Annual Report 2009-2010 - Colombo Stock Exchange

4 Touchwood Investments PLC. Annual Report 2009/10What We DoTouchwood pioneered the agro-forestry investment in Sri Lankaand specializes in growing high value exotic tropical timbers as analternative and sustainable source for forest products. After 11years of inspired action and foresight, Touchwood Investmentsshows the promise of a good harvest to all those who havebelieved in the credibility, integrity and most of all the capability ofthe Company with a Global presence.The prospects for Touchwood in the long term seem promising ascited by Hancock Natural Resource Group, a unit of John HancockFinancial Services, Boston, USA, which predicts that “the mainappeal of the sector is its long-term profitability. Over the last30 years, annualized returns on timber have averaged 15.2 percent compared with 13.2 per cent for the Standard & Poor’s 500stock index”, thus, speculating a greater return on investment foragro-forestry as an investment tool. Agro-forestry is a sector thatanalysts the world over forecast to remain resilient in the face ofan economic meltdown due to its sheer lack of correlation to theglobal commodity, stocks and bond markets.Innovation and expertise from global resource personnel fuelour growth momentum. We collaborate with stellar institutionsacross the world to further our agro-forestry management practiceand plans, and adopt the latest techniques and technologiesthroughout our plantations and R&D initiatives.By offering an investment option that goes beyond financialgain to ecological and environmental gain, we have empoweredinvestors with a choice to invest responsibly. The communitiesin which Touchwood operates appreciate the benefits of ourcommitment and we continue to invest in and develop the skills ofTouchwood people who work tirelessly to ensure that stakeholderexpectations are met.As Sri Lanka’s premier agro-forestry Company, Touchwood forthe second successive year emerged as one of Sri Lanka’s mostvaluable brands by being ranked within Sri Lanka’s Top 100 BrandIndex. Compiled annually by Brand Finance (Lanka), a subsidiary ofa global entity, Brand Finance PLC, the Brand rankings for the Year2009 were disclosed and presented in the April 2010 issue ofSri Lanka’s pioneering Business Magazine, the Lanka MonthlyDigest (LMD). This year’s ranking has surpassed previous years,bringing us closer to the top 50 brands in Sri Lanka.What we do, in essence, is the creation of a brighter future for ourinvestors, our future generations and in some small way for thewell being of our Mother Earth.From the inception of our Sandalwood cultivations, this unique species has contributed significantly towards the revenues ofthe company. It has been the winning product of the company due to the increasing gap in the demand versus supply.Product Features Key factsSandalwoodFamily : SantalaceaeScientific name : Santalum albumCommon name : SandalwoodMajor distribution in India, Philippines, Indonesia, China & Sri LankaPrimarily this essence is used to produce Oil - incense, Perfumery, Timber Carving,medicines, turnery and fine furnitureGlobal market are the USA, India, France, UK, China, Japan & MiddleTouchwood cultivates this species in the Badulla and Balangoda districts withlands that are demarcated to plot sizes ranging from 5 perches to 1 acre to suitthe capacity of any investor• Harvest expected in 16 years• A harvest guarantee• A purchase back guarantee• The plot and trees are uniquelynumbered• Land ownership transferred as acollateral by deed transfer• Right to transfer ownership toany party at any time during theinvestment• 100% buffer stock• Plantations are fully insured

5FinancialHighlightsFor the year ended 31st March 2010 2009Rs.’000Rs.’000Revenue 857,482 727,010Profit before Taxation 341,330 254,905Profit after Taxation 333,809 254,620Net Financing Cost 20,336 9,538As at 31st MarchShareholders’ Fund 2,223,978 1,624,618Total Assets 4,065,834 3,148,158Earnings per Share (Rs.) 37.44 28.55Net Asset Value per Share (Rs.) 249.64 182.36Five YearFinancial SummaryFor the year ended 31st March 2010 2009 2008 2007 2006Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000Operating ResultsRevenue 857,482 727,010 593,844 461,965 1,014,883Financial Cost 20,336 9,538 6,154 7,214 296Depreciation 7,030 4,354 3,729 3,455 2,537Profit before Interest 361,666 264,443 290,742 61,596 614,641Profit before Tax 341,330 254,905 284,587 54,382 614,344Assets EmployedProperty Plant & Equipment 558,364 289,055 377,384 370,288 140,409Biological Assets 3,316,556 2,692,811 2,190,999 1,735,480 1,482,830Current Assets - Liabilities 3,405 28,417 1,785 21,047 46,301Shareholders’ FundStated Capital 89,088 89,088 89,088 89,088 89,088Retained Earnings (17,590) (25,645) (11,724) 26,075 35,000Non Current Liabilities 1,781,444 1,452,250 1,171,518 1,011,942 806,961Rs. Rs. Rs. Rs. Rs.Market Value per Share 104.75 50.50 90.25 56.00 65.00Net Asset per Share 249.64 182.36 153.87 122.03 96.82Net Dividend per Share - - - 0.50 1.50Turning tiny dreams into big realities...

6 Touchwood Investments PLC. Annual Report 2009/10The TouchwoodPlantationsPlantation Name Location Altitude Climate Species PlantedIhalakanda Ratnapura 100 m - 125 mMunihinkanda Ratnapura 75 m -100 mKalugalahena Ratnapura 75 m -100 mFoot Print Ratnapura 75 m -100 mGomaragala Ratnapura 75 m -100 mSt. Anthony's Ratnapura 100 m -125 mLiyangama Ratnapura 50 m - 75 mHartley Mathugama 0 m - 50 mPelawatta Mathugama 50 m - 75 mLeelajan Mathugama 0 m - 50 mKukuleganga Mathugama 50 m - 75 mPanthiya Mathugama 0 m - 50 mSeelani Matale 300 mNorth Matale Matale 300 m - 350 mAverage annual temperature : 22 - 30 CAnnual rainfall : 4000 mm - 5000 mmAverage annual temperature : 22 - 30 CAnnual rainfall : 4000 mm - 5000 mmAverage annual temperature : 22 - 30 CAnnual rainfall : 4000 mm - 5000 mmAverage annual temperature : 22 - 30 CAnnual rainfall : 4000 mm - 5000 mmAverage annual temperature : 22 - 30 CAnnual rainfall : 4000 mm - 5000 mmAverage annual temperature : 22 - 30 CAnnual rainfall : 4000 mm - 5000 mmAverage annual temperature : 22 - 30 CAnnual rainfall : 4000 mm - 5000 mmAverage annual temperature : 25 - 30 CAnnual rainfall : 3000 mm - 4000 mmAAverage annual temperature: 25 - 30 CAnnual rainfall : 3000 mm - 4000 mmAverage annual temperature : 25 - 30 CAnnual rainfall : 3000 mm - 4000 mmAverage annual temperature : 25 - 30 CAnnual rainfall : 3000 mm - 4000 mmAverage annual temperature : 22 - 33 CAnnual rainfall : 2200 mm - 2900 mmAverage annual temperature : 22 - 33 CAnnual rainfall : 2200 mm - 2900 mmAverage annual temperature : 22 - 33 CAnnual rainfall : 2200 mm - 2900 mmMahoganyMahoganyMahoganyMahoganyMahoganyMahoganyMahogany & VanillaMahoganyMahoganyMahoganyMahoganyMahoganyMahogany, Vanilla & TeakMahogany, Vanilla & Teak

7Plantation Name Location Altitude Climate Species PlantedRusigama Matale 300 m - 350 mKent Matale 300 m - 350 mAmbanganga Matale 300 mSalagama Matale 300 mLower Ley Grow Badulla 500 mPanketiya Badulla 250 mPalugedara Badulla 1000 mKandaketiya Badulla 1000 mSoranatota Badulla 1000 mMeegahakiula Badulla 900 mMakulugolyaa Badulla 1000 mAggalaulpatha Badulla 950 mFarm Grow Badulla 150 mBurnside Kandy 1000 mAverage annual temperature : 22 - 33 CMahoganyAnnual rainfall : 2200 mm - 2900 mmAverage annual temperature : 22 - 33 CMahogany, Vanilla & TeakAnnual rainfall : 2200 mm - 2900 mmAverage annual temperature : 22 - 33 CMahogany & VanillaAnnual rainfall : 2200 mm - 2900 mmAverage annual temperature : 22 - 33 CMahogany & VanillaAnnual rainfall : 2200 mm - 2900 mmAverage annual temperature : 24 - 34 CSandalwoodAnnual rainfall : 2000 mm - 2500 mmAverage annual temperature : 24 - 34 CSandalwood & TeakAnnual rainfall : 1500 mm - 2500 mmAverage annual temperature : 18 - 34 CSandalwoodAnnual rainfall : 2000mm - 2500mmAverage annual temperature : 18 - 34 CSandalwoodAnnual rainfall : 2000 mm - 2500 mmAverage annual temperature : 18 - 34 CSandalwoodAnnual rainfall : 2000 mm - 2500 mmAverage annual temperature : 23 - 34 CSandalwoodAnnual rainfall : 2000 mm - 2500 mmAverage annual temperature : 25 - 34 CSandalwoodAnnual rainfall : 2000 mm - 2500 mmAverage annual temperature : 25 - 34 CSandalwoodAnnual rainfall : 2000 mm - 2500 mmAverage annual temperature : 26 - 37 CSandalwoodAnnual rainfall : 1900 mm - 2400 mmAverage annual temperature : 27CSandalwoodAnnual rainfall : 2000 mm - 2500 mmTurning tiny dreams into big realities...

8 Touchwood Investments PLC. Annual Report 2009/10The TouchwoodPlantationsVanilla Project -North Matale EstateVanilla Project -Salagama EstateVanillaProcessing Centre -Seelani Estate

Sandalwood Nursery -Panketiya EstateSandalwood Project -Panketiya EstateMahogany Project -Gomaragala EstateTurning tiny dreams into big realities...

13for the future protection of Mother Earth and indeeda point of consideration for every global citizen to invest intoagro-forestry.The growing interest in conservation has spurred the growth ofan industry that is billed to be valued at USD 300 trillion in theyear 2009 for forestry conservation alone. The magnitude ofcommercial interest in conservation is evident from the impendingimplementation of a new conservation based standard proposedby the UK-based Carbon Credited Farming in conjunction withBio-carbon Consult of Germany through the development of aprogram designed to monitor, protect and enhance conservationareas and, in particular, forestry-based reserves through a valuationmethodology consisting of existing carbon pools.The program adopts a methodology of auditing, monitoring andmonetization of conservation assets, laying the foundations fromwhich many further carbon credits can be sourced through goodgovernance and practice. These credits include Carbon OffsetCredits, Nutrient Credits, Water Credits, Phosphate, Nitrate andSulphur Credits, in addition to Ecosystem and Wildlife credits.The introduction of this standard will certainly aid towards thereduction of deforestation and, possibly precipitate the reversalof deforestation as the income from conservation outstrips theincome from large-scale illicit logging. Indeed the developmentand timely implementation of this standard will allow for agroforestrycompanies such as Touchwood to further augment theirreturns through the monetization of natural assets.Investing in the futureAs I have reiterated many a time, the philosophy of Touchwoodrevolves resolutely around the future – it is built on the principlesof future value. In essence Touchwood proposes and providesa new way of life that values everything that is good; theenvironment, our children’s future and the future of generations tocome. It was this same vision for a better tomorrow that inspiredthe creation of this Company and indeed it is this same resolve forthe creation of a more fruitful future that drives us today. Let meassure you, as your Chairman, that we will continue to enhancewealth creation across the nation, starting from you our investorsto rural communities. I am confident of our ability to change theface of tomorrow through inspired eco-friendly action.My sincere appreciations to our shareholders and investors whohave been the tower of strength of this Company, stakeholderswho have stood by us with confidence and the Touchwood teamfor creating pillars of success. Let us now work with even greaterfocus to achieve sustainable returns for the future.Sgd.R. A. MaloneyChairman28th July 2010Turning tiny dreams into big realities...

14 Touchwood Investments PLC. Annual Report 2009/10“In light of the newfound peace in the countryand the unlimited opportunities presented to allof us, Touchwood reached to its new heightswith a new strategic direction.”DeputyChairman’sStatementFruitful time in an eventful environmentThe financial year 2009/2010 was an eventful year for many of us,especially for the financial industry both locally and internationally.Global markets continued to be unstable with ripple down effectsto the local markets. Touchwood, however enjoyed a fruitful yearwith the investors’ taking a ‘flight to safety’ on their portfolios.In light of the newfound peace in the country and the unlimitedopportunities presented to all of us, Touchwood reached newheights with a new strategic direction. Consequently, investorstructure was changed to explore more avenues with Touchwoodhaving its first rights issue fully oversubscribed in the ColomboStock Exchange, followed by a 1:4 share split creating history inthe company, and LOLC, our single largest shareholder makinga strategic exit with a significant capital gain. The year ended ona high note, when we won the long standing legal suit with theSri Lanka Accounting and Auditing Standards Monitoring Board(SLAASMB) over the disagreement on fair value method directedin the International Accounting Standard 41.With these strategic initiatives, our business model is furthergeared to reap more benefits. Our strategy is to excel throughrelated diversification. We have already ventured in to sandalwoodand vanilla oil processing as the first step of this direction. Weconstantly strive to seek potential investments that can strengthenour value chain and thereby create value to all our stakeholders.Hence, our newest addition to the portfolio is wooden floorswhere we market to upscale international markets.As the high interest rate and high inflation regime is changing inthe local market, investments in asset classes have become moreaffordable to the common man. Sophisticated investors are nowlooking outside the conventional asset classes that have provenunstable in the recent past. Thus, there is growth in demand foragro-forestry in the local market.In the international market, agro-forestry is in the limelight as aproven commodity for many reasons. The combination of valuein a naturally growing commodity and guaranteed return onvolume provide investors with a low risk asset creating long termcapital appreciation in a sustainable, environmentally and sociallybeneficial manner. Negative correlation to other assets and lowvolatility provide an optimum route to diversify a portfolio andreduce risk. Thus, our outlook is very promising for Touchwood inboth local and global markets.We are mindful of the need to retain the natural habitat as isand to empower rural communities to look towards conservationas an income earner. Our plantations across Sri Lanka havepioneered concepts to encourage sustainable practice and havestrived to cascade these practices amongst the rural community toensure a “transfer of knowledge” and know-how for the future

15protection of Sri Lanka’s bio-assets. Our business model is one thatdiscourages land fragmentation and continually seeks to assist thedistribution of wealth across the rural hinterland.Over the past three years Touchwood has demonstrated itscommitment to corporate governance. We have recognized thevalue of demonstrating transparency and accountability beyondthe traditional domain of financial performance. The Companyhas gone beyond the conventional accounting and disclosurepractice to one of Triple Bottom Line (TBL) Reporting. Takingthis a step further during the current financial year, Touchwoodwill for the first time adopt the Global Reporting Initiative (GRI)sustainability reporting framework to report against Level C of theG3 disclosure guidelines.The year also witnessed the end to a long-standing controversypertaining to the Company’s adoption of Biological Asset valuationunder the International Accounting Standard (IAS) 41. Duringthe financial year under review the Court of Appeal and theSupreme Court of Sri Lanka upheld the Company’s accounts andaccounting methodology thus dissipating the indictments of the(SLAASMB). It must be also noted herein that due to the adversepublicity garnered as a result of these false allegations, Touchwoodas a Company and its shareholding have been wrongfully deniedaccess to the full potential of the Company.Amidst the many issues and challenges that characterised thecommercial environment, Touchwood remained resilient, strongand dynamic. The Company successfully overcame the challengesposed during the year to perform commendably building its assetbase and enhancing its asset value.I take this opportunity to welcome our new Chairman,Roscoe Maloney and our new Chief Executive Officer, ChannaAbeygunawardene.I sincerely thank the guidance and assistance given by the Boardof Directors including previous directors from LOLC. We thrive andshine because of the commitment and unstinted support givenby our team members and the confidence our customers have onus. I believe this is our competitive advantage to achieve our goalof being the best agro-forestry investment company in the Asia -Pacific region.Sgd.(by the Alternate Director)S. P. Asitha KoralageDeputy Chairman28th July 2010Turning tiny dreams into big realities...

16 Touchwood Investments PLC. Annual Report 2009/10“As the CEO of Touchwood I am indeed proudof your Company’s achievements especially inlight of Touchwood ‘s enhanced brand valueduring the year 2009”Chief ExecutiveOfficer’sStatementIt gives me great pleasure to address all of our shareholdersand stakeholders through this review of operations. Indeed,as the Chairman and Deputy Chairman have lain out in theirrespective statements, the financial year 2009/2010 has beenone of challenges. Nevertheless, these challenges fostered a resultoriented culture at Touchwood, thus pushing us further to achieveour targets for the year. In this respect, you our shareholders willbe pleased to note that during the financial year, Touchwood tookanother step towards the achievement of its 5 year strategic plan.A drive towards Financial StabilityFor the year under review, the Company posted a profit before taxof Rs. 341 million for the year, a growth of 25 per cent from thatof 2008/2009 and a net attributed profit of Rs. 334 million, a 24per cent growth from that of the previous year. The guaranteedappreciation of the Company’s biological assets yielded an overallrevenue of Rs. 857 million and increase of 15 per cent. Cash salesrevenues stood at Rs. 234 million at the end of the financial yearwith a recorded increase of 4 per cent year on year growth.The Company’s asset base witnessed a significant improvementand is currently valued at Rs. 3 billion as at 31st March 2010. Netassets per share increased to Rs. 249.64 whilst Earnings Per Sharestood at Rs. 37.44 for the year 2009/2010.From an operational perspective, the focus for the year waspredominantly on the achievement of efficiencies across theplantations through process oriented enhancements. By achievingequilibrium between efficiency and quality, Touchwood enhancedits operations to optimize performance across the value chain.As an outcome of key efficiency improvement initiatives andmeasures, Touchwood posted an efficiency enhancement ofas much as 200 per cent in some of its key plantations. TheCompany views this as a critical milestone in its journey towardsexcellence. Due in large to these efficiency enhancements,the Company posted a commendable 25 per cent decline inproduction costs from that of the previous financial year. Duringthe year as an added risk management strategy, Touchwood forthe first time since its inception insured all of its plantations and ineffect its natural assets against possible loss from a range of risks.This I believe will further assure our shareholders as well as ourclients on the surety of their returns.Climbs the ranks on Brand FinanceAdmirably, Touchwood, as Sri Lanka’s premier agro-plantationcompany, for the second consecutive year emerged as one ofSri Lanka’s most valuable brands by being ranked within Sri Lanka’sTop 100 Brand Index to emerge at the 67th ranking up 15 placesfrom its ranking in 2008. Compiled annually by Brand Finance(Lanka), a subsidiary of a global entity, Brand Finance Plc, it is anindependent consulting company which values brands followingguidelines and methodologies adopted by its internationalcounterpart. The overall analysis uses publicly available data alongwith an extensive market study comprising of 1,600 respondents.Brand Finance espouses the importance of recognizing andgrowing brand equity with an emphasis on par with that appliedto tangible assets of a business.

17As the CEO of Touchwood I am indeed proud of your Company’sachievements especially in light of Touchwood ‘s enhancedbrand value during the year 2009 which stands at Rs. 24 million.This achievement is all the more significant in that Touchwoodhas built its brand, instilling loyalty in the absence of large-scalecommunications budgets. We credit this success to our extensiveknowledge of the marketplace, to our one on one relationshipwith stakeholders and to our thought-provoking sustainabilitystewardship.Strategy of value addition implemented, continuousassessment reaps returnsAn integral component of our 5 year strategic plan is to optimizereturns across the value chain through value addition anddown-streaming. During the financial year under review, thisstrategy was implemented in part. The focal initiative towardsthis end during the year was the establishment of distillationplants for the distillation of a variety of essential oils. As afirst step a Sandalwood oil distillation plant was successfullycommissioned in 2009/2010 for the first time in Sri Lanka withthe technical collaboration of the Industrial Technology Institute(ITI). The distillation plant has the capacity to process half a tonof Sandalwood heartwood. With the establishment of this plantTouchwood is placed as the pioneer in the export of value addedand sustainable Sandalwood products from Sri Lanka. The futureoutlook for Touchwood’s Sandalwood plantations is one ofoptimism especially in the light of observations made by leadingIndian Sandalwood Industry expert; Dr. Anantha Padmanabhawho has commended our plantations based on growth and oilformation capacities consequent to a couple of plantation studytours. He opines that Touchwood’s Sandalwood plantations couldbe harvested in 12 years as opposed to the conventional maturitycycle of 16 years. Moreover, numerous R&D initiatives haveallowed us to conclusively determine the yield of Sandalwood oilat plantation maturity. These studies have indicated a yield thatsurpasses the accepted extractable oil content at maturity simplybased on the fact that our two and half year old Sandalwood treesare yielding an impressive oil content that supersedes the outputnorm.Vanillin extraction was done during the financial year withtechnical collaboration of the ITI. The extraction was carried outwith A1 grade Vanillin in line with process standards compliantto ISO 55651. Our Vanilla plantation technologies have beeninnovative with the novel use of nurseries for crop growth, aunique concept for the Vanilla industry. This innovation hasallowed for a drastic decline in the field establishment casualtyrate. The use of organic fertilizer further enhances the value of thecrop and that of value added products.Globally Mahogany plantations have been severely affected bythe Shoot Borer pest. Whilst the threat of pest infestation remainshigh in Sri Lanka, Touchwood through innovative agro-practicesduring the year curtailed the infestation to below a 2 per centaffliction rate as against a norm of 30-35 per cent. Touchwoodis the only agro-plantation company in the region to stall thepropagation of the pest affliction. The Company is currentlyinvestigating the viability of patenting its Integrated Pest ControlSystem. Implementation of progressively adapted agriculturalpractices across the Mahogany plantations on a continuous basisTurning tiny dreams into big realities...

18 Touchwood Investments PLC. Annual Report 2009/10Chief Executive Officer’sStatement“Going forward, Touchwood is confident of its ability toredefine the investment industry in Sri Lanka by provingundoubtedly time and time again that agro-plantation returnsare a win-win solution for all investors, future generations andfor mother earth.”allowed Touchwood to achieve 80 per cent of expected growthfor the year 2009/2010, which surpasses the required average ratesignificantly. This represents a growth enhancement of40 per cent in comparison with that of the previous financial year.In addition a 100 per cent buffer stock is maintained.Touchwood during the year harnessed growth levels exceedingthat of the targeted rates largely as an outcome of a consistentapplication of Total Quality Management (TQM) conceptstherein furthering the culture towards quality consciousness atTouchwood’s plantations along with Environmental ManagementSystem which complies in all our plantations and certified by aleading Certifying Body TUV, Germany. Also we are proud toinclude their Auditor’s confirmation to this effect on thisAnnual Report.As a by-product of the Company’s consistent quest for innovation,Touchwood in the year 2009/2010 established a fully-fledgedTissue culture laboratory in collaboration with the University ofSri Jayewardenepura. The laboratory will cater to the requirementsof Touchwood whilst also facilitating research purposes ofacademic staff and students.During the year, focus was laid on furthering a strategy tooptimize returns from short-term cash crops in a concertedbid to maximise the utilization of the plantation land base andto generate additional income per acre. The Company’s agroportfolio currently comprises of a wide variety of perennial crops,indigenous plants and herbs and other flora at research level tomaximize synergies with the main crop portfolio.It is necessary at this juncture to bring to focus a key issuehighlighted in the previous year’s CEO’s Review in the interest ofour shareholders. Whilst in 2008/2009, a marked mention is madeof an up scaled operational target to grow 1000 acres withinthe financial year 2009/2010 as a direct result of the strategicpartnership with LOLC, it needs to be addressed and notedthat given the subsequent divestiture of LOLC’s investment intoTouchwood this optimistic operational target has been revisitedand revised. However, it must be borne in mind that Touchwoodundertook and completed numerous fundamentals in preparationfor the implementation of this strategy. This know-how nowremains as a key competency for Touchwood to further exploit inthe future, as and when the Company considers opportune. Forexample, the Company is currently laying the groundwork for theestablishment of plantations in the now accessible Northern andEastern provinces in a bid to re-integrate the communities in theregion, through socially engaging tasks for sustainable povertyreduction.Human capital proves to be Touchwoods greatest assetThe Touchwood team was by far the catalyst of the Company’ssuccess during the year. They worked with motivation andwere resolute to achieve the corporate objectives. Despite thechallenges brought on during the year, we as a Company decidedretrenchment was not an option but to enhance efficiencies acrossthe board through the adoption of a target-oriented approachfor rewards and recognition. During the year, as an outcome ofthis approach 25 per cent of the staff were promoted based ontheir ability to meet pre-specified objectives and targets. Employeehealth and safety remained high on the agenda at Touchwood as

19“A comprehensive work-study was conducted during the yearwith a view to enhance the procedures and processes to furthercomply with the requirements of ISO 9001 and 14001. As aconsequence, Touchwood is a system dependent company withevery policy, process and procedure mapped electronically andadhered to fully.”in previous years. Plantation workers continued to be monitoredto ensure their compliance with safety procedures and theirutilization of safety gear. The plantation workers were also insuredagainst accidental injury.A comprehensive work-study was conducted during the year witha view to enhance the procedures and processes to further complywith the requirements of ISO 9001 and 14001. As a consequence,Touchwood is a system dependent company with every policy,process and procedure mapped electronically and adhered to fully.Future OutlookIn looking to the future, Touchwood remains committed to thecolossal goal of increasing its agro-plantation acreage to 15,000acres over the next five years. Going forward, Touchwood isconfident of its ability to redefine the investment industry in SriLanka by proving undoubtedly time and time again that agroplantationreturns are a win-win solution for all investors, futuregenerations and for Mother Earth.In looking to meet the future objectives of the Company,Touchwood issued rights to the value of Rs. 534 million inMarch 2010 with the aim of further developing its asset base, topurchase new equipment, develop new nursery and laboratoryestablishments, enhance marketing activities and for upstreamand downstream business development. We are confident thatthe cumulative outcome of these efforts will further improve yourCompany’s brand value. The overwhelming confidence of ourshareholders in Touchwood was demonstrated when the issuewas oversubscribed by 40 per cent. Let me take this opportunityto thank you, our shareholders, for this magnanimous show ofsupport.In the upcoming financial year, we will unquestionably meet morechallenges but I call upon my team at Touchwood to perseverewith the passion and fortitude that is ingrained in each memberof our team. I am extremely proud and thankful for the dedicationyou have shown towards the Touchwood dream. Thank you onceagain. Our shareholders and clients have always been the beaconsof light at the darkest hours of Touchwood. Whilst thanking youfor being loyal and placing your valued trust in us, we continue tolook to you for inspiration to excel.My special gratitude to the government of Sri Lanka for theirtremendous support in making our vision a reality.Sgd.Channa AbeygunawardeneChief Executive Officer28th July 2010Turning tiny dreams into big realities...

20 Touchwood Investments PLC. Annual Report 2009/10Board ofDirectorsR. A. Maloney - ChairmanMr. Maloney, the Founder/Group Chairman of Touchwood,commenced operations of Touchwood in 1999, owing to theincreasing demand for timber and diminishing forest cover.He holds an MBA (Australia) with 25 years experience in businessmanagement ranging from retail, wholesale, manufacturingand plantations.Mr. Maloney is the Group Chairman/Managing Director of theother Companies in the Touchwood Group, which currentlyoperates globally.S. P. Asitha Koralage - Deputy ChairmanWith over 20 years of senior level work experience,Mr. Koralage possesses a varied experience in the fields ofStrategic and Business Management.Mr. Koralage has been with Touchwood for 7 years andpresently is the Group Deputy Chairman.The international exposure he gained through working in theUK, Thailand, Hong Kong, Australia and Middle East has beeninstrumental in conceptualizing Touchwood’s global expansion.Mr. Koralage holds an MBA (Australia) and is professionally qualifiedin Information Technology and Business (UK). He is also a member ofthe Institute of Management.Channa Abeygunawardene - Chief Executive OfficerMr. Abeygunawardene joined Touchwood in 2004 as the BusinessDevelopment Manager and was instrumental in developing theinternational SBUs. His involvement in Business Development,Sales Management and Branch/Regional Management saw himpromoted to General Manager in late 2005. An Electronics Engineerby profession, he is also a Microsoft Certified Engineer and a Memberof the Institution of Engineering and Technology (formerly IEE) of UK.Mr. Abeygunawardene possesses 16 years of Managementexposure in UK, Japan, Middle East and Thailand, mostly in thefield of Information Technology.Ryan Crowley - Alternate DirectorMr. Crowley commenced work in Touchwood in May 2008 and waspromoted to Group Legal Manager in August 2008. In July 2009 hewas promoted to his current position of Group International TechnicalSupport Manager which involved him leading both the Legal andAdministration Business Functions of the Group.He has a number of years of work experience in both the public andprivate sectors having worked in the Department of the House ofRepresentatives at Parliament House in Canberra, Australia for over5 years as well as in various other organizations such as DharmnitiLaw Office located in Bangkok Thailand.

21Mr. Crowley has a Bachelors in Arts and Laws (Australia),Masters in Laws (Australia) and a Graduate in Australian MigrationLaw and Procedure.Swarna Maloney - DirectorMrs. Maloney was instrumental in conceptualizing Touchwoodin 1999.She has held various positions from Group Head of Finance,Head of IT to currently Group Operations Director.She holds a BSc. in Business Administration and 15 years experiencein Finance, IT and business management both nationally andinternationally.Prageeth Herath - Alternate DirectorMr. Herath has15 years active planting and manufacturingexposure with expertise in tea and rubber. His experience includessenior management level involvement at leading plantation andmanufacturing companies.Janath Olaboduwa - Alternate DirectorAn Attorney at Law by profession, Mr. Olaboduwa has experienceover 20 years in the field of Law, as an Administrator as well as in theprivate bar predominantly in the area of company law.He has gained international exposure by participating in severalSummits and serving as a Legal executive on several United NationsDevelopment program projects.Aloysius Ralph Pereira - Independent DirectorMr. Pereira joined The Royal Ceylon Air Force in 1954, he was trainedas an Aeronautical Engineer for three years at the Royal Air ForceSchool of Technical Training in the UK in 1955 and worked as aEngineer/Factory Manager at Tissa Industries.He is a full member of the Australian & New Zealand Pulp & PaperInstitute’s Technical Association and presently is a Consultant as aPulp & Paper Technologist.L.L. Kulatunga - Independent DirectorMr. Kulatunga is a fellow of both the Institute of CharteredAccountants of Sri Lanka and the Chartered Institute of ManagementAccountants of the United Kingdom. He also holds an MBA fromthe Indian Institute of Management, Ahmedabad, India with over36 years post qualifying experience.Turning tiny dreams into big realities...

22 Touchwood Investments PLC. Annual Report 2009/10ManagementTeamChanna AbeygunawardeneChief Executive OfficerPrageeth HerathHead of Plantations(Alternate Director)Janath OlaboduwaManager Legal(Alternate Director)Dimuthu DissanayakeHead of FinanceDhammika MahipalaAgro-Forestry ConsultantJeffry EbertSales & Marketing Manager

23Nanthini NanthakumarBusiness CoordinatorNimmika ThushariHead of HR & AdministrationHarischandra JayalathManager Forest & ProjectsPradeep KumaraTechnical Manager - ForestryGayan AbeyveeraManager ITKanil HattotuwaBusiness Development ManagerTurning tiny dreams into big realities...

24 Touchwood Investments PLC. Annual Report 2009/10Our success is our people!Apart from living out an enviablehonour roll of sustainabilitymeasures, Touchwood succeedsin uplifting rural areas byemploying the local populace inthe plantations.We believe that povertyalleviation should be targetedand reduced through themobilisation of those affected toeconomic activity.“The smile and light on thepeople of these villages is alasting legacy for our valuedinvestors”

25“We are happyto be withTouchwoodfor manyyears becausewe grewtogether withTouchwood”Gomaragala EstateRatnapura

26 Touchwood Investments PLC. Annual Report 2009/10SustainabilityReportingHis Excellency the President of Sri Lanka being presented a Sandalwood Plant by the CEO of Touchwood Investments PLC.“Sandun Arana” National Tree Planting CampaignKataragama Kirivehera Temple.Muthiyanganaya Raja Maha Viharaya.

27Principles and Reporting Guidelines:This sustainability report signals the company’s initial effort tocomply with the Sustainability Reporting Framework proposed byGlobal Reporting Initiative (GRI). The Report strives to comply withspecific ‘Reporting principles’ and ‘Reporting Guidance’ as laidout by the G3 guidelines and indicator protocols for economic,environment, human rights, labour, responsibility and societalperformance. In the financial year under review, the Company willbe reporting against C level requirements of GRI G3 guidelines.This report represents the company’s first step towards enhancingthe report content culminating in full compliance over time.The company would achieve this goal by instituting practicesand processes within the organization to quantify and assess theorganizations footprint in the community.In this report, efforts have been made to disclose information onthe majority of the recommended performance indicators where itcan be extracted from its systems. The performance indicators havebeen selected on the basis of availability of quantifiable data andbased on the level of relevance to the Company’s operations. Theindicators reported on exceed the minimum recommended for theself assessed ‘C’ level. However, the Company would only seek tograduate to ‘B’ and B+ levels over a period of 3 years.Report Boundary & ScopeEffort has been made towards achieving completeness of the reportwith regard to the dimensions of scope and boundary for thereporting period. This report covers the performance of the entityTouchwood Investments PLC for the reporting period March 2009to March 2010.MaterialitySustainability is intrinsic to the nature of the business ofTouchwood’s commercial operations. Accordingly, this report is aneffort to present in a structured manner the company’s commitmentto the Economic, Environment a land Social wellbeing through itstriple bottom line concept.The content of the report has been mainly influenced by the natureof the business and the resultant footprint on the stakeholders ofthe Company and generally accepted materiality levels for each areaof impact. The organization has identified its key stakeholders asfollows;• Customers - investment protection and income generation• Community - forest cover, climate change, enhance knowledgebase and poverty alleviation• Government - forest cover, support government agriculturepoliciesJummah MosqueSt. Mary’s ChurchTurning tiny dreams into big realities...

28 Touchwood Investments PLC. Annual Report 2009/10SustainabilityReporting• Employees - job security and career growth• Shareholders - return on investmentThese stakeholders have been selected based on the significantimpact the operations of the company has on them.Sustainability for future generations: our principalbusinessGlobal warming and climate change is an undeniable phenomenonin present times, with only 6 per cent of the earth covered withrain forests today compared to 14 per cent in the past. Researchindicates that 150 acres of forest are lost every minute globally. InSri Lanka, a nation steeped in traditional values that extol the virtuesof environmental sustainability, disturbingly in excess of 5700 acresof rain forest are destroyed monthly for farming and settlement. It isforecasted that within the next 30 – 40 years our natural rain forestswill dwindle into non-existence should the current trend persist.One of the smallest, but biologically diverse countries in Asia, SriLanka is recognized as a Biodiversity hotspot of global and nationalimportance. Its varied climate and topographical conditions havegiven rise to a rich diversity of species, believed to be the highestin Asia in terms of unit land area. Home to 15 national wildlifereserves, 7 UNESCO World Heritage Sites, nearly 500,000 acresof tea country, 250 acres of botanical gardens, the island is alsoblessed with 103 rivers and streams and over 100 waterfallsradiating from the central hills, rushing down rocky precipicesforming a number of roaring waterfalls of various shapes andheights, all ending up loosing the momentum at the Indian Ocean.Much of the country’s species are endemic, a reflection ofthe island’s separation from the Indian subcontinent since thelate Mesozoic period. This is especially relevant for mammals,amphibians, reptiles and flowering plants. These species aredistributed in a wide range of ecosystems which can be broadlycategorized into forest, grassland, aquatic, coastal, marine andcultivated. The diversity of ecosystems in the country has resulted ina host of habitats, which contain high genetic diversity. Biodiversityincludes species diversity, genetic diversity and ecosystem diversity.Sri Lanka has been identified by the environment activist groupConservation International (CI) as one of 25 biodiversity hot spots inthe world.For developing nations, such as Sri Lanka, there are two broadapproaches to dealing with climate change. In Sri Lanka bothmitigation and adaptation are feasible solutions given that weare still at the elementary stage of industrial development from aglobal perspective. The solution then seems to be a build futurevalue through the adoption of better industrialization practices andthrough the use of reforestation practices.Future Value is the core of the Touchwood business proposition.Our principle business lies in the conservation of the planets eco-“Sandun Arana” National Tree Planting CampaignBank of Ceylon Head OfficeColombo Municipal Council - City Campaign

35“I am veryhappy towork for acompany thathas a sincereinterest in theenvironmentand the futureof our children.”G.G. Wijethilake - EmployeeSalagama EstateMataleTurning tiny dreams into big realities...

36 Touchwood Investments PLC. Annual Report 2009/10SustainabilityReportingEnvironmental Bottom LineEnvironmental PerformanceAt Touchwood we use agro-forestation as a tool for bio diversityconservation. Our core business concept primarily revolves aroundenvironmental conservation. Touchwood is essentially in thebusiness of Agro-forestation, a concept that is widely acclaimed asa means to bio-diversity conservation and an alternative to moretraditional approaches to biodiversity conservation that focused onprotecting natural habitats in parks and reserves while ignoring thepossibilities found within certain agricultural habitats.As opposed to agro-businesses that adopt a monocultureapproach to plantation (planting large expanses with a singlecrop to increase efficiency and yield and adding high inputs offertilizers, pesticides, and herbicide), at Touchwood we are ardentproponents of agro-forestation. In other words, our plantationsare characterised as agricultural systems that differ in the numberof crop plants and vegetation structure. Therefore, our Agroforestrysystems serve to provide high quality habitats importantfor biodiversity conservation.Moreover, we are mindful of the fact that by adopting an agroforestryapproach to our business that we provide a habitat forbiodiversity to live and breed; and that predator species willnaturally serve to protect crop plants from pest outbreaks, reducesoil erosion, increase carbon sequestration, increase water uptakeand storage and provide economic benefits through the largediversity of crops produced.As trees grow they absorb carbon dioxide from the atmosphereand store it as carbon in their biomass. If we consider aglobal example of how plantation forests have impacted theenvironment, it is obvious that Sri Lanka too can make an impacton the global environment through sustainable plantation Agroforestry.In New Zealand it is valued that in 1997, its plantationforests absorbed 18 million tones of carbon dioxide, net ofharvesting. This means that if an annual rate of new planting of65,000 hectares was maintained for eight years (up till 2005), NewZealand’s plantations would have removed 230 million tones ofcarbon dioxide from the atmosphere over this period of time. Thisalone demonstrates the power of the Touchwood proposition formother earth.The definition of sustainable forest management (SFM) hasgradually evolved from its original connotation of sustained timberproduction to embrace concepts of economic, environmental andsocial aspects.Forest Management deals with the overall administrative,economic, legal, social, technical and scientific aspects relatedto natural and planted forests. It implies various degrees ofdeliberate human intervention, ranging from actions aimedat safeguarding and maintaining the forest ecosystem and itsfunctions, to favouring specific socially or economically valuablespecies or groups of species for the improved production of goodsand services. Sustainable forest management will ensure that thevalues derived from the forest meet present-day needs while at thesame time ensuring their continued availability and contribution tolong-term development needs (Source: FAO. 1993. The Challengeof Sustainable Forest Management - what future for the world’sforests?).Environmental Management SystemsLand protection, water protection and air protection arekey elements of focus in our daily operations. In an effort toencompass best practices that aim to create a scenario of zeronegative impact on the environment we adopt a series of globalstandards modulated and implemented through an EnvironmentalManagement System (EMS). These serve as the framework for theCompany’s sustainability efforts. Working hand in hand with dayto day operations of each agro-forestry estate, the EMS managesthe impacts of the Company’s activities on the environment.EMS Provides a structured approach to planning andimplementing environmental protection measures as well asmonitoring of environmental performance, the environmentalmanagement into the Company’s daily operations, long termplanning and other quality management systems. Being the firstAgro-Forestry Management Company in South Asia to achieveaccreditation status for its plantations, Touchwood conformsto the rigorous ISO 14001: 2000 having being assessed andaccredited by TUV of Germany.

37Land degeneration and degradation is widely prevalent acrossSri Lanka as a direct result of unplanned farming practices, andis now recognized as the most serious environmental problemin the country. Improper land management and misuse of landfor inappropriate industrialization has added to the weight ofunplanned farming in suburbs of Sri Lanka.In a bid to reverse the trend and to serve as a benchmark forothers Touchwood’s Agro-forestry operations are carried outto the strictest and most widely accepted forest managementtechniques. The practices adopted by the Company ensures theprevention of soil erosion whilst maximizing the nutrient contentsthrough natural means.Ecologically, Touchwood’s forests are planted on non-forestedsites, that is most often, land previously farmed and offering lowfertility. The plantations serve as a soil maintenance mechanismand frequently provide erosion resistance. Moreover, as ourforests are plantation forests there is no threat to native trees asour cultivations comprise only of Mahogany, Sandalwood andVanilla. Looking forward, new introductions to the plantations willcontinue to be species that will pose no threat to native forests.For example, the semi natural vegetation located in Sri Lanka’swet zone is currently being enriched through the Company’sMahogany plantations due to the plantation techniques adoptedby the Company.The plantations strike a careful balance between natural speciesand introduced species, thereby ensuring that the soil is notexposed to direct rainfall. The existing treeline acts as a erosionbarrier whereupon the washing away of soil through harsh rainfallis minimized through the cushioning effects of the existing foliage.The forest ground cover is rich with decaying plant material whichin turn increases the water filteration capacity inducing a greaterabsorption of rain fall to the ground water, thereby recharging thewater table. Excess water is slowly released to the water streamsoriginating from the plantation forestry. This natural processensures that soil erosion is minimal and that the soil maintains itsfertility through proper cycling of nutrients between the physicaland biological environments of the forest.Moreover, ground cover crops optimize the prevention of soilerosion due to run excess rain water. They also increase the soilorganic matter content due to the decomposing biomass, andtherefore protect and enhances the soil fertility.The Company maintains untouched, reservations along the waterstreams that are in the periphery of the Touchwood estates.Moreover by covering open ground areas with cover crops and byincreasing the absorption of rain water to the ground water table,the forestry estates assist in reducing the loss of moisture duringdry seasons, thus effectively curtailing the possibility of an onset ofdrought.At Touchwood we continue to adopt best Practices in agrotechnologyand are committed to employing innovative methodsto enhance the impact of our forests on the environment as wellas to achieve efficiency through non-invasive, non-degenerativemethods. Outlined in brief below are a few of these practices:• The introduction of an integrated pest management systemwhich encourages the use of bio-pesticides such as Neem.• Use of insect prevention netting technology which hasbeen patented by Touchwood. This has replaced the use ofchemical pesticides for insect pest management and therebyreduced the pollution to natural water streams.• Continuation of the practice wherein fertilizer is applied onthe basis of soil tests• The promotion of use of straight fertilizers instead of mixturesso that nutrient deficiencies can be directly targeted and thefertilizer used to optimal advantage.• Inorganic fertilizers are applied in a controlled mannerincorporated with organic compost. Fertilizer leaching is fullycontrolled through the application of correct dosages at theoptimal times.• Protection of water stream banks by the growth of widebands of riparian vegetation to serve as a natural filteringsystem for silt and leaching of inorganic fertilizer particles.Turning tiny dreams into big realities...

38 Touchwood Investments PLC. Annual Report 2009/10SustainabilityReportingEnvironmental Bottom Line• Reduction of air pollution from plantation sites to a state ofalmost zero pollution through the use of manual labour forAgro-forestry operations• The plantations were cleared on a need basis thus ensuringthe natural habitat is maintained as far as possible andsilviculture practices are adopted for pest and disease control.• Scientific weed management to control root competitionof Mahogany and weeds thereby managing to control soilerosion as well as the soil temperature• Field Development efforts for Mahogany plantations includein excess of 40 per cent cover crops thereby retaining soilmoisture, avoiding erosion, and assisting towards the additionof Nitrogen and hummus to soil. Individual platforms for eachtree discourages soil erosion and opens room for the additionof mulch and fertilizer.• Field Development efforts for Sandalwood plantationswhich are placed in the dry zone area necessitates groundcover through cover crops to avoid erosion and control soiltemperature. Sloppy Agricultural Land Techniques havebeen implemented on 80% of the land area successfullywith contour planting practiced across newly establishedSandalwood fields. Reverse slope platforms have been cut oncontour lines for planting Sandalwood. This helps prevent soilerosion and leaching out of fertilizer. In addition, terraces anddrainage systems utilizing material organic to the plantationsite have been constructed where necessary to ensure soilconservation. Almost all the road frontages have been linedwith hedges to avoid erosion and earth slips.• Drip irrigation through a micro irrigation system has beenimplemented across 122 acres to supply the right quantity ofwater to the Sandalwood plants right throughout the year.This ensures water conservation and maintains proper growthconditions.Respecting reservations and natural forestsTouchwood has adhered rigorously to the regulations for naturalforests, water courses and buffer zones, natural forest andvegetation cover have been preserved and maintained. Irrespectiveof the land use, land resources have been managed strictlyaccording to environmental regulations and in order to minimiseerosion and soil loss, downstream impact and the impact onlocal communities. The Company at all times meet rules andregulations laid down by the various government institutions.Planting, reestablishment and maintenance of all agricultural andforest crops followed the environmental rules and guidelines laiddown by the CEA and other monitoring authorities.Forest plantations continue to be managed specifically to minimiseenvironmental impact, erosion and ‘downstream’ pollution.Carbon “Balance Sheet”Touchwood has over the years been analyzing its carbon ‘balancesheet’. Not only does the Company seek to establish withsome precision what its carbon impact is – the size of its carbonfootprint - but equally importantly how it can reduce it. Therefore,it is now seriously contemplating the possibility of carbon tradingas a viable incentive to balance its carbon footprint and to induceindividuals to view their investments from a similar light.The average carbon Dioxide production per person in a developedcountry per year is 9.7 metric tones. The CO2 emissions froman individual, which is called the Carbon Footprint comes fromtheir household usage and transport requirements. The requiredmathematics of a carbon offset for a individual therefore is:Average carbon emission per person per year 9700 KgAmount of CO2 absorbed by a single tree20.3 KgRequired number of trees to offset carbon production 478Therefore, if a person planted 478 threes that are now mature,that person would be a carbon free individual.With Touchwoods five -year expansion plan which envisagesa plantation size of 15,000 acres, the Company will then earnapproximately 125,000 credits.

39National Campaign to save the Sandalwood TreeA national campaign termed ‘Sandun Arana’ conceptualized byTouchwood Investments and launched in partnership with theMinistry of Environment and Natural Resources in 2008 continuedto play a key role in the Company’s public engagement process in2009. The project aimed to create greater awareness towards thepreservation of the Sandalwood tree. The project implementationfocused on the donation of Sandalwood trees to places of worshipin Sri Lanka in a bid to create greater visibility for the species in asanctified setting thereby contributing towards the re-introductionof the Sandalwood tree to the populance of Sri Lanka albeitreversing the trend of extinction.A total of 10,000 Sandalwood trees have been planted acrossSri Lanka as a direct outcome of the “Sandun Arana” project.Public Awareness on Sri Lanka’s Nature ReservesIn collaboration with Divaina Newspapers, Touchwood Investmentsconceptualized and implemented a knowledge enhancementseries on the natural reserves and places of biological interestacross Sri Lanka. The series appearing on a monthly basishighlighted the natural wonders of key locations across thecountry and served as medium to encourage tolerance andempathy towards conservation of the national biological assets.KwhEnergy Usage1141121101082009 2010Turning tiny dreams into big realities...

40 Touchwood Investments PLC. Annual Report 2009/10“Touchwoodkeeps itspromises tobring prosperityto thecommunities itserves.”GramasewakaHindurangalaRatnapura

41SustainabilityReportingSocial Bottom LineCommunity based stewardshipTouchwood drives an Island-wide programme to educate studentsincluding preschoolers on the importance of trees and theimportance of preserving our environment. This attitude buildingprogramme instills a admiration for the environment amongstyoung minds and inculcates the good habit of environmentalpreservation for future well being of our planet.We also initiated a national project to plant trees in all placesof worship around the country, with the guidance of theEnvironment & Natural Resources Ministry. Led by EnvironmentMinister Champika Ranawaka, we have involved the leadersof the country to set an example to the general public onpreserving trees. Our plantations are situated in rural areas whereinfrastructure is minimal and the quality of life is poor. As weexpand our presence in these areas, we have enmeshed ourselveswith the communities by assisting them with roadways, bridgesand other infrastructure facilities, including assistance to upgradenearby schools and places of religious worship. Our presence hasalso meant that direct and indirect employment opportunities areon the increase - and the resultant increase in income has hada cascading effect on the quality of life of the villagers and theirchildren.Touchwood has assured that all practices comply with the laws,principles and guidelines set by the Forest Stewardship Council.Growing our Human CapitalAt Touchwood, our work environment fosters values that are akinto the philosophy of the Touchwood culture, its vision and mission.We inculcate an appreciation for nature, for Mother Earth andinspire our people to work in genuine concern for the well beingof our planet. But that alone is not the Touchwood promise, ourcorporate drive for innovation and achievement cascades acrossthe length and breadth of the organization and permeates tovery being of our team. Opportunity abounds and by fosteringfreedom to decide, act and improvise we have leveraged theessence of laissez-faire managerial styles to give an opportunity tobecome achievers on a daily basis without any hierarchical or socialbarrier. We have found that this approach, coupled with an opendoor policy, has helped us develop a best-in-class workforce thathas enabled the Company to claim ownership to perform beyondexpectations. We take pride in our low turnover rate maintainedthrough the years. The dedication and perseverance of ouremployees brought forth the commendable operational results forthe year under review.We are strongly committed to the creation of an invigoratingworkplace. Our work day commences with an energy boostingsession where employees are given the chance to contributeand are acknowledged and appreciated. We stay committedto maintaining high standards of Health and safety in line withISO standards. All our workers are given safety equipment inthe plantations and a hazard audit is conducted periodically toascertain possible safety issues, thus creating a pre-emotive hazardmitigation process.As a policy and in an attempt to reward our existing employees,preference is given to internal recruitment, wherever possible,for new vacancies. Thus, employees are assured of a career pathwithin the organization. The Management provides clear guidanceand know-how for career development to employees on anongoing basis to ensure that new skills are imparted and personaldevelopment is achieved.A number of general as well as specialized training programmeswere organized for the staff based on the business plan andcorporate objectives. Training is in line with ISO standards andinvolves pre and post-training evaluation of participants backedwith Divisional Head’s comments on improvement.Key performance objectives are set at the beginning of eachyear and an objective-oriented evaluation is carried out at theTurning tiny dreams into big realities...

44 Touchwood Investments PLC. Annual Report 2009/10SustainabilityReportingTriple Bottom Line Performance IndicatorsEconomic Bottom LineRs. 0001,000,000750,000500,000RevenueNo. ofClients10,5008,4006,3004,200Client BaseProduct DistributionVanila (8%)Sandalwood (66%)Mixed Product (22%)Foreign Products (4%)250,0002,10002008 2009 201002008 2009 2010Rs.Net Assets Per ShareRs.Earnings Per ShareRs.Price Earnings Ratio250403200150100503020102102008 2009 201002008 2009 201002008 2009 2010Environmental Bottom Line1. 2,500 acres planted in 35 plantations covering 4 DistrictsKalutharaMataleRatnapuraBadulla2. Planted 450,000 high value trees - absorbs approximately 8,729 tonnes of CO2 per year as of date 25,000 other trees are maintained -4,500 tonnes of CO2 absorbed to date3. Maintained bio diversity - preservation of other trees - further carbon absorption takes place4. Environmental impactsCompliance - ISO 14001Aspect registers maintained, audited and improved annually 90%Environmental Impact Assessment records maintained 90%Water - all natural sources are protected 100%Energy - 90% of our plantations utilize solar energy 90%Bio diversity - maintained everywhere possible 40%Soil protection - prevention of erosion through ground cover crops, bio diversity etc. 70%

45Social Bottom Line“Sandun Arana” National ProjectLaunched under the guidance of Ministry of Environment & Natural Resources to plant and protect trees in places of religious significance,schools and government entitiesMedamulanaKataragamaBank of Ceylon Head OfficeHelp LankaJummah MosqueSri Sadaham Ashramaya“Soba Sara” CampaignThis special campaign was organised at Medamulana at the request of His Excellency PresidentMahinda Rajapaksa was held on 6th April 2009.We conducted another successful program at Ruhunu Maha Kataragama Devalaya.With the participation of the Chairman BOC and Chairman of Lake House, 300 Sandalwood Treeswere distributed to islandwide branches of BOC on the 6th April 2009.Tree Planting Campaign was held in collaboration with Help Lanka in Negombo and Help LankaSri Lankan Country office premises as an initiative to educate Sri Lankan expatriates in the UK.Tree planting campaign was held with the presence of Late Al Haj Niyas Maulavi at theDam Street Mosque.This was held with the participation of Hon. Minister Mervin Silva on Vesak Poya day.This was held in collaboration with Divaina to educate the public on Sri Lanka’s nature reserves.Age AnalysisGender AnalysisStaff StrengthNo. of Employees80604020Male (197)Female (27)Co.Directors (6%)Senior Management (6%)Managers (11%)Senior Executives (13%)Executives (29%)Officers (26%)Clecrical Staff (9%)018 - 30 30 - 40 40 - 50 Over 50AgeService AnalysisTraining AnalysisBreakdown of Employeesper Category accordingto Age Group15020No. of Employees1005000 - 1 1 - 5 5 - 10Years of ServiceNo. of External Trainings1510502006 2007 2008 2009/1035%41%44%27%24%22%21%15%14% 21%18 - 30 31 - 40 41 - 50 Above 502008 2009 201017%20%Turning tiny dreams into big realities...

47I believe that an investment in Touchwood is a goodinvestment that ensures the protection of our planet forfuture generations. The monetary returns of such aninvestment are far outweighed by the long-term returnsto the country in terms of sustainable development andenvironmental conservation.Deshamanya Dr. Kishu GomesManagement and Environmental ComplianceCommitment from the Management team and employeesin successful implementation of the Quality andEnvironmental Management system is appreciated.Corrective and preventive actions initiated in the estates toensure good growth of plants is one of the highlights.System of monitoring customer satisfaction and actionsinitiated for feedback shows the Organization’s focus onCustomers.Commitment with all plantations clearly established.All applicable legal requirements related to EnvironmentalManagement System is kept updated and maintained.Touchwood Plantations insured byCeylinco Insurance Ltd.With an extensive assessment conducted by ourprofessional insurance assessor, we would like to state thatTouchwood deploys the required mitigation practices andmanagement of all their plantations. Furthermore, thecompany has met all the required criteria and practices thatfulfill the insurability of all plantations. Therefore, we havehonored the insurance with Touchwood without hesitation.We are very pleased to list them as an important customerand offer them the best of our service excellence. We areprepared to take on all future projects of Touchwood andwould extend our continuous support to their invaluablecontribution of saving our precious rainforest.Periodic reviews conducted and minutes of same circulatedfor implementation of actions discussed in the meeting.Trainings provided to all employees particularly to employeesin plantation is good.Audit team appreciated the efforts taken by the team toget certified for Quality and Environment ManagementSystem in agro-forestry plantation sector and continuallymaintaining it without any major issues.I would also like to mention here that Touchwood is the firstISO Certified Agro-Forestry Company in the SouthAsian Region.S LoganathanDirector General ManagerTUV SUD South AsiaTurning tiny dreams into big realities...

48 Touchwood Investments PLC. Annual Report 2009/10CorporateGovernanceThe Directors endorse the principles of good CorporateGovernance. Over the past year, the Board has focused onreviewing all procedures and policies . The Directors are desirousof enhancing controls, facilitating monitoring of performanceand compliance and establishing lines of responsibility andaccountability .Detailed below are the corporate governance principles advocatedby the Institute of Chartered Accountants of Sri Lanka, and theCompany’s compliance thereto.Governance PrincipleBOARD OF DIRECTORS AND BOARD COMMITTEESProcedure for appointment of new DirectorsConformanceIn view of the responsibilities of a Director and the contribution expected fromhim or her, any appointments of new Directors are considered by the Board as awhole.As already stated in the Directors’ report, having completed a full financial yearthe Directors are seeking to expand the Board. To do this, the Directors arerecommending to the shareholders that the Articles of Association be amendedto increase the total number of Directors permitted from the current 5 to 10.Disclosure of details of new Directors4 members resigned as LOLC divested. 2 new Directors were appointed. However,should appointment take place, the name and a brief resume of the new directorwill be reported to the Colombo Stock Exchange for dissemination to the public.The resume will provide details of the Director’s qualifications and experience.Holding of regular Board MeetingsBoard Meetings are held every month. The CEO reports on performance, whilethe financial position is reported through comprehensive board papers.The Board also calls for reports on any issues which it feels should be studied indepth, whether in the micro or the macro environment.Availability of formal schedule of mattersspecifically reserved for the decisionmaking of the BoardThe Board is responsible for deciding the vision and the strategy of the Company• Approving appointments of key senior officers• Approving budgets and targets and monitoring performance againstthese budgets and targets

49Governance PrincipleConformance• Reviewing risk management and enhancing controls where necessary• Ensuring compliance with statutory and regulatory requirements• Approving significant acquisitions• Reviewing existing policies and procedures and improving on themwhere necessary• Obtaining of independent professional advice Whenever felt necessary,the Board seeks the independent professional advice of third parties. Theseinclude the Company’s lawyers, auditors or tax consultants, and such advice issought at the Company’s expense.Company SecretaryIndependent judgmentDedication of adequate time and effortTraining for directorsCHAIRMAN AND CEOClear division of responsibilitiesRole of the CEORole of the ChairmanThe Company Secretaries are Corporate Advisory Services (Pvt) Ltd. Their adviceand support can be sought by any director. They are also the contact point for anyshareholder. The removal of the Company Secretaries is a matter for thewhole Board.Each Director is called upon to exercise independent judgment when participatingin the discussion and decision making, and to give the Company the benefit oftheir expertise and experience.At the monthly Board meetings adequate time is given so that all informationprovided can be discussed and any Director can seek clarification or furtherinformation if desired.Formal training has not been considered necessary. However, the Board seeksto be aware of potential risks and opportunities, both in the local and globalenvironment.A balance of power is established by having three separate directors to serve asChairman, Deputy Chairman and Chief Executive Officer.The CEO oversees the operational functions of the Company and reports to theBoard on performance, risk analysis and mitigation measures and governance andcompliance issues.The Chairman oversees the agenda of Board meetings, and the reports provided,to ensure that decision making and critical analysis of performance is facilitated.He also encourages all Directors to contribute at Meetings, whilst providingeffective leadershipTurning tiny dreams into big realities...

50 Touchwood Investments PLC. Annual Report 2009/10CorporateGovernanceGovernance PrincipleFinancial acumenBalance of the Board / Independence of DirectorsSupply of quality informationAvailability of management informationRe-election of DirectorsAppraisal of Board performanceAppraisal of CEODIRECTOR’S REMUNERATIONDirectors remuneration policyConformanceThere is a sufficient amount of financial acumen and knowledge available amongthe Directors. The advice of the auditors and tax consultants is called for whenrequired.Two Independent Directors have been appointed. It is proposed to expand theBoard of Directors further. Once that has been approved by the Shareholders, theBoard will identify suitable individuals for appointment as Directors. Subsequently,the Board will appoint additional sub committees to which one or all of theIndependent Directors will belong.Reports on operational and financial performance are submitted regularly.The Board is provided with any additional information it requests.One third of the or nearest to one third of the Directors retire by rotation, andoffer themselves for re-election. The Board , having considered each Director’sperformance, recommends to the shareholders the re-election of a retiringDirector.The Directors believe that the Company’s performance and compliance levelsreflect the effectiveness of the Board.The CEO is held responsible for operational and financial performance, riskmitigation and compliance. His performance is measured against these areas.The profile of the CEO is found on page 20.The review of the remuneration policy is one of the areas being retained forconsideration in the next financial year.Disclosure of remuneration The Directors remuneration is disclosed on page 91.RELATIONSHIP WITH SHAREHOLDERSConstructive use of Shareholder meetingsNotices of Shareholder meetings are dispatched to all Shareholders giving theprescribed period of notice.Should a Shareholder be unable to attend, such Shareholder has the opportunityto convey his/her views through a proxy. As the Company provides two wayproxy forms, all Shareholders are able to communicate their wish on any decisionwhich has been submitted for their approval.The Board encourages Shareholders to actively participate at all Shareholdermeetings.Each decision voted on separatelyEach agenda item is voted on separately, enabling every Shareholder to indicatehis assent or dissent on each item.

51Governance PrincipleProcedures for votingConformanceVoting is on a show of hands , unless a poll is called for. The outcome of eachdecision is then declared by the Chairman.Should a poll be called for, the Auditors will be available to oversee the countingof the poll votes, after which the Chairman will declare the result.Availability of sub committeeDisclosure of major transactionsEnhancing shareholder valueBoard sub committees have been established.While there have been no such transactions to date, should there be any, they willbe disclosed in accordance with the regulations.The Board believes in enhancing shareholder value, and to this end is striving tooptimize use of the Company’s resources, reduce costs and increase profitability.As at 31st March 2010, the Company’s market capitalization was Rs. 933,301,550The share price as at end of trading on 31st March, 2010 was Rs. 104.75.FINANCIAL REPORTINGInterim Financial Statements are provided to all shareholders within the stipulatedtimelines. The Annual Report contains comprehensive financial reports . All theseFinancial Statements are prepared in accordance with the Company’s Act No 7 of2007, the Listing Rules of the Colombo Stock Exchange and Sri Lanka AccountingStandards.Any price sensitive information is disclosed promptly.Declaration by the Directors The Directors annual report on the affairs of the Company is found on page 91.The Directors have disclosed any interests in contracts with companies of whichthey (or their spouses) are Directors and /or significant Shareholders.These disclosures have been tabled at Board Meetings and recorded in theMinutes.Statement on responsibility forThe statement by the Directors on their responsibility for the preparationFinancial Statements and presentation of financial statements is on page 61.Going concernSummoning an EGM if assets fall belowhalf Shareholders fundsThe Board is confident that the business is a going concern. This statement is alsoincluded in the Directors report on page 58.Such a situation has not arisen. However, should such a situation arise, thestatutory procedure will be complied with.Turning tiny dreams into big realities...

52 Touchwood Investments PLC. Annual Report 2009/10CorporateGovernanceGovernance PrincipleINTERNAL CONTROLSPeriodic review of controlsConformanceInternal Audit Reports have been called for by the Audit Committee to enablethem to analyse existing controls and make recommendations to the Board onchanges where deemed necessary.Reporting to the Shareholders on risks The Risk Management review is on pages 54 to 55.AUDIT & AUDITORSAudit committeeDuring the year an Audit Committee was set up, comprising Mr. KapilaJayawardena (Chairman), Mr. D. Gunendra Jayasena Paththiniya, Mrs KalshaAmarasinghe and Mr. Asitha Koralage. The Committee has a written charter.However, in January 2010. with LOLC’s divestment the new committee wasappointed under the chairmanship of Mr. L. L. Kulathunga.The Audit Committee has called for Internal Audit Reports, in order to reviewexisting controls and risk mitigation.Relationship with external auditors The Audit Committee also meets with theExternal Auditors to review the audits and the objectivity and independence ofthe auditors.The Audit Committee Report is on page 61.CORPORATE GOVERNANCE PRACTICESComplianceSelf governance initiativesRelationship with stakeholdersThe Company complies with the requirements of the Listing Rules of theColombo Stock Exchange and the Companies Act No. 7 of 2007 and all otherapplicable laws and regulations.The Company has adopted the Voluntary Code on dealings by Directors, by theCompany CEOs and connected parties issued by the Colombo Stock Exchange.The Company values its relationship with all stakeholders, including Shareholders,financiers and regulators. The Board seeks to ensure timely and comprehensivedisclosures, optimizing of performance and of compliance all of which they feelwill serve to enhance stakeholder confidence.

53Governance PrincipleBOARD COMMITTEESAudit CommitteeConformanceThe Audit Committee comprises the following:Mr. Roscoe MaloneyMr. Asitha KoralageMr. L. L. KulathungaMr. Ralph Pereira(Committee Chairman/(Independent Director)Independent Director)Mr. Channa AbeygunawardeneMrs. Swarna MaloneyThe Audit Committee meets quarterly to discuss Internal Audit Reports. TheCommittee also reviews the bi - annual Financial Statements before they aredispatched to the shareholders and regulators.The Audit Committee reviews all reports of the External Auditors and meets withthe Auditors periodically to discuss these reports and any other issues.Having met with the Internal and External Auditors, reviewed and discussed theirrespective reports, the Audit Committee then makes recommendations to theBoard which ensures that the recommended corrective actions and controls areimplemented and monitored.Remuneration CommitteeThe Remuneration Committee is a sub committee of the Board and comprises of6 members of which two are non-executive Independent Directors. The membersof the Committee are Mr. Roscoe Maloney, Mr. L. L. Kulatunga (CommitteeChairman/Independent Director), Mrs. Swarna Maloney, Mr. Asitha Koralage,Mr. Ralph Pereira (Independent Director), Mr. Channa Abeygunawardene. TheChairman and members of the Committee are appointed by the board.The remuneration committee determines the policy for the remuneration of theCompany’s Executive Directors and other key management personnel of theCompany. The Committee reviews and make recommendation to the board onthe remuneration policy and strategy of the Company and evaluates whetherthe remuneration are linked to the individual performance. The committeealso appraises whether such remuneration packages linked to the individualperformance are aligned with the company’s long term strategy and contribute tothe enhancement of the performance of the key management personnel.The committee acts within the parameters set out by the terms of reference.The proceedings of the committee meetings are reported to the Board by theChairman of the committee.The details of the aggregate remuneration paid to the key management personnelare disclosed on page 91.Executive CommitteeThe Executive Committee comprises the following;Mr. Roscoe MaloneyMr. Asitha KoralageMr. Channa Abeygunawardene Mrs. Swarna MaloneyMr. Dimuthu DissanayakeThe Executive Committee has been delegated authority to oversee more routineoperational issues. This includes approving expenses over designated limits.Turning tiny dreams into big realities...

54 Touchwood Investments PLC. Annual Report 2009/10RiskManagement“Touchwood Plantations are Fully Insured”Associated risks assessment of biological assetsTouchwood Investments PLC recognizes risk management asa key area that contributes towards safeguarding the interestsof its stakeholders, by stabilizing the operations of TouchwoodInvestments PLC, The Company views effective Risk Managementas a tool of good business strategy, and hence does not limitits scope only to compliance requirements. While well-definedpolicies are in place, the Company constantly strives to updateand improve controls and procedures. The risk managementpolicies ensure the identification, measurement, monitoring andcontrolling of risk.Management riskPlantation managementThe Company is dependent on the expertise of its staff to ensurethe success of its plantations. Some of the best foresters in SriLanka are on the payroll of the Company or provide regularconsultants services. The Company also obtains expert consultantsservices of reputed international consultants from time to time.Annual independent evaluations are carried out by industryexperts and academics. ISO audits are also carried out everyyear by foreign audit consultants (TUV). Existing long termcollaborations with universities and other institutions bring in stateof the art technical capabilities and management practices.Financial riskPriceMovements in the Sri Lankan and US currencies affect our marketprice. However we carry out a valuation exercise annually in orderto minimize the risk occurring at the end of the harvesting cycle.Thus, investors will know the exact asset value without having towait till harvest. A very high discount rate of 12.5% is accounted(on real terms) in view of providing adequate security for futurefinancial risk. An automatic hedge against currency devaluationand inflation is embedded in the product. The Company also hasthe luxury of capitalizing on the best prices by holding the stock orreleasing it at peak market conditions.Market riskSubstitute productsThere is a trend in many industries for the original resource to gaingreater value when a substitute is introduced, due to the scarcityof the original. In our case, substitutes are most likely to be moreharmful to the population & the environment than the originalresource, resulting in the original gaining even greater recognition.Eventually, to balance the carbon cycle, the best source ofrenewable energy to use would be timber (or fuel wood).Social changeChanging social conditions will have an impact on social change.Historical international market information suggests that thedemand has increased year on year while the supply has droppeddue to scarcity.Regulatory riskChange in the Government’s policy on harvesting trees couldhave an impact on the Company’s business. However, theCompany is approved by the Board of Investment for plantingtrees for commercial harvesting at the end of the harvesting cycle.Foreign, Local, Private & Public sector Investors have invested inthe project on the strength of this BOI endorsement. TouchwoodInvestments PLC is the only plantation company that has obtainedsuch approval in view of securing investor interest. Further, owingto the sustainable nature of the business, Governments wouldencourage such projects the world over.Agricultural riskTree survival/growth levelsThe Company’s nurseries hold plants of up to 4 years old to beused at a time when an existing plant of up to the same age diesdue to any reason. The Company operates 3 major nurseries andeach site is also equipped with mini nurseries.Touchwood maintains a 100% tree buffer with an additionalvolume buffer to mitigate this risk further. As per the projectedgrowth chart, unique action plans are prepared as a result ofthe independent evaluation to maintain average growth levelsannually.Scattered plantationsTouchwood has followed a strategy of geographically scatteringthe plantations. We are thereby enabled to compensate any loss,through the buffer from a different location to mitigate the riskfactors given below.

55ClimateThe best climate for Mahogany in Sri Lanka is the wet zone.Tropical line is the most preferred climate for this species.Mahogany is planted specifically bordering the Sinharaja Reserve,which is the best climate zone. Sandalwood on the other handrequires dry cool weather; Balangoda to Badulla through Beragalais identified as the best climate. These areas of the country havebeen known for naturally grown Sandalwood for many years andare endorsed by industry experts, specifically for Touchwood.PestsShoot borer is the only known threat for Mahogany plantations.This does not kill the plant but restricts its growth if sufficientmeasures are not taken to counter it. Measures have been takento overcome this by covering the plants with nets until they arestrong enough to tackle the problem on their own; this occursmostly in the first five years. The Company has also developeda patented netting technology and application of biologicalrepellents for this purpose. Sandalwood species is not known tobe affected by pest attacks. Should any pest attack or diseasestake place, the Company shall take relevant preventive measures.FireOccurrence of this event is negligible in the wet zone of thecountry where Mahogany and Sandalwood are planted. TheCompany has taken counter measures to overcome such event by:Spreading the plantationsIntroducing fire belts around the edges of the sites in order toseparate them from the adjoining lands, to ensure that the fire willnot cross over to the Company’s sites.Maintaining a buffer tree stock of 100% and a volume stock of200% for any emergenciesLack of nutritionThe Company has in-house and external experts to monitornutrients to improve soil conditions and provide required nutritionsupplements for the trees.Act of godThe Company’s sales agreements with its clients prevent it frombeing responsible for risks such as cyclones, floods, earthquakes& lightning etc. However, the Management shall oblige the clientshould such an event take place from the 200% volume buffer. Inthe past 10 years, Touchwood has not recorded such events.InsuranceAll Plantations are comprehensively insured.Country riskTouchwood is working towards elevating its credibility, irrespectiveof the country’s position. All plantations are in governmentcontrolled, stable areas. Further, the Management is in the processof obtaining a country risk sharing guarantee from an institutionsuch as Overseas Private Investment Corporation.Reputational riskReputational risk may arise from loss of confidence placed in theorganization by the stakeholders. This can have an adverse effecton operations. In order to safeguard the Company from this riskand maintain confidence, the Company ensures that statutory,regulatory and other compliance requirements are met.The Company also employs a Compliance Officer to help achievethe required level of regulatory compliance, which is monitored bythe Legal Officer.Touchwood is focused on providing an excellent service to thecustomers and contributing towards the economic developmentof Sri Lanka from a Triple Bottom Line perspective, thus adheringto its objective.The Company’s regular interest in its Social Responsibilities also hasa positive impact on its reputation.Legal riskLegal risk arises due to the inability to enforce contractualobligations, unexpected lawsuits against the Company or adversejudgments that may cause material, unforeseen financial losses tothe Company. The Company employs competent legal staff andobtains services from external consultants, where necessary, tominimize this risk.Risk review and controlThe Board has overall responsibility to assess risks associated withthe Company. The Company identifies developing an organizationwide “Risk Awareness” programme as an effective way tomanage risks.Turning tiny dreams into big realities...

56 Touchwood Investments PLC. Annual Report 2009/10Statistics indicate thatSri Lanka lost almost 18 percent of its total forest areabetween 1990 and 2005, oneof the highest deforestationrates in the world duringthat period. Agro-forestationensures that rainforests are notdestroyed, animals’ habitats andcommunities’ livelihoods are notthreatened, and that biodiversityis not compromised

57“Man has beenendowed withreason -He who plantsa tree Plants ahope.”Turning tiny dreams into big realities...

58 Touchwood Investments PLC. Annual Report 2009/10Annual Report of the DirectorsThe Directors take pleasure in presenting their report together withthe audited Financial Statements for the year ended 31st March,2010.Principal activitiesThe principal activities of the Company remain re-forestation, andthe maintenance and sale of such reforested areas to investors inthe local overseas market.DirectorateThe Directors of the Company during the year under review are asfollows:Roscoe Anthony MaloneySwamy Pandith Asitha KoralageChanna AbeygunawardeneSwarna MaloneyLiyanage Laksaman KulatungaAloysius Ralph PereiraAlternate DirectorsRyan CrowleyPrageeth Bandara HerathJanath Sohitha OlaboduwaChairmanDeputy ChairmanChief Executive OfficerDirectorIndependent Director(Appointed with effectfrom 9th July, 2010)Independent Director(Appointed with effectfrom 9th July, 2010)Alternate Director toMr. R A MaloneyAlternate Director toMr S P A KoralageAlternate Director toMr. Channa Abeygunawardene.Independent DirectorsIn July 2010 Mr. Liyanage Laksaman Kulatunga and Mr. AloysiusRalph Pereira were appointed as an Independent Directors in termsof the Rules and Regulations of the Colombo Stock Exchange.Directors MeetingsThe Board meets once in two months. At each meeting,performance to date is reviewed and compared with targets.Presentations are made covering all aspects of operations,including productivity. The Board is constantly seeking to optimizeresources and manage costs.The financial positions monitored against budgets. Comprehensivepapers are presented on the financial position of the Company forthe month under review and the year to date. Comparisons arealso made with the previous years’ figures and with the macroenvironment, to detect trends and the impact of outside influences.Where necessary, decisions are taken by circular resolutions, toexpedite action.Re-election of DirectorsIn terms of Section 210 of the Company’s Act No. 7 of 2007Mr. L. L. Kulatunga, who is over the age of 70 years, retires.The Company has received notice from a shareholders of itsintention in terms of Section 211 of the Companies Act No. 7 of2007 to propose the re-election of Mr. L. L. Kulatunga. The Boardof Directors recommends his re-election.In terms of section 210 of the Companies Act No. 7 of 2007,Mr. A.R. Pereira who is over the age of 70 years retires.The Company has received notice from a shareholder of itsintention in terms as section 211 of the Companies Act No. 7 of2007 to propose the re-election of Mr. A.R. Pereira. The Board ofDirectors recommends his re-election.In terms of Article 91 of the Articles of Association of theCompany, Mr. Channa Abeygunawardene retires by rotationand seeks re-election. The Board of Directors recommends hisre-election.Directors’ Interest in sharesThe Directors interests in shares as at 31st March, 2010 were asfollows:As at As at31.03.2010 31.03.09R. A. Maloney 1,458,000 500,000S. Maloney 801,200 801,200S. P. A. Koralage 62,000 62,000C. Abeygunawardene - -L. L. Kulatunga - -Directors interests in contractsIn accordance with the provisions of the Companies Act No. 7of 2007, the Directors have made declarations relating to theirinterests. These have been entered into the Interest Register whichis maintained by the Company.Directors remunerationThe Directors remuneration is disclosed on page 75.Board sub committeesDuring the year under review, an Audit Committee was appointedby the Board. The Audit Committee approved an Audit Charterwhich describes the role and the functions of the Committee.

59During the year under review a Remuneration Committee wasappointed by the Board.Review of businessWith the unprecedented financial crises of the recent past, theCompany has found its business also affected. This impact hascoincided with the expansion programme which the Companyhad recently commenced.Details on the Company’s performance for the year under reviewcan be found in the statements of the Chairperson, DeputyChairman and the Chief Executive Officer (found on pages 12to19)Directors’ responsibility for financial reportingThe Directors are responsible for the preparing of FinancialStatements of the Company. The Directors believe that theFinancial Statements (appearing on page 64) have been preparedin accordance with the requirements of the Sri Lanka AccountingStandards, the Companies Act No. 7 of 2007 and Listing Rules ofthe Colombo Stock Exchange, and that they reflect a true and fairview of the state of Companies affairs for the year under review.Responsibility statementsThe Directors responsibility statement appears on page 61. TheChief Executive Officer’s and Head of Finance responsibilitystatement appears on page 62.Going concernThe Directors are of the view that the Company is in a position tocontinue its operations in the foreseeable future. Accordingly, theFinancial statements are prepared on the basis that the Companyis a going concern.Financial StatementsThe Financial Statements are given on pages 64 to 92.Financial ResultsThe financial results for the year ended 31st March 2010.2010 2009Rs.’000 Rs. ‘000Revenue 857,482 727,010Net Profit Before taxation 341,330 254,905Less: taxation 7,521 285Net Profit after taxation 333,809 254,620Audit CommitteeDuring the year under review, the Directors appointed an AuditCommittee. The committee comprises the following:The Audit Committee has approved an Audit Committee Charter,which lays out its role and its functions.The Committee has requested that Internal Audit reviews becarried out of all processes and procedures, to ensure thatadequate controls are in place to safeguards assets, eliminatewaste, optimize use of resources and maximize productivity.The Committee has also met with the External Auditors todiscuss issues relating to the preparations and presentation ofthe Financial Statements, and any other issues of concern, whichrequire the Directors attention.The Audit Committee Report can be found on page 61.Remuneration CommitteeDuring the year under review, the Directors appointed aRemuneration Committee.The Remuneration Committee is a sub committee of the Boardand comprises of 6 members of which two are non-executiveIndependent Directors. The members of the Committee are Mr.Roscoe Maloney, Mr. L. L. Kulatunga (Committee Chairman/Independent Director), Mrs. Swarna Maloney, Mr. AsithaKoralage, Mr. Ralph Pereira (Independent Director), Mr. ChannaAbeygunawardene. The Chairman and members of theCommittee are appointed by the board.The remuneration committee determines the policy for theremuneration of the Company’s Executive Directors and other keymanagement personnel of the Company. The Committee reviewsand make recommendation to the board on the remunerationpolicy and strategy of the Company and evaluates whetherthe remuneration are linked to the individual performance. Thecommittee also appraises whether such remuneration packageslinked to the individual performance are aligned with thecompany’s long term strategy and contribute to the enhancementof the performance of the key management personnel.The committee acts within the parameters set out by the termsof reference. The proceedings of the committee meetings arereported to the Board by the Chairman of the committee.The details of the aggregate remuneration paid to the keymanagement personnel are disclosed on page 91.

60 Touchwood Investments PLC. Annual Report 2009/10Annual Report of the DirectorsAuditorsThe Auditors, M/s. KPMG Ford Rhodes Thornton and Companyretire and offer themselves for re-appointment. The Boardrecommends their re-appointment at a fee to be determined bythe Board.The Auditors have confirmed that they have had no interest in orrelationship with the Company other than that of Auditors. Theyhave also confirmed that they are independent in accordance withthe code of ethics of the Institute of Charted Accountants of SriLanka.During the year under review, the Auditors were paid Rs.900,000/- as audit fees.Auditors ReportThe Auditors report appears on page 63.Events occurring after the Balance Sheet dateSubsequent to an application made to the Colombo StockExchange the Company successfully completed a Rights Issue inthe ratio of 1: 1 on 5th July, 2010Consequent to the Rights Issue the Company also successfullycompleted a sub division of each existing share into four shares on15th July, 2010.Significant accounting policiesThe significant accounting polices adopted when preparing theeFinancial Statements and any changes thereto (if applicable) aregiven on pages 68 to 73.Statutory PaymentsFor the year under review, all known statutory payments havebeen made and all retirement gratuities have been provided for.Further, all management fees and payments to related parties forthe year under review have been reflected in the accounts. Detailsare given in Note no. 44 Page 90.Number of EmployeesThe number of employees as at 31st March 2010 was 220.Stated CapitalThe stated capital of the Company as at 31st March 2010 isRs. 117,007,728/- made up of 8,908,800 ordinary voting sharesand 3,040 Redeemable Cumulative Non-Voting Preference Shares.The shareholding structure is given on pages 93 to 94 togetherwith the 20 largest shareholders.During the year, the share price ranged from Rs. 49.25 toRs. 165/-. As at the end of trading on 31st March 2010 the shareprice was Rs.104.75Compliance with laws and regulationsFollowing the revision of the Listing Rules of the Colombo StockExchange (CSE) in April 2009, the Company has submitted to theCSE the required Listing undertaking.The Company has not engaged in any activity that contravenesany applicable law or regulation.Equitable treatment of shareholdersThe Directors have made every endeavour to ensure the equitabletreatment of all shareholders, and are committed to maximizingshareholder wealth.All Notices of shareholders’ Meetings are sent out in accordancewith the provision of the Company’s Articles of Association. Anyshareholder unable to attend is still able to indicate his/her consentor dissent on any decision, by completing and returning the twoway proxy provided with the Notice.Notice of MeetingThe Notice of Meeting is found on page 95 If you are unable to bepresent, please complete and return the Form of Proxy (page 95 orenclosed).By Order of the BoardSgd.(by the Alternate Director)Asitha KoralageDeputy ChairmanSgd.Channa AbeygunawardeneChief Executive OfficerSgd.CORPORATE ADVISORY SERVICES (PVT) LTDCompany Secretaries28th July 2010Colombo

61Audit Committee ReportThe Audit committee comprises the following:Mr. L.L. KulathungaMr. Asitha Koralage(Committee Chairman/Mr. Ralph PereiraIndependent Director)(Independent Director)Mr. Roscoe MaloneyMr. Channa AbeygunawardeneMrs. Swarna MaloneyThe Committee has adopted a charter which covers its role and itsresponsibilities.The Committee has called for internal audit reports, which itwill use to analyse the effectiveness of existing internal controls,systems and procedures.The Committee will then make recommendations to the board forany improvements or additions thereto.The Committee has also met with the External Auditors andwill continue to hold regular meetings with them, to discussaccounting issues, the Management Letter and managementresponses and corrective action taken.The Committee recommends the payments of fees to the ExternalAuditors, and has given consideration to the independence of theExternal Auditors.The Audit Committee has recommended to the Board of Directorsthat Messrs KPMG Ford Rhodes Thornton and company bereappointed as Auditors for the financial year ending March, 31st2011.The reappointment of the Audit Firm and the determination of itsfee by the Board of directors will be subject to the approval of theshareholders at the Annual General Meeting to be held on31st August 2010.Sgd. IllegiblyMr. L.L. KulathungaChairman - Audit Committee28th July 2010Director’s Responsibility forFinancial ReportingThe Company’s Financial Statements for the year ended 31stMarch, 2010 have been prepared and presented in conformitywith the requirements of the Sri Lanka Accounting standards, theListing Rules of the Colombo Stock Exchange & the CompaniesAct No. 7 of 2007.These Financial Statements present a true and fair view of theoperations and the position of the Company for the year underreview.The Directors have put in place systems and procedures whichenable adequate information to be captured, and which facilitatethe maintenance of accurate records.Appropriate accounting policies have been adopted.Internal controls, check and balances have been implemented.The Directors believe that they have taken all reasonable stepsto safeguard the assets of the Company, to ensure the integrity,accuracy and safeguarding of operational data, and to prevent,deter and detect fraud.M/s. KPMG Ford Rhodes Thornton and Company, the Auditors,have examined the financial and other records of the Company.Their opinion is given on page 63.Sgd.C. AbeygunawardeneChief Executive OfficerSgd.(by the Alternate Director)Asitha KoralageDeputy ChairmanSgd.CORPORATE ADVISORY SERVICES (PVT) LTDCompany Secretaries28th July 2010Colombo

62 Touchwood Investments PLC. Annual Report 2009/10Chief Executive Officer’s & Head ofFinance’s Responsibility StatementThe Financial Statements are prepared in compliance with the SriLanka Accounting Standards issued by the Institute of CharteredAccountants of Sri Lanka and the requirements of the CompaniesAct No. 7 of 2007 and any other applicable statutes to the extentapplicable to the Company. There are no departures from theprescribed accounting standards in their adoption. The accountingpolicies used in the preparation of the Financial Statements areappropriate and are consistently applied.The Board of Directors and the management of your Companyaccept responsibility for the integrity and objectivity of theseFinancial Statements. The estimates and judgments relating to theFinancial Statements were made on a prudent and reasonablebasis, in true and fair manner the form and substance oftransactions and reasonably present the Company’s state of affairs.To ensure this, the Company has taken proper and sufficientcare in installing a system of internal controls and accountingrecords, for safeguarding assets and for preventing and detectingfrauds as well as other irregularities, which is reviewed, evaluatedand updated on an ongoing basis. Our internal auditors haveconducted periodic audits to provide reasonable assurance thatthe established policies and procedures of the Company wereconsistently followed. However, there are inherent limitations thatshould be recognized in weighing the assurances provided by anysystem of internal controls and accounting.The Financial Statements were audited by KPMG Ford, Rhodes,Thornton & Co., Chartered Accountants, the Company’s externalauditors.It is also declared and confirmed that the Company has compliedwith and ensured compliance by the auditor with the guidelinesfor the audit of listed companies where mandatory compliance isrequired, it is further confirmed that all the other guidelines havebeen complied with.Sgd. IllegiblyChanna AbeygunawardeneChief Executive OfficerSgd. IllegiblyDimuthu DissanayakeHead of Finance28th July 2010Colombo

63Independent Auditors’ ReportTO THE SHAREHOLDERS OF TOUCHWOODINVESTMENTS PLCReport on the Financial StatementsWe have audited the accompanying Financial Statements ofTouchwood Investments PLC, which comprise the Balance Sheetas at 31st March 2010, and the Income Statement, Statementof Changes in Equity and Cash Flow Statement for the year thenended, and a summary of significant accounting policies and otherexplanatory notes.Management’s Responsibility for the FinancialStatementsManagement is responsible for the preparation and fairpresentation of these Financial Statements in accordance withSri Lanka Accounting Standards. This responsibility includes:designing, implementing and maintaining internal control relevantto the preparation and fair presentation of Financial Statementsthat are free from material misstatement, whether due to fraudor error; selecting and applying appropriate accounting policies;and making accounting estimates that are reasonable in thecircumstances.Scope of Audit and Basis of OpinionOur responsibility is to express an opinion on these FinancialStatements based on our audit. We conducted our audit inaccordance with Sri Lanka Auditing Standards. Those standardsrequire that we plan and perform the audit to obtain reasonableassurance whether the Financial Statements are free from materialmisstatement.An audit includes examining, on a test basis, evidence supportingthe amounts and disclosures in the Financial Statements. An auditalso includes assessing the accounting policies used and significantestimates made by management, as well as evaluating the overallFinancial Statement presentation.We have obtained all the information and explanations whichto the best of our knowledge and belief were necessary forthe purposes of our audit. We therefore believe that our auditprovides a reasonable basis for our opinion.OpinionIn our opinion, so far as appears from our examination, theCompany maintained proper accounting records for the yearended 31st March 2010 and the Financial Statements give a trueand fair view of the Company’s state of affairs as at 31st March2010 and its profit and cash flows for the year then ended inaccordance with Sri Lanka Accounting Standards.Report on Other Legal and Regulatory RequirementsThese financial statements also comply with the requirements ofSection 151(2) of the Companies Act No. 07 of 2007.KPMG Ford Rhodes Thornton & Co.CHARTERED ACCOUNTANTS28th July 2010Colombo

64 Touchwood Investments PLC. Annual Report 2009/10Income StatementFor the year ended 31st March 2010 2009Note Rs. Rs.Revenue 3 857,482,369 727,010,387Direct Expenses (78,815,172) (67,659,133)Gross Profit 778,667,197 659,351,254Other Income 4 5,188,622 3,434,559Selling Expenses (40,197,664) (64,602,316)Administration Expenses (70,384,349) (87,932,340)Other Expenses 5 (311,607,493) (245,807,745)Operating Profit Before Finance Expenses 6 361,366,313 264,443,412Finance Expenses 7 (20,336,281) (9,538,329)Profit before Income Tax Expense 341,330,032 254,905,083Income Tax Expenses 8 (7,520,804) (284,607)Profit for the year 333,809,228 254,620,476Earnings Per Share 9.1 37.44 28.55The Accounting Policies and Notes form an integral part of these Financial Statements.Figures in brackets indicate deductions.

65Balance SheetAs at 31st March 2010 2009Note Rs. Rs.ASSETSNon Current AssetsProperty, Plant and Equipment 10 558,364,043 289,054,958Investments 11 5,000,000 -Lease Right to Bare Land 12 21,403,300 16,046,667Mature Trees 13 107,373,011 107,373,011Biological Assets 14 3,316,555,856 2,692,811,187Deferred Tax Assets 27 141,685 -4,008,837,895 3,105,285,823Current AssetsInventories 15 5,339,681 15,108,137Trade and Other Receivables 16 13,465,162 12,695,886Amounts Due From Related Parties 17 8,972,880 462,880Cash and Cash Equivalents 18 29,218,118 14,605,57056,995,841 42,872,473Total Assets 4,065,833,738 3,148,158,296EQUITY AND LIABILITIESCapital and ReservesStated Capital 19 89,088,000 89,088,000Revaluation Reserve 20 479,346,332 213,491,560Capital Reserve 21 1,621,569,800 1,308,608,448Preference Share Redemption Reserve 22 51,564,502 39,075,834Retained Profit (17,590,214) (25,645,422)Shareholder’s fund 2,223,978,420 1,624,618,420Non Current LiabilitiesPreference Share Capital 23 27,919,728 27,917,728Provision for Purchase Back Guarantee 24 1,651,693,858 1,349,582,697Debenture 25 35,123,210 30,060,359Retirement Benefit Obligations 26 2,754,096 2,046,951Deferred Taxation 27 - 184,462Deferred Revenue on Annual Maintenance 28 24,612,392 11,250,797Accumulated Preference Dividends Payable 29 1,910,619 1,606,619Reservation & Establishment Fee Advances 30 32,637,403 28,100,361Interest Bearing Borrowings 32 4,793,125 1,500,0001,781,444,431 1,452,249,974Current LiabilitiesInterest Bearing Borrowings 32 5,266,584 36,771,374Amounts Due to Related Parties 31 16,576,721 10,427,192Income Tax Payable 7,688,456 232,214Trade and Other Payable 33 19,003,635 14,318,494Bank Overdrafts 18 11,875,491 9,540,62860,410,887 71,289,902Total Equity and Liabilities 4,065,833,738 3,148,158,296Net Assets Per Share 249.64 182.36Figures in brackets indicate deductions.The Accounting Policies and Notes form an integral part of these Financial StatementsIt is certified that the Financial Statements have been prepared in compliance with the requirements of the Companies Act No. 7 of 2007.Sgd.Dimuthu DissanayakeHead of FinanceThe Board of Directors is responsible for the preparation and presentation of these Financial Statements.Approved and signed for and on behalf of the Board:Sgd. (by the Alternate Director)Sgd.S. P. Asitha Koralage Channa AbeygunawardeneDirector / Deputy ChairmanDirector / Chief Executive Officer28th July 2010Colombo

66 Touchwood Investments PLC. Annual Report 2009/10Statement of Changes in EquityFor the year ended 31st MarchStated Revaluation Capital Pref. Share Retained Proposed TotalCapital Reserve Reserve Redemption Profit DividendsReservesRs. Rs. Rs. Rs. Rs. Rs. Rs.Balance as at 1st April 2008 89,088,000 213,994,203 1,050,957,203 28,490,024 (11,724,844) - 1,370,804,586Retained Profit for the year - - - - 254,620,476 - 254,620,476Disposal of Mature Trees - (502,643) - - - - (502,643)Transfers - - 257,651,245 10,585,810 (268,237,054) - -Preference Dividends (1%) - - - - (304,000) - (304,000)Balance as at 31st March 2009 89,088,000 213,491,560 1,308,608,448 39,075,834 (25,645,422) - 1,624,618,420Retained Profit for the year - - - - 333,809,228 - 333,809,228Revaluation of Lands - 265,854,772 - - - - 265,854,772Transfers - - 312,961,352 12,488,668 (325,450,020) - -Preference Dividends (1%) - - - - (304,000) - (304,000)Balance as at 31st March 2010 89,088,000 479,346,332 1,621,569,800 51,564,502 (17,590,214) - 2,223,978,420The Accounting Policies and Notes form an integral part of these Financial Statements.Figures in brackets indicate deductions.

67Cash Flow StatementFor the year ended 31st March 2010 2009Rs.Rs.CASH FLOW FROM OPERATING ACTIVITIESNet Profit before Income Tax Expense 341,330,032 254,905,084Adjustment for;Gain arising from changes in fair value (623,744,669) (501,812,155)Depreciation 7,030,134 4,354,019Profit on Disposal of Property Plant and Equipment - (1,780,000)Interest Income (1,168,043) (1,372,686)Interest Cost 20,336,281 9,538,329Provision for purchase Back Guarantee 310,783,317 244,160,910Transfer from Deferred Income (1,861,151) (321,493)Provision/(Reversal) for Retiring Gratuity 1,069,486 (522,189)Profit from Disposal of Matured Trees - (502,643)Transferred from Reservation and Establishment Advance (232,900,262) (35,247,121)Operating Profit before Working Capital Changes (179,124,875) (28,599,945)(Increase) / Decrease in Inventories 9,768,456 (11,327,179)(Increase) / Decrease in Trade and other Receivables (370,757) 845,859(Increase) / Decrease in Amounts due from Related Companies (8,510,000) 271,132Increase / (Decrease) in Amounts due to Related Companies 6,149,529 10,427,192Increase / (Decrease) in Trade and other Payables 4,685,141 1,676,801Cash generated from /(used in) Operations (167,402,506) (26,706,141)Gratuity Paid (362,341) (386,758)Vanilla Return Paid (8,672,156) (6,130,177)Interest Paid (7,731,374) (3,377,014)Tax Paid (789,227) (509,698)Advance Received on Reservation and Establishment Fee 237,437,304 42,032,587Rental Received in Advance on Annual Maintenance 15,222,746 182,144Net Cash from / (used in) Operating Activities 67,702,447 5,104,988CASH FLOW FROM INVESTING ACTIVITIESAcquisition of Property, Plant and Equipment (10,088,251) (39,946,773)Proceeds from Disposal of Property, Plant and Equipment - 1,780,000Profit from Disposal of Matured Trees - 502,643Interest Income 1,168,043 1,372,686Net Cash used in Investing Activities (8,920,208) (36,291,444)CASH FLOW FROM FINANCING ACTIVITIESCalls received for Preference Shares 2,000 70,816Loans taken during the year 10,000,000 36,500,000Loans paid during the year (48,520,218) (20,000,000)(Redemption of Debentures) / Proceeds Received for Debentures (75,000) (80,000)Lease Retals Paid (2,911,334) -Investment in subsidiaries (5,000,000) -Net Cash from Financing Activities (46,504,552) 16,490,816Net Increase / (Decrease) in Cash and Cash Equivalents 12,277,685 (14,695,640)Cash and Cash Equivalents at the Beginning of the Year (Note 18) 5,064,942 19,760,582Cash and Cash Equivalents at the End of the Year (Note 18) 17,342,627 5,064,942The Accounting Policies and Notes form an integral part of these Financial Statement.Figures in brackets indicate deductions.

68 Touchwood Investments PLC. Annual Report 2009/10Notes to the Financial Statements1.1 GENERAL1.1.1 Basis of PreparationThe Financial Statements are prepared in accordance withhistorical cost convention other than for land which hasbeen re-valued as explained in the Note 10 and biologicalassets which has been stated at fair value, as explained inthe Note 14 to the Financial Statements.The Accounting Policies been applied by the Companyare consistent with those of the prior year, and the prioryear figures and phrases have been re-arranged wherevernecessary to confirm to the current year’s presentation.No adjustments have been made for inflationary factors inthe accounts.The said Financial Statements are prepared in Sri LankanRupees. (Rs)The Directors have made an assessment of the Company’sability to continue as a going concern in the foreseeablefuture, and they do not intend either to liquidate or to ceasetrading.1.1.2 Statement of ComplianceThe Financial Statements of the Company comprise theBalance Sheet and the Statement of Income, Changesin Equity and Cash Flows together with the AccountingPolicies and Notes to the Financial Statements.The Financial Statements have been prepared in accordancewith the Sri Lanka Accounting Standards laid downby the Institute of Chartered Accountants of Sri Lankaexcept for the Biological assets of the Company which ismeasured and recognised in accordance with InternationalAccounting Standards 41, Agriculture, which is applicablefor agricultural activities and the requirements of theCompanies Act No. 07 of 2007.1.1.3 Events Occurring after the Balance Sheet DateAll material post balance sheet events have been consideredand where appropriate adjustments to or disclosures havebeen made in the respective accounts.1.1.4 Comparative InformationThe Accounting Policies have been consistently applied bythe Company and are consistent with those of the previousyear and the previous year’s figures and phrases have beenre-arranged wherever necessary to conform to the currentyear’s presentation.1.1.5 Income Tax Expensea) Current TaxesCurrent Tax is the expected tax payable/recoverable on thetaxable income (if any) for the year, using tax rates enactedor substantially enacted at the Balance Sheet date and anyadjustments to tax payable/receivable in respect of previousyears.The provision for Income Tax is based on the profit for thefinancial year adjusted for tax purposes in accordance withthe Inland Revenue Act No. 10 of 2006 and subsequentamendments thereto.b) Deferred TaxationDeferred tax is recognized on temporary differencesbetween the carrying amount of assets and liabilities in thebalance sheet and the amount attributed to such assets andliabilities for tax purposes.Deferred tax liabilities are generally recognized for alltaxable temporary differences and deferred tax assets arerecognized to the extent it is probable that future taxableprofit will be available against which deductible temporarydifferences can be utilized.Deferred tax is calculated using the tax rates that have beenenacted or substantially enacted at the balance sheet dateand are expected to apply in the period in which the assetswill be realized or liabilities settled.Deferred tax assets and liabilities are not discounted.The net increase in the carrying amount of deferred taxliability net of deferred tax asset is recognized as deferredtax asset is recognized as deferred tax expense andconversely any net decrease is recognized as reversal todeferred tax expense, in the income statement.1.1.6 Foreign Currency TransactionsAll foreign Currency transactions are converted into SriLankan Rupees at the rates of exchange prevailing at thetime the transactions are affected.Monitory assets and liabilities denominated in foreigncurrencies are translated into Sri Lankan Rupees at a rateof exchange prevailing at the Balance Sheet date whilenon monitory assets and liabilities denominated in foreigncurrencies which are stated at historical cost are convertedto Sri Lankan Rupees at the rates prevailing at the datestransactions are affected.Exchange differences arising there from are dealt within theIncome Statement.

691.1.7 Research and DevelopmentResearch and development expenditure is recognised asan expense except that cost incurred on developmentprojects are recognised as development assets to the extentthat such expenditure is expected to have future benefit.However, development costs initially recognised as anexpense are not recognised as an asset in a subsequentperiod.Development cost that have been capitalized are amortizedfrom the commencement of the commercial production ofthe product to which they relate under a straight line basisover the period of their expected benefit but not exceedingfive years.1.1.8 Critical Accounting Estimates and JudgementsThe Company makes estimates and assumptionsconcerning the future. Estimates and judgements areregularly evaluated and are based on historical experienceand other factors, including expectations of future eventsthat are believed to be reasonable under the circumstances.1.2 Assets And Bases of Their ValuationAssets classified as current assets in the Balance Sheet arecash and those which are expected to realise in cash, duringthe normal operating cycle of the Company’s business, orwithin one year from the Balance Sheet date. Assets otherthan current assets are those, which the Company intendsto hold beyond a period of one year from the Balance Sheetdate.1.2.1 Property, Plant and Equipment1.2.1.1 Free hold AssetsThe Property, Plant & Equipment are measured at cost/fair value less accumulated depreciation and accumulatedimpairment.a) Cost / ValuationCost of Property, Plant & Equipment is the cost ofacquisition or construction together with any expensesincurred in bringing the asset to its working conditionand location for its intended use. This includes plant andmachinery, motor vehicles, furniture & fittings. Revaluationmethod is considered for lands.Expenditure incurred for the purpose of acquiring ,extending or improving assets of a permanent nature bymeans of which to carry on the business or to increase theearning capacity of the business is also treated as capitalexpenditure and included under the cost of such assets.Carrying amount of Property, Plant & Equipment arereviewed for impairment whenever events or changes incircumstances indicate that the carrying amount may not berecoverable. And asset’s carrying amount is written downimmediately to its recoverable amount if the asset’s carryingamount is grater than the estimated recoverable amount.b) Subsequent ExpenditureSubsequent expenditure is included in the assets’ carryingamount or recognised as a separate asset, as appropriate,only when it is probable that future economic benefitsassociated with the item will flow to the Company and thecost of the item can be measured reliably. All other repairsand maintenance are charged to the Income Statementduring the financial period in which theyare incurred.c) Permanent Land Development CostsPermanent land development costs are those costs incurredin making major infrastructure development and buildingnew access roads on lands.Permanent impairment to land development costs arecharged to the Income Statement in full or reduced to thenet carrying amounts of such asset in the year of occurrenceafter ascertaining the loss.The cost of land development is being charged over theestimated usefull life of 15 years.d) Revaluation of LandThe freehold properties of the Company are carried atrevalued amounts. Revaluation of these assets are carriedout at least once in five (5) years in order to ensure the bookvalue reflect the realisable value of such assets.e) Restoration CostsExpenditure incurred on repairs or maintenance of Property,Plant and Equipment in order to restore or maintain thefuture economic benefits expected from originally assessedstandard of performance, is recognised as an expense whenincurred.1.2.1.2 Leasehold AssetsAssets obtained under finance lease, which effectivelytransfers substantial risks and benefits incidental toownership of the leased assets, are treated as if they havebeen purchased outright and are capitalised at their cashprice.Assets held under finance lease are depreciated over theshorter of the lease period or the useful lives of equivalentowned assets, unless ownership is not transferred at theend of the lease period.The principal / capital elements payable to the lessoris shown as liability / obligation. The lease rentals aretreated as consisting of capital and interest elements. Thecapital element in the rental that is applied to reduce theoutstanding obligation and interest element is charged

70 Touchwood Investments PLC. Annual Report 2009/10Notes to the Financial Statementsagainst profit, in proportion to the reducing capital elementoutstanding.The cost of improvements to or on leased property iscapitalised, disclosed as improvements to leasehold propertyand depreciated over the unexpired period of the lease, orthe estimated useful lives of the improvements, whicheveris shorter.Assets acquired by the way of finance lease are measuredat an amount equal to the lower of their fair value ofminimum lease payments at the inception less accumulateddepreciation and accumulated impairment losses.1.2.1.3 Depreciation and AmortisationThe provision for depreciation is calculated on a straightlinebasis on the cost or valuation of all Property, Plant andEquipment, in order to write off such cost / valuation overthe estimated useful lives by equal instalments as follows.No. of Years RateBuildings 20 5%Plant & Machinery 5 20%Motor Vehicles 4 25%Furniture & Fittings 5 20%Leasehold Lands 30 3%The Company provides depreciation from the date theassets are available for use whereas depreciation of an assetceases at the earlier of the date that the asset is classified asheld for sale and the date that the asset is de-recognised,at the above mentioned rates on a straight line basis overthe period appropriate to the estimated useful lives of thedifferent types of assets or in an earlier date where anycircumstance indicate such assessment requires.The appropriateness of useful lives of the assets and thedepreciation rules are assessed annually.The carrying amounts of all assets are written downimmediately to its recoverable amount if the asset’s carryingamount is greater than its estimated recoverable amount.1.2.2 Biological Assets and Agricultural ProduceIn the absence of Sri Lanka Accounting Standards,International Accounting Standards 41, Agriculture hasbeen used for the valuation of biological assets.The biological assets are stated at its fair value less estimatedpoint of sale cost, with any resultant gain or loss recognisedin the Income Statement. Point of sale costs include all coststhat would be necessary to sell the assets, excluding costsnecessary to get the assets to market.The biological assets are classified as Consumables andBearer biological assets. Consumable biological assetsare those that are to be harvested as agricultural produceor sold as biological assets. Bearer biological assets arethose other than consumable biological assets. Bearerbiological assets are not agricultural produce but, rather,are self-regenerating. Mahogany trees are consideredas Consumable biological assets and Vanilla vines areconsidered as Bearer biological assets.1.2.2.1 Nature of activitiesLife span of Consumable biological assets (Mahogany Trees)to maturity is expected to be 18 years from the date ofplanting. Mahogany plants are grown in the wet zone, theCompany is expecting to carry out proper fertilising programin order to get the expected return.Life span of Teak Trees to maturity is expected to be 18 yearsfrom the date of planting. Teak plants are grown in the midzone and the Company is expecting to carry out properfertilising program in order to get the expected return.Life span of Sandalwood Trees to maturity is expected tobe 16 years from the date of planting. Sandalwood plantsare grown in the dry zone and the Company is expectingto carry out proper fertilising program in order to get theexpected return. The agricultural produce (timber and heartwood) is to be harvested only at maturity. Realisable valueof the agricultural produce (timber and heart wood) atthe time of maturity will be used to settle Purchase BackGuarantees, which is more fully explained in the respectiveAccounting Policies.Bearer biological assets’ (Vanilla Vines) life span to maturityis 4 years from the date of planting. Vanilla vines are grownin up country mid zone and the Company is expectingto carry out proper fertilising program in order to getthe expected harvest. As per the standard specifications,agricultural produce (Vanilla) can be harvested for another10 years from the date of maturity. Realisable value of theagricultural produce (Vanilla) at the time of harvest will beused to settle the Purchase Back guarantees which are,more fully explained in the respective Accounting Policies.1.2.2.2 Valuation of Biological AssetsFair Value of Biological assets is determined based on avaluation carried out by a qualified valuer in determiningthe fair value of biological assets, the number of trees inplantations are physically verified together with their heightsand girth. The basis used by the valuer is as follows;a) Fair Value of Consumable Biological AssetsValue per immature tree is determined by considering thegrowth pattern of the trees, age and the current marketprice of a mature tree.

71Value of Mature Mahogany TreeMarket value of a mature Mahogany tree is determined byconsidering the average market price of a mature tree asper the standard specification as at the Balance Sheet date,net of selling cost.Value of Mature Teak TreeMarket value of a mature Teak tree is determined byconsidering the average market price of a mature tree asper the standard specification as at the Balance Sheet date,net of selling cost.Value of Mature Sandalwood TreeMarket price of Sandalwood heart wood is determined byconsidering the Tamil Nadu Auction Price of a mature tree,since there is no local market for Sandalwood, as per thestandard specification as at the Balance Sheet date, net ofselling cost.Growth Patterns of TreesThe height and girth of the trees are measured andcompared with standard specifications in determining theaverage growth patterns for the respective age groups.b) Fair Value of Bearer Biological AssetsValue per immature vanilla vine is determined by consideringthe average yield expected from the Weighted Average Costof Capital and the market price of 1 kg of vanilla.Market value of 1 kg of VanillaMarket Value of 1 kg of vanilla is determined consideringthe average market price of a 1 kg of vanilla as per thestandard specification as at the balance sheet date, net ofselling cost.Expected HarvestThis refers to the harvest pattern corresponding to therelevant age. The Company is expecting to harvest VanillaPods for a period of 10 years from the year of maturity.Respective assumptions are disclosed under Note 14.5.1 tothese Financial Statements.1.2.2.3 Financial risk management StrategiesThe Company is exposed to financial risk arising fromchanges in Mahogany, Teak, Sandalwood timber andVanilla prices. However the Company, based on past trendin Mahogany, Teak, Sandalwood and Vanilla prices, doesnot anticipate that the prices will decline significantly in theforeseeable future and therefore has not entered into anyother contracts to manage the risk of decline in Mahogany,Teak, Sandalwood and Vanilla prices. The Company reviewsits outlook for Mahogany, Teak, Sandalwood and Vanillaprices regularly in considering the need for active financialrisk management.1.2.3 InventoriesInventories are valued at the lower of cost and estimatednet realizable value, after making due allowance forobsolete and slow moving items. Net realizable value is theprice at which stocks can be sold in the normal course ofbusiness after allowing for cost of realization and/or cost ofconversion from their existing state to saleable condition.Input MaterialAt actual cost on weighted average basisNurseriesAt the cost of direct materials, direct labour, and anappropriate proportion of directly attributable overheads lessprovision for overgrown plants.1.2.4 Trade and Other Receivables.Trade and other receivables are stated at the amounts theyare estimated to be realized net of provisions for bad anddoubtful debts or if any impairment losses a provision forimpairment of trade receivables is established when theiris evidence that the Company will not be able to collect allamounts due according to the original terms of receivables.Significant financial difficulties of debtors, probability thatthe debtors will enter bankruptcy or financial recognition,and default in payments are considered as indicators thatthe trade receivable is impaired.1.2.5 Cash and Cash EquivalentsCash and Cash Equivalents are defined as cash in hand,demand deposits and short-term highly liquid investmentsreadily convertible to known amounts of cash and subject toinsignificant risk of changes in value.1.3 Liabilities and ProvisionsLiabilities classified as current liabilities on the Balance Sheetare those which fall due for payment on demand or withinone year from the Balance Sheet date.Non current liabilities are those balances that fall due forpayment after one year from the Balance Sheet date.All known liabilities have been accounted for in preparingthese Financial Statements. Provisions and liabilities arerecognized when the Company has a legal or constructiveobligation as a result of past events and it is probable thatan outflow of economic benefits will be required to settlethe obligation in accordance with Sri Lanka AccountingStandard No. 36 on Provisions, Contingent Liabilities andContingent Assets.

72 Touchwood Investments PLC. Annual Report 2009/10Notes to the Financial Statements1.3.1 Retirement Benefit Costsa) Defined Contribution Plans - EPF and ETFAll employees who are eligible for Employees ProvidentFund and Trust Fund contributions are covered by relevantcontributory funds in line with respective statutes andrecognised as an expense in the Income Statement as incurred.The Company contributes 12% and 3% respectively to theabove funds.b) Defined Benefit Plans Retirement GratuityThe Company is liable to pay gratuity in terms of thepayment of gratuity Act No. 12 of 1983. Gratuity Liabilitywas computed from the 1st year of service for all employeesin conformity with Sri Lanka Accounting Standards 16(Revised - 2006) Employee Benefits.However under the payment of gratuity Act No. 12 of 1983the liability to an employee arises only on completion of fiveyears of continues service.The Company measures the present value of the promisedretirement benefits of gratuity which is a defined benefitplan with the advice of a actuary every two years usingprojected benefits valuation method. Actuarial gains andlosses are recognised as income or expenses over theexpected average remaining working lives of participants ofthe plan.1.3.2 Provision for Purchase back GuaranteeProvision for Purchase back guarantee is created for theguarantees given to purchase back the harvest at an agreedtime and price.The liability is measured based on the present value of thecost expected to be required to settle the obligation.Further as per the agreement entered into with customer,the value of purchase back guarantee will be reduced to33 1/3 % of the initial agreed amount, if the payment ofmaintenance fee defaulted for more than 3 years.Where volume back guarantees are provided consideredas contingent liability and those trees are not considered asassets accordingly.1.3.3 Trade and Other PayablesTrade and other payables are stated at their costs.1.4 Income Statement1.4.1 Revenue and Income RecognitionIncome generated from the operation of the businessconsist of the followings.Plantation Establishment Fee income, maintenance income,operating lease income, gain arising from changes in fairvalue of biological assets and earning income. The revenueis recognised on the following basis,a) At the issue of the investment certificate, the total isrecognised as revenue. The annual maintenance fee isrecognised in the year of receipt. Where both Plantationestablishment fee and maintenance fee paid at theissue of certificate in respect of operating lease themaintenance fee is deferred over a period of 16 - 18years for Sandalwood and Mahogany respectively.b) A gain or loss arising on initial recognition of abiological asset and agricultural produce at fair valueless estimated point of sale cost. Thereafter subsequentchange in fair value less estimated point of sale costs ofa biological asset and agricultural produce.1.4.2 Other IncomeAll other income is recognised on an accrual basis.1.4.3 Expenditure Recognitiona) All expenditure incurred in the running of the businessand in maintaining the Property, Plant and Equipment ina state of efficiency is charged to revenue in arriving atthe profit / (loss) for the year.b) For the purpose of presentation of Income Statement,the Directors are of the opinion that function ofexpenses method present fairly the elements of the enterprisesperformance, hence such presentation methodis adopted.c) Borrowing costs are recognised as an expense in theperiod in which they are incurred and charged to theIncome Statement1.5 Segmental ReportingA segment is a distinguishable component of the Companythat is engaged in either providing products or services(business segment) or in providing products or serviceswithin a particular economic environment (geographicalsegment), which is subject to different risk and rewardsthat are different from those of other segments. However,there are no distinguishable components to be identified assegments for the Company.1.6 Cash FlowFor the purpose of Cash Flow Statement, cash and cashequivalent consists of cash in hand and deposits in banksnet of outstanding bank overdrafts.

73(The Cash Flow Statement has been prepared based on theindirect method.)Interest paid is classified as operating cash flow.Interest received and dividends received are classified asinvesting cash flows.Dividends paid are classified as financing cash flows.2. CORPORATE INFORMATION2.1 Domicile and Legal FormTouchwood Investments PLC is a quoted public limitedliability company incorporated and domiciled in Sri Lankaunder the Companies Act No. 17 of 1982, re registeredunder the Companies Act No. 07 of 2007, and registeredunder Section 16 of Board of Investment Act No 04 of1978. The registered office of the Company is located atNo.10, Prince Alfred Tower (Level 2), Alfred House Gardens,Colombo 03, Sri Lanka.2.2 Date of Incorporation and Commencement ofCommercial OperationsThe Company was incorporated on 07th June 1999 asa private limited liability Company and commenced itscommercial operations on the same date.2.3 Principal Activities and Nature of OperationsThe principal activity of the Company is to plant andmanage private Agro-forestry and sell such plants as aninvestment to local and foreign investors.2.4 SubsidiarySubsidiary is the entity controlled by the Company. Controlexists when the Company has the power, directly orindirectly, to govern the financial and operating policies ofan entity so as to obtain benefits from its activities.The Financial Statements of the subsidiaries are prepared forthe same reporting year as the Company, using consistentaccounting policies.a. Investment in Farm Grow (Pvt) LtdThe Board of Directors of the Company has decided not toconsolidate the operation of the above subsidiary due to itsoperation during the year being insignificant in accordancewith [SEC 153 (6) a] of the Companies Act No. 7 of 2007.The assets and liabilities of the Subsidiary Company as at thebalance sheet date are disclosed under the note no.11 ofthe Financial Statements.2.5 Joint ventureA Joint Venture is a contractual arrangement, whereby theCompany and other parties undertake an economic activitythat is subject to joint control. The Company does notrecognize the Joint Venture Green Forest (Private) Limited,because the Company having only 1% share holding.The transactions occurred during the year are disclosedunder the note no. 17 and 34.a. Shareholding in Joint VentureThe Board of Directors of the Company has decided notto take the holding of the Joint Venture to the CompanyFinancial Statements due to having aggreement without anyinvestment.2.6 Number of EmployeesThe Number of Employees at the end of the year was 220.(263 - 2009).2.7 New Standards and Interpretationsnot yet adoptedSLAS 39- Share Based Payments- Effective for periodsbeginning on or after 1st January 2010SLAS 39 - Share based payments require an expense to berecognized where the Company buys goods or services inexchange for shares or rights over shares (equity–settledtransactions), or in exchange for other assets equivalentin value to a given number of shares or rights over shares(cash-settled transactions). For equity-settled share-basedpayment transactions, the entity is required to apply SLAS39 to grants of shares, share options or other equityinstruments that were granted after 1 January 2010. Thisstandard is not expected to have an impact on the companyfinancial statements.The Institute of Chartered Accountants of Sri Lanka hasissued the two new Standards given below, which becomeeffective for annual periods beginning on or after 1stJanuary 2011.Accordingly these standards have not beenapplied in preparing these Financial Statements as they arenot effective for the year ended 31st March 2010.SLAS 44 - Sri Lanka Accounting Standard 44 - FinancialInstruments Presentation.SLAS 45 - Sri Lanka Accounting Standard 45 - FinancialInstruments Recognition and Measurement.The Company is currently in the process of evaluating thepotential effect of these Standards. However, the impact ofthe above requirements has not been quantified as at theBalance Sheet date.

74 Touchwood Investments PLC. Annual Report 2009/10Notes to the Financial StatementsFor the year ended 31st March 2010 2009Rs.Rs.3. REVENUEPlantation Establishment and Maintenance IncomeLocal - Plantation Establishment 151,159,005 151,543,624- Annual Fee 70,474,599 64,876,218Foreign 4,038,073 727,850Commission from Agarwood Sales - Foreign 2,402,920 8,050,540Commission from Bamboo Sales - Foreign 2,917,153 -Maize Sales 2,745,950 -Gain Arising from Changes in Fair Value of Biological Assets (Note 3.1) 623,744,669 501,812,155857,482,369 727,010,3873.1 Gain Arising from Changes in Fair ValueThis amount relates to gain arising from changes in the fair value of biological asset, by adoption of IAS-41- ‘Agriculture’. This gainis totally unrealized as at the Balance Sheet date.2010 2009Rs.Rs.Mahogany 331,484,328 6,354,747Vanilla 47,409,600 10,172,800Sandalwood 250,031,602 433,248,284Teak (5,180,861) 52,036,624623,744,669 501,812,1554. OTHER INCOMEInterest income on Short Term Deposit 1,168,043 1,372,686Interest Income on Loan 40,796 39,130Profit on Disposal of vehicles - 1,780,000Income on sale of mature trees - 502,643Foreign Currency Exchange Gain/(Loss) 716 (315,020)Sundry Income 3,979,067 55,1205,188,622 3,434,5595. OTHER EXPENSESProvision for Purchase Back Guarantee (Note 24) 310,783,317 244,160,910Other Operating Expenses 824,176 1,646,835311,607,493 245,807,745

75For the year ended 31st March 2010 2009Rs.Rs.6. OPERATING PROFIT BEFORE FINANCE EXPENSESIs after charging all expenses including the following;Auditor’s Remuneration on - Statutory Audit 900,000 800,000- ISO Audit Expenses 103,527 -Legal Fees 4,798,424 3,091,412Depreciation and Amortisation 7,030,134 4,354,019Marketing Incentives 15,407,274 19,932,205Personnel Cost IncludesDefined Contribution Plan - Gratuity Provision/(Reversal) 1,069,486 (522,189)Defined Benefit Plan - EPF 3,908,027 4,109,204- ETF 977,007 1,027,301Staff related Cost 49,453,812 54,806,119Bonus 2,057,050 1,003,1277. FINANCE EXPENSESDebenture Interest 5,137,848 4,389,580Loan interest 13,200,000 5,148,749Lease Interest 1,998,483 -20,336,281 9,538,3298. INCOME TAX EXPENSE8.1 Current TaxesThe Company in terms of Section 16 (1) of the Inland Revenue Act No. 10 of 2006 , “Specified Profits” from cultivation, would beexempt from income tax for a period of 5 years from 1st of April 2006. The Corporate tax applicable to profits other than “specifiedProfits” would be at 35%. (If taxable income is less than Rs. 5 million, then the applicable tax rate is 15 %)2010 2009Rs.Rs.Income Tax on Profits for the year (Note 8.2) 7,841,965 232,213Under/(Over) provisions of Income Tax in Prior Year (4,986) 52,394Transferred (from)/ to Deferred Taxation (Note 27) (326,147) -7,520,804 284,6078.2 Reconciliation between Taxable Profit and Accounting ProfitAccounting Profit Before Taxation 341,330,032 254,905,084Aggregate Disallowable Items 322,448,350 254,202,294Aggregate allowable Items (631,141,276) (508,416,315)Profit/(Loss) from Plantation (Exempt) 32,637,106 691,063Taxable Income from Other Sources 23,178,222 1,525,206Total Taxable Profit 23,178,222 1,525,206Tax on Plantation Income - -Tax on Other Income @ 33.33% (2008/2009 @ 15%) 7,726,074 228,781Social Responsibility Levy (1.5% on Income Tax) 115,891 3,432Current Tax Expense for the Year 7,841,965 232,213

76 Touchwood Investments PLC. Annual Report 2009/10Notes to the Financial Statements8. INCOME TAX EXPENSE (Contd.)8.3 Deferred TaxProvision has been made for deferred taxation under the liability method in respect of temporary differences arising from carryingamounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purpose except for described inNote 27. Difference arising from the deferred tax liability has been recognised in the Financial Statement during the year.8.4 Economic Service ChargeDuring the year the Company has paid Rs.510,250/- (Rs.438,469/- in 2009) as Economic Service Charge and this amount can be setoff against the Income Tax Liability had it been paid to the Department of Inland Revenue and balance can be carried forward for aperiod of 4 years.9. EARNINGS AND DIVIDENDS PER SHARE9.1 Earnings Per ShareThe calculation of Earnings per Share is based on the profit for the year attributable to the ordinary shareholders after tax divided byweighted average number of ordinary shares outstanding during the year and calculated as follows;2010 2009Rs.Rs.Profit after Tax 333,809,228 254,620,476Less: Preference Dividend (304,000) (304,000)Profit Attributable to Ordinary Share Holders 333,505,228 254,316,476Weighted Average Number of Ordinary Shares 8,908,800 8,908,800Earning Per Share 37.44 28.559.2 DIVIDENDS PER SHAREInterim paid and Final Proposed Dividends (Rs.) - -Number of Ordinary Shares 8,908,000 8,908,000Dividends per Share (Rs) - -As at 31st March10. PROPERTY, PLANT AND EQUIPMENTCost Balance Additions On BalanceAs At During the Revaluation As At01.04.2009 Year 31.03.2010Rs. Rs. Rs. Rs.Freehold AssetsLand 275,167,498 13,365,310 252,854,794 541,387,602Buildings 2,465,032 403,020 - 2,868,052Motor Vehicles 829,437 2,789,998 - 3,619,435Machinery and Equipment 22,660,159 2,943,108 - 25,603,267Furniture & Fittings 5,526,372 53,859 - 5,580,231306,648,498 19,555,295 252,854,794 579,058,587Leasehold AssetsMotor Vehicles 3,256,650 3,929,130 - 7,185,7803,256,650 3,929,130 - 7,185,780Total 309,905,148 23,484,425 252,854,794 586,244,367

77As at 31st March10. PROPERTY, PLANT AND EQUIPMENT (Contd.)Accumulative Depreciation Balance Charge On BalanceAs At During the Revaluation As At01.04.2009 Year 31.03.2010Rs. Rs. Rs. Rs.Freehold AssetsBuildings 745,206 188,029 - 933,235Motor Vehicles 829,437 1,129,999 - 1,995,436Machinery and Equipment 13,436,722 3,780,908 - 17,217,630Furniture & Fittings 4,207,195 414,133 - 4,621,32819,218,560 5,513,069 - 24,731,629Leasehold AssetsMotor Vehicles 3,256,650 1,517,065 - 4,773,7153,256,650 1,517,065 - 4,773,715Total 22,475,210 7,030,134 - 29,505,334Capital Work in Progress 1,625,020 - - 1,625,020Carrying Value 289,054,958 558,364,04310.1 The land owned by the Company was revalued by Mr. R.S. Wijesuriya an independent, incorporated valuer during the period from1st March 2010 to 31st March 2010. The resultant surplus of Rs 252,854,794/- arising from the revaluation has been transferred tothe Revaluation reserve.The key assumptions made by the valuer are as followsa. The land value per acre of the estates revalued, ranges from Rs 100,000/- to Rs 300,000/-b. The land values are determined based on the locality, demand, supply and other factors applicablec. These lands are used for agriculture purposes10.2 The carrying amount that would have been recognised had the assets been carried under the cost model is Rs. 138,375,010/-11. Investments in SubsidiaryNo. of Shares % Holding 2010 2009Rs.Rs.The Board of Directors have assessed the fair value ofinvestment in Subsidiary based on the net assetsattributable for the investment.Farm Grow (Private) Limited 500,000 100% 5,000,000 -5,000,000 -11.1 The investment made by the Company has not been consolidated because of the non significance of the transactions occurredduring the year as explained in accounting policies 2.4. However this will be reassessed on a quarterly basis in line with quarterlyand annual reporting to Colombo Stock Exchange. The assets and liabilities of the said subsidiaries are disclosed below.2010 2009Rs.Rs.AssetsLands 12,408,530 -12,408,530 -Equity and LiabilitiesShare Capital (500,000 shares at Rs. 10/- each) 5,000,000 -Retained Loss (665,000) -Amounts Due to Related Party 8,048,550 -Directors’ Loan 24,980 -12,408,530 -

78 Touchwood Investments PLC. Annual Report 2009/10Notes to the Financial StatementsAs at 31st March12. LEASEHOLD RIGHT OVER BARE LANDCost Opening Balance Additions On Transfers Closing Balance01.04.2009 During the Year Revaluation During the Year 31.03.2010Rs. Rs. Rs. Rs. Rs.Leasehold Right to Bare Land 16,600,000 1,403,332 12,999,978 9,600,000 21,403,30016,600,000 1,403,332 12,999,978 9,600,000 21,403,300Accumulated Opening Balance Additions On Transfers Closing BalanceAmortisation 01.04.2009 During the Year Revaluation During the Year 31.03.2010Rs. Rs. Rs. Rs. Rs.Leasehold Right to Bare Land 553,333 - 553,333 - -553,333 - 553,333 - -Net Value 16,046,667 - - - 21,403,30013. MATURE TREES2010 2009Rs.Rs.Balance at the beginning of the year 107,373,011 107,875,654Disposals during the year (502,643)Balance at the end of the year 107,373,011 107,373,01113.1 The mature trees considered as part of unplanned Agro-Forestry in Ratnapura, Kaluthara and Matale Districts having commercialexotic timber species such as Teak, Albizia, Jack, Halmilla, etc are ready for harvest, and have been valued byMr. L.B.Ariyathilake Independent Chartered Valuer on 1st October 2006. The resultant surpluses on valuation amount toRs.110,385,903/- and this amount has been transferred to revaluation reserve in 2006/07.The key assumptions used for valuation of mature forestry trees are as follow;a. Based on the price list of State Timber Corporation and price timber logs & sawn timber from reputed timber merchants.b. When considering the market price of the estimated out put of standing timber an average value of market prices were takenafter deducting 10% of the price for cost of harvesting and transportation.c. The volume of timber is calculated on the General Volume Table (Species Classes i to vi) from the State Timber CorporationMetric Volume and Conversion Table.13.2 The Company has pledged all free hold land as security for purchase back guarantee. If the Company fails to honor the purchaseback guarantee as and when it becomes due, the investors have the right to receive the title of the specific land plots.

79As at 31st March14. BIOLOGICAL ASSETS2010 2009Rs.Rs.Consumable Biological Assets (Mahogany) Note 14.1 2,377,575,507 2,046,091,179Bearer Biological Assets (Vanilla) Note 14.2 208,845,000 161,435,400Consumable Biological Assets (Sandalwood) Note 14.3 683,279,886 433,248,284Consumable Biological Assets (Teak) Note 14.4 46,855,463 52,036,3243,316,555,856 2,692,811,18714.1 Consumable Biological Assets (Mahogany)2010 2009Rs.Rs.Carrying amount at beginning of the year 2,046,091,179 2,039,736,432Gain/(Loss) arising from changes in fair value less estimatedPoint of sales cost attributable to - Physical Change 230,629,419 (126,426,953)- Price change 100,854,909 132,781,700Carrying amount at the end of the year (Note 14) 2,377,575,507 2,046,091,17914.1.1 Planted-year wise analysis of Consumable Biological Assets (Mahogany)Planted No. of Trees Planted No. of TreesYear Planted Year Planted2000 836 2005 60,1682001 5,693 2006 47,6942002 13,348 2007 17,0872003 28,780 2008 17,9522004 28,605 2009 10,011Total 230,17414.2 Bearer Biological Assets (Vanilla)2010 2009Rs.Rs.Carrying amount at the beginning of the year 161,435,400 151,262,600Gain arising from changes in fair value less estimated Point of sales costattributable to - physical change 47,409,600 10,172,800Carrying amount at the end of the year (Note 14) 208,845,000 161,435,40014.2.1 Planted-year wise analysis of Bearer Biological Assets (Vanilla)Planted No. of Vines Planted No. of VinesYear Planted Year Planted2005 5,553 2008 7,3712006 20,253 2009 2,7922007 11,206 2010 14,250Total 61,425

80 Touchwood Investments PLC. Annual Report 2009/10Notes to the Financial StatementsAs at 31st March14. BIOLOGICAL ASSETS (Contd.)2010 2009Rs.Rs.14.3 Consumable Biological Assets (Sandalwood)Carrying amount at beginning of the year 433,248,284 -Gain arising from fair value less estimated Point of sales cost. 250,031,602 433,248,284Carrying amount at the end of the year 683,279,886 433,248,28414.3.1 Planted-year wise analysis of Consumable Biological Assets (Sandalwood)PlantedYearNo. of TreesPlanted2009 19,5702010 15,196Total 34,76614.4 Consumable Biological Assets (Teak)2010 2009Rs.Rs.Carrying amount at beginning of the year 52,036,324 -Gain arising from fair value less estimated Point of sales cost (5,180,861) 52,036,324Carrying amount at the end of the year (Note 14) 46,855,463 52,036,32414.4.1 Planted-year wise analysis of Bearer Biological Assets (Teak)PlantedYearNo. of TreesPlanted2009 6,821Total 6,82114.5 The above biological Assets of the Company were valued by Mr. B. L. Ariyatillake, independent Chartered Valuer. Based on theValuation Report dated 31st March 2010, the immature mahogany plantations value as at 31st March 2010 is Rs. 2,377,575,507/-(Rs. 2,046,091,179/- in 2009), immature Vanilla vines as at 31st March 2010 is Rs. 208,845,000/- (Rs. 161,435,400/- in 2009), theimmature Sandalwood plantations value as at 31st March 2010 is Rs. 683,279,886/- (Rs. 433,248,284/- in 2009) and the immatureTeak plantations value as at 31st March 2010 is Rs. 46,855,463/- (Rs. 52,036,324/- in 2009) which is sated under note 14 to theseFinancial Statements.

81As at 31st March14. BIOLOGICAL ASSETS (Contd.)14.5.1 Significant Assumptions Made by the ValuerIn assessing the fair value, the key assumptions made by the Valuer are as follows;(A)Consumable Biological Assets (Mahogany)Market value of a TreeMahogany price is mainly obtained from International Market price of Mahogany Timber, State Timber Corporation and the LocalMarket in determining the value of mature tree. The estimated cost of sawing and other out goings have been deducted to obtainthe net value of sawn timber per mature tree. Value of a mature mahogany tree is assumed to be Rs.50,000/- (Rs. 52,000/- in 2009)for the purpose of valuation as at the Balance sheet date.Determination of growth patternsIn determining the growth patterns, the following assumptions have been made.a) Time period for maturity is 18 yearsb) A average mature tree would contain 0.9 (0.9 - in 2009) cubic meters of timberc) Fully mature tree is expected to have an average height of 64 feet.d) A mature tree is expected to have an average dbh (diameter breast height) of 38 cm.e) Growth pattern corresponding to relevant height is based on published international growth patterns (Source : silviculture ofMahogany 1998 J.E. Mayhew and A.C. Newton) adjusted to suit the local conditions.Discount RateDiscount Rate of 12.5% (12.5% in 2009) is used as the rate of return on the capital. This rate is based on the current acceptedrates of returns expected by investors and general rates used by the valuers.Maintenance CostThe on going cost of growing the trees has been deducted in determining the cash flow and on consistent in real terms.(B)Bearer Biological Assets (Vanilla)Market value of a VineThe Company has obtained the membership of the Kandy Vanilla Growers’ Association (“KVGA”) on 8th November 2009. Themarket price is mainly obtained from the Kandy Vanilla Growers’ Association and Export Agricultural Department. One Kilogram ofVanilla is assumed to be Rs.1,000/- (Rs.1,000/- in 2009) as at the balance sheet date.Determination of expected harvest patternsIn determining the expected harvest patterns, the following assumptions have been madea) Time period to obtain harvest is 4th year from date of plantingb) A mature vanilla vine would give a total harvest of 15Kg of harvest during its maturity.c) Value per immature vanilla vine is determined by considering expected harvest pattern of vine.d) A mature vanilla vine would give 8 inches or more pod through out its harvesting period.Discount RateRate of return on capital is assumed to be 20%. (20% in 2009)

82 Touchwood Investments PLC. Annual Report 2009/10Notes to the Financial StatementsAs at 31st March14. BIOLOGICAL ASSETS (Contd.)14.5.1 Significant Assumptions Made by the Valuer (Contd.)(C)Consumable Biological Assets (Sandalwood)Market value of a TreeSandalwood price is mainly obtained from International Market price of Sandalwood (Source : Karnataka auction prices through ourconsultant Dr. Anantha Padmanabha) Timber Market in determining the value of mature tree. The estimated cost of sawing andother out goings have been deducted to obtain the net value of sawn timber per mature tree. Value of a mature Sandalwood tree isassumed to be Rs.5,000/- per 1 kg, (Rs. 5,000/- per 1kg in 2009) for the purpose of valuation as at the Balance sheet date.Determination of growth patternsIn determining the growth patterns, the following assumptions have been made.a) Time period for maturity is 16 yearsb) A average mature tree would contain 25 kgc) Growth pattern corresponding to relevant height is based on published international growth patterns (Source : Sandalwoodconsultant Dr. Anantha Padmanabha) adjusted to suit the local conditions.Discount RateDiscount Rate of 12.5% (12.5% in 2009) is used as the rate of return on the capital. This rate is based on the current acceptedrates of returns expected by investors and general rates used by the valuers.Maintenance CostThe on going cost of growing the trees has been deducted in determining the cash flow and on consistent in real terms.(D)Consumable Biological Assets (Teak)Market value of a TreeMahogany price is mainly obtained from International Market price of Teak Timber, State Timber Corporation and the Local Marketin determining the value of mature tree. Cost of sawing and other out goings have been deducted to obtain the net value of sawntimber per mature tree. Value of a mature mahogany tree is assumed to be Rs.56,000/- (Rs.56,000/- in 2009) for the purpose ofvaluation as at the Balance sheet date.Determination of growth patternsIn determining the growth patterns, the following assumptions have been made.a) Time period for maturity is 18 yearsb) A average mature tree would contain 0.7 cubic meters of timberc) Fully mature tree is expected to have an average height of 70 feet.d) A mature tree is expected to have an average dbh (diameter breast height) of 38 cm.e) Growth pattern corresponding to relevant height is based on published international growth patterns (Source : Thai OrchidLaboratory) adjusted to suit the local conditions.Discount RateDiscount Rate of 12.5% (12.5% in 2009) is used as the rate of return on the capital. This rate is based on the current acceptedrates of returns expected by investors and general rates used by the valuers.

83As at 31st March14. BIOLOGICAL ASSETS (Contd.)Sensitivity Analysis - Mahogany, Sandalwood and TeakDiscounting Changes in Impact toRate Discounting Rate Net Assets ProfitRs. Rs. Rs. Rs.16.50% +4% 1,036,761,492 (853,407,700)14.50% +2% 1,554,400,344 (335,768,845)13.00% +0.5% 2,040,254,097 150,084,90512.50% 0% 2,223,978,420 333,809,22812.00% -0.5% 2,420,556,829 530,387,63710.50% -2% 3,094,878,745 1,204,709,5538.50% -4% 4,234,170,046 2,344,000,854The sensitivity analysis detailing the sensitivity of the mahogany, sandalwood and teak fair value to the discounting factor. Howeverthe discounting rate of 12.5% has been used for the mahogany, Sandalwood and Teak biological asset valuation during the year.14.6 The Mahogany trees are in immature stage and therefore there is no change in value of biological assets due to agricultural produceharvested during the year. Further, the company maintains these biological assets in order to meet the contractual purchase backguarantee given to customers. The Company has entered into contracts with their customers’ to pledge these biological assets assecurities to meet the purchase back guarantee.2010 2009Rs.Rs.15. INVENTORIESSandalwood - Nurseries 1,098,360 1,287,360Mahogany - Nurseries - 262,470Agarwood - Nurseries - 50,467Jatropha - Nurseries 1,196,321 -Work in progress - Maize Project - 13,507,840Vanilla Process Bean Stock 3,045,000 -5,339,681 15,108,13716. TRADE AND OTHER RECEIVABLESPrepayments & Advances 8,640,580 8,546,573Loans Against Preference Shares 2,760,265 2,674,663Staff Loans (Note 16.1) 28,185 678,227ESC Receivable 836,988 438,469Other Receivable (Note 16.2) 1,199,144 357,95413,465,162 12,695,886

84 Touchwood Investments PLC. Annual Report 2009/10Notes to the Financial StatementsAs at 31st March 2010 2009Rs.Rs.16. TRADE AND OTHER RECEIVABLES (Contd.)16.1 Staff LoansBalance at the beginning of the year 678,227 651,684Loans granted during the year 95,000 228,000773,227 879,684Loans settled during the year (745,042) (201,457)Balance at the end of the year 28,185 678,22716.2 Other ReceivablesInterest Receivable 234,787 315,309Salary Advances 206,177 6,133Sundry Advance 680,007 -Corporate Credit Card 28,173 36,512Others 50,000 -1,199,144 357,95417. AMOUNTS DUE FROM RELATED PARTIESRelationshipTouchwood (Pvt) Ltd. Affiliate 817,400 462,880Farm Grow (Pvt) Ltd Subsidiary 8,063,530 -Green Forestry Ventures (Pvt) Ltd Joint Venture 91,950 -8,972,880 462,88018. CASH AND CASH EQUIVALENTSFavourable BalancesCash in Hand 592,985 653,790Cash at Bank 19,340,121 5,836,495Short Term Deposits 9,285,012 8,115,28529,218,118 14,605,570Unfavourable BalanceBank Overdrafts (11,875,491) (9,540,628)Cash and Cash Equivalents for the purpose of Cash Flow Statement 17,342,627 5,064,94219. STATED CAPITAL8,908,800 Ordinary Shares ( 8,908,800 - 2009) 89,088,000 89,088,000The holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per shareat meetings of the company. All shares rank equally with regard to the company’s residual assets.20. REVALUATION RESERVEBalance at the beginning of the year 213,491,560 213,994,203Surplus on Revaluation of Lands 265,854,772 -Disposals during the year - (502,643)Balance at the end of the year 479,346,332 213,491,560Revaluation reserve consist of surplus resulting on revaluation of free hold lands and leased hold as more fully described in note no10.1 and 12 respectively.

85As at 31st March21. CAPITAL RESERVERs. 312,961,352/- has been transferred to a Capital Reserve during the year. This reserve comprises unrealized gains arising fromthe fair value of the biological assets net of purchase back guarantee and Preference Share Redemption Reserve. This is not used fordistribution of profits until it is realized in cash.22. PREFERENCE SHARE REDEMPTION RESERVEProfits have been retained in order to utilize for redemption of preference shares at an agreed premium.23. PREFERENCE SHARE CAPITAL2010 2009Rs.Rs.Called up amount at the beginning of the year 30,400,000 30,400,000(3,040 Non- Voting, Redeemable, Cumulative Preference Shares)Calls in arrears (Note 23.1) (2,480,272) (2,482,272)Balance at year end (3,040 Non- Voting, Redeemable, Cumulative Preference Shares) 27,919,728 27,917,728The preference shares are issued on 3rd July 2003, at a redemption premium of Rs 184,700/-, which is payable together with 1%annual dividend. These Preference Shares will be redeemed at the end of the 18th year from the date of allotment.23.1 Call In Arrears2010 2009Rs.Rs.Balance at the beginning of the year 2,482,272 2,553,088Received during the year (2,000) (70,816)Balance at the end of the year 2,480,272 2,482,272SecurityThe Company has planted one Mahogany tree for each Preference Share issued. (Trees were planted in Rusigama Estate)24. PROVISION FOR PURCHASE BACK GUARANTEEProvision at the beginning of the year 1,349,582,697 1,111,551,804Provision made during the year 465,156,819 388,729,134Payment of Vanilla return (8,672,156) (6,130,177)Reversal of Provision for Non Performing Agreements (Note 24.2) (154,373,502) (144,568,064)Provision at the end of the year 1,651,693,858 1,349,582,69724.1 No cash back guarantees has been offered in respect of 1,188 (857 in 2009) tree sales agreements. However volume guaranteedhave been given as disclosed below.Current YearYear to DateProduct No of No of Volume No of No of VolumeguaranteeguaranteeContracts Trees Given Contracts Trees Given(Cu.ft/kg)(Cu.ft/kg)Mahogany 1 10 200 5 70 1,400Vanilla 15 4,149 31,830 118 6,162 72,090Sandalwood 309 7,577 188,800 1,059 29,225 735,906Sandalwood & Vanilla 6 750 18,750 6 750 18,750Total 331 12,486 239,580 1,188 36,207 828,146

86 Touchwood Investments PLC. Annual Report 2009/10Notes to the Financial StatementsAs at 31st March24. PROVISION FOR PURCHASE BACK GUARANTEE (Contd.)24.2 As per the purchase back guarantee agreement, the Company has the right to terminate the contract and pay only 50% ofthe initial agreed guarantee until 2002/03 and 33.33% there after, if 3 or more installments are in arrears. Therefore the aboveprovision has been made based on the performing purchase back guarantee agreements.24.3 The above provision for purchase back guarantee has been arrived after discounting following actual guaranties (payable atmaturity) given after considering the expected maintenance income receivable, using a cost of capital relevant to each contractsvarying from 18% to 34%. (IRR)Total Purchase Back Guarantees Given2010 2009Rs.Rs.Balance at the beginning of the year 21,942,850,000 21,914,850,000Add: New Contracts Entered into during the year - 28,000,000Balance at the end of the year 21,942,850,000 21,942,850,000The purchase back guarantee given has been discounted and may the provision in the Financial Statements as per the note no. 24.25. DEBENTURESBalance at the beginning of the year 13,720,000 13,800,000Redeemed During the year (75,000) (80,000)13,645,000 13,720,000Accrued Interest 21,478,210 16,340,35935,123,210 30,060,359The Company has issued 2,744, secured, Redeemable, unlisted Cumulative Debentures. These debentures are redeemable onor after 18 years from the allotted date at an interest rate of 18% per annum. The interest on debentures will be paid after thematurity of 18 years.SecurityThe company have planted one Mahogany tree for each debenture sold. (Trees were planted in Panthiya Estate) refernote No. 14.1.1.26. RETIREMENT BENEFIT OBLIGATION - GRATUITY2010 2009Rs.Rs.Balance at the beginning of the Year 2,046,951 2,955,898Provision made during the Year 1,069,486 (522,189)Payments made during the Year (362,341) (386,758)Balance at the end of the Year 2,754,096 2,046,951An Actuarial Valuation of the retirement benefit obligation was carried out as at 31st March 2010 by Mr. P.S.Goonetilleke, Piyal SGoonetilleke and Associates’ a firm of professional actuaries.The Valuation method used by the actuaries to value the benefit is the ‘Projected Unit Credit Method’, the method recommendedby the Sri Lanka Accounting Standard No.16 (Revised 2006),’Employee Benefits’

87As at 31st March2010 2009Rs.Rs.26.1. The amount recognized in the balance sheet as follows,Present Value of Unfunded obligations 3,011,415 2,317,076Present Value of Funded Obligations - -Total Present Value of Obligations 3,011,415 2,317,076Fair Value of Plan Assets - -Present Value of net obligations 3,011,415 2,317,076Unrecognized actuarial (gains)/losses (257,318) (270,124)Recognized liability for defined benefit obligation 2,754,097 2,046,95226.2. Movement in the Present value of Defined ObligationsLiability for defined benefit obligations as at 1st April 2,046,952 1,769,403Actuarial (Gains)/Losses 12,806 -Benefit paid by the Plan (362,341) (386,758)Current service Cost 763,980 453,163Interest Cost 292,700 211,143Liability for defined benefit obligations as at 31st March 2,754,097 2,046,95226.3. Expense recognized in Profit or LossCurrent Service Costs 763,980 453,163Interest on Obligations 292,700 211,143Recognition of Transitional Asset 12,806 (1,186,495)Expected ( return)/outgoing on plan assets 1,069,486 (522,189)26.4 . The Key Assumptions used by the actuary include the followingRate of Interest9.5% (Per Annum)Rate of Increase of Salaries Executives 11.0% (Per Annum)Non Executives11.0% (Per Annum)Retirements-Age Male/Female 55The Company will continue as a going concernThe Actuarial present Value of the accrued benefit as at 31st March 2010 is Rs. 2,754,097 (Rs. 2,046,952/- in 2009). This Item isgrouped under retirement benefit obligation in the balance sheet.

88 Touchwood Investments PLC. Annual Report 2009/10Notes to the Financial StatementsAs at 31st March2010 2009Rs.Rs.27. DEFERRED TAXATIONBalance at the beginning of the year 184,462 184,462Provision made during the year (Note 8.1) (326,147) -Balance at the end of the year (141,685) 184,462“Sri Lanka Accounting Standards 14 “Income taxes” (SLAS 14) requires a deferred tax liability to be recognized for all taxabletemporary differences that will result in taxable amounts in determining taxable profit/ loss of future periods when the carryingamount of the asset or liability is recovered or settled.In the opinion of the company’s tax consultants, M/s Amarasekara & Co, disposal of buffer timber trees or company owned timbertrees after 20 years time can be construed as capital transactions and consequently as per the present revenue laws will be treatedas a tax exempt capital gain transaction.Accordingly no deferred tax has been provided and temporary differences arising on the gain / loss on the change in fair value ofthe biological assets. “28. DEFERRED REVENUE ON ANNUAL MAINTENANCE FEE2010 2009Rs.Rs.Annual Maintenance FeeBalance at the beginning of the year 11,250,797 11,390,146Payment received in advance during the year 15,222,746 182,144Less: Amortised during the year (1,861,151) (321,493)Balance at the end of the year 24,612,392 11,250,79729. PREFERENCE DIVIDENDS PAYABLEBalance at the beginning of the year 1,606,619 1,302,619Appropriated during the year 304,000 304,0001,910,619 1,606,619

89As at 31st March2010 2009Rs.Rs.30. RESERVATION & ESTABLISHMENT FEE ADVANCEBalance at the beginning of the year 28,100,361 21,314,895Advance received during the year 237,437,304 42,032,587Transferred to revenue during the year (232,900,262) (35,247,121)Balance at the end of the year 32,637,403 28,100,36131. AMOUNTS DUE TO RELATED PARTIESRelationshipTouchwood Ltd. Affiliate 7,035,489 3,500,792Touchwood Asia Co. Ltd Affiliate 9,541,232 6,926,40016,576,721 10,427,19232. INTEREST BEARING BORROWINGSPayable after one yearLong Term Loan (Note 32.1) 1,500,000 1,500,000Lease Creditor (Note 32.4) 3,293,125 -4,793,125 1,500,000Payable within one yearShort Term Loan (Note 32.2) 3,719,782 36,771,374Lease Creditor (Note 32.4) 1,546,802 -5,266,584 36,771,37432.1 Long Term LoanBalance at the beginning of the Year 1,500,000 -Loans obtained during the year - 1,500,0001,500,000 1,500,000Payable within one year - -Payable after one year 1,500,000 1,500,00032.2 Short Term LoanBalance at the beginning of the Year 36,771,374 20,000,000Loans obtained during the year 10,000,000 35,000,000Payments made during the year (48,520,218) (20,000,000)Interest payable 5,468,626 1,771,3743,719,782 36,771,374Payable within one year 3,719,782 36,771,374Payable after one year - -32.3 The Company has obtained a loan during the year from LOLC (10 Mn) and the loan from Alliance Finance Limited (1.5 Mn)obtained in 2007/2008. The deposit held in Alliance Finance Limited has been kept as a security for the loan obtain from AllianceFinance Limited.

90 Touchwood Investments PLC. Annual Report 2009/10Notes to the Financial StatementsAs at 31st March32.3 Lender GrantedDateRate ofInterest (p.a)2009/2010Rs. MillionRepaymentSecurityAlliance fianceCompanyLimited18-Jan-09 24.75% 1.5 Capital on the facility shall be due andpayable on the 28th Jan 2011.Interest shall be paid on monthly basiscommenced on 15th February 2008.}Fixed Deposit OfRs. 2,041,351/-Lanka ORIXLeasing Co. PLC30-Jun-09 33.96% 10 Capital on the facility shall be due andpayable on the 28th June 2010.Interest shall be paid on monthly basiscommenced on 31st July 2009.2010 2009Rs.Rs.32.4 Lease LiabilityBalance at the Begining of the Year - -Lease Obtained During the Year 9,978,407 -Payment Made During the Year (2,911,334) -7,067,073 -Interest in Suspense (2,227,146) -4,839,927 -Payable Within One Year 1,546,802 -3,293,125 -32.4.1 Lender Nature of Cost of 2009/10 RepaymentFacility Equipment (Rs. Mn) Rs. MnCommercial Leasing Hire Purchase 1.5 2.77 54 instalments shall be paid on monthlyCompany LimitedLanka ORIX Leasing Co. PLC Finance Lease 2.1 3.92 48 instalments shall be paid on monthlyPrepaments made Rs. 81,205/-Lanka ORIX Leasing Co. PLC Finance Lease 0.29 0.45 24 instalments shall be paid on monthlyPrepaments made Rs. 37,302/-Lanka ORIX Leasing Co. PLC Finance Lease 1.9 2.84 48 instalments shall be paid on monthly33. TRADE AND OTHER PAYABLES2010 2009Rs.Rs.Salaries and Incentives Payable 5,202,369 2,928,686Creditors & Accrued Expenses 8,691,976 9,193,275Other Payables 5,109,290 2,196,53319,003,635 14,318,494

9134. RELATED PARTY TRANSACTIONSName of the Company Nature of Name of Directors Nature of transactions AmountRelationshipRs.Touchwood Limited Cross Holding Mr. R. A. Maloney Commission on Foreign sales 12,444,942Mrs. J. G. S. MaloneyAnnual maintenance onMr. S.P.A. Koralage Agarwood purchased (15,979,639)Touchwood Asia Limited Cross Holding Mr. R. A. Maloney Technical Assistance (1,380,480)Mrs. J. G. S. Maloney Interest expenses (1,493,702)Mr. S.P.A. Koralage Legal Fees 259,350Farm Grow (Private) Limited Subsidiary Mr. S.P.A. Koralage Lease Land Cost 4,600,000Mr. P. G. Willachchi Wire Fencing Expenses 3,448,530Mr. Channa Abeygunawardene Audit Fee 15,000Directors Loan 24,980Green Forestry Ventures Joint Venture Mr. Channa Abeygunawardene Sale of Trees 14,300,000(Pvt) Limited Mr Kumara Sangakkara Other Expenses 91,950Mr. Mahela JayawardenaMr. Charles Ferderick AustinMr. D. V. PremasingheMr. Suthami HaniffaThere are no related party transactions other than those disclosed in Note 17 and 31 to this Financial Statement.35. TRANSACTIONS WITH KEY MANAGEMENT PERSONALKey Management personnel include all the members of the Board of Directors of the Company having authority and responsibilityfor planning, directing and controlling the activities of the Company, directly or indirectly.• Company has not paid fees for Directors during the year.• Emoluments paid to key management personnel during the year 2009/10 amounted to Rs. 3,750,000/-.(2008/09 - Rs.3,600,000/-).• In addition to the above company has not provided any other benefits and facilities:2009/2010 2008/2009Short term Long term Total Short term Long term Totalbenefits benefits benefits benefitsTotal benefits & facilities - - - - - -• Company has not incurred any amount as Termination benefits or Post Employment benefits on account of the key managerialpersonnel during the year.• Company has not provided loans, advances or other credit facilities in the names of key managerial persons as at 31.03.2010

92 Touchwood Investments PLC. Annual Report 2009/10Notes to the Financial Statements36. COMMITMENT AND CONTINGENCIESSLAASMB CaseThe judgment to CA (writ) 323/2007 file against SLAASMB (Sri Lanka Accounting and Auditing Standard Monitoring Board) wasdelivered in favour of petitioner, Touchwood Investments PLC on the 25th of January 2010. SLAASMB has filed for leave to appealthe Judgement given by the Court of Appeal in the Supreme Court on the 8th of March 2010. (SC SPL Leave to Appeal No. 42/10).The Court of Appeal extended the stay order on the case No. CA (writ) 322/2007 until the final determination of the SLAASMB SCSPL Leave to Appeal No. 42/10.Volume GuaranteeThe Company had no material capital commitments and contingent liabilities outstanding as at the Balance Sheet date other thanthose disclosed above and Note 24.1.37. EVENTS OCCURRING AFTER THE BALANCE SHEET DATENo circumstances have arisen since the balance sheet date which would require adjustments to, or disclosure in the financialstatements, other than the following.Rights IssueThe Board of Directors of the Company at a meeting held on 23rd April 2010 resolved to recommend rights issue to theshareholders for the existing 8,908,000 ordinary shares of the Company by obtaining shareholders’ approval at an Extra OrdinaryGeneral Meeting held on 14th May 2010. Upon the aforesaid rights issue, the resulting number of shares would be 17,817,600and the issue price of one share is Rs. 60. Shareholders would in effect receive one share for every one share held by them. All theshares have been subscribed by the shareholders.Sub Division of SharesThe Board of Directors of the Company at a meeting held on 22nd June 2010 resolved to recommend to the shareholders subdivision(splitting) of the existing 17,817,600 ordinary shares of the Company by obtaining shareholders’ approval at an ExtraOrdinary General Meeting held on 09th July 2010, without any change to the Stated Capital of the Company of Rs. 208,576,000/-(after the Rights Issue). Upon the aforesaid sub-division, the resulting number of shares would be 71,270,400. Shareholders wouldin effect receive four shares for every one share held by them.38. COMPARATIVE INFORMATIONPrevious years figures and phrases have been rearranged or reclassified where necessary, with comply to the current yearspresentation.39. RESPONSIBILITY FOR FINANCE REPORTINGThe Board of Directors is responsible for the preparation and presentation of these financial statements in accordance with Sri LankaAccounting Standards and the Companies Act. No. 7 of 2007

93Investor InformationDetails of Ordinary Shares as at 31st March2010 2009From To No of Holders No of Shares % No of Holders No of Shares %1 1,000 1,916 749,767 8.42 1,589 583,210 6.551,001 10,000 693 2,359,631 26.48 504 1,537,389 17.2510,001 100,000 104 2,466,902 27.70 64 1,400,201 15.72100,001 1,000,000 07 1,874,500 21.04 4 1,584,700 17.78Over 1,000,000 01 1,458,000 16.37 2 3,803,300 42.702,721 8,908,800 100.00 2,163 8,908,800 100.00Analysis of Shareholders at 31st March, 2010Local Individuals 2,632 7,344,051 82.44Local Institutions 72 1,058,819 11.89Foreign Individuals 13 46,930 0.53Foreign Institutions 4 459,000 5.152,721 8,908,800 100.00Year ended 31st March2010 2009Highest during the year (Rs.) 165.00 102.00Lowest during the year (Rs.) 49.25 40.00Market price as at 31st March (Rs.) 104.75 50.50Shareholding as at 31st March, 2010Residents 2,704Foreign Investors 17Total 2,721

94 Touchwood Investments PLC. Annual Report 2009/1020 Largest ShareholdersNo. of Shares %Mr. R A Maloney 1,458,000 16.366Mrs. S G Jamburegoda 801,200 8.993Touchwood Limited 316,000 3.547Nuwara Eliya Property Developers (Pvt) Ltd 260,000 2.918Waldock Mackenzie Limited/Mr. S M De Zoysa 155,200 1.742Mellon Bank N A Acadian Frontier Markets Equity FU 128,000 1.437Mr. V R Gunasekera 110,000 1.235Mr. D F S Thambinayagam 104,100 1.169Seylan Bank Limited/Jayantha Dewage 80,300 0.901Multiform Chemicals Limited 80,000 0.898DPMC Financial Services (Pvt) Ltd 77,600 0.871Mr. M M Mohamed Makeen 71,900 0.807Mr. R A Rishard 67,000 0.752Mr. M S Zarajudeen 65,100 0.731Mr. S P A Koralage 62,000 0.696Mr. G S N Peiris and Mrs. I R Peiris 60,700 0.681Mr. P Ganesan 55,600 0.624Mr. D A T Athukorala 52,700 0.592Mr. D P J Jayamana 50,100 0.562Lanka Orix Leasing Company PLC 42,700 0.479Sub Total 4,098,200 46.002Others 4,811,600 53.998Grand Total 8,908,800 100.000The Public Shareholding as at 31st March 2010 was 73.94% (in 31st March 2009 55.46%)

95Notice of MeetingNOTICE IS HEREBY GIVEN that the Eleventh Annual General Meeting of the Company will be held on Tuesday, 31st August 2010 at 9.30a.m. at the “Albatross”, Waters Edge, 316, Ethul Kotte Road, Battaramulla for the following purposes.1. To receive and consider the Report of the Directors and Statement of Accounts for the year ended 31st March 2010 with the Report ofthe Auditors thereon.2. To re-elect as a Director, Mr. C. Abeygunawardene who retires by rotation in terms of Article 91 of the Article of Association of theCompany.3. To re-elect as a Director, Mr. L. L. Kulatunga, who retires in terms of Section 210 of the Companies Act No. 7 of 2001. As Mr. L. L.Kulatunga, is over 70 years, Special Notice has been received from a shareholder of the intention to pass a resolution which is set outbelow in relation to his re-election (see note 4 below)4. To re-elect as a Director Mr. A. R. Pereira who retires in terms by Section 210 of the Companies Act No. 7 of 2007. As Mr. A. R. Pereira isover 70 years, special notice has been received from a shareholder of the intention to pass a resolution which is set out below in relationto his re-election (see note 5 below).5. To re-appoint as auditors M/s, KPMG Ford Rhodes Thornton & Company at a remuneration to be fixed by the Directors.By Order of the BoardSgd.CORPORATE ADVISORY SERVICES (PVT) LTDCompany SecretariesDated 28th July 2010NOTE:1) 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 neednot be a member of the Company.2) The completed Form of Proxy should be deposited at the registered office of the Company, Level 2, NO. 10, Prince Alfred Tower, AlfredHouse Gardens Colombo 03 not later than 9.30 a.m. on 27th August, 20103) A Form of Proxy accompanies this Notice.4) Special Notice was received by the Company from a shareholder of the Company giving Notice of intention to move the followingResolution at the above Annual General Meeting:“Resolved that Mr. L. L. Kulatunga, who is over 70 years be and is hereby re-elected a Director of the Company and it is furtherspecifically declared that the age limit of 70 years referred to in Section 210 of the Companies Act. No. 07 of 2007 shall not apply tothe said Director.5) Special notice was received from a Shareholder of the Company giving notice of intention to more the following resolution at the aboveAnnual General Meeting.“Resolved that Mr. A. R. Pereira, who is over 70 years be and is hereby re-elected a Director of the Company and it is further specificallydeclared that the age limit of 70 years referred to in Section 210 of the Companies Act No. 7 of 2007 shall not apply to the said Director.

96 Touchwood Investments PLC. Annual Report 2009/10Notes

97Form of ProxyI/We ……………………………………………………………………………………………………………………………………………… of……………………………………………………………….........…being a member/members of the above named Company hereby appoint……………………………………………………………………… of …………………………………………………………….. whom failingRoscoe Anthony MaloneySwarna MaloneySwamy Pandith Asitha KoralageChanna AbeygunawardeneLiyanage Laksaman KulatungaAloysius Ralph Pereiraof Colombo or failing himof Colombo or failing herof Colombo or failing himof Colombo or failing himof Colombo or failing himof Colombo or failing himas my/our proxy to represent me/us ........................................................................................................* and vote on my/our behalf at the11th Annual General Meeting of the Company to be held on 31st August, 2010 and at any adjournment thereof and at every poll whichmay be taken in consequence of the aforesaid Meeting.FORAGAINST1. To receive and consider the Report of the Directors and Statement of Accountsfor the year ended 31st March 2010 with the Report of the Auditors thereon.2. To re-elect as a Director, Mr C Abeygunawardene, who retires by rotation in terms ofArticle 91 of the Article of Association of the Company.3. To re-elect as a Director, Mr L L Kulatunga, who retires in terms ofSection 210 of the Companies Act No. 7 of 2007.4. To re-elect as a Director, Mr. A.R. Pereira, who retires in terms ofSection 210 of the Companies Act No. 7 of 20075. To re-appoint as auditors M/s, KPMG Ford Rhodes Thornton & Company at aremuneration to be fixed by the Directors.Signed this ……………… day of ……………………..………….2010.……………………………………..SignatureNOTE:1). A proxy need not be a member of the Company.2). If you wish your proxy to speak at the Meeting you should insert the words “and to speak” immediately before the words “and Vote”in the place indicated with an asterix (*) and initial such insertion.3). Instruction as to completion appear on the reverse hereof.

98 Touchwood Investments PLC. Annual Report 2009/10INSTRUCTIONS AS TO COMPLETION1. Please return the completed Form of Proxy after filingin legibly your full name and address, signing on thespace provided and filing in the date of signature.2. The completed Form of Proxy should be depositedat the registered office of the Company, Level 2,NO. 10, Prince Alfred Tower, Alfred House GardensColombo 03 not less than 48 hours before the timeappointed for the holding of the Meeting.

CorporateInformationName of the Company : Touchwood Investments PLCLegal Form : A Public Quoted Company with Limited LiabilityIncorporated on June 7, 1999Registration No. PQ - 217Registered Office : Level 2, Prince Alfred Tower,No.10, Alfred House Gardens, Colombo 3, Sri Lanka.Tel.No. +94 117 444 888Fax No. +94 117 444 889Board of Directors : Mr. Roscoe A. Maloney (Chairman)Mr. S. P. Asitha Koralage (Deputy Chairman)Mr. Channa Abeygunawardene (Chief Executive Officer)Mrs. Swarna MaloneyMr. L. L. KulatungaMr. A. R. PereiraAlternate Directors : Mr. Janath OlaboduwaMr. Prageeth HerathMr. Ryan CrowleySecretary : Corporate Advisory Services (Pvt) LtdRegistrars : P W Corporate Secretarial (Pvt) LtdAuditors : KPMG Ford, Rhodes, Thornton & Co(Chartered Accountants)Lawyer : Mr. Janath OlaboduwaBankers : The Hongkong and Shanghai Banking Corporation LimitedSampath Bank PLCBank of CeylonHatton National Bank PLCDesigned & Produced by eMAGEWISE ® (Pvt) LtdPhotography by Taprobane Street & Studio TimesDigital Plates & Printed by Ace Printing & Packaging (Pvt) Ltd

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