Annual Report 2009 - Colombo Stock Exchange

VISION“KELANI VALLEY PLANTATIONS -PRODUCTS OF EXCELLENCE”MISSIONTo Optimise Productivity of thePlantations ensuring Highest Qualityby Harnessing and Developing theEmployees, to improve the Quality ofLife of the Community, whilst ensuringan Acceptable Return on Investment

COMPANYPROFILEKelani Valley Plantations PLC (KVPL) was incorporated as a Regional Plantation Company in June 1992, consequent to the restructuringof the state-owned plantation sector in Sri Lanka and as a preliminary to the privatisation of the plantation industry. Initially, in 1992, DPLPlantations (Pvt) Ltd., took up the management of the plantation company and, in December 1995, acquired a controlling interest in it.This Company is a wholly-owned subsidiary of Dipped Products PLC (DPL), the Group and its other subsidiaries being among the leadingmanufactures of hand protection wear worldwide. Kelani Valley Plantations comprises 27 estates, approximately 13,000 hectares in total, withalmost equal extents of tea and rubber. The plantations are located in Nuwara Eliya, Dickoya and Yatiyantota-Bulathkohupitya, thus spanningthree distinct agro-climatic regions.The tea plantations of Nuwara Eliya are located at elevations of 1,500 to 1,900 metres above sea level and the product is renowned fordelicacy of flavour and quality. The plantations of Dickoya are slightly lower in elevation and the products cater to those seeking thick andcoloury liquors. The tea properties of the Yatiyantota-Bulathkohupitiya belt, at much lower and warmer elevations, produce a low-growntype of tea much sought after for their strong and heavy bodied liquors. The differentiated plantation locations enable the Company to offera wide product spectrum, each carrying individual features of attractiveness. All 13 of the Company’s black tea factories have received theinternationally recognised, HACCP (Sri Lanka), ISO 22000:2005 (Switzerland) accreditations. In 2008, the Company obtained the Global G.A.P.(New Zealand) accreditation for all 19 of its tea estates, a voluntary conformance, certifying the Company’s commitment to Good AgriculturalPractices which minimise detrimental impacts on the environment, whilst signifying a responsible approach to worker safety and health andthe preservation of the bio-diversity within the plantations.The rubber plantations are also confined to the Yatiyantota-Bulathkohupitiya region and the manufacturing facilities produce severalvarieties of Crepe Rubber, as well as Centrifuged Latex at its plant in Kiriporuwa Estate. Sole Crepe from Dewalakande, Panawatte andKiriporuwa Estates are internationally synonymous with supreme quality. The product range and the process flexibility enable the Company toadjust product mix to meet changing market demands. All of the Company’s rubber plantations have been certified by the Forest StewardshipCouncil International (FSCI), as being environmentally and socially sensitive entities.With the consolidation of the management of its core products, KVPL has diversified its product portfolio and business activity. In 2003, theOliphant Estate Black Tea Factory in Nuwara Eliya was converted to the production of Green Tea, which has since become a preferred brandwith both local and international buyers. In 2007, a new facility was set up at Nuwara Eliya Estate to manufacture Instant Tea. In response to theincreased demand for Green Tea, the Glassaugh Black Tea Factory in Nanu Oya was also equipped to manufacture the product.As a preliminary to its business diversification policy, in 2003, KVPL formed a strategic alliance with Mabroc Teas (Pvt) Ltd., a leadingSri Lankan tea marketing company engaged in the export of bulk and branded tea to nearly 50 countries. In association with Mabroc, KVPLbecame a signatory to the UN Global Compact, a member of the UNGC Charter and has since used this platform to launch a range of uniquetea products. These include Single Origin Tea from selected tea gardens and positioned as, ‘The Ethical Tea Brand of the World’.In 2003, in association with ECO Power (Pvt) Ltd., a dedicated hydro power development company, KVPL established Kalupahana PowerCompany (Pvt) Ltd., initially setting up a 01 MW mini-hydro power plant linked to the national grid at Kalupahana Estate. Where feasible, estatemini - hydros have been rehabilitated and, or, upgraded producing cleaner energy at lower cost.Our policy of plantation community development is a key component of our management strategy and has been further reinforced by anunique, multi-dimensional initiative branded as “A Home for Every Plantation worker”, launched in 2006. Designed to uplift the quality of lifeof our people in all aspects, it has been featured as a benchmark in the booklet, “Globally Positioning Sri Lanka’s Best”, released by the GlobalCompact Sri Lanka Network, at the UNGC International Network Conference in Mexico in 2007.The Company’s continuous search for excellence is reflected in its operational practices, its many internationally recognised accreditationsand the voluntary subscription to non-regulatory concepts of ethical business management. Its present position in the industry is a testimony tothe commitment and the spirit of innovation demonstrated by its 14,000 employees, led by a closely knit management team.2Kelani Valley Plantations PLC Annual Report 2009

Financial Highlights2009 2008 ChangeRs. ’000 Rs. ’000 %Turnover 2,860,004 3,108,571 (8.00)Profit/(loss) before tax (27,783) 300,276 (109.25)Profit/(loss) after tax (40,565) 278,765 (114.55)Gross dividend 34,000 119,000 (71.43)Shareholders’ fund 1,556,593 1,718,208 (9.41)Market capitalisation 1,802,000 1,615,000 11.58Capital expenditure 298,318 581,216 (48.67)Employment (Persons) 14,331 15,549 (7.83)Per share (Year end)Earnings/(loss) (Rs.) (1.25) 8.11 (115.41)Market value (Rs.) 53.00 47.50 11.58Net assets (Rs.) 46.44 50.53 (8.10)Dividend (Rs.) 1.00 3.50 (71.43)3Kelani Valley Plantations PLC Annual Report 2009

Chairman’s ReviewI have pleasure in presenting theAnnual Report and the Audited Accounts ofyour Company for the financial year ended31st December 2009.DirectorateMr N G Wickremeratne during whosestewardship of Dipped Products PLC, theCompany was established, retired fromhis position as the Chairman and Directoron 30th June 2009. We wish to place onrecord our appreciation of his invaluablecontributions over the years towards theimpressive growth of the Company andwe wish him good health and happiness inretirement.Mr R W Soysa and Dr. W S E Fernandoalso retired, with effect from March andMay 2009 respectively. We wish to recordour appreciation of the support receivedfrom the two gentlemen during their periodas members of the Board of Directors.The undersigned was appointedChairman in July 2009. Mr N Y Fernando,Director, Dipped Products PLC andMr S C Ganegoda, Director, HayleysPLC were also elected to the Board ofKVPL as non-Executive Directors, inApril and September 2009 respectively,whilst Mr S Siriwardena, FinancialController of the Company, was appointedan Executive Director in June 2009.Mr L T Samarawickrama, ManagingDirector of Amaya Leisure PLC too wasinvited to the Board in November 2009,as an independent non-Executive Director.PerformanceThe year under review began withthe global recession at its peak and teaand rubber prices at a three year low.The very poor commodity prices in the1st quarter, compounded by exceptionallydry weather conditions adverse to both teaand rubber saw KVPL for the first time sinceits inception, carrying a loss in to the 2ndquarter. The extraordinary wage increaseof 42% which became effective from April2009 imposed a further burden on an alreadybeleaguered industry. Whilst prices of bothcommodities improved by the 3rd quarter,the industry was denied the full benefit ofbetter prices by erratic weather patterns.This combination of events resulted in theGroup posting a loss of Rs. 28 M, its firstsince privatization in 1995.The wage increase in 2009, almostdouble that of any previous averageincrease, added Rs. 350 M to operationalexpenditure. However, the linkage of8% of the additional component to aproductivity index is an encouraging sign forthe future. With worker wages constitutingaround 60% of operational expenses,the industry’s future viability depends onwage increases being reciprocated, atleast in part, by concomitant productivityimprovements.KVPL tea production dropped to thelowest in more than a decade, largely onaccount of adverse weather conditionswith a proportionate decline beingreflected in the national volumes, acrosscomparable agro-climatic areas. Similarcrop reductions were experienced byother major producers such as Kenya andIndia, resulting in an estimated 80 M kgshortfall in the global supply in 2009. Thissupply-demand gap fuelled a price revivaltowards the end of 2nd quarter of the year.The national average of Rs. 360/45 per kgreflects an increase of approximately 16%over 2008.Rubber production too mirrored asimilar pattern of decline. Apart from erraticweather, outputs of both commoditiesare likely to have been affected by thedeliberate curtailment of both harvests andinputs, as a reaction to depressed prices inthe 1st half, particularly in the smallholdersector. The year commenced with mostgrades of rubber trading below cost ofproduction, in Colombo as well as at otherinternational trading centres. However, withIndia and China, whose economies wereleast affected by the recession, graduallynormalizing industrial activity, rubber pricesrose from an average of Rs. 150/- per kgin January to around Rs. 320/- per kg inDecember at the Colombo auctions.Kelani Valley Green Tea was an indirectvictim of the black tea market downturn in2009. Historically, in times of commodityprice declines, specialty products are thefirst to be affected and the last to recover.The financial recession pushed nichemarkets in the CIS and European countriesin to dormancy and, due to a near totalabsence of demand, both Oliphant andGlassaugh manufacturing units wereAfter three decades of internecine conflict, this nation has been freed from boththe economic and political burdens of managing the strife. The state should nowbe able to concentrate and focus both time and resources for the development ofits major engines of economic growth. Undoubtedly, one of the key areas shouldbe the plantation industry.4Kelani Valley Plantations PLC Annual Report 2009

Chairman’s Reviewcompelled to curtail production for most ofthe year. However, following the recoveryof the black tea market, there is a cautiousrenewal of interest in the product. Subjectto black tea prices sustaining reasonablelevels, there is some cause for optimism forgreen tea in 2010. Production in Oliphantrecommenced in the latter part of the year.The Nuwara Eliya instant tea plant hasbeen in continuous operation during the yearwith the output taken up by local buyers.Launched initially as an exploratory project,production of larger volumes for export willrequire further expansion of the facility.Kalupahana Power Company recordeda profit before tax of Rs. 6.2 M, improvingon its previous year’s performance by 56%,despite a drought hit 1st quarter whichaffected power generation. However,heavier rainfall in the subsequent monthsand trouble free operation, combinedwith a tariff increase helped to improve itsbottom line.Our associate, Mabroc, still to recoverfully from the destabilizing impact of therecession on its major markets, ended theperiod consolidated with KVPL, with a loss.Traditionally, the ex-Soviet Bloc has beenthe mainstay of Mabroc’s business and thedevaluation of the Rouble against the USdollar eroded the buying power in thatmarket segment. However, the company’sability to secure new markets and innovatenew products has arrested the negativetrend and the company’s performance inthe final quarter of 2009 encourages anoptimistic outlook for the current year.Capital expenditure for the yearunder review was confined mainly, to theagricultural management of immaturerubber and VP tea areas. The previousinvestments made by KVPL in improvingboth its crop base and the manufacturingfacilities stood the Company in goodstead in a particularly unfavourable year,enabling it to limit capital investmentwithout detriment to asset development.The introduction of technically advancedcolour sorter machines in 2008 contributedsignificantly to price improvements in allthree low-country production centresand in the high-grown processing facilities,which follow the low-country type ofmanufacture.DividendDespite ending the year with a loss,your Board of Directors having consideredthe healthy cash flow of the Companypropose a first and final dividend of Rs. 1/=per share from retained earnings of theprevious periods.Product standardsPrevious reviews have reported theCompany’s achievements in obtaininginternationally recognized product hygieneand process safety standards. Thesecertifications have been reaffirmed duringthe year under review through surveillanceaudits carried out by SGS in all 13 black teafactories. The Forest Stewardship Council(FSC) certification of KVPL rubber estateswas reconfirmed during the year whilstDewalakanda and Panawatte factoriesobtained certifications for dry rubber andlatex. Similarly, all plantations were auditedduring the year for conformance with theGLOBALG.A.P. and KVPL’s accreditationwas renewed.EnvironmentProtection of the environment andthe bio-diversity within the Company’splantation boundaries continued to receiveattention. In the year under review, withcollaboration and funding assistance fromDeutsche Bank, Sri Lanka, KVPL launcheda forest re-planting programme on Halgollaestate, significant for its unique geologicalformations and the diversity of its faunaand flora. This is a logical extension of thebio-diversity assessment carried out onall KVPL plantations, in 2008. A similarinitiative, spearheaded by a specialistteam from the International Union for theConservation of Nature (IUCN), againfocusing on Halgolla, will be launched in thecurrent year.Infrastructure and communityConstruction of new workerhousing, upgrading of existing units andelectrification of housing units continued,along with the rehabilitation of access roadswithin plantations. Community welfarewas further boosted with the constructionof new toilets, playgrounds and hot waterbathing facilities. The Company’s sightimprovement initiative in collaborationwith the International Resources for theImprovement of Sight (IRIS) providedspectacles for estates residents and alsofacilitated cataract surgeries during theyear. Awareness programmes in respect ofHIV/AIDS were conducted across severalestates under the guidance of the Red Cross.The Estate Housing Co-operatives providedloans to the value of Rs. 33 M, whilst savingdeposits during the year amounted toRs. 11 M. Details of these initiatives arereported elsewhere in this review.5Kelani Valley Plantations PLC Annual Report 2009

Chairman’s ReviewThese development initiatives weresupported by the Ministry of EstateInfrastructure Development, the PlantationHuman Development Trust (PHDT), theAsian Development Bank (ADB), theNational Housing Development Authority(NHDA), The World University Service ofCanada (WUSC) and the privately managedBerendina Foundation.AwardsBlinkbonnie estate, Dickoya, wasplaced 1st amongst all plantation companiesfor Worker Housing Development whilstEderapola estate, Yatiyantota receivedsimilar recognition for the best managedEstate Co-operative.“A Home for Every PlantationWorker” initiativeThis initiative was selected as a casestudy by the INSEAD Business School,France after an exhaustive assessmentacross several of our plantations carried outby a team of investigators with internationalaccreditation, led by two professors fromINSEAD. It also received the uniquerecognition of being cited as a modelHuman Rights initiative and a best practiceamongst Global Compact members inthe Asia Pacific region at the UnitedNation’s Economic & Social Commissionfor Asia and the Pacific (ESCAP) RegionalConference on Corporate Responsibility,held in Bangkok in November 2009. In aparallel profiling, it was also featured in theCSR Asia portal as a case study of a modelcommunity development initiative within abusiness enterprise.ProspectsThe major Asian economies appear tobe well on the road to recovery whilst thelarger western consumer markets are alsodemonstrating encouraging signs of revival.As long as oil prices sustain current levels,rubber prices may reasonably be expectedto remain firm whilst the improved buyingpower of the oil producing countries willkeep tea prices, particularly of the lowgrown and associated varieties, buoyant.This market stability, however, reliesheavily on the delicate balance of severalfactors, both political and financial which,as the industry has frequently experiencedto its detriment, are subject to suddendecline. In the context of such marketvolatility, it is too early to make firmpredictions. The sizeable worker wageincrease has contributed an unexpectedaddition to operational costs which canbe compensated only with improvedproductivity, supported by reasonable pricelevels and optimum harvests. Cost controlat operational level will continue to receivepriority attention but, understandably, it is astrategy restricted by the need to maintainessential inputs which, if extended beyondprudent limits will become self-defeating.I am writing this at the beginning of anew season for the industry and possiblyat the dawn of a new era for this country.After three decades of internecine conflict,this nation has been freed from both theeconomic and political burdens of managingthe strife. The state should now be ableto concentrate and focus both time andresources for the development of its majorengines of economic growth. Undoubtedly,one of the key areas should be theplantation industry. My predecessors haverepeatedly emphasized the significance ofthe plantations as a foreign exchange earner,a provider of large scale employment andthe foundation of the socio-economicorder of several provinces. I would like toreiterate these sentiments and emphasisethe need for a national level reappraisal ofthe plantation industry and the formulationof a policy for its long term development,within the context of the aspirations of allits stakeholders.I thank employees at all levels for theircontribution during the year. I am gratefulto our buyers for their valued patronage,our brokers for their unstinted support,our suppliers for their services and mycolleagues on the Board for their ableguidance.Mohan PandithageChairman09th February, 20106Kelani Valley Plantations PLC Annual Report 2009

The agro-climatic differentiation of KVPL tea estates provide theconsumer with an attractive and wide-ranging choice of tealiquors; refined and light from Nuwara Eliya, thick and fullbodiedfrom Hatton/Dickoya and dark and strong from thelow-country. The process and product safety and hygieneaccreditation of all black tea factories deliver a tea, whichconforms to the most stringent international purity andsafety parameters.

Board of DirectorsA M Pandithage**ChairmanJoined Hayleys in 1969. Appointed GroupExecutive Director of Hayleys in 1996 and to theBoard in 1998. Appointed Deputy Chairman inJanuary 2007 and Chairman and Chief Executive inJuly 2009. Appointed to the Directorates of DPLand Kelani Valley Plantations PLC in January 2007.Fellow of the Chartered Institute of Logistics andTransport. Director Sri Lanka Port Managementand Consultancy Services Ltd. Former Chairmanof the Ceylon Association of Ships’ Agents. FormerDirector of both the Sri Lanka Ports Authorityand Jaya Container Terminals Ltd. Member of thePresidential Committee on Maritime Matters.J A G Anandarajah*Joined DPL in 1980. Director, DPL since1989 and Managing Director from January 2007.Appointed to the Hayleys Group ManagementCommittee in 2001 and to its Directoratein January 2007. Director of Kelani ValleyPlantations PLC since acquisition in January 1996.Chemistry (Honours) Graduate, University ofPeradeniya, Sri Lanka. Associate Member of theInstitute of Chemistry, Sri Lanka. Member of theBoard of Management, Industrial TechnologyInstitute, Sri Lanka.G K Seneviratne*Joined DPL Plantations in 1992 and appointedto the Board in 1995. Chief Executive of KelaniValley Plantations PLC since 1994, appointed asDirector in 1996 and as Managing Director in May2004. Appointed to the DPL Board in 1998 andto the Hayleys Group Management Committeein January 2007. Past Chairman of the Planters’Association of Ceylon. Served as a member ofSri Lanka Tea Board, Rubber Research Board,Plantation Trust Board and the Tea Association ofSri Lanka. Joined the Plantation Industry in 1970.Served as Consultant, Investment MonitoringBoard, JEDB/SLSPC Estates.B P W Jayasekera***Director of Kelani Valley Plantations PLCsince February 2005. Founder and ExecutiveChairman of Mabroc Teas (Pvt) Ltd., since itsinception in 1988. Joined Brooke Bonds in1971 and Heath & Co. (Ceylon) Ltd. in 1978.Appointed as Tea Director of Heath & Co. in1982 and as Managing Director from 1986 to1988. Holds a Bachelor of Science Degree fromthe University of Ceylon.R Seevaratnam***Director of Kelani Valley Plantations PLCsince October 2008. B.Sc. General Graduate,University of London. FCA, England & Wales andFCA, Sri Lanka, Former Senior Partner of KPMGFord, Rhodes, Thornton and Company.F Mohideen***Director of Kelani Valley PlantationsPLC since October 2008. He holds a B.Sc. inMathematics, University of London and a M.Sc.in Econometrics, London School of Economics.Former Deputy Secretary to the Treasuryand Director General, External ResourcesDepartment, Ministry of Finance and Planning.N Y Fernando**Joined DPL in 1985 and was appointed tothe Board in 2004. Appointed Director of KelaniValley Plantations PLC in April 2009. MechanicalEngineering (Honours) Graduate, Universityof Moratuwa, Sri Lanka. Member/CharteredEngineer of the Institution of Engineers, Sri Lanka.Member/Chartered Professional Engineer of theInstitute of Engineers, Australia. PostgraduateDiploma in Industrial Engineering, NIBM.S Siriwardana*Joined Kelani Valley Plantations PLC in 1995.Appointed to the Board in June 2009. Fellow of theInstitute of Chartered Accountants of Sri Lanka, andInstitute of Certified Management Accountants ofSri Lanka. Prior to joining KVPL, Mr. Siriwardana hasheld senior management positions in many privatesector organisations.S C Ganegoda**Director of Kelani Valley Plantations PLCsince September 2009. Mr. Ganegoda is aFellow, Institute of Chartered Accountants ofSri Lanka and Member, Institute of CertifiedManagement Accountants of Australia. He holdsan MBA from the Postgraduate Institute ofManagement, University of Sri Jayawardenepura.He has worked for Hayleys PLC and Diesel &Motor Engineering PLC between 1987 and 2002and ultimately as an Executive Director of thelatter. Subsequently he has held several seniormanagement positions in private sector entitiesin Sri Lanka and overseas. He rejoined Hayleysin March 2007 and functioned as Head, StrategicBusiness Development Unit until July 2009. Hewas appointed to the Boards of Dipped ProductsPLC and Hayleys PLC in September, 2009.L T Samarawickrama***Director of Kelani Valley Plantations PLCsince November 2009. Mr. Samarawickramaserves as the Managing Director of Amaya LeisurePLC. He is an internationally qualified Hotelierhaving gained most of his Management experiencein UK, working for large international hotelchains over a long period of time. First Sri LankanManager to be appointed by the BeaufortInternational Chain of Hotels to run the firstseaside boutique resort in the Island. He isa Member of the Institute of Hospitality, UK(formerly HCIMA) and of the Royal Societyof Health, London. He counts over 36 yearsexperience in the trade. Having specialised inHotel Designs, he has been responsible forthe careful planning and execution of AmayaResorts & Spa’s refurbishment and rehabilitationprogrammes. He is also a Director of Hotel ReefComber PLC, The Fortress Resorts PLC, HunasFalls Hotels PLC and Royal Ceramics Lanka PLC.* Executive** Non-Executive*** Independent Non-Executive8Kelani Valley Plantations PLC Annual Report 2009

Corporate Management ProfileBoard of DirectorsKelani Valley Plantations PLCTea & Rubber PlantationsIncorporated in 1992 in Sri LankaStated Capital - Rs. 340 mDirectorsA M Pandithage - Chairman (appointed asChairman w.e.f. 01st July, 2009)N G Wickremeratne - Chairman (retired w.e.f. 30th June, 2009)J A G Anandarajah - Managing Director, DPLG K Seneviratne - Managing DirectorR W Soysa (retired w.e.f. 31st March, 2009)Dr. W S E Fernando (retired w.e.f. 31st May, 2009)B P W JayasekeraR A Ebell (alternate to A M Pandithage)(resigned w.e.f. 31st October, 2009)R SeevaratnamF MohideenN Y Fernando (appointed w.e.f. 01st April, 2009)S Siriwardana (appointed w.e.f. 01st June, 2009)S C Ganegoda (appointed w.e.f. 01st September, 2009)L T Samarawickrama (appointed w.e.f. 01st November, 2009)DPL Plantations (Pvt) Ltd.Plantation Management, Managing AgentIncorporated in 1992 in Sri LankaStated Capital - Rs. 101 mDirectorsA M Pandithage - Chairman (appointed w.e.f. 01st July, 2009)N G Wickremeratne - Chairman (retired w.e.f. 30th June, 2009)J A G Anandarajah - Managing Director, DPLG K Seneviratne - Managing Director, KVPLR W Soysa (retired w.e.f. 31st March, 2009)Dr. W S E Fernando (retired w.e.f. 31st May, 2009)A GunasekeraS SiriwardanaM R S Ganapathy (resigned w.e.f. 31st August, 2009)N Y Fernando (appointed w.e.f. 01st April, 2009)S C Ganegoda (appointed w.e.f. 01st September, 2009)Kalupahana Power Company (Pvt) Ltd.Generates Hydro PowerIncorporated in 2003 in Sri LankaStated Capital - Rs. 30 m, Group Interest - 60%DirectorsJ A G AnandarajahDr. R D BandaranaikeG K SeneviratneD J AmbaniS Siriwardana (appointed w.e.f. 01st May, 2009),Kelani Valley Green Tea (Pvt) Ltd.Manufactures Green TeaIncorporated in 2003 in Sri LankaStated Capital - Rs. 20 m, Group Interest - 51%DirectorsJ A G AnandarajahG K SeneviratneR J PereraB P W JayasekeraKelani Valley Instant Tea (Pvt) Ltd.Manufactures Instant TeaIncorporated in 2007 in Sri LankaStated Capital - Rs. 30 m, Group Interest 75%DirectorsA M Pandithage (appointed w.e.f. 01st July, 2009),N G Wickremeratne (retired w.e.f. 30th June, 2009),J A G Anandarajah, G K Seneviratne, B P W JayasekeraMabroc Teas (Pvt) Ltd.Exports Bulk & Retail Packed TeaIncorporated in 1988 in Sri LankaStated Capital - Rs. 90 m, Group Interest - 40%DirectorsB P W Jayasekera - Executive Chairman,R J Perera, C Perera, N R Ranatunga, R M Hanwella,N G Wickremeratne (Retired w.e.f. 03rd August, 2009)J A G Anandarajah, G K Seneviratne,A.M. Pandithge (appointed w.e.f. 03rd August, 2009)Management TeamDirectorsA M Pandithage - ChairmanJ A G Anandarajah - Managing Director, DPLG K Seneviratne - Managing DirectorS Siriwardana - FinanceGeneral ManagersA Gunasekera - Low Country RegionA B Stembo - Up Country RegionDeputy General ManagersR G D Fernando - Rubber Marketing & AdministrationJ A Rodrigo - Marketing TeaY U S Prematilake - Rubber Group - Low CountryD Ramakrishna - Nuwara Eliya GroupD I Gallearachchi - Nuwara EliyaC S Amarathunga - Tea Group - Low CountryGroup ManagersR K Gunasekera - Hatton Group 1S D Samaradiwakara - Hatton Group 11B C Gunasekera - Rubber Group - Low CountryManagersK de J Seneviratne - Hatton Regional OfficeN Weeraratne - Finance CorporateK A P Dalpathadu - Corporate SustainabilityEstate Managers - Up-Country(Nuwara Eliya and Hatton Group)C G B Lenawa* - Uda RadellaT P G I Guruge - TillyrieY A Hettiarachchi * - BlinkbonnieP S Samarakoon - BattalgallaR M Samarakoon - FordyceL L J Ediriweera* - InveryA B N Bandara* - RobgillA P Senanayake - EdinburghR M P A Ratnayake* - GlassaughEstate Managers - Low-Country(Tea and Rubber Group)K A R Alles* - GanepallaN T Dandeniya* - KitulgalaD E P K Welikala - We-OyaR M V Ratnayake* - KalupahanaS F Fernando - DewalakandeJ Ellawala - UrumiwelaM W N de Silva - LavantM V N K Karunaratne* - KelaniD W Vedamuttu - Halgolla* Acting Estate Managers9Kelani Valley Plantations PLC Annual Report 2009

The manufacturing flexibility of our rubber processing centres enables KVPL to successfullymeet changing market demands. The annual production of 4 million kg is distributedbetween Sole Crepe, Latex Crepe, Centrifuged Latex and Skim Rubber. The Sole Crepefrom Dewalakande, Panawatte and Kiriporuwa is acclaimed internationally as a product ofexceptional quality. The Forest Stewardship Council (FSC) certification of the Company’srubber plantations and that of the Dewalakande and Panawatte factories, testify tocompliance with international environmental protection standards.

Management Discussion and AnalysisTEAFollowing the collapse of the worldeconomy in Q3/Q4 2008 the global teamarket declined sharply in the 4th quarter of2008. Lower demand and unremunerativeprices resulted in some producers curtailingboth inputs and production. The loweroutput, combined with a drought followedby excessive wet weather, experienced inmajor producer/exporter countries such asKenya and Sri Lanka, reduced the world teasupply by approximately 70 m kg. by endDecember 2009.Sri Lanka tea production declined by9% as compared with 2008, to 289.7 mkg. The most significant shortfall was inthe high-grown sector which fell by 11.9 mkg as compared to 2008. The mid-grownsdropped by 4.6 m kg. and the low-grownsby 12 m kg, resulting in the lowest teaproduction in Sri Lanka since 1999.The shortfall in the global tea supplycatalysed a price revival in the second quarterof 2009 and remained attractive thereafter.The national average of Rs. 360.45 per kg.reflects an increase of approximately 16%over 2008. Although the export volumedropped by 30 m kg in 2009 the exportearnings did not decline correspondinglydue to improved prices. The prolongedwinter and extreme cold weather conditionsin many parts of the world and the delayin the correction of the world supply arefactors which have contributed to a marketresurgence in the short term.CRTA Average Prices 2009375300225150750LCR1Xtrading centres. The planned suppressionof production, withheld inputs and theadverse weather conditions experienced inmany producer countries, coupled with therevival of the major economies faster thanpredicted, created an imbalance betweensupply and demand.Consequently, a steady price escalationwas witnessed throughout the year, moreso in the second quarter. In December LatexCrepe 1X was trading around Rs. 320.90 perkg. and RSS 1 at Rs. 314.80 per kg. Theseprices reflect an improvement of 129% and110% respectively, for Crepe 1X and RSS 1.The world rubber prices too demonstrated asimilar trend and, at the Singapore commodityexchange, RSS 3 which opened at US$ 1.5per kg. was trading at $ 2.8 per kg. at close.Escalating oil prices and growth in themajor Asian economies, which are the largestconsumers of natural rubber, augur wellfor the rubber market in the short andmedium term.Rs.Jan Feb Mar Apr May June July Aug Sep Oct Nov DecRSS1plant upgrade, particularly the installationof colour separators in tea factories, helpedto boost the net sale averages significantly.The net sale average recorded by KelaniEstate was the highest amongst the regionalplantation company estates.Net Sales Average - Tea40030020010008,0006,0004,0002,000Rs. Kg05 06 07 08 09Production - Tea’000 KgSri Lanka Tea Production320310300290280270m Kg05 06 07 08 09RUBBERThe motor vehicle industry whichconsumes approximately 70% of theworld’s natural rubber output was a majorcasualty of the world economic crisis in thelatter part of 2008. Coupled with lower oilprices and the resultant depressed syntheticrubber prices, 2009 commenced with mostgrades of rubber being traded at levelsbelow cost of production. In January, LatexCrepe 1X was traded at Rs. 140/- per kg.,whilst the RSS 1 was around Rs. 150/- per kg.Similar prices were witnessed in other majorCompany PerformanceThe severe drought experiencedduring the 1st quarter of the year followedby exceptionally wet weather conditionsseverely hampered both tea and rubberproduction. Tea production fell by 19%to 5.473 m kg. and rubber productiondropped by 14% to 3.545 m kg. However,price improvements in both commoditiesin the latter part of the year helped torecoup part of the loss. The worker wageincrease, determined in September andimplemented with retrospective effect fromApril, added a further Rs. 350 m to annualexpenditure. These factors, in combination,resulted in the group posting a pre tax lossof Rs. 28 m for the year, the first time sinceprivatisation. The loss would have beengreater if not for the Rs. 188 m profit madein the fourth quarter. The turnover for theyear was Rs. 2,860 m, reflecting a declineof 8% compared to the previous year. Theinvestments in factory modernisation and005 06 07 08 09Net Sales Average - RubberRs. Kg30022515075005 06 07 08 09Production - Rubber’000 Kg5,0004,0003,0002,0001,000005 06 07 08 0911Kelani Valley Plantations PLC Annual Report 2009

Management Discussion and AnalysisKalupahana Power Company whichoperates a 1 MW mini hydro power plantposted a profit of Rs. 6.2 m before tax,assisted by an increase in CEB tariff ratesand better operating conditions during theyear. Kelani Valley Instant Tea (Pvt) Ltd.was in production throughout the year andrecorded a modest profit of Rs. 0.74 m. Theoperations of Kelani Valley Green Tea (Pvt)Ltd. was adversely affected by the worldeconomic downturn and the resultant lowerdemand for Green Tea. KVPL’s associate,Mabroc Teas also did not recover fully fromthe impact of the recession and had anRs. 0.5 m negative impact on KVPL’sbottom line. However, following the marketimprovement in the latter part of the year andwith the implementation of new strategies,Mabroc recovered some lost ground in thelast quarter of 2009.Capital InvestmentCapital investment during a verydifficult year was confined mainly to aninvestment of Rs. 198 m on the replantingand maintenance of immature tea andrubber plantations and a further Rs. 42m on factory and machinery upgrade.Expenditure was also incurred, withassistance from the Plantation DevelopmentProject in construction of 7 field and factoryrest-rooms, refurbishment of 4 creches,construction of 766 new latrines and therehabilitation of 34.25 km. of estate roads.The total expenditure was Rs. 298 m.Capital Expenditure (Rs. 3,215 m since 1993)600450300150093 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09Energy ManagementPreliminary work has been initiated andfinal regulatory approvals are awaited for theimplementation of hydro power projectson Edinburgh and We Oya Estates which,once in operation, are expected to producea combined output of 1.4MW. Two microhydro power plants at Uda Radella andEdinburgh Tea Factories were rehabilitatedwhich will reduce the dependence of thesetwo units on the national grid. The electricalpower distribution system of the IngestreTea Factory was rehabilitated and a new325 kVA generator installed, enabling thefactory to function without interruption,particularly during high cropping periods.The Dewalakande Rubber Factory stand-bypower has been enhanced whilst the InstantTea Factory at Nuwara Eliya Estate has alsobeen provided with a stand-by unit.Certifications and AccreditationsIn the furtherance of the Company’spolicy of maintaining product and processquality standards, surveillance audits werecarried out on all 13 black tea factories bySGS. All processing units have been recertifiedas being compliant with the HACCPand ISO 22000:2005 quality parameterswhilst all tea plantations of the Company havebeen re-certified by SGS, as being GLOBALG.A.P. compliant. These initiatives will sustainthe conformity of our product with the foodsafety and product hygiene requirements ofall major high-end consumers.The Forest Stewardship Council(FSC) certification of all Company’s rubberplantations was revalidated during the year,whilst the Boron Timber Treatment Plant atPanawatte was also awarded the FSC chain ofcustody certification. This conformity assurescustomers that the treated timber from thePanawatte Plant is sourced, exclusively, fromFSC - certified rubber plantations. SGS, onbehalf of Forest Stewardship Council, auditedthe Dewalakande and Panawatte CrepeFactories during the year, as a preliminaryto certifying that all grades of rubbermanufactured at these two units, conform tothe FSC chain of custody. This accreditationwill add both quantitative and qualitativevalue to the product from these processingcentres, particularly, in the eyes of discerningcustomers seeking ethical products.EnvironmentDuring the year under review, theCompany continued with its programmeof environmental conservation initiatedpreviously. In collaboration with and theassistance of Deutsche Bank, Sri Lanka, 7Ha. of bare land in Wevelthalawa Divisionof Halgolla Estate were planted withindigenous forest species. In the furtheranceof the fauna and flora study undertaken in2008, the Company has also launched, incollaboration with the International Unionfor Conservation of Nature (IUCN), adetailed bio-diversity research projectfocusing Halgolla Estate. The thrust of thisproject will be to identify and conserve bothrare and endangered fauna and flora species.RecognitionOur ‘A Home for Every PlantationWorker’ programme has receivedinternational recognition as a unique CSRinitiative. It was selected as a case studyby the INSEAD Business School of France,after a detailed investigation across all of theCompany’s plantations, carried out by aninternationally accredited team led by twoacademics from the INSEAD School itself.This initiative was featured in a presentationmade by Mr. Marinus W Sikkel, Head ofthe Private Sector Development Sectionof ESCAP, at the Regional Conference onCorporate Responsibility, held in Bangkok inNovember 2009. CSR Asia has also featuredthis initiative in its website as a modelcommunity development concept.The Blinkbonnie Estate Worker HousingProgramme and the Ederapola EstateWorkers’ Co-operative were selected asbest in class in 2009, amongst all plantations.12Kelani Valley Plantations PLC Annual Report 2009

Financial ReviewThe financial year 2009 has been themost challenging year for the Group since itsinception. The effects of the global economicdownturn that continued from the previousyear, the substantial increase in the labour wagerate and erratic weather conditions impairedthe financial performance of the Group. Thissection provides an overview of its financialperformance for the year under review, in thecontext of this challenging environment.Group TurnoverThe Group recorded a consolidatedturnover of Rs. 2,860 m for the yearunder review, a decrease of 8% from theprevious year.The decline was reflected mainly inrubber, which recorded a decrease of 28%compared to the previous year. The turnoverfrom tea increased by 3.5%, on account ofprice improvements in the 2nd half.to downturn in tea and rubber prices andthe severe drought in the first quarter,compounded by the unprecedented wagehike, granted effective from April 2009.Net Profit/(Loss) before TaxThe Group recorded a net loss beforetax of Rs. 28 m, a decrease of 109%compared to the previous season. Thereasons for the poor performance havebeen elaborated in the Chairman’s Reviewsection of this Annual Report.Earnings Before Interest, Tax,Depreciation and Amortisation(EBITDA)The Group’s earnings before interest,tax, depreciation and amortisation declinedby 63%, from Rs. 442 m to Rs. 162 m, in theyear under review.Finance CostNet finance cost reflects the interestcost on borrowings and interest paid toGovernment on finance lease, along withinterest income from short-term depositsand related party loans. Net financecost increased by 146% to Rs. 47 m, ascompared to Rs. 19 m in the previous year.Finance expenses increased by amarginal 7%, to Rs. 94 m from Rs. 88 mpreviously, due to the comparatively highborrowing cost incurred in early part ofthe year to finance the working capitalrequirments of the Company.Finance income decreased by 32% toRs. 47 m from Rs. 69 m previously, mainlydue to decline in deposit rates as well aswithdrawal of part of the short-terminvestment with the related party DPL.The Group’s average cost of fundsincreased from 12.11% to 12.97% duringthe year due to the infusion of DebentureStock at comparatively high interestrate. However, these Debentures and asignificant part of long-term loans wereboth redeemed prematurely, during theyear under review.Finance Cost Vs Finance Income10080604020005 06 07 08 09Finance CostFinance IncomeRs. mThe Tea and Rubber sector contributionswere Rs. 2,036 m and Rs. 782 m, respectively,accounting for 72% and 27% of totalGroup turnover.Gross ProfitThe Group reported a gross profitof Rs. 135 m for the year, a decrease of70% from the previous year, mainly dueShare of Associates’ ResultsThe total contribution from theassociate company, Mabroc Teas (Pvt) Ltd.,to the Group’s bottom line declined fromRs. 9 m profit last year to Rs. 0.5 m lossfor the year under review. Mabroc has notyet recovered fully from the recessionaryimpact on the tea export market.13Kelani Valley Plantations PLC Annual Report 2009

Financial ReviewTaxationThe Group’s total tax charge forthe year was Rs. 13 m, a 41% decreasecompared to the previous year. Tax exemptcompanies of the Group, and informationon the tax holidays enjoyed by thesecompanies, are stated on page 54.DividendsAlthough the Company incurred amarginal loss for the year, dividend ofRs. 1.00 per share is proposed as againstthe previous year’s Rs. 3.50 per share.Capital StructureThe Group’s capital structure declinedin both shareholders’ funds as well asborrowings. Shareholders’ funds decreasedby 9% from Rs. 1,718 m in 2008 to Rs. 1,557 mand overall borrowings decreased by 15%,from Rs. 997 m in 2008 to Rs. 844 m for theyear under review. The decline of borrowingsis seen in both long-term and short-termobligations which have diminished by Rs. 74 mand Rs. 79 m respectively.Rs. m2,0001,6001,200800400005 06 07 08 09ShareholdersBorrowingsBorrowingsRs. mMinority interestThe gearing level has remained moreor less constant, at 35% compared to 36%previously, consequent to the proportionatereductions in both borrowings andshareholders’ funds.Gearing %3736353433323105 06 07 08 09Return on Capital Employed andReturn on EquityDue to lower overall profit, the return oncapital employed and return on equity bothdeclined to 1% in the year under review,from 12% and 18% respectively in 2008.%Working CapitalWorking capital declined from Rs. 631 min 2008 to Rs. 486 m in the year under review,as a result of reduction of receivables.Rs. m30252015105005 06 07 08 09Return on Capital EmployedReturn on EquityCurrent RatioThe ratio between current assets andcurrent liabilities further declined as atend 2009, compared to 2008 as a result ofthe decrease in amounts due from relatedcompanies and increases in trade and otherpayables.%3.503.002.502.001.501.000.50005 06 07 08 09Cash FlowNet cash generated from operatingactivities increased by Rs. 71 m to Rs. 379m from Rs. 308 m in the previous yeardue to improved collection of debtors,longer credit periods from suppliers and anincrease of retiring gratuity liability.Capital expenditure incurred duringthe year under review was Rs. 298 mcompared to Rs. 581 m in the year 2008.Rs. m700600500400300200100005 06 07 08 09Cash Generated from OperationsCapex1,2001,000800600400200005 06 07 08 09Long-term Short-term900750600450300150005 06 07 08 09The Group has only local currencyborrowings.14Kelani Valley Plantations PLC Annual Report 2009

Financial ReviewCapital Expenditure by SegmentCapital expenditure by segment alsodecreased to Rs. 158 m in tea and Rs. 116 min rubber as compared to Rs. 335 m andRs. 236 m, respectively in 2008.Rs. m400350300250200150100500Capital expenditure of Rs. 83 m andRs. 112 m was incurred on replanting of teaand rubber respectively in the year 2009.Capital work-in-progress of Rs. 65 m wascapitalised during the year under review.Performance MeasurementNet Assets per ShareNet assets per share decreased toRs. 46.44 from Rs. 50.53 last year.Rs.TeaOthers605040302005 06 07 08 09RubberPerformance of the ShareThe Company’s share price closed atRs. 53.00 compared to the previous year’sclosing price of Rs. 47.50. Overall marketperformance in the year under review wasencouraging.Rs.During the year the share price reacheda maximum of Rs. 62.00 and the lowestreported was Rs. 44.00. The total numberof shares traded during the year was 2.2 m.Market CapitalisationThe total market capitalisation of theCompany was Rs. 1,802 m at the end of thefinancial year.Total market capitalisation of theCompany’s shares has been steadythroughout the last five-year period, as aresult of higher market value per share whilstissued share capital remained constant.Rs. m60504030201002,50005 06 07 08 09Net Assets per ShareMarket PriceFinancial ReportingThe Group is committed to adopting bestpractices in financial reporting and maintainsa close watch on new developments in thefinancial reporting environment. The financialreports on pages 40 to 73 have been preparedin compliance with the Sri Lanka AccountingStandards and every attempt has beenmade to provide the reader with a clear andcomprehensive understanding of the financials.Our AchievementsOur Annual Report 2008 received aSilver Award in the Plantation sector fromThe Institute of Chartered Accountantsof Sri Lanka, at its Best Annual ReportsAwards Competition.The Company continues to give highpriority to timely delivery of both quarterlyand annual Financial Statements.10005 06 07 08 092,0001,5001,000500005 06 07 08 0915Kelani Valley Plantations PLC Annual Report 2009

Our LandEstate ExtentHectaresElevation(ft)Tea Rubber Other TotalYield per hectareTea(Kg)Nuwara Eliya GroupPedro 547 – 121 668 6,237 1,207 –Nuwara Eliya 184 – 63 247 5,999 1,996 –Glassaugh 184 – 44 228 5,074 968 –Uda Radella 184 – 41 225 5,328 1,136 –Edinburgh 162 – 17 179 5,075 988 –Oliphant 242 – 122 364 6,440 798 –Hatton GroupIngestre 432 – 217 649 4,723 1,465 –Fordyce 266 – 138 403 4,599 1,266 –Annfield 283 – 92 375 4,297 1,263 –Tillyrie 204 – 130 334 4,264 1,120 –Invery 211 – 95 306 4,310 933 –Robgill 219 – 82 300 4,500 1,184 –Battalgalla 180 – 81 261 4,300 1,397 –Blinkbonnie 149 – 32 181 4,500 1,266 –Yatiyantota - Tea GroupHalgolle 266 – 930 1,196 3,478 1,276 –Ederapola 35 419 213 667 338 1,005 903Kitulgala 56 28 498 582 1,003 1,675 960Kalupahana 91 148 272 512 1,500 1,011 805We Oya/Polatagama 25 739 222 987 1,000 1,114 952Kelani 34 252 64 349 300 1,078 809Yatiyantota - Rubber GroupDewalakande – 580 136 717 502 – 727Panawatte 33 691 307 1,030 1,000 1,201 821Urumiwella 6 552 164 722 800 1,309 891Kiriporuwa 45 383 159 587 805 899 943Lavant – 463 106 569 800 – 736Ganepalla – 416 73 490 1,000 – 772Total 4,038 4,630 4,460 13,128 1,224 843Rubber(Kg)16Kelani Valley Plantations PLC Annual Report 2009

Sustainability Report“The Company’s drive for sustainability in its business isbased on a very conscious commitment to ensuring purityof product and safety of process, employment of ethicalbusiness practices and caring for the environment and thesociety, both within and without the plantation boundaries”Purity and Food SafetyHACCP & ISO 22000:2005Quality & Purity of ProductIn the reviews of 2007 and 2008we reported on our achievementsin obtaining process hygiene andproduct purity accreditations, such asISO 22000:2005 (Switzerland), HACCP(Sri Lanka) & TASL- SGS (Italy), for allour black tea factories. In the year underreview the ISO and HACCP certificationshave been audited and revalidated forthe next 3 years. Although the TASL hasceased operations our commitment tomaintaining the relevant process andproduct standards will continue. Theproduct will be periodically tested byaccredited laboratories to ensure thatit conforms to the minimum permittedresidual levels of agro-chemicals, heavymetals and micro-biological content. Theprocess will also be regularly evaluated toensure its conformity to safety and hygieneparameters. Our systems of internalauditing will be managed and monitoredby the head office-based certification teamand the on-location work teams.Ethical BusinessPlantation Human ResourcesThe Company conforms strictlyto existing regulations on employmentrestrictions, particularly those related tochild labour. Its policies rigidly excludeany type of compulsion in work practicesand permits complete freedom to itsemployees, within the framework ofnational labour legislation, with regard tochoice of employment.The Company actively seeks to providea healthy and safe work environment for itsemployees and has set in place strategies tominimise accidents and injury to workers inthe workplace. Workers are also providedwith health and safety instructions, familiaritywith related procedures, training, equipmentand first aid and medical facilities. Eachestate is also provided with the services ofqualified medical staff and an appropriatemedical-welfare structure is in place to meetcommunity requirements.The Company recognises its employees’rights to freedom of association and collectivebargaining, and also facilitates trade unionaffiliations. Periodically, the Company entersinto Collective Agreements with the majorunions, to regulate wages and other importantconditions of worker employment which are,invariably, better than the minimum standardsstipulated by statute. These facilities are alsoextended to clerical, technical, supervisory,medical and maintenance and support staffon plantations.The Company formally pledged itssupport to the UNGC 10 principles in 2006and this has now been incorporated withthe Company’s management strategies.These principles are also communicated toconsumers through product packaging.18Kelani Valley Plantations PLC Annual Report 2009

Sustainability ReportUNGC Ten PrinciplesHuman RightsPrinciple 1 Support and respect theprotection of internationalhuman rights within theirsphere of influencePrinciple 2LabourPrinciple 3Principle 4Principle 5Principle 6Ensure that business isnot complicit in humanrights abusesUphold the freedomof association and theeffective recognition ofthe right to collectivebargainingThe elimination of allforms of forced andcompulsory labourThe effective abolition ofchild labourThe elimination ofdiscrimination in respectof employment andoccupationEnvironmentPrinciple 7 Support a precautionaryapproach to environmentalchallengesPrinciple 8Principle 9Undertake initiativesto promote greaterenvironmentalresponsibilityEncourage thedevelopment and diffusionof environmentallyfriendlytechnologiesPrinciple 10 Work against corruptionin all its forms includingextortion and bribery.Training and Skills UpgradingProgrammeStaff training session at Ederapola EstateTraining programmes carried out duringthe year 2009, focused on knowledge andskill enhancement in areas of agriculturaloperations, occupational health and safety,and the management of product purity andprocess hygiene.• Tapper training was carried out onDewalakande Estate for all the tappersin the estate.• The staff in all 13 black tea processingcentres underwent HACCP trainingconducted by the in-house food safetyaudit team.• FSC training was carried out for thestaff at Dewalakande and Panawatterubber processing factories.• Staff members of all 19 tea estatesparticipated in the GLOBAL G.A.P. trainingcarried out by the head office audit team.• All the executives of the Companyparticipated in the ‘commitment tosustainability programme’, which wascarried out by the senior managementof the KVPL. All were made awareof the initiatives implemented by theCompany in its sustainability strategy.Environmentbecome an international imperative. As aplantation company with a large land areain our custody, we are deeply conscious ofthe need to contribute to environmentalconservation. Our agricultural practicesare designed to cause minimum adverseimpact to the environment and are in strictconformity with standards prescribed bystate institutions and advisory bodies whichregulate the agricultural management ofplantation crops.Forest Stewardship Council (FSC)CertificationThe existing FSC certification (SouthAfrica) in respect of all the Company’srubber plantations was reconfirmed duringthe year consequent to an audit carried outby SGS. This accreditation certifies thatthe agricultural management of the rubberplantations is equivalent to that of a wellmanagedforest.Dewalakande and Panawatte factorieswere recommended for certification of dryrubber and latex production.GLOBAL G.A.P. Certification(New Zealand)First obtained in 2007 for all 19tea plantations of the Company, thisaccreditation confirms that, all agriculturaloperations on the plantations meet therelevant food/product safety parameterswith minimum detrimental impact on theenvironment, whilst ensuring the safetyand the health of workers involved in theoperation. KVPL is the first plantationcompany in Sri Lanka to have obtainedthis certification and in recognition, theCompany was admitted, in 2008, as amember of the GLOBALG.A.P. producer/supplier partnership in the individualsupplier category.In the year under review, the Groupcertification was renewed after an auditcarried out by SGS.Forest conservation at Wewalthalawa, Halgolla -Pix by VimukthiProtection of the environment, in thecontext of global warming, melting of icesheets and glaciers and rising sea levels, hasSegregated waste collection point at Ederapola Estate19Kelani Valley Plantations PLC Annual Report 2009

Sustainability Report• In collaboration with the InternationalResources for the Improvement ofSight (IRIS), 658 estate residents wereprovided with spectacles, whilst 82underwent cataract removal surgery.• 607 plantation residents participatedin Dengue awareness programmeson Halgolla, Kelani, Panawatte,Dewalakande, Pedro, Nuwara Eliya,Glassaugh, Edinburgh, Oliphant andGanepalle Estates.• AIDS and TB awareness programmeswere carried out, with the assistanceof the Red Cross and PHDT on Pedro,Glassaugh, Fordyce, Invery, Halgolla,Kelani, Ederapola, Urumiwela, Kalupahanaand Dewalakande Estates.Community Capacity BuildingWinner - Best Worker Housing Co-operativeSociety 2009, Ederapola Estate• The Estate Housing Co-operativesprovided 3,971 estate workers withloans to the value of Rs. 45 m in total,for purposes ranging from housingconstruction to distress assistance.• Savings deposits during the yearamounted to Rs. 13 m.Empowerment of Youth• Children of estate workers on Kalupahana,participated in English classes for grades3, 4, 5 & 6 with the cooperation of HSBC.• Bridal and beauty care programmes werecarried out on Edinburgh, Panawatte,Urumiwala and Ganepalle Estates.With the assistance of the local ILOoffice, a programme designed to improveboth-Life and Quality of youth was launchedacross 4 estates in the low country.Recognition• The ‘A Home for Every PlantationWorker’ programme was selected asa case study by the INSEAD BusinessSchool, France, after an exhaustiveassessment across several of ourplantations by a team of investigatorswith international accreditation, led bytwo professors from INSEAD.• This initiative was also featured atthe United Nations Economic andSocial Commission for Asia and thePacific (ESCAP) Regional Conference,on Corporate Responsibility, held inBangkok on 3rd November 2009. In hispresentation at this forum, Mr. MarinusW. Sikkel, Chief of the private sectorand development section, trade andinvestment division of ESCAP, projectedthe ‘A Home for Every PlantationWorker’ programme of Kelani ValleyPlantations PLC, as a model humanrights initiative and a best practiceamongst global compact members inthe Asia- Pacific region.• The CSR Asia portal features thisinitiative in its website as a modelcommunity development initiativewithin a business enterprise.• The Blinkbonnie Estate Worker HousingDevelopment was selected as the bestamongst all plantation companies in 2009.• The Ederapola Estate Workers’ Cooperativewas selected as the bestproject of that type amongst allplantation companies in 2009.Human ResourceOur Human Resource configurationreflects an equable balance of maturity,experience and youth. Employee retentionand employee satisfaction are majorfocal points of the Company’s HumanResource Policies and the Corporate SocialResponsibility initiatives.Our Human Resource ConfigurationAge Analysis of Executivesdcefbaa - Below 30 - 40%b - 30 - 34 - 20%c - 35 - 39 - 7%d - 40 - 44 - 19%e - 45 - 49 - 5%f - Above 50 - 9%Service Period Analysis of Executivescdbaa - Below 5 - 45%b - 5 - 9 - 19%c - 10 - 14 - 16%d - Above 15 - 20%Age Analysis of Other Employeesefdcaba - Below 30 - 22%b - 30 - 34 - 15%c - 35 - 39 - 16%d - 40 - 44 - 15%e - 45 - 49 - 14%f - Above 50 - 18%Service Period Analysis of Other Employeesedfgaa - Below 5 - 34%b - 5-9 - 20%c - 10-14 - 12%d - 15 - 19 - 8%e - 20 - 25 - 9%f - 26 - 29 - 6%g - Above 30 - 11%Volleyball Championship at Ederapola Estate• Sewing classes attended by many youngresidents were conducted on Pedro andIngestre Estates.cb21Kelani Valley Plantations PLC Annual Report 2009

Corporate GovernanceThe Board believes that acomprehensive corporate governanceframework enables Kelani Valley PlantationsPLC (KVPL) to achieve ethical andstewardship obligations while supportingthe creation of long-term sustainablestakeholder value.The Company is a subsidiary of DPLPlantations (Pvt) Ltd., which is a fullyowned subsidiary of Dipped Products PLC(DPL). Hayleys PLC is the ultimate parentof Dipped Products PLC.KVPL is mainly in the business ofproducing and processing tea and rubber.KVPL Governance Guidelines provideDirectors and the Management with a roadmap of their respective responsibilities.These guidelines, which will be updatedperiodically, detail those matters requiringBoard and Committee approval, advice orreview. The KVPL Governance Frameworkis depicted in the following diagram.We set out below the CorporateGovernance practices adopted andpracticed by KVPL against the backgroundof the Code of Best Practice on CorporateGovernance issued by The Institute ofChartered Accountants of Sri Lanka and theRules set out in Section 7.10 of the ColomboStock Exchange’s New Listing Rules.Board of DirectorsThe Board of Directors is responsiblefor setting up the governance frameworkwithin the Company.HAYLEYSREMUNERATIONCOMMITTEERECOMMENDSHAREHOLDERSELECTBOARD OFDIRECTORSAPPOINTAPPOINTAUDITORSAUDIT COMMITTEEComposition and Attendance atMeetingsAs at the end of the year under review,the Board consisted of ten Directors - sevenNon-Executive Directors including theChairman and three Executive Directors.These Directors are named below andtheir profiles given on page 8 of this AnnualReport. Details of Directors shareholdingsare given on page 33.SECTORMANAGEMENTAPPOINTSECTORMANAGEMENTSECTORMANAGEMENTThe Board meets quarterly as a matterof routine. Interim meetings are held as andwhen necessary. During the year underreview the Board met on five occasions. Theattendance at these meetings was as follows:Name of DirectorExecutive/ Non-Executive/Independent Non-ExecutiveAttendanceA M Pandithage - Chairman Non-Executive 5/5N G Wickramaratne - Chairman (Retired 30.06.2009) Non-Executive 3/3J A G Anandarajah Executive 5/5G K Seneviratne Executive 5/5R W Soysa (Retired 31.03.2009) Non-Executive 2/2Dr. W S E Fernando (Retired 31.05.2009) Non-Executive 1/2B P W Jayasekera Independent Non-Executive 5/5R Seevaratnam Independent Non-Executive 4/5F Mohideen Independent Non-Executive 4/5N Y Fernando (Appointed 01.04.2009) Non-Executive 2/3S Siriwardana (Appointed 01.06.2009) Executive 2/2S C Ganegoda (Appointed 01.09.2009) Non-Executive 1/1L T Samarawickrama (Appointed 01.11.2009) Independent Non-Executive 0/023Kelani Valley Plantations PLC Annual Report 2009

Corporate GovernanceThe authority is exercised withinthe framework and business practicesestablished by the Board, which demandcompliance with existing laws andregulations as well as best practices indealing with employees, customers,suppliers and the community at large.The production and processingoperations of the Company have beeneffectively divided into two geographicregions, the Up Country and the LowCountry. The Executive Directors ofDPL Plantations, General Managers andManagers head the two regions and otherfunctional units of the Company. Theestates of the Company are managed byEstate Managers and are clustered intosix groups headed by Deputy GeneralManagers and Senior Group Managers. Themanagement structure and the names ofteam members are given on page 9 of thisAnnual Report.The Managing Director, DirectorFinance, General Managers, DeputyGeneral Managers and Group Managersmeet on a monthly basis to review progressand to discuss strategic issues and otherimportant developments that requireconsideration. Minutes are maintainedof decisions made and of major issuesdiscussed at these meetings which theManaging Director of DPL may attend ,from time to time.Relations with ShareholdersThe Notice of Meeting is included inthe Annual Report. The Notice contains theAgenda for the AGM as well as instructionson voting for shareholders, including theappointment of proxies. A Form of Proxy isenclosed with the Annual Report. The periodof notice prescribed by the Companies ActNo. 7 of 2007 has been met.Constructive use of the AnnualGeneral MeetingThe active participation of shareholdersat the Annual General Meeting isencouraged. The Board believes that theAGM is a means of continuing effectivedialogue with shareholders.The Board offers clarifications andresponds to concerns shareholders haveover the content of the Annual Report aswell as other matters which are importantto them. The AGM is also used to adopt theFinancial Statements for the year.Major TransactionsThere have been no transactions duringthe year under review which fall within thedefinition of ‘Major Transactions’ as set outin the Companies Act No. 7 of 2007.Communication with ShareholdersShareholders are provided withQuarterly Financial Statements and theAnnual Report, which the Companyconsiders as its principal communicationwith them and other stakeholders. Thesereports are also provided to the ColomboStock Exchange.Shareholders may bring up concernsthey have, with the Chairman, the ManagingDirector or the Secretaries, as appropriate.Price Sensitive InformationDue care is exercised with respect toshare price sensitive information.Shareholder Value and ReturnThe Board strives to enhanceshareholder value and provides a totalreturn in excess of the market. It hasbeen the policy of the Board to distributea reasonable dividend to the shareholderswhilst retaining sufficient resources forcapital needs.Accountability and AuditFinancial ReportingThe Board places great emphasison complete disclosure of financial andnon-financial information within the boundsof commercial reality, and on the adoptionof sound reporting practices. Financialinformation is disclosed in accordance withthe Sri Lanka Accounting Standards. Revisionsto existing accounting standards and adoptionof new standards are carefully monitored.The Annual Report includes descriptive,non-financial content through which anattempt is made to provide stakeholderswith information to assist them to makemore informed decisions.The Statement of Directors’Responsibilities for the Financial Statementsis given on page 37 of this Annual Report.Management ReportA comprehensive coverage of keyinitiatives undertaken during the year,external impacts, sector performances,achievements and future outlook, awardswon and certifications received is availablein the Management Discussion & Analysisand Sustainability Section (page 12 and page21) of this Annual Report.The Financial Review (page 13 to page15) in this Report provides an analysis of theGroup’s performance during the financial year.The Board confirms that there is anongoing process for identifying, evaluatingand managing significant risks. This processhas been in place throughout the year underreview. Potential risks faced by KVPL, bothinternal and external, and actions institutedto mitigate these are reported in the RiskManagement Section (page 29 to page 31)of this Annual Report.Workplace practices and specificenvironmental, social and ethical aspectsare dealt with in the Sustainability Reporton pages 18 to 21. The Board strives toprotect shareholder value and provide areturn in keeping with the market. TheInvestor Information Section on pages 76to 77 give further details on these aspects.Going ConcernThe Directors, after making necessaryinquiries and reviews including reviewsof budgets for the ensuing year, capitalexpenditure requirements, future prospectsand risks, cash flows and borrowing facilities,have a reasonable expectation that theCompany has resources to continue inoperational existence for the foreseeablefuture. Therefore, the going concern basishas been adopted in the preparation of theFinancial Statements.25Kelani Valley Plantations PLC Annual Report 2009

Corporate GovernanceInternal ControlThe Board is responsible forthe Group’s internal control and itseffectiveness. Internal control is establishedwith emphasis on safeguarding assets,making available accurate and timelyinformation and imposing greater disciplineon decision making. It covers all controlsrequired, including financial, operational andcompliance controls, and risk management.It is important to recognise, however, thatany system can provide only reasonable,and not absolute, assurance that errors andirregularities are prevented or detectedwithin a reasonable time period.The procedures in place to dischargethis responsibility are as follows:• The Managing Agent is responsible forestablishing and monitoring financialcontrols appropriate for the operationand for reporting to the Board thereon.• The Board reviews the strategies of theCompany.• The Managing Agent is responsible forthe preparation of annual budgets forapproval by the Board, and performanceis subject to regular review against these.• The Board has established policies inthe areas of investment and treasurymanagement and does not permitcomplex risk management mechanismsto be used.• The Company is subject to internalaudits and system reviews.• The Audit Committee reviews the plansand activities of internal audits and themanagement letters of external auditors.• The Managing Agent selects and trainsemployees and provides appropriatechannels of communication to foster acontrol conscious environment.The Board has reviewed theeffectiveness of the system of financialcontrol for the period up to the dateof signing the accounts. The Directors’responsibilities for the Financial Statementsare described on page 37.Audit CommitteeAn Audit Committee was establishedin 2008. The Committee consists entirelyof Non-Executive Directors and is chairedby Mr. R Seevaratnam. The Chief FinancialOfficer/Director - Finance, serves as itsSecretary.The Chairman, the Managing Directorof DPL, and the Managing Director of theCompany are invited to attend meetings, andother Directors and Senior Managers attendmeetings as required. The input of the externalauditors is obtained where necessary.The Audit Committee helps the Groupachieve a balance between conformanceand performance.Members of the Audit CommitteeR Seevaratnam - Chairman of the CommitteeF MohideenDuring the year under review, thecommittee met on four occasions, theattendance at these meetings is reported in“Audit Committee Report” on page 38 ofthis Annual Report.The Committee is empowered toexamine any matters relating to the FinancialReporting Systems of the KVPL, and itsexternal and internal audits. Its duties includethe detailed review of Financial Statements,internal control procedures and riskmanagement framework, accounting policiesand compliance with applicable accountingstandards and other rules & regulations.It reviews the adequacy of systems inplace for compliance with relevant legal,regulatory and ethical requirements andcompany policies.The Audit Committee makesrecommendations to the Board pertainingto appointment, reappointment of externalauditors after assessing the independenceand performance, and approves theremuneration and terms of engagement ofthe external auditors.The Audit Committee Report appearson page 38 of this Annual Report.IT GovernanceWe continue to give attention tobringing KVPL’s IT systems in line with itsstrategies and objectives. Dedicated staff isdeployed to support this.KVPL’s investment in IT, covers resourcesoperated and managed centrally andresources deployed on various estates. Theformer includes an ERP system and internetand e-mail services catering to most partsof the business.IT Value and AlignmentInvestments in IT projects and systemsare made after consideration of theirsuitability for the related projects. Furtheraspects such as cost savings, the provisionof timely information and the balancebetween cost and benefits/needs are alsoconsidered when decisions are taken.IT Risk ManagementRisks associated with IT are assessedin the process of Risk Management. Useof licensed software, close monitoring ofinternet usage (for compliance with the ITUse Policy) and mail server operations andthe use of antivirus and firewall software,are some practices in place.26Kelani Valley Plantations PLC Annual Report 2009

Corporate GovernanceLevels of compliance with the CSE’s New Listing Rules- Section 7.10, Rules on Corporate Governance are given in the following table.Rule No. Subject Applicable Requirement Compliance Status Details7.10.1 (a) Non-Executive Directors At least one third of the total number of Compliant Seven out of ten Directors areDirectors should be Non-Executive DirectorsNon-Executive Directors7.10.2 (a) Independent Directors Two or one third of Non-Executive Directors,whichever is higher, should be Independent7.10.2 (b) Independent Directors Each Non-Executive Director should submit adeclaration of independence/non-independencein the prescribed format7.10.3 (a) Disclosure relating toDirectors7.10.3 (b) Disclosure relating toDirectors7.10.3 (c) Disclosure relating toDirectors7.10.3 (d) Disclosure relating toDirectorsNames of Independent Directors should bedisclosed in the Annual ReportThe basis for the Board to determine aDirector is Independent, if criteria specified forIndependence is not metA brief résumé of each Director should beincluded in the Annual Report and should includethe Director’s areas of expertiseForthwith provide a brief résumé of newDirectors appointed to the Board with detailsspecified in 7.10.3 (a),(b) and (c) to theExchange7.10.5 Remuneration Committee A listed company shall have a RemunerationCommittee7.10.5 (a) Composition ofRemuneration Committee7.10.5 (b) Functions ofRemuneration CommitteeShall comprise Non-Executive Directors,a majority of whom will be independentThe Remuneration Committee shall recommendthe remuneration of Chief Executive Officer andExecutive DirectorsCompliantCompliantFour of the Seven Non-ExecutiveDirectors are IndependentNon-Executive Directors havesubmitted these declarationsCompliant Please refer page 8CompliantGiven on page 24 under theheading of Board BalanceCompliant Please refer page 8CompliantCompliantCompliantCompliantBrief resumes of new Directorshave been provided to theColombo Stock ExchangeRemuneration Committee of theUltimate Parent (Hayleys PLC)acts as Remuneration Committeeof the CompanyAs aboveAs above and stated in this AnnualReport7.10.5 (c) Disclosure in the Annual The Annual Report should set out;Report relating to (a) Names of Directors comprising theCompliant As aboveRemuneration Committee Remuneration Committee(b) Statement of Remuneration Policy Compliant As above(c) Aggregated remuneration paid to Executive Compliant Please refer page 33and Non-Executive Directors7.10.6 Audit Committee The Company shall have an Audit Committee Compliant Names of the members of theAudit Committee are stated onpage 267.10.6 (a) Composition of AuditCommitteeShall comprise of Non-Executive Directors amajority of whom will be independentNon-Executive Directors shall be appointed asthe Chairman of the CommitteeChief Executive Officer and Chief FinancialOfficer should attend Audit Committee MeetingsThe Chairman of the Audit Committee or onemember should be a member of a professionalaccounting bodyCompliantCompliantCompliantCompliantAudit Committee consists ofIndependent Non-ExecutiveDirectorsChairman of the AuditCommittee is an IndependentNon-Executive DirectorChief Executive Officer and ChiefFinancial Officer attend meetingsby invitation.Chairman of the Audit Committeeis a Chartered Accountant27Kelani Valley Plantations PLC Annual Report 2009

Corporate GovernanceRule No. Subject Applicable Requirement Compliance Status Details7.10.6 (b) Functions ofCompliantAudit Committee7.10.6 (c) Disclosure in the AnnualReport relating to AuditCommitteeFuctions shall include:(a) Overseeing of the preparation, presentationand adequacy of disclosures in the FinancialStatements in accordance with Sri LankaAccounting Standards(b) Overseeing of the compliance with financialreporting requirements, informationrequirements of the Companies Act andother relevant financial reporting related toregulations and requirements.(c) Overseeing the processes to ensure that theinternal controls and risk mangement areadequate to meet the requirements of theSri Lanka Auditing Standards(d) Assessment of the independence andperformance of the external auditors(e) Make recommendations to the Boardpertaining to appointment, reappointmentand removal of external auditors, andapprove the remuneration and terms ofengagement of the external auditors.(a) Names of Directors comprising the AuditCommittee(b) The Audit Committee shall make adetermination of the independence of theAuditors and disclose the basis for suchdetermination(c) The Annual Report shall contain a Report ofthe Audit Committee setting out the mannerof compliance with their functionsThe terms of reference of theAudit Committee have beenagreed by the BoardCompliant Please refer page 38CompliantCompliantPlease refer Audit CommitteeReport on page 38Please refer Audit CommitteeReport on page 3828Kelani Valley Plantations PLC Annual Report 2009

Risk ManagementThe achievement of our strategic andoperating objectives will necessarily involvetaking risks. Our risk management processis intended to ensure that risks are takenknowingly and with forethought. Ourability to identify, assess, monitor andmanage each type of risk to which theCompany is exposed is an important factorin our stability, performance, reputationand future success.Our approach to risk management isbuilt on the day to day business processand relies on individual responsibilityand collective overview, informed bycomprehensive reporting. In regularmeetings, the Company’s results andattendant opportunities and risks arediscussed, and targets and necessaryactions agreed upon.Internal systems reviews monitorthe effectiveness of and compliance withmanagement and control systems. Thisprovides useful insights as to the effectivenessof the risk management system.Risk IdentificationThe responsibility for setting up theoverall framework for risk management lieswith the Board of Directors. Within thatstructure, line managers are responsiblefor the identification, measurement andmanagement of risks in their areas ofresponsibility.Regular monthly review meetingsand internal systems reviews are keyinstruments in identifying possible risks.Risk AssessmentRisk measures are based on thelikelihood of occurrence and the impact ofoccurrence on achievement of our targets.Any significant risk exceeding risk tolerancelevels will require management responses.Information and CommunicationDocumentation and communicationplay a key role in our risk monitoringprocess. Quarterly review reports withkey performance indicators and possiblerisk and mitigatory actions are presentedto the Board. Audit reports on levels ofcompliance with risk mitigating actions aretabled at the Audit Committee and are thenreviewed and acted upon.MonitoringThe ultimate responsibility for monitoringrisk management lies with the seniormanagement team and the Audit Committee.This includes monitoring the efficiency andeffectiveness of internal control.In addition, with the year-end auditthe External Auditor issues a managementletter highlighting possible risks, and briefsthe Board and the management team ontheir evaluations. These outcomes are usedto enhance our risk management system.The following sections describe ourapproach to risk management. The firstcovers our risk management process andthe second explains the risks and the wayin which we manage them.Risk Management ProcessObjective SettingAfter a comprehensive review of risk andopportunities, the Board sets annual targets.Targets reflect the Company’s risk appetite.A higher level of risk requires a moreurgent and concerted management response.Tolerance of Risk and MitigatingActionDepending on the tolerance of risk,decisions are taken to manage risk byaccepting, reducing, sharing or avoidingit. The Managing Director, with themanagement team responsible, initiatesrisk mitigatory actions.We have purchased insurance coverage,where it is available, on economically viableterms to minimise the financial lossesarising from uncertainty and risk. Thesecovers are frequently re-examined andadjusted accordingly.Likelihood x Impact = Risk29Kelani Valley Plantations PLC Annual Report 2009

Risk ManagementRisk AnalysisRisk FactorRiskRisk Mitigatory StrategiesPolitical1. Intervention in wage negotiations and major industrial relations issues inhibit the resolutionof issues on the basis of economic viability alone.2. Restrictions on law enforcement agencies impede settlement of major disruptions.3. Management initiatives to improve labour productivity are not supported.4. Unplanned acquisitions of land arise.5. Political instability inhibits investment, particularly in concert with foreign investors.1. Canvassing the support of political pressure groups/individuals.2. Making representations to key members of Government and the bureaucracy.3. Negotiating Collective Agreements with major plantation trade unions, in which wages andparameters of operation are agreed.Risk Rating Moderate.Risk FactorRiskRisk Mitigatory StrategiesRisk RatingCommodity Cycle1. Fluctuations in global supply and demand affect prices.2. Competition from other major low cost producers i.e. India, China, Kenya, Vietnam and Indonesiaaffects demand and prices.3. Competition from close substitutes affects demand and prices.4. Increases in prices of fertiliser/chemicals/energy contribute to higher production costs.1. Integrating with marketing company (Mabroc Teas) to add value to our product.2. Converting two orthodox tea estates/factories to manufacture green tea.3. Accreditations of black tea factories to conform to international food hygiene standards.4. Accreditations of tea estates for good agricultural practices demanded by the global market.5. Membership of the UN Global Compact brands KVPL as a socially responsible plantation company.6. Differentiation of KVPL to bulk buyers as the “Ethical Tea Producer”.7. Marketing of “The Ethical Tea Brand of the World” to retailers through Mabroc Teas.8. Promotion of single origin products by leveraging unique locations/points of differentiation.9. Continuous agro-climatic expansion of centrifuged latex capacity whilst maintaining the optimumnumber of production units for the more labour intensive product.10. Converting to cheaper energy alternatives and implementing energy saving strategies in theproduction process.Moderate.30Kelani Valley Plantations PLC Annual Report 2009

Risk ManagementRisk FactorRiskRisk Mitigation StrategiesRisk Rating Low.Management Personnel1. The perception that remuneration is not commensurate with the demands of plantationmanagement prompts staff to migrate to other industries.2. Lack of adequate educational and other infrastructural facilities in plantation areas is a disincentiveto managers.3. Availability of more attractive Colombo-based job opportunities at entry level inhibits high calibrecandidates from selecting the plantation industry as a career.1. Providing easy accessibility to senior management and developing a company culture, whichfosters teamwork and close interaction amongst all management staff.2. Fostering an open, participative management approach, encouraging contributions to decisionmaking and strategising, from junior levels.3. Ability of the management structure and the scope of executive responsibilities to respond toemerging needs and challenges and, simultaneously meet career aspirations.4. Ensuring promotions from within, to senior executive positions as far as possible.Risk FactorFinancialRisk 1. Ad-hoc, sudden changes in national fiscal policies.2. Low returns on investment.3. Difficulty in generating funds for capital development/growth.Risk Mitigation Strategies 1. Diversification of marginal land and optimising outputs in productive areas.2. Prudent investments in capital development i.e. replanting, machinery and plant upgrading.3. Rationalising production capacities in major factories.4. Diversifying into related businesses - mini hydropower development, green tea and RTD tea - andwith greater integration with marketing company, promoting niche products.Risk Rating Moderate.Risk FactorWorker MigrationRisk 1. Practical difficulties in large-scale automation/mechanisation of labour-intensive operations.2. Loss of workers to other industries/business/agricultural operations in proximity to the plantations.3. Changing aspirations of plantation youth who find employment on plantations, undesirable.4. Difficulties in ensuring adequate resident manpower.Risk Mitigation Strategies 1. Out-sourcing specific operations and moving workers from up-country to the low-country forshort-term field operations.2. Binding workers to the plantation through participative housing projects, improved welfareschemes, medical benefits and other community development initiatives.3. Changing the image of both worker and workplace by initiatives to provide low-cost transportfacilities through concessionary funding schemes.Risk Rating Low.31Kelani Valley Plantations PLC Annual Report 2009

Annual Report of the Board of Directors on the Affairs of the CompanyThe Board of Directors of Kelani ValleyPlantations PLC has pleasure in presentingtheir Report on the Affairs of the Companytogether with the audited ConsolidatedFinancial Statements of the Group andof the Company for the year ended31st December, 2009.The details set out herein provide thepertinent information required by theCompanies Act No. 07 of 2007, the ColomboStock Exchange Listing Rules and are guidedby recommended best reporting practices.Principal Activities andBusiness ReviewThe principal activities of the Companyare the production and processing of teaand rubber. Details of activities of othercompanies in the Group are given onpage 9 of this Report. The Chairman’sReview and Management Discussion andAnalysis and Financial Review describe theperformance of the Company during theyear, with comments on the financial resultsand the progress of its subsidiaries, KelaniValley Green Tea (Pvt) Ltd., KalupahanaPower Company (Pvt) Ltd., Kelani ValleyInstant Tea (Pvt) Ltd. and Associate MabrocTeas (Pvt) Ltd. There were no materialchanges in the nature of business of theCompany and the Group.The Directors, to the best of theirknowledge and belief, confirm that theGroup has not engaged in any activities thatcontravene laws and regulations.Financial StatementsThe Financial Statements of theCompany and the Group are given onpages 40 to 73.Auditor’s ReportThe Auditor’s Report on the FinancialStatements of the Company and the Groupis given on page 39.Accounting PoliciesThe accounting policies adopted in thepreparation of the Financial Statements aregiven on pages 44 to 52. There were nochanges in the accounting policies adoptedin the previous year for the Company andits subsidiaries.Group TurnoverThe turnover of the Group duringthe year was Rs. 2,860,003,472/- (2008 -Rs. 3,108,570,780/-) and an analysis is givenin Note 6.1 to the Financial Statements.The Group turnover from tea increasedby Rs. 69,059,332/- (2008 - Rs. 233,230,398/-)and of rubber decreased by Rs. 308,808,969/-(2008 - increased by Rs. 30,309,796/-) duringthe year.Results and DividendsThe Group loss before taxation,excluding its share of profit/(loss) ofassociate, amounted to Rs. 27,250,437/-(2008 - Profit of Rs. 291,563,466/-).With its share of associate’s profit/(loss)(net of tax), Group loss before taxationamounted to Rs. 27,782,958/- (2008 -profit of Rs. 300,275,486/-). After adjustingRs. 12,781,804/- (2008 - Rs. 21,510,871/-)and Rs. 2,050,223/- (2008 - Rs. 2,913,996/-)for taxation and the minority shareholders’interest respectively, the profit available forappropriation, inclusive of brought forwardretained profit of Rs. 324,208,239/-(2008 - Rs. 167,356,623/-) amounted toRs. 281,593,254/- (2008 - Rs. 443,208,242/-).Of this Rs. 34,000,001/- (2008 -Rs. 119,000,003/50) has been set aside fordividends.The Board of Directors recommendsa first and final dividend of Rs. 1/- pershare payable on 12th April, 2010 to theholders of the issued ordinary shares ofthe Company as at close of business on31st March, 2010. The dividend will besubject to a 10% tax deduction.The Directors have confirmed thatthe Company satisfies the solvency testrequirement under section 56 of theCompanies Act No. 07 of 2007 for the finaldividend proposed. A solvency certificate hasbeen sought in respect of the final dividend ofRs. 1.00 (2008 Rs. 3.50) per share.Property, Plant & EquipmentThe capital expenditure of theGroup during the year amounted toRs. 298,317,604/- (2008 - Rs. 581,216,647/-)whilst that of the Company wasRs. 291,837,876/- (2008 - Rs. 548,568,714/-)which includes replanting expenditure of Rs.194,418,238/- (2008 - Rs. 214,436,839/-)on tea and rubber and Rs 3,314,677/- (2008 -Rs. 3,455,273/-) on timber planting.Information relating to movement ofProperty, Plant & Equipment is given in Notes12, 13 and 14 to the Financial Statements.Stated Capital and ReservesIn compliance with the CompaniesAct No. 07 of 2007 the Financial Statementsreflect the stated capital of the Company.The stated capital is the total of all amountsreceived by the Company in respect of theissue of shares.The stated capital of the Company,consisting of 34,000,000 ordinary sharesand one golden share amounts toRs. 340,000,010/-.There was no change inthe stated capital during the year.The total reserves of the Group asat 31st December, 2009 amounted toRs. 1,216,593,254/- (2008 - Rs. 1,378,208,242/-)comprising the general reserve ofRs. 935,000,000/- (2008 - Rs. 935,000,000/-)and the carried forward profit ofRs. 281,593,254/- (2008 - Rs. 443,208,242/-).The movement is shown in the Statement ofChanges in Equity in the Financial Statements.32Kelani Valley Plantations PLC Annual Report 2009

Annual Report of the Board of Directors on the Affairs of the CompanyTaxationIt is the Company’s policy to providefor deferred taxation on all knowntemporary differences on the liabilitymethod. According to Section 16 of theInland Revenue Act No. 10 of 2006, theCompany is exempt from income tax onits agricultural activities for a period of5 years ending on the year of assessment2010/11. All other activities of the Companyare liable to income tax at the rate of 35%.Interest RegisterThe Company, in compliance withthe Companies Act No. 07 of 2007,maintains an Interest Register. Particularsof entries in the Interest Register aredetailed below. The subsidiary companieshave unanimously agreed to dispense withmaintaining an Interest Register.Directors’ Interests in Transactions:The Directors of the Company havemade the general disclosures provided forin Section 192(2) of the Companies ActNo. 07 of 2007. Note 30 of the FinancialStatements dealing with related partydisclosures include details of their interestsin transactions.Directors’ Interests in Shares:Directors of the Company and itssubsidiaries who have relevant interestsin the shares of the respective companieshave disclosed their shareholdings andany acquisitions/disposals to their Boards,in compliance with Section 200 of theCompanies Act.Payment of Remunerationto Directors:Executive Directors’ remunerationis determined within an establishedframework. The total remuneration ofthe Executive Directors of the Companyand the Group for the year ended 31stDecember, 2009, is Rs. 12,631,000/- andRs. 12,851,000/- respectively, includingthe value of perquisites granted to themas part of their terms of service. Thetotal remuneration of independent Non-Executive Directors of the Company forthe year ended 31st December, 2009 isRs. 500,000/-, determined according toscales of payment decided upon by theBoard previously. The Board is satisfied thatthe payment of this remuneration is fair tothe Company.Corporate DonationsDonation by the Company amountedto Rs. 162,485/- (2008- Nil) donated tointernally displaced people in NorthernProvince. This exceeds the amount ofRs. 25,000/- approved by the shareholdersat the last Annual General Meeting.Shareholders’ ratification of the additionalamount spent, as described above, will besought at the Annual General Meeting.No donations were made for politicalpurposes.No donations were made during theyear (2008 - Nil) by its subsidiaries.As at 31/12/09No. of sharesAs at 31/12/08No. of sharesMr. G K Seneviratne, Managing Director 4,000 4,000Mr. S Siriwardana, Director 193 193Mr. B P W Jayasekera (held through Mabroc Holdings(Pvt) Ltd. in which he has 40% shareholding. 512,746 512,746None of the other Directors held shares of the Company as at 31st December, 2009.DirectorateThe names of the Directors who heldoffice during the financial year are givenbelow and their brief profiles appear onpage 8.Executive DirectorsJ A G Anandarajah, G K Seneviratne,S SiriwardanaNon-Executive DirectorsA M Pandithage, N Y Fernando,S C Ganegoda.Independent Non-ExecutiveDirectorsB P W Jayasekera, R Seevaratnam,F Mohideen, L T Samarawickrama.Mr. N G Wickramaratne who servedas the Chairman of the Company retiredon 30th June, 2009. He was succeededas Chairman by Mr. A M Pandithage witheffect from 01st July, 2009.Mr. R W Soysa and Dr. W S E Fernandowho served as Directors, retired witheffect from 31st March, 2009 and 31st May,2009 respectively.Mr. R A Ebell who served as anAlternate Director, resigned with effectfrom 31st October, 2009.Messrs N Y Fernando, S Siriwardana,S C Ganegoda and L T Samarawickramawere appointed to the Board on 01st April ,2009, 01st June, 2009, 01st September, 2009and 01st November, 2009 respectively andin terms of Article No. 28 of the Articles ofAssociation of the Company, Shareholderswill be requested to re-elect them at theAnnual General Meeting.Mr. A M Pandithage retires by rotation,and being eligible, offers himself forre-election.33Kelani Valley Plantations PLC Annual Report 2009

Annual Report of the Board of Directors on the Affairs of the CompanyDirectors of the subsidiaries, associatesand the Parent Company are given on pageNo. 9.Corporate GovernanceThe Company has complied with theCorporate Governance Rules laid downunder the Listing Rules of the Colombo StockExchange. The Corporate Governance sectionon pages 23 to 28 discusses this further.Adoption of good governance practiceshas become an essential requirement intoday’s corporate culture. The practicescarried out by the Group are explained inthe Corporate Governance statement onpages 23 to 28.AuditorsMessrs KPMG Ford, Rhodes, Thornton& Co., Chartered Accountants, aredeemed reappointed in terms of Section158 of the Companies Act No. 07 of 2007,as Auditors of the Company. A Resolutionproposing that the Directors be authorisedto determine their remuneration will besubmitted at the Annual General Meeting.The Auditors, Messrs KPMG Ford,Rhodes, Thornton & Co., were paidRs. 2,129,240/- (2008 - Rs. 1,850,250/-) andRs. 1,792,000/- (2008 - Rs. 1,600,000/-) asaudit fees by the Group and the Companyrespectively. In addition, they were paidRs. 209,500/- (2008 - Rs. 730,400/-) andRs. 109,000/- (2008 - Rs. 633,500/-) by theGroup and the Company, for non-auditrelatedwork, which consisted mainly of taxconsultancy services.The Auditors of the Company andits subsidiaries have confirmed that theydo not have any relationships (other thanthat of Auditor) with, or interests in theCompany or any of its subsidiaries otherthan those disclosed above.Share InformationInformation relating to earnings, dividend,net assets per share and share trading isshown on pages 3 and 76 respectively.Events Occurring after the BalanceSheet DateNo circumstances have arisen since theBalance Sheet date, which would requireadjustments to, or disclosure of other thanthose disclosed in Note 33 to the FinancialStatements.Employment:The number of persons employed bythe Company at year end was 14,331 (2008- 15,549) of which 14,295 (2008 - 15,514)are engaged in employment outside theDistrict of Colombo.Statutory PaymentsThe declaration relating to statutorypayments is made in the Statement ofDirectors’ Responsibilities on page 37.Directors, to the best of theirknowledge and belief, are satisfied thatall statutory payments in relation toemployees and the Government have beenmade promptly.Environmental ProtectionThe Group’s efforts to conserve scarceand non-renewable resources, as well as itsenvironmental objectives and key initiatives,are described in the environment section ofthe Sustainability Report on pages 18 to 21.The Group’s business activities canhave direct and indirect effects on theenvironment. It is the Group’s policy tominimise any adverse effects its activitiesmay have on the environment and topromote co-operation and compliance withthe relevant authorities and regulations.Internal ControlThe Directors acknowledge theirresponsibility for the Group’s system ofinternal control. The system is designedto give assurance, inter alia, regarding thesafeguarding of assets, the maintenanceof proper accounting records and thereliability of financial information generated.However, any system can only ensurereasonable and not absolute assurancethat errors and irregularities are eitherprevented or detected within a reasonabletime period.The Board, having reviewed thesystem of internal controls, is satisfied withits effectiveness for the period up to thedate of signing the Financial Statements.Going ConcernThe Directors, after making necessaryinquiries and reviews including reviewsof the Group’s budget for the ensuingyear, capital expenditure requirements,future prospects and risks, cash flows andborrowing facilities, have a reasonableexpectation that the Company and theGroup have adequate resources to continuein operational existence for the foreseeablefuture. Therefore, the going concern basishas been adopted in the preparation of theFinancial Statements.Major ShareholdingsThe twenty major shareholders as at31st December, 2009 are given on page 77of this Report.Annual General MeetingThe Annual General Meeting will beheld at the registered office of the Companyat No. 400, Deans Road, Colombo 10,at 3.00 p.m. on 31st March, 2010. TheNotice of the Annual General Meetingappears on page 79.For and on behalf of the Board,A M PandithageChairmanG.K. SeneviratneManaging DirectorHayleys Group Services (Pvt) Ltd.Secretaries9th February, 201034Kelani Valley Plantations PLC Annual Report 2009

FINANCIAL CALENDAR 20091st Quarter Report - 13th May, 20092nd Quarter Report - 31st July, 20093rd Quarter Report - 3rd November, 2009Annual Report 2009 - 9th February, 2010Seventeenth Annual General Meeting - 31st March, 2010First & Final Dividend Proposed - 31st March, 2010First & Final Dividend Payable - 12th April, 2010FINANCIAL REPORTSStatement of Directors’ Responsibilities 37Audit Committee Report 38Independent Auditor’s Report 39Income Statements 40Balance Sheets 41Statements of Changes in Equity 42Cash Flow Statements 43Accounting Policies 44Notes to the Financial Statements 53

36Kelani Valley Plantations PLC Annual Report 2009

Statement of Directors’ ResponsibilitiesThe Directors are responsible, under the Sections 150 (1),151(1), 152(1) & 153 (1) of the Companies Act No. 07 of2007, to ensure compliance with the requirements set outtherein to prepare Financial Statements for each financialyear giving a true and fair view of the state of affairs of theCompany and the Group as at the end of the financial yearand of the profit & loss of the Company and the Group forthe financial year. The Directors are also responsible, underSection 148 for ensuring that proper accounting recordsare kept to disclose, with reasonable accuracy, the financialposition and enable preparation of the Financial Statements.The Board accepts responsibility for the integrity andobjectivity of the Financial Statements presented. TheDirectors confirm that in preparing the Financial Statements,appropriate accounting policies have been selectedand applied consistently while reasonable and prudentjudgments have been made so that the form and substanceof transactions are properly reflected.They also confirm that the Financial Statements have beenprepared and presented in accordance with the Sri LankaAccounting Standards. The Financial Statements provide theinformation required by the Companies Act and Listing Rulesof the Colombo Stock Exchange.The Directors have taken reasonable measures to safeguardthe assets of the Group and, in that context, have institutedappropriate systems of internal control with a view topreventing and detecting fraud and other irregularities.As required by Section 56 (2) of the Companies Act,the Board of Directors has authorised distribution ofthe dividends now proposed, being satisfied, based oninformation available to it, that the Company would satisfythe solvency test after such distribution, in accordancewith Section 57 of the Companies Act No. 07 of 2007 andhave sought in respect of the dividend now proposed,Certificate of Solvency from its auditors.The external auditors, Messrs KPMG Ford, Rhodes,Thornton & Co., reappointed in terms of Section 158 ofthe Companies Act were provided with every opportunityto undertake the inspections they considered appropriateto enable them to form their opinion on the FinancialStatements. The Report of the Auditors, shown onpage 39 sets out their responsibilities in relation to theFinancial Statements.COMPLIANCE REPORTThe Directors confirm that to the best of their knowledge,all statutory payments relating to employees and theGovernment that were due in respect of the Company andits subsidiaries as at the Balance Sheet date have been paid orwhere relevant, provided for.By Order of the BoardHAYLEYS GROUP SERVICES (PVT) LTD.Secretaries9th February, 201037Kelani Valley Plantations PLC Annual Report 2009

Audit Committee ReportComposition and RoleThe Audit Committee, appointed by and responsible to theBoard of Directors, comprises two Non-Executive Directors.The Chairman, Director-Finance of Hayleys PLC, ManagingDirector of Dipped Products PLC, Managing Director and theDirector-Finance of Kelani Valley Plantations PLC attendedmeetings of the Committee by invitation. Other membersof the Board and the External Auditors were requested tobe present at discussions where appropriate. The Chairmanof the Audit Committee is a senior Chartered Accountant.The role of the Committee, which has specific terms ofreference, is described in the Corporate Governance Reporton page 23.The names of the members and brief profiles of eachmember are given on page 8 and inner back cover in thisReport. Their individual and collective financial knowledgeand business acumen and the independence of theCommittee are brought to bear on their deliberations andjudgments on matters that come within the Committee’spurview.The Audit Committee has also reviewed the activities of thethree unquoted subsidiary companies during the financialyear under review.MeetingsThe Audit Committee met 4 times during the year. Theattendance of the members at these meetings is as follows:Mr. R Seevaratnam 4/4Mr. F Mohideen 4/4ActivitiesThe Committee carried out the following activities duringthe year:• The Committee reviewed the financial reporting systemadopted by the Group in the preparation of its quarterlyand annual Financial Statements to ensure reliability ofthe process and consistency of the accounting policiesand methods adopted and their compliance with theSri Lanka Accounting Standards. The methodologyincluded obtaining statements of compliance from theManaging Director and the Chief Financial Officer. TheCommittee recommended the Financial Statementsto the Board for its deliberations and issuance. TheCommittee, in its evaluation of the financial reportingsystem, also recognised the adequacy of the contentand quality of routine management information reportsforwarded to its members.• The Committee reviewed the process to assess theeffectiveness of the internal financial controls thathave been designed to provide reasonable assuranceto the Directors that assets are safeguarded and thatthe financial reporting system can be relied upon inpreparation and presentation of the Financial Statements.Procedures relating to continuous monitoring andreporting of key control elements in Group companieswere reviewed and action plans for the ensuing yearwere formulated. The Committee also appraised theindependence of the Internal Auditors in the conductof their internal audits and systems reviews.• The Committee reviewed reports tabled by Groupcompanies certifying their compliance with relevantrevenue regulations.• The Committee obtained and reviewed statementsfrom the Managing Director on major business risks,mitigatory actions taken or contemplated.• The Committee held meetings with the ExternalAuditors to review the scope of the audit and the AuditManagement Letters of Group companies. Actionstaken by the management in response to the issuesraised, as well as the effectiveness of the internalcontrols in place, were discussed with the heads ofbusiness units. Remedial action was recommendedwherever necessary.• The Committee reviewed the nature and value of nonauditwork the External Auditors had undertaken, toensure that it did not compromise their independence.The Audit Committee has recommended to the Board ofDirectors that Messrs KPMG Ford, Rhodes, Thornton &Co., be continued as Auditors for the financial year ending31st December, 2010.R SeevaratnamChairmanAudit Committee03rd February, 201038Kelani Valley Plantations PLC Annual Report 2009

Independent Auditor’s ReportTO THE SHAREHOLDERS OFKELANI VALLEY PLANTATIONS PLCReport on the Financial StatementsWe have audited the accompanying financial statementsof Kelani Valley Plantations PLC, the consolidated financialstatements of the Company and its subsidiaries as atDecember 31 2009, which comprise the balance sheet as atDecember 31, 2009, and the income statement, statementof changes in equity and cash flow statement for the yearthen ended, and a summary of significant accountingpolicies and explanatory notes.Management’s Responsibility for the Financial StatementsManagement 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 controlrelevant to the preparation and fair presentation of financialstatements that are free from material misstatement,whether due to fraud or error; selecting and applyingappropriate accounting policies; and making accountingestimates that are reasonable in the circumstances.Scope of Audit and Basis of OpinionOur responsibility is to express an opinion on these financialstatements based on our audit. We conducted our auditin accordance with Sri Lanka Auditing Standards. Thosestandards require that we plan and perform the auditto obtain reasonable assurance whether the financialstatements are free from material misstatement.An audit includes examining, on a test basis, evidencesupporting the amounts and disclosures in the financialstatements. An audit also includes assessing the accountingprinciples used and significant estimates made bymanagement, as well as evaluating the overall financialstatement presentation.We have obtained all the information and explanationswhich to the best of our knowledge and belief werenecessary for the purposes of our audit. We therefore believethat our audit provides a reasonable basis for our opinion.Opinion - CompanyIn our opinion, so far as appears from our examination,the Company maintained proper accounting records forthe year ended December 31, 2009 and, the financialstatements give a true and fair view of the Company’s stateof affairs as at December 31, 2009 and its loss and cashflows for the year then ended in accordance with Sri LankaAccounting Standards.Opinion - GroupIn our opinion, the consolidated financial statements give atrue and fair view of the state of affairs as at December 31,2009 and the loss and cash flows for the year then ended,in accordance with Sri Lanka Accounting Standards, of theCompany and its subsidiaries dealt with thereby, so far asconcerns the shareholders of the Company.Report on Other Legal and Regulatory RequirementsThese financial statements also comply with therequirements of Sections 153(2) to 153(7) of the CompaniesAct No. 07 of 2007.KPMG Ford, Rhodes, Thornton & Co.Chartered AccountantsColombo.9th February, 201039Kelani Valley Plantations PLC Annual Report 2009

Income StatementsConsolidated CompanyFor the year ended 31st December, 2009 2008 2009 2008Note Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000Turnover 6.1 2,860,004 3,108,571 2,824,687 3,051,978Cost of sales (2,725,040) (2,653,136) (2,711,403) (2,621,630)Gross profit 6.2 134,964 455,435 113,284 430,348Other income 7 31,544 26,930 32,866 36,253Administrative expenses (147,088) (171,842) (144,765) (167,600)Net finance cost 8 (46,672) (18,959) (36,406) (7,971)Share of profit/(loss) of associate (net of tax) (531) 8,712 –Profit/(loss) before tax 9 (27,783) 300,276 (35,021) 291,030Tax expense 10 (12,782) (21,511) (10,197) (17,997)Profit/(loss) for the year (40,565) 278,765 (45,218) 273,033Attributable to:Equity holders of the Company (42,615) 275,851Minority interest 2,050 2,914Profit/(loss) for the year (40,565) 278,765Earnings/(loss) Per ShareBasic earnings/(loss) per share (Rs.) 11.1 (1.25) 8.11 (1.33) 8.03Diluted earnings/(loss) per share (Rs.) 11.1 (1.25) 8.11 (1.33) 8.03Dividend Per Share (Rs.) 11.2 1.00 3.50 1.00 3.50Figures in brackets indicate deductions.The Accounting Policies and Notes from pages 44 to 73 form an integral part of these Financial Statements.40Kelani Valley Plantations PLC Annual Report 2009

Balance SheetsConsolidated CompanyAs at 31st December, 2009 2008 2009 2008Note Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000ASSETSNon-Current AssetsLeasehold property, plant & equipment 12 476,765 500,460 476,765 500,460Property, plant & equipment 13 1,138,751 1,121,896 969,425 951,473Improvements to leasehold property 14 1,428,868 1,267,137 1,428,868 1,267,137Investment in subsidiaries 15 – – 50,700 50,700Investment in associate 16 88,238 88,769 48,000 48,000Total non-current assets 3,132,622 2,978,262 2,973,758 2,817,770Current AssetsInventories 17 404,439 403,160 402,758 378,892Amounts due from subsidiaries 28 – – 34,946 51,413Amounts due from other related companies 28 192,503 475,102 192,503 469,102Trade and other receivables 18 111,730 126,914 104,425 121,098Short-term deposits 227,037 89,600 227,037 89,600Cash and cash equivalents 19.1 18,921 6,462 17,401 6,377Total current assets 954,630 1,101,238 979,070 1,116,482Total assets 4,087,252 4,079,500 3,952,828 3,934,252EQUITY AND LIABILITIESCapital and ReservesStated capital 20 340,000 340,000 340,000 340,000Revenue reserves 1,216,593 1,378,208 1,184,749 1,348,967Total equity attributable to equity holders of the Company 1,556,593 1,718,208 1,524,749 1,688,967Minority interest 22,324 20,274 – –Total equity 1,578,917 1,738,482 1,524,749 1,688,967Non-Current LiabilitiesInterest-bearing borrowings 21 379,978 449,423 337,714 393,516Deferred income 22 443,075 346,191 442,484 346,191Deferred tax liability 23 120,836 128,927 113,949 124,611Retirement benefit obligations 24 732,912 578,457 732,867 578,402Net liability to lessor 25 362,854 367,813 362,854 367,813Total non-current liabilities 2,039,655 1,870,811 1,989,868 1,810,533Current LiabilitiesTrade and other payables 26 358,777 281,889 344,478 262,394Net liability to lessor payable within one year 25 4,959 4,766 4,959 4,766Amounts due to other related companies 28 8,786 8,692 8,786 8,692Income tax payable 27 – – – –Interest-bearing borrowings - due within one year 21 95,685 58,094 79,585 43,144Bank overdraft 19.2 473 116,766 403 115,756Total current liabilities 468,680 470,207 438,211 434,752Total liabilities 2,508,335 2,341,018 2,428,079 2,245,285Total equity and liabilities 4,087,252 4,079,500 3,952,828 3,934,252Net assets per share (Rs.) 46.44 50.53 44.85 49.67It is certified that the Financial Statements have been prepared in compliance with the requirements of the Companies Act No. 07 of 2007.S SiriwardanaDirector - FinanceThe Board of Directors is responsible for the preparation and presentation of these Financial Statements.Signed for and on behalf of the Board.A M PandithageChairmanG K SeneviratneManaging Director09th February, 2010The Accounting Policies and Notes from pages 44 to 73 form an integral part of these Financial Statements.41Kelani Valley Plantations PLC Annual Report 2009

Statements of Changes in EquityFor the year ended 31st December, 2009ConsolidatedAttributable to Equity Holders of the Company Minority TotalStated General Retained Total Interest EquityCapital Reserve EarningsRs. ’000 Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000Balance as at 1st January, 2008 340,000 935,000 354,357 1,629,357 8,791 1,638,148Adjustment due to changes in holding* – – – – 1,069 1,069Net gains/(losses) not recognised in theIncome Statement – – – – 1,069 1,069Issue of shares – – – – 7,500 7,500Profit for the period – – 275,851 275,851 2,914 278,765Dividends – – (187,000) (187,000) – (187,000)Balance as at 31st December, 2008 340,000 935,000 443,208 1,718,208 20,274 1,738,482Profit/(loss) for the period – – (42,615) (42,615) 2,050 (40,565)Dividends – – (119,000) (119,000) – (119,000)Balance as at 31st December, 2009 340,000 935,000 281,593 1,556,593 22,324 1,578,917CompanyStated General Retained TotalCapital Reserve Earnings EquityRs. ’000 Rs. ’000 Rs. ’000 Rs. ’000Balance as at 1st January, 2008 340,000 935,000 327,934 1,602,934Profit for the period 273,033 273,033Dividends (187,000) (187,000)Balance as at 31st December, 2008 340,000 935,000 413,967 1,688,967Loss for the period – – (45,218) (45,218)Dividends – – (119,000) (119,000)Balance as at 31st December, 2009 340,000 935,000 249,749 1,524,749Retained EarningsConsolidated Company2009 2008 2009 2008Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000Holding company 249,749 413,967 249,749 413,967Subsidiaries (11,245) (14,381) –Associate 43,089 43,622 –281,593 443,208 249,749 413,967* This represents adjustment consequent to excluding interest in subsidiaries held via associate, as attributable to equity holders of the Company.Figures in brackets indicate deductions.The Accounting Policies and Notes from pages 44 to 73 form an integral part of these Financial Statements.42Kelani Valley Plantations PLC Annual Report 2009

Cash Flow StatementsConsolidated CompanyFor the year ended 31st December, 2009 2008 2009 2008Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000Cash Flows from Operating ActivitiesCash generated from operations (Note A) 530,207 464,824 499,113 442,315Interest paid (93,969) (88,154) (83,667) (77,053)Taxes paid (6,682) (22,140) (6,595) (21,884)Retiring gratuity paid (50,281) (46,261) (50,281) (46,261)Net cash flow from operating activities 379,275 308,269 358,570 297,117Cash Flows from Investing ActivitiesField development expenditure (197,732) (217,892) (197,732) (217,892)Interest received 47,297 69,195 47,261 69,082Dividends received – 8,100 – 8,100Acquisition of property, plant & equipment (100,586) (363,324) (94,106) (330,678)Proceeds from disposal of property, plant & equipment 6,936 3,773 6,936 3,773Investment in subsidiaries – – – (22,500)Loans repayment by group companies 175,000 114,000 175,000 114,000Net cash used in investing activities (69,085) (386,148) (62,641) (376,115)Net cash Inflow/(outflow) before financing activities 310,190 (77,879) 295,929 (78,998)Cash Flows from Financing ActivitiesIssue of shares to minority shareholders – 7,500 – –Dividend paid (119,000) (187,000) (119,000) (187,000)Capital settlement of net liability to lessor (4,766) (4,580) (4,766) (4,580)Long-term loans obtained during the year 183,000 134,943 183,000 134,943Long-term loans repaid during the year (214,854) (30,490) (202,361) (20,879)Grants received 111,619 111,266 111,012 111,266Net cash used in financing activities (44,001) 31,639 (32,115) 33,750Net increase/(decrease) in cash and cash equivalents 266,189 (46,240) 263,814 (45,248)Cash and cash equivalents at the beginning of the year (20,704) 25,536 (19,779) 25,469Cash and cash equivalents at the end of the year (Note B) 245,485 (20,704) 244,035 (19,779)Note: A - Cash Generated from OperationsProfit/(loss) before tax (27,783) 300,276 (35,021) 291,030Adjustments for:Share of profit/(loss) from associate 531 (8,712) – –Net finance cost 46,672 18,959 36,406 7,971Profit on disposal of property, plant & equipment (6,901) (3,773) (6,901) (3,773)Dividend income – – – (8,100)Depreciation 119,697 99,244 112,121 93,423Lease amortisation 23,694 23,695 23,694 23,695Provision for gratuity 204,736 97,003 204,746 96,973Amortisation of capital grants (14,735) (11,352) (14,719) (11,352)Provision for obsolete stocks 628 (1,327) 656 (1,357)Provision for doubtful debts 3,004 (2,457) 3,004 (2,457)Operating Profit before Working Capital Changes 349,543 511,556 323,986 486,053(Increase)/decrease in inventories (1,907) 25,798 (24,522) 37,522(Increase)/decrease in trade and other receivables (2,010) 13,064 (595) 16,443(Increase)/decrease in amounts due from related companies 107,599 (55,874) 118,066 (66,577)Increase/(decrease) in trade and other payables 76,888 (26,530) 82,084 (27,936)Increase/(decrease) in amounts due to related companies 94 (3,190) 94 (3,190)Cash generated from operating activities 530,207 464,824 499,113 442,315Note: B - Analysis of Cash and Cash EquivalentsBank and cash balances 18,921 6,462 17,401 6,377Short-term deposits 227,037 89,600 227,037 89,600245,958 96,062 244,438 95,977Bank overdraft (473) (116,766) (403) (115,756)Cash and cash equivalents 245,485 (20,704) 244,035 (19,779)Figures in brackets indicate deductions.The Accounting Policies and Notes from pages 44 to 73 form an integral part of these Financial Statements.43Kelani Valley Plantations PLC Annual Report 2009

Accounting PoliciesInformation about significant areas of estimationuncertainty and critical judgments in applyingaccounting policies that have the most significanteffect on the amounts recognised in the FinancialStatements is included in the following notes:• Note 24 - Measurement of the Defined BenefitObligations• Note 25 - Net Liability to Lessor.The Group applies a policy of treating transactions withminority interests as transactions with parties externalto the Group. Disposals to minority interests result ingains and losses for the Group and are recorded in theIncome Statement. Purchases from minority interestresult in goodwill, being the difference betweenany consideration paid and the relevant share of thecarrying value of net assets of the subsidiary acquired.3. SIGNIFICANT ACCOUNTING POLICIESThe accounting policies set out below are consistentwith those used in the previous year. Accountingpolicies of subsidiaries and associate have beenchanged where necessary to ensure consistency withthe policies adopted by the Group.Comparative information has where necessarybeen reclassified to conform with the current year’spresentation.The Directors have made an assessment of theGroup’s ability to continue as a going concern in theforeseeable future, and they do not foresee a need forliquidation or cessation of trading.3.1 Basis of Consolidation3.1.1 SubsidiariesSubsidiaries are those entities controlled by the Group.Control exists when the Group has the power, directly orindirectly, to govern the financial and operating policiesof an entity so as to obtain benefits from its activities.In assessing control, potential voting rights that arecurrently exercisable are also taken into account. TheFinancial Statements of subsidiaries are included inthe Consolidated Financial Statements from the datethat control effectively commences until the date thatcontrol effectively ceases.The accounting policies of subsidiaries have beenchanged when necessary to align them with the policiesadopted by the Group.3.1.2 Transaction with Minority InterestThe profit or loss and net assets of a subsidiaryattributable to equity interests that are not owned bythe parent, directly or indirectly through subsidiaries, isdisclosed separately under the heading ‘Minority Interest’.3.1.3 AssociatesAssociates are those entities in which the Group hassignificant influence, but no control, over financial andoperating policies. Significant influence is presumedto exist when the Group holds between 20 and 50per cent of the voting power of the entity. Associatesare accounted for using the equity method (EquityAccounted Investees) and are initially recognised atcost. The Consolidated Financial Statements includethe Group’s share of income and expenses and equitymovements of equity accounted investees, from thedate that significant influence commences until thedate significant influence ceases. When the Group’sshare of losses exceeds its investment in an equityaccounted investee, the carrying amount of that interestis reduced to nil and the recognition of further losses isdiscontinued except to the extent that the Group hasincurred obligations or has made payments on behalfof the investee.3.1.4 Transactions Eliminated on ConsolidationIntra-group balances, transactions and anyunrealised income and expenses arising from intragrouptransactions, are eliminated in preparing theConsolidated Financial Statements. Unrealised gainsarising from transactions with equity accountedinvestees are eliminated against the investment tothe extent of the Group’s interest in the investee.Unrealised losses are eliminated in the same way asunrealised gains, but only to the extent that there isno evidence of impairment.3.1.5 Profits and LossesThe total profits and losses for the period of theCompany and its subsidiaries included in consolidationare shown in the Consolidated Income Statement,with the proportion of the profit or loss after taxationapplicable to minority shareholders of the subsidiariesbeing separately mentioned as ‘Minority Interest/(Loss)’.45Kelani Valley Plantations PLC Annual Report 2009

Accounting Policies3.1.6 Assets and LiabilitiesAll assets and liabilities of the Company and itssubsidiaries are included in the Consolidated BalanceSheet. The proportionate interest of minorityshareholders in the net assets employed by the Group, isdisclosed separately in the Consolidated Balance Sheetas ‘Minority Interest’.3.2 Foreign Currency TransactionsAll foreign currency transactions are converted intolocal currencies at the rates of exchange prevailing atthe time the transactions are effected.Monetary assets and liabilities denominated in foreigncurrencies at the reporting date are translated intofunctional currency, at rates of exchange prevailingat the Balance Sheet date while non-monetary itemsare reported at the rates prevailing at the time thetransactions are effected.The exchange difference arising therefrom is dealtwith in the Income Statement.3.3 Assets and Bases of their ValuationAssets classified as current assets in the BalanceSheet are cash and bank balances and those whichare expected to be realised in cash during the normaloperating cycle of the Company’s business or withinone year from the Balance Sheet date. Assets otherthan current assets are those, which the Companyintends to hold beyond a period of one year from theBalance Sheet date.3.3.1 Property, Plant & Equipment3.3.1.1 Recognition and MeasurementItems of Property, Plant & Equipment are measured atcost (or at fair value in the case of land) less accumulateddepreciation and accumulated impairment losses.3.3.1.2 Owned AssetsThe cost of Property, Plant & Equipment includesexpenditures that are directly attributable to theacquisition of the asset. The cost of self-constructedassets includes the cost of materials and direct labour,any other cost directly attributable to bringing theasset to a working condition for its intended use, andthe costs of dismantling and removing the items andrestoring the site on which they are located.When parts (major components) of an item ofProperty, Plant & Equipment have different usefullives, they are accounted for as separate items ofProperty, Plant & Equipment.Capital work-in-progress is transferred to the respectiveasset accounts at the time of first utilisation or at thetime the asset is commissioned.3.3.1.3 Leased AssetsAssets obtained under the finance lease, whicheffectively transfer to the Company substantially, allof the risks and benefits incidental to ownership ofthe leased assets, are treated as if they have beenpurchased outright and are capitalised at their cashprice. Assets acquired by way of a finance leaseare measured at an amount equal to the lower oftheir fair value and the present value of minimumlease payments at the inception less accumulateddepreciation and accumulated impairment losses.Assets held under finance lease are amortised overthe shorter of the lease period or the useful lives ofequivalent-owned assets, unless ownership is nottransferred at the end of the lease period.The principal/capital elements payable to the lessorare shown as liability/obligation. The lease rentals aretreated as consisting of capital and interest elements.The capital element in the rental that is appliedto reduce the outstanding obligation and interestelement is charged against profit, in proportion to thereducing capital element outstanding.The cost of improvements to or on leased propertyis capitalised, disclosed as improvements to leaseholdproperty and depreciated over the unexpired periodof the lease, or the estimated useful lives of theimprovements, whichever is shorter.3.3.1.4 Subsequent CostThe cost of replacing part of an item of Property,Plant & Equipment, is recognised in the carryingamount of the item, if it is probable that the futureeconomic benefits embodied within the part will flowto the Group and its cost can be measured reliably.The carrying amount of those parts that are replaced46Kelani Valley Plantations PLC Annual Report 2009

Accounting Policiesis derecognised in accordance with the derecognitionpolicy given below.The costs of the day-to-day servicing of Property, Plant &Equipment are recognised in profit or loss as incurred.3.3.1.5 DerecognitionThe carrying amount of an item of Property, Plant &Equipment is derecognised on disposal; or when nofuture economic benefits are expected from its useor disposal. Gains or losses on derecognition arerecognised in profit or loss and gains are not classifiedas revenue.3.3.1.6 Permanent Land Development CostPermanent land development costs are those costsincurred in making major infrastructure developmentand building new access roads on leasehold lands.These costs have been capitalised and amortised overthe remaining lease period.Permanent impairments to land development costsare charged to the Income Statement in full orreduced to the net carrying amounts of such assets inthe year of occurrence after ascertaining the loss.The expenditure incurred on perennial crop (Tea/Rubber) fields, which comes into bearing during theyear, has been transferred to mature plantations.3.3.1.8 Infilling CostThe land development costs incurred in the form ofinfilling have been capitalised to the relevant maturefield, only where the number of plants per hectareexceeded 3,000 plants and, also if it increases theexpected future benefits from that field, beyond itspre-infilling performance assessment. Infilling costsso capitalised are depreciated over the newly assessedremaining useful economic life of the relevant matureplantation, or the unexpired lease period, whicheveris lower.Infilling costs that are not capitalised have beencharged to the Income Statement in the year in whichthey are incurred.3.3.1.9 Borrowing CostBorrowing costs that are directly attributable toacquisition, construction or production of a qualifyingasset, which takes a substantial period of time to getready for its intended use or sale are capitalised as apart of the asset.3.3.1.7 Limited Life Land Development Cost(Immature and Mature Plantations)The cost of land preparation, rehabilitation, newplanting, replanting, crop diversification, interplantingand fertilising, etc., incurred between thetime of planting and harvesting (when the plantedarea attains maturity), are classified as immatureplantations. These immature plantations are shownat direct costs plus attributable overheads, includinginterest attributable to long-term loans used forfinancing immature plantations.Permanent impairments to land development costsare charged to the Income Statement in full orreduced to the net carrying amounts of such asset inthe year of occurrence after ascertaining the loss.Borrowing costs that are not capitalised are recognisedas expenses in the period in which they are incurredand charged to the Income Statement.The amounts of the borrowing costs which are eligiblefor capitalisation are determined in accordance withthe Allowed Alternative Treatment in SLAS 20 -‘Borrowing Costs’.Borrowing costs incurred in respect of specific loansthat are utilised for field development activities havebeen capitalised as a part of the cost of the relevantimmature plantation. The capitalisation will ceasewhen the crops are ready for commercial harvest.The amount so capitalised and the capitalisation ratesare disclosed in the Notes to the Financial Statements.47Kelani Valley Plantations PLC Annual Report 2009

Accounting Policies3.3.1.10 Depreciation and Amortisation(a) DepreciationDepreciation is recognised in profit and loss on astraight-line basis over the estimated useful economiclives of each part of an item of Property, Plant &Equipment. Assets are depreciated over the shorterof the lease term or the estimated useful economiclives which ever is lower. Lease period of land acquiredfrom JEDB/SLSPC will be expired in year 2045. Theestimated useful lives for the current and comparativeperiods are as follows:No. of Years Rate (%)Buildings & Roads 40 2.50Plant & Machinery 13 1/3 7.50Hydro Power Plant 30 3.33Motor Vehicles 5 20.00Equipment 8 12.50Furniture & Fittings 10 10.00Sanitation, Water &Electricity Supply 20 5.00Computer Accessories 4 25.00Mature Plantations (Replanting and New Planting)No. of Years Rate (%)Mature Plantations - Tea 33 1/3 3.00- Rubber 20 5.00Depreciation of an asset begins when it is available foruse and ceases at the earlier of the date on which theasset is classified as held for sale or is derecognised.Depreciation methods, useful lives and residualvalues are reassessed at the reporting date. Matureplantations are depreciated over their useful lives orunexpired lease period, whichever is less.No depreciation is provided for immature plantations.(b) AmortisationThe leasehold rights of assets taken over from JEDB/SLSPC are amortised in equal amounts over theshorter of the remaining lease periods and the usefullives as follows:No. of Years Rate (%)Bare land 53 1.89Improvements to land 30 3.33Mature Plantations(Tea & Rubber) 30 3.33Buildings 25 4.00Machinery 15 6.67(c) Research and DevelopmentExpenditure on research activities, undertaken withthe prospect of gaining new scientific or technicalknowledge and understanding, is recognised in profitor loss when incurred.Development activities involve a plan or design forthe production of new or substantially improvedproducts and processes. Development expenditure iscapitalised only if development costs can be measuredreliably, the product or process is technically andcommercially feasible, future economic benefits areprobable, and the Group intends to and has sufficientresources to complete development and to use or sellthe asset. The expenditure capitalised includes thecost of materials, direct labour and overhead coststhat are directly attributable to preparing the assetfor its intended use. Other development expenditureis recognised in profit or loss when incurred.Capitalised development expenditure is measured atcost, less accumulated amortisation and accumulatedimpairment losses.3.3.2 Investments3.3.2.1 Short-Term InvestmentsShort-term investments are measured at the lowerof cost and market value on an aggregate portfoliobasis, with any resultant gain or loss recognised inprofit or loss.3.3.2.2 Long-Term InvestmentsQuoted and unquoted investments in shares held onlong-term basis are measured at cost, less impairmentlosses.In the Parent Company’s Financial Statements,investments in subsidiaries and associates are carriedat cost, less impairment losses under the ParentCompany’s Accounting Policy for long-term investments.Provision for impairment is made when in the opinionof the Directors there has been a decline other thantemporary in the value of the investment.48Kelani Valley Plantations PLC Annual Report 2009

Accounting Policies3.3.3 InventoriesInventories other than produce stocks are valued atthe lower of cost and estimated net realisable value,after making due allowance for obsolete and slowmoving items. Net realisable value is the estimatedselling price at which stocks can be sold in theordinary course of business after allowing for costof realisation and/or cost of conversion from theirexisting state to saleable condition.The cost incurred in bringing inventories to its presentlocation and conditions is accounted using thefollowing cost formula.Input Material, Spares and ConsumablesAt actual cost on weighted average basis.NurseriesAt the cost of direct materials, direct labour andan appropriate proportion of directly attributableoverheads, less provision for overgrown plants.Produce StocksManufactured up to the Balance Sheet date andsold since then, until the time of preparation of theFinancial Statements are valued at since realised price.The balance stocks are valued at estimated sellingprice. The prices are net of all attributable expensesrelating to the public auction.3.3.4 Trade and Other ReceivablesTrade and other receivables are stated at theirestimated realisable amounts inclusive of provisionsfor bad and doubtful debts.3.3.5 Cash and Cash EquivalentsCash and cash equivalents comprise cash balancesand short-term deposits. Bank overdrafts that arerepayable on demand form an integral part of theGroup’s cash management and are included as acomponent of cash and cash equivalents for thepurpose of the Statement of Cash Flows.3.3.6 Impairment of AssetsThe carrying amounts of the Group’s assets arereviewed at each reporting date to determine whetherthere is any indication of impairment. If any suchindication exists, then the asset’s recoverable amountis estimated. For goodwill and intangible assets thathave indefinite lives or that are not yet available foruse, recoverable amounts are estimated at eachreporting date or more frequently, if events or changesin circumstances indicate that they might be impaired.The recoverable amount of an asset or cash-generatingunit is the greater of its value in use and its fair value,less costs to sell. In assessing value in use, estimatedfuture cash flows are discounted to their present valueusing a pre-tax discount rate that reflects currentmarket assessments of the time value of money andthe risks specific to the asset. A cash-generating unitis the smallest identifiable asset group that generatescash flows that largely are independent from otherassets and groups.An impairment loss is recognised if the carryingamount of an asset or its cash-generating unitexceeds its recoverable amount. Impairment lossesare recognised in profit or loss. Impairment lossesrecognised in respect of cash-generating units areallocated first to reduce the carrying amount of anygoodwill allocated to the units and then to reduce thecarrying amount of the group of other assets in theunit on pro rata basis.An impairment loss in respect of goodwill is notreversed. In respect of other assets, impairmentlosses recognised in prior periods are assessed at eachreporting date for any indications that the loss hasdecreased or no longer exists. An impairment loss isreversed if there has been a change in the estimatesused to determine the recoverable amount. Animpairment loss is reversed only to the extent that theasset’s carrying amount does not exceed the carryingamount that would have been determined, net ofdepreciation or amortisation, if no impairment losshad been recognised.3.4 Liabilities and ProvisionsLiabilities classified as current liabilities on the BalanceSheet are those which fall due for payment on demandor within one year from the Balance Sheet date. Noncurrentliabilities are those balances that fall due forpayment after one year from the Balance Sheet date.49Kelani Valley Plantations PLC Annual Report 2009

Accounting PoliciesAll known liabilities have been accounted for inpreparing these Financial Statements. Provisions andliabilities are recognised when the Company has alegal or constructive obligation as a result of pastevents and it is probable that an outflow of economicbenefits will be required to settle the obligation.3.4.1 Employees Benefits(a) Defined Contribution Plans - Provident Fundsand Trust FundA defined contribution plan is a post-employmentbenefit plan under which an entity pays fixedcontributions into a separate entity and will haveno legal or constructive obligation to pay furtheramounts. Obligations for contributions to Providentand Trust Funds covering all employees are recognisedas an expense in profit and loss in the periods duringwhich services are rendered by employees.The Company contributes 12% on consolidatedsalary of the employees to Ceylon Planters’ ProvidentSociety (CPPS)/Estate Staff Provident Society (ESPS)/Employees’ Provident Fund (EPF).All the employees of the Company are members ofthe Employees’ Trust Fund, to which the Companycontributes 3% on the consolidated salary of suchemployees.(b) Defined Benefit PlanA defined benefit plan is a post-employment benefitplan other than a defined contribution plan. Theliability recognised in the Balance Sheet in respectof defined benefit plan is the present value of thedefined benefit obligation at the Balance Sheet date.The defined benefit obligation is calculated annuallyusing the projected unit credit method. The presentvalue of the defined benefit obligation is determinedby discounting the estimated future cash flowsusing the interest rates that are denominated in thecurrency in which the benefits will be paid, and thathave terms to maturity approximating to the terms ofthe related liability. Actuarial gains and losses arisingfrom experience adjustments and changes in actuarialassumptions are charged or credited to equity instatement of recognised income and expense in theperiod in which they arise. Past service costs arerecognised immediately in Income Statement.The provision has been made for retirement gratuitiesfrom the first year of service for all employees, inconformity with Sri Lanka Accounting Standard No. 16(Revised 2006), Retirement Benefit Costs. However,under the Payment of Gratuity Act No. 12 of 1983,the liability to an employee arises only on completionof 5 years of continued service.The Liability is not externally funded.The key assumptions used in determining theretirement benefit obligations are given in Note 24.3.4.2 Trade and Other PayablesTrade and other payables are stated at their costs.3.4.3 Capital Commitments and ContingenciesCapital commitments and contingent liabilities of theCompany have been disclosed in the respective Notesto the Financial Statements.3.4.4 Events Occurring after the Balance Sheet DateAll material post Balance Sheet events have beenconsidered where appropriate; either adjustmentshave been made or adequately disclosed in theFinancial Statements.3.4.5 Earnings Per ShareThe Group presents basic and diluted earningsper share (EPS) for its ordinary shares. Basic EPS iscalculated by dividing the profit or loss attributableto ordinary shareholders of the Company by theweighted average number of ordinary sharesoutstanding during the period. Diluted EPS isdetermined by adjusting the profit or loss attributableto ordinary shareholders and the weighted averagenumber of ordinary shares outstanding for the effectsof all dilutive potential ordinary shares.3.4.6 Deferred Income3.4.6.1 Grants and SubsidiesGrants related to Property, Plant & Equipment otherthan grants received for forestry are initially deferredand allocated to income on a systematic basis over theuseful life of the related Property, Plant & Equipment50Kelani Valley Plantations PLC Annual Report 2009

Accounting Policiesas follows: Assets are amortised over their useful livesor unexpired lease period, whichever is less.Buildings40 yearsSanitation & water supply20 yearsPlant & equipment13 1/3 years3.5.2.1 Financing Income and ExpensesFinance income comprises interest income on fundsinvested, and gains on translation of foreign currency.Interest income is recognised in profit and loss asit accrues.Grants related to income are recognised in the IncomeStatement in the year in which it is receivable.Grants received for forestry are initially deferred andcredited to income once when the related blocks oftrees are harvested.Finance expenses comprise interest payable onborrowings and losses on translation of foreigncurrency. The interest expense component of financelease payments is allocated to each period during thelease term so as to produce a constant periodic rate ofinterest on the remaining balance of the liability.3.5 Income StatementsFor the purpose of presentation of Income Statement,the function of expenses method is adopted, as itrepresents fairly the elements of the Company’sperformance.3.5.1 Turnover(a) In keeping with the practice in the PlantationIndustry, revenue and profit or loss on sale ofperennial crops are recognised in the financial periodof harvesting. Revenue is recorded at invoice value netof brokerage, sale expenses and other levies related torevenue.(b) Gains and losses on disposal of an item ofProperty, Plant & Equipment are determined bycomparing the net sales proceeds with the carryingamounts of Property, Plant & Equipment and arerecognised within ‘other operating income’ in theIncome Statement.(c) Interest income is recognised on accrual basis.(d) Dividend income is recognised in profit and losson the date the entity’s right to receive payment isestablished, which in the case of quoted securities isthe exdividend date.3.5.2 ExpensesAll expenditure incurred in the running of the businessand in maintaining the Property, Plant & Equipment ina state of efficiency is charged to revenue in arrivingat the profit/(loss) for the year.3.5.2.2 Income Tax ExpenseIncome tax expense comprises current and deferred tax.Income tax expense is recognised in profit or loss exceptto the extent that it relates to items recognised directlyin equity, when it is recognised in equity.Current Tax is the expected tax payable on the taxableincome for the year, using tax rates enacted at thereporting date and any adjustments to tax payable inrespect of previous years.Deferred tax is recognised using the Balance Sheetmethod, providing for temporary differences betweenthe carrying amounts of assets and liabilities forfinancial reporting purposes and the amounts usedfor taxation purposes. Deferred tax is not recognisedfor the following temporary differences: the initialrecognition of assets or liabilities in a transactionthat is not a business combination and that affectsneither accounting nor taxable profit, and differencesrelating to investments in subsidiaries to the extentthat they probably will not reverse in the foreseeablefuture. In addition, deferred tax is not recognised fortaxable temporary differences arising on the initialrecognition of goodwill. Deferred tax is measuredat the tax rates that are expected to be applied tothe temporary differences when they reverse, basedon the laws that have been enacted or substantivelyenacted by the reporting date.51Kelani Valley Plantations PLC Annual Report 2009

Accounting PoliciesA deferred tax asset is recognised only to the extent thatit is probable that future taxable profits will be availableagainst which the temporary difference can be utilised.Deferred tax assets are reviewed at each reportingdate and are reduced to the extent that it is no longerprobable that the related tax benefit will be realised.Assets and liabilities directly attributable to eachsegment are allocated to the respective segments.Assets and liabilities, which are not directly attributableto a segment, are allocated on a reasonable basiswherever possible. Unallocated items comprise mainlyinterest bearing loans, borrowings, and expenses.Tax withheld on dividend income from subsidiariesand associates is recognised as an expense in theConsolidated Income Statement at the same time asthe liability to pay the related dividend is recognised.Segment capital expenditure is the total costincurred during the period to acquire segment assetsthat are expected to be used for more than oneaccounting period.3.6 Cash Flow StatementThe Cash Flow Statement has been prepared usingthe ‘indirect method’. Interest paid is classified asoperating cash flows, interest and dividends receivedare classified as investing cash flows while dividendspaid and Government grants received are classified asfinancing cash flows, for the purpose of presentingthe Cash Flow Statement.4. SEGMENT REPORTINGSegmental information is provided for the differentbusiness segments of the Group. Business segmentationhas been determined based on the nature of goodsprovided by the Group after considering the risk andrewards of each type of product.Since the individual segments are located close to eachother and operate in the same industrial environment,the need for geographical segmentation has nomaterial impact.The activities of the segments are described on pages53 and 73 in the Notes to the Financial Statement. Thegroup transfers products from one industry segmentfor use in another. Inter-segment transfers are basedon fair market prices.Revenue and expenses directly attributable to eachsegment are allocated to the respective segments.Revenue and expenses not directly attributable to asegment are allocated on the basis of their resourceutilisation, wherever possible.5. CRITICAL ACCOUNTING ESTIMATES ANDJUDGMENTSThe Group makes estimates and assumptionsconcerning the future. The resulting accountingestimates will, by definition, seldom equal the relatedactual results. The estimates and assumptions whichcarry a significant risk of causing misstatements to thecarrying amounts of assets and liabilities within thenext financial year are addressed below:5.1 Income TaxesThe Group is subject to income taxes in numerousjurisdictions. The Group recognises liabilities foranticipated tax based on estimates of taxable income.Where the final tax outcome of these mattersis different from the amounts that were initiallyrecorded, such differences will impact the current anddeferred income tax assets and liabilities in the periodin which such determination is made.5.2 Retirement Benefit ObligationThe present value of the retirement benefit obligationsdepends on a number of factors that are determinedon an actuarial basis using a number of assumptions.Key assumptions used in determining the retirementbenefit obligations are given in Note 24. Any changesin these assumptions will impact the carrying amountof retirement benefit obligations.52Kelani Valley Plantations PLC Annual Report 2009

Notes to the Financial StatementsConsolidated CompanyFor the year ended 31st December, 2009 2008 2009 2008Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’0006. Turnover6.1 Industry Segment TurnoverTea 2,035,856 2,027,097 2,026,748 1,934,165Rubber 782,265 1,091,074 782,265 1,091,074Others 42,457 51,274 15,674 26,739Less: Intra-group sales/(Tea) (574) (60,874) – –2,860,004 3,108,571 2,824,687 3,051,9786.2 Industry Segment Results (Gross Profit/loss)Tea (2,793) 89,632 (4,732) 82,407Rubber 121,361 349,100 121,361 349,100Others 16,396 16,703 (3,345) (1,159)134,964 455,435 113,284 430,3487. OTHER INCOMEProfit on disposal of property, plant & equipment 6,901 3,773 6,901 3,773Dividend income – – – 8,100Hydro power income 6,162 4,517 7,501 5,743Amortisation of Government grants 14,735 11,351 14,719 11,351Sundry income 3,746 7,289 3,745 7,28631,544 26,930 32,866 36,2538. NET FINANCE COSTFinance IncomeInterest income (47,297) (69,195) (47,261) (69,082)Finance CostTerm loan interest 63,772 55,150 53,614 44,080Overdraft interest 9,124 11,745 8,980 11,714Interest paid to Government on finance lease 21,073 21,259 21,073 21,25993,969 88,154 83,667 77,053Net Finance Cost 46,672 18,959 36,406 7,97153Kelani Valley Plantations PLC Annual Report 2009

Notes to the Financial StatementsConsolidated CompanyFor the year ended 31st December, 2009 2008 2009 2008Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’0009. PROFIT/(loss) BEFORE TAXATIONProfit/(loss) before taxation is stated after charging allexpenses including the following:Directors’ emoluments 12,851 11,245 12,631 8,832Auditor’s fee- Audit services 2,129 1,850 1,792 1,600- Non-audit services 210 730 109 634Depreciation and Lease Amortisation- Leasehold right to bare land 7,140 7,140 7,140 7,140- Immovable leased assets 16,554 16,554 16,554 16,554- Tangible property, plant & equipment 83,696 65,844 76,119 60,022- Mature plantations 36,001 33,401 36,001 33,401Staff Cost- Defined contribution plan costs (EPF, CPPS, ESPS & ETF) 161,299 141,162 161,208 141,071- Defined benefit plan cost (Retiring Gratuity) 204,736 97,003 204,746 96,973- Salaries and wages and other staff costs 1,373,802 1,301,295 1,369,708 1,249,834- Staff training & development cost 388 1,225 388 1,225Legal fees 7,275 6,115 7,275 6,115Provision for bad & doubtful debts 3,004 (2,457) 3,004 (2,457)(1) The number of employees employed is given on page 3.10. INCOME TAX EXPENSE(A) Tax ExpenseIncome taxes on current year’s profit/(loss) - Company 10,752 15,716 10,752 15,716- Subsidiaries 13 40 – –10,765 15,756 10,752 15,716(Over)/under Provision in respect of previous years 10,107 10,107Recovery of ESC previously written-off – (4,576) – (4,576)Irrecoverable economic service charge - Subsidiaries – 141 – –10,107 (4,435) 10,107 (4,576)Transferred to/(from) deferredtaxation (Note 23) - Company (10,662) 6,857 (10,662) 6,857- Subsidiaries 2,572 2,433 – –(8,090) 9,290 (10,662) 6,857Withholding tax on dividends - Associate – 900 – –– 900 – –Tax Expense 12,782 21,511 10,197 17,997The Company, in terms of Section 16 of the Inland Revenue Act No. 10 of 2006 ‘Specified Profit’ from agriculture, wouldbe exempt from income tax for a period of 5 years ending 2010/11. The corporate rate of tax applicable to other incomewould be 35%. Irrecoverable Economic Service Charge has been charged in the Income Statement.Kelani Valley Green Tea (Pvt) Ltd. and Kalupahana Power Company (Pvt) Ltd., have entered into an agreement with theBoard of Investment of Sri Lanka and have been granted a five-year tax holiday on its business activities from the year ofassessment in which the enterprise commences to make profits or any year of assessment not later than 2 years reckonedfrom the date of commencement of commercial operations, whichever is earlier. Accordingly, tax holiday period ofKelani Valley Green Tea (Pvt) Ltd. has commenced in 2006/07 and tax holiday period of Kalupahana Power Company(Pvt) Ltd., has commenced in 2007/08.54Kelani Valley Plantations PLC Annual Report 2009

Notes to the Financial StatementsConsolidated CompanyFor the year ended 31st December, 2009 2008 2009 2008Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000(B) Reconciliation of Accounting Profit toIncome Tax ExpenseProfit/(loss) before tax (27,783) 300,276 (35,021) 291,030Share of profit/(loss) of associate 531 (8,712) – –Intra-group adjustments – (534) – –(27,252) 291,030 (35,021) 291,030Tax deductible expenses (416,271) (390,411) (393,456) (368,195)Disallowable expenses 363,964 249,566 356,233 229,520Tax exempt income (14,735) (180,162) (14,719) (168,970)Tax exempt loss from Business 133,433 – 126,916 –Tax loss b/f (282,103) (253,226) (244,940) (187,126)Adjustment for tax loss b/f 101,246 46,120 101,246 3,704Tax loss c/f 172,475 282,103 134,461 244,940Taxable income 30,757 45,020 30,720 44,903Income tax @ 35% on other income andmanufacturing profit 10,765 15,756 10,752 15,716(Over)/under provision in respect of previous years 10,107 – 10,107 –Recovery of economic service charge written-off – (4,576) – (4,576)Irrecoverable economic service charge – 141 – –20,872 11,321 20,859 11,140Transferred (from)/to deferred taxation (8,090) 9,290 (10,662) 6,857Withholding tax on dividends – 900 – –Income tax expense 12,782 21,511 10,197 17,997Effective tax rate (%) > 99% 7.16 > 99% 6.1811. EARNINGS/(loss) PER SHARE/DIVIDEND PER SHARE11.1 Earnings/(Loss) Per ShareBasic Earnings/(Loss) Per ShareThe computation of the basic earnings/(loss) per share is based on profit/(loss) attributable to ordinary shareholders forthe year divided by weighted average number of ordinary shares outstanding during the year and calculated as follows:Consolidated CompanyFor the year ended 31st December, 2009 2008 2009 2008Amount Used as the NumeratorProfit attributable to ordinary shareholders (Rs. ’000) (42,615) 275,851 (45,218) 273,033Amount Used as the DenominatorWeighted average number of ordinary shares (’000) 34,000 34,000 34,000 34,000Basic earnings/(loss) per share (Rs. ) (1.25) 8.11 (1.33) 8.03Diluted Earnings/(Loss) Per ShareThe calculation of diluted earnings/(loss) per share is based on profit attributable to ordinary shareholders and weightedaverage number of ordinary shares outstanding after adjustment for the effect of all dilutive potential ordinary shares.There were no potentially dilutive shares outstanding at any time during the year/previous year.55Kelani Valley Plantations PLC Annual Report 2009

Notes to the Financial Statements11.2 Dividend Per ShareCompanyFor the year ended 31st December, 2009 2008First & final proposed dividend Rs. 1.00 per share (2008 - Rs. 3.50 per share) (Rs. ’000) 34,000 119,000Number of ordinary shares (’000) 34,000 34,000Dividend per share (Rs.) 1.00 3.50The Board of Directors has recommended a first and final dividend of Rs. 1.00 per share amounting to Rs. 34,000,001.00for the year ended 31st December, 2009 (final dividends for 2008 - Rs. 3.50 per share amounting to Rs. 119,000,003.50).This is to be approved at the Annual General Meeting to be held on 31st March, 2010.12. LEASEHOLD PROPERTY, PLANT & EQUIPMENTConsolidated CompanyAs at 31st December, 2009 2008 2009 2008Note Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000Leasehold rights to bare land 12.1 253,158 260,298 253,158 260,298Immovable leased assets 12.2 223,607 240,162 223,607 240,162476,765 500,460 476,765 500,46012.1 Leasehold Rights to Bare LandThe leasehold rights to land on all 27 estates have been taken into the books of the Company as at 18th June, 1992,immediately after formation of the Company, in terms of the ruling obtained from the Urgent Issue Task Force (UITF)of The Institute of Chartered Accountants of Sri Lanka. For this purpose, the Board decided at its meeting heldon 8th March, 1995 that these bare lands would be revalued, at the value established for these lands, by thevaluation specialist Mr. D R Wickramasinghe, just prior to the formation of the Company. The value taken into the18th June, 1992 Balance Sheet and the amortisation of leasehold rights up to 31st December, 2009 are as follows:Consolidated CompanyAs at 31st December, 2009 2008 2009 2008Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000Capitalised value (18th June, 1992) 369,740 369,740 369,740 369,740369,740 369,740 369,740 369,740AmortisationAs at 1st January 109,442 102,302 109,442 102,302Amortisation 7,140 7,140 7,140 7,140As at 31st December 116,582 109,442 116,582 109,442Carrying value 253,158 260,298 253,158 260,29856Kelani Valley Plantations PLC Annual Report 2009

Notes to the Financial Statements12.2 Immovable Leased AssetsIn terms of the ruling of the UITF of The Institute of Chartered Accountants of Sri Lanka, all immovable assets in the JEDB/SLSPC estatesunder finance leases have been taken into the books of the Company retroactive to 18th June, 1992. For this purpose, the Board decidedat its meeting on 8th March, 1995, that these assets be restated at their book values as they appear in the books of the JEDB/SLSPC, onthe day immediately preceding the date of formation of the Company. These assets are taken into the Balance Sheet as at 18th June, 1992and depreciated as follows:Land Mature Buildings Machinery Consolidated CompanyDevelopment PlantationsTea RubberAs at 31st December, 2009 2008 2009 2008Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000Capitalised Value(18th June, 1992) 3,455 213,541 178,145 84,600 23,094 502,835 502,835 502,835 502,835AmortisationAs at 1st January 1,905 97,609 84,097 55,969 23,094 262,673 246,119 262,673 246,119Amortisation 115 6,834 6,220 3,385 – 16,554 16,554 16,554 16,554As at 31st December 2,020 104,443 90,317 59,354 23,094 279,228 262,673 279,228 262,673Carrying Value 1,435 109,098 87,828 25,246 – 223,607 240,162 223,607 240,162Investment in Immature plantations at the time of handing over to the Company as at 18th June, 1992 by way of estate leases was shownunder Immature plantations.However, since then all such investments in Immature plantations attributable to JEDB/SLSPC period have been transferred to Matureplantations. Further, investment in such plantations to bring them to maturity is shown under Note 14.13. PROPERTY, PLANT & EQUIPMENT(A) ConsolidatedAs at 31st December, 2009 2008Buildings Plant & Hydro Motor Furniture & Equipment Computers Others Total TotalMachinery Power Plant Vehicles FittingsRs. ’000 Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000CostAs at 1st January 520,403 444,132 133,017 180,540 9,530 61,051 17,208 30,743 1,396,624 1,021,383Additions 136,830 14,797 – 632 45 9,584 48 3,527 165,463 378,381Disposals/transfers – – – (7,122) – – – – (7,122) (3,140)As at 31st December 657,233 458,929 133,017 174,050 9,575 70,635 17,256 34,270 1,554,965 1,396,624DepreciationAs at 1st January 44,517 128,184 13,090 99,153 7,117 29,046 13,575 11,691 346,373 283,669Charges 14,644 32,163 4,434 23,087 450 5,770 1,534 1,614 83,696 65,844Disposals/transfers – – – (7,087) – – – – (7,087) (3,140)As at 31st December 59,161 160,347 17,524 115,153 7,567 34,816 15,109 13,305 422,982 346,373Net book value 598,072 298,582 115,493 58,897 2,008 35,819 2,147 20,965 1,131,983 1,050,251Work-in-progress 6,768 71,645Carrying Value 1,138,751 1,121,89657Kelani Valley Plantations PLC Annual Report 2009

Notes to the Financial Statements(B) CompanyAs at 31st December, 2009 2008Buildings Plant & Motor Furniture & Equipment Computers Others Total TotalMachinery Vehicles FittingsRs. ’000 Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000CostAs at 1st January 500,154 410,768 180,403 9,499 60,770 17,010 30,743 1,209,347 866,915Additions 131,877 12,759 632 45 9,562 48 3,527 158,450 345,572Disposals/transfers – – (7,122) – – – – (7,122) (3,140)As at 31st December 632,031 423,527 173,913 9,544 70,332 17,058 34,270 1,360,675 1,209,347DepreciationAs at 1st January 43,915 124,828 99,072 7,108 28,995 13,377 11,691 328,986 272,104Charges 14,114 29,621 23,059 446 5,731 1,534 1,614 76,119 60,022Disposals/transfers – – (7,087) – – – – (7,087) (3,140)As at 31st December 58,029 154,449 115,044 7,554 34,726 14,911 13,305 398,018 328,986Net book value 574,002 269,078 58,869 1,990 35,606 2,147 20,965 962,657 880,361Work-in-progress 6,768 71,112Carrying Value 969,425 951,473(a) The assets shown above are those movable assets vested in the Company by Gazette notification on the date of formation of theCompany (18th June, 1992) and all investment in tangible assets by the Company since its formation. The assets taken over by way ofestate leases are set out in Note 12.(b) No borrowing costs incurred on term loans to finance the capital work-in-progress.(c) There has been no permanent impairment of Property, Plant & Equipment which requires a provision.(d) Unexpired lease periods of land:Kelani Valley Plantations PLCKelani Valley Green Tea (Pvt) Ltd.Kalupahana Power Company (Pvt) Ltd.37 years37 years37 years58Kelani Valley Plantations PLC Annual Report 2009

Notes to the Financial Statements16. INVESTMENT IN ASSOCIATE COMPANYUnquoted Investments % Holding No of shares Consolidated CompanyAs at 31st December, 2009 2008 2009 2008 2009 2008 2009 2008Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000Mabroc Teas (Pvt) LtdGroup investment inassociate (at cost) 40 40 3,600,000 3,600,000 48,000 48,000 48,000 48,000Group share of postacquisition profit – – – – 40,238 40,769 – –Carrying value 88,238 88,769 48,000 48,000(Group investment in associate company - equity basis.)16.1 (a) Summarised financial information of associate without adjusting to show Group Share:As at 30th September, 2009 2008Rs. ’000 Rs. ’000Assets & LiabilitiesTotal assets 640,553 694,897Total liabilities (433,437) (485,954)Net assets 207,116 208,943For the year ended 30th September,2009 2008Rs. ’000 Rs. ’000Revenue & ProfitTotal revenue 1,023,128 1,719,482Total profit/(loss) after tax (1,828) 19,459(b) The Company has neither contingent liabilities nor capital commitments in respect of its associate.16.2 The financial year of Mabroc Teas (Pvt) Ltd., ends on 31st March. Its results for the 12 months’ period of 1st October,2008 to 30th September, 2009 are included in these Financial Statements based on the audited Financial Statementsup to 31st March, 2009, and the Financial Statements for the period of six months ended 30th September, 2009,which were subjected to a limited review carried out by their Auditors, Messrs Nihal Hettiarachchi & Co., CharteredAccountants.17. INVENTORIESConsolidated CompanyAs at 31st December, 2009 2008 2009 2008Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000Input materials 43,741 82,990 43,626 78,285Nurseries 22,593 15,584 22,593 15,584Harvested crop (net realisable value) 334,387 293,742 332,956 274,592Spares and consumables 11,402 17,900 11,267 17,459412,123 410,216 410,442 385,920Provision for obsolete stock/(input material,spares and consumable) (7,684) (7,056) (7,684) (7,028)404,439 403,160 402,758 378,892Inventories pledged as securities for banking facilities obtained amount to Rs. 333 m (2008 - Rs. 275 m).60Kelani Valley Plantations PLC Annual Report 2009

Notes to the Financial Statements18. TRADE AND OTHER RECEIVABLESConsolidated CompanyAs at 31st December, 2009 2008 2009 2008Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000Trade receivables 18,184 10,873 15,202 8,351Lease rent paid in advance 6,460 6,460 6,460 6,460Employee advances and receivables 36,914 41,085 36,914 41,085Advance company tax recoverable 19,620 27,727 19,620 27,727ESC recoverable 87 6,157 – 6,157Other receivables and prepayments 34,148 35,291 29,912 31,997115,413 127,593 108,108 121,777Provision for bad and doubtful debts (3,683) (679) (3,683) (679)No loans over Rs. 20,000/- have been given to Directors or officers of the Company.111,730 126,914 104,425 121,098Debtors pledged as securities for banking facilities obtained amount to Rs. 15.2 m (2008 - Rs. 8.3 m).All receivables are in Sri Lankan Rupees.19. CASH AND CASH EQUIVALENTSConsolidated CompanyAs at 31st December, 2009 2008 2009 2008Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’00019.1 Favourable BalancesCash in hand 173 215 138 180Cash at bank 18,748 6,247 17,263 6,19718,921 6,462 17,401 6,37719.2 Unfavourable BalancesBank overdraft (473) (116,766) (403) (115,756)(473) (116,766) (403) (115,756)The securities pledged have been disclosed in Note 29 to the accounts.20. STATED CAPITALConsolidated CompanyAs at 31st December, 2009 2008 2009 2008Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000Issued and fully-paid Ordinary Shares34,000,000 (34,000,000 - 2008) ordinary sharesand 01 Golden Share 340,000 340,000 340,000 340,000340,000 340,000 340,000 340,000The holders of ordinary shares and golden share are entitled to receive dividends as declared from time to time and areentitled to one vote per share at meetings of the Company.61Kelani Valley Plantations PLC Annual Report 2009

Notes to the Financial Statements21. INTEREST-BEARING BORROWINGSDFCC NDB SeylanPlantationTrust Fund Total TotalAs at 31st December, 2009 2008Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000GroupAs at 1st January 340,897 133,986 32,634 – 507,517 403,064Obtained during the year – 110,000 – 73,000 183,000 134,943Repayments during the year (112,569) (24,449) (4,836) (73,000) (214,854) (30,490)As at 31st December 228,328 219,537 27,798 – 475,663 507,517Payable within one year (30,293) (60,556) (4,836) – (95,685) (58,094)(Transferred to current liabilities)Payable after one year 198,035 158,981 22,962 – 379,978 449,423Analysis of Long-TermBorrowings by Year of RepaymentRepayable within one year fromyear-end 30,293 60,556 4,836 – 95,685 58,094Repayable between 2 and 5 yearsfrom year-end 141,540 158,981 19,344 – 319,865 338,206Repayable later than 5 yearsfrom year-end 56,495 – 3,618 – 60,113 111,217228,328 219,537 27,798 – 475,663 507,517CompanyAs at 1st January 340,897 63,129 32,634 – 436,660 322,596Obtained during the year – 110,000 – 73,000 183,000 134,943Repayments during the year (112,569) (11,956) (4,836) (73,000) (202,361) (20,879)As at 31st December 228,328 161,173 27,798 – 417,299 436,660Payable within one year (30,293) (44,456) (4,836) – (79,585) (43,144)(Transferred to current liabilities)Payable after one year 198,035 116,717 22,962 – 337,714 393,516Analysis of Long-TermBorrowings by Year of RepaymentRepayable within one year fromyear-end 30,293 44,456 4,836 – 79,585 43,144Repayable between 2 and 5 yearsfrom year-end 141,540 116,717 19,344 – 277,601 282,299Repayable later than 5 yearsfrom year-end 56,495 – 3,618 – 60,113 111,217228,328 161,173 27,798 – 417,299 436,66062Kelani Valley Plantations PLC Annual Report 2009

Notes to the Financial StatementsLender Loan Outstanding Rate ofInterestPer AnnumMonthlyInstalmentAs at 31st December, 2009 2008Rs. ’000 Rs. ’000 % Rs.21.1 National Development BankTerms of Repayments(Under ADB Line of Credit)Term Loan 1 16,532 21,041 11.51 375,727 120 monthly instalments commenced on 30.09.2003Term Loan 2 19,641 24,088 11.51 370,590 120 monthly instalments commenced on 30.06.2004(Under e-Friends Loan Scheme)Term Loan 3 15,000 18,000 6.50 375,000 48 monthly instalments commenced on 31.05.2009(Under Tea Relief Package)Term Loan 4 110,000 – AWPLR - 5.15 Repayment over 2 years commencing from 31.01 2010as per agreed schedule161,173 63,12921.2 Seylan Bank 27,798 32,634 12.00 403,000 120 monthly instalments commenced on 30.10.2005(Under ADB Line of Credit)21.3 DFCC Bank(Under ADB Line of Credit)Term Loan 1 79,333 84,000 9.42 933,330 90 monthly instalments commenced on 31.08.2009Term Loan 2 80,000 80,000 11.64 952,381 84 monthly instalments commencing from 31.07.2010Term Loan 3 (Note A) – 94,870 14.47 1,581,167 60 monthly instalments commenced on 31.05.2009(Under e-Friends Loan Scheme)e-Friends Loan 1 22,336 26,878 6.50 378,572 84 monthly instalments commenced on 31.12.2007e-Friends Loan 2 27,987 33,076 6.50 424,048 84 monthly instalments commenced on 31.07.2008e-Friends Loan 3 10,005 11,673 6.50 138,961 84 monthly instalments commenced on 31.01.2009e-Friends Loan 4 8,667 10,400 6.50 173,333 60 monthly instalments commenced on 30.04.2009228,328 340,897Company - Total 417,299 436,660Subsidiary - Kalupahana PowerCo. (Pvt) Ltd.21.4 National Development Bank 58,364 70,857 AWDR + 4Group-Total 475,663 507,517Kalupahana Power Co. (Pvt) Ltd., has obtaineda loan facility of Rs. 92 mThe repayment commenced on 27.09.2006and instalments are as follows:8 quarterly instalments of Rs. 2,300,000/- commencedon 30.09.20064 quarterly instalments of Rs. 3,450,000/- commencedon 30.09.20088 quarterly instalments of Rs. 4,025,000 /- commencedon 30.09.20096 quarterly instalments of Rs. 4,600,000 /- commencingfrom 30.09.2011Note A - This loan has been fully settled in December, 2009.The securities pledged have been disclosed in Note 29 to the Financial Statements.63Kelani Valley Plantations PLC Annual Report 2009

Notes to the Financial Statements24. RETIREMENT BENEFIT OBLIGATIONSConsolidated CompanyAs at 31st December, 2009 2008 2009 2008Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000Provision for Retiring GratuityAs at 1st January 578,457 527,716 578,402 527,691Current service cost 58,823 44,231 58,811 44,204Interest cost 57,846 52,772 57,840 52,769Acturial (gains)/losses 88,067 – 88,095 –783,193 624,719 783,148 624,664Benefit paid by the plan (50,281) (46,262) (50,281) (46,262)As at 31st December 732,912 578,457 732,867 578,402SLAS 16 (Revised 2006) requires the use of actuarial techniques to make a reliable estimate of the amount of retirementbenefit that employees have earned in return for their service in the current and prior periods and discount that benefitusing the Projected Unit Credit Method in order to determine the present value of the retirement benefit obligationand the current service cost. This requires an entity to determine how much benefit is attributable to the current andprior periods and to make estimates about demographic variables and financial variables that will influence the cost ofthe benefit. The actuarial valuation was carried out by Messrs Actuarial & Management Consultants (Pvt) Ltd. a firm ofprofessional actuaries. The following key assumptions were made in arriving at the above figure.(i) Rate of Interest 10%(ii) Rate of Salary IncreaseWorkers22% (every two years)Staff10% (per annum)(iii) Retirement AgeWorkers60 yearsStaff60 years(iv) Daily Wage RateTea Rs. 285/-Rubber Rs. 285/-(v) The Company will continue in business as a going concern.The Group’s and Company’s retirement benefit obligations would have been Rs. 710,225,694/- (2008 - Rs. 530,791,609/-)and Rs. 710,173,194/- (2008 - Rs. 530,736,109/-) respectively as at the Balance Sheet date had their retirement benefitobligation been calculated as per the requirements of the Payment of Gratuity Act No. 12 of 1983, applying the basisof fourteen days’ wages and half-month salary for each completed year of service for workers and staff respectively.65Kelani Valley Plantations PLC Annual Report 2009

Notes to the Financial Statements25. NET LIABILITY TO LESSORConsolidated CompanyAs at 31st December, 2009 2008 2009 2008Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000Gross LiabilityAs at 1st January 715,327 738,046 715,327 738,046Repayment (19,598) (22,719) (19,598) (22,719)As at 31st December 695,729 715,327 695,729 715,327Finance cost allocated to future periods (327,916) (342,748) (327,916) (342,748)Net Liability 367,813 372,579 367,813 372,579Payable within One YearGross liability 19,598 19,598 19,598 19,598Finance cost allocated to future periods (14,639) (14,832) (14,639) (14,832)Net liability transferred to current liabilities 4,959 4,766 4,959 4,766Payable within Two to Five YearsGross liability 78,392 78,392 78,392 78,392Finance cost allocated to future periods (56,458) (57,314) (56,458) (57,314)Net liability 21,934 21,078 21,934 21,078Payable after Five YearsGross liability 597,739 617,338 597,739 617,338Finance cost allocated to future periods (256,819) (270,605) (256,819) (270,605)Net liability 340,920 346,733 340,920 346,733Net liability payable after one year 362,854 367,813 362,854 367,813The lease rentals have been amended with effect from 18th June, 1996 to an amount substantially higher than theprevious nominal lease rental of Rs. 500/- per estate per annum.The basic rental payable under the revised basis is Rs. 19,598,000/- per annum. This amount is to be inflated annuallyby the Gross Domestic Product (GDP) deflator in the form of contingent rent.This lease agreement was further amended on 1st August, 2002, freezing annual lease rental at Rs. 25,839,041/- fora period of six years commencing from 18th June, 2002. Hence, the GDP deflator adjustment has been frozen atRs. 6,241,041/- per annum until 17th June, 2008. However, negotiations are being carried out to extend the periodunder the same terms and conditions.According to the ruling given by Urgent Issue Task Force (UITF) of The Institute of Chartered Accountants of Sri Lanka,the amount stated in the accounts has been adjusted to reflect the following:1. Future liability on annual lease payment of Rs. 19,598,000/- would continue until year 2045. The NetPresent Value of this liability at 4% discounting rate (as recommended by UITF) would result in a liability ofRs. 367,813,361/-.2. Net present value of Rs. 367,813,361/- is represented by gross liability of Rs. 695,729,000/- (Rs. 19,598,000/- x35 1/2 years) and interest in suspense of Rs. 327,915,639/-.3. The charge to the Income Statement during the current period is Rs. 21.1 m (2008 - Rs. 21.2 m).66Kelani Valley Plantations PLC Annual Report 2009

Notes to the Financial StatementsConsolidated CompanyAs at 31st December, 2009 2008 2009 2008Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’00026. TRADE AND OTHER PAYABLESTrade payables 30,234 31,863 30,234 31,863Other payables and accruals 138,863 124,565 124,564 105,074Staff payables 183,775 120,089 183,775 120,085Unclaimed dividends 5,905 5,372 5,905 5,372All payables are in Sri Lankan Rupees.358,777 281,889 344,478 262,39427. Income Tax payableIncome Tax PayableAt the beginning of the year – 126 – –Subsidiaries/parent taxation on current year’s profit 10,765 15,756 10,752 15,716Write back of ESC previously written down – (4,576) – (4,576)Under provision in respect of previous year 10,107 – 10,107 –ESC set-off against income tax (12,752) (11,140) (12,752) (11,140)WHT set-off against income tax (13) (51) – –ACT set-off against income tax (8,107) – (8,107) –Irrecoverable ESC – 141 – –Payment made during the year – (256) – –Net income tax payable/(recoverable) – – – –At the end of the year – – – –28. related COMPANY BALANCESConsolidated CompanyAs at 31st December, 2009 2008 2009 2008Receivable Payable Receivable Payable Receivable Payable Receivable PayableRs. ’000 Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000SubsidiariesKelani Valley Green Tea (Pvt) Ltd. 12,476 – 28,105 –Kalupahana Power Co. (Pvt) Ltd. 19,039 – 17,288 –Kelani Valley Instant Tea (Pvt) Ltd. 3,431 – 6,020 –34,946 – 51,413 –Other Related CompaniesHayleys PLC – – 77 – – – 77 –DPL Plantations (Pvt) Ltd. – – 635 – – – 635 –Dipped Products PLC 121,647 – 324,518 – 121,647 – 324,518 –Grossart (Pvt) Ltd. 62,689 – 306 – 62,689 – 306 –Hanwella Rubber Products Ltd. 8,167 – 8,693 – 8,167 – 8,693 –Venigros (Pvt) Ltd. – – 134,873 – – – 134,873 –Hayleys Agro Products Ltd. – 4,825 – 3,364 – 4,825 – 3,364Hayleys Agro Fertilizers (Pvt) Ltd. – 3,705 – 5,328 – 3,705 – 5,328Mabroc Teas (Pvt) Ltd. – 256 6,000 – – 256 – –Total 192,503 8,786 475,102 8,692 192,503 8,786 469,102 8,692Debtors pledged as securities for banking facilities obtained amount to Rs. 116 m (2008 - Rs. 218 m).67Kelani Valley Plantations PLC Annual Report 2009

Notes to the Financial Statements29. AssetS PLEDGED as sECURITYFollowing assets have been pledged as security for liabilities:Company2009Nature of Liability Facility Outstanding Security(Rs. m) (Rs. m)OverdraftBank of Ceylon 75 Nil Concurrent Mortgage over stock in trade and debtors.NDB Bank 25 Nil Concurrent Mortgage over stock in trade and debtors.Hatton National Bank 50 Nil Promissory Note.Sampath Bank 30 0.4 Concurrent Mortgage over stock in trade and debtors.Term LoanNational Development Bank 255 51.2 Primary Mortgage over the Leasehold Rights of Panawatte andPedro estates has been pledged and a letter of undertaking fromDPL Plantations (Pvt) Ltd., was given to subordinate managementfee and dividends in a default situation of Term Loan.National Development Bank 110 110 Undertaking from the tea broker Messrs John Keells PLC, torecover from the sales proceeds.Seylan Bank 48 27.8 Primary Mortgage over the Leasehold Rights of Robgill andFordyce estates.DFCC Bank 348 228.3 Primary Mortgage over the Leasehold Rights of Halgolla,We Oya, Polatagama and Ederapola estates and a letter ofundertaking from DPL Plantations (Pvt) Ltd., was given tosubordinate management fee and dividends in a defaultsituation of Term Loan.Subsidiary - KalupahanaPower Co. (Pvt) Ltd.Term LoanNational Development Bank 92 58.4 Primary Mortgage over the Sub-Leasehold Rights ofKalupahana Power Company (Pvt) Ltd., plant, machinery andequipment of the Company.68Kelani Valley Plantations PLC Annual Report 2009

Notes to the Financial Statements30. Related party disclosuresCompany Name of Director Nature of Transaction Amount (Paid)/ReceivedFor the year ended 31st December, 2009 2008Rs.Rs.(A) Parent and Ultimate Controlling PartyThe Company has controlling related party relationship withits Parent Company DPL Plantations (Pvt) Ltd.DPL Plantations (Pvt) Ltd. A M Pandithage Reimbursement of cost of facilities andN G Wickremeratne* related services rendered (833,207) (1,586,989)J A G Anandarajah Interest income Nil 1,987,978G K SeneviratneR W Soysa**Dr. W S E Fernando***N Y FernandoS SiriwardanaS C Ganegoda(B) Transactions with Key Management PersonnelKey management personnel include, members of the Board of Directors of the Company and key employees holdingDirectorships in the subsidiary and other related companies.(i) Loans to DirectorsNo loans have been given to the Directors of the Company.(ii) Key Management Personnel CompensationFor the year ended 31st December, 2009 2008Rs.Rs.Directors’ emoluments 12,851,000 11,244,732Company Name of Director Nature of Transaction Amount (Paid)/ReceivedFor the year ended 31st December, 2009 2008Rs.Rs.(C) Transactions with Subsidiaries(i) Kelani Valley Green N G Wickremeratne* Sale of green leaf at cost Nil 60,804,877Tea (Pvt) Ltd.J A G Anandarajah Purchase of made tea Nil (6,717,844)G K Seneviratne Manufacturing charges Nil 1,579,761B P W Jayasekera Administrative charges Nil 1,505,580(ii)Kalupahana PowerCompany (Pvt) Ltd.J A G Anandarajah Share of revenue 1,339,124 1,226,765G K Seneviratne Fund transfers (1,589,775) (1,000,000)S Siriwardana(iii)Kelani Valley InstantTea (Pvt) Ltd.A M Pandithage Sale of black tea 573,682 81,000N G Wickremeratne* Manufacturing charges 4,631,995 525,594J A G Anandarajah Administration charges 33,096 5,065G K Seneviratne Investment in shares Nil (22,500,000)B P W JayasekeraThe Company has subleased an extent of 2 acres and 35.8 perches and the Oliphant factory in Oliphant Estate to theKelani Valley Green Tea (Pvt) Ltd.The Company has subleased an extent of 8 acres, 2 roods and 6.1 perches in Kalupahana Estate to Kalupahana PowerCompany (Pvt) Ltd.69Kelani Valley Plantations PLC Annual Report 2009

Notes to the Financial StatementsCompany Name of Director Nature of Transaction Amount (Paid)/ReceivedFor the year ended 31st December, 2009 2008Rs.Rs.(D) Transactions with AssociateMabroc Teas (Pvt) Ltd. A M Pandithage Sale of tea 24,404,017 49,499,410N G Wickremeratne* Dividend received Nil 8,100,000J A G Anandarajah Purchase of tea (7,846,610) (10,091,559)G K SeneviratneB P W Jayasekera(E) Transactions with Other Related Companies(i) Dipped Products PLC A M Pandithage Sale of latex 171,864,874 210,083,281N G Wickremeratne* Interest income 23,552,329 48,248,770J A G Anandarajah (Avg. interest rate 14.5% p.a.)R W Soysa** Purchase of skim crepe (14,340,863) NilG K Seneviratne Cost of facilities andDr. W S E Fernando*** related services rendered (1,711,500) (3,664,813)R A Ebell + (Alt. to A M Pandithage)R SeevaratnamF MohideenN Y FernandoS C Ganegoda(ii) Venigros (Pvt) Ltd. A M Pandithage Sale of latex 114,729,596 232,868,659N G Wickremeratne*R W Soysa**J A G AnandarajahDr. W S E Fernando***(iii)Hanwella RubberProducts Ltd.A M Pandithage Sale of latex 42,875,160 8,692,844N G Wickremeratne* Purchase of skim crepe (442,569) (212,240)J A G AnandarajahR W Soysa**Dr. W S E Fernando***(iv) Grossart (Pvt) Ltd. A M Pandithage Sale of latex 71,905,711 244,359,177N G Wickremeratne* Share of software - license fee Nil (1,911,054)J A G Anandarajah Reimbursement of Cost ofR W Soysa** insurance. (35,747) NilDr. W S E Fernando***N Y FernandoS C Ganegoda(v) Hayleys PLC A M Pandithage Office spaceN G Wickremeratne* together with otherR A Ebell +related facilities,J A G Anandarajah finance and secretarialS C Ganegoda services (8,517,619) (8,355,506)70Kelani Valley Plantations PLC Annual Report 2009

Notes to the Financial StatementsCompany Name of Director Nature of Transaction Amount (Paid)/ReceivedFor the year ended 31st December, 2009 2008Rs.Rs.(vi) Hayleys Industrial A M Pandithage Purchase of engineering (8,627,627) (12,349,852)Solutions (Pvt) Ltd. N G Wickremeratne* items and repair chargesR A Ebell +S C Ganegoda(vii)Hayleys Agro Fertilizers(Pvt) Ltd.A M Pandithage Purchase of fertilisers (26,636,805) (110,662,181)N G Wickremeratne*S C Ganegoda(viii) Hayleys Agro Products Ltd. A M Pandithage Purchase of chemicals (12,974,556) (27,895,451)N G Wickremeratne*R A Ebell +S C Ganegoda(ix)Volanka InsuranceServices (Pvt) Ltd.A M Pandithage Insurance services (12,801,999) (12,300,676)R A Ebell +S C Ganegoda(x) Global Holidays (Pvt) Ltd. A M Pandithage Cost of air tickets andN G Wickremeratne* related charges (86,660) (823,891)(xi) MIT Cargo (Pvt) Ltd. A M Pandithage Handling and clearing charges (93,980) (123,734)N G Wickremeratne*R A Ebell +S C Ganegoda(xii) Puritas (Pvt) Ltd. A M Pandithage Construction of effluentN G Wickremeratne* treatment plants andpurchase of agro face masks (2,569,480) (18,512,837)(xiii) Logiventures (Pvt) Ltd. A M Pandithage Purchase of security seals (14,560) (124,775)N G Wickremeratne*R A Ebell +S C Ganegoda(xiv) Diesel & Motor A M Pandithage Purchase of motor vehicles,Engineering PLC R Seevaratnam spare parts and tyres (19,805) (10,493,957)(xv) Hayleys AIG Insurance A M Pandithage Insurance services (240,754) (445,018)Co. Ltd.N G Wickremeratne*(xvi) Texnil (Pvt) Ltd. A M Pandithage Purchase of rubber gloves (2,163) NilJ A G AnandarajahS C Ganegoda* Retired w.e.f. 30.06.2009** Retired w.e.f. 31.03.2009*** Retired w.e.f. 31.05.2009+ Resigned w.e.f. 31.10.200971Kelani Valley Plantations PLC Annual Report 2009

Notes to the Financial StatementsThe Company has obtained a normal banking facility from Hatton National Bank PLC where Mr. R Seevaratnam, Directorof the Company is also a Director.There are no related party transactions other than those disclosed above and in Note 28.The Directors have no direct or indirect interest in any other contract or proposed contract with the Company other thanthose disclosed. Companies within the Group engage in trading transactions under normal commercial terms and conditions.31. CONTINGENT LIABILITIESThere were no material contingent liabilities outstanding as at the Balance Sheet date other than those disclosed inNote 25 to the Financial Statements.32. CAPITAL EXPENDITURE COMMITMENTSThere were no material capital commitments as at the Balance Sheet date. However, the budgeted capital expenditureapproved by the Directors for the current financial year amounts to Rs. 292,462,000/-.33. EVENTS OCCURRING AFTER THE BALANCE SHEET DATENo circumstances have arisen since the Balance Sheet date which require adjustments to or disclosure in theFinancial Statements.34. COMPANY WITH DIFFERENT AUDITORThe Financial Statements of Mabroc Teas (Pvt) Ltd. (an associate company of Kelani Valley Plantations PLC) are audited byMessrs Nihal Hettiarachchi & Co., Chartered Accountants.35. PRICING POLICIESSale of green leaf to Kelani Valley Green Tea (Pvt) Ltd. was made at cost.Sale of goods and services to related parties were made at normal trading terms other than those disclosed above.72Kelani Valley Plantations PLC Annual Report 2009

Notes to the Financial Statements36. SEGMENTAL ANALYSIsConsolidatedTea Rubber Others Unallocated Total2009 2008 2009 2008 2009 2008 2009 2008 2009 2008Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000Segmental AssetsNon-current assets 1,645,608 1,555,197 1,271,323 1,215,097 14,390 14,063 201,301 193,905 3,132,622 2,978,262Current assets 332,296 326,371 144,228 150,001 3,174 6,292 474,932 618,574 954,630 1,101,238Total assets 1,977,904 1,881,568 1,415,551 1,365,098 17,564 20,355 676,233 812,479 4,087,252 4,079,500Segmental LiabilitiesNon-current liabilities 853,779 694,985 248,949 213,565 593 968 936,334 961,293 2,039,655 1,870,811Current liabilities 219,925 147,091 80,289 64,589 608 873 167,858 257,654 468,680 470,207Total liabilities 1,073,704 842,076 329,238 278,154 1,201 1,841 1,104,192 1,218,947 2,508,335 2,341,018Non-InterestBearing LiabilitiesDeferred taxation – – – – – – 120,836 128,927 120,836 128,927Retirement benefitobligation 546,696 460,809 113,855 101,783 324 699 72,037 15,166 732,912 578,457Trade & other payables 219,855 146,320 80,288 63,635 608 871 58,026 71,063 358,777 281,889Total depreciation 66,903 53,096 43,863 38,897 4,448 2,768 4,483 4,483 119,697 99,244Lease amortisation 12,174 12,096 11,374 11,454 – – 146 145 23,694 23,695Capital expenditure 158,109 335,161 116,340 236,371 4,022 2,820 19,847 6,864 298,318 581,216CompanySegmental AssetsNon-current assets 1,592,410 1,505,389 1,271,323 1,215,097 14,390 14,063 95,635 83,221 2,973,758 2,817,770Current assets 343,254 329,408 144,228 150,001 3,174 6,292 488,414 630,781 979,070 1,116,482Total assets 1,935,664 1,834,797 1,415,551 1,365,098 17,564 20,355 584,049 714,002 3,952,828 3,934,252Segmental LiabilitiesNon-current liabilities 853,069 694,985 248,949 213,565 593 968 887,257 901,015 1,989,868 1,810,533Current liabilities 219,724 140,262 80,289 64,589 608 873 137,590 229,028 438,211 434,752Total liabilities 1,072,793 835,247 329,238 278,154 1,201 1,841 1,024,847 1,130,043 2,428,079 2,245,285Non-InterestBearing LiabilitiesDeferred taxation – – – – – – 113,949 124,611 113,949 124,611Retirement benefitobligation 546,696 460,809 113,855 101,783 324 699 71,992 15,111 732,867 578,402Trade & other payables 219,724 139,640 80,288 63,635 608 871 43,857 58,248 344,478 262,394Total depreciation 63,810 51,757 43,863 38,897 4,448 2,769 – – 112,121 93,423Lease amortisation 12,174 12,096 11,374 11,454 – – 146 145 23,694 23,695Capital expenditure 151,630 302,515 116,340 236,371 4,022 2,820 19,846 6,864 291,838 548,570Information in respect of geographical segments was considered not significant enough to be disclosed as explained under segment reportingin Accounting Policies.73Kelani Valley Plantations PLC Annual Report 2009

Ten Year SummaryYear ended 31st December, 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000 Rs. ’000Trading ResultsTurnover 2,860,004 3,108,571 2,827,974 2,330,297 1,918,465 1,740,230 1,549,094 1,395,233 1,293,587 1,283,498Gross profit 134,964 455,435 560,263 435,401 262,902 305,269 244,045 171,799 131,510 213,115Profit before tax (27,783) 300,276 435,267 291,403 151,632 218,075 141,030 66,880 41,693 116,992Profit after tax (40,565) 278,765 410,010 255,849 151,974 200,802 106,033 56,522 41,693 105,204Balance SheetFunds EmployedStated capital 340,000 340,000 340,000 340,000 340,000 340,000 340,000 340,000 340,000 340,000Revenue reserves 1,216,593 1,378,208 1,289,356 993,445 715,711 646,309 495,483 423,450 392,429 384,735Shareholders’ funds 1,556,593 1,718,208 1,629,356 1,333,445 1,055,711 986,309 835,483 763,450 732,429 724,735Minority interest 22,324 20,274 8,792 10,753 11,487 7,913 – – – –Net liability to lessor 362,854 367,813 372,602 377,159 381,539 385,749 389,795 393,684 397,422 401,015Long-term loans 379,978 449,423 370,685 285,932 190,230 156,658 147,851 196,592 254,848 274,566Bank borrowings 473 116,766 2,582 1,348 15,019 28,097 15,737 22,367 13,085 578Capital employed 2,322,222 2,672,484 2,384,017 2,008,637 1,653,986 1,564,726 1,388,866 1,376,093 1,397,784 1,400,894Assets EmployedNon-current assets 3,132,622 2,978,262 2,519,202 2,221,273 2,075,427 1,890,408 1,778,352 1,639,253 1,591,808 1,534,947Current assets 954,630 1,101,238 1,115,810 754,288 500,806 560,408 410,284 487,805 505,538 550,454Current liabilities (468,207) (353,441) (357,364) (245,471) (231,610) (226,931) (165,279) (183,699) (151,888) (146,803)Provision for retiring gratuity (732,912) (578,457) (527,716) (424,478) (344,963) (312,169) (308,717) (289,584) (285,859) (284,896)Deferred taxation (120,836) (128,927) (119,638) (91,806) (65,679) (82,134) (82,134) (51,640) (41,282) (41,282)Negative goodwill/revaluation reserve – – – – (89,152) (96,581) (104,010) (111,439) (118,868) (126,297)Grants and subsidies (443,075) (346,191) (246,277) (205,169) (190,843) (168,275) (139,630) (114,603) (101,665) (85,229)2,322,222 2,672,484 2,384,017 2,008,637 1,653,986 1,564,726 1,388,866 1,376,093 1,397,784 1,400,894Key IndicatorsGross profit margin (%) 4.7 14.7 19.8 18.7 13.7 17.5 15.8 12.3 10.2 16.6Current ratio (times) 2.0 2.3 3.1 3.1 2.0 2.2 2.3 2.4 3.1 3.7Turnover to capitalemployed (times) 1.2 1.2 1.2 1.2 1.2 1.1 1.1 1.0 0.9 0.9Return on shareholders’fund (%) (2.6) 16.2 25.2 19.2 14.4 20.4 12.7 7.4 5.7 14.5Earnings per share (Rs.) (1.2) 8.1 12.2 7.6 4.5 5.9 3.1 1.7 1.2 3.1Dividend per share (Rs.) 1.0 3.5 5.5 3.5 2.0 2.5 1.5 1.0 0.8 1.0Dividend payout ratio (%) – 43 45 46 44 42 48 60 61 32Price earnings (Times) – 5.9 4.6 7.0 5.9 2.9 4.5 6.2 10.4 4.474Kelani Valley Plantations PLC Annual Report 2009

Statement of Value AdditionGroupCompanyFor the year ended 31st December, 2009 2008 2009 2008Rs. m Rs. m Rs. m Rs. mTurnover 2,860 3,109 2,825 3,052Other income 79 96 80 1052,939 3,205 2,905 3,157Cost of material and services obtained (985) (1,145) (980) (1,179)Value addition 1,954 2,060 1,925 1,978Value created shared with % % % %Employees 1,740 89 1,540 75 1,736 90 1,489 75Government of Sri Lanka 39 2 48 2 36 2 43 2Shareholders 34 2 119 6 34 2 119 6Lenders of capital 73 4 68 3 62 3 56 3Retained for future - Depreciation 143 7 125 6 136 7 117 6- Profit (75) (4) 160 8 (79) (4) 154 81,954 100 2,060 100 1,925 100 1,978 100Distribution of Value Addition %120GroupCompany100806040200(20)09080908GroupCompany2009 2008 2009 2008% % % %Employees 89 75 90 75Government of Sri Lanka 2 2 2 2Shareholders 2 6 2 6Lenders of Capital 4 3 3 3Depreciation 7 6 7 6Retained Profit (4) 8 (4) 875Kelani Valley Plantations PLC Annual Report 2009

Investor Information1. Stock exchange listingThe ordinary shares of Kelani Valley Plantations PLC are listed with the Colombo Stock Exchange. The audited, Company and ConsolidatedIncome Statements for the year ended 31st December, 2009 and the audited Balance Sheets of the Company and of the Group as at thedate have been submitted to the Colombo Stock Exchange within three months of the Balance Sheet date.2. ORDINARY SHAREHOLDERS AS AT 31ST DECEMBER 2009Number of Shareholders 14,995.No. of Shares heldResidents Non-Residents TotalNo. of No. of % No. of No. of % No. of No. of %Shareholders Shares Shareholders Shares Shareholders Shares1 _ 1,000 14,802 1,954,880 5.7498 5 3,900 0.0114 14,807 1,958,780 5.76121,001 _ 10,000 135 454,393 1.3366 135 454,393 1.336610,001 _ 100,000 39 1,291,981 3.8000 4 138,100 0.4061 43 1,430,081 4.2061100,001 _ 1,000,000 7 1,974,046 5.8059 7 1,974,046 5.8059OVER 1,000,000 3 28,182,700 82.8902 3 28,182,700 82.890214,986 33,858,000 99.5825 9 142,000 0.4175 14,995 34,000,000 100.0000Residents Non-Residents TotalNo. of Shares heldNo. of No. of % No. of No. of % No. of No. of %Shareholders Shares Shareholders Shares Shareholders SharesIndividuals 14,912 3,179,265 9.3509 7 73,900 0.2172 14,919 3,253,165 9.5681Institutions 74 30,678,735 90.2316 2 68,100 0.2003 76 30,746,835 90.431914,986 33,858,000 99.5825 9 142,000 0.4175 14,995 34,000,000 100.00003. Market ValueThe market value of Kelani Valley Plantations PLC ordinary shares :2009 2008Highest price - Rs. 62.00 (20th February, 2009) 78.00 (26th February, 2008)Lowest price - Rs. 44.00 (24th March, 2009) 40.00 (3rd December, 2008)Closing price - Rs. 53.00 47.504. Dividend PaymentThe first and final proposed dividend of Rs. 1.00 per share is to be declared on 31st March, 2010 and payable on 12th April, 2010(2008 - Rs. 3.50).5. Share Trading2009 2008No. of transactions 924 1,736No. of shares traded 2,230,500 1,979,100Value of shares traded (Rs.) 113,748,325 136,344,12576Kelani Valley Plantations PLC Annual Report 2009

Investor Information6. FIRST TWENTY SHAREHOLDERS AS AT 31ST DECEMBER, 2009No. of SharesNo. of SharesName of Shareholder as at 31.12.09 % as at 31.12.08 %1. DPL Plantations (Pvt) Ltd. 24,200,000 71.18 24,200,000 71.182. Waldock Mackenzie Ltd./Mr. Lalith Prabash Hapangama 2,747,900 8.08 2,705,100 7.963. Bank of Ceylon A/c Ceybank Unit Trust 1,234,800 3.63 1,183,500 3.484. Deutsche Bank AG - National Equity Fund 750,000 2.21 – –5. Mabroc Holdings (Pvt) Ltd. 512,746 1.51 512,746 1.516. Eagle Insurance Company Ltd. - A/C No. 7 186,300 0.55 72,500 0.217. Eagle Insurance Company Ltd. - A/C No. 3 171,000 0.50 171,000 0.508. Mr. M M Udeshi 128,500 0.38 129,800 0.389. DPMC Financial Services (Pvt) Ltd. A/C No. 02 114,700 0.34 – –10. Mr. H G Carimjee 110,800 0.33 110,800 0.3311. Dr. (Mrs.) V.Sivaprakasapillai 100,000 0.29 100,000 0.2912. Employees’ Provident Fund 80,100 0.24 – –13. Cocoshell Activated Carbon Company Ltd. 78,800 0.23 79,100 0.2314. Cargo Boat Development Company Ltd. 76,900 0.23 76,900 0.2315. Dr. D Jayanntha 76,500 0.23 76,500 0.2316. Mr. M I Abdul Hameed 70,600 0.21 70,600 0.2117. Bank of Ceylon A/c Ceybank Century Growth Fund 64,700 0.19 58,500 0.1718. The Ceylon Chamber of Commerce A/C No. 2 63,500 0.19 63,500 0.1919. MAS Capital (Pvt) Ltd. 52,600 0.15 52,600 0.1520. Mrs. P N Bhatt 51,500 0.15 51,500 0.15Total 30,871,946 90.80 29,714,646 87.407. The percentage of ordinary shares held by the public was 28.81% (2008 - 28.81%) of the issued share capital as at31st December, 2009.77Kelani Valley Plantations PLC Annual Report 2009

Glossary of Financial TermsFinancial TermsAccounting PoliciesThe specific principles, bases, conventions, rules and practices adoptedby an enterprise in preparing and presenting Financial Statements.AmortisationThe systematic allocation of the depreciable amount of an intangibleasset over its useful life.Basic Earnings Per ShareProfit attributable to ordinary shareholders divided by the weightedaverage number of ordinary shares in issue during the period.BorrowingsAll interest-bearing liabilities.Capital EmployedTotal equity, minority interest and interest-bearing borrowings.Capital ReservesReserves identified for specific purposes and considered not availablefor distribution.Cash EquivalentsLiquid investments with original maturity periods of three monthor less.Contingent LiabilityA possible obligation that arises from past events whose existence willbe confirmed only by the occurrence or non-occurrence of one or moreuncertain future events not wholly within the control of the enterprise.Current RatioCurrent assets divided by current liabilities. A measure of liquidity.Deferred TaxationThe tax effect of timing differences deferred to/from other periods,which would only qualify for inclusion on a tax return at a future date.DividendsDistribution of profits to holders of equity investments.EBITDAAbbreviation for Earnings Before Interest, Tax, Depreciation andAmortisation.Effective Tax RateIncome tax expense divided by profit from ordinary activities before tax.EquityShareholders’ fund.GearingProportion of total interest bearing borrowings to capital employed.Market CapitalisationNumber of shares in issue multiplied by the market value of a share atthe reported date.Net Assets Per ShareShareholders’ funds divided by the weighted average number ofordinary shares in issue. A basis of share valuation.Price Earnings RatioMarket price of a share divided by earnings per share as reported atthat date.Related PartiesParties who could control or significantly influence the financial andoperating policies of the business.Retirement Benefits- Present Value of a Defined Benefit ObligationIs the present value of expected future payments required to settle theobligation resulting from employee service in the current and priorperiods.- Current Service CostIs the increase in the present value of the defined benefit obligationresulting from employee service in the current period.- Interest CostIs the increase during a period in the present value of a definedbenefit obligation which arises because the benefits are one periodcloser to settlement.- Actuarial Gains and LossesIs the effect of difference between the previous actuarial assumptionsand what has actually occurred and effects of changes in actuarialassumptions.Revenue ReservesReserves considered as being available for distribution and investments.SegmentsConstituent business units grouped in terms of similarity of operationsand location.SLASSri Lanka Accounting Standards.UITFUrgent Issue Tasks Force of The Institute of Chartered Accountants ofSri Lanka.Value AdditionThe quantum of wealth generated by the activities of the Groupmeasured as the difference between turnover and the cost of materialsand services bought in.Working CapitalCapital required to finance day-to-day operations computed as theexcess of current assets over current liabilities.NON-FINANCIAL TERMSCropThe total produce harvested over a given period of time (usually duringa financial year).Immature PlantationThe extent of plantation that is under development and is not beingharvested.ISOInternational Standards Organisation.Mature PlantationThe extent of plantation from which crop is being harvested.NSANet Sales Average. This is the average sale price obtained (over a periodof time) after deducting brokerage fees, etc.Yield (YPH)The average crop per unit extent of land over a given period of time(usually kgs. per hectare per year).TASLTea Association of Sri Lanka.HACCPHazard Analysis Critical Control Point System. Internationally acceptedfood safety standard.78Kelani Valley Plantations PLC Annual Report 2009

Notice of MeetingKelani Valley Plantations PLCCompany Number PQ 58NOTICE IS HEREBY GIVEN that the Eighteenth AnnualGeneral Meeting of Kelani Valley Plantations PLC will beheld at the Registered Office of the Company, No. 400,Deans Road, Colombo 10, on Wednesday, 31st March,2010 at 3.00 p.m. and the business to be brought beforethe Meeting will be -1. To consider and adopt the Annual Report of the Boardof Directors and the Statements of Accounts for theyear ended 31st December, 2009, with the Report ofthe Auditors thereon.2. To declare a dividend as recommended by the Directors.3. To re-elect Mr. N Y Fernando, who has been appointedby the Board, since the last Annual General Meeting,a Director.4. To re-elect Mr. S Siriwardana, who has been appointedby the Board, since the last Annual General Meeting,a Director.5. To re-elect Mr. S C Ganegoda, who has been appointedby the Board, since the last Annual General Meeting,a Director.6. To re-elect Mr. L T Samarawickrama, who has beenappointed by the Board, since the last Annual GeneralMeeting, a Director.7. To re-elect Mr. A M Pandithage, who retires byrotation at the Annual General Meeting, a Director.8. To authorise the Directors to determine contributionsto charities.9. To authorise Directors to determine the remunerationof the Auditors, Messrs KPMG Ford, Rhodes, Thornton& Co., who are deemed to have been reappointed asAuditors in terms of Section 158 of the CompaniesAct No. 07 of 2007.10. To consider any other business of which due noticehas been given.NOTE :(i) A Shareholder is entitled to appoint a proxy to attendand vote instead of himself and a proxy need not bea shareholder of the Company. A Form of Proxy isenclosed for this purpose. The instrument appointinga proxy must be deposited at the Registered Office,No. 400, Deans Road, Colombo 10 by 3.00 p.m. on29th March, 2010.(ii) It is proposed to post ordinary dividend warrants on12th April, 2010 and in accordance with the rulesof the Colombo Stock Exchange, the shares of theCompany will be quoted ex-dividend with effect from1st April, 2010.By Order of the BoardKELANI VALLEY PLANTATIONS PLCHayleys Group Services (Pvt) Ltd.SecretariesColombo22nd February, 201079Kelani Valley Plantations PLC Annual Report 2009

Notes80Kelani Valley Plantations PLC Annual Report 2009

Notes81Kelani Valley Plantations PLC Annual Report 2009

Notes82Kelani Valley Plantations PLC Annual Report 2009

Form of ProxyKelani Valley Plantations PLCCompany Number PQ 58I/We………………………………………………………………………………………………...............................................…………of……………………………………………………………………………………………...............................................………………being shareholder/shareholders* of KELANI VALLEY PLANTATIONS PLC, hereby appoint:1. ………………………………………………………………………………………………................................................................of ……………………………………………………………………………………...............……………………….or failing him/them2. ABEYAKUMAR MOHAN PANDITHAGE (Chairman of the Company) of Colombo, or failing him, one of the Directors ofthe Company as my/our* proxy to attend, speak and vote as indicated hereunder for me/us* and on my/our* behalf at theEighteenth Annual General Meeting of the Company to be held on Wednesday, 31st March, 2010 and at every poll whichmay be taken in consequence of the aforesaid meeting and at any adjournment thereof.ForAgainst1. To adopt the Annual Report of the Board of Directors and the Statements ofAccounts for the year ended 31st December, 2009 with the Report of the Auditors thereon.2. To declare a dividend as recommended by the Directors.3. To re-elect Mr. N Y Fernando, who has been appointed to the Board sincethe last Annual General Meeting, a Director.4. To re-elect Mr. S Siriwardana who has been appointed to the Board sincethe last Annual General Meeting, a Director.5. To re-elect Mr. S C Ganegoda who has been appointed to the Board sincethe last Annual General Meeting, a Director.6. To re-elect Mr. L T Samarawickrama who has been appointed to the Board sincethe last Annual General Meeting, a Director.7. To re-elect Mr. A M Pandithage, who retires by rotation at the Annual GeneralMeeting, a Director.8. To authorise the Directors to determine contributions to charities.9. To authorise Directors to determine the remuneration of the Auditors,Messrs KPMG Ford, Rhodes, Thornton & Co., who are deemed to have been reappointedas Auditors in terms of Section 158 of the Companies Act No. 7 of 2007.(***) The proxy may vote as he thinks fit on any other resolution brought before the Meeting.As witness my/our* hands this ……………………. day of ……………………………. 2010.Witnesses:………………………………………..………………………………………..………………………………………..………………………………………..…………………………………………Signature of ShareholderNote* : Please delete the inappropriate words.1. A proxy need not be a shareholder of the Company.2. Instructions as to completion appear on the reverse.83Kelani Valley Plantations PLC Annual Report 2009

Form of ProxyInstructions as to Completion1. To be valid, this Form of Proxy must be deposited at the Registered Office, No. 400, Deans Road, Colombo 10, by3.00 p.m. on Monday, 29th March, 2010.2. In perfecting the Form of Proxy, please ensure that all details are legible.3. If you wish to appoint a person other than the Chairman of the Company (or failing him, one of the Directors of theCompany) as your proxy, please insert the relevant details at (1) overleaf and initial against this entry.4. Please indicate with an X in the space provided how your proxy is to vote on each resolution. If no indication is given,the proxy in his discretion will vote as he thinks fit. Please also delete (***) if you do not wish your proxy to vote as hethinks fit on any other resolution brought before the meeting.5. In the case of a company/corporation, the proxy must be under its Common Seal which should be affixed and attestedin the manner prescribed by its Articles of Association.6. Where the Form of Proxy is signed under a Power of Attorney (POA) which has not been registered with the Company,the original POA together with a photocopy of same or a copy certified by a Notary Public must be lodged with theCompany along with the Form of Proxy.84Kelani Valley Plantations PLC Annual Report 2009

CORPORATE INFORMATIONNAME OF COMPANYKelani Valley Plantations PLCLEGAL FORMA Public Limited Company incorporated inSri Lanka on 18th June 1992REGISTRATION NUMBERPQ 58ACCOUNTING YEAR END31st DecemberSTOCK EXCHANGE LISTINGThe ordinary shares of the Company arelisted with the Colombo Stock Exchangeof Sri LankaPRINCIPAL LINE OF BUSINESSProducing and processing of Tea and RubberDIRECTORSA M Pandithage - Chairman(appointed w.e.f. 01st July, 2009)N G Wickremeratne - Chairman(retired w.e.f. 30th June, 2009)J A G Anandarajah - Managing Director, DPLG K Seneviratne - Managing DirectorR W Soysa (retired w.e.f. 31st March, 2009)Dr. W S E Fernando(retired w.e.f. 31st May, 2009)B P W JayasekeraR SeevaratnamF MohideenN Y Fernando(appointed w.e.f. 01st April, 2009)S Siriwardana(appointed w.e.f. 01st June, 2009)S C Ganegoda(appointed w.e.f. 01st September, 2009)L T Samarawickrama(appointed w.e.f. 01st November, 2009)MANAGING AGENTDPL Plantations (Pvt) Ltd.400, Deans Road,Colombo 10, Sri LankaSECRETARIESHayleys Group Services (Pvt) Ltd.400, Deans RoadColombo 10, Sri LankaREGISTERED/HEAD OFFICE400, Deans RoadColombo 10, Sri LankaTelephone: 2683964, 2694215,2686274/5, 4712746Fax: 2694216e-mail: postmaster@kvpl.comWebsite: www.kvpl.comBANKERSBank of Ceylon, NDB BankSampath Bank, Seylan BankHatton National Bank, DFCC BankAUDITORSKPMG Ford, Rhodes, Thornton & Co.Chartered AccountantsP.O. Box 186, Colombo, Sri LankaLEGAL ADVISORSJulius & CreasyAttorneys-at-LawP.O. Box 154Colombo, Sri Lanka