The Board has determined that the Directors: Mr. N. J. De S. Deva-
Aditya, Ms. R. N. Ponnambalam and Mr. L. N. De S. Wijeyeratne
satisy the criteria or independence set out in the Listing Rules.
The Independent Non-Executive Directors are ree rom any
relationship that can interere with the aairs o the Company.
The Chairman o the Company is also the Chairman o Hayleys
PLC. Chie Executive Authority is vested in the General Manager
(CEO) o the Company. The distinction between the Chairman
and Ofcers wielding executive powers in the Company ensures
the balance o power and authority.
Financial Acumen
The Board includes two senior Chartered Accountants whopossess the necessary knowledge and competence to oer the
Board guidance on matters o nance.
Supply o Inormation
Directors are provided with quarterly reports on perormance and
appropriate documentation in advance o each Board meeting
or individual directors to study matters under discussion.
Appointments to the Board
The Board as a whole decides on the appointment o Directors in
accordance with the Articles o association o the Company.
Re-election o Directors
The provisions o the Companys Articles require a Director
appointed by the Board to hold ofce until the next Annual
General Meeting, and seek re-appointment by the shareholders
at that meeting.
The Articles call or one third o the Directors in ofce to retire at
each Annual General Meeting. The Directors who retire are those
who have served or the longest period ater their appointment/
re-appointment. Retiring Directors are generally eligible or re-
election.
The Chairman does not retire by rotation.
Remuneration Committee
The Remuneration Committee was ormed on 21st May 2010. Mr.
J. D. Bandaranayake, who was the Chairman o the remuneration
Committee resigned with eect rom 2nd February 2011 and Mr.
L. T. Samarawickrama, a Non-Executive Director, was appointed
the Chairman o the Committee with eect rom 9th May 2011.
Members o the Remuneration Committee
Mr. L. T. Samarawickrama - Non-Executive Director (Chairman)
Mr. L. N. De S. Wijeyeratne - Independent Non-Executive Director
Ms. R. N. Ponnambalam - Independent Non-Executive Director
Remuneration Committee o Hayleys PLC, the parent Company
o Hotel Services (Ceylon) PLC is responsible or laying down
guidelines and parameters or the compensation structures o allmanagement sta within the group.
The Remuneration Committee o Hotel Services (Ceylon) PLC
is guided to work with the above given parameters and design
compensation levels appropriate or the hotel within the group
and commensurate with each employee level o expertise and
contribution, bearing in mind the business perormance and
shareholder returns.
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Hotel Services (Ceylon) PLC
The total o Directors remuneration is reported in Note 5 to the
nancial statements.
Relations with Shareholders
The Notice o Meeting is included in the Annual Report. The
Notice contains the Agenda or the AGM as well as instructions
on voting, including appointments o proxies. A Form o Proxy is
enclosed with the Annual Report. The period o notice prescribed
by the Companies Act No. 7 o 2007 has been met.
Constructive use o Annual General Meeting
The Board considers the Annual General Meeting as a means o
continuing eective dialogue with shareholders and encourages
their participation.
The Board oers clarications and responds to concerns
shareholders have over the content o the Annual Report as well
as other matters which are important to them.
The Annual General Meeting also used to adopt the nancial
statement or the year.
Communication with Shareholders
Shareholders are provided with the Annual Report and also
with Quarterly Financial Statements via Colombo Stock
Exchange website, which the company considers as its principal
communication with them and other stakeholders.
Shareholders may bring up concerns they have, either with
the Chairman or the Company Secretary as appropriate. The
Company maintains an appropriate dialogue with them.
Accountability and Audit
Financial Reporting
The Board places great emphasis on complete disclosure o
nancial and non nancial inormation within the bounds o
commercial reality, and on the adoption o sound reporting
practices. Financial inormation is disclosed in accordance
with the Sri Lanka accounting Standards. Revisions to existing
accounting standards and adoption o new standards are
careully monitored.
The Statement o Directors Responsibilities or the nancial
statement is given in page 20 o this report.
Going Concern
The Directors, ater making necessary inquiries and reviews
including reviews o the company budget or the ensuing year,
capital expenditure requirements, uture prospects and risk, cash
ows and borrowing acilities, have a reasonable expectation
that the Company has adequate resources to continue in
operational existence or the oreseeable uture. Thereore, the
going concern basis has been adopted in the preparation o the
Financial Statements.
Internal Controls
The Board is responsible or the Companys internal controls and
its eectiveness. Internal control is established with emphasis
placed on saeguarding assets, making available accurate and
timely inormation and imposing greater discipline on decision
making. It is important to state that any system can ensure
only reasonable, and not absolute, assurance that errors and
irregularities are prevented or detected within reasonable time.
Hayleys Groups Management Audit & System Review Department
plays a major role in assessing the eectiveness and successul
implementation o the existing controls and strengthening these
and establishing new controls where necessary.
The Board has reviewed the eectiveness o the System o
nancial controls or the period up to the date o signing the
accounts.
Audit Committee
The Audit Committee is chaired by Mr. L. N. De S. Wijeyeratne, a
Fellow member o the Institute o Chartered Accountants o SriLanka.
The General Manager and the Financial Controller attends the
meetings o the Audit Committee by invitation.
The Audit Committee has written terms o reerence and is
empowered to examine any matters relating to the nancial
aairs o the Company and its internal and external audits. It helps
the Company to strike the proper balance between conormance
and perormance.
CorporateGovernance
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Hotel Services (Ceylon) PLC
Members o the Audit Committee
Mr. L. N. De S. Wijeyeratne (Chairman) - Independent Non-Executive Director
Mr. L. T. Samarawickrama (Resigned w.e. 12.09.2011) - Non-Executive Director
Ms. R. N. Ponnambalam - Independent Non-Executive Director
The Audit Committee report appears in page 21 o this report.
Levels o compliance with the CSEs New Listing Rules- Section 7.10, Rules on Corporate Governance as at 31st March, 2012 are given
in the ollowing table.
Rule No. Subject Applicable Requirement Compliance
Status
Details
7.10. 1(a) Non-Executive Directors At least one third o the total number
o Directors should be Non-Executive
Directors
Compliant Eight out o the ten Directors
are Non-Executive Directors
7.10.2(a) Independent Directors Two or one third o Non-Executive
Directors, whichever is higher should
be Independent
Compliant Three out o the Eight
Non-Executive Directors are
Independent Directors
7.10.2 (b) Independent Directors Each Non-Executive Director
should submit a declaration o
independence/non-independence inthe prescribed ormat
Compliant Non-Executive Directors have
submitted the declaration
7.10.3(a) Disclosure relating to
Directors
The Board shall annually make a
determination as to the independence
or other wise o the Non-Executive
Directors and names o Independent
Directors should be disclosed in the
Annual Report
Compliant Please reer Board o Directors
on pages 7 and 8
7.10.3(b) Disclosure relating to
Directors
The basis or the Board to determine
a Director is independent when the
criteria specied or independence is
not met
Compliant Please reer page 13 under the
heading o Board Balance
7.10.3(c) Disclosure relating to
Directors
A brie resume o each Director should
be included in the Annual Report
including the areas o Expertise
Compliant Please reer Board o Directors
on pages 7 and 8
7.10.3(d) Disclosure relating to
Directors
Forthwith provide a brie resume o
new Directors appointed to the Board
with details specied in 7.10.3 (a),(b)
and (c) to the Exchange
Compliant A brie resume provided to the
Exchange
7.10.5 Remuneration
Committee.
A listed company shall have a
Remuneration Committee
Compliant Names o the members o the
Remuneration Committee are
stated on page 13
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Hotel Services (Ceylon) PLC
Rule No. Subject Applicable Requirement Compliance
Status
Details
7.10.5(a) Composition o
Remuneration
Committee
Shall comprise o Non-Executive
Directors a majority o whom will be
independent
Compliant The Committee consists o
one Non-Executive Director
and two Independent Non-
Executive Directors
7.10.5(b) Remuneration
Committee Functions
Remuneration Committee shall
recommend the remuneration o the
Chie Executive Ofcer and Executive
Directors
Compliant Please reer remuneration
procedure on page 13 o this
Report
7.10.5(c) Disclosure in the
Annual Report relating
to Remuneration
Committee
Names o Directors comprising the
Remuneration Committee
Statement o remuneration policy
Aggregated remuneration paid to
Executive and Non-Executive Directors
Compliant Please reer page 13
Please reer page 13
Please reer page 9
7.10.6 Audit Committee The company shall have an Audit
Committee
Compliant Names o the members o the
Audit Committee are stated on
page 15
7.10.6(a) Composition o Audit
Committee
Shall comprise o Non-Executive
Directors a majority o whom will be
independent
Compliant Audit Committee consists
o two Independent Non-
Executive Directors
7.10.6(b) Audit Committee
Functions
A Non-Executive Director shall be
appointed as the Chairman o the
Committee
Compliant Chairman o the Audit
Committee is an Independent
Non-Executive Director
Chie Executive Ofcer and Chie
Financial Ofcer should attend Audit
Committee meetings
Compliant General Manager (CEO) and
Financial Controller (CFO) has
attended the Audit Committee
meetings
The Chairman o the Audit Committee
or one member should be a member
o a proessional accounting body
Compliant Chairman o the Audit
Committee is a Chartered
Accountant
CorporateGovernance
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Hotel Services (Ceylon) PLC
Rule No. Subject Applicable Requirement Compliance
Status
Details
7.10.6(b) Audit Committee
Functions
Functions shall include:
Overseeing o the preparation,
presentation and adequacy o
disclosures in the nancial statements
in accordance with Sri Lanka
Accounting Standards
Overseeing o the compliance with
nancial reporting requirements,
inormation requirements o the
Companies Act and other relevant
nancial reporting related regulations
and requirements.
Overseeing the processes to ensure
that the internal controls and risk
management are adequate to meet
the requirements o the Sri Lanka
Auditing Standards
Assessment o the independence and
perormance o the external auditors
Make recommendations to the
Board pertaining to appointment,re appointment and removal o
external auditors and approve
the remuneration and terms o
engagement o the external auditors.
Compliant The terms o reerence o the
Audit Committee have been
agreed by the Board
7.10.6(c) Disclosure in the
Annual Report relating
to Audit Committee
a) Names o Directors comprising the
Audit Committee
Compliant Please reer page 15
b) The Audit Committee shall
make a determination o the
independence o the Auditors
and disclose the basis or such
determination
Compliant Please reer Audit Committee
Report on page 21
c) The Annual Report shall contain
a Report o the Audit Committee
setting out o the manner o
compliance with their unctions
Compliant Please reer Audit Committee
Report on page 21
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Hotel Services (Ceylon) PLC
Risk management is a central part o the Companys strategic
management. It assists in striking the correct balance between
achieving Companys objectives whilst saeguarding its assets
and enhancing shareholder value.
In the course o its operations, the Company, being a leading
city hotel in Sri Lanka, is exposed to various internal and external
risks. A risk management process is in place to identiy these
risks, analyse them and assess the impact o the risk to the
Company with the view o accepting the said risk, nding means
o mitigating it or eliminating the risk completely. The Board o
Directors with the support o the management takes necessary
action to mitigate or minimise the impact o these risks with
control plans implemented with the agreed time rames.
More importantly, the Company understands that risk is an
intrinsic component o its business operations. The Company
accepts the necessary risk only ater going through the above
process and careully evaluating the risk and return o its ventures
and ensuring adequate returns.
The responsibility o the risk management process o the
Company is with the Board o Directors. The matters related to
risk management are discussed and deliberated extensively atthe Board meetings.
The major risks the Company is exposed to and the ways in which
the Company deals with them are given below.
Major Risks
Risk Type: Competition
Recent improvement in the countrys outlook has attracted
various new business opportunities and positively aected the
hotel perormance and tourism industry in general. However this
could have an adverse eect on the hotel both rom the existing
competition and new competition entering the market.
The Company is undergoing an extensive reurbishment
programme especially in view o managing this risk. This will
enable the hotel to sustain its position in the market and make
use o the growth opportunities.
The risk o price competition on lodging is minimized with
the prevailing minimum room rates whereby city hotels have
to adhere to the specied minimum rates or their clients.
The Company through innovation whereby various ood and
Risk
Management event promotions, through driving or service excellence andcontinuous improvements mitigates the eect o the said risks
o competition.
Risk Rating Likelihood Rating
Moderate High
Risk Type:Government Policy Risk
While beneting rom various opportunities and growth in
the country, government policy decision is a major actor that
inuences the hotel operations and nancial perormance.
Factors such as recent rate changes to electricity taris and
uel rates have aected the perormance o the hotel where
it is difcult to transer these costs to the customers in the
short term.
I the minimum rates are urther increased, it could be
difcult to attract new clients especially during the o
season.
The Company maintains a strong relationship with the regulatory
bodies through Hayleys PLC and other lobby groups. Through
them the Company campaigns or clear and indisputable laws to
acilitate the business.
Risk Rating Likelihood Rating
Moderate Moderate
Risk Type:Failure to Comply with Health and Saety
Regulations
Failure to comply with health and saety regulations could aect
the Company in adverse publicity and claims through legal action
against the Company.
The health and saety standards are o primary importance to
the Company and are subjected to continuous direct supervisionwhere deviations are directly reported to the senior management
and actions taken to rectiy them at the highest levels. The
Company has commenced the certication process or obtaining
HACCP standards which is the international standard on ood
saety process control systems, through the same, policies and
procedures are being implemented in line to ensure the health
and saety regulations are eectively practiced.
Risk Rating Likelihood Rating
High Low
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Hotel Services (Ceylon) PLC
Risk Type: Interest Rate Risk
Companys major reurbishment project is unded through
external borrowings. The recent adverse uctuations in interest
rates have impacted the company earnings, cash ow and
economic value. This will continue to be a critical risk actor in
the times ahead.
The Company works closely with the Treasury department o
Hayleys PLC to negotiate avourable terms and conditions or
loans. The Treasury Department continuously monitors interest
rates and nancial markets and are in a position to implementnecessary hedging techniques i required.
Risk Rating Likelihood Rating
High High
Risk Type: IT Systems Risk
Failure o the various IT systems utilised by the hotel could
have a temporary eect on the hotel operations depending
on the extent o the damage. Current major IT systems o the
hotel include Property Management Sotware, Stock System,
Accounting Sotware, Online Booking Engines, email, internet
etc.
The Company is in the process o investing in a new operating
system which will be much efcient and eective in comparison
to the one at present.
The risk o data loss and down time is mitigated by the IT
department o the Company, which has implemented saety
measures to taking timely backups and storing them on remote
locations and reduces the down time and ensures continuity o
operations through the implementation o the Hayleys Groups
Disaster Recovery Policy.
Risk Rating Likelihood Rating
High Moderate
Risk Type: Exchange Rate Risk
Exchange rate risk represents a major risk or the hotel where
revenue could be adversely aected through exchange rate
uctuations. However, the recent rupee devaluation will result in
a avorable impact on Companys revenue.
The Company continuously monitors the Exchange rate
movements and countrys outlook o major currencies. Currently
the pricing policy o the hotel is to provide rates in USD terms
or to give equivalent rupee rates. However, should the USD
depreciate unexpectedly the hotel with the consent o respective
authorities could provide rates in Sri Lanka rupees mitigating the
eects rom long term adverse currency uctuations.
Risk Rating Likelihood Rating
High Moderate
Risk Type:Breakdown o Internal Controls and Procedures
Breakdown o internal process and procedures could result inrauds, errors eecting in loss o Share holder wealth and resulting
in material misstatements on its nancial statements.
The Company through its Audit Committee carries out reviews
and assessments o its internal control environment. Internal
audits are carried out quarterly by the Group Management Audit
and Systems Review Department o Hayleys PLC and its ndings
are reported to the Audit Committee meetings, which convenes
quarterly. Findings are reviewed, corrective actions are taken
and the implications o the same are monitored as a continuous
improvement process on Audit Committee meetings.
Risk Rating Likelihood Rating
High Moderate
Risk Type:Timely Completion o Reurbishment Project and
Cost Overruns
Non-completion o the reurbishment project within the
stipulated time rame could result in an increase in closure cost.
In addition, non-managing the reurbishment cost could result in
spending over and above the budgeted amount.
The Board o Directors meets weekly and works closely with the
project team monitoring and reviewing the project completion
progress and takes necessary corrective action in a timely manner.Project expenses are closely monitored in comparison with the
budget and are reviewed at Board meetings on regular basis.
Risk Rating Likelihood Rating
High Moderate
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Hotel Services (Ceylon) PLC
The Directors are responsible, under the Sections 150 (1), 151,152 (1) & 153 o the Companies Act No. 07 o 2007, to ensurecompliance with the requirements set out therein to prepareFinancial Statements or each nancial year giving a true andair view o the state o aairs o the Company as at the end othe nancial year and o the prot & loss o the Company or thenancial year. The Directors are also responsible, under Section148 or ensuring that proper accounting records are kept todisclose, with reasonable accuracy, the nancial position andenable preparation o the Financial Statements.
The Board accepts responsibility or the integrity and objectivity
o the Financial Statements presented. The Directors conrm thatin preparing the Financial Statements, appropriate accountingpolicies have been selected and applied consistently whilereasonable and prudent judgments have been made so that theorm and substance o transactions are properly reected.
They also conrm that the Financial Statements have beenprepared and presented in accordance with the Sri LankaAccounting Standards. The Financial Statements provide theinormation required by the Companies Act and the listing ruleso the Colombo Stock Exchange.
The Directors have taken reasonable measures to saeguardthe assets o the Company and, in that context, have institutedappropriate systems o internal control in order to prevent anddetect raud and other irregularities.
The External Auditors, Messrs. Ernst & Young, CharteredAccountants, were deemed re-appointed in terms o section158 o the Companies Act no.7 o 2007 and were provided withevery opportunity to undertake the inspections they consideredappropriate to enable them to orm their opinion on the FinancialStatements. The report o the Auditors, shown on page 23 setsout their responsibilities in relation to the Financial Statements.
Compliance Report
The Directors conrm that to the best o their knowledge, allstatutory payments relating to employees and the Government
that were due in respect o the Company as at the Balance Sheetdate have been paid or where relevant, provided or.
By Order o the Board,HAYLEYS GROUP SERVICES (PVT) LTD.Secretaries
17th May 2012
Statement of Directors
Responsibilities
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Hotel Services (Ceylon) PLC
Role
The primary role o the Audit Committee is to review and monitor
the nancial reporting process o the Company, so as to provide
additional assurance on the reliability o the nancial statements
through a process o independent and objective review. As such,
the Audit Committee acts as an eective orum in assisting the
Board o Directors in discharging their responsibilities o ensuring
the quality o nancial reporting and related communications to
the shareholders and the public.
The Audit Committee is empowered amongst other unctions
to examine any matters relating to the nancial aairs o the
Company and to review the adequacy o the internal control
procedures, role and perormance o the external auditors,
disclosures o accounting policies, compliance with statutory and
corporate governance requirements.
Composition
The Audit Committee comprises o two Independent Non-
Executive Directors. The Chairman o the Audit Committee is
Mr. L. N. De. S. Wijeyeratne, a ellow member o the Institute o
Chartered Accountants o Sri Lanka. The names o the members
are given below on this report and a brie prole o each member
is given on page 8. The General Manager, The Financial Controllerand the Head o Internal Audit o Group Management Audit and
Systems Review Department o Hayleys PLC attend the meeting
o the Audit Committee by invitation. The Chairman o the
Company and other Directors attend the meetings as required.
Meetings
The Committee met ormally ve times during the nancial year
ended 31st March 2011. The attendance o the members at these
meetings is as ollows:
Mr. L. N. De. S. Wijeyeratne (Chairman) - 5/5
Mr. L. T. Samarawickrama - 1/2*
Ms. R. N. Ponnambalam - 5/5
*Mr. L. T. Samarawickrama was appointed as an Executive Director
o Hayleys PLC. on 12/09/2011, hence ceased to be a member o
the Audit Committee o Hotel Services (Ceylon) PLC rom that
date onwards.
Tasks o the Audit Committee
Financial Reporting System
The Committee reviewed the nancial reporting system adopted
by the Company in the preparation o its quarterly and annual
Audit Committee
Report statements to ensure reliability o the processes and consistency othe accounting policies and methods adopted in their compliance
with the Sri Lanka Accounting Standards and other statutory and
regulatory requirements. The Committee recommended the
nancial statements to the Board or its publication.
Internal Controls and Internal Audit
The Committee reviewed the processes in place to assess the
eectiveness o the Internal Financial Controls that are in place
to provide reasonable assurance to the Directors that assets are
saeguarded and that the nancial reporting system can be reliedupon in preparation and presentation o Financial Statements.
The Hayleys PLCs Group Management Audit and Systems Review
Department act as the Internal Auditors or the Company.
Internal Audits are outsourced to audit rms in line with an
agreed annual audit plan. At Audit Committee meetings detailed
Internal Audit Reports were reviewed and audit concerns and
recommendations or improvement o nancial and operational
control systems with the management responses were tabled,
discussed and appropriate actions were initiated.
External Audit
The Committee had discussions with the external auditorsMessrs. Ernst and Young, to review the nature, approach, scope
o the audit and the Audit Management Letter o the Company.
The Committee also reviewed the non audit services provided by
the Auditors to ensure that the provision o such services does
not impair their independence.
Conclusion
The audit committee is satised that the companys accounting
policies and operational controls provide a reasonable assurance
that the aairs o the company are managed in accordance with
the companys policies and the company assets are properly
accounted or and adequately saeguarded.
L. N. De. S. WijeyeratneChairman - Audit Committee
17th May 2012.
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Hotel Services (Ceylon) PLC
FinancialReports
Independent Auditors Report | 23Income Statement | 24
Balance Sheet | 25
Statement o Changes in Equity | 26
Cash Flow Statement | 27
Notes to the Financial Statements | 28
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TO THE SHAREHOLDERS OF HOTEL SERVICES(CEYLON) PLC
Report on the Financial Statements
We have audited the accompanying nancial statements o Hotel
Services (Ceylon) PLC (Company), which comprise the balance
sheet as at 31 March 2012, and the income statement, statement
o changes in equity and cash ow statement or the year then
ended, and a summary o signicant accounting policies and other
explanatory notes. The Financial Statements o the Company as
at 31 March 2011 were audited by another auditor, whose report
dated 13 May 2011, expressed an unqualied opinion on those
Financial Statements.
Managements Responsibility or the FinancialStatements
Management is responsible or the preparation and air
presentation o these nancial statements in accordance withSri Lanka Accounting Standards. This responsibility includes:
designing, implementing and maintaining internal control
relevant to the preparation and air presentation o nancial
statements that are ree rom material misstatement, whether due
to raud or error; selecting and applying appropriate accounting
policies; and making accounting estimates that are reasonable in
the circumstances.
Scope o Audit and Basis o Opinion
Our responsibility is to express an opinion on these nancial
statements based on our audit. We conducted our audit in
accordance with Sri Lanka Auditing Standards. Those standards
require that we plan and perorm the audit to obtain reasonable
assurance whether the nancial statements are ree rom material
misstatement.
An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the nancial statements. An
audit also includes assessing the accounting policies used and
Independent Auditors Report
signicant estimates made by management, as well as evaluating
the overall nancial statement presentation.
We have obtained all the inormation and explanations which
to the best o our knowledge and belie were necessary or
the purposes o our audit. We thereore believe that our audit
provides a reasonable basis or our opinion.
Opinion
In our opinion, so ar as appears rom our examination, the
Company maintained proper accounting records or the year
ended 31 March 2012 and the nancial statements give a true
and air view o the Companys state o aairs as at 31 March 2012
and its loss and cash ows or the year then ended in accordance
with Sri Lanka Accounting Standards.
Report on Other Legal and Regulatory
Requirements
In our opinion, these nancial statements also comply with the
requirements o Section 151(2) o the Companies Act No. 07 o
2007.
17th May 2012
Colombo
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Hotel Services (Ceylon) PLC
Year ended 31 March 2012 2012 2011
Notes Rs 000 Rs 000
Turnover 3 547,177 606,548
Cost o Sales (256,499) (271,001)
Gross Prot 290,678 335,547
Other Income and Gains 4 (22,664) 1,042
Administrative Expenses (259,251) (219,898)
Marketing Expenses (62,474) (53,585)
Operating Prot /(Loss) 5 (53,711) 63,106
Loss rom De-recognition o Property, Plant and Equipment 7 (149,992) -
Net Finance Costs 8 1,462 3,554
Prot / (Loss) Beore Tax (202,241) 66,660
Income Tax Expenses / (Reversal) 9 13,152 (13,961)
Net prot / (Loss) (189,089) 52,699
Basic Earnings / (Loss) Per Share (Rs) 10 (1.07) 0.30
The notes on pages 28 to 43 orm an integral part o these nancial statements
Income Statement
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Hotel Services (Ceylon) PLC
As at 31 March 2012 2012 2011Notes Rs. 000 Rs. 000
ASSETSNon-current assetsProperty, plant and equipment 11.2 1,956,358 1,729,486Investments 12 - - 1,956,358 1,729,486
Current assetsInventories 13 13,219 16,035Receivables and prepayments 14 50,303 84,825
Tax recoverable 5,676 -Cash and cash equivalents 16 38,061 106,404 107,259 207,264Total assets 2,063,617 1,936,750
EQUITY AND LIABILITIESCapital and reservesStated capital 22 176,000 176,000Revaluation reserve 23 1,017,553 1,157,917Revenue reserve 69,500 69,500Retained earnings 164,177 193,762 1,427,230 1,597,179
Non-current liabilitiesBorrowings 18 400,000 -Employee Benet Liabilities 19 10,290 9,939
Deerred tax liability 15 160,365 189,957 570,655 199,896Current liabilities
Trade and other payables 17 37,296 105,040Borrowings 18 28,436 26,024
Tax payable - 8,611 65,732 139,675Total liabilities 636,387 339,571Total equity and liabilities 2,063,617 1,936,750
These Financial Statements are in compliance with the requirements o the Companies Act No :07 o 2007.
R. K. NanayakkaraFinancial Controller
The Board o Directors is responsible or the preparation and presentation o these Financial Statements. Signed or and on behal o theBoard by:
A. M. Pandithage S. J. WijesingheChairman / Director Director
The accounting policies and notes on pages 28 through 43 orm an integral part o the Financial Statements.
17th May 2012Colombo
Balance Sheet
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Hotel Services (Ceylon) PLC
Year ended 31 March 2012 Notes Stated Revaluation Revenue Retained Total
capital and other reserve earnings
reserves
Rs. 000 Rs. 000 Rs. 000 Rs. 000 Rs. 000
Balance at 1 April 2010 176,000 893,433 69,500 120,695 1,259,628
Net prot - - - 52,699 52,699
Transer rom revaluation reserve 23 - (1,759) - 1,759 -
Revaluation during the year 11 - 285,708 - - 285,708
Transer rom revaluation reserve 23 - (18,609) - 18,609 -
Deerred tax on revaluation - (34,285) - - (34,285)
Eect on dierent tax rates - 30,374 - - 30,374
Deerred tax on transer 15 - 3,055 - - 3,055
Balance at 31 March 2011 176,000 1,157,917 69,500 193,762 1,597,179
Net Loss - - - (189,089) (189,089)
Transer rom revaluation reserve 23 - (1,759) - 1,759 -
Transer rom revaluation reserve 23 - (19,836) - 19,836 -
Transer rom revaluation reserve 23 - (24,162) - 24,162 -
Transer rom revaluation reserve 23 - (113,747) - 113,747 -
Deerred tax on transer 15 - 19,140 - - 19,140
Balance at 31 March 2012 176,000 1,017,553 69,500 164,177 1,427,230
The notes on pages 28 to 43 orm an integral part o these nancial statements
Statement of Changes
in Equity
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Annual Report 2011 - 2012
Hotel Services (Ceylon) PLC
Year ended 31 March 2012 2012 2011
Notes Rs. 000 Rs. 000
Operating activities
Cash generated rom operations 24 (2,847) 117,247
Interest received 8 2,252 5,367
Interest paid 8 (738) (1,838)
Tax paid (11,586) (13,886)
Retirement benet paid 19 (911) (1,127)
Net cash used in / generated rom operating activities (13,830) 105,763
Investing activities
Capital work in progress 11.1 (362,835) (35,850)
Purchases o property, plant and equipment 11 (110,847) (17,622)
Proceeds rom disposal o property, plant and equipment 16,755 1,250
Net cash used in investing activities (456,927) (52,222)
Financing activities
Proceeds rom long term borrowings 400,000 -
Payments on long term borrowings (4,166) (20,243)
Net cash generated / used in nancing activities 395,834 (20,243)
Net increase in cash and cash equivalents (74,923) 33,298
Movement in cash and cash equivalents
At start o year 84,547 7,628
Net increase (74,923) 33,298
At end o year 16 9,625 84,547
The notes on pages 28 to 43 orm an integral part o these nancial statements
Cash Flow Statement
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1. Corporate Inormation
1.1 General
Hotel Services (Ceylon) PLC is engaged in the hotel business and
is the owner o Ceylon Continental Hotel Colombo, the rst Five
Star Hotel established in Colombo.
The Company is a limited liability company incorporated in Sri
Lanka and listed on the Colombo Stock Exchange. The address o
its registered ofce is No. 48, Janadhipathi Mawatha, Colombo 1.
1.2 Parent Entity and Ultimate Parent Entity
The Companys parent entity is Hayleys PLC. In the opinion o
the Directors, the Companys ultimate parent undertaking and
controlling party is Hayleys PLC, which is incorporated in Sri
Lanka.
1.3 Date o Authorisation or Issue
The Financial Statements o Hotel Services (Ceylon) PLC, or the
year ended 31 March 2012 were authorised or issue in accordance
with a resolution o the Board o Directors on 17 May 2012.
2. Summary o Signicant Accounting Policies
The principal accounting policies applied in the preparation o
the nancial statements are set out below. These policies have
been consistently applied to all the years presented, unless
otherwise stated.
2.1 Basis o Preparation
The Financial Statements have been prepared on a historical
cost basis, except or all property, plant and equipment other
than motor vehicles and linen and urnishing which were
subsequently measured at air value, based on valuations by
external independent valuers. The Financial Statements are
presented in Sri Lankan Rupees Thousands. The preparation and
presentation o these Financial Statements is in compliance with
the Companies Act. No. 07 o 2007.
The Financial Statements o Hotel Services (Ceylon) PLC have been
prepared in accordance with Sri Lanka Accounting Standards
(SLAS).
2.1.1 Comparative Inormation
The accounting policies have been consistently applied by the
Company and, are consistent with those used in the previous
year.
Notes to the FinancialStatementsYear ended 31st March 2012
2.1.2 Judgments
In the process o applying the Companys accounting policies,
management has made the ollowing judgments, apart rom
those involving estimations, which has the most signicant eect
on the amounts recognised in the Financial Statements
Deerred Tax Assets :
Deerred tax assets are recognised or all unused tax losses to
the extent that it is probable that taxable prot will be available
against which the losses can be utilised. Signicant management
judgment is required to determine the amount o deerred taxassets that can be recognised, based upon the likely timing and
level o uture taxable prots together with uture tax planning
strategies.
2.1.3 Estimates and Assumptions
The key assumptions concerning the uture and other key sources
o estimation uncertainty at the balance sheet date, that have a
signicant risk o causing a material adjustments to the carrying
amounts o assets and liabilities within the next nancial year are
discussed below. The respective carrying amounts o assets and
liabilities are given in related notes to the Financial Statements
Fair value o Property, Plant and Equipment:The property, plant and equipment o the Company except or
motor vehicles and linen and urnishing are reected at air
value. When current market prices o similar assets are available,
such evidences are considered in estimating air values o
theses assets. In the absence o such inormation the Company
determines within a reasonable air value estimates, amounts
that can be attributed as air values, taking in to consideration
discounted cash ow projections based on estimates, derived
evidence such as current market rents or similar properties and
using discount rates that reect uncertainty in the amount and
timing o cash ows.
De-recognition o Property Plant & Equipment Subject to
Reurbishments:
In order to comply with the SLAS 18 - Property Plant & Equipment,
the company determined the carrying value o de-recognised
assets with the assistance o a proessional valuer who has valued
the same assets in the last carried out revaluation (More ully
described in Note 11 (b)).
Dened Benet Plans:
The cost o dened benet plans - gratuity is determined using
actuarial valuations. The actuarial valuation involves making
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assumptions about discount rates, expected rates o return on
assets, uture salary increases, and mortality rates. Due to the
long term nature o these plans, such estimates are subject to
signicant uncertainty
2.2 Foreign Currencies
(a) Functional and Presentation Currency
Items included in the nancial statements o the entity
are measured using the currency o the primary economic
environment in which the entity operates (the unctional
currency). The nancial statements are presented in Sri LankaRupees, which is the Companys unctional and presentation
currency.
(b) Transactions and Balances
Foreign currency transactions are translated into the unctional
currency using the exchange rates prevailing at the dates o the
transactions. Foreign exchange gains and losses resulting rom
the settlement o such transactions and rom the translation
at year-end exchange rates o monetary assets and liabilities
denominated in oreign currencies are recognised in the income
statement.
2.3 Borrowing CostsBorrowing costs are recognised as an expense in the period in
which they are incurred, except to the extent where borrowing
costs that are directly attributable to the acquisition, construction,
or production o an asset that takes a substantial period o time
to get ready or its intended use or sale, are capitalised as part o
that asset.
2.4 Property, Plant and Equipment
All property, plant and equipment is initially recorded at cost.
All property, plant and equipment except motor vehicles and,
linen and urnishing are subsequently shown at air value, basedon valuations by external independent valuers, less subsequent
depreciation. Motor vehicles and, linen and urnishing are stated
at historical cost less depreciation. Historical cost includes
expenditure that is directly attributable to the acquisition o the
items.
Subsequent costs are included in the assets carrying amount
or recognised as a separate asset as appropriate, only when it
is probable that uture economic benets associated with the
item will ow to the Company and the cost o the item can be
measured reliably. All other repairs and maintenance are charged
to the income statement during the nancial period in which
they are incurred.
When an asset is revalued, any increase in the carrying amount
is credited directly to a revaluation reserve, except that it is
credited to the income statement to the extent that it reverses a
previous decit recognised as an expense. Any revaluation decit
that osets previous surplus in the same asset is directly oset
against the surplus in the revaluation reserve and any excess
recognised as an expense. Upon disposal or De-recognition, any
revaluation reserve relating to the asset sold is transerred to
retained earnings.
The dierence between depreciation based on the assets original
cost and the depreciation based on the revalued amount is
transerred rom revaluation reserve to retained earnings.
Depreciation is calculated on the straight line method to allocate
the cost o each asset or its revalued amount, to their residual
values over their estimated useul lie as ollows:
Buildings 50 years
Sports complex 50 years
Motor vehicles 5 yearsSign board 5 years
Plant, machinery and equipment 8 years
Furniture and ttings 10 years
Linen and urnishing 10 years
Linen and urnishing (ood & beverage & house
keeping)
3 years
The assets residual values are reviewed, and adjusted as
appropriate, at each balance sheet date an assets carrying
amount is written down immediately to its recoverable amount
i the assets carrying amount is greater than its estimated
recoverable amount.
Gains and losses on disposal o property, plant and equipment
are determined by reerence to their carrying amount and are
taken into account in determining prot or loss. On disposal or
de-recognition o revalued assets, amounts in revaluation reserve
relating to that asset are transerred to retained earnings.
2.5 Impairment o Assets
Assets are reviewed or impairment whenever events or changes
in circumstances indicate that the carrying amount may not be
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recoverable. An impairment loss is recognised or the amount
by which the assets carrying amount exceeds its recoverable
amount. The recoverable amount is the higher o an assets air
value less costs to sell and value in use.
2.6 Operating Leases
Leases o assets under which all the risks and benets o
ownership are eectively retained by the lessor are classied
as operating leases. Payments made under operating leases are
charged to the income statement on a straight-line basis over the
period o the lease.
2.7 Inventories
Inventories are stated at the lower o cost and net realisable
value. Cost is determined by the weighted average method.
The cost o the inventory comprises purchase price, taxes (other
than those subsequently recoverable by the Company rom the
tax authorities), and transport, handling and other costs directly
attributable to the acquisition o nished goods. It excludes the
borrowing costs. Trade discounts, rebates and other similar items
are deducted in determining the costs o purchase.
Net realisable value is the estimate o the selling price in the
ordinary course o business, less the costs o completion andselling expenses.
2.8 Trade Receivables
Trade receivables are carried at original invoice amount less an
estimate made or doubtul receivables based on a review o all
outstanding amounts at the year end.
Other receivables and dues rom Related Parties are recognised
at cost less allowances or bad and doubtul receivables.
2.9 Cash and Cash Equivalents
Cash and cash equivalents are carried in the balance sheet at
cost. For the purposes o the cash ow statement, cash and cash
equivalents comprise cash in hand, deposits held at call with
banks, other short-term highly liquid investments with original
maturities o three months or less, and bank overdrats. In the
balance sheet, bank overdrats are included in borrowings in
current liabilities.
2.10 Stated Capital
Ordinary shares are classied as stated capital.
2.11 Trade Payables
Trade payables are recognised initially at air value and
subsequently measured at amortised cost using the eective
interest method.
2.11.1 Provisions
Provisions are recognised when the Company has a present legal
or constructive obligation as a result o past events, it is probable
that an outow o resources embodying economic benets will
be required to settle the obligation, and a reliable estimate o the
amount o the obligation can be made.
2.12 Employee Benets
(a) Dened Contribution Plans
All employees o the Company are members o the Employees
Provident Fund and the Employees Trust Fund, to which
the Company contributes 12% and 3% respectively o such
employees basic or consolidated wage or salary and cost o living
and all other allowances.
The Companys contributions to the dened contribution plans
are charged to the income statement in the year to which they
relate.
(a) Dened Benet Plan
The liability recognised in the balance sheet in respect o dened
benet pension plans is the present value o the dened benet
obligation at the balance sheet date together with past service
cost. The dened benet obligation is calculated by independent
actuaries using the projected unit credit method. The present
value o the dened benet obligation is determined by
discounting the estimated uture cash outows using interest
rates o treasury bonds that are denominated in the currency in
which the benets will be paid and that have terms to maturity
approximating to the terms o the related liability.
Actuarial gains and losses arising rom experience adjustments
and changes in actuarial assumptions are charged to the income
statement.
2.13 Dividend Distribution
Dividend distribution to the Companys shareholders is recognised
as a liability in the nancial statements in the period in which the
dividends are approved by the Companys shareholders.
Notes to the Financial StatementsYear ended 31st March 2012
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2.14 Taxation
The tax charge is computed on the results or the year in
accordance with the provisions o the Inland Revenue Act No. 10
o 2006, as amended.
Current income tax assets and liabilities or the current and prior
periods are measured at the amount expected to be recovered
rom or paid to the taxation authorities. The tax rates and tax
laws used to compute the amount are those that are enacted or
substantively enacted by the balance sheet date.
The provision or income tax is based on the elements o income
and expenditure as reported in the Fina