A JOURNEY OF QUALITY - Lanka Tiles

LANKA FLOORTILES PLCAnnual Report 2012/13

A JOURNEY OF QUALITY

An iconic Sri Lankan corporate

At Lanka Floortiles, our journey is about our vision to

become a global name in the surfacing industry,

respected both here and abroad. As our mission

statement says, “…we are a Company that sets and

constantly exceeds the benchmarks of quality in

producing ceramic products of exceptional beauty

and functionality.”

Today, we’re proud to say we’re not just

manufacturing high quality, beautifully crafted tiling

solutions that suit many needs. Lanka Floortiles is

also an iconic Sri Lankan corporate, known for

visionary leadership, industry skills and expertise and

valuable returns to every shareholder we serve.

LANKATILES. A journey of quality

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2 Lanka Floortiles PLC Annual Report 2012/13

Vision

Our vision is of a future in which

Lanka Floortiles will have become not

only a household name but a global

one.

Mission

Our mission is to be a Company that

sets and constantly exceeds the

benchmark of the highest quality

in producing ceramic products of

exceptional beauty and functionality

and to cater to every need of

discerning customers both in Sri

Lanka and abroad. These traits have

kept us at the forefront of our chosen

spheres, creating peerless career

development opportunities within

the organisation. We believe that the

improvement is a continuing process.

It is the constant endeavour of our

employees and the driving force

behind our success.

3

About us 4

Performance highlights 6

Management Reviews

Chairman’s review 8

Managing director’s review 10

Management Profiles

The board of directors 14

Senior Management 17

Management & Financial Reviews

Management discussion and analysis 18

Sustainability

Sustainability report 28

GRI content index 47

Governance

The award winning floortile company 48

Corporate governance 50

Risk management 59

Financial Information

Annual report of the board of

directors on the affairs of the company 66

Statement of directors responsibilities 69

Chief executive officer’s and chief

financial officer’s responsibility statement 70

Remuneration committee report 71

Audit committee report 72

Auditor’s report 73

Statements of financial position 74

Statement of comprehensive income 75

Statement of changes in equity 76

Consolidated cash flow statement 77

Notes to the financial statements 78

Five year summary of balance sheet 106

Five year summary of income statement 107

Shareholder information 108

Statement of value added 110

Notice of meeting 111

Notes 112

Form of proxy 113

Corporate information Inner back cover



“…our strategic priorities during the year were clearly aligned to our corporate goals. Throughout the year weengaged a set of sound business strategies that created a stable business platform and supported consistent the development of your Company.”


Our distinctive brandhas won loyalty from thousands of customersislandwide...



Lanka Floortiles PLC (LFPLC), is the pioneer floor tile

manufacturer in Sri Lanka and was incorporated in 1984,

with manufacturing of Ceramic Glazed Floor Tiles as its

core business. Lanka Floortiles PLC is a subsidiary of

Lanka Walltiles PLC, which is itself a subsidiary of Lanka

Ceramic PLC.

Lanka Floortiles PLC operates both in the domestic market

and in the international market. The Domestic Market

mainly comprises of Household customers and Project

customers and both are serviced by Lanka Floortiles PLC.

Lanka Floortiles PLC has a market share of 22.5% in the

domestic market.

In the international market Lanka Floortiles PLC has been

exporting floor tiles for more than 20 years to competitive

markets such as, Australia, New Zealand, USA, Japan,

India, Maldives, Pakistan, Fiji, Singapore, Canada and the

UAE.

About us

Kobe

Littleton

Karachi

Bangalore

California

Vancouver Ottawa

Toronto

Chennai

Male

COLOMBOSingapore

Osaka

Brisbane

Sydney

Melbourne

Freemantle

Auckland

5

The Company operates an ultra-modern factory at Ranala,

spread over 30 acres, equipped with the latest technology

and staffed with highly skilled engineers and technicians.

The factory which is currently operating at full capacity,

turns out over of 3 Mn. SqMt a year, which is still short of

demand for its products. The Company invests significantly

every year to upgrade plant and machinery. The factory

produces tiles in the ranges of 20”x 20”, 30”x 30”, 40”x 40”

and 50”x 50” sizes. With the expansion project completion

in the current year there will be new designs sizes and

varieties in the floor tiles range.

This will give more opportunities to grow the Company’s

market size.

It produces a variety of different textures to suit customer

preferences : matt, rough, gloss, stone, marble and terra-

cotta finishes in a range of self-colours or shades.

LANKATILES is a product that has won international

acceptance and utilises mostly indigenous raw materials,

the latest Italian Technology and a total Sri Lankan work

force.

Performance highlights

615 MnPROFIT FOR THE YEAR

5%

28%REVENUE GROWTH

3.1 BnNET ASSETS

14%

484EMPLOYEES

12NEW SHOWROOMS

30 IN TOTAL

A) SUMMARY OF OPERATIONS

Year ended 31st March 2013 2012 Change %

Export sales (Rs.’000) 249,946 150,593 65.97

Local sales (Rs.’000) 4,308,744 3,416,616 26.11

Gross revenue (Rs.’000) 4,558,690 3,567,209 27.79

Gross profit (Rs.’000) 1,305,990 1,145,972 13.96

Operating profit (Rs.’000) 785,039 772,228 1.66

Profit for the year (Rs.’000) 615,821 586,340 5.03

Production (SqMt) 3,872,387 3,079,062 25.77

Value addition (Rs.’000) 2,056,326 1,769,808 16.19

B) SUMMARY OF FINANCIAL POSITION

As at 31st March 2013 2012 Change %

Working capital (Rs.’000) 1,017,788 679,319 49.82

Net assets (Rs.’000) 3,142,697 2,751,146 14.23

Borrowings (Rs.’000) 1,393,433 683,954 103.73

Current ratio (Times) 1.64 1.76 (6.81)

NET PROFIT PER EMPLOYEE

Rs. ‘000

0

300

600

900

1,200

1,500

2009 2010 2011 2012 2013

NET PROFIT PER EMPLOYEE

PRODUCTION PER EMPLOYEE

SqMt.

0

2,000

4,000

6,000

8,000

10,000

2009 2010 2011 2012 2013

PRODUCTION PER EMPLOYEE

7



Notwithstanding the tentative growth in the housing construction

market, LFPLC performed commendably well to record healthy growth

in all KPI’s. Total Revenue increased to Rs. 4.55 Bn from Rs. 3.56 Bn

recorded in the previous year, a phenomenal 28% YoY increase.

SALES PER EMPLOYEE

Rs. ‘000

0

2,000

4,000

6,000

8,000

10,000

2009 2010 2011 2012 2013

SALES PER EMPLOYEE

VALUE ADDITION PER EMPLOYEE

Rs. Mn

0

1,000

2,000

3,000

4,000

5,000

2009 2010 2011 2012 2013

VALUE ADDITION PER EMPLOYEE

C) SUMMARY OF EMPLOYMENT STATISTICS

Year ended 31st March 2013 2012 Change %

Executives (Number) 50 46

Supervisory, clerical and allied staff (Number) 102 113

Floor level staff (Number) 332 311

Total (Number) 484 470 2.98

Sales per employee (Rs.) 9,418,781 7,589,806 24.10

Production per employee (SqMt) 8,001 6,551 22.13

Net profit per employee (Rs.) 1,272,357 1,247,532 2.00

Value addition per employee (Rs.) 4,248,608 3,765,549 12.83


Dear Shareholder,

It gives me great pleasure to present to you the annual

report and financial statements of your Company for

the year ended 31st March 2013. I am proud to note

that our strategic priorities during the year were clearly

aligned to our corporate goals. Throughout the year we

engaged a set of sound business strategies that created

a stable business platform and supported consistent the

development of your Company.

Consistent growth

In retrospect, the financial year 2012/2013 can be defined

as one of consistent growth albeit at a more subdued pace

than that experienced during the past three years. This

held true not only in the case of your Company but also for

Sri Lanka’s economy.

Having witnessed exponential growth in the past few

years, the country found itself amidst mounting macro-

economic challenges. These worrying conditions prompted

the government to introduce sweeping policy reforms

early in 2012. Aimed at curbing unrestrained growth, the

reforms also sought to create a framework supportive of

sustainable economic growth for the future. Hence Sri

Lanka’s GDP growth quotient was somewhat tamed and

stood at 6.7% for 2012 compared with 8.3% in 2011.

Amidst this backdrop, your Company too exhibited great

fortitude to record a notable 28% growth in revenue.

Consequently, the Profit after Tax also increased to Rs. 615

Mn during the year, from the Rs. 586 Mn recorded in the

previous year, a YoY growth of 5%.

Sustainable Progress

Having made significant investments towards capacity

enhancement during the preceding year, your Company

prudently evaluated all areas where investments were

deemed necessary. Accordingly, a total of approximately

Rs. 419 Mn was invested during the year, with much of

it spent to upgrade existing plant and machinery, in line

with the previous years’ expansion agenda. Moreover,

the Company’s deep-rooted environmental conscience

also led to material financial commitments in fulfilling

regulatory compliance codes and adherence to mandatory

environmental standards.

Stable Value

During the year under review, the Company paid a total

of Rs. 4.50 per share as dividend. This comprised of Rs.

3.00 per share as second interim dividend for the previous

year paid in July 2012 together with Rs. 1.50 per share

as first interim dividend for the current year, paid in March

2013. The total dividend payout for the year was Rs.

4.50 an, increase of 12% comparative to the previous

year, indicative of the Company’s commitment to deliver

consistent value to its shareholders. A second interim

dividend of Rs. 2.60 per share has also been approved

for the current year and was paid in July 2013. The YoY

increase in the total dividend payout is a clear signal of the

Company’s growing potential to further enrich shareholder

value in the years ahead.

Responsible Stewardship

In striving to deliver even greater value to all corporate

stakeholders, the Board of Directors of Lanka Floortiles

PLC will be guided by the Code of Best Practice on

Corporate Governance jointly issued by The Institute of

Chartered Accountants of Sri Lanka and The Securities

and Exchange Commission of Sri Lanka and The Colombo

Stock Exchange. As a responsible corporate citizen, the

Company also reiterates its commitment to safeguard the

rights of all stakeholders in conformity with all applicable

statutory compliance codes. Moreover, the Company

pledges to engender responsible stewardship by building

a voluntary code of conduct over and above all mandatory

stipulations. This would form the basis of transparent

business practices that emulate the highest standards of

ethical conduct pervading into all aspects of the business.

Looking Ahead

The prospects for the year ahead are promising, particularly

with the takeover of Lanka Ceramics PLC, the parent

company of Lanka Floortiles PLC, by Royal Ceramics

Lanka PLC from CT Holdings PLC, in May 2013. This

would result in Royal Ceramics Lanka PLC joining forces

with Lanka Floortiles PLC, four new appointees to our

Board. It is from this position of strength and stability that I

look ahead with optimism to the takeover as a harbinger of

good fortune for your Company. In the light of the ensuing

business synergies that would result from the takeover, I

am confident that we would be able to further reinforce our

brand identity across all market segments. Consequent to

the takeover we expect to also broad- base our corporate

goals by exploring diverse business concepts that would

Chairman’s review

9

assuredly manifest in strong commercial growth for the

Company. In pursuance of our goals we anticipate that our

growth patterns would strongly mirror the stable growth

trajectory of the Sri Lankan economy in the year ahead.

Appreciations

I wish to express my sincerest appreciation to the Board

of Directors for the support and wise counsel extended to

me at all times. I take this opportunity to also congratulate

the Managing Director, the senior management and the

entire staff of Lanka Floortiles PLC for their determination to

deliver success to our shareholders. I am truly honoured

by your dedication in working towards a common goal and

thank you for your unquestioning loyalty. My gratitude also

goes out to our valued customers, bankers, distributors,

“In pursuance of our goals we anticipate that our growth patterns would strongly mirror the stable growth trajectory of the Sri Lankan economy in the year ahead.”

dealers and other business partners for their continued

support. In conclusion I wish to thank all our Shareholders

for their valuable patronage and confidence.

Anthony A Page

Chairman




Managing director’s review

Global economic background

Global economic growth continued its weak growth pattern

for the second consecutive year, with many advanced

economies stagnating and others slipping back into a

recessionary state. As the Eurozone crisis continued

to escalate many of these economies ended the year

recording de-growth. In contrast, the US economy showed

signs of revival, posting GDP growth of 2.1% for 2012,

boosted by an upsurge in consumer spending in the latter

half of the year.

“Characterised by many challenges, the year proved to be an insightful one, not only for us, but for the entire construction industry as well. However, despite these challenges, your Company performed relatively well during the year and I strongly believe that this signals the Company’s growing strength and resilience in the face of change.”

J A P M Jayasekera



Emerging economies on the other hand proved to be far

more resilient and continued to thrive, with many recording

robust growth during the year. Of particular note, is the

healthy 8.6% growth rate posted by China, with India

posting vigorous growth of 6.5% for 2012.

Sri Lanka’s economic background

Sri Lanka’s economic growth during the year also mirrored

the performance of many emerging economies. Recording

a fairly restrained yet healthy growth of 6.4%, the country

11

transitioned towards a more managed growth model

during the year. Meanwhile inflation was maintained at

single digit levels. To further strengthen the macroeconomic

environment within the country and support managed

growth in the future, in early 2012, the Central Bank and

the government introduced changes to the country’s fiscal,

monetary and exchange rate policies. The comprehensive

policy package was meant to decelerate credit growth

vis-à-vis three consecutive interest rate hikes in early

2012, followed by a lending cap on commercial banks to

reign in expanding credit growth. Meanwhile, the upward

revision of the import duty structure was meant to curb

the escalating demand for imports in a bid to stem the

soaring trade deficit. This was followed by an easing of

the exchange rate policy thereby allowing the free float of

the rupee against the US dollar. These measures achieved

the desired results by contrasting credit growth within the

country together with a sizable reduction in imports that led

to a manageable trade gap by the end of 2012. Supported

by this macro-economic framework, the country began to

adjust to a managed growth climate highly aimed at more

sustainable economic development.

Industry outlook for the year

Dominated by the infrastructure sector, Sri Lanka’s overall

construction industry grew by a significant 21% in 2012.

In contrast however, the domestic housing construction

sector, which is our primary market, only grew by a 6.5%.

The domestic construction sector remained lackluster

throughout the year, indicative of a slackening of the

housing construction boom witnessed in the preceding

years. A dramatic reduction was also observed in the

number of Mortgage Redemption Policies issued by

insurance companies during the year, further evidence of

the declining trend in the housing construction market, in

Sri Lanka.

As in the past, this year too, the rapid depletion of the

core raw material base within the country continued to

undermine the future of the industry. Over the years the

Sri Lanka Ceramics Council (SLACC) in partnership with

the Ministry of Industries, has launched a number of

key initiatives to add value to the industry. As a dynamic

member of the SLACC, your Company remained actively

involved in these efforts. During the year, a long term

undertaking spearheaded by the SLACC in partnership

with the Ministry of Industries and the Geological and

Mines Bureau of Sri Lanka led to the exploration of

potentially untapped raw material deposits across the

island. I am happy to note, that these efforts resulted in the

discovery of commercially viable deposits of ‘Ball Clay’ in

the Kalutara district, adding a considerable boost to the

entire tile manufacturing industry in Sri Lanka.

Business Highlights

It is indeed heartening to note that your Company has once

again recorded an impressive performance for the year

under review, regardless of the lackluster market conditions

that persisted during the year. Turnover for the year was

Rs. 4.55 Bn comparative to the Rs. 3.56 Bn recorded

in the previous year, a vigorous 28% Year-on-Year (YoY)

growth. Moreover, sales volumes also grew 11% during

the year, albeit at a slower pace than was expected, which

nevertheless, led to a marginal stock build up as at 31st

March 2013. Noting that sales volumes were falling short

of expectations for the year, we managed to successfully

enhance our profit margins through prudent financial

management and cost control measures. Consequently

our Profit for the year increased from Rs. 586 Mn recorded

in the preceding year to Rs. 615 Mn for the current year, a

5% YoY increase.

The increase in sales volumes for the year did however

translate into a notable increase in market share resulting

from the growing presence of the Company’s branded

franchise channel. In the year under review, 12 new

franchise showrooms were added, to the existing network

to end the year with a total of 30 outlets across the country

thereby considerably enhancing the Company’s island-wide

reach.

Results from the dealer network on the other hand, fell

below expectations during the year. With commercial

banks forced to restrict lending in 2012, many dealers

found themselves severely cash strapped as the year

progressed. In the light of the dire state of affairs, these

dealers failed to meet their annual targets. As such the

Company was unable to achieve expected results from the

dealer network during the year.

Largely driven by the sales from the North America

and the re-entry to the Indian market after a ten year


Managing director’s review

respite, export sales grew during the year, to record a

commendable 47% overall growth in volumes comparative

to the previous year. Encouraged by this performance, in

the year ahead the Company expects exports to gather

more momentum driven largely by the budding potential

in the Indian market. The fully equipped showroom due to

be opened in Bangalore, in August 2013 would be the first

step in nurturing this promising market. In the year ahead

the Company also hopes to further expand its reach by

opening additional showrooms in key cities across India.

Operational Highlights

During the year under review, we were able to successfully

reap the rewards of the investments made in the previous

year, towards capacity expansion at the factory. I take great

pride in mentioning that the factory continued to operate

at full capacity throughout the year, despite the minor crisis

that erupted in August -2012, owing to the strike action

launched by the labour force at the Company’s sorting

department. Undaunted by the challenge we proceeded to

seek alternatives to ensure uninterrupted operations and

resorted to outsourcing the sorting process, which is now

an established practice. This proved to be a watershed

moment for the Company, as it revealed the possibility

of process outsourcing as an alternative to fulfilling our

requirements.

Being in a demand driven business, we have always

worked in cognisance with changing trends in the

construction sector that could have a direct impact on

our markets. Accordingly, this year too we sought to

improve the quality and consistency of our existing product

offerings while concurrently delivering new innovations

to the market. By adopting a three pronged strategy, we

sought to firstly, create an extensive product offering,

secondly to streamline internal processes and finally enrich

the customers buying experience though an unparalleled

choice of superior quality products.

Stemming from the capacity expansion drive of the

preceding year, we launched a series of new products

to the market. Key among them was the entry into

the Porcelain Tiles market in Sri Lanka, in readiness to

harness the growing demand for the product. Meanwhile,

the Company also invested Rs. 419 Mn during the year,

to add value to the existing product line while further

augmenting the product portfolio to penetrate potentially

untapped markets. Among the key investments made

during the year was Rs. 100 Mn spent to introduce digital

printing technology that would profile sharper imagery

on the tile surface adding considerable value to the final

product. Capitalising on the emerging market for rectified

tiles, the Company invested a further Rs. 100 Mn in the

required technology. Meanwhile, a full time European

design specialist was recruited with a view to developing

contemporary designs that cater to the varied tastes of the

modern consumer both in local and overseas markets.

In addition to these product enhancement measures, we

also looked inward to further improve certain operational

areas. In doing so, the Company invested in an automated

inspection machine at a cost of Rs. 84 Mn, while a new

water jet cutting machine was also commissioned at a

cost of Rs. 8 Mn. I am also happy to note that at the time

of writing we have recruited an Italian specialist factory

manager to support our production staff to enhance our

operations to international standards.

Aligned to the goal of enriching the customer’s buying

experience and assurance of consistent quality and

delivery, the Company made a concerted effort to

ensure uniformity in all showrooms across the island.

Substantial investments were made during the year to

improve merchandising and create a novel identity for all

showrooms. The showroom opened in Jawatte, Colombo

05 in July 2013, with be the first to showcase the new

upscale look, while all future showrooms will capture the

same customer-centric theme. Moreover, in the year ahead

we expect to gradually transition all existing showrooms to

also reflect the same visual appeal.

13

Subsidiary Operations

Swisstek (Ceylon) PLC and its subsidiary Swisstek

Aluminium Limited, both of which are associate companies

of LFPLC, demonstrated satisfactory progress during the

year under review, while continuing to maintain product

quality and delivery standards. Strengthened by the

infrastructure investments made in the previous year, both

companies fulfilled expected performance parameters

throughout the year. Swisstek Aluminium in particular

recorded a tremendous improvement in revenue. However,

due to the high finance cost burden, the Company was

unable to translate this growth into a profit scenario. During

the year, Swisstek (Ceylon) PLC, fulfilled the long held

dream of opening a factory outlet. Strategically located in

Belummahara in the Gampaha District, the outlet serves a

broader geographical region.

Future Outlook

I believe the Company’s performance in 2012/2013 is a

clear sign of its growing strength and resilience in the face

of a changing business climate. It is from this vantage point

that I welcome the takeover of our parent company Lanka

Ceramics PLC by Royal Ceramics Lanka PLC (RCPLC)

in May 2013. The takeover brings together two of the

largest players in the industry and facilitates the long felt

need for consolidation in Sri Lanka’s tile industry. Following

the takeover, RCPLC gained controlling interest in your

company. With significant representation on our Board,

RCPLC is now able to influence all policy level changes of

your Company. By eliminating the rivalry between the two

organisations, the takeover would determine a suitable

business structure that would cater to the strengths of

each company.

From an industry viewpoint, this would not only lay the

foundation to drive future growth of the entire industry,

but will also result in greater value creation for all industry

stakeholders. From a business perspective for us, the

ensuing synergies would greatly facilitate the expansion

of our branded franchise network, while also achieving

the twin goals of enhancing island-wide brand presence

and reducing the dependence on the dealer network. The

combined strength of both companies would also be an

added advantage in securing a stronger regional presence

and developing new export markets as well, in the years

ahead. In doing so, we will jointly look to reinforce our

prevailing markets and investigate possible new markets

vis-à-vis a selection of sophisticated new consumer-

centric solutions that cater to the discerning needs of our

customers.

Grateful thanks

To conclude, I take this opportunity to extend my heartfelt

appreciation to the management and staff for their

commitment and dedication in ensuring the success

of the Company. I wish to express my sincere thanks

to the Chairman and the Board of Directors for their

unfailing support and guidance at all times. I also wish to

congratulate and extend a warm welcome to the newly

reconstituted post-merger Board and look forward to

working with you in the year ahead. My heartfelt gratitude

also goes to the shareholders of the Company for their

continued support and confidence in the Company.

Thank you also to our bankers and external auditors for

their valuable input. Finally, I wish to thank our customers,

business partners and other stakeholders for their

continued patronage. I rely on your invaluable support to

explore the promising possibilities in the year ahead.

J A P M Jayasekera

Managing Director

23rd August 2013

“Among the key investments made during the year was Rs. 100 Million spent to introduce digital printing technology that would profile sharper imagery on the tile surface adding considerable value to the final product.”



A A Page Chairman

Dr. S Selliah Deputy Chairman

J A P M Jayasekera Managing Director

P L Amerasinghe Director

K D D Perera Director

W D N H Perera Director

T G Thoradeniya Director

K D G Gunaratne Director

A A Page

Mr. Anthony A Page, a Chartered Accountant by profession

is the Chairman of CT Holdings PLC a company classified

by the Colombo Stock Exchange under the ‘Diversified

Holdings’ category with interest in Retails, Distribution of

Food & Beverages, Manufacturing, Property Development

and Financial Services. He is also Chairman of Horana

Plantations PLC. He serves as a Non - Executive Director

on the subsidiaries of CT Holdings PLC, namely Cargills

(Ceylon) PLC and CT Land Development PLC.

Mr. Page is also Chairman of Lanka Ceramic PLC and its

subsidiaries, Lanka Walltiles PLC, Swisstek (Ceylon) PLC

and Swisstek Aluminium Ltd. He also serves as a Non

- Executive Director of Pan Asia Bank Corporation PLC

and as a Non – Executive Independent Director of Royal

Ceramics Lanka PLC.

He was former Director of the Colombo Stock Exchange

and a former Council Member of the Employers’ Federation

of Ceylon.

Dr. S Selliah

Dr. Selliah joined the Board of Lanka Floortiles PLC in

2002 and was appointed as the Deputy Chairman of the

Company in 2006. He also serves as a Director of Lanka

Walltiles PLC, Swisstek (Ceylon) PLC, Swisstek Aluminium

Ltd, Expolanka Holdings PLC, Softlogic Holdings PLC,

Horana Plantations PLC, Asiri Hospitals PLC and Asiri

Surgical Hospital PLC.

Dr. S.Selliah holds a MBBS degree and a Masters Degree.

The board of directors


1515151515151155155511111

Porcelain (Pvt) Ltd. Mr. Amerasinghe also established

Ceyquartz MBI (Pvt) Ltd, a joint venture with Japanese

collaboration, of which he is the Chairman/Managing

Director. He has considerable experience in management

of export oriented manufacturing organisations and the

export and marketing of its products both locally and

internationally.

K D D Perera

Mr. Dhammika Perera is the quintessential strategist and

business specialist with 25 years of business experience.

His business interests include Hydropower generation,

Manufacturing, Hospitality, Entertainment, Banking and

Finance. Currently he holds the position of Secretary to

the Ministry of Transport, Sri Lanka. He is the Chairman

of Sampath Bank PLC, Vallibel One PLC, Vallibel Finance

PLC, Vallibel Power Erathna PLC, The Fortress Resorts

PLC and Delmage Limited. He is the Deputy Chairman

of Hayleys PLC. He also serves on the Boards of Amaya

Leisure PLC, Haycarb PLC, Hayleys MGT Knitting Mills

PLC, Hotel Services (Ceylon) PLC, Dipped Products PLC,

Orit Apparels Lanka (Pvt) Limited and Sri Lanka Insurance

Corporation Ltd.

He is also a member of the Board of Directors of Strategic

Enterprise Management Agency (SEMA)

J A P M Jayasekera

Mr. Jayasekera joined Lanka Floortiles PLC in August 1997

as Executive Director. He was appointed as Managing

Director in January 2002 and continues to hold the same

position at present.

In April 2008 he was appointed the Managing Director

of Lanka Walltiles PLC, the holding Company of Lanka

Floortiles PLC. He is the Managing Director of Swisstek

(Ceylon) PLC, Swisstek Aluminium Ltd. and a Director of

Lanka Ceramic PLC.

Mr. Jayasekera holds a BSc Special (Hons) degree

in Business Administration from the University of Sri

Jayawardenapura and is a Fellow Member of the Institute

of Chartered Accountants of Sri Lanka.

P L Amerasinghe

Mr. Amerasinghe is a Fellow Member of the Chartered

Management Institute of UK. He is a professional with

more than 45 years of Senior Managerial experience which

includes 15 years in Plantation Management and 17 years

as Chief Executive Officer of Lanka Walltiles PLC from its

inception.

He is a founder Director of Lanka Tiles Ltd, now Lanka

Floortiles PLC and is on the Board of Directors to date. Mr.

Amerasinghe has been the Managing Director of Aristons

(Pvt) Ltd since 1989 and a consultant to Noritake Lanka

W D N H Perera

Mr. Nimal Perera is the Chairman of Pan Asia Banking

Corporation PLC.

He is the Deputy Chairman of Vallibel One PLC, Managing

Director of Royal Ceramics Lanka PLC. Director of Amaya

Leisure PLC. And he also serves on the Boards of Hayleys

PLC, Hotel Services (Ceylon) PLC, Vallibel Finance PLC,

Haycarb PLC and Thalawakele Tea Estate PL C.

Mr. Perera, a member of the Sri Lanka Institute of

Marketing, counts over 31 years of experience in the fields

of Finance, Capital Market Operations, Manufacturing and

Management services.

T G Thoradeniya

A marketer by profession, Tharana Thoradeniya was in

the pioneering batch of Sri Lankans to be awarded the

title of Chartered Marketer. He counts over 20 years of

industry experience with a unique working background

in Marketing, Technology Management & Manufacturing.

He is the Director – Marketing & Business Development

of Royal Ceramics Lanka PLC and the Chief Executive

Officer of Rocell Bathware Ltd. He also serves on the

Boards of Pan Asia Banking Corporation PLC, Hayleys

Fibre PLC and Delmage Limited.

K D G Gunaratne

Mr. Gunaratne studied at St. Thomas’ College Mt. Lavinia

and was a member of the Western Provincial Council

during the period 1989 to 2009.

He currently holds the position of Vice Chairman National

Water Supply & Drainage Board and Chairman of Lanka

Hotels & Residences (Pvt) Ltd.

The board of directors


1717171717177117717711111

Senior management

Nathalie Kehrli

Head of Design

Mahendra Jayasekera

Managing Director

Shirley Mahendra

Head of Marketing

Tyrell Roche

Head of Finance

Patrick Piyasena

Assistant General Manager (P/T)

Upul Weerasinghe

Group Engineering Manager

Malsri Fernando

Group Commercial Manager

Prasad Keerthiratna

Group IT Manager


Management discussion and analysisGlobal Economic Perspective

Marred by dismal growth in the previous year, the global

economy underperformed once again in 2012, failing

to spark any lasting momentum. Characterised only by

sporadic growth spurts the global economy expanded by

a mere 1% during the year. As economic stability eluded

many advanced economies throughout the year, some

remained stuck in low gear while many, particularly in

Europe, slid back into a fully blown recession.

The US economy demonstrated signs of modest recovery

supported by a more accommodative monetary policy

and increased government spending. As the job market

continued to improve in the US a more spend-centric

culture was observed with each progressive quarter.

Consequently, the US economy picked up speed, albeit

at a slower pace than was expected and ended the year,

recording growth of just over 2%. Triggered by this revival,

experts forecast favourable growth prospects for the US

economy in the forthcoming year.

Meanwhile across the Atlantic, the Eurozone debt crisis

continued unabated for the second successive year,

underscoring the severity of the region’s economic

misfortunes. The decline in the region reached

unprecedented levels with economic activity in the 17

nation block contracting by a further 0.5% during 2012.

As factory output plummeted, the jobless rate continued

to escalate and many economies were edged into

recessionary conditions to end an already dismal year. The

prognosis for the EU in the forthcoming year remains grim,

with the credit crunch expected to continue and the overall

growth potential for the region expected to hover in the

current depressive state.

Key Asian economies also experienced notable changes

during the year. While Japan hesitantly recovered from the

catastrophic impact of the 2011 Tsunami, to record stable

growth, China deviated from its sharply inclined growth

curve in favour of a more sustainable growth pattern.

As expected the Indian economy too performed well

during the year to record robust growth indicative of the

country’s continuing strength as a regional powerhouse.

The prospects for the year ahead, remains positive for

these Asian economies, with many yet again, expected to

outperform global growth rates.

Sri Lanka’s Economic Performance

The lackluster global economic conditions did manage to

somewhat impact on Sri Lanka’s economic performance

for 2012. Consequently, the economy expanded by only

a moderate 6.4% in contrast to the runaway growth

experienced since 2010. During the year the country’s

export sector was affected due to the rapidly evaporating

demand for external goods from the EU, which accounts

for more than a third of Sri Lanka’s total annual exports.

Amidst dwindling export income, post war consumerism

had fuelled the demand for imported goods that had led

to a burgeoning trade deficit. The problem was further

compounded by severe inflationary pressures resulting

from unrestrained credit growth within the country.

In early 2012, the Government of Sri Lanka (GoSL)

initiated a series of measured steps to strengthen the

macro-economic environment in the country and cultivate

a more sustainable economic climate. Accordingly, the

GoSL together with the Central Bank of Sri Lanka (CBSL)

introduced wide-ranging macro-economic policy changes

to ensure stability and redress economic imbalances that

were prevalent at the time.

To curtail unrestrained credit growth, the Central Bank

imposed a credit ceiling which directly impacted the

19

“Lanka Floortiles PLC (LFPLC) too was instrumental in developing the required framework needed for the future of the tile industry in Sri Lanka.”

The ceramic tile sector exports grew by 10%, amidst an plethora of new tile designs, technologies and innovation.


lending limits of commercial banks. This was followed by

a meticulous interest rate policy that led to three interest

rate hikes in quick succession. By denying access to low

cost funding the government aimed to curtail consumer

spending, while specifically arresting the soaring demand

for imports. Simultaneously the import duty structure

was also revised upward, while dramatic changes to the

exchange rate policy led to the free float of the rupee

against the US dollar. These measures culminated in

drastically reducing the demand for imported goods and

enabling the government to tame the widening trade gap.

The measures were successful in achieving the desired

results and facilitating a more stable growth profile for the

country, which would undoubtedly be a precursor for future

development.

Industry Overview

Having developed a stable growth model in 2012, Sri

Lanka continued to attract foreign direct investments (FDI)

into the country. Predominantly driven by the large scale

infrastructure based projects supported by the government

of China, Sri Lanka’s construction industry grew by a

healthy 21% during 2012. Although a component of the

overall construction sector, the tile industry could not

fully realise this success owing to its dependence on the

housing construction market, which grew by only 6.5%.

This cautious growth is indicative of the gradual decline

of the housing boom experienced in the preceding three

years.

With the housing construction segment demonstrating

restrained growth during the year, the continuing influx of

imported tiles also remained a serious worry for the tile

industry. As these cheap mainstream imports continued to

saturate the Sri Lankan tile market, local tile manufacturers

were placed under severe strain to compete. Hence during

the year, the government resolved to strengthen the local

tile industry with the aim of protecting locally manufactured

products. Consequently the duty protection Cess of 35%

was re-imposed in September 2012 to restrict low-cost

imports

During the year, The Sri Lanka Ceramics Council (SLCC)

which is the apex body representing the entire tile industry

took active steps to enrich the operational platform of the

entire industry. As a mentor to the SLCC, Lanka Floortiles

PLC (LFPLC) too was instrumental in developing the

required framework needed for the future of the tile industry

in Sri Lanka. Spearheaded by the SLCC in partnership

with the Industrial Technology Institute (ITI), a number of

initiatives were undertaken during the year to refine and

develop certain key areas that were deemed critical for

future growth of the industry. Of particular note are the

developments in the field of nanotechnology for tiles and

self-cleaning technology for tiles. It is believed that these

innovations would create the next generation of products

on par with international standards.

“Amidst the tentative growth in the housing construction market, LFPLC performed commendably well to record healthy growth in all KPI’s.”

Management discussion and analysis

Turnover per year for

last 4 years

2010 2011 2012 2013

Rs Mn

REVENUE

0

1,000

2,000

3,000

4,000

5,000

21

FINANCIAL REVIEW

Revenue

Amidst the tentative growth in the housing construction

market, LFPLC performed commendably well to record

healthy growth in all KPI’s. Total Revenue increased to Rs.

4.55 Bn from Rs. 3.56 Bn recorded in the previous year, a

phenomenal 28% YoY increase. Export sales for the year

increased by 66% to Rs. 250 Mn, while local sales also

demonstrated a steady growth of 26% to reach Rs. 4.843

Bn inclusive of VAT. Total Sales volumes also grew by 11%

during the year, with key contributions of 23% from the

Franchise network and 5% from overseas sales.

It is noteworthy that the Company was unable to

materialise significant gains from the dealer network, in

the year under review. Owing to the lending restrictions

by commercial banks, many dealers had to face the grim

reality of a severe liquidity crisis during the year. Restricted

by the lack of funds, most dealers were unable to replenish

stocks and could not meet customer requirements or fulfill

financial obligations.

Profitability

Triggered by the Company’s expanding franchise channel,

distribution costs for the year increased significantly

to reach Rs. 325 Mn compared to the Rs. 199 Mn of

the preceding year. Amidst this scenario, the Company

made a concerted effort to contain administrative costs

as much as possible. These efforts together with the

increase in revenue successfully translated into a 1.6%

increase in the Company’s operating profit for the year

under review. However, the high finance costs negated

any positive contributions made by the operating profit

and consequently, PBT declined by 3.8% during the year.

Nevertheless, supported by a significant 41% reduction

in taxation, due to the qualifying allowance benefit from

investments made LFPLC’s PAT increased by 5% from

Rs. 586 Mn in the previous year to Rs. 615 Mn in the year

under review.

Borrowings

LFPLC’s total borrowings increased from Rs. 684 Mn

in the previous year to Rs. 1.39 Bn in the current year.

Increases were also observed in all borrowing streams.

The Company’s continuous expansion plan led to a YoY

increase of 39.5% in long term interest bearing liabilities.

Meanwhile, significant increases were noted in short term

interest bearing liabilities and bank overdrafts, primarily to

facilitate working capital requirements.

In the face of mounting finance costs, a Company-wide

strategy of prudent cost management and financial control

was initiated to enable the Company to maintain a stable

debt/equity ratio of 44%.

Share performance and Dividend

While the total number of shares issued remained

unchanged, the Company’s performance in the stock

market was consistent throughout the year under review.

No material changes took place in the share price given

the dull market conditions that persisted during the year.

The price per share was Rs. 69.50 as at 31st March 2013,

while the highest recorded price of Rs. 83.00 was in March

2013 and the lowest price per share of Rs. 56.10 was

recorded in March 2013.

“The increase in profitability contributed towards enhancing both the Company’s Earnings per Share (EPS) and Net Assets Value (NAV) per share.”

Net Profit per year for

last 4 years

2010 2011 2012 2013

Rs Mn

PROFITABILITY

0

100

200

300

400

500

600

700

Total Assets as at

balance sheet date for

last 4 years

2010 2011 2012 2013

Rs Mn

TOTAL ASSETS

0

1,000

2,000

3,000

4,000

5,000

6,000


The increase in profitability contributed towards enhancing

both the Company’s Earnings per Share (EPS) and Net

Assets Value (NAV) per share. EPS increased to Rs. 11.61

per share from Rs. 11.05 recorded in the previous year,

while NAV increased from Rs. 51.85 in 2011/12 to Rs.

59.24 in 2012/13.

During the year under review, the Company paid a total

of Rs. 4.50 per share as dividend comprising of Rs. 3.00

per share as second interim dividend for the previous

year paid in July 2012, together with Rs. 1.50 per share

as first interim dividend for the current year, paid in March

2013. The total dividend payout for the year was Rs.

4.50, an increase of 12% comparative to the previous

year, indicative of the Company’s commitment to deliver

consistent value to its shareholders. A second interim

dividend of Rs. 2.60 per share has also been approved for

the current year and was paid in July 2013. The increase in

the total dividend payout is a clear signal of the Company’s

growing potential to further enrich shareholder value in the

years ahead

Investments

Once again the Company made significant investments in

fixed assets during the year. In correlation with the capacity

expansion agenda, investments made during the year were

predominantly to augment the production facility. A total

of Rs. 419 Mn was spent during the year to commission

a range of equipment to complement existing technology.

Key among these investments was the introduction of

digital printing technology at a cost of Rs. 100 Mn, while a

further Rs. 100 Mn was spent to introduce the technology

required to produce rectified porcelain tiles. Meanwhile,

Rs. 84 Mn was incurred on a new water jet cutting

machine and an additional Rs. 8 Mn saw the installation of

automatic tile sorting machinery.

The Company also invested approximately Rs. 15 Mn

during the year to acquire land adjacent to the LFPLC’s

main manufacturing plant in Ranala. The acquisition

was made primarily to protect the bio-diversity of the

area by negating any potential impact on the immediate

surroundings that may result from the Company’s

operational activities.

Moreover, another Rs. 15 Mn was spent to upgrade all

environmental compliance codes in particular, sound

proofing, dust reduction, emission reduction and effluent

treatment etc.


“Boldly deviating from established tile profiles, the Company embraced more innovative models to cater to the highly responsive market for porcelain tiles and large format tiles.”

23

Financial Reporting

In striving to deliver meaningful, transparent and accurate

information, LFPLC has consistently adhered to all

accepted best practices in every aspect of financial

reporting. The Company is guided by the reporting

standards set out by the Institute of Chartered Accountants

of Sri Lanka and the Colombo Stock Exchange.

During the year, the Company changed its reporting format

in accordance with the new SLRFS guidelines set out

by the Institute of Chartered Accountants of Sri Lanka.

Accordingly, for the first time, all financial statements as

at 31st March 2013 have been prepared in compliance

with these new guidelines that came into effect from 01st

April 2012. In the interest of enabling shareholders and

stakeholders to make informed decisions, all financial

statements are verified by an independent external auditor.

MARKETING REVIEW

New Markets

The year under review LFPLC capitalised on a number

of opportunities in both local and international markets,

tapping into a number of overseas markets after a lapse

of ten years. Attempts to make inroads into the North

American Market induced the Company to participate in

the annual “Coverings 2012” exhibition held in Atlanta,

Georgia. The Coverings exhibition facilitated a specialised

platform for global tile manufacturers to access a

greater segment of the North American markets, which

undoubtedly led to LFPLC’s success in penetrating this key

market.

Moreover, the Company also ventured into the Middle

Eastern market and extended its reach in the South Asian

region, during the year. Having established a successful

track record of servicing Tile markets in Pakistan and the

Maldives, the Company aggressively launched into the

vast Indian market as well. To complement these efforts

a specialist Indian based marketing team with extensive

ground knowledge on Indian market specifics, was also

sourced. The team is tasked with promoting the LFPLC’s

products and securing the Company’s presence in

identified geographical locations across India. To further

supplement this motive, in the year ahead, the Company

hopes to commission a state-of-the-art sales outlet in

Bangalore, which would showcase LFPLC’s capabilities

in servicing the Indian Tile market. It is hoped that this

inaugural showroom would be the channel by which the

Company could realise the future potential in the Indian

market.

New Products

In tandem with the evolving local tile market, dramatic

changes were made to the product portfolio during the

year. Traditionally geared for the mid-income segment

of the local consumer market, the Company ambitiously

diversified product offerings to cater to all customers

ranging from upscale to budget market segments.

Particularly given the growing popularity of cut cement

flooring as an alternative to tiling, this form of lateral

diversification was deemed to be a timely move.

Boldly deviating from established tile profiles, the Company

embraced more innovative models to cater to the highly

responsive market for porcelain tiles and large format tiles.

Due in large part to technology investments made in the

previous year, Porcelain tile production commenced in

the current year. The preemptive decision to install highly

specialised edge rectification and chamfering equipment,

the year before proved to be an invaluable investment

leading to LFPLC’s timely entry into the porcelain tile

arena. Furthermore, the decision to invest in large format

tile technology, during the year under review, added new

vigour to existing product offerings. Meanwhile, supported

by investments in digital printing technology made during

the current year, nineteen high-quality new designs were

introduced to complement the existing LANKATILES

product portfolio, offering an unprecedented range of

affordable options that cater to a broad spectrum of

customer segments. This being the widest ever selection


offered under the LANKATILES umbrella, the range

now consists of options to suit the discerning tastes

and lifestyle requirements of all customer segments.

Seeking continuous improvement in design concepts

and capabilities has always been a priority for LFPLC. To

fulfill this need, in August 2012, the Company sought the

expertise of a full time Italian design specialist.

Triggered by the growing number of commercial and

residential high-rise complexes in Colombo city and

the country’s flourishing tourism sector, the market

for upscale flooring has continued to blossom in the

recent past, highlighting the need for an even greater

availability of options. To fulfill the discerning needs of this

emerging market, LFPLC took steps to source tiles and

marble flooring directly from Europe. Of particular note

is introduction of the Impronta and Baldocer brand of

European tiles and marble flooring options from Greece

which offer sophisticated elegance and effortlessly

combines tradition and modernism in its product range.

Meanwhile, a range of good quality affordable tiles was

sourced from China to supplement LANKATILES’ variety of

selections and service customers seeking more affordable

options.

Distribution Network

With a view to enhancing overall customer perceptions

of the LANKATILES brand and ensuring greater product

visibility across the island, the Company modified the

nation-wide dealer network. The aim was to remodel

the dealer profile to showcase the LFPLC product range

and reflect its image as a lifestyle brand. In doing so, the

Company predominantly focused on developing dealers

situated in key strategic locations across the country while

prominence was also given to dealers who carry a range

of complementary products. The company believes that

such top-tier dealers would be in a stronger position to

perform consistently well, boosted by their captive market

environment. Hence, the island-wide network of 80 dealers

and 22 area coordinators were prioritised according to the

established criteria. It is hoped that this new format would

streamline dealer performance and deliver consistent

results in the years ahead.


Aligned to the goal of enhancing the company’s island-wide footprint, the branded franchise channel was also expanded during the year, with 12 new franchise showrooms added to the existing network. The company made considerable investments to improve merchandising mechanisms and revamp promotional materials to update the showroom profile.

25

Aligned to the goal of enhancing the Company’s island-

wide footprint, the branded franchise channel was

also expanded during the year, with 12 new franchise

showrooms added to the existing network. The Company

made considerable investments to improve merchandising

mechanisms and revamp promotional materials to update

the showroom profile. Key changes in racking and display

systems, layout and space utilisation in addition to more

user friendly information, all aimed at delivering consistent

quality products on a more customer-centric platform. The

showroom due to be opened in Jawatte, in the forthcoming

year would be the first to reflect this revolutionary new

approach while all franchise showrooms across the

island would be gradually transitioned to embrace the

new upscale theme. Moreover, the Company’s island-

wide publicity campaign aims to generate interest and

create awareness on the limitless possibilities that the

LANKATILES brand offers. The visually captivating

campaign was initially launched in the western province

during the year under review. Plans are underway to

further extend the campaign to coincide with the phased

upgrading of all franchise showrooms across the island.

OPERATIONAL REVIEW

Factory Operations

Ever mindful of how the level of efficiency of factory

operations would affect the final output, the Company

proceeded to yet again reassess the operational framework

in place. In doing so, LFPLC has always championed

a continuous improvement methodology of operational

management. In line with this belief, an automated

inspection machine was introduced to guarantee the quality

and consistency of the final output. In addition a water jet

cutting machine was also commissioned during the year.

This state-of-the-art equipment uses a high pressure water

jet stream to minimise wastage by re-cutting damaged tiles

and converting them into a suitably salable condition.

To comprehensively streamline all factory operations, the

Company plans to seek the expertise of a dedicated Italian

specialist factory manager, in the forthcoming year. The aim

of this move is to uplift the standards of LFPLC’s factory

operations on par with international standards and reinforce

the Company’s position as frontrunner among both the

local and international tile manufacturers.

Raw Material Sources

The recent rapid growth of Sri Lanka’s tile sector has led to

the near exhaustion of its core raw material sources within

the country. This consequential depletion of clay deposits

has been a constant worry, threatening the very survival

of the industry. For its part LFPLC explored all possible

alternatives to ensure a secure raw material source. As the

cost of importing raw materials was prohibitively high the

Company was inspired to explore possible clay deposits in

yet untapped regions of Sri Lanka. A long term undertaking

conducted under the stewardship of LFPLC together

with the expertise of the Ministry of Industries and the

Geological and Mines Bureau of Sri Lanka. The exercise

was proven to be an instant success with the immediate

discovery of large viable deposits of ‘Ball Clay’ in

Alubomulla, in the Kalutara district adding to the collective

relief of the entire industry.

Energy Efficiency

The Company’s high energy costs continue to be a

concern given the high dependence on LP gas and

Kerosene as the primary energy sources with electricity

claiming secondary importance. The rapidly escalating

costs of these core energy sources, has placed

immense pressure on the Company to seek energy

efficient alternatives to power the Company’s operations.

Accordingly, all avenues are being explored to bridge the

energy gap through the introduction of energy efficient

equipment and adoption of energy saving practices. It is

hoped that these efforts would lead to significantly lower

overall energy costs across all aspects of the business.

Ever mindful of how the level of efficiency of factory operations would affect the final output, the company proceeded to yet again reassess the operational framework in place.


Employees Relations

Faced with the looming labour shortage in the sorting

section, resulting from the strike action in August-2012, the

Company was forced to outsource its labour requirements

to ensure there were no disruptions to the operational

aspects of the business. This proved to be a defining

moment for LFPLC as it spotlighted the possibility of

outsourcing as a more flexible alternative to overcome

potential labour related disruptions to the Company’s

operations. However, the strike action was amicably

resolved with no major fallout and the Company continued

to successfully maintain satisfactory relationships

with all employees and labour unions connected to

the organisation. Supported by a dynamic employee

development and career progression agenda, LFPLC has

been able to consistently maintain a below average labour

turnover rate.

Health and Safety

As always, operational health and safety continues to

be of primary importance, permeating to all operational

aspects of LPFLC’s business. Comprehensive, transparent

health and safety mechanisms in place give precedence

to creating a safe and secure work environment for all

employees. Spearheaded by an active health and safety

committee, all safety features and procedures are regularly

reviewed for completeness and compliance, with remedial

action being initiated to arrest any gaps that are revealed.

Environmental Awareness

Following some backlash from environmental aspects in

the past, the Company has since then worked in tandem

with a strong environmental conscience. In doing so LFPLC

has made great strides to mitigate the environmental

impact that could result from the Company’s operations.

In this year too, significant investments were made to

ensure pollution control and improve the ambient air

quality surrounding the LFPLC factory in Ranala. Having

fully complied with all applicable mandatory environmental

stipulations as at 31st March 2013, the Company is

confident of reinstating its ISO 14000 certification, in the

forthcoming year.

In the year ahead, timely investments in technology together with aggressive advertising, merchandising and publicity are deemed critical towards developing the LANKATILES’ identity as a lifestyle brand of choice in Sri Lanka.


27

Future Outlook

Given LFPLC’s commendable performance in all business

spheres during the year, the Company is well positioned to

uplift its presence both in the local and international arena,

in the year ahead. Accordingly, the strategy would be to

build on existing strengths while simultaneously exploring

possible new avenues. By reinforcing its presence in the

North American, European and Middle Eastern markets,

the Company expects to enhance its brand value in

these key export markets. Moreover a two year strategic

mapping exercise would detail how the Company intends

to explore the vast Indian market in the years ahead.

As always new technology and innovation would be

foremost in the Company’s brand building efforts. In the

year ahead, timely investments in technology together

with aggressive advertising, merchandising and publicity

are deemed critical towards developing the LANKATILES

identity as a lifestyle brand of choice in Sri Lanka. To this

end, opening of the new upmarket showroom in Colombo

and increasing the number of similar upscale showrooms

across the country, will be the key customer activations

that would determine branding efforts for the year ahead.

The proposed showrooms are designed using high-tech

graphic imaging techniques to enhance sensory stimulation

and influence the mindset of the customer. It is hoped

that the “lasting first impression” so created would inspire

brand loyalty among a wider customer base. Moreover, it is

expected that the dual push combining intensive customer

focus and extensive island-wide reach would undoubtedly

result in the LANKATILES brand securing a larger cross

section of the nation-wide tile market in Sri Lanka, in the

forthcoming year.

Furthermore, the Company remains committed to nurture a

dynamic operational framework that would promote energy

efficient manufacturing, prudent cost management and

effective waste control. In seeking a suitable operational

platform the Company would adapt to a more proactive

business model in cognisance with emerging customer

profiles which would determine the future success of the

Company.

The Company also positively welcomes the takeover

of our parent company Lanka Ceramics PLC by Royal

Ceramics Lanka PLC, which came into effect in May

2013 providing much needed consolidation among key

players in Sri Lanka’s tile industry. By facilitating a host

of business synergies, the takeover would enable overall

strategic direction as a joint unit, which would undoubtedly

benefit both parties and provide a leading edge in local

and overseas markets. Given the nature and scope of

LFPLC’s ambitious future plans, the takeover comes at

an opportune moment. From an operational perspective,

the ensuing synergies would be innumerable, leading

to substantial economies of scale encompassing core

operations, marketing and sales. As a consequence of the

takeover both, companies together would enjoy market

dominance with joint market share reaching a staggering

70% of the local market. Furthermore, combined product

offerings of both companies would deliver infinite product

possibilities guaranteeing the same high quality standard.

Moreover, this stable platform would lay the foundation for

LFPLC to cement its position as a frontrunner in the local

and regional tile industry.

Given LFPLC’s commendable performance in all business spheres during the year, the company is well positioned to uplift its presence both in the local and international arena, in the year ahead. Accordingly, the strategy would be to build on existing strengths while simultaneously exploring possible new avenues.


Sustainability report

Reporting Principles and Guidelines: Global Reporting Initiatives (GRI)

This sustainability report has been complied in accordance

with Global Reporting Initiatives (GRI) for sustainable

reporting. By adhering to these globally accepted

parameters, Lanka Floortiles PLC (LFPLC), aims to

conform to the disclosure requirements for economic,

social and environmental criteria that are impacted by the

Company’s commercial operations.

Report Boundary and Scope

As this report is LFPLC’s first attempt at compliance

with GRI reporting guidelines, it has been compiled in

conformity with GRI level C compliance criteria. The report

covers the Company’s activities for the period beginning

from 01st April 2012 to 31st March 2013 and includes

aspects covered at both LFPLC’s head office located at

Nawala, operations at the factory situated in Ranala and all

franchise showrooms located across the country. Efforts

have been made towards achieving completeness of the

report as much as possible in accordance with the GRI

guidelines.

Materiality

Materiality is an important aspect of the GRI reporting

guidelines. Accordingly, this report attempts to quantify

the material impact of the Company’s activities on social,

environmental and economic aspects and qualify its

influence on various organisational stakeholders.

Strategy and Profile

Statement from Managing Director

Today we find ourselves amidst an ever changing global

landscape that impacts not only businesses but all aspects

of our personal lives. Dwindling natural resources have left

mankind scrambling for solutions and desperately seeking

sustainable alternatives. The time has come for global

corporates to take charge and lead by example.

As a leading corporate in Sri Lanka, Lanka Floortiles

PLC, is well aware of the need to strike a balance

between commercial success and long term sustainability

objectives. Hence our commercial aspirations are deeply

interlinked to the pursuit of a sustainable business

platform that would drive meaningful change in the future.

Our proactive attitude to sustainability lets us adopt an

integrated approach aligning our corporate goals to

sustainability initiatives.

We reiterate our commitment to create change through an

enlightened understanding of our customer needs. In doing

so, we endeavour to promote the responsible management

of resources in addition to timely and relevant product

research and development that would further strengthen

all aspects of our business. Moreover, our far-reaching

strategy lends its efforts to empower communities and

deliver lasting change to the lives of people impacted

by our operations. We will therefore endeavour to fulfill

our pledge to create sustainable growth through greater

awareness, education and innovation.

J A P M Jayasekera

Managing Director

29

As a leading corporate in Sri Lanka, Lanka Floortiles PLC, is well aware of the need to strike a balance between commercial success and long term sustainability objectives.

Creating change through an enlightened understanding of our customer needs.


Sustainability Stewardship

Led by the Managing Director of the Company, LFPLC follows a top-down approach to sustainability stewardship. The fully

integrated sustainability policy at LFPLC combines a positive attitude and a dynamic approach strengthened by a traditional

organisational value culture. Hence the concept of sustainability permeates to all aspects of the Company’s business.

LFPLC Organisation Structure

Managing

Director

Head of

Departments

Managers

Executives

Staff

Workforce


31

Management Approach: Identifying goals and defining strategy

In developing an integrated approach the Company focuses on identifying the triple impact to the bottom line resulting from

social, economic and environmental influences. Hence sustainability remains at the core of all corporate activities and plays

a crucial role in the day-to-day activities of the Company. In determining sustainability goals, the Company recognises the

importance of setting out strategic priorities for each of the three aspects that ultimately impact the bottom line, in the short

term and in the longer term as well.

Social

Workplace

Management

CSR

Impact on the

bottom line

Environmental

Environmental

Management and

Resource

Efficiency

EconomicSupply Chain

Management

Create

an empowered

resource pool

Community

Welfare

Minimise the impact

on the

environment

Community

Empowerment and

Livelihood

development

Goal Key

Strategies


Management Approach: Understanding Risks and Opportunities

In achieving sustainability goals the Company strives to understand the risks and opportunities that arise from each Triple

Bottom Line (TBL) indicator. Adopting the detailed blueprint outlined below, LFPLC aims to preempt potential impacts and

thereby help trigger policy level activations that support sustainability initiatives to fuel meaningful change for the future.

TBL Indicator Potential

Impacts

Threats

resulting from

the Company’s

activities

Opportunities Policy Level

Changes

Activated by the

Company

Process

undertaken to

deliver change

Social Social

Development

Traditional social

patterns being

eliminated in favour

of new developments

owing to modern

tiles being marketed

as a fashionable

product.

Providing new

social skills and

introducing

lifestyle changes

that also translate

to improve the

final products.

Ensuring the

Company’s

products are

accessible to all,

across a broad

social stratum and

positioning the

LANKATILES as a

lifestyle brand

Focused

marketing

Tiller training

programmes

General

awareness

programs

Cultural values Loss of traditional

cultural practices due

to new technology,

work methods and

branding

Revival of

indigenous tile

manufacturing

and ceramic

culture

Promoting religious

harmony and

positive co-

existence through

programmes that

support cultural

development.

Participating

in cultural

programmes

and working

with Sri Lanka

Ceramics Council

(SLACC) to

promote cultural

development

Social Integration Social alienation due

to new technology

and new lifestyle

Ability to bring

social integration

through product

branding.

Investment in all

communities and

participation that

fosters national

integration

Supporting

programmes

and events that

promote social

integration

Non-biased

product marketing


33

TBL Indicator Potential

Impacts

Threats

resulting from

the Company’s

activities

Opportunities Policy Level

Changes

Activated by the

Company

Process

undertaken to

deliver change

Environmental Environmental

Degradation

Overuse of natural

resources

Promote

responsible

mining of raw

materials.

Sponsoring

and developing

suppliers and

educating them on

sustainable mining

practices.

Participating

in community

programmes

Pollution of raw

material mining sites

Promoting

environmentally

sustainable mining

Investing in new

mining technologies

Supporting

government

initiatives to

promote new

practices

Policy to reduce

pollution

Bio-diversity and

Eco Systems

Release of effluents

to the environment

including dust and

sound pollution

Protect bio

diversity around

factory and mining

sites.

Control the release

of effluents and

minimise the impact

of dust and sound

pollution on the bio

diversity of the area.

Management

control

programme

Reporting

compliance

ISO 14000 system

Carbon Footprint Polluting

nature through

manufacturing

Using green

energy and green

concept

Control of pollution Compliance

with National

Environment

requirements

Reducing the use of

hazardous elements

in raw material

Economic Communities Loss of traditional tile

and mortar industry

Increasing direct

employment

New investments

to increase

employment

Annual appraisal

of communal

impact and

supporting

community

through SLACC.

Increasing indirect

employment

Subcontracting

and outsourcing to

create more indirect

employment

National Wealth

creation

Elimination of

traditional industries.

New investment

leading to wealth

creation

Invest annually to

increase in line with

GDP growth

Annual investment

appraisal

Investment

promotion in

partnership with

the government


Management Approach: Stakeholder Engagement

The aim of engineering a sustainable business platform has led to the understanding that this cannot be achieved in

isolation. The Company believes a holistic approach is the key to that ensuring that LFPLC’s sustainability ethos is deposited

across the value chain encircling all business partners and stakeholders. Through an extensive stakeholder mapping exercise

the Company has devised a suitable engagement curriculum to inculcate the Company’s unique value proposition to all

corporate stakeholder groups as outlined below.

Stakeholder Group

Material Issues pertaining to the stakeholder

Engagement Process

Frequency of engagement

Stakeholder engagement initiatives for the year

Customers and consumers

(Dealers and distributors)

Reputation of the product and the brand (brand value)Quality & reliability of the productProducts availability Transparency and fair trade Customer satisfaction - listening – handling complaints Pricing structureNew designs and innovation Pre and post sales services Adequate communication and responsible promotional activities Compliance with regulations and disclosure – product laws – to protect the end consumers Packaging and recyclability Product sustainability – associated responsibilities

Direct face to face interactions at the showroom.

Daily Customer care more than 1,000 Contacts in F/Y 2012.Ad-hoc customer visits Social networking updatesEmail feedbackCustomer satisfaction surveys aimed at: improving customer knowledge; approximately 500 customers surveyedResearch on consumer needsTraining and awarenessSupport for activities in favor of the environment or more generally for sustainability carried out by customers Pre and post-sales support Response to the inquiries from consumer associations The Design and merchandising team to improve the merchandise and graphical representation by Company products.

Annual dealer convention

Annually

Monthly dealer and distributor visits by Sales Manager

Monthly

Addressing Customer complaints

Daily

Availability of customer hotline to discuss about the customers’ issues.

Daily

Customer surveys by third party agencies.

Quarterly

Computation of customer satisfaction index by in-house customer relationship team.

Quarterly


35

Stakeholder Group


Engagement Process



Employees Professional growth and continuous learningMeritocracy, delegation Employment stability Internal climate– wellbeing and collaboration – sharing knowledge Remuneration and benefits Equal opportunities, work-life balance Health and wellbeing in the workplace

Annual appraisal Annually A dedicated channel and email box for any comments and feedbackEmployee surveysInternal and external training for employees to improve capabilities.Team building agendaInternal committee for organising recreational and social activities Working groups for improving safety and welfare

Quarterly programmes involving employees eg. Staff Trip, budget meeting, cricket match

Quarterly

Direct interaction with the immediate supervisor and the employee on a weekly basis

Weekly

Management meeting

By weekly meeting to assess employees status

Shareholders Sustainability and business continuity Translating into dividend Profitability and corporate value Protection of reputationTransparency/fairness in management

Annual general meeting

Annually Shareholders’ meeting and representation at the BOD meetings Participation in internal events and factory visits Quarterly notificationCorporate Website

Quarterly publication

Quarterly

Dividend announcement

Annually

Annual report and AGM / EGM

Annually

Suppliers Continuity of work – lasting relationships Reputation Collaboration in research and development – transferring know how Social and environmental enrichment Safety understood as wellbeingFinancial stability

Supplier visits Quarterly nitiatives to foster meaningful dialogue Corporate Website Training and Awareness Regular technical visits Sharing of technical projects Projects in support of the producer communities Systematic feedback on product quality Relationships and partnerships with industry associations, government agencies and other representations of local producers

By weekly meeting to discuss suppliers issues

By weekly

Supplier negotiations

Monthly

Industrial seminars which involves suppliers

Monthly

Participation in industrial councils which involves suppliers

Monthly


Stakeholder Group


Engagement Process



Community Sustainable environmentAir emissions Responsible use of recycled materials or materials with environmentally sustainable characteristics Adoption of responsible behaviour Conservation and enhancement of environmental biodiversityParticipating in community development projectsJobs

Monthly meetings with neighbouring communities

Monthly Environment compliance

Hotline to inform their issues

Daily

Participation in communal societies

Weekly

Welfare programmes

Monthly

Government and regulatory institutions

and the creation of value in the territory

economic growth

Monthly reportingPermits

Monthlywith all legal requirements

codes

technology

discussions through SLCC

institutional offices are regularly invited to visit the Company

group discussions

institutional projects and research promoted by government institutions

Annual reportingLicense

Annually

Filing of returnsNew investments

Monthly / Annually

Creation of jobs through new businessesDonations

Monthly

Competitors

brand image

how

Direct and indirect negotiations

Monthlyindustry events and trade fairs

pre-business round tables with competitors

main trade associations

conferences

Industrial seminars and councils

Monthly

Face to face discussions

Monthly


37

HR

Quality

and Product

Development

Environmental

Management

and Resource

Efficiency

Community Development

and Welfare

Livelihood Development

Corporate

Social

Responsibility

Health and Safety

Health and Safety

Health and Safety

Workplace

Management

Supply

Chain Management

Supply

Chain Management

Supply

Chain Management

Employee Engagement

Employee Health

and Safety

Training and

Development

Driving a sustainable operational model


Social Criteria – Workplace Management

Employee Engagement

With the objective of creating a dynamic resource pool, the

Company adopted an open-door management policy that

promotes a communicative employment culture within the

organisation. A comprehensive agenda facilitated greater

interactions between employees and key management

through regular meetings and conferences. Taking the

form of consultative discussions, these forums were a

meeting of minds that stimulated the exchange of mutually

beneficial ideas. These regular interactions also helped

nurture employee goal congruence and engendered

workforce loyalty towards the organisation. Moreover,

the Company reiterated its commitment to its employees

by adhering to all collective bargaining agreements and

maintaining successful relations with all labour unions and

interest groups.

Meanwhile, a structured career progression and succession

plan acted as a catalyst in creating empowered individuals

that would drive the future of the organisation. The plan

was further supported by way of a performance based

assessment scheme to evaluate employee performance.

This tool was used across the board and applied to all

employee grades and took the form of performance

appraisals conducted quarterly and annually. The

appraisals scheme also allowed the Company to identify

any potential training needs and education requirements of

employees.

unions – 72%

operational changes – 1 month

TOTAL EMPLOYEES

Factory Office Total

406 78 484

Salary

Attendance

Bonus

Production

Incentive

Employee

benefit

Structure

Annual

Bonus

Subsidized

Meals

Uniforms


39

hours worked

Training and Development

Driven by the need to develop responsible citizens,

the Company emphasized the importance of training

employees not only as a means of enhancing their career

opportunities but also in the interest of creating a national

pool of sustainable human capital. LFPLC’s training and

awareness agenda is a comprehensive knowledge based

tool designed to provide timely, relevant and accurate

information to each level of the employee hierarchy.

Employee Health and Safety

As always health and safety of the workforce remained a

primary concern for the Company, particularly given the

specific manufacturing requirements necessary for the

Company’s production process. A sound set of principles

and practices forms the basis of the Company’s safety

policy, which is comprehensively captured in the LFPLC

safety manual. The safety committee is the apex body

within the organisation in charge of all safety aspects

at LFPLC. Led by the Managing Director, the safety

committee comprised of a cross section of the LFPLC’s

executive staff appointed on a quarterly rotation. The

committee is tasked with monitoring, reviewing and

reporting on the day-today adherence of safety standards

Training hours provided for the year

and procedures. The Company’s safety procedures

are further strengthened by OHSAS 18001 certification

obtained from the Sri Lanka Standards Institute (SLSI),

the accredited body for OHSAS certifications in Sri Lanka.

The certification confirms that LFPLC’s factory floor

systems and processes are fully compliant with OHSAS

18001 international standards for occupational health and

management systems.

Appointed on

quarterly rotation

Managing

Director

AGM

(P/T)

Safety

Manager

Safety

Officer

Safety

Officer

Safety

Officer

Safety Committee


Training Programmes held during the year

Area Designation of employees Course Content Conducted by In-house/

Outsourced

Human

Resource

Management

HR Manager & Sales

Manager

EFC seminar on dealing with

employee misconduct

EFC consultant Out

04 Technical Assistants Workshop on development of

positive work attitudes

Skill Development

Fund Ltd

Out

Production Supervisor Supervisory management Skill Development

Fund Ltd

Out

EMS Employees Awareness training programme –

Motivation/Positive Thinking

Prof. Gnanadasa

Perera

In

Executives & Staff Leadership & Teamwork

development programme

Ceylinco Insurance

Consultant

In

Operatives Motivation & Attitude development

programme

Ceylinco Insurance

Consultant

In

Eng. Asst. & Tec. Asst. Supervisory skill development

programme

Jasteca Institute of

Management

Out

Technical Assistant Supervisory development

programme

The knowledge

Agent Pvt Ltd.

Out

Production

and Process

Systems

Production Manager and

Safety Manager

How to supervise your production

floor

IITM (Pvt) Ltd. Out

Production Manager Process controlling in Ceramic

industry

Out

Sorting Employees Redline Qualitron training

programme

QA & RD Executive In

Executives & Staff Ceramic Glazes, Colours &

Decorations

CENTEC Out

Executives & Staff Firing Technology in Ceramic

Industries

CENTEC Out

Store Keepers Modern stores & warehouse

management

IITM (Pvt) Ltd. Out

Operatives – Sorting Productivity Improvement QA & RD Executive &

APM (Sorting)

In

Engineering .Assistant.

Technical .Assistant. &

Technician

Overseas training in SACMI

technology

SACMI – ITALY Out

Operatives SACMI technology training Company Staff

trained by SACMI

In


41

Training Programmes held during the year

Area Designation of employees Course Content Conducted by In-house/

Outsourced

Health

and Safety

Management

Executives & Staff Workshop on LPG Product

handling & HSE

Litro Gas Ltd. In

Executives & Staff Safety awareness programme - 01 Factory Inspecting

Engineer

In

Operatives Safety awareness programme - 02 Factory Inspecting

Engineer

In

Operatives Safety awareness programme – 03 Factory Inspecting

Engineer

In

Operatives Safety awareness programme - 04 Factory Inspecting

Engineer

In

All Categories Task/ Equipment based risk

assessment

Process & Loss

control engineering

consultant

In

All Categories Risk Assessment Programme Process & Loss

control engineering

consultant

In

Staff & Operatives Awareness programme for Cancer

disease

The SL Cancer

Society

In

Operatives Fire Drill Programme Certis security

Service

In

Staff & Operatives Demonstration of safety products Industrial Safety

equipment Ltd

In

Company Contactors Accident prevention & safety Company Safety

Committee

In

All Categories Fire Drill – 2012 Instructor of Fire

Service Department

In

Mechanical Engineer and

Electrical Engineer

Occupational Health & Safety

(OHS) Management Systems

Sri Lanka Standards

Institution.

Out

Mechanical Engineer and

Electrical Engineer

LPG Product Handling & Safety Litro Terminal Lanka

Ltd.

Out

Social Criteria - Corporate Social Responsibility

With the goal of empowering national progress, LFPLC

has always been committed to develop a close community

based culture, particularly in the areas surrounding the

Company’s factory premises in Ranala. In achieving this

endeavour the Company aims to develop an interactive

partnership with the neighbouring communities. As part

of an integrated operational framework, the Company

regularly engages in a number of ground level activations

that aim to build a communicative relationship with key

community stakeholders. Formulated along these lines a

sustainability team consisting of 8 dynamic operatives are

being deployed to create a rapport with community leaders

and interest groups in the immediate vicinity of the factory

premises. It is hoped these initiatives would encourage

more community participation in the Company’s activities

that would foster mutual understanding and facilitate

greater corporation between all interested parties.


Key Community Based Projects for 2012

Building of an irrigation canal

During the year, at a cost of Rs. 5 Mn, the Company

undertook the 2nd Phase of LFPLC’s rural infrastructure

development project. The endeavour saw the construction

of a 226 m canal that would function as a key irrigation

channel to support crop cultivation in the Jalthara area,

bordering the Ranala factory. Moreover, by enhancing

infrastructure at a village level, the project aims to uplift the

living standards of the communities in the vicinity. As part of

the project, local communities are also provided education

and know-how on rain water harvesting techniques and

fundamentals of waste-water management.

Development of the community Dhamma School

By upholding collective religious beliefs, LFPLC has been

able to forge a strong link between with communities

that influence the operations of the Company. Working

in tandem with this goal, efforts for the year included

the contribution of building materials valued at over

Rs. 550,000/- towards the renovation and upgrade

of the Dhamma school building of the Sri Dhammika

Yogasramaya, located in Jalthara.

Nutritional Development

In this year too, the Company continued with the

Nutritional Development programme aimed at augmenting

the nutritional needs of children in community schools

surrounding the Ranala factory. The project saw the

donation of Kola Kenda to the students of Dhammika

Yogasramaya Sunday school in Jaltara every Sunday, for

the entire year. A total number of 300 students benefited

from this donation.

Donation of Tiles

As in the past, in this year too, the Company donated a

large quantity of tiles to the deserving families and religious

institutions in the Jalthara and Ambulgama areas. Covering

an estimated 25,000 sqft of area and costing over Rs.

1,800,000/-, this year’s donations benefited the Kaluthara

Bodhi Trust, St. Sebastian Church and the Holy Emmanuel

Church among others.


43

Other Community Endeavours

The Company also envisions that cultural and leisure

pursuits are a stimulus that nurtures meaningful societal

progress. Accordingly, during the year, the Company

activated a series of sponsorship measures that were

aimed at developing robust communities.

Moreover, the Company continued to make donations

and support identified institutional charities, with a

view to bringing about change across a broader social

demographic.

BENEFICIARY PURPOSE

Candle-aid

Lanka

In aid of the project for Candle

Aid Lanka Project & Lanka Tiles

Library project for Keenadeniya

Primary School – Ambepussa,

Meevanapalana M.V. Horana,

Thelikada M.V – Ginimellagaha, Sri

Nagarajan Vidyalayam, Vavuniya &

Pimburuwellegama Central College,

Wariyapola

Help age Sri

Lanka

Purchase greeting cards for 2013

Sri Jinarathana

Bhikku Abyasa

Vidyalaya

In support of the 2013 Nawam

Perehera held on the 24th and 25th

of February 2013

Environmental Criteria – Environmental

Management and Resource Efficiency

Emission Control

Given the context of LFPC’s business, dust and sound

based emissions continue to be a key concern for the

Company. Over the years, the Company has consistently

intensified efforts to mitigate and control emissions. In

this year too, significant investments in technology led to

overall process improvements which drastically reduced

the volume of dust and sound emissions. The Company

has made a conscious effort to control emissions by

introducing more efficient equipment together with the

resourceful use of core raw materials while streamlining

operational processes. Highly focused education

and awareness programmes form the basis of good

management practices and strengthen the commitment to

control emissions at the factory level. Further, the Company

also acquired an additional 5 acre property surrounding

the Ranala factory in a bid to stem the direct impact of

emissions affecting neighbouring communities.

Efforts to control dust emissions include specific loading

mechanisms, environmentally friendly raw material storage

bins and a covering belt for the storage of raw materials.

Moreover, dust emissions from spray drying are minimised

using an efficient, precision drying procedure, while an

open powder belt installed in the mixing room supports

a meticulous powder preparation technique where the

dust released is contained within the designated area

only. Cladding and dust screens have been commissioned

around the milling and spray drying areas along with a

Emission success meter

environment through the

cubic meter

below the mandatory limit

“The company has made a conscious effort to control emissions by introducing more efficient equipment together with the resourceful use of core raw materials while streamlining operational processes.”


highly specialised dust suction unit to control and manage

emissions released to the surrounding environment.

Moreover, by extending the height of the kiln chimneys,

the Company hopes to ensure that emissions are released

at a higher elevation to the upper atmosphere, thereby

improving the ambient air quality necessary for human

habitation.

Efforts to block sound include lining of all chutes at the

crushing plant, while brick walls have been erected to

cover open areas surrounding the crusher plant. Moreover,

the wall of the generator room and the chamfering room

have been insulated for sound, while the ATM – 52 spray

drying building has been sound proofed by constructing a

drain along the perimeter of the building leading all the way

to the main administration building.

Safeguarding habitats and bio-diversity

Among the widespread measures to protect the

environment, is the Company’s grass root level programme

to arrest soil erosion and environmental degradation

caused by clay mining. The project aims to restore the

ecological balance of the area and also support community

based crop cultivation by replenishing the exhausted mine

trench with fertile soil. Prompted by the success of the

initial venture in Mahiyanganaya, the programme has now

been extended to other clay mining areas as well.

Energy Conservation

The Company’s primary energy requirements are met

through a combination of LP gas, Kerosene and electricity

to a lesser extent, with LP gas being the predominant

contributor towards the Company’s environmental

footprint. With LP gas powering as much as 80% of the

Company’s manufacturing equipment, the Company

continuously strives to contain this high level of energy

consumption through energy efficient practices and

procedures. The commitment to investing in new energy

efficient technology has resulted in material reductions in

the LP gas consumption. Moreover, in cognisance with

the growing electricity costs, the Company has made a

concerted effort to implement a series of energy efficient

lighting and cooling solutions at all company properties.

PROCESS DIRECT ENERGY SOURCE

GAS ELECTRICITY KEROSENE DIESEL

Drying X X

Pressing X

Firing X X

Sorting X

Packing X

Lighting X

Conveyors X

Generators X

Transport X

Total energy

Consumed per month

(approximately)

491,000 Kg’s 1,269,000 Kwh’s 265,000 Kg’s 23,000 Lt’s

“The company’s manufacturing equipment the company continuously strives to contain this high level of energy consumption through energy efficient practices and procedures.”


45

Peak hour

Stoppages

Innovation

Training and

Awareness

Energy Audit

Turning off all electrically powered equipment in the sorting

nit between 6 pm and 10 pm daily

Reuse of Heat energy to power the Kiln

Metric flow system to monitor kerosene and gas usage.

Energy budgets

Independent third party auditing

Commissioning of Independent for each

operational area

Regular internal training sessions on energy

conservation for managerial staff

Continuous in-house training and awareness programmes

for all employees, conducted

by the energy manager

Water Management

As the world becomes poignantly aware of water as a most

precious resource, LFPLC has accepted the challenge to

develop practical solutions that would engender meaningful

long term change. Stemming from this objective, the aim is

to enhance the Company’s water positivity and ultimately

give back more water than that extracted from the

environment. The Company’s main water requirements are

for the milling of ball clay, glazing, cleaning and chamfering

processes. Presently, the Company made a concerted

effort to reduce the quantity of waste water discharged to

the surroundings. In addition, all water discharged was first

3 per day

3 per day

treated at the in-house water treatment prior to release.

To reduce dependence on the National Water Supply, the

Company continues to experiment with ways to improve

the water quality and enhance the functionality of treated

Key Energy reduction initiatives


water to enable it to be used across a wider operational

scope.

As always the Company enforces a strict water utilisation

policy that aims to reduce usage and minimise wastage as

much as possible.

Economic Criteria - Supply Chain Management

Livelihood Development

In this year too, the Company continued its efforts

to empower rural communities whose livelihood was “In promoting sustainability in the years ahead the company would seek to truly fulfill its ethos of creating sustainable growth through greater awareness, education and innovation.”

dependent on the tiling industry. This continuing

endeavour saw the Company provide extensive training

for communities with high tiler concentrations across

the island. The particular focus of this year’s programme

was on livelihood development for communities in the

north and north central provinces. The programme which

is entirely supported by the Company facilitates the

required knowledge and skill levels that would lead to the

manufacture of high-grade market-ready tiles. During the

year, approximately 500 tilers benefited from this scheme,

adding to the total of 1,500 beneficiaries since the launch

of the scheme.

Looking Ahead

In promoting sustainability in the years ahead, the

Company would seek to truly fulfill its ethos of creating

sustainable growth through greater awareness, education

and innovation. While also committing to nurture a suitable

business platform that would meaningfully impact the entire

value chain and underpin future corporate success for the

Company.


Kilinochchi

Mulativu

Vavuniya

Anuradhapura

GampahaKandy

Nuwaraeliya

Bandarawela

Badulla

HambantotaGalle

Jaffna

47

GRI content index

Strategy and Analysis

1.1 Statement from the Managing Director 28

1.2 Key impacts, Risks and Opportunities 32 - 33

Organisational Profile

2.1 Name of Organisation IBC

2.2 Products 4, 19,

22 - 24

2.3 Organisational Structure 30

2.4 Location of the organisation’s head-

quarters

IBC

2.5 Countries where the organisation operates 4, 22

2.6 Nature of ownership 4, IBC

2.7 Markets Served 4,

23 - 24

2.8 Scale of the reporting organisation 12 -13,

20 - 25,

38

2.9 Significant changes 24

Report Parameters

3.1 Reporting Period 28

3.2 Date of previous report N/A

3.3 Reporting cycle 28

3.4 Contact for questions IBC

3.5 Process for defining content and

materiality

28

3.6 Boundary of the report 28

3.7 Limitations on scope 28

3.8 Subsidiary operations 13

Governance

4.1 - 4.2 Governance Structure 30, 37,

39

4.14 -

4.15

Stakeholder Engagement 34 - 36

Economic

Market Presence

EC6 Development of local based suppliers 46

Indirect Economic Impacts

EC8 Development and impact of infrastructure

investments for public benefit through

commercial, in-kind, or pro bono

engagement

42 - 43

Environmental

Energy

EN3 Direct energy consumption 44

EN6 Initiatives to provide energy-efficient

or renewable energy based products

and services and reductions in energy

requirements as a result of these initiatives

45

Water

EN8 Total water withdrawal by source 45

EN10 Percentage and total volume of water

recycled and reused

45

Biodiversity

EN12 Description of significant impacts of

activities, products, and services on

biodiversity in protected areas

43

EN13 Habitats protected or restored 44

Emissions, Effluents and Waste

EN20 No, SO emissions 43 - 44

Social

Labour Practices and Decent Work

Employment

LA1 Total Workforce 38

LA2 Labour Turnover 38

LA3 Benefit structure for permanent employees 38

Labour Management / Relations

LA4 Percentage of employees covered by

collective bargaining agreements

38

LA5 Minimum notice period for operational

changes

38

Occupational Health and Safety

LA6 Workforce in health and safety committees 39

LA7 Rates of injury, occupational diseases, lost

days and absenteeism

39

LA8 Health and Safety training 41

Training and Education

LA10 Average training hours per annum 39

LA11 Skills management training programmes 40

Society

Local Communities

SO1 Programmes to manage impacts on local

communities

42 - 44

SO9 Operations with significant negative

impacts on local communities

43

SO10 Mitigation of negative impacts 43 - 44

IBC - Inner Back Cover


Winner of the National Gold Award in the ‘Large’

industries category – Ceylon National Chamber of

Industries Achiever of Industrial Excellence 2002.

(Inaugural year)

Winner of the National Gold Award in the ‘Large’

industries category – Ceylon National Chamber of

Industries Achiever of Industrial Excellence 2003. (For

the second successive year)

Gold Award from the National Chamber of Exporters

of Sri Lanka, in the “Extra Large” Industry category, in

recognition of our export performance in 2003.

Merit Award in the category of Ceramic Products and

Excellence Award in the category – Trade Stalls at

ARCHITECT 2003.

Certificates of Recognition in the Annual Report

Competition conducted by the Institute of Chartered

Accountants of Sri Lanka, consequently for the last ten

years.

Merit Award from the National Chamber of Exporters


recognition of our export performance in 2005.

The award winning floortile company

Winner of the Large National Merit Award at the Ceylon

National Chamber of Industries Achiever of Industrial

Excellence 2006.

1st Runner-up (manufacturing sector) of the ‘National

Business Excellence Awards 2006” by the National

Chamber of Commerce of Sri Lanka.

Bronze Award from the National Chamber of Exporters


NCE Export Awards 2006.

Silver Award in the National Extra Large category -

Ceylon National Chamber of Industries Achiever of

Industrial Excellence Awards 2007.

Bronze Award overall winner at the National Business

Excellence Awards 2007 from the National Chamber of

Commerce of Sri Lanka.

Winner of the manufacturing sector of the “National

Business Excellence Awards 2007” by the National


Winner of the manufacturing sector (large category) at

the “National Business Excellence Awards 2007” by the

National Chamber of Commerce of Sri Lanka

49

Winner of the Excellence in Performance Management

Practices at the “National Business Excellence Awards

2007” by the National Chamber of Commerce of Sri

Lanka.

Merit Award of the manufacturing (large category) of

The Sri Lanka National Quality Awards 2007 from Sri

Lanka Standards Institution.

Silver Award in the National ‘Extra Large’ category at

“CNCI Achiever Awards - 7th Achievers of Excellence

2008” by the Ceylon National Chamber of Industries.

Silver Award in the Extra Large category Industry

Sector at “NCE Export Awards 2007” by the National

Chamber of Exporters of Sri Lanka.

Bronze Award overall winner at the National Business

Excellence Awards 2008 from the National Chamber of


Winner of the Large Category Award at the National

Business Excellence Awards 2008 by the National


Winner of the Manufacturing - Chemical & Ceramic

Sector at the “National Business Excellence

Awards 2008” by the National Chamber of


Runner-up for ‘Best Tech Savvy Company’ at the

‘National Business Excellence Awards 2008” by

the National Chamber of Commerce of Sri Lanka.

Silver Award in the National - ‘Extra Large’

Manufacturing Sector at ‘CNCI Achiever of

Industrial Excellence Awards 2009” by the Ceylon

National Chamber of Industries.

Silver Award in the Extra Large category Industry

Sector at “NCE Export Awards 2008” by the

National Chamber of Exporters of Sri Lanka.

Bronze Award - Manufacturing Companies in the

Annual Report Awards 2009 conducted by the

Institute of Chartered Accountants of Sri Lanka.

Runner-up for ‘Excellence in Performance

Management Practice’ at the National Business

Excellence Awards 2009’ by the National Chamber

of Commerce of Sri Lanka.


Corporate governance

The Board of Directors of Lanka Floortiles PLC is committed to upholding the highest standards of integrity and transparency

in its governance of the Company and its subsidiaries. It is guided by the Code of Best Practice of the Institute of Chartered

Accountants of Sri Lanka, the requirements of the Securities and Exchange Commission of Sri Lanka and the Colombo

Stock Exchange.

The Directors are responsible for protecting the rights and interests of shareholders and are accountable to them for the

overall management of the Company.

Corporate governance framework

The Corporate Governance framework to accomplish the corporate governance objective of Lanka Floortiles PLC is given

below.

Shareholders

The Board

Nominations

PolicyAudit Committee

Risk Management Framework

Remuneration Committee

The Chief Executive and Management team

Protect rights

Delegates

day to day

management

Ensures

good risk

management

Ensures

Remuneration is

appropriate

Ensures good

Board

Composition

Reviews

Integrity of

financial

statements

Elects

the Board

Provides Transparent

information

51

THE COMPLIANCY TO CORPORATE GOVERNANCE CODE

The compliance of Lanka Floortiles PLC to the Code of Best Practice on Corporate Governance issued by the Institute of

Chartered Accountants of Sri Lanka and the Securities and Exchange Commission of Sri Lanka is as follows:

Governance Principle Lanka Floortiles AdherenceCompliance

Status

A. Directors

A.1 - The Board

Frequency of Board Meetings The Board met on a monthly basis in the year under review.

The Board’s Audit and Remuneration sub committees met on

06 occasions.

Board meeting attendance:

A. A. Page (Chairman) - 11/12

Dr. S. Selliah (Deputy Chairman) -11/12

J. A. P. M. Jayasekera (Managing Director) -11/12

P. L. Amerasinghe (Director) - 9/12

J. C. Page (Director) - 11/12

A. T. P. Edirisinghe (Director) -10/12

V R Page (Director) - 5/12

S. Mendis (Director) - 9/12

Compliant

Responsibility of the Board The Board is responsible for:

a. The formulation and implementation of a sound business

strategy.

b. Monitoring compliance of governance, laws and

regulations.

c. Overseeing systems of internal control and risk

management.

d. Approving annual budgets and strategic plans.

e. Appointing and reviewing the performance of the Managing

Director.

f. Approving any change in the Group’s business portfolio

and sanctioning major investments and disinvestments in

accordance with parameters set.

g. Ensuring that effective remuneration, reward and

recognition policies are in place to motivate employees to

meet Company objectives.

h. Submitting themselves for re-election at regular intervals

and at least once in every three years.

Compliant

Compliance with applicable law The Board ensured in the year under review that the Company

adhered to all applicable laws, rules and regulations.

Compliant

Company Secretary The services and advice of the Company Secretary M/s. PW

Corporate Secretarial (Pvt.) Ltd. is made available to Directors

as necessary. The Company Secretary keeps the Board

informed of new laws, regulations and requirements coming

into effect which are relevant individually as Directors and

collectively to the Board.

Compliant

Independent judgment The Board members are required to divulge all functions with

the Company, refrain from matters of self interest and to bring

independent judgment to the decision making process.

Compliant



Status

Dedication of adequate time and

effort

Board members attend all Board meetings in person and need

to be prepared to engage in decision making matters which

may entail an adequate amount of time and effort spent.

Compliant

Appropriate training for Directors All Directors have considerable experience in managing

Companies and the ceramic industry. Relevant training

opportunities are made available to all Directors locally and

internationally to further their knowledge and expertise.

Compliant

A2 - Chairman and CEO

Division of responsibilities

between the Chairman and CEO

There is a clear division of responsibility at the head of the

Company. This is between the running of the Board (Chairman)

and the executive responsibility of overseeing the Company’s

business (Managing Director). No single individual has liberal

powers with regard to decision making.

Compliant

A.3 - Role of the Chairman

Prepare good corporate

governance and facilitate effective

discharge of Board functions

The Chairman is responsible for the efficient conduct of Board

meetings. The Chairman maintains close contact with all

Directors and holds informal meetings with Non-Executive

Directors whenever necessary.

Compliant

A.4 - Financial Acumen

Availability of sufficient financial

acumen and knowledge.

The Board includes three senior Chartered Accountants,

who possess the necessary knowledge and competence to

offer the Board guidance on financial matters. One of them

serves as the Chairman and the others serve as the Managing

Director and a non executive independent director.

Compliant


53


Status

A.5 - Board Balance

The Board should have an

adequate number of Directors

with a balance of executive

and non-executive Directors

of sufficient caliber along with

independent Directors.

The Board comprises of 08 executive and non-executive

Directors.

Directors’ status is as follows:

A. A. Page (Chairman) - Non executive

Dr. S. Selliah (Deputy Chairman) –

Non executive - Independent

J. A. P. M. Jayasekera (Managing Director) - Executive

P. L. Amerasinghe (Director) –

Non executive - Independent

A. T. P. Edirisinghe (Director) -

Non executive – Independent (Resigned w.e.f. 15/05/2013)

V. R. Page (Director) – Non executive (Resigned w.e.f.

15/05/2013)

S. Mendis (Director) – Non executive – Independent (Resigned

w.e.f. 15/05/2013)

J. C. Page (Director) – Non executive

(Resigned w.e.f. 15/05/2013)

The Board of Directors is of the view that the period of service

as a Board member exceeding eleven years rendered by Mr.

P L Amerasinghe, does not compromise his independence

and objectivity in discharging his functions as a Director. Dr. S

Selliah and Mr. A T P Edirisinghe are also Directors of Lanka

Walltiles PLC. However, after taking into consideration the fact

that they are not actively involved in the Management of Lanka

Walltiles PLC and furthermore, since they do not directly hold

a significant percentage of shares in Lanka Floortiles PLC,

the Board is of the view that their independence is also not

compromised. Accordingly, the Board has determined that Mr.

P L Amerasinghe, Dr. S Selliah and Mr. A T P Edirisinghe are

‘independent’ Directors as per the criteria set out in the Listing

Rules of the Colombo Stock Exchange.

Subsequent to the financial year end, Mr. J C Page, Mr. V R

Page, Mr. A T P Edirisinghe and Mr. S Mendis resigned from

the board pursuant to the change of ownership of ultimate

parent. Mr. K D D Perera, Mr. W D N H Perera and Mr. T G

Thoradeniya were appointed as Non-Executive Directors while

Mr. K D G Gunarathne was appointed as an independent Non-

Executive Director with effect from 28th May 2013.

Compliant

A.6 - Supply of Information

Relevant information and agenda

to be circulated in a timely

manner to the Board.

The Board papers are circulated a week prior to Board

meetings with an adequate briefing on relevant information.

Compliant



Status

A.7 - Appointments to the Board

Procedure for the appointment

and disclosure of new

Directors/ Assessment of Board

composition

The appointment to the Board is undertaken by the Board

itself, taking into consideration the Board composition required

and the strategic input required. All Board appointments are

informed to the SEC as per the existing regulations.

Compliant

A.8 - Re-election

Re-election of Directors at regular

intervals.

As per the Articles of Association one third of the Directors

for the time being shall retire from the office and shall offer

themselves for re-election each year by the Shareholders.

Compliant

A.9 - Appraisal of Board Performance

Boards should periodically

appraise their own performance

in order to ensure that

responsibilities are discharged in

a satisfactory manner.

The Board regularly evaluates its performance based on

achievement of results, implementation of strategy, risk

management, internal controls, compliance with laws and

stakeholder requirements.

Compliant

A.10 - Disclosure of information with respect to Directors

Shareholders at all times should

be aware of relevant details with

respect to Directors.

All Directors have declared their details in pages 14 to 16 as

Director profiles.

Compliant

A.11 - Appraisal of Chief Executive Officer

The Board should be required to

assess the performance of the

CEO annually.

The CEO is evaluated each year as per the yearly targets that

has been agreed with the annual budget

Compliant

B. Directors’ remuneration

B.1 - Remuneration Procedure

Formal and transparent

procedure for developing policies

on remuneration.

The Board has implemented a formal and transparent

procedure for developing policies on remuneration by setting

up a Remuneration Committee. Its purpose is to assist the

Board of Directors in matters relating to compensation of

the Company’s Directors, Executive Officers and such other

employees as determined by the Committee.

Compliant

Composition and disclosure

of the members of the


The Remuneration Report which is on Page 71 of the report

addresses all related matters.

Compliant

B.2 - The level and make up of Remuneration

Levels of Remuneration Remuneration levels have been designed to attract, retain and

motivate Directors and Senior Management required to run the

Company successfully, while remaining within the industry’s

remuneration standards.

Compliant


55


Status

B.3 - Disclosure of Remuneration

Disclosure of Remuneration in the

Annual Report

Details of the Remuneration Committee and the statement of

remuneration policy are provided in the Annual Report.

The aggregate remuneration paid to Executive and Non

executive Directors are disclosed on Page 99 of this Report.

Compliant

C. Relations with Shareholders

C.1 - Constructive use of the Annual General Meeting

Boards should use the Annual

General Meeting to communicate

with shareholders and encourage

their participation.

The active participation of shareholders at the AGM is

encouraged. The Board believes the AGM is a means of

continuing effective dialogue with Shareholders.

Compliant

C.2 - Major Transactions

Disclosure of major corporate

transactions that will materially

effect the net asset base.

There have been no transactions during the year under review,

which fall within the definition of ‘Major Transactions’ in terms

of the Companies Act.

Compliant

D. Accountability and Audit

D.1 - Financial Reporting

The Board should present a

balanced and understandable

assessment of the Company’s

financial position, performance

and prospects.

The Annual Report of the Company provides a balanced

and understandable assessment of the Company which is

in addition to the accounts of the management and financial

reviews, Director’s report and responsibility structures.

Compliant

D.2 - Internal Control

The Board should maintain a

sound system of internal control

to safeguard shareholders’

investments and the Company’s

assets.

Your Board has taken necessary steps to ensure the integrity

of the Group’s accounting, financial reporting and internal

control systems and also their review and monitoring on

a periodic basis. Our systems covering risk management,

financial and operational control, ethical conduct, compliance

with legal and regulatory requirements and corporate social

responsibility are detailed below.

Compliant

D.3 - Audit Committee

The Board should establish

formal and transparent

arrangements in the manner

in which they select and apply

accounting policies, financial

reporting, internal control

principles and maintaining an

appropriate relationship with the

Company’s Auditors.

The Audit Committee Report on page 72 of the report

addresses this section in full.

Compliant



Status

D.4 - Code of Business Conduct and Ethics

Companies must adopt a Code

of Business Conduct and Ethics

for Directors and members of the

Senior Management team and

promptly disclose any waivers of

the Code for Directors or others.

The Code of Best Practice issued by the Institute of Chartered

Accountants of Sri Lanka and the Securities and Exchange

Commission is adopted by the Directors who then ensure that

the Company and the employees behave ethically.

Compliant

D.5 - Corporate Governance Disclosures

Directors should be required to

disclose the extent to which the

Company adheres to established

principles and practices of good

Corporate Governance.

Adhered to as per the Corporate Governance report in the

Annual Report Pages 50 to 58.

Compliant

E. Shareholders

E.1 - Shareholder Voting

Institutional shareholders should

be encouraged to ensure their

voting intentions are translated

into practice.

All institutional shareholders are encouraged to participate and

their views are communicated to all concerned.

Compliant

E.2 - Evaluation of Governance Disclosures

Institutional investors should be

encouraged to give due weight to

all relevant factors drawn to their

attention.

The Report contains the Company’s Corporate Governance

process and structure for investors’ attention.

Compliant

F. Other Investors

F.1 - Investing / Divesting Decision

Individual shareholders, should

be encouraged to carry out

adequate analysis in investing or

divesting decisions.

The Annual Report contains sufficient information to make

an informed decision. The report is hosted in the Colombo

Stock Exchange website with the quarterly reports to facilitate

investors and shareholders to make informed decisions.

Compliant

F.2 - Shareholder Voting

Individual shareholders should be

encouraged to participate in the

General Meeting of Companies

and exercise their voting rights.

All shareholders are encouraged to participate at the Annual

General Meeting / Extraordinary General Meeting and cast

their votes. AGM’s are noticed in advance as per Companies

Act and held in on accessible area to ensure shareholders can

participate effectively.

Compliant


57

CSE LISTING RULES COMPLIANCE

Lanka Floortiles PLC’s extent of adherence to corporate governance rules under section 7.10 of continuous listing

requirements of the Colombo Stock Exchange is given below.

Corporate Governance

PrinciplesLanka Floortiles Adherence

Compliance

Status

7.10.1 Non-Executive Directors

The Board of Directors should

include at least two non-executive

directors or such number of non-

executive Directors equivalent to

one third of the total number of

directors whichever is higher.

Lanka Floortiles PLC has four non- executive Directors out of

eight as given in item A5 in the ICASL adherence table, which

is above the minimum requirement.

Compliant

7.10.2 Independent Directors

The Board of Directors should

include two or 1/3 of non-

executive Directors appointed to

the Board of Directors, whichever

is higher shall be ‘independent’.

The Company has three independent Directors out of eight as

given in item A5 in ICASL adherence table, which is above the

minimum level.

Compliant

7.10.3 Disclosure relating to Directors

The Board shall make a

determination annually as to the

independence or non-

independence of each non-

executive Director

based on such declaration and

other information available to the

Board and shall set out in the

annual report the names of

Directors determined to be

‘independent’.

The Board has determined the independence of each

independent director and set out and declared the

independence as per item A5 in the previous table.

Compliant

7.10.4. Criteria for Defining ‘Independence’

The Colombo Stock Exchange

identified criteria of independence

should be met by the

independent directors of the

Company

All directors meet the above criteria and additional explanations

are given in Note A5 in Institute of Chartered Accountants

of Sri Lanka and the Securities and Exchange Commission

corporate governance adherence report.

Compliant

7.10.5. Remuneration Committee

a. Composition of Remuneration Committee

The remuneration committee shall

comprise of at least two non-

executive Directors in which a

majority shall be Independent.

As per the remuneration committee report given in page 71

The committee comprised of 3 independent non executive

directors.

Compliant



PrinciplesLanka Floortiles Adherence

Compliance

Status

b. Functions of Remuneration Committee

The Remuneration Committee

shall recommend the

remuneration payable to the

executive directors and Chief

Executive Officer of the

Listed Entity to the Board of the

Listed Entity among other defined

functions.

The remuneration committee met times during the year and

recommended the remuneration of the CEO and the Senior

management of the Company to the Board and their report is

published in page 71.

Compliant

c. Disclosure in the Annual Report

The annual report should set out

the names of directors in

comprising the remuneration

committee and contain a

statement of the remuneration

policy and set out the aggregate

remuneration paid to

executive and non-executive

directors

The remuneration committee report in page 71 sets out the

names of the directors in the remuneration committee report

and aggregate remuneration paid to all directors is given on

page 99.

Compliant

7.10.6. Audit Committee

a. Composition of the Audit Committee

The audit committee shall

comprise of at least two non-

executive directors a majority of

whom shall be independent.

The audit committee of the Company consisted of 3 directors

out of which 2 were independent non executive.

Compliant

b. Functions Audit Committee

Overseeing of the preparation,

presentation and adequacy of

disclosures in the financial

statements of a Listed Entity, in

accordance with Sri Lanka

Accounting Standards.

The audit committee report on page 72 of the annual report

explains the function of the audit committee which has

executed the above function.

Compliant

c. Disclosure in the Annual Report relating to Remuneration Committee

The names of the directors

comprising the audit

committee should be disclosed in

the annual report.

The audit committee report on page 72 has addressed this

requirement.

Compliant

STATEMENT OF COMPLIANCE

The Company is fully compliant with the requirements of the Code of Best Practice on Corporate Governance issued jointly

by the Institute of Chartered Accountants of Sri Lanka and the Securities and Exchange Commission of Sri Lanka. See

the tables appear on pages 51 to 58 for the requirements of ‘Corporate Governance Principles’ and the response of the

Company on its adherence to the said requirements.

In addition, tables appearing on pages 57 to 58 demonstrate the Company’s adherence to corporate governance rules

under section 7.10 of continuous listing requirements of the Colombo Stock Exchange.

Further, the Board of Directors to the best of their knowledge and belief and is also satisfied that all statutory payments due

to the Government, other regulatory institutions and those payments related to employees, have been made on time.

Therefore the Board has concluded and declared the Company is fully compliant with the Corporate Governance Rules of

the Colombo Stock Exchange.


59

Introduction

Risk Management is a critical requirement for any company operating in a competitive market and a changing economy.

Lanka Floortiles PLC henceforth has taken a strategic initiative to identify the areas relevant to the organisation and respond

to potential risks the Company may be exposed to. The risk management process will enable administration to evaluate

strategies existing within the organisation to mitigate the risk factors identified, gain comfort over the continuation of the

business and ensure the required returns to the stakeholders. This process additionally assists the Company in managing

sustainability of growth and profitability. The objective is to improve performance and decision making through identification,

evaluation and management of key risks. The process is supervised by the Company’s Executive Committee and Board

of Directors and reviewed by the Audit Committee. A review of the risk management framework and the process of Lanka

Floortiles PLC are described below.

Risk Management Framework

The Committee of Sponsoring Organisations of the Tradeway Commission (COSO)’s Enterprise Risk Management (ERM)

integrated framework defines ERM as a process, effected by the entity’s Board of Directors and Management and applied in

strategy setting and across the enterprise, designed to identify potential events that may affect the entity and manage risk to

be within the risk appetite, to provide reasonable assurance regarding the achievement of entity objectives.

A graphical overview of the Company’s risk management framework is given below.

Risk management

Risk Management Strategy

Risk Management Policies &

Procedures

Risk Management Roles &

Responsibilities

Risk Response &

Reporting

Risk Identification &

Assessment


Organisation Strategy


Lanka Floortiles PLC risk management frame work compared to COSO’s integrated framework for enterprise risk

management can be detailed as follows;

Risk culture

A Company has to cultivate an appropriate risk awareness

culture for effective ERM practice. A strong endorsement by

the Board of Directors and Senior Management of the value

of investing time and infrastructure into better understanding

the organisation’s most significant risk exposures is an

important and necessary condition that must be in place.

In this regard the Senior Management and the Board of

Directors have a clear understanding of the objectives of

ERM relative to traditional approaches to risk management

and the CEO embraces the need and provides adequate

endorsement of an enterprise wide approach to risk

oversight that seeks to obtain a top-down view of major

risk exposures. The Board of Directors is also supportive

of Management’s efforts to implement an enterprise wide

approach to risk oversight and the Board of Directors sets

aside agenda time at each of its meetings to discuss the

most significant risks facing the organisation. The Senior

Management has effective risk management capabilities

and competencies.

Risk identification

Robust processes have to be in place in the organisation

to identify risks, particularly those risks that may be

currently unknown, but emerging and should encourage the

management to regularly think about risk.

In this regard, the organisation has defined and widely

communicated to members of Management and the

Board what it means by the term “risk.” The organisation

has identified a broad range of risks that may arise both

internally and externally, including risks that can be

controlled or prevented, as well as those over which the

organisation has no control. The organisation engages in

identifiable processes to regularly scan the environment

in an effort to identify unknown, but potentially emerging

risks such as competitor moves, new regulations, changing

consumer preferences, etc. Each member of the Board

of Directors has provided input into the risk identification

process.

Risk assessment

Organisation needs methods to prioritise risks that

encourage a consistent consideration of both the likelihood

of the risk occurring and the impact of the event to the

organisation, if the risk occurs.

The organisation defines a five year time period over

which risks should be assessed to ensure consistency

in Management’s evaluations. The organisation strives to

assess inherent risk to the Company and industry and the

organisation assesses not only the likelihood of a risk event

occurring but also the impact of the risk to the organisation.

The Board of Directors has concurred with the assessment

of the risks completed by Management.

Articulation of risk appetite

While determining the organisation’s appetite for risk taking

can be challenging, it is important that the Board and Senior

Management make some attempt to articulate its overall

appetite for risk taking.

The Board and Management have engaged in discussions

to articulate the organisation’s overall appetite for risk

taking. The Board of Directors has concurred with the

organisation’s risk appetite.

Risk management

61

Risk response

It is very important to ensure that an appropriate risk

response method is implemented and then to ensure that

the response is working as intended. Periodic evaluation

of whether identified risk responses are effectively being

carried out will ensure an effective ongoing ERM process.

The organisation has identified risk owners with

responsibility for each of its most significant risks. The

organisation has evaluated whether the existing response is

sufficient to manage the risks to be within the organisation’s

risk appetite. The organisation has separately evaluated

the potential cost of the risk response relative to the benefit

provided by the response towards either reducing the

impact or reducing the probability of occurrence of the

risk event. The organisation’s ERM process helps identify

potential overlaps or duplications in risk responses across

the enterprise.

Risk reporting

As risks are identified and assessed across the organisation,

processes are needed to facilitate the communication

of risk-related information so that an aggregate view

of important risks and their related risk responses are

provided to senior management, the board, and to critical

stakeholders.

The organisation has developed and monitors critical

risk indicators that are leading in nature in that they

provide some indication that a risk event is more likely to

occur in the future. Senior Management regularly review

Management reports that provide the status of critical risks

and risk response plans. The Board monthly receives and

reviews the above reports that provide the status of critical

risks and risk response plans.

Integration with strategic planning

Effective ERM can be an important input and consideration

into the determination and execution of any organisation’s

strategy. ERM provides critical insights into the portfolio of

existing and emerging risk exposures that can contribute to

the strategic success of the organisation.

The organisation has a formal strategic planning process

and the strategic plan is updated at least annually. The

organisation’s existing risk profile is an important input for

the strategic planning process. Senior Management links

the top risk exposures to strategic objectives to determine

which objectives face the greatest number of risks and

to determine which risks impact the greatest number of

objectives.

Assessment of ERM effectiveness of the risk management process:

Senior management and the Board of Directors need to

view ERM as an evolution, not a point-in-time project to be

implemented.

In the organisation, the Senior Management regards ERM

as an ongoing process rather than just a project and they

seeks to understand and monitor emerging ERM best

practices and adequate resources have been dedicated to

support and complete the ERM function, successfully.

Risk Management Process

The risk management process has been designed to ensure identification of any situation or circumstance that would

adversely affect the achievement of Company activities and to accept and manage unavoidable risks and to ensure surprise

events or situations are minimised. This process is aligned directly to the Company strategy, annual plans and monitored by

the Board and reviewed by the Audit Committee.

To facilitate a professional risk management process a facilitative management structure and a robust management process,

needs to be in place in the organisation.

Lanka Floortiles PLC has the following management structure to facilitate risk management;


Monitoring

On a monthly basis the risk mitigation action plans will

be monitored and reported to the Company Executive

Committee and Board Meetings and on a quarterly

basis these will be monitored and reported to the Audit

Committee.

Board of Directors

Risk Identification

This part of the process will

identify the events or scenarios

that could prevent the

Company from achieving its set

objectives.

Risk Mitigation Action Plans

Identified and evaluated risks are

assigned to risk owners. Risk mitigation

action plans will be developed with

time lines for implementation by the risk

owners along with the Management of

the Company.

Risk Assessment and Evaluation

The Management will determine whether the risk will

have an ultra, high, moderate, low or insignificant impact

on the operations of the Company and also the likelihood

of risk occurrence based on past experience as well as

future projections are evaluated.

Risk Exposures

Operation Managers

Company Executive Committee

CEO

Audit Committee

Lanka Floortiles PLC has the following Management process to facilitate risk management;

Risk management

63

Some of the Key Risks that may hinder the Achievement of the Company’s Strategic Business Objectives are set

Out Below

Business Environment Risk

Environment risk arises when there are external forces that may affect the viability of the enterprise’s business model,

including the fundamentals that drive the overall objectives and strategies that define it. Adverse political actions and

changing laws may be harmful to the firm ’s resources and future cash flows in a country in which the firm has invested

significantly and is dependent on a significant volume of business.

To counter political and regulation risk, the Company brings the relevant issues to the notice of government institutions,

persistently monitors them and maintains a close relationship with relevant government institutions and industry associations

and chambers. The Company also assists government institutions in formulating new laws and regulations pertaining to the

industry and provides information on relevant issues to government institutions. In addition, a legal feasibility evaluation has

been made a standard process in order to approve capital projects.

Operations Risk

Operations risk is the risk of inefficiency in executing the firm’s business model, satisfying customers and achieving the

Company’s quality, cost and time performance objectives. Unproductive operations threaten the Company’s capacity to

produce goods at or below cost levels incurred by competitors.

To counter operations risk, the Company has a strong operational control mechanism where production, quality, cost and

efficiency are monitored on a daily basis and improvement projects are undertaken to increase efficiency. Plant upgrades with

new plants and machinery are done annually to be on par with world class manufacturers. In addition, a five year strategic

plan has been implemented to enhance capacity and ensure operations run smoothly.

Capacity Risk

Insufficient capacity will pose a hindrance to the Company’s ability to meet customer demands or excess capacity threatens

the firm’s ability to generate competitive profit margins.

Presently the firm has identified that it needs more capacity and therefore a Capacity Expansion Programme has been

planned for next five years and reviewed monthly. This includes installation of the new kiln, importing tiles to meet specific

demands and implementing the capacity expansion plan to monitor financial and resources requirements.

Integrity Risk

Integrity risk is the risk of management fraud, employee fraud, illegal acts, unauthorised acts and any or all of which could

lead to loss of reputation in the marketplace.

To mitigate this risk, the Company conducts a monthly internal audit of transactions undertaken by an independent firm of

chartered accountants, to detect and reduce fraud and detail approval processes for official transactions which mitigate

the above risk. In addition, quarterly audit committee meetings to monitor the reporting status coupled with monthly Board

meetings which supervise the financial status of the Company and the integrity of employees are held.

Financial Risk

Exposure to lower returns or the necessity to borrow due to shortfalls in cash or expected cash flows or variances in timing

or significant movements in interest rates expose the firm to a number of negative factors. Those include higher borrowing

costs, lower investment yields or decreased asset values and result in financial helping risk. Movements in prices, rates,

indices and such, affect the value of the Company’s financial assets and stock price, which may additionally impact its cost

of capital and/ or the ability to raise capital.

Credit limits and given credit is reviewed through a detailed approval process reducing risk of debt, exports under DA terms

are insured using SLECIC and monthly overdue debtors are reported to the Board for necessary action. These actions

reduce cash flow risk and all capital projects are financially evaluated to ensure that inflows match with borrowings. Both

floating and fixed rate debt is maintained and is structured using loans, share capital and internal fund management to

reduce borrowings.

Conclusion

Hence the Board and Management are of the view that an effective risk management framework and an adequate risk

management process is in place to minimise all potential risks and its probability of impact to the Company.

Annual report of the board of directors

on the affairs of the company 66

Statement of directors responsibilities 69

Chief executive officer’s and chief

financial officer’s responsibility

statement 70

Remuneration committee report 71

Audit committee report 72

Auditor’s report 73

Statements of financial position 74

Statement of comprehensive income 75

Statement of changes in equity 76

Consolidated cash flow statement 77

Notes to the financial statements 78

FINANCIAL INFORMATION





The Directors of Lanka Floortiles PLC have pleasure in presenting

their annual report together with the audited financial statements of

the Company for the year ended 31st March 2013.

This annual report on the affairs of the Company contains the

information required in terms of the Companies Act No. 07 of 2007

and the Listing Rules of the Colombo Stock Exchange (CSE) and

is guided by recommended best practices.

1. General

Pursuant to the requirements of the new Companies Act

No. 7 of 2007, the Company was re-registered on 19th

March 2008 and bears registration number PQ129.

2. Principal activities of the Company and review of

performance during the year

The main activity of the Company, which remains

unchanged since the previous year, is the manufacture and

sale of glazed ceramic floor tiles.

This report together with the financial statements, reflect

the state of affairs of the Company.

3. Change of Name of the Company

The Board of Directors of Lanka Floortiles PLC recommend

to its shareholders, to change the name of the Company

back to “Lanka Tiles PLC” in keeping with the brand name

of Company.

The Registrar General of Companies, by his letter dated

30th July 2013 has granted his approval for the name

change from “Lanka Floortiles PLC” to “Lanka Tiles PLC.”

The Directors seek shareholder approval to proceed with

the said name change of the Company.

The requisite resolution to give effect to the Boards

recommendations as set out above is contained in the

attached Notice of Meeting.

4. Financial Statements`

The financial statements of the Company are given on

pages 74 to 105.

Summarised “Economic Entity” financial results

2013 2012

Year ended 31st March Rs. ‘000 Rs. ‘000

Revenue 4,558,690 3,567,209

Total comprehensive

income for the year 630,278 579,922

Annual report of the board of directors on the affairs of the company

5. Independent Auditors’ Report

The Report of the Independent Auditors on the Financial

Statements of the Company is given on page 73.

6. Accounting Policies

The financial statements of the Company have been

prepared in accordance with the revised Sri Lanka

Accounting Standards and the policies adopted thereof are

given on page 78 to 86 figures pertaining to the previous

period have been re-stated where necessary to confirm to

the presentation for the year under review.

7. Directors

The names of the Directors who held office as at the end

of the accounting period are given below and their brief

profiles appear on pages 14 to 16.

Executive Directors

Mr. J A P M Jayasekera - Managing Director

Non Executive Directors

Mr. A A Page - Chairman

Mr. J C Page - Director

(Resigned w.e.f. 15th May 2013)

Mr. V R Page - Director


Independent Non Executive Directors

Dr. S Selliah - Deputy Chairman

Mr. P L Amerasinghe - Director

Mr. A T P Edirisinghe - Director


Mr. S Mendis - Director


Mr. P L Amerasinghe retires by rotation at the conclusion

of the Annual General Meeting in terms of Articles 103

and 104 of the Articles of Association and being eligible is

recommended by the Directors for re-election.

Consequent to the sale of shares of Lanka Ceramics PLC

by C T Holdings PLC to Royal Ceramics Lanka PLC, Mr.

J C Page, Mr. V R Page, Mr. A T P Edirisinghe and Mr. S

Mendis resigned from the Board on 15th May 2013.

Mr. K D D Perera, Mr. W D N H Perera, Mr. T G

Thoradeniya and Mr. K D G Gunaratne were appointed as

Directors of the Company with effect from 28th May 2013.

Mr. K D D Perera, Mr. W D N H Perera and Mr. T G

Thoradeniya were appointed Non-Executive Directors of

the Company on 28th May 2013 and Mr. K D G Gunaratne

was appointed as an Independent Non-Director of the

Company on the same day. All three Directors shall retire

in terms of Article 110 of the Articles of Association of the

67

Company and being eligible are recommended by the

Directors for re-election.

8. Interests Register

The Company maintains an Interests Register in terms of

the Companies Act, No. 7 of 2007, which is deemed to

form part and parcel of this Annual Report and available for

inspection upon request.

All related party transactions which encompasses the

transactions of Directors who were directly or indirectly

interested in a contract or a related party transaction with

the Company during the accounting period are recorded in

the Interests Register in due compliance with the applicable

rules and regulations of the relevant Regulatory Authorities.

The relevant interests of Directors in the shares of the

Company as at 31st March 2013 as recorded in the

Interests Register are given in this Report under Directors’

shareholding.

9. Directors’ Remuneration

The Directors’ remuneration is disclosed in Note 21 to the

Financial Statements on page 99.

10. Directors’ responsibility for Financial Reporting

The Directors are responsible for the preparation of

Financial Statements of the Company to reflect a true and

fair view of the state of its affairs. The Directors are of the

view that these financial statements have been prepared in

conformity with requirements of the Sri Lanka Accounting

Standards, the Companies Act No.7 of 2007 and the

Listing Rules of the Colombo Stock Exchange.

11. Auditors

Messrs PricewaterhouseCoopers, Chartered Accountants

served as the auditors during the year under review. Based

on the written representation made by the auditors, they

do not have any interest in the Company other than as

auditors and tax consultants.

The audit fee payable to the auditors for the year under

review is Rs. 569,100/- (2012 - Rs. 542,000/-).

The auditors have also provided tax compliance and other

services during the year and the fees payable therefore

amounts to Rs. 369,000/- (2012 - Rs. 184,000/-).

The auditors have expressed their willingness to continue

in office. A resolution to re-appoint the auditors and to

authorise the Directors to determine their remuneration will

be proposed at the Annual General Meeting.

12. Stated Capital

The Stated Capital of the Company is Rs. 900,967,696/-

(2012 – Rs. 900,967,696/-).

The number of shares issued by the Company stood at

53,050,410 fully paid ordinary shares as at 31st March

2013 (2012 – 53,050,410 fully paid ordinary shares).

13. Directors’ Shareholding

The relevant interests of Directors in the shares of the

Company as at 31st March 2013 and 31st March 2012 are

as follows.

Shareholding Shareholding

as at as at

31st March 2013 31st March 2012

Mr. A A Page 433,000 357,425

Mr. J A P M Jayasekera 2,088 148

Mr. P L Amerasinghe 2,135 2,135

Mr. J C Page 7,988 7,988

Mr. A T P Edirisinghe 4,592 4,592

14. Major Shareholders, Distribution Schedule and other

information

Information on the distribution of shareholding, analysis of

shareholders, market values per share, earnings, dividends,

net assets per share, twenty largest shareholders of the

Company, percentage of shares held by the public as per

the Listing Rules of the Colombo Stock Exchange are given

on page 109 under Share Information.

15. Reserves

The movement of reserves during the year is given under

the Statement of Changes in Equity on page 76.

16. Capital Expenditure

The total capital expenditure during the year amounted

to Rs. 419 Mn compared to Rs. 874 Mn incurred in the

previous year. Details of movements in property, plant and

equipment and capital work-in-progress are given under

Note 7 to the financial statements.

17. Land holdings

The book value of property, plant and equipment as at the

balance sheet date amounted to Rs. 2,567 Mn (2012 – Rs.

2,339 Mn).

The extents, locations, valuations and the number of

buildings of the Company’s land holdings are given below:

Location No. of

Buildings

Lands in

extent

(Perches)

Valuation

Rs. ‘000

Factory at Jaltara, Ranala 41 4,060 348,500

Land adjacent to the

factory

11 1,653 176,084

Warehouse at Biyagama 2 336 218,354

Ball Clay land at Kalutara - 841 55

Land at Madampe - 2,082 35,784

Total 54 8,972 778,777


From 30th July 2013

Mr. M D S Goonetilleke - Chairman

Mr. R N Asirwatham

Mr. L T Samarawickrama


Upto 15th May 2013

Mr. S Mendis - Chairman

Dr. S Selliah

Mr. P L Amerasinghe

From 30th July 2013

Dr. S Selliah - Chairman

Mr. P L Amerasinghe

Mr. W D N H Perera

The Corporate Governance Statement on pages 50 to 58

explains the measures adopted by the Company during the

year.

24. Statutory Payments

All statutory payments due to the Government of Sri Lanka

and on behalf of employees have been made or accrued

for at the balance sheet date.

25. Environmental Protection

After making adequate enquiries from the management,

the Directors are satisfied that the Company operates in

a manner that minimizes the detrimental effects on the

environment and provides products and services that have

a beneficial effect on the customers and the communities

within which the Company operates.

26. Going Concern

The financial statements are prepared on going concern

principles. After making adequate enquiries from the

management, the Directors are satisfied that the Company

has adequate resources to continue its operations in the

foreseeable future.

27. Annual General Meeting

The Notice of the Twenty Ninth (29th) Annual General

Meeting appears on page 111.

By order of the Board

LANKA FLOORTILES PLC

Dr. S Selliah J A P M Jayasekera

Deputy Chairman Managing Director

P W Corporate Secretarial (Pvt) Ltd

Secretaries

Colombo

23rd August 2013

The movement of fixed assets during the year is given in

Note 7 to the financial statements.

18. Dividend

An interim dividend of Rs. 1.50 per share for the year

ended 31st March 2013 was paid on 15th March 2013.

A second interim dividend of Rs. 2.60 per share for the

year ended 31st March 2013 was approved by the Board

of Directors on 4th July 2013 and paid on 25th July 2013.

19. Substantial Shareholdings

The Company is controlled by Lanka Walltiles PLC which

holds 54.51% (2012 – 54.51%) of the issued share capital

of the Company. Lanka Walltiles PLC itself is a subsidiary

of Lanka Ceramics PLC of which, the ultimate parent

Company is Vallibel One PLC.

On 6th May 2013, Royal Ceramics Lanka PLC acquired a

controlling stake of Lanka Ceramics PLC from CT Holdings

PLC.

20. Public Holding

43.64% (2012 – 43.79%) of the issued shares of the

Company are in the hands of the public.

21. Donations

The Company has made donations totaling Rs. 261,107/-

(2012 – Rs. 367,145/-) during the year ended 31st March

2013 for charitable purposes.

22. Events occurring after the Balance Sheet date

CT Holdings PLC the ultimate parent disposed its

shareholding Lanka Ceramic PLC on 6th May 2013. The

ultimate parent company as at the signing date of the

financial statements is Vallibel One PLC.

23. Corporate Governance

The Directors confirm that the Company complies with

the Listing Rules of the Colombo Stock Exchange on

Corporate Governance.

An audit committee and a remuneration committee function

as Board sub committees, with Directors who possess the

requisite qualifications and experience. The composition of

the said committees is as follows.

Audit Committee

Upto 15th May 2013

Mr. A A Page - Chairman

Dr. S Selliah

Mr. A T P Edirisinghe

Annual report of the board of directors on the affairs of the company

69

The Directors are required by the Companies Act, No. 7 of 2007

to prepare financial statements for each financial year, which give a

true and fair view of the statement of affairs of the Company as at

the end of the financial year and the income and expenditure of the

Company for the financial year.

The Directors are also responsible to ensure that the financial

statements comply with any regulations made under the

Companies Act which specifies the form and content of financial

statements and any other requirements which apply to the

Company’s financial statements under any other law.

The Directors consider that the financial statements presented

in this Annual Report have been prepared using appropriate

accounting policies, consistently applied and supported by

reasonable and prudent judgments and estimates and in

compliance with the Sri Lanka Accounting Standards, Companies

Act, No. 7 of 2007, Sri Lanka Accounting and Auditing Standards

Act No. 15 of 1995.

The Directors are responsible for ensuring that the Company

keeps sufficient accounting records, which disclose the financial

position of the Company with reasonable accuracy and enable

them to ensure that the financial statements have been prepared

and presented as aforesaid. They are also responsible for taking

measures to safeguard the assets of the Company and in that

context to have proper regard to the establishment of appropriate

systems of internal control with a view to prevention and detection

of fraud and other irregularities.

Statement of directors responsibilities

The Directors continue to adopt the going concern basis in

preparing the financial statements. The Directors, after making

inquiries and review of the Company’s Business Plan for the

financial year 2012/2013, including cash flows and borrowing

facilities, consider that the Company has adequate resources to

continue in operation.

By order of the Board



Secretaries

23rd August 2013


The financial statements are prepared in compliance with the Sri

Lanka Accounting Standards issued by the Institute of Chartered

Accountants of Sri Lanka and the requirements of the Companies

Act No. 7 of 2007 and any other applicable statues to the extent

applicable to the Company. There are no departures from the

prescribed accounting standards in their adoption. The accounting

policies used in the preparation of the financial statements are

appropriate and are consistently applied, except where otherwise

stated in the notes accompanying the financial statements.

The Board of Directors and the management of your Company

accept responsibility for the integrity and objectivity of these

financial statements. The estimates and judgments relating to

the financial statements were made on a prudent and reasonable

basis, in order that the financial statements reflect in a true

and fair manner, the form and substance of transactions, and

reasonably present the Company’s state of affairs. To ensure

this, the Company has taken proper and sufficient care in

installing a system of internal control and accounting records,

for safeguarding assets, and for preventing and detecting frauds

as well as other irregularities, which is reviewed, evaluated

and updated on an ongoing basis. Our internal auditors have

conducted periodic audits to provide reasonable assurance that

the established policies and procedures of the Company were

consistently followed. However, there are inherent limitations that

should be recognized in weighing the assurances provided by any

system of internal controls and accounting.

The financial statements were audited by M/s.

PricewaterhouseCoopers, Chartered Accountants, the

independent auditors.

The Audit Committee of your Company meets periodically

with the internal auditors and the independent auditors to

review the manner in which these auditors are performing their

responsibilities, and to discuss auditing, internal control and

financial reporting issues. To ensure complete independence, the

independent auditors and the internal auditors have full and free

access to the members of the Audit Committee to discuss any

matter of substance.

It is also declared and confirmed that the Company has complied

with and ensured compliance by the auditors with the guidelines

for the audit of Listed Companies where mandatory compliance is

required.

J A P M Jayasekera B T T Roche

Managing Director Head of Finance

23rd August 2013

Chief executive officer’s and chief financial officer’s responsibility statement

required.

J A P M J k

71

Remuneration committee report

Role of the Remuneration Committee

The Committee reviews the performance of the executive

staff against the set objectives and goals, and determines the

compensation policy of the Company for all levels of employees.

The Committee supports and advises the Board on remuneration

and remuneration related matters and makes decisions under

delegated authority with a view to aligning the interests of

employees and shareholders.

Composition of the Remuneration Committee

The Remuneration Committee is a sub - committee of the main

Board, to which it is accountable. The Remuneration Committee

comprises of the following three non-executive - independent

Directors.

1. Mr. Sunil Mendis -

Chairman of the Committee (Up to 15th May 2013)

2. Dr. S Selliah - Member of the Committee

3. Mr. P L Amerasinghe - Member of the Committee

The Managing Director attends the Committee meeting by

invitation and serves as the secretary of the Committee.

Mr. W D N H Perera was appointed to the Remuneration

Committee w.e.f 30th July 2013.

The Committee members possess vast experience in the fields of

Business Management, Human Resources Management, Labour

Relations and Labour Law. Hence the Committee has adequate

expertise in remuneration policy and management to deliberate

and propose necessary changes, improvements to meet the roles

and responsibility in the Committee.

Meetings

The Remuneration Committee met 02 times during the year. The

attendance of the members at the meeting is as follows.

Mr. Sunil Mendis -

Chairman of the Committee – 2/2 (Up to 15th May 2013)

Dr. S Selliah -

Member of the Committee – 2/2

Mr. P L Amerasinghe -

Member of the Committee – 2/2

Functions performed by the Remuneration Committee

a. The Remuneration Committee recommended the

remuneration payable to the Managing Director of the

Company to the Board to make the final determination. The

aggregate remuneration paid to Executive and Non Executive

Directors is given on Page 99 of the Annual Report under key

management remuneration.

b. Ensuring that the Board complies with the Companies Act in

relation to Director remunerations, especially the requirements

of section 216. And it also ensures that employees are

adequately compensated based on their performance and

contribution for the period under review and future potential.

c. Constructing a specific cost of employment structure

that enables Company to attract and retain a quality and

representative staff in its operations and do this inter alia

with reference to appropriate market rates where these

are relevant, and benchmarking specific categories where

required.

d. Ensuring internal equity and fairness in and between the

various pay categories and building incentives in the cost of

employment structure to encourage and reward excellent

performance, on objectively defined criteria.

e. Ensuring that staff costs are within the budget set by the

Board, and are sustainable over time.

Conclusion

The Committee is satisfied that it has completed the

responsibilities that were delegated to it by the Board for the year

under review and the necessary objectives were achieved for the

year under review.

Dr. S Selliah

Chairman - Remuneration Committee

23rd August 2013


Audit committee report

Role of the Audit Committee

Audit Committee is to assist the Board in its oversight of the

integrity of the financial statements of the Company, to assess

the qualifications, the independence and the performance of

the Company’s external auditor, to assess the independence

and performance of the Company’s internal audit function, and

review compliance of the Company with legal and regulatory

requirements.

Composition of the Audit Committee

The Audit Committee comprised of the following three non –

executive Directors, out of which two are independent.

1. Mr. A A Page – Chairman (Up to 30th July 2013)

2. Dr. S Selliah (independent) (Up to 30th July 2013)

3. Mr. A T P Edirisinghe (independent) (Up to 15th May 2013)

The following 03 Director’s of Royal Ceramics Lanka PLC were

appointed to the Audit Committee by the Board on 30th July

2013.

1. Mr. M D S Goonetilleke

2. Mr. R N Asirwatham

3. Mr. L T Samarawickrama

The Committee is also the Audit Committee of Royal Ceramics

Lanka PLC

The Managing Director and the Head of Finance attend

meetings at the invitation of the Audit Committee. Ms. Charuni

Gunewardena, Attorney - at – Law function as the Secretary of the

Audit Committee. Representatives of external auditors and internal

auditors also attend Audit Committee meetings by invitation.

The Audit Committee, whose Chairman has the required

expertise in finance and business management to deliberate Audit

Committee matters and recommend necessary action to be taken.

Meetings

The Audit Committee met 04 times during the year. The

attendance of the members at the meeting is as follows.

Mr. A A Page - 2/3

Dr. S Selliah - 3/3

Mr. A T P Edirisinghe - 3/3

Functions performed by the Audit Committee

a. The Committee reviewed the provisional financial statements

for the four quarters that were published for financial year

2012/13 and the Annual Report of 2011/12. It oversaw of

the preparation, presentation and adequacy of disclosures

in the financial statements of the Company, in accordance

with Sri Lanka Accounting Standards and SLFRS. It also

reviewed the Company’s compliance with financial reporting

requirements, information requirements of the Companies Act

and other relevant financial reporting related regulations and

requirements.

b. The Committee reviewed the monthly internal audit reports.

The internal audit function is carried out by M/s. Ernst &

Young Advisory Services (Pvt) Ltd. The Internal audits are

done on a monthly process based audits to improve process

performance and control.

c. The Committee reviewed the external auditors’ report and

management letter for the last year. All recommendations

proposed by the external auditors were discussed with

the senior partner and recommendations proposed were

duly carried out by the management. In addition the Audit

Committee reviewed the engagement partner’s relationships

with the Company, and assessed that the external auditors are

independent.

d. The Audit Committee in conjunction with the Managing

Director and Head of Finance of the Company reviewed the

Company’s disclosure controls and procedures and internal

control over financial reporting.

e. The Audit Committee reviewed the Company’s policies

and practices with respect to risk assessment and risk

management, including discussing with management the

Company’s major financial risk exposures and the steps that

have been taken to monitor and control such exposures.

Conclusion

The Audit Committee is satisfied that the Company’s accounting

policies, independence of the auditors and risk management

are adequate for the Company. The Audit Committee has also

accomplished responsibilities and functions that are delegated to it

by the Board.

The new Audit Committee also thanks outgoing Audit Committee

members for their valuable service rendered during the financial

year.

M D S Goonatilleke

Chairman – Audit Committee

23rd August 2013

73

Independent auditor’s report

To the shareholders of Lanka Floortiles PLC

Report on the Financial Statements

1 We have audited the accompanying financial statements of

Lanka Floortiles PLC (“the Company”), which comprise the

statement of financial position as at 31 March 2013, 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 as set out in pages 74 to 105.

Management’s Responsibility for the Financial

Statements

2 Management is responsible for the preparation and fair

presentation of these financial statements in accordance with

Sri Lanka Accounting Standards (SLFRSs). This responsibility

includes: designing, implementing and maintaining internal

controls relevant to the preparation and fair presentation of

financial statements that are free from material misstatement,

whether due to fraud or error; selecting and applying

appropriate accounting policies; and making accounting

estimates that are reasonable in the circumstances.

Scope of Audit and Basis of Opinion

3 Our responsibility is to express an opinion on these financial

statements based on our audit. We conducted our audit

in accordance with Sri Lanka Auditing Standards. Those

Standards require that we plan and perform the audit to obtain

reasonable assurance whether the financial statements are

free from material misstatement.

4 An audit includes examining, on a test basis, evidence

supporting the amounts and disclosures in the financial

statements. An audit also includes assessing the accounting

principles used and significant estimates made by

management, as well as evaluating the overall financial

statement presentation.

5 We have obtained all the information and explanations which

to the best of our knowledge and belief were necessary for

the purposes of our audit. We therefore believe that our audit

provides a reasonable basis for our opinion.

Opinion

6 In our opinion, so far as appears from our examination, the

Company maintained proper accounting records for the year

ended 31 March 2013 and the financial statements give a true

and fair view of the Company’s state of affairs as at 31 March

2013 and of its financial performance and cash flows for the

year then ended in accordance with Sri Lanka Accounting

Standards (SLFRSs).

Report on Other Legal and Regulatory Requirements

7 These financial statements also comply with the requirements

of Sections 151 (2) of the Companies Act No. 07 of 2007.

Chartered Accountants

Colombo


Statements of financial position

I certify that these financial statements have been

prepared in compliance with the requirements of the

Companies Act No. 07 of 2007.

B T T Roche

Head of Finance

Note 31st March 1st April

2013 2012 2011

Rs. ‘000 Rs. ‘000 Rs. ‘000

ASSETS

Non-current assets

Property, plant and equipment 7 2,501,664 2,251,738 1,514,770

Capital work in progress 7 65,094 86,819 85,071

Investment in subsidiary - - 168,254

Investment in associate 8 258,067 247,983 167,206

Loans given to related companies 12 138,291 102,106 40,937

Finance lease receivables 12 2,989 4,754 6,182

2,966,105 2,693,400 1,982,420

Current assets

Inventories 11 1,500,505 781,626 569,821

Trade and other receivables 12 970,098 749,749 449,427

Cash and cash equivalents 13 128,042 38,721 154,414

2,598,645 1,570,096 1,173,662

Total assets 5,564,750 4,263,496 3,156,082

EQUITY

Capital and reserves

Stated capital 18 900,968 900,968 900,968

Amalgamation reserve 460,151 460,151 -

Retained earnings 1,781,578 1,390,027 782,937

3,142,697 2,751,146 1,683,905

LIABILITIES

Non-current liabilities

Borrowings 15 528,979 379,024 81,093

Deferred income tax liabilities 16 235,671 179,561 124,212

Retirement benefit obligations - gratuity 17 76,546 62,988 41,855

841,196 621,573 247,160

Current liabilities

Trade and other payables 14 699,097 575,008 1,042,424

Current income tax liabilities 17,306 10,839 94,928

Borrowings 15 864,454 304,930 87,665

1,580,857 890,777 1,225,017

Total liabilities 2,422,053 1,512,350 1,472,177

Total equity and liabilities 5,564,750 4,263,496 3,156,082

The Board of Directors is responsible for the preparation and presentation of

these financial statements. These financial statements were approved for issue

by the Board of Directors on 23rd August 2013.

Dr. S Selliah J A P M Jayasekera

Deputy Chairman Managing Director

The notes on pages 78 to 105 form an integral part of these financial statements.

13.

A P M J k

75

Statement of comprehensive income

Year ended 31st March

Note 2013 2012

Rs. ‘000 Rs. ‘000

Revenue 6 4,558,690 3,567,209

Cost of sales (3,252,700) (2,421,237)

Gross profit 1,305,990 1,145,972

Distribution costs (324,566) (199,349)

Administrative expenses (231,301) (189,155)

Other income 19 30,928 16,647

Other gains/ (losses) - net 20 3,988 (1,887)

Operating profit 21 785,039 772,228

Finance income 50,098 9,613

Finance costs (126,375) (53,518)

Finance costs - net 23 (76,277) (43,905)

Share of (loss) /profit of associate - net of tax (8,164) 327

Profit before income tax 700,598 728,650

Income tax expense 24 (84,777) (142,310)

Profit for the year 615,821 586,340

Other comprehensive income

Actuarial losses from retirement benefit obligations - gratuity (7,428) (11,360)

Share of other comprehensive income of associate - net of tax 18,248 232

Deferred tax on components of Other Comprehensive Income 3,637 4,710

Total other comprehensive income for the year - net of tax 14,457 (6,418)

Total comprehensive income for the year 630,278 579,922

Basic / diluted earnings per share (Rs) 25 11.61 11.05



Attributable to equity holders of the Company

Stated Retained Amalgamation

capital earnings reserve Total

Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000

Balance as at 1st April 2011 900,968 782,937 - 1,683,905

Profit for the year - 586,340 - 586,340

Other comprehensive income - (6,418) - (6,418)

Total comprehensive income for the year - 579,922 - 579,922

Post acquisition share of result transferred

from associate company - 80,218 - 80,218

Amalgamation reserve - - 460,151 460,151

Dividends for year 2011/2012 (1st interim) - (53,050) - (53,050)

Balance as at 31st March 2012 900,968 1,390,027 460,151 2,751,146

Balance as at 1st April 2012 900,968 1,390,027 460,151 2,751,146

Profit for the year - 615,821 - 615,821

Other comprehensive income - 14,457 - 14,457

Total comprehensive income for the year - 630,278 - 630,278

Dividends for year 2011/2012 (2nd interim) - (159,151) - (159,151)

Dividends for year 2012/2013 (1st interim) - (79,576) - (79,576)

Balance as at 31st March 2013 900,968 1,781,578 460,151 3,142,697

* Amalgamation reserve resulted from amalgamation of two fully owned subsidiaries Lanka Tiles Trading (Private) Limited and Ceradec

(Private) Limited on 19th December 2011 in terms of Section 242(1) of the Companies Act No 07 of 2007.


Statement of changes in equity

77

Cash flow statement

Year ended 31st March Note 2013 2012

Rs. ‘000 Rs. ‘000

Cash flows from operating activities

Cash generated from operations 27 164,339 495,526

Interest paid (126,375) (28,728)

Interest received 1,022 1,966

Gratuity paid 17 (5,050) (2,222)

Tax paid (18,557) (174,421)

Net cash generated from operating activities 15,379 292,121

Cash flows from investing activities

Purchase of property, plant and equipment 7 (275,520) (659,169)

Proceeds from sale of property, plant and equipment 6,643 36,510

Expenditure incurred on capital work in progress 7 (134,984) (214,657)

Loans granted to related companies (4,194) (41,993)

Loan repayments received from related companies 10,000 9,238

Net cash used in investing activities (398,055) (870,071)

Cash flows from financing activities

Dividends paid (237,482) (53,050)

Repayment of finance leases (5,536) (9,743)

Proceeds from borrowings 948,246 558,239

Repayment of borrowings (515,908) (95,810)

Net cash generated in financing activities 189,320 399,636

Net decrease in cash and cash equivalents (193,356) (178,313)

Movement in cash and cash equivalents

At beginning of year (47,060) 131,142

Net decrease in cash and cash equivalents (193,356) (178,313)

Cash and bank balance transferred on amalgamation - 111

At end of year 13 (240,416) (47,060)



1 GENERAL INFORMATION

General

Lanka Floortiles PLC (“the Company”) is a limited liability

company incorporated and domiciled in Sri Lanka and

listed on the Colombo Stock Exchange. The registered

office and the principal place of business of the Company

is located at No. 215, Nawala Road, Narahenpita,

Colombo 05.

Principal activities and nature of operations

Lanka Floortiles PLC manufactures and sells glazed

ceramic floor tiles through a network of dealers and

distributors. The Company has its manufacturing plant

located at St James Estate, Jaltara, Ranala.

Parent company and ultimate parent company

The Company’s parent entity is Lanka Walltiles PLC. The

Company’s ultimate parent undertaking and controlling

party at the financial year end date was CT Holdings PLC,

which is incorporated in Sri Lanka.

The ultimate parent company on the date of the approval

of the financial statement was Vallibel One PLC.

Date of authorization for issue

The financial statements were authorized for issue in

accordance with a resolution of the board of directors on

23rd August 2013.

2 SUMMARY OF SIGNIFICANT ACCOUNTING

POLICIES

2.1 Basis of preparation and adoption of Sri Lanka

Accounting Standards (SLFRS)

The financial statements have been prepared on a historical

cost basis except for financial assets and liabilities which

are measured at fair value. Adjustments to the financial

statements due to adoption SLFRSs are summarised in

Note 5.

The Company prepares its financial statements in

accordance with Sri Lanka Financial Reporting Standards

issued by the Institute of Chartered Accountants of

Sri Lanka. Sri Lanka Accounting Standards (SLASs)

were revised to incorporate International Financial

Reporting Standards (IFRSs) 2011 edition as issued by

the International Accounting Standards Board, which

requires all entities to apply these standards effective

for years beginning on or after 1st January 2012. The

financial statements of the Company has been prepared

in accordance with Sri Lanka Accounting Standards,

which comprise Sri Lanka Financial Reporting Standards

(SLFRSs), Sri Lanka Accounting Standards (LKASs),

relevant interpretations of the Standing Interpretations

Committee (SIC) and International Financial Reporting

Interpretations Committee (IFRIC) which are collectively

referred to as SLFRSs. Subject to certain transition

elections and exceptions disclosed in Note 5, the

Company has consistently applied the accounting policies

in the preparation of its opening SLFRS statement of

financial position at 1st April 2011 and throughout all

periods presented, as if these policies had always been in

effect.

An explanation of how the transition to SLFRSs has

affected the reported financial position, financial

performance and cash flows of the Company is provided in

Note 5.

The preparation of financial statements in conformity with

SLFRSs requires the use of certain critical accounting

estimates. It also requires management to exercise its

judgment in the process of applying the Company’s

accounting policies. The areas involving a higher degree

of judgment or complexity, or areas where assumptions

and estimates are significant to the Company’s financial

statements are disclosed in Note 3.

2.2 Effect of Sri Lanka Accounting Standards issued

but not yet effective:

New accounting standards, amendments and

interpretations issued but not effective for the financial year

beginning 1 April 2012 and not early adopted are;

(i) SLFRS 09, ‘Financial instruments’, addresses the

classification, measurement and recognition of financial

assets and financial liabilities. IFRS 9 requires financial

assets to be classified into two measurement categories:

those measured as at fair value and those measured

at amortised cost. The determination is made at initial

recognition. The classification depends on the entity’s

business model for managing its financial instruments and

the contractual cash flow characteristics of the instrument.

For financial liabilities, the standard retains most of the IAS

39 requirements. The main change is that, in cases where

the fair value option is taken for financial liabilities, the part

of a fair value change due to an entity’s own credit risk

is recorded in other comprehensive income rather than

the income statement, unless this creates an accounting

mismatch. Adoption of IFRS 9 is mandatory from 1 January

2015; earlier adoption is permitted.

(ii) SLFRS 10, ‘Consolidated Financial Statements’, builds

on existing principles by identifying the concept of control

as the determining factor in whether an entity should be

included within the consolidated financial statements of

the parent company. The standard provides additional

guidance to assist in the determination of control where

Notes to the financial statements

79

this is difficult to assess. The Company is yet to assess

SLFRS 10’s full impact and intends to adopt SLFRS 10 no

later than the accounting period beginning on or after 1st

January 2013.

(iii) SLFRS 12, ‘Disclosures of Interests in Other Entities’,

includes the disclosure requirements for all forms of

interests in other entities, including joint arrangements,

associates, special purpose vehicles and other off balance

sheet vehicles. The Company is yet to assess SLFRS 12’s

full impact and intends to adopt SLFRS 12 no later than

the accounting period beginning on or after 1st April 2013.

(iv) SLFRS 13, ‘Fair Value Measurement’ aims to improve

consistency and reduce complexity by providing a precise

definition of fair value and a single source of fair value

measurement and disclosure requirements for use across

SLFRSs.

2.3 Comparative information

Previous period figures and notes have been restated and

reclassified wherever necessary to conform to the current

year’s presentation.

2.4 Consolidation

Effective from 20th December 2011, the Company no

longer has subsidiaries as a result of amalgamation of the

wholly owned subsidiaries, Lanka Tiles Trading (Private)

Limited and Ceradec (Private) Limited to the Company

under the Section 242 (1) of the Companies Act No.

07 of 2007. Accordingly, the consolidation is limited to

accounting for results of the associate company for which

the Company prepares and presents ‘Economic entity’

financial statements.

2.5 Investments in associates

Associates are all entities over which the Company

has significant influence but not control, generally

accompanying a shareholding of between 20% and 50%

of the voting rights. Significant influence is the power to

participate in financial and operating policy decisions of the

associates but not power to exercise control over those

policies. Investments in associates are accounted for using

the equity method of accounting and are initially recognised

at cost. Equity accounting is discontinued when the

Company ceases to have significant influence over the

associates. The Company’s investment in associates

includes goodwill identified on acquisition, net of any

accumulated impairment loss.

If the ownership interest in an associate is reduced but

significant influence is retained, only a proportionate share

of the amounts previously recognised in the statement of

comprehensive income as other comprehensive income is

reclassified to profit or loss where appropriate.

The Company’s share of its associates’ post-acquisition

profits or losses is recognised as profit or losses in the

statement of comprehensive income, and its share of

post-acquisition movements in other comprehensive

income is recognised in other comprehensive income in the

statement of comprehensive income. The cumulative post-

acquisition movements are adjusted against the carrying

amount of the investment. When the Company’s share

of losses in an associate equals or exceeds its interest in

the associate, including any other unsecured receivables,

the Company does not recognise further losses, unless

it has incurred legal or constructive obligations or made

payments on behalf of the associate.

2.6 Foreign currency translation

The financial statements are presented in Sri Lanka

Rupees, which is the Company’s functional and

presentation currency. Transactions in foreign currencies

are initially recorded at the functional currency rate ruling

at the date of the transaction. Monetary assets and

liabilities denominated in foreign currencies are retranslated

at the functional currency rate of exchange ruling at the

date of statement of financial position. Foreign exchange

gains and losses resulting from the settlement of such

transactions and from the translation at year-end exchange

rates of monetary assets and liabilities denominated in

foreign currencies are recognised in the statement of

comprehensive income. Non monetary items that are

measured in terms of historical cost in a foreign currency

are translated using the exchange rates as at the dates of

the initial transactions.

2.7 Current and deferred income tax

a) Current tax

Current income tax assets and liabilities for the current and

prior periods are measured at the amount expected to be

recovered from or paid to the taxation authorities. The tax

rates and tax laws used to compute the amount are those

that are enacted or substantively enacted by the date of

the statement of financial position.

b) Deferred tax

Deferred tax is provided, using the liability method, on

temporary differences at date of the statement of financial

position between the tax bases of assets and liabilities and

their carrying amounts for financial reporting purposes.

Deferred tax liabilities are recognised for all taxable

temporary differences except where the deferred income

tax liability arises from the initial recognition of an asset or

liability in a transaction that is not a business combination

and, at the time of the transaction, affects neither the

accounting profit nor taxable profit or loss.


Deferred tax assets are recognised for all deductible

temporary differences, carry-forward of unused tax assets

and unused tax losses, to the extent that it is probable that

taxable profit will be available against which the deductible

temporary differences, and the carry-forward of unused tax

assets and unused tax losses can be utilised except where

the deferred income tax asset relating to the deductible

temporary difference arises from the initial recognition of

an asset or liability in a transaction that is not a business

combination and, at the time of the transaction, affects

neither the accounting profit nor taxable profit or loss;

and the carrying amount of deferred income tax assets is

reviewed at each date of statement of financial position

and reduced to the extent that it is no longer probable that

sufficient taxable profit will be available to allow all or part of

the deferred income tax asset to be utilised.

Deferred tax assets and liabilities are measured at the tax

rates that are expected to apply to the year when the asset

is realised or the liability is settled, based on tax rates (and

tax laws) that have been enacted or substantively enacted

at date of the statement of financial position.

Deferred tax relating to components of other

comprehensive income is recognized under the other

comprehensive in the statement of comprehensive income.

2.8 Borrowing costs

Borrowing costs are recognised as an expense in the

period in which they are incurred, except to the extent

where borrowing costs that are directly attributable to

the acquisition, construction, or production of an asset

that takes a substantial period of time to get ready for its

intended use or sale, are capitalised as part of that asset.

2.9 Inventories

Inventories are valued at the lower of cost and net

realizable value, after making due allowances for obsolete

and slow moving items. Net realizable value is the price

at which inventories can be sold in the ordinary course of

business less the estimated cost of completion and the

estimated cost necessary to make the sale. Cost of the

trading stock is determined using the first-in, first-out (FIFO)

method. Cost of the finished goods and work in progress

is determined using the weighted average cost method.

The cost of finished goods and work in progress comprises

raw materials, direct labour, other direct costs and related

production overheads (based on normal operating

capacity). It excludes borrowing costs.

2.10 Financial assets

2.10.1 Classification

The Company classifies its financial assets as loans and

receivables since there are no assets which are held to

maturity, available for sale and fair value through profit

or loss. The classification depends on the purpose for

which the financial assets were acquired. Management

determines the classification of its financial assets at initial

recognition.

Loans and receivables

Loans and receivables are non-derivative financial assets

with fixed or determinable payments that are not quoted

in an active market. They are included in current assets,

except for maturities greater than twelve (12) months after

the end of the reporting period. These are classified as

non-current assets. The Company’s loans and receivables

comprises, trade and other receivables, loans given to

related companies and cash and cash equivalents.

2.10.2 Recognition and measurement

Loans and receivables are initially recognised at fair vale

plus transaction costs. Financial assets are de-recognised

when rights to receive the cash flows from the investments

have expired or have been transferred. Loans and

receivables are subsequently carried at amortised cost

using the effective interest rate method.

2.10.3 Offsetting financial instruments

Financial assets and liabilities are offset and the net amount

presented in the statement of financial position when, and

only when, the Company has a legally enforceable right to

offset the recognised amounts and there is an intention to

settle on a net basis or to realize the asset and settle the

liability simultaneously.

2.10.4 Impairment of financial assets -Assets carried

at amortised cost

The Company assesses at the end of each reporting period

whether there is objective evidence that a financial asset

or group of financial assets is impaired. A financial asset

or a group of financial assets is impaired and impairment

losses are incurred only if there is objective evidence of

impairment as a result of one or more events that occurred

after the initial recognition of the asset (a ‘loss event’) and

that loss event (or events) has an impact on the estimated

future cash flows of the financial asset or 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 reorganization, 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.


81

For loans and receivables category, the amount of the loss

is measured as the difference between the asset’s carrying

amount and the present value of estimated future cash

flows (excluding future credit losses that have not been

incurred) discounted at the financial asset’s original effective

interest rate. The carrying amount of the asset is reduced

and the amount of the loss is recognised in the statement

of comprehensive income. If a loan or held-to-maturity

investment has a variable interest rate, the discount rate

for measuring any impairment loss is the current effective

interest rate determined under the contract. As a practical

expedient, the Company may measure impairment on

the basis of an instrument’s fair value using an observable

market price.

If, in a subsequent period, the amount of the impairment

loss decreases and the decrease can be related objectively

to an event occurring after the impairment was recognised,

the reversal of the previously recognised impairment loss is

recognised in the statement of comprehensive income.

2.11 Cash and cash equivalents

Cash and cash equivalents comprise of cash in hand

and cash at banks and other highly liquid financial assets

which are held for the purpose of meeting short-term cash

commitments with original maturities of less than three

months which are subject to insignificant risk of changes in

their fair value.

Bank overdrafts are shown within borrowings in current

liabilities in the statement of financial position.

2.12 Trade payables

Trade payables are obligations to pay for goods or services

that have been acquired in the ordinary course of business

from suppliers. Accounts payable are classified as current

liabilities if payment is due within one year or less (or in the

normal operating cycle of the business if longer). If not,

they are presented as non-current liabilities.

Trade payables are recognised initially at fair value and

subsequently measured at amortised cost using the

effective interest method.

2.13 Property, plant and equipment

Property, plant and equipment is stated at historical cost

less accumulated depreciation. Historical cost includes

expenditure that is directly attributable to the acquisition of

the item.

Subsequent costs are included in the asset’s carrying

amount or recognised as a separate asset, as appropriate,

only when it is probable that future economic benefits

associated with the item will flow to the Company and the

cost of the item can be measured reliably. The carrying

amount of the replaced part is derecognised. All other

repairs and maintenance are charged to the income

statement during the financial period in which they are

incurred.

Depreciation is calculated using the straight-line method

to allocate their cost to their residual values over their

estimated useful lives, as follows;

Land is not depreciated except for lands used for

extracting mineral resources. Depreciation on other assets

is calculated using the straight line method to allocate their

cost to their residual values over the estimated useful lives,

as follows:

Clay mining land Units of

production basis

Road way 50 years

Buildings 50 years

Plant and machinery 12- 20 years

Furniture, fittings and office

equipment

5 years

Tools and implements 2 years

Electricity distribution and water

supply schemes

10 years

Motor vehicles 5 years

The assets’ residual values and useful lives are reviewed,

and adjusted if appropriate, at end of each reporting

period.

An asset’s carrying amount is written down immediately

to its recoverable amount if the asset’s carrying amount is

greater than its estimated recoverable amount.

Gains and losses on disposals are determined by

comparing the proceeds with the carrying amount and

are recognised within ‘Other (losses)/gains – net’ in the

statement of comprehensive income.

2.14 Impairment of non financial assets

The Company assesses at each reporting date whether

there is an indication that an asset may be impaired. If any

such indication exists, the Company makes an estimate

of the asset’s recoverable amount. An asset’s recoverable

amount is the higher of an asset’s or cash-generating

unit’s fair value less costs to sell and its value in use and is

determined for an individual asset, unless the asset does

not generate cash inflows that are largely independent

of those from other assets or groups of assets. Where

the carrying amount of an asset exceeds its recoverable

amount an asset is considered as impaired and is written

down to its recoverable amount.


2.15 Employee benefits

2.15.1 Defined benefit plans - Gratuity

A defined benefit plan is a pension plan that is not a

defined contribution plan. Defined benefit plans define an

amount of pension benefit that an employee will receive on

retirement, usually dependent on one or more factors such

as age, years of service and compensation.

The defined benefit plan comprises the gratuity provided

under the Act, No 12 of 1983.

The liability recognised in statement of financial position

in respect of defined benefit plan is the present value of

the defined benefit obligation at the date of statement

of financial position together with adjustments for

unrecognised past-service costs. The defined benefit

obligation is calculated annually by independent actuaries

using the projected unit credit method. The present

value of the defined benefit obligation is determined by

discounting the estimated future cash outflows using

interest rates of long term Government bonds.

Actuarial gains and losses arising from experience

adjustments and changes in actuarial assumptions are

charged or credited to equity in other comprehensive

income in the period in which they arise.

Past-service costs are recognised immediately in income,

unless the changes to the defined benefit plan are

conditional on the employees remaining in service for a

specified period of time (The vesting method). In this case,

the past-service costs are amortised on a straight line

basis over the vesting period.

2.15.2 Defined contribution plans - Employees’

provident fund & Employees’ trust fund

Employees are eligible for Employees’ Provident Fund

contributions and Employees’ Trust Fund contributions

in line with the respective statutes and regulations. The

Company contributes 12% and 3% of gross emoluments

of employees to Employees’ Provident Fund and

Employees’ Trust Fund respectively. The Company have

no further payment obligations once the contributions have

been paid

2.16 Dividend distribution

Dividend distribution to the company’s shareholders

is recognised as a liability in the Company’s financial

statements in the period in which the dividends are

approved by the Company’s shareholders.

2.17 Revenue recognition

Revenue is recognised to the extent that it is probable

that the economic benefits will flow to the Company and

that 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 sales taxes. The following specific

criteria have been used for the purpose of recognition of

revenue.

2.18 Sale of goods

Revenue from sale of goods is recognised when the

significant risks and rewards of ownership of the goods

have passed to buyer with the Company retaining neither

continuing managerial involvement to the degree usually

associated with ownership nor effective control over the

goods sold.

2.19 Interest

Interest income is recognised using the effective interest

method. When a loan and receivable is impaired, the

Company reduces the carrying amount to its recoverable

amount, being the estimated future cash flow discounted

at the original effective interest rate of the instrument, and

continues unwinding the discount as interest income.

Interest income on impaired loan and receivables is

recognised using the original effective interest rate.

2.20 Rental income

Rental income is recognised on an accrual basis.

2.21 Leases

Leases in which a significant portion of the risks and

rewards of ownership are retained by the lessor are

classified as operating leases. Payments made under

operating leases (net of any incentives received from the

lessor) are charged to the income statement on a straight-

line basis over the period of the lease.

The Company leases certain property, plant and

equipment. Leases of property, plant and equipment where

the Company has substantially all the risks and rewards of

ownership are classified as finance leases. Finance leases

are capitalised at the lease’s commencement at the lower

of the fair value of the leased property and the present

value of the minimum lease payments.

Each lease payment is allocated between the liability and

finance charges. The corresponding rental obligations,

net of finance charges, are included in other long-term

payables. The interest element of the finance cost is

charged to the income statement over the lease period

so as to produce a constant periodic rate of interest on

the remaining balance of the liability for each period. The

property, plant and equipment acquired under finance

leases is depreciated over the shorter of the useful life of

the asset and the lease term.


83

3 SIGNIFICANT ACCOUNTING ESTIMATES AND

ASSUMPTIONS

3.1 Estimates and assumptions

The key assumptions concerning the future and other key

sources of estimation uncertainty at the date of statement

of financial position, that have a significant risk of causing a

material adjustment to the carrying amounts of assets and

liabilities within the next financial year are discussed below.

The respective carrying amounts of assets and liabilities are

given in related notes to the financial statements.

3.1.1 Defined benefit plans - Gratuity

The cost of defined benefit plans- gratuity is determined

using actuarial valuations. The actuarial valuation involves

making assumptions about discount rates, expected rates

of return on assets, future salary increases, morality rates

and future pension increases. Due to the long term nature

of these plans, such estimates are subject to significant

uncertainty. Retirement benefit obligations of the Company

are disclosed in Note 17.

3.1.2 Depreciation

The useful lives of the assets are estimated by the

Company as detailed in Note 2.14 .

3.1.3 Freehold land

The fair value of freehold land was determined by means of

a revaluation by independent valuers in reference to market

based evidence as detailed in Note 7

3.1.4 Impairment of non financial assets

The Company annually tests the indicators to ascertain

whether non-current assets (including intangibles) have

suffered any impairment. These calculations require the use

of estimates.

4 FINANCIAL RISK MANAGEMENT

The Company’s activities are exposed to variety of financial

risks: market risk (including currency risk, fair value interest

rate risk, cash flow interest rate risk and price risk), credit

risk and liquidity risk.

The Company’s overall financial risk management

programme focuses on the unpredictability of financial

markets and seeks to minimise potential adverse effects

on the financial performance of the Company. Financial risk

management is carried out through risk reviews, internal

control systems, insurance programmes and adherence

to the Company’s financial risk management policies.

The board of directors regularly reviews these risks and

approves the risk management policies, which covers the

management of these risks.

Market risk consists of:

(i) Foreign currency exchange risk – risk that the value of a

financial instrument will fluctuate due to changes in foreign

exchange rates.

(ii) Fair value interest rate risk – risk that the value of a financial

instrument will fluctuate due to changes in market interest

rates.

(iii) Cash flow interest rate risk – risk that future cash flows

associated with a financial instrument will fluctuate.

(iv) price risk – risk that the value of a financial instrument will

fluctuate as a result of changes in market prices, whether

those changes are caused by factors specific to the

individual instrument or its issuer or factors affecting all

instrument traded in the market.

Credit risk – risk that one party to a financial instrument will

fail to discharge an obligation and cause the other party to

incur a financial loss

Liquidity risk (funding risk) – risk that an entity will encounter

difficulty in raising funds to meet commitments associated

with financial instruments.

Foreign exchange risk

The Company operate internationally and are exposed

to foreign exchange risk arising from various currency

exposures, primarily with respect to the USD and Euro.

Foreign exchange risk arises when future commercial

transactions or recognised assets or liabilities are

denominated in a currency that is not the entity’s functional

currency.

As at end of the reporting period, if the currency had

weakened/strengthened by 5% against the US dollar with

all other variables held constant, post-tax profit for the year

would have been Rs. 13,559,797/- (2012: Rs. 9,424,216/-)

lower/higher, mainly as a result of foreign exchange gains/

losses on translation of US dollar-denominated loans

granted, trade receivables and trade creditors.

As at end of the reporting period, if the currency had

weakened/strengthened by 5% against the EURO with

all other variables held constant, post-tax profit for the

year would have been Rs. 12,252,469/- (2012: Rs.

10,369,231.46/-) lower/higher, mainly as a result of

foreign exchange gains/losses on translation of EURO-

denominated trade creditors.


Cash flow and fair value interest rate risk

The Company’s interest rate risk arises from long-term

borrowings issued at variable rates. The Company manage

its interest rate risk by actively monitoring the yield curve

trend and interest rate movement for the various financial

instruments.

The Company’s borrowings comprise borrowings

from financial institutions. The Company’s interest rate

risk objective is to manage an acceptable level of rate

fluctuation on the interest expense. In order to achieve this

objective, the Company targets floating borrowings based

on assessment of its existing exposure and desirable

interest rate profile. The Company analyses its interest rate

exposure on a dynamic basis.

At 31 March 2013, if interest rates on foreign currency-

denominated borrowings had been 10 basis points higher/

lower with all other variables held constant, pre-tax profit

for the year would have been Rs. 248,495/- (2012-

161,567/-) lower/higher, mainly as a result of higher/lower

interest expense on floating rate borrowings. At 31 March

2013, if interest rates on Sri Lankan rupee-denominated

borrowings at that date had been 0.5% higher/lower with

all other variables held constant, pre-tax profit for the year

would have been Rs. 2,745,892/- (2012 - 1,180,186/-)

lower/higher, mainly as a result of higher/lower interest

expense on floating rate borrowings.

Credit risk

Credit risk arises from cash and cash equivalents, deposits

with banks, as well as credit exposures to customers,

including outstanding receivables. Trade receivables are

mainly secured with bank guarantees given by customers

in favour of the Company. Individual credit limits are set

based on the amount bank guarantee. The utilisation of

credit limits is regularly monitored.

The Company places its cash and cash equivalents

with a number of creditworthy financial institutions. The

Company’s policy limits the concentration of financial

exposure to any single financial institution. The maximum

credit risk exposure of the financial assets of the Company

is approximately their carrying amounts as at statement of

financial position date, except for trade receivables which

are secured by bank guarantees.

Liquidity risk

Prudent liquidity risk management implies maintaining

sufficient liquid funds to meet its financial obligations.

In the management of liquidity risk, the Company monitor

and maintain a level of cash and cash equivalents deemed

adequate by the management to finance the Company’s

operations and to mitigate the effects of fluctuations in

cash flows. Due to the dynamic nature of the underlying

business, the Company aims at maintaining flexibility in

funding by keeping both committed and uncommitted

credit lines available. The Company uses both short term

bank facilities (overdrafts) together with cash in hands and

in banks in managing the liquidity position.

The table below analyses the Company’s non-derivative

financial liabilities into relevant maturity groupings based

on the remaining period at the statement of financial

position date to the contractual maturity date. The amount

disclosed in the table are the contractual undiscounted

cash flows.


85

Between 3

At 31st March 2013 Less than 3 months Between year Between year Over 5 years

months and 1 year 1 and 2 year 2 and year 5

Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000

Borrowings (excluding finance lease liabilities) 420,652 568,153 163,718 423,622 95,875

Finance lease liabilities 1,286 3,241 2,880 - -

Trade and other payables 699,097 - - - -

At 31st March 2012

Borrowings (excluding finance lease liabilities) 118,386 103,938 251,524 251,135 120,551

Finance lease liabilities 1,752 4,914 4,526 - -

Trade and other payables 575,008 - - - -

Capital management risk

The primary objective of the Company’s capital

management is to ensure that it maintains a strong credit

rating and healthy capital ratios in order to support its

business and maximise shareholder value.

The Company manages its capital structure and makes

adjustments to it in light of changes in economic

conditions. To maintain or adjust the capital structure, the

Company may or may not make dividend payments to

shareholders, return capital to shareholders or issue new

shares or other instruments.

Consistent with others in the industry, the Company

monitor capital on the basis of the gearing ratio. This ratio

is calculated as total borrowings by total equity. Total

borrowings including non-current and current borrowings

as shown in the statements of financial position. Total

equity is calculated as ‘Total equity’ in the statements of

financial position.

The gearing ratio as at 31 March is as follows:

2013 2012

Rs. ‘000 Rs. ‘000

Borrowings 1,393,433 683,954

Total equity 3,142,697 2,751,146

Gearing ratio ; Debt to Equity 0.44 0.25

Gearing ratio for the year 2013 increased to 44% as a

result of increase in borrowings by Rs. 709 Mn to finance

the expansion project of the Company.

5 EXPLANATION OF TRANSITION TO SLFRSs

These are the Company’s first financial statements

prepared in accordance with SLFRSs. The accounting

policies set out in note 2 have been applied in preparing

the financial statements for the year ended 31st March

2013 together with comparative information for the year

ended 31st March 2012, and opening SLFRS statement of

financial position as at 1st April 2011 being the transition

date of SLFRSs for the Company.

In preparing SLFRS statement of financial position for

previously reported financial periods, required adjustments

have been made in accordance with respective SLFRSs.

The effect of the transition from SLASs to SLFRSs has

been illustrated in the reconciliation statements and

accompanying notes to the reconciliations.

Set out below are the applicable exemptions and

exceptions under SLFRS 1 applied by the Company in

transition to SLFRSs.

Exemptions

Following voluntary exemptions have been applied by

the Company :

Exemption for fair value as deemed cost

The Company elected to measure items of property, plant

and equipment at deemed cost as at 1st April 2011.

Exemption for employee benefits

The Company elected to recognise all cumulative actuarial

gains and losses at 1st April 2011.


The following voluntary exemptions have not been

applied by the Company :

- Investments in subsidiaries, jointly controlled entities and

associates.

The remaining voluntary exemptions do not apply to

the Company :

- LKAS 23 - Borrowing cost, as the policy adopted under

previous GAAP (SLASs) was in line with LKAS 23.

- SLFRS 2 - Share-based payments, as such scheme was

not vested as at the date of transition to SLFRSs.

- SLFRS 4 - Insurance contracts, as this is not relevant to

the Company’s operations.

- LKAS 21 - Foreign operations, as the Company does not

have any foreign operations as defined in LKAS 21.

- IFRIC 4 - Arrangements contains a lease, IFRIC 18 -

Transfers of assets from customers, as the Company has

not entered into these types of arrangements at the date

of transition.

- Assets and liabilities of subsidiaries, associates and

joint ventures under SLFRS 1, as the associate in

the company has transited from SLASs to SLFRSs

simultaneously.

- Designation of previously recognized financial

instruments under LKAS 39 as available-for-sale or

fair value through profit or loss before the Company’s

transition date, as Company has not designated any


financial instrument either as available-for-sale or fair

value through profit or loss before the transition date.

- IFRIC 1 - Decommissioning liabilities, as the policy

adopted under previous GAAP (SLASs) was in line are

aligned with IFRIC 1.

- IFRIC 12 - Service Concession Arrangements, as the

Company has not entered into agreement within the

scope of IFRIC 12.

- IFRIC 19 - Extinguishing financial liabilities with equity

instruments, the Company does not have these types of

financial instruments as at the date of transition.

- LKAS 29 Financial reporting in hyperinflationary

economies, as the Company does not operate in a

hyperinflationary economy.

Mandatory exceptions

Set out below are the applicable mandatory exceptions

in SLFRS 1 applied in the convergence from SLASs to

SLFRSs.

Exception for estimates

SLFRS estimates as at 1st April 2011 are consistent with

the estimates as at the same date made in conformity with

previous accounting standards.

87

5 EXPLANATION OF TRANSITION TO SLFRSs

The other compulsory exceptions of SLFRS 1 have not been applied as these are not relevant to the Company.

- Derecognition of financial assets and financial liabilities.

- Hedge accounting

- Non-controlling interests

5.1 Reconciliations of SLAS to SLFRSs

5.1.1 Reconciliation of shareholders equity

Note Under SLAS Transitional Under SLFRS Under SLAS Transitional Under SLFRS

31st March adjustments 31st March 1st April adjustments 1st April

2012 2012 2011 2011

re-stated re-stated

Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000

ASSETS

Non-current assets

Property, plant and equipment (Note 30) (a) 2,229,187 22,551 2,251,738 1,486,335 28,435 1,514,770

Capital work-in-progress 86,819 - 86,819 85,071 - 85,071

Investments in subsidiaries - - - 168,254 - 168,254

Investments in associate (d) 261,113 (13,130) 247,983 171,013 (3,807) 167,206

Loans given to related companies (b) - 102,106 102,106 - 40,937 40,937

Finance lease receivables (Note 30) 4,754 - 4,754 6,182 - 6,182

2,581,873 111,527 2,693,400 1,916,855 65,565 1,982,420

Current assets

Inventories 781,626 - 781,626 569,821 - 569,821

Trade and other receivables (Note 30) (b) 858,793 (109,044) 749,749 499,458 (50,031) 449,427

Cash and cash equivalents 38,721 - 38,721 154,414 - 154,414

1,679,140 - 1,570,096 1,223,693 - 1,173,662

Total assets 4,261,013 2,483 4,263,496 3,140,548 15,534 3,156,082

EQUITY


Stated capital 900,968 - 900,968 900,968 - 900,968

Retained earnings (e) 1,401,769 (11,742) 1,390,027 774,979 7,958 782,937

Amalgamation reserve 460,151 - 460,151 - - -

2,762,888 (11,742) 2,751,146 1,675,947 7,958 1,683,905

LIABILITIES


Borrowings 379,024 - 379,024 81,093 - 81,093

Deferred income tax liabilities (a) 176,432 3,129 179,561 116,372 7,840 124,212

Retirement benefit obligations (c) 51,892 11,096 62,988 42,119 (264) 41,855

607,348 14,225 621,573 239,584 7576 247,160

Current liabilities

Trade and other payables 575,008 - 575,008 1,042,424 - 1,042,424

Current income tax liabilities 10,839 - 10,839 94,928 - 94,928

Borrowings 304,930 - 304,930 87,665 - 87,665

890,777 - 890,777 1,225,017 - 1,225,017

Total liabilities 1,498,125 14,225 1,512,350 1,464,601 7,576 1,472,177

Total equity and liabilities 4,261,013 2,483 4,263,496 3,140,548 15,534 3,156,082


5.1.2 Reconciliation of comprehensive income

Year ended 31st March 2012

Note Under SLAS Transitional Under SLFRS

re-stated adjustments

Rs. ‘000 Rs. ‘000 Rs. ‘000

Gross revenue 3,567,209 - 3,567,209

Revenue (net of taxes) 3,567,209 - 3,567,209

Cost of sales (a) (2,415,952) (5,285) (2,421,237)

Gross profit 1,151,257 (5,285) 1,145,972

Other operating income (Note 30) 16,647 - 16,647

Other gains/ (losses) (b) 2,143 (4,030) (1,887)

Distribution costs (199,349) - (199,349)

Administrative expenses (a) (188,557) (598) (189,155)

Operating profit 782,141 (9,913) 772,228

Finance costs - net (Note 30) (b) (50,091) 6,186 (43,905)

Share of profit from associate - net of tax (d) 9,882 (9,555) 327

Profit before tax 741,932 (13,282) 728,650

Income tax (142,310) - (142,310)

Profit for the year 599,622 (13,282) 586,340

Other comprehensive income

Actuarial losses - from retirement benefit obligation (c) - (11,360) (11,360)

Share of other comprehensive income of associate - net of tax (d) - 232 232

Deferred tax on components of OCI (a)/(c) - 4,710 4,710

Total comprehensive income for the year 599,622 (19,700) 579,690

5.1.3 Notes to the reconciliation of SLAS to SLFRS

(a) Use of fair value as deemed cost for property plant and equipment

In accordance with the provisions in SLFRS1- First-time Adoption of Sri Lanka Accounting Standards, the Company has elected to measure certain items of property plant and equipment at the date of transition to SLFRS at fair value and used that fair value as its deemed cost at 1st April 2011. The aggregate fair values of Rs. 28,435,000/- was debited to property, plant and equipment and credited to retained earning at 1st April 2012. The resultant deferred tax liability of Rs. 7,714,416/- was charged to retained earnings at 1st April 2011.

The subsequent adjustments in financial statements for the year ended 31st March 2012 for additional depreciation on fair values amounting to Rs. 598,000/- was debited to comprehensive income under administrative costs and Rs. 5,285,000/- was debited to comprehensive income under cost of sales respectively and credited to property plant and equipment in the statement of financial position. The subsequent adjustments for release in deferred tax liability of Rs. 1,608,000/- was transferred from retained earnings to other comprehensive income in the statement of comprehensive income for year ended 31st March 2012.

(b) Loans given to related companies

In accordance with the requirements of LKAS 39, loans given to related companies which had previously been accounted at cost under SLAS are now recognized initially at fair value and subsequently at amortized cost.

Accordingly , the carrying value of the loans at 1st April 2011 were adjusted by Rs. 9,094,354/- to incorporate the impact of initial fair value recognition and subsequent measurement for amortized cost.

The adjustments in financial statements for the year ended 31st March 2012 for interest income measured at amortized costs of Rs. 6,186,196/- has been recognized under finance income. For the loans given during the year ended 31st March 2012, Rs. 4,030,118/- has been recognized as fair value losses at initial recognition and included under Other losses in the statement of comprehensive income.


89

Loans given to related companies which had previously been presented under trade and other receivables are now presented as Loans given to related companies under Non-current assets in the statement of financial position. Accordingly an amount of Rs 40,937,203 (2012- Rs102,106,027) was reclassified from Trade and other receivable to Loans given to related companies under Non-current assets at 1 April 2011.

(c) Actuarial gains and losses

Actuarial gains / (losses) on retirement benefit obligations were previously recognised under corridor method given in SLAS 16- Employee benefits. Complying with the requirements of LKAS 19 - Employee Benefits, Company has recognised the actuarial gains / losses in full under other comprehensive income.

Accordingly an actuarial gain of Rs. 264,010/- were recognized in retained earnings at 1st April 2011 and the defined benefit liability was reduced by the same amount. The resultant deferred tax liability of Rs. 72,120 was charged to retained earnings at 1 April 2011. For the year ended 31st March 2012, Company recognizes an actuarial loss of Rs. 11,360,444/- under other comprehensive income, and a defined benefit liability of Rs. 11,360,444/-.

The subsequent adjustments in financial statements for the year ended 31st March 2012 for deferred tax recognized on account of actuarial losses amounting to Rs. 3,103,552/- was credited to other comprehensive income and debited to deferred tax liabilities at 31st March 2012.

(d) Share of SLFRs adjustments relating associate

The adjustment to investment in associate and associates share of profit arising from its transition to SLFRS, primarily relates to impact of measuring investee’s related company borrowings at amortised cost.

(e) Retained earnings

The following is a summary of transition adjustments to the Company’s retained earnings. 31st March 2012 1st April 2011 Rs. ‘000 Rs. ‘000

Retained earnings as previously reported under SLASs 1,403,469 776,165

Prior period adjustment (Note 30) (1,700) (1,186)

Retained earnings as reported under SLASs 1,401,769 774,979

Impact of the recognition of PPE at deemed cost 22,551 28,435

Deferred tax recognized at recognition of PPE at deemed cost (7,768) (7,768)

Deferred tax recognized at recognition of Actuarial gains/ losses in full 3,031 (72)

Subsequent release of deferred tax to Other comprehensive income 1,608 -

Initial fair value recognition and subsequent measurement at amortized cost of loans given to related companies (6,938) (9,094)

Actuarial (loss) / gain recognised in full (11,096) 264

Share of SLFRSs adjustments relating associate (13,130) (3,807)

Retained earnings as reported under SLFRSs 1,390,027 782,937

5.1.4 Reconciliation of cash flow statement

Loans given to related companies which had previously been presented under Trade and other receivables are now presented as Loans given to related companies under Non-current assets in the statement of financial position. Accordingly the amounts given as loans of Rs. 11,015,211/- and amounts received as loan repayments of Rs. 9,238,190 have been reclassified from operating cash flows to investing cash flows. There were no further adjustments to cash flow statement in respect of transition to SLFRSs.

6 REVENUE

The Company’s revenue is primarily derived from ;

2013 2012 Rs. ‘000 Rs. ‘000

(i) Revenue from local sales 4,308,744 3,416,616

(ii) Revenue from export sales 249,946 150,593

Total revenue for the year 4,558,690 3,567,209


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91

(a) Property, plant and equipment of the Company include fully depreciated assets in use at 31st March 2013, the cost of which

amounted to the Company Rs. 228,191,282 (2012 - Rs. 42,748,415). Further, the clay mining land has been fully utilised by 1 April

2011.

(b) The bank borrowings are secured on freehold land, freehold building and plant and machinery. The values of assets secured is given

in Note 15 to the financial statements.

(c) Property, plant and equipment includes motor vehicles acquired under finance leases, the net book value of which is made up as

follows:

2013 2012

Rs. ‘000 Rs. ‘000

Cost 35,850 35,850

Accumulated depreciation (22,102) (18,892)

Net book amount 13,748 16,958

(d) The market value of freehold and clay mining land as at 31st March 2013, as per the valuation carried out by the independent

professional valuer, Ranjan J Samarakone is Rs. 778,778,424/-.

8 INVESTMENT IN ASSOCIATE

Number of

shares 2013 2012

Rs. ‘000 Rs. ‘000

Opening net book amount 247,983 167,206

Post acquisition share of result of previous years - 80,218

Share of results of associate for the year 10,084 559

At the end of year 13,085,180 258,067 247,983

(a) The Company holds 47.8% (2012- 47.8%) ownership interest in Swisstek (Ceylon) PLC [SCP] as at the balance sheet date and

hence SCP is treated as an associate company. The principal activities of SCP are manufacturing and selling of Tile Grout and Tile

Mortar.

(b) The market value of quoted associate investment as at date of statement of financial position was Rs. 157,022,160/-

(2012 - Rs. 196,277,700/-).

(c) The Company’s share of the results of the associate and its aggregated assets and liabilities are as follows:

As at 31st March 2013 2012

Rs. ‘000 Rs. ‘000

Assets 1,846,424 1,545,104

Liabilities 1,217,762 938,419

For the year ended 31 March

Revenue 1,189,220 1,094,584

(Loss) / profit share (8,164) 327

% interest held 47.8 47.8


9 (A) FINANCIAL INSTRUMENTS BY CATEGORY

31st March 2013 Loans and

receivables

Rs. ‘000

Assets as per the statement of financial position

Loans given to related companies 150,448

Trade and other receivables (excluding pre-payments) 874,302

Finance lease assets 2,989

Cash and cash equivalents 128,042

Total 1,155,781

31st March 2013 Other financial

liabilities at

amortised cost

Rs. ‘000

Liabilities as per the statement of financial position

Borrowings (excluding finance lease liabilities) 1,387,126

Finance lease liabilities 6,307

Trade and other payables excluding non-financial liabilities 699,097

Total 2,092,530

31st March 2012 Loans and

receivables

Rs. ‘000

Assets as per the statement of financial position

Loans given to related companies 104,266

Trade and other receivables (excluding pre-payments) 678,886

Finance lease assets 4,754

Cash and cash equivalents 38,721

Total 826,627

31st March 2012 Other financial

liabilities at

amortised cost

Rs. ‘000

Liabilities as per the statement of financial position

Borrowings (excluding finance lease liabilities) 672,111

Finance lease liabilities 11,843

Trade and other payables excluding non-financial liabilities 575,008

Total 1,258,962


93

10 (B) CREDIT QUALITY OF FINANCIAL ASSETS

The credit quality of financial assets that are neither past due nor impaired can be assessed by reference to external credit ratings

(if available) or to historical information about counterparty default rates:

2013 2012

Rs. ‘000 Rs. ‘000

Trade receivables

Counterparties without external credit ratings

Group 1 394,427 475,474

Group 2 68,248 42,146

Group 3 45,114 12,918

Total unimpaired trade receivables 507,789 530,538

Cash at bank and short-term bank deposits

AAA 17,507 15,167

AA + 1,232 1,278

AA 61,409 17,109

A 277 181

Total 80,425 33,735

Group 1 – Customers whose due amounts are secured with bank guarantees.

Group 2 – Customers whose due amounts are secured with documentary credits

Group 3 – Customers whose due amounts are not secured with any collaterals

11 INVENTORIES

2013 2012 2011

Rs. ‘000 Rs. ‘000 Rs. ‘000

Raw materials 526,682 442,112 377,703

Work in progress 45,972 58,072 55,201

Finished goods 701,144 216,831 189,853

Trading stock 261,331 131,056 33,706

Provision for slow moving inventories (70,856) (66,445) (86,642)

Goods in transit 36,232 - -

1,500,505 781,626 569,821

The cost of inventories recognised as expense and included in cost of goods sold amounted to Rs. 3,855,827,850/-

(2012 - Rs. 2,539,031,126/-).

The amount of write-down of inventories recognized as an expense during period is Rs. 6,784, 851/- (2012- Rs. 2,131,769/-).


12 TRADE AND OTHER RECEIVABLES

2013 2012 2011

Rs. ‘000 Rs. ‘000 Rs. ‘000

Trade receivables 616,154 574,881 262,944

Receivables from parent company 183,682 15,518 36,620

Receivables from related companies 35,402 67,301 45,154

Loans to related companies 150,448 104,266 50,800

Prepayments & deposits 81,874 67,275 85,070

Finance lease receivables 4,754 6,182 7,337

Other receivables 39,064 21,186 8,621

1,111,378 856,609 496,546

Less: non current portion; loans to related companies (138,291) (102,106) (40,937)

Finance lease receivables (2,989) (4,754) (6,182)

Current portion 970,098 749,749 449,427

The directors consider the carrying amount of the trade and other receivables approximates its fair value.

The long term loans to related companies are carried at amortised cost based on effective interest rates which approximates to

market interest rates.

(a) The aging of trade receivables that are past due but not impaired are as follows:

2013 2012

Rs. ‘000 Rs. ‘000

Amount overdue:

1 month to 3 months 50,342 35,899

3 months to 1 year 41,749 3,798

More than 1 year 11,145 4,560

103,236 44,257

Rs. 98,511,154/- ( 2012- Rs. 40,075,620/-) of debtors which are past due but not impaired are

secured with bank guarantees, hence no impairment considered necessary.

(b) The carrying amounts of trade and other receivables are denominated in following currencies

United States dollars 32,181 11,738

Australian dollars 36,068 30,408

Sri Lankan rupees 1,043,129 814,463

1,111,378 856,609

The maximum exposure to credit risk at the reporting date is the carrying value of each class

of receivables mentioned above, except for trade receivables which are secured by bank guarantees and documentary credits.


95

13 CASH AND CASH EQUIVALENTS

2013 2012 2011

Rs. ‘000 Rs. ‘000 Rs. ‘000

Cash at bank and cash in hand 127,874 34,553 125,183

Short term deposits 168 4,168 29,231

Cash and cash equivalents 128,042 38,721 154,414

For the purpose of the cash flow statement , the year end cash and cash

equivalents comprise the following:

Cash and cash equivalents 128,042 38,721 154,414

Bank overdrafts (Note 15) (368,458) (85,781) 23,272

Total cash and cash equivalents (240,416) (47,060) 131,142

The cash and cash equivalents are denominated in following currencies;

Sri Lankan rupees 127,989 37,245

United States dollars 2 1,429

Other 51 47

128,042 38,721

14 TRADE AND OTHER PAYABLES

2013 2012 2011

Rs. ‘000 Rs. ‘000 Rs. ‘000

Trade payables 422,380 332,299 127,763

Amount due to related parties [Note 28(l)] 12,476 8,133 592,209

Accrued expenses 156,643 161,871 145,672

Other payables 106,353 72,705 44,154

Dividend payable 1,245 - 132,626

699,097 575,008 1,042,424

Other payables of the Company include Value Added Tax payable amounting to Rs. 36,817,724/- ( 2012- Rs. 44,228,211/-),

cash sales advance amounting to Rs. 6,096,078/- (2012 - Rs. 11,484,909/-) and Nations Building Tax payable amounting to

Rs. 9,979,761/- (2012 - Rs. -).

15 BORROWINGS

2013 2012 2011

Rs. ‘000 Rs. ‘000 Rs. ‘000

Current

Bank borrowings 492,204 213,669 55,810

Bank overdrafts 368,458 85,781 23,272

Finance lease liabilities 3,792 5,480 8,583

864,454 304,930 87,665

Non-current

Bank borrowings 526,464 372,661 68,091

Finance lease liabilities 2,515 6,363 13,002

528,979 379,024 81,093

Total borrowings 1,393,433 683,954 168,758


(a) Bank overdrafts are secured primarily on inventories.

(b) The security offered and the interest rate applicable to each bank borrowings are set out below:

Loan Security offered Interest rate

per annum (%)

DFCC LKR 165 Mn A primary mortgage over land, building and plant and machinery located at

Ranala amounting to Rs. 300.Mn AWPLR + 3%

DFCC USD 3 Mn A primary mortgage over land, building and plant and machinery located at

Ranala amounting to Rs. 300.Mn LIBOR + 7.5%

COMM LKR 22 Mn A primary mortgage over land, building and plant and machinery located at

Ranala amounting to Rs.100.Mn AWPLR + 1%

HNB LKR 38 Mn Primary floating mortgage bond for Rs. 27.0 Mn over the sorting line imported. AWPLR - 0.75%

DFCC LKR 150 Mn A primary mortgage over land, building and plant and machinery located at

Ranala amounting to Rs. 300.Mn AWPLR +3%.

(c) Weighted average effective interest rates:

2013 2012

Bank overdrafts 15.31% 13.39%

Bank borrowings 11.25% 11.07%

(d) Maturity of non - current bank borrowings

2013 2012

Rs. ‘000 Rs. ‘000

Between one and two years 507,918 128,188

Between two and five years 18,546 244,473

526,464 372,661

(e) The carrying amounts of the Company’s borrowing are denominated in following currencies;

Sri Lankan rupees 1,105,721 484,715

United States dollars 287,712 199,239

1,393,433 683,954

(f) The exposure of the Company’s borrowings to interest rate changes and the contractual re-pricing

dates at the end of the reporting period varies between 1 month to 3 month period.

Lease liabilities are effectively secured as the rights to the leased asset revert to the lessor in

the event of default.

(g) Finance lease liabilities - minimum lease payment

2013 2012 2011

Rs. ‘000 Rs. ‘000 Rs. ‘000

Not later than 1 year 4,526 6,666 11,808

Later than 1 year and no later than 3 years 2,880 7,407 13,712

7,406 14,073 25,520

Future finance charges on finance leases (1,099) (2,230) (3,935)

Present value of finance lease liabilities 6,307 11,843 21,585

Present value of finance lease liabilities:

Not later than 1 year 3,792 5,480 8,583

Later than 1 year and no later than 3 years 2,515 6,363 13,002

6,307 11,843 21,585


97

16 DEFERRED INCOME TAX

(a) Deferred income taxes are calculated on all temporary differences under the liability method.

The gross movement on the deferred income tax account is as follows:

2013 2012

Rs. ‘000 Rs. ‘000

At beginning of year 179,561 124,212

Transferred from Ceradec (Private) Limited on amalgamation - 7,952

Charge to profit and loss (Note 24) 59,747 52,107

Deferred tax release on components of Other comprehensive income (3,637) (4,710)

At end of year 235,671 179,561

(b) The analysis of the deferred tax assets and deferred tax liabilities is as follows:

Deferred tax assets (42,948) (33,899)

Deferred tax liabilities 278,619 213,460

Deferred tax liabilities (net) 235,671 179,561

(c) The movement in deferred assets and liabilities during the year , without taking into consideration the offsetting of balances within the

same tax, jurisdiction , is as follows:

Deferred tax liabilities Accelerated

tax depreciation

Rs. ‘000

At 1st April 2011 159,323

Charged to profit and loss 55,745

Charged / credited to other comprehensive income (1,608)

At 31st March 2012 213,460

Charged / credited to profit and loss 66,767

Charged / credited to other comprehensive income (1,608)

At 31st March 2013 278,619

Deferred tax assets Retirement benefit obligation Provisions Total

Rs. ‘000 Rs. ‘000

At 1st April 2011 (11,436) (23,674) (35,110)

(Credited) / charged to profit and loss (2,671) 6,986 4,315

Credited to other comprehensive income (3,104) - (3,104)

At 31st March 2012 (17,211) (16,688) (33,899)

Credited to profit and loss (1,529) (5,491) (7,020)

Credited to other comprehensive income (2,029) - (2,029)

At 31 March 2013 (20,769) (22,179) (42,949)


17 RETIREMENT BENEFIT OBLIGATION

(a)

2013 2012

Rs. ‘000 Rs. ‘000

Balance sheet obligations for:

Gratuity 76,546 62,988

Statement of comprehensive income charge for :

Gratuity 11,179 8,985

Actuarial losses recognized in the statement of other comprehensive income in the period 7,429 11,360

Cumulative actuarial losses recognized in the statement of other comprehensive income 18,525 11,096

(b) The movement in the defined benefit obligation is as follows

Benefit obligation at end of prior year 62,988 41,855

Corrent service cost 4,250 2,859

Interest cost 6,929 5,574

Liability transferred from Ceradec (Pvt) Ltd on amalgamation - 3,562

Actual benefits paid from plan (5,050) (2,222)

(Gain) loss due to changes in assumptions 5,428 -

Experience (gain)/loss 2,001 11,360

Balance as at end of the year 76,546 62,988

(c) The amount recognised in the statement of comprehensive income statement are as follows:

Current service cost 4,250 2,859

Interest cost 6,929 5,574

Transferred from Ceradec (Private) Limited on amalgamation - 552

Total, included in staff costs (Note 22) 11,179 8,985

(d) The principal actuarial assumptions are as follows

Discount rate 12.05% 11%

Future salary increases

- Executive staff 11% 8%

- Others 10.5% 8%

In addition to above, demographic assumptions such as mortality , withdrawal disability and retirement age were considered for the

actuarial valuation. GA 1983 mortality table issued by the society of Actuaries USA was taken as the base for the valuation.

18 STATED CAPITAL

Number of Stated

shares capital

Rs. ‘000

At 31st March 2012 53,050,410 900,968

At 31st March 2013 53,050,410 900,968


99

19 OTHER INCOME

2013 2012

Rs. ‘000 Rs. ‘000

Sundry income 30,928 16,647

30,928 16,647

Sundry income mainly includes the export commissions of Rs 13,224,205 (2012 Rs 3,640,060) and rental income Rs 7,295,000

(2012- Rs 6,280,000).

20 OTHER GAINS / (LOSSES) - NET

2013 2012

Rs. ‘000 Rs. ‘000

Initial fair value loss of loans given to related companies (74) (4,030)

Gain on disposal of property, plant and equipment 4,062 2,143

3,988 (1,887)

21 EXPENSES BY NATURE

2013 2012

Rs. ‘000 Rs. ‘000

The following items have been charged / (credited) in arriving at operating profit:

Directors’ emoluments

- As Directors’ fees 4,990 3,270

- For managerial services 14,204 13,561

Auditors’ remuneration

- Audit 569 542

- Non-Audit 396 184

- Audit expenses 142 100

Depreciation on property, plant and equipment (Note 7) 179,717 139,707

Changes in inventories of finished goods, trading items and work in progress (602,487) (122,438)

Raw materials and consumables used 3,280,112 2,094,641

Advertising expenses 18,461 12,973

Promotional expenses and sales commission 246,089 149,222

Profit on disposal of property, plant and equipment (4,062) (2,143)

Repair and maintenance expenditure 145,045 112,778

Bad debts written off - 48

Inventory provision / (reversal ) for slow moving inventories 4,250 (31,067)

Operating lease rental - 4,500

Staff costs (Note 22) 405,791 353,513

Other expenses 115,350 80,350

Total cost of sales, distribution costs and administrative expenses 3,808,567 2,809,741


22 STAFF COSTS

2013 2012

Rs. ‘000 Rs. ‘000

- Wages, salaries and bonus 368,995 321,997

- Defined contribution plans 25,617 22,531

- Defined benefit plan {Note 17(c)} 11,179 8,985

405,791 353,513

23 NET FINANCE COSTS

2013 2012

Rs. ‘000 Rs. ‘000

Interest income (24,466) (9,613)

Interest expenses 126,375 28,728

Exchange (gains) / losses (25,632) 24,790

76,277 43,905

24 INCOME TAX

2013 2012

Rs. ‘000 Rs. ‘000

(a) Current tax ;

- Current tax on profit for the year 59,003 90,450

- Adjustments in respect of prior years (33,973) (247)

Total current tax 25,030 90,203

(b) Deferred tax (Note 16)

- Origination and reversal of temporary differences 59,747 52,107

Total income tax expense 84,777 142,310

The tax on the Company’s profit before tax differs from the theoretical amount that would arise

using the statutory tax rate applicable to profits of the Company as follows

Profit before tax 700,598 728,650

Tax calculated at average rate 111,829 117,901

Effect of change in tax rate - 23,444

Income not subject to tax (282) (1,900)

Expenses not deductible for tax purposes 7,203 3,112

Under / (over) provision in respect of previous year (33,973) (247)

84,777 142,310

The weighted average applicable tax rate was 16% (2012 : 16%)


101

25 EARNINGS PER SHARE

2013 2012

Rs. ‘000 Rs. ‘000

Basic earnings per share is calculated by dividing the net profit attributable to shareholders of

the Company by the weighted average number of shares in issue during the year.

Profit attributable to equity holders of the Company 615,821 586,340

Weighted average number of ordinary shares (thousands) 53,050 53,050

Basic earnings per share (Rs.) 11.61 11.05

26 DIVIDENDS

An interim dividend of Rs. 79,575,615 (53,050,000) at Rs.1.50 (Rs. 1.00) per share for the year ended 31st March 2013 was paid on

15th March 2013.

27 CASH GENERATED FROM OPERATIONS

Reconciliation of profit before tax to cash generated from operations:

2013 2012

Rs. ‘000 Rs. ‘000

Profit before tax 700,598 728,650

Adjustments for:

Depreciation (Note 7) 179,717 139,707

Provision for retirement benefit obligation (Note 17) 11,179 8,985

Gain on disposal of assets (Note 20) (4,062) (2,143)

Interest expenses (Note 23) 126,375 28,728

Interest income (Note 23) (24,466) (9,613)

Initial fair value loss of loans given to related companies (Note 20) 74 4,030

Unrealized profit of inventory purchased from associate (786) 5,370

Share of result of associate 8,164 (327)

Provision/(reversal) for slow moving inventories (Note 21) 4,250 (31,067)

Changes in working capital

- Increase in inventories (722,343) (184,069)

- Increase in trade and other receivables (237,205) (323,017)

- Increase in trade and other payables 122,844 130,293

Cash generated from operations 164,339 495,526


28 RELATED PARTY TRANSACTIONS

The Directors of the Company are also Directors of the following companies with which Lanka Floortiles PLC carried out business

transactions in the ordinary course of business.

Mr. A A Dr. S Mr. J A P M

Page Selliah Jayasekara

(Chairman) (Deputy (Managing Mr. P L Mr. J C Mr. A T P Mr. V R Mr. S

Chairman) Director) Amerasinghe Page Edirisinghe Page Mendis

Lanka Ceramic PLC x - x - x x - -

Lanka Walltiles PLC x x x - - x x x

Swisstek (Ceylon) PLC x x x - - - - -

Cargills (Ceylon) PLC x - - - x x x x

Aristons (Private) Limited - - - x - - - -

CT Land Development PLC x - - - x x - -

Swisstek Aluminium Limited x x x - - - - -

“X” denotes directorate

The Company is controlled by Lanka Walltiles PLC which owns 54.51% (2012 - 54.51%) of the Company’s shares. The remaining

45.49% of the shares are widely held. The ultimate parent of the Company is CT Holdings PLC as at 31 March 2013.

The related parties with whom Lanka Floortiles PLC carried out transactions in the ordinary course of business are set out below:

(a) Sale of goods to:

2013 2012

Rs. ‘000 Rs. ‘000

Lanka Walltiles PLC Finished goods 69 4,403

Lanka Ceramic PLC Finished goods 192 270

Cargills (Ceylon) PLC Finished goods 9,880 13,883

CT Land Development PLC Finished goods 82 747

CT Properties Limited Finished goods 9 -

Cargills Food Processor (Private) Limited Finished goods 98 70

Cargills agrifoods Ltd Finished goods 887 -

Swisstek Aluminium Limited Raw materials 5,172 2,830

Swisstek (Ceylon) PLC Raw materials 14,093 108,518

30,482 130,721

(b) Purchase of goods/ services from:

Swisstek (Ceylon) PLC Trading items 196,562 150,941

Sales commissions 18,533 15,280

Management fees 3,912 3,087

Swisstek Aluminium limited Trading items 41,540 51,471

Lanka Ceramic PLC Raw materials 96,361 83,026

Cargills (Ceylon) PLC Gift Vouchers 6,278 -

Cargills Food Processors (Pvt) Ltd Consumables 17 -

Lanka Walltiles PLC Consumables 1,942 -

Fixed assets - 13,431

Finished goods 53,567 -

418,712 317,236


103

(c) Receipt of funds from:

2013 2012

Rs. ‘000 Rs. ‘000

Lanka Walltiles PLC 10,000 90,000

(d) Transfer of funds to:

Lanka Walltiles PLC 100,000 -

Swisstek Aluminium limited 23,523 -

Swisstek (Ceylon) PLC 175,705 45,229

299,228 45,229

(e) Expenses incurred and transferred to / (from)

Lanka Walltiles PLC

- Administration expenses 1,598 4,538

- Distribution expenses 80,331 88,610

- Fixed Assets 1,196 298

- Raw Materials 14,414 -

Swisstek (Ceylon) PLC


- Long term loan interest 22,255 6,186

- Fixed Assets 3,709 45,290

Swisstek Aluminium Limited


- Distribution expenses - 323

127,246 149,278

(f) Key management compensation

Key management personnel include members of the Board of Directors of Lanka Floortiles PLC.

Salaries and short-term employee benefits 28,965 25,035

The Directors have disclosed the nature of their interests in contracts at meetings of Directors.

(g) Rental expense

The Company has paid a rental of Rs. 2,716,326/- (2012 - Rs. 2,458,000/-) to Swisstek (Ceylon) PLC for the use of warehouse

space at Balummahara during the financial year ended and Rs. 2,220,000/- (2012 - Rs. 2,220,000/-) to Lanka Walltiles PLC for the

use of office space at Nawala, during the financial year ended 31st March 2013.

(h) Rental Income

The Company has received a rental of Rs. 5,880,000/- (2012 -Rs. 5,880,000/-) from Lanka Walltiles PLC as rental income for

Biyagama warehouse during the financial year ended 31st March 2013.

(i) Mr. P L Amerasinghe who is a Director of the Company is also a Director of Aristons (Private) Limited. The Company has purchased

raw materials from M/s Sibelco UK Limited of United Kingdom, amounting to Rs. 1,666,203/- (2012- Rs. 3,947,234/-) during the

year. Aristons (Private) Limited is the local agent of M/s Sibelko UK Limited.


(j) Outstanding balances arising from sale / purchase of goods / services

Receivables from related Companies:

2013 2012

Rs. ‘000 Rs. ‘000

Lanka Walltiles PLC 183,681 15,518

Swisstek (Ceylon) PLC 12,688 67,301

Swisstek Aluminium limited 22,714 -

219,083 82,819

Payables to related parties:

Lanka Ceramic PLC 12,476 7,918

Swisstek Aluminium Limited - 215

12,476 8,133

(k) Loans given to related parties

Swisstek (Ceylon) PLC Group 150,448 104,266

The property owned by Swisstek (Ceylon) PLC at Balummahara, has been mortgaged to Lanka Floortiles PLC as security to the

value of Rs. 95 Mn against the outstanding balance due to Lanka Floortiles PLC by Swisstek (Ceylon) PLC. Lanka Floortiles PLC

charges interest at 13% per annum on the loans given to Swisstek (Ceylon) PLC.

The loans granted during the year include certain non cash transactions such as machineries given as loans.

29 CONTINGENCIES AND COMMITMENTS

There were no other material contingent liabilities outstanding at the end of the reporting period.

Financial commitments

a) Operating lease commitments where the company is the leases.

The future minimum lease payments under non cancellable operating leases are as follows.

2013 2012

Rs. ‘000 Rs. ‘000

Not later than one year 4,526 6,942

Later than one year not later than five years 2,881 11,355

7,407 18,297

b) The Company is committed to pay Rs. 275,000/- and Rs.185,000/- as rent per month for the use of building located at Rajagiriya

and Nawala respectively.

c) The Company is also committed to pay vehicle hire rentals of Rs. 360,060/- per month to Central Finance PLC until 30 November

2014.

30 RESTATEMENT AND RECLASSIFICATIONS OF COMPARATIVES

(i) Restatements - Statement of financial position

Note Current presentation Previous presentation

2012 2011 2012 2011

Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000

Property plant and equipment (a) 2,229,187 1,486,335 2,237,069 1,494,858

Finance lease receivables- Non current (a) 4,754 6,182 - -

Finance lease receivables- current (a) 1,428 1,155 - -


105

(ii) Restatements - Statement of comprehensive income

Note Current Previous

presentation presentation

2012 2012

Rs. ‘000 Rs. ‘000

Other income (a)’(b) 16,647 19,263

Net finance costs (a) (50,091) (51,552)

(a) A lease arrangement where the Company is lessor and the Swisstek (Ceylon) PLC being lessee, is now identified as a finance

lease arrangement, which had been previously considered as an operating lease. The due adjustments have been made to restate

the comparative financial information in this regard.

(iii) Reclassifications - Statement of comprehensive income

(b) Gains and losses on disposal of property plant and equipment , which were previously shown under other income are now

reclassified under ‘Other gains and (losses) - net’ for better presentation of financial statements.

31 EVENTS AFTER THE REPORTING PERIOD

The ultimate parent of the Company has changed subsequent to the financial year upon the disposal of Lanka Ceramics PLC

shareholding by CT Holdings PLC. Accordingly, the ultimate parent company as at the signing date of financial statements is Vallibel

One PLC.

A second interim dividend of Rs. 2.60 per share for the year ended 31st March 2013 was approved by the Board of Directors on

04th July 2013.

Except as disclosed above, no other circumstances have arisen since the statement of financial position date which require

adjustments to, or disclosure in the financial statements.


Five year summary of balance sheetAs at 31st March 2009 2010 2011 2012 2013

Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000

ASSETS

Non-current assets

Property, plant and equipment 1,376,364 1,329,845 1,514,770 2,251,738 2,501,664

Capital work-in-progress 72,667 140,022 85,071 86,819 65,094

Intangible assets 301 301 - - -

Investment in subsidiaries - - 168,254 - -

Investments in associates 29,562 128,302 167,206 247,983 258,067

Loan given to related companies 40,937 102,106 138,291

Finance lease debtors 6,182 4,754 2,989

1,478,894 1,598,470 1,982,420 2,693,400 2,966,105

Current assets

Inventories 779,658 562,739 569,821 781,626 1,500,505

Trade and other receivables 439,542 558,431 449,427 749,749 970,098

Cash and cash equivalents 7,529 145,672 154,414 38,721 128,042

1,226,729 1,266,842 1,173,662 1,570,096 2,598,645

Total assets 2,705,623 2,865,312 3,156,082 4,263,496 5,564,750

EQUITY


Stated capital 429,456 429,456 900,968 900,968 900,968

Reserves 1,229,560 1,569,650 782,937 1,390,027 1,781,578

Amalgamation reserve - - - 460,151 460,151

1,659,016 1,999,106 1,683,905 2,751,146 3,142,697

LIABILITIES


Borrowings 238,083 184,101 81,093 379,024 528,979

Deferred income tax liabilities 92,132 106,448 124,212 179,561 235,671

Defined benefit obligations 37,393 41,715 41,855 62,988 76,546

367,608 332,264 247,160 621,573 841,196

Current liabilities

Trade and other payables 289,523 346,331 1,042,424 575,008 699,097

Current income tax liabilities 35,429 39,899 94,928 10,839 17,306

Borrowings 354,047 147,712 87,665 304,930 864,454

678,999 533,942 1,225,017 890,777 1,580,857

Total liabilities 1,046,607 866,206 1,472,177 1,512,350 2,422,053

Total equity and liabilities 2,705,623 2,865,312 3,156,082 4,263,496 5,564,750

107

Five year summary of income statementYear ended 31st March 2009 2010 2011 2012 2013

Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000

Sales (with VAT) 2,905,794 3,174,760 3,002,191 3,567,209 4,558,690

Operating profit 477,813 541,000 706,264 772,228 785,039

Finance costs (78,384) (42,750) (3,648) (43,905) (76,277)

Share of results of associate (5,719) (8,591) - 327 (8,164)

Profit before income tax 393,710 489,659 702,616 728,650 700,598

Income tax expense (111,365) (110,571) (197,546) (142,310) (84,777)

Profit for the year 282,345 379,088 505,070 586,340 615,821

Profit attributable to the equity holders

of the Company 282,345 379,088 505,070 586,340 615,821

Dividends (121,864) (120,955) (291,777) (53,050) (238,727)

Retained profit for the year 160,481 258,133 213,293 533,290 377,094

Earnings per share - basic (Rs) 5.33 7.15 9.52 11.05 11.61


Year ended 31st March 2009 2010 2011 2012 2013

Authorised share capital (Rs.Mn) 500.0 500.0 500.0 500.0 500.0

Stated capital (Rs.Mn) 429.4 429.4 900.0 900.0 900.0

Shares in issue (Mn) 42.44 42.44 53.05 53.05 53.05

(as at end of year)

Shareholders

- Institutions (Number) 159 147 209 186 183

- Individuals (Number) 1,626 1,576 1,818 1,831 1757

Total 1,785 1,723 2,027 2,017 1,940

Shares held by

- Institutions (%) 85.44 86.16 83.67 83.84 85.16

- Individuals (%) 14.56 13.84 16.33 16.16 14.84

Total 100.0 100.0 100.0 100.0 100.0

Transactions (Number) 938 2,588 5,465 1,196 1,420

Shares traded (Mn) 0.95 7.17 20.90 3.04 2.53

Dividends (%) 26.0 37.5 36.7 35.4 35.3

Dividends per share (Rs.) 2.60 3.75 3.50 4.00 4.10

Market price per share

- Highest during the year (Rs.) 73.50 100.00 143.00 140.00 83.00

- Lowest during the year (Rs.) 28.00 28.75 87.00 64.90 56.00

- As at end of the year (Rs.) 28.50 87.75 131.10 65.10 69.50

Market Capitalization (Rs.Mn) 1,209.50 3,724.14 6,954.90 3,453.60 3,686.98

(as at end of year)

Earnings per share (Rs.) 5.33 7.15 9.52 11.05 11.61

Price/Earnings ratio (Times) 5.35 12.27 13.77 5.89 5.99

Net assets per share (Rs.) 31.29 37.68 31.74 51.86 59.24

(as at end of year)

DISTRIBUTION OF SHAREHOLDINGS AS AT 31ST MARCH 2013

Size of shareholdings Shareholders Shares Holdings

Number Number Number %

1 - 1,000 1,349 324,025 0.61

1,001 - 10,000 463 1,488,819 2.81

10,001 - 100,000 95 2,519,268 4.75

100,001 - 1,000,000 27 9,490,594 17.88

Over - 1,000,000 6 39,227,704 73.95

1,940 53,050,410 100.00

Shareholder information

109

20 MAJOR SHAREHOLDERS AS AT 31ST MARCH 2013

Shareholding Cumulative Shareholding

Shareholder’s name No. of Shares % %

31.03.2013 31.03.2012

1 Lanka Walltiles PLC 28,916,742 54.508 54.508 28,916,742

2 Employees Provident Fund 5,255,602 9.907 64.415 4,649,215

3 Arunodhaya Industries (Pvt) Ltd 1,310,000 2.469 66.884 1,310,000

4 Arunodhaya (Pvt) Ltd 1,310,000 2.469 69.354 1,310,000

5 Arunodhaya Investments (Pvt) Ltd 1,310,000 2.469 71.823 1,310,000

6 Bank of Ceylon (Ceybank Unit Trust) 1,125,360 2.121 73.944 1,263,137

7 Bank of Ceylon No. 1 Account 973,200 1.834 75.779 973,200

8 Seylan Bank PLC/ Thirugnanasambandar Senthilverl 845,752 1.594 77.373 959,785

9 Andysel Private Limited 630,000 1.188 78.560 630,000

10 Mr. K R Kamon 537,628 1.013 79.574 537,628

11 Mrs. A Selliah 530,000 0.999 80.573 530,000

12 Mr. K Aravinthan 530,000 0.999 81.572 530,000

13 Miss. S Subramaniam 530,000 0.999 82.571 530,000

14 Mrs. A Kailasapillai 530,000 0.999 83.570 530,000

15 Mr. V Kailasapillai 530,000 0.999 84.569 530,000

16 Union Assurance PLC / No. 1 A/C 455,200 0.858 85.427 455,200

17 Aviva NDB Insurance PLC A/C No. 07 440,404 0.830 86.257 463,300

18 Mr. A A Page 433,000 0.816 87.074 357,425

19 Waldock Mackenzie Ltd/ Hi - Line Trading (Pvt) Ltd 313,028 0.590 87.664 280,200

20 Amana Bank PLC 262,793 0.495 88.159 19,300

Sub Total 46,768,709 88.159

Others 1,920 Shareholders 6,281,701 11.841

Grand Total 53,050,410 100.00


Year ended 31st March 2009 % 2010 % 2011 % 2012 % 2013 %

Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000

Sales 2,905,794 3,174,760 3,372,014 3,983,462 5,171,650

Duty rebate 1,463 1,067 13 611 852

Other income 11,639 12,625 19,177 21,406 34,916

Less: cost of materials &

services bought in (1,734,501) (1,811,233) (1,757,192) (2,235,671) (3,151,092)

Value Added 1,184,395 1,377,219 1,634,012 1,769,808 2,056,326

Distribution of Value Added

Employees as remuneration

and welfare 231,006 19.5 274,715 20.0 321,590 19.7 363,307 20.53 428,511 20.84

Government as taxes 428,036 36.1 497,480 36.1 607,617 37.2 576,157 32.55 637,990 31.03

Lenders of capital as interest 89,375 7.6 65,867 4.8 24,300 1.5 53,518 3.02 126,375 6.15

Shareholders as dividends 121,864 10.3 120,955 8.8 291,777 17.9 53,050 3.0 79,576 3.87

Retained in the business as

- Depreciation/deferred tax 153,633 13.0 160,075 11.6 173,779 10.6 186,570 10.55 239,465 11.65

- Profits 160,480 13.6 258,137 18.7 214,949 13.2 537,205 30.35 544,409 26.47

Total 1,184,394 100.0 1,377,229 100.0 1,634,012 100.0 1,769,807 100.0 2,056,326 100.00

Statement of value added

111

NOTICE IS HEREBY GIVEN that the Twenty Ninth Annual General Meeting of Lanka Floortiles PLC will be held at the Victorian Ballroom

(located in the 10th Floor), The Kingsbury Hotel, No. 48, Janadhipathi Mawatha, Colombo 01 on Monday, 30th September 2013

at 9.30 a.m. and the business to be brought before the Meeting will be:

ORDINARY BUSINESS

1. To receive and consider the Annual Report of the Board of Directors on the affairs of the Company and the Statement of Accounts

for the year ended 31st March 2013 with the Report of the Auditors thereon.

2. To re-elect as a Director Mr. P L Amerasinghe who retires by rotation in terms of Article 103 and 104 of the Articles of Association of

the Company.

3. To elect as a Director Mr. K D D Perera who retires in terms of Article 110 of the Articles of Association of the Company.

4. To elect as a Director Mr. W D N H Perera who retires in terms of Article 110 of the Articles of Association of the Company.

5. To elect as a Director Mr. T G Thoradeniya who retires in terms of Article 110 of the Articles of Association of the Company.

6. To elect as a Director Mr. K D G Gunaratne who retires in terms of Article 110 of the Articles of Association of the Company.

7. To authorise the Directors to determine donations for the ensuing year.

8. To re-appoint Messrs. PricewaterhouseCoopers, Chartered Accountants as Auditors of the Company and to authorise the Directors

to determine their remuneration.

SPECIAL BUSINESS

TO PASS THE FOLLOWING RESOLUTION AS A SPECIAL RESOLUTION

9. CHANGE OF NAME OF THE COMPANY

THAT the name of the Company be changed to “LANKA TILES PLC”

By Order of the Board



Director/Secretaries

Colombo

23rd August 2013

Notes:

A member entitled to attend and vote at the meeting is entitled to appoint a Proxy to attend and vote instead of him/her. A Proxy need not be a member of the

Company. A Form of Proxy is enclosed for this purpose. The completed form of Proxy should be deposited at the Registered Office of the Company, No. 215,

Nawala Road, Narahenpita, Colombo 5, not less than forty-eight (48) hours before the time fixed for the commencement of the Meeting.

Notice of meeting


Notes

113


Notes

115

I/We the undersigned ...........................................................................................................................................................................……....

NIC No…................................................................ of ...............................................................................................................................….

being a member/s* of Lanka Floortiles PLC hereby appoint:

Mr. Anthony Asokumar Page of Colombo or failing him*

Dr. Sivakumar Selliah of Colombo or failing him*

Mr. Jayasekera Arachchige Panduka Mahendra Jayasekera of Colombo or failing him*

Mr. Peter Lucien Amerasinghe of Colombo or failing him*

Mr. Kulappuarachchige Don Dhammika Perera of Colombo or failing him *

Mr. Wannakuwattawaduge Don Nimal Hemasiri Perera of Colombo or failing him*

Mr. Tharana Gangul Thoradeniya of Colombo or failing him*

Mr. Kalupathiranalage Don Gamini Gunaratne of Colombo or failing him*

........................................................................................................................................................................................................................

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

my/our * Proxy to vote as indicated hereunder for me/us* and on my/our* behalf at the Twenty Ninth Annual General Meeting of the

Company to be held on 30th September 2013 and at every poll which may be taken in consequence of the aforesaid Meeting and at any

adjournment thereof:

For Against

Ordinary Business

Resolution 1

To receive and consider the Report of the Directors and the Statement of Accounts for the year

ended 31st March 2013 with the Report of the Auditors thereon.

Resolution 2

To re-elect Mr. P L Amerasinghe who retires in terms of Article No.103 and 104 of the Articles of

Association of the Company, as a Director.

Resolution 3

To elect Mr. K D D Perera who retires in terms of Article No.110 of the Articles of Association of the

Company, as a Director.

Resolution 4

To elect Mr. W D N H Perera who retires in terms of Article No.110 of the Articles of Association of

the Company, as a Director.

Resolution 5

To elect Mr. T G Thoradeniya who retires in terms of Article No.110 of the Articles of Association of


Resolution 6

To elect Mr. K D G Gunaratne who retires in terms of Article No.110 of the Articles of Association of


Form of proxy


INSTRUCTIONS AS TO COMPLETION

1. This Form of Proxy must be deposited at No. 215, Nawala Road, Narahenpita, Colombo 5 not

less than forty eight (48) hours before the time fixed for the Meeting.

2. In perfecting the Form of Proxy please ensure that all details are legible.

3. If you wish to appoint a person other than a Director of the Company as your proxy, please

insert the relevant details in the space provided.

4. Please indicate with an ‘X’ in the space provided, how your proxy is to vote on the resolution. If

no indication is given, the proxy in his discretion will vote as he thinks fit.

5. In the 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.

6. In the case of a Proxy signed by an Attorney, the Power of Attorney must be deposited at The

Secretaries’ Office (i.e. P W Corporate Secretarial (Pvt) Ltd, No.3/17, Kynsey Road, Colombo 8)

for registration.

7. In the case of joint holders the Form of Proxy must be signed by the first holder.

Resolution 7

To authorise the Directors to determine donations for the ensuing year.

Resolution 8

To re-appoint Messrs. PricewaterhouseCoopers, Chartered Accountants as Auditors of the

Company and authorise the Directors to determine their remuneration.

Special Business

Resolution 9

To pass the Special Resolution pertaining to the approval to change the name of the Company to

Lanka Tiles PLC

In witness my/our* hands this ................................................................ day of ................................................. Two Thousand and Thirteen.

..............................................

Signature of Shareholder/s

* Please delete the inappropriate words.

Instructions as to completion appear on the reverse.

Form of proxy

Name of the Company

Lanka Floortiles PLC

Legal Form

Public Limited Liability Company listed on the Colombo

Stock Exchange. (Incorporated as a Private Limited Liability

Company on 30th March 1984 under the Companies Act

No. 17 of 1982 and converted to a Public Limited Liability

Company on 07th August 1984.) The Company was re-

registered under the New Companies Act No. 07 of 2007

on 19th March 2008. (Registration No. PQ 129)

Directors

Mr. Anthony A Page (Chairman)

Dr. S Selliah (Deputy Chairman)

Mr. J A P M Jayasekera (Managing Director)

Mr. P L Amerasinghe

Mr. K D D Perera

Mr. W D N H Perera

Mr. T G Thoradeniya

Mr. K D G Gunaratne

Secretaries


No. 3/17, Kynsey Road

Colombo 08

Telephone : + 94 -11 - 4640360-3

Facsimile : + 94 -11 - 4740588

E-mail : [email protected]

Registered Office

215, Nawala Road, Narahenpita, Colombo 05

Telephone : + 94 -11 - 2808050 / 2808001-3

Facsimile : + 94 -11 - 2806232


Website : www.lankatile.com

Factory

St. James Estate, Jaltara, Ranala

Telephone : + 94 - 11 - 2141055, 2141057, 2141819

Facsimile : + 94 - 11 - 2141045


Bankers

Hongkong & Shanghai Banking Corp. Limited

Commercial Bank of Ceylon PLC

Bank of Ceylon

Citibank N.A.

DFCC Bank

Hatton National Bank PLC

Sampath Bank PLC

Auditors

PricewaterhouseCoopers

Chartered Accountants

100, Braybrooke Place, Colombo 2.

Telephone : + 94 - 11 - 4719838

Facsimile : + 94 - 11 - 2303197

Corporate Information

www.lankatiles.com

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