LUCKY LANKA - Colombo Stock Exchange · Milk, UHT Milk, Flavoured Milk, Fruit Drink Bottles and...

ANNUAL REPORT & ACCOUNTS

cd;sfha lsß ujLUCKY LANKA MILK PROCESSING CO. PLCBIBULEWELA, KARAGODA UYANGODA, SRI LANKA

LUCKY LANKA MILK PROCESSING COMPANY PLC

ANNUAL REPORT & ACCOUNTS

BIBULEWELA, KARAGODA UYANGODA, SRI LANKA

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2015 - 2016

History of Lucky Milk Drop ...................... 01

A brief Insight of the company ................. 01

Lucky Vision ............................................. 02

Lucky Values ............................................. 03

Chairman’s Message ............................... 05

Managing Director’s Message .................. 07

Board of Directors .................................... 08

Senior Management ................................ 10

Corporate Governance ...............................11

New Projects ..............................................18

Affairs of the Company ............................. 22

Independent Auditors’ Report ...................27

Statement of Comprehensive Income...... 28

Statement of Financial Position ............... 29

Statement of Changes in Equity .............. 30

Cash Flow Statement ................................ 31

Notes to the Financial Statements ........... 32

TOP 20 Share Holder List ......................... 58

Notice of Meeting ...................................... 60

Form of Proxy ............................................ 61

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History of Lucky Milk DropHistory of our company started in 1991 as a domestic business with the excess milk of the household cow. The founder Mr. Lal Keerthi Gunawardhana, who is the present chairman of the company, started this business at his age of 20 with the support of his four sisters. At the beginning, production process was done by manually with a production capacity of 300 cups per day and the delivery was done by a bicycle.

A brief Insight of the company

The company is engaged in the process of collection of locally produced fresh milk from rural village farmers and processes yoghurts and other milk products and distribute island wide under the brand name ‘LUCKY’. The product range comprises of Vanilla, Strawberry, Chocolate, Treacle, Fruit Jelly and Fresh Fruit Yoghurts, Curd, Pasteurized Milk, Sterilized Milk, UHT Milk, Flavoured Milk, Fruit Drink Bottles and Drinking Yoghurt. Lucky recently introduced Lucky Milk Toffee also to the market. Lucky Yoghurt is the one and only yoghurt with SLS certification for the first time in Sri Lanka. From the incoming raw material up to finished goods delivery to the consumer, quality is assured through the best practices of the quality management system by a competent Quality Assurance team according to ISO 22000 & HACCP international standards. Lucky yoghurt is the first to introduce 'Pro-Biotic' cultures in yoghurt as favourable microorganisms in yoghurt. The company owns the Sri Lanka's strongest cold distribution network with 120 delivery vehicles covering the entire Island.

LUCKY LANKA MILK PROCESSING COMPANY PLCANNUAL REPORT & ACCOUNTS 2015 -2016

Lucky VisionWe are stepping towards the world of prosperity with Lucky

Lucky Mission2020 Global Lucky

To create reciprocal loyal customers through diversified products & services.

To ensure the healthy life of the people by providing product with high nutritional value to our customers.

To ensure the environmental wellbeing through sustainable processing techniques.

To become a portrait of the quality in the mind of each individuals to provide certified produces to our customers.

Better work place for employees where their capabilities are maximum utilized.To contribute the development of Gross Domestic Production(GDP)of the country.

A secured entity for its stakeholders from all the aspect.

Lucky Corporate Goals

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Innovativeness - We continuously improve processes, products and ideas, and create more efficient way to satisfy our stakeholders.

Customer Care - Lucky Lanka is dedicated to serve our customers better than any other organization in the industry, and we have passion for customer care.

Team work - Lucky family is a cohesive team that works to achieve our vision.

Responsiveness - Our dedicated, skillful team has the ability to complete tasks on or before the deadlines.

Trustworthiness - This is one of the best values that we posses. We work honestly and our culture highly supports this value.

Results oriented - We are result oriented and motivated by the outcomes.

Democracy - Our policies are equal to each and every one in the organization. From Senior management to minor employees, we follow same rules and regulations within the organization.

Lucky Values


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Chairman’s MessageSince the inception of our company, we have succeeded because we’ve stayed true to our core values putting people first, pursuing excellence, embracing change, acting with integrity.

In my view, Lucky Lanka is dead ringer for a tree which is growing in a desolate tract and strives to find water by penetrating its root to a great depth. Consequently, the tree is becoming brawny with its mammoth roots and stable for any blizzard. Same as that, Lucky Lanka is exceptionally strong in every aspects to meet the challenges in this dynamic market even though the company financials does not demonstrate much potency in year 2015. The effort of Lucky team is commendable to achieve it’s cooperate goals which would undeniably enhance organizational profits and 2016 would be an admirable years for all stakeholders.

The board has continued to develop the organization’s strategy with its focus on our core business and searching for new markets using both value innovations and technological innovations

Our board of directors were able to initiate different concepts to enforce the importance of good cooperate governance. “Think Lucky” is one of our innovative concepts which would put the right standards in each and every corner of Lucky Lanka. We have re-launched our code of conduct to all employees setting out the values and standards we expect in the conduct of our business to meet the customer requirements at its best.

We invite all shareholders to walk with us through a very successful journey towards “2020 Global Lucky”

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Managing Director’s Message 2015 was particularly challenging year for Lucky Lanka. However, our underlying performance demonstrated that the organization is slowly turning in to very sound business. Our overall sales volumes increased considerably in comparison with the previous year, during a time when our sector is facing significant headwinds. Nevertheless, our bottom line shows unfavorable situation due to intolerable circumstances in the market.

As we illustrated in our previous annual report, we are introducing a new operating model of using three different SBUs to make us more competitive and nimble, with better visibility of business performance and greater accountability across the business, and better able to respond more efficiently and effectively to our customers’ needs.

We will remain at the leading edge of innovative product development, leveraging our ability to be ahead of our competitors and provide customers with products that are proprietary Lucky Lanka Innovations.

2015 was a year of ‘resets’, in which we had to make a number of difficult decisions and to take decisive actions in the face of difficult market conditions and increase all our products prices in to obtain healthy profit margins.

The organization would be able to depict much strong financials in the end of 2016 which enable us to maximize the share holder wellbeing.


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LUCKY LANKA MILK PROCESSING PLCANNUAL REPORT & ACCOUNTS

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02 01. Chairman - Mr. Lal Keerthi Gunawardhana

Mr. Lal Keerthi Gunawardhana is an Executive Director of Lucky Lanka Milk Processing Co. PLC. since it’s begining. 25 years of entrepreneurial carrier as founder, Chairman of Lucky Lanka Milk Processing PLC, which began as a household business, transformed to be a national level enterprise today. His exposure extend from business management, financial management, analyzing & controlling, marketing, supply chain management, operational management, production management, milk procurement and dairy management including cattle management, auto mobile engineering, electrical and mechanical engineering, dairy machinery up to many other areas relevant to the management of a business. He won the

National Platinum Award as the Best Entrepreneur of the year 2011 from FCCISL.

Mr. Gunawardhana obtained his bachelor's degree in Leadership & Management and Master' s Degree in Business Administration from Manipal University of India specialized in Marketing and Human Resources Management streams and the dissertation on the 'Study on positive

attitudes of Sri Lankan Community'.

Currently Mr. Gunawardhana is reading for Master of Science in Philosophy & LLB

02. Managing Director - Ms. Namali Amarasiri Gunawardana

Ms.Namali Amarasiri Gunawardhana is an Executive Director of Lucky Lanka Milk Processing Co. PLC. Ms.Namali possesses a MBA in Cardiff Metropolitan University, UK & she holds a Higher Diploma in Business Administration from NIBM. She has a thorough knowledge on manufacturing practices of milk foods. She has undergone several training programs about food safety and GMP. Also she possesses Diploma in Computer Science. Her experience in

this industry is more than 25 years.

Board of Directors


0903. Independent Non ExecutiveDirector - Dr. D. B. S. Chamara Bandara

Mr. Bandara is a fellow member and a prominent personality of the institute of Chartered Accountants of Sri Lanka. He was the founder president of the governing council of Young Chartered Accountants’ Forum of Sri Lanka and currently servicing as a council member of AAT Sri Lanka.

Mr Bandara holds a MBA from the University of Southern Queensland, Australia and has PhD in the world’s fifth largest private academia, Management and Science University, Malaysia. He is also a fellow member of the Institute of Certified Management Accountants’ of Sri Lanka.

04. Independent Non Executive Director - Dr. Anura P. Jayasooriya

Dr. Jayasooriya is an Independent Non Executive Director of Lucky Lanka Milk Processing Co. PLC in year 2015. Dr. Jayasooriya Holds B.V.Sc (Hons) in Veterinary Science, University of Peradeniya and M.Agri in Biochemistry & Nutrition (research), Miyazaki University,Japan

Mr Jayasoorya holds Ph. D in Nutritional Biochemistry & Physiology (research), Royal Melbourne Institute of Technology, Melbourne and Howard Florey Institute of Experimental Physiology & Medicine, University of Melbourne, Australia. Presently he served as Senior Lecturer, Department of Basic Veterinary Sciences, Faculty of Veterinary Medicine, University of Peradeniya and as Member of Teaching Panel, Veterinary Post Graduate Unit, Faculty of Veterinary Science

05. Non Independent Non Executive Director - Ms. Daisy Amarasiri Gunawardana

She is well versed and proficient in fiscal matters and also she holds 30 years of experience in finance management, human resource management and marketing in lucky Lanka milk processing as well as in many other organizations in the country . She is also a pioneer of “Kiri katha” outlet chain. She has more than 25 years’ experience in manufacturing milk food.

06. Non Independent Non Executive Director - Ms. Bhadra Amarasiri Gunawardana

She has more than 22 years’ experience in milk food processing industry. She possesses a MBA in Cardiff Metropolitan University, UK & she holds a Higher Diploma in Business Administration from NIBM. She is an expert in supply chain management and stores management


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01. General Manager - Mr.Sumith RanaweeraHe has more than 17 years exerience in milk food processing industry and he is responsible for overseeing all administrative functions in the business. He is an expert in project management , suply chain management and financial management.

02. Director Engineering - Mr. Achala GodawitaHe is a Chemical & Process Engineer from university of Moratuwa. He is an associate member of the Institute of Engineers Sri Lanka (IESL). He holds a Master degree in Business Administration. He has pursued Master degree in Sustainable process development from University of Moratuwa. He has more than 10 years’ experience in milk food processing industry.

03. Director Administration - Ms. J. P. Wasana KumariShe is an honours degree holder in agriculture. She holds a Master degree In Business studies from university of Colombo. She has more than ten years’ experience in milk food processing industry. She is the Head of Marketing of the Organization & She is well versed and proficient in Stratergic Marketing Management & Brand Management.

04. Director Production - Ms. Nali SanjeewikaShe has more than 20 years’ experience in milk food processing industry & she holds a Higher Diploma in Computer Science & Technology. She is an expert in research & development activites & production activities.

05. Chief Financial Officer - Mr.Prabath GamageHe recently joined Lucky Lanka Milk Processing Co. PLC. He is an associate member of The Institute of Chartered Accountants of Sri Lanka. He is also an Associate member of the Institute of Certified Management Accountants of Sri Lanka. He holds an honors degree in Accountancy from University of Sri Jayewardenepura and Holds overall experience in the field of Finance 12 years out of which more than 7 years in the senior management level in multinational companies locally as well as internationally.

Senior Management

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Corporate Governance"Corporate Governance" is a generic term that describes the ways in which rights and responsibilities are distributed among the various corporate bodies according to the rules, processes or laws to which they are subject. In practice, corporate governance defines the decision-making systems and structure through which owners directly or indirectly control a company. The Board of Directors of Lucky Lanka Milk Processing Co. PLC is committed to ensure business integrity and professionalism in all its activities. As a part of this commitment, the Board of Directors has proactively encouraged good corporate governance practice within the Company based on a generally accepted policy framework, which emphasizes transparency, control and accountability.

Board of Directors and Its RoleThe Board of Directors as of 31 March 2016 has Six members, two executive and four non-executives. Two non executive directors out of four non executive directors are considered as independent in terms of the listing rules laid down by the Colombo Stock Exchange and have submitted annual independence declarations. The directors act on a fully informed basis, in good faith, with due diligence and care, and in the best interest of Lucky Lanka Milk Processing Co. PLC. They are well aware of your Company's activities and give direction for long-term strategy, seeking and contributing views and opinions on strategic options proposed by the senior management of the Company. The directors also ensure that the company is compliant with the provisions of the Companies Act No. 07 of 2007.

The board meets quarterly basis and has timely access to information needed to effectively discharge its duties. Directors receive a comprehensive package of relevant and timely information on all issues prior to each meeting , thus providing them with the opportunity to make effective contributions to the decisions of the board.

Such meetings are attended by both the executive as well as the non executive board members and are headed by the Chairman. At these meetings the board reviews;

- Monthly performance of the Company against the budget- Formulation, monitoring and implementation of sound business strategies, internal controls and risk management procedures that are in place and monitor their effectiveness and initiate changes where required- Secure effective information, control and audit systems- Compliance with legal/ethical standards

Composition of the Board

Non Executive, Independent Directors- Dr. D.B.S. Chamara Bandara- Dr. Anura P. Jayasuriya

Executive Directors- Mr. Lal Keerthi Gunawardhana (Chairman)- Ms. Namali Amarasiri Gunawardhana (Managing Director)

Non Executive, Non Independent DirectorsMs. B.A. GunawardhanaMs. D.A. Gunawardhana

At present, there are six directors on the board, whose profiles are given on page 08 in this Annual Report. All the directors have the necessary skills and experience to direct and lead the Company.

Directors' Interest and ResponsibilitiesThe directors of the Company have made the general disclosures provided for in Section 199(2) of the Companies Act No.07 of 2007 and have been duly entered in the interest register of the Company.The directors are required by relevant statutory provision to prepare Financial Statements for each financial year, which gives a true and fair view of the state of affairs of the company for that period. In preparing the Financial Statements, appropriate accounting policies have been selected and applied consistently and reasonably and prudent judgments and estimates have been made. The applicable Sri Lanka Accounting Standards have been followed and explained in the notes to the financial statements.

The directors are responsible for ensuring that the Company keeps s sufficient accounting records to disclose with reasonable accuracy of the financial position of the Company and to ensure that the Company's Financial Statements comply with the provisions of the Companies Act. No. 07 of 2007, the Sri Lanka Accounting Standards and the Listing Rules of the Colombo Stock Exchange.

The directors are also responsible to ensure that reasonable measures are taken to safeguard the assets of the Company at all times. In this context, they have established appropriate systems of internal controls with a view to preventing and detecting of frauds and other irregularities.

In preparing accounts, the directors continue to adopt the going concern basis. The directors after reviewing the Company's budget and borrowing facilities are of the view that the Company has adequate resources to continue in operation.

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Compliance with Legal RequirementsThe board is conscious of its responsibilities to the shareholders, the government and the society in which it operates and is unequivocally committed to upholding ethical behavior in conducting its business. The Board of Directors requires that Financial Statements are prepared in accordance with the Sri Lanka Accounting Standards and the requirements of the Colombo Stock Exchange.

Relationship with ShareholdersLucky Lanka Milk Processing Co. PLC aims to ensure that shareholders have access to relevant, up-to-date and consistent financial and non-financial information pertaining to the company. The Annual Report and quarterly Financial Statements provide the shareholders as well as prospective investors with the required information to assess the company's past performance and analyse its future prospects.

Corporate Governance Requirements under the Listing Rules of Colombo Stock ExchangeSection 7 of the Listing Rules of the Colombo Stock Exchange requires all Listed Companies to include in their Annual Reports an affirmative statement relating to compliance with the Corporate Governance Rules specified in that section. The table in page 14 contains the required affirmative statement in that regards.

Company SecretaryThe Company secretary is qualified to act in this role as per the provisions of the Companies Act No. 07 of 2007

Internal and External AuditorsThe Company's Internal Audit function has been outsourced and reports are submitted by the Internal Auditor. The management decides on the areas that need to be audited by the Internal Auditor for a given period.The External Auditors are appointed by the shareholders at the Annual General Meeting and are responsible to give their opinion on the Financial Statements prepared by the company.

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Rule Requirement

Company Remarks

Status

7.10.1 Non-Executive At least one third of the total number of Complied

There are four non executive directors in the board

Directors directors should be non-executive directors

7.10.2a Independent Two or one third of non-executive directors, Complied

Two non-executive Directors whichever is higher should be Independent directors are independent.

7.10.2b Independent

Each non-executive director should submit a Submitted the independent

declaration of independence/non-independence Complied

Directors declarations accordingly.

in the prescribed format

Names of independent directors should be

7.10.3c Disclosure Complied Please refer page 09 disclosed in the Annual Report relating to Directors 7.10.3c Disclosure A brief resume of each director should be included in

the Annual Report including the areas of expertise Complied Please refer page 08,09

relating to Directors

7.10.5 Remuneration A listed Company shall have a Remuneration Committee Committee Complied Please refer page 16

7.10.5a Composition

The Remuneration Committee shall comprise of non-executive directors a majority of whom will be of Remuneration independent Complied Please refer page 16 Committee 7.10.5b Functions The Remuneration Committee shall recommend the remuneration of Chairman and Complied Please refer page 16

of Remuneration

Executive Directors

Committee

7.10.6 Audit Committee The Company shall have an Audit Committee

Names of the members of Audit Committee are set out in Pages 17

Complied

7.10.6a Composition The Audit Committee ;

of Audit Committee * Shall comprise of non-executive directors a Complied majority of whom will be independent. * One non-executive director shall be appointed

Complied

as the Chairman of the committee * Managing Director and the Chief Financial Officer should attend Audit Committee Meetings Complied * The Chairman of the Audit Committee or one

member should be a member of a professional accounting body Complied

7.10.6b Audit The Audit Committee ;

Complied

Should be as outlined in the Section 7.10.6b of the Please refer pages 17

Committee functions

listing rules

7.10.6c Disclosure The Annual Report should set out; in the Annual a) Names of directors comprising the Audit Committee Report relating to b) The Audit Committee shall make a determination Please refer Audit Committee of the independence of the Auditors and disclose the Complied pages 17 basis for such determination c) The Annual Report shall contain a Report of the Audit Committee setting out the manner of compliance of the functions

Please refer pages 17




Risk ManagementRisk managementRisk Management process is implemented in order to understand, evaluate and address the inherited risks for the company to maximize the chance of objectives being achieved while ensuring its sustainability. As it is impossible to mitigate these risks completely, an effective process of this management is required to exploit the opportunities bring and allowing Compa-ny to be aware of possibilities. Hence the following identified risks are major to company's performance and position and are included in the risk management procedure.

Supply Chain ManagementConstant supply of high quality materials, efficient and effective manufacturing and the timely distribution of products is a must for the success of the Company.

Further the cost of raw materials represents the largest portion of manufacturing cost of the Company's product; hence the quality of the product is of paramount importance. The Compa-ny is inevitably exposed to the risk of contaminated raw materials accidently or maliciously throughout the supply chain or product defects which occur due to human error or an equip-ment failure.

In order to mitigate and minimize these problems, the Company has developed contingency plans of having strong relationship with its key suppliers to control quality by periodical reviews to ensure that they meet the rigorous testing and acceptance procedure.

Market RiskLoss of market share or market leadership in relevant segments due to intense competition, new entrants, changes in customer attitude and economic conditions are treated as identifi-able market risk.

Successful customer relationships are vital to our business and continual growth. Maintaining a strong relationship with our customers is necessary for our brand to be well presented and available for purchase all time. Further, great customer satisfaction and the confidence in our products lead to build brand loyalty.

A Well maintained quality assurance department always works according to the procedures and standards to deliver the best to the customer, it will also ensure continuous focus on inno-vation, regular monitoring of consumer trends, enhance productivity or efficiency to improve price competitiveness, Also Monitor market data, the competitor prices and always strive to give the best price to our customers and strengthen market position of our brand. Combination of these strategies minimizes the market risk to a considerable level.


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Regulatory and Legal RisksPotential losses arising due to violation of or non-conformance with laws, rules, regulation, prescribed practices, internal policies and procedures or ethical standards are included as regulatory and legal risks. The company is governed by Various laws and regulations including Companies Act, Inland Revenue Act, SEC regulations, and CSE rules.

Failure to comply with laws and regulations could expose Company to civil criminal action leading to damages, fines and criminal sanctions against our employees with possible conse-quences to our reputation. And also changes to laws and regulations could have a material impact on the cost of doing business.

Therefore we have implemented strong risk management processes to monitor and comply with all laws and regulations applicable to the company. Management of the Company always coordinates with company lawyers and secretaries to ensure compliance.

Internal audits also carried out to mitigate the possible risks of not complying with relevant standards.

Financial and Liquidity RisksThe responsibility of the management of the financial risks through continuous monitoring along with financial risk has reduced exposure to credit risk and external financing is very low. Also the liquidity risks, the risk of being unable to fund the business by maintaining adequate cash flows. Cash flows are reviewed continuously and strong relationship are being maintained with financial institutions. The financial indicators and the regular items on the board agenda and emerging trends of both local and global are also taken as ways of managing financialrisk.

Human ResourcesThe Company places strong emphasis on retaining key talent through its employee engage-ments and talent management strategies including performance evaluation, career guidance, training and development. The Company is aware that the lack of skills and competence in staff could result in the ability of the company to grow and sustain its performance in the face competition in the market and may also lead to lower productivity and increased costs. The structured and relevant training and development programs are designed to mitigate all risks related to Human Resources.

Remuneration committeeThe remuneration committee comprises of Dr Anura Jayasooriya, Mr D B S Chamara Bandara and Mrs D A Gunawardena as at date. This committee recommends the remuneration payable to Executive Directors and sets guidelines for the remuneration of the Senior Management of the Company. The Board makes the final determination having considered the recommendations of this committee and the performance of the Senior Management Mr D B S ChamaraBandara is the Chairman of the committee.The main objective of the remuneration policy of the Company is to retain, attracted the required human resources in order to sustain its operations, and to rewards their performance.


Audit Committee Report

Composition of the Audit CommitteeThe Audit Committee, appointed by and responsible to the Board of Directors, comprises two Non-Executive Directors, both of whom are independent. The Committee is made up of members who bring their varied expertise and knowledge to effectively carry out their duties. Members of the Committee at year end are;

Dr. D.B.S.Chamara Bandara - FCMA, FCA – Chairman, Independent Non – Executive DirectorDr. AnuraJayasooriya-Independent - Non – Executive DirectorMrs. B.A.Gunawardhane - Non executive Director

Objectives and Role of the Audit CommitteeThe main objective of the Audit Committee is to assist the Board of Directors to perform its dutieseffectively and efficiently. Accordingly, the objectives of the Audit Committee can be described in detailas follows:• Oversee the financial reporting process and determine that the financial reports present accurate, complete and timely financial information.• Monitor the effectiveness of the Company’s risk management processes and the internal control system.• To assess the independence of the External Auditor and monitor the performance of Internal and ExternalAuditors.• To recommend to the Board the appointment ofExternal Auditors.• To examine related party transactions are carried on an arms’ length basis.

Summary of ActivitiesFinancial ReportingThe Committee reviewed the Financial Reporting System to determine the accuracy and timeliness of the Financial Statements published. The Committee also reviewed the interim and year-end Financial Statements prior to publication, in order to determine that the statutory requirements have been complied with and the Company’s Accounting Policies have been consistently applied.

Internal AuditThe Committee recommended regular conduct of internal audits and monitored the effectiveness of the Internal audit functions and the implementation of the recommendations made by Internal Audit.

External AuditThe Committee reviewed the status of their independence.

ConclusionHaving reviewed the External and internal Audit reports the committee is in the conclusion that the adequacy and effectiveness of the internal controls which have been designed to provide a reasonable but not absolute assurance to Directors is satisfactory, and the assets of the company are safeguarded.Yet, certain improvements to the internal controls recommended by the Internal Auditors are being executed. The business performance is regularly reviewed and financial position is monitored. However, the committee is in the opinion that the Governors in charge should take necessary steps to improve the financial position of the company.

The Audit Committee determined that Messrs Ernst & Young are independent on the basis that they do not participate in any management activity of the company and do not provide any non-audit services to the company and recommended to the Board of Directors that Messrs Ernst & Young be reappointed as statutory Auditors for the financial year ending 31st March, 2017, subject to approval by the Sharehold-ers at the forthcoming Annual General Meeting.

Sgd.Audit CommitteeColombo. 23rd September 2016

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New ProjectsLucky Ice Cream

Lucky Ice Cream is the creation of Lucky Research & development team who has been searching for traditional milk taste in Ice Cream for last six months. Lucky Lanka was able to establish modern factory for Ice Cream manufacturing in year 2015. Our Ice Cream is simply like no other in Sri Lanka, or anywhere else in the region for that matter. Made using purely cow’s milk. The “Kiri” Ice cream is rich and full of flavour which works so well with all of our exciting flavour combinations. With a truly sensational texture and creaminess, our Ice Cream is bursting with flavours that will excite even the most discerning of palates.

In the initial stage, the products range includes Vanilla Ice Cream Strawberry Ice Cream Chocolate Ice Cream Fruit & nut Ice Creams

Our R & D is been continuously develop innovative products to enhance the product portfolio within next year to serve incredible taste for Ice Cream lovers in Sri Lanka.


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Think LuckyThink Lucky is a re-launch of organizational code of conduct plus Human Resources development programme developed by the Chairman of Lucky Lanka Milk Processing PLC. The main aim is to influence behaviour by setting out the values, standards of behaviour and business practices that are expected from and by the employees and other stakeholders. In order to be effective development and the implementation of an organizational code needs to be carefully considered. Codes should reflect the true values and behaviours that the organisation wants to uphold.

THINK LUCKY

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Junior Executive Executive

Senior Executive

AssistantManager Manager

SeniorManager Director

Think Lucky Ladder

L U C K Y

- Love- Unity- Courage- Kaizen- Yes

Lucky SaluteIn the Human Resources development perspective, “Think lucky” opens the door to each and every employee of the organization to climb the “Think lucky” ladder to become a senior manager or a director of the company. This also provides requirements, qualifications and competences that are essential to move to the next step of his carrier. Year 2015 was an excellent year for Human Resources department as this project could enlighten the hopes of each employee on their future.


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

The Directors are pleased to submit their report together with the Audited Accounts of the Com-pany, for the year ended 31st March 2016, to be presented at the Annual General Meeting of the Company.

Review of the YearChairman’s review on page No. 05 describes the Company’s affairs and mentions important events that occurred during the year, and up to the date of this report. This reports together with the audited financial statements reflect the state of the affairs of the Company.

Principal Activities / Core BusinessThe principle activity of the Company is to carry on the business of milk processing to produce, distribute, import and export of all kinds of milk related products..

Listing in the Colombo Stock ExchangeThe Initial Public Offer (IPO) of the Company opened on 07 July 2014 and was fully subscribed within a few days. Through the IOP 38,000,000 Ordinary Voting shares and 24,000,000 Ordinary Non-Voting Shares were issued which increased our shareholder base from 05 to 2,543 with the listing of the Company in the Colombo Stock Exchange, the name of the Company needs to be changed to “PLC” for this purpose it is proposed to pass a Special Resolution at the AGM.

Financial StatementsThe financial statements prepared in compli-ance with the requirements of Section 151 of the Companies Act No 7 of 2007 are given on page No. 23 in this annual report.

Independent Auditor’s ReportThe Auditor’s Report on the financial statements is given on page No.21 in this report.

Accounting PoliciesThe Accounting Policies adopted in preparation of the financial statements is given on page No. 28. There were no changes in Accounting Policies adopted by the Company during the year under review.

Financial Results / Profit and AppropriationsProperty, Plant & EquipmentDuring the year under review the Company invested a sum of Rs. 95,697,974/- (2015 – Rs. 222,048,078/-) in property, plant & equipment of which Rs. 41,841,328/- is in machinery & equip-ment, Rs. 6,009,284/- is in Computer and other equipment and Rs. 987,973/- is in Furniture and fixtures.

Information relating to movement in Property, Plant & Equipment during the year is disclosed under Note 10 to the financial statement.

Market Value of Freehold LandThe freehold land classified as Investment Prop-erties of the Company, is revalued on a routine basis by an independent qualified valuer. The most recent revaluation was carried out as at 31/03/2013 .

Directors’ ResponsibilitiesThe Statement of the Directors’ Responsibilities is given on page No. 13 of this report.

Corporate GovernanceThe Company has compiled with the corporate governance rules laid down under the listing rules of the Colombo Stock Exchange, and is given on page No. 16

ReservesThe Reserves and Accumulated Profits as at 31st March 2016 amount to Rs ( 18,913,190 /-) vs Rs.


237,289,163 as at 31st March 2015. The breakup and the movement are shown in the Statement of Changes in Equity in the financial statements.

Stated CapitalAs per the terms of the Companies Act No. 7 of 2007, the stated capital of the Company was Rs. 596,056,820/- as at 31st March 2016 and was unchanged during the year.

Interests RegisterDetails of the transactions with Director-related entities are disclosed in Note 22 to the financial statements on page No. 28, and have been declared at the Board meeting, pursuant to Section 192 (2) of the Companies Act No. 7 of 2007.

Share Information and Substantial ShareholdingsThe earnings per share is given in Financial Statement on page No. 23 of this Annual Report.

DirectorsThe Directors of the Company as at 31st March 2016 and their brief profiles are given on page No. 13 in this report.

Directors’ ShareholdingThe interest of the Directors in the shares of the Company as at 31st March were as follows;

No. of Ordinary Shares As at 31.03.2016

Mr. L K A Gunawardhana 93,785,730

Ms. B A Gunawardhana 13,302,910

Ms. D A Gunawardhana 13,302,825

Ms. N A Gunawardhana 13,302,825

Independence of DirectorsIn accordance with Rule 7.10.2 of Colombo Stock Exchange Rules on Corporate Governance (‘CSECG Rules’) Mr. D. B. Sunil Chamara Banda-ra and Mr. L. J. P. Anura Prasanna Jayasooriya

who are Non-Executive Directors of the Compa-ny, have have been appointed at the end of March 2015.

AuditorsThe resolutions to appoint the present Auditors, Messrs. Ernst & Young Chartered Accountant, who have expressed their willingness to contin-ue in office, will be proposed at the Annual General Meeting.

As far as the Directors are aware, the Auditors do not have any relationship on interest in the Company.

The Audit committee reviews the appointment of the Auditor, its effectiveness and its relationship with the Company including the level of audit and non-audit fees paid to the Auditor. Details on the work on the Audit Committee are set out in the Audit Committee Report.

Notice of MeetingThe Annual General Meeting will be held at Solis Hotel, Nupe, Matara on 17th October 2016 at 10.00 am.

The Notice of the Annual General Meeting appears on page No. 60

For and on behalf of the Board.

(Sgd.) Director

(Sgd.) Director

(Sgd.) Managers & Secretaries (Pvt) Ltd) Secretaries

Lucky Lanka Milk Procesing Company PLC. 26th September 2016 Bibulewela Karagoda Uyangoda


Financial Statements

26

KHRC/KTS INDEPENDENT AUDITOR’S REPORT TO THE SHAREHOLDERS OF LUCKY LANKA MILK PROCESSING COMPANY PLC We were engaged to audit the accompanying financial statements of Lucky Lanka Milk Processing Company PLC (“Company”), which comprise the statement of financial position as at 31 March 2016, and the statement of comprehensive income, statement of changes in equity and cash flow statement for the year then ended, and a summary of significant accounting policies and other explanatory notes. Management’s Responsibility for the financial statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with Sri Lanka Accounting Standards. This responsibility includes designing, implementing and maintaining internal controls relevant to the preparation and fair presentation of financial statements that are free from material misstatements, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. Scope of Audit and Basis of Opinion Our responsibility is to express an opinion on these financial statements based on our audit. We were engaged to conduct our audit in accordance with Sri Lanka Auditing Standards. Those standards require that we plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatements. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting policies used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We have obtained adequate information and explanations which to the best of our knowledge and belief were necessary for the purpose of our audit. We therefore believe that our audit provides a reasonable basis for our opinion. Opinion In our opinion, so far as appears from our examination, the company maintained proper accounting records for the year ended 31 March 2016 and the said financial statements give a true and fair view of the company’s financial position as at 31 March 2016 and its financial performance and cash flows for the year then ended in accordance with Sri Lanka accounting Standards. Report on Other Legal and Regulatory Requirements. These financial statements also comply with requirements of Sections 151 (2) and 153 (2) to 153 (3) of the Companies Act No 07 of 2007. 15 September, 2016 Matara

Sgd.

27

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LUCKY LANKA MILK PROCESSING COMPANY PLCSTATEMENT OF COMPREHENSIVE INCOME

For the year ended 31st March Note 2016 2015Rs. Rs.

Revenue 3 995,245,984 962,911,905 Cost of sales (622,121,527) (594,662,553) Gross profit 373,124,457 368,249,352

Other operating income 4 2,479,735 2,891,388 Administrative expenses (89,255,375) (118,877,267) Selling and distribution expenses (268,904,549) (231,613,118) Results from operating activities 17,444,269 20,650,354

Finance costs 5 (41,811,054) (46,468,337) Finance income 6 2,364,851 670,874 Net finance cost (39,446,203) (45,797,462)

Loss before taxation 6.1 (22,001,934) (25,147,108)

Tax expense 7 (2,923,083) (7,593,501)

Loss for the Year (24,925,017) (32,740,609)

Comprehensive income / (Expenses) Actuarial loss on defined benefit plans 18 (1,428,738) (85,287) Income tax on other comprehensive income 151,402 3,583 Comprehensive income for the year, net of tax (1,277,335) (81,704)

Total comprehensive income for the year, net of tax (26,202,352) (32,822,314)

Earnings/(Loss) per share 8 (0.12) (0.18)

The accounting policies and notes as set out in pages 06 to 30 form an integral part of these financial statements.


29


LUCKY LANKA MILK PROCESSING COMPANY PLCSTATEMENT OF FINANCIAL POSITION

As at 31 March Note 2016 2015Rs. Rs.

ASSETSNon-Current assetsProperty, plant and equipment 9 737,175,700 694,978,413 Intangible assets 9.4 729,969 - Total non current assets 737,905,669 694,978,413

Current assetsInventories 11 94,065,457 46,896,270 Trade and other receivables 12 184,657,355 182,635,602 Amounts due from related parties 20 7,153,312 3,915,183 Other current assets 13 35,240,508 47,139,014 Cash & cash equivalents 14 83,545,321 26,725,913 Total current assets 404,661,953 307,311,982

Total assets 1,142,567,622 1,002,290,395

EQUITY AND LIABILITIESEquity attributable to equity holders Stated capital 15 596,056,822 596,056,820 Retained earnings 16 (18,913,190) 7,289,163 Total equity 577,143,632 603,345,983

Non-current liabilitiesInterest bearing borrowings 17 163,940,073 100,557,659 Retirement benefit obligation 18 7,518,900 5,183,212 Deferred tax liability 10 21,827,158 19,485,880 Total Non-current liabilities 193,286,132 125,226,751

Current liabilitiesInterest bearing borrowings 17 227,516,840 150,322,568 Trade and other payables 19 106,126,471 81,417,972 Amounts due to related parties 20 - 61,511 Income tax liabilities 21 1,073,639 1,073,639 Other current liabilities 22 37,420,908 40,841,968 Total current liabilities 372,137,858 273,717,660

Total equity and liabilities 1,142,567,622 1,002,290,395

Net Assets Value per Share 2.90 3.40

(Sgd.)Chief Financial Officer

The Board of directors is responsible for the preparation and presentation of these financial statements.

(Sgd.) (Sgd.) (Sgd.)Director Director Director


15 September 2016Matara

I certify that, these financial statements have been prepared in compliance with the requirements of the Companies Act No.07 of 2007.

30LUCKY LANKA MILK PROCESSING COMPANY PLCSTATEMENT OF CHANGES IN EQUITY

Stated Revenue Revaluation Other Totalcapital Reserves Reserve Reserve

Rs. Rs. Rs. Rs. Rs.

Balance as at 01 April 2014 296,056,822 40,111,475 - - 336,168,297

Share Issue 300,000,000 - - - 300,000,000 Profit for the year - (32,740,609) - - (32,740,609) Other comprehensive income - (81,704) - - (81,704)

Balance as at 31 March 2015 596,056,822 7,289,161 - - 603,345,983

Profit for the year - (24,925,017) - - (24,925,017) Other comprehensive income - (1,277,335) - - (1,277,335)

Balance as at 31 March 2016 596,056,822 (18,913,191) - - 577,143,631


Year ended 31 March 2015


31LUCKY LANKA MILK PROCESSING COMPANY PLCCASH FLOW STATEMENT

Year ended 31 March Note 2016 2015Rs. Rs.

CASH FLOWS FROM OPERATING ACTIVITIESNet Profit Before Income Tax (22,001,934) (25,147,108)

Adjustments for:Finance expenses 5 41,811,054 46,468,337 Depreciation of property, plant and equipment 9.2 51,466,218 43,947,575 Profit on disposal property, plant and equipment - - 1,491,945 Provision for defined benefit plan 18 1,363,701 889,929

72,639,039 67,650,678

Increase in inventories 11 (47,169,187) (1,073,000) Increase in trade and other receivables 12 (2,021,753) (51,147,866) (Increase) / Decrease in dues from related parties 20 (3,238,129) 32,770,805 (Increase) / Decrease in other current assets 13 11,898,506 (39,903,451) Increase in trade and other payables 19 24,708,499 10,726,104 Decrease in dues to related parties 20 (61,511) (1,416,953) Decrease in other current liabilities 22 (3,421,061) 5,940,116 Cash generated from operations 53,334,403 23,546,433

Finance expenses paid (41,811,054) (36,199,813) Payment of retirement benefit cost 18 (456,750) (1,371,675) Tax Paid 21 (430,403) (622,229) Net cash flow from operating activities 10,636,196 (14,647,284)

CASH FLOWS FROM/(USED IN) INVESTING ACTIVITIESAccusation of property, plant and equipment 9.1 (96,443,474) (218,610,578) Proceeds from sales of property, plant and equipment - 2,050,000 8,170,000 Net cash flow used in investing activities (94,393,474) (210,440,578)

CASH FLOWS FROM/(USED IN) FINANCING ACTIVITIESProceeds from share issue 15 - 300,000,000 Proceeds from long term borrowings 17 197,370,050 192,930,153 Repayment of long term borrowings 17 (118,984,294) (212,870,042) Repayment short term borrowings 17 13,808,251 (12,181,899) Principle payment under finance lease liability 17 12,096,423 (30,187,762) Net cash flow from financing activities 104,290,429 237,690,450

Net increase in cash and cash equivalents 20,533,151 12,602,588

Cash and cash equivalents at the beginning of the year (43,874,678) (56,477,269)

Cash and cash equivalents at the end of the year (23,341,528) (43,874,678)

ANALYSIS OF CASH AND CASH EQUIVALENTSFavorable balancesCash in hand and at bank 14 83,545,321 26,725,913 Unfavorable balancesBank overdrafts 17 (106,886,849) (70,600,592) Total cash and cash equivalents (23,341,528) (43,874,678)



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LUCKY LANKA MILK PROCESSING COMPANY PLC NOTES TO THE FINANCIAL STATEMENTS Year ended 31 March 2016 1 CORPORATE INFORMATION 1.1 General

Lucky Lanka Milk Processing Co.PLC is a Company (Formerly known as Lucky Lanka Milk Processing Company limited) incorporated and domiciled in Sri Lanka. The registered office of the Company and the principal place of business is located at Bibulawela, Karagoda – Uyangada, Kamburupitiya.

1.2 Principal Activities and Nature of Operations

The Principal activity of the company, which is engaged in the process of collection of locally produced fresh milk from rural village farmers and process yoghurt and other milk products and distribute island wide under the brand name ‘LUCKY’, remained unchanged.

1.3 Date of Authorization Issue

The Financial statements for the year ended 31 March 2016 were authorized for issue by the directors on 15 September 2016.


33LUCKY LANKA MILK PROCESSING COMPANY PLC NOTES TO THE FINANCIAL STATEMENTS Year ended 31 March 2016 2 BASIS OF PREPARATION

The Financial Statements of the Company have been prepared in accordance with Sri Lanka Accounting Standards comprising SLFRS and LKAS (hereafter SLFRS’), as issued by The Institute of Chartered Accountants of Sri Lanka.

2.1 Statement of Compliance

The financial statements of the Company comprise the statement of financial position, statement of comprehensive income, statement of changes in equity, statement of cash flows together with accounting policies and notes thereto have been prepared in accordance with Sri Lanka Accounting Standards (commonly referred as “SLFRS”) laid down by the Institute of Chartered Accountants of Sri Lanka (CA Sri Lanka) and also comply with the requirements of Companies Act No 7 of 2007.

2.2 Basis of Measurement

The financial statements have been prepared on an accrual basis and under the historical cost basis except for Property Plant and equipment at valuation and defined benefit obligations are measured at its present value, based on an actuarial valuation. The Directors have made an assessments of the company’s ability to continue as going concern in the foreseeable future and they do not foresee a need for liquidation or cessation of trading.

2.3 Going Concern

The Company’s management has made an assessment of its ability to continue as a going concern and is satisfied that it has the resources to continue in business for the foreseeable future. Furthermore, management is not aware of any material uncertainties that may cast significant doubt upon the company’s ability to continue as a going concern and they do not intend either to liquidate or to cease operations of the Company. Therefore, the Financial Statements continue to be prepared on the going concern basis.

2.4 Presentation and Functional Currency

The financial statements are presented in Sri Lankan Rupees, the Company's functional and presentation currency, which is the primary economic environment in which the Company operates.

2.5 Comparative Information

The presentation and classification of the financial statements of the previous years have been amended, where relevant for better presentation and to be comparable with those of the current year.


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2.6 Significant Accounting Judgements, Estimates and Assumptions

The preparation of the financial statements of the Company require the management to make judgments, estimates and assumptions, which may affect the amounts of income, expenditure, assets , liabilities and the disclosure of contingent liabilities, at the end of the reporting period. In the process of applying the company’s accounting policies, the key assumptions made relating to the future and the sources of estimation at the reporting date together with the related judgments that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.

2.6.1 Valuation of property, plant and equipment

The Company measures Property Plant and Equipment at revalued amounts with changes in fair value being recognized in other comprehensive income. The Company last engaged independent valuation specialists to determine fair value of land and buildings as at 31 March 2013. The valuer has used valuation techniques such as Comparison Method of Valuation and Depreciated Replacement Cost Basis is used to ascertain Fair Value of the property where there was lack of comparable market data available based on the nature of the property.

2.6.2 Useful Life- time of the property, Plant and Equipment

The Company reviews the residual values, useful lives and method of depreciation of assets at each reporting date. Management estimate these values, rates, Methods and hence they are subject to uncertainty.

2.6.3 Employee Benefit Liability

The employee benefit liability of the Company is based on the actuarial valuation carried out by Independent actuarial specialist. The actuarial valuations involve making assumptions about discount rates and future salary increases. Considering the complexity of the valuation, the underlying assumptions and its long term nature, the defined benefit obligation is highly sensitive to changes in these assumptions. All assumptions are reviewed at each reporting date. Details of the key assumptions used in the estimates are contained in Note 18

2.7 Summary of Significant Accounting Policies

2.7.1 Revenue recognition

Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Company, and the revenue and associated costs incurred or to be incurred can be reliably measured. Revenue is measured at the fair value of the consideration received or receivable, net of trade discounts and Nation Building Taxes.


35

who are Non-Executive Directors of the Compa-ny, have have been appointed at the end of March 2015.

AuditorsThe resolutions to appoint the present Auditors, Messrs. Ernst & Young Chartered Accountant, who have expressed their willingness to contin-ue in office, will be proposed at the Annual General Meeting.

As far as the Directors are aware, the Auditors do not have any relationship on interest in the Company.

The Audit committee reviews the appointment of the Auditor, its effectiveness and its relationship with the Company including the level of audit and non-audit fees paid to the Auditor. Details on the work on the Audit Committee are set out in the Audit Committee Report.

Notice of MeetingThe Annual General Meeting will be held at Solis Hotel, Nupe, Matara on 17th October 2016 at 10.00 am.

The Notice of the Annual General Meeting appears on page No. 60

For and on behalf of the Board.

(Sgd.) Director

(Sgd.) Director

(Sgd.) Managers & Secretaries (Pvt) Ltd) Secretaries

Lucky Lanka Milk Procesing Company PLC. 26th September 2016 Bibulewela Karagoda Uyangoda

LUCKY LANKA MILK PROCESSING COMPANY PLC NOTES TO THE FINANCIAL STATEMENTS Year ended 31 March 2016

The following specific criteria are used for recognition of revenue:

Sale of goods Revenue from the sale of goods is recognised when the significant risks and rewards of ownership of the goods have passed to the buyer, usually on delivery of the goods. Gains and losses Net gains and losses of a revenue nature arising from the disposal of property, plant and equipment and other non-current assets, including investments, are accounted for in the income statement, after deducting from the proceeds on disposal, the carrying amount of such assets and the related selling expenses. Gains and losses arising from activities incidental to the main revenue generating activities and those arising from a group of similar transactions, which are not material are aggregated, reported and presented on a net basis. Other income Other income is recognised on an accrual basis.

2.7.2 Expenditure recognition

Expenses are recognised in the income statement on the basis of a direct association between the cost incurred and the earning of specific items of income. All expenditure incurred in the running of the business and in maintaining the property, plant and equipment in a state of efficiency has been charged to the income statement. For the purpose of presentation of the income statement, the “function of expenses” method has been adopted, on the basis that it presents fairly the elements of the company’s performance.

2.8 Taxation

Current tax

Current tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted, at the reporting date. Current income tax relating to items recognised directly in equity is recognised in equity and not in the income statement. Management periodically evaluates positions taken in the tax returns with respect to situations in which applicable tax regulations are subject to interpretation and establishes provisions where appropriate.


36

LUCKY LANKA MILK PROCESSING COMPANY PLC NOTES TO THE FINANCIAL STATEMENTS Year ended 31 March 2016

Deferred tax Deferred tax is provided using the liability method on temporary differences at the reporting date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. Deferred tax assets are recognized for all deductible temporary differences, and unused tax credits and tax losses carried forward, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences and the unused tax credits and tax losses carried forward can be utilized. The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilised. Unrecognised deferred tax assets are reassessed at each reporting date and are recognised to the extent that it has become probable that future taxable profit will allow the deferred tax asset to be recovered. Deferred tax assets and liabilities are measured at tax rates that are expected to apply to the year when the asset is realized or liability is settled, based on the tax rates and tax laws that have been enacted or substantively enacted as at the reporting date. Deferred tax relating to items recognised outside profit or loss is recognised outside profit or loss. Deferred tax items are recognised in correlation to the underlying transaction either in other comprehensive income or directly in equity. Deferred tax assets and deferred tax liabilities are offset, if a legally enforceable right exists to set off current tax assets against current tax liabilities and when the deferred taxes relate to the same taxable entity and the same taxation authority. Sales tax Revenues, expenses and assets are recognised net of the amount of sales tax except:

Where the sales tax incurred on a purchase of a assets or services is not recoverable from the taxation authority, in which case the sales tax is recognised as part of the cost of acquisition of the asset or as part of the expense item as applicable; and

Receivables and payables that are stated with the amount of sales tax included. The net amount of sales tax recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the statement of financial position.


37LUCKY LANKA MILK PROCESSING COMPANY PLC NOTES TO THE FINANCIAL STATEMENTS Year ended 31 March 2016

2.9 Property, Plant and Equipment

Basis of recognition Property, plant and equipment are recognized if it is probable that future economic benefits associated with the asset will flow to the company and the cost of the asset can be reliably measured.

Basis of measurement Land and Buildings are measured at fair value less accumulated depreciation and impairment charged subsequent to the date of the revaluation. The carrying values of property, plant and equipment are reviewed for impairment when events or changes in circumstances indicate that the carrying value may not be recoverable. Where property, plant and equipment are subsequently revalued, the entire class of such assets is revalued at fair value on the date of revaluation. Any revaluation surplus is recognized 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 recognized in the income statement, in which case the increase is recognized in the income statement. A revaluation deficit is recognized in the income statement, except to the extent that it offsets an existing surplus on the same asset recognized in the asset revaluation reserve. Accumulated depreciation as at the revaluation date is eliminated against the gross carrying amount of the asset and the net amount is restated to the revalued amount of the asset. Upon disposal, any revaluation reserve relating to the particular asset being sold is transferred to retained earnings. De-recognition An item of property, plant and equipment are derecognised upon replacement, disposal or when no future economic benefits are expected from its use. Any gain or loss arising on derecognition of the asset is included in the income statement in the year the asset is derecognised.

Depreciation and Amortization Depreciation and amortization are calculated by using a straight-line method.

The estimated useful life of assets is as follows:

Assets Years % Buildings 20-10 5-10 Plant and Machinery 20-05 5-20 Equipment 25-03 4-33 1/3 Furniture and Fittings 10-03 10-33 1/3 Computer Equipment 04-02 25-50 Motor Vehicles 12-05 8 1/3-20 Refrigerators 10-05 10-20 Software 4 25



The asset’s residual values and useful lives are reviewed, and adjusted if appropriate, at each financial year end.

2.10 Financial Instruments — Initial Recognition and Subsequent Measurement

i) Financial assets Initial recognition and measurement Financial assets within the scope of LKAS 39 are classified as financial assets at fair value through profit or loss, loans and receivables, held-to-maturity investments, available-for-sale financial assets, or as derivatives designated as hedging instruments in an effective hedge, as appropriate. The Company determines the classification of its financial assets at initial recognition. All financial assets are recognised initially at fair value plus, in the case of assets not at fair value through profit or loss, directly attributable transaction costs. The Company’s financial assets include cash and short-term deposits, trade and other receivables, loans and other receivables. Subsequent measurement The subsequent measurement of financial assets of the Company depends on their classification as follows: Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. After initial measurement, such financial assets are subsequently measured at amortised cost using the effective interest rate method (EIR), less impairment. Amortised cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the EIR. The EIR amortisation is included in finance income in the income statement. The losses arising from impairment are recognised in the income statement in finance costs. Derecognition A financial asset (or, where applicable a part of a financial asset or part of a group of similar financial assets) is derecognised when:

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



In that case, the Company also recognises an associated liability. The transferred asset and the associated liability are measured on a basis that reflects the rights and obligations that the Company has retained. Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of consideration that the Company could be required to repay. ii) Impairment of financial assets The Company assesses at each reporting date whether there is any objective evidence that a financial asset or a group of financial assets is impaired. A financial asset or a group of financial assets is deemed to be impaired if, and only if, there is objective evidence of impairment as a result of one or more events that has occurred after the initial recognition of the asset (an incurred ‘loss event’) 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. Financial assets carried at amortised cost For financial assets carried at amortised cost, the Company first assesses whether objective evidence of impairment exists individually for financial assets that are individually significant, or collectively for financial assets that are not individually significant. If the Company determines that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, it includes the asset in a 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. The carrying amount of the asset is reduced through the use of an allowance account and the amount of the loss is recognised in the income statement. Interest income continues to be accrued on the reduced carrying amount and is accrued using the rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss. The interest income is recorded as part of finance income in the income statement. Loans together with the associated allowance are written off when there is no realistic prospect of future recovery and all collateral has been realised or has been transferred to the Company. If, in a subsequent year, the amount of the estimated impairment loss increases or decreases because of an event occurring after the impairment was recognised, the previously recognized impairment loss is increased or reduced by adjusting the allowance account. If a future write-off is later recovered, the recovery is credited to finance costs in the income statement.



iii) Financial liabilities

Initial recognition and measurement Financial liabilities within the scope of LKAS 39 are classified as financial liabilities at fair value through profit or loss, loans and borrowings, or as derivatives designated as hedging instruments in an effective hedge, as appropriate. The Company determines the classification of its financial liabilities at initial recognition. All financial liabilities are recognised initially at fair value and, in the case of loans and borrowings, carried at amortised cost. This includes directly attributable transaction costs. The Company’s financial liabilities include trade and other payables, bank overdrafts, loans and borrowings. Subsequent measurement The subsequent measurement of financial liabilities of the Company depends on their classification as follows: Loans and borrowings After initial recognition, interest bearing loans and borrowings are subsequently measured at amortised cost using the effective interest rate method. Gains and losses are recognised in the income statement when the liabilities are derecognised as well as through the effective interest rate method (EIR) amortisation process. Amortised cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the EIR. The EIR amortisation is included in finance costs in the income statement. Derecognition A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires. When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability, and the difference in the respective carrying amounts is recognised in the income statement.



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

2.11 Inventories

Inventories are valued at the lower of cost and net realisable value. Net realisable value is the estimated selling price less estimated costs of completion and the estimated costs necessary to make the sale. The costs incurred in bringing inventories to its present location and condition, are accounted for as follows: Finished goods - Directly attributable manufacturing cost WIP - Actual cost on a weighted average basis Raw material - Actual cost on a weighted average basis Packing Material - Actual cost on a weighted average basis

2.12 Cash and Cash Equivalents

Cash and short-term deposits in the statement of financial position comprise cash at banks and on hand and short-term deposits with a maturity of three months or less. For the purpose of the cash flow statement, cash and cash equivalents consist of cash and short-term deposits as defined above, net of outstanding bank overdrafts.

2.13 Defined Benefit Plan - Gratuity

The employee benefit liability of the Company is based on the actuarial valuation carried out by Independent actuarial specialist in the current financial year. The actuarial valuations involve making assumptions about discount rates and future salary increases. Considering the complexity of the valuation, the underlying assumptions and its long term nature, the defined benefit obligation is highly sensitive to changes in these assumptions. All assumptions are reviewed at each reporting date. Details of the key assumptions used in the estimates are contained in Note 18.

2.14 Defined Contribution Plan - Employees' Provident Fund and Employees' Trust Fund

Employees are eligible for Employees’ Provident Fund contributions and Employees’ Trust Fund contributions in line with respective statutes and regulations. The companies contribute the defined percentages of gross emoluments of employees to an approved Employees’ Provident Fund and to the Employees’ Trust Fund respectively, which are externally funded.


42LUCKY LANKA MILK PROCESSING COMPANY PLC NOTES TO THE FINANCIAL STATEMENTS Year ended 31 March 2016 2.15 Provisions, Contingent Assets and Contingent Liabilities

Provisions are recognised when the Company has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. Where the Company expects some or all of a provision to be reimbursed, for example under an insurance contract, the reimbursement is recognised as a separate asset but only when the reimbursement is virtually certain. The expense relating to any provision is presented in the income statement net of any reimbursement. If the effect of the time value of money is material, provisions are discounted using a current pre-tax rate that reflects, where appropriate, the risks specific to the liability. Where discounting is used, the increase in the provision due to the passage of time is recognised as a finance cost. All contingent liabilities are disclosed as a note to the financial statements unless the outflow of resources is remote. Contingent assets are disclosed, where inflow of economic benefit is probable.

2.26 New and Amended Accounting Standards that became Effective during the Year

LKAS 1 - Presentation of Items of Other Comprehensive Income - Amendments to LKAS The amendments to LKAS 1: Presentation of Financial Statements, introduce a grouping of items presented in Other Comprehensive Income. Items that will be reclassified (‘recycled’) to profit or loss at a future point in time (e.g., net loss or gain on Available-for-sale financial assets) have to be presented separately from items that will not be reclassified (e.g., revaluation of freehold land and buildings). The amendments affect presentation only and have no impact on the Company’s or Group’s financial position or performance.

SLFRS 13 - ‘Fair Value Measurement’

SLFRS 13 - establishes a single source of guidance under SLFRS for all fair value measurements. SLFRS 13 does not change when an entity is required to use fair value, but rather provides guidance on how to measure fair value under SLFRS when fair value is required or permitted. The application of SLFRS 13 has not materially impacted the fair value measurements carried out by the Company and Group. SLFRS 13 also requires specific disclosures on fair values, some of which replace existing disclosure requirements in other standards, including SLFRS 7 - ‘Financial Instruments: Disclosures’. Necessary disclosures required by the new Standard have been included in the Notes to these Financial Statements.


43LUCKY LANKA MILK PROCESSING COMPANY PLC NOTES TO THE FINANCIAL STATEMENTS Year ended 31 March 2016 2.27 Standards Issued But Not yet Effective

The following SLFRS have been issued by the Institute of Chartered Accountants of Sri Lanka that have an effective date in the future and have not been applied in preparing these Financial Statements. Those SLFRS will have an effect on the accounting policies currently adopted by the Company and may have an impact on the future Financial Statements.

a) SLFRS 9-Financial Instruments: Classification and Measurement

SLFRS 9, as issued reflects the first phase of work on replacement of LKAS 39 and applies to classification and measurement of financial assets and liabilities. The Company will quantify the effect in due course. This standard was originally effective for annual periods commencing on or after 01 January 2015. However effective date has been deferred subsequently. The Company will adopt these standards when they become effective. Pending the completion of detailed review, the financial impact is not reasonably estimable as at the date of publication of these Financial Statements.

b) SLFRS 14 – Regulatory Deferral Accounts

The scope of this standard is limited to first-time adopters of SLFRS that already recognise regulatory deferral account balances in their Financial Statements. Consequently, the Financial Statements of rate regulated entities that already apply SLFRS, or that do not otherwise recognise such balances, will not be affected by this standard. This standard is effective for the annual periods beginning on or after 01 January 2016. c) SLFRS 15- Revenue from Contracts with Customers

SLFRS 15 establishes a comprehensive framework for determining whether, how much and when revenue is recognized. It replaces existing revenue recognition guidance, including Sri Lanka Accounting Standard ( LKAS 1-) – “ Revenue”, Sri Lanka Accounting Standard (LKAS 11) – “ Construction Contracts” and IFRIC 13 – “ Customer Loyalty Programmer”. This standard is effective for the annual periods beginning on or after 01 January 2017. The Company will adopt these standards when they become effective. Pending the completion of detailed review, the financial impact is not reasonable estimable as at the date of publication of these Financial Statements.


44LUCKY LANKA MILK PROCESSING COMPANY PLCNOTES TO THE FINANCIAL STATEMENTS

Year ended 31 March 2016 2015Rs. Rs.

3 Revenue

Sales of yogurt, fresh milk & other products 1,014,470,075 980,615,168 National building tax (19,224,091) (17,703,264) Total Revenue 995,245,984 962,911,905

2016 2014Rs. Rs.

4 Other operating income

Sundry income 2,479,735 2,891,388 Total operating Income 2,479,735 2,891,388

2016 2015Rs. Rs.

5 Finance costs

OD interest 12,463,757 10,407,093 Loan interest 17,010,371 20,028,967 Bank charges 1,158,156 749,264 Lease interest & charges 7,973,623 10,268,523 Factoring charges 3,205,147 3,392,156 Interest on personal loans - 1,622,333 Total finance cost 41,811,054 46,468,337

2016 2015Rs. Rs.

6 Finance income

Interest income 2,364,851 670,874 Total finance income 2,364,851 670,874

6.1 PROFIT BEFORE TAX

Profit before tax is stated after charging all expenses including the following;Remuneration to executive directors 368,315 14,950,837 Auditors’ remuneration 348,662 341,955 Costs of defined employee benefits Defined benefit plan cost 1,363,701 889,929 Staff expenses 159,112,431 123,835,961 Depreciation of property, plant and equipment 52,129,854 43,947,576


45LUCKY LANKA MILK PROCESSING COMPANY PLCNOTES TO THE FINANCIAL STATEMENTSYear ended 31 March

2016 20157 Tax expense Rs. Rs.

Current income taxCurrent tax charge 430,403 - Deferred income taxRelating to origination and reversal of temporary differences 2,492,680 7,593,501

2,923,083 7,593,501

7.1 Reconciliation between income tax charge and tax on current year profit is given below;

Profit before taxation (22,001,934) (25,147,108) Aggregate disallowed expense 64,661,181 62,174,400 Aggregate allowable expense (61,412,663) (54,594,645) Adjusted profit/ (loss) (a) (18,753,415) (17,567,353)

Taxable income from other sources 1,537,153 - Statutory income (b) 1,537,153 (17,567,353)

Concessionary tax rate 10% 10%Normal tax rate 28% 28%

Income tax expense 430,403 -

Lucky Lanka Milk Processing PLC;is subject to a concessionary tax rate of 10% under the (10% in 2014/2015) Inland Revenue Act No.10 of 2006 and subsequent amendments hereto.

2016 20158 Earnings/(Loss) per share Rs. Rs.

8.1 Basic earnings per share

Profit attributable to ordinary share holders (Rs) (24,925,017) (32,740,609) Weighted average number of ordinary shares 200,028,410 178,795,533 Basic Earnings/(Loss) per share (Rs) (0.12) (0.18)

Basic earnings per share is calculated by dividing the profit for the year attributable to ordinary share holders of Lucky Lanka Milk Processing PLC by weighted average number of ordinary shares in issue.



9 Property, plant and equipment

9.1 Cost or Valuation Balance Additions Transferred Disposal BalanceAs at 31.03.2015 During the year During the year During the year As at 31.03.2016

Rs. Rs. Rs. Rs. Rs.Free holdLand 188,077,221 - - - 188,077,221 Buildings 85,504,746 - - - 85,504,746 Plant and machinery 270,071,847 2,179,841 1,910,926 - 274,162,615 Furniture and fittings 4,013,808 987,973 - - 5,001,781 Office equipment 10,682,698 1,309,097 - - 11,991,795 Computer equipment 10,385,325 6,009,284 - - 16,394,609 Refrigerators 1,812,050 884,363 - - 2,696,413 Motor vehicles 53,966,100 - 10,400,000 (1,500,000) 62,866,100 Motor tricycle 5,525,000 - - (550,000) 4,975,000 Water treatment Plant 3,500,000 - - - 3,500,000 Promortion items - - 4,747,483 - 4,747,483

633,538,795 11,370,558 17,058,410 (2,050,000) 659,917,763

Lease HoldPlant machinery and equipment 32,462,361 - - - 32,462,361 Refrigerators 13,577,723 - - - 13,577,723 Motor vehicles 47,331,034 35,190,000 (10,400,000) - 72,121,034

93,371,118 35,190,000 (10,400,000) - 118,161,118 Work in progressBuildings 29,452,075 9,475,929 - - 38,928,004 Plant & machinery 16,246,162 39,661,487 (6,658,410) - 49,249,240

45,698,238 49,137,416 (6,658,410) - 88,177,244

Total Cost 772,608,150 95,697,974 - (2,050,000) 866,256,125

9.2 Depreciation Balance Charge Transferred Disposal BalanceAs at 31.03.2015 During the year During the year During the year As at 31.03.2016

Rs. Rs. Rs. Rs. Rs.Free holdBuildings 8,547,251 4,275,237 - - 12,822,489 Plant and machinery 31,082,493 20,354,747 - - 51,437,240 Furniture and fittings 665,356 512,304 - - 1,177,660 Office equipment 1,697,900 957,884 - - 2,655,784 Computer equipment 2,271,015 3,433,023 - - 5,704,038 Refrigerators 374,442 299,257 - - 673,699 Motor vehicles 13,332,591 9,408,053 4,345,000 (413,333) 26,672,311 Motor tricycle 2,177,084 1,640,833 - (265,833) 3,552,084 Water treatment plant 350,000 175,000 - - 525,000 Promortion item - 1,186,871 - - 1,186,871

60,498,131 42,243,210 4,345,000 (679,167) 106,407,174

Lease Hold - Plant machinery and equipment 3,520,913 1,826,236 - - 5,347,149 Refrigerators 2,715,544 1,357,772 - - 4,073,317 Motor vehicles 10,895,149 6,702,635 (4,345,000) - 13,252,784

17,131,606 9,886,644 (4,345,000) - 22,673,250

77,629,737 52,129,854 - (679,167) 129,080,424



Rs. Rs.

Under free hold assets

2016 20159.3 Net Book Value

Land 188,077,221 188,077,221 Buildings 72,682,257 76,957,494 Plant and machinery 222,725,375 238,989,354 Furniture and fittings 3,824,121 3,348,453 Office equipment 9,336,011 8,984,798 Computer equipment 10,690,572 8,114,310 Refrigerators 2,022,714 1,437,608 Motor vehicles 36,193,789 40,633,509 Motor tricycle 1,422,916 3,347,916 Water treatment Plant 2,975,000 3,150,000 Promortion item 3,560,612 -

553,510,589 573,040,664

Under lease hold assetsPlant machinery and equipment 27,115,212 28,941,448 Refrigerators 9,504,406 10,862,179 Motor vehicles 58,868,250 36,435,885

95,487,868 76,239,512 Under work in progressBuildings 38,928,004 29,452,075 Plant & machinery 49,249,240 16,246,162

88,177,244 45,698,238

737,175,700 694,978,413

Balance BalanceAs at 31.03.2016 As at 31.03.2015

9.4 Intangible Assets Rs. Rs.CostBalance as at 01.04 - - Additions 745,500 - Disposal - - Balance as at 31.03 745,500 -

AmotizationBalance as at 01.04 - - Charge for the year 15,531 - Balance as at 31.03 15,531 -

Net Book Value 729,969 -

9.5 Revaluation of land and building

9.6During the year fixed asset addition was LKR 96,443,474/-disposal Rs 2,050,000/- and transferred was LKR 17,058,410/-.

The Company uses the revaluation model of measurement of land and buildings. The Company engaged D. Prathapasinghe – Chartered Valuation Surveyors, an accredited independent valuer, to determine the fair value of its buildings on leasehold land. Fair value is determined using Comparison Method of Valuation and Depreciated Replacement Cost Basis is used to ascertain Fair Value of the property . The date of the most recent revaluation was 31 March 2013. The previous revaluation was on 31 March 2008.



Year ended 31 March 2016 2015Rs. Rs.

10 Deferred tax liabilityOpening balance 19,485,880 11,895,961 Net book value 365,433,368 384,963,443 Tax written down value (141,071,624) (184,921,433)

224,361,743 200,042,010 Deferred tax liability 22,436,174 20,004,201 Gratuity 7,518,900 5,268,499 Deferred tax asset 609,016 518,321 Net deferred tax liability 21,827,158 19,485,880

2016 2015Rs. Rs.

11 Inventories

Raw materials 48,858,699 30,861,864 Work in progress 17,181 178,799 Finished goods 41,048,929 12,761,223 Consumables and spares 4,140,649 3,094,383 Total inventories 94,065,457 46,896,270

2016 2015Rs. Rs.

12 Trade and other receivables

Trade debtors 169,585,909 165,540,980 Less: Provision for bad & doubtful debts (1,680,242) (1,680,242) Other trade receivables 16,751,688 18,774,865 Total trade and other receivables 184,657,355 182,635,602

2016 2015Rs. Rs.

13 Other current assets

Prepayments, advances and non cash receivables 35,240,508 47,139,014 Total other current assets 35,240,508 47,139,014

2016 2015Rs. Rs.

14 Cash & cash equivalents

Favorable BalancesCash & bank balances 83,545,321 26,725,913

Total cash & cash equivalents 83,545,321 26,725,913



As at 31 MarchNumber of Value of Number of Value of

shares shares shares shares Rs. Rs.

15 Stated capital

Fully paid ordinary shares

At the beginning of the year 200,028,410 596,056,822 138,028,410 296,056,820 Share issue - - 62,000,000 300,000,000 At the end of the year 200,028,410 596,056,822 200,028,410 596,056,820

As at 31 March 2016 2015 Rs. Rs.

15.1 Net Assets Value per Share 2.9 3.4

As at 31 March 2016 2015 Rs. Rs.

16 Retained earnings

Balance as at beginning of the year 7,289,163 40,111,477 Profit for the year (24,925,017) (32,740,609) Other comprehensive income (1,277,335) (81,704) Balance as at end of the year (18,913,190) 7,289,163

20152016


50

LUCKY LANKA MILK PROCESSING COMPANY PLCNOTES TO THE FINANCIAL STATEMENTS

17 Interest bearing borrowings

As at 31st March 2016 2015Current Non Current Total Total

Rs. Rs. Rs. Rs.

11,060,936 34,272,979 45,333,915 33,237,492 93,654,682 129,667,095 223,321,776 144,936,020

Advances from third parties 15,914,373 - 15,914,373 2,106,123 Bank overdraft 106,886,849 - 106,886,849 70,600,592

227,516,840 163,940,073 391,456,913 250,880,227

17.1 Finance leases & hire purchasesBalance Addition Repayment Balance

as at during the during the as atName of the Financial Institute 31.03.2015 Year Year 31.03.2016

Rs. Rs. Rs. Rs.

People's Leasing Company PLC 193,537 (193,537) - Less - Interest in suspense (9,002) 9,002 - Nation Trust Bank 5,458,476 (1,392,768) 4,065,707 Less - Interest in suspense (1,224,329) 520,991 (703,338) Lanka Orix Leasing Company PLC 216,661 (216,661) - Less - Interest in suspense (10,729) 10,729 - Central Finance Company PLC 4,707,768 (1,451,340) 3,256,428 Less - Interest in suspense (912,813) 451,530 (461,284) Asia Assets Finance PLC 8,653,319 (8,011,534) 641,785 Less - Interest in suspense (551,079) 551,079 - Mercantile Investment PLC 13,183,937 (11,202,385) 1,981,552 Less - Interest in suspense (3,361,075) 3,234,153 (126,923) Commercial Bank 419,631 23,105,131 (2,220,112) 21,304,651 Less - Interest in suspense (34,097) (4,415,131) 688,443 (3,760,785) DFCC 4,374,829 (1,108,929) 3,265,899 Less - Interest in suspense (979,518) 416,815 (562,703) HNB 4,389,240 (1,059,083) 3,330,157 Less - Interest in suspense (1,277,263) 503,254 (774,009) Seylan Bank - 20,691,960 (4,149,464) 16,542,496 Less - Interest in suspense - (4,191,960) 1,526,240 (2,665,720) Net Lease Liability 33,237,492 35,190,000 (23,093,577) 45,333,915

17.2 Balance Loan obtained Loan payment Balanceas at during the during the as at

31.03.2015 year year 31.03.2016Rs. Rs. Rs. Rs.

Union Bank 105,509,528 - (22,596,034) 82,913,495 Commercial Bank 6,628,119 77,000,000 (11,553,152) 72,074,967 Mercantile Investment PLC 5,429,030 - (1,993,324) 3,435,707 Asia Assets Finance PLC 1,177,711 - (1,523,841) (346,129) NDB 21,350,000 100,370,050 (78,528,000) 43,192,050 AMW 4,841,631 - (2,789,944) 2,051,687 Cargills Bank - 20,000,000 - 20,000,000

144,936,020 197,370,050 (118,984,294) 223,321,776

Interest Bearing Loans

Finance leases & hire purchases (Note 17.1)Interest bearing loans (Note 17.2)



Year ended 31 March2016 2015

Rs. Rs.

18 Retirement benefit obligation

Balance at the beginning of the year 5,183,212 5,579,671 Amount charged 1,363,701 889,929 Actuarial loss 1,428,738 85,287 Contributions paid (456,750) (1,371,675) At the end of the year 7,518,900 5,183,212

Expenses on defined benefit planCurrent service cost for the year 793,548 276,165 Interest cost for the year 570,153 613,764 Actuarial (gain)/loss 1,428,738 85,287

2,792,438 975,216

The principal assumptions used in determining the cost of employee benefits were:Discount rate 11%Future salary increases 10%

2016 2015Rs. Rs.

19 Trade and other payables

Trade payables 84,176,159 57,647,532 Accrued expenses 16,298,153 17,333,949 Advances and deposits 5,652,159 6,436,491

106,126,471 81,417,972

2016 2015Rs. Rs.

20 Related party transaction

20.1 Compensation to Key Management Personnel

Short term employment benefitsBoard of directors and other KMP’s 10,080,000 14,950,837

10,080,000 14,950,837

20.2 Amounts due from related parties

The employee benefit liability based on the actuarial valuations carried out by Messrs. Actuarial & Management Consultants (Pvt) Ltd., actuaries.

Related party includes KMPs defined as those persons having authority and responsibility for planning directing and controlling the activities for the Company. Such KMPs include the board of directors of the Company (inclusive of executive and non executive directors ) and executives who directly report to Board of Directors.


52The company carried out transactions in the ordinary course of business with the following related entities.

Non TradeAmounts due from Directors (Related Party) 5,140,474 3,915,183 Lucky Lanka Auto (Private) Limited (Related Company) 850,215 - LDB Investment (Related Company) 1,162,623 -

7,153,312 3,915,183

20.3 Amounts due to related parties

Lucky Lanka Printers Company Limited (Related Company) - 61,511 - 61,511



21 Income tax liabilities 2016 2015Rs. Rs.

At the beginning of the year 1,073,639 1,695,868 Provision for the year 430,403 - Less - Tax credit

WHT on Interest (203,595) - ESC (226,808) (622,229)

At the end of the year 1,073,639 1,073,639

2016 2015Rs. Rs.

22 Other current liabilities

Tax payable 37,220,408 40,236,001 Other payable 200,500 605,967

37,420,908 40,841,968

23 Commitments and contingencies.

There were no material capital commitments approved by the Board of Directors as at reporting date.

24 Post balance sheet events

25 Comparative Information

As reported previously 2015Tax expenseDeferred income taxRelating to origination and reversal of temporary differences 7,593,501

Current Presentation2016 2015

Tax expenseDeferred income taxRelating to origination and reversal of temporary differences 2,492,680 7,593,501

The presentation and classification of following item in these financial statements are amended to ensure comparability with the current year.

Subsequent to the reporting date, no circumstances have arisen which would require adjustment to or disclosure in the financial statements.

(During the year it was recognized that temporary difference related to gratuity calculation in computation of deferred taxation)


54

Plan : 5042 dated 01/03/2005

Property 6

Location:Welikandahena, Elawella Road, HittetiyaPlan : 2742 dated 23/07/2005

To facilitate the imports and local purchase

Maximum sublimit of LKR 40,000,000

Personal guarantee of directors for Rs.10mn To retire sight /usance bills drawn under letters of credit/ documentson accetance/ documents on payments

Ownership of the vehicles remained to NDB bank till the facility is fully paid. To meet operational expenses.

PMB for Rs.12,000,000 executed over the following property.

Maximum limit of LKR 1,500,000

Maximum limit of LKR 40,000,000


26 Assets pledged

The Following assets have been pledged as security for liabilities as at the reporting date

Institition & the Facility Security Offered PurposeCommercial Bank PLCBank LoanFacility-1 3,500,000 Cash

S/A No : 71104007942Facility-2 4,200,000 Amount :Rs.1,738,206

Rate of interest :4%Maturity date : 15/10/2022

Facility-3 4,000,000 Letter of set-off to be signed by two Directors.

Letter of authority to be signed by two Directors.

Facility-4 1,500,000 Property 1PMB No.9847 dated 05.05.2011 for Rs.3,500,000 executed over the following property.

Facility-5 50,000,000 Location: Piniliyadda,Pitakatuwana, Kamburupitiya

To absorb the bridging term loan facility. (N/N 1879835)

Plan :348 dated 05/01/2011To absorb Rs. 27.5 Mn from existing over draft limit granted to LLMP

Owner :LLMP

Balance of Rs. 8.5 Mn to infuse fixed working capital requirements of business

Property 2Facility-6 27,000,000 TMB No 13 dated 12.09.2012 for Rs. 6,800,000 executed over the following property. For additional working capital requirements

of the existing business.

Bank Overdraft Location: Batakolayamulla,Karagoda - Uyangada, KamburupitiyaPermanent overdraft 37,500,000

Plan :4066 dated 05/01/2011Owner : LLMPProperty 3PMB No.15120 dated 23.08.2012 for Rs.4,200,000 & SMB No. 15354 dated 15354 dated 04.09.2013 for Rs.1,400,000 executed over the following property.

Temporary Overdraft 7,500,000

Location: Batakolayamulla,Karagoda - Uyangada, Kamburupitiya

Plan : 94/2006 dated 10/09/2006 and 4158 dated 15/08/1996

Owner : LLMPProperty 4PMB No.11170 dated 04.09.2013 for Rs.2,100,000 executed over the following property.

Location: Batakolayamulla,Karagoda - Uyangada, Kamburupitiya

Plan : 4156B dated 18/01/2002 ,12/152 dated 09/08/2012 and 4156C dated 09/12/2002

Owner : LLMPProperty 5PMB for Rs.30,000,000 executed over the following property.

Location: No76,Meera road, Issadeen Town, Matara

Owner : LLMP

Owner : LLMP

Nation Development Bank Facility - Letter of Credit

Mortgage of book debts for LKR 41 MN

Facility - Post Import Finance

Facility - Over Draft

Principal amount LKR

Purpose for granting the loan for purchase of a commercial property @ MirisattaLien over following Savings Account in the name of M/S Lucky Lanka Milk Processing

Limited.

Purpose for granting the loan for purchase of a commercial Property @Ranrasa caters

For permanent working capital requirements

For working capital requirements of the business

For extensions of the building proposed for bottled drinking water



26 Assets pledged….. Continued

Union Bank PLCBank LoanFacility - 1 90,400,000 Location: Karagoda,Uyangoda Village,Kamburupitiya

Owner :LLMP

Facility -2 25,000,000 Nagative pledge over machinery

Bank Overdraft 15,000,000

Overdraft agreement for Rs.5 Mn.

Import loan facility

5,000,000

5,000,000

5,000,000 Personal guarantee of Directors for Rs.10mn

Personal guarantee of Directors for Rs.10mnCargils Bank PLCBank LoanFacility - 1 20,000,000 Security 1 - Stock & book debts Rs.20.0 Mn To settle high cost borrowings

Security 2 - Joint and several guarantee from directors for Rs. 20.0 Mn

PMB No.7959 dated 11.06.2014 for Rs.166.5Mn over the property depicted as Lot A in survey No.5458.

Expansion of the business

Under Agro Livestock Development Loan Scheme

Existing primary mortgage bond for Rs.5 Mn over raw materials, working progress & finished goods.

To finance working Capital requirements of the business.Personal guarantee of Directors for Rs.5mn

Monthly cash build up of Rs. 50,000 to an interest bearing A/C and balance held under lien to the bank.

To purchase machinery and to complete the Aseptic room construction

Title of goods to be imported under the documentary credit.

Facility - 05 -Acceptance - Sub limit under documentary Credit

Institution & the Facility Principal Amount LKR Security offered Purpose

Facility - 3 -Import loan - Sub limit under documentary Credit

Personal guarantee of Directors for Rs.10mn To retire Import bills received under Facility 11.

Facility - 4 -Short term loan - Sub limit under documentary Credit

Personal guarantee of Directors for Rs.10mn To purchase sugar and other raw materials for production process

Facility - 06 -Sight/Usance 60 days Maximum

10% Cash Margin Limit LKR

10% cash margin for each documentary credit to be booked in a call deposit To import sugar and other raw materials for production process


56

Risk means being exposed to the possibilities of negative outcomes. In highly volatile competitive market, carrying out business transaction is always associated with risk. It is a responsibility of Board of Directors, senior management and the members of the staff to take all precautions in order to avoid or mitigate risk while accepting a pre-determined level of risk in preparing and operating the business activities of the Company. Here the Risk Management is a continuous process followed by a set of principles, procedures and guidelines approved by the Board of Directors.


27 RISK MANAGEMENT

27.1 Credit risk

27.1.1 Credit risk exposure

Notes Cash in hand and at bank

Trade and other receivables

Amounts due from related

parties

Total % of allocation

Trade and other receivables 12 - 184,657,355 - 184,657,355 67.06%

Amounts due from related parties 20.1 - - 7,153,312 7,153,312 2.60%

Cash in hand and at bank 14 83,545,321 - - 83,545,321 30.34%

Total credit risk exposure 83,545,321 184,657,355 7,153,312 275,355,988 100.00%

Total equity risk exposure 83,545,321 184,657,355 7,153,312 275,355,988

Notes Cash in hand and at bank

Trade and other receivables

Amounts due from related

parties

Total % of allocation

Trade and other receivables 12 - 182,635,602 - 182,635,602 85.63%Amounts due from related parties 20.2 - - 3,915,183 3,915,183 1.84%Cash in hand and at bank 14 26,725,913 - - 26,725,913 12.53%Total credit risk exposure 26,725,913 182,635,602 3,915,183 213,276,699 100.00%

Total equity risk exposure 26,725,913 182,635,602 3,915,183 213,276,699

In Risk Management Policy, it is based on the best practices for identification, evaluation and planning the risks and taking appropriate measures to control it in a cost-effective manner in order to ensure that risks are either eliminated or reduced to an acceptable level. It takes a holistic look at risks both from the downside and the upside. Risk is categorized by identifying the similarities faced in the different levels of operations of the Company. The associated risk of existing and future business plans can be categorized under Financial risk, Credit risk, Market risk, Liquidity risk, Business or operational risk, Interest rate risk, IT risk, Legal risk etc.

2015

The maximum risk positions of financial assets which are generally subject to credit risk are equal to their carrying amounts (without consideration of collateral, if available).Following table shows the maximum risk positions.

2016

operating activities (primarily trade receivables) and from its financing activities, including deposits with banks and financial institutions and other financial instruments. With respect to credit risk arising from the other financial assets of the company, such as cash and cash equivalents and short term investments, the company’s exposure to credit risk arises from default of the counterparty. The company manages its operations to avoid any excessive concentration of counterparty risk and the company takes all reasonable steps to ensure the counterparties fulfil their obligations.

Credit risk is the risk that a counterparty will not meet its obligations under a financial instrument or customer contract, leading to a financial loss. The company is exposed to credit risk from its The company trades only with recognized, creditworthy third parties. It is the company’s policy that all clients who wish to trade on credit terms are subject to credit verification procedures. In addition, receivable balances are monitored on an ongoing basis with the result that the company’s exposure to bad debts is not significant.



27.2 Liquidity Risk

27.2.1 Net (debt)/cash2016 2015

Rs. Rs.

Cash in hand and at bank 83,545,321 26,725,913

Total liquid assets 83,545,321 26,725,913

Short term borrowings 227,516,840 150,322,568 Long term borrowings 163,940,073 100,557,659 Total liabilities 391,456,913 250,880,227

Net (debt)/cash (307,911,592) (224,154,314)

27.2.2 Liquidity risk managementMaturity analysis

Company Within 1 year Between 1-2 years

Between 2-3 years

Between 3-4 years

Between 4-5 years More than 5 years Total

Interest bearing borrowings 227,516,840 57,202,717 55,489,349 40,870,197 10,377,810 - 391,456,913 Trade and other payables 110,203,048 - - - - - 106,126,471 Amounts due to related parties - - - - - - -

337,719,887 57,202,717 55,489,349 40,870,197 10,377,810 - 497,583,384

Company Within 1 year Between 1-2 years

Between 2-3 years

Between 3-4 years

Between 4-5 years More than 5 years Total

Interest bearing borrowings 150,945,514 37,815,906 25,755,329 24,625,075 11,738,402 - 250,880,227 Trade and other payables 61,063,479 20,354,493 - - - - 81,417,972 Amounts due to related parties 61,511 - - - - - 61,511

212,070,504 58,170,399 25,755,329 24,625,075 11,738,402 - 332,359,711

27.3 Market risk

Market prices comprise four types of risk:* Interest rate risk* Currency risk

The Company’s policy is to hold cash and undrawn committed facilities at a level sufficient to ensure that the Company has available funds to meet its medium term capital and funding obligations, including organic growth and acquisition activities, and to meet any unforeseen obligations and opportunities. The Company holds cash and undrawn committed facilities to enable the Company to manage its liquidity risk.

The Company’s objective is to maintain a balance between continuity of funding and flexibility through the use of multiple sources of funding including bank loans and overdrafts.

Market risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market prices.

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

The Company monitors its risk to a shortage of funds using a daily cash management process. This process considers the maturity of both the Company’s financial investments and financial assets (e.g. accounts receivable, other financial assets) and projected cash flows from operations.

The table below summarizes the maturity profile of the Company’s financial liabilities at 31 March 2015 based on contractual undiscounted payments.

The table below summarizes the maturity profile of the Company’s financial liabilities at 31 March 2016 based on contractual undiscounted payments.


58


LUCKY LANKA MILK PROCESSING CO. PLCINVESTORS INFORMATION-NON VOTING

1 TOP 20 SHARE HOLDER LIST AS AT 31ST MARCH 2016

Shares

2 DIRECTORS SHAREHOLDING AS AT 31 MARCH 2016

NAME OF DIRECTORS NO OF SHARES

Mr.L.K.A.Gunawardhana NIL

Mrs.N.A.Gunawardhana NIL

Mrs.B.A.Gunawardhana NIL

Mrs.D.A.Gunawardhana NIL

Mr.L.J.P. A.Prasanna Jayasooriya NIL

Mr.D.B.S.Chamara Bandara NIL

3 PUBLIC SHAREHOLDING AS AT 31 MARCH 2016

Issued Share CapitalDirectors of the entity & their close family members - 0.00%Public Share Holding 100.00%

No of PublicHoldings 1263

Serial Name %

Total Shares : 24,000,000

24,000,000.00

24,000,000.00

10,940,792 45.59

1 MR.WEERATHUNGA ARACHCHIGE SAMPATH PALITHA DE SARAM 1,965,142 8.192 BANK OF CEYLON A/C CEYBANK UNIT TRUST 1,800,000 7.503 MR. KISHORE SHASHI NIKHIL HIRDARAMANI 800,000 3.334 MR. ASANKA SANJAYA MARAPANA 650,000 2.715 MR. MOHAMED NAZEEK ZAVAHIR 650,000 2.716 PEOPLE'S LEASING & FINANCE PLC/MR.C.N..JAYASURIYA 600,000 2.507 MR. REX ALIYANTHA LINDSAY WHITE 500,000 2.088 TRANZ DOMINION,L.L.C. 499,900 2.089 MR. SHERMAL HEMAKA JAYASURIYA 484,700 2.0210 FIRST CAPITAL MARKETS LIMITED/MR.S.NAGAHAWATTE 400,000 1.6711 MRS. JASBINDERJIT KAUR PIARA SINGH 349,110 1.4512 MR. MOHAMED HANIF ASLAM KAMIL 325,364 1.3613 MRS. SUKUMALI MAHESIKA WANNAKUWATTE 300,000 1.2514 DEE SANDA HOLDINGS PVT LTD 300,000 1.2515 MR. ALUTH GEDARA PIYASENA/'456460020VN' 292,276 1.2216 MR. VIDANA GAMAGE WAPPULA NISHANTHA 219,300 0.9117 MR. IQBAL HUSSEIN JAFFERJEE 205,000 0.8518 BANK OF CEYLON A/C CEYBANK CENTURY GROWTH FUND 200,000 0.8319 MR. AMRIK HARNAM/'4521FI' 200,000 0.8320 BIMPUTH FINANCE PLC 200,000 0.83

59

1 TOP 20 SHARE HOLDER LIST AS AT 31ST MARCH 2016

SharesSerial Name %


LUCKY LANKA MILK PROCESSING CO. PLCINVESTORS INFORMATION- VOTING

95.92

2 DIRECTORS SHAREHOLDING AS AT 31 MARCH 2016

NAME OF DIRECTORS NO OF SHARES

Mr.L.K.A.Gunawardhana

Mrs.N.A.Gunawardhana

Mrs.B.A.Gunawardhana

Mrs.D.A.Gunawardhana

Mr.L.J.P. A.Prasanna Jayasooriya NIL

Mr.D.B.S.Chamara Bandara NIL

3 PUBLIC SHAREHOLDING AS AT 31 MARCH 2015

Issued Share CapitalDirectors of the entity & their close family members 75.95%Public Share Holding 24.05%

No of PublicHoldings 1300

Total Shares : 176,028,410 168,854,787

42,334,120.00

93,785,730

13,302,910

13,302,825

13,302,825

133,694,290.00 176,028,410.00

1 MR. LAL KEERTHI AMARASIRI GUNAWARDHANE 93,785,730 53.282 MRS. BHADRA AMARASIRI GUNAWARDANA 13,302,910 7.563 MRS. NAMALI AMARASIRI GUNAWARDHANA 13,302,825 7.564 MRS. DESI AMARASIRI GUNAWARDHANA 13,302,825 7.565 MRS. NALLAPERUMA ARACHCHIGE NALI SANJEEWIKA 6,421,000 3.656 MR. DIKMADU SUNIL GODAGE 6,215,328 3.537 GOH FAMILY INVESTMENT HOLDINGS LANKA PVT LTD 5,000,000 2.848 MERCHANT BANK OF SRI LANKA LTD A/C NO 1 3,082,732 1.759 MRS. LIYANAARACHCHI KANKANAMGE SRIYAWATHI 3,000,000 1.7010 MRS. NIDHOSHANI WASANA KUMARI JAYAWARNA PATABANDIGE 2,790,951 1.5911 MR. WEERATHUNGA ARACHCHIGE SAMPATH PALITHA DE SARAM 2,414,561 1.3712 MR. SUMITH ROHANA RANAWEERA 2,149,830 1.2213 BANK OF CEYLON NO. 1 ACCOUNT 1,000,000 0.5714 MS. DIVITHURE GAMAGE SAMEERA PRASANGI 1,000,000 0.5715 TIONG WOON CRANE & TRANSPORT LANKA (PVT) LTD 750,000 0.4316 MR. SARATH RANJITH BODA HANNADIGE 500,000 0.2817 MR. BOPE KANKANAMGE PATHMASIRI 250,645 0.1418 BIMPUTH FINANCE PLC 200,000 0.1119 MR. MANU ASHUBODHA DE SILVA 200,000 0.1120 DAYA APPAREL EXPORT (PVT) LTD 185,450 0.11

60

NOTICE OF MEETINGNotice is hereby given that the Annual General Meeting of Lucky Lanka Milk Processing Company PLC will be held at Solis Hotel, Nupe, Matara on 17th October 2016 at 10.00 am. for the following purposes.

1. To receive and consider the statement of Accounts for the year ended 31st March 2016 with the Annual Report of the Board of Directors and Auditors thereon.

2. To re-elect Mr. Lal Keerthi Amarasiri Gunawardhana who retires by rotation in terms of Article 81, of the Articles of Association of the Company, and being eligible offers himself for re-election.

3. (a) To appoint Mr. Lokubadu Jayasooriya Patabandige Anura Prasanna as a non executive director of the Company in terms of Article 88 of the Articles of Association of the Company.

(b) To appoint Mr. Dingiri Bandage Sunil Chamara Bandara as a non executive director of the Company in terms of Article 88 of the Articles of Association of the Company.

4. To re-appoint the Auditors Messer. Ernst & Young and authorize the Board of Directors to deter-mine their remuneration

5. To authorise the Board of Directors to determine payments for charitable and other purposes for the year 2016/2017.

By Order of the Board


MANAGERS & SECRETARIES (PRIVATE) LIMITED

Sgd:Mrs.C Salgado

Secretaries

26th September 2016

NOTE:

a. Only persons who are shareholders of the Company and whose names appear on the share Regis-ter as at AGM date will be entitled to attend the above meeting.

b. A Shareholder entitled to attend and vote at the above meeting is entitled to appoint a proxy to attend and vote in his/her place by completing the From of Proxy enclosed herewith.

c. A proxy need not be shareholder of the Company .However the proxy must be above 18 years of age.

d. Shareholders/Proxy holders are kindly advised to bring along with them their National Identity Card or a similar form of acceptable identity when attending the meeting.

e. For more information, please refer Administrative Details enclosed herewith.

f. The Completed form of proxy must be deposited at the registered office Bibulewela, Karagoda, Uyangoda not less than forty eight hours before the time fixed for the meeting


61


FORM OF PROXY

I / we ………………………………………………………………………………………..............................................

of …………………………………………………………………………………………................................................

being a member/members of Lucky Lanka Milk Processing Company PLC hereby appoint ;

…………………………………………………………………………………………….................................................

of …………………………………………………………………………………………................................................

…………………………………………………………………………..........................................……or failing him

Mr. Lal Keerthi Amarasiri Gunawardhana or failing him

Ms. Bhadra Amarasiri Gunawardhana or failing him

Ms. Daisy Amarasiri Gunawardhana or failing him

Ms. Namali Amarasiri Gunawardhana or failing him

Mr. L J Patabandige Anura Prasanna Jayasooriya or failing him

Mr. Dingiri Bandage Sunil Chamara Bandara or failing him

………………………………………………………………………………………………...............................................

as my / our proxy to represent me / us and *vote for me / us on my / our behalf at the Annual General Meeting of the Company to be held on ……………… 2016 and at any adjournment thereof and at every poll which may be taken in consequence thereof

Signed this …………………… day of ……………………. 2016

……………………………..

Signature of Shareholder

Note: Instructions to complete are noted on the following page


62

INSTRUCTIONS AS TO COMPLETIONKindly perfect, the Form of Proxy, by filling in legibly your full name and address, signing in space provided, and filling in the signature.

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

In case of a Company / Corporation, the Proxy must be under its common seal which should be affixed and attested in the manner prescribed by its Articles of Association.

The completed Form of Proxy should be deposited at the registered office of the Company Bibulewela,Karagoda, Uyangoda not less than forty eight (48) hours before the time appointed for the holding of the meeting.


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