RESOLUTE - Serendib Leisure · 2019. 7. 8. · 2017/18. Although Sri Lanka enjoyed a satisfactory...

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TES E R E N D I B H O T E L S P LCANNUAL REPORT 2017 | 2018

Resolute and undeterred, every hotel under Serendib Leisure’s wing has remained focused, dedicated and determined in providing their guests with the best

holiday experience, regardless of the leisure industry’s operational environment in the past year.

The past year was a challenging one for Serendib Leisure due to industrial challenges affecting the leisure sector. Inspite of this, each of our iconic hotels have upheld the standards of hospitality they are acclaimed for. In this Annual Report, we focus on how we have overcome challenges as well as the promising financial performance we have demonstrated in the year under review. We are resolute in our quest to exceed stakeholder expectations and plan on leveraging our people, processes and opportunities on the horizon, to ensure a better year ahead for our Company.RE

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SERENDIB HOTELS PLC Annual Report 2017 | 18

Contents

Vision, Mission, Our Values 4

About Us 6

The Serendib Leisure Group 8

Financial Highlights of the Year 10

Financial & Non-Financial Highlights 11

Chairman’s Message 14

Board of Directors 19

Corporate Management Team 25

Senior Management Team 27

Management Discussion & Analysis 30

Sustainability Report 37

Hotel Senior Management 50

Corporate Governance 52

Risk Management 66

Annual Report of the Board of Directors 70

Director's Interest in Contracts with the Company 75

Report of the Audit Committee 77

Report of the Related Party Transactions Review Committee 79

84 Statement of Directors' Responsibility in Relation to Preparing Financial Statements

85 Independent Auditor’s Report

88 Statement of Financial Position

89 Statement of Profit or Loss

90 Statement of Comprehensive Income

91 Statement of Changes in Equity - Group

92 Statement of Changes in Equity - Company

93 Statement of Cash Flows

94 Notes to the Financial Statements

151 Ten Year Financial Review

152 Investor Information

155 Notice of Meeting

157 Form of Proxy - Voting

159 Form of Proxy - Non-voting

IBC Corporate Information

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04


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

Mission

Stakeholder Mission

Our Guests To create experiences to write home about by exceeding the expectations of our guests at all times

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

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

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

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

Our Values

Concern for People Passion for Customers Obsession for Performance Driven by Innovation

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06


About Us

One of the leading hotel groups in Sri Lanka, Serendib Leisure has built up a sound reputation as a renowned operator of some of the most unique hotel brands in Sri Lanka underscored by a sustainable tourism philosophy.

With six properties around the country in strategic locations, each with its own story and identity providing true Sri Lankan hospitality, exceptional service and creating unforgettable memories to take back home.

Serendib Hotels Group’s hospitality offerings encompass the island’s key attractions: beach, jungle and lagoon, with addition of four new properties to its portfolio, the Group manages a room count of 440.

AVANI Bentota Resort & Spa, AVANI Kalutara Resort, Club Hotel Dolphin, Hotel Sigiriya, Lantern Beach Collection and Villa 700 are popular holiday destinations in themselves and the clientele is multi-cultural and hails from many countries in the world. Serendib Leisure hotels are nationally and internationally acclaimed for their skilled culinary teams and an extremely professional service staff that goes the extra mile to make our guests feel special and cared for.

Hotel

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Hotel Sigiriya

A magical destination set among lush, tropical forest land, Hotel Sigiriya is a seamless blend of rich cultural heritage and all luxuries of today’s modern world. Our guests are enchanted by the holiday getaway, suspended between the sands of time and guarded by the majestic Rock Fortress, Sigiriya.

AVANI Bentota Resort & Spa

Offering stylish, hassle-free escapes to one of Sri Lanka’s best beaches, AVANI Bentota Resort & Spa is a designed by the famous architect Geoffrey Bawa. An intimate hotel with just 75 rooms and suites, all the details that matter combines essential comfort and incredible Indian Ocean views. Traditional hospitality is matched by upscale international appeal and blissful beach time can be mixed with must-see attractions.

AVANI Kalutara Resort

Along Sri Lanka’s picturesque southern coast, AVANI Kalutara Resort offers romance without the fads and fuss. Sitting on a peninsular where the river meets the sea, vibrant gardens lead to a palm fringed beach that wraps around the resort. Blending authentic Sri Lankan culture with contemporary flair, a warm welcome awaits its guests, be it couples, friends and families.

The Serendib Leisure Group

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Club Hotel Dolphin

An ideal beach holiday destination, Club Hotel Dolphin is a desirable family hotel, where memorable experiences await guests just 30 minutes from the international airport. With a comprehensive range of modern facilities, the unique ‘pause and play’ concept, allows guests simply revel in the best of both worlds.

Lantern Beach Collection

The Lantern Beach Collection comprises three boutique villas located in on the coastal town of Mirissa. The Lantern Boutique Hotel and the two Ubuntu Beach Villas by Lantern are exclusive hideaways for those seeking a secluded retreat.

Turquoise blue waters, soft sand, lush vegetation coupled with its exquisite cuisine at the Lantern@71 Bistro & Bar provides our guests an awe-inspiring holiday experience. Lantern Collection has redefined the boutique experience with its casual atmosphere, impeccable service and its fine cuisine.

VILLA 700

An exquisite boutique villa located amidst stretches of spectacular beaches in the remote fishing village of Induruwa, in close proximity to Bentota.

Villa 700 is an ideal getaway to relax, unwind or even to opt for excursions to an array of local attractions. Its extraordinary service and cuisine are amongst some of the unique highlight of the villa experience.

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Financial Highlights of the Year

Year ended 31 March 2018 2017

GroupRevenue Rs.000’s 1,875,799 1,769,176Profit Before Interest, Tax, Depreciation & Amortisation (EBITDA) Rs.000’s 478,839 351,671Profit Before Tax Rs.000’s 270,049 172,824Profit After Tax Rs.000’s 192,452 128,084Profit Attributable to Equity Holders of the Parent Rs.000’s 118,944 67,514Earnings Per Share Rs. 1.07 0.61Cash Earnings Per Share Rs 0.53 2.67Interest Cover Times 7 13Return on Equity (ROE) % 5.4 3.9Return on Capital Employed (ROCE) % 0.1 5.9

Statement of Financial PositionTotal Assets Rs.000’s 5,089,292 4,312,076Total Debt Rs.000’s 712,472 310,258Total Shareholders’ Funds Rs.000’s 3,596,396 3,246,448No. of Shares in Issue 111,525,794 111,525,794Net Assets Per Share Rs. 22.97 21.89Debt / Total Equity % 19.8 9.6Debt / Total Assets % 14.0 7.2

Market/ Shareholder InformationMarket Price of Share as at 31st March Rs. 17.50 23.10Market Capitalisation Rs.000’s 1,861,674 2,464,612Price Earnings Ratio Times 16 38Dividends per Share Rs. Nil 1.00Dividends Payout % Nil 165.2

Market Price per ShareEarning per Share Net Assets per Share

0

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Financial & Non-Financial Highlights

5,624

Energy Consumption (kWh)

2,498,368

EBITDA (Rs. Mn)

479Revenue (Rs. Mn)

1,876PAT (Rs. Mn)

192

75% 178,118

Total Training hours for Employees

Occupancy % Number of Guests Total Workforce

805

PBT (Rs. Mn)

270

6%

56%

Water Withdrawn (m3)

103,914 3% 2%

50%

36%2016/17 - Rs. 1,769 Mn 2016/17 - Rs. 352 Mn

2016/17 - Rs. 128 Mn2016/17 - Rs. 173 Mn

2016/17 - 100,760 m3 2016/17 - 2,560,228 kWh

RESOLVEWe’ve continuously

proven our met tle in the face of challenges.

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Chairman’s Message

“ As a nation, I believe we need to focus on driving external demand, boosting the industry bottomline and continually creating value. Building a destination brand and integrating it with a global marketing strategy is the key to achieving these objectives “

A N EsufallyChairman

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Group RevenueRs. 1,876Mn

Group Profit Before TaxRs. 270Mn

“ Our successful entry into the boutique hotel segment has enabled further diversification of our portfolio and strengthened our business model by opening up new revenue lines.“

It is my pleasure to present to you the Audited Financial Statements and Annual Report of Serendib Hotels PLC for the financial year 2017/18.

Although Sri Lanka enjoyed a satisfactory growth in tourism numbers in 2017/18, the year was challenging in numerous ways. It is within this backdrop that the Serendib Hotels group has achieved a bottomline growth of 50% year-on-year, which is the best indicator of the effectiveness of our growth strategy.

I am pleased to report that we have diversified our portfolio with the acquisition of the Lantern Beach Collection in Mirissa and a new management contract for ‘Villa 700’ in Induruwa. Serendib Hotels has now established its footprint in the emerging boutique hotel and Villa niche, opening up new vistas for the Group as a diversified, branded leisure operator.

Operating Environment Total tourist arrivals to Sri Lanka increased marginally by 3% year-on-year, to 2,116,407 arrivals in 2017. This growth may have been higher if not for some adverse domestic developments, including floods, a dengue outbreak and the ethnic tensions in Kandy, in particular. These developments resulted in a dip in occupancy and impacted upon the revenue flow for the year under review. Meanwhile, leisure industry costs, including taxes, labour costs and operating overheads, continued upward.

The tourism industry is going through a structural change, with the entry of several international hotel operators and the rapid rise in accommodation offered by the informal sector. Many of the hotels in the formal sector are facing competition from the informal sector as a result of not having a level playing field. They have a significant price differential as a result of the informal sector being ‘outside’ the tax net. This loophole must urgently be corrected by the authorities as it enables the informal sector to operate outside

the tax, governance, safety and health standards of the industry, thereby enjoying a significantly lower cost base.

The establishment of the Tourism Development Levy was intended to finance the industry’s progress, global marketing of the destination and the overall development of tourist infrastructure. Regrettably, and inexplicably, successive governments, Minsters of Tourism and the Tourism Authorities have failed to launch a comprehensive program to drive demand, brand our destination and embark upon a global marketing campaign. Sri Lanka is lagging behind our competitors. Thailand and Indonesia for instance, have done very well during the year under review. Vietnam and Maldives are rapidly emerging as trendy new tourism destinations. These countries are successfully leveraging the concept of destination branding, which again, Sri Lanka is yet to harness.

Financial Performance With lower than anticipated occupancy levels during the summer season due to unfavourable domestic developments, the average occupancy levels of our hotels fell marginally by 1% against the previous financial year, to 75% in the current year. However, the Group achieved a top line growth of 6% against the previous year, to Rs 1.88 Bn, primarily as a result of the additional revenue from our new acquisition, Lantern Beach Collection. While we had targeted much higher revenue growth, inflows remained at virtual break even, or below targets, for a good part of the year due to the persistent downturn in the summer months.

The situation improved in the winter season with arrival numbers recovering and occupancy at our hotels rising. This improvement, together with not incurring some one-off expenses borne in the previous year, allowed the Group to finally show a strong recovery during the fourth quarter of the financial year, which pushed up the group annual operating profits by 45% to Rs. 305 Mn. We

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Chairman’s Message

closed the year on the back of a profit growth of 50% against the previous year, with profit after tax reaching Rs 192 Mn, which is indeed commendable, given that a large part of the year was a struggle for our hotels. In this regard, it is noteworthy that the newest addition to our portfolio, The Lantern Beach Collection, has performed well in the current financial year validating our decision to enter the boutique hotel segment. Therefore, I am hopeful of stronger returns in the new financial year from our boutique hotel investments.

Strategic Progress Our strategic objectives for the year were to maintain our brand positioning and diversify our business model to enhance revenues. Despite the rising cost structures, we have not compromised on quality and our brand image remains strongly associated with international quality leisure products and services. In addition to investing in our people and quality systems, we have continued to maintain and upgrade our properties to enhance the customer value proposition.

Our successful entry into the boutique hotel segment has enabled further diversification of our portfolio and strengthened our business model by opening up new revenue lines. We are now positioned to cater to the new era of ‘experiential’ tourism, where the new customer is favouring experience-based holidays. Threats and Opportunities The leisure industry as a whole is faced with a number of threats that impacts on the sustainability of the sector. These include the lack of demand creation for the destination, the absence of a strategic global marketing plan, excessive taxation on the formal sector impacting on competitiveness, talent, law and order. In addition, the industry human resource base is in urgent need of enhancement. The industry is facing net labour losses due to migration of trained personnel. The industry in Sri Lanka falls short of its regional peers in attracting female cadre to the sector, with most hotels in Sri Lanka having less than 10% females in their workforce. It is considered very important to have a gender balance and to provide the necessary employee numbers for the growing demand for leisure sector employees. Archaic laws that prevent women from working in bars and other venues that serve alcoholic beverages must be dispensed with.

Outlook and Way ForwardThe year under review has been a tough one and the way forward is also challenging. In terms of the national industry outlook, the Country’s growth strategy is less well defined. As a nation, I believe we need to focus on driving external demand, boosting the industry bottomline and continually creating value. Building a destination brand and integrating it with a global marketing strategy is the key to achieving these objectives.

As a nation, we need to safeguard our country’s natural assets, including our wildlife, for posterity if nothing else. Our natural and cultural assets are also staples of the tourism industry and have traditionally been major tourist attractions. Erosion of these assets must be prevented to strengthen long term sustainability of the leisure industry.

In the context of Serendib Hotels, we are equipped to face the future with a well-grounded, well planned and financially prudent growth strategy. I am confident our plans will pave the way for enhanced returns for shareholders and other stakeholders over the next few years.

Acknowledgements I would like to thank our Board of Directors for their vision in spearheading a new direction for the Company. Their expertise, experience and collective insights have been invaluable in defining the future strategy of the Company. Out team and our business partners are key stakeholders in our journey to pave the way towards a new era of growth for the industry and their contributions are appreciated at all times. Our customers are our inspiration and I thank them for their loyalty and patronage. To our shareholders, I extend my appreciation for their trust and confidence in me and I can assure them of greater returns in the near future as our strategy unfolds.

Sincerely,



Our passion is unwavering and our resolve is stronger than ever.

PASSION

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Board of Directors


Mr. Abbas Esufally was appointed to the Board in 1994 and was elected as Chairman of the Company in 2003. With over 36 years’ experience in the tourism industry, Mr. Abbas Esufally has played

a pivotal role in expanding the Hemas Group’s Leisure interests. He serves as a Group Director of Hemas Holdings PLC, Chairman

of Serendib Hotels PLC, Dolphin Hotels PLC, Hotel Sigiriya PLC as well as Diethelm Travel Sri Lanka (Pvt) Ltd, Sri Lanka’s premier

Destination Management Company. He also serves on several other listed and unlisted company boards.

He has played an active part in the growth and development of the country’s tourism industry. Mr. Esufally serves as the Chairman

of the Mercantile Service Provident Society of the Ceylon Chamber of Commerce and is a Member of the Advisory Committee of

the Tourist Hotels Association of Sri Lanka and a Member of the Advisory Council appointed by the Hon. Minister of Tourism.

Mr. Esufally is a Fellow Member of both the Institute of Chartered Accountants of England & Wales and the Institute of Chartered

Accountants of Sri Lanka. He is an all Island Justice of Peace and serves as the Honorary Consul of Bhutan in Sri Lanka.

W M De F ArsakularatneExecutive Director

Mr. Malinga Arsakularatne was appointed as the Managing Director of Hemas’ Leisure, Travel and Aviation Group, in April 2016. Prior to

this appointment Mr. Arsakularatne served as the Chief Financial Officer of Hemas Holdings PLC for over 9 years. Mr. Arsakularatne

has 18 years of experience in investment management, corporate finance and business strategy.

He also serves on the Boards of Hemas Holdings PLC, Dolphin Hotels PLC and Hotel Sigiriya PLC. Mr. Arsakularatne also holds

directorships in some of the other unlisted subsidiary companies within the Hemas Group. Mr. Arsakularatne is a CFA Charter Holder

and a Past President of CFA Sri Lanka. He is also a Fellow Member of the Chartered Institute of Management Accountants, UK and a Past

Board Member of the CIMA Sri Lanka Division. He holds a BSc in Computer Science & Engineering from the University of Moratuwa, an MSc in Investment Management from Cass Business School, and

an Executive MBA from INSEAD.

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Board of Directors

S M EnderbyNon-Executive Director

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

Imtiaz EsufallyNon-Executive Director

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

Mr. Esufally holds a Bachelor of Arts (Honours) Degree in Accounting and Economics from the University of Kent, UK, and is an alumni of IMD, Lucerne.

He counts over 30 years of management experience and has been in the forefront of the Transportation Industry.

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E J D RajakarierNon-Executive Director

Mr. Dillipraj Rajakarier was appointed to the Board in 2010. He is the Chief Operating Officer of Minor International Public Company

Limited and the Chief Executive Officer of the Minor Hotels Group. He has also served as the Deputy Chief Financial Officer of Orient-Express Hotels, Trains & Cruises and as the Group Financial

Controller of Easi Solutions PLC.

Mr. Rajakarier has a Masters’ Degree in Business Administration, from the UK and is also a Member of UK Institute of Management

Information Systems. He is also an Associate Member of the British Association of Hotel Accountants, a Member of the Association of Computer Professionals, a Member of the Association of Business

& Administrative Computing, UK, and a Member of the Institute of Directors.

M A JafferjeeSenior Independent Director

Mr. Murtaza Jafferjee was appointed to the Board in 2010. He is the Chief Executive Officer of JB Securities Limited with over 20 years’ of industry experience in the stock market in Sri Lanka. He serves

on the Board of Nations Trust Bank PLC as an Independent Director. He has also served on the Board of the Colombo Stock Exchange

from August 2007 to July 2009.

Mr. Jafferjee holds a Bachelors’ Degree in Mechanical Engineering and Computer Science from the University of New South Wales, Australia and a Masters’ Degree in Financial Economics from the

University of Colombo. He is also a CFA Charter Holder.

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Dr. R. N. A. AthukoralaIndependent Director

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

Dr. Athukorala served the country as the Chairman of Sri Lanka Export Development Board when exports crossed the ten billion dollar mark, then as the Chairman Sri Lanka Tourism Promotions Bureau the country crossed 1. 8 million visitors and 3 billion dollars in revenue. In 2015 he was appointed Chairman of the 30 billion rupee largest retail chain in the country Lanka Sathosa, where from a Rs. 1.2 billion loss making entity the business was turned around to achieve a Rs. 38.2 million profit within seven months. Multi-skilled Athukorala is a columnist for Daily FT, International speaker, Sports Trainer and owns a company portfolio of Rs. 2 billion whilst serving many boards in the SME sector of Sri Lanka. Alumni of Harvard Kennendy school, he has a double degree in marketing, MBA and doctorate in business. He is also a GSE scholar of Rotary International and honoree of the ‘ Exceptional Rotarian Award’ for Rotary District 3220- Sri Lanka & Maldives.

Board of Directors

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Linda SpeldewindeIndependent Director

Entrepreneur Linda Speldewinde’s name is known for the immense scope of work she has led for South Asia, uniting design led

innovation with enterprise & building a unique eco system. In the most recent award of her honorary doctorate from Northumbria

University UK, she was acknowledged for her global reputation as one of Sri Lanka’s leading entrepreneurs using the power of design

to have made an impact on education, the creative sector, rural crafts and communities, as well as social and cultural sustainability.

Ms. Speldewinde is the founding entrepreneur behind ‘Design Corp’ group of companies which is an unusual example of a

living ecosystem of businesses, educational institutes, brands and organisations working with design and its power to create commerce, employment and economic growth as their central

dynamic. This includes the design academy AOD—which many international universities continue to proudly partner for many

years, as well as Sri Lanka Design Festival, Mercedes-Benz Fashion Week Sri Lanka, www.fashionmarket.lk, Design Colombo, Island

Craft, Colombo Innovation Tower.

Ms. Speldewinde holds a MBA from PIM, and is an alumni of the British Council’s ‘Young Creative Entrepreneurship’ from

which she hold a special commendation for changing society through education. As much Linda is a driver of innovation and

entrepreneurship, she is also a passionate advocate of female empowerment and has initiated and driven many initiatives in this

areas. Her work resonates through young design talent, business and emerging creative cultures from heritage crafts to digital retail,

blazing a trail of inspiration in how design can, in fact, contribute to the world. Ms. Speldewinde was appointed to the board of

Serendib Hotels PLC in 2017.

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Thilan WijesingheIndependent Director

Mr. Thilan Wijesinghe was appointed to the Board in 2016. He has three bachelors’ degrees in Engineering, Economics and Business

Administration from Cornell University, USA.

Having commenced his career as a Senior Management Consultant at Price Waterhouse Coopers, Colombo, Mr. Wijesinghe co-founded

Asia Capital PLC, which became Sri Lanka’s largest investment bank in terms of market capitalisation. In late 1995 Mr. Wijesinghe

exited his shareholding in Asia Capital to become the youngest ever Chairman/Director General of the Board of Investment of

Sri Lanka. During his 5-year tenure, he directed many pioneering privatisation and public-private partnership (PPP) transactions in

large-scale infrastructure projects. Mr. Wijesinghe is also a co-founder and Board member for life of the Sri Lanka Institute of

Information Technology, which has become Sri Lanka’s largest IT and engineering University.

Mr. Wijesinghe is former Managing Director of Forbes & Walker

Group and headed Sri Lanka’s two largest listed property companies, Asian Hotels Properties PLC and Overseas Realty PLC.

He continues as a Board member of MJF Leisure and is a co-founder and Director of the award winning Ceylon Tea Trails Resort.

He is also a co-founder/Director of Wow.lk.

Mr. Wijesinghe currently is Chairman of TWCorp that specialises investment structuring with emphasis on real estate focused investments and Chairman of the National Agency for Public

Private Partnership Agency of the Ministry of Finance. Mr. Wijesinghe also sits on the boards of several other public and

private companies.

Stephen ChojnackiNon-Executive Director

Mr. Stephen Chojnacki was appointed to the Board in 2017 and is the Chief Commercial Officer and General Counsel of Minor

International Pcl. Mr. Chojnacki holds degrees in economics, foreign affairs and law from the University of Virginia, USA. Mr. Chojnacki

is based in Bangkok and has worked for Minor International for 11 years, across Minor’s hotel, food and distribution businesses. Mr.

Chojnacki is a practicing lawyer admitted to the New York Bar. Prior to joining Minor International, Mr. Chojnacki worked for Linklaters,

a large global law firm, in their New York, Hong Kong and Bangkok offices.

Board of Directors

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Corporate Management Team

1. Malinga Arsakularatne - Executive Director2. Shantha Kurumbalapitiya - Chief Operating Officer3. Suranjith De Fonseka - Chief Marketing Officer4. Dayan Gunasekara - Director - Finance5. Nimali Welikala - General Manager - Human Resources6. Hussain Habeeb - Head of Strategy and Business Development

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Corporate Management Team

Malinga Arsakularatne Executive Director

Refer to Board of Directors Profileon page 19

Shantha Kurumbalapitiya Chief Operating Officer

He has over 20 years’ experience in the areas of Accounting & Finance, Business Restructure, Production Management, International Marketing, Construction and Project Management, Human Resource Management, Business Process Re-engineering and General Management, including CEO responsibilities. Prior to joining Serendib Leisure, he was the Group CFO of Rockland Distilleries (Private) Limited. He is a Fellow Member of the Institute of Chartered Accountants Sri Lanka and a Fellow Member of the Chartered Institute of Management Accountants UK. He also holds a MBA from the University of West London. Shantha took over responsibilities of COO of Serendib Leisure Management Ltd. from the 1st of January 2017.

Suranjith De Fonseka Chief Marketing Officer

He joined the management team of Serendib Leisure Hotels in September 2007 and has gathered over 15 years’ experience in the tourism industry. He holds a B.A. (Hons) degree in Business Administration from Nottingham Trent University - UK, is a Sri Lanka prize winner of the Chartered Institute of Marketing - UK, and is a Chartered Marketer. He also holds an MBA from the Postgraduate Institute of Management of the University of Sri Jayewardenepura, and has participated in executive education programs conducted by INSEAD, the Indian School of Business (ISB) and the Cornell Nanyang Institute of Hospitality Management in Singapore. In addition, he is the Vice President of the Travel Trade Sports Club and a member of Skal International Colombo.

Dayan Gunasekera Director - Finance

Dayan has spent the majority of his career at the Hemas group; initially with the FMCG Sector and then with the Transportation Sector prior to his appointment to the management team of Serendib Leisure. He is an Associate Member of the Chartered

Institute of Management Accountants (UK) and a Diplomate of the Chartered Institute of Marketing (UK). He holds an honors degree in Accounting and Financial Management from the University of Sri Jayewardenepura and a MBA from the Postgraduate Institute of Management of the same university.

Nimali WelikalaGeneral Manager - Human Resources

Nimali is a Senior HR practitioner with experience in a range of sectors. Having worked in the apparel manufacture, banking and IT sectors, she is currently the General Manager Human Resources of Hemas Leisure, Travel and Aviation (LTA) Group. An alumnus of the University of Delhi, Nimali graduated with a degree in HR & Industrial Relations and completed her post-graduate degree in Business Management at the University of Colombo. Nimali found herself at N*able (Pvt) Ltd as its very first Head of HR prior to her appointment at the Hemas’ Leisure, Travel and Aviation Group in October 2017.She is the winner of the National Young HR Minds Award in 2009 for her submission in ‘Global Financial Crisis and the role of Human Resources.’ Nimali is conferred the award for 100 Most Influential Global HR Professionals at the World HRD Congress in 2016

Hussain HabeebHead of Strategy and Business Development

Hussain joined Serendib Leisure in September 2010 where he has held multiple leadership roles in the areas of Finance, Procurement and Development Projects. Prior to joining Serendib Leisure, he worked at PwC Maldives and Sri Lanka. He holds a First Class Honors Degree from University of East Anglia (UK), and is also a Sri Lanka prize winner of the Association of Chartered Certified Accountants (UK). Hussain was appointed as the Head of Strategy and Business Development of Hemas Leisure, Travel and Aviation Group in July 2017

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Senior Management Team

Seated Left to Right

Kushan Pathiraja, Manager - Finance; Suresh Athukorala, General Manager – Hotel Sigiriya; Urs Platz, General Manager – AVANI Bentota Resort & Spa Shantha Kurumbalapitiya, Chief Operating Officer; Stephan Sandmann, General Manager – Club Hotel Dolphin; Himaj Jayasinghe, General Manager – Boutique Hotels & Villas; Saman Welapura, Head of Projects and Technical Services

Standing Left to Right

Jude Silva, Hotel Manager – AVANI Kalutara Resort; Kusalitha Devruwan, Senior Manager - Human Resources Harindu Jayakody, Manager - Procurement; Devika Saelen (Ms.), Head of Operational Excellence; Sepala Dahanayake, Head of Administration Roshan Nanayakkara, Head of Information Technology; Nimantha Neyomal, Assistant Manager – Planning & Strategy Implementation Adrian Jansz, General Manager – Sales & Marketing

EXCEPTIONAL


Come what may, we are focused on exceeding your

expectations.

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Management Discussion & Analysis

“We have invested in developing our relationships with key stakeholders in emerging source markets and upgrading our digital infrastructure"

The Global Tourism LandscapeThe latest UNWTO World Tourism Barometer stated that international tourist arrivals grew by a remarkable 7% in 2017 to reach a total of 1,322 Million. This is well above the sustained and consistent trend of 4% or higher growth since 2010 and represents the strongest results in seven years.

This growth was partly shaped by the global economic upswing and robust outbound demand from many traditional and emerging source markets, particularly from Brazil and the Russian Federation after a few years of decline.

The European and African regions have recorded the highest growth rates in 2017 led by Mediterranean destinations. Africa consolidated its 2016 rebound with an 8% increase. Asia Pacific recorded a lower, 6% growth, while the Middle East benefited from a 5% increase in arrivals and the Americas, a 3% growth over 2016.

The current momentum is expected to continue in 2018, though at a more sustainable pace after eight years of steady expansion following the 2009 economic and financial crisis. Based on current trends, the UNWTO projects international tourist arrivals worldwide to grow at a rate of 4%-5% in 2018. This is somewhat above the 3.8% average increase projected for the period 2010-2020 by UNWTO in its “Tourism Towards 2030” long-term forecast.

Tourist Arrivals to Sri LankaSri Lanka experienced a moderation in the year-on-year tourist arrivals, recording a growth rate of 3.2% in 2017 to 2,116,407 arrivals. This slower rate of growth is attributed to flight cancellations and delays at the BIA, owing to the upgrade of the runway, as well as the breakout of dengue in mid-2017. Sri Lanka recorded the highest ever monthly arrivals during December 2017 with 244,536 visitors entering the country.

Tourist Arrivals by Country - 2017 (Top 10)

India 18%

China 13%

U.K 10%

Germany 6%

France 5%

Australia 4%

Maldives 4%

Russia 3%

U.S.A 3%

Netherlands 2%

Other 33%

Source: Sri Lanka Tourism Development Authority

Tourist arrivals from all major regions, except the Middle East, increased in 2017. India maintained its lead as the prime tourist source, contributing mostly to the growth with 384,628 arrivals in 2017, while China remained the second largest origin, albeit recording a marginal decline, followed by the UK, Germany and France.

0 0

2013

2014

2015

2016

2017

2,400 5,000

4,000

400 1,000

1,200

8002,000

2,000

1,6003,000

Tourism Earnings

Tourist Arrivals (In’000) Tourism Earnings (USD Mn)

Source: Sri Lanka Tourism Development Authority

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As stated in the latest Central Bank Annual Report, the tourism industry remained the third largest foreign exchange earner to the country in 2017. Earnings from tourism increased by 11.6% to USD 3,925 Mn in 2017, in comparison to USD 3,518 Mn in 2016. In 2017, the average spend per tourist rose to USD 170.10 per day, from USD 168.20 per day in 2016. Further, the average duration of stay by a tourist was estimated to have marginally increased to 10.9 days in 2017, in comparison to 10.2 days recorded in 2016.

Investment in the tourism sector continued to grow in 2017. During the year, investment proposals for 95 new hotel projects were received, entailing an investment value of USD 314 Mn. Final approval was granted for 45 hotel projects with 2,393 rooms, with a total value of USD 380 Mn, in 2017, in comparison to 41 projects amounting to USD 126 Mn approved in 2016. Several international hotels, including Shangri-La Colombo and Movenpick Hotel Colombo commenced their operations, while major hotel projects, such as Hyatt, Sheraton, ITC and NEXT continued construction work during the year. Further, the informal sector, including boutique villas, guest houses, home stays, heritage homes, bungalows and rented apartments, increased by 135 to 1,693, in 2017, resulting in an increase in total room capacity by 974 rooms to 12,509.

Investment into tourism development projects at provincial level also continued during 2017. Integrated tourism development projects such as Dedduwa, which is thought to be Sri Lanka’s largest tourism project so far, has completed its land acquisition process. In addition, locations have been identified for other integrated development projects in Iranawila, Akurala, Zone 02 of Kalpitiya and Kuchchaweli. The SLTDA is in the process of developing separate Tourism Development Master Plans for Ella, Arugambay, Kalpitiya, Nuwara Eliya, Beruwala, Hikkaduwa and Pinnawala, considering their uniqueness to attract tourists.

With this line up of new projects tourism in Sri Lanka is poised for sustained growth over the future. Tourist earnings are expected to grow steadily over the medium-term complemented by targeted promotion campaigns and continued investment in upgrading and expanding tourism related infrastructure.

Serendib Hotels PortfolioFollowing the entry of the Serendib Hotels Group into the boutique villa niche in 2017/18, the Group’s leisure industry footprint expanded to a cluster of six unique properties scattered across tourism hot spots in the country. As at end March 2018, Serendib properties comprised four owned and managed properties and two properties under management.

The properties owned and managed were: • AVANI Bentota Resort & Spa, Bentota (75 Rooms)

• Club Hotel Dolphin, Waikkal (154 Rooms)

• Hotel Sigiriya, Sigiriya (79 Rooms)

• Lantern Beach Collection, Mirissa (22 Rooms)

Properties under management: • AVANI Kalutara Resort, Kalutara (105 Rooms)

• Villa 700, Induruwa (5 Rooms)

Significant Developments in 2017/18 Serendib Hotels PLC acquired Frontier Capital Lanka (Pvt) Ltd, the owning company of the Lantern Beach Collection in two phases during the year. In September 2017, 51.1% of Frontier Capital Lanka (Pvt) Limited and its two fully owned subsidiaries, Evolution Capital Lanka (Private) Limited and Lantern Villa (Private) Limited, was acquired for a consideration of Rs. 309 Mn. The three companies together are known as Lantern Beach Collection (Lantern) which consists of 22 luxury rooms located in Mirissa. The group recorded a goodwill of Rs. 94 Mn from this acquisition. In March 2018, the remaining 48.85% of the company was acquired for a consideration of Rs. 108 Mn.

Serendib Leisure Management Ltd also signed a management contract with Villa 700, a five-room boutique villa property in Induruwa.

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Financial ReviewGroup RevenueThe Serendib Hotel properties experienced unfavourable revenue conditions for much of the financial year under review, primarily due to lower occupancy levels as a result of the floods that occurred in the country during the traditional summer tourist season which gave rise to an outbreak of dengue in several parts of the island. The dip in arrivals continued for the first three quarters of the year until the trend reversed in the 4th quarter with arrivals picking up in December for the winter season.

A majority of our guests during the year were of European origin. The Group was hoping to diversify at a faster rate into web-based clientele and develop new markets in the Middle East to reduce dependency on traditional European markets, this did not materialise in any significant volumes during the year under review. We continue to focus our marketing efforts towards achieving a greater diversification in source markets which we hope to achieve in the year ahead.

Group average occupancy recorded for the financial year 2017/18 was 75%, one percentage point down from the previous year. The Group closed the year with top line moving upwards year-on-year by 6%, to Rs 1.88 Bn, from Rs 1.77 Bn recorded last year, with post-acquisition revenue of Lantern and higher F&B sales accounting for much of this growth. Group revenue excluding the contribution from Lantern Beach Collection stood at Rs 1.78 Bn showing less than 1% growth over last year.

Other income and gains made by the Group in the year increased by Rs. 35 Mn from the previous year, mainly through exchange gains aided by the rapid strengthening of the Euro and British Pound, which was 18% and 13% respectively. Timely hedging in forward rate agreements as part of the Group’s foreign exchange risk mitigation strategies helped to secure consistent exchange gains throughout the year.

Costs The spend on marketing and promotional expenses recorded an increase of 39% primarily due to the increased focus on investment in online marketing and spend on foreign promotions through brochures.

The Group spend on new business development was Rs 20 Mn as opposed to the Rs 34 Mn spent last year. This reduction, coupled with a 5% saving in payroll and related expenses, resulted in admin and general expenses increasing marginally by 2% in 2017/18.

Finance costs on the other hand, increased due to borrowings made to finance the acquisition of Frontier Capital and from the loans on the books of Frontier Capital Lanka (Pvt) Ltd.

ProfitabilityInspite of the negative impact of low demand during the summer, the Group made a strong comeback in the winter period, recording a growth in gross profit by 7% from Rs 1.27 Bn in the previous year, to Rs 1.37 Bn in the current financial year.

Revenue Mix 2017-18

Room 48%

Food & Beverage 49%

Others 3%

0 65%

2014

2015

2016

2017

2018

2,100

1,800

85%

300

70%

900

600

75%

1,500

1,200

80%

Revenue, Profit & Occupancy

Revenue (Rs. Mn) Profit After Tax (Rs. Mn)

Occupancy (%)

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Group operating profit, increased year-on-year by a commendable 45% to Rs 305 Mn, from Rs 210 Mn in the previous year mainly due to the exchange gains and the savings from administration expenses. The operating profit margin increased to 16%, from 12% last year.

Accordingly, Group Profit Before Tax (PBT) increased to Rs. 270 Mn, a 56% growth over last year. On an underlying basis, Group PBT stood at Rs. 245 Mn, representing a 41.5% growth over the Rs. 173 Mn recorded in the previous period.

Impact from the change in Income Tax rateThe Group is liable to income tax at 14% from 1st April 2018 based on the new Inland Revenue Act. Accordingly, the provisions made for income tax and deferred tax have increased to reflect these changes. During the current financial year, the total income tax expense increased to Rs 78 Mn. The current year impact of deferred tax due to the tax rate change is Rs. 22.5 Mn, recorded against profits and Rs. 8.5 Mn recorded in other comprehensive income.

Despite the tax impact, profit after tax for the year increased to Rs. 192Mn, reflecting a growth of 50% over the previous year owing to the impact of costs and exchange gains noted above.

The Group Earnings Per Share (EPS) improved to Rs 1.07 from Rs 0.61 last year. The Group’s gearing stood at 14% and was impacted by the additional borrowings obtained by Serendib Hotels PLC for acquisition of Frontier Capital Lanka (Pvt) Ltd.

DividendsTwo of the Serendib Group companies made dividend payouts during the current financial year for the benefit of shareholders. Dolphin Hotels PLC declared an interim dividend of Rs 1.00 per share to its shareholders, from the profits of the financial year 2017/18. Hotel Sigiriya declared an interim dividend of Rs 10.00 per share and made a distribution of Rs 59 Mn from the 2017/18 financial year profits. Serendib Hotels PLC recorded a dividend income of Rs 51.8 Mn out of the above two interim dividends of its subsidiaries during the year 2017-18.

Investment in Jada Resort and Spa (Pvt) LtdJada Resorts & Spa (Pvt) Ltd, the owning company of AVANI Kalutara Resort is treated as an investment. Hence, the operating results of AVANI Kalutara are not reflected in the Consolidated Financial Statements of Serendib Hotels PLC. This investment is subject to an annual assessment of fair value. The fair value loss of Rs 58 Mn from the investment in Jada Resorts, was recorded in Other Comprehensive Income in 2017-18. This loss was due to a shortfall of revenue and profits of AVANI Kalutara Resort against the forecast for 2017-18. A deemed disposal loss of Rs 31 Mn and a fair value loss of 9.4 Mn on deemed dilution of interest has been recorded in the Statement of Profit or Loss during the year 2016-17.

100 1.00Apr-17 May-17 Jun-17 Jul-17 Aug-17 Sep-17 Oct-17 Nov-17 Dec-17 Jan-18 Feb-18 Mar-18

240 1.40

140

120

1.20

200

220

180

160

Average Currency Rates (USD:GBP:EURO/LKR)

USD:LKR GBP:LKR EURO:LKR EUR/USD Source: Central Bank of Sri Lanka

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Operational ReviewAVANI Bentota Resort & SpaThe competitive environment remained highly price sensitive with an influx of new hotel rooms in the region. Undaunted by this tough operating environment, the hotel recorded a 2% increase in occupancy. In spite of the 7% increase in F&B revenue, total revenue of the property generated only a marginal increase of 1% due to price competition on room rates.

AVANI Bentota Resort & Spa continued to attract repeat customers who have experienced its hospitality and many new customers from both traditional and non-traditional destinations patronised the hotel during the year.

Club Hotel DolphinClub Hotel Dolphin benefited from the strengthening of the Euro and the British Pound, which yielded Rs 19 Mn in exchange rate gains over last year. This favourable development contributed towards a 3% growth in total revenue over the previous year, despite a decline in occupancy by 1 percentage point from last year.

The Hotel witnessed a marginal change in its guest mix away from the traditional “All-Inclusive” based which resulted in a Rs. 35 Mn growth in gross profit compared to last year. Exchange gains and a reduction in overheads compared to last year resulted in operating profit and PBT increasing to Rs. 190.2 Mn and Rs. 189.7 Mn respectively.

Hotel SigiriyaHotel Sigiriya, with its unparalleled location, continued to hold its own against new competitors by attracting new visitor segments from new markets and maintaining its strong links with its traditional source markets.

Due to the challenges faced with occupancy which declined by three percentage points over last year the hotel could not grow its top line but maintained its revenue at previous year’s level at Rs 325 for the year under review.

Stagnant revenue growth coupled with general increases in overhead expenses led to a 30% decline in operating profit to Rs. 41 Mn during the year. Consequent to an increase in the rate of deferred Tax to 14% led to a 59% in PAT compared to last year.

Technology Drive Building on our flagship investment made last year to upgrade the Property Management Systems across the group, we embarked on the following projects during the year to further strengthen our operating infrastructure: • The SynXis Central System Project: The SynXis Central

Reservations is an advanced room rate and inventory management software, which allows hoteliers to manage room rates, room inventory and distribution strategies simultaneously and on a real-time basis. During the year Property Management System (PMS) of Club Hotel Dolphin and Hotel Sigiriya were interfaced through the Synxis platform which helped room inventory to intuitively sync with online travel agencies and brand websites for maximum efficiency in room revenue management.

• The IDEAS Revenue Management System: This state-of-the-art software contributes towards establishing a systematic revenue management process within the Company. In addition, it enhances opportunities for revenue management by acting as a logical guide to develop rate strategies and also optimises revenue opportunities based on market trends.

Gearing for a technology driven future, Serendib Hotels will continue expanding and improving its Information Communication Systems to enhance overall customer convenience and operational efficiency. A significant growth driver will be the investment in e-commerce platforms that will be brought into play within the short term, elevating Serendib Hotels to a new, modern technology era.

Equity (Rs. Mn) Debt (Rs. Mn)

Gearing (%)

0 0%

2014

2015

2016

2017

2018

4,000 100%

1,00020%

3,000

2,000

60%

40%

80%

Debt / Equity


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Online Reputation ManagementHotel reputation management is the practice of monitoring and influencing how our hotels are perceived across the spectrum of online channels. For efficient and integrated management of the Group’s online reputation, Serendib Hotels has invested in ReviewPro and its powerful cloud-based solutions to deliver better guest experiences and to increase rankings on review sites and online travel agencies.

The ReviewPro indicators are the Global Review Index ™ (GRI), Competitive Quality Index™ (CQI™) and the Net Promoter Score® (NPS) that reflect online customer reviews and competitiveness of our hotel properties. The GRI, CQI and NPS rankings for the financial year 2016/17 and 2017/18 are listed in the table below, amply demonstrating the consistent positive reviews of our properties.

GRITM, CQITM and NPS rankings 2016-17 vs 2017-18

AVANI Bentota

AVANI Kalutara

Club Hotel Dolphin

Hotel Sigiriya

2016/17 GRI 83.7% 86.9% 86.3% 85.5%CQI 99.0% 101.0% 103.2% 99.5%NPS 41.7 34.5 63.2 50.0

2017/18

GRI 85.0% 86.1% 89.4% 88.1%CQI 98.7% 97.8% 103.5% 104.4%NPS 35.3 39.8 54.7 55.0

Future OutlookSri Lankan tourism stands to benefit from a coherent destination marketing strategy at national level which will help drive demand across all hotels in the country. Until such a strategy is in place the industry will be dominated by intense price competition rather than the much needed unique value propositions.

We are looking to diversify our customer base to non-traditional markets, especially during the summer months. Towards this end we have invested in developing our relationships with key stakeholders in emerging source markets and upgrading our digital infrastructure.

We will continue to enhance our properties and their asset values through refurbishments and upgrades, in order to revamp the ambience and environment and provide a refreshing change to our customers in accordance to the premium image of these properties. Business development will be another focal area in the new financial year to enhance revenue streams and rebalance the Group risk profile towards a stronger and more stable financial platform.

With the domestic tourism sector already on the road to recovery with higher arrivals compared to the comparable period in the 2017/18 financial year, we can anticipate a stronger performance by the Serendib Group in the financial year 2018/19. The emerging macro opportunities will be maximised by the Group to enhance value creation to all our stakeholders and significantly improve returns to our shareholders in the new financial year.

80%AVANI

Bentota

AVANI

Kalutara

Hotel

Sigiriya

Club Hotel

Dolphin

90%

82%

86%

84%

88%

Global Review IndexTM (GRITM)

2017-18(%) 2016-17 2015-16

94%AVANI

Bentota

AVANI

Kalutara

Hotel

Sigiriya

Club Hotel

Dolphin

106%

98%

96%

102%

100%

104%

Competative Quality IndexTM (CQITM)

2017-18(%) 2016-17 2015-16

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Sustainability Report

TUI Top Quality is an award reserved for the best rated

hotels. Our guests rated Club Hotel Dolphin as one of the

best holiday hotels in the world in 2017.

We are proud to state that our evolution and progress is built upon a long-term vision that looks beyond the numbers and encapsulates holistic development through the incorporation of social and environmental consciousness, while also supporting incremental financial returns.

Sustainability FrameworkThe Serendib Hotel Group’s Sustainability Policy is the overarching guiding framework that defines sustainable growth of all properties under the Group. It is therefore significant that our Group Policy on sustainability is based on international best practices, on sustainable hotel management. These standards have been made integral to all aspects of the functioning of Serendib Group properties, and guides the day-to-day decision making in line with the best international standards on leisure property management and administration. We include our employees and also our guests in our sustainable practices. It is noteworthy however, that through many outreach programmes during the year, we extended our scope of sustainable operations beyond the physical boundaries of our properties to encompass local communities as well.

The primary objective of the Group Sustainability Policy is to minimise the adverse impacts of our business activities on the environment and society. We strive to achieve these objectives through the application of environmentally friendly approaches in the daily operations of our properties and by engaging with local communities through many different CSR programmes towards their overall welfare. Another central aspect of the Policy is to safeguard the health and safety of employees, guests, and other stakeholders through the strict observance of health and safety standards.

We achieve our sustainable growth objectives through the process of identifying material sustainability topics within our business

operation and then by setting annual targets, at functional levels. We have also appointed Sustainability Champions at each hotel to promote and popularise our sustainability goals. We continually review and monitor our actual performance against our sustainability targets and then disseminate this information in a transparent way, so that our stakeholders can understand the progress we are making towards becoming a more sustainable business entity.

38


Supplier PolicyAs a provider of high-end leisure services, our suppliers play a key component in our value creation and sustainability model, contributing directly towards maintaining the international quality of food and beverage and other in-house services provided by the Group to its guests. Therefore, the procurement of supplies is recognised as a key business function and is continually supervised and monitored to ensure all supplies are in line with the core brand values of the Group and brand image of our properties.

The central mechanisms guiding and directing this process is the Serendib Group Supplier Policy. The Supplier Policy sets out guidelines on dealing with the diverse range of suppliers providing innumerable amounts of perishable and non-perishable items on a daily basis to our properties. These directives are geared towards maintaining the look-and-feel of all our facilities and also accommodates global best practices in terms of procurement


Awards and Accolades The Serendib Group has left an indelible mark in the domestic leisure industry through unparalleled service standards and innovative thinking aimed at uplifting the customer value proposition at every value point in our value chain. During the current year too, the Serendib properties excelled in their field of expertise, to gain recognition and accolades for unmatched quality of leisure services. Some of these achievements during the year are listed below.

Club Hotel Dolphin • Travellife Gold Certification for sustainability in Tourism

2016/18

• TripAdvisor Certification of Excellence 2017

• TUI Top Quality 2017

Hotel Sigiriya• Travellife Gold Certification for sustainability in Tourism

2016/18


• TripAdvisor Travellers’ choice award winner 2017

• Booking.com Guest Review Award 2017

• Agoda Gold Circle Award 2017

AVANI Bentota Resort & Spa• TripAdvisor Travellers’ choice award winner 2017

• Travellife Gold Certification for sustainability in Tourism 2016/18


AVANI Kalutara Resort • Travellife Gold Certification for sustainability in Tourism

2016/18


and globally accepted certification standards to ensure consistent quality is maintained at every point of the procurement process.

As a core component of our business model, the Supplier Policy incorporates our sustainability principles on how we deal with our suppliers and defines the expected quality standards of the products purchased through local and foreign suppliers to ensure consistent brand image. High-end items such as premium linen, alcohol and other beverages are invariably sourced from world-class manufacturers.

Products and Services Purchased LocallyAs part of the overall sustainable business policy, all Serendib Group properties purchase their requirements from local suppliers wherever possible. The objective is to provide the best of local produce to guests. All such domestic purchases are subject to stringent quality inspections that are imposed on a regular

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basis designed to reflect globally accepted criteria to safeguard the health and safety of guests and to ensure the first-class brand reputations of our properties are never compromised. Such domestic purchases generally comprise perishable fresh products such as fruits and vegetables that give our customers the opportunity to experience Sri Lankan tastes and flavours, prepared and presented under the most hygienic conditions. The Serendib Group believes in building strong and long-lasting relationships with suppliers that conform to our rigorous quality expectations and therefore, as a policy we ensure that all our suppliers are paid a fair price and payment is made on time. During the current financial year our policy of local purchasing continued. with our properties purchasing millions of rupees worth of goods for their daily operations.

AVANI Bentota Resort & SpaAVANI Bentota ensured that 30% of total purchases during the year, were made from local area producers. A majority of local suppliers were providers of fresh food such as vegetables, fish and fruit sellers. The resort has maintained a healthy business relationship with the suppliers and has been procuring from them for the last 20 years.

As part of the supplier engagement and relationship building efforts, the resort conducted its regular routine meetings with all suppliers to ensure our suppliers have thorough knowledge of our policies and requirement and also to maintain consistently high-quality standards of products. The continuous engagements contribute towards encouraging suppliers at all times to improve their own production and delivery standards for mutually beneficial outcomes that are derived from sustained high guest satisfaction.

AVANI Kalutara ResortAll vegetables, fruits and meat were purchased from local producers, averaging to almost 41% of total purchases for the year. The property also maintained continuous dialogue with all suppliers to educate them of expected standards in terms of food and other produce.

Hotel SigiriyaDuring the year, 20% of Hotel Sigiriya's total purchases were from the Sigiriya/ Dambulla region. As part of its sustainable quality management policy, quarterly visits were made to local area suppliers, to examine and suggest improvements towards

sustainability, environment and health and safety aspects of their businesses. The property maintains records on supplier practices and supplier credentials.

Club Hotel DolphinClub Hotel Dolphin made a contribution towards development of local industries by ensuring that as much as 25% of products and services purchased during the year were from local sellers. These procurements include food and beverages, other supplies, communication services, security services, power etc. Foreign purchases for the year were only 15% and consisted of imported food and beverage, specialised IT services, web services and management services. The hotel conducts half-yearly meetings with suppliers with the objective of informing all suppliers of future requirements.

Health and SafetyOur stand on health and safety parameters are uncompromising and are always maintained according to the latest international guidelines. A high priority area is food safety and hygiene standards to ensure the well being and enjoyment of guests at all our hotels. All Serendib Group hotels follow the internationally accredited best practices set out under the HACCP food safety management guidelines to ensure the highest global quality in terms of food safety, at all times.

As a central element of our sustainable business model, we take all steps towards ensuring the safety and security of guests and employees at all times, by integrating international best practices into the operational aspects of our properties, which are regularly reviewed and upgraded whenever required. As part of this process, regular risk assessments are conducted and risk mitigation strategies are deployed to ensure optimum functioning of systems. International quality standards of our safety systems are upheld by aligning with the globally recognised Travelife Sustainability System, which comprises environmental and social compliance requirements that are strictly adhered to by our properties. All properties are audited internally for Health and Safety compliance and regular upgrades are done to the facilities and infrastructure to keep up to these standards/practices.

In addition, Mystery Audits are conducted on health and safety aspects at all properties annually and detailed reports of findings are circulated to the management team for corrective action if deemed necessary. Besides the comprehensive Mystery Audits, Public Health Inspectors (PHI) from the Government conduct

40


regular audits of our properties every 6 months to ascertain compliance with all regulatory health and safety requirements.

AVANI Bentota Resort & SpaAVANI Bentota monitors all products and services on a daily basis to ensure conformity with the requirements of health and safety, in accordance with the ISO 22000 and HACCP standards.In any instances, where a product or service falls short of expected standards remedial action to rectify the situation is taken immediately to ensure the overall quality system is uncompromised at all times.

AVANI Kalutara ResortInternational HACCP procedures are strictly followed by the resort on daily internal operational aspects. Additionally the resort also conducts continuous inspections of health and safety procedures that are in operation to identify any possible shortcomings or weaknesses., Whilst taking immediate preventive measures to ensure the safety framework is not compromised. First aid training programmes are provided to all associates ensuring they are well equipped to deal with any emergencies.

Hotel Sigiriya The reputational integrity and brand image of Hotel Sigiriya is maintained through the daily implementation of a full range of health and safety checks that are monitored at the highest level. The hotel also maintains a policy of proactive action, as opposed to reactive responses when it comes to managing its health and

safety quality systems. The hotel management keeps track of the health and safety situation every day by recording a check list on cleanliness of the staff and the operation. All members of staff are trained to follow the correct procedures and are empowered with the provision of adequate accessible resources. In addition, the hotel conducts health assessments of food handlers whenever a new recruitment takes place. On a quarterly basis, medical tests are conducted on all F&B staff.

Club Hotel DolphinThe hotel submits to independent checks on health and safety by the Public Health Inspectors (PHI) that audit the property every 6 months on health and safety conditions. In addition, all health and safety standards and procedures applicable to the Group, are practiced without fail at all times.

Mitigating Health and Safety RisksIt is inevitable that the Group and its properties are exposed to many different types of health and safety risks due to emergent local and global conditions. The top management is fully cognisant of these dangers and as such, the Serendib Group takes a range of precautionary measures to mitigate or eliminate such potential risks. A key component of this strategy is the investment into health insurance for all of the Group’s properties which extends to all employees and guests. All Serendib Group properties also have in place effective systems, which are monitored regularly, to address potential health and safety risks.


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AVANI Bentota Resort & SpaAVANI Bentota maintains a strict framework on mitigating health and safety risks. Some of the relevant elements include ensuring that all products are stored hygienically at correct temperatures, storing chemicals in a safe and ventilated location. Dry food items are stored in accordance with health and safety requirements. Daily temperature readings are taken to ensure that all items are stored in a proper manner, in line with health and safety regulations.

Hotel SigiriyaThe health and safety risk management system at Hotel Sigiriya includes the mandatory maintenance of records of all cold room temperatures and food temperatures of served food items. Proper packaging and storing of food is a core aspect of food safety. In addition, every year the environmental certificates are renewed for sustainable business operations. Another aspect of health and safety that is always on track, is maintenance of the hotel property in top condition to prevent any possible accidents.

Club Hotel DolphinThe hotel maintains its health and safety conditions through multiple international standards including ISO 22000, HACCP and “5” Crown certification. The effective implementation of standards is verified through four surveillance audits per year. Furthermore, tour operator audits are conducted on the property annually and external audits are also conducted by the Group OH&S team. A Health and Safety Manager is placed inside the property to monitor implementation of standards to address any shortcomings and to mitigate hazards. Health inspectors of the region carry out audits of the property and also provide solutions for improvements, if required. A nurse is available in-house and a Doctor is on call 24/7 in case of emergencies. Hotel staff are trained at regular intervals on guest services, F&B and safety.

Customer Engagement Our brand image is indelibly linked with the highest level of customer satisfaction which is demonstrated by the growth in customer numbers, repeat customers over the years and customer reviews. Within an increasingly competitive operating environment our customers are a key stakeholder Group and our entire business model is geared to facilitate the comfort, safety and satisfaction of our customers, with training and development initiatives also aligned to boost customer care at all contact points. This core philosophy is put into practice across all management and staff levels to create an environment and mindset that is customer centric and flexible in meeting diverse customer needs for an unparalleled leisure experience.

A key aspect of our customer centric service model is the systems and processes in place to encourage and enhance customer engagement points to measure and understand customer reactions and to collate vital customer feedback which in turn is redirected towards creating a greater customer satisfaction experience. As part of this process the Serendib Group has set up online Guest Satisfaction Surveys (GSS) across all four of our hotels. The surveys are operationalised via a post-stay email to solicit feedback of their experience, which is sent out to guests after the third day of departure. The information collected is then analysed, reviewed and corrective action is taken if any is required. Online review sites such as TripAdvisor are also monitored on a regular basis. Management cocktails are held weekly, providing an opportunity for the hotel’s management team to interact with guests during their stay and look into ways of enhancing their stay.

Going even further, during the year, Club Hotel Dolphin introduced in-stay surveys. These surveys are sent out whilst the guests are in-house with the objective of addressing any service shortfalls. We recognise the need for service recovery and the need to implement a recovery strategy while guests are at the property by taking corrective actions before guests check out. These efforts have contributed towards elevated guest satisfaction levels as our guests are made aware of our efforts to ensure their well being at all times.

Managing Environmental ImpactsThe Serendib Group believes in environmental commitment that goes beyond the rhetoric and has a tradition of environmental consciousness demonstrated through numerous initiatives over the years aimed at conservation of resources, practiced at our hotel properties. We attempt at all times to conserve, preserve and if possible, augment natural resources. As a responsible corporate citizen, we have inculcated the conservation mindset among our employees through policies and practices that results in our properties adopting energy efficient practices, water conservation, waste management and preservation of natural eco-systems in their respective locations. All of our hotels have put in place mechanisms towards water and electricity conservation and are constantly improving their waste management systems to reduce environmental impacts through the adoption of recycling and reusing initiatives.

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Environmental Conservation The outcomes of our conservation efforts with regards to energy and water consumption have been monitored and categorically compiled below to demonstrate the effectiveness of our environmentally friendly mechanisms.

GRI Ref Description 2017/2018 2016/2017

Environment

EN1 Direct energy consumption (KWH)

2,498,368 2,560,228

EN2 Energy saved due to conservation (KWH)

418,741 184,428

EN3 Investment to introduce energy efficient systems (Rs.)

472,740 21,510,597

EN4 Water withdrawal (m3) 103,914 100,760

EN5 Water recycled and reused (m3)

93,553 90,684

EN6 Waste generated (MT) 183,758 162,579

EN7 e-waste (KG) - -

EN8 Liquid waste (Ltr) 450 130

EN9 % of Liquid waste treated

- -

EN10 Enviromental fines (Rs.) No No

AVANI Bentota Resort and SpaAs part of its overall Sustainability Policy, AVANI Bentota resort continually monitors consumption of natural resources such as electricity and water and makes all efforts to reduce its carbon footprint through conservation initiatives. These activities include the replacement of CFL bulbs with LED lighting, and awareness sessions for staff on how to reduce energy and water waste during daily activities. In addition, the hotel has formed a Green Team with specific responsibilities to improve conservation efforts during the course of business activities and to suggest improvements that would further contain the carbon footprint. To reduce negative environment impacts, the usage of plastic straws was discontinued within the hotel in favour of biodegradable straws that do not contribute towards the pollution of the earth.

AVANI Kalutara ResortAVANI Kalutara has also put in place numerous initiatives to drive conservation and preservation of natural resources. These include discontinuing the usage of plastic straws and minimising plastic usage by finding alternative biodegradable products that are not environmentally harmful. The resort has implemented proper garbage separation systems and cleaning processes to support overall environmental impact management. Taking the environmental responsibility further, beyond the work environment, the hotel conducts community programmes on beach cleaning and promotes eco-stability at wider societal level. The hotel also actively searches for business opportunities in the sphere of green concepts and minimising energy wastage.


Children’s day celebrations at AVANI Bentota Resort & Spa Desktop computers handed over to a local school in Kalutara

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Hotel Sigiriya Hotel Sigiriya has invested in extensive control systems over processes and operations to minimise the impact on the environment as stipulated under the national environmental regulations. The hotel also implements the international ISO 14001 standards and many health and safety procedures to minimise the risk upon humanity and the biosphere. These efforts are augmented by conducting awareness programmes for school children in the Sigiriya area and also for the village community. The hotel regularly organises tree planting programmes around the hotel vicinity to increase the forest cover of the area. In July, the hotel conducted an awareness programme targeting school children regarding environment protection and conservation with the collaboration of the Department of Wildlife Conservation, the CCF and the Sri Lanka Police.

Club Hotel Dolphin At Club Hotel Dolphin waste management and segregation processes are continually improved within the premises and the hotel also encourages its surrounding community to practice the same to expand the positive impact across the neighbourhood. To support this environmental drive, the hotel distributed dry garbage bins among the community. All the sewage waste water is treated and then discharged to the ground. School awareness programmes are held for school children attending schools within the vicinity of the hotel. Most of the waste materials are sent for recycling wherever possible to reduce landfills and ensuing negative environmental impacts. The hotel also attempts

to use biodegradable chemicals most of the time within its operations. In an effort towards renewable energy the hotel is in the process of installing a Biogas Plant for wet garbage, which will contribute towards reduction in fossil fuel energy-based electricity consumption.

Corporate Social Responsibility Corporate Social Responsibility is ingrained into the business philosophy of the Serendib Group and its hotels. We believe it is a sustainability pillar that contributes towards the welfare of all stakeholders including our guests through a better leisure experience. It supports our employees by building a sense of contributing to society. Our community engagements also directly benefit our communities in diverse ways. During the current financial year, the Group’s hotels conducted many CSR activities that facilitated direct engagement with local communities towards their betterment.

Our beach properties annual engages in beach clean upChildren of Diyakepilla School in Sigiriya after receiving Books for their Library

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Renovating the Kudaligama Maha VidyalayaDue to the floods during May 2017, many families in the Kalutara district were severely affected. As AVANI Kalutara operates in the Kalutara district, the Executive Committee of Serendib Leisure Management Ltd decided to conduct a CSR project to help rebuild Kalutara. Hence, it was decided to allocate Rs 2.2 Mn from the budget of this year’s Serendib Leisure’s Annual Awards Ceremony, to finance a CSR project. The total cost of the project was shared among all group companies, making this a significant Group initiative.

In selecting a suitable CSR project, the team examined the various flood rehabilitation needs of the Kalutara district. Based on this assessment, the WP/HO/ Kudaligama Maha Vidyalaya, which is a school located in Neboda, a rural area of the Kalutara district was selected as the most suitable target. The 95 years old school that educates over 385 students from Grade 1 to 13, was severely affected by the floods. Having estimated the damages it was

identified that the school requires a retaining wall and roof repairs to two buildings in the school.

Project Investment Based on the estimation done by the Technical Officer at Divisional Engineers Office, Horana, it was identified that Rs 2 Mn was required to rebuild the damaged areas of the school property. Based on the estimation, the Serendib Leisure Management Ltd decided to initiate 3 projects to rebuild the school. The projects are as follows:

Project Description Cost (Rs)

A Build a retaining wall 730,101

B Roof Repair work of 60’x20’ Building 474,460

C Roof repair work 100x20’ building 796,138

Total 2,000,629


“ Kudaligama Maha Vidyalaya, a school in the Kalutara district, with over 385 students from grade 1 to 13 currently receiving their education, was badly affected during the May 2017 floods. A total investment worth of 2 MN was spent restoring the school buildings.

Before and After Images of the Developments to Kudaligama Maha Vidyalaya

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We are proud to report that the project was successfully completed in November 2017 and handed over to the school authorities, providing the children with a safe and secure educational environment to continue their educational activities. The project has contributed to overall national educational infrastructure and fast tracked the return to normalcy for the community by safeguarding the future of their children.

Donations to Sri Lanka Cancer SocietyKeeping with its tradition of giving to worthy causes, Serendib Leisure Management Limited once again donated linen, such as bed sheets, pillow cases and towels, to The Sri Lanka Cancer Society in April 2018. Having carried out this project for several consecutive years, Serendib Leisure Management intends on expanding its activities to include more socially sensitive initiatives in the future.

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Human Capital DevelopmentWe firmly believe our human resources are a central aspect of our brand image and customer value creation process, leaving a long-lasting impression on customer recollections and perceptions during and following their stay at our hotels. Therefore, we have continued to invest in our team through multiple methods aimed at developing their skills and personalities and continually improving the work environment.

In maintaining our brand image for world class hospitality, our employees are the delivery points that ensure our guests experience a faultless leisure encounter from the moment of arrival, throughout their stay and up to their departure. Therefore, we have in place a comprehensive Human Resources infrastructure, deployed at every property across all hotels in the Serendib Leisure Group. This is the framework to build up our workforce into a highly competent and competitive workforce that can overcome the day to-day challenges encountered in the hospitality industry. It is also the underlying platform to develop innovative and effective human capital development strategies.

During the 2017/18 financial year, Hemas Talent was used as an effective HR tool to conduct setting of goals for the executive and management team. Mid-year and annual appraisals were also conducted through Hemas Talent, to track employee performance.

Keeping our employees at heart, an engagement survey was done in 2017/18 to understand employee perceptions and receive employee feedback. Compared to the last financial year, the trends have increased in white collar workers from 52% to 60%. With regard to people/HR practices the leisure sector has come up to 55% which shows a 5% increase from last year.

The total workforce of the Serendib Group hotels decreased to 805 during the current financial year from 830 in the previous financial year, composed of 723 males and 82 females providing exceptional services to our guests and ensuring the comfort and well being of our guests at all times.

Employees by Gender

Serendib Leisure Management Ltd.

Club Hotel Dolphin

Hotel Sigiriya AVANI Bentota Resort & Spa


Total

Male 41 266 122 160 134 723

Female 23 19 8 19 13 82

Total 64 285 130 179 147 805

Employees by Age-GroupThe Group maintained an extremely young workforce with a majority of 276 employees within the age brackets of 18 to 30 years and another 250 personnel falling into the age group of 31 to 40 years, ensuring strong youthful vigour in all operational aspects of the hotels. Out of total employees 74 are over the age of 50, while another 205 are between 41 to 50 years providing mature guidance to the management of our properties.

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Club Hotel Dolphin

Hotel Sigiriya AVANI Bentota Resort & Spa


Total

18-30 Years 34 81 62 55 44 276

31 - 40 Years 14 93 40 59 44 250

41 - 50 Years 14 87 20 44 40 205

50+ 2 24 8 21 19 74

Total 64 285 130 179 147 805

Our PhilosophyOur human resource philosophy is an integral component of our overall Sustainability Policy and is structured towards enhancing overall business sustainability by strengthening the attitudes and skills of our personnel, at all levels and all employment categories, by increasing employment satisfaction and employee motivation. Our human resources ethos is centred around acquiring the correct talent, that fit with our organisational requirements and then developing this talent pool and retaining them by contributing towards their personal development as well as their industry skills. Accordingly, we have created an ethical and performance-based work culture that helps us become an employer of choice and allows us to grow in a positive and sustainable manner. To help us accomplish our strategic objectives, we specifically focus on the following areas: Recruitment and RetentionAs a means of creating career growth opportunities our policy is to develop 80% of our management team from within the Group. This is achieved through a structured annual performance evaluation coupled with targeted training aimed at addressing skill gaps and providing opportunities for industry experiences. The performance evaluations remain the basis for internal promotions and career mapping which allow employees to access both vertical and lateral growth opportunities within the Group. We believe employee motivation is enhanced through the provision of career development opportunities within the Group. Therefore, we encourage our employees to develop themselves and to climb the corporate ladder to managerial positions. However, as we operate within a rapidly evolving industry, we are always on the lookout for new talent and new skills and as an inclusive employer we encourage diversity. Therefore, we also encourage a healthy flow of new and diverse ideas and perspectives by acquiring 20% of our management talent from outside our current team through new

recruitments. Many of these are trainee apprentices who are given unparalleled opportunities to gain industry exposure through hands on experience.

An important aspect of our human resource management framework is to be an equal opportunity employer that does not discriminate against any status protected by law. This is strictly applied both in the case of new recruits as well in consideration of internal promotions. Our recruitment policy specifies that all new recruitments will be hired purely on their ability to perform the tasks assigned to them in accordance with the Serendib Leisure employee code of conduct.

Employment generation within the country, and in particular outside the Western Province where young people face difficulties in obtaining suitable employment, is a sustainability principle of the Group. Therefore, all our properties encourage applicants from within the localities of our properties, as this also enhances the level of work convenience for employees and supports a work-life balance. As part of the group’s strategic social development initiatives 61% of the workforce at each property are hired from the local area.

New Recruitments 2017/2018During the year under review the Group recruited 199 new personnel at various grades of employment to enhance the Serendib team, compared to the 196 new recruitments of the previous financial year. This figure includes 38 women and 161 men. As an equal opportunity employer, all recruitments were based on merit, guided by formal recruitment procedures of the Group, with zero discrimination on the basis of race, ethnicity and gender. The higher proportion of male recruits is due to the nature of employment, which is preferred by males.

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New Recruitments by Age-Group The majority of new talent acquired during the year were in the youth bracket of between 18 to 30 years of age which was 129 new personnel, followed by 50 new recruits in the ages between 31-40 years and another 14 persons between the age of 41-50 years, with only 6 new hires above 50 years. This categorisation demonstrates the high youth employment generation among our properties during the year, ensuring gainful employment for local youth.

ResignationsEmployee mobility is typically high in the travel and tourism industry, where people move to different establishments and also go abroad in search of greener pastures. At the Serendib Leisure Group, we attempt to retain our employees through an employee focused human resource policy that provides growth opportunities and many employee benefits. During the current financial year total employee turnover remained at the same level as the previous financial year at 189 employee resignations from the entire Group.

Remuneration and BenefitsThe Serendib Group’s remuneration packages are developed in line with market rates and have remained extremely attractive enabling the Group to attract key industry talent in the Group. The overall remuneration system is benchmarked against industry standards and is regularly reviewed to effect adjustments according to industry changes. We also have in place a systematic performance-based incentive scheme for executive and associate employee categories that contributes towards enhancing overall remuneration of each category. In addition, the Group extends highly beneficial welfare facilities including on-location accommodation facilities. Health and Safety of EmployeesWorkplace health and safety is an area of priority to facilitate employee safety and well being, while also being essential to enable uninterrupted work flows by preventing accidents. For maximum positive impacts, international health and safety standards and best practices are followed at all Serendib Group properties. These include fire safety standards supported by equipment for fire detection, alarm and emergency communication systems, fire suppression systems and fire training. Fire drills are conducted at least twice yearly and the evaluation of fire-readiness is monitored continuously under supervision of the Group Engineer. For their safety, all staff have been trained on fire prevention and evacuation procedures.

Training and DevelopmentThe leisure industry is a part of a global industry that is dynamic and highly competitive with rapidly rising customer expectations where consumers have almost unlimited choices spanning the globe. Therefore, staying ahead and staying relevant, in the eyes of existing and emerging customer categories requires hospitality services that are on par with any other destination and are also extremely flexible in terms of service delivery. This challenging combination requires a human resource pool with technical expertise in their work area coupled with a range of soft skills that can create an overall leisure experience that is not just memorable but is outstanding compared to the competition. The Serendib Leisure Group is fully cognisant of the challenges posed through such sophisticated requirements and has aligned its human resource development systems to cater to these needs through a platform of continuous learning and development.

Changes to Investments in Training & Development Our training calendar is upgraded annually, following a skill gap assessment which is conducted against customer expectations, performance evaluations and employee career growth aspirations. Training programmes are developed and delivered to enhance the overall skill base of the Group and harnesses growth opportunities available within the Group. As part of our sustainability approach we attempt to inculcate a vibrant learning and development culture, by engaging our employees into the learning process by linking such activities with personal growth and development.

In pursuit of excellence, we have initiated expansive training and development programmes designed through a personal development plan for each individual. Further, to uplift our service standards, we have taken all measures to focus on continues development to ensure that we achieve our goals.

Our training agenda is executed through both internal and external efforts. While we have our internal trainers facilitate in-house training on service elements, we also partner external facilitators and institutions to drive learning experience and enhance required competencies. Consecutively, we also focus on numerous technical skill development training programmes designed to boost the competency levels of our team to ensure we meet all customer expectations at all times. Going forward we are looking at establishing learning as a key objective amongst all individuals, and as an essential facet to the success of their careers.


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Training Hours in 2017/18During the current financial year, we completed eight hours of training encompassing the entire team across all hotels under Serendib Leisure management Ltd, while in total, the training hours for the year was around 5,624 hours.

Training Expenditure in 2017/18To ensure maximum impact from training programmes, training expenses per employee were broken down based on their grade and training requirements. The total employee training expenditure for the year under review is tabulated below.

Company Training Expenditure

Serendib Leisure management Ltd Rs.4,774,130

AVANI Bentota Resort & Spa Rs.1,837,026

Hotel Sigiriya Rs.2,762,186

Club Hotel Dolphin Rs.2,700,978

Our relentless focus on skill upgrading has enabled our properties to continually improve their customer value proposition by anticipating customer needs and expectations, thereby contributing towards overall brand image and by positioning our brands on top-of-the-mind recall for service quality standards.

Service ExcellenceAs we face increasing competition domestically as well as internationally, retaining our crown of service excellence is essential for sustained business growth into the future. Therefore, all our human capital development initiatives will remain focused towards augmenting our service standards in line with global industry trends and customer expectations. We will continue to strive towards providing our guests with a premium experience through an unrivalled experiential package that is finely crafted and delivered through highly trained and professional personnel.

Employee EngagementAs an employer of hundreds of personnel scattered across multiple localities, our smooth business operations are testimony to the effectiveness of our employee communications and engagement processes. We have continued to grow our business and improve

our standards within an environment of industrial harmony which has been a contributory factor in our success story. It is crucial that we maintain clear and effective communications with all our employees to ensure the smooth functioning of our properties through clear transmission of instructions and operating guidelines. We have achieved this feat by developing channels of vertical and horizontal communications between employees and management for greater understanding and cooperation. As a business built on relationships, we understand the importance of maintaining a healthy dialogue with our employees. We understand that our employees are the “eyes and ears” of our hotels and that they also represent our brand image to our customers at all levels of contact. Therefore, we have continued to harness employee feedback through multiple communication channels including regular networking forums that promote greater knowledge sharing. The policy of open door communications has also facilitated the flow of new ideas and creative solutions for the betterment of the business.

A Sustainable Future The Serendib Leisure Group has continued to invest in its sustainable business model during the current financial year to strengthen its future potential by building a stronger foundation for growth. With our continuing initiatives into conservation, employee development and welfare, supplier support systems, community engagements and customer centric operations model, we have ensured that our business fundamentals can sustain into the future. With our innovative business solutions and unfaltering focus on maintaining an international brand image, we have crafted a leisure experience that is both unique as well as truly memorable for our customers. Looking to the future, we are equipped with the skills and expertise to continually evolve and grow our business, while ensuring value creation for all stakeholders within the sustainable principles of people, planet and profits.

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Hotel Senior Management

AVANI Bentota Resort and SpaLeft to rightViraj Kumarage - Executive Sous ChefIndika Alwis - Human Resources ManagerJanaka Shanthapriya - Executive HousekeeperUrs Platz - General ManagerDavid de Silva - Operations ManagerSarath Samarasinghe - Financial ControllerTariq Bongso - Food & Beverage ManagerMahesh Kumarasena - Front Office Manager

AVANI Kalutara ResortSeated left to rightSujith Fernando - Executive House KeeperSamantha Logus - Cluster Director EngineeringJude Silva - Hotel ManagerMudith Manuraj - Assistant Financial Controller Chandimal Gunasekara - Manager Human Resources

Standing left to rightTuan Faizan - Manager Food & BeverageGihan Chamindra - Executive ChefJayantha Gunawardena - Front Office Manager.

Club Hotel DolphinStanding left to rightJagath Rammandala - Chief EngineerSugath Wijesinghe - Executive HousekeeperSuranga Wewegedara - Human Resources ManagerTony Paul Perera - Resident ManagerDadison Zoysa - Executive ChefStephan Sandmann - General ManagerDhammika Gunasekara - Financial ControllerChandika Jayakody - Health & Safety Officer

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Hotel SigiriyaSeated left to rightChathura Jayawardana - Accounts ExecutiveNalin Kumarage - Human resources ManagerMilinda Meegoda - Assistant Front Office ManagerManoj Alwis - Resident ManagerIndika Kariyawasam - AccountantSuresh Athukorala - General ManagerRakhitha Ekanayaka - NaturalistBernard Jayampathi - Executive ChefDudley Junior - Assistant Executive HousekeeperThilanka Chandimal - Food & Beverage ManagerNilantha Sirisena - Ayurvedic Doctor

Lantern Beach CollectionFront Row, Left to RightUthpala Wickramarathna - Hotel AccountantHimaj Jayasinghe - General ManagerKeerthirathna Lenora - Residence ManagerSumith Bandara - Executive Chef

Back Row, Left to RightGayan Sanjeewa - Assistant House KeeperMohamed Jeffran - Senior Finance ExecutiveBandula Liyanage - Project Manager

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

The Company’s Philosophy on Corporate GovernanceSerendib Hotels PLC is fully aware and committed to implementing governance standards that conform to best practices. As part of the corporate culture, it engages and interacts with all the stakeholders in a way that promotes mutual trust, better understanding and good faith.

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

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

SECTION 1: THE COMPANYA. DIRECTORSThe Board

Corporate Governance Principle

SEC & ICASL Code Reference

Level of Compliance

Board Meetings A1.1 Five regular Board Meetings are scheduled during a year to review the strategic direction of the operational units, annual budgets and progress towards achieving those budgets, key business risks and other matters. Ad hoc meetings are also held when necessary.

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

Responsibilities of the Board

A1.2 The Directors are responsible for; • Formulating, implementing and monitoring overall business policy and strategy.

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

• Ensuring compliance with relevant laws, statutes and regulations.

• Ensuring all stakeholder-interests are considered in corporate decisions.

• Promotion of open and proper communication between the Company and its stakeholders.

Compliance with the law and independent professional advice

A1.3 The Board collectively and the Directors individually, act in accordance with the laws and regulations applicable to the business enterprise.

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

Corporate Governance

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Level of Compliance

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

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

Independent judgment

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

Dedication of adequate time and effort by the Directors

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

The Board met on ten occasions for the year under review.

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

The Board has delegated some of its functions to its Sub-Committees. However the Board retains the right to make a final decision in respect of some of the selected matters coming under the purview of the Committees. The composition and the functions of these sub-committees are discussed in detail under the relevant sections of this Report.

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

Induction and Training for Directors

A1.7 An Induction programme for new Directors is in place and includes the provision of key corporate documents, facilitation of visits to hotels, and meetings with the Managing Director and the Senior Management Team of the Company.

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

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Chairman and Managing Director



Level of Compliance

Separation of the role of Chairman & MD

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

Chairman’s Role



Level of Compliance

Role of Chairman in conducting meetings

A3 The Chairman encourages the participation of all the Directors in decision making, seeks and ascertains the views of the Directors, and thereby ensures that the Board functions in an efficient manner which is beneficial to the stakeholders and the Company.

Financial Acumen



Level of Compliance

Availability of those with sufficient financial knowledge

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

Board Balance



Level of Compliance

Non-Executive Directors

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

Independent Directors

A5.2A5.3

Four out of the nine Non-Executive Directors are considered Independent.

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

Annual Declaration A5.4 The Independent Directors have submitted written declarations of their independence as required by Section 7.10.2(b) of the Listing Rules.


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Level of Compliance

Determination of independence

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

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

• Dr. R N A Athukorala

• Mr. W A T M Wijesinghe

• Ms. S L Speldewinde

Alternate Directors A5.6 The Alternate Director appointed by a Non-Executive Director is not an executive of the Company.

The Independent Directors have not appointed Alternate Directors.

Senior Independent Director

A5.7 & A5.8

Mr. M A Jafferjee is the Senior Independent Director of the Company.

Chairman’s meetings with NEDs

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

Recording of concerns in Board Minutes

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

Supply of Information



Level of Compliance

Management’s obligation to provide appropriate and timely information

A6.1

A6.2

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

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

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Appointments to the Board



Level of Compliance

Nominations Committee

A7.1 The Board has not established a Nominations Committee to make recommendations on Board appointments; instead appointments to the Board are made collectively and with the consent of all the Directors.

Assessment of Board composition

A7.2 The Board assesses its composition to ascertain whether the combined knowledge and experience of the Board matches the strategic demands faced by the Company and takes this into account when new Board appointments are considered.

Disclosure of required details of new Directors

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

Re - election



Level of Compliance

Re-election of Directors

A8.1

A8.2

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

One third of the Directors including the Chairman retire by rotation at each Annual General Meeting in conformity with the Articles of the Company. Directors who retire are those who have served for the longest period after their re-appointment/re-election. In addition, a Director who has reached 70 years of age before the Annual General Meeting vacates office at the Annual General Meeting held after he attains the age of 70 years. A Director so re-appointed will hold office until the next Annual General Meeting at which he will be re-appointed.

Appraisal of Board Performance



Level of Compliance

Appraisal of the Board and Sub-committees

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


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Disclosure of Information in Respect of Directors



Level of Compliance

Information in respect of Directors

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

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

Name of Director Capacity No. of Board Meetings Attended

No of Audit Committee Meetings Attended

No of RPTRC Meetings Attended

Mr. A N Esufally Chairman/Non-Executive Director

10/10 4/5 4/5

Mr. W M De F Arsakularatne Executive Director 10/10 - -

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

10/10 5/5 5/5

Dr. R N A Athukorala Independent Director 10/10 5/5 5/5

Mr. E J D Rajakarier Non-Executive Director 4/10 - -

Mr. S M Enderby Non-Executive Director 8/10 - -

Mr. W A T M Wijesinghe Independent Director 10/10 - -

Ms. S L Speldewinde Independent Director 9/10 - -

Mr. S A Chojnacki Non-Executive Director 4/10 - -

Mr. I A H Esufally Non-Executive Director 7/10 - -

Appraisal of the Managing Director



Level of Compliance

Setting of annual targets & appraisal of performance

A11.1 At the commencement of each financial year, the Board in consultation with the Executive Director, sets reasonable financial and non-financial targets to be met by the Executive Director, based on the short, medium and long term objectives of the Company.

A11.2 The performance of the Executive Director is evaluated by the Board against pre-agreed performance targets.

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B. DIRECTORS REMUNERATIONRemuneration Procedure



Level of Compliance

Establishment of a Remuneration Committee

B1.1 The Board has delegated its powers to the Remuneration Committee of its Parent Company, Hemas Holdings PLC, to make recommendations to the Board on remuneration policy and practice, which is consistent with the objectives of the Company.

Composition B1.2 The Remuneration Committee of the Parent Company consists three Non-Executive Directors majority of who are independent.

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

B1.3 The names of the Chairman and Members of the Committee are indicated in the Annual Report of the Board of Directors.

Determination of remuneration

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

Consultation of the Chairman and access to professional advice

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

The Level and make up of Remuneration



Level of Compliance

Executive Directors’ Remuneration package

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

Comparison of remuneration with other companies and group

B2.2 The Committee ensures that the remuneration of executives at each level of management is competitive and in line with their performance. Surveys are conducted as and when necessary to ensure that the remuneration is competitive with those of comparative companies.

B2.3 It also takes into consideration data concerning executive pay among the Group Companies.

Performance related element of remuneration

B2.4 Performance based incentives have been determined by the Remuneration Committee to ensure that the total earnings of the Executive Director is aligned with the achievement of objectives and budgets of the Group Companies.


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Disclosure of Remuneration



Level of Compliance

Disclosures B3.1 The Remuneration Policy supports a strong performance-oriented culture and ensures that individual rewards and incentives relate directly to the performance of the individual, the operations and functions for which they are responsible for, and the Group as a whole.

The aggregate remuneration paid to the Executive and Independent Directors are disclosed in Note 31 of the Financial Statements.

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



Level of Compliance

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

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

Availability of Board sub-committee Chairpersons

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

Adequate notice of AGM

C1.4 The Notice of Meeting of the Annual General Meeting and the relevant documents are published and dispatched to the Shareholders 15 working days prior to the Meeting as required by the Companies Act, No. 7 of 2007.

Procedure of voting at General Meetings

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

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Communication with Shareholders



Level of Compliance

Policy and methodology for communication with Shareholders

C2 The Company disseminates information pertaining to the performance of the Company through the publication of the Interim Financial Statements and the Annual Report in a timely manner. Announcements are also made to the Colombo Stock Exchange on any information which may materially affect the share performance.

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

Major Transactions



Level of Compliance

Disclosure on major transactions

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

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

D. ACCOUNTABILITY AND AUDITFinancial Reporting



Level of Compliance

Board’s responsibility for statutory and regulatory reporting

D1.1 The Board is accountable for presenting the Consolidated Financial Statements of the Company and its subsidiaries, reports to regulators as well as information required to be presented by statute.


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Level of Compliance

Declarations by Directors.

D1.2 The Declarations to be made by the Directors are included in the Annual Report of the Board of Directors on pages 70 to 74 of the Annual Report.

Statement of Directors and Auditors responsibility for the Financial Statements

D1.3 The Statement of Directors Responsibilities in the preparation of the Financial Statements is given on page 84 while the Independent Auditor’s Statement on pages 85 to 87 sets out the Auditors’ responsibilities.

Management Discussion Analysis

D1.4 Management Discussion and Analysis is given on pages 30 to 35 of this Report.

Declaration on Going Concern of business

D1.5 The Declaration by the Board that the Company is a going concern is given in the Annual Report of the Board of Directors.

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

Related Party Transactions

D1.7 The transactions entered into by the Company with related parties are disclosed in Note 30 to the Financial Statements.

Internal Control



Level of Compliance

Annual review of the system of internal controls

D2 The Board maintains a sound system of internal control to safeguard shareholder-investments and the Company’s assets. The adequacy and the effectiveness of the Internal controls are reviewed by the Internal Auditors under the direction of the Audit Committee.

Strategies adopted by the Company to manage its risks are set out in its report on Risk Management on pages 66 to 69.

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Audit Committee



Level of Compliance

Composition D3.1 In terms of the Listing Rules, the Audit Committee comprises two Independent Directors and a Non-Executive Director. The Chairman of the Committee is an independent Director.

Duties D3.2 The main purpose of the Committee is to assist the Board in the effective discharge of its responsibilities on financial reporting, risk management and internal control. It also reviews the nature and extent of non-audit services provided by the Auditors, seeking to balance objectivity and independence.

Terms of Reference D3.3 The Committee has written Terms of Reference dealing clearly with its authorities and duties.

Disclosures D3.4 The Members of the Committee are indicated in the Annual Report of the Board of Directors. The Executive Director of the Company attends the Meetings by invitation.

A report of the Audit Commitete setting out the manner of compliance by the Company during the period under review is set out on pages 77 to 78 of the Annual Report.

Code of Business conduct and ethics



Level of Compliance

Disclosure of Code of Business Conduct and Ethics

D4.1

D4.2

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

The Chairman in his review on pages 14 to 16 of the Annual Report has affirmed that he is not aware of any violation of any of the provisions of the Code.


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SECTION 2: SHAREHOLDERSE: INSTITUTIONAL INVESTORSShareholder voting



Level of Compliance

Communication with shareholders

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

Evaluation of Governance disclosures

E2 When evaluating the governance arrangements, particularly in relation to Board structure and composition, institutional investors are encouraged to give due weight to all relevant factors drawn to their attention.

F: OTHER INVESTORSInvesting /Divesting decision



Level of Compliance

Individual shareholders F1 Individual investors are encouraged to carry out adequate analysis or seek independent advice when making investing and divesting decisions.

The Company places great emphasis on releasing its financial statements in a timely manner as to ensure that Shareholders have access to information on which they could make informed decisions.

Shareholder Voting



Level of Compliance

Individual shareholder voting

F2 All shareholders are encouraged to participate at General Meetings of the Company and a Form of Proxy accompanies each Notice, providing Shareholders who are unable to attend such Meeting, the opportunity to cast their vote.

G: SUSTAINABILITY REPORTING



Level of Compliance

Principles of Sustainability Reporting

G1 The Sustainability Report on Pages 37 to 49 details the sustainability practices of the Company.

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

CSE Rule No. Applicable Rule

Requirement Status of compliance

Board of Directors

7.10.1 Non-Executive Directors

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

7.10.2(a) Independent Directors

One-third of the Non-Executive Directors to be Independent. Complied

7.10.2(b) Declaration of Independence

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

Complied

7.10.3(a) and (b) Disclosure relating toDirectors Independence

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

Complied

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

Complied

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

Complied

Remuneration Committee

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

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

Complied

7.10.5(b) Functions of theRemunerationCommittee

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

Complied

7.10.5(c) Disclosure in theAnnual Report

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

Complied


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CSE Rule No. Applicable Rule

Requirement Status of compliance

Audit Committee

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

The Chairman shall be a Non-Executive Director.

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

Complied

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

• Overseeing compliance with financial reporting related regulations and requirements.

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

• Assessing the independence and performance of the External Auditors.

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

Complied

7.10.6.(c) Disclosure in theAnnual Report

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

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

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

Complied

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

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

The Group Risk Policy Our policy for risk management is to proactively manage risk to ensure continued growth of our business and to protect our people, assets and reputation.

This implies that we will:

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

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

Risk Management

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

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

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

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

Risk Management ProcessISO 31000:2009

Establishing the Context

Risk Identification

Risk Analysis

Mon

itorin

g an

d Re

view

Com

mun

icat

ion

and

Cons

ulta

tion

Risk Evaluation

Risk Treatment

Risk assessment

Risk Management FrameworkISO 31000:2009

Mandate and Commitment

Design the Framework for Managing Risk

Continuous Improvement of the Framework

Monitoring and Review of the Framework

Implement Risk Management

PLAN

DOACT

CHECK

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

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

Risk Evaluation and MappingRisk evaluation involves assessing the likelihood and impact of a given situation should they occur. Likelihood of occurrence is assessed on the basis of past experience and preventive measures in place. A ranking of almost certain, likely, moderate, unlikely and rare in terms of the probability of occurrence is assigned to each risk. The potential impact of an event is assessed by determining the loss it would cause and the extent of the impact, with a ranking of insignificant, minor, moderate, major and extraordinary. Risk and their corresponding mitigating action plans are then reviewed by the GRMC. The identified risk is then mapped on below risk matrix and relevant action is taken as per the risk rating.

Risk Matrix

Risk Rating Required Action

Extreme• Board attention is required.• Immediate action by senior management with a detailed research and management of risk through

appropriate responses.

High• Board attention is required.• Senior management responsibility specified.• Risk must be managed by senior management with a detailed risk treatment plan.

Significant• Senior management attention required.• Management responsibility specified.• Risks should be treated using one or more of the risk treatment options.

Moderate• Risks should be treated using one or more of the risk treatment options.• Risk should be managed using specific monitoring or treatment procedures.

Low• Risk is accepted with minimal treatment and can normally be managed using existing routing procedures.• Low risks need to be monitored and periodically reviewed to ensure they remain acceptable.

Extraordinary S H H H E

Major S S H H H

Moderate M M S S H

Minor L L M S S

Insignificant L L L M S

Rare Unlikely Moderate Likely Almost Certain

Likelihood

Impa

ct

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

Risk category Risk Exposure Risk Mitigating Actions

1 Market Risk Adverse impact on yields and occupancies Fluctuation In demand

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

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

• Sourcing new markets and developing new channels

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

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

• Use of Information Technology for effective revenue management

• Investing on a strong brand to differentiate from the competition

2 Human Resource Risk Risk of losing skilled and trained human capital and recruitment of staff for new hotel developments. Trade union activities resulting in work disruptions.

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

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

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

3 Foreign Exchange Rate Risk Depreciation of the Rupee and loss on exchange in conversion of loans denominated in foreign currency

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

• Structure Forex borrowings in proportion to the revenue currency mix

• Hedge in Forward Rate Agreements (FRAs)

4 Interest Rate Risk Rising interest rates will increase borrowing cost

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

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

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

• Monitor and review the debtor balances monthly.

• Obtain booking advances.

• Compliance to laid down credit SOPs on credit control.

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

• Compliance with existing regulations and statutes.

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

• Maintain good relationships with State agencies and ministries.

Risk Management

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Risk category Risk Exposure Risk Mitigating Actions

7 Fire and Natural Disaster Fire or natural disaster can halt or cease operations

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

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

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

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

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

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

• The company sources its products and services from approved suppliers

• Performing quarterly health and Safety audit reviews.

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

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

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

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

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

• Conducting meaningful CSR initiatives in the locale of the hotel

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

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The Board of Directors of Serendib Hotels PLC takes pleasure in presenting their Report together with the Audited Financial Statements of the Company and Consolidated Financial Statements of the Group for the year ended 31st March 2018.

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

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

Subsidiaries & AssociatesSerendib Hotels PLC is the major shareholder of Hotel Sigiriya PLC, which owns Hotel Sigiriya in Dambulla and of Dolphin Hotels PLC, which owns the Club Hotel Dolphin in Waikkal. The Company fully owns and operates the Lantern Villa Collection at Mirissa. Serendib Leisure Management Limited a fully owned subsidiary of the Company manages all the above properties.

It also has a 5.92% stake in Jada Resort & Spa (Pvt) Ltd, which owns AVANI Kalutara Resort in Kalutara

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

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

Corporate GovernanceThe Directors confirm that the Company complies with the Rules on Corporate Governance laid down by the Colombo Stock Exchange and has adopted the relevant rules on Corporate Governance issued by the Securities & Exchange Commission of Sri Lanka and the Institute of Chartered Accountants of Sri Lanka. The Corporate Governance practices of the Company are given from pages 52 to 65 of the Annual Report.

Risk ManagementThe Company has put in place a process to identify, evaluate and manage any significant risks faced by the entity, where annual risk reviews are carried out by the Group Risk & Control Dept. The principal risks and mitigating actions are reviewed by the Audit Committee on a quarterly basis. A detailed overview of the Risk Management process is outlined in the Risk Management Report on pages 66 to 69.

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

Financial Statements & Auditors ReportThe Financial Statements of the Company and Group as at 31st March 2018 duly signed by the Directors are given from pages 88 to 150, while the Auditor’s Report on the Financial Statements is provided on pages 85 to 87.

Accounting PoliciesThe Financial Statements for the period ended 31st March 2018 have been prepared in accordance with the Sri Lanka Accounting Standards which were in effect upto that date. The Accounting Policies adopted in the preparation of these Financial Statements are given from pages 94 to 106.

Annual Report of the Board of Directors

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

Rs. Group Company

2018 2017 2018 2017

Revenue 1,875,799,414 1,769,176,889 533,643,164 526,739,043Gross Profit 1,372,971,346 1,277,936,142 397,666,566 393,406,620Profit Before Tax 270,048,968 172,823,734 82,792,190 66,860,445Income Tax expenses (77,596,872) (44,739,431) (7,562,066) (9,049,267)Profit/(loss) After Tax 192,452,096 128,084,303 75,230,124 57,811,178

Attributable to :-Equity holders of the Parent 118,944,225 67,513,638 -Non-Controlling Interest 73,507,871 60,570,665 -

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

Property Plant & Equipment The capital expenditure incurred by the Group and Company during the year amounted to Rs. 53,286,071/- (2017 - Rs. 191,129,838/-) and Rs. 6,536,965/- (2017 - Rs. 45,978,595/-) respectively.

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

Stated CapitalThe stated capital of the Company as at 31st March 2018 amounted to Rs. 913,121,694/- (2017- Rs. 913,121,694/-) divided into 75,514,738 (2017- 75,514,738) ordinary voting and 36,011,056 (2017- 36,011,056) ordinary non-voting shares.

Events Occurring after the Reporting period No circumstances have arisen since the Balance Sheet date that would require adjustment to or disclosure in the Accounts other than those disclosed in Note 28 to the Financial Statements.

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

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

Details of Material Issues pertaining to Employees & Industrial Relations of the EntityDuring the year under review there were no material issues pertaining to Employees & Industrial Relations other than those disclosed in Note 27 to the Financial Statements found on page 140.

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Employment The number of employees of the Company as at the date of the Statement of Financial Position were 179 (2017- 190).

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

SustainabilityThe Company has taken specific steps, particularly in ensuring the conservation of the natural resources and environment while addressing material issues highlighted by its stakeholders. Every endevour is made to minimise the adverse effect on the environment to ensure sustainable continuity of our natural resources. The Company’s sustainable practices are detailed on pages 37 to 49.

Corporate DonationsDonations made by the Group during the year under review amounted to Rs. 1,925,682/- (2017 - Rs. 974,830/-).

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

Mr. A N Esufally - ChairmanMr. W M De F Arsakularatne - Executive DirectorMr. M A Jafferjee - Senior Independent DirectorMr. E J D Rajakarier- Non- Executive DirectorDr. R N A Athukorala- Independent DirectorMr. S M Enderby - Non- Executive DirectorMr. W A T M Wijesinghe - Independent DirectorMs. S L Speldewinde - Independent DirectorMr. S A Chojnacki - Independent DirectorMr. I A H Esufally - Non- Executive DirectorMr. V H A Perera (Alternate Director to Mr. A N Esufally)

Messrs A N Esufally, R N A Athukorala and S M Enderby retire by rotation in terms of Article 85 of the Articles of Association of the Company and being eligible offer themselves for re-election with the unanimous support of the Board.

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

Audit CommitteeMr. M A Jafferjee - Chairman/ Senior Independent Director Mr. A N Esufally - Non- Executive DirectorDr. R N A Athukorala - Independent Director

Remuneration CommitteeThe Remuneration Committee of the Ultimate Parent Company, Hemas Holdings PLC functions as the Remuneration Committee of the Company. The remuneration committee comprises two independent directors, Dr. S A B Ekanayake and Mr. A S Amaratunga, and one Non-Executive Director, Mr. H N Esufally. In addition Mr. Steven Enderby, Mr. Murtaza Esufally and Mr. Dimuth De Alwis attend the meetings by invitation.

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

Mr. M A Jafferjee - Chairman/ Senior Independent DirectorMr. A N Esufally - Non- Executive DirectorDr. R N A Athukorala - Independent Director

The report of the Committee is given on page 79 of this report. The Committee has reviewed the related party transactions of the Company during the financial year and reported their comments and observations to the Board of Directors. The details of the related party transactions carried out during the year are set out in page 143 of the Annual Report. The Directors declare that the Company is in compliance with the Rules of the Colombo Stock Exchange and the Code of Best Practices on Related Party Transactions.

Remuneration & Other Benefits of DirectorsDetails of Directors emoluments paid during the year are disclosed in Note 31 of the Financial Statements.

Interest RegisterIn compliance with the requirements of the Companies Act No. 7 of 2007, an Interest Register was maintained by the Company during the accounting period ended 31st March 2018.

Director’s Interest in ContractsIn terms of Section 192 (2) of the Companies Act, the Directors have declared their interests in contracts in the Company and have


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refrained from voting on matters in which they were materially interested. Directors’ Interest in contracts with the Company is disclosed on pages 75 to 76 of the Annual Report.

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

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

31st March 2018No of Shares

31st March 2017No of Shares

Voting Non-voting

Voting Non-voting

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

Public Holding of Shares The number of ordinary voting shares held by the public as at 31st March 2018 was 13,626,982 amounting to 18.05% of the issued share capital of the Company and the number of non-voting shares held by the public as at 31st March 2018 was 9,593,819 amounting to 26.64% of the issued share capital of the Company.

The minimum public holding requirement as at 31st March 2018 as per section 7.6 (iv) of the Listing Rules is as follows:

Category Float Adjusted Market Capitalisation (Rs.)

Public Holding Percentage

No. of Shareholders Option

Ordinary (Voting) Shares 238,472,185 18.05% 1057 -

Ordinary (Non - Voting) Shares 143,907,285 26.64% 651 5

The Company is currently not compliant with the minimum public holding requirement in terms of the Listing Rules of the Colombo Stock Exchange. The Board of Directors of the Company is aware of the same and is considering some possible options to rectify the non-compliance.

Related Party Transactions Details of transactions carried out by the Company during the year ended 31 March 2018 which require disclosure in the Annual Report as per Colombo Stock Exchange Listing Rule 9.3.2 and Code of Best Practices on Related Party Transactions published in accordance with the

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Securities and Exchange Commission Directive Issued under Section 13(c) of the Securities and Exchange Commission Act are as below.

Non- recurrent transactionsName of the Related Party

Relationship Value of the Related Party transaction entered into during the financial year (Rs.)

Value of the Related Party transaction as a % of the Equity and Total assets

Terms and Conditions of the Related Party Transactions

The rational for entering into the transactions

Hemas Holdings PLC Ultimate Parent Company

310,000,000 12.10%6.1%

Short term source of funding, receivable on demand - At a margin over 1 month AWPLR

To obtain funds at commercially favorable terms

All other related party transactions have been disclosed in Note 30 to the Financial Statements. All related party transactions during the year has been on normal commercial terms on arms length basis and is not prejudicial to the interest of the Company and it’s minority shareholders.


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

Annual General MeetingThe Fiftieth (50th) Annual General Meeting of the Company will be held at the Auditorium of The Institute of Chartered Accountants of Sri Lanka, No. 30A, Malalasekara Mawatha, Colombo 7 on Tuesday, 24th July 2018 at 3:00 p.m.

Acknowledgement of the Content of the ReportAs required by Section 168 (1) (K) of the Companies Act No. 7 of 2007, the Board of Directors hereby acknowledge the contents of this Report.

By Order of the Board ofSerendib Hotels PLC

A N Esufally Chairman


Hemas Corporate Services (Pvt) Ltd.Secretaries

24 May 2018

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

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

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

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

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

Audit Fees - Rs. 904,900/- (2017- Rs. 845,700/-)Fees for non -audit services - Rs. 313,810/-(2017 - Rs. 172,200/-)

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

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

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Director’s Interest in Contracts with the Company

Related party disclosures as required by Sri Lanka Accounting Standards No. 24 on Related Party Disclosures are detailed in Note 30 to the Financial Statements. In addition, the Company carried out transactions in the ordinary course of business with entities where the Directors of the Company are Directors of such entities.

COMPANY DIRECTOR/S NATURE OF TRANSACTIONVALUE 2017/18

Rs. VALUE 2016/17

Rs. Dolphin Hotels PLC Mr. A N Esufally Expenses incurred on behalf of the Company (3,093,356) (5,174,190)

Mr. W M De F Arsakularatne Settlement of dues from related parties (4,595,284) -

Settlement of dues to related parties 7,847,495 284,516

Expenses incurred on behalf of others 4,774,963 504,075

Treasury loans obtained (30,000,000) -

Hotel Sigiriya PLC Mr. A N Esufally Expenses incurred on behalf of the Company (161,973) -

Mr. W M De F Arsakularatne Settlement of dues from related parties (10,017,526) (213,561)

Settlement of dues to related parties 4,478,257 -

Expenses incurred on behalf of others 10,650,248 216,920

Treasury loans obtained (30,000,000) (46,000,000)

Treasury loans repaid 76,000,000 -

Treasury loan interest cost (2,450,467) (3,758,841)

Treasury loan interest paid 301,167 1,547,900


Mr. A N Esufally Expenses incurred on behalf of the Company (99,298,121) (59,308,480)Mr. E J D Rajakarier Expenses incurred on behalf of others 9,475,157 6,791,360

Mr. W M De F Arsakularatne Settlement of dues from related parties (14,110,754) (5,153,436)

Settlement of dues to related parties 128,022,542 33,112,502

Treasury loans obtained - (7,000,000)

Treasury loans repaid - 7,000,000

Treasury loan interest cost - (147,862)

Treasury loan interest paid - 117,033 Jada Resort & Spa (Pvt)Ltd.

Mr. A N Esufally Expenses incurred on behalf of the Company - (86,304)

Mr. E J D Rajakarier Settlement of dues from related parties (7,528,020) -

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

Expenses incurred on behalf of others 3,417,281 1,779,020

Sanctuary Resorts Lanka (Pvt) Ltd

Mr. A N EsufallyExpenses incurred on behalf of others 956,750 -

Mr. W M De F ArsakularatneP H Resorts Ltd. Mr. A N Esufally Expenses incurred on behalf of others 30,480 87,111

Mr. S M Enderby Expenses incurred on behalf of the Company (987,626) -

Mr. E J D Rajakarier Settlement of dues from related parties (30,480) -

Mr. S A Chojnacki Settlement of dues to related parties 237,925 -

Mr. W M De F Arsakularatne

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Director’s Interest in Contracts with the Company

COMPANY DIRECTOR/S NATURE OF TRANSACTIONVALUE 2017/18

Rs. VALUE 2016/17

Rs. Kalutara Luxury Hotels & Resort (Pvt) Ltd.

Mr. A N Esufally Expenses incurred on behalf of the Company (586,021) - Mr. S A Chojnacki Expenses incurred on behalf of others - 128,088 Mr. E J D Rajakarier Settlement of dues from related parties (49,185) - Settlement of dues to related parties 586,020 - Finance Income - 4,492,279

Diethelm Travels Lanka (Pvt) Ltd.

Mr. A N Esufally Expenses incurred on behalf of the Company (2,737,806) (495,474)Mr. W M De F Arsakularatne Expenses incurred on behalf of others 4,542,501 - Settlement of dues from related parties (6,842,348) - Settlement of dues to related parties 2,658,256 278,321

Hemas Corporate Services (Pvt) Ltd.

Mr. S M Enderby Settlement of dues to related parties 1,332,744 929,658

Settlement of dues from related parties (66,058) Expenses incurred on behalf of the Company (1,309,942) (1,111,467) Expenses incurred on behalf of others 66,058 -

Hemas Holdings PLC Mr. A N Esufally Expenses incurred on behalf of others - 4,547,202

Mr. I A H Esufally Settlement of dues from related parties (20,119) (4,547,202)

Mr. W M De F Arsakularatne Expenses incurred on behalf of the Company (6,369,571) (17,300,132)

Mr. S M Enderby Settlement of dues to related parties 22,389,280 10,472,306

Treasury loans obtained (310,000,000) (20,000,000)

Treasury loans repaid 20,000,000 20,119

Loan Interest (19,745,698) -

Loan Interest Paid 16,760,006 - Hemas Hospitals (Pvt) Ltd

Mr. S M Enderby Settlement of dues from related parties (80,600) -

Hemasa Manufacturing (Pvt) Ltd

Mr. S M Enderby Settlement of dues from related parties (62,400) -

Hemas Travels (Pvt) Ltd

Mr. I A H Esufally Expenses incurred on behalf of the Company (352,209) -

Mr. W M De F ArsakularatneSettlement of dues to related parties 266,609 -

Mr. S M EnderbyVishva BPO (Pvt) Ltd Mr. S M Enderby Expenses incurred on behalf of the Company (1,914,625) -

Settlement of dues to related parties 1,798,720 - Frontier Capital Lanka (Pvt) Ltd

Mr. A N Esufally Expenses incurred on behalf of others 346,644 -

Mr. I A H Esufally Settlement of dues from related parties (346,644) -

Mr. W M De F Arsakularatne Treasury loans granted 10,000,000 -

Recovery of treasury loans granted (10,000,000) -

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Report of the Audit Committee

CompositionThe members of the Audit Committee as at the Balance sheet date were as follows:

Mr. M A Jafferjee Senior Independent Non-Executive Director (Chairman)

Mr. A N EsufallyNon-Independent Non-Executive Director (Member)

Dr. R N A AthukoralaIndependent Non-Executive Director (Member)

The Audit Committee (“the Committee”) is formally appointed by the Board of Directors of the Company in conformity with the Listing Rules of the Colombo Stock Exchange. The Committee comprises two Independent Non-Executive Directors and one Non-Independent Non-Executive Director who is a Fellow Member of both the Institute of Chartered Accountants of England & Wales and the Institute of Chartered Accountants of Sri Lanka, thereby complying with the Listing Rules of the Colombo Stock Exchange. The Chairman of the Audit Committee is an Independent Non-Executive Director.

Mr. Malinga Arsakularatne, Executive Director, Mr. Imtiaz Esufally, Non-Independent Non-Executive Director, Mr. Dayan Gunasekera, Director Finance of the Managing Agent and Mr. Prasenna Balachandran, Head of Risk & Control of the Hemas Group attend Meetings by invitation. M/s Hemas Corporate Services (Private) Limited functions as the Secretaries to the Committee.

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

As permitted by the Listing Rules of the Colombo Stock Exchange, the Committee also functions as the Audit Committee for its quoted subsidiaries Dolphin Hotels PLC & Hotel Sigiriya PLC.

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

(i) quality and integrity of the Company’s Financial Statements and financial reporting process, including the preparation,

presentation and adequacy of disclosures in the Financial Statements in accordance with the Sri Lanka Accounting Standards;

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

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

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

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

Main activities carried out during the yearThe Audit Committee met five times during the year ended 31st March 2018 and carried out the following activities;

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

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

• Discussed the Management Letter issued by the External Auditors for the year 2017/18 along with the management responses and monitored follow up action.

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

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

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

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

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Internal AuditThe Internal Audit function of the Company is carried out by Messers BDO Burah Hathy, Chartered Accountants, under the overarching control of the Hemas Group Risk & Control Division. Internal audit independently reviews the risks and control processes operated by management. It carries out independent audits in accordance with an Internal Audit Plan which is approved by the Audit Committee before the commencement of the financial year.

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

External AuditThe External Audit function of the Company is carried out by Messrs. Ernst & Young, Chartered Accountants. The External Auditors Letter of Engagement including the scope of the Audit is discussed with the External Auditors and the Management prior to commencement of the Audit.

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

Having reviewed the effectiveness of the external audit, the Committee recommended to the Board that Messrs. Ernst & Young, Chartered Accountants, be re-appointed External Auditors of the Company for the year ending 31st March 2019, subject to approval by the Shareholders at the forthcoming Annual General Meeting.

M A JafferjeeChairman of Audit Committee

24 May 2018

Report of the Audit Committee

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Report of the Related Party Transactions Review Committee

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

Mr. M A JafferjeeSenior Independent Non-Executive Director (Committee Chairman)

Dr. R N A AthukoralaIndependent Non-Executive Director

Mr. A N EsufallyNon-Executive Director

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

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

Accordingly, the Committee developed, and recommended for adoption by the Board of Directors of Serendib Hotels PLC and its listed subsidiaries, a RPTs Policy which is consistent with the operating model and the delegated decision rights of the Serendib Hotels Group and which sets out, amongst others, the following:

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

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

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

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

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

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

Further, in accordance with the RPT Policy, the criteria for identifying the Group’s Key Management Personnel (KMP) was established and all Executive & Non-Executive Directors of Boards, and all members of the Senior Management teams (Company and its Subsidiaries) were identified as the KMPs in order to establish greater transparency and governance. Also, declarations were obtained from each Director and KMP of the Company for the purpose of identifying parties related to them and to provide annual disclosure.

The Committee met five times during the year ended 31st March 2018. The attendance of the members at these meetings is detailed in the Corporate Governance Report found on pages 52 to 65 of the Annual Report.

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

The details of the Related Party Transactions reviewed and approved by the Committee are disclosed in Note 30 of the Financial Statements for the year ended 31st March 2018 found on pages 142 to 143 of the Annual Report.

M A JafferjeeChairman of the Related Party Transactions Review Committee

24 May 2018

LEVERAGING

We’re leveraging our resources to ensure a stronger future ahead.

Financial Reports

Statement of Directors' Responsibility in Relation to Preparing Financial Statements 84

Independent Auditor’s Report 85

Statement of Financial Position 88

Statement of Profit or Loss 89

Statement of Comprehensive Income 90

Statement of Changes in Equity - Group 91

Statement of Changes in Equity - Company 92

Statement of Cash Flows 93

Notes to the Financial Statements 94

Ten Year Financial Review 151

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

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

The Directors are required to ensure that in preparing the Financial Statements;• appropriate accounting policies are used, selected and applied

in a consistent manner, and material departures, if any, have been disclosed and explained.

• all applicable and relevant Accounting Standards have been followed.

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

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

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

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

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

Compliance ReportThe Directors confirm that to the best of their knowledge, all statutory payments relating to employees and the Government that were due in respect of the Company and its subsidiaries as at the Balance Sheet date have been paid or where relevant provided for in the Financial Statements.



24 May 2018

Statement of Directors' Responsibility in Relation to Preparing Financial Statements

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Independent Auditor’s Report

TO THE SHAREHOLDERS OF SERENDIB HOTELS PLC

Report on the audit of the financial statements

Opinion

We have audited the financial statements of Serendib Hotels PLC (“the Company”) and the consolidated financial statements of the Company and its subsidiaries (“the Group”), which comprise the statement of financial position as at 31 March 2018, and statement of profit or loss, statement of comprehensive income, statement of changes in equity and statement of cash flows for the year then ended, and notes to the financial statements, including a summary of significant accounting policies.

In our opinion, the accompanying financial statements of the Company and the Group give a true and fair view of the financial position of the Company and the Group as at 31 March 2018, and of their financial performance and cash flows for the year then ended in accordance with Sri Lanka Accounting Standards.

Basis for opinionWe conducted our audit in accordance with Sri Lanka Auditing Standards (SLAuSs). Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the financial statements section of our report. We are independent of the Group in accordance with the Code of Ethics issued by CA Sri Lanka (Code of Ethics) and we have fulfilled our other ethical responsibilities in accordance with the Code of Ethics. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Key audit mattersKey audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the current period. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. For each matter below, our description of how our audit addressed the matter is provided in that context.

We have fulfilled the responsibilities described in the Auditor’s responsibilities for the audit of the financial statements section of our report, including in relation to these matters. Accordingly, our audit included the performance of procedures designed to respond to our assessment of the risks of material misstatement of the financial statements. The results of our audit procedures, including the procedures performed to address the matters below, provide the basis for our audit opinion on the accompanying financial statements.

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Key audit matter How our audit addressed the matterRevaluation of freehold land and buildings

As of 31 March 2018, Group carried freehold land and building at fair value amounting to Rs 3.5 billion, which represents 70% of the total assets of the Group.

The Group engaged an external valuer in determining the fair value. The valuation of freehold land and building was significant to our audit due to the use of significant estimates and inputs as disclosed in Note 11 to the financial statements.

Our audit procedures focused on the valuations performed by external valuer engaged by the Group, and included following;• We assessed the objectivity, competency and capabilities of the

external valuer appointed by the management.

• We read the valuation reports to obtain an understanding of the work done by the valuer and scope of work.

• We engaged our internal specialised resources to evaluate the appropriateness of the valuation method and reasonableness of the key assumptions applied by the external valuer in appraising the value.

• We assessed the appropriateness of the disclosures relating to the valuation techniques and key inputs applied by the professional valuer as disclosed in Note 11 to the financial statements.

Annual impairment of Goodwill

Intangible assets include Goodwill on consolidation. Goodwill is subject to an annual impairment test using significant estimates as disclosed in Note 13 to the financial statements. Therefore, we have determined this to be a Key audit matter.

We performed the following procedures, among others;• We involved our internal specialist to assist us, in assessing the

appropriateness of the models and reasonableness of estimates used by the management.

• We also assessed the adequacy of the related disclosure in Note 13 to the financial statements.

Other Information included in the 2018 Annual ReportOther information consists of the information included in the Annual Report, other than the financial statements and our auditor’s report thereon. Management is responsible for the other information. Our opinion on the financial statements does not cover the other information and we do not express any form of assurance conclusion thereon.

In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.

Responsibilities of the management and those charged with governanceManagement is responsible for the preparation of financial statements that give a true and fair view in accordance with Sri Lanka Accounting Standards, and for such internal control as management determines is necessary to enable the preparation

Independent Auditor’s Report

of financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, management is responsible for assessing the Group’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Group or to cease operations, or has no realistic alternative but to do so.

Those charged with governance are responsible for overseeing the Company’s and the Group’s financial reporting process.

Auditor’s responsibilities for the audit of the financial statementsOur objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with SLAuSs will always detect a material misstatement when it exists. Misstatements can arise from fraud or

87


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error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.

As part of an audit in accordance with SLAuSs, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:

• Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

• Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the internal controls of the Company and the Group.

• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.

• Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group to cease to continue as a going concern.

• Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

• Obtain sufficient appropriate audit evidence regarding the

financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion.

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

We also provide those charged with governance with a statement that we have complied with ethical requirements in accordance with the Code of Ethics regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.

From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

Report on other legal and regulatory requirementsAs required by section 163 (2) of the Companies Act No. 07 of 2007, we have obtained all the information and explanations that were required for the audit and, as far as appears from our examination, proper accounting records have been kept by the Company.

CA Sri Lanka membership number of the engagement partner responsible for signing this independent auditor’s report is 2097.

24 May 2018Colombo

88


Group CompanyAs at 31st March 2018 2017 2018 2017 Note Rs. Rs. Rs. Rs.

ASSETSNon-Current AssetsProperty, Plant and Equipment 11 3,993,245,946 3,185,809,146 713,789,110 769,906,267Leasehold Right 12 27,464,864 29,295,858 25,525,467 27,227,163Intangible Assets 13 170,369,800 95,986,333 19,611,865 25,084,944Investments in Subsidiaries 14 - - 718,767,015 271,191,209Other Financial Assets 15 272,088,466 330,106,485 264,088,466 322,106,485 4,463,169,076 3,641,197,822 1,741,781,923 1,415,516,068

Current AssetsInventories 16 28,221,248 25,087,504 7,434,354 7,817,034Trade and Other Receivables 17 350,521,708 469,075,703 84,224,671 116,773,049Taxation Recoverables 13,613,134 12,884,895 1,603,272 502,509Other Financial Assets 15 585,293 705,835 - 35,119Cash and Cash Equivalents 18 233,181,231 163,124,715 42,895,835 29,045,059 626,122,614 670,878,652 136,158,132 154,172,770Total Assets 5,089,291,690 4,312,076,474 1,877,940,055 1,569,688,838

EQUITY AND LIABILITIESEquityStated Capital 19 913,121,694 913,121,694 913,121,694 913,121,694Other Components of Equity 20 533,693,935 570,115,333 29,887,004 82,442,881Other Revenue Reserves 20 - 19,940,000 - 14,500,000Retained Earnings 1,115,060,183 938,047,360 284,363,924 193,763,516Equity Attributable to Equity Holders of the Parent 2,561,875,812 2,441,224,387 1,227,372,622 1,203,828,091Non Controlling Interest 1,034,520,302 805,223,472 - -Total Equity 3,596,396,114 3,246,447,859 1,227,372,622 1,203,828,091

Non-Current LiabilitiesInterest Bearing Loans and Borrowings 21 149,970,644 54,089,969 66,000,000 8,740,836Deferred Tax Liability 9 355,287,250 144,352,085 38,701,219 31,882,737Employee Benefit Obligation 22 59,367,413 56,493,585 14,288,652 14,281,838 564,625,307 254,935,639 118,989,871 54,905,411

Current LiabilitiesTrade and Other Payables 23 343,160,112 545,981,344 114,346,131 161,843,406Dividends Payable 24 8,102,747 8,201,331 3,201,691 3,205,560Income Tax Liability 14,506,419 341,908 - -Interest Bearing Loans and Borrowings 21 449,769,187 126,481,460 400,576,125 130,595,280Bank Overdraft 18 112,731,804 129,686,933 13,453,615 15,311,090 928,270,269 810,692,976 531,577,562 310,955,336Total Equity and Liabilities 5,089,291,690 4,312,076,474 1,877,940,055 1,569,688,838

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

K D D GunasekeraDirector Finance

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

A N Esufally W M De F ArsakularatneChairman Executive Director

The accounting policies and notes on pages 94 through 150 form an integral part of the Financial Statements.

24 May 2018Colombo

Statement of Financial Position

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Group CompanyYear ended 31 March 2018 2017 2018 2017 Note Rs. Rs. Rs. Rs.

Revenue 4 1,875,799,414 1,769,176,889 533,643,164 526,739,043Cost of Sales (502,828,068) (491,240,747) (135,976,598) (133,332,423)Gross Profit 1,372,971,346 1,277,936,142 397,666,566 393,406,620

Dividend Income 5 - - 58,465,748 51,135,019Other Operating Income and Gains 6 55,949,348 20,575,777 14,136,982 4,503,940Sales and Marketing Expenses (55,743,165) (40,156,484) (25,985,816) (19,948,105)Administrative Expenses (1,068,540,189) (1,048,490,520) (330,560,363) (322,936,963)Operating Profit 304,637,340 209,864,915 113,723,117 106,160,511

Finance Cost 7 (48,742,494) (14,887,315) (35,706,860) (10,130,658)Finance Income 7 14,154,122 9,387,004 4,775,933 3,930,657Loss on Deemed Disposal of Investment in Associate 15 - (31,540,870) - (33,100,065)Profit Before Tax 270,048,968 172,823,734 82,792,190 66,860,445

Income Tax Expense 9 (77,596,872) (44,739,431) (7,562,066) (9,049,267)Profit for the Year 192,452,096 128,084,303 75,230,124 57,811,178

Attributable to:Equity Holders of the Parent 118,944,225 67,513,638Non Controlling Interest 73,507,871 60,570,665 192,452,096 128,084,303

Earnings Per Share - Basic 10 1.07 0.61 0.67 0.52Dividends Per Share 25 - 1.00 - 1.00


Statement of Profit or Loss

90


Group CompanyYear ended 31 March 2018 2017 2018 2017 Rs. Rs. Rs. Rs.

Profit for the Year 192,452,096 128,084,303 75,230,124 57,811,178

Other Comprehensive Income

Other Comprehensive Income to be reclassified to profit or loss in subsequent periodsNet movement on Cash Flow Hedge (28,247,155) 5,141,270 (395,495) 7,219,858

Net Other Comprehensive (Loss)/Income to be reclassified to profit or loss in subsequent periods (28,247,155) 5,141,270 (395,495) 7,219,858

Other Comprehensive Income not to be reclassified to profit or loss in subsequent periodsRevaluation of Land and Buildings 11 19,291,081 - 7,574,667 -Fair value loss on Available For Sale Investments 15 (58,018,019) - (58,018,019) -Deferred Taxation attributable to revaluation of Land and Buildings 9 (72,316,343) (7,122,321) (1,717,030) (7,122,321)Defined Benefit Obligation Actuarial Gain/(Loss) 22 1,915,193 (4,601,576) 975,761 (560,122)Deferred Taxation Attributable to Actuarial (Gain)/Loss 9 (91,534) 436,847 (105,477) 67,215

Net Other Comprehensive Loss not to be reclassified to profit or loss in subsequent periods (109,219,622) (11,287,050) (51,290,097) (7,615,228)

Other Comprehensive Loss for the Year, net of tax (137,466,777) (6,145,780) (51,685,593) (395,370)

Total Comprehensive Income for the Year, net of tax 54,985,319 121,938,523 23,544,531 57,415,808

Attributable to:Equity Holders of the Parent 11,788,447 63,214,780Non Controlling Interest 43,196,872 58,723,743 54,985,319 121,938,523


Statement of Comprehensive Income

91


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At

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Equ

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91

3,121

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55

9,753

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11,6

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- 19

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98

5,00

2,84

6 2,

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26

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53

3,28

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Net

Pro

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r the

Yea

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67

,513,

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67,51

3,63

8 60

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12

8,08

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20

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5,84

5,56

8 -

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5,84

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tribu

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reva

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-

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Defi

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n 22

-

- -

- -

(3,3

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(3,3

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(1,2

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36)

(4,6

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76)

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9 -

- -

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281,0

35

281,0

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155,

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64,4

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(111,5

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n G

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- 73

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73

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7

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21,6

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- 19

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93

8,04

7,360

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24,3

87

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3,24

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7,859

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11

8,94

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5 73

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19

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20

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15

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land

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11

- 15

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15,2

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Statement of Changes in Equity

92


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247,9

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- -

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- 57

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9

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- 67

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67

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57

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14,5

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193,

763,

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1,20

3,82

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Net

Pro

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- -

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- 75

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mov

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15

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22

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975,

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975,

761

Def

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(105

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Reva

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of la

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11

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- 7,5

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(395

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(58,

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-

76,10

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8 23

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Tran

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20

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(14,

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14

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Bala

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91

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Statement of Changes in Equity

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Group CompanyYear ended 31 March Note 2018 2017 2018 2017 Rs. Rs. Rs. Rs.

Operating ActivitiesProfit Before Tax 270,048,968 172,823,734 82,792,190 66,860,445Adjustments for;Depreciation of Property, Plant and Equipment 11 158,347,157 134,335,812 49,141,449 46,976,185Amortisation 12 & 13 15,854,240 7,470,483 7,174,775 4,309,574Foreign Currency (Gains)/Losses (28,322,669) 4,360,313 6,587,141 (387,956)Dividend Income - - (58,465,748) (51,135,019)Finance Income 7 (14,154,122) (9,387,004) (4,775,933) (3,930,657)Finance Costs 7 48,742,494 14,887,315 35,706,860 10,130,658Loss on Deemed Disposal of Investment in Associates 15 - 31,540,870 - 33,100,065(Gains)/Loss on Disposal of Property, Plant and Equipment (756,317) 995,177 1,619 (425,000)Impact on Deemed Dilution of AFS Equity Shares 15 - 9,416,561 - 9,416,561Impairment of debtors 17 (4,581,293) - (1,587,002) -Other (Write Backs) / Write offs - 6,060,996 - 2,821,294Provision for Defined Benefit Plan 22 13,817,131 13,070,431 3,300,897 2,866,626 458,995,589 385,574,688 119,876,248 120,602,776Working Capital Adjustments:(Increase)/Decrease in Inventories (515,114) (3,263,378) 382,681 (1,261,651)(Increase)/Decrease in Trade, Other Receivables and Financial Assets 161,064,485 (169,128,813) 32,887,287 (48,172,445)Increase/(Decrease) in Trade and Other Payables (494,837,515) 165,978,130 (54,710,193) 42,055,531Cash Generated from Operations 124,707,445 379,160,627 98,436,023 113,224,211

Finance Cost Paid 7 (48,742,494) (14,887,315) (35,706,860) (10,130,658)Defined Benefit Plan Costs Paid 22 (5,744,153) (14,961,478) (2,318,322) (2,548,374)Income Tax Paid (11,244,920) (51,676,650) (3,666,851) (2,337,643)Net Cash Flows from Operating Activities 58,975,878 297,635,185 56,743,990 98,207,536

Investing ActivitiesAcquisition of Property, Plant and Equipment 11 (53,286,071) (189,194,142) (6,536,965) (45,978,595)Acquisition of Intangible Assets 13 (1,372,616) (75,834,690) - (27,365,394)Proceeds from Disposal of Property, Plant and Equipment 29,572,168 20,445,598 28,037,768 425,000Investment in Subsidiaries 13 & 14 (431,938,522) - (447,575,806) (10,693,875)Proceeds from Preference Shares Issued 234,500,000 - - -Interest Received 7 14,154,122 9,387,004 4,775,933 3,930,657Dividend Received - - 58,465,748 51,135,019Net Cash Flows Used in Investing Activities (208,370,919) (235,196,230) (362,833,322) (28,547,188)

Financing ActivitiesProceeds from Interest Bearing Loans and Borrowings 21 150,000,000 - 150,000,000 -Proceeds from Related Party Borrowings 21 310,000,000 - 370,000,000 73,000,000Repayment of Interest Bearing Loans and Borrowings 21 (166,526,449) (221,517,359) (102,198,548) (88,580,513)Repayment of Related Party Borrowings 21 (20,000,000) 20,000,000 (96,000,000) (7,000,000)Adjustment in respect of changes in Group Holding - (10,693,855) - -Dividend Paid 25 (37,066,865) (141,040,109) (3,869) (111,525,794)Net Cash Flows From/(Used in) Financing Activities 236,406,686 (353,251,323) 321,797,583 (134,106,307)

Net Increase/(Decrease) in Cash and Cash Equivalents 87,011,645 (290,812,368) 15,708,251 (64,445,959)

Cash and Cash Equivalents at the Beginning of the Year 18 33,437,782 324,250,150 13,733,969 78,179,928Cash and Cash Equivalents at the End of the Year 18 120,449,427 33,437,782 29,442,220 13,733,969


Statement of Cash Flows

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1. CORPORATE INFORMATION1.1 GeneralSerendib Hotels PLC is a public limited liability Company listed on the Colombo Stock Exchange incorporated and domiciled in Sri Lanka. The registered office is located at Level 3, Hemas House, No 75, Braybrooke Place, Colombo 2.

1.2 Consolidated Financial StatementsThe Consolidated Financial Statements of the Company for the year ended 31 March 2018 comprise Serendib Hotels PLC (the “Company”) and all its Subsidiaries whose accounts have been consolidated therein (the “Group”).

1.3 Principal Activities and Nature of OperationsThe principal activity of the Group/Company is hotel operation.

1.4 Parent Entity and Ultimate Parent EntityThe Company’s parent undertaking and controlling party is Hemas Holdings PLC, which is incorporated in Sri Lanka.

1.5 Date of Authorisation for IssueThe consolidated Financial Statements of Serendib Hotels PLC for the year ended 31 March 2018 were authorised for issue, in accordance with a resolution of the Board of Directors on 24 May 2018.

1.6 Responsibility for Financial StatementsThe responsibility of the Directors in relation to the Financial Statements is set out in the Statement of Directors’ Responsibility Report in the Annual Report.

2. BASIS OF PREPARATION 2.1 Statement of Compliance The Financial Statements of the Group have been prepared in accordance with Sri Lanka Accounting Standards, (SLFRS/ LKAS) as issued by the Institute of Chartered Accountants of Sri Lanka (CA Sri Lanka) and in compliance with the Companies Act No. 07 of 2007.

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

2.3 Basis of MeasurementThe Financial Statements of the Group have been prepared on an accrual basis and under the historical cost convention other than Property, Plant & Equipment carried at valuation and otherwise stated.

2.4 Functional and Presentation CurrencyThe Consolidated Financial Statements are presented in Sri Lankan Rupees, which is also the parent company’s functional and presentation currency. For each entity, the Group determines the functional currency and items included in the Financial Statements of each entity are measured using that functional currency.

2.5 Materiality and AggregationEach material class of similar items is presented separately in the Financial Statements. Items of dissimilar nature or function are presented separately unless they are immaterial.

2.6 Comparative InformationThe presentations and classification of Consolidated Financial Statements of the previous years have been amended for better presentation and to be comparable with those of the current year.

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIESThe accounting policies set out below have been applied consistently for all periods presented in the Financial Statements by the Group and the Company.

3.1 Basis of ConsolidationThe Consolidated Financial Statements comprise the Financial Statements of the Parent and its subsidiaries as at 31 March 2018. Control over an investee is achieved when the Group is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Specifically, the Group controls an investee if, and only if, the Group has:

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

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

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

Notes to the Financial Statements

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

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

• Rights arising from other contractual arrangements

• The Group’s voting rights and potential voting rights

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

Profit or loss and each component of other comprehensive income (OCI) are attributed to the equity holders of the parent of the Group and to the non-controlling interests, even if this results in the non-controlling interests having a deficit balance.

The Financial Statements of the Subsidiaries are prepared for the same reporting period as the Group. When necessary, adjustments are made to the Financial Statements of subsidiaries to bring their accounting policies in line with the Group’s accounting policies.

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

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

3.1.1 Business Combination and GoodwillBusiness combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the aggregate of the consideration transferred, measured at the acquisition date fair value and the amount of any non-controlling interest in the

acquiree. For each business combination, the Group elects whether to measure the non-controlling interest in the acquiree at fair value or at the proportionate share of the acquiree’s identifiable net assets. Acquisition-related costs are expensed as incurred and included in administrative expenses.

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

If the business combination is achieved in stages, the previously held equity interest is remeasured at its acquisition date fair value and any resulting gain or loss is recognised in Statement of Profit or Loss.

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

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

After initial recognition, goodwill is measured at cost less any accumulated impairment losses. For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Group’s cash generating units that are expected to benefit from the combination transferred.

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

3.1.2 Non- Controlling InterestsThe proportion of the profits or losses after taxation applicable to outside shareholders of subsidiary companies is included under the heading “Non-Controlling Interests” in the Statement of Comprehensive Income. Losses applicable to the Non-Controlling Interests in a subsidiary is allocated to the Non- Controlling Interest even if doing so causes the Non-Controlling Interests to have a deficit balance.

3.1.3 Transactions Eliminated in ConsolidationAll intra-group assets and liabilities, equity, income, expenses and cash flows relating to transactions between members of the Group are eliminated in full on consolidation.

3.1.4 Investment in SubsidiariesInvestment in Subsidiaries are initially recognised at cost in the Financial Statements of the Company. Any transaction cost relating to acquisition of subsidiaries are immediately recognised in the Statement of Profit or Loss. Following initial recognition, investment in subsidiaries are carried at cost less any accumulated impairment losses.

3.2 Foreign CurrencyTransactions in foreign currencies are initially recorded by the Group entities at the functional currency rates prevailing on the date of the transaction.

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

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

differences on those monetary items are also recorded in Other Comprehensive Income.

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

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

3.3 Current Versus Non-Current ClassificationThe Group presents assets and liabilities in the Statement of Financial Position based on current/non-current classification. An asset is current when it is:

• Expected to be realised or intended to sold or consumed in the normal operating cycle

• Held primarily for the purpose of trading

• Expected to be realised within twelve months after the reporting period or

• Cash or cash equivalent unless restricted from being exchanged or used to settle a liability for at least twelve months after the reporting period

All other assets are classified as non-current.

A liability is current when:• It is expected to be settled in the normal operating cycle

• It is held primarily for the purpose of trading

• It is due to be settled within twelve months after the reporting period or

• There is no unconditional right to defer the settlement of the liability for at least twelve months after the reporting period

The Group classifies all other liabilities as non-current. Deferred tax assets and liabilities are classified as noncurrent assets and liabilities.


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

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

• In the principal market for the asset or liability Or

• In the absence of a principal market, in the most advantageous market for the asset or liability

The principal or the most advantageous market must be accessible by the Group. The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest.

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

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

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

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

Level 3 - Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable.

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

Involvement of external valuers is decided upon annually after discussion with and approval by the Group’s Board Audit Committee wherever necessary. Selection criteria include market knowledge, reputation, independence and whether professional standards are maintained. The Board Audit Committee whenever necessary after discussions with the Group’s external valuers decide which valuation techniques and inputs to use for each case.

At each reporting date the Management analyses the movements in the values of assets and liabilities which are required to be remeasured or reassessed as per the Group’s accounting policies. For this analysis, the Management verifies the major inputs applied in the latest valuation by agreeing the information in the valuation computation to contracts and other relevant documents. The Management in conjunction with the Group’s external valuers, also compares the change in the fair value of each asset and liability with relevant external sources to determine whether the change is reasonable. This includes a discussion of the major assumptions used in the valuations.

A previously recognised impairment loss is reversed only if there has been a change in the assumptions used to determine the asset’s recoverable amount since the last impairment loss was recognised. The reversal is limited so that the carrying amount of the asset does not exceed its recoverable amount, nor exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognised for the asset in prior years. Such reversal is recognised in the Statement of Profit or Loss unless the asset is carried at a revalued amount, in which case the reversal is treated as a revaluation increase.

For the purpose of fair value disclosures, the Group has determined classes of assets and liabilities on the basis of the nature, characteristics and risks of the asset or liability and the level of the fair value hierarchy as explained above.

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3.5 Significant Accounting Judgments, Estimates and Assumptions

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

3.5.1 JudgementsIn the process of applying the Group accounting policies, management has made the following judgments, which have the most significant effect on the amounts recognised in the Financial Statements:

3.5.1.1 Deferred Tax AssetsDeferred tax assets are recognised for all unused tax losses to the extent that it is probable that taxable profit will be available against which the losses can be utilised. Significant management judgment is required to determine the amount of deferred tax assets that can be recognised, based upon the likely timing and level of future taxable profits together with future tax planning strategies.

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

3.5.2.1 Revaluation of Property, Plant and Equipment and Investment Properties

The Group carries its land and buildings at revalued amounts with changes in fair value being recognised in OCI. The Group engaged an independent valuation specialist to assess fair value as at 31 March 2018 for land and buildings. Land and buildings were valued by reference to market-based evidence, using comparable prices adjusted for specific market factors such as nature, location and

condition of the properties. The valuation methodology adopted and the key assumptions used to determine the fair value of the properties and sensitivity analyses are provided in Note 11.

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

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

For assets excluding goodwill, an assessment is made at each reporting date as to whether there is any indication that previously recognised impairment losses may no longer exist or may have decreased. If such indication exists, the Group estimates the asset’s or cash-generating unit’s recoverable amount. A previously recognised impairment loss is reversed only if there has been a change in the assumptions used to determine the asset’s recoverable amount since the last impairment loss was recognised. The reversal is limited so that the carrying amount of the asset does not exceed its recoverable amount, nor exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognised for the asset in prior


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years. Such reversal is recognised in the Statement of Profit or Loss unless the asset is carried at a revalued amount, in which case the reversal is treated as a revaluation increase.

a) GoodwillGoodwill is tested for impairment annually as at 31 March and when circumstances indicate that the carrying value may be impaired.

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

3.5.2.3 Defined Benefit PlansThe cost of defined benefit plans - Gratuity is determined using actuarial valuations. The actuarial valuation involves making assumptions about discount rates, future salary increases and retirement age. Due to the long term nature of these plans, such estimates are subject to significant uncertainty. All assumptions are reviewed at each reporting date.

3.6 Revenue Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Group regardless of when the payment is being made. Revenue is measured at the fair value of the consideration received or receivable net of trade discounts and value added tax.

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

3.6.1 Rooms, Food and Beverage Sales Room’s revenue is recognised based on the rooms occupied on a daily basis, and food and beverage are accounted for at the time of sales.

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

3.6.3 Interest IncomeFor 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 Profit or Loss.

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

3.6.5 Rental IncomeRental income is recognised on an accrual basis.

3.6.6 OthersOther income is recognised on an accrual basis.

3.7 Taxation3.7.1 Current Income TaxesCurrent income tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the Commissioner General of Inland Revenue. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted by the reporting date in the country where the Group operates and generates taxable income. Current income tax relating to items recognised directly in equity is recognised in equity and not in the Statement of Profit or Loss.

The provision for income tax is based on the elements of income and expenditure as reported in the Financial Statements and computed in accordance with the provisions of the Inland Revenue Act. No 10 of 2006 and amendments thereto.

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

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

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

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

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

Deferred income tax assets are recognised for all deductible temporary differences, carry-forward of unused tax credits and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carry-forward of unused tax credits and unused tax losses can be utilised except:

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

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

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

Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset

is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted as at the reporting date.

Deferred tax relating to items recognised outside profit or loss is recognised outside profit or loss. Deferred tax items are recognised in correlation to the underlying transaction either in other comprehensive income or directly in equity.

Deferred tax assets and deferred tax liabilities are offset, if a legally enforceable right exists to set off current tax assets against current tax liabilities and when the deferred taxes relate to the same taxable entity and the same taxation authority.

3.7.3 Tax on Dividend Income Tax on dividend income from subsidiaries is recognised as an expense in the Consolidated Statement of Profit or Loss.

3.8 Property, Plant and EquipmentPlant and Machinery, Furniture, Fittings and Equipment, Motor Vehicles and Cutlery, Crockery, Glassware and Silverware are stated at cost, net of accumulated depreciation and/or accumulated impairment losses, if any. Such cost includes the cost of replacing component parts of the property, plant and equipment and borrowing costs for long-term construction projects if the recognition criteria are met. When significant parts of property, plant and equipment are required to be replaced at intervals, the Group derecognises the replaced part, and recognises the new part with its own associated useful life and depreciation. Likewise, when a major inspection is performed, its cost is recognised in the carrying amount of the plant and equipment as a replacement if the recognition criteria are satisfied. All other repair and maintenance costs are recognised in the Statement of Profit or Loss as incurred.

Where items of freehold land, buildings on leasehold land, land improvements and buildings on freehold land are subsequently revalued, the entire class of such assets is revalued. Any revaluation surplus is recognised in Other Comprehensive Income and accumulated in equity in the Asset Revaluation Reserve, except to the extent that it reverses a revaluation decrease of the same asset previously recognised in the Statement of Profit or Loss, in which case the increase is recognised in the Statement of Profit or Loss. A revaluation deficit is recognised in the Statement of Profit or Loss, except to the extent that it offsets an existing surplus on the same asset recognised in the Asset Revaluation Reserve.


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

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

2018 2017Buildings on Leasehold Land Over a

maximum period of 60 years

Over a maximum period of 60 years

Buildings on Freehold Land 60 Years 60 YearsFurniture, Fittings and Equipment 5 -15 Years 5 -15 YearsMotor Vehicles 5 -10 Years 5 -10 YearsPlant and Machinery 5 -10 Years 5 -10 YearsLandscaping 60 Years 60 YearsCutlery, Crockery, Glassware and Silverware

2-3 Years 2-3 Years

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

a) Leasehold Right / Prepaid Lease RentalPrepaid lease rentals paid to acquire land use right are amortised over the lease term. Details of the lease rentals paid in advance are given in note 12 to the Financial Statements.

b) Operating LeasesOperating lease payments are recognised as an operating expense in the Statement of Profit or Loss on straight line basis over the lease term.

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

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

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

The useful lives of intangible assets are assessed as either finite or indefinite.

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

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

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

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

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

Foods and Beverages Stocks At actual cost on weighted average basis.

Maintenance and Others At actual cost on weighted average basis.

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

3.11 Financial Instruments3.11.1 Financial Assets3.11.1.1 Initial Recognition and MeasurementFinancial assets within the scope of LKAS 39 are classified as financial assets at fair value through profit or loss, loans and receivables, held-to-maturity investments and available-for-sale financial assets, as appropriate and determine the classification of its financial assets at initial recognition.

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

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

3.11.1.2 Subsequent MeasurementThe subsequent measurement of financial assets depends on their classification.

a) Loans and ReceivablesLoans 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 Statement of Profit or Loss. The losses arising from impairment are also recognised in the Statement of Profit or Loss.

b) Available-For-Sale Financial InvestmentsAvailable-for-sale financial investments consists of equity securities. Equity investments classified as available for- sale are those, which are neither classified as held for trading nor designated at fair value through profit or loss.

After initial measurement, available-for-sale financial investments are subsequently measured at fair value with unrealised gains or losses recognised as other comprehensive income in the Available-For-Sale Reserve until the investment is derecognised, at which time the cumulative gain or loss is recognised in other operating income, or determined to be impaired, at which time the cumulative loss is reclassified to finance cost in the Statement of Profit or Loss and removed from the Available-For-Sale Reserve.

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

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

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

i) The rights to receive cash flows from the asset have expiredii) The Group has transferred its rights to receive cash flows from

the asset or has assumed an obligation to pay the received cash flows in full without material delay to a third party under a ‘pass-through’ arrangement; and either


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

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

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

In that case, the Group also recognises an associated liability. The transferred assets and the associated liability are measured on a basis that reflects the rights and obligations that the Group has retained.

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

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

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

a) Financial Assets Carried at Amortised CostFor financial assets carried at amortised cost, the Group first assesses whether objective evidence of impairment exists

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

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

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

b) Available-For-Sale Financial InvestmentsFor available-for-sale financial investments, the Group assesses at each reporting date whether there is objective evidence that an investment or a group of investments is impaired.

In the case of equity investments classified as available-for-sale, objective evidence would include a significant or prolonged decline in the fair value of the investment below its cost. Where

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there is evidence of impairment, the cumulative loss measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that investment previously recognised in the Statement of Profit or Loss, is removed from other comprehensive income and recognised in the Statement of Profit or Loss. Impairment losses on equity investments are not reversed through the Statement of Profit or Loss; increases in their fair value after impairments are recognised directly in other comprehensive income.

3.11.2 Financial Liabilities3.11.2.1 Initial Recognition and MeasurementFinancial liabilities within the scope of LKAS 39 are classified as financial liabilities at fair value through profit or loss, loans and borrowings, other financial liabilities or as derivatives designated as hedging instruments in an effective hedge, as appropriate. The Group determines the classification of its financial liabilities at initial recognition.

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

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

3.11.2.2 Subsequent MeasurementThe measurement of financial liabilities depends on their classification as follows;

a) Loans and Borrowings/Other Financial LiabilitiesAfter initial recognition, interest bearing loans and borrowings are subsequently measured at amortised cost using the effective interest rate method. Gains and losses are recognised in the Statement of Profit or Loss when the liabilities are derecognised as well as through the effective interest rate method (EIR) amortisation process.

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

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

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

3.11.4 Fair Value of Financial InstrumentsThe fair value of financial instruments that are traded in active markets at each reporting date is determined by reference to quoted market prices or dealer price quotations. (bid price for long position and ask price for short positions),without any deduction for transaction costs.

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

3.11.5 Derivative Financial Instruments and Hedge Accounting3.11.5.1 Initial Recognition and Subsequent Measurementa) Derivative Financial Instruments The Group uses derivative financial instruments such as forward currency contracts to hedge its foreign currency risks. Such derivative financial instruments are initially recognised at fair value on the date on which a derivative contract is entered into and are subsequently remeasured at fair value. Derivatives are carried as financial assets when the fair value is positive and as financial liabilities when the fair value is negative.

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


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b) Cash Flow HedgesThe effective portion of the gain or loss on the hedging instrument is recognised directly as other comprehensive income in the cash Flow Hedge Reserve, while any ineffective portion is recognised immediately in the Statement of Profit or Loss as other operating expenses. Income are transferred to the Statement of Profit or Loss when the hedged transaction affects profit or loss, such as when the hedged financial income or financial expense is recognised or when a forecast sale occurs. Where the hedged item is the cost of a non-financial asset or non-financial liability, the amounts recognised as other comprehensive income are transferred to the initial carrying amount of the non-financial asset or liability. If the forecast transaction or firm commitment is no longer expected to occur, the cumulative gain or loss previously recognised in equity is transferred to the Statement of Profit or Loss. If the hedging instrument expires or is sold, terminated or exercised without replacement or roll over, or if its designation as a hedge is revoked, any cumulative gain or loss previously recognised in other comprehensive income remains in other comprehensive income until the forecast transaction or firm commitment affects profit or loss.

3.11.6 Cash and Short -Term DepositsCash and short-term deposits in the Statement of Financial Position comprise cash at banks, on hand and short-term deposits with a maturity of three months or less.

For the purpose of the Group’s Statement of Cash Flows, cash and cash equivalents consist of cash and short-term deposits as defined above, net of outstanding bank overdrafts.

3.12 ProvisionsProvisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. Where the Group expects some or all of a provision to be reimbursed, for example under an insurance contract, the reimbursement is recognised as a separate asset but only when the reimbursement is virtually certain. The expense relating to any provision is presented in the Statement of Profit or Loss net of any reimbursement.

If the effect of the time value of money is material, provisions are discounted using a current pre-tax rate that reflects, where appropriate, the risks specific to the liability. Where discounting is

used, the increase in the provision due to the passage of time is recognised as a finance cost.

3.13 Employee Benefits 3.13.1 Defined Contribution Plans - Employees’ Provident Fund

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

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

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

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

3.14 Standards issued but not yet effective: The Standards and Interpretations that are issued, but not yet effective, upto the date of issuance of the Group Financial Statements are disclosed below. The Group intends to adopt these standards, if applicable, when they become effective.

3.14.1 SLFRS 15 Revenue from Contracts with CustomersSLFRS 15 is effective for periods beginning on 1 January 2018. The standard establishes a five-step model to account for revenue arising from contracts with customers. Under SLFRS 15, revenue is

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recognised at an amount that reflects the consideration to which an entity expects to be entitled in exchange for transferring goods or services to a customer.

The new revenue standard will supersede all current revenue recognition requirements under SLFRS. Either full retrospective application or modified retrospective application is required for annual periods beginning on or after 1 January 2018. Early adoption is permitted. The Group plans to adopt the new standard on the required effective date.

The Group has carried out a gap analysis with the assistance of an external consultant covering existing sources of revenue and the Group expects to have no material impact on profit. However, the Group is in the process of further analyzing and evaluating the impact of SLFRS 15.

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

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

The Group plans to adopt the new standards on the required effective date. During the year, the Group performed a detailed gap analysis of SLFRS 9.

The Group expects no significant impact on its Statement of Financial Position and Equity except for the effect of applying the impairment requirement and fair valuation of certain investments in accordance with SLFRS 9.

3.14.3 SLFRS 16 LeasesSLFRS 16 sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract, i.e. the customer [‘Lessee’] and the supplier [‘Lessor’]. SLFRS 16 will replace Sri Lanka Accounting Standard - LKAS 17 (Leases) and related interpretations.

SLFRS 16 introduces a single accounting model for the lessee, eliminating the present classification of leases in LKAS 17 as either operating leases or finance leases.

The new Standard requires a lessee to: • Recognise assets and liabilities for all leases with a term of more

than 12 months, unless the underlying asset is of low value.

• Present depreciation of lease assets separately, from interest on lease liabilities in the Statement of Profit or Loss.

SLFRS - 16 substantially carries forward the lessor accounting requirement in LKAS - 17. Accordingly, a lessor continues to classify its leases as operating lease or finance lease, and to account for those two types of leases differently.

SLFRS -16 will become effective on 1st January 2019. The impact on the implementation of the above Standard has not been quantified yet.


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4. REVENUE Group CompanyYear ended 31 March 2018 2017 2018 2017 Rs. Rs. Rs. Rs.

Accommodation, Food and Beverage 1,815,675,454 1,686,473,839 522,710,892 512,802,404Others (Hotel Operations) 60,123,960 82,703,050 10,932,272 13,936,639 1,875,799,414 1,769,176,889 533,643,164 526,739,043

5. DIVIDEND INCOME Group CompanyYear ended 31 March 2018 2017 2018 2017 Rs. Rs. Rs. Rs.

Income from Investments - Related Parties - - 58,465,748 51,135,019 - - 58,465,748 51,135,019

6. OTHER OPERATING INCOME AND GAINS Group CompanyYear ended 31 March 2018 2017 2018 2017 Rs. Rs. Rs. Rs.

Rental Income from - Related Parties - 180,000 - 180,000Rental Income from - Others 2,259,416 2,239,581 1,461,848 1,490,163Profit on Disposal of Property Plant and Equipment 756,317 1,367,567 - 425,000Sundry Income 5,806,233 1,523,035 319,122 -Exchange Gains on Operations 46,439,429 14,611,523 11,668,059 1,754,706Foreign Currency Encashment 687,953 654,071 687,953 654,071 55,949,348 20,575,777 14,136,982 4,503,940

7. FINANCE COST AND INCOME7.1 Finance Costs Group CompanyYear ended 31 March 2018 2017 2018 2017 Rs. Rs. Rs. Rs.

Interest Expense on Overdrafts 3,164,041 2,125,035 156,119 486,886Interest Expense on Loans and Borrowings - Related Parties 19,636,221 615,272 22,067,836 3,888,093Interest Expense on Loans and Borrowings - Others 25,942,232 12,147,008 13,482,905 5,755,679 48,742,494 14,887,315 35,706,860 10,130,658

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7.2 Finance Income Group CompanyYear ended 31 March 2018 2017 2018 2017 Rs. Rs. Rs. Rs.

Interest Income from - Related Parties - - 479,565 -Interest Income from - Others 7,264,664 6,720,490 1,174,990 1,264,142Exchange gains on Loans 6,889,458 2,666,514 3,121,378 2,666,515 14,154,122 9,387,004 4,775,933 3,930,657

8. PROFIT BEFORE TAX Group CompanyYear ended 31 March 2018 2017 2018 2017 Stated After Charging/(Crediting) Rs. Rs. Rs. Rs.

Included in Administrative ExpensesEmployee Benefits including the following- Defined Benefit Plan Costs (Gratuity) 13,817,131 13,212,431 3,300,897 2,866,626- Defined Contribution Plan Costs (EPF and ETF) 35,129,118 42,139,254 8,249,033 7,735,669Depreciation and Amortisation 174,195,200 142,251,215 56,316,224 51,285,759Loss on Disposal of Property, Plant and Equipment - 2,362,744 1,620 -Directors’ Fees and Remuneration 4,122,063 1,807,001 4,122,063 302,931Auditors’ Remuneration (Fees and Expenses) 2,618,600 2,175,800 904,900 845,700Management Fees - - 29,733,959 29,052,244Charge on/ (Reversal of) Impairment of Debtors (4,581,293) 7,537,343 (1,530,171) 2,821,294Impact on Deemed Dilution of AFS Equity Shares - 9,416,561 - 9,416,561Legal Fees 628,887 401,478 46,157 117,850Donations 1,925,682 974,830 - -Included in Selling and Marketing ExpensesAdvertising & Sales Promotion Cost 55,743,165 40,156,484 25,985,816 19,948,105

9. INCOME TAX EXPENSE Group CompanyYear ended 31 March 2018 2017 2018 2017 Rs. Rs. Rs. Rs.

Statement of Profit or LossCurrent Income TaxCurrent Tax Expense on Ordinary Activities for the Year (9.1) 26,850,720 18,728,229 1,847,804 2,535,334(Over)/Under Provision of Current Taxes in Respect of Prior Years 4,552,335 (727,037) 718,287 (1,387,620)Tax on Dividends 6,495,359 5,681,669 - -

Deferred Income TaxDeferred Taxation Charge/(Reversal) 39,698,458 21,056,570 4,995,975 7,901,553 77,596,872 44,739,431 7,562,066 9,049,267

Statement of Other Comprehensive IncomeDeferred Taxation Charge/(Reversal) 72,407,877 6,685,474 1,822,507 7,055,106 72,407,877 6,685,474 1,822,507 7,055,106

Income Tax Expense Recorded in Total Comprehensive Income 150,004,749 51,424,905 9,384,573 16,104,373


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9.1 Reconciliation Between Current Tax Expense and the Product of Accounting Profit


Accounting Profit (Profit Before Tax) 270,048,968 172,823,734 82,792,190 66,860,445Consolidation Adjustment 61,335,178 50,479,806 - -Aggregate Disallowable Items 228,202,435 176,774,591 84,352,084 101,333,218Aggregate Allowable Items (380,096,111) (327,804,422) (143,454,474) (135,772,279) 179,490,470 72,273,709 23,689,800 32,421,384Tax Loss utilised (9.1.1) (20,914,474) (11,356,993) (8,291,430) (11,356,993)Taxable Profit from Trade Income 158,575,996 60,916,716 15,398,370 21,064,391Taxable Profit from Interest Income 8,497,680 8,240,741 - 27,168 167,073,676 69,157,457 15,398,370 21,091,559

Income Tax - 12% (2017-12%) 24,471,370 16,260,619 1,847,804 2,527,727Income Tax - 28% (2017-28%) 2,379,350 2,467,610 - 7,607Current Income Tax Expense 26,850,720 18,728,229 1,847,804 2,535,334

9.1.1 Tax LossesTax loss brought forward 255,079,083 266,436,076 255,079,083 266,436,076Tax loss - from business combinations 128,588,832 - - -Tax losses utilised for 16/17 as per final tax computation (5,014,458) - (5,014,458) -Tax losses utilised (20,914,474) (11,356,993) (8,291,430) (11,356,993)Tax losses incurred during the year 41,472,360 - - -Tax losses carried forward 399,211,343 255,079,083 241,773,195 255,079,083

Effective tax rate 10% 11% 2% 4%

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

9.2 Deferred TaxDeferred Tax Assets and Liabilities relates to the following;

9.2.1 GroupAs at 31 March 2018 2017 Rs. Rs.

Deferred Tax Liabilities 403,083,631 183,908,949Deferred Tax Assets 47,796,381 39,556,864Net Deferred Tax Liability 355,287,250 144,352,085

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Deferred Taxation Charge/(Reversal) - Statement of Profit or Loss/ Statement of Profit Other Comprehensive Income/Other Comprehensive Income or Loss Directly through EquityYear ended 31 March 2018 2017 2018 2017 Rs. Rs. Rs. Rs.

Deferred Tax LiabilitiesCapital Allowances for Tax Purposes 47,937,975 19,206,325 - -Revaluation of Assets - - 72,316,343 7,122,321Actuarial Loss/Gain - - 91,534 (579,821)

Deferred Tax AssetsDefined Benefit Plans (1,158,992) 706,553 - -Collective Impairment of Trade and Other Receivables 227,785 (605,984) - -Carry Forward of Unused Tax Losses (7,308,310) 1,749,676 - -Actuarial Loss - - - 142,974 39,698,458 21,056,570 72,407,877 6,685,474

In accordance with changes brought by Inland Revenue Act No. 24 of 2017, Group has:• Recognised deferred tax relating to revaluation of freehold land

• Recognised deferred tax provision as of 31 March 2018 based on the future tax rate applicable to Company (14% & 28%)

The Group has recognised deferred tax asset relating to carried forward tax losses for which future taxable profits would be available in excess of the profits arising from the reversal of existing taxable temporary differences based on management’s forecast about the future.

Deferred Tax Assets/Liabilities Statement of Statement of Financial Position Comprehensive Income Additions through BusinessAs at/Year ended 31 March 2018 Combination 2017 2018 2017 Rs. Rs. Rs. Rs. Rs.

Deferred Tax LiabilitiesCapital Allowances for Tax Purposes 181,153,929 - 133,215,954 47,937,975 19,206,325Revaluation of Assets 222,897,724 98,828,830 51,752,551 72,316,343 7,122,321Actuarial (Gain)/Loss (968,022) - (1,059,556) 91,534 (579,821) 403,083,631 98,828,830 183,908,949

Deferred Tax AssetsDefined Benefit Plans 7,424,717 - 6,265,725 (1,158,992) 706,553Collective Impairment of Trade and Other Receivables 1,343,763 - 1,571,548 227,785 (605,984)Carry Forward of Unused Tax Losses 39,027,901 - 31,719,591 (7,308,310) 1,749,676Actuarial (Gain)/Loss - - - - 142,974 47,796,381 - 39,556,864

Deferred Income Tax - Charge/(Reversal) 112,106,335 27,742,044Net Deferred Tax Liability 355,287,250 98,828,830 144,352,085


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9.2.2 Company

As at 31 March 2018 2017 Rs. Rs.

Deferred Tax Assets and Liabilities relates to the followings;Deferred Tax Liabilities 75,056,996 65,991,139Deferred Tax Assets (36,355,777) (34,108,402)Net Deferred Tax Liability 38,701,219 31,882,737

Deferred Taxation Charge/(Reversal) - Statement of Profit or Loss/ Statement of Profit or Loss Other Comprehensive Other Comprehensive Income IncomeYear ended 31 March 2018 2017 2018 2017 Rs. Rs. Rs. Rs.

Deferred Tax LiabilitiesCapital Allowances for Tax Purposes 7,348,827 6,409,217 - -Revaluation of Assets - - 1,717,030 7,122,321

Deferred Tax AssetsDefined Benefit Plans (353,805) 129,511 - -Carry Forward of Unused Tax Losses (2,128,656) 1,749,891 - -Collective Impairment of Trade and Other Receivables 129,609 (387,066) - -Actuarial (Gain)/Loss - - 105,477 (67,215) 4,995,975 7,901,553 1,822,507 7,055,106

Deferred Tax Assets/Liabilities Statement of Statement of Financial Position Comprehensive IncomeAs at/Year ended 31 March 2018 2017 2018 2017 Rs. Rs. Rs. Rs.

Deferred Tax LiabilitiesCapital Allowances for Tax Purposes 69,400,512 62,051,685 7,348,827 6,409,217Revaluation of Assets 5,656,484 3,939,454 1,717,030 7,122,321 75,056,996 65,991,139

Deferred Tax AssetsDefined Benefit Plans 2,000,411 1,646,606 (353,805) 129,511Collective Impairment of Trade and Other Receivables 425,818 555,427 129,609 (387,066)Carry Forward of Unused Tax Losses 33,848,247 31,719,591 (2,128,656) 1,749,891 6,713,005 15,023,874

Actuarial (Gain)/Loss 81,301 186,778 105,477 (67,215) 36,355,777 34,108,402Deferred Income Tax - Charge/(Reversal) 6,818,482 14,956,659Net Deferred Tax Liability/(Assets) 38,701,219 31,882,737

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10. EARNINGS PER SHARE10.1 Basic Earnings Per Share amounts are calculated by dividing the profit for the year attributable to ordinary share holders of the Parent

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

10.2 The following reflects the earnings and share data used in the Basic Earnings Per Share computation.


Amounts Used as the Numerator:Profit Attributable to Ordinary Shareholders 118,944,225 67,513,638 75,230,124 57,811,178

Year ended 31 March 2018 2017 2018 2017 Number Number Number Number

Number of Ordinary Shares Used as the Denominator:Weighted Average Number of Ordinary Shares in Issue Applicable to Basic Earnings Per Share 111,525,794 111,525,794 111,525,794 111,525,794

Earnings Per Share - Basic 1.07 0.61 0.67 0.52

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

11. PROPERTY, PLANT AND EQUIPMENT11.1 Group11.1.1 Gross Carrying Amounts

Balance Additions Additions Disposals Transfers Increase in Balance As at on Revaluation As at 01.04.2017 acquisitions 31.03.2018 Rs. Rs. Rs. Rs. Rs. Rs. Rs.

At CostPlant and Machinery 491,435,450 3,484,022 9,558,675 (981,826) - - 503,496,321Furniture, Fittings and Equipment 571,950,791 28,238,106 36,461,351 (2,296,608) - - 634,353,640Cutlery, Crockery, Glassware and Silverware 23,758,483 117,844 1,741,284 - - - 25,617,611Motor Vehicles 12,823,371 364,689 - (1,237,488) - - 11,950,572 1,099,968,095 32,204,661 47,761,310 (4,515,922) - - 1,175,418,144

At Valuation and Subsequent ImprovementsFreehold Land 531,501,386 537,188,844 - (20,706,386) - 5,924,000 1,053,907,844Buildings on Freehold Land 1,361,082,076 350,692,999 4,138,000 - (45,862,733) 8,675,711 1,678,726,053Buildings on Leasehold Land 865,130,314 - 1,386,761 - (43,533,097) 4,691,370 827,675,348 2,757,713,776 887,881,843 5,524,761 (20,706,386) (89,395,830) 19,291,081 3,560,309,245Total Value of Depreciable Assets 3,857,681,871 920,086,504 53,286,071 (25,222,308) (89,395,830) 19,291,081 4,735,727,389


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11.1.2 In the Course of Construction Balance Additions Incurred Disposals Capitalised Increase in Balance as at on and Revaluation as at 01.04.2017 acquisitions transferred 31.03.2018 During the Year Rs. Rs. Rs. Rs. Rs. Rs. Rs.

Capital Work in Progress 4,233,608 - - - (4,233,608) - -

Total Gross Carrying Amount 3,861,915,479 920,086,504 53,286,071 (25,222,308) (93,629,438) 19,291,081 4,735,727,389

11.1.3 Depreciation Balance Additions Charge Disposals Transfers Balance as at on for the as at 01.04.2017 acquisitions Year 31.03.2018 Rs. Rs. Rs. Rs. Rs. Rs.

At CostPlant and Machinery 268,561,608 - 49,616,986 (729,439) - 317,449,155Furniture, Fittings and Equipment 334,378,165 721,756 58,040,809 (1,331,044) - 391,809,686Cutlery, Crockery, Glassware and Silverware 23,618,572 - 1,311,760 - - 24,930,332Motor Vehicles 5,349,160 - 1,654,467 (1,237,488) - 5,766,139 631,907,505 721,756 110,624,022 (3,297,971) - 739,955,312

At Valuation and Subsequent ImprovementsBuildings on Freehold Land 22,344,789 - 26,044,075 - (45,862,733) 2,526,131Buildings on Leasehold Land 21,854,037 - 21,679,060 - (43,533,097) - 44,198,826 - 47,723,135 - (89,395,830) 2,526,131Total Depreciation 676,106,331 721,756 158,347,157 (3,297,971) (89,395,830) 742,481,443

11.1.4 Net Book ValueAs at 2018 2017 Rs. Rs.

At ValuationPlant and Machinery 186,047,166 222,873,842Furniture, Fittings and Equipment 242,543,954 237,572,626Cutlery, Crockery, Glassware and Silverware 687,279 139,911Motor Vehicles 6,184,433 7,474,209 435,462,832 468,060,588

At Valuation and Subsequent ImprovementsFreehold Land 1,053,907,844 531,501,386Buildings on Freehold Land 1,676,199,922 1,338,737,287Buildings on Leasehold Land 827,675,348 843,276,277 3,557,783,114 2,713,514,950

In the Course of ConstructionCapital Work in Progress - 4,233,608Total Carrying Amount of Property, Plant and Equipment 3,993,245,946 3,185,809,146

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11.1.5 During the financial year, the Group acquired Property, Plant and Equipment to the aggregate value of Rs. 53,286,071 (2017 - Rs.191,129,838/-), the consideration for which was settled by cash.

11.1.6 Property, Plant and Equipment includes fully depreciated assets having a gross carrying amount of Rs.374,451,934/- (2017 Rs.327,466,481/-).

11.1.7 Certain assets have been transferred in between existing asset categories to be inline with the Group’s policy.

11.1.8 Following companies have stated their properties at revalued amounts.

Property Extent Method of Valuation and Significant Unobservable Inputs

Range of Estimate for Unobservable Inputs

Valuation(Rs.)

Date of Valuation

Serendib Hotels PLC

Perera Sivaskantha & Company - Chartered Valuers

Profit Basis of Valuation

Buildings on Leasehold land at Bentota 75,532 Sq. Ft Average Daily Rate Rs.15,000 - Rs.20,000

558,675,000 31-Mar-2018

75 Rooms Rate of Return 8% - 10%

Dolphin Hotels PLC



Freehold Land & Improvements at Waikkal 14A 2R 10P Average Daily Rate Rs. 12,000 - 15,000 511,000,000 31-Mar-2018

Buildings on Freehold Land at Waikkal 220,339 Sq. Ft Rate of Return 8% - 10% 1,337,000,000

154 Rooms

Hotel Sigiriya PLC



Buildings and Swimming Pool Leasehold land at Sigiriya

65,763 Sq. Ft Average Daily Rate Rs. 10,000 - Rs.8,000

283,200,000

31-Mar-2018Land Improvements 79 Rooms Rate of Return 8% - 10% 10,000,000


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Property Extent Method of Valuation and Significant Unobservable Inputs

Range of Estimate for Unobservable Inputs

Valuation(Rs.)

Date of Valuation

Frontier Capital Lanka (Pvt) Limited

Sunil Fernando & Associates (Pvt) Ltd - Chartered Valuers


Freehold Land at Mirissa A0 R1 P34 Average Room Rate

Rs.25,000 - Rs.28,000

156,887,645

31-Aug-2017Building on Freehold Land at Mirissa 7,235 sq.ft Rate of Return 8% - 10% 113,987,500

7 Rooms

Evolution Capital (Pvt) Limited



Freehold Land at Mirissa R1 P38.4 Average Room Rate

25,000-30,000 146,805,902

31-Aug-2017Building on Freehold Land at Mirissa 7235 Sq. ft. Rate of Return 8% - 10% 120,679,000

8 Rooms

Lantern Villa (Pvt) Limited




25,000-30,000 145,495,297

31-Aug-2017Building on Freehold Land at Mirissa 7235 Sq.ft. Rate of Return 8% - 10% 116,037,500

8 Rooms

G.W.G. Abeygunawardene - FRICS Residual Method of Valuation


20,000-25,000 88,000,000 21-Apr-2017

Rate of Return 8% - 10%

11.1.9 The surplus of Rs. 19,291,081/- arising from the above revaluation was transferred to the revaluation reserve. The movement of Revaluation Reserve and other information are disclosed under note 20.

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

Valuation Technique Name of the Company

Significant unobservable valuation inputs

Sensitivity of the fair value measurement to inputs

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

Serendib Hotels PLC Average Daily RateDiscount Rate

PositiveNegative

Dolphin Hotels PLC Average Daily RateDiscount Rate

PositiveNegative

Sigiriya Hotels PLC Average Daily RateDiscount Rate

PositiveNegative

Frontier Capital Lanka (Pvt) Limited

Average Daily RateDiscount Rate

PositiveNegative

Evolution Capital (Pvt) Limited


PositiveNegative



PositiveNegative

Residual Method of ValuationResidual valuation is the process of valuing land with development potential. The sum of money available for the purchase of land is calculated from the value of the completed development minus the costs of development.



PositiveNegative


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11.2 Company11.2.1 Gross Carrying Amounts

Balance Additions Disposals Transfers Increase/ Balance as at (Decrease) in as at 01.04.2017 Revaluation 31.03.2018 Rs. Rs. Rs. Rs. Rs. Rs.

At CostPlant and Machinery 140,762,080 227,837 (855,442) - - 140,134,475Furniture, Fittings and Equipment 235,041,382 6,309,128 (954,106) - - 240,396,404Motor Vehicles 1,237,488 - (1,237,488) - - - 377,040,950 6,536,965 (3,047,036) - - 380,530,879

At Valuation and Subsequent ImprovementsFreehold Land 26,425,384 - (20,706,384) - - 5,719,000Buildings on Leasehold Land 570,128,242 - - (19,027,909) 7,574,667 558,675,000 596,553,626 - (20,706,384) (19,027,909) 7,574,667 564,394,000Total Gross Carrying Amount 973,594,576 6,536,965 (23,753,420) (19,027,909) 7,574,667 944,924,879

11.2.3 Depreciation Balance Charge for Disposals Transfers Increase in Balance as at the year Revaluation as at 01.04.2017 31.03.2018 Rs. Rs. Rs. Rs. Rs. Rs.

At CostPlant and Machinery 68,860,078 13,290,117 (564,535) - - 81,585,660Furniture, Fittings and Equipment 124,099,443 26,314,723 (864,057) - - 149,550,109Motor Vehicles 1,237,488 - (1,237,488) - - - 194,197,009 39,604,840 (2,666,080) - - 231,135,769

At Valuation and Subsequent ImprovementsBuildings on Leasehold Land 9,491,300 9,536,609 - (19,027,909) - - 9,491,300 9,536,609 - (19,027,909) - -Total Depreciation 203,688,309 49,141,449 (2,666,080) (19,027,909) - 231,135,769

11.2.4 Net Book ValuesAs at 31 March 2018 2017 Rs. Rs.

At CostPlant and Machinery 58,548,815 71,902,002Furniture, Fittings and Equipment 90,846,295 110,941,939 149,395,110 182,843,941

At Valuation and Subsequent ImprovementsFreehold Land 5,719,000 26,425,384Buildings on Leasehold Land 558,675,000 560,636,942 564,394,000 587,062,326Total Carrying Amount of Property, Plant and Equipment 713,789,110 769,906,267

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11.2.5 The Company acquired Property, Plant and Equipment to the aggregate value of Rs.6,536,964 during the financial year (2017 - 45,978,595/-), the consideration for which was settled by cash.

11.2.6 Property, Plant and Equipment includes fully depreciated assets having a gross carrying amount of Rs.36,229,623 (2017 - Rs. 28,837,765/- ).

11.2.7 The carrying amount of revalued assets that would have been included in the Financial Statements had the assets been carried at cost less depreciation is as follows:

Cumulative depreciation Net Carrying Net Carrying if assets were Amount Amount Class of Asset Cost carried at cost 2018 2017 Rs. Rs. Rs. Rs.

GroupBuildings on Freehold Land 1,340,436,287 172,061,537 1,168,374,750 882,183,034Buildings on Leasehold Land 794,513,906 165,447,299 629,066,407 640,921,744

CompanyBuildings on Leasehold Land 527,326,543 90,649,999 436,676,544 445,465,319

11.2.8 The details of assets pledged as securities for liabilities are set out in note 29.

12. LEASEHOLD RIGHT Group Company 2018 2017 2018 2017 Rs. Rs. Rs. Rs.

Balance as at 1 April 29,295,858 31,126,852 27,227,163 28,928,859Amortisation for the year (1,830,994) (1,830,994) (1,701,696) (1,701,696)Balance as at 31 March 27,464,864 29,295,858 25,525,467 27,227,163

Serendib Hotels PLCThe Company has obtained Leasehold Rights to two lots of land situated in Bentota from The Sri Lanka Tourist Board by the agreement dated 19/02/1969 and 28/02/1973 respectively (the lease expires on 01/02/2019 and 28/02/2033 respectively). The management intends to extend the lease period upon expiry.

Hotel Sigiriya PLCThe land situated in Sigiriya has been leased from the Sri Lanka Tourist Board for a period of 30 years up to 25 July 2034.

As per the agreements these leases can be renewed at the date of expiry. The Group has constructed buildings on these properties. In the event that the lease agreement is not renewed on the expiration of the lease term, Sri Lanka Tourist Board will pay to the Group the value of the buildings and improvements constructed with the written approval of Sri Lanka Tourist Board as assessed by the Chief Valuer.


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13. INTANGIBLE ASSETS13.1 Computer Software Group Company 2018 2017 2018 2017 Rs. Rs. Rs. Rs.

At CostAt the beginning of the year 82,490,839 10,328,649 27,365,394 1,908,205Additions 1,372,616 75,834,690 - 27,365,394Write off/ Reversal (7,246,789) (3,672,500) - (1,908,205)At the end of the year 76,616,666 82,490,839 27,365,394 27,365,394

Amortisation and ImpairmentAt the beginning of the year 8,757,070 6,790,081 2,280,450 1,580,777Amortisation 14,023,246 5,639,489 5,473,079 2,607,878Write off/ Reversal - (3,672,500) - (1,908,205)At the end of the year 22,780,316 8,757,070 7,753,529 2,280,450Carrying Value 53,836,350 73,733,769 19,611,865 25,084,944

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

13.2 Goodwill Group Company 2018 2017 2018 2017 Rs. Rs. Rs. Rs.

Balance as at the beginning of the year 22,252,564 22,252,564 - -Additions on business combination (13.3) 94,280,886 - -At end of the year 116,533,450 22,252,564 - -Total Intangible Assets 170,369,800 95,986,333 19,611,865 25,084,944

13.2.1 Goodwill as of year end is attributable to the following. GroupAs at 31 March 2018 2017 Rs. Rs.

Investment in Dolphin Hotels PLC 22,252,564 22,252,564Investment in Frontier Capital Lanka (Pvt) Limited 94,280,886 - 116,533,450 22,252,564

13.2.2 The Group annually carries out an impairment test on Goodwill which has an infinite useful life. Valuation is carried out using the earnings growth method and the key assumptions in such computations are reviewed each year.

The key assumptions are as follows.Discount Rate: Risk free rate adjusted by the addition of appropriate risk premium (15% - 18%).Business Growth: Based on historical growth rate and future business plans (6% - 9%).Inflation Rate: Based on current inflation rate and the percentage of the total cost subject to inflation (5% - 8%).

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13.3 Business Combination - GroupOn 15th September 2017, Company acquired a controlling stake (51.15%) through purchase of ordinary shares in Frontier Capital Lanka (Pvt) Limited which has two fully owned subsidiaries, Evolution Capital Lanka (Private) Limited and Lantern Villa (Private) Limited. The three companies together are known as ‘Lantern Beach Collection’ which consists of luxury villas located in Mirissa, Sri Lanka.

The primary reason for the business combination was to embark on the boutique hotel and villa business.

Non Quoted Investments Equity Interest Acquired 2018 Rs.

445,667 Ordinary Shares in Frontier Capital Lanka (Pvt) Ltd 51.15% 309,482,305

13.3.1 Goodwill on Business CombinationIn calculating goodwill resulting from the acquisition of above mentioned subsidiaries, the fair value of identifiable assets and assumed liabilities have been considered.

Non-Controlling Interest has been valued at proportionate share of net assets.

2018 Rs.

The computation of Goodwill is as follows ;Purchase Consideration 309,482,305Investment by Non-Controlling Interest (Proportionate share of net assets) 205,524,719 515,007,024Fair Value of Net Assets Acquired and Liabilities Assumed 420,726,138Goodwill on Acquisition 94,280,886

The above recorded Goodwill is not tax deductable and can be attributable to the expected synergies of being a part of an established hotel management Group through enhanced management capabilities & cost savings achieved through increased bargaining power with operating suppliers and financial institutions.

13.3.2 Assets acquired and liabilities assumedThe fair value of the identifiable assets and liabilities assumed of Frontier Capital (Pvt) Ltd group as at the date of acquisition were:

2018 Rs.

AssetsProperty, Plant and Equipment (13.3.a) 918,692,583Inventories 2,618,629Trade and Other Receivables (13.3.b) 6,822,592Cash and Bank Balances 4,607,799 932,741,603


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2018 Rs.

LiabilitiesEmployee Benefit Liability (1,268,250)Deferred Tax Liability (98,828,830)Trade and Other Payables (257,496,211)Interest Bearing Loans and Borrowings (129,965,835)Income Tax Payable (5,485,824)Bank Overdrafts (18,970,515) (512,015,465)

Total identifiable net assets at fair value 420,726,138

Analysis of net cash flows on acquisitionPurchase consideration transferred 309,482,305Cash and Cash Equivalents acquired 14,362,716Net Cash Out Flow on Acquisition 323,845,021

13.3.3 Non Controlling InterestAssets 932,741,603Liabilities (512,015,465)Net assets 420,726,138

Non Controlling percentage of ownership 48.85%Non Controlling Interest as at acquisition date 205,524,718

13.3.a Fair value of acquired assetsThe valuation techniques used for measuring the fair value of material assets acquired were as follows.

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

Residual Method of Valuation

Residual valuation is the process of valuing land with development potential. The sum of money available for the purchase of land is calculated from the value of the completed development minus the costs of development.

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13.3.b Trade and Other ReceivablesAs at the acquisition date, the Group has determined that the carrying value would be fully recoverable.

13.3.4 Post Acquisition results included in Consolidated Financial Statements

2018 Rs.

Revenue 99,032,302Profit After Tax 23,672,628

13.3.5 Group Revenue and Profit After Tax would be as follows had the stated business combination occurred at the beginning of the current annual reporting period.

Revenue 1,939,565,324Profit After Tax 413,005,245

13.3.6 Group administrative expenses include the following expenses relating to business combination.

Due diligence fees 1,963,500Valuation fees of assets 449,325

13.4 On 23rd March 2018, Group acquired the remaining stake (48.85%) in Frontier Capital Lanka (Pvt) Limited for a consideration of Rs. 108,093,500. As a result, the Group recognised a gain of Rs. 108,826,978 directly in equity.

Purchase Consideration 108,093,501Value of Non Controlling Interest as of transaction date (13.4.1) 216,956,480Gain on additional purchase 108,862,979

Amount Recognised in,Consolidated Revaluation Reserve 72,553,730Consolidated Retained Earnings 36,309,249

13.4.1 Non Controlling Interest (NCI)Value as of 15th September 2017 205,524,719Post acquisition profit attributable to NCI 11,431,761Value as at 23rd March 2018 216,956,480


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14. INVESTMENTS IN SUBSIDIARIES - COMPANY Country of Holding Cost Market Cost Market Incorporation % Value ValueAs at 31 March 2018 2017 2018 2018 2017 2017 % % Rs. Rs. Rs. Rs.

a) Quoted InvestmentsDolphin Hotels PLC Sri Lanka 65.18 65.18 207,799,814 535,843,828 207,799,814 996,076,526Hotel Sigiriya PLC Sri Lanka 63.08 63.08 63,291,375 232,111,752 63,291,375 570,080,700Total Quoted Investments in Subsidiaries 271,091,189 767,955,580 271,091,189 1,566,157,226

b) Non-QuotedSerendib Leisure Management Ltd Sri Lanka 100% 100% 30,100,000 - 100,000 -Sanctuary Resorts Lanka (Pvt) Ltd Sri Lanka 100% 100% 20 - 20 -Frontier Capital Lanka (Pvt) Ltd Sri Lanka 100% - 417,575,806 - - -Total Non-Quoted Investments in Subsidiaries 447,675,826 - 100,020 -Total Net Carrying Value of Investments in Subsidiaries 718,767,015 767,955,580 271,191,209 1,566,157,226

Other information pertaining to subsidiaries are as follows:

Name of the Subsidiary Nature of Operations Principal place of Business

Dolphin Hotels PLC Hotel Operation WaikkalHotel Sigiriya PLC Hotel Operation SigiriyaSerendib Leisure Management Ltd Hotel Management ColomboSanctuary Resorts Lanka (Pvt) Ltd Non - Operating ColomboFrontier Capital Lanka (Pvt) Ltd Hotel Operation Mirissa

In addition to the above Company has full control over the following sub subsidiaries as at 31 March 2018.

Country of Nature of Principal place Holding - % Incorporation Operations of Business 2018 2017

Sanctuary Resorts Wilpattu Lanka (Pvt) Ltd Sri Lanka Non - Operating Colombo 100% -Evolution Capital (Pvt) Ltd Sri Lanka Renting Out Hotel Property Mirissa 100% -Lantern Villa (Pvt) Ltd Sri Lanka Renting Out Hotel Property Mirissa 100% -

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14.1 Material Partly-Owned SubsidiariesFinancial information of subsidiaries that have material non-controlling interests is provided below:

Proportion of interest held by Non-Controlling Interests % ValueAs at 31 March 2018 2017 2018 2017 Rs. Rs.

Dolphin Hotels PLC 34.82% 34.82% 664,096,247 651,538,980Hotel Sigiriya PLC 36.92% 36.92% 135,492,757 153,253,193

Total Comprehensive Income allocated to material Non-Controlling Interest: 2018 2017 Rs. Rs.

Dolphin Hotels PLC 23,567,835 33,124,315Hotel Sigiriya PLC 8,197,275 24,723,110

Summarised financial information of material partly-owned subsidiaries; 2018 2017 Dolphin Hotels PLC Rs. Rs.

Current Assets 315,255,005 396,355,115Non Current Assets 2,049,113,779 2,082,592,158Current Liabilities 244,878,497 446,900,161Non-Current Liabilities 212,263,933 160,884,046Total Equity 1,907,226,354 1,871,163,066

Revenue 900,821,294 878,311,369Profit Before Tax 189,680,838 129,566,390Profit After Tax 148,976,457 100,337,145Other Comprehensive Income (81,291,692) (5,207,004)Total Comprehensive Income 67,684,765 95,130,141

Dividend paid to non-controlling interest 11,010,567 11,114,949

Cash FlowsNet Cash Flows from operating activities 194,795,293 115,106,895Net Cash Flows from investing activities (50,262,560) (106,404,358)Net Cash Flows from financing activities (85,859,900) (122,534,850)

2018 2017 Hotel Sigiriya PLC Rs. Rs.

Current Assets 126,570,718 128,808,572Non Current Assets 359,195,161 391,284,735Current Liabilities 74,166,412 77,284,751Non-Current Liabilities 44,654,620 27,713,228Total Equity 366,944,847 415,095,328


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2018 2017 Hotel Sigiriya PLC Rs. Rs.

Revenue 325,235,156 325,263,132Profit Before Tax 47,183,657 69,572,745Profit After Tax 27,230,421 67,108,394Other Comprehensive Income (5,072,902) (144,392)Total Comprehensive Income 22,157,519 66,964,002

Dividend paid to non-controlling interest 25,957,714 22,281,777

Cash FlowsNet Cash Flows from operating activities 68,779,338 93,454,824Net Cash Flows from investing activities 53,284,512 (107,713,587)Net Cash Flows from financing activities (70,403,070) (58,065,545)

The information relating to commitment and contingencies of the subsidiaries are disclosed in note 27 to these Financial Statement

15. OTHER FINANCIAL ASSETS Group CompanyAs at 31 March 2018 2017 2018 2017 Rs. Rs. Rs. Rs.

Other Financial Assets - Non Current 272,088,466 330,106,485 264,088,466 322,106,485Other Financial Assets - Current 585,293 705,835 - 35,119 272,673,759 330,812,320 264,088,466 322,141,604

Available for Sale Financial Assets (15.1) 272,088,466 330,106,485 264,088,466 322,106,485Loans and Receivables (15.2) 585,293 671,062 - 20,119Other - 34,773 - 15,000 272,673,759 330,812,320 264,088,466 322,141,604

15.1 Available for Sale Financial AssetsThe Group/ Company has investments in unquoted equity shares of Rainforest Ecolodge (Pvt) Ltd and Jada Resorts & SPA (Pvt) Ltd.

Group Company 2018 2017 2018 2017 Rs. Rs. Rs. Rs.

Jada Resorts & Spa (Pvt) Ltd (15.1.1) 260,088,456 318,106,475 260,088,456 318,106,475Rainforest Ecolodge (Pvt) Ltd (15.1.2) 12,000,010 12,000,010 4,000,010 4,000,010 272,088,466 330,106,485 264,088,466 322,106,485

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15.1.1 Movement of the balance - Jada Resorts & Spa (Pvt) Ltd

Group Company Rs. Rs.

Balance as at 01.04.2016 - -Amount transferred from investment in associates 327,523,035 327,523,035Adjustment on fair valuation - impact on deemed dilution of AFS equity shares (9,416,560) (9,416,560)Balance as at 31.03.2017 318,106,475 318,106,475Change in fair value (58,018,019) (58,018,019)Balance as at 31.03.2018 260,088,456 260,088,456

Investment in Jada Resorts and Spa (Pvt) Limited was classified as an available for sale investment during 2016/17 upon the dilution of shareholding. The Group recorded a loss of Rs. 31,540,870 on the said dilution (Rs. 33,100,065 by Company) and a further fair value loss of 9,416,560 (Rs. 9,416,560 by the Company) in 2016/17.

The fair value of the unquoted equity shares in Jada Resorts & Spa (Pvt) Ltd is estimated using appropriate valuation techniques. The significant unobservable inputs used in this valuation are given below:

As at 31 March 2018 As at 31 March 2017Valuation technique

Significant unobservable inputs

Range (weighted average)

Valuation technique

Significant unobservable inputs

Range (weighted average)

Jada Resorts & Spa (Pvt) Ltd DCF Method

Long-term growth rate for cash flows 4% - 8% DCF method

Long-term growth rate for cash flows 4% - 8%

6% 6%Cost of Equity(Ke) 16% - 20% Cost of Equity(Ke) 16% - 20%

18% 18%

Change in fair value of Available for Sale InvestmentThe Group/Company assesses at each reporting date whether there is objective evidence that an investment or a group of investments is impaired. In the case of equity investments classified as available-for-sale, objective evidence would include a significant or prolonged decline in the fair value of the investment below its cost. The determination of what is ‘significant’ or ‘prolonged’ requires judgement. ‘Significant’ is evaluated against the original cost of the investment and ‘prolonged’ against the period in which the fair value has been below its original cost.

The Group has recognised Rs. 58,018,019 in the Available For Sale Reserve as the change in fair value during the year.

15.1.1.1 Available for Sale Reserve


Balance at the beginning of the year - - - -Fair valuation loss (58,018,019) - (58,018,019) -Balance at the end of the year (58,018,019) - (58,018,019) -


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15.1.2 The Group / Company has invested in 200,001/ 66,667 equity shares of Rainforest Ecolodge (Pvt.) Ltd. at Rs. 60 each. This investment is carried at cost due to impracticability of assessing the fair value of the investment, primarily as a result of the unavailability of adequate and comparable market information.

15.2 Loans and ReceivablesLoans and receivables consist of short term loans given to related companies. These loans are unsecured and were granted in accordance with the Group’s treasury policy.

Relationship As at01.04.2017

Rs.

LoansGranted

Rs.

LoanRepayments

Rs.

As at31.03.2018

Rs.

RepaymentTerms

Rates ofInterest

Group

Hemas Holdings PLCUltimate Parent

Company 671,062 - 85,769 585,293 on DemandAt a margin over AWPLR

Company

Hemas Holdings PLCUltimate Parent

Company 20,119 - 20,119 - on DemandAt a margin over AWPLR

Frontier Capital Lanka (Pvt) Limited Subsidiary - 10,000,000 10,000,000 - on DemandAt a margin over AWPLR

20,119 10,000,000 10,020,119 -

16. INVENTORIES Group CompanyAs at 31 March 2018 2017 2018 2017 Rs. Rs. Rs. Rs.

Food 6,512,999 5,368,526 2,155,022 1,741,258Beverage 7,416,284 8,078,937 2,533,326 3,204,574House Keeping and Maintenance 7,561,011 6,266,316 2,124,483 2,009,343Printing and Stationery 1,142,371 754,494 473,670 624,089Linen, Cutlery & Other 5,588,583 4,619,231 147,853 237,770 28,221,248 25,087,504 7,434,354 7,817,034

Cost of Inventory included in Cost of Sales 343,410,131 337,271,479 84,768,552 81,056,910

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17. TRADE AND OTHER RECEIVABLES Group CompanyAs at 31 March 2018 2017 2018 2017 Rs. Rs. Rs. Rs.

Trade Receivable - Related Parties (17.4) 3,691,298 15,326,445 1,106,953 3,787,046Trade Receivable - Other 267,620,486 388,475,096 62,136,562 99,970,880Less: Debtors’ Impairment (17.3) (10,360,489) (14,941,782) (3,041,560) (4,628,562) 260,951,295 388,859,759 60,201,955 99,129,364

Other Debtors 4,971,438 1,515,082 74,900 1,973,947Advances and Prepayments 73,588,138 40,535,924 19,962,315 3,156,386 78,559,576 42,051,006 20,037,215 5,130,333

Non Trade Dues from Related Parties (17.5) 9,182,147 35,663,062 3,961,135 10,863,972Festival Advances (17.6) 1,828,690 2,501,876 24,366 1,649,380 350,521,708 469,075,703 84,224,671 116,773,049

17.1 Trade Debtors Age Analysis Neither Past due but not impaired past due norGroup Total impaired 30-90 Days 91-120 Days >120 Days

2018 260,951,295 155,349,100 94,372,964 2,824,042 8,405,1892017 388,859,759 174,964,370 163,819,587 15,623,950 34,451,852

Neither Past due but not impaired past due norCompany Total impaired 30-90 Days 91-120 Days >120 Days

2018 60,201,955 41,722,720 17,385,777 392,707 700,7512017 99,129,364 51,201,758 43,359,688 3,170,650 1,397,268

17.2 The Group grants credit approvals to its customers subject to the internal credit limits which are regularly reviewed and controlled by the Management. The average credit granted to such Debtors are 30 Days.

17.3 Movement in Individual and Collective Impairment during the year

Group Company Individual Collective Total Individual Collective Total Impairment Impairment Impairment Impairment Impairment Impairment Rs. Rs. Rs. Rs. Rs. Rs.

As at 1 April 2017 6,281,067 8,660,715 14,941,782 316,021 4,312,541 4,628,562(Reversal) to Profit or Loss (1,399,387) (3,181,906) (4,581,293) (316,021) (1,270,981) (1,587,002)As at 31 March 2018 4,881,680 5,478,809 10,360,489 - 3,041,560 3,041,560


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17.4 Trade Dues Receivables from Related Parties

Group CompanyAs at 31 March 2018 2017 2018 2017 Relationship Rs. Rs. Rs. Rs.

Hemas Holdings PLC Ultimate Parent Company 21,947 200,699 - -Serendib Leisure Management Ltd. Subsidiary - - - 113,714Hemas Manufacturing (Pvt) Ltd. Affiliate Company - 62,400 - 62,400Diethlem Travels Sri Lanka (Pvt) Ltd. Affiliate Company 1,324,775 6,647,104 972,040 3,271,887Hemas Air Services (Pvt) Ltd. Affiliate Company - 1,344,420 - -Hemas Aviation (Pvt) Ltd Affiliate Company 8,649 - - -Hemas Travels (Pvt) Ltd. Affiliate Company - 104,876 - -Hemas Hospital (Pvt) Ltd Affiliate Company - 80,600 - 80,600Kalutara Luxury Hotels and Resorts (Pvt) Ltd Affiliate Company - 6,756,777 - -Jada Resorts and Spa (Pvt) Ltd. Affiliate Company 2,335,927 129,569 134,913 258,445 3,691,298 15,326,445 1,106,953 3,787,046

17.5 Amounts Due From Related Parties


Hemas Holdings PLC Ultimate Parent Company 103,832 256,580 - -Hotel Sigiriya PLC Subsidiary - - 650,477 17,755Dolphin Hotels PLC Subsidiary - - 706,102 526,523Serendib Leisure Management Ltd Subsidiary - - 344,396 4,979,992Peace Heaven Resorts Ltd. Affiliate Company 49,271 1,063,632 - -P H Resort (Pvt) Ltd. Affiliate Company 936,881 4,403,978 192,976 192,976Paradise Island Resort (Pvt) Ltd Affiliate Company - - - -Kammala Hoteliers (Pvt) Ltd. Affiliate Company - 389,140 - -Kalutara Luxury Hotels and Resort (Pvt) Ltd Affiliate Company 2,867,450 10,937,082 78,903 128,088Hemas Aviation (Pvt) Ltd Affiliate Company 54,182 8,412 - -Hemas Travels (Pvt) Ltd. Affiliate Company 14,073 840,074 - -Hemas Air Services (Pvt) Ltd Affiliate Company - 989,222 - -Hemas Manufacturing (Pvt) Ltd Affiliate Company - 4,156,598 - -Hemas Vishwa BPO (Pvt) Ltd Affiliate Company - 115,432 - -Jada Resorts and Spa (Pvt) Ltd Affiliate Company 974,907 12,066,275 1,031,531 5,018,638Diethlem Travels Sri Lanka (Pvt) Ltd Affiliate Company 1,154,120 436,637 - -Sanctuary Resort Lanka (Pvt) Ltd Affiliate Company - - 956,750 -Forbes Air Services (Pvt) Ltd Affiliate Company 2,344,427 - - -Mowbray Hotels Limited Affiliate Company 499,921 - - -Hemtours (Pvt) Ltd Affiliate Company 183,083 - - - 9,182,147 35,663,062 3,961,135 10,863,972

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17.6 Festival Advances Group CompanyAs at 31 March 2018 2017 2018 2017 Rs. Rs. Rs. Rs.

At the beginning of the year 2,501,876 1,120,967 1,649,380 67,202Loans granted during the year 5,482,609 6,908,358 102,750 3,127,412Less: Repayments during the year (6,155,795) (5,527,449) (1,727,764) (1,545,234)Balance as at end of the year 1,828,690 2,501,876 24,366 1,649,380

18. CASH AND SHORT TERM DEPOSITS IN THE STATEMENT OF CASH FLOWS18.1 Favourable Cash and Cash Equivalent Balances

Group CompanyAs at 31 March 2018 2017 2018 2017 Rs. Rs. Rs. Rs.

Cash and Bank Balances 233,181,231 163,124,715 42,895,835 29,045,059

18.2 Unfavourable Cash and Cash Equivalent Balances

Group CompanyAs at 31 March 2018 2017 2018 2017 Rs. Rs. Rs. Rs.

Bank Overdraft (112,731,804) (129,686,933) (13,453,615) (15,311,090)Total Cash and Cash Equivalents for the Purpose of Statement of Cash Flows 120,449,427 33,437,782 29,442,220 13,733,969

19. STATED CAPITAL - COMPANYAs at 31 March 2018 2017 Number Rs. Number Rs.

Fully Paid Voting Ordinary Shares 75,514,738 614,282,951 75,514,738 614,282,951Fully Paid Non-Voting Ordinary Shares 36,011,056 298,838,743 36,011,056 298,838,743 111,525,794 913,121,694 111,525,794 913,121,694

19.1 Rights, Preference and Restrictions of Classes of Capital The holders of Ordinary Shares possess the right to receive dividends as declared from time to time. The holders of Voting Ordinary

Shares are entitled to one vote per share at a meeting of the Company.

19.2 Ordinary Shares of the Company do not have a par value.


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20. RESERVES Group CompanyAs at 31 March 2018 2017 2018 2017 Summary Rs. Rs. Rs. Rs.

(a) Revenue ReserveBalance at the beginning of the year 19,940,000 19,940,000 14,500,000 14,500,000Transferred to Retained Earnings (20.1) (19,940,000) - (14,500,000) -Balance at the end of the year - 19,940,000 - 14,500,000

(b) Other Components of EquityAsset Revaluation Reserve (20.2) 592,777,221 552,631,393 89,786,770 83,929,133Cash Flow Hedge Reserve (20.3) (1,065,267) 17,483,940 (1,881,747) (1,486,253)Available for Sale Reserve (15) (58,018,019) - (58,018,019) - 533,693,935 570,115,333 29,887,004 82,442,880

20.1 Revenue Reserve which is a General Reserve represents the amounts set aside by the Directors for general application. During the year, the Group transferred the entire reserve balance to Retained Earnings.

20.2 Asset Revaluation Reserve Group CompanyAs at 31 March 2018 2017 2018 2017 On: Property, Plant and Equipment Rs. Rs. Rs. Rs.

Balance as at the beginning of the year 552,631,393 559,753,714 83,929,133 91,051,454Adjustment in respect of changes in Group Holding 72,553,730 - - -Revaluation Surplus during the year 15,271,975 - 7,574,667 -Deferred Tax attributable to Revaluation Surplus (47,679,877) (7,122,321) (1,717,030) (7,122,321)Balance as at the end of the year 592,777,221 552,631,393 89,786,770 83,929,133

20.3 Cash Flow Hedge ReserveThe Group designated its identified foreign currency loans as a hedging instrument against its highly probable, specifically identified future revenue in foreign currency namely apartment revenue, through which, the Group hedged the risk of changes in value of the identified foreign currency loans, caused by the fluctuations in foreign exchange rates.

The effective portion of gain or loss on the hedging instrument is recognised in the Cash Flow Hedge Reserve, through Other Comprehensive Income while any ineffective portion is recognised immediately in the Statement of Profit or Loss as finance income/cost. Amounts recognised as other comprehensive income are transferred to profit or loss when the hedged transaction affects profit or loss, (when the forecast sale occurs). If the forecast sales are no longer expected to occur, the cumulative gain or loss previously recognised in equity is transferred to the Statement of Profit or Loss. If the hedging instrument expires or is sold, terminated or exercised without replacement or rollover, or if its designation as a hedge is revoked, any cumulative gain or loss previously recognised in other comprehensive income remains in other comprehensive income until the forecast transaction occurs as per the intitial hedge documentation.

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Group CompanyAs at 31 March 2018 2017 2018 2017 Cash Flow Hedge Reserve Rs. Rs. Rs. Rs.

Balance at the Beginning of the Year 17,483,940 11,638,372 (1,486,252) (8,706,110)Movement of Cash Flow Hedge Reserve -recognised through revenue 2,220,437 (12,697,582) 8,255,499 494,489 -recognised through foreign exchange gain/loss (20,769,644) 18,543,150 (8,650,994) 6,725,369Balance at the End of the Year (1,065,267) 17,483,940 (1,881,747) (1,486,252)

21. INTEREST BEARING LOANS AND BORROWINGS21.1 Group 2018 2017 Amount Amount Total Amount Amount Total repayable repayable repayable repayable within 1 year after 1 year within 1 year after 1 year Rs. Rs. Rs. Rs. Rs. Rs.

Bank Loans (21.2) 139,769,187 149,970,644 289,739,831 106,481,460 54,089,969 160,571,429Loans from Related Parties (21.3) 310,000,000 - 310,000,000 20,000,000 - 20,000,000 449,769,187 149,970,644 599,739,831 126,481,460 54,089,969 180,571,429

21.2 Bank Loans - Summary Group Balance Loans Addition on Repayment Exchange Balance as at Obtained Business loss as at 01.04.2017 Combination 31.03.2018 Rs. Rs. Rs. Rs. Rs. Rs.

Serendib Hotels PLC. (21.2.1) 73,336,116 150,000,000 - (102,198,548) 5,438,557 126,576,125Dolphin Hotels PLC. (21.2.2) 87,235,313 - - (45,238,423) 10,290,459 52,287,349Lantern Villa (Pvt) Ltd (21.2.3) - - 61,199,991 (8,400,007) - 52,799,984Evolution Capital (Pvt) Ltd (21.2.4) - - 68,765,844 (10,689,471) - 58,076,373 160,571,429 150,000,000 129,965,835 (166,526,449) 15,729,016 289,739,831


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Bank Loans Balance as at

01.04.2017Rs.

LoansObtained

Rs.

Addition on Business

CombinationRs.

Repayment

Rs.

Exchange Loss

Rs.

Balance as at

31.03.2018Rs.

Repayment Terms

Rates of Interest

21.2.1 Serendib Hotels PLCHatton National Bank PLC-Foreign Currency-EUR 700,000

13,230,717 - - (13,922,875) 692,158 - 60 Instalments from Oct’ 12

At a Margin over 3 Months EURIBOR

Hatton National Bank PLC-Foreign Currency-GBP 325,000

6,137,568 - - (6,258,835) 121,267 - 60 Instalments from Oct’ 12

At a Margin over 3 Months LIIBOR

Hatton National Bank PLC-Foreign Currency-GBP 290,000

7,326,342 - - (7,507,899) 181,557 - 60 Instalments from Jan’ 13

At a Margin over 3 Months LIIBOR

Hatton National Bank PLC-Foreign Currency-EUR 615,000

16,469,794 - - (17,551,084) 1,081,290 - 60 Instalments from Dec’ 12


Hatton National Bank PLC-Foreign Currency-EUR 660,000

30,171,695 - - (22,957,855) 3,362,285 10,576,125 60 Instalments from Sep’ 13


Hatton National Bank PLC - Local Currency - LKR 150 Mn

- 150,000,000 - (34,000,000) - 116,000,000 15 Instalments from July’17

At a Margin over 1 Month AWPLR

73,336,116 150,000,000 - (102,198,548) 5,438,557 126,576,125

21.2.2 Dolphin Hotels PLCCommercial Bank of Ceylon PLC-Foreign Currency - GBP 1,323,000

87,235,313 - - (45,238,423) 10,290,459 52,287,349 72 Instalments from Nov’ 12

At a margin Over 1 Month Euro LIBO p.a.

87,235,313 - - (45,238,423) 10,290,459 52,287,349

21.2.3 Lantern Villa (Pvt) LtdDFCC Bank - Local Currency - LKR 20 Mn

- - 16,999,994 (2,333,338) - 14,666,656 60 Instalments from Oct’14

At a margin Over Monthly AWPLR

DFCC Bank - Local Currency - LKR 52 Mn

- - 44,199,997 (6,066,669) - 38,133,328 60 Instalments from Nov'15


- - 61,199,991 (8,400,007) - 52,799,984

21.2.4 Evolution Capital (Pvt) LtdDFCC Bank - Local Currency - LKR 52 Mn

- - 43,966,244 (6,039,171) - 37,927,073 60 Instalments from Oct’14


Nations Development Bank - Local Currency - LKR 31 Mn

- - 24,799,600 (4,650,300) - 20,149,300 60 Instalments from Feb’16

Fixed Rate p.a.

- - 68,765,844 (10,689,471) - 58,076,373

160,571,429 150,000,000 129,965,835 (166,526,449) 15,729,016 289,739,831

The disclosures relating to assets pledged as securities for above facilities are made in note 29.

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21.3 Related Party Loans

As at 31 March 2018 2017 Repayment Rates of Relationship Rs. Rs. Terms Interest

Hemas Holdings PLC Parent Company 310,000,000 20,000,000 On Demand At a Margin over one Month AWPLR

As at Loans Repayment As at 01.04.2017 Obtained 31.03.2018 Rs. Rs. Rs. Rs.

Hemas Holdings PLC 20,000,000 310,000,000 (20,000,000) 310,000,000

21.4 Company

2018 2017 Amount Amount Total Amount Amount Total repayable repayable repayable repayable within 1 year after 1 year within 1 year after 1 year Rs. Rs. Rs. Rs. Rs. Rs.

Bank Loans (21.4.1) 60,576,125 66,000,000 126,576,125 64,595,280 8,740,836 73,336,116Loans from Related Parties (21.4.2) 340,000,000 - 340,000,000 66,000,000 - 66,000,000 400,576,125 66,000,000 466,576,125 130,595,280 8,740,836 139,336,116

21.4.1 Bank Loans - Company As at Loans Repayment Exchange As at 01.04.2017 Obtained Loss 31.03.2018 Rs. Rs. Rs. Rs. Rs.

Bank Loans (21.2.1) 73,336,116 150,000,000 (102,198,548) 5,438,557 126,576,125

21.4.2 Loans from Related Parties Relationship Repayment Rates of Interest 2018 2017 Terms Rs. Rs.

Hemas Holding PLC Parent Company On Demand At a Margin over one Month AWPLR 310,000,000 20,000,000Hotel Sigiriya PLC Subsidiary Company On Demand At a Margin over one Month AWPLR - 46,000,000Dolphin Hotels PLC Subsidiary Company On Demand At a Margin over one Month AWPLR 30,000,000 - 340,000,000 66,000,000


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Movement of Loans from related parties

As at Loans Repayment As at 01.04.2017 Obtained 31.03.2018 Rs. Rs. Rs. Rs.

Hemas Holding PLC 20,000,000 310,000,000 (20,000,000) 310,000,000Hotel Sigiriya PLC 46,000,000 30,000,000 (76,000,000) - Dolphin Hotels PLC - 30,000,000 - 30,000,000 66,000,000 370,000,000 (96,000,000) 340,000,000

22. EMPLOYEE BENEFIT OBLIGATION Group CompanyAs at 31 March 2018 2017 2018 2017 Rs. Rs. Rs. Rs.

Balance at beginning of the year 56,493,585 53,783,055 14,281,838 13,403,464Acquisition of subsidiary 1,268,250 - - -Charge for the year (22.1) 13,817,131 13,070,431 3,300,897 2,866,626Benefits Paid (5,744,153) (14,961,477) (2,318,322) (2,548,374)Transfers (4,552,207) - - -Actuarial (Gain)/Loss (22.2) (1,915,193) 4,601,576 (975,761) 560,122Balance at the end of the year 59,367,413 56,493,585 14,288,652 14,281,838

22.1 Expense recognised in Statement of Profit or LossCurrent service cost 6,982,971 8,628,676 1,587,076 2,866,626Interest cost 6,834,160 4,441,755 1,713,821 - 13,817,131 13,070,431 3,300,897 2,866,626

22.2 Expense recognised in Statement of Other Comprehensive IncomeActuarial (Gain)/Loss;Due to experience (1,828,018) 835,891 (942,845) 538,978Due to changes in financial assumptions (265,862) 229,803 (32,916) 21,144Due to changes in demographic assumptions 178,687 3,535,882 - - (1,915,193) 4,601,576 (975,761) 560,122

22.3 Messer’s K.A Pandith Actuaries, Consultants and Actuaries, carried out an actuarial valuation of the defined benefit plan on 31 March 2018. Appropriate and compatible assumptions were used in determining the cost of retirement benefit.

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22.4 The principal assumptions used were as follows;

Group Company 2018 2017 2018 2017

a) Demographic AssumptionRetirement Age 55 Years 55 Years 55 Years 55 Years

b) Financial AssumptionsDiscount Rate 10.5% 12% 10.5% 12%Future Salary Increment Rate 8.5% 10% 8.5% 10%Employee Turnover Rate 1% 1% 1% 1%

22.5 Sensitivity of assumptions employed in Actuarial ValuationThe following table demonstrates the sensitivity to a reasonable possible change in the key assumptions used, with all other variables held constant in the employment benefit liability measurement.

The sensitivity of the Statement of Profit or Loss and Statement of Financial Position is the effect of the assumed changes in discount rate, salary increment rate and rate of employee turnover on the Profit or Loss and Employment Benefit Obligation for the year.

Sensitivity Effect on Employee Benefit Obligation

Delta Effect of +1% Delta Effect of (-1%)Group 2018 2017 2018 2017

Increase/(Decrease) in Discount Rate (3,976,117) (5,022,937) 6,931,251 5,617,848Increase/(Decrease) in Salary Increment Rate 6,992,633 5,673,595 (4,109,601) (5,148,148)Increase/(Decrease) in Employee Turnover 742,329 676,774 (859,814) (1,012,391)

Sensitivity Effect on Employee Benefit Obligation

Delta Effect of +1% Delta Effect of (-1%)Company 2018 2017 2018 2017

Increase/(Decrease) in Discount Rate (1,122,496) (1,078,831) 1,297,410 1,239,076Increase/(Decrease) in Salary Increment Rate 1,310,172 1,251,148 (1,151,610) (1,106,295Increase/(Decrease) in Employee Turnover 176,789 152,867 (201,967) (186,644)


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22.6 Following payments are expected weighted average life span obligation on the future years:


Years From the Current Period1st Following Year 3,639,669 4,476,146 749,404 1,996,7712nd Following Year 2,216,740 1,807,261 564,640 387,1493rd Following Year 6,433,479 2,873,316 1,389,937 1,028,2764th Following Year 4,571,783 7,123,023 2,768,376 1,607,5135th Following Year 3,167,250 5,683,865 566,964 3,493,077Sum of 6 Years to 10 35,225,710 55,082,719 6,723,799 11,842,947

23. TRADE AND OTHER PAYABLES Group CompanyAs at 31 March 2018 2017 2018 2017 Rs. Rs. Rs. Rs.

Trade Payable - Non Related Party 49,923,011 53,244,742 10,004,150 13,833,609Sundry Creditors Including Accrued Expenses 270,416,008 394,585,296 91,008,836 87,005,026Amounts due to Related Parties (23.1) 22,821,093 98,151,306 13,333,145 61,004,771 343,160,112 545,981,344 114,346,131 161,843,406

23.1 Amounts due to Related Parties


Hemas Holdings PLC Ultimate Parent Company 9,763,735 71,289,394 4,132,514 17,166,531Dolphin Hotels PLC Subsidiary - - 245,925 5,000,064Hotel Sigiriya PLC Subsidiary - - 43,956 2,210,941Serendib Leisure Management Ltd. Subsidiary - - 6,683,484 35,407,906P H Resort (Pvt) Ltd. Affiliate Company 1,488,407 - 977,143 -Diethlem Travels Sri Lanka (Pvt) Ltd. Affiliate Company 954,720 848,822 296,709 217,154Peace Haven Resorts Ltd. Affiliate Company 80,000 227,445 - 227,445Jada Resorts and Spa (Pvt) Ltd. Affiliate Company 1,302,508 2,410,512 556,902 556,901Hemas Corporate Services Ltd. Affiliate Company 923,405 3,951,301 195,007 217,809Sanctuary Resorts Lanka (Pvt) Ltd Affiliate Company - - - 20Hemas Developments (Pvt) Ltd. Affiliate Company 2,413,828 14,990,225 - -Hemas Travels (Pvt) Ltd. Affiliate Company 85,600 1,667,114 85,600 -Forbes Air Services (Pvt) Ltd. Affiliate Company 4,829,630 - - -N-Able (Pvt) Ltd. Affiliate Company 526,065 1,030,338 - -Vishwa BPO (Pvt) Ltd Affiliate Company 453,195 1,736,155 115,905 - 22,821,093 98,151,306 13,333,145 61,004,771

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23.2 The Group through its central procurement team negotiates for the best credit terms while ensuring for quality, price and time when deciding on its suppliers to procure. The average credit period for the Group is 60 days.

24. DIVIDENDS PAYABLE Group CompanyAs at 31 March 2018 2017 2018 2017 Rs. Rs. Rs. Rs.

Unclaimed Dividends 8,102,747 8,201,331 3,201,691 3,205,560

25. DIVIDEND PER SHARE25.1 Dividends Paid Group CompanyYear ended 31 March 2018 2017 2018 2017 Rs. Rs. Rs. Rs.

Declared and Paid during the year - Dividend on Ordinary SharesFinal Dividend out of 2015/2016 Profits - 111,525,794 - 111,525,794

2018 2017 2018 2017 Rs. Rs. Rs. Rs.

Dividend Per ShareFinal Dividend out of 2015/2016 Profits - 1.00 - 1.00


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26. RECLASSIFICATION OF COMPARATIVE INFORMATIONThe Group/ Company has changed its presentation of Revenue, Other Income, Administrative expenses and Selling & Distribution expenses for better presentation of financial information. The management has reasonable evidence that such presentation would be more relevant for the understanding of the entity’s financial performance to the user.

The effect of the reclassification on Financial Statements is summarised below. As previously Increase/ Reclassified reported decrease 31.03.2017 31.03.2017 Group Rs. Rs. Rs.

Revenue 1,771,321,122 (2,144,233) 1,769,176,889Cost of Sales (490,046,191) (1,194,556) (491,240,747)Gross Profit 1,281,274,931 (3,338,789) 1,277,936,142Other Operating Income and Gains 18,431,544 2,144,233 20,575,777Sales and Marketing Expenses (38,780,719) (1,375,765) (40,156,484)Administrative Expenses (1,051,060,841) 2,570,321 (1,048,490,520)Operating Profit 209,864,915 - 209,864,915Finance Cost (14,887,315) - (14,887,315)Finance Income 9,387,004 - 9,387,004Loss on Deemed Disposal of Investment in Associates (31,540,870) - (31,540,870)Profit Before Tax 172,823,734 - 172,823,734Income Tax Expense (44,739,431) - (44,739,431)Profit for the Year 128,084,303 - 128,084,303

As previously Increase/ Reclassified reported decrease 31.03.2017 31.03.2017 Company Rs. Rs. Rs.

Revenue 528,883,277 (2,144,234) 526,739,043Cost of Sales (132,137,867) (1,194,556) (133,332,423)Gross Profit 396,745,410 (3,338,790) 393,406,620Dividend Income 51,135,019 - 51,135,019Other Operating Income and Gains 2,359,706 2,144,234 4,503,940Sales and Marketing Expenses (18,572,340) (1,375,765) (19,948,105)Administrative Expenses (325,507,284) 2,570,321 (322,936,963)Operating Profit 106,160,511 - 106,160,511Finance Cost (10,130,658) - (10,130,658)Finance Income 3,930,657 - 3,930,657Loss on Deemed Disposal of Investment in Associates (33,100,065) - (33,100,065)Profit Before Tax 66,860,445 - 66,860,445Income Tax Expense (9,049,267) - (9,049,267)Profit for the Year 57,811,178 - 57,811,178

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27. COMMITMENTS AND CONTINGENCIES27.1 Commitments27.1.1 Serendib Hotels PLC has given Corporate Guarantees to Kalutara Luxury Hotel & Resort (Pvt) Ltd (Affiliate Company) for USD 5.2 Mn

(Equivalent to LKR. 790.3Mn) in favor of The Hongkong and Shanghai Banking Corporation Limited.

27.1.2 Lease Commitments Group CompanyAs at 31 March 2018 2017 2018 2017 Lease rental due on non cancellable operating leases: Rs. Rs. Rs. Rs.

Within one Year 3,732,507 2,997,498 950,007 634,998One to five Years 13,269,484 12,925,059 3,819,484 3,475,059More than five Years 44,376,128 48,111,812 17,601,128 18,974,312 61,378,119 64,034,369 22,370,619 23,084,369

Lease Commitments Leased property LessorSerendib Hotels PLC Land Sri Lanka Tourist BoardHotel Sigiriya PLC Land Sri Lanka Tourist Board

27.1.3 There were no significant capital commitments as at the reporting date.

27.2 Contingencies27.2.1 G. Nipuna Madusanka & G.H.S. Sumudu Priyantha have filled a case against Serendib Hotels PLC for non payment of Budgetary

Relief Allowance after resignation.

27.2.2 Bentota Pradeshiya Sabha has informed the Company that it may file a case for operating the Hotel without the required permit issued by the Pradeshiya Sabha.

27.2.3 Marawila Pradeshiya Sabha has filed a case against Club Hotel Dolphin at Magistrate Court- Marawaila, charged for operating the Hotel without the required permit issued by the Pradeshiya Sabha in 2016 & 2017.

27.2.4 There is a possibility of a material legal action being taken against Club Hotel Dolphin due an injury sustained by a guest inside hotel premises due to an accident in 2016/17.

28. EVENTS OCCURRING AFTER THE DATE OF THE STATEMENT OF FINANCIAL POSITIONThere have been no material events occurring after the reporting date that require adjustments to or disclosure in the Financial Statements.


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29. ASSETS PLEDGEDThe following Assets have been pledged as security for liabilities.

Nature of Assets Nature of Liability Carrying Amount of Pledged Asset Included Under2018

Rs.2017

Rs.

Dolphin Hotels PLCFreehold Land and Building

Primary Mortgage Bond No.1425 dated 13/07/2010 for Rs.244.6M executed over Club Hotel Dolphin’s Hotel premises at Waikkala owned by the Company to Commercial Bank of Ceylon PLC. Land extent is 7A:3R:31P. (GBP Loan of Rs. 234 Mn)

1,848,000,000 1,846,608,536 Property, Plant and Equipment

Freehold Land and Building

A supplementary Mortgage Bond in GBP executed in connection with Primary Mortgage Bond No.1425 dated 13/07/2010 linking the Rupee exposure in foreign currency.

1,848,000,000 1,846,608,536 Property, Plant and Equipment

Lantern Villa (Pvt) LtdFreehold Land and Building

Primary Mortgage of Rs.42 Mn over allotments of Land marked Lot X depicted in Plan No. 3625B dated 07/12/2010 made by M.L.M Razmi Licensed Surveyor and Lot 1 depicted in Plan No. 21031 dated 28/11/2010 made by M.G.Nazoor Licensed Surveyor together containing in extent A0-R1-P38.4 situated at Kamburugamuwa Village in Weligam Pradeshiya Sabaha in District of Matara together with everything else standing thereon owned by the Company.

Further mortgage of Rs. 20 Mn over the allotments of Land marked Lot X depicted in PLan No. 3625B dated 07/12/2010 made by M.L.M Razmi Licensed Surveyor and Lot 1 depicted in Plan No. 21031 dated 28/11/2010 made by M.G.Nazoor Licensed Surveyor together containing in extent A0-R1-P38.4 situated at Kamburugamuwa Village in Weligam Pradeshiya Sabaha in District of Matara together with everything else standing thereon owned by the Company.

286,033,385 - Property, Plant and Equipment

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Nature of Assets Nature of Liability Carrying Amount of Pledged Asset Included Under2018

Rs.2017

Rs.Evolution Capital (Pvt) LtdFreehold Land and Building

Primary fixed mortgage of R. 20 Mn over land marked as Lot 0003 in zone 3 Cadastral Map No. 820079 made by Surveyor General, situated in Talaramba containing in extent of 0A-0R-28.05P owned by Lantern Villa (Private) Limited.

Primary fixed mortgage of R. 11 Mn over land marked as Lot 1 in zone 3 Cadastral Map No. 820079 made by Surveyor General, situated in Talaramba containing in extent of 0A-0R-19.041P owned by Lantern Villa (Private) Limited.

Rs.42 Mn Over the allotments of Land marked as Lot 1 and 2 depicted in Plan No. 21031 dated 28/11/2010 made by M.G.Nazoor Licensed Surveyor together containing in extent A0-R1-P34 situated at Kamburugamuwa in Weligam Korale in the District of Matara together with everything else standing thereon owned by the Company.

266,388,377 - Property, Plant and Equipment

30. RELATED PARTY DISCLOSURES30.1 Terms and conditions of transactions with related partiesTransactions with related parties are carried out in the ordinary course of the business and are at arms length. Outstanding current account balances at year end are unsecured, interest free and settlement occurs in cash. Interest bearing borrowings are at pre-determined interest rates and terms.

30.2 Non-recurrent related party transactionsThere were no other non-recurrent Related Party Transactions which in aggregate value exceeds 10% of the equity or 5% of the total assets whichever is lower of the Company as per 31 March 2018 audited Financial Statements, which required additional disclosures in the 2017/18 Annual Report under Colombo Stock Exchange Listing Rule 9.3.2 and Code of Best Practices on Related Party Transactions under the Security Exchange Commission Directive issued under Section 13(c) of the Security Exchange Commission Act other than those disclosed on page 74.

30.3 Recurrent related party transactionsThere were no recurrent related party transactions which in aggregate value exceeds 10% of the revenue of the Company as per 31 March 2018 audited Financial Statements, which required additional disclosures in the 2017/18 Annual Report under Colombo Stock Exchange Listing Rule 9.3.2 and Code of Best Practices on Related Party Transactions under the Security Exchange Commission Directive issued under Section 13(c) of the Security Exchange Commission Act.

Terms and conditions on loans obtained from related parties are disclosed in Note 21 to these Financial Statements.


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30.4 Transaction with Related EntitiesDetails of significant related party transactions are as follows:

Nature of Transaction Parent Subsidiaries* Affiliate Companies** Total 2018 2017 2018 2017 2018 2017 2018 2017 Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs.

Expenses Incurred on Behalf of Others - 4,547,202 26,203,761 7,512,355 8,056,320 1,994,218 34,260,081 14,053,775Expenses Incurred on Behalf of the Company (6,369,571) (17,300,132) (102,553,449) (64,704,814) (7,888,232) (2,430,118) (116,811,252) (84,435,064)Settlement of Dues to Related Parties (20,119) (4,547,202) (29,070,207) (5,366,997) (14,659,091) - (43,749,417) (9,914,199)Settlement of Dues from Related Parties 22,389,280 10,472,306 140,348,295 33,397,018 6,880,274 5,223,447 169,617,849 49,092,771Loans Capital Borrowings (310,000,000) (20,000,000) (60,000,000) (53,000,000) - (4,492,279) (370,000,000) (77,492,279)Loan Capital Repaid 20,000,000 20,119 76,000,000 7,000,000 - - 96,000,000 7,020,119Loans Capital Granted - - 10,000,000 - - - 10,000,000 -Loan Capital Repayment Received - - (10,000,000) - - - (10,000,000) -Loan Interest (19,745,698) - (2,450,467) (3,906,703) - - (22,196,165) (3,906,703)Loan Interest Paid 16,760,006 - 301,167 1,664,933 - - 17,061,173 1,664,933 (276,986,102) (26,807,707) 48,779,100 (77,404,208) (7,610,727) 295,268 (235,817,730) (103,916,647)

** Affiliate Companies include Kalutara Luxury Hotels & Resort (Pvt) Ltd. Diethlem Travels Lanka (Pvt) Ltd. PH Resorts (Pvt) Ltd. Hemas Manufacturing (Pvt) Ltd. Jada Resorts and Spa (Pvt) Ltd. Hemas Corporate Services Ltd. Vishwa BPO (Pvt) Ltd. Sanctuary Resorts Lanka (Pvt) Ltd

30.5 Terms and Conditions:Management Fees Management fees are paid based on the management agreement with Serendib Leisure Management Ltd.

Expenses Incurred Expenses Incurred on behalf of / by Related parties are reimbursed on actual cost basis.

Loans Information relating to loans received from / granted to related parties are disclosed in notes 21 & 15 respectively

Guarantees Guarantees provided to related parties are disclosed in note 27.

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31. TRANSACTIONS WITH KEY MANAGEMENT PERSONNEL OF THE COMPANY OR ITS PARENTThe Key Management Personnel of the Company are the Board of Directors of the Company.


a) Key Management Personnel CompensationShort Term Employee Benefits (Cash & Non-Cash) 4,122,063 1,807,001 4,122,063 302,931

No significant transactions had taken place involving Key Management Personnel & their close family members except for what is disclosed above.

b) Director’s Interest in Contracts Directors do not have any other interest in contracts than ones mentioned on page 75 of the Annual Report.

32. FAIR VALUE32.1 Fair value of financial instrumentsThe fair values of the financial assets are stated 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 & cash equivalents/ trade & other receivables/related party loans:

The carrying amount approximates their fair value largely due to the short maturities of these instruments.

Available for sale investments: These investments are carried at fair value other than investment in Rain Forest Ecolodge (Pvt) Limited. Refer note 15 for their measurement basis/ assumptions.

Long-term floating - rate receivables/borrowings:

These are evaluated by the Group/Company based on parameters such as interest rates, specific country risk factors, individual creditworthiness of the customer and the risk characteristics of the financed project. Based on this evaluation, allowances are taken to account for the expected losses of these balances. As at 31 March 2018, the carrying amounts of such balances, net of allowances, are not materially different from their fair values.

The fair value of all other financial liabilities approximate their carrying values.


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Set out below is a comparison by class of the carrying value of Group’s/Company’s financial instruments that are carried in the Financial Statements.

As at 31 March 2018 2017 Carrying Fair Carrying Fair Amount Value Amount Value

GroupFinancial assets:Loans and ReceivablesTrade and other receivables 276,933,570 276,933,570 428,539,779 428,539,779Related Party Loans 585,293 585,293 671,062 671,062Available for Sale Investments Investment in Equity Shares 272,088,466 272,088,466 330,106,485 330,106,485Cash & cash equivalents 233,181,231 233,181,231 163,124,715 163,124,715

Financial liabilities:Interest bearing loans and borrowings 599,739,831 599,739,831 180,571,429 180,571,429Trade and other payable 343,160,112 343,160,112 545,981,344 545,981,344Bank Overdraft 112,731,804 112,731,804 129,686,933 129,686,933

CompanyFinancial assets:Loans and ReceivablesTrade and other receivables 64,262,356 64,262,356 113,616,662 113,616,662Related Party Loans - - 20,119 20,119

Available for sale investmentsInvestment in Equity Shares 264,088,466 264,088,466 322,106,485 322,106,485Cash & cash equivalents 42,895,835 42,895,835 29,045,059 29,045,059

Financial liabilities:Interest bearing loans and borrowings 466,576,125 466,576,125 139,336,116 139,336,116Trade and other payable 114,346,131 114,346,131 161,843,406 161,843,406Bank Overdraft 13,453,615 13,453,615 15,311,090 15,311,090

32.2 Fair Value HierarchyThe Group/Company uses the following hierarchy for determining and disclosing the fair value of financial instruments by valuation techniques.

Level 1: Quoted (unadjusted ) prices in active markets for identical assets or liabilitiesLevel 2: Other techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly

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

data

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The Group/Company held the following financial instruments at fair value on the Statement of Financial Position.

GroupFinancial Assets 31-Mar-2018 Level 1 Level 2 Level 3Available for Sale financial assets 260,088,456 - - 260,088,456Non-Financial Assets Measured at Fair Value 31-Mar-2018 Level 1 Level 2 Level 3Land and Building 3,560,309,245 - - 3,560,309,245Financial Assets 31-Mar-2017 Level 1 Level 2 Level 3Available for Sale financial assets 318,106,475 - - 318,106,475Non-Financial Assets Measured at Fair Value 31-Mar-2017 Level 1 Level 2 Level 3Land and Building 2,757,713,776 - - 2,757,713,776

CompanyFinancial Assets 31-Mar-2018 Level 1 Level 2 Level 3Available for Sale financial assets 260,088,456 - - 260,088,456Non-Financial Assets Measured at Fair Value 31-Mar-2018 Level 1 Level 2 Level 3Land and Building 564,394,000 - - 564,394,000Financial Assets 31-Mar-2017 Level 1 Level 2 Level 3Available for Sale financial assets 318,106,475 - - 318,106,475Non-Financial Assets Measured at Fair Value 31-Mar-2017 Level 1 Level 2 Level 3Land and Building 596,553,626 - - 596,553,626

33. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIESThe Group’s principal financial liabilities, other than derivatives, comprise of loans and borrowings and trade and other payables. The main purpose of these financial liabilities is to finance the Group’s operations and to provide guarantees to support its operations. The Group has loans and receivables, trade and other receivables, cash and short-term deposits that arrive directly from its operations. The Group also holds available for sale investments.

The Group is exposed to market risk, credit risk and liquidity risk.

The Group’s senior management oversees the management of these risks. The Group’s senior management is supported by the Board of Directors (BOD) that advises on financial risks and the appropriate financial risk governance framework for the Group. BOD provides assurance to the Group’s senior management that the Group’s financial risk-taking activities are governed by appropriate policies and procedures and that financial risks are identified, measured and managed in accordance with Group policies and Group risk appetite. It is the Group’s policy that all derivative activities for risk management purposes are required to be in line with the Group treasury policy of Hemas Holdings PLC (The Ultimate Parent of the Company) and to be approved by the Board of Directors of Serendib Hotels PLC.

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

33.1 Market RiskMarket risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market prices. Market prices comprise four types of risk: interest rate risk, currency risk, commodity price risk and other price risk, such as equity price risk. Financial instruments affected by market risk include loans and borrowings, deposits, available for sale investments and derivative financial instruments.


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

33.1.1 Interest Rate RiskInterest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Group’s exposure to the risk of change in market interest rates relates primarily to the Group’s long term debt obligations with floating interest rates. The Group manages its interest rate risk by having a balanced portfolio of fixed and variable rate loans and borrowings.

Interest rates sensitivityThe following table demonstrates the sensitivity to a reasonably possible change in interest rates, with all other variables held constant, of the Group’s/Company’s Profit Before Tax (affected through the impact on floating rate borrowings).

Group Increase/ (decrease) Effect on in basis points Profit Before Tax

2018 + 100 basis points (6,015,484) - 100 basis points 6,015,484


Company2018 + 100 basis points (4,663,180) - 100 basis points 4,663,180


33.1.2 Foreign Currency RiskForeign currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. The Group’s exposure to the risk of changes in foreign exchange rates relates primarily to the Group’s/Company’s operating activities (when revenue or expense is denominated in foreign currency).

Currency risk is managed by the Group’s treasury function that monitors foreign currency cash inflows and outflows and its closing position on a daily basis. The Group also monitors its exposure to movements in exchange rates on a net basis.

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Foreign currency sensitivityA strengthening/weakening of the Rupees as indicated below, against the foreign currencies as at 31 March would have increased/(decreased) Profit or Loss by the amounts shown below.

Group Foreign Change in Effect on Currency exchange Profit Before rate Tax

2018 GBP 1% 3,983,502 EURO 1% 3,857,648 USD 1% 8,589,719

2017 GBP 1% 2,772,489 EURO 1% 4,195,973 USD 1% 5,882,847

Company

2018 GBP 1% 497,050 EURO 1% 522,412 USD 1% 2,070,347

2017 GBP 1% 422,285 EURO 1% 446,103 USD 1% 2,556,495

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

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

Trade ReceivablesCustomer credit risk is managed by each company subject to the Group’s established policy, procedures and control relating to customer credit risk management. Credit quality of the customer is assessed based on the credit risk evaluation model and individual credit limits are defined in accordance with this assessment.

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


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Additionally, a large number of minor receivables are grouped into homogenous groups and assessed for Impairment collectively. The calculation is based on actual incurred historical data. The maximum exposure to credit risk at the reporting date is the carrying value of each class of financial assets disclosed in Note 17. The Company does not hold collateral as security.

Financial Instruments and Cash DepositsCredit risk from balances with banks is managed by the Group’s treasury department in accordance with the Group’s policy. Investments of surplus funds are made only with approved counterparties as per the Treasury Policy and within credit limits assigned to each counterparty. Counterparty credit limits are reviewed by the Group’s Board of Directors on an annual basis, and updated throughout the year subject to approval of the Group’s Treasury Committee. The limits are set to minimise the concentration of risks and therefore mitigate financial loss through potential counterparty’s failure. The Company’s maximum exposure to credit risk for the components of the Statement of Financial Position is the carrying amounts as illustrated in Note 17.

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

The table below summarises the maturity profile of the Group’s financial liabilities based on contractual payments.

GroupAs at 31 March 2018 On Less than 3 to 12 1 to 5 > 5 Years Total Demand 3 Months Months Years Rs. Rs. Rs. Rs. Rs. Rs.

Interest - Bearing Loans and Borrowings - 49,323,904 426,399,969 169,841,656 - 645,565,529 Trade and Other Payable - 343,160,112 - - - 343,160,112 Bank Overdraft 112,731,804 - - - - 112,731,804 112,731,804 392,484,016 426,399,969 169,841,656 - 1,101,457,445

As at 31 March 2017 On Less than 3 to 12 1 to 5 > 5 Years Total Demand 3 Months Months Years Rs. Rs. Rs. Rs. Rs. Rs.

Interest-Bearing Loans and Borrowings 20,000,000 29,317,989 84,118,980 65,227,475 - 198,664,444 Trade and Other Payable - 545,981,344 - - - 545,981,344 Bank Overdraft 129,686,933 - - - - 129,686,933 149,686,933 575,299,333 84,118,980 65,227,475 - 874,332,721

The table below summarises the maturity profile of the Company’s financial liabilities based on contractual payments.

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Company


Interest - Bearing Loans and Borrowings - 25,700,910 386,098,591 70,988,625 - 482,788,126 Trade and Other Payable - 114,346,131 - - - 114,346,131 Bank Overdraft 13,453,615 - - - - 13,453,615 13,453,615 140,047,041 386,098,591 70,988,625 - 610,587,872


Interest - Bearing Loans and Borrowings 66,000,000 22,087,611 46,110,935 10,703,209 - 144,901,755 Trade and Other Payable - 161,843,406 - - - 161,843,406 Bank Overdraft 15,311,090 - - - - 15,311,090 81,311,090 183,931,017 46,110,935 10,703,209 - 322,056,251

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

The Group manages its capital structure and makes adjustments to it in light of changes in economic conditions. To maintain or adjust the capital structure, the Group may adjust the dividend payment to shareholders, return capital to shareholders or issue new shares. No changes were made in the objectives, policies or processes managing capital during the years ended 31 March 2018 and 31 March 2017. The Group monitors capital using a gearing ratio, which is debt divided by total capital plus debt. The Group’s policy is to keep the gearing ratio below 40%.


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Ten Year Financial Review

(Figures in Rs.’000 unless otherwise stated)Year ended 31 March 2018 2017 2016 2015 2014 2013 2012 2011 2010 2009 Restated

Trading ResultsRevenue 1,875,799 1,769,176 1,768,249 1,575,999 1,278,216 1,447,478 1,047,460 895,775 675,422 583,661Profit /(Loss) Before Tax 270,048 172,824 363,811 328,739 236,979 432,843 111,846 153,496 81,789 8,844Profit /(Loss) for the year 192,452 128,084 301,363 279,472 201,707 367,476 91,261 129,278 64,885 (530)Non Controlling Interest 73,508 60,571 98,304 78,117 49,872 96,273 50,388 12,781 20,917 (12,422)Profit /(Loss) Attributable to Equity Holders of the Parent 118,944 67,514 203,059 201,356 151,835 271,202 40,874 116,497 43,968 (12,952)

Hotel OperationsAnnual Sales Growth (%) 6.0 0.1 12.2 23.3 (11.7) 38.2 16.9 32.6 15.7 20.7Room Occupancy (%) 73 76 79 78 68 77 80 79 65 55Current Ratio (Times) 1 1 1 1 1 1 1 1 1 2Interest Cover (Times) 7 13 16 10 6 11 3 5 6 1Debt / Total Equity Ratio (%) 19.8 9.6 13.4 20.0 47.0 53.5 41.4 64.3 7.2 12.6

Market/ Shareholder InformationReturn on Equity (%) 5.4 3.9 9.2 9.9 8.3 16.2 4.7 10.7 6.1 (0.1)Net assets per Share* (Rs.) 22.97 21.89 22.32 25.45 17.27 16.27 13.85 10.25 8.93 8.43Earnings/(Loss) per Share* (Rs.) 1.07 0.61 1.82 1.81 1.36 2.43 0.82 1.31 0.49 (0.15)Market value per share (Rs.) 17.50 23.10 27.50 28.00 28.00 23.70 24.80 32.02 19.00 5.70Price Earnings Ratio (Times) 16 38 15 16 21 10 30 25 38 N/ADividend Per Share Nil 1.00 1.00 Nil Nil Nil Nil 0.20 Nil Nil

Club Hotel Dolphin was partially closed for refurbishment from May to Sep’10 and May to Oct’13.Hotel Serendib was closed for refurbishment from April to Nov‘ 11, and was launched in Dec‘ 11 as AVANI Bentota Resort and Spa.* Earnings / (Loss) Per Share and Net Assets Per Share: Comparative figures adjusted for rights issue and sub-division of ordinary shares in

the roportion of 5:1

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Analysis of Shareholders a. Ordinary Voting Shares

31.03.2018 31.03.2017No. of

ShareholdersTotal

Holding %No. of

ShareholdersTotal

Holding %

1 - 1,000 680 128,844 0.17 669 129,278 0.17 1,001 - 10,000 223 887,867 1.17 233 931,420 1.23 10,001 - 100,000 127 4,321,642 5.73 129 4,328,644 5.73100,001 - 1,000,000 28 7,192,517 9.52 28 7,141,528 9.46

Over 1,000,000 4 62,983,868 83.41 4 62,983,868 83.41Total 1,062 75,514,738 100.00 1,063 75,514,738 100.00

Categories of Shareholders

Institutions 68 66,078,299 87.50 73 66,136,444 87.58Individuals 994 9,436,439 12.50 990 9,378,294 12.42Total 1,062 75,514,738 100.00 1,063 75,514,738 100.00

b. Ordinary Non-Voting Shares

31.03.2018 31.03.2017No. of

ShareholdersTotal

Holding% No. of

ShareholdersTotal

Holding%

1 - 1,000 412 101,302 0.28 408 103,464 0.29 1,001 - 10,000 161 573,980 1.59 159 568,965 1.58 10,001 - 100,000 61 2,066,915 5.75 68 2,325,265 6.45100,001 - 1,000,000 16 5,193,116 14.42 16 5,351,216 14.86Over 1,000,000 3 28,075,743 77.96 3 27,662,146 76.82Total 653 36,011,056 100.00 654 36,011,056 100.00

Categories of Shareholders

Institutions 60 33,358,392 92.63 66 33,332,781 92.56Individuals 593 2,652,664 7.37 588 2,678,275 7.44Total 653 36,011,056 100.00 654 36,011,056 100.00

Share Trading Informationa. Ordinary Voting Shares

2018 2017

Highest Market Price (Rs) 26.50 (07.06.2017) 33.00 (20.05.2016)Lowest Market Price (Rs) 17.10 (21.03.2018) 21.80 (15.02.2017)Last Traded Price (Rs) 17.50 (28.03.2018) 23.10 (30.03.2017)No. of Shares Traded 145,889 25,619,090

No. of Trades 295 403Turnover (Rs) 3,215,844.90 629,944,785.10

Investor Information

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b. Ordinary Non-Voting Shares

2018 2017

Highest Market Price (Rs) 21.00 (31.05.2017) 25.00(09.06.2016)Lowest Market Price (Rs) 13.00 (06.02.2018) 16.60(14.03.2017)Last Traded Price (Rs) 15.00 (28.03.2018) 20.00(27.03.2017)No. of Shares Traded 642,239 12,923,357No. of Trades 473 541Turnover (Rs) 11,327,047.90 240,576,612

Public Holding2018 2016

Ordinary (Voting) Shares 18.05% 18.05%Ordinary (Non-Voting) Shares 26.64% 26.64%

Twenty Major Shareholdingsa. Voting Ordinary Shares

31.03.2018 31.03.2017No. of Shares % No. of Shares %

Hemas Holdings PLC 42,802,738 56.68 42,802,738 56.68Lodging Investment (Labuan) Ltd. 18,886,578 25.01 18,886,578 25.01Seylan Bank Ltd./ B.S.M. De Silva 1,294,552 1.71 1,294,552 1.71Mr. E. J. De Soysa 800,000 1.06 800,000 1.06People’s leasing & Finance PLC/L. P. Hapangama 648,750 0.86 643,579 0.85Mrs. B.C.R. Wickramaratne 610,627 0.81 595,777 0.79Acuity Partners (Pvt) Limited/ Mr. B. S. M. De Silva 490,000 0.65 490,000 0.65Mrs. M V Fernando 400,000 0.53 400,000 0.53The Ceylon Chamber of Commerce Account No 02 370,000 0.49 370,000 0.49Dr B. G. S. De Silva 355,747 0.47 355,747 0.47Mrs. C. A. Wenceslaus 286,337 0.38 286,337 0.38Mrs. A. R. Gamage 248,838 0.33 248,838 0.33Dr. R. S. Deraniyagala 225,662 0.30 225,662 0.30People’s Leasing & Finance PLC/Dr. H.S.D.Soysa & Mrs.G. Soysa 221,290 0.29 - -Ms. H. G. S. Ansell 216,825 0.29 216,825 0.29P. P. S. Fernando 216,000 0.29 216,000 0.29Miss J. C. Wickramaratne 203,145 0.27 203,145 0.27Hemtours (Private) Limited 181,875 0.24 181,875 0.24Mrs. S Poologasundram 161,706 0.21 161,706 0.21Dr. K. Poologasundram 156,268 0.21 - -Total held by the above shareholders 68,776,938 91.08Shares held by the balance shareholders 6,737,800 8.92Total Issued Capital - Voting Ordinary Shares 75,514,738 100.00

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b. Non -Voting Ordinary Shares

31.03.2018 31.03.2017No. of Shares % No. of Shares %

Hemas Holdings PLC 19,260,487 53.48 19,260,487 53.48Lodging Investment (Labuan) Ltd. 7,156,750 19.87 7,156,750 19.87Deutsche Bank AG As Trustee To Candor Opportunities Fund 1,658,506 4.61 1,244,909 3.46Askold (Pvt) Ltd 999,658 2.78 999,658 2.78National Industries Group (Holdings) (S.A.K) 995,210 2.76 950,000 2.64Ceylon Guardian Investment Trust PLC A/C # 01 464,400 1.29 464,400 1.29Trading Partners (Pvt) Ltd 410,986 1.14 410,986 1.14Shalsri Investments (Pvt) Ltd 341,825 0.95 341,825 0.95J. B. Cocoshell (Pvt) Ltd 329,765 0.92 456,307 1.27Acuity Partners (Pvt) Ltd. /Mr. B. S. M. De Silva 309,570 0.86 309,570 0.86Ceylon Investment PLC A/C # 01 266,296 0.74 266,296 0.74Mrs. C.A.D.S. Woodward 184,723 0.51 - -Cocoshell Activated Carbon Company Limited 150,000 0.42 150,000 0.42Mr. H. A. Peiris 139,000 0.39 139,000 0.39Mrs. H. G. S. Ansell 136,300 0.38 136,300 0.38Mr. M.K. Kutubdeen 134,000 0.37 134,000 0.37People’s Leasing & Finance PLC/Dr. H. S. D Soysa & Mrs.G.Soysa 118,232 0.33 - -Dr. H. S. D. Soysa 112,781 0.31 112,781 0.31Mrs. B Y La Brooy 100,370 0.28 100,370 0.28Deutsche Bank AG as Trustee to Candor Growth Fund 100,000 0.27 - -Total held by the above shareholders 33,368,859 92.66Shares held by the balance shareholders 2,644,197 7.34Total Issued Capital - Non- Voting Ordinary Shares 36,011,056 100.00

Investor Information

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Notice of Meeting

NOTICE IS HEREBY GIVEN that the FIFTIETH (50TH) ANNUAL GENERAL MEETING of SERENDIB HOTELS PLC will be held at the Auditorium of The Institute of Chartered Accountants of Sri Lanka, No. 30A, Malalasekara Mawatha, Colombo 7 on Tuesday, 24th July 2018 at 3:00 p.m. for the following purpose:

AGENDA1. To receive and consider the Statement of Accounts for the year ended 31st March 2018 together with the Report of the Directors and

Auditors thereon.

2. To re-elect Mr. A N Esufally, who retires by rotation in terms of Article 85 of the Articles of Association of the Company.

3. To re-elect Dr. R N A Athukorala, who retires by rotation in terms of Article 85 of the Articles of Association of the Company.

4. To re-elect Mr. S M Enderby, who retires by rotation in terms of Article 85 of the Articles of Association of the Company.

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

6. To authorise Directors to determine and make contributions to charity.

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

By Order of the Board ofSERENDIB HOTELS PLC

HEMAS CORPORATE SERVICES (PVT) LTDSecretaries

Colombo24 May 2018

Notes:(i) A member entitled to attend and vote is entitled to appoint a Proxy to attend and vote on his/her behalf.(ii) A proxy need not be a member of the Company.(iii) A Form of Proxy is enclosed for this purpose.(iv) The instrument appointing a proxy should be deposited at the Registered Office at Hemas House No 75, Braybrooke Place, Colombo

02 not less than 48 hours before holding of the meeting.(v) Shareholders/ Proxy holders attending the Annual General Meeting are kindly requested to bring with them their National Identity

Card or any other valid form of identification.

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Notes

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I/We .................................................................................................................................................................................................................................... (NIC No........................................................)

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

being a Member/s of SERENDIB HOTELS PLC do hereby appoint ...........................................................................................................................................................................

................................................................................................................................................................................................................................................ (NIC No........................................................)

of................................................................................................................................................................................................................................................................................or failing him/her

Mr. Abbasally Nuruddin Esufally of Colombo 03 or failing himMr. Warnage Malinga De Fonseka Arsakularatne of Colombo 08 or failing himMr. Emmanuel Jude Dillipraj Rajakarier of Colombo 02 or failing himMr. Murtaza Ali Gulzar Husein Ibrahim Jafferjee of Colombo 04 or failing himDr. Rohantha Neville Anthony Athukorala of Kalubowila or failing himMr. Steven Mark Enderby of Colombo 05 or failing himMr. Wijesinghe Arachchilage Thilan Manjith Wijesinghe of Colombo 07 or failing himMs. Sharlyn Linda Speldewinde of Mount Lavinia or failing herMr. Stephan Andrew Chojnacki of Colombo 02 or failing himMr. Imtiaz Abidhusein Hassanally Esufally of Colombo 03

as*my/our proxyholder to represent *me/us and to vote on *my/our behalf at the Fiftieth (50th) Annual General Meeting of the Company to be held on Tuesday, 24th July 2018 at 3.00 p.m. at the Auditorium of The Institute of Chartered Accountants of Sri Lanka, No. 30A, Malalasekara Mawatha, Colombo 7 and any adjournment thereof and at every poll which may be taken in consequence thereof.

For Against

1. To receive and consider the Statement of Accounts for the year ended 31st March 2018 together withthe Report of the Directors and Auditors thereon.

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

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

4. To re-elect Mr. S M Enderby, who retires by rotation in terms of the Articles of Association of the Company.

5. To re-appoint Messrs. Ernst & Young as Auditors and authorise the Directors to determine their remuneration.

6. To authorise Directors to determine and make Contributions to charity.

Signature of Shareholder/s ................................................................................. NIC/Passport No............................................................ Dated this ............................................ day of ........................................... 2018.

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

Form of Proxy(Voting Shareholders)

158


INSTRUCTIONS FOR COMPLETION1. Kindly perfect the Form of Proxy by filling in legibly your name in full, NIC No.

and address and by signing in the space provided. Please fill in the date of signature.

2. Shareholders should fill in the appropriate Form of Proxy as per the class of shares held by them.

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

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

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

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

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

Form of Proxy(Voting Shareholders)

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I/We .................................................................................................................................................................................................................................... (NIC No........................................................)

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

being a Member/s of SERENDIB HOTELS PLC do hereby appoint ...........................................................................................................................................................................

................................................................................................................................................................................................................................................ (NIC No........................................................)

of................................................................................................................................................................................................................................................................................or failing him/her Mr. Abbasally Nuruddin Esufally of Colombo 03 or failing himMr. Warnage Malinga De Fonseka Arsakularatne of Colombo 08 or failing himMr. Emmanuel Jude Dillipraj Rajakarier of Colombo 02 or failing himMr. Murtaza Ali Gulzar Husein Ibrahim Jafferjee of Colombo 04 or failing himDr. Rohantha Neville Anthony Athukorala of Kalubowila or failing himMr. Steven Mark Enderby of Colombo 05 or failing himMr. Wijesinghe Arachchilage Thilan Manjith Wijesinghe of Colombo 07 or failing himMs. Sharlyn Linda Speldewinde of Mount Lavinia or failing herMr. Stephan Andrew Chojnacki of Colombo 02 or failing himMr. Imtiaz Abidhusein Hassanally Esufally of Colombo 03

as*my/our proxy holder to represent *me/us and /or to speak on *my/our behalf at the Fiftieth (50th) Annual General Meeting of the Company to be held on Tuesday, 24th July 2018 at 3.00 p.m. at the Auditorium of The Institute of Chartered Accountants of Sri Lanka, No. 30A, Malalasekara Mawatha, Colombo 7 and any adjournment thereof and at every poll which may be taken in consequence thereof.

Signature of Shareholder/s ................................................................................. NIC/Passport No............................................................ Dated this ............................................ day of ........................................... 2018.

(i) *Please delete the inappropriate words.(ii) Shareholders of Non-Voting shares are entitled only to attend and speak at the meeting.(iii) Instructions regarding completion appear on the reverse hereof.

Form of Proxy(Non -Voting Shareholders)

160


INSTRUCTIONS FOR COMPLETION1. Kindly perfect the appropriate Form of Proxy by filling in legibly your name

in full, NIC No. and address and by signing in the space provided. Please fill in the date of signature.

2. Shareholders should fill in the appropriate Form of Proxy as per the class of shares held by them.

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

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

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

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

Form of Proxy(Non -Voting Shareholders)

NAME OF THE COMPANY Serendib Hotels PLC

LEGAL FORM A Public Quoted Company with Limited Liability, incorporated on 9th September 1966 under the Companies Ordinance No. 51 of 1938 (Cap 145) and re-registered under the Companies Act No. 7 of 2007.

COMPANY REGISTRATION NO PQ 223

BOARD OF DIRECTORS A N Esufally - Chairman (Alt V.H.A.Perera)

W M De F Arsakularatne E J D Rajakarier M A Jafferjee Dr. R N A Athukorala S M Enderby W A T M Wijesinghe S L Speldewinde (Mrs.) S A Chojnacki I A H Esufally

REGISTERED OFFICE “Hemas House”, No. 75, Braybrooke Place,

Colombo 02. Tel: +94 (11) 4790500-6 Fax: +94 (11) 2438933 E-mail: [email protected] Website: www.serendibleisure.com

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

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

Corporate Information

MANAGING AGENT Serendib Leisure Management Limited

AUDITORS Ernst & Young Chartered Accountants 201, De Saram Place, Colombo 10.

BANKERS Commercial Bank of Ceylon PLC Hatton National Bank PLC Sampath Bank PLC Deutsche Bank AG Nations Trust Bank PLC DFCC Bank PLC

HOTEL AVANI Bentota Resort & Spa Bentota Tel: +94 (34) 4641464 - 7 Fax: + 94 (34) 2275313

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